SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to_______
Commission file number 1-9848
CARETENDERS HEALTH CORP.
(Exact name of registrant as specified in its charter)
Delaware 06-1153720
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
100 Mallard Creek Road, Suite 400 40207
(Address of principal executive offices) (Zip Code)
(502) 899-5355
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X____ No ____.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class of Common Stock $.10 par value
Shares outstanding at December 31, 1997 - 3,129,413
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997
and March 31, 1997 3
Consolidated Statements of Operations for the Three
Months ended December 31, 1997 and 1996 4
Consolidated Statements of Operations for the Nine
Months ended December 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the Nine
Months ended December 31, 1997 and 1996 6
Notes to Interim Consolidated Financial Statements7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 15
Part II. Other Information
Items 1 through 6 16
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
<TABLE>
ASSETS December 31, March 31,
1997 1997
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,305,749 $1,014,604
Accounts receivable - net of allowance for
uncollectible accounts of approximately
$3,536,000 and $3,153,000 19,956,840 20,436,964
Prepaid expenses and other current assets 1,855,395 1,765,168
Deferred tax assets 1,646,990 1,646,990
TOTAL CURRENT ASSETS 25,764,974 24,863,726
PROPERTY AND EQUIPMENT - net 6,702,824 4,959,217
COST IN EXCESS OF NET ASSETS ACQUIRED - net
of accumulated amortization of
approximately $1,593,000 and $1,430,000 7,560,340 7,723,263
OTHER ASSETS 1,553,822 1,198,367
$41,581,960 $38,744,573
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $3,832,673 $3,334,671
Accrued expenses 3,781,538 3,696,350
Current portion of term debt and capital
lease obligations 149,986 261,716
Other current liabilities 100,000 100,000
TOTAL CURRENT LIABILITIES 7,864,197 7,392,737
LONG-TERM LIABILITIES
Revolving Credit Facility 11,172,901 9,754,640
Term debt and capital lease obligations 99,849 145,308
Other liabilities 664,105 788,616
TOTAL LONG-TERM LIABILITIES 11,936,855 10,688,564
TOTAL LIABILITIES 19,801,052 18,081,301
Commitments and Contingencies (Note 2)
Stockholders' equity:
Common stock, par value $.10; authorized
10,000,000 shares; 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 25,337,876 25,337,876
Accumulated deficit (3,773,937) (4,891,573)
TOTAL STOCKHOLDERS' EQUITY 21,780,908 20,663,272
$41,581,960 $38,744,573
</TABLE>
See accompanying notes to interim consolidated financial
statements.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended
December 31, December 31,
1997 1996
<S> <C> <C>
Net revenues $23,436,107 $19,629,566
Cost of sales and services 18,692,200 15,376,205
Selling, general and administrative 2,530,681 2,336,333
expenses
Depreciation and amortization expense 628,068 571,145
Provision for uncollectible accounts 673,856 573,663
Income before other income (expense) and 911,302 772,220
income taxes
Other income (expense):
Interest expense (212,741) (221,630)
Income before provision for income taxes 698,561 550,590
Provision for income taxes 288,157 39,000
Net income $410,404 $511,590
PER SHARE:
Net income - basic $ 0.13 $ 0.16
Net income - fully diluted $ 0.13 $ 0.16
Average shares outstanding:
Basic 3,119,413 3,119,413
Fully diluted 3,176,561 3,133,300
</TABLE>
See accompanying notes to interim consolidated financial
statements.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Nine Months Ended
December December
31, 1997 31, 1996
<S> <C> <C>
Net revenues $67,790,923 $56,534,390
Cost of sales and services 53,340,924 44,276,609
Selling, general and administrative expenses 8,037,211 6,893,547
Depreciation and amortization expense 1,870,868 1,683,707
Provision for uncollectible accounts 1,955,440 1,662,822
Income before other income (expense) and
income taxes 2,586,480 2,017,705
Other income (expense):
Interest expense (684,121) (555,859)
Income before provision for income taxes 1,902,359 1,461,846
Provision for income taxes 784,723 117,000
Net income $1,117,636 $1,344,846
PER SHARE:
Net income - basic $ 0.36 $ 0.43
Net income - fully diluted $ 0.35 $ 0.43
Average shares outstanding:
Basic 3,119,413 3,119,413
Fully diluted 3,161,706 3,143,750
</TABLE>
See accompanying notes to interim consolidated financial
statements.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Nine Months Ended
December December 31,
31, 1997 1996
<S> <C> <C>
Cash flows from operating
activities:
Net income $1,117,636 $1,344,846
Adjustments to reconcile net income
to net cash provided (used)by
operating activities:
