<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Second Quarter Ended June 30, 1998 Commission File #0-19240
U.S. HOMECARE CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2853680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization ) Identification Number)
Two Hartford Square West
Suite 300 06106
(Address of principal executive (Zip Code)
office)
Registrant's telephone number, (860) 278-7242
including area code
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
Number of Shares of Registrant's Common Stock Outstanding
June 30, 1998: 12,725,829
<PAGE> 2
U.S. HOMECARE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I - Financial Information
Item 1 Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations
for the three months ended June 30, 1998
and 1997. 4
Consolidated Statements of Operations
for the six months ended June 30, 1998
and 1997. 5
Consolidated Statements of Cash Flows
for the six months ended June 30, 1998
and 1997. 6
Notes to Unaudited Consolidated
Financial Statements. 7 - 8
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 9 - 11
Item 3 Market Risk Disclosure 12
Part II - Other Information
Item 1 Legal Proceedings 12
Item 2 Changes in Securities and Use of Proceeds 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matters to Vote of Security Holders 12
Item 5 Other Information 12
Item 6 Exhibits & Reports on Form 8-K 13
Signatures 14
</TABLE>
<PAGE> 3
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- --------
ASSETS (unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 28 $ 313
Accounts receivable, net of allowance
For doubtful accounts of $1,615 and $1,892 5,446 5,147
Other current assets 804 1,339
-------- --------
TOTAL CURRENT ASSETS 6,278 6,799
-------- --------
PROPERTY AND EQUIPMENT, net 659 841
-------- --------
OTHER ASSETS
Excess cost over net assets acquired, net
of accumulated amortization of $778 and $736 1,456 1,497
Intangible assets, net of accumulated
Amortization of $5,647 and $5,502 340
485
Other 894 756
-------- --------
TOTAL OTHER ASSETS 2,690 2,738
-------- --------
TOTAL ASSETS $ 9,627 $ 10,378
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term debt $ 7,852 $
Accounts payable 2,232 2,528
Accrued expenses 3,389 2,961
Accrued payroll and related costs 1,833 1,655
-------- --------
TOTAL CURRENT LIABILITIES 15,306 7,144
-------- --------
OTHER LIABILITIES
Long-term debt 0 7,577
Other long-term liabilities 1,678 2,128
-------- --------
TOTAL OTHER LIABILITIES 1,678 9,705
-------- --------
TOTAL LIABILITIES 16,984 16,849
-------- --------
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par value, 40,000,000 shares authorized, 127 121
12,725,829 and 12,130,353 shares outstanding
Preferred stock, $1 par value, 5,000,000 authorized, 328,569 328 328
shares outstanding
Additional paid-in capital 47,112 47,077
Accumulated deficit (54,924) (53,997)
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (7,357) (6,471)
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 9,627 $ 10,378
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-3-
<PAGE> 4
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
Net revenues $ 11,737 $ 13,976
Cost of revenues, primarily
payroll and related costs 8,114 8,501
-------- --------
Gross profit 3,623 5,475
Operating expenses:
Selling, general and administrative expenses 4,245 3,882
Amortization and depreciation 377 347
-------- --------
Total operating expenses 4,622 4,229
Income before interest expense and income taxes (999) 1,246
Interest expense 239 248
-------- --------
(Loss) Income before income taxes (1,238) 998
Provision for state income taxes 38 37
-------- --------
Net (Loss) income (1,276) 961
Dividends to preferred shareholders, paid in common stock (172) (172)
-------- --------
Net (Loss) income applicable to common shareholders $ (1,448) $ 789
======== ========
Basic income per share:
Net (Loss) Income per share, basic $ (0.11) $ 0.08
======== ========
Diluted income per share:
Net (Loss) Income per share, diluted $ (0.11) $ 0.04
======== ========
Weighted average common shares outstanding:
Basic 12,596 9,960
Dilutive effect of stock options -- 1,634
Conversion of preferred shares -- 7,221
-------- --------
Diluted 12,596 18,815
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE> 5
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
-------- --------
(unaudited)
<S> <C> <C>
Net revenues $ 24,699 $ 27,730
Cost of revenues, primarily
payroll and related costs 16,307 16,715
-------- --------
Gross profit 8,392 11,015
Operating expenses:
Selling, general and administrative expenses 7,969 7,827
Amortization and depreciation 815 729
-------- --------
Total operating expenses 8,784 8,556
Income before interest expense and income taxes (392) 2,459
Interest expense 459 468
-------- --------
(Loss) Income before income taxes (851) 1,991
Provision for state income taxes 75 75
-------- --------
Net (Loss) income (926) 1,916
Dividends to preferred shareholders, paid in common stock (345) (345)
-------- --------
Net (Loss) income applicable to common shareholders $ (1,271) $ 1,571
======== ========
Basic income per share:
Net (Loss) Income per share, basic $ (0.10) $ 0.16
======== ========
Diluted income per share:
