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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 April 30, 2004
--------------
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).
--- ---
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 June 11, 2004 was
5,631,544.
NATIONAL HOME HEALTH CARE CORP.
Form 10-Q
For the Quarter Ended April 30, 2004
Table of Contents
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets as of April 30, 2004 and July 31, 2003 (unaudited) 3-4
Statements of Operations for the three months ended April 30,
2004 and April 30, 2003 and the nine months ended April 30,
2004 and April 30, 2003 (unaudited) 5
Statements of Cash Flows for the nine months ended April 30, 2004
and April 30, 2003 (unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-14
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
-2-
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, 2004 July 31, 2003
----------- -----------
ASSETS
Current:
Cash and cash equivalents $18,712,000 $14,252,000
Investments 25,000 22,000
Accounts receivable-less allowance for possible losses of
$1,078,000 and $622,000 18,652,000 18,705,000
Prepaid expenses and other assets 735,000 804,000
Deferred income taxes 531,000 375,000
----------- -----------
Total current assets 38,655,000 34,158,000
Furniture, equipment and leasehold
improvements, net 920,000 1,030,000
Goodwill 10,628,000 10,628,000
Other intangible assets, net 1,717,000 2,099,000
Deferred income taxes 64,000 163,000
Deposits and other assets 448,000 395,000
----------- -----------
TOTAL $52,432,000 $48,473,000
=========== ===========
(continued)
-3-
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, 2004 July 31, 2003
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,232,000 $ 3,257,000
Estimated third-party payor settlements 697,000 756,000
Deferred revenue 439,000 460,000
Income taxes payable 87,000 134,000
------------ ------------
Total current liabilities 4,455,000 4,607,000
------------ ------------
Stockholders' equity:
Common stock, $.001 par value; authorized
20,000,000 shares, issued 7,041,388 shares 7,000 7,000
Additional paid-in capital 26,174,000 25,556,000
Retained earnings 25,122,000 21,622,000
------------ ------------
51,303,000 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 47,977,000 43,866,000
------------ ------------
TOTAL $ 52,432,000 $ 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 For the nine months ended
April 30, April 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net patient revenue $23,739,000 $25,120,000 $71,022,000 $72,702,000
----------- ----------- ----------- -----------
Operating expenses:
Cost of revenue 15,163,000 16,374,000 46,688,000 47,070,000
General and administrative 5,895,000 6,020,000 17,568,000 17,605,000
Amortization of intangibles 128,000 150,000 383,000 441,000
Allowance for possible losses 680,000 75,000 840,000 175,000
----------- ----------- ----------- -----------
Total operating expenses 21,866,000 22,619,000 65,479,000 65,291,000
----------- ----------- ----------- -----------
Income from operations 1,873,000 2,501,000 5,543,000 7,411,000
Other income:
Interest 43,000 31,000 99,000 121,000
----------- ----------- ----------- -----------
Income before taxes 1,916,000 2,532,000 5,642,000 7,532,000
Provision for income taxes 703,000 1,038,000 2,142,000 3,090,000
----------- ----------- ----------- -----------
Net income $1,213,000 $1,494,000 $3,500,000 $4,442,000
=========== =========== =========== ===========
Net income per share:
Basic $0.22 $0.27 $0.63 $0.80
=========== =========== =========== ===========
Diluted $0.21 $0.26 $0.62 $0.77
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 5,547,431 5,549,674 5,512,845 5,561,363
=========== =========== =========== ===========
Diluted 5,677,173 5,758,346 5,683,347 5,767,720
=========== =========== =========== ===========
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
April 30,
-------------------------------
2004 2003
------------ ------------
Cash flows from operating activities:
Net income $ 3,500,000 $ 4,442,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 630,000 653,000
Allowance for possible losses, net of writeoffs (456,000) 71,000
Unrealized (gain) loss on investments (3,000) 10,000
Deferred income taxes (58,000) 235,000
Tax benefit realized from the exercise of stock options by employees 99,000 - - - -
