SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-9848
CARETENDERS HEALTH CORP.
(Exact name of registrant as specified in its charter)
Delaware 06-1153720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207
(Address of principal executive offices) (Zip Code)
(502) 899-5355
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, par value NASDAQ National Market
$.10 per share
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of regulation S-K is not contained herein, and will not
be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.______
As of June 23, 1997, 3,129,413 shares of the Registrant's Common
Stock were outstanding. The aggregate market value of Registrant's
Common Stock held by non-affiliates of the Registrant as of June 23,
1997 was approximately $ 25,622,069 (based on the last sale price of
a share of the common stock as of June 23, 1997 ($8.1875), as
reported by the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market system).
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement, to be filed with the
Commission no later than 120 days after March 31, 1997, is incorporated
by reference in Part III of this report.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
<PAGE>
PART I
ITEM 1. BUSINESS
General Development of Business
Incorporated in Delaware in November, 1985, Caretenders Health Corp.
and subsidiaries (collectively "Caretenders" or the "Company") is one
of the first companies to provide integrated adult day health services
and home health care services for seniors and others with chronic and
post-acute medical conditions who wish to remain in their homes and
communities. Today more than seven million senior Americans are in
need of alternatives to long-term nursing home confinement and this
number is expanding rapidly. These individuals desire to remain in
their homes and out of nursing homes and conserve their financial
resources as long as possible. The Company provides seniors in need
with a lower-cost alternative to institutional care helping them gain
economic security access to health care, mobility and independence
without isolation.
With its experience in home health care and leadership in adult day
health center operations, the Company is implementing an expansion
program offering integrated home and community based health care
marketed under the name Caretenders' SeniorCare Solutions.
The Company is positioning itself to take advantage of changes and
reform activities in the healthcare industry by focusing its resources
into its home and community based health care business units which
consist of adult day health services and home health care (home health
care includes nursing, infusion therapy and durable medical equipment).
These businesses are involved with the delivery of health care in
alternative settings which the Company believes are preferred by
consumers and operate at lower costs than hospitals and nursing homes.
The trend toward alternative site delivery of healthcare is increasing,
as more payor organizations are seeking to reduce the costs of medical
care.
Utilizing its strengths in home health care and adult day health
services, the Company is actively addressing the issue of senior care
in America by its comprehensive strategy _ Caretenders SeniorCare
Solutions. Through care management by a Registered Nurse (RN),
Caretenders helps families identify solutions for caring for loved ones
who can no longer meet their own health and personal care needs.
Through the Company's Care Manager, families can learn about long-term
care options available for seniors and obtain assistance in choosing
from Caretenders' SeniorCare Day and Home Health Care Centers or, if
appropriate, other available community based resources.
Home Health Care Services
The Company's comprehensive strategy allows it to provide a full range
of home health care services to a patient, enabling the physicians,
payors and patients to deal with a single provider. All Caretenders
services are rendered through care management by a registered nurse,
which coordinates nursing, home infusion and equipment services.
Caretenders nursing provides a comprehensive range of both professional
and para-professional services from highly-skilled infusion therapy
nursing to custodial companion care. Professional staff including
registered nurses, licensed practical nurses, physical, speech and
occupational therapists, and medical social workers implement and
monitor medical treatment plans prescribed by physicians. Professional
staff are subject to state licensing requirements in the particular
states in which they practice. Para-professional staff includes home
health aides, homemakers and companions who assist patients with health
related tasks and the activities of daily living.
Home infusion therapy involves the intravenous or other administration
of physician-prescribed nutrients, antibiotics, chemotherapeutic agents
and other medications to patients in their homes. Such therapy
generally continues a plan of treatment initiated in the hospital, or
as a substitute for hospitalization. Home infusion costs are between
30% and 70% less than the same therapy administered in an institutional
setting. There are five major categories of infusion therapy: total
parenteral nutrition, enteral nutrition, antibiotic therapy,
chemotherapy and pain management therapy.
Caretenders sells and rents medical equipment for use in the home.
While the Company provides a complete range of equipment, the
businesses generally can be divided into two predominant categories:
respiratory/oxygen services and rehabilitation products.
Caretenders is compensated for its services through (i) private pay
(paid by personal funds), (ii) Medicare, (iii) Medicaid, and (iv) other
third party payors (e.g. insurance companies). See "Item 1. Business -
- Payment Sources". Caretenders employs compensation specialists who
advise patients as to the availability of sources of payment for its
services.
<PAGE>
Adult Day Health Services
Adult day health services is an alternative method of providing care
for seniors and other adults who without such care would likely be
institutionalized. The field has grown rapidly, from just 15 centers
in the United States in the early 1970s to over 3,000 today. Still in
its early stages, the industry is highly fragmented with the majority
operated by the non-profit sector. Caretenders is the largest for-
profit provider of adult day care services in the U.S.
The Company's adult day health centers provide professional, high
quality adult day health services for disabled or frail adults who
require some care or supervision, but who do not require intensive
medical attention or institutionalization. The average center provides
care for over 60 guests per day, seven days a week. Round-trip
transportation is provided to each participant.
The centers offer a range of therapeutic and medical services designed
to promote the independence of participants and provide respite to
families and caregivers. On-site staff nurses administer medications
and ensure attention to medical care. Other services include (i) a
light breakfast, a hot lunch, and an afternoon snack; (ii) a highly
structured, individualized and creative activities program which
includes recreation, education, field trips, sports, crafts, music and
group conversations; and (iii) family counseling.
Through care management by a Registered Nurse (RN), Caretenders
helps families identify solutions for caring for loved ones who can
no longer meet their own health and personal care needs. Through
the Company's Care Manager, families can learn about their choices
for long-term care for seniors and choose from Caretenders'
SeniorCare Day and Home Health Care Centers as well as other
available community based resources.
As of March 31, 1997, the Company's conducts its services in centers
in the following locations:
<TABLE>
Home Adult Day Managed
Locations Heath Health Agencies Total
<S>
Kentucky: <C> <C> <C> <C>
Louisville area 5 1 9 15
Lexington area 8 1 3 12
Elizabethtown area - - 6 6
Indiana:
Evansville 3 - - 3
Indianapolis 1 - - 1
Ohio:
Cincinnati 1 1 - 2
Columbus 2 - - 2
Cleveland 2 - - 2
Youngstown 1 - - 1
Massachusetts:
Boston 3 - - 3
Connecticut:
Stamford 1 1 - 2
Middlebury - 1 - 1
Danbury - 1 - 1
Maryland:
Baltimore - 10 - 10
Virginia:
Richmond 2 - - 2
Alabama:
Birmingham 6 1 - 7
Florida:
Fort Lauderdale 2 - - 2
West Palm Beach - 1 - 1
Total 37 18 18 73
</TABLE>
<PAGE>
Capacity for the Company's adult day health centers was 976 guests
per day at the beginning of the year and grew by 38% to 1,343 guests
per day by the end of the year.
The Company is currently engaged in an expansion strategy that began
in late fiscal 1996 and will continue for the foreseeable future.
During this expansion period the Company expects to add up to 28
additional adult day health centers and 15 home health care centers.
Since the inception of the expansion strategy, the Company has added
5 adult day health services and 9 home health care centers.
The following table details the change in the Company's centers
during 1997:
<TABLE>
Home Adult Day Managed
Health Health Agencies Total
<S> <C> <C> <C> <C>
Centers as of 3/31/96 29 14 14 57
Change:
Acquired 2 1 - 3
Opened 7 3 4 14
Closed - - - -
Sold (1) - - (1)
----- ---- ---- -----
Subtotal 8 4 4 16
----- ---- ---- -----
Centers as of 3/31/97 37 18 18 73
===== ==== ==== =====
</TABLE>
Divestitures
On February 18, 1995, the Company entered into an arrangement with
Columbia/HCA Healthcare Corporation (_Columbia_), under which Columbia
acquired the Company's Certificate of Need to provide nursing services
to patients in eight counties in the Elizabethtown, Kentucky area and
hired the Company to manage the operations until the year 2000.
<PAGE>
Acquisition Policy
The Company continually considers and reviews possible acquisitions of
businesses that provide health care services similar to those currently
offered by Caretenders' companies. Factors which may affect future
acquisition decisions include the quality and potential profitability
of the company under consideration, and the Company's ability to
finance the transaction.
During 1997, the Company completed three transactions to acquire two
intermittent home nursing services operations and an adult day health
services operation. These operations added to the Company's market
presence in both Ohio and Florida. No pro forma financial information
has been provided as the acquisitions, individually and in the
aggregate, are not significant compared to the Company's existing
operations.
Subsequent to March 31, 1997, the Company signed a letter of intent to
purchase a business operating an adult day health center in Northern
Ohio.
Competition, Marketing and Customers
Home Health Care
The home health care industry is highly competitive but fragmented,
with competition largely focused on individual products or services.
The Company's competitors can be classified into three categories:
nursing services, infusion therapy, and medical equipment.
The Company believes competition is based primarily on the quality of
service provided, and such quality is measured by responsiveness and
the technical ability of the professional staff. The scope of services
offered, relationships with referral sources and price are also
competitive considerations. Caretenders competes with larger home
health care providers through its comprehensive strategy, which
facilitates focused accountability, quality, reduced administrative
burdens and convenience for patients and physicians. Another
competitive factor in the home health care industry is accreditation by
JCAHO (Joint Commission on Accreditation of Healthcare Organizations),
a not-for-profit accreditation organization. All Caretenders offices
are accredited by JCAHO.
<PAGE>
In addition to the larger national companies, Caretenders also competes
with numerous local and regional companies and pharmacies. Many of the
Company's competitors have greater resources than the Company.
The Company's home health services are marketed by a direct sales force
primarily to hospital discharge planners, physicians and insurance and
managed care organizations. Referrals may also be sought through
advertisements in several local specialty publications, attendance at
major trade shows and voluntary participation in JCAHO. The Company
also utilizes consumer-direct sales, marketing and advertising programs
designed to increase its private pay business.
Adult Day Health Services
Like the home health care industry, the adult day health services
industry is also highly competitive but fragmented. Competitors
include: other adult day health centers, ancillary programs provided by
nursing homes and hospitals; other government-financed facilities,
retirement communities, and senior adult associations.
The Company believes the primary competitive factors are quality of
service and reputation among referral sources. However, competitors are
increasingly focusing attention on providing alternative site health
care services. Caretenders competes by offering a high quality of care
and by helping families identify and access solutions for care via
Caretenders' SeniorCare Solutions. Adult day care competitive
advantages include transportation and superior facilities and guest
activity programs.
The Company markets its adult day health services through its adult day
health center directors and the marketing staff. The directors
contact referral sources in their areas to market the Company's
services. Major referral sources include: Offices on Aging, social
workers, hospital discharge planners and group living facilities.