Net (Loss) Income per share, diluted $ (0.10) $ 0.10
======== ========
Weighted average common shares outstanding:
Basic 12,430 9,794
Dilutive effect of stock options -- 1,634
Conversion of preferred shares -- 7,221
-------- --------
Diluted 12,430 18,649
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-5-
<PAGE> 6
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1998 1997
------- -------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) income $ (926) $ 1,916
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 815 729
Provision for bad debts 158 140
Non-cash charges 41 130
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable (457) 682
Decrease in other current assets 535 81
Increase in other assets (488) (207)
Increase in accrued payroll and related costs 178 180
(Decrease)/increase in accounts payable and accrued expenses 131 (3,412)
Decrease in other liabilities (450) (223)
------- -------
Net cash provided by (used in) operating activities (463) 16
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of property and equipment 6 192
Purchase of property and equipment (103) (73)
------- -------
Net cash used in investing activities (97) 119
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bank financing 275 (465)
------- -------
Net cash provided by (used in) financing activities 275 (465)
------- -------
Net decrease in cash and cash equivalents (285) (330)
Cash and cash equivalents, beginning of period 313 647
------- -------
Cash and cash equivalents, end of period $ 28 $ 317
======= =======
Cash paid during the period for:
Income taxes $ 193 $ 95
======= =======
Interest $ 438 $ 365
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-6-
<PAGE> 7
U.S. HOMECARE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited Information
In the opinion of the management of U.S. HomeCare Corporation (the
"Company"), the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the Company's financial position as of June
30, 1998 and the results of its operations and its cash flows for the six
months ended June 30, 1998 and 1997. These consolidated financial
statements should be read in conjunction with the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
The results of operations for the six month period ended June 30, 1998
are not necessarily indicative of the results to be expected for the full
year.
Note 2 - Revenue Recognition
The Company recognizes revenues as the services are performed. The
Company receives retroactive increases and decreases to certain rates.
The Company records such amounts as changes in revenue when they are
notified by the payor or the amount is estimable. Certain of the
Company's revenues and related disbursements are subject to audit by
third party payors; these revenues are accrued on an estimated basis in
the period the related services are rendered. Net revenues are adjusted,
as required in subsequent periods, based on final settlement.
Note 3 - Stockholders' Deficit
During the quarter ended June 30, 1998 and 1997, the Company issued
376,739 and 138,986 shares, respectively of Common Stock as dividends on
the Company's $35.00 6% Convertible Preferred Stock (the "Preferred
Stock"), zero and 110,000 shares, respectively of Common Stock in lieu of
cash payments for several obligations, and 17,359 and 21,762 shares,
respectively of Common Stock to directors in lieu of cash fees under the
Director Stock Fee Program of the Company's 1995 Stock Option/Stock
Issuance Plan.
Note 4 - Commitments and Contingencies
Medicare revenues are based in part on cost reimbursement principles and
are subject to audit and retroactive adjustment by the respective
third-party fiscal intermediaries. Included in accrued expenses at June
30, 1998 and at December 31, 1997 was approximately $1.0 and $0.6
million, respectively, which is an estimate of what is to be paid upon
finalization of certain cost reports. In the opinion of management,
additional other retroactive adjustments,
-7-
<PAGE> 8
if any, are not expected to be material to the consolidated financial
statements of the Company.
Note 5 - Debt and Accounts Receivable Securitization
The Company's Receivables Purchase and Servicing Agreement (the
"Securitization Program"), allows the Company to sell for cash an
undivided percentage ownership interest in a designated pool of eligible
receivables, as defined. The Company relies on this accounts receivable
financing to fund working capital for current operations. The maximum
amount of cash advances (based on eligible accounts receivable) allowed
under the program is $9.3 million. The net proceeds from the sale of
accounts receivable through the Securitization Program at June 30, 1998
and December 31, 1997 were $6.5 million and $6.9 million, respectively.
The Company's Revolving Line of Credit ("RLOC") and the Company's
subordinated credit facility expire during January 1999. Because these
facilities expire in less than a year, all such outstanding debt has been
classified as current liabilities at June 30, 1998. The Securitization
Program also expires during January 1999.
Note 6 - Presentation of Prior Year Information
The presentation of certain prior year information has been reclassified
to conform with the current year presentation.