Changes in assets and liabilities:
Accounts receivable 509,000 (2,478,000)
Prepaid expenses and other 16,000 (153,000)
Accounts payable, accrued expenses and other liabilities (25,000) 147,000
Estimated third-party payor settlements (59,000) (167,000)
Deferred revenue (21,000) 178,000
Income taxes payable (47,000) 219,000
------------ ------------
Net cash provided by operating activities 4,085,000 3,157,000
------------ ------------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements (138,000) (96,000)
Purchase of assets of business - - - - (4,706,000)
------------ ------------
Net cash used in investing activities (138,000) (4,802,000)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 520,000 4,000
Purchase of treasury shares (7,000) (440,000)
------------ ------------
Net cash provided by (used in) financing activities 513,000 (436,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,460,000 (2,081,000)
Cash and cash equivalents-beginning of period 14,252,000 15,341,000
------------ ------------
Cash and cash equivalents-end of period $ 18,712,000 $ 13,260,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for
Taxes $ 2,148,000 $ 2,637,000
Interest 15,000 15,000
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- and nine-month periods ended
April 30, 2004 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 periods' 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
April 30,
------------------------
2004 2003
Shares Shares
--------- ---------
Basic EPS: 5,547,431 5,549,674
Effect of dilutive securities 129,742 208,672
--------- ---------
Diluted EPS: 5,677,173 5,758,346
========= =========
For the nine months ended
April 30,
------------------------
2004 2003
Shares Shares
--------- ---------
Basic EPS: 5,512,845 5,561,363
Effect of dilutive securities 170,502 206,357
--------- ---------
Diluted EPS: 5,683,347 5,767,720
========= =========
-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, the 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 lowest 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 are
dependent upon referrals, primarily from Medicare certified home health care
agencies, whose reimbursement has 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 and Westchester Counties, New York.
Certain Trends Expected to Impact Future Results of Operations
Effective May 1, 2004, the Connecticut Department of Social Services
increased the Medicaid rate for certain nursing visits. The rate for a
medication administration visit, defined as administration of oral,
intramuscular and/or subcutaneous medication by health care agency/professional,
was increased from $52 to $56.50 for full visits and from $26 to $28.25 for
subsequent visits. The increase in these rates was made retroactive to July 1,
2003, resulting in an increase in net patient revenue of approximately $739,000
for the period from July 1, 2003 through April 30, 2004, all of which was
recorded in the results of operations for the three months ended April 30, 2004.
The rate change will impact periods following May 1, 2004, and at current levels
of operations, the Company estimates that the rate change will result in an
increase in net patient revenue of approximately $1,050,000 annually. In May
2003, the rates for these nursing visits were significantly reduced from $85 to
$52 per visit. The Connecticut Department of Social Services analyzed the extent
of the impact of the previous rate cut and as a result, increased the rates
retroactive to July 1, 2003.
Health Acquisition Corp., d/b/a Allen Health Care Services, the Company's
New York licensed home health care subsidiary, and District Council 1707,
American Federation of State, County and Municipal Employees (AFSCME), concluded
negotiations on an initial three-year labor contract that became effective May
1, 2004. This labor contract provides "covered" home health aides with some new
benefits, consisting of an immediate wage increase, eligibility for paid time
off, increase in minimum hourly base rates, holiday premium pay and
representation by the Union in procedures and personnel matters. The Company
does not believe that the labor contract will have a material adverse effect on
the Company's future results of operations or financial condition.
-10-
Results of Operations and Effects of Inflation
Three Months Ended April 30, 2004 Compared to Three Months Ended April 30, 2003.
