<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DRAFT 11/07/97
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1997
[ ] 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: 0-20881
HEALTHCOR HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-2294072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8150 North Central Expressway, Suite M-2000, Dallas, Texas 75206
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 692-4663
---------------------------------------
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 [ ]
As of October 31, 1997 approximately 10,089,096 shares of Common Stock
were issued and outstanding.
Total number of sequentially numbered pages 17
Exhibit Index on sequentially numbered page 13
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed consolidated financial statements include the
accounts of HealthCor Holdings, Inc. and subsidiaries (the "Company") and have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation in the following financial
statements have been included. These condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and the related notes for the year ended December 31, 1996, included in the
Company's Report on Form 10-K, as filed with the Securities and Exchange
Commission.
2
<PAGE> 3
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ -- $ --
Accounts receivable, net.................................. 26,843,981 43,103,092
Income tax refund receivable.............................. 833,538 1,627,725
Supplies inventory........................................ 3,219,815... 4,013,616
Prepaid expenses and other................................ 2,040,698 1,225,963
Deferred income taxes..................................... 1,837,173 2,644,329
------------ ------------
Total current assets.............................. 34,775,205 52,614,725
Property and equipment, net................................. 22,287,540 29,042,468
Excess of cost of acquired businesses over fair values of
net assets acquired, net.................................. 40,838,391 54,270,979
Other assets................................................ 2,401,862 2,025,148
------------ ------------
Total assets...................................... $100,302,998 $137,953,320
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 6,755,011 $ 11,584,284
Accrued payroll and related expenses...................... 7,020,813 6,348,914
Line of credit payable.................................... 8,950,000 24,885,000
Current portion of long-term debt......................... 3,582,096 23,480,229
Current portion of capital lease obligations.............. 2,369,300 5,761,059
Income taxes payable...................................... 324,309 --
------------ ------------
Total current liabilities......................... 29,001,529 72,059,486
Deferred income taxes and other............................. 7,216,476 6,355,130
Long-term debt.............................................. 7,114,778 1,284,100
Capital lease obligations................................... 2,415,667 3,706,141
------------ ------------
Total liabilities................................. 45,748,450 83,404,857
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares
authorized; 10,015,967 and 10,064,096 shares issued and
outstanding in 1996 and 1997, respectively............. 100,159 100,641
Additional paid-in capital................................ 39,562,152 39,790,766
Retained earnings......................................... 14,892,237 14,657,056
------------ ------------
Total stockholders' equity........................ 54,554,548 54,548,463
------------ ------------
Total liabilities and stockholders' equity........ $100,302,998 $137,953,320
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE> 4
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1996 1997 1996 1997
----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues............................... $27,253,682 $40,504,088 $77,476,115 $108,582,680
Direct expenses............................ 11,879,545 17,451,773 35,095,128 48,981,775
----------- ----------- ----------- ------------
Gross profit............................... 15,374,137 23,052,315 42,380,987 59,600,905
Other costs and expenses:
General and administrative............... 10,731,990 16,214,442 30,387,223 46,048,540
Depreciation and amortization............ 924,557 1,285,725 2,173,262 3,616,038
Provision for doubtful accounts.......... 837,125 1,960,557 2,286,502 6,738,472
----------- ----------- ----------- ------------
Total costs and expenses......... 12,493,672 19,460,724 34,846,987 56,403,050
----------- ----------- ----------- ------------
Income from operations..................... 2,880,465 3,591,591 7,534,000 3,197,855
Interest expense, net...................... 525,447 1,437,301 1,663,374 3,214,765
----------- ----------- ----------- ------------
