<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 quarterly period ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 0-26938
Home Health Corporation of America, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2224800
- --------------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
- --------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - 610-272-1717
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Class Outstanding at February 10, 1997
---- --------------------------------
Common stock, no par value 8,655,296
Exhibit index is located on page 18
1
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HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the three
and six months ended December 31, 1995 and 1996 3
Condensed Consolidated Balance Sheets as of June 30, 1996
and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the six
months ended December 31, 1995 and 1996 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
2
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HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------------- --------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues .......................................... $23,304 $32,967 $44,149 $60,085
Operating costs and expenses:
Patient care costs ............................... 11,088 15,700 21,272 28,959
General and administrative ....................... 8,853 11,784 17,383 21,227
Provision for doubtful accounts .................. 879 1,274 1,496 2,369
Depreciation ..................................... 213 338 398 617
Amortization ..................................... 313 465 395 820
Interest expense, net ............................ 420 701 945 1,170
Merger costs ..................................... -- 1,584 -- 1,584
Bridge financing costs ........................... 913 -- 913 --
-------- ------- -------- -------
Total operating costs and expenses ......... 22,679 31,846 42,802 56,746
-------- ------- -------- -------
Income before income taxes and extraordinary
item ............................................. 625 1,121 1,347 3,339
Provision for income taxes ............................ 284 432 601 1,295
-------- ------- -------- -------
Income before extraordinary item ...................... 341 689 746 2,044
Extraordinary item:
Loss on debt redemption, net ..................... 1,161 -- 1,161 --
-------- ------- -------- -------
Net income (loss) ........................... $ (820) $ 689 $ (415) $ 2,044
======== ======= ======== =======
Per share data:
Income (loss) available to common stockholders, before
extraordinary item .................................. $ (496) $ 689 $ (124) $ 2,038
======== ======= ======== =======
Income (loss) per common and common equivalent share,
before extraordinary item ........................... $ (0.08) $ 0.08 $ (0.02) $ 0.24
======== ======= ======== =======
Net income (loss) available to common stockholders,
after extraordinary item ............................ $ (1,657) $ 689 $ (1,284) $ 2,038
======== ======= ======== =======
Net income (loss) per common and common equivalent
share, after extraordinary item ..................... $ (0.27) $ 0.08 $ (0.26) $ 0.24
======== ======= ======== =======
Weighted average shares used in computing net income
(loss) per common and common equivalent
share ............................................... 6,143 8,513 5,005 8,349
======== ======= ======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1996
------ -------------------- ---------------------
<S> <C> <C>
Current assets:
Cash and cash equivalants............................................................ $ 1,695 $ 1,979
Accounts receivable, net of allowance for doubtful accounts of $4,252
and $9,512, respectively............................................................. 28,042 40,363
Inventories.......................................................................... 1,583 2,444
Prepaid expenses and other........................................................... 1,183 1,917
Deferred income taxes................................................................ 925 885
------- -------
Total current assets............................................................. 33,428 47,588
Property and equipment, net.......................................................... 8,945 11,449
Goodwill, net of accumulated amortization of $1,123 and $1,885,
respectively........................................................................ 26,540 45,319
Other assets, net.................................................................... 1,062 1,226
-------- --------
Total assets................................................................. $69,975 $105,582
======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
Current liabilities:
Current maturates of long-term debt................................................... $ 3,688 $ 2,899
Accounts payable...................................................................... 3,135 2,733
Accrued salaries and related employee benefits........................................ 2,418 4,127
Other current liabilities............................................................ 3,181 5,330
Income taxes payable.................................................................. 660 623
-------- ---------
Total current liabilities........................................................ 13,082 15,712
Long-term debt, net of current portion................................................... 16,287 43,542
Other liabilities........................................................................ 1,054 804
Deferred income taxes.................................................................... 160 172
Common stock, redeemable, no par value, 100 shares issued and outstanding, stated
at redemption value of $5.00 per share............................................... 500 500
Preferred stock, $.01 par value, 10 shares authorized, 10 shares issued
and outstanding, convertible into 10 shares of common stock or $1,250 upon
mandatory redemption on July 13, 1996................................................ 1,244 -
Stockholders' equity:
Preferred stock (undesignated), no par value, no shares and 10,000 shares authorized;
no shares issued and outstanding..................................................... - -
Common stock, no par value, 20,000 shares authorized; 8,075 and 8,747 shares
issued, 8,075 and 8,655 outstanding at June 30 and December 31,
respectively....................................................................... 33,829 38,985
Retained earnings.................................................................... 3,837 5,876
------- -------
37,666 44,861
Stock subscriptions receivable....................................................... (18) (9)
------- -------
Total stockholders' equity...................................................... 37,648 44,852
------- -------
