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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9848
CARETENDERS HEALTH CORP.
(Exact name of registrant as specified in its charter)
Delaware 06-1153720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207
(Address of principal executive offices)(Zip Code)
(502) 899-5355
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, par value NASDAQ National Market
$.10 per share
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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of regulation S-K is not contained herein, and will not
be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
As of June 24, 1996, 3,129,413 shares of the Registrant's Common
Stock were outstanding. The aggregate market value of Registrant's
Common Stock held by non-affiliates of the Registrant as of June 24,
1996 was approximately $24,565,377 (based on the last sale price of
a share of the common stock as of June 24, 1996 ($7.875), as
reported by the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market system).
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement, to be filed with the
Commission no later than 120 days after March 31, 1996, is
incorporated by reference in Part III of this report.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
PART I
ITEM 1. BUSINESS
General Development of Business
Caretenders Health Corp. ("Caretenders" or the "Company") is the
first company to provide integrated adult day health services and
home health care services for seniors and others with chronic and
post-acute medical conditions who wish to remain in their homes and
communities. With its extensive experience in home health care and
leadership in adult day health center operations, the Company is
embarking on an aggressive expansion program offering Caretenders'
SeniorCare Solutions integrated home and community based health
care. Through care management by a Registered Nurse (RN),
Caretenders helps families identify solutions for caring for loved
ones who can no longer meet their health and personal care needs.
Through the Company's care manager, families can learn about their
choices for long-term care for seniors and choose from Caretenders'
SeniorCare Day and Home Health Care Centers as well as other
community based resources available.
The Company was incorporated in Delaware in November, 1985. The
Company delivers its adult day health services and home care
services through a number of wholly owned subsidiaries. The Company
operates 14 home care branches in Kentucky, Alabama, Indiana,
Massachusetts and Virginia and manages 2 hospital-based agencies in
Kentucky for Columbia/HCA. The Company also operates 14 adult day
health centers, which are located in Maryland, Connecticut and
Kentucky. The Company opened 1 adult day health center during the
past year. Capacity was 938 guests per day at the beginning of the
year and grew by 4% to 976 guests per day by the end of the year.
By the end of fiscal year 1997 (ending March 31, 1997), the Company
expects to open 12-15 new adult day health centers and seven to nine
new home health care operations, creating nine integrated and seven
new markets for Caretenders. Since March 31, 1995, the Company has
opened 2 and acquired 1 new home care operations. As of June 21,
1996, the Company had 8 new adult day care centers and 6 home health
care units under development.
Today more than seven million senior Americans are in need of
alternatives to long-term nursing home confinement and this number
is expanding rapidly. These individuals desire to remain in their
homes and out of nursing homes and conserve their financial
resources as long as possible. Caretenders SeniorCare Solutions
provides seniors in need with a lower-cost alternative to
institutional care helping them gain economic security access to
health care, mobility and independence without isolation.
Divestitures
On June 3, 1994, the Company entered into a strategic arrangement
with Columbia/HCA Healthcare Corporation (Columbia), under which
Columbia acquired one of the Company's two Louisville Certificates
of Need for nursing services and hired the Company to manage the
operations under the certificate. The parties also entered into a
cooperative agreement for the provision of infusion, home medical
equipment and adult day care services in the Louisville market.
On February 18, 1995, the Company entered into another arrangement
with Columbia, under which Columbia acquired the Company's
Certificate of Need to provide nursing services to patients in eight
counties in the Elizabethtown, Kentucky area and hired the Company
to manage the operations until the year 2000.
Acquisition Policy
The Company continually considers and reviews possible acquisitions
of businesses that provide health care services similar to those
currently offered by Caretenders' companies. Factors which may
affect future acquisition decisions include the quality and
potential profitability of the company under consideration, and the
Company's ability to finance an acquisition.
On May 1, 1996, the Company completed a transaction to acquire the
stock of Reliable Home Health Care, Inc., a provider of intermittent
home nursing services in Cleveland Ohio.
Home Health Care Services
Caretenders provides home health care services through 14 branches
as follows: Kentucky (7), Indiana (2), Alabama (1), Massachusetts
(3) and Virginia (1). The Company's comprehensive strategy allows
it to provide a full range of home health care services to a
patient, enabling the physicians, payors and patients to deal with a
single provider. All Caretenders services are rendered through care
management by an RN, which coordinates nursing, home infusion and
equipment services.
Caretenders nursing provides a comprehensive range of both
professional and para-professional services from highly-skilled
infusion therapy nursing to custodial companion care. Professional
staff including registered nurses, licensed practical nurses,
physical, speech and occupational therapists, and medical social
workers implement and monitor medical treatment plans prescribed by
physicians. Professional staff are subject to state licensing
requirements in the particular states in which they practice. Para-
professional staff includes home health aides, homemakers and
companions who assist patients with health related tasks and the
activities of daily living.
Home infusion therapy involves the intravenous or other
administration of physician-prescribed nutrients, antibiotics,
chemotherapeutic agents and other medications to patients in their
homes. Such therapy generally continues a plan of treatment
initiated in the hospital, or as a substitute for hospitalization.
Home infusion costs are between 30% and 70% less than the same
therapy administered in an institutional setting. There are five
major categories of infusion therapy: total parenteral nutrition,
enteral nutrition, antibiotic therapy, chemotherapy and pain
management therapy.
Caretenders sells and rents medical equipment for use in the home.
While the Company provides a complete range of equipment, the
businesses generally can be divided into two predominant categories:
respiratory/oxygen services and rehabilitation products.
Caretenders is compensated for its services through (i) private pay
(paid by personal funds), (ii) Medicare, (iii) Medicaid, and (iv)
other third party payors (e.g. insurance companies). See "Item 1.
Business -- Payment Sources". Caretenders employs compensation
specialists who advise patients as to the availability of sources of
payment for its services.
Patients are referred to Caretenders by physicians, hospital
discharge planners, third party administrators, insurance case
managers, bank trust departments, clients' family members and other
sources.
Adult Day Health Services
Adult day health services is an alternative method of providing care
for seniors and other adults who without such care would likely be
institutionalized. The field has grown rapidly, from just 15
centers in the United States in the early 1970s to over 3,000 today.
Still in its early stages, the industry is highly fragmented with
the majority operated by the non-profit sector. Caretenders
operates 14 centers, (3 centers in Connecticut, 10 in Maryland and 1
in Kentucky) which provide care for approximately 1,400 clients.
Caretenders is the largest for-profit provider of adult day care
services in the U.S.
The Company's adult day health service centers provide professional,
high quality adult day health services for disabled or frail adults
who require some care or supervision, but who do not require
intensive medical attention or institutionalization. The average
center provides care for over 55 guests per day, seven days a week,
from 9AM to 5PM. Round-trip transportation is provided to each
participant.
The centers offer a range of therapeutic and medical services
designed to promote the independence of participants and provide
respite to families and caregivers. On-site staff nurses administer
medications and ensure attention to medical care. Other services
include (i) a light breakfast, a hot lunch, and an afternoon snack;
(ii) a highly structured, individualized and creative activities
program which includes recreation, education, field trips, sports,
crafts, music and group conversations; and (iii) family counseling.
The centers market their services to professional referral sources
in their communities as well as directly to consumers. These
sources typically include Offices on Aging, social workers, hospital
discharge planners and group living facilities.
Competition, Marketing and Customers
Home Health Care
The home health care industry is fragmented, with competition
largely focused on individual products or services. Competitors can
be classified into three categories: nursing services, infusion
therapy, and medical equipment.
Caretenders competes with larger home health care providers through
its comprehensive strategy, which facilitates focused
accountability, reduced administrative burdens and convenience for
patients and physicians. In addition to the larger, national
companies, Caretenders also competes with numerous local and
regional companies and pharmacies. Many of the Company's
competitors have greater resources than the Company. Major home
health competitors include Apria, Olsten Kimberly Quality Care and
Coram.
The home health care industry is highly competitive. The Company
believes competition is based primarily on the quality of service
provided, and such quality is measured by responsiveness and the
technical ability of the professional staff. The scope of services
offered, relationships with referral sources and price are also
competitive considerations. Another competitive factor in the home
health care industry is accreditation by JCAHO (Joint Commission on
Accreditation of Healthcare Organizations), a not-for-profit
accreditation organization. All Caretenders offices are accredited
by JCAHO.
Home health services are marketed by a direct sales force primarily
to hospital discharge planners, physicians and insurance and managed
care organizations. Referrals may also be sought through
advertisements in several local specialty publications, attendance
at major trade shows and voluntary participation in JCAHO. The
Company is also developing consumer-direct sales, marketing and
advertising programs designed to increase its private pay business.
Adult Day Health Services
The adult day health services industry is highly competitive but
fragmented. The Company competes with alternative sources of senior
adult day health services, including: other adult day health
centers, ancillary programs provided by nursing homes and hospitals;
other government-financed facilities; retirement communities; and
senior adult associations. The Company believes the primary
competitive factors among this group are quality of service and
reputation among referral sources.
The Company markets its adult day health services through its adult
day health center directors and the Company's marketing staff. The
directors spend time contacting referral sources in their markets to
market the Company's services. Major referral sources include
Offices on Aging, social workers, hospital discharge planners and
group living facilities.
Government Regulations
The Company is subject to laws and regulations administered by the
federal government and the states in which it provides home health
care and adult day health services. The Company believes that
providers of these services may be subject to increasing regulation
by both Federal and state governments. If the Company becomes
subject to adverse, costly, time-consuming or otherwise burdensome
government regulation in connection with its operations, such
regulation could have a materially affect the Company.
The Company operates adult day health facilities in three states,
Connecticut, Maryland and Kentucky. In order to be licensed, adult
day health centers must meet requirements established by each state
including the physical organization of facilities, staff to patient
ratios and nutrition. Each of the Company's centers is
appropriately licensed in each state in which it operates. The
Company operates all its adult day care centers according to
guidelines that exceed the requirements of each respective state in
which it operates.