Income (loss) before income taxes.......... 2,355,018 2,154,290 5,870,626 (16,910)
Provision for income taxes................. 892,632 861,716 2,261,543 218,271
----------- ----------- ----------- ------------
Net income (loss).......................... $ 1,462,386 $ 1,292,574 $ 3,609,083 $ (235,181)
=========== =========== =========== ============
Net income (loss) per common share......... $ .17 $ .13 $ .49 $ (.02)
=========== =========== =========== ============
Weighted average common shares
outstanding.............................. 8,575,019 10,159,210 7,324,030 10,042,957
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 3,609,083 $ (235,181)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 3,615,382 6,029,171
Proceeds on disposition on assets...................... -- 31,427
Changes in operating assets and liabilities, net of
acquired businesses:
Accounts receivable, net............................. (8,341,820) (16,153,174)
Prepaid expenses and other assets.................... (726,219) 813,299
Deferred income taxes................................ 1,056,514 (721,598)
Accounts payable and accrued expenses................ 754,777 3,552,943
Income taxes payable/receivable...................... (1,589,148) (1,146,174)
Deferred revenue..................................... 2,057,545 (946,904)
------------ ------------
Net cash provided by (used in) operating
activities...................................... 436,114 (8,776,191)
------------ ------------
Cash flows from investing activities:
Payments for business acquisitions, net of cash
acquired............................................... (17,381,259) (13,433,786)
Additions to property and equipment....................... (5,369,007) (4,744,404)
------------ ------------
Net cash provided by (used in) investing
activities...................................... (22,750,266) (18,178,190)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of debt............................ 35,592,469 30,946,579
Payments on debt and capital lease obligations............ (44,539,027) (4,221,294)
Issuance of common stock.................................. 30,639,500 229,096
------------ ------------
Net cash provided by financing activities......... 21,692,942 26,954,381
------------ ------------
Net decrease in cash and cash equivalents................... (621,210) --
Cash and cash equivalents, beginning of period.............. 1,627,940 --
------------ ------------
Cash and cash equivalents, end of period.................... $ 1,006,730 $ --
============ ============
Supplemental disclosure of cash flow information:
Debt issued in acquisitions............................... $ 1,366,068 $ 1,450,000
Liabilities and debt assumed in acquisitions.............. 244,674 876,756
Issuance of capital lease obligations..................... 2,940,652 5,626,303
Issuance of common stock to employee stock option plan.... 1,467,500 --
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
- --------------------------
The unaudited condensed consolidated financial statements include the
accounts of HealthCor Holdings, Inc. and subsidiaries (the "Company") for the
nine months ended September 30, 1996 and 1997. All significant intercompany
transactions have been eliminated. Direct expenses on the statements of
operations include all costs directly related to the production of net revenues,
such as salary and related benefit costs, depreciation of hand-held
point-of-care computers, billable medical supplies, product purchase costs, and
rental equipment depreciation. Depreciation costs not directly attributable to
the generation of net revenues are included in other costs and expenses. The
accompanying unaudited condensed consolidated financial statements and notes
should be read in conjunction with the Company's consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996. Certain amounts in the statements of
income have been reclassified from earlier presentations.
2. ACQUISITIONS:
- ----------------
Effective January 1, 1997, the Company acquired Sterling Health Services,
Inc., a provider of home nursing services in Kansas City, Missouri.
Effective April 1, 1997, the Company acquired, for $900,000 in cash and
$100,000 in debt, the net assets of VNS Health Services, Inc. which provides
Medicare, Medicaid and private duty nursing services in Santa Fe and Espanola,
New Mexico.
Effective April 19, 1997, the Company acquired, for $8,500,000 in cash and
$1,000,000 in debt, all of the outstanding capital stock of CareNetwork, Inc.,
which provides nursing services in Little Rock, Ft. Smith, Lowell and Hot
Springs, Arkansas.
Effective June 1, 1997, the Company acquired, for $3,100,000 in cash and
$250,000 in debt, the net assets of American Medical Home Care, Inc. which sells
and leases home medical equipment, respiratory therapy services and
rehabilitation equipment in Tucson, Arizona.