<PAGE>
Government Regulations
The health care industry has experienced extensive and dynamic change.
In addition to economic forces and regulatory influences, continuing
political debate is subjecting the health care industry to significant
reform. Health care reform proposals have been formulated by
the current federal government administration, members of Congress,
and, periodically, state legislators. Government officials can be
expected to continue to review and assess alternative health care
delivery systems and payment methodologies. Changes in the law or new
interpretations of existing laws may have a dramatic effect on the
definition of permissible or impermissible activities, the relative cost
of doing business, and the methods and amounts of payments for medical
care by both governmental and other payors. Legislative changes to
"balance the budget" and slow the annual rate of growth of Medicare and
Medicaid are expected. Such changes may impact reimbursement for home
health care. There can be no assurance that future legislation or regulatory
changes will not have a material adverse effect on the future operations
of the Company.
The Company's business is subject to extensive federal, state and local
regulation.
Permits and Licensure
Many states require companies providing certain home health care services
to be licensed as home health agencies. The Company currently is licensed
as a home health agency where required by the law of the states in which
it operates. In addition, certain of the Company's pharmacy operations
require state licensure and are also subject to federal and other state laws
and regulations governing pharmacies and the packaging and repackaging and
dispensing of drugs (including oxygen). Federal laws may require registration
with the Drug Enforcement Administration of the United States Department of
Justice and the satisfaction of certain requirements concerning security,
record keeping, inventory controls, prescription order forms and labeling.
In addition, certain health care practitioners employed by the Company
require state licensure and/or registration and must comply with laws and
regulations governing standards of practice. The failure to obtain, renew
or maintain any of the required regulatory approvals or licenses could
adversely affect the Company's business. There can be no assurance that
either the states or the federal government will not impose additional
regulations upon the Company's activities which might adversely affect its
business, results of operations or financial condition.
Certificates of Need
Certain states require companies providing home health care services to obtain
a certificate of need issued by a state health planning agency. Some states
require such certificates of need only for Medicare-certified home health
agencies. Where required by law, the Company has obtained certificates of
need from those states in which it operates. There can be no assurance that
the Company will be able to obtain any certificates of need which may be
required in the future if the Company expands the scope of its services or
if state laws change to impose additional certificate of need requirements,
and any attempt to obtain additional certificates of need will cause the
Company to incur certain expenses.
<PAGE>
Other Regulations
A series of laws and regulations dating back to the Omnibus Budget
Reconciliation Act of 1987 ("OBRA 1987") have been enacted and apply to the
Company's operation. Periodic changes have occurred from time to time since the
1987 Act including reimbursement reduction and changes to payment rules.
As a provider of services under the Medicare and Medicaid programs, the Company
is subject to the Medicare and Medicaid anti-kickback statute, also known as the
"fraud and abuse law." This law prohibits any bribe, kickback, rebate or
remuneration of any kind in return for, or as an inducement for, the referral of
Medicare or Medicaid patients. The Company may also be affected by the federal
physician self-referral prohibition, known as the "Stark" law, which, with
certain exceptions,prohibits physicians from referring patients to entities in
which they have a financial interest. Many states in which the Company operates
have adopted similar self-referral laws, as well as laws that prohibit certain
direct or indirect payments or fee-splitting arrangements between health care
providers, if such arrangements are designed to induce or to encourage the
referral of patients to a particular provider.
Health care is an area of extensive and dynamic regulatory change. Changes in
laws or regulations or new interpretations of existing laws or regulations can
have a dramatic effect on permissible activities, the relative costs associated
with doing business, and the amount and availability of reimbursement by
government and third-party payors. Furthermore, the Company will be required to
comply with applicable regulations in each new state in which it desires to
provide services.
Management believes that the Company operations are in material compliance with
applicable laws. The Company, however, is unable to predict what additional
government regulations, if any, affecting its business may be enacted in the
future, how existing or future laws and regulations might be interpreted or
whether the Company will be able to comply with such laws and regulations either
in the markets in which it presently conducts, or wishes to commence, business.
The Company also is subject to routine and periodic surveys and audits by
various governmental agencies.
Potential Reimbursement Changes
In the fall of 1995, Congress proposed reductions in the Medicare reimbursement
rate for home oxygen therapy service and equipment, which legislation was vetoed
by President Clinton. Despite the presidential veto, Congress continues to
consider legislation affecting reimbursement of these items, and President
Clinton's proposed budget for 1998 includes a provision that would require
Medicare to obtain competitive bidding for all clinical laboratory services,
home medical equipment (including home oxygen)and orthotics. Consequently,
Medicare reimbursement rates for oxygen services and equipment could be reduced.
The Company cannot be certain of the timing or level of reductions for Medicare
oxygen and equipment reimbursement. Any such reductions could have a material
adverse effect on the operating results and cash flows of the Company.
<PAGE>
Congress is also currently considering establishing a prospective payment system
("PPS") for home health services. Proposals include lowering cost limits over
the short-run and implementing a per-episode PPS for home health not later than
1999. Currently, HCFA is running a demonstration project to test per episode
reimbursement for home health services. Any such prospective payment system
could have a material effect on the operating results and cash flows of the
Company.
The Company is unable to predict whether the proposed Medicare prospective
payment system and/or Medicare reimbursement rates for oxygen services and
equipment will be enacted or what final form such legislation might take.
Furthermore, the Company cannot predict what additional government regulations,
if any, affecting its business may be enacted in the future, how existing or
future laws and regulations might be interpreted, or whether the Company will be
able to comply with such laws and regulations in its existing or future markets.
<PAGE>
Payment Sources
The Company receives payments from Medicare, Medicaid and other cost
reimbursement programs, private pay and insurance policies as detailed
below. The Company's dependence on government sponsored reimbursement
programs makes it vulnerable to possible legislative and administrative
regulations and budget cut-backs that could adversely affect the number
of persons eligible for such programs, the amount of allowed
reimbursements or other aspects of the program, any of which could
materially affect the Company. In addition, loss of certification or
qualification under Medicare/Medicaid programs could materially affect
the ability of the Company's adult day health and home health care
businesses to effectively market their services.
The Company's future operating results are dependent in part upon its
ability to attract customers able to pay for the Company's charges from
their own and their families' financial resources. Circumstances which
adversely affect the ability or desire of seniors to pay for the
Company's services could have an adverse effect on the Company.
The following table sets forth the Company's net revenues derived from
each major class of payer during the following fiscal years (by
percentage of net revenues):
<TABLE>
1997 1996
--------------------------- ---------------------------
Insurance Insurance
Business Unit Medicare Medicaid & Private Medicare Medicaid & Private
<S> <C> <C> <C> <C> <C> <C>
Home Health 47.3% 10.6% 42.1% 39.6% 12.3% 48.1%
Services
Adult Day Health 0.0% 80.2% 19.8% 0.0% 78.1% 21.9%
Services
Total - All 38.7% 23.3% 38.0% 30.2% 24.7% 45.1%
Services
</TABLE>
Changes in payment sources from 1996 to 1997 are primarily a result of
the Company's acquisition and expansion activities.
In determining charge rates for goods and services provided to
customers, the Company evaluates several factors including cost and
market competition. The Company also negotiates contract rates with
third party providers such as insurance companies. The rates of
reimbursement for a significant portion of the Company's charges are
dictated by Federal or State programs such as Medicare, Medicaid and
Workers Compensation.
<PAGE>
Insurance
The Company and its subsidiaries carry general liability and
professional liability insurance. The Company also carries product
liability insurance associated with those operations requiring such
coverage, including the durable medical equipment operations. The
Company's properties are covered by casualty insurance policies. The
Company carries directors and officers liability with a $3,000,000
limit. The Company believes that its present insurance coverage is
adequate.
Employees and Labor Relations
As of March 31, 1997, the Company had approximately 2,600 employees.
None of the Company's employees are represented by a labor
organization. Management believes its relationship with the Company's
employees is satisfactory.
Cautionary Statements
Information provided herein by the Company contains, and from time to
time the Company may disseminate material and make statements which may
contain forward-looking information, as that term is defined by the
Private Securities Litigation Reform Act of 1995 (the Act). These
cautionary statements are being made pursuant to the provisions of the
Act and with the intention of obtaining the benefits of safe harbor
provisions of the Act. The Company cautions investors that any
forward-looking statements made by the Company are not guarantees of
future performance and that actual results may differ materially from
those in the forward-looking statements as a result of various factors
including but not limited to the following:
<PAGE>
(i) In recent years, an increasing number of legislative proposals
have been introduced or proposed in Congress and in some state
legislatures that would effect major changes in the health care
system, either nationally or at the state level. However, the
Company cannot predict whether any of the proposals will be
adopted, and if adopted, no assurance can be given that the
implementation of such reforms will not have a material impact on
the operations of the Company.
(ii) The Company derives substantial portions of its revenues from
third-party payors, including government reimbursement programs
such as Medicare and Medicaid, and non-government sources such as
commercial insurance companies, HMOs, PPOs and contract services.
These payors have undertaken cost-containment measures designed to
limit payments to health care providers. There can be no
assurance that payments under these programs will be sufficient to
cover the costs allocable to patients eligible for reimbursement.
The Company cannot predict whether and what proposals or cost
containment measures will be adopted or, if adopted, what effect,
if any, such proposals might have on the operations of the
Company.
(ii) The Company competes with numerous well established competitors
which have substantially greater financial resources than the
Company. Competitors are increasingly focusing attention on
providing alternative site health care services, specifically on
adult day health services. Such increasing competition may
adversely affect revenues and profitability of Company operations.
(iii) The Company believes its present insurance coverage is
adequate. However, there can be no assurance that such insurance
will be available, or, if available, that such insurance will be
either adequate to cover the Company's liabilities or available at
affordable rates. In addition, increasing insurance costs, and
the increasing unwillingness of insurance companies to insure
against certain types of losses, raise some questions as to
whether the Company will be able to obtain or continue its present
insurance coverage. The inability to obtain adequate insurance
coverage at affordable rates, or a loss of existing coverage,
could have a material effect on the Company.
(iv) The Company's future operating results are dependent in part upon
its ability to attract customers able to pay for the Company's
charges from their own and their families' financial resources.
Circumstances which adversely affect the ability or desire of
seniors to pay for the Company's services could have an adverse
effect on the Company. In the event that the Company encounters
difficulty in attracting seniors with adequate resources to pay
for the Company's services, the Company would be adversely
affected.
(iv) The Company provides its services to individuals in home and
community settings. Severe winter weather may hinder the
Company's ability to provide its services and thus impact
operating results.
