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 October 31, 1998
----------------
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 0-12927
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NATIONAL HOME HEALTH CARE CORP.
----------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
Delaware 22-2981141
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
700 White Plains Road, Scarsdale, New York 10583
------------------------------------------------
(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number Including Area Code: 914-722-9000
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock outstanding as of December 15, 1998 was
5,185,150.
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1998
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of October 31,
1998 and July 31, 1998 (Unaudited) 3-4
Consolidated Statements of Operations for the
three months ended October 31, 1998 and
October 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the
three months ended October 31, 1998 and
October 31, 1997 (Unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
October 31, 1998 July 31, 1998
---------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,394,000 $10,992,000
Investments 488,000 488,000
Accounts receivable -
less allowance for doubtful accounts of
$291,000 at October 31, 1998 and
$295,000 at July 31, 1998 10,264,000 8,269,000
Income taxes receivable - - - - 123,000
Prepaid expenses and other assets 171,000 195,000
Deferred taxes 425,000 289,000
------------- -------------
Total current assets 18,742,000 20,356,000
Furniture, equipment and leasehold
improvements, net 463,000 395,000
Excess of cost over fair value of net assets of
businesses acquired, net 5,515,000 3,179,000
Other intangible assets, net 1,446,000 745,000
Deposits and other assets 163,000 154,000
Investment in unconsolidated investee 324,000 674,000
------------- -------------
TOTAL $26,653,000 $25,503,000
============= =============
</TABLE>
(continued)
-3-
<PAGE>
<TABLE>
<CAPTION>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
October 31, 1998 July 31, 1998
---------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,406,000 $1,013,000
Estimated third-party payor settlements 182,000 209,000
Loans payable 425,000 - - - -
Income taxes payable 185,000 - - - -
-------------- ------------
Total current liabilities 2,198,000 1,222,000
Total liabilities 2,198,000 1,222,000
------------- ------------
Stockholders' equity:
Common stock, $.001 par value: authorized
20,000,000 shares, issued 6,228,746 shares 6,000 6,000
Additional paid-in capital 18,525,000 18,525,000
Retained earnings 7,231,000 7,045,000
------------- ------------
25,762,000 25,576,000
Less treasury stock (1,031,519 and 1,028,879
shares) at cost (1,307,000) (1,295,000)
-------------- ------------
Total stockholders' equity 24,455,000 24,281,000
------------- -----------
TOTAL $26,653,000 $25,503,000
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the three months ended October 31,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
Net patient revenue $9,205,000 $9,101,000
---------- ----------
Operating expenses:
Cost of revenue 5,985,000 5,891,000
General and administrative 2,286,000 2,222,000
Amortization of intangibles 125,000 93,000
---------- ----------
Total operating expenses 8,396,000 8,206,000
---------- ----------
Income from operations 809,000 895,000
Other income:
Interest income 119,000 140,000
(Loss) from equity investee (350,000) (347,000)
---------- ----------
Income before taxes 578,000 688,000
Provision for income taxes 392,000 309,000
---------- ----------
NET INCOME $ 186,000 $ 379,000
========== ==========
Net income per share:
Basic $ 0.04 $ 0.07
========== ==========
Diluted $ 0.04 $ 0.07
========== ==========
Weighted average shares outstanding:
Basic 5,198,491 5,251,886
Diluted 5,265,754 5,334,406
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the three months ended October 31,
---------------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $186,000 $379,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 155,000 119,000
Provisions for doubtful accounts - - - - 15,000
Loss from equity investee 350,000 347,000
Deferred tax - - - - (118,000)
Changes in:
Accounts receivable (1,246,000) (564,000)
Income taxes receivable/payable 308,000 363,000
Prepaid expenses and other assets 41,000 54,000
Accounts payable, accrued expenses and other
liabilities 277,000 (322,000)
Estimated third party payor settlements (27,000) 31,000
----------- -----------
Net cash provided by operating activities 44,000 304,000
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (7,000) (23,000)
Purchase of assets of business (1,943,000) - - - -
Purchase of Accredited Health Services, Inc. net cash
acquired (1,680,000) - - - -
-----------
Net cash (used in) investing activities (3,630,000) (23,000)
------------ -----------
Cash flows from financing activities:
Proceeds from exercise of stock options - - - - 49,000
Purchase of treasury shares (12,000) (103,000)
----------- -----------
Net cash (used in) financing activities (12,000) (54,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,598,000) 227,000
Cash and cash equivalents - beginning of period 10,992,000 9,324,000
----------- -----------
CASH AND CASH EQUIVALENTS-END OF
PERIOD $ 7,394,000 $9,551,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Taxes $ 83,000 $83,000
Interest - - - - 1,000
Supplemental disclosures of non-cash investing
activities:
See Note 3 -- Acquisitions
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. 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
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended October 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending July 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended July 31, 1998.