The expansion by the Company of its adult day health and home health
care operations into new states or the addition of new adult day
health centers or home health care services may be subject to
compliance with additional governmental regulation. If the Company
were unable to comply with any such regulations or qualify such
centers or services under government sponsored reimbursement
programs because of cost or for other reasons, such expansion or
addition of services could be limited or prevented.
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention.
In recent years, an increasing number of legislative proposals have
been introduced or proposed in Congress and in some state
legislatures that would effect major changes in the health care
system, either nationally or at the state level. Among the
proposals under consideration are cost controls, insurance market
reforms, requirements that all businesses offer health insurance
coverage to their employees and the creation of a single government
health insurance plan that would cover all citizens. The costs of
certain proposals would be funded in significant part by reductions
in payments by governmental programs, including Medicare and
Medicaid, to health care providers. The Company cannot predict
whether any of the above proposals or any other proposals will be
adopted, and if adopted, no assurance can be given that the
implementation of such reforms will not have a material effect on
the business of the Company.
Payment Sources
The Company receives payments from Medicaid, Medicare and other cost
reimbursement programs, private pay and insurance policies as
detailed below. The Company's dependence on government sponsored
reimbursement programs makes it vulnerable to possible legislative
and administrative regulations and budget cut-backs that could
adversely affect the number of persons eligible for such programs,
the amount of allowed reimbursements or other aspects of the
program, any of which could materially affect the Company. In
addition, loss of certification or qualification under
Medicare/Medicaid programs would materially adversely affect the
ability of its adult day health and home health care businesses to
effectively market their services. The following table sets forth
the Company's net revenues derived from each major class of payer
during the following fiscal years (in thousands):
1996 1995
------------------------- ---------------------------
Insurance Insurance
& Private & Private
Business Unit Medicare Medicaid Pay Medicare Medicaid Pay
- ----------------- -------- -------- --------- -------- -------- ---------
Adult Day Health 0.0% 78.1% 21.9% 0.0% 80.5% 19.5%
Services
Comprehensive In-
Home
Personal Care
Nursing 46.2% 14.2% 39.6% 47.2% 14.6% 38.2%
Infusion Therapy 23.2% 10.6% 66.2% 15.0% 10.0% 75.0%
Durable Medical 33.8% 6.0% 60.2% 40.7% 5.5% 53.8%
Equipment
Home Health 39.6% 12.3% 48.1% 39.3% 12.4% 48.3%
Subtotal
-------- -------- --------- -------- -------- ---------
Total 30.2% 24.7% 45.1% 32.4% 24.5% 43.1%
======== ======== ========= ======== ======== =========
In determining charge rates for goods and services provided to
customers, the Company evaluates several factors including cost and
market competition. The Company also negotiates contract rates with
third party providers such as insurance companies. The rates of
reimbursement for a significant portion of the Company's charges are
dictated by Federal or State programs such as Medicare, Medicaid and
Workers Compensation.
Insurance
The Company and its subsidiaries carry general liability and
professional liability insurance. The Company also carries product
liability insurance associated with those operations requiring such
coverage, including the durable medical equipment operations. The
Company carries automobile liability coverage and property coverage
on all owned or operated vehicles. The Company's properties are
covered by casualty insurance policies. The Company carries
directors and officers liability with a $3,000,000 limit. The
Company believes its present insurance coverage is adequate.
The Company intends to maintain general liability and property
insurance coverage in amounts which it believes reasonable for its
operations. However, there can be no assurance that such insurance
will be available, or, if available, that such insurance will be
either adequate to cover the Company's liabilities or available at
affordable rates. In addition, increasing insurance costs, and the
increasing unwillingness of insurance companies to insure against
certain types of losses, raise some questions as to whether the
Company will be able to obtain or continue its present insurance
coverage. The inability to obtain adequate insurance coverage at
affordable rates, or a loss of existing coverage, could have a
material effect on the Company.
Employees and Labor Relations
As of March 31, 1996, the Company had approximately 2,270 employees,
116 of whom are administrative and executive personnel. None of the
Company's employees are represented by a labor organization.
Management believes its relationship with its employees is
satisfactory.
Cautionary Statements
Information provided herein by the Company contains, and from time
to time the Company may disseminate material and make statements
which may contain "forward-looking" information, as that term is
defined by the Private Securities Litigation Reform Act of 1995 (the
"Act"). These cautionary statements are being made pursuant to the
provisions of the Act and with the intention of obtaining the
benefits of "safe harbor" provisions of the Act. The Company
cautions investors that any forward-looking statements made by the
Company are not guarantees of future performance and that actual
results may differ materially from those in the forward-looking
statements as a result of various factors including but not limited
to the following:
(i)In recent years, an increasing number of legislative
proposals have been introduced or proposed in Congress and in
some state legislatures that would effect major changes in
the health care system, either nationally or at the state
level. Among the proposals under consideration are cost
controls, insurance market reforms, requirements that all
businesses offer health insurance coverage to their employees
and the creation of a single government health insurance plan
that would cover all citizens. The costs of certain proposals
would be funded in significant part by reductions in payments
by governmental programs, including Medicare and Medicaid, to
health care providers. The Company cannot predict whether any
of the above proposals or any other proposals will be
adopted, and if adopted, no assurance can be given that the
implementation of such reforms will not have a material
impact on the operations of the Company.
(ii)The Company competes with numerous well established
competitors who have substantially greater financial
resources than the Company. Competitors are increasingly
focusing attention on providing alternative site health care
services, specifically on adult day health services. Such
increasing competition may adversely affect revenues and
profitability of Company operations.
(iii)The Company's future operating results are dependent
upon its ability to attract customers able to pay for the
Company's charges from their own and their families'
financial resources. Circumstances which adversely affect
the ability or desire of seniors to pay for the Company's
services could have an adverse effect on the Company. In the
event that the Company encounters difficulty in attracting
seniors with adequate resources to pay for the Company's
services, the Company would be adversely affected.
(iv)The Company provides its services to individuals in
home and community settings. Severe winter weather may
hinder the Company's ability to provide its services and thus
impact operating results. No assurances can be given that
such severe winter weather conditions will not be experienced
by the Company.
(v)By the end of fiscal 1997, the Company plans to develop 12-15
new adult day health centers and 7-9 new home health
operations after which the Company plans to continue
development efforts at a similar or accelerated pace. The
Company's ability to achieve its development plans will
depend upon a variety of factors, many of which are beyond
the Company's control. There can be no assurance that the
Company will not suffer delays in its development program,
which could slow the Company's growth. The successful
development of additional operations will involve a number of
risks including the possibility that the Company may be
unable to locate suitable sites at acceptable prices or may
be unable to obtain, or may experience delays in obtaining,
necessary zoning, land use, building, occupancy, licensing
and other required governmental permits and authorizations.
ITEM 2. PROPERTIES
The Company's executive offices are located in Louisville, Kentucky
in approximately 21,300 square feet of leased space.
The Company has 30 branch locations that each lease from
approximately 2,000 to 17,000 square feet of space in their
respective locations. The Company believes that its facilities are
adequate to meet its current needs, and that additional or
substitute facilities are available if needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently, and from time to time, subject to claims
and suits arising in the ordinary course of its business, including
claims for damages for personal injuries. In the opinion of
management, the ultimate resolution of any of these pending claims
and legal proceedings will not have a material effect on the
Company's financial position or results of operations.
On January 26, 1994 Franklin Capital Associates and Aetna Life and
Casualty, shareholders, who at one time held approximately 320,000
shares of the Company's common stock (approximately 13% of shares
outstanding) filed suit in Chancery Court of Williamson County,
Tennessee claiming unspecified damages not to exceed three million
dollars in connection with registration rights they received in the
Company's acquisition of National Health Industries in February
1991. The suit alleges the Company failed to use its best efforts
to register the shares held by the plaintiffs as required by the
merger agreement. The Company believes it has meritorious defenses
to the claims and does not expect that the ultimate outcome of the
suit will have a material impact on the Company's results of
operations or financial position. The Company plans to vigorously
defend its position in this case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock ("Common Stock") is traded on the over-
the-counter market and is quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the
symbol "CTND". The prices shown below represent prices between
dealers, do not indicate retail mark-ups, mark-downs or commissions,
and do not necessarily represent actual transactions. Set forth
below are the high and low bid quotations for the Common Stock for
the periods indicated. The prices for the Common Stock were
provided by NASDAQ and have been adjusted to reflect a one (1)-for-
five (5) reverse stock split effective March 22, 1995.
Closing Common Stock Prices
Quarter Ended: High Low
June 30, 1993 9.40 6.90
September 30, 1993 8.40 5.30
December 31, 1993 9.40 6.25
March 31, 1994 10.00 6.90
June 30, 1994 14.05 8.75
September 30, 1994 9.38 7.20
December 31, 1994 8.44 6.56
March 31, 1995 8.75 4.63
June 30, 1995 6.75 5.25
September 30, 1995 8.38 5.75
December 31, 1995 8.13 5.75
March 31, 1996 8.38 5.88
Month Ended:
May 31, 1996 9.63 6.50
On June 24, 1996, the last reported representative bid price for the
Common Stock reported on the NASDAQ National Market System was
$7.875 and there were approximately 769 holders of record of the
Company's Common Stock. No cash dividends have been paid by the
Company.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived
from the consolidated financial statements of the Company for the
periods and at the dates indicated. This information has been restated
to reflect the Company's 1 for 5 reverse stock split as further
explained in Note 1 to the consolidated financial statements of the
Company. The information is qualified in its entirety by and should be
read in conjunction with the consolidated financial statements and
related notes included elsewhere in this Form 10-K.
