SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 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 August 11, 1997 approximately 10,064,096 shares of Common Stock
were issued and outstanding.
Total number of sequentially numbered pages 16
Exhibit Index on sequentially numbered page 14
1
<PAGE>
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>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ -- $ --
Accounts receivable, net ................................ 34,581,345 26,843,981
Income tax refund receivable ............................ 2,506,443 833,538
Supplies inventory ...................................... 3,446,286 3,219,815
Prepaid expenses and other .............................. 1,186,631 2,040,698
Deferred income taxes ................................... 2,644,329 1,837,173
------------ ------------
Total current assets ............................. 44,368,034 34,775,205
Property and equipment, net ............................... 25,374,366 22,287,540
Excess of cost of acquired businesses over fair values of
net assets acquired, net ................................ 54,821,357 40,838,391
Other assets .............................................. 2,660,511 2,401,862
------------ ------------
Total assets ..................................... $127,224,263 $100,302,998
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft .......................................... $ 1,096,892 $ 184,264
Accrued payroll and related expenses .................... 7,074,705 7,020,813
Accounts payable and accrued expenses ................... 5,261,647 6,570,747
Line of credit payable .................................. 22,385,000 8,950,000
Current portion of long-term debt ....................... 5,812,520 3,582,096
Current portion of capital lease obligations ............ 2,251,744 2,369,300
Income taxes payable .................................... -- 324,309
------------ ------------
Total current liabilities ........................ 43,882,508 29,001,529
Deferred income taxes and other ........................... 6,193,780 7,216,476
Long-term debt ............................................ 19,657,823 7,114,778
Capital lease obligations ................................. 4,239,133 2,415,667
------------ ------------
Total liabilities ................................ 73,973,244 45,748,450
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares
authorized; 10,061,596 and 10,015,967 shares issued and
outstanding in 1997 and 1996, respectively ............ 100,616 100,159
Additional paid-in capital .............................. 39,785,926 39,562,152
Retained earnings ....................................... 13,364,482 14,892,237
------------ ------------
Total stockholders' equity ....................... 53,251,024 54,554,548
------------ ------------
Total liabilities and stockholders' equity ....... $127,224,268 $100,302,998
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
3
<PAGE>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues ............................... $ 34,313,884 $ 25,967,943 $ 68,078,592 $ 50,222,433
Direct expenses ............................ 17,726,364 11,694,800 31,530,002 23,215,583
------------ ------------ ------------ ------------
Gross profit ............................... 16,587,520 14,273,143 36,548,590 27,006,850
Other costs and expenses:
General and administrative ............... 15,687,804 10,097,078 29,834,098 19,655,233
Depreciation and amortization ............ 1,237,347 712,930 2,330,313 1,248,705
Provision for doubtful accounts .......... 3,731,372 943,248 4,777,915 1,449,377
------------ ------------ ------------ ------------
Total costs and expenses ........... 20,656,523 11,753,256 36,942,326 22,353,315
------------ ------------ ------------ ------------
Income (loss) from operations .............. (4,069,003) 2,519,887 (393,736) 4,653,535
Interest expense, net ...................... 1,115,933 652,027 1,777,464 1,137,927
------------ ------------ ------------ ------------
Income (loss) before income taxes .......... (5,184,936) 1,867,860 (2,171,200) 3,515,608
Provision (credit) for income taxes ........ (1,848,919) 692,449 (643,445) 1,368,911
------------ ------------ ------------ ------------
Net income (loss) .......................... $ (3,336,017) $ 1,175,411 $ (1,527,755) $ 2,146,697
============ ============ ============ ============
Net income (loss) per common share ......... $ (.33) $ .18 $ (.15) $ .33
============ ============ ============ ============
Weighted average common shares outstanding . 10,041,104 6,591,749 10,032,309 6,591,749
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
----------------------------
June 30,
----------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net income (loss) ............................. $ (1,527,755) $ 2,146,697
