<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2000
COMMISSION FILE NUMBER 1-11570
-------------------------------------------------------------
TRANSWORLD HEALTHCARE, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-3098275
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 750-0064
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 2000
Common Stock 17,551,076 Shares
<PAGE>
TRANSWORLD HEALTHCARE, INC.
THIRD QUARTER REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I
Item 1. Financial Statements (Unaudited)......................................3
Condensed Consolidated Balance Sheets - June 30, 2000 and
September 30, 1999..................................................4
Condensed Consolidated Statement of Operations - For the Three
and Nine Months Ended June 30, 2000 and June 30, 1999...............5
Condensed Consolidated Statement of Cash Flows - For the Nine
Months Ended June 30, 2000 and June 30, 1999........................6
Notes to Condensed Consolidated Financial Statements..................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................18
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........33
PART II
Item 4. Submission of Matters to a Vote of Securities Holders................34
Item 5. Other Information....................................................34
Item 6. Exhibits and Reports on Form 8-K.....................................35
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Quarterly Report contains certain
forward-looking statements and information that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. The statements contained in this Quarterly Report relating to
matters that are not historical facts are forward-looking statements that
involve risks and uncertainties, including, but not limited to, future demand
for the company's products and services, general economic conditions, government
regulation, competition and customer strategies, capital deployment, the impact
of pricing and reimbursement and other risks and uncertainties. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected.
Page 2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
The consolidated financial statements of Transworld Healthcare, Inc. (the
"Company") begin on page 4.
Page 3
<PAGE>
TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,960 $ 5,158
Accounts receivable, less allowance for doubtful
accounts of $19,749 and $19,870, respectively 26,465 30,814
Inventories 3,084 2,929
Deferred income taxes 8,952 6,930
Receivable of settlement with Prior Owners (Note 8) 5,000
Prepaid expenses and other assets 5,070 4,735
--------- ---------
Total current assets 83,531 50,566
Property and equipment, net 8,984 9,929
Intangible assets, net of accumulated amortization of
$12,190 and $9,798, respectively 111,499 103,248
Deferred income taxes 6,173 6,173
Other assets 5,279 2,205
--------- ---------
Total assets $ 215,466 $ 172,121
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,955 $ 1,364
Accounts payable 5,181 5,058
Accrued expenses 14,549 14,899
Accrued settlement with the federal government (Note 8) 10,082
Income taxes payable 4,526 3,240
--------- ---------
Total current liabilities 38,293 24,561
Long-term debt 58,649 54,407
Notes payable 33,838
Deferred income taxes, minority interest and other 3,537 1,879
--------- ---------
Total liabilities 134,317 80,847
--------- ---------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $.01 par value; authorized
2,000 shares, issued and outstanding - none
Common stock, $.01 par value; authorized
40,000 shares, issued and outstanding 17,551 176 176
Additional paid-in capital 128,070 125,526
Accumulated other comprehensive loss (5,233) (405)
Retained deficit (41,864) (34,023)
--------- ---------
Total stockholders' equity 81,149 91,274
--------- ---------
Total liabilities and stockholders' equity $ 215,466 $ 172,121
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
<PAGE>
TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net patient services $ 27,795 $ 20,419 $ 51,166 $ 58,345
Net respiratory, medical equipment and supplies sales 12,003 14,893 35,000 51,273
Net infusion services 2,960 2,222 8,735 6,921
--------- --------- --------- ---------
Total revenues 42,758 37,534 94,901 116,539
--------- --------- --------- ---------
Cost of revenues:
Patient services 19,447 13,827 35,167 39,833
Respiratory, medical equipment and supplies sales 7,243 8,652 19,773 29,286
Infusion services 2,123 1,704 6,300 5,392
--------- --------- --------- ---------
Total cost of revenues 28,813 24,183 61,240 74,511
--------- --------- --------- ---------
Gross profit 13,945 13,351 33,661 42,028
Selling, general and administrative expenses 15,053 18,641 34,145 45,600
Legal settlements, net (Note 8) 5,082 5,082
--------- --------- --------- ---------
Operating loss (6,190) (5,290) (5,566) (3,572)
Interest income (449) (49) (1,048) (191)
Interest expense 1,926 1,287 4,882 4,016
--------- --------- --------- ---------
Loss before income taxes, equity income,
minority interest and extraordinary loss (7,667) (6,528) (9,400) (7,397)
Benefit for income taxes (638) (2,061) (1,126) (1,980)
Equity in income of and interest income earned
from U.K. subsidiaries (Note 2) 1,193
--------- --------- --------- ---------
Loss before minority interest and
extraordinary loss (7,029) (4,467) (7,081) (5,417)
Minority interest 1 1
--------- --------- --------- ---------
Loss before extraordinary loss (7,030) (4,467) (7,082) (5,417)
Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $408) 759
--------- --------- --------- ---------
Net loss $ (7,030) $ (4,467) $ (7,841) $ (5,417)
========= ========= ========= =========
Basic and diluted loss per share of common
stock before extraordinary loss $ (0.40) $ (0.25) $ (0.40) $ (0.31)
========= ========= ========= =========
Basic and diluted net loss per share of
common stock $ (0.40) $ (0.25) $ (0.45) $ (0.31)
========= ========= ========= =========
Basic and diluted weighted average number
of common shares outstanding 17,551 17,551 17,551 17,545
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5
<PAGE>
TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
JUNE 30, JUNE 30,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,841) $ (5,417)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,718 4,447
Amortization of debt discount, financing fees and issuance costs 882 823
Provision for doubtful accounts 5,921 9,535
Interest in kind 264
Legal settlements, net (Note 8) 5,082
Deferred income taxes (2,022) (3,283)
Minority interest 1
Equity in income of U.K. subsidiaries (411)
Extraordinary loss on early extinguishment of debt 1,167
Changes in assets and liabilities excluding the effect of businesses
acquired and sold:
Increase in accounts receivable (2,666) (9,123)
Decrease in inventories 241 994
Decrease (increase) in prepaid expenses and other assets 266 (1,312)
Increase in accounts payable and other liabilities 1,209 6,654
--------- ---------
Net cash provided by operating activities 5,811 3,318
--------- ---------
Cash flows from investing activities:
Capital expenditures (958) (2,007)
Proceeds from sale of property and equipment 152
Notes receivable from U.K. subsidiaries - payments received 58,983
Advances to U.K. subsidiaries (304)
Repayment of advances to U.K. subsidiaries 8,390
Payments for acquisitions - net of cash acquired (13,428) (3,081)
Payments on acquisition payable (131)
Other, net 43
--------- ---------
Net cash provided by (used in) investing activities 52,835 (5,176)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 2,048
Payments on long-term debt (55,763) (70)
Borrowing under revolving loan 795
Payments on revolving loan (5,213) (1,500)
Borrowing under acquisition loan 5,733
Payments for financing fees and issuance costs (2,900) (18)
Stock options exercised 66
--------- ---------
Net cash used in financing activities (55,300) (1,522)
--------- ---------
Effect of exchange rate on cash (1,540) (468)
Decrease in cash due to deconsolidation of U.K. subsidiaries (2,598)
Increase in cash due to reconsolidation of U.K. subsidiaries 30,594
--------- ---------
Increase (decrease) in cash 29,802 (3,848)
Cash and cash equivalents, beginning of period 5,158 10,413
--------- ---------
Cash and cash equivalents, end of period $ 34,960 $ 6,565
========= =========
Supplemental cash flow information:
Cash paid for interest $ 3,997 $ 3,142
========= =========
Cash paid for income taxes, net $ 269 $ 444
========= =========
Supplemental disclosure of non-cash investing and financing activities:
Details of businesses acquired in purchase transactions:
Fair value of assets acquired $ 18,675 $ 3,117
========= =========
Liabilities assumed and incurred $ 1,496 $ 36
========= =========
Cash paid for acquisitions (including related expenses) $ 15,509 $ 3,081
Cash acquired 2,081
--------- ---------
Net cash paid for acquisitions $ 13,428 $ 3,081
========= =========
Issuance of class A1 common shares of TW UK (as defined in Note 2) $ 1,670
=========
</TABLE>
See notes to condensed consolidated financial statements.
Page 6
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION:
Transworld Healthcare, Inc. (the "Company") is a provider of a broad range
of health care services and products with operations in the United Kingdom
("U.K.") and the United States ("U.S."). The Company provides the following
services and products: (i) patient services, including nursing and
para-professional services; (ii) specialty mail-order pharmaceuticals,
medical supplies, respiratory therapy and home medical equipment; and (iii)
infusion therapy.
The Condensed Consolidated Financial Statements presented herein are
unaudited and include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations of the
interim period pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the U.S. have been
condensed or omitted. These condensed financial statements should be read in
conjunction with the Company's Form 10-K for the year ended September 30,
1999. Although the Company's operations are not highly seasonal, the results
of operations for the three and nine months ended June 30, 2000 and 1999 are
not necessarily indicative of the operating results for the full year.
2. PRINCIPLES OF CONSOLIDATION:
On December 20, 1999, the Company's U.K. subsidiaries obtained new financing
(the "Refinancing") denominated in pounds sterling, which aggregated
approximately $125,700 at December 31, 1999. Concurrent with the
Refinancing, specifically relating to the senior subordinated notes (the
"Notes"), the Company placed 100% of its ownership interest in Transworld
Healthcare (UK) Limited ("TW UK") into a voting trust (the "Voting Trust").
As a result of the establishment of the Voting Trust, the Company would
initially own 100% of the outstanding voting certificates. The term of the
Voting Trust is 20 years. The Voting Trust agreement stipulates that the
composition of the board of directors of TW UK will consist of one person
designated by the Company, one person appointed by the purchasers of the
Notes, one representative of TW UK management (currently the Chairman and
Chief Executive Officer of the Company) and two independent directors. The
board of directors of TW UK will then vote on substantially all matters
regarding its operations. G. Richard Green, a director of the Company, is
the trustee of the Voting Trust.
As a result of the provisions of the Voting Trust discussed above, the
Company controlled only 50% of the board of directors and the holders of the
Notes (the "Investors") had the right to approve or veto the annual budget
and financial forecast of results of operations and sources and uses of cash
and any material deviation from such approved budget. Since the Company did
not hold a majority interest of the board of directors and the Investors
held substantive rights, principally in the form of their ability to approve
the annual budget and financial forecast of results of operations and
sources and uses of cash, it was no longer able to consolidate the U.K.
subsidiaries into its financial statements although it continues to own 100%
of the outstanding shares of the stock of the parent company, Transworld
Holdings (UK) Limited ("UK Parent"). Therefore, effective with the
Refinancing, the Company began accounting for the investment in UK Parent
and its subsidiaries under the equity method, retroactive to October 1,
1999.
During the second quarter of fiscal 2000 UK Parent and TW UK amended their
Articles of Association to give the Chairman (a Company designee) the right
to resolve any tie votes of the board of directors and certain documents
covering the Notes were amended to eliminate the requirement that the
Page 7
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. PRINCIPLES OF CONSOLIDATION (CONTINUED):
Investors approve the operating budget. These beginning of the amendments
enabled the Company to consolidate the U.K. subsidiaries as of the beginning
of the second quarter ended March 31, 2000.
