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 September 30, 1999
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, Louisville, KY 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 September 30, 1999 - 3,130,413
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September
30, 1999 and March 31, 1999 3
Consolidated Statements of Operations
for the Three Months ended September
30, 1999 and 1998 4
Consolidated Statements of Operations
for the Six Months ended September 30,
1999 and 1998 5
Consolidated Statements of Cash Flows for
the Six Months ended September 30,
1999 and 1998 6
Notes to Interim Consolidated
Financial Statements 7 - 9
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Items 1 through 6
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, 1999 March 31, 1999
------------------ --------------
<S> (UNAUDITED)
CURRENT ASSETS: <C> <C>
Cash and cash equivalents $ 406,698 $ 1,036,951
Accounts receivable - net 7,277,130 6,430,368
Prepaid expenses and other current assets 582,881 85,571
Net assets of discontinued operations 7,991,358 9,200,093
--------------- ------------
TOTAL CURRENT ASSETS 16,258,067 16,752,983
PROPERTY AND EQUIPMENT - net 3,411,995 3,434,518
COST IN EXCESS OF NET ASSETS ACQUIRED - net 2,455,346 2,517,543
DEFERRED TAX ASSETS 2,892,412 4,137,000
OTHER ASSETS 358,975 284,595
LONG TERM ASSETS OF DISCONTINUED OPERATIONS 5,344,443 9,227,753
--------------- ------------
$ 30,721,238 $ 36,354,392
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,682,639 $
4,001,426
Current portion of term debt and
capital lease obligations - 3,062,749
Other current liabilities 159,320 673,000
--------------- ------------
TOTAL CURRENT LIABILITIES 3,841,959 7,737,175
--------------- ------------
LONG-TERM LIABILITIES:
Revolving Credit Facility 15,601,949 12,530,258
Other liabilities 141,138 231,733
--------------- ------------
TOTAL LONG-TERM LIABILITIES 15,743,087 12,761,991
--------------- ------------
TOTAL LIABILITIES 19,585,046 20,499,166
--------------- ------------
Commitments and Contingencies
Stockholders' equity:
Common stock, par value $.10;
authorized 10,000,000 shares;
3,130,436 issued and outstanding 313,044 313,044
Treasury stock, at cost, 10,000 shares (95,975) (95,975)
Additional paid-in capital 25,345,586 25,345,586
Accumulated deficit (14,426,463) (9,707,429)
--------------- ------------
TOTAL STOCKHOLDERS' EQUITY 11,136,192 15,855,226
--------------- ------------
$ 30,721,238 $ 36,354,392
=============== ============
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net revenues $ 11,105,137 $ 9,925,252
Cost of sales and services 9,079,895 8,399,011
Selling, general and administrative expenses 1,104,360 1,338,781
Depreciation and amortization expense 223,243 235,529
Provision for uncollectible accounts 231,347 83,607
------------- -------------
Income (loss) from continuing operations
before other income (expense) and income taxes 466,292
(131,676)
Other income (expense):
Interest expense (122,521) (141,436)
------------- -------------
Income (loss) from continuing operations
before provision for income taxes 343,771 (273,112)
Provision (benefit) for income taxes 144,384 (112,659)
------------- -------------
Net income (loss)from continuing operations $ 199,387 $ (160,453)
Discontinued operations (Note 7):
Income (loss) from operations,
net of applicable income taxes of
$16,000 and $3,000 22,347 4,320
Estimated loss on disposal, net of applicable
income tax provision of $527,000 (5,000,000) -
------------- -------------
Net income (loss) $ (4,778,266) $ (156,133)
============= =============
Per Share Amounts - Basic and Diluted
Average shares outstanding 3,120,413 3,120,413
Net income (loss)from continuing operations $ 0.06 $ (0.05)
Discontinued operations:
Income (loss) from operations,
net of applicable income taxes 0.01 -
Loss on disposal, net of applicable
income taxes (1.60) -
------------- -------------
Net income (loss) $ (1.53) $ (0.05)
============= =============
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net revenues $ 21,440,145 $ 19,313,192
Cost of sales and services 17,697,807 16,686,829
Selling, general and administrative expenses 2,208,719 2,839,475
Depreciation and amortization expense 448,245 461,118
Provision for uncollectible accounts 410,725 215,526
Goodwill write-down - 113,196
------------- -------------
Income (loss) from continuing operations
before other income (expense) and income taxes 674,649
(1,002,952)
Other income (expense):
Interest expense (233,452) (274,342)
Loss on sale of building (91,701) -
------------- -------------
Income (loss) from continuing operations
before provision for income taxes 349,496 (1,277,294)
Provision (benefit) for income taxes 146,789 (526,884)
------------- -------------
Net income (loss)from continuing operations $ 202,707 $ (750,410)
------------- -------------
Discontinued operations (Note 7):
Income (loss) from operations,
net of applicable income taxes of
$57,000 and ($2,500,000) 78,258 (4,981,979)
Loss on disposal, net of applicable
income tax provision of $527,000 (5,000,000) -