Total liabilities and stockholders' equity.................................... $69,975 $105,582
======= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended December 31,
-----------------------------------------
1995 1996
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income.................................................................... $ (415) $ 2,044
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, amortization and other........................................ 1,390 2,386
Provision for doubtful accounts............................................. 1,496 2,369
Write-off of bridge financing note payable discount......................... 405 -
Write-off of deferred financing fees........................................ 200 -
Loss on debt redemption..................................................... 1,161 -
Deferred income taxes....................................................... 47 52
Net changes in certain assets and liabilities, net of acquisitions:
Accounts receivable......................................................... (4,210) (8,412)
Inventories................................................................. (385) (613)
Prepaid expenses and other.................................................. (470) (609)
Accounts payable, accrued expenses and other................................ (1,270) (4,139)
Income taxespayable......................................................... (746) (27)
-------- --------
Net cash flows used in operating activities.............................. (2,797) (6,949)
-------- --------
Cash flows used in investing activities:
Purchases of property and equipment.......................................... (988) (2,107)
Cash paid for acquisitions, net of cash acquired............................. (12,750) (14,141)
Increase in other assets..................................................... 7 (199)
-------- --------
Net cash flows used in investing activities............................. (13,731) (16,447)
-------- --------
Cash flows provided by (used in) financing activities:
Proceeds from long-term debt................................................. 10,030 24,969
Repayments of long-term debt................................................. (6,915) (1,080)
Proceeds from bridge financing............................................... 13,000 -
Repayment of bridge financing................................................ (13,000) -
Repayment of debt with Offering proceeds..................................... (9,984) -
Payment of deferred financing fees........................................... (200) (209)
Repayment of preferred stock and preferred stock dividends.................. (607) -
Proceeds from issuance of common stock....................................... 24,733 -
-------- --------
Net cash flows provided by financing activities......................... 17,057 23,680
-------- --------
Net (decrease) increase in cash and cash equivalents............................. 529 284
Cash and cash equivalents, beginning of year..................................... 1,653 1,695
-------- --------
Cash and cash equivalents, end of quarter........................................ $ 2,181 $ 1,979
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
Home Health Corporation of America, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Home
Health Corporation of America, Inc. and Subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Additionally, although the June 30, 1996
condensed consolidated balance sheet was derived from audited financial
statements, as restated for an acquisition accounted for as a pooling of
interest, described in Note 2, it does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three and
six months ended December 31, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30, 1997. The unaudited
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended June 30, 1996 included in the Company's Form 10-K filed with the
Securities and Exchange Commission.
2. Acquisitions
Pooling of Interests
On November 12, 1996, the Company acquired, in a merger transaction, Home Health
Systems, Inc. ("HHSI"), a provider of durable medical equipment and infusion and
respiratory therapy services with $8.2 million in net revenues for the twelve
month period ended June 30, 1996 (the "HHSI Merger") and operations in New
Jersey, Pennsylvania, Maryland and Illinois. The Company issued 455,238 shares
of its Common Stock, net of shares that will be treated similarly to treasury
shares for accounting purposes, in exchange for all the issued and outstanding
shares of HHSI. The HHSI Merger was accounted for as a pooling of interests and,
accordingly, the Company's condensed consolidated financial statements and notes
thereto have been restated to combine the accounts and operations of HHSI with
those of the Company for all periods presented. Net revenues and net income
attributable to the operations of HHSI prior to the HHSI Merger are as follows:
<TABLE>
<CAPTION>
Three Months Ended December 31 Six Months Ended December 31
------------------------------- ----------------------------
1995 1996 1995 1996
---- ---- ---- ----
(amounts in thousands) amounts in thousands)
<S> <C> <C> <C> <C>
Net revenues $1,924 $1,514 $3,961 $3,330
Net income $(36) $63 $(22) $76
</TABLE>
Merger costs of $1.6 million, of which $1.3 million are expected to require the
use of cash, resulting from this acquisition are reflected in the accompanying
condensed consolidated statements of operations.
6
<PAGE>
Purchases
In the first quarter of fiscal 1997, the Company acquired the assets of (i)
Dailey Resources, Ltd., a provider of durable medical equipment and respiratory
therapy services with $1.8 million in aggregate net revenues for the twelve
month period ended December 31, 1995, and operations in Scranton, Pennsylvania,
(ii) National Home Infusion, Inc., a provider of infusion therapy services with
$1.3 million in aggregate net revenues for the twelve month period ended
September 30, 1995, and operations in Sarasota, Florida, and (iii) Eastern Shore
Health Services, Inc., a provider of home nursing services with $3.6 million in
aggregate net revenues for the twelve month period ended June 30, 1996, and
operations in Berlin and Salisbury, Maryland. The aggregate purchase price for
these acquisitions was $5.3 million. Pro forma results are not presented as they
are not significant.
On October 1, 1996, the Company acquired certain assets and assumed certain
liabilities of Medical Express, Inc., a durable medical equipment and
respiratory therapy company located in Bristol, Pennsylvania with $2.5 million
in net revenues for the twelve month period ended June 30, 1996. The aggregate
purchase price for this acquisition was $3.2 million. This acquisition was
accounted for as a purchase. Pro forma results are not presented as they are not
significant.