NOTE 2 - INITIAL PUBLIC OFFERING OF SUNSTAR HEALTHCARE, INC.
On May 21, 1996, the initial public offering of common stock
by SunStar Healthcare, Inc. ("SunStar") was consummated. Prior to the offering,
SunStar had been a wholly-owned subsidiary of the Company, consisting of its
Florida outpatient medical center operations. As a result of the offering, the
Company currently owns 890,000 shares, or approximately 30.5%, of SunStar. The
Company utilizes the equity method of accounting for its investment in SunStar.
NOTE 3 - ACQUISITIONS
On August 10, 1998, the Company, through its wholly-owned
subsidiary Health Acquisition Corp., acquired, for $1,943,000 in cash, including
acquisition costs of $8,000, certain assets of Bryan Employment Agency, Inc.,
d/b/a/ Bryan Home Care Services, a New York licensed home health care company
which provides home care services in Westchester County, New York. The
acquisition was accounted for as a purchase and the cost was allocated as
follows: $285,000 to personnel files, $285,000 to patient files, $30,000 to
furniture and equipment, $200,000 to covenant not to compete and $1,143,000 to
excess of cost over fair value of net assets of businesses acquired. The
purchase price was generated from internal funds. The acquisition expanded the
geographic presence of the Company and enabled Health Acquisition Corp. to
become a participating provider in the Westchester County Department of Social
Services Medicaid Program. Annual revenues for Bryan Home Care approximated
$5,700,000 in calendar 1997.
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<PAGE>
On October 30, 1998, the Company acquired all of the
outstanding common shares of Accredited Health Services, Inc. ("Accredited").
Accredited is a licensed home health care company that provides home health aide
services in Bergen, Hudson, Passaic, Essex, Morris, Union, Somerset and
Middlesex Counties, New Jersey. The purchase price of approximately $1,974,000
in cash, including acquisition costs of $49,000, was generated from internal
funds. The final purchase price is subject to a post-closing adjustment. The
Company's preliminary allocation of purchase price is as follows: $1,203,000 to
current assets, $63,000 to furniture and equipment, $541,000 to current
liabilities and $725,000 to stockholders' equity. The acquisition was accounted
for as a purchase and the excess of purchase price over the fair value of assets
acquired, $1,249,000, was allocated to goodwill. Revenues from Accredited
approximated $5,300,000 for the fiscal year ended March 31, 1998.
NOTE 4 - PER SHARE DATA
The Company adopted Statement of Financial Accounting Standard
No. 128 ("SFAS 128"), "Earnings Per Share" during the fiscal quarter ended
January 31, 1998. Earnings per share and weighted average shares outstanding for
the three months ended October 31, 1997 have been restated for comparative
purposes.
-8-
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis provides information
which the Company's management believes is relevant to an assessment and
understanding of the Company's results of operations and financial condition.
This discussion should be read in conjunction with the attached consolidated
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended July 31, 1998.
This discussion contains forward-looking statements that are
subject to a number of known and unknown risks that, in addition to general
economic, competitive and other business conditions, could cause actual results,
performance and achievements to differ materially from those described or
implied in the forward-looking statements.
The Company is subject to significant external factors that
could significantly impact its business, including changes in Medicare and
Medicaid reimbursement, government fraud and abuse initiatives and other such
factors that are beyond the control of the Company. These factors, as well as
future changes in reimbursement, could cause future results to differ materially
from historical results.
The Balanced Budget Act of 1997, as amended (the "Act"), was
signed into law on August 5, 1997. Under the Act, for cost reports beginning on
or after October 1, 1997, Medicare-reimbursed home health agencies will be
reimbursed under an interim payment system ("IPS") for a two-year period prior
to the implementation of a prospective payment system. Under IPS, home health
care providers will be reimbursed the lower of (i) their actual costs, (ii) cost
limits based on 105% of median costs of freestanding home health agencies, or
(iii) an agency-specific per patient cost limit, based on 98% of 1994 costs
adjusted for inflation. Prior to the implementation of IPS, Medicare reimbursed
providers on a reasonable cost basis subject to program-imposed cost per visit
limitations. The Act calls for payments to Medicare providers for cost reporting
periods beginning on or after October 1, 2000 to be made in accordance with a
prospective payment system to be established by the Secretary of the Department
of Health and Human Services. Without a prospective payment system by October 1,
2000, a 15% further cut in Medicare home health payments will take effect.