Consolidated Selected Financial Information
(Dollar amounts in
000's except per
share data) Year Ended March 31,
-------------------- ----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- -------- ---------
Results of
Operations
Net revenues $63,227 $60,836 $50,857 $36,527 $28,788
Net Income (loss):
Continuing 1,575 1,248 627 611 (2,419)
operations
Discontinued -- -- -- (1,339) 1,958
operations ------- ------- -------- -------- ---------
Net Income (loss) $ 1,575 $ 1,248 $ 627 $ (728) $ (461)
Per share:
Primary:
Number of shares 3,149 3,145 3,153 2,354(1) 2,328(1)
Net Income (loss)
from:
Continuing
operations $.50 $.40 $.20 $.26(1) $(1.04)(1)
Discontinued
operations - - - (0.57) 0.84
------- ------- -------- -------- ---------
Net Income (loss) $.50 $.40 $.20 $(0.31) $(.20)
Fully diluted:
Number of shares 3,149 3,145 3,175 N/A(1) N/A(1)
Net income from
continuing
operations $.50 $.40 $.20 N/A(1) N/A(1)
------- ------- -------- -------- ---------
Net Income $.50 $.40 $.20 N/A N/A
======= ======= ======== ======== =========
Balance sheet
data as of: March 31,
------------------- -----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- ---------
Working capital $13,844 $11,641 $ 8,001 $ 2,193 $ 4,085
Total assets 33,217 31,073 30,806 29,377 29,881
Long-term liabilities 6,805 7,094 7,367 1,690 1,573
Total liabilities 14,313 13,744 14,731 13,929 13,743
Stockholders'equity 18,904 17,329 16,075 15,448 16,138
(1) does not include convertible preferred shares due to accounting
rules relating to calculation of loss per share
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Strategic Focus
The Company is positioning itself to take advantage of healthcare
reform activities by focusing its resources into its home and
community based health care business units which consist of adult
day health services and home health care (home health care includes
nursing, infusion therapy and durable medical equipment). These
businesses are involved with the delivery of health care in
alternative settings which are preferred by consumers and operate at
lower costs than hospitals and nursing homes. The trend toward
alternative site delivery of healthcare is increasing, as more payor
organizations are seeking to reduce the costs of medical care. The
Company intends to continue to develop and acquire home and
community-based healthcare service operations.
By the end of fiscal year 1997 (ending March 31, 1997), the Company
expects to open 12-15 new adult day health centers and seven to nine
new home health care operations, creating nine integrated and seven
new markets for Caretenders. At the end of this period, the Company
anticipates having 28 adult day health services centers and up to 15
home care operations in place. Since March 31, 1995, the Company
has opened 2 and acquired 1 new home care operations. As of June
21, 1996, the Company had 8 new adult day care centers and 6
personal care units under development.
The Company is committed to establishing a preeminent position in
this segment of the healthcare industry and is taking a rapid route.
The adult day health services market is growing, but highly
fragmented with approximately 3,000 centers nationwide. Caretenders
is considered as the national leader in the field with its fourteen
centers.
Although more mature, the home care industry also remains highly
fragmented with few providers controlling more than 5 percent market
share. The Company believes that there is no other single provider
in its existing or prospective markets able to impose significant
barriers to its future plans.
Earnings - 1996
Improvements in the profitability of operations continue to be made
with center contribution improving by 14.8% due principally to
revenue growth. The Company continues to experience very strong
market demand for its services. Selling, General and Administrative
costs increased slightly as a percent of sales increasing largely
due to overhead additions preparing the Company for expansion. Pre-
tax income from continuing operations improved by 31.4%. Earnings
per share from continuing operations were $.50 in 1996 as compared
to $.40 for 1995.
Liquidity and Capitalization
The Company has a $12 million revolving credit facility with
approximately $5.9 million outstanding as of March 31, 1996. The
credit facility bears interest at 1 percent over prime. This
facility, combined with cash flow from operations, should provide
sufficient working capital resources to support operations and
future development. However, management will continue to pursue
additional capital including debt and equity investments in the
Company to support more rapid development.
RESULTS OF OPERATIONS
Fiscal Year Ended March 31, 1996 Compared With Fiscal Year Ended
March 31, 1995
Caretenders Health Corp.
Operating Data
for the Years Ended March 31,
(amounts in thousands)
1 9 9 6 1 9 9 5 Change
---------------- ---------------- --------------
% of % of
Amount Revenues Amount Revenues Amount %
------- -------- ------- -------- ------ -----
Net Revenues
Home Health Care $50,822 80.4% $50,330 82.7% $ 492 1.0%
Adult Day Health
Services 12,405 19.6% 10,506 17.3% 1,899 18.1%
------- -------- ------- -------- ------ -----
63,227 100.0% 60,836 100.0% 2,391 3.9%
------- -------- ------- -------- ------ -----
Cost of Sales and
Services
Home Health Care 39,399 77.5% 40,246 80.0% (847) (2.1%)
Adult Day Health
Services 9,331 75.2% 7,986 76.0% 1,345 16.8%
------- -------- ------- -------- ------ -----
48,730 77.1% 48,232 79.3% 498 1.0%
------- -------- ------- -------- ------ -----
Center Contribution
Home Health Care 11,423 22.5% 10,084 20.0% 1,339 13.3%
Adult Day Health
Services 3,074 24.8% 2,520 24.0% 554 22.0%
------- -------- ------- -------- ------ -----
14,497 22.9% 12,604 20.7% 1,865 15.0%
------- -------- ------- -------- ------ -----
Selling, General &
Administrative 8,438 13.3% 6,642 10.9% 1,796 27.0%
Provision for
Uncollectible 1,669 2.6% 1,689 2.8% (20) (1.2%)
Accounts
Depreciation and
Amortization 2,057 3.3% 2,300 3.8% (243) (10.6%)
Interest and Other, 623 1.0% 671 1.1% (48) (7.2%)
Net Income ------- -------- ------- -------- ------ -----
Before Taxes $ 1,710 2.7% $ 1,302 2.1% $ 408 31.4%
======= ======== ======= ======== ====== =====
Overall. As more fully described below, the Company
believes the improvement in operating results is attributable
to its aggressive marketing techniques, horizontal integration
of service lines in existing markets and resultant economies of
scale both operationally and administratively. This is offset
slightly by a increase in selling, general and administrative
costs resulting from the Company's preparation for expansion in
fiscal 1997.
Home Health Care Net Revenues. Net revenue increases
in the Company's existing markets were primarily the result of
increased volume for nursing services and durable medical
equipment offset partially by decreased volume for infusion
therapies. Nursing volumes increased 12% while durable
medical equipment volumes increased 23%.
Net revenues for 1995 included $4,466,000 related to
operations sold during 1995. After adjusting 1995 revenues to
remove operations sold, home health care revenues increased
12.3%. Contribution continues to be generated from these
operations under management contracts.
Home Health Care Cost of Sales and Services. Cost of
sales and services as a percent of net revenues decreased
primarily as a result of improved volumes in all markets and
reductions in cost as a result of operations sold.
Adult Day Health Services Net Revenues. The increase
of $1.9 million in adult day health services revenues is
attributable to improved occupancy in all markets, improvement
in mix of payors and rate increases. Total days of service
provided increased 14% from 188,480 in 1995 to 214,600 in
1996. As of March 31, 1996, the Company had 14 centers in
operation.
Adult Day Health Services Cost of Sales and Services.
As a percent of net revenues, cost of sales and services
decreased slightly as a result of better cost management,
increased occupancy and fixed costs spread over higher
volumes.
Selling, General and Administrative. The increase of
$1.8 million is due primarily to an increase in certain
administrative staff levels and costs incurred to centralize
certain administrative functions.
Provision for Uncollectible Accounts. The provision
for uncollectible accounts for the year ended March 31, 1996
was recorded based on management's evaluation of
collectibility.
Depreciation and Amortization. The decrease of
$243,000 resulted primarily due to replacement of purchased
transportation equipment with leased transportation equipment.
Interest and Other, Net. The decrease in interest
and other, net is primarily the result of the lower average
outstanding debt levels and a decrease in the interest rate
associated with the Company's working capital credit facility.
Income Taxes. As of March 31, 1996, the Company has
net deferred tax assets of approximately $1,072,000. The net
deferred tax asset is composed of $2,401,000 of deferred tax
assets, $173,000 of deferred tax liabilities and a valuation
allowance totaling approximately $1,156,000. The deferred tax
asset includes the tax benefit of net operating loss
carryforwards of approximately $340,000.
To realize the deferred tax assets (net of valuation
allowance) related to net operating loss carryforwards and
other temporary differences the Company must generate future
taxable income of approximately $2,680,000. The net operating
loss carryforwards expire in fiscal 2006 through 2008.
Based upon the expectations of future taxable income,
management believes that it is more likely than not that the
net deferred tax assets totaling $1,072,000 will be realized.
As noted above, a valuation allowance has been established
totaling $1,156,000 based on management's judgments including
the risks inherent in relying solely on the prospects for
future taxable income.
Following is a summary of the Company's approximate pretax
book income and taxable income for the past three years
(000's):
1996 1995 1994
------ ------ ------
Pretax book income $1,710 $1,302 $ 706
Taxable income 762 4,528 292
The differences between pretax book income and taxable income
for the last three years consist mainly of non deductible
goodwill amortization and the change in certain reserves that
are not currently deductible for income tax purposes such as
the provision for uncollectible accounts receivable. The
increase in taxable income for fiscal 1995 is due to
transactions entered into by the Company and Columbia/HCA with
respect to the sale of certain certificates of need to provide
nursing services in two markets and the non-tax deductible
status of related goodwill.
Although the Company has experienced losses in the past,
management believes that the Company will be able to realize
its recorded deferred tax assets. The Company's ability to
generate the expected amounts of taxable income from future
operations is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation
and regulation at all levels of government. There can be no
assurances that the Company will meet its expectations of
future taxable income. However, management has considered the
above factors in reaching its conclusions that it is more
likely than not that future taxable income will be sufficient
to fully utilize the deferred tax assets net of the valuation
allowance as of March 31, 1996.
Fiscal Year Ended March 31, 1995 Compared With Fiscal Year Ended
March 31, 1994
Caretenders Health Corp.