During 1996, the Company acquired 8 home health care businesses and one
personnel placement company. The home health care businesses consisted of 27
offices in Texas, Oklahoma, Arkansas and Louisiana. The aggregate purchase price
for all companies included cash of approximately $21.4 million and notes payable
to sellers of approximately $3.3 million.
The cash amounts have been funded under the Company's bank acquisition
credit facility.
The 1996 and 1997 acquisitions have been accounted for using the purchase
method of accounting. Accordingly, the purchase price was allocated to the
assets acquired (including all identifiable intangible assets, if material) and
liabilities assumed based upon their estimated fair values at the dates of
acquisition in accordance with APB No. 16. The results of operations of the
acquired practices are included in the consolidated financial statements from
the respective dates of acquisition. None of the acquisition agreements contain
any significant earn-out provisions.
6
<PAGE> 7
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma information reflects the effect on the
consolidated statements of income assuming that all significant acquisitions
during 1996 and 1997 were consummated as of January 1, 1996 and 1997. This
information does not purport to be indicative of the results that would have
actually been obtained if the acquisitions had occurred on such dates.
Therefore, pro forma information cannot be considered indicative of future
operations.
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net revenues............................................... $116,742 $116,311
Net income (loss).......................................... 4,467 (180)
Net income (loss) per common share......................... $ 0.61 $ (0.02)
Weighted average common shares outstanding................. 7,324 10,043
</TABLE>
During the nine months ended September 30, 1997, net revenues on a pro
forma basis are slightly lower as compared to the nine-month period ended
September 30, 1996, primarily as a result of a decline in cost-reimbursed
nursing business revenues offset by increases in respiratory therapy, infusion
therapy and commercial nursing revenues.
3. BANK CREDIT FACILITY:
- -------------------------
The Company is party to a bank credit agreement, dated as of October 31,
1996 (the "Existing Credit Facility") that provides for aggregate borrowings of
$75.0 million, originally consisting of a $15.0 million revolving credit line
and a $60.0 million term facility for acquisitions. The Existing Credit Facility
has been amended to increase the revolving credit line to $30.0 million and to
reduce the term facility to $45.0 million. The revolving credit line expires on
October 31, 1999, and the term facility expires on October 31, 1998, and is
repayable in quarterly installments of principal and interest through October
31, 2001. As of September 30, 1997, the Company had outstanding $24.9 million
under the revolving credit facility and $22.3 million under the term facility.
The Company is currently not in compliance with several of the financial
covenants contained in the Existing Credit Facility. The lenders have waived the
Company's existing defaults through December 1, 1997. The Company has classified
all the indebtedness under the Existing Credit Facility, together with certain
other indebtedness cross-defaulted with the Existing Credit Facility, as current
liabilities at September 30, 1997.
The Company has engaged Bear Stearns, Inc. and Chase Securities Inc. to
offer senior notes (the "Senior Notes") to refinance approximately $50.7 million
of indebtedness outstanding under the Existing Credit Facility. The Company has
received a commitment of $15.0 million from Texas Commerce Bank, National
Association lender under the Existing Credit Facility, for a new revolving
credit facility and expects a commitment for an additional $5.0 million from
another bank which is a lender under the Existing Credit Facility.
4. EARNINGS (LOSS) PER SHARE:
- ---------------------------------
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 entitled "Earnings Per Share"
which requires publicly held companies with potentially dilutive securities to
change their earnings per share computation for years ending after December 15,
1997, and show a basic earnings per share (based on the weighted average number
of common shares outstanding) and a diluted earnings per share (based on the
weighted average number of common shares outstanding plus the effect of all
dilutive securities, such as stock options and warrants). The new statement is
expected to result in a slightly favorable impact on earnings (loss) per share
for certain prior periods. The Company will adopt SFAS No. 128 in the fourth
quarter of 1997.
7
<PAGE> 8
2.