Depreciation and amortization 1,870,868 1,683,707
Provision for uncollectible accounts 1,955,440 1,662,822
4,943,944 4,691,375
Change in certain net current assets
(Increase) decrease in:
Accounts receivable (1,475,316) (4,757,983)
Prepaid expenses and other current (90,227) (383,950)
assets
Increase (decrease) in:
Accounts payable and accrued
liabilities 583,190 (99,312)
Other liabilities - (6,985)
Net cash provided (used) by
operating activities 3,961,591 (556,855)
Cash flows from investing
activities:
Capital expenditures (3,096,988) (1,530,723)
Other assets (710,019) (504,643)
Net cash provided (used) by
investing activities (3,807,007) (2,035,366)
Cash flows from financing
activities:
Principal payments on long-term
debt (157,189) (333,338)
Net revolving credit facility
borrowings 1,418,261 2,072,619
Other (124,511) (135,306)
Net cash provided (used) by
financing activities 1,136,561 1,603,975
Net increase (decrease) in cash 1,291,145 (988,246)
Cash and cash equivalents at
beginning of period 1,014,604 1,561,041
Cash and cash equivalents at $2,305,749 $572,795
end of period
</TABLE>
See accompanying notes to interim consolidated financial
statements.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION
The accompanying interim consolidated financial statements
for the nine months ended December 31, 1997 and 1996 have
been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such
rules and regulations. Accordingly, the reader of this Form
10-Q may wish to refer to the Company's Form 10-K for the
year ended March 31, 1997 for further information. In the
opinion of management of the Company, the accompanying
unaudited interim financial statements reflect all
adjustments (consisting only of normally recurring
adjustments) necessary to present fairly the financial
position at December 31, 1997 and the results of operations
and cash flows for the periods ended December 31, 1997 and
1996.
The results of operations for the three and nine months ended
December 31, 1997 are not necessarily indicative of the
operating results for the year.
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.
2. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company currently, and 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.
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 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.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In January 1997, Aetna Life & Casualty withdrew its claim
against the Company without prejudice.
3. FINANCIAL STATEMENT RECLASSIFICATIONS
Certain amounts have been reclassified in the 1996 financial
statements in order to conform to the 1997 presentation.
Such reclassifications had no effect on previously reported
net income.
<PAGE>
Item 2.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 in order to
conserve their financial resources as long as possible.
Caretenders SeniorCare Solutions TM 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 TM. 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 9 adult day health centers and
12 home health care centers through December 31, 1997. As of
the filing date of this Form 10-Q, the Company has completed
transactions to acquire an additional adult day health
services center and 3 home health care centers.
<PAGE>
Earnings For the Quarter Ended December 31, 1997 Versus 1996
The Company generated a 27% increase in pre-tax income despite
investing in initial operating losses related to geographic
expansion. The increase in pre-tax income is primarily a
result of a 15% increase in net revenues from recurring
operations due to increased volumes. Income tax expense for
1996 included a non-recurring credit of approximately
$188,118 or $0.06 per share related to the reduction in a
previously recorded valuation allowance for net deferred
taxes. As a result of these factors, earnings per share were
$0.13 in 1997 as compared to $0.16 for 1996. Excluding the
1996 non-recurring income tax credit earnings per share
increased to $0.13 in 1997 from $0.10 in 1996.
Earnings For the Nine Months Ended December 31, 1997 Versus 1996
The Company generated a 30% increase in pre-tax income a
result of a 13% increase in net revenues from recurring
operations due to increased volumes and the maturing of start-
up operations. Income tax expense for 1996 included a non-
recurring credit of approximately $486,011 or $0.15 per share
related to the reduction in a previously recorded valuation
allowance for net deferred taxes. As a result, earnings per
share were $0.35 in 1997 as compared to $0.43 for 1996 for the
nine month period. Excluding the 1996 non-recurring income
tax credit earnings per share increased to $0.35 in 1997 from
$0.27 in 1996.