<PAGE>
(v) During fiscal 1998, the Company plans to develop up to 11 new
adult day health centers after which the Company plans to continue
development efforts at a similar or accelerated pace. The
Company's ability to achieve its development plans will depend
upon a variety of factors, many of which are beyond the Company's
control. There can be no assurance that the Company will not
suffer delays in its development program, which could slow the
Company's growth. The successful development of additional
operations will involve a number of risks including the
possibility that the Company may be unable to locate suitable
sites at acceptable prices or may be unable to obtain, or may
experience delays in obtaining, necessary zoning, land use,
building, occupancy, licensing and other required governmental
permits and authorizations.
ITEM 2. PROPERTIES
The Company's executive offices are located in Louisville, Kentucky in
approximately 25,000 square feet of space leased from an unaffiliated
party.
The Company has 38 locations that each lease from approximately 600 to
17,000 square feet of space in their respective locations. The Company
believes that its facilities are adequate to meet its current needs,
and that additional or substitute facilities will be available if
needed.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is subject to claims and suits
arising in the ordinary course of its business, including claims for
damages for personal injuries. In the opinion of management, the
ultimate resolution of any of these pending claims and legal
proceedings will not have a material effect on the Company's
financial position or results of operations.
<PAGE>
On January 26, 1994 Franklin Capital Associates LP, Aetna Life and
Casualty Company and Aetna Casualty and Surety Company, shareholders,
who at one time held approximately 320,000 shares of the Company's
common stock (approximately 13% of shares outstanding) filed suit in
Chancery Court of Williamson County, Tennessee claiming unspecified
damages not to exceed three million dollars in connection with
registration rights they received in the Company's acquisition of
National Health Industries in February 1991. The suit alleges the
Company failed to use its best efforts to register the shares held by
the plaintiffs as required by the merger agreement. The Company
believes it has meritorious defenses to the claims and does not expect
that the ultimate outcome of the suit will have a material impact on
the Company's results of operations or financial position. The Company
plans to vigorously defend its position in this case. No amounts have
been recorded in the accompanying financial statements related to this
suit.
In January 1997, Aetna Life and Casualty Company withdrew its claim
against the Company without prejudice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the
symbol "CTND". The prices shown below represent prices between
dealers, do not indicate retail mark-ups, mark-downs or commissions,
and do not necessarily represent actual transactions. Set forth
below are the high and low bid quotations for the common stock for
the periods indicated. The prices for the common stock were
provided by NASDAQ.
Closing Common Stock Prices
<TABLE>
Quarter Ended: High Low
<S> <C> <C>
June 30, 1995 6.75 5.25
September 30, 1995 8.38 5.75
December 31, 1995 8.13 5.75
March 31, 1996 8.38 5.88
June 30, 1996 9.63 6.50
September 30, 1996 7.75 5.25
December 31, 1996 7.00 5.37
March 31, 1997 6.75 5.37
</TABLE>
On June 23, 1997, the last reported representative bid price for the
Common Stock reported on the NASDAQ National Market System was $
8.1875 and there were approximately 727 holders of record of the
Company's Common Stock. No cash dividends have been paid by the
Company.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived
from the consolidated financial statements of the Company for the
periods and at the dates indicated. This information has been restated
to reflect the Company's 1 for 5 reverse stock split as further
explained in Note 1 to the consolidated financial statements of the
Company. The information is qualified in its entirety by and should be
read in conjunction with the consolidated financial statements and
related notes included elsewhere in this and prior year Form 10-Ks.
<TABLE>
Consolidated Selected Financial Information
(Dollar amounts in
000's Year Ended March 31,
except per share
data)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Results of Operations
Net revenues $76,773 $63,227 $60,836 $50,857 $36,527
Net Income (loss):
Continuing operations 1,759 1,575 1,248 627 611
Discontinued operations -- -- -- -- (1,339)
Net Income (loss) 1,759 1,575 1,248 627 (728)
Per share: (2)
Primary:
Number of shares 3,142 3,149 3,145 3,153 2,354 (1)
Net Income (loss)from:
Continuing operations $.56 $.50 $.40 $.20 $.26 (1)
Discontinued opeations -- -- -- -- (0.57)
Net Income (loss) $.56 $.50 $.40 $.20 $(0.31)
Fully diluted:
Number of share 3,142 3,149 3,145 3,175 N/A (1)
Net income from:
Continuing operations $.56 $.50 $.40 $.20 N/A (1)
Net Income $.56 $.50 $.40 $.20 N/A
Balance sheet Data as of: March 31,
1997 1996 1995 1994 1993
Working capital $17,471 $13,844 $11,641 $8,001 $2,193
Total assets 38,745 33,217 31,073 30,806 29,377
Long term liabilites 10,689 6,805 7,094 7,367 1,690
Total liabilities 18,081 14,313 13,744 14,731 13,929
Stockholders' 20,663 18,904 17,329 16,075 15,448
equity
<FN>
(1)does not include convertible preferred shares due to accounting rules
relating to calculation of loss per share
(2) In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, Earnings Per
Share. The standard modifies disclosure requirements for companies
required to report earnings per share to include presentations of
Basic and, if applicable, Diluted Earnings per Share. The impact of
this standard was not significant for all years presented and,
therefore, no additional earnings per share information has been
included in this table.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Strategic Focus
The Company is positioning itself to take advantage of healthcare
reform activities by focusing its resources into its home and
community based health care business units which consist of adult
day health services and home health care (home health care includes
nursing, infusion therapy and durable medical equipment). These
businesses are involved with the delivery of health care in
alternative settings which the Company believes are preferred by
consumers and operate at lower costs than hospitals and nursing
homes. The trend toward alternative site delivery of healthcare is
increasing, as more payor organizations are seeking to reduce the
costs of medical care.
Today more than seven million senior Americans are in need of
alternatives to long-term nursing home confinement and this number
is expanding rapidly. These individuals desire to remain in their
homes and out of nursing homes and conserve their financial
resources as long as possible. Caretenders SeniorCare Solutions
provides seniors in need with a lower-cost alternative to
institutional care helping them gain economic security access to
health care, mobility and independence without isolation.
Utilizing its strengths in home health care and adult day health
services, the Company is actively addressing the issue of senior
care in America by its comprehensive strategy _ Caretenders
SeniorCare Solutions. Through care management by a Registered Nurse
(RN), Caretenders helps families identify solutions for caring for
loved ones who can no longer meet their own health and personal care
needs. Through the Company's Care Manager, families can learn about
long-term care options available for seniors and obtain assistance
in choosing from Caretenders' SeniorCare Day and Home Health Care
Centers or, if appropriate, other available community based
resources.
The Company is currently engaged in an expansion strategy that began
in late 1996 and will continue for the foreseeable future. During
this expansion period the Company expects to add up to 28 additional
adult day health centers and 15 home health care centers. Since the
inception of the expansion strategy, the Company has added 5 adult
day health services and 9 home health care centers.
<PAGE>
The following table details the change in the Company's centers
during 1997:
<TABLE>
Home Adult Day Managed
Health Health Agencies Total
<S> <C> <C> <C> <C>
Centers as of 3/31/96 29 14 14 57
Change:
Acquired 2 1 - 3
Opened 7 3 4 14
Closed - - - -
Sold (1) - - (1)
----- ---- ---- -----
Subtotal 8 4 4 16
----- ---- ---- -----
Centers as of 3/31/97 37 18 18 73
===== ==== ==== =====
</TABLE>
Earnings - 1997
The Company experienced a 12% increase in net income despite
investing approximately $1.2 million of initial operating losses
related to geographic expansion. The increase in net income was
primarily a result of a 21% increase in net revenues experienced by
the Company due to increased volume. Selling, General and
Administrative costs improved as a percent of revenue dropping 1.1%
to 12.2% on increased revenues. Earnings per share were $.56 in
1997 as compared to $.50 for 1996. Initial operating losses related
to geographic expansion lowered 1997 earnings per share by $0.39
versus $0.02 in 1996.
<PAGE>
RESULTS OF OPERATIONS
Fiscal Year Ended March 31, 1997 Compared With Fiscal Year Ended March 31, 1996
<TABLE>
Caretenders Health Corp.
Operating Data
for the Years Ended March 31,
(amounts in thousands)
1 9 9 7 1 9 9 6 Change
---------------- ---------------- --------------
% of % of
Amount Revenues Amount Revenues Amount %
<S> <C> <C> <C> <C> <C> <C>
Net Revenues
Home Health Care $62,796 81.8% $50,822 80.4% $11,974 23.6%
Adult Day Health
Services 13,977 18.2% 12,405 19.6% 1,572 12.7%
------- ------ ------ ------ ------ ------
76,773 100.0% 63,227 100.0% 13,546 21.4%
Cost of Sales and Services
Home Health Care 49,301 78.6% 39,399 77.5% 9,902 25.1%
Adult Day Health
Services 10,968 78.4% 9,331 75.2% 1,637 17.5%
------- ----- ------ ------ ------ ------
60,269 78.5% 48,730 77.1% 11,539 23.7%
Center Contribution
Home Health Care 13,495 21.4% 11,423 22.5% 2,072 18.1%
Adult Day Health
Services 3,009 21.6% 3,074 24.8% (65) (2.1%)
------- ------ ------ ----- ------ ------
16,504 21.5% 14,497 22.9% 2,007 13.8%
Selling, General &
Administrative 9,363 12.2% 8,438 13.3% 925 11.0%
Provision for
Uncollectible Accounts 2,216 2.9% 1,669 2.6% 547 32.8%
Depreciation and
Amortization 2,239 2.9% 2,057 3.3% 182 8.8%
Interest and Other, Net 771 1.0% 623 1.0% 148 23.8%
------ ------ ------ ----- ------ ------
Income Before Taxes $1,915 2.5% $1,710 2.7% $205 12.0%
====== ====== ====== ===== ====== ======
</TABLE>
<PAGE>
Home Health Care Net Revenues. Net revenue increases in the
Company's existing markets were primarily the result of
increased volume for nursing services. Nursing volumes
increased 38.7%. Additional volumes in respiratory and
durable medical equipment and infusion therapies drove a
combined 17.1% increase for those two service lines.
Home Health Care Cost of Sales and Services. Cost of sales
and services as a percent of net revenues increased primarily
as a result of incurring $770,000 of initial operating losses
from geographic expansion.
Adult Day Health Services Net Revenues. The increase of $1.6
million in adult day health services revenues is primarily
attributable to improved occupancy in existing markets. Total
days of service provided increased 9.9% from 214,600 in 1996
to 236,000 in 1997. As of March 31, 1997, the Company had 18
centers in operation.
Adult Day Health Services Cost of Sales and Services. As a
percent of net revenues, cost of sales and services increased
primarily as a result of absorbing $495,000 of initial
operating losses from geographic expansion.
Selling, General and Administrative. The increase of $925,000
is due primarily to an increase in certain administrative
staff levels and costs incurred related to the Company's
geographic expansion.
<PAGE>
Provision for Uncollectible Accounts. The provision for
uncollectible accounts for the year ended March 31, 1997 was
recorded based on management's evaluation of collectibility.