Effective December 1, 1996, the Company acquired all of the outstanding capital
stock of R.S.D. Management Services, Inc., a provider of primarily Medicare
cost-reimbursed nursing and related patient services with approximately $18.3
million of net revenues for the twelve month period ended June 30, 1996 and
operations in Massachusetts and New Hampshire (the "RSD Acquisition"). The
consideration paid for the RSD Acquisition was approximately $11.1 million. The
cash portion of this consideration was paid through borrowings under the
Company's senior credit facility. This acquisition was accounted for as a
purchase. Information required to prepare unaudited pro forma summary results of
operations is not available, thus pro forma information is not presented.
The purchase prices for these acquisitions have been allocated to identifiable
assets, principally accounts receivable, equipment and inventory. The excess of
the purchase prices over the fair value of the net assets acquired of $19.5
million was recorded as goodwill and is being amortized on a straight-line basis
over 20 to 25 years.
3. Registration Statement
On November 1, 1996, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-1 for the sale in an underwritten
public offering of 3,623,500 shares of the Company's common stock (the
"Offering"). On December 30, 1996, the Company announced the withdrawl of the
Offering due to management's belief that the stock price at the time did not
adequately reflect the underlying value of the Company. Because the Company
intends to seek additional permanent capital financing, potentially through
issuance of shares of the Company's common stock, prior to the end of the
current fiscal year, approximately $150,000 of costs related to the Offering
have been deferred.
4. Subsequent Events
Effective January 1, 1997, the Company acquired certain assets of LHS Holdings,
Inc. and certain assets of two of its subsidiaries, which are providers of
primarily Medicare cost-
7
<PAGE>
reimbursed nursing and related patient services. In connection with the purchase
agreement, the Company is required to purchase certain assets of two affiliated
companies by April 30, 1997, which are providers of primarily pediatric nursing
and infusion therapy services (collectively, the purchases, including those
related to the affiliates, are hereafter referred to as the "LHS Acquisition").
The operations of the companies acquired in the LHS Acquisition had net revenues
of $16.0 million for the twelve month period ended June 30, 1996. The aggregate
consideration payable for the LHS Acquisition is expected to be $9.1 million,
including an estimated contingent amount of $2.7 million. Of this amount, $2.0
million was paid on January 10, 1997, and was funded through borrowings under
the Company's senior credit facility. This acquisition will be accounted for as
a purchase.
The following unaudited pro forma summary information combines the consolidated
results of operations of the Company and the LHS Acquisition, assuming this
acquisition had occurred at the beginning of each of the following periods:
<TABLE>
<CAPTION>
Six Months Ended December 31
----------------------------
1995 1996
---- ----
unaudited
(in thousands, except per share amounts)
<S> <C> <C>
Net revenues $53,246 $73,734
Income before income taxes and extraordinary item 969 3,134
Income before extraordinary item 685 1,839
Loss per share before extraordinary item (0.04) 0.22
Net income (loss) (476) 1,839
Net (loss) income per share $(0.26) $0.22
</TABLE>
The pro forma results presented above do not necessarily represent results which
would have occurred if the respective acquisitions had taken place at the
beginning of each period, nor are they indicative of the results of future
combined operations.
The Company has also entered into letters of intent to acquire (i) certain
assets of Medical Air Supply, Inc. and Cambridge Medical Company, durable
medical equipment providers located in Texas with $6.5 million of net revenues
for the twelve month period ended December 31, 1995 and (ii) the stock of
Nahatan Drug, Inc., a durable medical equipment provider located in
Massachusetts, New Hampshire and Rhode Island with $7.2 million of net revenues
for the twelve month period ended February 29, 1996. The estimated aggregate
consideration payable and debt assumed for the acquisitions under letters of
intent is $ 20.8 million.
8
<PAGE>
5. Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the six months ended
December 31:
<TABLE>
<CAPTION>
1995 1996
---- ----
(amounts in thousands)
Non-cash investing and financing activities:
<S> <C> <C>
Acquisitions:
Assets acquired......................................... $18,495 $27,656
Less:
Liabilities assumed and acquisition costs................ 1,245 7,940
Issuance of subordinated seller notes................... 1,500 3,625
Issuance of common stock................................. - 1,950
Issuance of convertible subordinated note
payable.............................................. 3,000 -
=============== ===============
Cash paid, net of cash acquired.................... $12,750 $14,141
=============== ===============
Capital lease obligations incurred............................ - $ 755
=============== ===============
Conversion of subordinated note to 400 shares of common
stock, no par value...................................... $ 3,000 -
=============== ===============
Write-off of Series C preferred stock discount................ $ 787 -
=============== ===============
Conversion of convertible notes into HHSI common
shares................................................... - $ 1,945
=============== ===============
Exchange of HHSI shares for the Company's common stock:
Conversion of Preferred stock............................ - $ (1,250)
Additional paid-in capital............................... - (2,060)
Common stock, no par..................................... - 3,310
--------------- ---------------
-
=============== ===============
Recapitalization:
Class A common stock..................................... $ (110) -
Class B common stock..................................... (173) -
Class C common stock..................................... (1,217) -
Redeemable Class B common stock.......................... (500) -
Additional paid-in capital............................... (3,504) -
Treasury stock........................................... 291 -
Redeemable common stock, no par.......................... 500 -
Common stock, no par..................................... 4,713 -
--------------- ---------------
- -
=============== ===============
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The financial condition and results of operations of the Company for the three
and six months ended December 31, 1996 compared with the three and six months
ended December 31, 1995 have been affected by both acquisitions and internal
growth.