Operating Data
for the Years Ended March 31,
(amounts in thousands)
1 9 9 5 1 9 9 4 Change
----------------- ---------------- ---------------
% of % of
Amount Revenues Amount Revenues Amount %
-------- -------- ------- -------- ------ ------
Net Revenues
Home Health Care $50,330 82.7% $43,352 85.2% $6,978 16.1%
Adult Day Health
Services 10,506 17.3% 7,505 14.8% 3,001 40.0%
-------- -------- ------- -------- ------ ------
60,836 100.0% 50,857 100.0% 9,979 19.6%
-------- -------- ------- -------- ------ ------
Cost of Sales and
Services
Home Health Care 40,246 80.0% 35,408 81.7% 4,838 13.7%
Adult Day Health
Services 7,986 76.0% 5,718 76.2% 2,268 39.7%
-------- -------- ------- -------- ------ ------
48,232 79.3% 41,126 80.9% 7,106 17.3%
-------- -------- ------- -------- ------ ------
Center Contribution
Home Health Care 10,084 20.0% 7,944 18.3% 2,140 26.9%
Adult Day Health
Services 2,520 24.0% 1,787 23.8% 733 41.0%
-------- -------- ------- -------- ------ ------
12,604 20.7% 9,731 19.1% 2,873 29.5%
-------- -------- ------- -------- ------ ------
Selling, General &
Administrative 6,642 10.9% 5,198 10.2% 1,444 27.8%
Provision for
Uncollectible 1,689 2.8% 1,260 2.5% 429 34.0%
Accounts
Depreciation and
Amortization 2,300 3.8% 2,004 3.9% 296 14.8%
Interest and Other, 671 1.1% 563 1.1% 108 19.2%
Net -------- -------- ------- -------- ------ ------
Income Before Taxes $1,302 2.1% $ 706 1.4% $ 596 84.4%
======== ======== ======= ======== ====== ======
Overall. As more fully described below, the Company
believes the improvement in operating results is attributable
to its aggressive marketing techniques, horizontal integration
of service lines in existing markets and resulting economies of
scale both operationally and administratively.
Home Health Care Net Revenues. Net revenue increases
in the Company's existing markets were primarily the result of
increased volume for nursing services and infusion therapies
offset partially by decreased reimbursement for providing
certain infusion therapies. Nursing volumes increased 31% and
average net revenue per unit increased 20% while infusion
volumes increased 46% with a decrease in average net revenue
per unit of 11% due to competitive industry pressures on
pricing. Respiratory Therapy/Home Medical Equipment revenues
increased principally as a result of expansion of this service
line into the Louisville and Lexington, Kentucky markets.
Net revenues for 1995 and 1994 included $4,466,000 and
$10,189,000 respectively related to operations sold during
1995. Contribution continues to be generated from these
operations under management contracts.
Home Health Care Cost of Sales and Services. Cost of
sales and services as a percent of net revenues decreased
primarily as a result of improved volumes in all markets.
Adult Day Health Services Net Revenues. The increase
of $3.0 million in adult day care revenues is attributable to
the opening of 2 new centers, the expansion of 2 others and a
rate increase of approximately 5.0% throughout all the
centers. Total days of service provided increased 32.5% from
142,277 in 1994 to 188,480 in 1995. As of March 31, 1995, the
Company had 13 centers in operation.
Adult Day Health Services Cost of Sales and Services.
As a percent of net revenues, cost of sales and services
improved as a result of improved operations in mature centers
partially offset by the impact of initial operating losses
from the development of new centers. The Company's new centers
typically take from 12 to 15 months to reach break-even. The
Company's two newest centers generated net revenues of
$215,000 and losses of ($238,000).
Selling, General and Administrative. The increase of
$1.4 million is due primarily to increased staffing in adult
day care and other overhead expenses in preparation for
expansion. These costs remained stable as a percent of sales.
Provision for Uncollectible Accounts. The provision
for uncollectible accounts for the year ended March 31, 1995
was recorded based on management's evaluation of
collectibility.
Depreciation and Amortization. The increase of
$296,000 results primarily from additions of approximately
$1.2 million of property and equipment.
Interest and Other, Net. The increase in interest
and other, net is primarily the result of the higher average
outstanding debt levels and higher interest rates. The
Company's outstanding debt is higher as a result of larger
investments in accounts receivable and property and equipment
related to revenue growth while rates have increased due to
increases in the prime rate.
Liquidity and Capital Resources
Revolving Credit Facility
On October 13, 1995, the Company expanded its revolving credit
facility with the Healthcare Financial Services Division of Heller
Financial, Inc. from $7.5 million to $12 million. At the same time
the interest rate was reduced to 1 percent over prime from 1.5
percent over prime and advance rates on working capital were
expanded. Availability is determined pursuant to a formula
principally consisting of a percentage of accounts receivable
subject to certain exclusions. At March 31, 1996, the Company has
total cash and unused borrowings of approximately $7.6 million. The
facility will remain in effect until October 13, 1998 and for annual
one year terms thereafter unless either party to the credit
agreement provides the other with a written notice of termination 60
days prior to the renewal date.
This facility should provide working capital resources sufficient to
support operations. However, management will continue to pursue
additional capital including possibly debt and equity investments in
the Company to support a more rapid development of the business than
would be possible with internal funds
Cash Flows
Key elements to the Consolidated Statements of Cash Flows
were (in thousands):
Net Change in Cash
and CashEquivalents 1996 1995 1994
- ---------------------- -------- --------- --------
Provided by (used in)
Operating activities $ 1,817 $ (1,803) $ 570
Investing activities (993) 1,721 (813)
Financing activities (528) (1,169) 20
Net Change in Cash -------- --------- --------
and Cash Equivalents $ 296 $ (1,251) $ (223)
======== ========= ========
1996
Net cash provided by operating activities of approximately $1.8
million resulted principally from current period earnings net of
changes in accounts receivable and accounts payable and accrued
expenses. Net cash used in investing activities of approximately
$993,000 resulted principally from capital expenditures. Net cash
used in financing activities of approximately $528,000 resulted
primarily from principal payments on term debt and capital leases.
1995
Net cash used in operating activities of approximately $1.8
million resulted principally from current period earnings offset
by increases in accounts receivable caused by revenue growth of
20% and longer payment cycles for some payors. Net cash provided
from investing activities resulted principally from the proceeds
from the sale of certain business offset by capital expenditures.
Net cash used in financing activities resulted primarily from
principal payments on term debt and capital leases. The Company
received proceeds of approximately $2.5 million from the
disposition of business units during 1995 which was used largely
to fund capital expenditures and working capital associated with
the Company's growth.
1994
Net cash provided by operating activities of approximately
$570,000 resulted from earnings net of changes in accounts
receivable and accounts payable and accrued expenses.
Approximately $813,000 was used in investing activities resulting
principally from proceeds from sale of business ($1.2 million) net
of capital expenditures of $2.1 million.
Health Care Reform
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention.
In recent years, an increasing number of legislative proposals have
been introduced or proposed in Congress and in some state
legislatures that would effect major changes in the health care
system, either nationally or at the state level. Among the
proposals under consideration are cost controls, insurance market
reforms, requirements that all businesses offer health insurance
coverage to their employees and the creation of a single government
health insurance plan that would cover all citizens. The costs of
certain proposals would be funded in significant part by reductions
in payments by governmental programs, including Medicare and
Medicaid, to health care providers. The Company cannot predict
whether any of the above proposals or any other proposals will be
adopted, and if adopted, no assurance can be given that the
implementation of such reforms will not have a material effect on
the business of the Company.
