UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2003
----------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to ______________
Commission file number 0-12927
NATIONAL HOME HEALTH CARE CORP.
(Exact name of Registrant as Specified in Its Charter)
Delaware 22-2981141
- ----------------------------------- ---------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
700 White Plains Road, Scarsdale, New York 10583
(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number Including Area Code: 914-722-9000
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No _X_ -
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock outstanding as of December 15, 2003 was
5,498,188.
NATIONAL HOME HEALTH CARE CORP.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 2003
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets as of October 31, 2003 and July 31, 2003
(unaudited) 3-4
Statements of Operations for the three months ended
October 31, 2003 and October 31, 2002 (unaudited) 5
Statements of Cash Flows for the nine months ended
October 31, 2003 and October 31, 2002 (unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
-2-
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
October 31, 2003 July 31, 2003
---------------- -------------
ASSETS
Current:
Cash and cash equivalents $14,791,000 $14,252,000
Investments 24,000 22,000
Accounts receivable-less allowance for possible losses of $660,000
and $622,000 19,564,000 18,705,000
Prepaid expenses and other assets 731,000 804,000
Deferred income taxes 373,000 375,000
---------------- -------------
Total current assets 35,483,000 34,158,000
Furniture, equipment and leasehold
improvements, net 1,006,000 1,030,000
Goodwill 10,628,000 10,628,000
Other intangible assets, net 1,972,000 2,099,000
Deferred income taxes 132,000 163,000
Deposits and other assets 394,000 395,000
---------------- -------------
TOTAL $49,615,000 $48,473,000
================ =============
(continued)
-3-
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
October 31, 2003 July 31, 2003
---------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $3,077,000 $3,257,000
Estimated third-party payor settlements 706,000 756,000
Deferred revenue 492,000 460,000
Income taxes payable 322,000 134,000
---------------- -------------
Total current liabilities 4,597,000 4,607,000
---------------- -------------
Stockholders' equity:
Common stock, $.001 par value; authorized
20,000,000 shares, issued 6,904,819 shares 7,000 7,000
Additional paid-in capital 25,560,000 25,556,000
Retained earnings 22,777,000 21,622,000
---------------- -------------
48,344,000 47,185,000
Less: treasury stock (1,408,571 and 1,407,571 shares) at cost (3,326,000) (3,319,000)
---------------- -------------
Total stockholders' equity 45,018,000 43,866,000
---------------- -------------
TOTAL $49,615,000 $48,473,000
================ =============
See accompanying notes to consolidated financial statements.
-4-
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended
-----------------------------------------------
October 31,
2003 2002
---------------- ---------------
Net patient revenue $24,414,000 $22,939,000
---------------- ---------------
Operating expenses:
Cost of revenue 16,419,000 14,740,000
General and administrative 5,887,000 5,603,000
Amortization of intangibles 127,000 140,000
Allowance for possible losses 105,000 50,000
---------------- ---------------
Total operating expenses 22,538,000 20,533,000
---------------- ---------------
Income from operations 1,876,000 2,406,000
Other income:
Interest 25,000 55,000
---------------- ---------------
Income before taxes 1,901,000 2,461,000
Provision for income taxes 746,000 987,000
---------------- ---------------
Net income $1,155,000 $1,474,000
================ ===============
Net income per share:
Basic $0.21 $0.26
================ ===============
Diluted $0.20 $0.26
================ ===============
Weighted average shares outstanding:
Basic 5,495,666 5,570,779
================ ===============
Diluted 5,673,853 5,777,343
================ ===============
See accompanying notes to consolidated financial statements.
-5-
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
------------------------------------------
October 31,
2003 2002
---- ----
Cash flows from operating activities:
Net income $1,155,000 $1,474,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 208,000 209,000
Allowance for possible losses, net of writeoffs (38,000) 29,000
Deferred income taxes 33,000 190,000
Unrealized (gain) loss on investments (2,000) 13,000
Changes in assets and liabilities:
Accounts receivable (821,000) (518,000)
Prepaid expenses and other 74,000 (162,000)
Accounts payable, accrued expenses (180,000) (1,095,000)
Estimated third-party payor settlements (50,000) (175,000)
Income taxes payable 188,000 551,000
Deferred revenue 32,000 59,000
---------------- ----------------
Net cash provided by operating activities 599,000 575,000
---------------- ----------------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements (57,000) (50,000)
Purchase of assets of business ---- (3,023,000)
---------------- ----------------
Net cash used in investing activities (57,000) (3,073,000)
---------------- ----------------
Cash flows from financing activities:
Purchase of treasury shares (7,000) (35,000)
Proceeds from exercise of stock options 4,000 ----
---------------- ----------------
Net cash used in investing activities (3,000) (35,000)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 539,000 (2,533,000)
---------------- ----------------
Cash and cash equivalents-beginning of period 14,252,000 15,341,000
---------------- ----------------
Cash and cash equivalents-end of period $14,791,000 $12,808,000
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for
Taxes $525,000 $246,000
Interest 5,000 5,000
See accompanying notes to consolidated financial statements.