Net Patient Revenue. For the three months ended April 30, 2004, net patient
revenue decreased $1,381,000, or 5.5%, to $23,739,000 from $25,120,000 for the
three months ended April 30, 2003. This decrease was primarily attributable to
(i) a decrease of $746,000 in net patient revenue as a result of the reduced
Medicaid reimbursement rates for certain nursing visits in Connecticut that was
effective May 1, 2003, (ii) a decrease of $1,008,000 as a result of lesser hours
being subcontracted to the Company from other Medicare certified agencies in New
York and, (iii) a decrease of $405,000 in staffing revenue primarily as a result
of the Company terminating its staffing operations in New York in December 2003.
The decline in net patient revenue was offset by an increase in net patient
revenue of $778,000 resulting from the Company's expansion in New Jersey and the
Company attaining Medicare and Medicaid certification in Massachusetts.
Gross Profit. Gross profit margin increased to 36.1% for the three months
ended April 30, 2004, from 34.8% for the three months ended April 30, 2003. This
increase was attributable to the retroactive increase of $739,000 in net patient
revenue for certain nursing visits in Connecticut (which was discussed above
under the caption "Certain Trends Expected to Impact Future Results of
Operations"), all of which was recorded in the three months ended April 30,
2004. Excluding the net patient revenue resulting from the retroactive increase,
gross profit margin decreased to 34.1% for the three months ended April 30,
2004. This decrease was primarily attributable to the reduced Medicaid
reimbursement rates for certain nursing visits in Connecticut and, to a lesser
extent, increases in direct payments to caregivers and increased workers
compensation rates.
General and Administrative. General and administrative expenses decreased
$125,000, or 2.1%, to $5,895,000 for the three months ended April 30, 2004 from
$6,020,000 for the three months ended April 30, 2003. This decrease is primarily
attributable to the reductions in administrative personnel associated with both
the downsizing of the Company's staffing operations and as a result of the
Connecticut reimbursement rate reduction in certain Medicaid nursing rates. As a
percentage of net patient revenue, general and administrative expenses increased
to 24.8% for the three months ended April 30, 2004 from 24.0% for the three
months ended April 30, 2003. Excluding the retroactive increase of $739,000 in
net patient revenue recorded in the three months ended April 30, 2004, as a
percentage of net patient revenue, general and administrative expenses increased
to 25.6% of net patient revenue.
Amortization. Amortization of intangibles decreased $22,000, or 14.7%, to
$128,000 for the three months ended April 30, 2004 from $150,000 for the three
months ended April 30, 2003. 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 $680,000 for the three months ended April 30, 2004, as
compared to $75,000 for the three months ended April 30, 2003. The increase in
the allowance for possible losses is attributable to
-11-
the Company setting up allowances for accounts receivable balances from certain
Medicare certified home health care agencies in the amount of $600,000 in the
current three-month period. These agencies have been experiencing financial
difficulties and, as a result, the Company has been unable to receive payments
in accordance with contract terms. The Company is closely monitoring these
accounts receivable balances.
Income from Operations. As a result of the foregoing, income from
operations decreased $628,000, or 25.1% to $1,873,000 for the three months ended
April 30, 2004 from $2,501,000 for the three months ended April 30, 2003.
Interest Income. Interest income increased $12,000, or 38.7%, to $43,000
for the three months ended April 30, 2004 from $31,000 for the three months
ended April 30, 2003. This increase is attributable to the Company generating
higher cash balances over the past fiscal year. Although the Company has
generated higher cash balances over the periods, the decline in interest rates
has reduced the Company's ability to maximize interest income.
Income Taxes. The Company's effective tax rate decreased to 36.7% for the
three months ended April 30, 2004 from 41.0% for the three months ended April
30, 2003. This decrease is attributable to an increase in work opportunity tax
credits in the current three-month period and an over accrual of taxes recorded
in the fiscal year ended July 31, 2003.
Net Income. Net income decreased $281,000, or 18.8%, to $1,213,000, or $.21
per diluted share, in the three months ended April 30, 2004 from $1,494,000, or
$.26 per diluted share, in the three months ended April 30, 2003.