On November 12, 1996, the Company acquired, in a merger transaction, Home Health
Systems, Inc. ("HHSI"), a provider of durable medical equipment and infusion and
respiratory therapy services with $8.2 million in net revenues for the twelve
month period ended June 30, 1996 (the "HHSI Merger") and operations in New
Jersey, Pennsylvania, Maryland and Illinois. The Company issued 455,238 shares
of its Common Stock, net of shares that will be treated similarly to treasury
shares for accounting purposes, in exchange for all the issued and outstanding
shares of HHSI. The HHSI Merger was accounted for as a pooling of interests and,
accordingly, the Company's condensed consolidated financial statements and notes
thereto have been restated to combine the accounts and operations of HHSI with
those of the Company for all periods presented. Merger costs of $1.6 million, of
which $1.3 million are expected to require the use of cash, resulting from this
acquisition are reflected in the accompanying condensed consolidated statements
of operations.
On October 1, 1996, the Company acquired certain assets and assumed certain
liabilities of Medical Express, Inc., a durable medical equipment and
respiratory therapy company located in Bristol, Pennsylvania with $2.5 million
in net revenues for the twelve month period ended June 30, 1996. The aggregate
purchase price for this acquisition was $3.2 million. This acquisition was
accounted for as a purchase.
Effective December 1, 1996, the Company acquired all of the outstanding capital
stock of R.S.D. Management Services, Inc., a provider of primarily Medicare
cost-reimbursed nursing and related patient services with approximately $18.3
million of net revenues for the twelve month period ended June 30, 1996 and
operations in Massachusetts and New Hampshire (the "RSD Acquisition"). The
consideration paid for the RSD Acquisition was approximately $11.1 million. The
cash portion of this consideration was paid through borrowings under the
Company's senior credit facility. This acquisition was accounted for as a
purchase.
Additionally, the six months ended December 31, 1996 include the results of
operations from the acquisition of home nursing and mobile diagnostic providers
during the fourth quarter of fiscal 1996 in the Tampa/St. Petersburg, Florida
market and providers of home nursing, durable medical equipment and respiratory
and infusion therapy services in Scranton, Pennsylvania, Sarasota, Florida, and
Berlin and Salisbury, Maryland during the first quarter of fiscal 1997. These
acquisitions were accounted for as purchases.
10
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Percentage of net revenue for Percentage of net revenue for
the three months ended the six months ended December 31,
December 31, December 31,
--------------------------------- ----------------------------------
1995 1996 1995 1996
----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net revenues 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs and expenses:
Patient care costs 47.6 % 47.6 % 48.2 % 48.2 %
General and administrative 38.0 % 35.7 % 39.4 % 35.3 %
Provision for doubtful accounts 3.8 % 3.9 % 3.4 % 3.9 %
Depreciation 0.9 % 1.0 % 0.9 % 1.0 %
Amortization 1.3 % 1.4 % 0.9 % 1.4 %
Interest expense, net 1.8 % 2.1 % 2.1 % 1.9 %
Merger costs - % 4.8 % - % 2.6 %
Bridge financing expenses 3.9 % - % 2.1 % - %
----------- ------------ ------------ ---------------
Income before income taxes 2.7 3.5 3.0 5.7
Income taxes 1.2 % 1.3 % 1.4 % 2.2 %
Extraordinary loss 5.0 % - % 2.6 % - %
----------- ------------ ------------ ---------------
Net income (loss) (3.5) % 2.2 % (1.0) % 3.5 %
=========== ============ ============ ===============
</TABLE>
Three Months Ended December 31, 1996 Compared with the Three Months Ended
December 31, 1995.
Net revenues. Net revenues increased to $33.0 million during the three months
ended December 31, 1996, representing an increase of $9.7 million, or 41.6%,
compared with the three months ended December 31, 1995. Of this increase, $6.3
million resulted from the acquisitions completed during the fourth quarter of
fiscal 1996 and the first and second quarters of fiscal 1997 and $3.4 million
resulted from internal growth at existing branch locations. Internal growth in
net revenues relating to services and products other than Medicare nursing and
related patient services from the three months ended December 31, 1995 to the
second quarter in fiscal 1997 was 24%. The growth primarily resulted from
cross-selling the Company's services and products and increasing patient
referrals, particularly nursing services referred to the Company by managed care
organizations. For the same periods, net revenues from same-branch Medicare
cost-reimbursed nursing services decreased less than 1% as a result of the payor
shift of Medicare home nursing patients to managed care organizations,
particularly in the Florida market.