The Company is one of the largest fully integrated providers of
comprehensive home health care services based in the southwestern and central
United States, providing home nursing, respiratory therapy/home medical
equipment and infusion therapy. The Company has successfully implemented a
regional growth strategy, expanding from 12 offices in three states at its
inception in 1984 to 96 offices in nine states at September 30, 1997.
The Company has diversified its business mix from 98.0% home nursing in
1990 to 54.6% home nursing for the nine months ended September 30, 1997. This
shift reflects the addition and growth of higher margin respiratory therapy/home
medical equipment and infusion therapy. The Company expects that it will
continue to shift its business mix towards respiratory therapy/home medical
equipment and infusion therapy. Home nursing, however, will continue to
represent an important part of HealthCor's business mix because managed care
organizations and other referral sources often will make arrangements for other
home health services after first referring home nursing cases to a provider.
Total net revenues increased to $40.5 million for the three months ended
September 30, 1997 from $27.2 million for the three months ended September 30,
1996, primarily the result of additional revenue from acquisitions and from
internal growth in respiratory therapy/medical equipment revenue and commercial
nursing revenues. The Company's net revenue mix has also shifted from primarily
nursing services to higher margin respiratory therapy/medical equipment and
infusion therapy businesses, primarily as a result of acquisitions. Following is
a breakdown of net revenue mix (dollars in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -----------------------------------
1996 1997 1996 1997
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nursing........................ $14,669 53.8% $21,719 53.6% $ 46,029 59.4% $ 59,276 54.6%
Respiratory therapy/medical
equipment.................... 7,613 28.0 12,189 30.1 20,566 26.5 30,175 27.8
Infusion therapy............... 4,972 18.2 4,876 12.0 10,881 14.1 14,510 13.4
Other.......................... -- -- 1,720 4.3 -- -- 4,622 4.2
------- ----- ------- ----- -------- ----- -------- -----
$27,254 100.0% $40,504 100.0% $ 77,476 100.0% $108,583 100.0%
======= ===== ======= ===== ======== ===== ======== =====
</TABLE>
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth certain items included in the Company's
unaudited consolidated statements of income as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenues.................................. 100.0% 100.0% 100.0% 100.0%
Direct expenses............................... 43.6 43.1 45.3 45.1
----- ----- ----- -----
Gross profit.................................. 56.4 56.9 54.7 54.9
Other costs and expenses:
General and administration.................. 39.4 40.0 39.2 42.4
Depreciation and amortization .............. 3.4 3.2 2.8 3.3
Provision for doubtful accounts............. 3.0 4.8 2.9 6.2
----- ----- ----- -----
Total operating expenses................. 45.8 48.0 44.9 51.9
----- ----- ----- -----
Income from operations........................ 10.6 8.9 9.8 3.0
Interest, net................................. 2.0 3.6 2.1 2.9
----- ----- ----- -----
Income before income taxes.................... 8.6 5.3 7.7 .1
Provision for income taxes.................... 3.2 2.1 2.9 .2
----- ----- ----- -----
Net income (loss)............................. 5.4% 3.2% 4.8% (.1)%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net Revenues. Net revenues increased to $40.5 million for the three months
ended September 30, 1997, from $27.3 million for the same period in 1996, an
increase of $13.2 million, or 48.6%. This increase is primarily the result of
additional revenues from acquisitions and from internal growth in respiratory
therapy and commercial nursing revenues, partially offset by a decrease in
Medicare nursing revenues from certain offices.
Direct Expenses. Direct expenses increased to $17.5 million for the three
months ended September 30, 1997, from $11.9 million for the same period in 1996,
an increase of $5.6 million, or 46.9%. This increase is primarily the result of
the direct expenses associated with the operations of companies acquired during
1996 and 1997. As a percentage of net revenues, direct expenses declined to
43.1% for the three months ended September 30, 1997, from 43.6% for the
comparable period in 1996, primarily as a result of lower direct costs incurred
by the Company for pharmaceutical and nursing supplies and improved pricing for
respiratory sales and rental equipment. Direct expenses include all costs
directly related to the production of net revenues, including salary and
employee benefit costs, rental equipment depreciation, medical supplies, and
product purchase costs.