Depreciation and Amortization. The increase of $182,000 is
primarily due to capital investments made by the Company.
These capital investments principally relate to geographic
expansion and replacement of certain medical equipment.
Interest and Other, Net. The increase in interest and other,
net is primarily a result of higher average outstanding debt
levels associated with the Company's acquisition and expansion
activities.
Income Taxes. As of March 31, 1997, the Company has net
deferred tax assets of approximately $1,264,000. The net
deferred tax asset is composed of $1,647,000 of deferred tax
assets and $383,000 of deferred tax liabilities.
Although the Company has experienced losses in the past,
management believes that the Company will be able to realize
its recorded deferred tax assets. The Company's ability to
generate the expected amounts of taxable income from future
operations is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation
and regulation at all levels of government. There can be no
assurances that the Company will meet its expectations of
future taxable income. However, management has considered the
above factors in reaching its conclusions that it is more
likely than not that future taxable income will be sufficient
to fully utilize the deferred tax assets as of March 31, 1997.
<PAGE>
Fiscal Year Ended March 31, 1996 Compared With Fiscal Year Ended March 31, 1995
<TABLE>
Caretenders Health Corp.
Operating Data
for the Years Ended March 31,
(amounts in thousands)
1 9 9 6 1 9 9 5 Change
---------------- ---------------- --------------
% of % of
Amount Revenues Amount Revenues Amount %
<S> <C> <C> <C> <C> <C> <C>
Net Revenues
Home Health Care $50,822 80.4% $50,330 82.7% $ 492 1.0%
Adult Day Health
Services 12,405 19.6% 12,405 17.3% 1,899 18.1%
------- ------ ------ ------ ------ ------
63,227 100.0% 60,836 100.0% 2,391 3.9%
Cost of Sales and Services
Home Health Care 39,399 77.5% 40,246 80.0% (847) (2.1%)
Adult Day Health
Services 9,331 75.2% 7,986 76.0% 1,345 16.8%
------- ----- ------ ------ ------ ------
48,370 77.1% 48,232 79.3% 498 1.0%
Center Contribution
Home Health Care 11,423 22.5% 10,084 20.0% 1,339 13.3%
Adult Day Health
Services 3,074 24.8% 2,520 24.0% 554 22.0%
------- ------ ------ ----- ------ -----
14,497 22.9% 12,604 20.7% 1,893 15.0%
Selling, General &
Administrative 8,438 13.3% 6,642 10.9% 1,796 27.0%
Provision for
Uncollectible Accounts 1,669 2.6% 1,689 2.8% (20) (1.2%)
Depreciation and
Amortization 2,057 3.3% 2,300 3.8% (243) (10.6%)
Interest and Other, Net 623 1.0% 671 1.1% (48) (7.2%)
------ ------ ------ ----- ------ ------
Income Before Taxes $1,710 2.7% $1,302 2.1% $408 31.4%
====== ====== ====== ===== ====== ======
</TABLE>
<PAGE>
Home Health Care Net Revenues. Net revenue increases in the
Company's existing markets is primarily the result of
increased volume for nursing services and durable medical
equipment offset partially by decreased volume for infusion
therapies. Nursing volumes increased 12% while durable
medical equipment volumes increased 23%.
Net revenues for 1995 included $4,466,000 related to
operations sold during 1995. After adjusting 1995 revenues to
remove operations sold, home health care net revenues
increased 12.3%. Contribution continues to be generated from
these operations under management contracts.
Home Health Care Cost of Sales and Services. Cost of sales
and services as a percent of net revenues decreased primarily
as a result of improved volumes in all markets and reductions
in cost as a result of operations sold.
Adult Day Health Services Net Revenues. The increase of $1.9
million in adult day health services net revenues is
attributable to improved occupancy in all markets, improvement
in mix of payors and rate increases. Total days of service
provided increased 14% from 188,480 in 1995 to 214,600 in
1996. As of March 31, 1996, the Company had 14 centers in
operation.
Adult Day Health Services Cost of Sales and Services. As a
percent of net revenues, cost of sales and services decreased
slightly as a result of better cost management, increased
occupancy and fixed costs spread over higher volumes.
<PAGE>
Selling, General and Administrative. The increase of $1.8
million is due primarily to an increase in certain
administrative staff levels and costs incurred to centralize
certain administrative functions.
Provision for Uncollectible Accounts. The provision for
uncollectible accounts for the year ended March 31, 1996 was
recorded based on management's evaluation of collectibility.
Depreciation and Amortization. The decrease of $243,000
resulted primarily due to replacement of purchased
transportation equipment with leased transportation equipment.
Interest and Other, Net. The decrease in interest and other,
net is primarily the result of the lower average outstanding
debt levels and a decrease in the interest rate associated
with the Company's working capital credit facility.
Income Taxes. As of March 31, 1996, the Company has net
deferred tax assets of approximately $1,072,000. The net
deferred tax asset is composed of $2,401,000 of deferred tax
assets, $173,000 of deferred tax liabilities and a valuation
allowance totaling approximately $1,156,000. The deferred tax
asset includes the tax benefit of net operating loss
carryforwards of approximately $340,000.
<PAGE>
Liquidity and Capital Resources
Revolving Credit Facility
The Company has a $12 million revolving credit facility with the
Healthcare Financial Services Division of Heller Financial, Inc.
Interest accrues on amounts drawn under the facility at a rate of 1
percent over prime. Availability is determined pursuant to a
formula principally consisting of a percentage of accounts
receivable subject to certain exclusions. At March 31, 1997, the
Company has total cash and unused borrowings of approximately $3.3
million available for working capital and development. The facility
will remain in effect until October 13, 1998 and for annual one year
terms thereafter unless either party to the credit agreement
provides the other with a written notice of termination 60 days
prior to the renewal date.
This facility should provide working capital resources sufficient to
support operations for the next year. Management will continuously
pursue additional capital including possible debt and equity
investments in the Company to support a more rapid development of
the business than would be possible with internal funds.
Cash Flows
Key elements to the Consolidated Statements of Cash Flows were (in
thousands):
Net Change in Cash and Cash
Equivalents 1997 1996 1995
Provided by (used in)
Operating activities $ 442 $ 1,817 $ (1,803)
Investing activities (4,257) (993) 1,721
Financing activities 3,269 (528) (1,169)
Net Change in Cash and Cash
Equivalents $ (546) $ 296 $ (1,251)
1997
Net cash provided by operating activities of approximately
$442,000 resulted principally from current period earnings net of
changes in accounts receivable and accounts payable and accrued
expenses. Net cash used in investing activities of approximately
$4.3 million resulted principally from amounts invested in
acquisition and expansion activities and capital expenditures
related to purchase of certain durable medical equipment and real
estate. Net cash provided by financing activities of
approximately $3.3 million resulted primarily from an increase in
the Company's credit facility related to investments made in
acquisitions and geographic expansion.
<PAGE>
1996
Net cash provided by operating activities of approximately $1.8
million resulted principally from current period earnings net of
changes in accounts receivable and accounts payable and accrued
expenses. Net cash used in investing activities of approximately
$993,000 resulted principally from capital expenditures. Net cash
used in financing activities of approximately $528,000 resulted
primarily from principal payments on term debt and capital leases.
1995
Net cash used in operating activities of approximately $1.8
million resulted principally from current period earnings offset
by increases in accounts receivable caused by revenue growth of
20% and longer payment cycles for some payors. Net cash provided
from investing activities resulted principally from the proceeds
from the sale of certain business offset by capital expenditures.
Net cash used in financing activities resulted primarily from
principal payments on term debt and capital leases. The Company
received proceeds of approximately $2.5 million from the
disposition of business units during 1995 which was used largely
to fund capital expenditures and working capital associated with
the Company's growth.
<PAGE>
Health Care Reform
The health care industry has experienced extensive and dynamic change.
In addition to economic forces and regulatory influences, continuing
political debate is subjecting the health care industry to significant
reform. Health care reform proposals have been formulated by
the current federal government administration, members of Congress,
and, periodically, state legislators. Government officials can be
expected to continue to review and assess alternative health care
delivery systems and payment methodologies. Changes in the law or new
interpretations of existing laws may have a dramatic effect on the
definition of permissible or impermissible activities, the relative cost
of doing business, and the methods and amounts of payments for medical
care by both governmental and other payors. Legislative changes to
"balance the budget" and slow the annual rate of growth of Medicare and
Medicaid are expected. Such changes may impact reimbursement for home
health care. There can be no assurance that future legislation or regulatory
changes will not have a material adverse effect on the future operations
of the Company.