-6-
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended October 31,
2003 are not necessarily indicative of the results that may be expected for the
year ending July 31, 2004. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended July 31, 2003.
NOTE 2 - ACQUISITIONS
On September 3, 2002, the Company, through a newly-formed subsidiary in
Massachusetts, acquired certain assets of Medical Resources, Inc. and related
entities ("Medical Resources"). Medical Resources provides home health care
services throughout Massachusetts. The purchase price of $2,623,000 in cash,
including acquisition costs of $73,000, was financed using internal funds. The
acquisition was accounted for as a purchase.
On December 14, 2002, the Company, through a wholly-owned subsidiary in New
Jersey, acquired certain assets of Mary Baker's Health Care Services, Inc.
("Mary Baker"). Mary Baker provided home health care services in Bergen and
Passaic Counties, New Jersey.
The purchase price of $434,000 in cash, including acquisition costs of $14,000
was financed using internal funds. The acquisition was accounted for as a
purchase.
On March 17, 2003, the Company, through a wholly-owned subsidiary in
Connecticut, acquired certain assets from Professional Relief Nurses, Inc.
("PRN"). PRN provided home health care services in Hartford, Litchfield, New
Haven and Middlesex Counties, Connecticut. The purchase price of $1,248,000,
including acquisition costs of $98,000, was financed using internal funds. The
acquisition was accounted for as a purchase.
NOTE 3 - RECLASSIFICATIONS
Certain reclassifications have been made in prior years' financial
statements to conform to classifications used in the current period.
-7-
NOTE 4 - NET INCOME PER SHARE DATA
A reconciliation of shares used in calculating basic and diluted net income
per share is as follows:
For the three months ended
October 31,
-----------------------------------------------------------------------
2003 2002
---- ----
Income Shares Income Shares
Basic EPS:
Net income $1,155,000 5,595,666 $1,474,000 5,570,779
Effect of dilutive securities ---- 178,187 ---- 206,564
Diluted EPS: ---------------- ---------------- --------------- ------------------
$1,155,000 5,673,853 $1,474,000 5,777,343
================ ================ =============== ==================
-8-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion and
analysis should be read in conjunction with the attached unaudited consolidated
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended July 31, 2003 included
with the Company's annual report on Form 10-K with respect to such fiscal year.
Certain matters set forth in this report are forward-looking statements
that are dependent on certain risks and uncertainties, including but not limited
to risks and uncertainties relating to whether the Company can identify,
consummate and integrate on favorable terms acquisitions or market penetrations,
market acceptance, pricing and demand for the Company's services, changing
regulatory environment, changing economic conditions, whether the Company can
attract and retain qualified personnel, ability to manage the Company's growth,
and other risks detailed in the Company's other filings with the Securities and
Exchange Commission.
The Company is subject to significant external factors that could
significantly impact its business, including changes in Medicare and Medicaid
reimbursement, government fraud and abuse initiatives and other such factors
that are beyond the control of the Company. As a participant in the home health
care industry, the Company is subject to extensive federal, state and local
regulations. There can be no assurance that any of these regulations will not
change from existing standards, that additional standards will not be imposed or
that the Company will not experience adverse effects as a result of efforts to
comply with applicable standards, which are extensive, complex and
often-changing.
The Balanced Budget Act (the "Act") was signed into law in August 1997. The
Act made significant changes in the reimbursement system for Medicare home
health care services. The primary change that affects the Company is a
restructuring of the reimbursement system related to Medicare certified home
health care agencies. Prior to the Act, Medicare reimbursed providers on a
reasonable cost basis subject to program-imposed cost per visit limitations.
Under the Act, changes in Medicare home care reimbursement were scheduled
in two phases. A temporary or interim payment system ("IPS") took effect for
cost reports beginning on or after October 1, 1997. Under IPS, home health care
providers were reimbursed the lower of (i) their actual costs, (ii) cost limits
based on 105% of median costs of freestanding home health agencies or (iii) an
agency-specific per patient cost limit, based on 98% of 1994 costs adjusted for
inflation. Under IPS, most Medicare providers were reimbursed under an
agency-specific per patient cost limit. Effective October 1, 2001, under the
prospective payment system, Medicare now reimburses providers a predetermined
base payment. The payment is adjusted for the health condition and care needs of
the beneficiary and is also adjusted for the geographic differences in wages
across the country. Medicare provides home health agencies with payments for
60-day "episodes of care".