Impact of Inflation
Management does not believe that inflation has had a material effect
on income during the past several years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31,
1996 1995 1994
----------- ----------- -----------
Net revenues $63,226,968 $60,836,495 $50,857,321
Cost of sales and services 48,729,847 48,231,522 41,126,283
Selling, general and administrative
expenses 8,438,050 6,641,921 5,198,496
Depreciation and amortization expense 2,057,092 2,300,034 2,003,745
Provision for uncollectible accounts 1,668,844 1,688,521 1,259,749
Income before interest and other
expense) and provision for ----------- ----------- -----------
income taxes 2,333,135 1,974,497 1,269,048
Interest expense, net (622,852) (770,294) (571,628)
Other income and expense, net - 97,500 8,751
----------- ----------- -----------
Income before provision for income
taxes 1,710,283 1,301,703 706,171
Provision for income taxes 135,000 54,041 79,000
----------- ----------- -----------
Net income $1,575,283 $1,247,662 $627,171
=========== =========== ===========
PER SHARE:
Weighted average common and common
equivalent shares outstanding 3,148,707 3,144,518 3,153,458
Net income per common and common ----------- ----------- -----------
equivalent share $0.50 $0.40 $0.20
=========== =========== ===========
Net income per common share - ----------- ----------- -----------
assuming full dilution $0.50 $0.40 $0.20
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, March 31,
1996 1995
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $ 1,561,041 $ 1,264,775
Accounts receivable - net of allowance
for uncollectible accounts of
approximately $2,900,000 in
1996 and 1995 17,197,400 15,277,812
Prepaid expenses and other current
assets 1,487,876 935,997
Deferred tax assets 1,105,000 813,000
----------- -----------
TOTAL CURRENT ASSETS 21,351,317 18,291,584
PROPERTY AND EQUIPMENT - net 3,981,934 4,677,321
COST IN EXCESS OF NET ASSETS ACQUIRED -
net of accumulated amortization of
approximately $1,190,000 and
$990,000, respectively 7,005,232 7,203,706
OTHER ASSETS 878,351 900,178
----------- -----------
$33,216,834 $31,072,789
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,306,484 $ 3,433,691
Accrued salaries, commissions,
benefits and other expenses 3,661,967 2,507,421
Current portion of term debt and
capitallease obligations 432,329 609,436
Other current liabilities 106,986 100,000
----------- -----------
TOTAL CURRENT LIABILITIES 7,507,766 6,650,548
LONG-TERM LIABILITIES:
Revolving credit facility 5,851,708 5,771,502
Term debt and capital lease
obligations 321,839 632,335
Other liabilities 631,619 689,785
----------- -----------
TOTAL LONG-TERM LIABILITIES 6,805,166 7,093,622
----------- -----------
TOTAL LIABILITIES 14,312,932 13,744,170
=========== ===========
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, par value $.10;
10,000,000 shares authorized;
3,129,436 issued and outstanding 312,944 312,944
issued and outstanding
Treasury stock, at cost, 10,000
shares (95,975) (95,975)
Additional paid-in capital 25,337,876 25,337,876
Accumulated deficit (6,650,943) (8,226,226)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 18,903,902 17,328,619
----------- -----------
$33,216,834 $31,072,789
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995, and 1994
Convertible Voting Preferred Stockholders' Equity
------------------------------------------------
Preferred Stock Additional
---------------- Paid-in
Shares Amount Capital Total
------- ------- ---------- ----------
Balance, March 31, 1993 748,501 $37,425 $6,506,372 $6,543,797
Net Income - - - -
------- ------- ---------- ----------
Balance, March 31, 1994 748,501 $37,425 $6,506,372 $6,543,797
Coversion of Peferred to
Common (748,501) ($37,425) ($6,506,372) ($6,543,797)
Excercised or expired
Options - - - -
Net Income - - - -
------- ------- ---------- ----------
Balance, March 31, 1995 - - - -
Net Income - - - -
------- ------- ---------- ----------
Balance, March 31, 1996 - - - -
======= ======= ========== ==========
Common Stockholders' Equity
---------------------------------------------------------------------------------------
Common Stock Treasury Stock Additional Total
-------------------- -------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Total Equity
--------- -------- ------ ----------- ------------- ------------- ----------- ------------
Balance, March 31, 1993 2,380,155 $238,016 10,000 ($95,975) $18,863,001 ($10,101,059) $8,903,983 $15,447,780
Net Income - - - - - 627,171 627,171 627,171
--------- -------- ------ ----------- ------------- ------------- ----------- ------------
Balance, March 31, 1994 2,380,155 $238,016 10,000 ($95,975) $18,863,001 ($ 9,473,888) $9,531,154 $16,074,951
Coversion of Peferred to
Common 748,501 74,850 - - 6,468,947 - 6,543,797 $16,074,951
Excercised or expired
Options 780 78 - - 5,928 - 6,006 6,006
Net Income - - - - - 1,247,662 1,247,662 1,247,662
--------- -------- ------ ----------- ------------- ------------- ----------- ------------
Balance, March 31, 1995 3,129,436 $312,944 10,000 ($95,975) $25,337,876 ($8,226,226) $17,328,619 $17,328,619
Net Income - - - - - 1,575,283 1,575,283 1,575,283
--------- -------- ------ ----------- ------------- ------------- ----------- -------------
Balance, March 31, 1996 3,129,436 $312,944 10,000 ($95,975) $25,337,876 ($6,650,943) $18,903,902 $18,903,902
========= ======== ====== =========== ============= ============= =========== =============
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
1996 1995 1994
---------- ---------- ----------
Cash flows from operating activities:
Net income $1,575,283 $1,247,662 $ 627,171
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Gain on sale of assets - (97,500) -
Depreciation and amortization 2,057,092 2,300,034 2,003,745
Deferred income tax benefit (492,000) (580,000) -
Provision for uncollectible
accounts 1,668,844 1,688,521 1,259,749
Other - - 79,545
---------- ---------- ----------
4,809,219 4,558,717 3,970,210
Change in certain net current assets
(Increase) decrease in:
Accounts receivable (3,588,432)(5,627,953)(4,307,023)
Inventories (90,185) (11,364) 106,328
Prepaid expenses and other
current assets (461,694) 5,018 218,384
Increase (decrease) in:
Accounts payable and accrued
expenses 999,625 (661,316) 1,328,334
Other liabilities 148,820 (65,517) (746,623)
Net cash provided by (used in) ---------- ---------- ----------
operating activities 1,817,353 (1,802,415) 569,610
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of businesses - 2,474,434 1,225,000
Capital expenditures (1,015,161)(1,222,781)(2,143,034)
Other assets 21,827 469,027 105,428
Net cash (used in) provided by ---------- ---------- ----------
investing activities (993,334) 1,720,680 (812,606)
---------- ---------- ----------
Cash flows from financing activities:
Principal payments on term debt and
capital leases (607,959)(1,167,243) (765,386)
Issuance of term debt and capital
leases - 35,396 785,201
Net revolving credit facility
borrowings (repayments) 80,206 (43,498) -
Other - 6,006 -
Net cash (used in) provided by ---------- ---------- ----------
financing activities (527,753)(1,169,339) 19,815
---------- ---------- ----------
Net increase (decrease) in cash 296,266 (1,251,074) (223,181)
Cash and cash equivalents at beginning
of year 1,264,775 2,515,849 2,739,030
---------- ---------- ----------
Cash and cash equivalents at end of year $1,561,041 $1,264,775 $2,515,849
========== ========== ==========
Supplemental Information
Cash paid for interest $611,000 $736,000 $597,000
========== ========== ==========
Cash paid for income taxes $671,000 $93,700 $31,000
========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of
Caretenders Health Corp. and its wholly-owned subsidiaries ("the
Company"). The Company provides adult day health services and home
health care services to individuals in Kentucky, Indiana, Alabama,
Massachusetts, Virginia, Connecticut and Maryland. All material
intercompany transactions and accounts have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Non-cash acquisition of capital assets via assumption of debt of
approximately $120,000 was excluded from the accompanying statement of
cash flows for the year ended March 31, 1996.
Uninsured deposits at March 31, 1996, and 1995 were approximately
$1,561,000 and $1,265,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives. The
estimated useful lives of depreciable assets are as follows:
Estimated
Useful Life
Building and Leasehold Improvements 5 - 30
Medical and Office Equipment 3 - 8
Transportation and Other Equipment 3 - 5
Included in Property and Equipment is rental equipment which may be
sold. Upon sale, the cost net of related accumulated depreciation is
charged to costs of sales and services.
COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS
The costs in excess of fair value of net assets acquired and other
intangible assets principally consisting of licenses and covenants not
to compete, which are included in other assets on the accompanying
balance sheets, are stated at cost and amortized on a straight-line
basis over their estimated useful lives which range from 2 to 40 years.
Subsequent to its acquisitions, the Company evaluates whether later
events and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. At March 31,
1996, no such events or circumstances existed warranting such revisions
to the lives or recorded amounts of recorded goodwill. When factors
indicate that goodwill should be evaluated for possible impairment, the
Company will utilize appropriate methods (such as undiscounted cash
flows over the remaining life of the goodwill), in measuring whether
the goodwill is recoverable.
CAPITALIZATION POLICIES
Maintenance, repairs and minor replacements are charged to expense as
incurred. Major renovations and replacements are capitalized to
appropriate property and equipment accounts. Upon sale or retirement
of property, the cost and related accumulated depreciation are
eliminated from the accounts and the related gain or loss is recognized
in income.
Construction costs incurred to ready a project for its intended use are
capitalized for major development projects and are amortized over the
lives of the related assets. Pre-opening costs related to the start up
of new operations and facilities are deferred and amortized over two
years beginning with commencement of operations.
NET REVENUES
Approximately 55%, 57%, and 74%, of net revenues for the fiscal years
ended March 31, 1996, 1995, and 1994, respectively, were derived under
federal and state third-party reimbursement programs. These revenues
are based, in part, on cost reimbursement principles and are subject
to examination and retroactive adjustment by agencies administering
the programs. Management continuously evaluates the outcome of these
reimbursement examinations and provides allowances for losses based
upon the best available information. In the opinion of management,
adjustments, if any, would not be material to the financial position or
the results of operations of the Company.
NET INCOME/LOSS PER SHARE
Net income per common and common equivalent share is computed based on
the weighted average number of common shares and common equivalent
shares outstanding. Common equivalent shares result from dilutive
stock options, warrants, and convertible preferred stock.
REVERSE STOCK SPLIT
On March 22, 1995, the shareholders approved and implemented a one (1)
for five (5) reverse stock split. Simultaneously, the par value per
common share changed from $.02 per share to $.10. Share and per share
information have been restated for all periods presented to reflect
this reverse stock split.
HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET CONDITIONS
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. In
recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that
would effect major changes in the health care system, either nationally
or at the state level. Among the proposals under consideration are
cost controls, insurance market reforms, requirements that all
businesses offer health insurance coverage to their employees and the
creation of a single government health insurance plan that would cover
all citizens. The costs of certain proposals would be funded in
significant part by reductions in payments by governmental programs,
including Medicare and Medicaid, to health care providers. The Company
cannot predict whether any of the above proposals or any other
proposals will be adopted, and if adopted, no assurance can be given
that the implementation of such reforms will not have a material effect
on the business of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reported period. Actual results could differ from
those estimates.
FINANCIAL STATEMENT RECLASSIFICATIONS
Certain amounts have been reclassified in the 1995 and 1994 financial
statements in order to conform to the 1996 presentation. Such
reclassifications had no effect on previously reported net income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts
receivable and payable and debt instruments. The book values of cash
and accounts receivable and payable are considered representative of
their respective fair values. The fair value of the Company's debt
instruments approximate their carrying values as substantially all of
such debt has rates which fluctuate with changes in market rates.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", effective for fiscal years beginning after December 15,
1995. The Company will adopt SFAS No. 121 in fiscal year ending March
31, 1997 and does not expect adoption to have a material impact on the
Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation", which is also effective for fiscal years beginning
after December 15, 1995. The standard encourages but does not require
companies to measure and record as compensation expense the fair market
value of stock-based compensation granted to employees. The standard
permits companies electing not to record the compensation expense for
these arrangements to provide disclosure of the impact to net income as
if the compensation had been recorded. The Company will adopt SFAS No.