The table below presents pro forma condensed consolidated financial
information of the Company for the nine months ended June 30, 2000 for the
statement of operations data as if the U.K. subsidiaries had been
consolidated for the entire nine months ended June 30, 2000.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
-------------------------------------------------------------
NINE MONTHS ENDED JUNE 30, 2000
Net revenues $ 123,748
Gross profit 42,654
Operating loss (3,124)
Interest income (1,108)
Interest expense 5,098
Benefit for income taxes (33)
Net loss (7,841)
3. EARNINGS PER SHARE:
Basic earnings per share ("EPS") is computed using the weighted average
number of common shares outstanding. Diluted EPS is computed using the
weighted average number of common shares outstanding and dilutive stock
options and warrants using the treasury stock method. For the three and nine
months ended June 30, 2000, the Company had an incremental weighted average
of 1 and 14, respectively, of options and warrants which are not included in
the diluted calculation as the effect of such inclusion would be
antidilutive due to a net loss position. For the three and nine months ended
June 30, 1999, the Company had an incremental weighted average of 118 and
159, respectively, of options and warrants which are not included in the
diluted calculation as the effect of such inclusion would be antidilutive
due to a net loss position. At June 30, 2000 and 1999, the Company had
outstanding stock options and warrants to purchase 4,124 and 3,731 shares,
respectively, of common stock ranging in price from $2.63 to $12.45 and
$4.31 to $12.45 per share, respectively, that were not included in the
computation of diluted EPS because the exercise price was greater than the
average market price of the common shares.
The weighted average number of shares used in the basic and diluted EPS
computations for the three and nine months ended June 30, 2000 and 1999 are
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding as used in computation of
basic EPS of common stock 17,551 17,551 17,551 17,545
====== ====== ====== ======
Shares used in computation of diluted
EPS of common stock 17,551 17,551 17,551 17,545
====== ====== ====== ======
</TABLE>
Page 8
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. COMPREHENSIVE LOSS:
Components of comprehensive loss include net loss and all other non-owner
changes in equity, such as the change in the cumulative translation
adjustment, unrealized gains and losses on investments available for sale
and minimum pension liability. Currency translation is the only item of
other comprehensive loss impacting the Company. The following table displays
comprehensive loss for the three and nine months ended June 30, 2000 and
1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $ (7,030) $ (4,467) $ (7,841) $ (5,417)
Change in cumulative translation (1,893) (2,395) (4,828) (7,846)
adjustment
-------- -------- -------- --------
Comprehensive loss $ (8,923) $ (6,862) $(12,669) $(13,263)
======== ======== ======== ========
</TABLE>
5. BUSINESS COMBINATIONS:
Effective April 1, 2000 TW UK acquired all of the issued and outstanding
shares of Nightingale Nursing Bureau Limited ("Nightingale"), a London-based
provider of registered nursing and care staff to National Health Service
Trust Hospitals and the independent sector, with an additional branch in
Sydney, Australia, for approximately $15,362, plus an additional sum of up
to approximately $5,600 in deferred consideration dependent upon 2000 and
2001 Pre-Tax Profits (as defined in the agreement for sale and purchase).
Approximately $13,691 of the purchase price for the acquisition was paid
using cash on hand and funds borrowed under the senior credit facilities
with the approximate remaining $1,671 of consideration being paid in 1,050
shares of 5 pence par value class A1 common shares of TW UK. Accordingly,
the Company has included the results of operations, financial position and
cash flows of Nightingale in its consolidated results effective April 1,
2000.
The total cost of the acquisition was allocated on the basis of the fair
value of the assets acquired and liabilities assumed and incurred.
Accordingly, assets and liabilities were assigned values of approximately
$3,435 and $2,029, respectively, with the remaining portion of $13,956
attributable to goodwill. The goodwill is being amortized on a straight-line
basis over twenty years.
The pro forma results of operations and related per share information for
Nightingale have not been presented as the impact is not material.
Page 9
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. DEBT:
On December 20, 1999, the Company's U.K. subsidiaries obtained the
Refinancing denominated in pounds sterling, which aggregates approximately
$118,356 at June 30, 2000 as follows:
<TABLE>
<CAPTION>
FINAL
FACILITY TOTAL OUTSTANDING INTEREST RATE MATURITY
--------- ---------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
SENIOR CREDIT FACILITIES:
Term loan $ 42,512 $ 42,512 LIBOR + 2% Dec. 17, 2005
Acquisition loan 18,979 6,895 LIBOR + 2.75% Dec. 17, 2006
Working capital facility 7,592 LIBOR + 2% Dec. 17, 2005
---------- ------------
Total senior credit facilities 69,083 49,407
MEZZANINE TERM LOAN 15,435 13,188 (1) LIBOR + 7% Dec. 17, 2007
NOTES WITH WARRANTS 33,838 33,838 9.375% Dec. 17, 2008
---------- ------------
TOTAL REFINANCING $ 118,356 96,433
==========
LESS, CURRENT MATURITIES 3,950
------------
$ 92,483
============
</TABLE>
--------------------
1) Net of unamortized discount of $2,247.
The mezzanine lenders and the Investors were also issued warrants to
purchase approximately 2% and 27%, respectively, of the fully diluted shares
of TW UK. The exercise price of the warrants issued to the Investors (the
"Warrants") shall equal the entire principal amount of the Notes for all
Warrants in the aggregate and must be paid through the tender of Notes to TW
UK. The warrants issued to the mezzanine lenders (the "Mezzanine Warrants")
are detachable and can be exercised at any time without condition for an
aggregate exercise price of approximately $131. The fair value of the
Mezzanine Warrants ($2,562) issued to the mezzanine lenders has been
recorded as a discount to the mezzanine term loan and is being amortized
over the term of the loan using the interest method.
The Investors have the right, at their option, to require UK Parent to
redeem all or any portion of the Notes under certain circumstances and in
accordance with the terms of the documents covering the Notes. The
redemption price of the Notes shall be equal to the principal amount of the
Notes, plus all accrued and unpaid interest.
The Investors will have the right, at their option, to require UK Parent to
purchase all or any portion of the Warrants or the shares issued upon
exercise of the Warrants (the "Warrant Shares") under certain circumstances
and in accordance with the terms of the documents covering the Notes. The
purchase price of the Warrants shall be equal to the difference, if a
positive number, between (i) the fair market value of the Warrant Shares
which the Investors have the right to acquire upon exercise of such Warrants
and (ii) the exercise price of such Warrants. The purchase price of the
Warrant Shares shall be equal to the fair market value of such Warrant
Shares.
Of the $118,356 net proceeds of the Refinancing, $55,755 was used to repay
the Company's existing senior indebtedness (the "Credit Facility"), $11,617
was provided to the Company for general corporate purposes in the U.S., with
the balance to be used for acquisitions and working capital in the U.K.
Repayment of the loans under the senior credit facilities commences on July
30, 2000 and continues until final maturity. The acquisition loan may be
drawn upon through December 17, 2002. As of June
Page 10
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. DEBT (CONTINUED):
30, 2000, borrowings under the senior credit facilities bore interest at a
rate of 8.08% to 8.88%. The senior credit facilities contain restrictions,
prohibitions and affirmative and negative financial covenants customarily
found in agreements of these kind.
The loans under the senior credit facilities are collateralized by, among
other things, a lien on substantially all of TW UK's assets, a pledge of TW
UK's ownership interest in its subsidiaries and guaranties by TW UK's
subsidiaries.
With respect to the mezzanine term loan interest, LIBOR + 3.5% will be
payable in cash, with the remaining interest being added to the principal
amount of the loan. The mezzanine term loan contains terms and conditions
substantially similar to those contained in the senior credit facilities. As
of June 30, 2000, borrowings under the mezzanine term loan bore interest at
a rate of 13.08%.
Interest payments on the Notes are subject to restrictions contained in the
senior credit facilities which require interest on the Notes to be paid
in-kind through the issuance of additional notes for the first 18 months,
with payment of interest in cash thereafter subject to meeting certain
financial tests. The documents covering the Notes provide for customary
rights for a transaction of this type, including: (i) pre-emptive rights
with respect to new securities; (ii) rights of first refusal with respect to
proposed transfers of shares of TW UK; (iii) drag-along rights; (iv)
tag-along rights; (v) put and call provisions; and (vi) certain corporate
actions which require the consent of the holder of the Notes.
In connection with the repayment of the Credit Facility, the Company
recorded a non-cash, after-tax, extraordinary charge of $759 during the nine
months ended June 30, 2000, related to the write-off of deferred financing
costs associated with the Credit Facility.
7. STOCK INCENTIVE PLAN:
In January, 2000, TW UK adopted a management incentive plan (the "UK Plan").
Under the UK Plan, a new class of redeemable shares (having a nominal value
of 0.01p) in the capital of TW UK was created (the "Redeemable Shares"),
which are redeemable in the manor described below. Pursuant to the UK Plan
9,800 Redeemable Shares are reserved for issuance. Under the UK Plan the
Redeemable shares may be issued at their nominal value and with an option
price set by the board of directors of TW UK (the "Initial Value"). On
March 7, 2000, 9,500 Redeemable Shares were issued with an Initial Value of
105p per share. The redemption rights attached to the Redeemable Shares are
exercisable at any time during the period commencing on the date of a
qualified public offering in the UK and ending 10 years from the date of
issuance. The net effect of the exercise of redemption rights is that the
holder acquires ordinary shares of TW UK at a price per ordinary share
equal to the Initial Value. The Redeemable Shares do not carry any dividend
or income rights and do not carry any right to vote at general meetings of
TW UK. All terms associated with the shares are fixed and the market value
of an ordinary share of TW UK was less than the Initial Value of 105p
therefore no compensation expense is recognized.
8. COMMITMENTS AND CONTINGENCIES:
On August 20, 1999, Transworld Home HealthCare - Nursing Division, Inc.
("TNI") was named a
Page 11
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED):
defendant in a suit brought by Teresa Crutcher, in New Jersey state court,
as administrator of the estate of Aaron Pernell, who was an infant and
Teresa Crutcher's son. The claim is for wrongful death of Aaron Pernell
alleged to have been caused by the negligent manner in which a TNI home care
nurse placed him in an infant car seat. The case was settled on December 27,
1999 for $325 and was paid on December 29, 1999 by the Company's insurance
carrier. Since this settlement was within the policy limits of the Company's
insurance policies it did not have any effect on the Company's consolidated
financial position, cash flows, or results of operations.
On April 13, 1998, a shareholder of the Company, purporting to sue
derivatively on behalf of the Company, commenced a derivative suit in the
Supreme Court of the State of New York, County of New York, entitled Kevin
Mak, derivatively and on behalf of Transworld Healthcare, Inc., Plaintiff,
vs. Timothy Aitken, Scott A. Shay, Lewis S. Ranieri, Wayne Palladino and
Hyperion Partners II L.P., Defendants, and Transworld Healthcare, Inc.,
Nominal Defendant, Index No. 98-106401. The suit alleges that certain
officers and directors of the Company, and Hyperion Partners II L.P.
("HPII"), breached fiduciary duties to the Company and its shareholders, in
connection with a transaction, approved by a vote of the Company's
shareholders on March 17, 1998, in which the Company was to issue certain
shares of stock to HPII in exchange for certain receivables due from Health
Management, Inc. ("HMI"). The action seeks injunctive relief against this
transaction, and damages, costs and attorneys' fees in unspecified amounts.
The transaction subsequently closed and the plaintiff has, on numerous
occasions, stipulated to extend the defendants' time to respond to this
suit. The most recent stipulation provides for an extension to October 6,
2000.