Medicare cost-reimbursed nursing service net revenues, including net revenues
relating to acquired companies, increased 46.1% to $12.8 million and related
visits increased 53.2% to 169,000 visits in the three months ended December 31,
1996 compared with the three months ended December 31, 1995. Non-Medicare
nursing hourly- and visit-based net revenues, including net revenues relating to
acquired companies, increased 59.5% to $7.9 million and related hours and visits
increased 122.3% and 49.1%, respectively, during the same period. The increase
in Medicare visits and the increase in non-Medicare hours and visits resulted
from acquisitions of providers of home nursing services in the Tampa/St.
Petersburg, Florida market in
11
<PAGE>
the fourth quarter of fiscal 1996 and in the Maryland, Massachusetts and New
Hampshire markets during the first and second quarters of fiscal 1997 as well as
increased referrals. Respiratory therapy, infusion therapy and durable medical
equipment net revenues increased $2.7 million, or 28.4%, to $12.2 million for
the three months ended December 31, 1996 from $9.5 million for the three months
ended December 31, 1995 as a result of acquisitions, increased referrals and
effective cross-selling of these services and products to the Company's nursing
patients.
Patient care costs. Patient care costs increased to $15.7 million during the
three months ended December 31, 1996, representing an increase of $4.6 million,
or 41.6%, compared with the three months ended December 31, 1995. This increase
principally related to increases in net revenues. These costs remained
relatively consistent at 47.6% of net revenues.
General and administrative expenses. General and administrative expenses
increased to $11.8 million during the three months ended December 31, 1996,
representing an increase of $2.9 million, or 33.1%, compared with the three
months ended December 31, 1995. This increase principally related to increases
in net revenues from the acquisitions completed during the fourth quarter of
fiscal 1996 and the first and second quarters of fiscal 1997. These costs
decreased as a percentage of net revenues from 38.0% to 35.7% due to the
Company's continuing implementation of cost containment initiatives and because
certain general and administrative expenses did not increase directly with
increases in net revenues.
Provision for doubtful accounts. The provision for doubtful accounts increased
to $1.3 million during the three months ended December 31, 1996, representing an
increase of $395,000, or 44.9%, compared with the three months ended December
31, 1995. This increase was due partially to increases in net revenues. Bad debt
expense increased slightly as a percentage of net revenues from 3.8% to 3.9%.
Depreciation. For the three months ended December 31, 1996, depreciation expense
increased to $338,000. This represented an increase of $125,000, or 58.7%, over
the three months ended December 31, 1995. This increase primarily resulted from
capital expenditures for vehicles, management information systems and equipment
in support of the Company's internal growth.
Amortization. For the three months ended December 31, 1996, amortization
increased to $465,000. This represented an increase of $152,000, or 48.6%, over
the three months ended December 31, 1995. This increase was attributable to
amortization of goodwill arising from acquisitions in fiscal 1996 and the first
and second quarter of fiscal 1997.
Interest expense, net. Interest expense, net, increased $281,000, or 66.9%, to
$701,000 during the three months ended December 31, 1996 compared with the three
months ended December 31, 1995. This increase resulted from increased borrowings
for acquisitions in fiscal 1996 and fiscal 1997 and increased borrowings to
finance working capital requirements for internal growth.
Merger costs. Certain nonrecurring expenses of $1.6 million were recorded during
the three months ended December 31, 1996 as a result of the HHSI Merger. Such
costs are comprised of transaction fees, legal and accounting costs and other
nonrecurring costs associated with the merger.
Bridge financing expenses. Certain nonrecurring expenses of $913,000 were
recorded during the three months ended December 31, 1995 in connection with
bridge financing incurred in
12
<PAGE>
connection with an acquisition in Tampa, Florida and repaid with a portion of
the proceeds from the Company's initial public offering.
Provision for Income Taxes. The Company's effective tax rate decreased to 38.5%
of pretax income for the three months ended December 31, 1996 from 45.4% in the
three months ended December 31, 1995 due to lower effective state income tax
rates and the use of net operating loss carryforwards for federal income tax
purposes by HHSI.
Loss on debt redemption, net. An extraordinary charge of $1.2 million was
recorded in the three months ended December 31, 1995, net of estimated income
tax benefit, related to the write-off of deferred financing costs and remaining
unamortized discounts on senior subordinated indebtedness repaid with a portion
of the proceeds from the Company's initial public offering.
Six Months Ended December 31, 1996 Compared with the Six Months Ended December
31, 1995.
Net revenues. Net revenues increased to $60.1 million during the six months
ended December 31, 1996, representing an increase of $15.9 million, or 36.1%,
compared with the six months ended December 31, 1995. Of this increase, $11.6
million resulted from the acquisitions completed during the fourth quarter of
fiscal 1996 and the first and second quarters of fiscal 1997 and $4.3 million
resulted from internal growth at existing branch locations. Internal growth in
net revenues relating to services and products other than Medicare nursing and
related patient services from the six months ended December 31, 1996 to the six
months ended December 31, 1995 was 22.8%. The growth primarily resulted from
cross-selling the Company's services and products and increasing patient
referrals, particularly nursing services referred to the Company by managed care
organizations. For the same periods, net revenues from same-branch Medicare
cost-reimbursed nursing services decreased 6.4% as a result of the payor shift
of Medicare home nursing patients to managed care organizations, particularly in
the Florida market.