123 in the fiscal year ending March 31, 1997.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases,
consist of the following:
March 31, March 31,
1996 1995
---------- ----------
Buildings and improvements $ 301,663 $ 301,663
Leasehold improvements 1,301,521 1,101,350
Medical equipment 4,143,983 4,018,596
Office and other equipment 3,260,092 2,527,203
Transportation equipment 1,825,866 1,904,733
---------- ----------
10,833,125 9,853,545
Less accumulated depreciation (6,851,191) (5,176,224)
---------- ----------
$3,981,934 $4,677,321
========== ==========
Property and equipment acquired under capital leases consists
principally of transportation, and office and other equipment, of $2.7
million and $2.6 million at March 31, 1996 and 1995, respectively
against which obligations of approximately $434,000 and $825,000 were
outstanding at those dates.
Depreciation expense was approximately $1.8, $1.7, and $1.4 million
for the fiscal periods ended March 31, 1996, 1995, and 1994,
respectively.
NOTE 3 - REVOLVING CREDIT FACILITY
On October 13, 1995, the Company expanded its revolving credit facility
with the Healthcare Financial Services Division of Heller Financial,
Inc. from $7.5 million to $12 million. At the same time the interest
rate was reduced to 1 percent over prime from 1.5 percent over prime
and advance rates on working capital collateral were expanded.
Availability is determined pursuant to a formula principally consisting
of a percentage of accounts receivable subject to certain exclusions,
as defined. The facility is collaterialized by accounts receivable,
inventory and a lien on the stock of the Company's subsidiaries.
Approximately $12 million was available under the formula on March 31,
1996. The balance outstanding as of March 31, 1996 was approximately
$5.9 million. The credit agreement contains certain restrictive
covenants. The facility will remain in effect until October 13, 1998
and for annual one year terms thereafter unless either party to the
credit agreement provides the other with a written notice of
termination 60 days prior to the renewal date.
NOTE 4 - TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Term debt and capital lease obligation borrowings consist of the
following:
March 31, March 31,
1996 1995
------------ ------------
Lease obligations and secured
notes payable, interest rates
ranging from 8% to 14%, due in
monthly or quarterly interest and
principal payments, maturing at $ 322,510 $ 677,609
various dates through 1997.
Collateralized by equipment.
Promissory note, bearing interest
at 10%, payable in 36 monthly
installments of $7,177, including
interest, final principal payment
of $154,248 due 1996. 168,785 225,824
Collateralized by inventory,
equipment, and intangible assets.
Mortgage payable, bearing
interest at 10.375%, due in
monthly installments of $1,811,
including interest. 93,838 104,067
Collateralized by an office
condominium with a book value of
$234,000.
Secured note payable, interest
rate prime plus 1%, payable in 16
quarterly principal and interest 7,709 44,651
payments of $9,063, balance due
1996.
The Company leases certain
transportation and other
equipment under capital leases 161,326 189,620
expiring at various dates through
1998.
754,168 1,241,771
------------ ------------
Less current portion (432,329) (609,436)
------------ ------------
Non-current obligations $ 321,839 $ 632,335
============ ============
As of March 31, 1996, future net minimum lease payments under capital
leases and maturities of term debt are as follows:
Capital Long-term
Leases Debt
------------ -----------
1997 $ 365,522 $ 117,205
1998 183,201 97,477
1999 1,549 14,274
2000 - 17,193
2001 - 17,193
Thereafter - 16,454
------------ -----------
Total minimum lease payments and
maturities 550,272 $ 279,796
Less amount representing interest (75,900) ===========
Present value of minimum lease ------------
payments 474,372
Less current portion (315,124)
Long-term portion of capital ------------
lease obligations $ 159,248
============
NOTE 5 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109) effective April 1,
1993. SFAS 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the difference between the Company's book and tax bases of assets
and liabilities and tax carryforwards using enacted tax rates in effect
for the year in which the differences are expected to reverse. The
principal tax carryforwards and temporary differences giving rise to
the Company's deferred taxes consist of tax net operating loss
carryforwards, differences in book and tax accounting for depreciation,
bonuses, compensated absences, deferred compensation, and allowance for
uncollectible accounts.
The Company's deferred tax assets and liabilities were as follows:
March 31, March 31, March 31,
1996 1995 1994
------------ ------------ -----------
Deferred tax assets:
Nondeductible reserves
and allowances $1,941,000 $1,871,000 $1,427,000
Net operating loss
carryforwards 340,000 854,000 2,208,000
AMT Credit 120,000 90,000 -
------------ ------------ -----------
2,401,000 2,815,000 3,635,000
------------ ------------ -----------
Valuation allowance (1,156,000) (1,780,000) (3,302,000)
------------ ------------ -----------
$1,245,000 $1,035,000 $ 333,000
============ ============ ===========
Deferred tax liabilities:
Accelerated depreciation
and other $ 173,000 $ 455,000 $ 333,000
------------ ------------ -----------
$ 173,000 $ 455,000 $ 333,000
------------ ------------ -----------
Net deferred tax assets $1,072,000 $ 580,000 $ -
============ ============ ===========
A valuation allowance is provided when the probability that the
deferred tax asset to be realized does not meet the criteria
established by the Financial Accounting Standards Board. The Company
has determined, based on its history of operating earnings and its
expectations for the future, that it is more likely than not that the
net deferred tax assets at March 31, 1996 will be realized. During the
year ended March 31, 1995, the Company utilized a subsidiary's pre-
acquisition net operating loss carryforward of approximately $1.4
million. The reduction in the valuation allowance attributable to the
tax benefits of these loss carryforwards reduced goodwill by
approximately $474,000.
Provision for income taxes consist of the following:
Year Ended March 31,
1996 1995 1994
--------- --------- ---------
Federal $ 30,000 $ 90,000 $ 24,000
State and local 135,000 242,000 55,000
Deferred (30,000) (277,959) -
--------- --------- ---------
$135,000 $ 54,041 $ 79,000
========= ========= =========
The current federal income tax provision of $30,000 for the year ended
March 31, 1996 is net of an approximate $514,000 tax benefit from the
utilization of operating loss carryforwards.
As of March 31, 1996, the Company had a federal net operating loss
carryforward of approximately $1,000,000 expiring in 2006 through 2008.
In addition, the Company has Alternative Minimum Tax (AMT) credit
carryforwards of approximately $120,000 which have an unlimited
carryforward period.
A reconciliation of the statutory to the effective rate of the Company
is as follows:
March 31, 1996 March 31, 1995 March 31, 1994
-------------- -------------- --------------
Tax provision using statutory rate $ 555,900 $ 442,600 $ 240,100
Goodwill 71,400 451,600 86,900
Valuation Allowance and other (624,000) (1,048,000) (303,100)
State and local taxes, net of
federal benefit 89,100 159,700 36,000
Other, net 42,600 48,141 19,100
-------------- -------------- --------------
$ 135,000 $ 54,041 $ 79,000
============== ============== ==============
NOTE 6 - STOCK OPTIONS AND WARRANTS
(a) Employee Stock Option Plans
1. The Company has a Nonqualified Stock Option Plan which provides
for the granting of options to key employees, officers, and directors,
to purchase 220,000 shares of the Company's common stock. The Board of
Directors will determine the amount and terms of the options which
cannot exceed ten years.
2. The Company has an Incentive Stock Option Plan providing key
employees, officers, and directors, options to purchase 80,000 shares
of the Company's common stock. Generally, these options expire ten
years after the date of grant, while options held by individuals owning
more than 10% of the Company's common stock expire after five years.
The option price cannot be less than the fair market price of the
common stock at the date granted and the options are not exercisable
during the first year.
3. The Company has a Supplemental Nonqualified Stock Option Plan
which provides options for the purchase of 40,000 shares of the
Company's common stock to key employees and non-employee consultants.
The Board of Directors will determine the amount and terms of the
options, which cannot exceed ten years.
4. The Company has a 1991 Long-term Incentive Nonqualified Stock
Option Plan which provides options to purchase 500,000 shares of the
Company's common stock to key employees, officers, and directors. The
Board of Directors will determine the amount and terms of the options,
which cannot exceed ten years.
5. The Company has a 1993 Stock Option Plan for Non-employee
Directors which provides options to purchase up to 120,000 shares of
the Company's common stock to directors who are not employees. Each
newly elected director or any director who does not possess options to
purchase 10,000 shares of the Company's common stock will automatically
be granted options to purchase 10,000 shares of common stock at an
exercise price based on the market price as of the date of grant.
(b) National Acquisition
In conjunction with the acquisition of National Health Industries, Inc.
(National), the Company issued 87,035 options to purchase the Company's
common stock at a price ranging from $1.95 to $7.70 per share. These
options are covered under the Nonqualified Stock Option Plan and the
Incentive Stock Option Plan described in Note 6(a), above. These
options were included in the determination of the purchase price paid
to acquire National at their fair value as determined by management
based on exercise price, terms, the Company's stock price and other
factors.
(c) Debt Redemption
In connection with the redemption of the HEALTHSOUTH debt and minority
interest in a consolidated subsidiary, the Company issued warrants to
purchase 66,600 shares of convertible preferred stock at a price of
$10.65 per share. The warrants expire on December 31, 1999. See Note
8.
Changes in qualified options, non-qualified options, and supplemental
non-qualified options and warrants outstanding are summarized as
follows:
Warrants Options
---------------------- ----------------------
Exercise Exercise
Shares Price Shares Price
------- ------------- ------- ------------
March 31, 1993 186,600 $10.65-$17.50 535,920 $1.95-$33.75
Granted 85,000 $12.50 36,700 $8.75-$9.69
Exercised - -
Terminated - 15,400 $9.38-$33.75
------- -------
March 31, 1994 271,600 $10.65-$17.50 557,220 $1.95-$33.75
Granted 15,000 51,600 $7.50-$9.69
Exercised - 780 $7.70
Terminated - 56,460 $7.50-$16.90
------- -------
March 31, 1995 286,600 $10.65-$17.50 551,580 $1.95-$33.75
Granted - 135,000 $5.88-$7.88
Exercised - -
Terminated - 163,280 $1.95-$31.25
------- -------
March 31, 1996 286,600 $10.65-$17.50 523,300 $1.95-$20.00
======= =======
At March 31, 1996, 404,225 options and 286,600 warrants were exercisable.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases certain real estate, office space, and equipment
under noncancellable operating leases expiring at various dates
through 2001. Rent expense amounted to approximately $2,496,000,
$2,357,000, and $1,705,000 for 1996, 1995, and 1994, respectively. At
March 31, 1996 the minimum rental payments under these leases are as
follows:
1997 2,045,000
1998 1,739,000
1999 1,288,000
2000 903,000
2001 732,000
(b) Employment Contracts
The Company has entered into an employment contract with an officer.