------------- -------------
(4,921,742) (4,981,979)
------------- -------------
Cumulative effect on prior years of a change
in method of accounting for pre-opening costs,
net of tax - (171,974)
------------- -------------
Net income (loss) $ (4,719,034) $ (5,904,363)
============= =============
Per Share Amounts - Basic and Diluted
Average shares outstanding 3,120,413 3,120,413
Net income (loss)from continuing operations $ 0.06 $ (0.24)
------------- -------------
Discontinued operations:
Income (loss) from operations,
net of applicable income taxes 0.03 (1.60)
Loss on disposal, net of applicable
income taxes (1.60) -
------------- -------------
(1.57 (1.59)
Cumulative effect on prior years of a change
in method of accounting for pre-opening costs,
net of tax - (0.06)
------------- -------------
Net income (loss) $ (1.51) $ (1.89)
============= =============
</TABLE>
<PAGE>
See accompanying notes to interim consolidated financial statements.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 202,708 $ (750,410)
Adjustments to reconcile net income from
continuing operations to net cash provided
(used) by operating activities:
Depreciation and amortization 448,245 461,118
Provision for uncollectible accounts 410,725 215,526
Goodwill write-down 113,196
Loss on sale of building 91,701 -
Accounting change - 292,722
Deferred taxes - 730,908 (526,884)
--------------- --------------
1,884,287 (194,732)
Change in certain net current assets
(Increase) decrease in:
Accounts receivable (1,257,487) (532,805)
Prepaid expenses and other current assets (497,310) 234,458
Increase (decrease) in:
Accounts payable and accrued liabilities 318,108 (769,958)
--------------- --------------
Net cash provided (used) by continuing operations (188,618) (1,263,037)
--------------- --------------
Cash flows from investing activities:
Capital expenditures (466,120) (323,202)
Goodwill (108,794) -
Other assets (74,380) (259,838)
Sub of assets 119,009 -
--------------- --------------
Net cash provided (used) by
investing activities (530,285) (583,040)
--------------- --------------
Cash flows from financing activities:
Principal payments on long-term debt (15,280) (29,134)
Net revolving credit facility borrowings (8,942) 2,646,994
Other (75,315 (29,044)
--------------- --------------
Net cash provided (used) by financing activities (81,653)
2,647,084
--------------- --------------
Net cash provided (used) by discontinued
operations 170,303 (1,598,437)
--------------- --------------
Net increase (decrease) in cash (630,258) (797,430)
Cash and cash equivalents
at beginning of period 1,036,951 818,555
--------------- --------------
Cash and cash equivalents
at end of period $ 406,698 $ 21,125
=============== ==============
</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 three months
ended September 30, 1999 and 1998 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 is referred to the Company's Form 10-K for the year ended March 31, 1999 for
further information. In the opinion of management of the Company, the
accompanying unaudited interim financial statements reflect all adjustments
(consisting of normally recurring adjustments) necessary to present fairly the
financial position at September 30, 1999 and the results of operations and cash
flows for the periods ended September 30, 1999 and 1998.
The results of operations for the three and six months ended September 30, 1999
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, 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.
Franklin
On January 26, 1994 Franklin Capital Associates L.P., 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, liquidity
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
Legal Proceedings (continued)
In January 1998, Aetna Life and Casualty Company withdrew its claim against the
Company without prejudice. Trial has been scheduled for February 2000.
3. FINANCIAL STATEMENT RECLASSIFICATIONS
Certain amounts have been reclassified in the 1998 financial statements in
order to conform to the 1999 presentation. Such reclassifications, which
include reclassification of the results of the Company's product and visiting
nurse operations as discontinued operations had no effect on previously
reported net income (loss).
4. LOSS ON SALE OF BUILDING
In May 1999, the Company sold an office building resulting in a non-operating
loss of $91,701. The transaction generated net cash of $79,093 after repaying
mortgage debt of approximately $40,000.
5. ACCOUNTING FOR THE COSTS OF START-UP ACTIVITIES
Effective April 1, 1998, the Company adopted AICPA Statement of Position 98-5
"Reporting on the Costs of Start-up Activities" (SOP 98-5) which requires all
costs incurred readying a new business for operation prior to revenue
generation to be expensed as incurred. Accordingly, the accompanying statement
of operations for the six months ended September 30, 1998 includes a non-
recurring, net of tax, expense of approximately $171,000 for the cumulative
effect on continuing operations of this change in accounting principle.