Medicare cost-reimbursed nursing service net revenues, including net revenues
relating to acquired companies, increased 26.6% to $22.4 million and related
visits increased 37.3% to 299,254 visits in the six months ended December 31,
1996 compared with the six months ended December 31, 1995. Non-Medicare nursing
hourly- and visit-based net revenues, including net revenues relating to
acquired companies, increased 45.2% to $14.5 million and related hours and
visits increased 103.5% and 46.3%, respectively, during the same period. The
increase in Medicare visits and the increase in non-Medicare hours and visits
resulted from acquisitions of providers of home nursing services in the
Tampa/St. Petersburg, Florida market in the fourth quarter of fiscal 1996 and in
the Maryland, Massachusetts and New Hampshire markets during the first and
second quarters of fiscal 1997 as well as increased referrals. Respiratory
therapy, infusion therapy and durable medical equipment net revenues, including
net revenues relating to acquired companies, increased $6.7 million, or 40.9%,
to $23.1 million for the six months ended December 31, 1996 from $16.4 million
for the six months ended December 31, 1995 as a result of acquisitions,
increased referrals and effective cross-selling of these services and products
to the Company's nursing patients.
Patient care costs. Patient care costs increased to $29.0 million during the six
months ended December 31, 1996, representing an increase of $7.7 million, or
36.1%, compared with the six months ended December 31, 1995. This increase
principally related to increases in net revenues. These costs remained flat as a
percentage of net revenues at 48.2%.
13
<PAGE>
General and administrative expenses. General and administrative expenses
increased to $21.2 million during the six months ended December 31, 1996,
representing an increase of $3.8 million, or 22.1%, compared with the six months
ended December 31, 1995. This increase principally related to increases in net
revenues. These costs decreased as a percentage of net revenues from 39.4% to
35.3% due to the Company's continuing implementation of cost containment
initiatives and because certain general and administrative expenses did not
increase directly with increases in net revenues.
Provision for doubtful accounts. The provision for doubtful accounts increased
to $2.4 million during the six months ended December 31, 1996, representing an
increase of $873,000, or 58.4%, compared with the six months ended December 31,
1995. This increase was due partially to increases in net revenues. In addition,
bad debt expense increased as a percentage of net revenues from 3.4% to 3.9%
primarily due to an increase in net revenues from managed care organizations
whose approval process for authorization and payment for services is more
complex than other payors resulting in more coverage and payment denials. Also,
managed care organizations generally require patients to be responsible for
copayments which may be difficult to collect.
Depreciation. For the six months ended December 31, 1996, depreciation expense
increased to $617,000. This represented an increase of $219,000, or 55.0%, over
the six months ended December 31, 1995. This increase related to fixed assets
acquired in connection with acquisitions, and capital expenditures relating to
vehicles, management information systems and equipment in support of the
Company's internal growth.
Amortization. For the six months ended December 31, 1996, amortization increased
to $820,000. This represented an increase of $425,000, or 107.6%, over the six
months ended December 31, 1995. This increase was attributable to amortization
of goodwill arising from acquisitions in fiscal 1996 and the first and second
quarters of fiscal 1997.
Interest expense, net. Interest expense, net, increased $225,000, or 23.8%, to
$1.2 million during the six months ended December 31, 1996 compared with the six
months ended December 31, 1995. This increase resulted from increased borrowings
for acquisitions in fiscal 1996 and fiscal 1997 and increased borrowings to
finance working capital requirements for internal growth.
Merger costs. Certain nonrecurring expenses of $1.6 million were recorded during
the three months ended December 31, 1996 as a result of the HHSI Merger. Such
costs are comprised of transaction fees, legal and accounting costs and other
nonrecurring costs associated with the merger.
Bridge financing expenses. Certain nonrecurring expenses of $913,000 were
recorded during the three months ended December 31, 1995 in connection with
bridge financing incurred in connection with an acquisition in Tampa, Florida
and repaid with a portion of the proceeds from the Company's initial public
offering.
Provision for Income Taxes. The Company's effective tax rate decreased to 38.8%
of pretax income for the three months ended December 31, 1996 from 44.6% in the
three months ended December 31, 1995 due to lower effective state income tax
rates and use of net operating loss carryforwards for federal tax purposes by
HHSI.
14
<PAGE>
Loss on debt redemption, net. An extraordinary charge of $1.2 million was
recorded in the three months ended December 31, 1995, net of estimated income
tax benefit, related to the write-off of deferred financing costs and remaining
unamortized discounts on senior subordinated indebtedness repaid with a portion
of the proceeds from the Company's initial public offering.
Liquidity and Capital Resources
Working capital increased to $31.9 million at December 31, 1996 from $20.3
million at June 30, 1996, an increase of $11.6 million. The increase primarily
resulted from an increase in accounts receivable of $12.3 million. This increase
was principally due to acquisitions, internal growth and a slight increase in
days net revenues outstanding. The increase in days net revenues outstanding
resulted from an increase in the portion of net revenues from managed care
organizations. Cash flow used in operations was $6.9 million for the six months
ended December 31, 1996 compared with $2.8 million used in operations in the six
months ended December 31, 1995 due primarily to the increase in accounts
receivable.