On July 11 and July 22, 1997, the Company's RespiFlow, Inc. ("RespiFlow")
and MK Diabetic Support Services, Inc. ("MK") subsidiaries, respectively,
each received a letter (the "Audit Letters") from the U.S. Department of
Health and Human Services' Office of Audit Services, a division of the
Office of Inspector General ("OIG"). The Company was subsequently informed
that the Audit Letters cover its DermaQuest, Inc. subsidiary. The Company
has produced certain documents and provided related information to the OIG
and to the U.S. Attorney for the Eastern District of Texas regarding these
subsidiaries' financial relationships with suppliers of durable medical
equipment and various other practices including the subsidiaries' practices
regarding the collection of coinsurance and deductible amounts due from
Medicare beneficiaries. Additionally, on November 19, 1997, the Company was
notified by the U.S. Attorney for the Eastern District of Texas that the
Company, RespiFlow, MK, and various other non-affiliated entities had been
named defendants in a qui tam action under the Federal False Claims Act. The
qui tam action was partially unsealed and a copy of the complaint was
provided to the Company. The relator is a private party who has brought
action on behalf of the Federal government. The Company entered into
settlement discussions with the Department of Justice ("DOJ") and the OIG in
an effort to bring closure to this matter and to avoid the expense,
disruption and uncertainty of litigation. The counsel for the relator was
involved in these settlement discussions as well. A final settlement was
reached with the DOJ, the OIG and the relator on August 4, 2000 in the
amount of $10,000. In addition, pursuant to the settlement agreement, the
Company has agreed to pay the relator $82 covering reasonable expenses and
attorney's fees and costs. In return, the United States has agreed to
release the Company, certain subsidiaries, as well as its present and former
owners, officers, directors, employees, and certain others, from any civil
or administrative monetary claim for the various allegations being settled
in this matter. In addition, the OIG has agreed not to exclude the Company
or any of its subsidiaries from future participation
Page 12
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED):
in any federal health care program as a result of this matter. The Company
has also agreed to a corporate integrity agreement with the OIG.
In addition to its settlement with the federal government, the Company also
has reached a final settlement with the prior owners of RespiFlow, MK and
related subsidiaries (the "Prior Owners") in connection with an ongoing
dispute with such persons. The Prior Owners have agreed to pay the Company
$5,000 to settle all outstanding issues between the relevant parties. In a
related agreement the Company has guaranteed the Prior Owners a price of
$5.00 per share for all shares of Company common stock they currently own
(190) and still own on August 4, 2002. The Prior Owners are obligated to
liquidate these shares on the open market for $5.00 per share or greater. To
the extent that shares remain unliquidated on August 4, 2002, the difference
between the closing price of the Company's common stock on August 4, 2002
and $5.00 per share will be paid to the Prior Owners by the Company in cash.
The Company has recorded a one-time charge of $5,082 related to the
settlement of all of these matters in the quarter ended June 30, 2000.
Some of the Company's subsidiaries are Medicare Part B suppliers who submit
claims to the designated carrier who is the government's claims processing
administrator. From time to time, the carrier may request an audit of
Medicare Part B claims on a prepayment or postpayment basis. Some of the
Company's subsidiaries currently have pending such audits. If the outcome of
any audit results in a denial or a finding of an overpayment, then the
affected subsidiary has appeal rights. Some of the subsidiaries currently
are responding to these audits and pursuing appeal rights in certain
circumstances.
In addition to the above allegations, during the normal course of business,
the Company continues to carefully monitor and review its submission of
Medicare, Medicaid and all other claims for reimbursement. The Company
believes that it is substantially in compliance, in all material respects,
with the applicable provisions of the Federal statutes, regulations and laws
and applicable state laws. Because of the broad and sometimes vague nature
of these laws, there can be no assurance that an enforcement action will not
be brought against the Company, or that the Company will not be found to be
in violation of one or more of these provisions. At present, the Company
cannot anticipate what impact, if any, subsequent administrative or judicial
interpretation of the applicable Federal and state laws may have on the
Company's consolidated financial position, cash flows or results of
operations.
Effective October 1, 1997, the Company owned 100% of the stock of HMI.
On July 2, 1998, a former shareholder of HMI purporting to sue on behalf of
a class of shareholders of HMI as of June 6, 1997, commenced a suit in the
Delaware Chancery Court, New Castle County, entitled Kathleen S. O'Reilly v.
Transworld HealthCare, Inc., W. James Nicol, Andre C. Dimitriadis, Dr.
Timothy J. Triche and D. Mark Weinberg, Civil Action No. 16507-NC. Plaintiff
alleged that the Company, as majority shareholder of HMI, and the then
directors of HMI, breached fiduciary duties to the minority shareholders of
HMI by approving a merger between HMI and a subsidiary of the Company for
inadequate consideration. Plaintiff demands an accounting, damages,
attorneys' fees and other payment for other expenses for unspecified
amounts. The defendants filed a motion to dismiss
Page 13
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED):
this action on September 18, 1998. The Court denied defendants' motion in
part and granted the motion in part, leaving intact certain claims.
Plaintiff has propounded discovery requests. The Company's insurer disclaims
coverage as to the Company, however, the insurer for the Company's HMI
subsidiary has accepted coverage for the individual defendant former HMI
directors. The Company believes that it does not have liability and will
vigorously defend this action. As such, the Company cannot predict whether
the outcome of these actions will have a material adverse effect on the
Company's consolidated financial position, cash flows or results of
operations.
By letter dated December 20, 1999, the Company received formal written
notification of the intent of two plaintiffs to file a civil action in the
Court of Common Pleas of Allegheny County, Pennsylvania against Transworld
Healthcare, Inc., Transworld Home Healthcare, Inc., Health Management, Inc.
and HMI Pennsylvania, Inc. The two plaintiffs, Irwin Hirsch and Lloyd Myers,
formerly were employees of HMI Pennsylvania, Inc., a subsidiary of the
Company, and had written employment agreements. Myers also served as an
officer of HMI. Based upon their former status as employees and as officers,
both claim entitlement to contractual indemnification from HMI and HMI
Pennsylvania, Inc. for defense costs and settlement of certain claims made
against them. In 1994, Hirsch and Myers also sold two retail pharmacies they
owned to HMI.
Hirsch and Myers were named as defendants in an action filed in the United
States District Court for the Eastern District of New York entitled In re
Health Management, Inc. Securities Litigation, Master File No. 96 Civ. 0889
(ADS), which was a class action by shareholders of HMI alleging, among other
claims against the defendants, fraud in connection with the valuation of
certain securities. Hirsch and Myers incurred non-reimbursed legal expenses
of $100 in defending that litigation and, ultimately, settled their
liability jointly for $1,325, which was non-reimbursed. They demand that
defendants reimburse to them their non-reimbursed legal fees and the
settlement amount pursuant to the indemnification provisions of their
employee contracts.
In addition to their indemnification claims, Hirsch and Myers also claim
damages in the amount of $7,000 for losses in connection with the pharmacies
sale transaction they entered into with HMI under which they sold their
retail pharmacies to HMI. Hirsch and Myers claim that the pharmacies sale
transaction was based upon fraudulent misrepresentations by HMI.
The Company and HMI entities will vigorously defend against these claims.
The Company believes that Hirsch and Myers' indemnification claims should
not have any real merit because of testimony given by Hirsch and Myers under
oath in connection with a criminal trial against Clifford Hotte, a director
and former officer of HMI. In their testimony, Hirsch and Myers acknowledged
malfeasance and nonfeasance, which should render their contractual
entitlement to indemnification void. Even if they are entitled to
indemnification despite their acknowledgements, they are liable to
defendants for the economic losses and damages suffered by defendants as a
result of the malfeasance and nonfeasance. Therefore if the civil actions
are filed, the Company and HMI entities will aggressively pursue
counterclaims against Hirsch and Myers for damages which, conservatively,
are far in excess of their claims, including the claims associated with the
pharmacies sale transaction.
The enforcement division of the Commission has issued a formal order of
investigation relating to matters arising out of HMI's public announcement
on February 27, 1996 that HMI would have to
Page 14
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED):
restate its financial statements for prior periods as a result of certain
accounting irregularities. HMI is fully cooperating with this investigation
and has responded to the requests of the Commission for documentary
evidence.
The outcomes of certain of the foregoing lawsuits and the investigation with
respect to HMI are uncertain and the ultimate outcomes could have a material
adverse affect on the Company.
The Company is involved in various other legal proceedings and claims
incidental to its normal business activities. The Company is vigorously
defending its position in all such proceedings. Management believes these
matters should not have a material adverse impact on the consolidated
financial position, cash flows or results of operations.
9. OPERATIONS BY BUSINESS SEGMENTS AND GEOGRAPHIC AREAS:
During the nine months ended June 30, 2000 and 1999, the Company operated in
the following reportable business segments: (i) U.K. operations; (ii) U.S.
specialty mail-order pharmaceuticals and medical supplies ("Mail-Order")
operations; and (iii) U.S. hi-tech ("Hi-Tech") operations. The U.K.
operations derive its revenues from nursing and para-professional services,
mail-order sale of ostomy, continence and wound care products and oxygen
concentrators and cylinders throughout the U.K. The Mail-Order operations
derive its revenues from mail-order sale of diabetic test strips and glucose
monitors, respiratory, diabetic, maintenance and other commonly prescribed
medications, as well as ostomy and orthotic products. The Mail-Order
operations provide products to patients in their home nationwide and in
Puerto Rico. The Hi-Tech operations derive its revenues from infusion and
respiratory therapy services and the sale of home medical equipment
concentrated in New Jersey and New York.
The Company uses differences in geographic areas, as well as in products and
services to identify the reportable segments. The Company evaluates
performance and allocates resources based on profit and loss from operations
before corporate expenses, interest and income taxes. Inter segment sales
are not material.
Page 15
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
9. OPERATIONS BY BUSINESS SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED):
The following tables present certain financial information by reportable
business segment and geographic area of operations for the three and nine
months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------
U.K. U.S. U.S. U.S.
OPERATIONS MAIL-ORDER HI-TECH TOTAL TOTAL
------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues to unaffiliated customers $ 33,789 $ 5,005 $ 3,964 $ 8,969 $ 42,758
========== ========= ========= ========= =========
Segment operating profit (loss) $ 2,092 $ (2,503) $ 183 $ (2,320) $ (228)
========== ========= ========= =========
Corporate expenses (880)
Legal settlements, net (Note 8) (5,082)
Interest expense, net (1,477)
---------
Loss before income taxes and minority
interest $ (7,667)
=========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------
U.K. U.S. U.S. U.S.
OPERATIONS MAIL-ORDER HI-TECH TOTAL TOTAL
------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues to unaffiliated customers $ 26,276 $ 8,100 $ 3,158 $ 11,258 $ 37,534
========== ========= ========= ========= =========
Segment operating profit (loss) $ 1,642 $ (4,392) $ (484) $ (4,876) $ (3,234)
========== ========= ========= =========
Corporate expenses (2,056)
Interest expense, net (1,238)
---------
Loss before income taxes $ (6,528)
=========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------
U.K. U.S. U.S. U.S.