Impact of Inflation
Management does not believe that inflation has had a material effect
on income during the past several years.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Year Ended March 31,
1997 1996 1995
<S> <C> <C> <C>
Net revenues $76,773,039 $63,226,968 $60,836,495
Cost of sales and services 60,268,808 48,729,847 48,231,522
Selling, general and administrative 9,363,031 8,438,050 6,641,921
Depreciation and amortization expense 2,239,194 2,057,092 2,300,034
Provision for uncollectible accounts 2,215,537 1,668,844 1,688,521
Income before interest and other
income (expense)and provision
for income taxes 2,686,469 2,333,135 1,974,497
Interest expense, net (771,099) (622,852) (770,294)
Other income and expense, net - - 97,500
Income before provision for income taxes 1,915,370 1,710,283 1,301,703
Provision for income taxes 156,000 135,000 54,041
Net income $ 1,759,370 $ 1,575,283 $ 1,247,662
PER SHARE:
Weighted average common and common
equivalent shares
outstanding 3,141,865 3,148,707 3,144,518
Net income per common and common
equivalent share $0.56 $0.50 $0.40
Net income per common share -
assuming full dilution $0.56 $0.50 $0.40
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
<TABLE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, March 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,014,604 $1,561,041
Accounts receivable - net of allowance for
uncollectible accounts of approximately
$3,153,000 and $2,900,000, respectively 20,436,964 17,197,400
Prepaid expenses and other current assets 1,765,168 1,487,876
Deferred tax assets 1,646,990 1,105,000
TOTAL CURRENT ASSETS 24,863,726 21,351,317
PROPERTY AND EQUIPMENT - net 4,959,217 3,981,934
COST IN EXCESS OF NET ASSETS ACQUIRED - net of
accumulated amortization of approximately
$1,430,000 and $1,190,000, respectively 7,723,263 7,005,232
OTHER ASSETS 1,198,367 878,351
----------- -----------
$38,744,573 $33,216,834
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $3,334,671 $3,306,484
Accrued salaries, commissions, benefits and
other expenses 3,696,350 3,661,967
Current portion of term debt and capital lease
obligations 261,716 432,329
Other current liabilities 100,000 106,986
TOTAL CURRENT LIABILITIES 7,392,737 7,507,766
LONG-TERM LIABILITIES:
Revolving credit facility 9,754,640 5,851,708
Term debt and capital lease obligations 145,308 321,839
Other liabilities 788,616 631,619
TOTAL LONG-TERM LIABILITIES 10,688,564 6,805,166
TOTAL LIABILITIES 18,081,301 14,312,932
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, par value $.10;
10,000,000 shares authorized; 3,129,436
issued and outstanding 312,944 312,944
Treasury stock, at cost, 10,000 shares (95,975) (95,975)
Additional paid-in capital 5,337,876 25,337,876
Accumulated deficit (4,891,573) (6,650,943)
TOTAL STOCKHOLDERS' EQUITY 20,663,272 18,903,902
----------- -----------
$38,744,573 $33,216,834
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996, and 1995
<TABLE>
Covertible Voting Preferred Stockholders' Equity
Common Stockholders' Equity
Additional
Additional Total
Preferred Stock Paid-in Common Stock
Treasury Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Total Shares Amount
Shares Amount Capital Deficit Total Equity
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
Balance, March 31, 1994 748,501 $37,425 $6,506,372 $6,543,797 2,380,155 $238,016
10,000 $(95,975) $18,863,001 $(9,473,888) $9,531,154 $16,074,951
Conversion of Preferred to Common (748,501) (37,425) (6,506,372) (6,543,797) 748,501 74,850
- - 6,468,947 - 6,543,797 -
Exercised options - - - - 780 78
- - 5,928 - 6,006 6,006
Net Income - - - - - -
- - - 1,247,662 1,247,662 1,247,662
Balance, March 31, 1995 - - - - 3,129,436 312,944
10,000 (95,975) 25,337,876 (8,226,226) 17,328,619 17,328,619
Net Income - - - - - -
- - - 1,575,283 1,575,283 1,575,283
Balance, March 31, 1996 - - - - 3,129,436 312,944
10,000 (95,975) 25,337,876 (6,650,943) 18,903,902 18,903,902
Net Income - - - - - -
- - - 1,759,370 1,759,370 1,759,370
Balance, March 31, 1997 - $ - $ - $ - 3,129,436 $312,944
10,000 $(95,975) $25,337,876 $(4,891,573) $20,663,272 $20,663,272
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
<TABLE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,759,370 $1,575,283 $1,247,662
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Gain on sale of assets - - (97,500)
Depreciation and amortization 2,239,194 2,057,092 2,300,034
Deferred income tax benefit (192,000) (492,000) (580,000)
Provision for uncollectible accounts 2,215,537 1,668,844 1,688,521
6,022,101 4,809,219 4,558,717
Change in certain net current assets, net
of the effects of acquisitions
(Increase) decrease in:
Accounts receivable (5,455,101) (3,588,432)(5,627,953)
Prepaid expenses and other current assets (274,784) (551,879) (6,346)
Increase (decrease) in:
Accounts payable and accrued expenses 156,628 999,625 (661,316)
Other liabilities (6,985) 148,820 (65,517)
Net cash provided by (used in) operating
activities: 441,859 1,817,353 (1,802,415)
Cash flows from investing activities:
Proceeds from sale of businesses - - 2,474,434
Capital expenditures (2,620,942) (1,015,161)(1,222,781)
Acquisitions, net of cash acquired (1,084,846) - -
Other assets (551,245) 21,827 469,027
Net cash (used in) provided by investing
activities: (4,257,033) (993,334) 1,720,680
Cash flows from financing activities:
Principal payments on term debt and capital
leases (441,202) (607,959) (1,167,243)
Issuance of term debt and capital leases - - 35,396
Net revolving credit facility borrowings
(repayments) 3,902,932 80,206 (43,498)
Other (192,993) - 6,006
Net cash provided by (used in) financing
activities: 3,268,737 (527,753) (1,169,339)
Net (decrease) increase in cash (546,437) 296,266 (1,251,074)
Cash and cash equivalents at beginning of year 1,561,041 1,264,775 2,515,849
Cash and cash equivalents at end of year $1,014,604 $1,561,041 $1,264,775
Supplemental Information
Cash paid for interest $690,851 $611,000 $736,000
Cash paid for income taxes $52,000 $671,000 $93,700
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of
Caretenders Health Corp. and its wholly-owned subsidiaries ("the
Company"). The Company provides adult day health services and home
health care services to individuals in Alabama, Connecticut, Florida,
Indiana, Kentucky, Maryland, Massachusetts, Ohio and Virginia. All
material intercompany transactions and accounts have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Uninsured deposits at March 31, 1997, and 1996 were approximately
$1,015,000 and $1,561,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives. The
estimated useful lives of depreciable assets are as follows:
Estimated
Useful Life
Building and Leasehold Improvements 5 - 30
Medical and Office Equipment 3 - 8
Transportation and Other Equipment 3 - 5
Included in Property and Equipment is rental equipment which may be
sold. Upon sale, the cost net of related accumulated depreciation is
charged to costs of sales and services.
COST IN EXCESS OF NET ASSETS ACQUIRED
The costs in excess of fair value of net assets acquired are stated at
cost and amortized on a straight-line basis over their estimated useful
lives which range from 20 to 40 years.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to its acquisitions, the Company evaluates whether later
events and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. At March 31,
1997, no such events or circumstances existed warranting such revisions
to the lives or recorded amounts of recorded goodwill. When factors
indicate that goodwill should be evaluated for possible impairment, the
Company will utilize appropriate methods (such as discounted cash flows
over the remaining life of the goodwill), in measuring whether or not
the goodwill is recoverable.
LONG-LIVED ASSETS
On April 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of (SFAS 121). SFAS 121,
under certain circumstances, requires a business to recognize an
impairment related to its long-lived assets. Application of this
standard did not impact the financial position or results of operations
of the Company.
CAPITALIZATION POLICIES
Maintenance, repairs and minor replacements are charged to expense as
incurred. Major renovations and replacements are capitalized to
appropriate property and equipment accounts. Upon sale or retirement
of property, the cost and related accumulated depreciation are
eliminated from the accounts and the related gain or loss is recognized
in income.
Construction costs incurred to ready a project for its intended use are
capitalized for major development projects and are amortized over the
lives of the related assets. Pre-opening costs related to the start up
of new operations and facilities are deferred and amortized over two
years beginning with commencement of operations. The unamortized
balance of capitalized pre-opening costs as of March 31, 1997 and 1996
was approximately $470,000 and $276,000, respectively and is included
in other assets on the accompanying balance sheet.
NET REVENUES
Approximately 62%, 55%, and 57%, of net revenues for the fiscal years
ended March 31, 1997, 1996, and 1995, respectively, were derived under
federal and state third-party reimbursement programs. These revenues
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are based, in part, on cost reimbursement principles and are subject
to examination and retroactive adjustment by agencies administering
the programs. Management continuously evaluates the outcome of these
reimbursement examinations and provides allowances for losses based
upon the best available information. In the opinion of management,
adjustments, if any, would not be material to the financial position or
the results of operations of the Company.
NET INCOME PER SHARE
Net income per common and common equivalent share is computed based on
the weighted average number of common shares and common equivalent
shares outstanding. Common equivalent shares result from dilutive
stock options, warrants, and convertible preferred stock.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, Earnings Per
Share (SFAS 128). The standard modifies disclosure requirements for
companies required to report earnings per share (EPS) to include
presentations of Basic EPS (which includes no dilution of common stock
equivalents) and, if applicable, Diluted EPS (which reflects the
potential dilution of common stock equivalents). The pro forma Basic
and Diluted EPS for March 31, 1997, 1996 and 1995 are as follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Earnings per share:
Net Income
Basic $ 0.56 $ 0.50 $ 0.40
Diluted $ 0.56 $ 0.50 $ 0.40
Weighted average shares
outstanding:
Basic 3,119,436 3,119,436 3,119,436
Diluted 3,141,865 3,148,707 3,144,518
</TABLE>
REVERSE STOCK SPLIT
On March 22, 1995, the shareholders approved and implemented a one (1)
for five (5) reverse stock split. Simultaneously, the par value per
common share changed from $.02 per share to $.10. Share and per share
information have been restated for all periods presented to reflect
this reverse stock split.
HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET CONDITIONS
The health care industry has experienced extensive and dynamic change.
In addition to economic forces and regulatory influences, continuing
political debate is subjecting the health care industry to significant
reform. Health care reform proposals have been formulated by
the current federal government administration, members of Congress,
and, periodically, state legislators. Government officials can be
expected to continue to review and assess alternative health care
delivery systems and payment methodologies. Changes in the law or new
interpretations of existing laws may have a dramatic effect on the
definition of permissible or impermissible activities, the relative cost
of doing business, and the methods and amounts of payments for medical
care by both governmental and other payors. Legislative changes to
"balance the budget" and slow the annual rate of growth of Medicare and
Medicaid are expected. Such changes may impact reimbursement for home
health care. There can be no assurance that future legislation or regulatory
changes will not have a material adverse effect on the future operations
of the Company.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reported period. Actual results could differ from
those estimates.
FINANCIAL STATEMENT RECLASSIFICATIONS
Certain amounts have been reclassified in the 1996 and 1995 financial
statements in order to conform to the 1997 presentation. Such
reclassifications had no effect on previously reported net income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts
receivable and payable and debt instruments. The book values of cash
and accounts receivable and payable are considered representative of
their respective fair values. The fair value of the Company's debt
instruments approximate their carrying values as substantially all of
such debt has rates which fluctuate with changes in market rates.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases,
consist of the following:
<TABLE>
March 31, March 31,
1997 1996
<S> <C> <C>
Buildings and improvements $ 713,572 $ 301,663
Leasehold improvements 1,894,695 1,301,521
Medical equipment 5,291,958 4,143,983
Office and other equipment 4,578,098 3,260,092
Transportation equipment 1,763,843 1,825,866
------------ ------------
14,242,166 10,833,125
Less accumulated depreciation (9,282,949) (6,851,191)
------------ ------------
$ 4,959,217 $ 3,981,934
</ABLE>
Property and equipment acquired under capital leases consists
principally of transportation, and office and other equipment, of
$720,000 and $1,608,000 at March 31, 1997 and 1996, respectively
against which obligations of approximately $165,000 and $434,000 were
outstanding at those dates.
Depreciation expense was approximately $1.8, $1.8, and $1.7 million
for the fiscal periods ended March 31, 1997, 1996, and 1995,
respectively.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - REVOLVING CREDIT FACILITY
The Company has a $12 revolving credit facility with the Healthcare
Financial Services Division of Heller Financial, Inc.. Interest
accrues on the facility at 1 percent over prime. Availability is
determined pursuant to a formula principally consisting of a percentage
of accounts receivable subject to certain exclusions, as defined. The
facility is collaterialized by accounts receivable, inventory and a
lien on the stock of the Company's subsidiaries. $12 million was
available under the formula on March 31, 1997. The balance outstanding
as of March 31, 1997 was approximately $9.8 million. The credit
agreement contains certain restrictive covenants. The facility will
remain in effect until October 13, 1998 and for annual one year terms
thereafter unless either party to the credit agreement provides the
other with a written notice of termination 60 days prior to the renewal
date.