Note 7 - Net Income Per Share
Net Income Per Share - As of December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
("SFAS 128"). As a result, net income per share for the three months and
six months ended June 30, 1997 has been restated to conform with the
provisions of SFAS 128. Basic net income per share is based on weighted
average number of common shares outstanding. Convertible preferred stock,
warrants, and stock options outstanding are used in the calculation of
diluted earnings per share. For the quarter ended June 30, 1998,
conversion of preferred stock has not been included in the computation of
diluted earnings per share because to do so would be anti-dilutive.
-8-
<PAGE> 9
U.S. HOMECARE CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by the Company with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998
Compared With Three Months Ended June 30, 1997
Net revenues for the three month period ended June 30, 1998 were
$11,737,000 compared to $13,976,000 for the second quarter of 1997. The decline
is principally the result of continued downward pressures on rates and
utilization by government payors including a net charge to revenue of $470,000
resulting from revised estimates of payments for services rendered in earlier
periods, as discussed in Note 2.
Cost of revenues as a percentage of net revenues was 69.1% for the second
quarter of 1998, compared with 60.8% in the second quarter of 1997. The increase
in cost of revenues is due to above described pressures on rates and
utilization, revenue charges and greater utilization of salaried nursing staff
as compared to per diem staffing. The resulting gross profits were $3,623,000
and $5,475,000, or 30.9% and 39.2%, for the quarters ended June 30, 1998 and
1997, respectively.
Selling, general and administrative expenses were $4,245,000 in the second
quarter of 1998 as compared to $3,882,000 in the second quarter of 1997. The net
increase reflects the effect of $387,000 of revised estimates of liabilities,
principally related to a state sales tax audit for tax years from 1989 to 1996,
and an assessment for retrospectively rated workers compensation for policy
years from 1992 to 1996.
Net interest expense was $239,000 for the second quarter of 1998 compared
to $248,000 for the second quarter of 1997.
Amortization and depreciation were $377,000 for the second quarter of 1998
as compared to $347,000 for the second quarter of 1997, primarily due to
amortization of deferred costs of refinancing the Company's credit facilities.
The Company's utilization of its net operating loss carryforwards offset
its Federal tax liability. The income tax provision relates to state
obligations.
As a result of the foregoing, for the three months ended June 30, 1998, the
Company had net loss of $1,276,000 compared to a net income of $961,000 for
the corresponding quarter in 1997.
-9-
<PAGE> 10
Six Months Ended June 30, 1998
Compared With Six Months Ended June 30, 1997
Net revenues for the six month period ended June 30, 1998 were $24,699,000
compared to $27,730,000 for the first two quarters of 1997. The decline is
principally the result of the impact of rate reductions by government payors
including a net charge to revenue of $113,000 resulting from revised estimates
of payments for services rendered in earlier periods, as discussed in Note 2.
Cost of revenues as a percentage of net revenues was 66.0% for the first
two quarters of 1998, compared with 60.3% in the first two quarters of 1997. The
increase in cost of revenues is primarily due to rate reductions discussed above
and the greater utilization of salaried nursing staff as compared to per diem
staffing. The resulting gross profits were $8,392,000 and $11,015,000 or 34.0%
and 39.7%, for the quarters ended June 30, 1998 and 1997, respectively.
Selling, general and administrative expenses were $7,969,000 in the first
two quarters of 1998 as compared to $7,827,000 in the first two quarters of
1997. The net increase reflects the effect of $210,000 of revised estimates of
liabilities principally related to a state sales tax audit for tax years from
1989 to 1996, and an assessment for retrospectively rated workers compensation
for policy years from 1992 to 1996.
Net interest expense was $459,000 for the first two quarters of 1998 as
compared to $468,000 for the first two quarters of 1997. The decrease resulted
from reduction in borrowed funds.
Amortization and depreciation were $815,000 for the first two quarters of
1998 as compared to $729,000 for the first two quarters of 1997, primarily due
to amortization of deferred costs of refinancing the Company's credit
facilities.
The Company's utilization of its net operating loss carryforwards offset
its Federal tax liability. The income taxes noted relate to state tax
obligations.
As a result of the foregoing, for the six months ended June 30, 1998, the
Company had a net loss of $926,000 compared to net income of $1,916,000 for the
corresponding quarter in 1997.
FINANCIAL CONDITION
As of June 30, 1998, the Company's cash and cash equivalents totaled
$28,000 compared to $313,000 at December 31, 1997. Undrawn funds available from
the Company's Revolving Line of Credit was approximately $312,000 at June 30,
1998.
Net accounts receivable increased $299,000 from $5,147,000 at December 31,
1997 to $5,446,000 at June 30, 1998.
The Company believes that its existing credit facilities, together with
cash generated from operations, will be sufficient to fund the Company's
operations and debt obligations through 1998. Beyond 1998, the Company believes
that it will need to extend or replace its existing credit
-10-
<PAGE> 11
facilities to ensure sufficient funding of the Company's operations. The Company
is currently negotiating with its current creditors to extend its financing.