The following table reflects the results of operations
separated into on-going or recurring operations and start-up
operations on an as reported and comparably taxed basis:
<TABLE>
Quarter Ended Nine Months Ended
As Reported 12/31/97 12/31/96 % Change 12/31/97 12/31/96 % Change
<S> <C> <C> <C> <C> <C> <C>
Net Revenues
Recurring Operations $22,244,029 $19,396,442 15% $63,067,601 $55,713,604 13%
Start-up Operations (1) 1,192,078 233,124 411% 4,723,323 820,787 475%
Total 23,436,107 19,629,566 19% 67,790,924 56,534,391 20%
Pre-tax Income
Recurring Operations $817,525 $623,886 31% $2,881,167 $2,397,631 20%
Start-up Operations (118,964) (73,296) 62% (978,808) (935,785) 5%
Total 698,561 550,590 27% 1,902,359 1,461,846 30%
Net Income as reported
Recurring Operations $480,294 $579,694 (17%) $1,692,685 $2,205,734 (23%)
Start-up Operations (69,891) (68,104) 3% (575,049) (860,889) (33%)
Total 410,404 511,590 (20%) 1,117,636 1,344,846 (17%)
Weighted Primary Shares 3,176,561 3,133,300 3,161,706 3,143,750
Net Income Per Share as reported
Recurring Operations $0.15 $0.19 (18%) $0.54 $0.70 (24%)
Start-up Operations $(0.02) $(0.02) 2% $(0.18) $(0.27) (34%)
Total $0.13 $0.16 (19%) $0.35 $0.43 (18%)
As Adjusted for Comparable Tax Provision
Net Income as reported $410,404 $511,590 (20%) $1,117,636 $1,344,846 (17%)
1996 Non-recurring credit
to tax expense (2) - (188,118) (100%) - (486,011) (100%)
Net Income as adjusted $410,404 $323,472 27% $1,117,636 $858,834 30%
Net Income as adjusted
Recurring Operations $480,294 $366,533 31% $1,692,685 $1,408,608 20%
Start-up Operations (69,891) (43,061) 62% (575,049) (549,774) 5%
Total 410,404 323,472 27% 1,117,636 858,834 30%
Net Income Per Share as adjusted
Recurring Operations $0.15 $0.12 31% $0.54 $0.45 19%
Start-up Operations $(0.02) $(0.01) 62% $(0.18) $(0.17) 4%
Total $0.13 $0.10 27% $0.35 $0.27 29%
</TABLE>
(1) Start-up operations include those businesses started by the Company that
have not been in operation for the entirety of both comparable periods
(2) Reduction of previously recorded valuation allowance related to net deferred
tax assets ($.06 per share for the quarter and $0.16 ytd)
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
Caretenders Health Corp.
Operating Data
for the three months ended December 31,
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 19,229,812 100.0% 16,151,116 100.0% 3,078,696 19.1%
Adult Day Health
Services 4,206,295 100.0% 3,478,450 100.0% 727,845 20.9%
23,436,107 19,629,566 3,806,541 19.4%
Costs of Sales and
Services
Home Health Care 15,215,464 79.1% 12,574,678 77.9% 2,640,786 21.0%
Adult Day Health
Services 3,476,736 82.7% 2,801,527 80.5% 675,209 24.1%
18,692,200 79.8% 15,376,205 78.3% 3,315,995 21.6%
Center Contribution
Home Health Care 4,014,348 20.9% 3,576,438 22.1% 437,910 12.2%
Adult Day Health
Services 729,559 17.3% 676,923 19.5% 52,636 7.8%
4,743,907 20.2% 4,253,361 21.7% 490,546 11.5%
Selling, General &
Administrative 2,530,681 10.8% 2,336,333 11.9% 194,348 8.3%
Depreciation and
Amortization 628,068 2.7% 571,145 2.9% 56,9233 10.0%
Provision for
Uncollectible 673,856 2.9% 573,663 2.9% 100,193 17.5%
Accounts
Interest, Net 212,741 0.9% 221,630 1.1% (8,889) (4.0%)
Income Before
Taxes 698,561 3.0% 550,590 2.8% 147,971 26.9%
</TABLE>
Home Health Care
Revenues. Net revenues increased approximately
19.1% primarily as a result of increased volumes in
existing home health care operations. Start-up
operations are described below.