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization .............. 3,792,206 2,112,776
Proceeds on disposition on assets .......... 17,792 (2,506)
Changes in operating assets and liabilities,
net of acquired businesses:
Accounts receivable, net ................. (7,631,427) (6,212,805)
Prepaid expenses and other assets ........ 653,361 (742,420)
Deferred income taxes .................... (760,253) (11,074)
Accounts payable and accrued expenses .... (1,859,645) 699,482
Income taxes payable/receivable .......... (2,024,896) (1,159,280)
Deferred revenue ......................... (1,069,599) 1,678,477
------------ ------------
Net cash used in operating activities . (10,410,216) (1,490,653)
------------ ------------
Cash flows from investing activities:
Payments for business acquisitions,
net of cash acquired ....................... (13,433,786) (12,379,033)
Additions to property and equipment ........... (2,820,414) (4,012,406)
------------ ------------
Net cash used in investing activities . (16,254,200) (16,391,439)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of debt ................ 28,446,579 29,556,841
Payments on debt and capital lease obligations (2,919,022) (15,119,672)
Issuance of common stock ...................... 224,231 5,000
------------ ------------
Net cash provided by
financing activities ................ 25,751,788 14,442,169
------------ ------------
Net decrease in cash and cash equivalents ....... (912,628) (3,439,923)
Cash and cash equivalents, beginning of period .. (184,264) 1,627,940
------------ ------------
Cash and cash equivalents, end of period ........ $ (1,096,892) $ (1,811,983)
============ ============
Supplemental disclosure of cash flow information:
Debt issued in acquisitions ................... $ 1,450,000 $ 766,068
Liabilities and debt assumed in acquisitions .. 876,756 244,674
Issuance of capital lease obligations ......... 2,060,066 1,904,986
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
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
six months ended June 30, 1997 and 1996. 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
operations 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 $21.0 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 1997 and 1996 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.
The following unaudited pro forma information reflects the effect on the
consolidated statements of operations assuming that all significant acquisitions
during 1997 and 1996 were consummated as of January 1, 1997 and 1996. This
information does not purport to be indicative of the results that would have
actually been obtained if
6
<PAGE>
the acquisitions had occurred on such dates. Therefore, pro forma information
cannot be considered indicative of future operations.
PRO FORMA INFORMATION (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-----------------------------
1997 1996
------------ ------------
(in thousands, except per share amounts)
Net revenues ............................... $ 75,807 $ 81,400
Net income (loss) .......................... (1,401) 2,867
Net income (loss) per common share ......... $ (0.14) $ 0.43
Weighted average common shares outstanding . 10,032 6,592
During the six-month period ended June 30, 1997, net revenues on a pro
forma basis are marginally lower as compared to the six-month period ended June
30, 1996, primarily as a result of a decline in cost-reimbursed nursing business
revenues.
3. Bank Credit Facility
At December 31, 1996, the Company had a bank credit facility that
provides for aggregate borrowings of $75.0 million, consisting of a $15.0
million revolving credit line and $60.0 million term facility for acquisitions.
On April 30, 1997, the Company amended the facility to increase the revolving
credit line to $25.0 million and to reduce the term facility to $50.0 million.
The revolving credit line expires on October 31, 1999. The term facility is
available for acquisitions until October 31, 1998, and is repayable in quarterly
installments of principal and interest through October 31, 2001. As of August 8,
1997, the Company had outstanding $24.5 million under the revolving credit line
and $22.4 million under the term facility for acquisitions. As a result of the
net revenue adjustment relating to Medicare cost limitations and an increase in
the provision for doubtful accounts, the Company is currently not in compliance
with certain covenants of its bank credit agreement. [THE COMPANY HAS ENGAGED
CHASE SECURITIES, INC. TO PLACE UP TO $60.0 MILLION OF SENIOR NOTES (THE "SENIOR
NOTES") TO REFINANCE THE INDEBTEDNESS INCURRED UNDER THE EXISTING BANK CREDIT
FACILITY AND TO PROVIDE ADDITIONAL WORKING CAPITAL. IN CONNECTION WITH THE
OFFERING OF THE SENIOR NOTES, THE COMPANY IS ALSO NEGOTIATING WITH ITS BANK TO
REPLACE ITS EXISTING CREDIT FACILITY WITH A REVOLVING CREDIT LINE OF UP TO $25.0
MILLION.]