Cash expenditures for acquisitions were $14.1 million and $12.8 million for the
six months ended December 31, 1996 and 1995, respectively.
The Company has entered into letters of intent to acquire certain assets of
Medical Air Supply, Inc. and Cambridge Medical Company, durable medical
equipment providers located in Texas with $6.5 million of net revenues for the
twelve month period ended December 31, 1995 (the "MAS Acquisition") and the
stock of Nahatan Drug, Inc., a durable medical equipment provider located in
Massachusetts, New Hampshire and Rhode Island with $7.2 million of net revenues
for the twelve month period ended February 29, 1996. The estimated aggregate
consideration payable and debt assumed for the acquisitions under letters of
intent is $20.8 million.
Expenditures for purchases of capital equipment were $2.1 million and $988,000
for the six months ended December 31, 1996 and 1995, respectively, including
$760,000 of purchases in fiscal 1997 funded through a secured master lease
agreement. The Company expects to spend approximately $4.2 million for capital
expenditures for the remainder of fiscal 1997. The Company typically funds its
capital expenditures through a secured master lease arrangement.
On February 3, 1997, the Company had $6.2 million available for working capital
and acquisitions under its senior credit facility. The Company has begun
discussions with its senior lenders to increase the amount of credit available
under its existing senior credit facilities and expects to obtain an interim
commitment to enable the completion of the MAS Acquisition. There can be no
assurance that the Company will be able to negotiate an increase in the amounts
available under its existing senior credit facilities.
Management anticipates the Company's available lines of credit and cash flow
generated from operations will be adequate to enable the Company to fund its
operations, capital expenditures and anticipated internal growth for at least
the next twelve months. However, the Company may be unable to continue to
acquire other businesses without obtaining an increase in its senior borrowing
commitment or obtaining additional permanent capital, such as equity or
subordinated debt.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
--- -----------
11.1 Computation of primary and fully diluted earnings per
share for the three and six months ended December 31,
1996.
11.2 Computation of primary and fully diluted loss per
share before extraordinary item for the three and six
months ended December 31, 1995.
11.3 Computation of primary and fully diluted earnings loss
per share after extraordinary item for the three and
six months ended December 31, 1995.
27.0 Financial data schedule for the six month period ended
December 31, 1996.
27.1 Financial data schedule for the year ended June 30, 1996
(restated for a pooling of interests).
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on December 13, 1996 relating
to the RSD Acquisition and the LHS Acquisition.
16
<PAGE>
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.
HOME HEALTH CORPORATION OF AMERICA, INC.
Date: February 14, 1997 /s/ Bruce J. Colburn
--------------------
Chief Financial and Accounting Officer
17
<PAGE>
EXHIBIT INDEX
11.1 Computation of primary and fully diluted earnings per share for the three
and six months ended December 31, 1996.
11.2 Computation of primary and fully diluted loss per share before
extraordinary item for the three and six months ended December 31, 1995.
11.3 Computation of primary and fully diluted loss per share after
extraordinary item for the three and six months ended December 31, 1995.
27.0 Financial data schedule for the six month period ended December 31, 1996.
27.1 Financial data schedule for the year ended June 30, 1996 (restated for
a pooling of interests).
18
<PAGE>
Exhibit 11.1
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Computation of Primary and Fully diluted Earnings Per Share
for the three and six months ended December 31, 1996
The following calculation is submitted in accordance with the Securities Act of
1934:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, 1996 December 31, 1996
--------------------------------- ----------------------------------
Primary Fully diluted Primary Fully diluted
------------ ----------------- -------------- ------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income............................. $ 689 $ 689 $ 2,044 $ 2,044
Dividends on preferred stock........... - - (6) (6)
Interest and dividends on
converted securities, net of tax... - 22 - 83
------------ ----------------- -------------- ------------------
Net income available to common
stockholders........................ $ 689 $ 711 $ 2,038 $ 2,121
============ ================= ============== ==================
Weighted average number of
maximum shares outstanding
during period....................... 8,377 8,444 8,201 8,234
Weighted average number of
maximum shares subject to
exercise under outstanding
stock options and warrants,
net of treasury shares
assumed repurchased.............. 136 136 148 148
Shares assumed issued in
connection with conversion
of convertible securities,
as of the beginning of - 152 - 302
period...........................