-9-
The final phase of the Act implemented a 15% cut in Medicare reimbursement
rates effective October 1, 2002. In each of the last three fiscal years, less
than five percent of the Company's net patient revenue was derived directly from
Medicare, and accordingly the change to the prospective payment system has not,
to date, had a material adverse impact on the Company. However, there can be no
assurance that the Medicare prospective payment system will not adversely impact
the Company's reimbursement rates in the future or otherwise have a material
adverse effect on the Company. The Company's operations in New York and New
Jersey are dependent upon referrals, primarily from Medicare certified home
health care agencies, whose reimbursements have been adversely affected by the
prospective payment system. Under the prospective payment system, there can be
no assurance that the Company's future referrals will not result in reduced
reimbursement rates or reduced volume of business.
The Company derives a substantial amount of revenue from state sponsored
Medicaid programs. Approximately 42%, 47% and 48% of net patient revenue for the
fiscal years ended July 31, 2003, 2002 and 2001, respectively, were derived from
state sponsored Medicaid programs. Reimbursement for home health care services
rendered to eligible Medicaid recipients is made in an amount determined in
accordance with procedures and standards established by state law under federal
guidelines. States differ as to reimbursement policies and rates. The Company is
a licensed Medicaid provider in Connecticut, Massachusetts, New Jersey and in
Nassau, Suffolk and Westchester Counties, New York.
RESULTS OF OPERATIONS AND EFFECTS OF INFLATION
NET PATIENT REVENUE. For the three months ended October 31, 2003, net
patient revenue increased $1,475,000, or 6.4%, to $24,414,000 from $22,939,000
for the three months ended October 31, 2002. Of this increase, $1,008,000 was
attributable to additional net patient revenue generated by the business
acquired in September 2002 from Medical Resources and $467,000 was attributable
to additional net patient revenue resulting from continued successful market
penetration of existing markets and the Company's other acquisitions.
GROSS PROFIT. Gross profit margin decreased to 32.8% for the three months
ended October 31, 2003 from 35.7% for the three months ended October 31, 2002.
This decrease was primarily attributable to the Connecticut reimbursement rate
reduction in certain Medicaid nursing rates effective May 1, 2003, increases in
direct payments to caregivers, increased workers compensation rates and lower
gross profit margins on staffing operations.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$284,000, or 5.1%, to $5,887,000 for the three months ended October 31, 2003
from $5,603,000 for the three months ended October 31, 2002. This increase is
primarily attributable to the inclusion of the administrative personnel and
occupancy costs incurred by Medical Resources for a full three months of
operations in the current quarter ended October 31, 2003. As a percentage of net
patient revenue, general and administrative expenses decreased to 24.1% for the
three months ended October 31, 2003 from 24.4% for the three months ended
October 31, 2002.
-10-
AMORTIZATION. Amortization of intangibles decreased $13,000, or 9.3%, to
$127,000 for the three months ended October 31, 2003 from $140,000 for the three
months ended October 31, 2002. This decrease is attributable to previous
acquisitions that have now been fully amortized.
ALLOWANCE FOR POSSIBLE LOSSES. The Company recorded an allowance for
possible losses of $105,000 for the three months ended October 31, 2003, as
compared to $50,000 for the three months ended October 31, 2002.
INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations decreased $530,000, or 22.0% to $1,901,000 for the three months ended
October 31, 2003 from $2,406,000 for the three months ended October 31, 2002.
INTEREST INCOME. Interest income decreased $30,000, or 54.5%, to $25,000
for the three months ended October 31, 2003 from $55,000 for the three months
ended October 31, 2002. This decrease is attributable to the Company being
required to maintain higher compensating balances in its operating accounts as
well as the continued decline in interest rates.
INCOME TAXES. The Company's effective tax rate decreased to 39.2% for the
three months ended October 31, 2003 from 40.1% for the three months ended
October 31, 2002.
NET INCOME. Net income decreased $319,000, or 21.6%, to $1,155,000, or $.20
per diluted share, in the three months ended October 31, 2003 from $1,474,000,
or $.26 per diluted share, in the three months ended October 31, 2002.
The rate of inflation had no material effect on operations for the nine
months ended October 31, 2003.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Current assets increased to $35,483,000 and current liabilities decreased
to $4,597,000 at October 31, 2003. This resulted in an increase in working
capital of $1,335,000 from $29,551,000 at July 31, 2003 to $30,886,000 at
October 31, 2003. Cash and cash equivalents increased $539,000 to $14,791,000 at
October 31, 2003 from $14,252,000 at July 31, 2003.