4. Earnings (Loss) Per Share
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 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>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
HealthCor Holdings, Inc. (the "Company") provides fully-integrated home
health care services, including nursing, respiratory therapy/medical equipment
and infusion therapy in nine states in the southwestern and central United
States. The Company provides payors, physicians and patients with
fully-integrated one-stop shop home health care services in substantially all of
its geographic markets. The Company seeks to increase internal growth by
introducing additional services to many of its offices, including fully
integrating acquisitions completed during 1996 and 1997 with the Company's full
range of products and services. The Company has engaged financial advisors to
assist it in more rapidly achieving size and market coverage than can be gained
by completing acquisitions of the type historically targeted by the Company.
During the three months ended June 30, 1997, net revenues and net income
were adversely affected by a $2.8 million revenue adjustment related to Medicare
nursing cost limitations and by an increase in the allowance for doubtful
accounts by $2.7 million. The net revenue adjustment was primarily the result of
regulatory changes which affected the Company's ability to maximize Medicare
nursing reimbursement and as a result of expenses in some offices exceeding
Medicare nursing cost limitations. The Company expects to experience additional
revenue adjustments related to Medicare nursing cost limitations through the end
of 1997. The additional provision for doubtful accounts is a result of the
Company's continuing initiatives to improve collection procedures.
Total net revenues increased from $26.0 million to $34.3 million,
primarily as a result of acquisitions. The Company's net revenue mix has also
shifted from primary 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 JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- --------------------------------------------
1997 1996 1997 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nursing ................... $ 19,305 56.2% $ 15,153 58.4% $ 37,557 55.1% $ 31,360 62.4%
Respiratory therapy/medical
equipment ............. 8,634 25.2 6,828 26.3 17,986 26.4 12,954 25.8
Infusion therapy .......... 4,875 14.2 3,987 15.3 9,634 14.2 5,908 11.8
Other ..................... 1,500 4.4 -- -- 2,902 4.3 -- --
-------- -------- -------- -------- -------- -------- -------- --------
$ 34,314 100.0% $ 25,968 100.0% $ 68,079 100.0% $ 50,222 100.0%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items included in the Company's
unaudited condensed consolidated statements of operations as a percentage of net
revenues:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
Net revenues ......................... 100.0% 100.0% 100.0% 100.0%
Direct expenses ...................... 51.7 45.0 46.3 46.2
------ ------ ------ ------
Gross profit ......................... 48.3 55.0 53.7 53.8
Other costs and expenses:
General and administrative ....... 45.7 38.9 43.8 39.1
Depreciation and amortization .... 3.6 2.8 3.5 2.5
Provision for doubtful accounts .. 10.8 3.6 7.0 2.9
------ ------ ------ ------
Total costs and expenses . 60.1 45.3 54.3 44.5
------ ------ ------ ------
Income (loss) from operations ........ (11.8) 9.7 (0.6) 9.3
Interest, net ........................ 3.3 2.5 2.6 2.3
------ ------ ------ ------
Income (loss) before income taxes .... (15.1) 7.2 (3.2) 7.0
Provision (credit) for income taxes .. (5.4) 2.7 (1.0) 2.7
------ ------ ------ ------
Net income (loss) .................... (9.7) 4.5% (2.2) 4.3%
====== ====== ====== ======
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
NET REVENUES. Net revenues increased from $26.0 million for the three
months ended June 30, 1996 to $34.3 million for the same period in 1997, an
increase of $8.3 million, or 32.1%. This increase is primarily attributable to
incremental net revenues generated from acquisitions partially offset by a $2.8
million revenue adjustment related to Medicare nursing cost limitations and by a
decrease in revenues related to the Medicare nursing business.