6. GOODWILL WRITE-DOWN
During the quarter ended June 30, 1998, the Company recorded a non-recurring
write-down of goodwill of $113,196 before taxes. The write-down of goodwill
was required under Statement of Financial Accounting Standard No. 121 ("SFAS
121"), "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of" based upon management's estimate of the future cash
flows from operations in one of its adult day health centers.
7. Discontinued Operations
As part of a formal plan of separation, the Company on November 12, 1999 sold
its product operations (consisting of infusion therapy and respiratory and
medical equipment businesses) to Lincare Holdings, Inc. in an asset sale for
$14.5 million and is pursuing available strategic alternatives to complete the
separation of its visiting nurse operations. Proceeds from the sale are being
used to repay obligations outstanding under the Company's bank line of credit.
As a result of the operational separations, the Company has recorded a one-time
net of tax loss of approximately $5 million or ($1.60) in the quarter ended
September 30, 1999. This charge reduces the book value of the operations to
their expected net realizable value and includes the estimated future operating
results of the visiting nurse operations prior to separation. These changes
have been accounted for as discontinued operations in the accompanying
statements.
The estimated loss on disposal of discontinued operations reflected in the
accompanying financial statements includes management's estimate of the results
of operating the visiting nurse segment prior to disposal and the estimated
financial results of such disposal based on information currently available.
The form and timing of the implementation of a Medicare Prospective Payment
System for home care (PPS) may have a material impact on the disposal value of
the visiting nurse operations, as described in more detail below.
<PAGE>
Revenues from discontinued operations were $14,967,996 and $14,598,873 for the
quarter ended September 30, 1999 and 1998 respectively, and $29,418,905 and
$28,877,562 for the six months ended September 30, 1999 and 1998 respectively.
Interest expense has been allocated to continuing and discontinued operations
on the basis of relative net assets. Accordingly, interest expense has been
allocated to discontinued operations in the amounts of $237,045 and $273,642
the quarter ended September 30, 1999 and 1998 respectively, and $451,668 and
$530,781 for the six months ended September 30, 1999 and 1998 respectively.
The accompanying balance sheet includes net current assets and liabilities of
discontinued operations, consisting primarily of accounts receivable,
accounts payable and accrued liabilities, and long term assets of discontinued
operations consisting primarily of property, plant and equipment, net of
accumulated depreciation and goodwill.
The Balanced Budget Act of 1997 (the BBA), as amended, made significant changes
in the reimbursement system for Medicare-certified home health services (the
Company's visiting nurse operations). The primary change that effected the
Company was a restructuring of the reimbursement system related to Medicare-
certified home care agencies. The change included a modified cost-based
reimbursement system known as the Interim Payment System or "IPS" (refer to
discussion in the Company's Form 10K for the year ended March 31, 1999) and a
requirement for implementation of a prospective payment system or "PPS" which
would not be cost-based, no later than October 1, 2000.
During the quarter ended June 30, 1998, the Company recorded a non-recurring
write-down of goodwill of $6,854,364 million before taxes as a result of these
changes in Medicare reimbursement and their resulting impact on the home health
market place and the Company. The write-down of goodwill was required under
Statement of Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
based upon management's estimate of the impact of the changes in Medicare
reimbursement for home health nursing services. Management determined that
impact indicated the carrying value of goodwill should be written down by
approximately $6.8 million based on the net present value of expected future
cash flows of specific acquired (primarily Medicare) nursing operations. This
write-down is included in loss from operations of discontinued operations in
the accompanying consolidated statement of operations, net of income tax
effects.
Proposed PPS regulations were published by HCFA in October 1999 with an
invitation for comment. HCFA's schedule calls for final rules to be published
in the summer of 2000. Various pieces of legislation have been proposed that
would make material changes to the proposed rules. The Company is currently
evaluating the proposed regulations and pending legislation for a prospective
payment system, its potential impact on the visiting nurse operations, and what
mitigating actions, if any, the Company may be able to take in response to PPS.
If PPS is not implemented by October 1, 2000, a further 15% reduction of
cost limits would be made (as currently legislated), and the Company would make
every effort to operate within the lower limits. The Company is unable to
predict at this time whether it would be possible for its agencies to be
operated under such limits nor is it able to state at this time what
actions, if any, it might take.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As described elsewhere herein, the Company has sold its product operations and
is pursuing strategic alternatives for its visiting nurse operations.
Accordingly, the results of continuing operations presented below include only
the result of the Company's adult day health services operations consisting
of in-center adult day care and personal care services provided in the
patients homes.