General and Administrative. General and administrative expenses increased
to $16.2 million for the three months ended September 30, 1997 from $10.7
million for the same period in 1996, an increase of $5.5 million, or 51.1%. This
increase is primarily the result of additional field office expenses associated
with the operations of companies acquired during 1996 and 1997, and increased
central office costs. As a percentage of net revenues, general and
administrative expenses increased to 40.0% for the three months ended September
30, 1997 from 39.4% for the same period in 1996, primarily as a result of
increased implementation costs of Medisyn(TM) (Note).
Depreciation and Amortization. Depreciation and amortization expense
increased to $1.3 million for three months ended September 30, 1997, from $0.9
million for the same period in 1996, an increase of $0.4 million, or 39.1%. This
increase is primarily due to the amortization of goodwill incurred in connection
with acquisitions and depreciation of capital expenditures relating to increased
purchases of home medical equipment to service increased business and the
implementation and development of Medisyn(TM).
- ---------------
Note: Medisyn(TM) refers to a proprietary centralized financial and clinical
management information system comprised of several financial and clinical
components which will be integrated through a central interface engine.
9
<PAGE> 10
Provision for doubtful accounts. The provision for doubtful accounts
increased to $1.9 million for the three months ended September 30, 1997, from
$0.8 million for the same period in 1996, an increase of $1.1 million, or
134.0%. This increase is the result of increased revenues and the Company's
continuing evaluation of certain accounts receivable.
Interest, net. Interest, net increased to $1.4 million for the three months
ended September 30, 1997, from $0.5 million for the same period in 1996, an
increase of $0.9 million, or 173.5%. This increase resulted from interest costs
associated with additional indebtedness incurred in connection with
acquisitions, increased working capital borrowings, and interest on equipment
leases to service additional home medical equipment business and leases
associated with the implementation and development of Medisyn(TM).
Provision for income taxes. The provision for income taxes remained
essentially unchanged at $0.9 for the three months ended September 30, 1996 and
1997, reflecting a 40 per cent effective income tax rate in 1997 as compared to
a 38.5 per cent rate in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Net Revenues. Net revenues increased to $108.6 million for the nine months
ended September 30, 1997, from $77.5 million for the same period in 1996, an
increase of $31.1 million, or 40.1%. This increase is primarily the result of
additional revenues from acquisitions and from internal growth in respiratory
therapy, infusion therapy and commercial nursing revenues, partially offset by a
revenue adjustment of $2.8 million relating to Medicare nursing cost limitations
and by a decrease in Medicare nursing revenues from certain offices.
Direct Expenses. Direct expenses increased to $49.0 million for the nine
months ended September 30, 1997, from $35.1 million for the same period in 1996,
an increase of $13.9 million, or 39.6%. This increase is the result of the
direct expenses associated with the operations of companies acquired during 1996
and 1997. As a percentage of net revenues, direct expenses declined to 45.1% for
the nine months ended September 30, 1997, from 45.8% for the comparable period
in 1996, primarily as a result of lower direct costs incurred by the Company for
pharmaceutical and nursing supplies and improved pricing for respiratory sales
and rental equipment. Direct expenses include all costs directly related to the
production of net revenues, including salary and employee benefit costs, rental
equipment depreciation, medical supplies, and product purchase costs.
General and Administrative. General and administrative expenses increased
to $46.0 million for the nine months ended September 30, 1997, from $30.4
million for the same period in 1996, an increase of $15.6 million, or 51.5%.
This increase is primarily the result of additional field office expenses
associated with the operations of companies acquired during 1996 and 1997, and
increased central office costs. As a percentage of net revenues, general and
administrative expenses increased to 42.4% for the nine months ended September
30, 1997, from 39.2% for the same period in 1996, primarily as a result of
increased implementation costs of Medisyn(TM).