NOTE 4 - TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Term debt and capital lease obligation borrowings consist of the
following:
</TABLE>
<TABLE>
March 31, March 31,
1997 1996
<S> <C> <C>
The Company has various
promissory notes and capital
leases related to certain
transportation and other
equipment expiring at various
dates through 1999. 407,024 754,168
Less current portion (261,716) (432,329)
---------- ------------
Non-current obligations $ 145,308 $ 321,839
</TABLE>
As of March 31, 1997, future net minimum lease payments under capital
leases and maturities of term debt are as follows:
<TABLE>
Capital Long-term
Leases Debt
<S> <C> <C>
1998 $ 136,316 $ 134,516
1999 40,814 58,632
2000 - 17,401
2001 - 19,295
2002 - 12,877
Thereafter - -
Total minimum lease payments and ---------- -----------
maturities 177,130 $ 242,721
Less amount representing interest (12,827) ===========
Present value of minimum lease ----------
payments 164,303
Less current portion (127,200)
----------
Long-term portion of capital
lease obligations $ 37,103
==========
</TABLE>
NOTE 5 - INCOME TAXES
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109) requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the difference between the Company's book and tax bases of assets
and liabilities and tax carryforwards using enacted tax rates in effect
for the year in which the differences are expected to reverse. The
principal tax carryforwards and temporary differences giving rise to
the Company's deferred taxes consist of tax net operating loss
carryforwards, differences in book and tax accounting for depreciation,
bonuses, compensated absences, deferred compensation, and allowance for
uncollectible accounts.
The Company's deferred tax assets and liabilities were as follows:
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
March 31, March 31, March 31,
1997 1996 1995
<S> <C> <C> <C>
Deferred tax assets
Nondeductible reserves and
allowances $1,338,000 $1,941,000 $1,871,000
Net operating loss carryforwards 202,000 340,000 854,000
AMT Credit 107,000 120,000 90,000
---------- ---------- -----------
1,647,000 2,401,000 2,815,000
Valuation allowance - (1,156,000) (1,780,000)
---------- ---------- -----------
$1,647,000 $1,245,000 $1,035,000
Deferred tax liabilities
Accelerated depreciation
and other $383,000 $173,000 $455,000
---------- ---------- ----------
Net deferred tax assets $1,264,000 $1,072,000 $580,000
========== ========== ==========
</TABLE>
Provision for income taxes consist of the following:
<TABLE>
Year Ended March 31,
1997 1996 1995
<S> <C> <C> <C>
Federal - Current $200,000 $ 30,000 $ 90,000
State and local Current 148,000 135,000 242,000
Deferred (192,000) (30,000) (277,959)
---------- ---------- ----------
156,000 $135,000 $ 54,041
</TABLE>
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the statutory to the effective rate of the Company
is as follows:
<TABLE>
March 31, 1997 March 31, 1996 March 31, 1995
<S> <C> <C> <C>
Tax provision using statutory rate $651,000 $555,900 $442,600
Goodwill $75,000 $71,400 $451,600
Valuation Allowance and other ($1,156,000) ($624,000) ($1,048,000)
State and local taxes,
net of federal benefit $155,000 $89,100 $159,700
Other, net $431,000 $42,600 $48,141
-------- --------- -----------
Total $156,000 $135,000 $54,041
</TABLE>
Although the Company has experienced losses in the past, management
believes that the Company will be able to realize its recorded
deferred tax assets. The Company's ability to generate the expected
amounts of taxable income from future operations is dependent upon
general economic conditions, competitive pressures on revenues and
margins and legislation and regulation at all levels of government.
There can be no assurances that the Company will meet its expectations
of future taxable income. However, management has considered the
above factors in reaching its conclusions that it is more likely than
not that future taxable income will be sufficient to fully utilize the
deferred tax assets as of March 31, 1997.
<PAGE>
NOTE 6 - STOCK OPTIONS AND WARRANTS
Employee Stock Option Plans
1. The Company has a Nonqualified Stock Option Plan which provides
for the granting of options to key employees, officers, and directors,
to purchase up to 220,000 shares of the Company's common stock. The
Board of Directors will determine the amount and terms of the options
which cannot exceed ten years.
2. The Company has an Incentive Stock Option Plan providing key
employees, officers, and directors, options to purchase up to 80,000
shares of the Company's common stock. Generally, these options
expire ten years after the date of grant, while options held by
individuals owning more than 10% of the Company's common stock expire
after five years. The option price cannot be less than the fair
market price of the common stock at the date granted and the options
are not exercisable during the first year.
3. The Company has a Supplemental Nonqualified Stock Option Plan
which provides options for the purchase up to 40,000 shares of the
Company's common stock to key employees and non-employee consultants.
The Board of Directors will determine the amount and terms of the
options, which cannot exceed ten years.
4. The Company has a 1991 Long-term Incentive Nonqualified Stock
Option Plan which provides options to purchase up to 500,000 shares of
the Company's common stock to key employees, officers, and directors.
The Board of Directors will determine the amount and terms of the
options, which cannot exceed ten years.
5. The Company has a 1993 Stock Option Plan for Non-employee
Directors which provides options to purchase up to 120,000 shares of
the Company's common stock to directors who are not employees. Each
newly elected director or any director who does not possess options to
purchase 10,000 shares of the Company's common stock will automatically
be granted options to purchase 10,000 shares of common stock at an
exercise price based on the market price as of the date of grant.
Changes in qualified options, non-qualified options, and supplemental
non-qualified options and warrants outstanding are summarized as
follows:
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Warrants Options
Shares Wtd. Avg Shares Wtd. Avg
Ex. Price Ex. Price
<S> <C> <C> <C> <C>
March 31, 1994 271,600 $12.13 557,220 $8.66
Granted 15,000 $12.50 51,600 $8.24
Exercised - 780 $1.54
Terminated - 56,460 $8.83
March 31,1995 286,600 $12.15 551,580 $8.61
Granted - 135,000 $6.30
Exercised - -
Terminated - 163,280 $9.26
March 31, 1996 286,600 $12.15 523,300 $7.82
Granted - 41,500 $6.30
Exercised - -
Terminated 20,000 $13.75 26,000 $4.34
March 31, 1997 266,600 $12.03 538,800 $7.87
</TABLE>
At March 31, 1997 and 1996, approximately 266,600 and 286,600 warrants
were exercisable, respectively. The following table details
exercisable options and related information:
1997 1996
Excercisable at end of year 420,000 404,000
Weighted Average Exercise
Price $8.18 $8.26
Weighted Average of Fair
Value of options Granted $4.26 $4.33
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. In 1995, Statement of Financial
Accounting Standards No. 123 _Accounting for Stock Based Compensation_
(SFAS 123) was issued and, if fully adopted, changes the method of
recognition of costs on plans similar to the Company's. The Company
adopted the disclosure-only provisions of SFAS 123. Accordingly, no
compensation cost has been recognized for the Company's stock option
plans. Had compensation cost for the stock option plans been
determined based upon the fair value at the grant date for the awards
in 1997 and 1996 consistent with the provisions of SFAS 123, the
effect on net income and earnings per share would have been reduced to
the following pro forma amounts:
<PAGE>
<TABLE>
1997 1996
<S> <C> <C> <C>
Net Income: As Reported $1,759,370 $1,575,283
Pro Forma 1,567,145 1,499,681
Primary EPS: As Reported $ 0.56 $ 0.50
Pro Forma 0.50 0.48
Fully Diluted EPS: As Reported $ 0.56 $ 0.50
Pro Forma 0.50 0.48
</TABLE>
Because the SFAS 123 method of accounting has not been applied to
options award prior to April 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
The following table summarizes information about stock options
outstanding at March 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
------------------------------------------------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C>
Wtd. Avg.
Range of Outstanding Remaining Wt. Avg. Exercisable Wtd. Avg.
Ex. Price As of March 31, 1997 Contractual Life Ex. Price As of March 31, 1997 Ex. Price
1.95 19,500 2.9 $1.95 19,500 $1.95
5.50 - 6.50 160,000 8.9 6.17 58,730 6.16
7.00 - 8.13 54,600 7.1 7.86 38,600 7.90
8.75 - 9.69 298,900 4.5 8.97 297,150 8.96
16.55 - 20.00 5,800 1.7 18.14 5,800 18.14
1.95 - 20.00 538,800 6.0 7.87 419,780 8.27
</TABLE>
The fair value of each option award is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for awards in 1997 and 1996
respectively: risk-free interest rates of 6.5% and 5.9%, expected
volatility of approximately 59% and 62%, expected lives of 7.5 years
for both 1997 and 1996, and no expected dividend yields for both 1997
and 1996
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases certain real estate, office space, and equipment
under noncancellable operating leases expiring at various dates
through 2007. Rent expense amounted to approximately $3.1, $2.5, and
$2.4 million for 1997, 1996, and 1995, respectively. At March 31,
1997 the minimum rental payments under these leases are as follows:
1998 2,950,000
1999 2,607,000
2000 2,407,000
2001 1,987,000
2002 1,408,000
(b) Employment Contracts
The Company has entered into an employment contract with an officer.
In connection with this contract, the Company is contractually
obligated to pay an annual base salary of $190,000 for three years. In
addition, the agreement contains contingent obligations associated with
performance bonuses and severance.
(c) Medical Malpractice Claims
The Company has insurance coverage with respect to medical
malpractice risks. The malpractice insurance coverage provides
coverage up to $1,000,000 per occurrence, and has no deductible for
which the Company would be responsible.
It is the Company's policy to record losses from asserted and
unasserted claims identified by the Company and unreported claims based
on estimates that incorporate the Company's past experience, as well as
other considerations including the nature of each claim or incident and
relevant trend factors. Based on these factors and the Company's
insurance coverage, no accrual for potential losses attributable to
asserted and unasserted claims has been recorded in the accompanying
financial statements.
(d) Legal Proceedings
The Company is currently, and from time to time, subject to claims and
suits arising in the ordinary course of its business, including claims
for damages for personal injuries. In the opinion of management, the
ultimate resolution of any of these pending claims and legal
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
proceedings will not have a material effect on the Company's financial
position or results of operations.