RESULTS OF CONTINUING OPERATIONS
Quarter Ended September 30, 1999 Compared With Quarter Ended
September 30, 1998
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C>
1999 1998 Change
------------------- ------------------- -------------------
Amount %Rev. Amount %Rev. Amount %Rev.
----------- ------ ---------- ------- ---------- -----
- --
Net Revenues $11,105,137 100.0% $9,925,252 100.0%
$1,179,885 11.9%
Cost of Sales
and Services 9,079,895 81.8% 8,399,011 84.6% 680,884 8.1%
Center
Contribution 2,025,242 18.2% 1,526,241 15.4% 499,001 32.6%
Selling, General &
Administrative 1,104,360 9.9% 1,338,781 13.5% (234,421)
(17.5)%
Depreciation and
Amortization 223,243 2.0% 235,529 2.4% (12,286)
(5.2)%
Provision for
uncollectible
accounts 231,347 2.1% 83,607 0.8% 147,740 176.7%
Interest, Net 122,521 1.1% 141,436 1.4 (18,915)
(13.4)%
----------- ---------- ----------
Income (Loss) from
continuing operations
before taxes, and
accounting change 343,771 3.1% (273,112) (2.8)% 616,883
NM
Income taxes 144,384 1.3% (112,659) (1.1)% 257,043
NM
----------- ---------- ----------
Net income (loss)
from continuing
operations non-
recurring items
and accounting
change 199,387 1.8% (160,453) (1.6)% 359,840 NM
=========== ========== ==========
</TABLE>
NM=Not Meaningful
- -------------------------------------------------------------------------------
<PAGE>
Net Revenues
Net revenues increased 11.9% to $11.1 million from $9.9 million in the prior
year. Growth came primarily from volumes, which grew to 156,628 days of care in
1999 from 145,826 in 1998. Average revenue per day of care increased just under
1% as a result of pricing and mix changes. Increased volumes were derived from
increased occupancy in the adult day care centers which grew to 73.6% of
capacity in 1999 from 70.2% of capacity in 1998.
Cost of Sales and Services
Cost of sales and services as a percent of revenues declined to 82% in 1999 from
85% in 1998 primarily as a result of increased volumes of business and
increased occupancy rates for in-facility care.
Selling, General and Administrative
The decrease of $234,422 is due primarily to the Company's July 1998 down-
sizing in response to changes in the reimbursement environment. SG&A as
a percent of revenues dropped to 9.9% in 1999 from 13.5% in 1998.
Depreciation and Amortization
Depreciation and amortization declined by 5% or $12,286, due to the June 1998
non-recurring write-down of goodwill, partially offset by the impact of capital
expenditures, net of certain property items still in service reaching the end
of their useful lives.
Provision for Uncollectible Accounts
Management establishes an allowance for uncollectible accounts based on its
estimate of probable collection losses. The increase in provision for
uncollectible accounts resulted from certain individual customer accounts
which became uncollectible during the period.
Interest, Net
The decrease in interest, net is primarily a result of lower average
outstanding debt levels associated with the Company's improved operating results
and proceeds from post-1998 transactions.
<PAGE>
Six Months Ended September 30, 1999 Compared With Six Months Ended September
30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 Change
------------------- ------------------- -------------------
Amount %Rev. Amount %Rev. Amount %Rev.
----------- ------ ---------- ------- ---------- -----
- --
Net Revenues $21,440,145 100.0% $19,313,192 100.0%
$2,126,953 11.0%
Cost of Sales
and Services 17,697,807 82.5% 16,686,829 86.4% 1,010,978 6.1%
Center
Contribution 3,742,338 17.5% 2,626,363 13.6% 1,115,975 42.5%
Selling, General &
Administrative 2,208,719 10.3% 2,839,475 14.7% (630,756)
(22.2)%
Depreciation and
Amortization 448,245 2.1% 461,118 2.4% (12,873)
(2.8)%
Provision for
uncollectible
accounts 410,725 1.9% 215,526 1.1% 195,199 90.6%
Goodwill
write-down - -% 113,196 0.6% (113,196) (100)%
Interest, Net 233,452 1.1% 274,342 1.4% 40,890
(14.9)%
----------- ---------- ----------
Income (Loss) from
continuing operations
before taxes, and
accounting change 441,197 3.1% (1,277,294) (6.6)%
1,718,491 NM
Loss on sale of
building 91,701 0.4% - 91,701 NM
Income taxes 146,789 0.7% (526,884) (2.7)% 673,672
NM
----------- ---------- ----------
Net income (loss)
from continuing
operations before
accounting change 202,707 0.9% (750,410) (3.9)%
953,117 NM
=========== ========== ==========
</TABLE>
NM=Not Meaningful
- -----------------------------------------------------------------------------
Net Revenues
Net revenues increased 11.0% to $21.4 million from $19.3 million in the prior
year.