DIRECT EXPENSES. Included in direct expenses are all costs directly
related to the production of net revenues, including salary and employee benefit
costs, depreciation of hand-held point-of-care computers, billable medical
supplies, product purchase costs, and rental equipment depreciation. Direct
expenses increased from $11.7 million for the three months ended June 30, 1996
to $17.7 million for the three months ended June 30, 1997, an increase of $6.0
million, or 51.6%. This increase is primarily a result of acquisitions.As a
percentage of net revenues, direct expenses increased from 45.0% in 1996 to
51.7% in 1997, primarily as a result of the revenues reductions adjustment
mentioned above, without which the percentage would have been 47.8%
GENERAL AND ADMINISTRATIVE. Included in general and administrative
expenses are occupancy costs, field office administration, corporate office
salaries and benefits, legal and accounting fees, and other nonpatient care
operating expenses. These costs increased from $10.1 million to $15.7 million,
an increase of $5.6 million, or 55.4%. Acquisitions account for the majority of
this increase. General and administrative expenses for respiratory
therapy/medical equipment and infusion therapy businesses are proportionally
higher than nursing because the majority of all personnel costs for such
businesses are classified in this category. Additionally, central office
overhead increased in 1997 in order to support Company growth. General and
administrative expense as a percentage of net revenues increased from 38.9% to
45.7%. The revenue reductions adjustment mentioned above caused the percentage
for 1997 to increase from 42.3% to 45.7%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $0.7 million for the three months ended June 30, 1996, to $1.2
million for the three months ended June 30, 1997, an increase of
9
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$0.5 million, or 73.6%. The increase is primarily due to acquisitions and
increased investment in information technology equipment.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
increased from $0.9 million for the three months ended June 30, 1996, to $3.7
million for the three months ended June 30, 1997, an increase of $2.8 million,
or approximately 300%. This increase resulted primarily from a $2.7 million
increase in the allowance for doubtful accounts determined as a result of the
Company's initiatives to improve collection procedures and reduce DSO. Net of
this increase, the provision for doubtful accounts as a percentage of revenue
decreased from 3.6% to 3.0%.
INTEREST, NET. Interest, net increased from $0.7 million for the three
months ended June 30, 1996, to $1.1 million for the same period of 1997, an
increase of $0.4 million, or 71.1%. This increase resulted primarily from the
increased debt incurred in connection with acquisitions, increased borrowings
under the Company's revolving credit line as a result of higher working capital
needs, and interest on leases associated with information technology and systems
development.
PROVISION (CREDIT) FOR INCOME TAXES. The provision (credit) for income
taxes decreased from $0.7 million for the three months ended June 30, 1996, to
$(1.8) million for the three months ended June 30, 1997, a decrease of $2.5
million, or approximately 360%, as a result of the loss before income taxes.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET REVENUES. Net revenues increased from $50.2 million for the six
months ended June 30, 1996, to $68.1 million for the same period in 1997, an
increase of $17.9 million, or 35.6%. This increase is primarily attributable to
incremental net revenues generated from acquisitions, offset by a $2.8 million
revenue adjustment related to Medicare cost limitations and by a decrease in the
Medicare nursing business.
DIRECT EXPENSES. Direct expenses increased from $23.2 million for the
six months ended June 30, 1996, to $31.5 million for the six months ended June
30, 1997, an increase of $8.3 million, or 35.8%. This increase is primarily
associated with acquisitions. As a percentage of net revenues, direct expenses
increased from 46.2% in 1996 to 46.3% in 1997; however, the percentage would
have declined to 44.5% except for the revenue reduction adjustment mentioned
above.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased from $19.6 million for the six months ended June 30, 1996, to $29.8
million for the six months ended June 30, 1997, an increase of $10.2 million, or
51.8%. This increase is attributable primarily to costs associated with
acquisitions and additional central office overhead resulting from overall
Company growth. As a percentage of net revenues, general and administrative
expenses increased from 39.1% in 1996 to 43.8% in 1997. The 1997 percent would
have been 42.1% without the revenue reduction adjustment mentioned above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $1.2 million for the six months ended June 30, 1996, to $2.3
million for the same period of 1997, an increase of $1.1 million, or 86.6%. This
increase is primarily due to the acquisition activity and the investment in
information services equipment.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
increased from $1.5 million for the six months ended June 30, 1996, to $4.8
million for the six months ended June 30, 1997, an increase of $3.3 million, or
230%. This increase resulted primarily from a $2.7 million increase in the three
months ended June 30, 1997, in the allowance for doubtful accounts determined as
a result of the Company's initiatives to improve collection procedures and
reduce DSO. As a percentage of net revenues, the provision for doubtful accounts
has increased from 2.9% for the six months ended June 30, 1996, to 7.0% in 1997.
