UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10Q
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(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
OR
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 000-19370
Curative Health Services, Inc.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1503914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14 Research Way, Box 9052
East Setauket, NY 11733-9052
(Address of principal executive offices)
Telephone Number (516) 689-7000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No ______
As of May 1, 1997 there were 12,328,832 shares of the Registrant's Common Stock,
$.01 par value, outstanding.
1
<PAGE>
Curative Health Services, Inc. and Subsidiaries
INDEX
Part I Financial Information Page No.
Item 1 Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three Months ended March 31, 1997 and 1996 3
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II Other Information Page No.
Item 6 Exhibits and Reports on Form 8-K 9
Signatures 10
2
<PAGE>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
1997 1996
---- ----
Revenues $19,654 $14,917
Cost and Expenses:
Cost of product sales and services 10,858 8,335
Selling, general and administrative 5,064 4,752
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Total costs and operating expenses 15,922 13,087
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Income from operations 3,732 1,830
Interest income 576 183
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Income before income taxes 4,308 2,013
Income taxes 643 140
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Net income $ 3,665 $ 1,873
====== ======
Net income per common share and equivalent shares .28 .17
=== ===
Weighted average common and common equivalent
shares outstanding 12,945 11,315
====== ======
See accompanying notes
3
<PAGE>
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, 1997 December 31, 1996
(Unaudited)
ASSETS
Cash and cash equivalents $ 12,618 $ 5,226
Marketable securities held-to-maturity 32,213 37,838
Accounts receivable, net 11,601 12,319
Prepaids and other current assets 739 1,022
-------- --------
Total current assets 57,171 56,405
Property and equipment, net 5,102 4,754
Other assets 787 800
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Total assets $ 63,060 $ 61,959
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 6,669 $ 7,368
Accrued liabilities 1,747 3,137
Current lease obligations 99 140
-------- --------
Total current liabilities 8,515 10,645
Long-term debt -- 1,000
Capital lease obligations 41 44
Stockholders' equity
Common stock 123 121
Additional paid in capital 69,988 69,421
Deficit (15,565) (19,230)
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54,546 50,312
Subscription receivable (42) (42)
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Total stockholders' equity 54,504 50,270
-------- --------
Total liabilities and stockholders'equity $ 63,060 $ 61,959
======== ========
See accompanying notes
4
<PAGE>
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
1997 1996
---- ----
OPERATING ACTIVITIES:
Net income $ 3,665 $ 1,873
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 405 242
Changes in operating assets and liabilities (1,087) (1,118)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 2,983 997
INVESTING ACTIVITIES:
Purchase of property and equipment (740) (261)
Sales of marketable securities 5,624 19
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 4,884 (242)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 568 357
Principal payments on loans and capital lease obligations (1,043) (39)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (475) 318
INCREASE IN CASH AND CASH EQUIVALENTS 7,392 1,073
Cash and cash equivalents at beginning of period 5,226 2,835
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,618 $ 3,908
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SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 13 $ 17
======== ========
See accompanying notes
5
<PAGE>
Curative Health Services, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1996 and
notes thereto contained in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission. The results of operations for
the three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the entire fiscal year ending December 31, 1997.
Note 2. Income per Common Share
Income per common share is computed by dividing the net income by the
weighted average number of common shares outstanding plus dilutive common
share equivalents. In February 1997, the Financial Accounting Standards Board
issued Statement No.128, Earnings per Share, which is required to be adopted
on December 31,1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share for the first
quarter ended March 31,1997 and March 31, 1996 of $.02 and $.01 per share
respectively. The impact of Statement 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues. The Company's revenues for the first quarter of fiscal year 1997
increased 32 percent to $19,654,000, compared to $14,917,000 for the first
quarter of the prior fiscal year. The revenue increase is attributable to the
operation of 128 wound care facilities at the end of the first quarter of 1997
compared to 89 at the end of the first quarter of 1996 and an 11 percent
increase in revenues at existing centers related to higher patient volumes.
Total new patients increased 31 percent from 8,683 in the first quarter of 1996
to 11,373 for the same period in 1997. The total number of new patients
receiving Procuren(R) therapy increased 16 percent from 1,745 in the first
quarter of 1996 to 2,019 in the first quarter of 1997. The percentage of
patients receiving Procuren(R) therapy decreased during the first quarter of
1997 to 18 percent from 20 percent for the same period in 1996. The Company
believes that this decrease is attributable primarily to an increase in the
percentage of less severe chronic wounds being treated at the Company's Wound
Care Centers(R), for which physicians are less likely to prescribe Procuren(R),
as well as a lack of available reimbursement for Medicare patients. The Company
believes that this shift in the severity of the wounds treated at a Wound Care
Center(R) occurs as the local medical community becomes familiar with the
services offered by the Wound Care Center(R) and refers a broader range of
chronic wound patients to the Wound Care Center(R) for treatment. The Company
anticipates that the percentage of patients receiving Procuren(R) will continue
to decline gradually in the future.