Costs of Sales and Services. Costs of sales and
services as a percent of net revenues for recurring
operations increased only 1.8% from 1996. While
start-up operations increase 38.3%. On a combined
basis, existing operations volume grow in volumes
absorbed the expenditures invested in start-up
operations for a net increase 1.2% in cost of sales
and services as a percentage of net revenue.
Start-up Operations. _Start-up Operations_ include
those business units started by the Company that
have not been in operation for the entirety of both
comparable reporting periods. For the quarter
ended December 31, 1997 the Company had seven home
care business units in five markets classified as
start-up operations. These business units
generated revenues of $ 1,026,000 and earnings
before interest and taxes of $ 113,000 in 1997 and
revenues of $ 233,000 and losses before interest
and taxes of $ (73,000)in 1996.
<PAGE>
Adult Day Health Services
Net Revenues. The 20.9% increase in adult day
health services revenues was a result of increased
volumes in recurring centers. Start-up operations
are described below. As of December 31, 1997, the
Company had 20 centers in operation versus 16
centers at December 31, 1996.
Costs of Sales and Services. As a percent of net
revenues, cost of sales and services for recurring
operations decreased 4%, while start-up operations
accounted for the entire increase in costs of sales
and services as a percentage of revenue.
Start-up Operations. For the quarter ended
December 31, 1997 the Company had five adult day
health business units in five markets classified as
start-up operations. These business units
generated revenues of $ 166,000 and losses before
interest and taxes of $ (232,000) in 1997. These
units did not generate any activity in the quarter
ended December 31, 1996.
Selling, General and Administrative. The increase in
selling, general and administrative costs is due to the
costs incurred related to the Company's geographic
expansion. These costs did not change significantly as
a percentage of revenue.
Provision for Uncollectible Accounts. The provision for
uncollectible accounts for the quarters ended December
31, 1997 and 1996 was recorded at approximately 2.9% of
net revenues based on management's evaluation of
collectibility.
Depreciation and Amortization. The increase results
primarily from capital additions.
Interest. The decrease in interest is primarily the
result of lower average outstanding debt levels.
<PAGE>
<TABLE>
Caretenders Health Corp.
Operating Data
for the nine months ended December 31,
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 55,537,912 100.0% 46,039,642 100.0% 9,498,270 20.6%
Adult Day Health 12,253,011 100.0% 10,494,748 100.0% 1,758,263 16.8%
Services
67,790,923 56,534,390 11,256,533 19.9%
Costs of Sales and
Services
Home Health Care 43,087,610 77.6% 36,050,183 78.3% 7,037,427 19.5%
Adult Day Health 10,253,314 83.7% 8,226,426 78.4% 2,026,888 24.6%
Services
53,340,924 78.7% 44,276,609 78.3% 9,064,315 20.5%
Center Contribution
Home Health Care 12,450,302 22.4% 9,989,459 21.7% 2,460,843 24.6%
Adult Day Health 1,999,697 16.3% 2,268,322 21.6% (268,625) (11.8%)
Services
14,449,999 21.3% 12,257,781 21.7% 2,192,218 17.9%
Selling, General & 8,037,211 11.9% 6,893,547 12.2% 1,143,664 16.6%
Administrative
Depreciation and 1,870,868 2.8% 1,683,707 3.0% 187,161 11.1%
Amortization
Provision for 1,955,440 2.9% 1,662,822 2.9% 292,618 17.6%
Uncollectible
Accounts
Interest, Net 684,121 1.0% 555,859 1.0% 128,262 23.1%
Income Before Taxes 1,902,359 2.8% 1,461,846 2.6% 440,513 30.1%
</TABLE>
Home Health Care
Revenues. Net revenues increased approximately
20.6% primarily as a result of increased volumes
Start-up operations accounted for approximately
$3,152,000 of the $9.5 million increase in home
health revenues The balance of the increase in
revenues came from recurring operations revenue
growth.
Medicare certified home health nursing revenues for
the nine-months ended December 31, 1997 and 1996
were $32,244,000 and $22,372,000 respectively.
Costs of Sales and Services. Costs of sales and
services for recurring operations as a percent of
net revenues decreased 0.5%. Start-up operations'
costs of sales an services as a percent of net
revenue increase 83.3%. On a combined basis,
existing operations volume grow in volumes and
decrease in related costs of sales and services
more than absorbed the expenditures invested in
start-up operations for a net decrease 0.7% in cost
of sales and services as a percentage of net
revenue.