The new IPS cost limits will apply to the Company's
Connecticut-based Medicare certified nursing agency for the cost reporting
period beginning July 1, 1998. The Company has determined that these new limits
will reduce current reimbursement for the Medicare services it provides.
Accordingly, in May 1998 the Company combined its operations in Connecticut by
merging its Medicare certified subsidiary with its licensed agency subsidiary to
increase operational efficiencies. In addition, the Company has been closely
monitoring utilization of Medicare services in an effort not to exceed per
patient cost limits.
The implementation of IPS has resulted in a decrease in
revenues from the Company's Medicare certified agency from the previous fiscal
year. In addition, the Company's operations in
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<PAGE>
New York and New Jersey are dependent upon referrals, primarily from Medicare
certified agencies, whose future reimbursement may be adversely affected.
Accordingly, there can be no assurance that the Company's future referrals will
not result in reduced reimbursement rates or reduced volume of business.
Results of Operations and Effects of Inflation
- ----------------------------------------------
For the three months ended October 31, 1998, net patient
revenue increased $104,000, or 1.1%, to $9,205,000 from $9,101,000 for the three
months ended October 31, 1997. Over the periods, net patient revenue from Health
Acquisition Corp., the subsidiary providing home health care services in the New
York metropolitan area, increased $657,000, or 11.1%, to $6,564,000 from
$5,907,000. This increase is attributable to the revenues generated from the
purchase of certain assets of Bryan Home Care Services of $1,472,000, offset by
the decline in same source revenues of ($815,000). The decline in same source
revenues is attributable to the decline in hours from the Medicare certified
agencies that Health Acquisition Corp. contracts with, as a result of the
implementation of IPS. Over the periods, net patient revenue from New England
Home Care, Inc., the subsidiary that is Medicare certified and licensed in
Connecticut, decreased ($552,000), or (17.3%), to $2,641,000 from $3,193,000.
This decrease is attributable to the decline in Medicare revenue over the same
periods. The decrease in Medicare revenue is the result of the change in
Medicare reimbursement from cost reimbursement to per patient limits.
Cost of revenue as a percentage of net patient revenue
increased slightly to 65.0% for the three months ended October 31, 1998 from
64.7% for the three months ended October 31, 1997.
General and administrative expenses increased $64,000, or
2.9%, to $2,286,000 for the three months ended October 31, 1998 from $2,222,000
for the three months ended October 31, 1997. This increase is attributable to
the additional general and administrative expenses incurred from the acquisition
of Bryan Home Care, offset by the decline in general and administrative expenses
of New England Home Care, Inc., as a result of the combining of the operations
in Connecticut. As a percentage of net patient revenue, general and
administrative expenses increased to 24.8% for the three months ended October
31, 1998 from 24.4% for the three months ended October 31, 1997.
Amortization of intangibles increased to $125,000 for the
three months ended October 31, 1998 from $93,000 for the three months ended
October 31, 1998. This increase is attributable to the acquisition of certain
assets of Bryan Home Care.
As a result of the foregoing, income from operations decreased
($86,000), or (9.6%), to $809,000 for the three months ended October 31, 1998
from $895,000 for the three months ended October 31, 1997.
Interest income decreased (15.0%) to $119,000 for the three
months ended October 31, 1998 from $140,000 for the three months ended October
31, 1997. This decrease is attributable
-10-
<PAGE>
to the cash used in investing activities resulting from the acquisition of
certain assets of Bryan Home Care.
The Company recorded a loss from equity investee of ($350,000)
in the three months ended October 31, 1998 as compared to a loss of ($347,000)
for the comparable period of 1997, representing the Company's share of the net
loss reported by SunStar for the same periods.
The Company's effective tax rate increased to 67.8% for the
three months ended October 31, 1998 from 44.9% for the three months ended
October 31, 1997. This increase is attributable to the Company's share of
SunStar's net loss, in which no income tax benefit was recorded for the three
months ended October 31, 1998, as compared to ($118,000) recorded for the three
months ended October 31, 1997. Excluding the tax effect of loss from equity
investee, the effective tax rate increased to 42.2% for the three months ended
October 31, 1998 from 41.2% for the three months ended October 31, 1997. This
increase is attributable to a decrease in Work Opportunity Tax Credits over the
comparable period of 1997.
The rate of inflation had no material effect on operations for
the three months ended October 31, 1998.
Financial Condition and Capital Resources
- -----------------------------------------
Current assets decreased to $18,472,000 and current
liabilities increased to $2,198,000, respectively, at October 31, 1998. This
resulted in a decrease in working capital by ($2,860,000) from $19,134,000 at
July 31, 1998 to $16,274,000 at October 31, 1998. Cash and cash equivalents
decreased ($3,598,000) to $7,394,000 at October 31, 1998 from $10,992,000 at
July 31, 1998. The decrease in both working capital and cash resulted from the
recent acquisitions completed by the Company. The combined acquisition costs
were $3,917,000.