The Company provided net cash from operating activities of $599,000 for the
three months ended October 31, 2003 as compared to net cash provided by
operating activities of $575,000 for the three months ended October 31, 2002.
The increase in net cash provided by operating activities of $24,000 is
attributable to an increase in operating liabilities of $650,000, offset by a
decrease in operating cash flow of $559,000 and a decrease in operating assets
of $67,000 over the comparable period for the three months ended October 31,
2002. Net cash used in investing activities for the three months ended October
31, 2003 consisted of the purchase of equipment. The net cash used in investing
activities for the three months ended October 31, 2002 consisted of the purchase
of assets of businesses and the purchase of equipment. Net cash used in
financing activities for the three months ended October 31, 2003 consisted of
the purchase of treasury shares, offset by the proceeds from stock option
exercises. Net used in financing
-11-
activities for the three months ended October 31, 2002 consisted of the purchase
of treasury shares.
The nature of the Company's business requires weekly payments to health
care personnel at the time services are rendered. The Company typically receives
payment for these services on a basis of 90 to 120 days with respect to
contracted and insurance business and 15 to 45 days with respect to certain
governmental payors, such as Medicare and Medicaid programs. Accounts receivable
turnover was 71 days at October 31, 2003 as compared to 68 days at October 31,
2002.
The Company renewed its $7,500,000 committed revolving line of credit
facility ( the "credit facility") with its bank. The credit facility provides
for the Company to borrow up to the lesser of $7,500,000 or 80% of eligible
accounts receivable that are aged less than 120 days at the bank's prime rate or
LIBOR plus 2.5%. The credit facility expires in October 2005 and requires the
Company to meet certain financial covenants and ratios. The Company is required
to pay a .25% commitment fee on unused amounts, payable quarterly in arrears. At
October 31, 2003 there was no outstanding balance under the credit facility.
The Company intends to incur capital expenditures of approximately $500,000
during the current fiscal year in connection with the proposed implementation of
new computer software systems and hardware. The new hardware would be designed
to, among other things, update certain data input capability regarding services
rendered at certain locations. The Company believes that the software will
provide efficiencies in data organization, retrieval and analysis, both for
continuing operations and in connection with certain audits. The Company intends
to fund these expenditures and otherwise meet its short term and long term
liquidity need with its current cash balances, cash flow from operations and its
credit facility.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. Within the 90-day
period prior to the filing date of this report, the Company carried out an
evaluation, under the supervision and with the participation of management of
the Company, including the Company's Chief Executive Officer and Principal
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the Company's evaluation,
the Company's Chief Executive Officer and Principal Financial Officer concluded
that the Company's disclosure controls and procedures were effective.
(b) Changes in Internal Controls. Since the date of the evaluation
described above, there have not been any significant changes in the Company's
internal accounting controls or in other factors that could significantly affect
those controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
-12-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In October 2003, the Company's Connecticut home care subsidiary received a
subpoena from the United States Attorney's Office in New Haven, Connecticut. The
subpoena seeks production of documents in connection with an investigation into
possible violations of certain federal health care laws. The Company believes
that the investigation, which the Company understands is being conducted in
parallel with an investigation by state of Connecticut authorities, seeks
evidence of potentially fraudulent claims that may have been submitted by
psychiatric nurses employed by the Connecticut home care subsidiary. The Company
cannot now predict the course or outcome of the investigation or whether
additional information will be sought. The Company believes that the
investigation extends to certain other competitors in the Connecticut market for
psychiatric nursing. The Connecticut home care subsidiary intends to cooperate
with the investigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit
Number Description
------ -----------
31.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
On September 10, 2003, the Company filed a report on Form 8-K under Item 12
thereof referencing a press release dated September 9, 2003, announcing revised
estimates of the impact of certain reimbursement rate reductions in Connecticut
effective May 1, 2003.
On October 17, 2003, the Company filed a report on Form 8-K under Item 12
thereof referencing a press release dated October 17, 2003, announcing the
Company's financial results for the Company's fourth fiscal quarter ended July
31, 2003.
-13-
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NATIONAL HOME HEALTH CARE CORP.
Date: December 15, 2003. /s/ Robert P. Heller
------------------------------------
Robert P. Heller
Vice President of Finance (principal
financial officer and principal
accounting officer)
-14-
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DOCUMENT
- ------ --------
31.1* Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2* Certificate of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1* Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2* Certification of Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
- ----------
* Filed herewith