In connection with this contract, the Company is contractually
obligated to pay an annual base salary of $190,000 for three years. In
addition, the agreement contains contingent obligations associated with
performance bonuses and severance.
(c) Medical Malpractice Claims
The Company has insurance coverage with respect to medical
malpractice risks. The malpractice insurance coverage provides
coverage up to $1,000,000 per occurrence, and has no deductible for
which the Company would be responsible.
It is the Company's policy to record losses from asserted and
unasserted claims identified by the Company and unreported claims based
on estimates that incorporate the Company's past experience, as well as
other considerations including the nature of each claim or incident and
relevant trend factors. Based on these factors and the Company's
insurance coverage, no accrual for potential losses attributable to
asserted and unasserted claims has been recorded in the accompanying
financial statements.
(d) Legal Proceedings
The Company is currently, and from time to time, subject to claims and
suits arising in the ordinary course of its business, including claims
for damages for personal injuries. In the opinion of management, the
ultimate resolution of any of these pending claims and legal
proceedings will not have a material effect on the Company's financial
position or results of operations.
On January 26, 1994 Franklin Capital Associates and Aetna Life and
Casualty, shareholders, who at one time held approximately 320,000
shares of the Company's common stock (approximately 13% of shares
outstanding) filed suit in Chancery Court of Williamson County,
Tennessee claiming unspecified damages not to exceed three million
dollars in connection with registration rights they received in the
Company's acquisition of National Health Industries in February 1991.
The suit alleges the Company failed to use its best efforts to register
the shares held by the plaintiffs as required by the merger agreement.
The Company believes it has meritorious defenses to the claims and does
not expect that the ultimate outcome of the suit will have a material
impact on the Company's results of operation or financial position. The
Company plans to vigorously defend its position in this case. No
amounts have been recorded in the accompanying financial statements
related to this suit.
NOTE 8 - VOTING CONVERTIBLE PREFERRED STOCK
In December 1991 the Company issued 748,501 shares of voting
convertible preferred stock and warrants for 66,600 shares of voting
convertible preferred stock to HEALTHSOUTH Rehabilitation Corporation
(HEALTHSOUTH) in return for 19% of one of the Company's subsidiary's
stock owned by HEALTHSOUTH and cancellation of $5,515,196 of notes
payable due HEALTHSOUTH.
On September 30, 1994, HEALTHSOUTH converted its shares of the
Company's Series A voting convertible preferred stock into the same
number of common shares. Non-cash aspects of this transaction have
been excluded from the accompanying statement of cash flows.
NOTE 9 - RELATED PARTY TRANSACTIONS AND BALANCES
The Company has an agreement with HEALTHSOUTH under which HEALTHSOUTH
purchases certain durable medical equipment and prosthetic and
orthotic appliances (to fill HEALTHSOUTH's normal business requirements
of such items)from the Company. During the years ended March 31, 1996,
1995 and 1994, the Company realized sales of $84,000, $391,000 and
$503,000 to HEALTHSOUTH, respectively, at terms the Company normally
offers its customers. The outstanding receivable from HEALTHSOUTH
was $17,000 and $109,000 as of March 31, 1996 and 1995.
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for years ended March 31, 1995
and 1996 are as follows (in thousands expect per share data):
1996 1995
----------------------------------- ----------------------------------
First Second Third Fourth First Second Third Fourth
------- ------- ------- ------- ------- ------- ------- -------
Net Revenues $14,969 $15,999 $16,228 $16,031 $15,461 $14,836 $15,006 $15,533
Gross Profit 3,392 3,682 3,821 3,574 2,843 3,200 3,094 3,468
Net Income 362 456 507 250 359 281 299 309
Per Share $0.12 $0.15 $0.16 $0.07 $0.11 $0.09 $0.10 $0.10
NOTE 11 - SALE OF ASSETS
On June 3, 1994, the Company entered into a strategic arrangement
with Columbia/HCA Healthcare Corporation, under which Columbia
acquired one of the Company's two Louisville Certificates of Need
for nursing services and hired the Company to manage the operations
under the certificate for five years. The transaction provided the
Company with an infusion of approximately $1.8 million in cash
(after transaction costs). On February 18, 1995, the Company
entered into another arrangement with Columbia, under which Columbia
acquired the Company's Certificate of Need license to provide
nursing services to patients in eight counties in the Elizabethtown,
Kentucky area and hired the Company to manage the operations until
the year 2000. This transaction provided the Company with
approximately $550,000 in cash. Simultaneously the Louisville
agency management agreement was extended for one year.
Report of Independent Public Accountants
To Board of Directors and Stockholders of Caretenders Health Corp.:
We have audited the accompanying consolidated balance sheets of
Caretenders Health Corp. (a Delaware corporation) and subsidiaries as
of March 31, 1996 and 1995 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Caretenders
Health Corp. and subsidiaries as of March 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended March 31, 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
May 23, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth the Registrants
definitive proxy materials of the Company to be filed with the
Commission no later than 120 days after March 31, 1996, except for
the information regarding executive officers of the Company, which
is contained in Item 1 of Part I report. The information required by
this Item contained in such definitive proxy materials is
incorporated herein by reference.
The following table sets forth certain information with respect to
the Company's directors and executive officers.
Name Age Position with the Company
- --------------------------------------------------------------------------
William B. Yarmuth (1) 44 Chairman of the Board, President
and Chief Executive Officer
C. Steven Guenthner (2) 35 Senior Vice President and
Chief Financial Officer
Mary A. Yarmuth (3) 49 Senior Vice
President-Operations
JoAnn Young (4) 46 Vice President-Operations
William Elder (5) 51 Vice President-Operations
W. Timothy Luckett (6) 40 Vice President-Human Resources
Helen Simms (7) 39 Vice President-Operations
Anne Liechty (8) 44 Vice President-Operations
Tim Hoagland (9) 35 Vice President-Operations
Steven B. Bing (10) 49 Director
Patrick B. McGinnis (11) 49 Director
Donald G. McClinton (12) 62 Director
Tyree Wilburn (13) 44 Director
Executive officers of the Company are elected by the Board of
Directors for one year and serve at the pleasure of the Board of
Directors with the exception of William B. Yarmuth who has an
employment agreement with the Company. See Item 11 -- William B.
Yarmuth Employment Agreement. Mary A. Yarmuth is married to William
B. Yarmuth. There are no other family relationships between any
director or executive officer.
Each Director is elected to hold office until the next annual
meeting of stockholders and until a successor is elected and
qualified.
(1) William B. Yarmuth has been a director of the Company since
1991, when the Company acquired National, where Mr. Yarmuth was
Chairman, President and Chief Executive Officer. After the
acquisition, Mr. Yarmuth became the President and Chief
Operating Officer of the Company. Mr. Yarmuth became Chairman
and CEO in 1992. He was Chairman of the Board, President and
Chief Executive Officer of National from 1981 to 1991.
(2) C. Steven Guenthner has been Senior Vice President and Chief
Financial Officer of the Company since 1992. From 1983 through
1992 Mr. Guenthner was employed as a C.P.A. with Arthur
Andersen LLP. Prior to joining the Company he served as a
Senior Manager in the firm's Accounting and Audit division
specializing in mergers and acquisitions, public companies and
the healthcare industry.
(3) Mary A. Yarmuth has served as Senior Vice President of the
Company since 1991. From 1985 to 1991 Ms. Yarmuth served as
President of the Company's Nursing Division. Ms. Yarmuth
joined National in 1981.
(4) JoAnn Young has been a Vice President of the Company's adult
day health services division since 1990.
(5) William Elder has been a Vice President of the Company since
1994. From 1992 to 1994, he has served in the Company in the
adult day health services division.
(6) W. Timothy Luckett joined Caretenders Health Corp in November
1989 as the Director of Human Resources and became a Vice
President on April 1, 1994.
(7) Helen Simms has served as Vice President of the Company since
1991. From 1989 to 1991 she was Operations Manager for the
Company's Nursing Division.
(8) Anne Liechty has served as Vice President of the Company since
1992. From 1987 to 1992 she was the Company's Corporate
Nursing Infusion Manager.
(9) Tim Hoagland has served as Vice President of the Company since
1995. Prior to which he was the Company's Director of
Operations/Finance.
(10) Steven B. Bing was elected a Director in January 1992. Mr.
Bing is an employee of R. Gene Smith, Inc., a private
investment company located in Louisville, Kentucky. From 1989
to March 1992, Mr. Bing was President of ICH Corporation, an
insurance holding company. From 1984 to 1989, he served as
Senior Vice President of ICH Corporation.
(11) Patrick B. McGinnis was elected a director in October 1994.
Mr. McGinnis is the co-founder of Healthcare Recoveries, Inc.
and serves as the company's president and CEO. Healthcare
Recoveries, Inc. is a provider of subrogation and other claims
recovery services to the healthcare industry. From 1979 to
1988, Mr. McGinnis was Vice President-Finance and Planning for
Humana, Inc.
(12) Donald G. McClinton was elected a director in October 1994.
From 1986 to 1994, Mr. McClinton was co-chairman of Interlock
Industries, a privately held conglomerate in the metals and
transportation industries. He is also a director of Jewish
Hospital Systems, Inc., and Mid-America Bancorp.
(13) Tyree Wilburn was elected a director in January 1996. Mr.
Wilburn is Senior Vice President and Chief Financial Officer,
Acquisition and Development of Community Health Systems and has
served as its Chief Development Officer since 1992.