OPERATIONS MAIL-ORDER HI-TECH TOTAL TOTAL
------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues to unaffiliated customers $ 63,393 $ 19,771 $ 11,737 $ 31,508 $ 94,901
========== ========= ========= ========= =========
Segment operating profit (loss) $ 4,648 $ (2,820) $ 473 $ (2,347) $ 2,301
========== ========= ========= =========
Corporate expenses (2,785)
Legal settlements, net (Note 8) (5,082)
Interest expense, net (3,834)
---------
Loss before income taxes, equity income,
minority interest and extraordinary loss $ (9,400)
=========
Identifiable assets, June 30, 2000 $ 150,802 $ 23,880 $ 10,601 $ 34,481 $ 185,283
========== ========= ========= =========
Corporate assets 25,183
Receivable of settlement with Prior Owners 5,000
---------
Total assets, June 30, 2000 $ 215,466
=========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------
U.K. U.S. U.S. U.S.
OPERATIONS MAIL-ORDER HI-TECH TOTAL TOTAL
------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues to unaffiliated customers $ 76,644 $ 30,026 $ 9,869 $ 39,895 $ 116,539
========== ========= ========= ========= =========
Segment operating profit (loss) $ 6,256 $ (4,919) $ (1,143) $ (6,062) $ 194
========== ========= ========= =========
Corporate expenses (3,767)
Interest expense, net (3,824)
---------
Loss before income taxes $ (7,397)
=========
</TABLE>
Page 16
<PAGE>
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
9. OPERATIONS BY BUSINESS SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED):
The following table present certain financial information by reportable
business segment and geographic area of operations pro forma for the nine
months ended June 30, 2000 as if the U.K. subsidiaries had been consolidated
for the entire nine months ended June 30, 2000.
<TABLE>
<CAPTION>
PRO FORMA NINE MONTHS ENDED JUNE 30, 2000
----------------------------------------------------------------
U.K. U.S. U.S. U.S.
OPERATIONS MAIL-ORDER HI-TECH TOTAL TOTAL
------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues to unaffiliated customers $ 92,240 $ 19,771 $ 11,737 $ 31,508 $ 123,748
========== ========= ========= ========= =========
Segment operating profit (loss) $ 7,090 $ (2,820) $ 473 $ (2,347) $ 4,743
========== ========= ========= =========
Corporate expenses (2,785)
Legal settlements, net (Note 8) (5,082)
Interest expense, net (3,990)
---------
Income before income taxes, minority
interest and extraordinary loss $ 7,114
=========
</TABLE>
Page 17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a provider of a broad range of health care services and products
with principal operations in the United Kingdom ("U.K.") and the United States
("U.S."). The Company provides the following services and products: (i) patient
services, including nursing and para-professional services; (ii) specialty
mail-order pharmaceuticals, medical supplies, respiratory therapy and home
medical equipment; and (iii) infusion therapy. The Company provides these
services and products from the following reportable business segments: (i) U.K.
operations; (ii) U.S. specialty mail-order pharmaceuticals and medical supplies
("Mail-Order") operations; and (iii) U.S. hi-tech ("Hi-Tech") operations. The
Company's U.K. operations include the U.K.'s second largest commercial provider
of nursing and para-professional care to the community and U.K. healthcare
institutions, the U.K.'s second largest home respiratory supplier as well as a
leading value-added medical supplies distributor, all with operations located
throughout the U.K. The Company's Mail-Order operations provide products to
patients in their home nationwide and in Puerto Rico while its Hi-Tech
operations are concentrated in New Jersey and New York.
On December 20, 1999, the Company's U.K. subsidiaries obtained new financing
(the "Refinancing"). As a result of the provisions of the Voting Trust (as
defined and described in Liquidity and Capital Resources) the Company did not
hold a majority interest of the board of directors and the Investors (as defined
and described in Liquidity and Capital Resources) held substantive rights,
principally in the form of their ability to approve the annual budget and
financial forecast of results of operations and sources and uses of cash, it was
no longer able to consolidate the U.K. subsidiaries into its financial
statements although it owns 100% of the outstanding shares of the stock of the
parent company, Transworld Holdings (UK) Limited ("UK Parent"), as of December
31, 1999. Therefore, effective with the Refinancing, the Company began
accounting for the investment in UK Parent and its subsidiaries under the equity
method, retroactive to October 1, 1999. During the second quarter of fiscal
2000, UK Parent and Transworld Healthcare (UK) Limited ("TW UK") amended their
Articles of Association to give the Chairman (a Company designee) the right to
resolve any tie votes of the board of directors and certain documents covering
the Notes (as defined and described in Liquidity and Capital Resources) were
amended to eliminate the requirement that the Investors approve the operating
budget. These amendments have enabled the Company to consolidate the U.K.
subsidiaries as of the beginning of the second quarter ended March 31, 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 VS. THREE MONTHS ENDED JUNE 30, 1999
Revenues. Total revenues increased by $5,224,000 or 13.9% to $42,758,000 for the
three months ended June 30, 2000 from $37,534,000 for the three months ended
June 30, 1999. This increase was primarily attributable to increased revenues in
the Company's U.K. nursing operations ($7,376,000) and in the U.S. Hi-Tech
operations ($807,000). The increase in the U.K. nursing operations was primarily
a result of acquisitions (including $5,003,000 from the acquisition of
Nightingale Nursing Bureau Limited ("Nightingale") (see "Liquidity and Capital
Resources - Acquisition of Nightingale")) and an increase in billable hours. The
increase experienced in the U.S. Hi-Tech operations was mainly due to increases
in the number of patients being serviced. Partly offsetting these increases were
declines in revenue experienced by the Mail-Order operations ($3,096,000) due to
a reduction in the number of patients serviced.
Cost of Revenues. Total cost of revenues increased by $4,630,000 to $28,813,000
for the three months
Page 18
<PAGE>
ended June 30, 2000 from $24,183,000 for the three months ended June 30, 1999.
Total cost of revenues as a percentage of revenues for the three months ended
June 30, 2000 increased to 67.4% as compared to 64.4% for the three months ended
June 30, 1999. Cost of revenues as a percentage of revenues increased for
patient services (70.0% for the three months ended June 30, 2000 versus 67.7% in
the prior period) and respiratory, medical equipment and supplies sales (60.3%
for the three months ended June 30, 2000 versus 58.1% for the prior period). The
increase in patient services costs is primarily due to the acquisition of
Nightingale which has a higher cost of revenue (81.6%) than the historical U.K.
nursing operations (67.4%). The increase in respiratory, medical equipment and
supplies sales costs is attributable to the decrease in revenues in the
Mail-Order operations which carry a lower cost of revenues as a percentage of
revenues (47.8%) than the U.K. respiratory, medical equipment and supplies sales
operations (72.4%). The cost of revenues as a percentage of revenues decreased
for infusion services (71.7% for the three months ended June 30, 2000 versus
76.7% for the prior period) due to an increase in infusion therapies in the
Hi-Tech operations with lower product costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $3,588,000 or 19.2% to $15,053,000 for the
three months ended June 30, 2000 from $18,641,000 for the three months ended
June 30, 1999. This decrease was primarily due to the inclusion of additional
bad debt expense of $3,655,000 (principally as a result of fully reserving for
DermaQuest, Inc.'s ("DermaQuest") accounts receivable) and $2,030,000 of charges
primarily related to the attempted acquisitions of Sinclair Montrose Healthcare
PLC ("Sinclair") and Gateway HomeCare, Inc. ("Gateway") and additional legal
costs during the three months ended June 30, 1999. These decreases were offset
by higher levels of overhead in the U.K. operations principally due to its
acquisitions and internal growth ($1,144,000), by an additional bad debt
provision ($794,000) at the U.K.'s medical supplies distribution operation
related to claims against the Health Authorities (see "Liquidity and Capital
Resources - Accounts Receivable") and costs associated with the closing of the
Puerto Rico facility ($53,000).
Legal Settlements, Net. In the quarter ended June 30, 2000, the Company recorded
a one-time charge of $10,082,000 related to a settlement with the federal
government which was offset by a $5,000,000 settlement with the Prior Owners
(see "Liquidity and Capital Resources - Litigation").
Interest Income. Interest income increased by $400,000 to $449,000 for the three
months ended June 30, 2000 from $49,000 for the three months ended June 30,
1999. This increase was attributable to higher interest income earned on a
higher level of funds invested.
Interest Expense. Interest expense increased by $639,000 to $1,926,000 for the
three months ended June 30, 2000 from $1,287,000 for the three months ended
June 30, 1999. This variance was primarily attributable to a higher level of
borrowings combined with a higher borrowing rate under the Refinancing than the
Company's existing senior indebtedness (the "Credit Facility").
Benefit for Income Taxes. The Company recorded a benefit for income taxes
amounting to $638,000 or 8.3% of loss before income taxes and minority interest
for the three months ended June 30, 2000 versus $2,061,000 or 31.6% of loss
before income taxes in the comparable prior period. The difference between the
8.3% effective tax rate for the three months ended June 30, 2000 and the
statutory tax rate resulted from non-deductible expenses, primarily amortization
of intangible assets and the legal settlements.
Management believes that it is more likely than not that the Company will
generate sufficient levels of taxable income in the future to realize the
$13,436,000 of reported net deferred tax assets comprised of the tax benefit
associated with future deductible temporary differences and net operating loss
carryforwards, prior to their expiration (primarily 13 years or more). This
belief is based upon, among
Page 19
<PAGE>
other factors, management's focus on its business realignment activities and
current business strategies primarily with respect to its U.K. operations.
Failure to achieve sufficient levels of taxable income might affect the ultimate
realization of the net deferred tax assets. If this were to occur, management is
committed to implementing tax planning strategies, such as the sale of net
appreciated assets of the Company to the extent required (if any) to generate
sufficient taxable income prior to the expiration of these benefits. Should such
strategies be required, they could potentially result in the sale of a portion
of the Company's interest in the U.K. operations and repatriation of such
proceeds to the U.S.
Management expects that it is more likely than not that future levels of income
will be sufficient to realize the deferred tax assets, as recorded. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
Minority Interest. The Company reported a provision for minority interest of
$1,000 for the three months ended June 30, 2000 representing the 1,050,000
shares of class A1 common stock of TW UK issued as part of the Nightingale
consideration.
Net Loss. As a result of the foregoing, the Company recorded a net loss of
$7,030,000 for the three months ended June 30, 2000 compared to $4,467,000 for
the three months ended June 30, 1999.
NINE MONTHS ENDED JUNE 30, 2000 VS. NINE MONTHS ENDED JUNE 30, 1999
Revenues. Total reported revenues for the nine months ended June 30, 2000 and
1999 were $94,901,000 and $116,539,000, respectively. This represents a decrease
of $21,638,000 or 18.6% when comparing the nine months ended June 30, 2000 to
1999. This decrease relates primarily to the change in accounting for the U.K.
subsidiaries from consolidation to the equity method during the first quarter of
fiscal 2000 ($24,489,000). In addition declines in revenue were experienced by
the Mail-Order operations ($10,255,000) due to a reduction in the number of
patients serviced. Partly offsetting these decreases were increased revenues in
the Company's U.K. nursing operations during the second and third quarters of
fiscal 2000 ($10,725,000) as a result of acquisitions (including $5,003,000 from
Nightingale) and an increase in the billable hours. The Hi-Tech operations also
experienced an increase in revenues ($1,868,000) primarily due to an increase in
the number of patients being serviced.