Growth came primarily from volumes, which grew to 304,673 days of care in
1999 from 292,203 in 1998. Average revenue per day of care increased just
under 3% as a result of pricing and mix changes. Increased volumes were
derived from increased occupancy in the adult day care centers which grew to
73.4% of capacity in 1999 from 69.5% of capacity in 1998.
Cost of Sales and Services
Cost of sales and services as a percent of revenues declined to 83% in 1999
from 86% in 1998 primarily as a result of increased volumes of business and
increased occupancy rates for in-facility care.
<PAGE>
Selling, General and Administrative
The decrease of $630,756 is due primarily to the Company's July 1998
down-sizing in response to changes in the reimbursement environment. SG&A as
a percent of revenues dropped to 10.3% in 1999 from 14.7% in 1998.
Depreciation and Amortization
Depreciation and amortization declined by 3% or $12,873, due to the June 1998
non-recurring write-down of goodwill, partially offset by the impact of capital
expenditures, net of certain property items still in service reaching the end
of their useful lives.
Provision for Uncollectible Accounts
Management establishes an allowance for uncollectible accounts based on its
estimate of probable collection losses. The increase in provision for
uncollectible accounts resulted from certain individual customer accounts
which became uncollectible during the period.
Interest, Net
The decrease in interest, net is primarily a result of lower average outstanding
debt levels associated with the Company's improved operating results and
proceeds from post-1998 transactions.
Income Taxes - Three and Six Months ended September 30, 1999 and 1998
As of September 30, 1999, the Company has net deferred tax assets of
approximately $2.7 million. The net deferred tax asset is composed of $2.9
million of long-term deferred tax assets and $200,000 of current deferred tax
liabilities.
The Company has provided a valuation allowance against certain net deferred tax
assets based upon management's estimation of realizability of those assets
through future taxable income. This valuation was based in large part on the
Company's history of generating operating income or losses, individual tax
locales and expectations for the future. 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. 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 net
deferred tax assets. However, there can be no assurances that the Company will
meet its expectations of future taxable income.
The effective income tax rate was approximately 42% of income before income
taxes for 1999 as compared to an effective income tax rate of approximately
41.25% of loss before taxes for 1998. The benefit in 1998 resulted directly
from the recognition of losses incurred from continuing operations and was
provided at a lower than statutory rate due to the tax implications of state
and local net operating loss carryforwards arising from the 1998 losses.
Discontinued Operations
As part of a formal plan of separation, the Company on November 12, 1999 sold
its product operations (consisting of infusion therapy and respiratory and
medical equipment businesses) to Lincare Holdings, Inc. in an asset sale for
$14.5 million and is pursuing available strategic alternatives to complete the
separation of its visiting nurse operations. Proceeds from the sale are being
used to repay obligations outstanding under the Company's bank line of credit.
As a result of the operational separations, the Company has recorded a one-time
net of tax loss of approximately $5 million or ($1.60) in the quarter ended
September 30, 1999. This charge reduces the book value of the operations to
their expected net realizable value and includes the estimated future operating
results of the visiting nurse operations prior to separation. These changes
have been accounted for as discontinued operations in the accompanying
financial statements.
The estimated loss on disposal of discontinued operations reflected in the
accompanying financial statements includes management's estimate of the results
of operating the visiting nurse segment prior to disposal and the estimated
financial
<PAGE>
results of such disposal based on information currently available. The form
and timing of the implementation of a Medicare Prospective Payment System for
home care (PPS) may have a material impact on the disposal value of the visiting
nurse operations, as described in more detail in the notes to the accompanying
financial statements.
Revenues from discontinued operations were $14,967,996 and $14,598,873 for the
quarter ended September 30, 1999 and 1998 respectively, and $29,418,905 and
$28,877,562 for the six months ended September 30, 1999 and 1998 respectively.
Interest expense has been allocated to continuing and discontinued operations on
the basis of relative net assets. Accordingly, interest expense has been
allocated to discontinued operations in the amounts of $237,045 and $273,642 for
the quarter ended September 30, 1999 and 1998 respectively, and $451,668 and
$530,781 for the six months ended September 30, 1999 and 1998 respectively.
The accompanying balance sheet includes net current assets and liabilities of
discontinued operations, consisting primarily of accounts receivable,
inventory, accounts payable and accrued liabilities, and long term assets of
discontinued operations consisting primarily of property, plant and equipment,
net of accumulated depreciation and goodwill.