The Company provided net cash from operating activities of
$44,000 for the three months ended October 31, 1998 as compared to net cash
provided from operating activities of $304,000 for the three months ended
October 31, 1997. The decrease in operating cash flow of ($260,000) is primarily
attributable to the decline in net income, an increase in accounts receivable
offset by the increase in accounts payable and accrued expenses over the
comparable period of 1997. Net cash used in investing activities for the three
months ended October 31, 1998 reflects acquisitions made by the Company and the
purchase of equipment. Net cash used in investing activities for the three
months ended October 31, 1997 reflects the purchase of equipment. Net cash used
in financing activities for the three months ended October 31, 1998 reflects the
purchase of treasury shares. Net cash used in financing activities for the three
months ended October 31, 1997 reflects the purchase of treasury shares offset by
the proceeds from the exercise of stock options.
The Company has available a $2,000,000 secured line of credit
with its bank. In addition, a subsidiary of the Company has a secured line of
credit. The maximum amount that can be borrowed under the secured line of credit
may not exceed the lesser of eligible accounts receivable
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<PAGE>
or $2,000,000. Both credit facilities bear interest at the alternate base
commercial lending rate of the bank and expire January 31, 1999. At October 31,
1998, there was no outstanding balance under either line of credit.
The Company intends to meet its short and long term liquidity
needs with its current cash balances, cash flow from operations and available
lines of credit. The Company believes that its cash balances also will allow it
to continue to make acquisitions in the home health care field without affecting
its liquidity needs.
In August 1998, the Board of Directors extended for one year
its program to repurchase its Common Stock. Purchases in the aggregate amount of
up to $1,000,000 in purchase price during the one-year extension would be made
from time to time in the open market and through privately negotiated
transactions, subject to general market and other conditions. The buyback
program will be financed out of existing cash or cash equivalents.
Year 2000 Compliance
- --------------------
The Year 2000 issue is the result of computer programs which
were written using two digits rather than four to define the applicable year.
Certain purchased systems used by the Company, and for which the Company does
not control the programming code, use two digits for the year. The current
systems used by Health Acquisition Corp. and Accredited Health Services, Inc.
are relatively old and have been slated for replacement with new systems that
better meet the information needs as they expand and deal with the current
operating environment. The Company anticipates that these conversions will be
completed to provide compliance with the requirements to handle the year 2000
issue with no significant operational concerns. The current system utilized by
New England Home Care, Inc. is a relatively new operating system. The Company
has been advised by the system vendor that all required changes necessary to be
compliant with the year 2000 issue have been substantially completed and will be
implemented prior to the year 2000. Management currently believes that the
financial resources necessary to accomplish year 2000 compliance will not be
material to the Company's financial condition, liquidity or results of
operations. However, there is no guarantee that the Company's expected results
will be achieved. In addition, actual results could differ materially from those
expected results.
The Company depends on receipt of payment for services from
its payor sources, most of which utilize computer software to process those
payments. The Company's primary payors include Medicare and Medicaid programs,
insurance companies, other Medicare certified home health agencies and long-term
health care provider programs. The Company currently is unable to predict what
effect, if any, the year 2000 issue may have on the computer systems of those
payors, or, in turn, on the Company.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the
quarterly period ended October 31, 1998.
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<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.
National Home Health Care Corp.
Date: December 15, 1998 /s/ Robert P. Heller
------------------------------------------
Robert P. Heller
Vice President of Finance (chief financial
and accounting officer)
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- -------- -----------
27.1 Financial Data Schedule.
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000728389
<NAME> NATIONAL HOME HEALTH CARE CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 7,394,000
<SECURITIES> 488,000
<RECEIVABLES> 10,555,000
<ALLOWANCES> (291,000)
<INVENTORY> 0
<CURRENT-ASSETS> 18,742,000
<PP&E> 1,133,000
<DEPRECIATION> (670,000)
<TOTAL-ASSETS> 26,653,000
<CURRENT-LIABILITIES> 2,198,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 24,449,000
<TOTAL-LIABILITY-AND-EQUITY> 26,653,000
<SALES> 9,205,000
<TOTAL-REVENUES> 9,205,000
<CGS> 0
<TOTAL-COSTS> 8,396,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 350,000
<INTEREST-EXPENSE> (119,000)
<INCOME-PRETAX> 578,000
<INCOME-TAX> 392,000
<INCOME-CONTINUING> 186,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