Cost of Revenues. Total reported cost of revenues for the nine months ended June
30, 2000 and 1999 was $61,240,000 and $74,511,000, respectively. This represents
a decrease of $13,271,000 when comparing the nine months ended June 30, 2000 to
1999. As a percentage of total revenue, cost of revenues for the nine months
ended June 30, 2000 increased to 64.5% in comparison to 63.9% for the prior
period. Cost of revenues as a percentage of revenues increased slightly for
patient services (68.7% for the nine months ended June 30, 2000 versus 68.3% for
the prior period) and decreased for respiratory, medical equipment and supplies
sales (56.5% for the nine months ended June 30, 2000 versus 57.1% for the prior
period) and for infusion services (72.1% for the nine months ended June 30, 2000
versus 77.9% for the prior period). The increase in patient services costs is
primarily due to the acquisition of Nightingale, which has a higher cost of
revenue (81.6%) than the historical U.K. nursing operations (67.3%) offset
slightly due to increased billing rates in the historical U.K. nursing
operations as of January 1999. The decrease in respiratory, medical equipment
and supplies sales costs is principally attributable to the change in accounting
for the U.K. subsidiaries from consolidation to the equity method during the
first quarter of fiscal 2000. The decrease in infusion services costs is due to
an increase in infusion therapies in the Hi-Tech operations with lower product
costs.
Selling, General and Administrative Expenses. Reported selling, general and
administrative expenses for the nine months ended June 30, 2000 and 1999 were
$34,145,000 and $45,600,000, respectively.
Page 20
<PAGE>
This represents a decrease in the current year of $11,455,000 or 25.1%. The
change in accounting for the U.K. subsidiaries from consolidation to the equity
method during the first quarter of fiscal 2000 accounted for $5,070,000 of the
decrease. The inclusion of additional bad debt expense of $3,655,000
(principally as a result of fully reserving for DermaQuest's accounts
receivable) and $2,030,000 of charges primarily related to the attempted
acquisitions of Sinclair and Gateway and additional legal costs during the nine
months ended June 30, 1999 added to the decrease. In addition, selling, general
and administrative expenses decreased in the Company's Mail-Order operations due
to an overhead reduction program ($2,146,000) and decreases in bad debt expense
($1,035,000) as a result of the decline in revenues. These decreases were offset
by higher levels of overhead in the U.K. operations during the second and third
quarters of fiscal 2000 principally due to its acquisitions and internal growth
($2,242,000) and by an additional bad debt provision ($794,000) at the U.K.'s
medical supplies distribution operation related to claims against the Health
Authorities (see "Liquidity and Capital Resources - Accounts Receivable") and
costs associated with the closing of the Puerto Rico facility ($53,000).
Legal Settlements, Net. In the quarter ended June 30, 2000, the Company recorded
a one-time charge of $10,082,000 related to a settlement with the federal
government which was offset by a $5,000,000 settlement with the Prior Owners
(see "Liquidity and Capital Resources - Litigation").
Interest Income. Reported interest income for the nine months ended June 30,
2000 and 1999 was $1,048,000 and $191,000, respectively. The increase was
attributable to higher interest income earned on a higher level of funds
invested ($917,000) partially offset by the change in accounting for the U.K.
subsidiaries from consolidation to the equity method during the first quarter of
fiscal 2000 ($60,000).
Interest Expense. Reported interest expense for the nine months ended June 30,
2000 and 1999 was $4,882,000 and $4,016,000, respectively. The increase was
primarily attributable to a higher level of borrowings combined with a higher
borrowing rate under the Refinancing than the Credit Facility during the second
and third fiscal quarters when compared to the comparable prior periods
($1,081,000). This increase was partially offset by to the change in accounting
for the U.K. subsidiaries from consolidation to the equity method during the
first quarter of fiscal 2000 ($215,000).
Benefit for Income Taxes. The Company recorded a benefit for income taxes
amounting to $1,126,000 or 12.0% of loss before income taxes, equity income,
minority interest and extraordinary loss for the nine months ended June 30, 2000
versus $1,980,000 or 26.8% of loss before income taxes in the comparable prior
period. The difference between the 12.0% effective tax rate for the nine months
ended June 30, 2000 and the statutory tax rate resulted from non-deductible
expenses, primarily amortization of intangible assets and the legal settlements.
Management believes that it is more likely than not that the Company will
generate sufficient levels of taxable income in the future to realize the
$13,436,000 of reported net deferred tax assets comprised of the tax benefit
associated with future deductible temporary differences and net operating loss
carryforwards, prior to their expiration (primarily 13 years or more). This
belief is based upon, among other factors, management's focus on its business
realignment activities and current business strategies primarily with respect to
its U.K. operations. Failure to achieve sufficient levels of taxable income
might affect the ultimate realization of the net deferred tax assets. If this
were to occur, management is committed to implementing tax planning strategies,
such as the sale of net appreciated assets of the Company to the extent required
(if any) to generate sufficient taxable income prior to the expiration of these
benefits. Should such strategies be required, they could potentially result in
the sale of a portion of the Company's interest in the U.K. operations and
repatriation of such proceeds to the U.S.
Management expects that it is more likely than not that future levels of income
will be sufficient to realize the deferred tax assets, as recorded. The amount
of the deferred tax asset considered realizable,
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however, could be reduced in the near term if estimates of future taxable income
during the carryforward period are reduced.
Equity in Income of and Interest Income Earned from U.K. Subsidiaries. Equity in
income of U.K. subsidiaries for the nine months ended June 30, 2000 was
$411,000, which represents 100% of the net income of the Company's U.K.
subsidiaries for the first quarter of fiscal 2000 (See Note 2 to the Condensed
Consolidated Financial Statements). Interest income earned from U.K.
subsidiaries for the nine months ended June 30, 2000 was $782,000 (net of tax
provision of $421,000), which represents interest income on an intercompany
loan, which was repaid on December 20, 2000, concurrent with the Refinancing.
There was no equity in income of and interest income earned from U.K.
subsidiaries for the entire fiscal year ended September 30, 1999 as the Company
consolidated its U.K. subsidiaries in fiscal 1999.
Minority Interest. The Company reported a provision for minority interest of
$1,000 in the nine months ended June 30, 2000 representing the 1,050,000 shares
of class A1 common stock of TW UK issued as part of the Nightingale
consideration.
Extraordinary Loss on Early Extinguishment of Debt. An extraordinary loss (net
of tax benefit of $408,000) of $759,000 was recorded in the nine months ended
June 30, 2000, as a result of the write-off of deferred financing costs
associated with the early extinguishment of borrowings under the Company's
Credit Facility.
Net Loss. As a result of the foregoing, the Company recorded a net loss of
$7,841,000 for the nine months ended June 30, 2000 compared to $5,417,000 for
the nine months ended June 30, 1999.
PRO FORMA NINE MONTHS ENDED JUNE 30, 2000 VS. HISTORICAL NINE MONTHS ENDED
JUNE 30, 1999
The following comparisons of pro forma nine months ended June 30, 2000 as
compared to June 30, 1999 present the pro forma statement of operations data as
if the U.K. subsidiaries had been consolidated for the entire nine months ended
June 30, 2000.
Revenues. Total pro forma revenues for the nine months ended June 30, 2000 were
$123,748,000 as compared to $116,539,000 for the nine months ended June 30,
1999, which represents an increase of $7,209,000 or 6.2%. This increase was
primarily attributable to increased revenues in the Company's U.K. nursing
operations ($14,912,000) as a result of acquisitions (including $5,003,000 from
Nightingale), increased billing rates in the historical U.K. nursing operations
beginning January 1, 1999 and an increase in the number of billable hours. Also
contributing to the increase was increased revenues in the Hi-Tech operations
($1,868,000) and the U.K. medical supplies distribution operations ($652,000).
Partly offsetting the increases from the U.K. and Hi-Tech operations were
declines in revenue experienced by the Mail-Order operations ($10,255,000) due
to a reduction in the number of patients serviced.
Cost of Revenues. Pro forma cost of goods sold for the nine months ended June
30, 2000 was $81,094,000 as compared to $74,511,000 for the nine months ended
June 30, 1999, which represents an increase of $6,583,000. On a pro forma basis
total cost of revenues as a percentage of revenues for the nine months ended
June 30, 2000 increased to 65.5% from 63.9% for the nine months ended June 30,
1999. On a pro forma basis cost of revenues as a percentage of revenues
increased for respiratory, medical equipment and supplies sales (59.2% for the
nine months ended June 30, 2000 versus 57.1% for the prior period), decreased
for infusion services (72.1% for the nine months ended June 30, 2000 versus
77.9% for the prior period) and remained relatively flat for patient services
(68.4% for the nine months ended June 30, 2000 versus 68.3% in the prior
period). The increase in respiratory, medical equipment and supplies sales
operations costs is attributable to the decrease in revenues in the Mail-
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Order operations which carry a lower cost of revenues as a percentage of
revenues (46.4%) than the U.K. respiratory, medical equipment and supplies sales
(73.3%). The decrease in infusion services costs is due to an increase in
infusion therapies in the Hi-Tech operations with lower product costs. Patient
services costs remained relatively flat despite the acquisition of Nightingale
which has a higher cost of revenue (81.6%) than the historical U.K. nursing
operations (67.4%) due to increased billing rates in the historical U.K. nursing
operations as of January 1999.
Selling, General and Administrative Expenses. Pro forma selling, general and
administrative expenses for the nine months ended June 30, 2000 were $40,696,000
as compared to $45,600,000 for the nine months ended June 30, 1999, which
represents a decrease of $4,904,000 or 10.8%. This decrease was primarily due to
the inclusion of additional bad debt expense of $3,655,000 (principally as a
result of fully reserving for DermaQuest's accounts receivable) and $2,030,000
of charges primarily related to the attempted acquisitions of Sinclair and
Gateway and additional legal costs during the nine months ended June 30, 1999.
In addition, bad debt expense decreased by $1,035,000 in the Mail-Order
operations as a result of the decline in revenues. An overhead reduction program
in the Company's Mail-Order operations also contributed to the decrease
($2,146,000). These decreases were offset by higher levels of overhead in the
U.K. operations principally due to its acquisitions and internal growth
($3,519,000) and by an additional bad debt provision ($794,000) at the U.K.'s
medical supplies distribution operation related to claims against the Health
Authorities (see "Liquidity and Capital Resources - Accounts Receivable") and
costs associated with the closing of the Puerto Rico facility ($53,000).
Legal Settlements, Net. In the quarter ended June 30, 2000, the Company recorded
a one-time charge of $10,082,000 related to a settlement with the federal
government which was offset by a $5,000,000 settlement with the Prior Owners
(see "Liquidity and Capital Resources - Litigation").
Interest Income. Pro forma interest income for the nine months ended June 30,
2000 was $1,108,000 as compared to $191,000 for the nine months ended June 30,
1999, which represents an increase of $917,000. This increase was attributable
to higher interest income earned on a higher level of funds invested.
Interest Expense. Pro forma interest expense for the nine months ended June 30,
2000 was $5,098,000 as compared to $4,016,000 for the nine months ended June 30,
1999, which represents an increase of $1,082,000. This variance was primarily
attributable to a higher level of borrowings combined with a higher borrowing
rate under the Refinancing than the Credit Facility.