------------ ----------------- -------------- ------------------
Weighted average number of common
and common equivalent
shares outstanding............... 8,513 8,732 8,349 8,684
============ ================= ============== ==================
Net income per share................... $ 0.08 $ 0.08 $ 0.24 $ 0.24
============ ================= ============== ==================
</TABLE>
<PAGE>
Exhibit 11.2
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Computation of Primary and Fully diluted Loss Per Share
Before Extraordinary Item
for the three and six months ended December 31, 1995
The following calculation is submitted in accordance with the Securities Act of
1934:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, 1995 December 31, 1995
------------------------------------------ --------------------------------------
Primary Fully diluted Primary Fully diluted
--------------- ---------------------- --------------- -------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income before extraordinary item $ 341 $ 341 $ 746 $ 746
Dividends on preferred stock ........ (50) (50) (83) (83)
Write-off of discount on preferred
stock .......................... (787) (787) (787) (787)
Interest and dividends on convertible
securities, net of tax ............. -- 38 -- 76
--------------- ---------------------- --------------- -------------------
Net loss available to common
stockholders .................. $ (496) $ (458) $ (124) $ (48)
=============== ====================== =============== ===================
Weighted average number of maximum
shares outstanding during
period......................... 5,733 5,920 4,673 4,771
Weighted average number of maximum
shares subject to exercise
under outstanding stock
options and warrants,net of
treasury shares assumed
repurchased ................... 225 262 147 169
Shares assumed issued in connection
with conversion of convertible
securities, as of the
beginning of the period........ 185 449 185 449
--------------- ---------------------- --------------- -------------------
Weighted average number of common
and common equivalent shares
outstanding ................... 6,143 6,631 5,005 5,389
=============== ====================== =============== ===================
Net loss per share .................. $ (0.08) $ (0.07) $ (0.02) ($ 0.01)
=============== ====================== =============== ===================
</TABLE>
<PAGE>
Exhibit 11.3
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Computation of Primary and Fully diluted Loss Per Share
After Extraordinary Item
for the three and six months ended December 31, 1995
The following calculation is submitted in accordance with the Securities Act of
1934:
<TABLE>
<CAPTION>
Three months ended December 31, 1995 Six months ended December 31, 1995
------------------------------------------- -------------------------------------------
Primary Fully diluted Primary Fully diluted
---------------- ---------------------- ----------------- ---------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Net loss............................. $ (820) $ (820) $ (415) $ (415)
Dividends on preferred stock......... (50) (50) (82) (82)
Write-off of discount on
preferred stock................. (787) (787) (787) (787)
Interest and dividends on
convertible securities, net
of tax......................... - 38 - 76
--------------- ---------------------- --------------- -------------------
Net loss available to common
stockholders................... $ (1,657) $ (1,619) $ (1,284) $ (1,208)
=============== ====================== =============== ===================
Weighted average number of
maximum shares outstanding
during period.................. 5,733 5,920 4,673 4,771
Weighted average number of
maximum shares subject to
exercise under outstanding
stock options and warrants,
net of treasury shares
assumed repurchased............ 225 262 147 169
Shares assumed issued in
connection with conversion
of convertible securities...... 185 449 185 449
--------------- ---------------------- --------------- -------------------
Weighted average number of common
and common equivalent
shares outstanding............ 6,143 6,631 5,005 5,389
=============== ====================== =============== ===================
Net loss per share.................. $ (0.27) $ (0.24) $ (0.26) ($ 0.22)
=============== ====================== =============== ===================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The balance sheet as of December 31, 1996 and the related statements of
operations for the six month period ended December 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,979
<SECURITIES> 0
<RECEIVABLES> 49,875
<ALLOWANCES> 9,512
<INVENTORY> 2,444
<CURRENT-ASSETS> 47,588
<PP&E> 18,640
<DEPRECIATION> 7,191
<TOTAL-ASSETS> 105,582
<CURRENT-LIABILITIES> 15,712
<BONDS> 0
500
0
<COMMON> 38,985
<OTHER-SE> 5,867
<TOTAL-LIABILITY-AND-EQUITY> 105,582
<SALES> 60,085
<TOTAL-REVENUES> 60,085
<CGS> 28,959
<TOTAL-COSTS> 55,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,170
<INCOME-PRETAX> 3,339
<INCOME-TAX> 1,295
<INCOME-CONTINUING> 2,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,044
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1996 AND RELATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
JUNE 30, 1996, WHICH HAVE BEEN RESTATED FOR A MERGER ACCOUNTED FOR AS A POOLING
OF INTERESTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,695
<SECURITIES> 0
<RECEIVABLES> 32,294
<ALLOWANCES> 4,252
<INVENTORY> 1,583
<CURRENT-ASSETS> 33,428
<PP&E> 12,250
<DEPRECIATION> 3,803
<TOTAL-ASSETS> 69,975
<CURRENT-LIABILITIES> 13,082
<BONDS> 0
500
1,244
<COMMON> 33,829
<OTHER-SE> 3,819
<TOTAL-LIABILITY-AND-EQUITY> 69,975
<SALES> 95,878
<TOTAL-REVENUES> 95,878
<CGS> 46,212
<TOTAL-COSTS> 88,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,579
<INCOME-PRETAX> 5,691
<INCOME-TAX> 2,396
<INCOME-CONTINUING> 3,294
<DISCONTINUED> 0
<EXTRAORDINARY> 1,161<F1>
<CHANGES> 0
<NET-INCOME> 2,134
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.21
<FN>
<F1>EXTRAORDINARY ITEM REPRESENTS LOSS ON EARLY EXTINGUISHMENT OF DEBT.
</FN>
</TABLE>