Building Sale
In May 1999, the Company sold an office building resulting in a non-operating
loss of $91,701. The transaction generated net cash of $79,093 after
repaying mortgage debt of approximately $40,000.
Liquidity and Capital Resources
Revolving Credit Facility
On August 5, 1999 the Company completed a new $20 million revolving credit
facility with Bank One Kentucky, NA. Proceeds available under the facility were
used to retire obligations of approximately $14 million previously outstanding
under the Company's credit facilities with Heller Financial and Bank One. The
new credit facility bears interest at prime plus a margin (ranging from 0% to
1.0%, currently 0.75%) dependent upon total leverage and is secured by
substantially all assets and the stock of the Company's subsidiaries.
Borrowings are available equal to the greater of: a) a multiple of earnings
before interest, taxes, depreciation and amortization (as defined) or, b) an
asset based formula, primarily based on accounts receivable. Borrowings under
the facility may be used for working capital, capital expenditures,
development and growth of the business and other corporate purposes. The
facility has an expiration date of April 10, 2001.
As part of a formal plan of separation, the Company sold its product
operations (consisting of infusion therapy and respiratory and medical
equipment businesses) to Lincare Holdings, Inc. in an asset sale for $14.5
million. Proceeds from the sale are being used to repay obligations
outstanding under the company's bank line of credit.
As of November 19, 1999 approximately $2.5 million remained outstanding on
the line of credit. The Company has retained certain assets and liabilities
associated with the product operations, the liquidation of which is expected to
generate additional proceeds of approximately $2 million thus reducing the
Company's bank borrowings to nearly zero. Borrowing capacity will then be
available to the Company to pursue further development of the adult day care
business.
The Company believes that this facility will be sufficient to fund its
operating needs for at least the next twelve months.
Management will continue to evaluate 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.
<PAGE>
Cash Flows and Financial Conditions
Key elements to the Consolidated Statements of Cash Flows were (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Net Change in Cash and Cash Equivalents 1999 1998
Continuing Operations:
Provided by (used in)
Operating activities $(189) $ (1,263)
Investing activities (530) (583)
Financing activities (82) 2,647
------ ------
$(801) $(801)
Discontinued
operations 170 (1,598)
--------- ---------
Discontinued operations $(630) $(797)
--------- ---------
Net Change in Cash and Cash Equivalents $ $
========= =========
</TABLE>
1999
Net cash provided by operating activities of approximately resulted principally
from current period income, net of changes in accounts receivable, accounts
payable and accrued expenses. The decrease in accounts payable and accrued
liabilities resulted principally from the timing of payments. Net cash used in
investing activities of approximately resulted principally from amounts invested
in adult day health services expansion activities, and improvements in
information systems, net of generated from the sale of a building. Net cash used
in financing activities of approximately resulted primarily from reduced
borrowings under the Company's credit facility and of reduced mortgage
obligations related to the building sold.
1998
Net cash used by operating activities of approximately resulted principally
from current period losses, adjusted for non-cash items (refer to discussion of
operating results above and to statement of cash flows) net of changes in
accounts receivable, accounts payable and accrued expenses. Net cash used in
investing activities of approximately resulted principally from amounts invested
in adult day health services expansion activities, and improvements in
information systems. Net cash provided by financing activities of approximately
resulted primarily from an increase in the Company's credit facility related to
investments made in acquisitions and geographic expansion.
Year 2000 Computer System Issue
The year 2000 issue is the result of computer programs which were written using
two digits rather than four to define the applicable year. The Company has
implemented a plan to evaluate and address its year 2000 issues. The plan has
identified that the Company's principle information systems operate in a
database environment which uses four digits for the year, and, accordingly, this
issue is not expected to have a significant impact on the majority of the
Company's computer systems. Some moderate modification and testing is still
required to verify the year 2000 readiness of these systems. The Company
believes these final measures will be substantially completed prior to the
year 2000.
The Company utilizes certain purchased systems for which the Company does not
control the programming. Certain of these purchased systems are not in
compliance to handle the year 2000 issue and have been independently slated for
replacement with new systems that better meet the information needs of the
Company as it expands and deals with the current operating environment. The
Company is currently implementing replacement systems. The Company anticipates
that these conversions will be completed to provide compliance with the
requirements to handle the year 2000 issue with no significant operational
concerns.
The Company also utilizes medical equipment and other non-information
technology equipment some of which may be impacted by this issue. The Company
is in the process of completing its remediation plans which are not currently
expected to have a material impact on the Company.
<PAGE>
The Company depends on receipt of payment from its payor sources, which utilize
computer software to process those payments. The Company has over 1,000
different payors including Medicare and Medicaid programs, insurance companies
and HMO's.