Benefit for Income Taxes. Pro forma benefit for income taxes for the nine months
ended June 30, 2000 was $33,000 or 0.5% of loss before income taxes, equity
income, minority interest and extraordinary loss for the nine months ended June
30, 2000 versus $1,980,000 or 26.8% of loss before income taxes in the
comparable prior period. The difference between the 0.5% effective tax rate for
the nine months ended June 30, 2000 and the statutory tax rate resulted from
non-deductible expenses, primarily amortization of intangible assets and the
legal settlements.
Management believes that it is more likely than not that the Company will
generate sufficient levels of taxable income in the future to realize the
$13,436,000 of reported net deferred tax assets comprised of the tax benefit
associated with future deductible temporary differences and net operating loss
carryforwards, prior to their expiration (primarily 13 years or more). This
belief is based upon, among other factors, management's focus on its business
realignment activities and current business strategies primarily with respect to
its U.K. operations. Failure to achieve sufficient levels of taxable income
might affect the ultimate realization of the net deferred tax assets. If this
were to occur, management is committed to implementing tax planning strategies,
such as the sale of net appreciated assets of the Company to the extent required
(if any) to generate sufficient taxable income prior to the expiration of
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these benefits. Should such strategies be required, they could potentially
result in the sale of a portion of the Company's interest in the U.K. operations
and repatriation of such proceeds to the U.S.
Management expects that it is more likely than not that future levels of income
will be sufficient to realize the deferred tax assets, as recorded. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
Minority Interest. On a pro forma basis, the Company still would have reported a
provision for minority interest of $1,000 in the nine months ended June 30, 2000
representing the 1,050,000 shares of class A1 common stock of TW UK issued as
part of the Nightingale consideration.
Extraordinary Loss on Early Extinguishment of Debt. On a pro forma basis, the
Company still would have reported an extraordinary loss (net of tax benefit of
$408,000) of $759,000 in the nine months ended June 30, 2000, as a result of the
write-off of deferred financing costs associated with the early extinguishment
of borrowings under the Credit Facility.
Net Loss. As a result of the foregoing, on a pro forma basis, the Company still
would have reported a net loss of $7,841,000 for the nine months ended June 30,
2000 compared to $5,417,000 for the nine months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL.
Cash requirements during the nine months ended June 30, 2000 for capital
expenditures ($958,000), payments for acquisitions ($13,428,000) and financing
fees and issuance costs ($2,900,000), payments on revolving loan ($5,213,000),
as well as the $55,755,000 repayment of the Credit Facility were met through
funds generated from net payments received from the U.K. subsidiaries
($67,069,000) (as discussed further in "Refinancing"), borrowing under the
acquisition loan ($13,428,000), proceeds from notes payable ($2,048,000) and
funds generated from operating activities ($5,811,000).
The Company believes it has adequate capital resources to conduct its operations
for the next twelve months. The Refinancing has provided funds for additional
acquisitions in the U.K., subject to the terms of the Refinancing agreements.
Future acquisitions, if completed could have an impact on future cash flow. See
"- Refinancing."
ACCOUNTS RECEIVABLE.
The Company maintains a cash management program that focuses on the
reimbursement function, as growth in accounts receivable has been the main
operating use of cash historically. At June 30, 2000 and September 30, 1999,
$26,465,000 (12.3%) and $30,814,000 (17.9%), respectively, of the Company's
total assets consisted of accounts receivable. The decrease in the accounts
receivable from fiscal year end is mainly due to the effect the weakening dollar
has had on the translation of the U.K. subsidiaries accounts receivable,
improved collections in the Company's U.K. nursing operations and Hi-Tech
operations, and a decline in the Mail-Order operations revenue base. These
decreases were partially offset by the acquisition of Nightingale. The accounts
receivable are substantially due from third-party payors which generally require
substantial documentation in order to process claims. The collection time for
accounts receivable is typically the longest for services that relate to new
patients or additional services requiring medical review for existing patients.
Management's goal is to maintain accounts receivable levels equal to or less
than industry average,
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which would tend to mitigate the risk of recurrence of negative cash flows from
operations by reducing the required investment in accounts receivable and
thereby increasing cash flows from operations. Days sales outstanding ("DSOs")
is a measure of the average number of days taken by the Company to collect its
accounts receivable, calculated from the date services are rendered. At June 30,
2000 and September 30, 1999, the Company's average DSOs were 56 and 73,
respectively. The decrease in the DSOs was due mainly to the decrease in
accounts receivable as described above.
Amcare Limited and Novacare (UK) Limited (subsidiaries of TW UK), have claims
against Health Authorities to recover outstanding sums which they allege are due
in respect of services performed as National Health Service ("NHS") dispensing
appliance contractors from their respective licensed premises across England and
Wales. There are two elements, first overdue payments and secondly, underpaid
on-cost allowances. The sums in dispute are approximately $372,000 and $354,000,
respectively, for a total of approximately $726,000.
It is believed that the dispute arises out of a wider national dispute between
Health Authorities and many dispensing appliance contractors over the correct
interpretation of the statutory-based contractual reimbursement provisions in
the context of modern distribution and dispensing practices. The Health
Authorities have clearly indicated a wish to reach commercial settlements of
their various disputes. As a result of ongoing discussions with the Health
Authorities the Company has recorded an additional bad debt provision of
$794,000 in the quarter ended June 30, 2000.
REFINANCING.
General. As described more fully below, on December 20, 1999, the Company's U.K.
subsidiaries, UK Parent and its subsidiary TW UK obtained new financing
denominated in pounds sterling, which aggregates approximately $118,356,000 at
June 30, 2000. The new financing consists of a $69,083,000 senior collateralized
term and revolving credit facility (the "Senior Credit Facility"), $15,435,000
in mezzanine indebtedness (the "Mezzanine Loan") and $33,838,000 principal
amount of senior subordinated notes (the "Notes") (each of the foregoing are
sometimes referred to collectively herein as the "Refinancing"). Of the
$118,356,000 net proceeds of the Refinancing, $55,755,000 was used to repay the
Company's existing Credit Facility, $11,617,000 was provided to the Company for
general corporate purposes, with the balance to be used for acquisitions and
working capital in the U.K., subject to the terms of the documents governing the
Refinancing. In connection with the repayment of the Company's existing Credit
Facility, the Company recorded a non-cash, after-tax, extraordinary charge of
approximately $759,000 in its first quarter of fiscal 2000 relating to the
write-off of deferred financing costs associated with the Credit Facility.
Senior Credit Facility. The Senior Credit Facility consists of a (i) $42,512,000
term loan A, maturing December 17, 2005, (ii) $18,979,000 acquisition term loan
B, maturing December 17, 2006 which may be drawn upon during the first nine
years following closing, and (iii) $7,592,000 revolving facility, maturing
December 17, 2005. Repayment of the loans commences on July 30, 2000 and
continues until final maturity. The loans bear interest at rates equal to LIBOR
plus 2% to 2.75% per annum. As of August 1, 2000, TW UK had outstanding
borrowings of approximately $48,769,000 under the Senior Credit Facility. As of
August 1, 2000, borrowings under the Senior Credit Facility bore interest at
rates of 8.07 to 8.84%.
Subject to certain exceptions, the Senior Credit Facility prohibits or
restricts, among other things, the incurrence of liens, the incurrence of
indebtedness, certain fundamental corporate changes, dividends (including
distributions to the Company), the making of specified investments and certain
transactions with affiliates. In addition, the Senior Credit Facility contains
affirmative and negative financial covenants customarily found in agreements of
this kind, including the maintenance of certain financial ratios, such as senior
interest coverage, debt to earnings before interest, taxes,
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depreciation and amortization, fixed charge coverage and minimum net worth.
The loans under the Senior Credit Facility are collateralized by, among other
things, a lien on substantially all of TW UK's and its subsidiaries' assets, a
pledge of TW UK's ownership interest in its subsidiaries and guaranties by TW
UK's subsidiaries.
Mezzanine Loan and Mezzanine Warrants. Mezzanine Loan. The Mezzanine Loan is a
term loan maturing December 17, 2007 and bears interest at the rate of LIBOR
plus 7% per annum, where LIBOR plus 3.5% will be payable in cash, with the
remaining interest being added to the principal amount of the loan. The
Mezzanine Loan contains other terms and conditions substantially similar to
those contained in the Senior Credit Facility. The lenders of the Mezzanine Loan
also received warrants to purchase 2% of the fully diluted ordinary shares of TW
UK. As of August 1, 2000, borrowings under the Mezzanine Loan bore interest at a
rate of 13.07%.
Mezzanine Warrants. The warrants issued to the mezzanine lenders (the "Mezzanine
Warrants") are detachable and can be exercised at any time without condition for
an aggregate exercise price of approximately $131,000. The fair value of the
Mezzanine Warrants ($2,562,000) issued to the mezzanine lenders has been
recorded as a discount to the mezzanine loan and is being amortized over the
term of the loan using the interest method.
Senior Subordinated Notes and Warrants. Notes. The Notes consist of $33,838,000
principal amount of senior subordinated notes of UK Parent purchased by several
institutional investors and certain members of management (collectively, the
"Investors"), plus equity warrants issued by TW UK concurrently with the sale of
the Notes (the "Warrants") exercisable for ordinary shares of TW UK ("Warrant
Shares") representing in the aggregate 27% of the fully diluted ordinary shares
of TW UK.
The Notes bear interest at the rate of 9.375% per annum payable quarterly in
cash subject to restrictions contained in the Senior Credit Facility requiring
UK Parent to pay interest in-kind through the issuance of additional notes ("PIK
Notes") for the first 18 months, with payment of interest in cash thereafter
subject to a fixed charge coverage test (provided that whenever interest cannot
be paid in cash, additional PIK Notes shall be issued as payment in-kind of such
interest). The Notes mature nine years from issuance.
UK Parent will not have the right to redeem the Notes and the PIK Notes except
as provided in, and in accordance with the documents governing the issuance of
the Notes and Warrants (herein the "Securities Purchase Documents"). The
redemption price of the Notes and the PIK Notes will equal the principal amount
of the Notes and the PIK Notes plus all accrued and unpaid interest on each.
The Investors have the right, at their option, to require UK Parent to redeem
all or any portion of the Notes and the PIK Notes under certain circumstances
and in accordance with the terms of the Securities Purchase Documents. The
redemption price of the Notes and the PIK Notes shall be equal to the principal
amount of the Notes and the PIK Notes, plus all accrued and unpaid interest on
each.
UK Parent's redemption obligation of the Notes and the PIK Notes is guaranteed
by TW UK, which guarantee is subordinated to the existing senior indebtedness of
TW UK to the same extent as the Notes and the PIK Notes are subordinated to
senior indebtedness of UK Parent. If UK Parent fails to perform in full its
obligations following exercise of the Investors put of Notes and TW UK fails to
perform its obligations as a guarantor of such obligations, the Investors shall
have the right to among other things exercise directly (through the Voting
Trust) the drag-along rights described without the requirement that the board of
directors of TW UK first take any action.
Warrants. The Warrants may be exercised, in whole or in part, at any time,
unless previously
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purchased or cancelled upon a redemption of the Notes, at the option of the
holders prior to the time of maturity of the Notes for Warrant Shares
representing approximately 27% of TW UK's fully diluted ordinary share capital,
subject to antidilution adjustment as contained in the Securities Purchase
Documents.
The exercise price of the Warrants shall equal the entire principal amount of
the Notes (other than PIK Notes and excluding any accrued unpaid interest) for
all Warrants in the aggregate and must be paid through the tender of Notes
(other than PIK Notes) to TW UK, whereby TW UK shall issue to the Investors the
appropriate number of Warrant Shares and pay to the Investors in cash an amount
equal to the principal amount of the PIK Notes and all accrued unpaid interest
on the Notes and the PIK Notes.