On January 26, 1994 Franklin Capital Associates, Aetna Casualty and
Surety and Aetna Life and Casualty, shareholders, who at one time held
approximately 320,000 shares of the Company's common stock
(approximately 13% of shares outstanding) filed suit in Chancery Court
of Williamson County, Tennessee claiming unspecified damages not to
exceed three million dollars in connection with registration rights
they received in the Company's acquisition of National Health
Industries in February 1991. The suit alleges the Company failed to
use its best efforts to register the shares held by the plaintiffs as
required by the merger agreement. The Company believes it has
meritorious defenses to the claims and does not expect that the
ultimate outcome of the suit will have a material impact on the
Company's results of operation or financial position. The Company plans
to vigorously defend its position in this case. No amounts have been
recorded in the accompanying financial statements related to this suit.
In January 1997, Aetna Life & Casualty withdrew its claim against the
Company without prejudice.
NOTE 8 - VOTING CONVERTIBLE PREFERRED STOCK
On September 30, 1994, HEALTHSOUTH converted its shares of the
Company's Series A voting convertible preferred stock into the same
number of common shares. Non-cash aspects of this transaction have
been excluded from the accompanying statement of cash flows.
NOTE 9 - RELATED PARTY TRANSACTIONS AND BALANCES
The Company has an agreement with HEALTHSOUTH under which HEALTHSOUTH
purchases certain durable medical equipment and prosthetic and
orthotic appliances (to fill HEALTHSOUTH's normal business requirements
of such items) from the Company. During the years ended March 31, 1997,
1996 and 1995, the Company realized sales of $15,000, $84,000 and
$391,000 to HEALTHSOUTH, respectively, at terms the Company normally
offers its customers. The outstanding receivable from HEALTHSOUTH
was $7,965 and $17,000 as of March 31, 1997 and 1996.
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for years ended March 31, 1997 and
1996 are as follows (in thousands expect per share data):
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
1997 1996
First Second Third Fourth First Second Third Fourth
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $17,746 $19,158 $19,630 $20,239 $14,969 $15,999 $16,228 $16,031
Gross Profit 3,699 4,305 4,253 4,247 3,392 3,682 3,821 3,574
Net Income 368 465 512 414 362 456 507 250
Per Share $0.12 $0.15 $0.16 $0.13 $0.12 $0.15 $0.16 $0.07
</TABLE>
NOTE 11 - Acquisitions and Divestitures
On February 18, 1995, the Company entered into an arrangement with
Columbia/HCA Healthcare Corporation (Columbia), under which Columbia
acquired the Company's Certificate of Need license to provide nursing
services to patients in eight counties in the Elizabethtown, Kentucky
area and hired the Company to manage the operations until the year
2000. This transaction provided the Company with approximately
$550,000 in cash. Simultaneously, the Company's management agreement
of Columbia's Louisville agency was extended for one year.
In May 1996, the Company acquired the stock of Reliable Home Health
Care, Inc. (Reliable), a provider of intermittent home nursing services
in Cleveland, Ohio. The acquisition was accounted for as a purchase.
The Company paid a total purchase price, including fees and expenses,
of approximately $520,000 in consideration for Reliable's stock. The
operations of Reliable were included in the Company's consolidated
financial statements beginning May of 1996. The excess purchase price
over the estimated fair value of the net assets acquired of
approximately $400,000 is being amortized using the straight-line
method over 20 years.
In June 1996, the Company acquired the stock of Pro-Care Home Health of
Broward, Inc. (Pro-Care), an intermittent home nursing business in Ft.
Lauderdale, Florida. The acquisition was accounted for as a purchase.
The Company paid a total purchase price, including fees and expenses,
of approximately $500,000 in consideration for Pro-Care's stock. The
operations of Pro-Care were included in the Company's consolidated
financial statements beginning June of 1996. The excess purchase price
over the estimated fair value of the net assets acquired of
approximately $470,000 is being amortized using the straight-line
method over 20 years.
The impact of the above acquisitions were not significant for any of
the periods presented and, therefore, pro forma amounts are not
presented illustrating the effects of such acquisitions.
<PAGE>
Report of Independent Public Accountants
To the Stockholders of Caretenders Health Corp.:
We have audited the accompanying consolidated balance sheets of
Caretenders Health Corp. (a Delaware corporation) and subsidiaries as
of March 31, 1997 and 1996 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Caretenders
Health Corp. and subsidiaries as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
June 5, 1997
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth the Registrants
definitive proxy materials of the Company to be filed with the
Commission no later than 120 days after March 31, 1997, except for
the information regarding executive officers of the Company, which
is contained in Item 1 of Part I report. The information required by
this Item contained in such definitive proxy materials is
incorporated herein by reference.
The following table sets forth certain information with respect to
the Company's directors and executive officers.
Name Age Position with the Company
William B. Yarmuth (1) 45 Chairman of the Board President
and Chief Executive Officer
C. Steven Guenthner (2) 36 Senior Vice President and
Chief Financial Officer
Mary A. Yarmuth (3) 50 Senior Vice President and
President - SeniorCare Solutions
W. Timothy Luckett (4) 41 Vice President - Human Resources
Helen Salvate-Simms (5) 40 Vice President - SeniorCare Solutions
Brenda S. Gaines (6) 40 Vice President - SeniorCare Solutions
Anne Liechty (7) 45 Vice President - Infusion Services
Michael P. Seltzer (8) 33 Vice President - HME Services
Stan C. Abromaitis (9) 50 Vice President - Government Relations
Mark R. Nail (10) 38 Vice President - Controller
Steven B. Bing (11) 50 Director
Patrick B. McGinnis (12) 50 Director
Donald G. McClinton (13) 63 Director
Tyree G. Wilburn (14) 45 Director
Jonathan Goldberg (15) 45 Director
Wayne T. Smith (16) 51 Director
<PAGE>
Executive officers of the Company are elected by the Board of
Directors for one year and serve at the pleasure of the Board of
Directors with the exception of William B. Yarmuth who has an
employment agreement with the Company. See Item 11 -- William B.
Yarmuth Employment Agreement. Mary A. Yarmuth is married to William
B. Yarmuth. There are no other family relationships between any
director or executive officer.
Each Director is elected to hold office until the next annual
meeting of stockholders and until a successor is elected and
qualified.
(1) William B. Yarmuth has been a director of the Company since
1991, when the Company acquired National, where Mr. Yarmuth was
Chairman, President and Chief Executive Officer. After the
acquisition, Mr. Yarmuth became the President and Chief
Operating Officer of the Company. Mr. Yarmuth became Chairman
and CEO in 1992. He was Chairman of the Board, President and
Chief Executive Officer of National from 1981 to 1991.
(2) C. Steven Guenthner has been Senior Vice President and Chief
Financial Officer of the Company since 1992. From 1983 through
1992 Mr. Guenthner was employed as a CPA with Arthur Andersen
LLP. Prior to joining the Company he served as a Senior
Manager in the firm's Accounting and Audit division
specializing in mergers and acquisitions, public companies and
the healthcare industry.
(3) Mary A. Yarmuth has served as Senior Vice President of the
Company since 1991. From 1985 to 1991 Ms. Yarmuth served as
President of the Company's Nursing Division. Ms. Yarmuth
joined National in 1981.
(4) W. Timothy Luckett joined Caretenders Health Corp. in November
1989 as the Director of Human Resources and became a Vice
President on April 1, 1994.
(5) Helen Salvate-Simms has served as Vice President of the Company
since 1991. From 1989 to 1991 she was Operations Manager for
the Company's Nursing Division.
(6) Brenda S. Gaines was selected as Vice President of the Company
in 1997. From 1995 to 1997 she was a Director of Operations.
She joined the Company in 1991.
(7) Anne Liechty has served as Vice President of the Company since
1992. From 1987 to 1992 she served as the Company's Corporate
Nursing Infusion Manager.
(8) Michael P. Seltzer was selected as Vice President of the
Company in 1997. From 1995 to 1997 he served as the Company's
Director of HME Services. Prior to 1995 Mr. Seltzer served in
various capacities of home medical equipment management for
Frazier Rehabilitation Center and Abbey Home Health.
(9) Stan C. Abromaitis was selected as Vice President of the
Company in 1997. From 1994 to 1997 he served as the Company's
Director of Government Relations. Prior to 1994 Mr. Abromaitis
served as
<PAGE>
(10) Mark R. Nail was selected as Vice President of the Company
after joining the Company in 1997. Prior to 1997 Mr. Nail
served as chief financial officer for Girling Healthcare.
(11) Steven B. Bing was elected a Director in January 1992. Mr.
Bing is an employee of R. Gene Smith, Inc., a private
investment company located in Louisville, Kentucky. From 1989
to March 1992, Mr. Bing was President of ICH Corporation, an
insurance holding company. From 1984 to 1989, he served as
Senior Vice President of ICH Corporation. He is also a
director of the University of Louisville, First Alliance
Corporation, and various closely-held business entities.
(12) Patrick B. McGinnis was elected a director in October 1994.
Mr. McGinnis is the co-founder of Healthcare Recoveries, Inc.
and serves as the company's chairman and CEO. Healthcare
Recoveries, Inc. is a provider of subrogation and other claims
recovery services to the healthcare industry. From 1979 to
1988, Mr. McGinnis was Vice President-Finance and Planning for
Humana, Inc.
(13) Donald G. McClinton was elected a director in October 1994.
From 1986 to 1994, Mr. McClinton was co-chairman of Interlock
Industries, Inc., a privately held company engaged in metal
fabrication, corrugated container manufacturing, aluminum
processing and transportation. Presently, Mr. Clinton is
President and part owner of Skylight Thoroughbred Training
Center. Inc., a thoroughbred course training center. He is
also a director of Jewish Hospital Systems, Inc., and Mid-
America Bancorp.
(14) Tyree G. Wilburn was elected a director in January 1996. Mr.
Wilburn is a private investor. From 1992 to 1996, Mr. Wilburn
was Chief Development Officer of Community Health Systems, Inc.
and, most recently, Executive Vice President and Chief
Financial and Development Officer. From 1974 to 1992 Mr.
Wilburn was with Humana Inc. where he held senior and executive
positions in mergers and acquisitions, finance, planning,
hospital operations, audit and investor relations. He is also
a director of Health Directions, Inc.
(15) Jonathan Goldberg was elected a director in February 1997. Mr.
Goldberg is the managing partner of the law firm of Goldberg
and Simpson and has served in that capacity for the last five
years.
(16) Wayne T. Smith was elected a director in March 1997. Mr. Smith
is President and Chief Executive Officer of Community Health
Systems, Inc. Mr. Smith was President and Chief Operating
Officer of Humana, Inc. from 1993 to 1996 and has served with
Humana from 1973 to 1993 in various capacities, including
numerous vice president and divisional president positions.
<PAGE>
ITEMS 11, 12 AND 13. EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
The Registrant intends to file a definitive proxy statement with the
Commission pursuant to Regulation 14A (17 CFR 240.14a) not later
than 120 days after the close of the fiscal year covered by this
report. In accordance with General Instruction G(3) to Form 10-K,
the information called for by Items 11, 12 and 13 is incorporated
herein by reference to the definitive proxy statement. Neither the
report on Executive Compensation nor the performance graph included
in the Company's definitive proxy statement shall be deemed
incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits and Financial Statement Schedules and Reports on
Form 8-K.