Should the Federal Medicare program and/or state Medicaid programs, or a large
number of private insurance payors cease, or interrupt payments as a result of
year 2000 issues, this would have a material adverse impact on the Company.
Approximately 70% of the Company's revenues are derived from HCFA funded
programs. To date the Company has received no notification from HCFA (or any
other third party payor) that year 2000 issues are expected to interrupt
payments. The Company is currently unable to predict what effect, if any, the
year 2000 issue may have on the computer systems of its payors, or in turn on
the Company.
The above status of the Company's year 2000 issues is based upon certain
management assumptions such as the availability of appropriate implementation
personnel, consultants, software vendors and related resources. Management
currently believes that the financial resources necessary to accomplish internal
compliance will be funded by operating cash flow and will not be material to the
Company's financial condition or results of operations. However, there is no
guarantee that the Company's assumptions or expected results will be achieved
and actual results could differ materially from those expected results. Possible
consequences of not addressing the year 2000 issue by the Company, its vendors
or its reimbursement sources include, but are not limited to, a potential
inability of the Company to obtain sufficient goods and services to operate its
business and the potential inability to obtain timely reimbursement for services
provided by the Company. The Company continues to evaluate contingency plans
related to its year 2000 issues on an ongoing basis. However, in any event,
contingency plans are highly dependent upon actions taken by its payor
sources regarding year 2000.
System maintenance and modification costs to existing software are expensed as
incurred. The costs associated with purchasing replacement software will be
capitalized and amortized over the useful life of the software.
Health Care Reform
The health care industry has experienced, and is expected to continue to
experience, 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 reforms have been enacted as
discussed elsewhere in this document and proposals for additional changes are
continuously formulated by departments of the federal government, Congress, and
state legislatures.
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 expenditures are expected to continue. Such
future changes may further impact reimbursement. There can be no assurance that
future legislation or regulatory changes will not have a material adverse effect
on the operations of the Company.
State legislative proposals continue to be introduced that would impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations may be enacted
in the future affecting its business or 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.
Refer to the sections on Reimbursement Changes and Cautionary Statements -
Forward Outlook and Risks in Part I, the notes to the accompanying financial
statements and
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations all included in the Company's report on Form 10K for the fiscal year
ended March 31, 1999 for additional information.
Impact of Inflation
Management does not believe that inflation has had a material effect on income
during the past several years.
<PAGE>
ITEM 2a. Quantitative and Qualitative Disclosures About Market Risk
Derivative Instruments
The Company does not use derivative instruments.
Market Risk of Financial Instruments
The Company's primary market risk exposure with regard to financial instruments
is to changes in interest rates.
At September 30, 1999, a hypothetical 100 basis point increase in short-term
interest rates would result in a reduction of approximately $156,000 in annual
pre-tax earnings. On a pro-forma basis, giving effect to the reduction of debt
resulting from the sale of the Company's product operations on November 12,
1999, a hypothetical 100 basis point increase in short-term interest rates would
result in a reduction of approximately $18,000 in annual pre-tax earnings.
<PAGE>
<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
<PAGE>
Item 5. Other Information
Pro-forma Financial Statements
As described above, the Company sold its product operations on November 12,
1999. The following pro-forma income statement presents the Company's results
of operations for the six-months ended September 30, 1999, and its financial
condition as of that date, as if the transaction had been completed at the
beginning of the period.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
PROFORMA INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
Actual Pro-forma Pro-forma
Results Adjustments Notes Results
------------ ------------ ------- ------------
Net revenues $ 21,440,145 - $ 21,440,145
Cost of sales
and services 17,697,807 - 17,697,807
Selling, general
and administrative expenses 2,208,719 - 2,208,719
Depreciation and
amortization expense 448,245 - 448,245
Provision for
uncollectible accounts 410,725 - 410,725
------------ ------------ ------------
Income (loss) from
continuing operations
before other income
(expense) and income taxes 674,649 - 674,649
Other income (expense):
Interest expense (233,452) 178,606 (1) (54,846)
Loss on sale of building (91,701) (91,701)
------------ ------------ ------------
Income (loss) from
continuing operations
before provision for
income taxes 349,496 178,606 528,102
Provision (benefit)
for income taxes 146,789 75,015 (2) 221,803
------------ ------------ ------------
Net income (loss)from
continuing operations $ 202,707 $ 103,591 $ 306,299
============ ============ ============
Per Share Amounts
- Basic and Diluted
Average shares outstanding 3,120,413 - 3,120,413
------------ ------------ ------------
Net income (loss)from
continuing operations $ 0.06 $ 0.02 $ 0.10
============ ============ ============
</TABLE>
Notes to proforma adjustments:
(1) Reflects reduction of debt with proceeds of sale of product operations
(2) Reflects income tax effect of (1) at 42% effective tax rate.