Depreciation and Amortization. Depreciation and amortization expense
increased to $3.6 million for nine months ended September 30, 1997, from $2.2
million for the same period in 1996, an increase of $1.4 million, or 66.4%. This
increase is primarily due to the amortization of goodwill incurred in connection
with acquisitions and depreciation of capital expenditures relating to increased
purchases of home medical equipment to service increased business and the
development and implementation of Medisyn(TM).
Provision for Doubtful Accounts. The provision for doubtful accounts
increased to $6.7 million for the nine months ended September 30, 1997, from
$2.3 million for the same period in 1996, an increase of $4.4 million, or
195.0%. This increase is the result of increased revenues and the special
provision for doubtful accounts of $2.7 million for the three months ended June
30, 1997. This additional provision for doubtful accounts resulted from the
Company's continuing evaluation of certain accounts receivable from managed care
organizations recorded prior to the implementation of the Company's Centralized
Information Management System ("IMS"). The Company believes that the rollout of
CIMS to remaining offices and the complete implementation of Medisyn(TM) will
result in more efficient collection of receivables.
10
<PAGE> 11
Interest, Net. Interest, net increased to $3.2 million for the nine months
ended September 30, 1997, from $1.7 million for the same period in 1996, an
increase of $1.5 million, or 93.3%. This increase resulted from interest costs
associated with additional indebtedness incurred in connection with
acquisitions, increased working capital borrowings, and interest on equipment
leases to service additional home medical equipment business and leases
associated with the implementation and development of Medisyn(TM).
Provision for Income Taxes. The provision for income taxes decreased to
$0.2 million for the nine months ended September 30, 1997, from $2.2 million for
the same period in 1996, a decrease of $2.0 million, or 90.9%. This decrease is
a result of the decrease in income before taxes in the nine months ended
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for debt service, for
additional working capital to fund growth of the Company's managed care business
and for acquisitions.
At September 30, 1997, the Company had a working capital deficit of $(19.5)
million as compared to working capital of $5.8 million as of December 31, 1996.
This decrease is primarily a result of the classification of a portion of the
Company's long-term debt as current liabilities pursuant to the Company not
being in compliance with certain provisions of the Existing Credit Facility.
During the nine months ended September 30, 1997 and 1996, the Company had
capital expenditures of $4.7 million and $5.4 million, respectively. Capital
expenditures for the fourth quarter of fiscal 1997 are anticipated to be
approximately $1.3 million, the majority of which will be used to continue the
development and implementation of Medisyn(TM). The Company estimates that it
will have aggregate capital expenditures in 1998 of approximately $5.0 million.
Days of Sales Outstanding ("DSO") were 97.5 as of September 30, 1997,
compared to 82.0 at December 31, 1996. The increase in DSO from December 31,
1996 to September 30, 1997 is attributable primarily to an overall increase in
net revenue from respiratory therapy/home medical equipment and infusion
therapy, which historically have higher DSO, delays by third parties in paying
for respiratory therapy/ home medical equipment and infusion therapy, and a
slowdown in reimbursement from governmental payors. The Company believes the
implementation of CIMS will result in more efficient collection of receivables
and reduce DSO.
Net cash provided by operating activities decreased from $0.4 million for
the nine months ended September 30, 1996, to $(8.8) million for the nine months
ended September 30, 1997. This decrease is primarily attributable to an increase
in accounts receivable offset by an increase in accounts payable and accrued
expenses. Net cash used in investing activities decreased from $22.8 million for
the nine months ended September 30, 1996 to $18.2 million for the comparable
period in 1997 as the Company increased its focus on managed care business and
as fewer acquisitions were made. Payments under capital leases increased to $1.5
million for the nine months ended September 30, 1997 compared to $0.2 million
for the comparable period in 1996, primarily as a result of increased
expenditures on medical equipment needed to service increased managed care
business and increased expenditures relating to the implementation of
Medisyn(TM).