Page Number
(a)(1) Index to Consolidated Financial Statements
Consolidated Statements of Operations for the three years
ended March 31, 1997, 1996, and 1995 21
Consolidated Balance Sheets - March 31, 1997 and 1996 22
Consolidated Statements of Stockholders' Equity for
the three years ended March 31, 1997, 1996, and 1995 23
Consolidated Statements of Cash Flows for the three
years ended March 31, 1997, 1996, and 1995 24
Notes to Consolidated Financial Statements 25-36
Report of Independent Public Accountants 37
(a)(2) Index to Financial Statement Schedule
Report of Independent Public Accountants 46
Schedule II - Valuation and Qualifying Accounts S-1
All other Schedules have been omitted because they are either not
required, not applicable or, the information has otherwise been
supplied in the financial statements or notes thereto.
(a)(3) Exhibits (* denotes filed herein)
Exhibit
Number Description of Exhibit
3.1 Certificate of Incorporation, as amended
3.2 Amended and Restated By-laws
4.1 Credit Agreement by and between the Company and First
National Bank of Louisville and AmSouth Bank, N.A., and
HEALTHSOUTH Rehabilitation Corporation, as guarantor,
dated as of June 29, 1992 with exhibits (incorporated by
reference to Exhibit 10.88 to the Registrant's Form S-1
Reg. 33-46565 dated April 23, 1993)
4.2 Medical Claims, Revolving Loan Agreement, Revolving Credit
Note and exhibits between the Company and Heller Financial
dated June 20, 1994
4.3 Other Debt Instruments -- copies of other debt instruments
for which the total debt is less than 10% of assets will
be furnished to the Commission upon request.
10.1 Form of Lender's Notes and Lenders' Warrants
(Incorporated by Reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 Reg. No.
33-8158 effective December 2, 1986)
10.2 Stockholders and Noteholders Agreement, dated February
5, 1991, by and among the Company, Senior Kentucky, Inc.,
National Health Industries, Inc., Franklin Capital
Associates, L.P., Aetna Life and Casualty Company, The
Standard Fire Insurance Company and the holders of
National's common stock (Incorporated by reference to
Exhibit 2.3 to the Registrant's Report on Form 8-K, dated
February 5, 1991)
10.3 Nonqualified Stock Option Plan, as amended (Incorporated
by reference to the Registrant's Registration Statement on
Form S-8 Reg. No. 33-20815)
10.4 Supplemental Nonqualified Stock Option Plan
(Incorporated by reference to Exhibit 19.4 to the
Registrant's Report on Form 10-Q for the Quarter Ended
November 30, 1987 Commission File No. 15342)
10.5 Incentive Stock Option Plan, as amended (Incorporated by
reference to the Registrant's Registration Statement on
Form S-8 Reg. No. 33-20815)
10.6 Indemnity Agreement, effective as of October 15, 1987,
between Senior Service Corporation and Robert S. Shulman
(Incorporated by Reference to Exhibit 10.46 to the
Registrant's Post-Effective Amendment No. 3 to its
Registration Statement on Form S-1 Reg. No. 33-8158)
10.7 Amendment to the Senior Service Corporation 1987
Nonqualified Stock Option Plan (Incorporated by reference
to Exhibit 19.3 to the Registrant's Report on Form 10-Q
for the quarter ended November 30, 1989)
10.9 Provider Agreement, dated May 24, 1989, between the
Maryland State Department of Health and Mental Hygiene and
Towson Community Adult Day Care (Incorporated by reference
to Exhibit 10.70 to the Registrant's Post-Effective
Amendment No. 4 to its Registration Statement on Form S-1
File No. 33-8158)
10.22 1991 Long-Term Incentive Plan
10.23 Warrant Agreement, dated June 29, 1991, between the
Company and HEALTHSOUTH Rehabilitation Corporation
(incorporated by reference to Exhibit 10.88 to the
Registrant's Form S-1 Reg. 33-46565 dated April 23, 1993)
10.24* Employment Agreement, dated January 1. 1996, between the
Company and William B. Yarmuth
10.25 Asset Sale Agreements between the Company and Columbia/HCA
Healthcare Corporation
11* Schedule of Computation of Per Share Earnings
22* List of Subsidiaries of Caretenders Health Corp.
24.1* Consent of Arthur Andersen LLP
27* Financial Data Schedule
(b)Reports on Form 8-K
None.
(c)Exhibits
Described in Item 14(a)(3) of this report
(d)Financial Statement Schedules
Described in Item 14(a)(2) of this report
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CARETENDERS HEALTH CORP.
June 23, 1997
By /s/ William B. Yarmuth
William B. Yarmuth
Chairman, President and Chief Executive Officer
By /s/ C. Steven Guenthner
C. Steven Guenthner
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated:
By /s/ William B. Yarmuth June 25, 1997
William B. Yarmuth Date
Director
By /s/ Patrick B. McGinnis June 25, 1997
Patrick B. McGinnis Date
Director
By /s/ Donald G. McClinton June 25, 1997
Donald G. McClinton Date
Director
By /s/ Steven B. Bing June 25, 1997
Steven B. Bing Date
Director
By /s/ Tyree Wilburn June 25, 1997
Tyree Wilburn Date
Director
By /s/ Jonathan Goldberg June 25, 1997
Jonathan Goldberg Date
Director
By /s/ Wayne T. Smith June 25, 1997
Wayne T. Smith Date
Director
<PAGE>
Report of Independent Public Accountants
To the Stockholders of Caretenders Health Corp.:
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in
the index to Financial Statement Schedule is presented for purposes
of complying with the Securities and Exchange Commissions rules and
is not part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
June 5, 1997
<PAGE>
<TABLE>
CARETENDERS HEALTH CORP AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Col. A Col. B Col. C Col. D Col. E
Additions
-----------------------
(1)
Balance at Charged to Charged to
Beginning of Costs Other (2) Balance at
Description Period and Expenses Accounts Deductions End of Period
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997:
Allowance for bad debts $2,884,743 $2,215,537 $ - $1,947,135 $3,153,145
Year ended March 31, 1996:
Allowance for bad debts $2,910,272 $1,668,844 $ - $1,694,373 $2,884,743
Year ended March 31, 1995:
Allowance for bad debts $1,955,621 $1,688,521 $ - $733,870 $2,910,272
<FN>
(1) Charged to bad debt expense.
(2) Write-off of accounts.
</FN>
</TABLE>
S-1
<PAGE>
CARETENDERS HEALTH CORP AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<TABLE>
For the Fiscal Years Ended
March 31,
1997 1996 1995
<S> <C> <C> <C>
Primary earnings per share:
Net income $1,759,370 $1,575,283 $1,247,662
Weighted average outstanding shares at
year end 3,119,436 3,119,436 3,119,436
Add-common equivalent shares
representing shares issuable upon
exercise of dilutive options and 22,429 29,271 25,082
warrants
Weighted average number of shares used
in calculation of primary earnings per 3,141,865 3,148,707 3,144,518
share
PER SHARE
Net income per share $ .56 $ .50 $ .40
Fully diluted earnings per share
Weighted average outstanding shares 3,119,436 3,119,436 3,119,436
during the period
Add-common equivalent shares
representing shares issuable upon
exercise of dilutive options and 22,429 29,271 25,082
Weighted average number of shares used
in calculation of fully diluted 3,141,865 3,148,707 3,144,518
earnings per share
PER SHARE
Fully diluted earnings per common $ .56 $ .50 $ .40
share
</TABLE>
<PAGE>
CARETENDERS HEALTH CORP
LIST OF SUBSIDIARIES
AS OF MARCH 31, 1997
EXHIBIT 22
Subsidiaries of Caretenders Health Corp.
Adult Day Care of America, Inc.
Adult Day Care of Louisville, Inc.
Adult Day Care of Maryland, Inc.
HouseCalls, Inc.
Adult Day Clubs of America Joint Venture, Ltd.
SEI Publishing Corporation
National Health Industries, Inc.
HHJC Holdings,Inc.
Pro-Care Home Health of Broward, Inc.
Subsidiaries of National Health Industries, Inc.
Freelife Medical Equipment, Inc.
Caretenders Homecare, Inc.
Caretenders Infusion of Birmingham, Inc.
Caretenders of Birmingham, Inc.
Caretenders of Boston, Inc.
Caretenders of Cincinnati, Inc.
Caretenders of Columbus, Inc.
Caretenders of Elizabethtown, Inc.
Caretenders of Indiana, Inc.
Caretenders of Indianapolis, Inc.
Caretenders of Lincoln Trail, Inc.
Caretenders of Louisville, Inc.
Caretenders of New Jersey, Inc.
Caretenders of Northern Kentucky, Inc.
Caretenders of Richmond, Inc.
Caretenders of the Bluegrass, Inc.
Caretenders Visiting Services of Richmond, Inc.
House Calls of America, Inc.
Caretenders Infusion Corp.
Metro Home Care, Inc.
National Orthopedic & Rehabilitation Services,Inc
Physician Affiliates, Inc.
Special Healthcare Services, Inc.
Reliable Home Healthcare, Inc.
Caretenders Visiting Services of Cincinnati, Inc.
Caretenders of Cleveland, Inc.
Caretenders Visiting Services of Columbus, Inc.
Caretenders of Fort Lauderdale, Inc.
Caretenders of Evansville, Inc.
Caretenders of West Palm Beach, Inc.
Caretenders Visiting Services of Indianapolis,Inc
Caretenders of Charlotte, Inc.
Subsidiary of HHJC Holdings, Inc.
Home Health of Jefferson County, Inc.
Caretenders of Marshall County, Inc.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-33601
relating to the Company's Incentive Stock Option Plan, Registration
Statement File No. 33-81122 related to the 1987 Nonqualified Stock
Option Plan, Registration Statement No. 33-881100 related to the
1993 Non-Employee Directors Stock Option Plan, and Registration
Statement No. 33-81124 related to the 1991 Long-Term Incentive Plan.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
June 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,015
<SECURITIES> 0
<RECEIVABLES> 23,590
<ALLOWANCES> 3,153
<INVENTORY> 0
<CURRENT-ASSETS> 3,412
<PP&E> 14,242
<DEPRECIATION> 9,283
<TOTAL-ASSETS> 38,745
<CURRENT-LIABILITIES> 7,393
<BONDS> 0
<COMMON> 20,663
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 38,745
<SALES> 76,773
<TOTAL-REVENUES> 76,773
<CGS> 60,269
<TOTAL-COSTS> 74,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 771
<INCOME-PRETAX> 1,915
<INCOME-TAX> 156
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