FACTORS AFFECTING THE COMPANY'S BUSINESS
The Company's future business, financial condition and results of
operations are dependent on the Company's ability to successfully provide home
health care services to its customers and to successfully collect for such
services. Inherent in this process are a number of risks that the Company must
carefully manage in order to be successful. Some of these risks are: dependence
on referral sources; dependence on reimbursement by third party payors including
Medicaid and Medicare; pricing pressures which the health care industry is
currently experiencing as a result of market-driven reforms; complying with the
federal and state regulations which apply to home health care agencies;
fundamental changes in the health care industry which could be brought about by
health care reform; the need to refinance or extend the Company's existing
credit facilities, including the Securitization Program, which are scheduled to
mature in January 1999; complying with the financial covenants in the Company's
revolving line of credit, subordinated credit facility and Securitization
Program; competing effectively with other home health care providers; attracting
and retaining senior management personnel and branch level management as well as
qualified health care professionals and paraprofessionals; maintaining adequate
liability insurance; and lack of liquidity in the market for the Company's
common stock and the potential volatility of the price of the Company's common
stock. The failure to manage such risks successfully could have a material
adverse effect on the Company's business, financial condition and results of
operations.
-11-
<PAGE> 12
U.S. HOMECARE CORPORATION
Item 3. Market Risk Disclosures
None.
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
A. The Company's annual meeting of stockholders was held
on June 11, 1998.
B. Messrs. Gunn, Huffard and Raslan were reelected as
directors to serve until the next Annual Meeting or
until their successors are duly elected and have
qualified.
C. Motions before stockholders:
(1) Election of three directors:
<TABLE>
<CAPTION>
NAME OF DIRECTOR VOTES FOR VOTES WITHHELD ABSTENTIONS BROKER NON-VOTES
---------------- --------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
John R. Gunn 10,317,457 550,119 0 0
Jay C. Huffard 10,319,507 548,069 0 0
Shawkat Raslan 10,316,792 550,784 0 0
</TABLE>
(2) Ratification of the selection of Deloitte &
Touche LLP as the Company's independent
public accountants for the fiscal year
ending December 31, 1998:
<TABLE>
<S> <C>
Votes For 10,840,717
Votes Against 22,476
Abstentions 4,383
Broker Non-Votes 0
</TABLE>
D. Inapplicable.
Item 5. Other Information
As disclosed in the Company's latest proxy statement, the deadline for
submitting proposals to be considered for inclusion in the Company's Proxy
Statement for the 1999 Annual Meeting is January 8, 1999. In addition,
pursuant to the Company's By-Laws, shareholder proposals intended for
presentation at the 1999 Annual Meeting that are not intended to be considered
for inclusion in the Company's Proxy Statement for the 1999 Annual Meeting must
be received by the Secretary of the Company no earlier than March 23, 1999 and
later than April 17, 1999.
Pursuant to recent amendments to Rule 14a-4(c)(1) under the Securities Exchange
Act of 1934, as amended, the Company will have discretionary voting authority
if a proponent does not notify the Company by March 27, 1999 of their intent to
present a proposal from the floor at the 1999 Annual Meeting of Shareholders or
of their intent to commence a proxy solicitation for the 1999 Annual Meeting of
Shareholders.
-12-
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - The following exhibits are filed
herewith or incorporated herein.
None.
B. Reports on Form 8-K
1. No Reports on Form 8-K were filed during the
quarter for which this report is filed.
-13-
<PAGE> 14
U.S. HOMECARE CORPORATION
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.
U.S. HomeCare Corporation
8/14/98 /s/ Sophia V. Bilinsky
- --------------------------- ------------------------------------------
Date President and Chief Executive Officer
(Principal Executive Officer)
8/14/98 /s/ Clifford G. Johnson
- --------------------------- ------------------------------------------
Date Vice President Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 28
<SECURITIES> 0
<RECEIVABLES> 7,061
<ALLOWANCES> 1,615
<INVENTORY> 0
<CURRENT-ASSETS> 6,278
<PP&E> 7,729
<DEPRECIATION> 7,070
<TOTAL-ASSETS> 9,627
<CURRENT-LIABILITIES> 15,306
<BONDS> 0
328
0
<COMMON> 127
<OTHER-SE> (7,812)
<TOTAL-LIABILITY-AND-EQUITY> 9,627
<SALES> 24,699
<TOTAL-REVENUES> 24,699
<CGS> 0
<TOTAL-COSTS> 16,307
<OTHER-EXPENSES> 8,784
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> (851)
<INCOME-TAX> 75
<INCOME-CONTINUING> (926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (926)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