The percentage for 1997 without this adjustment would have increased slightly to
3.1%.
INTEREST, NET. Interest, net increased from $1.1 million for the six
months ended June 30, 1996 to $1.8 million for the same period in 1997. This
increase of $0.7 million, or 56.2%, relates to the increased debt incurred in
connection with acquisitions, interest cost on borrowings under the Company's
line of credit as a result of higher working capital needs, and interest on
leases associated with information systems development.
10
<PAGE>
PROVISION (CREDIT) FOR INCOME TAXES. The provision (credit) for income
taxes decreased from $1.4 million for the six months ended June 30, 1996, to
$(0.6) million for the same period in 1997, a decrease of $2.0 million, or
approximately 150%. This decrease is a result of the loss before income taxes in
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for working capital and
to finance existing indebtedness incurred in connection with its term credit
facility. The Company has funded its working capital needs and capital
expenditures primarily from short term borrowings and cash flow from operations.
At June 30, 1997, the Company had current assets of $44.4 million and
current liabilities of $43.9 million, resulting in working capital of $0.5
million as compared to working capital of $5.8 million as of December 31, 1996.
Working capital increased by $3.0 million as a result of borrowings from the
Company's term loan facility to finance the acquisition of certain companies in
1996. The net decrease in working capital resulted primarily from increased
working capital requirements associated with operations.
Accounts receivable at June 30, 1997, were $34.6 million, compared to
$26.8 million at December 31, 1996. Days of Sales Outstanding ("DSO"), defined
as trade accounts receivable divided by average daily net revenues for the
preceding three months, were 90.8 as of June 30, 1997, compared to 82.0 at
December 31, 1996. The increase in DSO from December 31, 1996 to June 30, 1997
is attributable primarily to an overall increase in net revenue from respiratory
therapy/medical equipment and infusion therapy, which historically have higher
DSO, delays by third parties in paying for respiratory therapy/medical equipment
and infusion therapy, and a general slowdown in reimbursement from governmental
payors. In 1997, the Company has intensified initiatives to address the increase
in DSO, including adding more experienced billing and collecting management,
commencing installation of an electronic claims submission system, and more
closely managing the billing and collecting process to increase efficiency and
effectiveness. These initiatiives resulted in increasing the provision for
doubtful accounts by $2.7 million during the three months ended June 30, 1997.
Additionally, the DSO as calculated is adversely affected by the $2.8 million
revenue adjustment. Had this been recorded as a provision for doubtful accounts
DSO would have ben 84.1
Net cash used in operating activities increased from $1.5 million for
the six months ended June 30, 1996, to $10.4 million for the six months ended
June 30, 1997, or an additional cash outflow of $8.9 million. The increase in
accounts receivable and the reduction in accounts payable and accrued expenses
were primarily responsible for the reduction in operating cash during 1997. Net
cash used in investing activities decreased from $16.4 million for the six
months ended June 30, 1996 to $16.3 million for the same period in 1997. Cash of
$25.5 million, net of payments on debt and lease obligations, was provided by
borrowings under the bank credit facility. The Company utilizes capital leases
to acquire equipment, primarily information technology equipment and medical
equipment needed to accommodate increased sales volume in the respiratory
therapy/medical equipment business. Such lease amounts were $2.1 million and
$1.9 million for the three months ended June 30, 1997 and 1996, respectively.