The Warrants will automatically be exercised for Warrant Shares in the event
that TW UK consummates a public offering of shares valuing the Investors'
ordinary shares of TW UK issuable upon a voluntary exercise of the Warrants at
or above 2.5x the initial investment.
The Investors will have the right, at their option, to require UK Parent to
purchase all or any portion of the Warrants or the Warrant Shares under certain
circumstances and in accordance with the terms of the Securities Purchase
Documents. The purchase price of the Warrants shall be equal to the difference,
if a positive number, between (i) the fair market value of the Warrant Shares
which the Investors have the right to acquire upon exercise of such Warrants and
(ii) the exercise price of such Warrants. The purchase price of the Warrant
Shares shall be equal to the fair market value of such Warrant Shares.
UK Parent's purchase obligation of the Warrants is guaranteed by TW UK, which
guarantee is subordinated to existing senior indebtedness of TW UK. If UK Parent
fails to perform in full its obligations following exercise of the Investors put
of Warrants and TW UK fails to perform its obligations as a guarantor of such
obligations, the Investors shall have the right to among other things exercise
directly through the Voting Trust the drag-along rights without the requirement
that the board of directors of TW UK first take any action.
If UK Parent fails to perform in full its obligations following exercise of the
Investors put of Warrant Shares, the Investor shall have the right to among
other things exercise directly through the Voting Trust the drag-along rights
without the requirement that the board of directors of TW UK first take any
action.
Following an initial public offering and upon exchange of the Warrants, the
Investors shall be entitled to two demand rights and unlimited piggyback
registrations with respect to the Warrant Shares. The Warrant Shares shall be
listed for trading on any securities exchange on which the ordinary shares of TW
UK are listed for trading.
All ordinary shares of UK Parent owned by the Company and all ordinary shares of
TW UK owned by UK Parent will be held in a voting trust (the "Voting Trust") for
the benefit of the holders of ordinary shares of TW UK and the holders of the
Warrants, with the trustee of the trust being obligated to vote the shares held
in trust as follows: (i) to elect to the board of directors of TW UK individuals
designated in accordance with the Securities Purchase Documents and on any other
matter, pursuant to instructions approved by the required majority of the board
of directors of TW UK as contemplated by the Securities Purchase Documents; and
(ii) following the breach by UK Parent and TW UK of their obligations to honor
an Investor put of Notes, an Investor put of Warrants or an Investor put of
Warrant Shares, the Investors have the right to exercise drag-along rights
directly without any action of the board of directors of TW UK on a transaction
to which such drag-along rights apply pursuant to instructions from the
Investors. G. Richard Green, a Director of the Company, is the trustee of the
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Voting Trust. The Voting Trust includes provisions to the effect that under
certain circumstances the shares held in trust shall thereafter be voted on all
matters, including the election of directors, pursuant to instructions from a
majority of those members of the board of directors of TW UK who are not
affiliated or associated with the Company, Hyperion Partners II L.P. ("HPII"),
or any of their successors.
The Articles of Association of TW UK and the Securities Purchase Documents
provide that neither UK Parent nor TW UK will enter into any transaction with or
make contributions to the Company or UK Parent (except as required by the terms
of the Notes, the Warrants or the Warrant Shares) in the form of dividends,
fees, re-charges, loans, guarantees or any other benefit, in any form, unless
they have been previously agreed upon by all shareholders.
The Securities Purchase Documents also provide that the Investors will have the
benefit of customary shareholder rights for a transaction of this type
including, without limitation: (i) pre-emptive rights with respect to new
securities; (ii) rights of first refusal with respect to proposed transfers of
ordinary shares of TW UK; (iii) drag-along rights; (iv) tag-along rights; and
(v) the exercise of voting rights by the holders of the Warrants as therein
described including the right to elect one director to the TW UK board of
directors. The Securities Purchase Documents also include limitations on TW UK's
ability to do the following, among others, without the consent of the Investors:
(i) issue additional equity securities of TW UK; (ii) pay dividends or make
other restricted payments, except as required by the terms of the Notes, the
Warrants or the Warrant Shares; (iii) sell, lease or otherwise dispose of assets
exceeding specified values; (iv) enter into any transactions with affiliates;
(v) amend the Memorandum or Articles of Association; or (vi) merge or
consolidate with another entity.
ACQUISITION OF NIGHTINGALE.
On April 6, 2000 TW UK acquired all of the issued and outstanding shares of
Nightingale, a London based provider of registered nursing and care staff to NHS
Trust Hospitals and the independent sector, with an additional branch in Sydney,
Australia, for approximately $15,362,000, plus an additional sum of up to
approximately $5,600,000 in deferred consideration dependent upon 2000 and 2001
Pre-Tax Profits (as defined in the agreement for sale and purchase).
Approximately $13,691,000 of the purchase price for the acquisition was paid
using cash on hand and funds borrowed under the senior credit facilities with
the approximate remaining $1,671,000 of consideration being paid in 1,050,000
shares of 5 pence par value class A1 common shares of TW UK.
YEAR 2000.
The Year 2000 computer issue refers to potential conditions in computer programs
whereby a two-digit field rather than a four-digit field is used to define the
applicable year. Unless corrected, some computer programs may not appropriately
function as of January 1, 2000 because these programs will read the "00" in the
year 2000 as January 1, 1900. If uncorrected, the problem could have resulted in
computer system failures or equipment and medical device malfunctions (affecting
patient diagnosis and treatment) thereby disrupting the Company's business
operations and subjecting the Company to potentially significant legal
liabilities. To date, there have been no material malfunctions of the Company's
systems or activities due to Year 2000 issues. However, there can be no
assurance that unanticipated events still will not occur or that the Company was
able to identify all Year 2000 issues before problems arise.
As of August 1, 2000, costs incurred for all efforts of the Company's Year 2000
action plan amounted to $245,000 and have not been material to the Company.
These costs have been expensed as incurred
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and have been funded by operating cash flows. Based upon the best estimate by
the Company's management and the Year 2000 task force, the Company does not
expect any additional costs associated with the Company's Year 2000 action plan.
If additional costs are incurred they will also be expensed as incurred and be
funded by operating cash flow.
In addition, the Company relies heavily upon third party payors, including to a
large extent governmental payors such as the NHS in the U.K. and Medicare and
Medicaid in the U.S. for accurate and timely reimbursement of claims, often
through the use of electronic data interfaces. Although much has been published
publicly stating that the government was working to solve its own Year 2000
issues in a timely manner, the Company has received no assurance that their
systems and interfaces were converted timely. Failure of any of the Company's
third party payors, especially governmental payors, to solve their Year 2000
issues could have a material adverse effect on the Company's consolidated
financial position, cash flows, or results of operations.
There can be no assurance that unanticipated events still will not occur or that
the Company was able to identify all Year 2000 issues before problems arise. In
addition, the Company has no assurance that third party payors and vendors have
or had the ability to identify and solve all or substantially all their Year
2000 issues. Therefore, there can be no assurance that the Year 2000 issue still
will not have a material adverse effect on the Company's consolidated financial
position, cash flows or results of operations.
CONTINGENCIES.
Some of the Company's subsidiaries are Medicare Part B suppliers who submit
claims to the designated carrier who is the government's claims processing
administrator. From time to time, the carrier may request an audit of Medicare
Part B claims on a prepayment or postpayment basis. Some of the Company's
subsidiaries currently have pending such audits. If the outcome of any audit
results in a denial or a finding of an overpayment, then the affected subsidiary
has appeal rights. Some of the subsidiaries currently are responding to these
audits and pursuing appeal rights in certain circumstances.
LITIGATION.
On April 13, 1998, a shareholder of the Company, purporting to sue derivatively
on behalf of the Company, commenced a derivative suit in the Supreme Court of
the State of New York, County of New York, entitled Kevin Mak, derivatively and
on behalf of Transworld Healthcare, Inc., Plaintiff, vs. Timothy Aitken, Scott
A. Shay, Lewis S. Ranieri, Wayne Palladino and Hyperion Partners II L.P.,
Defendants, and Transworld Healthcare, Inc., Nominal Defendant, Index No.
98-106401. The suit alleges that certain officers and directors of the Company,
and HPII, breached fiduciary duties to the Company and its shareholders, in
connection with a transaction, approved by a vote of the Company's shareholders
on March 17, 1998, in which the Company was to issue certain shares of stock to
HPII in exchange for certain receivables due from Health Management, Inc.
("HMI"). The action seeks injunctive relief against this transaction, and
damages, costs and attorneys' fees in unspecified amounts. The transaction
subsequently closed and the plaintiff has, on numerous occasions, stipulated to
extend the defendants' time to respond to this suit. The most recent stipulation
provides for an extension to October,6, 2000.
On July 11 and July 22, 1997, the Company's RespiFlow, Inc. ("RespiFlow") and MK
Diabetic Support Services, Inc. ("MK") subsidiaries, respectively, each received
a letter (the "Audit Letters") from the U.S. Department of Health and Human
Services' Office of Audit Services, a division of the Office of Inspector
General ("OIG"). The Company was subsequently informed that the Audit Letters
cover its DermaQuest subsidiary. The Company has produced certain documents and
provided related
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information to the OIG and to the U.S. Attorney for the Eastern District of
Texas regarding these subsidiaries' financial relationships with suppliers of
durable medical equipment and various other practices including the
subsidiaries' practices regarding the collection of coinsurance and deductible
amounts due from Medicare beneficiaries. Additionally, on November 19, 1997, the
Company was notified by the U.S. Attorney for the Eastern District of Texas that
the Company, RespiFlow, MK, and various other non-affiliated entities had been
named defendants in a qui tam action under the Federal False Claims Act. The qui
tam action was partially unsealed and a copy of the complaint was provided to
the Company. The relator is a private party who has brought action on behalf of
the Federal government. The Company entered into settlement discussions with the
Department of Justice ("DOJ") and the OIG in an effort to bring closure to this
matter and to avoid the expense, disruption and uncertainty of litigation. The
counsel for the relator was involved in these settlement discussions as well. A
final settlement was reached with the DOJ, the OIG and the relator on August 4,
2000 in the amount of $10,000,000. In addition, pursuant to the settlement
agreement, the Company has agreed to pay the relator $82,000 covering reasonable
expenses and attorney's fees and costs. In return, the United States has agreed
to release the Company, certain subsidiaries, as well as its present and former
owners, officers, directors, employees, and certain others, from any civil or
administrative monetary claim for the various allegations being settled in this
matter. In addition, the OIG has agreed not to exclude the Company or any of its
subsidiaries from future participation in any federal health care program as a
result of this matter. The Company has also agreed to a corporate integrity
agreement with the OIG.
In addition to its settlement with the federal government, the Company also has
reached a final settlement with the prior owners of RespiFlow, MK and related
subsidiaries (the "Prior Owners") in connection with an ongoing dispute with
such persons. The Prior Owners have agreed to pay the Company $5,000,000 to
settle all outstanding issues between the relevant parties. In a related
agreement the Company has guaranteed the Prior Owners a price of $5.00 per share
for all shares of Company common stock they currently own (190,000) and still
own on August 4, 2002. The Prior Owners are obligated to liquidate these shares
on the open market for $5.00 per share or greater. To the extent that shares
remain unliquidated on August 4, 2002, the difference between the closing price
of the Company's common stock on August 4, 2002 and $5.00 per share will be paid
to the Prior Owners by the Company in cash.