Start-up Operations. For the nine-months ended
December 31, 1997 the Company had nine home care
business units in six markets classified as start-
up operations. These business units generated
revenues of $3,905,000 and losses before interest
and taxes of $(231,000) in 1997 and revenues of
$753,000 and losses before interest and taxes of
$(720,000) in 1996.
<PAGE>
Adult Day Health Services
Net Revenues. The 16.8% increase in adult day
health services revenues was a result of increased
volumes in recurring centers plus revenues from
start-up centers as described below.
Costs of Sales and Services. As a percent of net
revenues, cost of sales and services for recurring
operations did not change, while start-up
operations accounted for the entire increase in
costs of sales and services as a percentage of
revenue.
Start-up Operations. For the nine-months ended
December 31, 1997 the Company had six adult day
health business units in six markets classified as
start-up operations. These business units
generated revenues of $819,000 and losses before
interest and taxes of $(748,000) in 1997 and
revenues of $68,000 and losses before interest and
taxes of $(215,000)in 1996.
Selling, General and Administrative. The increase in
selling, general and administrative costs is due to the
costs incurred related to the Company's geographic
expansion. These costs did not change significantly as
a percentage of revenue.
Provision for Uncollectible Accounts. The provision for
uncollectible accounts for the six months ended December
31, 1997 and 1996 was recorded at approximately 2.9% of
net revenues based on management's evaluation of
collectibility.
Depreciation and Amortization. The increase results
primarily from capital additions.
Interest. The increase in interest is primarily the
result of higher average outstanding debt levels.
<PAGE>
Liquidity and Capital Resources
Revolving Credit Facility
The Company has a $15 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 December 31,
1997, the Company had total cash and unused borrowings of
approximately $6.1 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. The Company is currently negotiating
expansion and/or replacement of its senior credit facility
to provide additional capital to support execution of the
Company's strategic plan.
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 1997 1996
Equivalents
Provided by (used in)
Operating activities $ 3,962 $ (557)
Investing activities (3,807) (2,035)
Financing activities 1,136 1,604
Net Change in Cash and Cash $ 1,291 $ (988)
Equivalents
Net cash provided by operating activities of
approximately $4 million resulted principally from
current period earnings net of non-cash expenses such as
depreciation and bad debt provision. Net cash used in
investing activities of approximately $3.8 million
resulted principally from amounts invested in expansion
activities and capital expenditures related to purchase
of certain durable medical equipment and real estate.
Net cash of approximately $1.1 million was used in
financing activities to reduce the outstanding balance
on the revolving credit facility
<PAGE>
Health Care Reform
The health care industry is experiencing extensive and
dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is
subjecting the health care industry to significant reform.
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 have been
made as described in more detail below. There can be no
assurance that future legislation or additional regulatory
changes will not have a material adverse effect on the
future operations of the Company.
Balanced Budget Act of 1997
In August of 1997, President Clinton signed into law the
Balanced Budget Act of 1997 (the BBA), This bill made
significant changes in the reimbursement system for Medicare
home health services. The primary changes that affect the
Company include a reduction in the reimbursement for oxygen
therapy services and a restructuring of the reimbursement
system related to Medicare certified home care agencies.
Oxygen Reimbursement
The reimbursement of certain oxygen therapy services and
products was cut 25% for services provided after December
31, 1997. An additional cut of 5% will take affect in 1999.
Increases to the reimbursement rate have been tied to the
Consumer Price Index and will resume in 2003. The impact on
the Company will be a decrease of approximately $600,000 in
revenues related to oxygen therapy services, however the
Company believes that its growth HME and its other service
lines should compensate for the reimbursement reduction.
Bonding Requirements for Medicare Providers
The BBA now requires Medicare providers to purchase surety
bonds in amounts generally equal to 15% of Medicare
reimbursement for periods up to 10 years. This provision is
effective February 27, 1998. Although the Company has made
arrangements to meet such bonding requirements it appears
that many smaller, less well capitalized providers may find
it difficult to secure such surety bonds. Under the current
rules, agencies that are not able to secure the required
surety bonds will be excluded from participation in the
Medicare program. Should this occur these smaller providers
may create opportunities for the Company to consolidate
market share either by competing for the patients or
acquiring the operations.