Costs of Product Sales and Services. Costs of product sales and services for the
first quarter increased from $8,335,000 in 1996 to $10,858,000 in 1997, an
increase of 30 percent. The increase is attributable to additional staffing and
operating expenses of approximately $1,337,000 associated with the operation of
39 additional wound care facilities at the end of the first quarter of 1997, as
well as increased volume at existing wound care facilities. Additionally, these
39 facilities included four additional free-standing Wound Care Centers(R) and
seven additional under-arrangement Wound Care Centers(R) at which the services
component of costs is higher than at the Company's other facilities due to the
additional clinical staffing and expenses that these models require. As compared
with the first quarter of 1996, the higher services components at these
facilities accounted for an additional $713,000 of the increase in product costs
and services for the first quarter of 1997. As a percentage of revenues, costs
of product sales and services for the first quarter of 1997 was 55 percent
compared to 56 percent for the same period in 1996. The one percent improvement
is attributed to the ability of the Company to obtain leverage by spreading the
costs of its overhead over a broader revenue base and the improvement of margins
at its free-standing Wound Care Centers(R) in the first quarter of 1997 as
compared to the same period in 1996.
Selling, General and Administrative. Selling, general and administrative
expenses for the first quarter increased from $4,752,000 in 1996 to $5,064,000
in 1997, an increase of seven percent. For the quarter the increase is
attributable to the staffing and operating expenses associated with the growth
in the wound care business particularly related to field support departments
including clinical operations and management information systems. As a
percentage of revenues, selling, general and administrative, expenses were 32
percent in the first quarter of 1996 compared with 26 percent in the first
quarter of 1997. The decrease is attributable to the ability of the Company to
obtain leverage by spreading the costs of its overhead structure over a broader
revenue base.
Net Income. Net income improved from $1,873,000 or $0.17 per share in the first
quarter of 1996 to $3,665,000 or $0.28 per share in the first quarter of 1997.
The increase in earnings of $1,792,000 for the three months ended March 31, 1997
as compared to March 31, 1996 is primarily attributable to an improvement in
operating margins associated with the revenue growth particularly related to
existing wound care centers and economies of scale achieved from market growth,
and increased interest income due to higher cash balances offset by an increase
in income taxes as the result of higher effective tax rates in 1997. Effective
tax rates are higher in 1997 due to the anticipated full utilization of net
operating loss carryforwards.
7
<PAGE>
Liquidity and Capital Resources. Working capital was $48.7 million at March 31,
1997 compared to $45.8 million at December 31, 1996. Total cash, cash
equivalents and marketable securities held-to-maturity as of March 31, 1997 was
$44.8 million and was invested primarily in highly liquid money market funds,
commercial paper and government securities. The ratio of current assets to
current liabilities increased from 5.3:1 at December 31, 1996 to 6.7:1 at March
31, 1997. The Company's increase in working capital and improvement in the ratio
of current assets is primarily attributable to the net income for the three
months.
Cash flows provided by operations for the first three months of 1997 totaled
$2,983,000 primarily attributable to the net income for the period. Cash flows
used in investing activities totaled $4,884,000 primarily attributable to
maturities of marketable securities. Cash flows used in financing activities
totaled $475,000 primarily attributable to the payment of the loan guaranteed by
the Company for its former subsidiary Curative Technologies, GmbH.
For the first three months of 1997, the Company experienced a $718,000 net
decrease in accounts receivable primarily due to an improvement in days
receivables outstanding. The average number of days receivables outstanding
decreased to 53 days as of March 31, 1997 compared to 59 as of December 31,
1996. Further, the Company's accounts payable and accrued expenses decreased
$2,089,000 as of March 31, 1997 compared to December 31, 1996.
The Company's longer term cash requirements include working capital for the
further expansion of its wound care business. Other cash requirements are
anticipated for capital expenditures in the normal course of business and the
acquisition of software, computers and equipment related to the Company's
upgrade of management information systems. The Company expects that based on its
current business plan, its existing cash equivalents and marketable securities
will be sufficient to satisfy its current working capital needs. The effects of
inflation and foreign currency translation risks are considered immaterial.
Cautionary Statements
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements include statements regarding
intent, belief or current expectations of the Company and its management. These
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties that may cause the Company's actual results
to differ materially from the results discussed in these statements. Factors
that might cause such differences include, but are not limited to, changes in
the Company's level of business with Columbia/HCA Healthcare Corporation,
changes in the government regulations relating to the Company's wound care
operations or Procuren(R), uncertainties relating to health care reform
initiatives, changes in the availability of third party reimbursements for the
Company's product and services, and the other risks and uncertainties detailed
throughout this report and from time to time in the Company's filings with the
Securities and Exchange Commission.
8
<PAGE>
Curative Health Services, Inc. and Subsidiaries
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibit 27 Financial Data Schedule
(b)No reports on Form 8-K filed during the quarter ended March 31, 1997.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 13, 1997
Curative Health Services, Inc.
(Registrant)
/s/ John Vakoutis
-------------------------------------
John Vakoutis
President and Chief Executive Officer
/s/ John C. Prior
-------------------------------------
John C. Prior
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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