The Company has record a one-time charge of $5,082,000 related to the settlement
of all of these matters in the quarter ended June 30, 2000.
In addition to the above allegations, during the normal course of business, the
Company continues to carefully monitor and review its submission of Medicare,
Medicaid and all other claims for reimbursement. The Company believes that it is
substantially in compliance, in all material respects, with the applicable
provisions of the Federal statutes, regulations and laws and applicable state
laws. Because of the broad and sometimes vague nature of these laws, there can
be no assurance that an enforcement action will not be brought against the
Company, or that the Company will not be found to be in violation of one or more
of these provisions. At present, the Company cannot anticipate what impact, if
any, subsequent administrative or judicial interpretation of the applicable
Federal and state laws may have on the Company's consolidated financial
position, cash flows or results of operations.
Effective October 1, 1997, the Company owned 100% of the stock of HMI.
On July 2, 1998, a former shareholder of HMI purporting to sue on behalf of a
class of shareholders of HMI as of June 6, 1997, commenced a suit in the
Delaware Chancery Court, New Castle County, entitled Kathleen S. O'Reilly v.
Transworld HealthCare, Inc., W. James Nicol, Andre C. Dimitriadis, Dr. Timothy
J. Triche and D. Mark Weinberg, Civil Action No. 16507-NC. Plaintiff alleged
that the Company, as majority shareholder of HMI, and the then directors of HMI,
breached fiduciary duties to
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the minority shareholders of HMI by approving a merger between HMI and a
subsidiary of the Company for inadequate consideration. Plaintiff demands an
accounting, damages, attorneys' fees and other payment for other expenses for
unspecified amounts. The defendants filed a motion to dismiss this action on
September 18, 1998. The Court denied defendants' motion in part and granted the
motion in part, leaving intact certain claims. Plaintiff has propounded
discovery requests. The Company's insurer disclaims coverage as to the Company,
however, the insurer for the Company's HMI subsidiary has accepted coverage for
the individual defendant former HMI directors. The Company believes that it does
not have liability and will vigorously defend this action. As such, the Company
cannot predict whether the outcome of these actions will have a material adverse
effect on the Company's consolidated financial position, cash flows or results
of operations.
By letter dated December 20, 1999, the Company received formal written
notification of the intent of two plaintiffs to file a civil action in the Court
of Common Pleas of Allegheny County, Pennsylvania against Transworld Healthcare,
Inc., Transworld Home Healthcare, Inc., Health Management, Inc. and HMI
Pennsylvania, Inc. The two plaintiffs, Irwin Hirsch and Lloyd Myers, formerly
were employees of HMI Pennsylvania, Inc., a subsidiary of the Company, and had
written employment agreements. Myers also served as an officer of HMI. Based
upon their former status as employees and as officers, both claim entitlement to
contractual indemnification from HMI and HMI Pennsylvania, Inc. for defense
costs and settlement of certain claims made against them. In 1994, Hirsch and
Myers also sold two retail pharmacies they owned to HMI.
Hirsch and Myers were named as defendants in an action filed in the United
States District Court for the Eastern District of New York entitled In re Health
Management, Inc. Securities Litigation, Master File No. 96 Civ. 0889 (ADS),
which was a class action by shareholders of HMI alleging, among other claims
against the defendants, fraud in connection with the valuation of certain
securities. Hirsch and Myers incurred non-reimbursed legal expenses of $100,000
in defending that litigation and, ultimately, settled their liability jointly
for $1,325,000, which was non-reimbursed. They demand that defendants reimburse
to them their non-reimbursed legal fees and the settlement amount pursuant to
the indemnification provisions of their employee contracts.
In addition to their indemnification claims, Hirsch and Myers also claim damages
in the amount of $7,000,000 for losses in connection with the pharmacies sale
transaction they entered into with HMI under which they sold their retail
pharmacies to HMI. Hirsch and Myers claim that the pharmacies sale transaction
was based upon fraudulent misrepresentations by HMI.
The Company and HMI entities will vigorously defend against these claims. The
Company believes that Hirsch and Myers' indemnification claims should not have
any real merit because of testimony given by Hirsch and Myers under oath in
connection with a criminal trial against Clifford Hotte, a director and former
officer of HMI. In their testimony, Hirsch and Myers acknowledged malfeasance
and nonfeasance, which should render their contractual entitlement to
indemnification void. Even if they are entitled to indemnification despite their
acknowledgements, they are liable to defendants for the economic losses and
damages suffered by defendants as a result of the malfeasance and nonfeasance.
Therefore if the civil actions are filed, the Company and HMI entities will
aggressively pursue counterclaims against Hirsch and Myers for damages which,
conservatively, are far in excess of their claims, including the claims
associated with the pharmacies sale transaction.
The enforcement division of the Securities and Exchange Commission (the
"Commission") has issued a formal order of investigation relating to matters
arising out of HMI's public announcement on February 27, 1996 that HMI would
have to restate its financial statements for prior periods as a result of
certain accounting irregularities. HMI is fully cooperating with this
investigation and has responded to the requests of the Commission for
documentary evidence.
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The outcomes of certain of the foregoing lawsuits and the investigation with
respect to HMI are uncertain and the ultimate outcomes could have a material
adverse affect on the Company.
The Company is involved in various other legal proceedings and claims incidental
to its normal business activities. The Company is vigorously defending its
position in all such proceedings. Management believes these matters should not
have a material adverse impact on the consolidated financial position, cash
flows or results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE
The Company faces exposure to adverse movements in foreign currency exchange
rates. These exposures may change over time as business practices evolve and
could have a material adverse impact on the Company's consolidated financial
results. The Company's primary exposure relates to non-U.S. dollar denominated
sales in the U.K. where the principal currency is Pounds Sterling. Currently,
the Company does not hedge foreign currency exchange rate exposures.
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's cash equivalents and the U.K. subsidiaries' December
20, 1999 Refinancing which includes the Senior Credit Facility and Mezzanine
Loan. The Company's cash equivalents include highly liquid short-term
investments purchased with initial maturities of 90 days or less. The Company is
subject to fluctuating interest rates that may impact, adversely or otherwise,
its consolidated results of operations or cash flows for its variable rate
Senior Credit Facility, Mezzanine Loan and cash equivalents. In accordance with
provisions of the Refinancing, on January 25, 2000, the Company hedged the
interest rate (LIBOR cap of 9%) on approximately $40,775,000 of its floating
rate debt in a contract which expires June 30, 2003. The approximate notional
amount of the contract adjusts down (consistent with debt maturity) as follows:
July 30, 2000 $39,170,000
December 31, 2000 37,565,000
June 30, 2001 35,960,000
December 31, 2001 34,355,000
June 30, 2002 31,945,000
December 31, 2002 29,540,000
The Company's Notes ($33,838,000 at June 30, 2000) mature on December 31, 2008
and bear interest at a fixed rate of 9.375%. The table below represents the
expected maturity of the Company's variable rate debt and their weighted average
interest rates at June 30, 2000.
EXPECTED WEIGHTED AVERAGE
FISCAL MATURITY RATE
------ ------------ ----------------
2000 $ 2,126,000 LIBOR +2%
2001 4,251,000 LIBOR +2%
2002 5,314,000 LIBOR +2%
2003 6,377,000 LIBOR +2%
2004 8,502,000 LIBOR +2%
Thereafter 36,025,000 LIBOR +3.91%
-----------
$62,595,000 LIBOR +3.1%
===========
The aggregate fair value of the Company's debt was approximately $99,426,000 at
June 30, 2000.
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of shareholders on June 22, 2000 (the
"Annual Meeting"). The proposals voted upon at the Annual Meeting were (1) to
elect five directors to serve for a term of one year and until their respective
successors are duly elected and qualified and (2) to ratify the appointment by
the Company's Board of Directors of Ernst & Young LLP, as independent
accountants of the Company for the fiscal year ending September 30, 2000.
The voting results with respect to each proposal are set forth below:
ABSTAIN/
PROPOSAL FOR AGAINST NON-VOTING
-------- --- ------- ----------
No. 1 (election of Directors) -
Messrs. Timothy M. Aitken 16,126,059 58,435 -
Lewis S. Ranieri 16,126,059 58,435 -
Scott A. Shay 16,126,059 58,435 -
Jeffery S. Peris 16,126,059 58,435 -
G. Richard Green 16,126,059 58,435 -
No. 2 16,179,859 3,435 1,200
ITEM 5. OTHER INFORMATION
On July 11 and July 22, 1997, the Company's RespiFlow, Inc. ("RespiFlow") and MK
Diabetic Support Services, Inc. ("MK") subsidiaries, respectively, each received
a letter (the "Audit Letters") from the U.S. Department of Health and Human
Services' Office of Audit Services, a division of the Office of Inspector
General ("OIG"). The Company was subsequently informed that the Audit Letters
cover its DermaQuest subsidiary. The Company has produced certain documents and
provided related information to the OIG and to the U.S. Attorney for the Eastern
District of Texas regarding these subsidiaries' financial relationships with
suppliers of durable medical equipment and various other practices including the
subsidiaries' practices regarding the collection of coinsurance and deductible
amounts due from Medicare beneficiaries. Additionally, on November 19, 1997, the
Company was notified by the U.S. Attorney for the Eastern District of Texas that
the Company, RespiFlow, MK, and various other non-affiliated entities had been
named defendants in a qui tam action under the Federal False Claims Act. The qui
tam action was partially unsealed and a copy of the complaint was provided to
the Company. The relator is a private party who has brought action on behalf of
the Federal government. The Company entered into settlement discussions with the
Department of Justice ("DOJ") and the OIG in an effort to bring closure to this
matter and to avoid the expense, disruption and uncertainty of litigation. The
counsel for the relator was involved in these settlement discussions as well. A
final settlement was reached with the DOJ, the OIG and the relator on August 4,
2000 in the amount of $10,000,000. In addition, pursuant to the settlement
agreement, the Company has agreed to pay the relator $82,000 covering reasonable
expenses and attorney's fees and costs. In return, the United States has agreed
to release the Company, certain subsidiaries, as well as its present and former
owners, officers, directors, employees, and certain others, from any civil or
administrative monetary claim for the various allegations being settled in this
matter. In addition, the OIG has agreed not to exclude the Company or any of its
subsidiaries from future participation in any federal health care program as a
result of this matter. The Company has also agreed to a corporate integrity
agreement with the OIG.
In addition to its settlement with the federal government, the Company also has
reached a final
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settlement with the prior owners of RespiFlow, MK and related subsidiaries (the
"Prior Owners") in connection with an ongoing dispute with such persons. The
Prior Owners have agreed to pay the Company $5,000,000 to settle all outstanding
issues between the relevant parties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed on April 20, 2000 a Report on Form
8-K dated April 6, 2000.
The Company filed on May 15, 2000 a Report on Form
8-K dated May 12, 2000.
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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: August 14, 2000
TRANSWORLD HEALTHCARE, INC.
By: /s/ John B. Wynne Jr.
-------------------------------------
John B. Wynne Jr.
Vice President and Chief Financial
Officer (Principal Financial Officer
and Duly Authorized to Sign on Behalf
of Registrant)
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EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
Page 37