See accompanying notes to interim consolidated financial statements.
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
PROFORMA INTERIM CONSOLIDATED BALANCE SHEETS
As of September 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Proforma Proforma
Actual Adjustments Notes Adjusted
---------- -- ---------- -- ------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 406,698 $ - $ 406,698
Accounts receivable - net 7,277,130 - 7,277,130
Prepaid expenses and other
current assets 582,881 - 582,881
Net assets of discontinued
operations 7,991,35 (7,755,5577) (1) 235,801
---------- -- ------------ ------------
TOTAL CURRENT ASSETS 16,258,067 (7,755,557 8,502,510
PROPERTY AND EQUIPMENT - net 3,411,995 - 3,411,995
COST IN EXCESS OF NET ASSETS
ACQUIRED - net 2,455,346 - 2,455,346
DEFERRED TAX ASSETS 2,892,412 - 2,892,412
OTHER ASSETS 358,975 - 358,975
LONG TERM ASSETS OF
DISCONTINUED OPERATIONS 5,344,443 (5,344,443) (1) -
---------- -- ------------ ------------
$ 30,721,238 $ (13,100,000) $ 17,621,238
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities $ 3,682,639 $ - 3,682,639
Current portion of term
debt and capital lease
obligations - - -
Other current liabilities 159,320 - 159,320
---------- -- ------------ ------------
TOTAL CURRENT LIABILITIES 3,841,959 - 3,841,959
---------- -- ------------ ------------
LONG-TERM LIABILITIES:
Revolving Credit Facility 15,601,949 (13,100,000) (1)
2,501,949
Other liabilities 141,138 - 141,138
---------- -- ------------ ------------
TOTAL LONG-TERM LIABILITIES 15,743,087 (13,100,000)
2,643,087
---------- -- ------------ ------------
TOTAL LIABILITIES 19,585,046 (13,100,000) 6,485,046
---------- -- ------------ ------------
Commitments and Contingencies
Stockholders' equity:
Common stock, treasury stock
and additional paid in capital 25,562,655 -
25,562,655
Accumulated deficit (14,426,463) -
(14,426,463)
---------- -- ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 11,136,192 - 11,136,192
---------- -- ------------ ------------
$ 30,721,238 $ (13,100,000) $ 17,621,238
========== == ============ ============
</TABLE>
Pro-forma adjustments:
(1) Reflects sale of product operations and application of proceeds against
debt. See accompanying notes to interim consolidated financial statements.
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Asset Sale Agreement
Exhibit 11 Calculation of Earnings Per Share (attached)
Exhibit 27 Financial Data (electronic filing only)
(b) Form 8-K - none.
<PAGE
<PAGE>
<TABLE>
<CAPTION>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
Three Months Ended Six Months Ended
September 30, September,
------------------------- ----------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC
Net income (loss) $(4,778,266) $(156,133) $(4,719,035) $(5,904,363)
Weighted average
outstanding shares
during the period 3,120,413 3,120,413 3,120,413 3,120,413
------------ ----------- ------------ -----------
Net income
(loss) per share $(1.53) $(0.05) $(1.51) $(1.89)
============ =========== ============ ===========
DILUTED
Net income (loss)
for diluted income
per common share $ $
Weighted average
outstanding shares
during the period 3,120,413 3,120,413 3,120,413 3,120,413
Add-common equivalent
Shares representing
shares issuable upon
exercise of dilutive
options and warrants (a) (a) (a) (a)
------------ ----------- ------------ -----------
Diluted Net income
(loss) per
common share $(1.53) $(0.05) $(1.51) $(1.89)
============ =========== ============ ===========
(a) anti-dultive
</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: November 22, 1999
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> 03-31-00
<PERIOD-END> 09-30-99
<CASH> 407
<SECURITIES> 0
<RECEIVABLES> 7649
<ALLOWANCES> (372)
<INVENTORY> 0
<CURRENT-ASSETS> 583
<PP&E> 8585
<DEPRECIATION> (5173)
<TOTAL-ASSETS> 30721
<CURRENT-LIABILITIES> 3842
<BONDS> 0
0
0
<COMMON> 11136
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 30721
<SALES> 21440
<TOTAL-REVENUES> 21440
<CGS> 17698
<TOTAL-COSTS> 17698
<OTHER-EXPENSES> 2657
<LOSS-PROVISION> 411
<INTEREST-EXPENSE> 233
<INCOME-PRETAX> 349
<INCOME-TAX> 147
<INCOME-CONTINUING> 203
<DISCONTINUED> (4922)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4719)
<EPS-BASIC> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