ITEMS 11, 12 AND 13. EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
The Registrant intends to file a definitive proxy statement with the
Commission pursuant to Regulation 14A (17 CFR 240.14a) not later
than 120 days after the close of the fiscal year covered by this
report. In accordance with General Instruction G(3) to Form 10-K,
the information called for by Items 11, 12 and 13 is incorporated
herein by reference to the definitive proxy statement. Neither the
report on Executive Compensation nor the performance graph included
in the Company's definitive proxy statement shall be deemed
incorporated herein by reference.
PART IV
Item 14. Exhibits and Financial Statement Schedules and Reports on
Form 8-K.
Page Number
(a)(1) Index to Consolidated Financial Statements
Consolidated Statements of Operations for the three years
ended March 31, 1996, 1995, and 1994 21
Consolidated Balance Sheets - March 31, 1996 and 1995 22
Consolidated Statements of Stockholders' Equity for
the three years ended March 31, 1996, 1995, and 1994 23
Consolidated Statements of Cash Flows for the three years
ended March 31, 1996, 1995, and 1994 24
Notes to Consolidated Financial Statements 25-36
Report of Independent Public Accountants 37
(a)(2) Index to Financial Statement Schedule
Report of Independent Public Accountants 46
Schedule II - Valuation and Qualifying Accounts S-1
All other Schedules have been omitted because they are either not
required, not applicable or, the information has otherwise been
supplied in the financial statements or notes thereto.
(a)(3) Exhibits (* denotes filed herein)
Exhibit
Number Description of Exhibit
3.1 Certificate of Incorporation, as amended
3.2 Amended and Restated By-laws
4.1 Credit Agreement by and between the Company and First
National Bank of Louisville and AmSouth Bank, N.A., and
HEALTHSOUTH Rehabilitation Corporation, as guarantor,
dated as of June 29, 1992 with exhibits (incorporated
by reference to Exhibit 10.88 to the Registrant's Form
S-1 Reg. 33-46565 dated April 23, 1993)
4.2 Medical Claims, Revolving Loan Agreement, Revolving
Credit Note and exhibits between the Company and Heller
Financial dated June 20, 1994
4.3 Other Debt Instruments -- copies of other debt
instruments for which the total debt is less than 10%
of assets will be furnished to the Commission upon
request.
10.1 Form of Lender's Notes and Lenders' Warrants
(Incorporated by Reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 Reg.
No. 33-8158 effective December 2, 1986)
10.2 Stockholders and Noteholders Agreement, dated February
5, 1991, by and among the Company, Senior Kentucky,
Inc., National Health Industries, Inc., Franklin
Capital Associates, L.P., Aetna Life and Casualty
Company, The Standard Fire Insurance Company and the
holders of National's common stock (Incorporated by
reference to Exhibit 2.3 to the Registrant's Report on
Form 8-K, dated February 5, 1991)
10.3 Nonqualified Stock Option Plan, as amended
(Incorporated by reference to the Registrant's
Registration Statement on Form S-8 Reg. No. 33-20815)
10.4 Supplemental Nonqualified Stock Option Plan
(Incorporated by reference to Exhibit 19.4 to the
Registrant's Report on Form 10-Q for the Quarter Ended
November 30, 1987 Commission File No. 15342)
10.5 Incentive Stock Option Plan, as amended (Incorporated
by reference to the Registrant's Registration Statement
on Form S-8 Reg. No. 33-20815)
10.6 Indemnity Agreement, effective as of October 15, 1987,
between Senior Service Corporation and Robert S.
Shulman (Incorporated by Reference to Exhibit 10.46 to
the Registrant's Post-Effective Amendment No. 3 to its
Registration Statement on Form S-1 Reg. No. 33-8158)
10.7 Amendment to the Senior Service Corporation 1987
Nonqualified Stock Option Plan (Incorporated by
reference to Exhibit 19.3 to the Registrant's Report on
Form 10-Q for the quarter ended November 30, 1989)
10.9 Provider Agreement, dated May 24, 1989, between the
Maryland State Department of Health and Mental Hygiene
and Towson Community Adult Day Care (Incorporated by
reference to Exhibit 10.70 to the Registrant's Post-
Effective Amendment No. 4 to its Registration Statement
on Form S-1 File No. 33-8158)
10.22 1991 Long-Term Incentive Plan
10.23 Warrant Agreement, dated June 29, 1991, between the
Company and HEALTHSOUTH Rehabilitation Corporation
(incorporated by reference to Exhibit 10.88 to the
Registrant's Form S-1 Reg. 33-46565 dated April 23,
1993)
10.24* Employment Agreement, dated January 1. 1996, between
the Company and William B. Yarmuth
10.25 Asset Sale Agreements between the Company and
Columbia/HCA Healthcare Corporation
11* Schedule of Computation of Per Share Earnings
22* List of Subsidiaries of Caretenders Health Corp.
24.1* Consent of Arthur Andersen LLP
27* Financial Data Schedule
(b)Reports on Form 8-K
None.
(c)Exhibits
Described in Item 14(a)(3) of this report
(d)Financial Statement Schedules
Described in Item 14(a)(2) of this report
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CARETENDERS HEALTH CORP.
June 24, 1996
By /s/ William B. Yarmuth
William B. Yarmuth
Chairman, President and
Chief Executive Officer
By /s/ C. Steven Guenthner
C. Steven Guenthner
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated:
By /s/ William B. Yarmuth June 24, 1996
William B. Yarmuth Date
Director
By /s/ Patrick B. McGinnis June 24, 1996
Patrick B. McGinnis Date
Director
By /s/ Donald G. McClinton June 24, 1996
Donald G. McClinton Date
Director
By /s/ Steven B. Bing June 24, 1996
Steven B. Bing Date
Director
By /s/ Tyree Wilburn June 24, 1996
Tyree Wilburn Date
Director
Report of Independent Public Accountants
To the Board of Directors and Stockholders of Caretenders Health
Corp.:
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in
the index of Financial Statement Schedules is presented for purposes
of complying with the Securities and Exchange Commissions rules and
is not part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
May 23, 1996
CARETENDERS HEALTH CORP AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Col. A Col. B Col. C Col. D Col. E
Additions
-----------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other (2) End of
Description of Period Expense (1) Accounts Deductions Period
-------------------------- ---------- ---------- ----------- ----------- ----------
Year ended March 31, 1996:
Allowance for bad debts $2,910,272 $1,668,884 $ - $1,694,373 $2,884,743
Year ended March 31, 1995:
Allowance for bad debts $1,955,621 $1,688,521 $ - $ 733,870 $2,910,272
Year ended March 31, 1994:
Allowance for bad debts $1,509,954 $1,259,749 $ - $ 814,082 $1,955,621
(1) Charged to bad debt expense.
(2) Write-off of accounts.
CARETENDERS HEALTH CORP AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
For the Fiscal Years Ended March 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
Primary earnings per share:
Net income $1,575,283 $1,247,662 $ 627,171
========== ========== ==========
Weighted average outstanding shares 3,119,436 3,119,436 2,370,155
Add-common equivalent shares
representing shares issuable upon
exercise of dilutive options and
warrants and conversion of
convertible preferred stock 29,271 25,082 783,303
Weighted average number of shares
used in calculation of primary ---------- ---------- ----------
earnings per share 3,148,707 3,144,518 3,153,458
PER SHARE ---------- ---------- ----------
Net income per share $ .50 $ .40 $ .20
========== ========== ==========
Fully diluted earnings per share
Weighted average outstanding shares
during the period 3,119,436 3,119,436 2,370,155
Add-common equivalent shares
representing shares issuable upon
exercise of dilutive options and
warrants and conversion of
covertible perferred stock 29,271 25,082 804,632
Weighted average number of shares
used in calculation of fully diluted ---------- ---------- ----------
earnings per share 3,148,707 3,144,518 3,174,787
PER SHARE ---------- ---------- ----------
Fully diluted earnings per common share $ .50 $ .40 $ .20
========== =========== ==========
CARETENDERS HEALTH CORP
LIST OF SUBSIDIARIES
AS OF MARCH 31, 1996
EXHIBIT 22
Subsidiaries of Caretenders Health Corp
Adult Day Care of America, Inc.
Adult Day Care of Louisville, Inc.
Adult Day Care of Maryland, Inc.
Adult Day Clubs of America Joint Venture, Ltd.
HouseCalls, Inc.
SEI Publishing Corporation
National Health Industries, Inc.
HHJC Holdings, Inc.
Subsidiaries of National Health Industries, Inc.
Freelife Medical Equipment, Inc.
Caretenders Homecare, Inc.
Caretenders Infusion of Birmingham, Inc.
Caretenders of Birmingham, Inc.
Caretenders of Boston, Inc.
Caretenders of Cincinnati, Inc.
Caretenders of Columbus, Inc.
Caretenders of Elizabethtown, Inc.
Caretenders of Indiana, Inc.
Caretenders of Indianapolis, Inc.
Caretenders of Lincoln Trail, Inc.
Caretenders of Louisville, Inc.
Caretenders of New Jersey, Inc.
Caretenders of Northern Kentucky, Inc.
Caretenders of Richmond, Inc.
Caretenders of the Bluegrass, Inc.
Caretenders Visiting Services of Richmond, Inc.
House Calls of America, Inc.
Caretenders Infusion Corp.
National Orthopedic & Rehabilitation Services, Inc.
Metro Home Care, Inc.
Physician Affiliates, Inc.
Special Healthcare Services, Inc.
Subsidiary of HHJC Holdings, Inc.
Home Health of Jefferson County, Inc.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the
Company's previously filed Registration Statement File No. 33-33601
relating to the Company's Incentive Stock Option Plan, Registration
Statement File No. 33-81122 related to the 1987 Nonqualified Stock
Option Plan, Registration Statement No. 33-881100 related to the
1993 Non-Employee Directors Stock Option Plan, and Registration
Statement No. 33-81124 related to the 1991 Long-Term Incentive Plan.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
June 26, 1996