The Company is party to the Existing Credit Facility, dated as of October
31, 1996, that provides for aggregate borrowings of $75.0 million, originally
consisting of a $15.0 million revolving credit line and a $60.0 million term
facility for acquisitions. The Existing Credit Facility has been amended to
increase the revolving credit line to $30.0 million and to reduce the term
facility to $45.0 million. The revolving credit line expires on October 31,
1999, and the term facility expires on October 31, 1998, and is repayable in
quarterly installments of principal and interest through October 31, 2001. As of
September 30, 1997, the Company had outstanding $24.9 million under the
revolving credit facility and $22.3 million under the term facility. The lenders
under the Existing Credit Facility have waived until December 1, 1997, the
Company's non-compliance with several of the financial covenants contained in
the Existing Credit Facility. The Company has classified all the indebtedness
under the Existing Credit Facility, together with certain other long-term
indebtedness as current liabilities at September 30, 1997. The Company has
engaged Bear Stearns, Inc. and
11
<PAGE> 12
Chase Securities Inc. to offer senior notes (the "Senior Notes") to refinance
approximately $50.7 million of indebtedness outstanding under the Existing
Credit Facility. The Company has received a commitment of $15.0 million from
Texas Commerce Bank National Association, a lender under the Existing Credit
Facility, for the New Credit Facility and expects to receive a commitment for an
additional $5.0 million from another lender which is a party to the Existing
Credit Facility. The Company expects that it will enter into the New Credit
Facility contemporaneously with the closing of the offering of Senior Notes. The
Company believes that the proceeds from the offering of the Senior Notes and the
New Credit Facility will be sufficient to meet the Company's capital needs for
the foreseeable future.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description of Exhibit
------ ----------------------
11 Computation of net income per common equivalent share
27 Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarterly
period ended September 30, 1997.
13
<PAGE> 14
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.
HEALTHCOR HOLDINGS, INC.
Date: November 10, 1997 By: /s/ JOEL H. WILLIAMS
----------------------------------
Joel H. Williams, Vice President
and Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
11 Computation of net income per common equivalent share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED NET INCOME PER COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1997 1996 1997
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net income $1,462,386 $ 1,292,574 $3,609,083 $ (235,181)
========== =========== ========== ============
Shares:
Weighted average common shares issued 8,319,201 10,063,906 7,016,755 10,042,957
Assuming exercise of options, reduced by the
number of common shares which could have
been purchased with the proceeds from
exercise of such options 255,818 95,304 307,275 --
---------- ----------- ---------- ------------
Weighted average number of common shares
outstanding, as adjusted 8,575,019 10,159,210 7,324,030 10,042,957
========== =========== ========== ============
Net income per common share $ 0.17 $ 0.13 $ 0.49 $ (0.02)
========== =========== ========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SEPTEMBER 30, 1997 10-Q BALANCE SHEET & INCOME STATEMENT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 43,103,092
<ALLOWANCES> 0
<INVENTORY> 4,013,616
<CURRENT-ASSETS> 52,614,725
<PP&E> 29,042,468
<DEPRECIATION> 0
<TOTAL-ASSETS> 137,953,320
<CURRENT-LIABILITIES> 72,059,486
<BONDS> 0
0
0
<COMMON> 100,641
<OTHER-SE> 54,447,822
<TOTAL-LIABILITY-AND-EQUITY> 137,953,320
<SALES> 108,582,680
<TOTAL-REVENUES> 108,582,680
<CGS> 48,981,775
<TOTAL-COSTS> 48,981,775
<OTHER-EXPENSES> 49,664,578
<LOSS-PROVISION> 6,738,472
<INTEREST-EXPENSE> 3,214,765
<INCOME-PRETAX> (16,910)
<INCOME-TAX> 218,271
<INCOME-CONTINUING> (235,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235,181)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