<PAGE>
Interim Payment System for Medicare Certified Home Health
Nursing Services
The BBA also includes a revised Interim Payment System (IPS)
for Medicare-certified home health services. IPS remains a
cost-based reimbursement system. However, per visit cost
limits have been reduced and a new _Per Beneficiary Limit_
(PBL) has been added. IPS is effective for all home care
agencies for cost reporting years beginning on or after
October 1, 1997. For the majority of the Company's agencies
the new system will go into effect on April 1, 1998, the
start of the next fiscal year. The BBA states that IPS will
remain in effect until a new prospective payment system
(PPS) is implemented for cost reporting years beginning on
or after October 1, 1999.
The Interim Payment System, as well as other requirements
imposed upon home health providers in the BBA were designed
to contain the growth in home health care resulting in
slower growth in Medicare home health expenditures. As a
result of these changes, home health providers will be
forced to reduce their costs of providing services and it is
expected that utilization of home care services per
beneficiary will decline. Under certain conditions,
Medicare beneficiaries who had previously been entitled to
services will no longer qualify under Medicare reimbursement
guidelines.
Rapidly Changing Environment Makes Impact Difficult to
Predict
These recently enacted changes in the home health
reimbursement are many and complex. Final regulations
likely will not be published until April 1, 1998. Many
facets of their implementation are unknown and require
substantial subjective interpretation to estimate the impact
on future results. Political efforts are underway by public
interest groups (including industry and beneficiary groups)
to defer or modify portions of the new rules. Many other
providers may be unable to operate in this environment and
increase the Company's opportunities to expand and be an
industry consolidator. Finally, the reduction in Medicare
home health expenditures may increase economic demand for
the Company's other services, especially in home personal
care and adult day health services. Accordingly, management
is unable to predict at this time the net effect, if any,
the IPS reimbursement mechanism may have on the Company.
Although management remains confident in its ability to
optimize the Company's performance in this rapidly changing
reimbursement and regulatory environment, there can be no
assurance that the ultimate impact of IPS will not have an
adverse effect on the Company's financial position and
results of operations.
<PAGE>
Impact of Inflation
Management does not believe that inflation has had a
material effect on income during the past several years.
<PAGE>
Commission File No. 1-9848
Part II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 (attached)
Exhibit 27 (attached)
(b) No reports on Form 8-K have been filed during
the quarter ended
December 31, 1997
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<TABLE>
Three Months Nine Months
Ended Ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
BASIC
Net income for basic
income per common share $410,404 $511,590 $1,117,636 $1,344,846
Weighted average 3,119,413 3,119,413 3,119,413 3,119,413
outstanding shares during
the period
Net income per share 0.13 0.16 0.36 0.43
FULLY DILUTED
Net income for fully $410,404 $511,590 $1,117,636 $1,344,846
diluted income per common
share
Weighted average number of
shares during the period 3,119,413 3,119,413 3,119,413 3,119,413
Add-common equivalent
shares representing shares
issuable upon exercise 57,148 13,887 42,293 24,337
of dilutive options and
warrants
3,176,561 3,133,300 3,161,706 3,143,750
PER SHARE
Net income 0.13 0.16 0.35 0.43
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned thereunto duly authorized.
Date: February 13, 1998
CARETENDERS HEALTH CORP.
BY /s/ William B. Yarmuth
William B. Yarmuth,
Chairman of the Board, President
and Chief Executive Officer
BY /s/ C. Steven Guenthner
C. Steven Guenthner,
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,306
<SECURITIES> 0
<RECEIVABLES> 23,493
<ALLOWANCES> 3,536
<INVENTORY> 0
<CURRENT-ASSETS> 3,532
<PP&E> 17,429
<DEPRECIATION> 10,269
<TOTAL-ASSETS> 41,582
<CURRENT-LIABILITIES> 7,864
<BONDS> 0
<COMMON> 21,781
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 41,582
<SALES> 67,791
<TOTAL-REVENUES> 67,791
<CGS> 53,341
<TOTAL-COSTS> 65,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 684
<INCOME-PRETAX> 1,902
<INCOME-TAX> 785
<INCOME-CONTINUING> 1,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,118
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
</TABLE>