At December 31, 1996, the Company had a bank credit facility that
provided for an aggregate borrowings of $75.0 million, consisting of a $15.0
million revolving credit line and $60.0 million term facility for acquisitions.
On April 30, 1997, the Company amended the facility to increase the revolving
credit line to $25.0 million and to reduce the term facility to $50.0 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 August 8, 1997, the
Company had outstanding $24.5 million under the revolving credit line and $22.4
million under the term facility for acquisitions. As a result of the revenue
adjustment relating to Medicare cost limitations and the increase in the
provision for doubtful accounts, the Company is currently not in compliance with
several of the covenants contained in the bank credit agreement. [THE COMPANY
HAS ENGAGED CHASE SECURITIES, INC. TO OFFER SENIOR NOTES IN THE PRINCIPAL AMOUNT
OF $60.0 MILLION (THE "SENIOR NOTES") TO REFINANCE THE INDEBTEDNESS OUTSTANDING
UNDER THE EXISTING BANK CREDIT FACILITY AND TO PROVIDE ADDITIONAL WORKING
CAPITAL. IN CONNECTION WITH THE OFFERING OF THE SENIOR NOTES, THE COMPANY IS
NEGOTIATING WITH ITS BANK TO REPLACE THE EXISTING BANK CREDIT FACILITY WITH A
REVOLVING CREDIT FACILITY OF UP TO $25.0 MILLION. THE COMPANY BELIEVES THAT THE
PROCEEDS FROM THE OFFERING OF THE SENIOR NOTES AND THE NEW REVOLVING CREDIT
FACILITY WILL BE SUFFICIENT TO MEET THE COMPANY'S CAPITAL REQUIREMENTS THROUGH
THE END OF 1997.]
11
<PAGE>
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
(b) The Company filed no reports on Form 8-K during the quarterly period
ended June 30, 1997.
12
<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.
HEALTHCOR HOLDINGS, INC.
Date: August 14, 1997 By: _________________________________
Susan L. Belske, Senior Vice President
and Chief Financial Officer
13
EXHIBIT 11
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED NET INCOME PER COMMON EQUIVALENT SHARES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
Primary and fully diluted earnings per share JUNE 30, JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income .................................... $ (3,336,017) $ 1,175,411 $ (1,527,755) $ 2,146,697
============ ============ ============ ============
Shares:
Weighted average common shares issued ......... 10,041,104 3,018,983 10,032,309 3,018,983
Assuming exercise of options, reduced by the
number of common shares which could have been
purchased with the proceeds from exercise of
such options ................................ -- 233,468 -- 233,468
Assuming conversion of Series A preferred stock -- 2,000,000 -- 2,000,000
Assuming conversion of Series B preferred stock -- 1,339,298 -- 1,339,298
------------ ------------ ------------ ------------
Weighted average number of common shares
outstanding, as adjusted .................... 10,041,104 6,591,749 10,032,309 6,591,749
============ ============ ============ ============
Net income per common share ................... $ (0.33) $ 0.18 $ (0.15) $ 0.33
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 34,581,345
<ALLOWANCES> 0
<INVENTORY> 3,449,286
<CURRENT-ASSETS> 44,368,034
<PP&E> 25,374,366
<DEPRECIATION> 0
<TOTAL-ASSETS> 127,224,268
<CURRENT-LIABILITIES> 43,882,508
<BONDS> 0
0
0
<COMMON> 100,616
<OTHER-SE> 53,150,408
<TOTAL-LIABILITY-AND-EQUITY> 127,224,268
<SALES> 68,078,592
<TOTAL-REVENUES> 68,078,592
<CGS> 31,530,002
<TOTAL-COSTS> 31,530,002
<OTHER-EXPENSES> 32,164,411
<LOSS-PROVISION> 4,777,915
<INTEREST-EXPENSE> 1,777,464
<INCOME-PRETAX> (2,171,200)
<INCOME-TAX> (643,445)
<INCOME-CONTINUING> (1,527,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,527,755)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