Nine Months Ended April 30, 2004 Compared to Nine Months Ended April 30, 2003
Net Patient Revenue. For the nine months ended April 30, 2004, net patient
revenue decreased $1,680,000, or 2.3%, to $71,022,000 from $72,702,000 for the
nine months ended April 30, 2003. This decrease was primarily attributable to
(i) a decrease of $1,585,000 in net patient revenue as a result of the reduced
Medicaid reimbursement rates for certain nursing visits in Connecticut that was
effective May 1, 2003, (ii) a decrease of $2,458,000, as a result of lesser
hours being subcontracted to the Company from other Medicare certified agencies
in New York and, (iii) a decrease of $667,000 in staffing revenue, primarily as
a result of the Company terminating its staffing operations in New York in
December 2003. The decline in net patient revenue was offset by an increase in
net patient revenue of $3,030,000, resulting from the Company's expansion in New
Jersey and the Company attaining Medicare and Medicaid certification in
Massachusetts.
Gross Profit. Gross profit margin decreased to 34.3% for the nine months
ended April 30, 2004 from 35.3% for the nine months ended April 30, 2003. This
decrease includes a retroactive increase of $739,000 for certain nursing visits
in Connecticut (which was discussed above under the caption "Certain Trends
Expected to Impact Future Results of Operations"), all of which was recorded in
the nine months ended April 30, 2004. Excluding the net patient revenue
resulting from the retroactive increase, gross profit decreased to 33.6% for the
nine months ended April 30, 2004. This decrease was primarily attributable to
the reduced Medicaid
-12-
reimbursement rates for certain nursing visits in Connecticut and, to a lesser
extent, increases in direct payments to caregivers, and increased worker
compensation rates.
General and Administrative. General and administrative expenses decreased
$37,000, to $17,568,000 for the nine months ended April 30, 2004 from
$17,605,000 for the nine months ended April 30, 2003. This decrease is primarily
attributable to the reductions in administrative personnel associated with both
the downsizing of the Company's staffing operations and as a result of the
Connecticut reimbursement rate reduction in certain Medicaid nursing rates. As a
percentage of net patient revenue, general and administrative expenses increased
to 24.7% for the nine months ended April 30, 2004 from 24.2% for the nine months
ended April 30, 2003.
Amortization. Amortization of intangibles decreased $58,000, or 13.2%, to
$383,000 for the nine months ended April 30, 2004 from $441,000 for the nine
months ended April 30, 2003. 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 $840,000 for the nine months ended April 30, 2004 as compared
to $175,000 for the nine months ended April 30, 2003. This increase is explained
in the above three-month discussion.
Income from Operations. As a result of the foregoing, income from
operations decreased $1,868,000, or 25.2% to $5,543,000 for the nine months
ended April 30, 2004 from $7,411,000 for the nine months ended April 30, 2003.
Interest Income. Interest income decreased $22,000, or 18.2%, to $99,000
for the nine months ended April 30, 2004 from $121,000 for the nine months ended
April 30, 2003. 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 38.0% for the
nine months ended April 30, 2004 from 41.0% for the nine months ended April 30,
2003. This decrease is attributable to an increase in work opportunity tax
credits in the current nine month period and an over accrual of taxes recorded
in the fiscal year ended July 31, 2003.
Net Income. Net income decreased $942,000, or 21.2%, to $3,500,000, or $.62
per diluted share, in the nine months ended April 30, 2004 from $4,442,000, or
$.77 per diluted share, in the nine months ended April 30, 2003.
The rate of inflation had no material effect on operations for the nine
months ended April 30, 2004.
Financial Condition and Capital Resources
Current assets increased to $38,655,000 and current liabilities decreased
to $4,455,000 at April 30, 2004. This resulted in an increase in working capital
of $4,649,000 from $29,551,000 at July 31, 2003 to $34,200,000 at April 30,
2004. Cash and cash equivalents increased $4,460,000 to $18,712,000 at April 30,
2004 from $14,252,000 at July 31, 2003.
-13-
The Company provided net cash from operating activities of $4,085,000 for
the nine months ended April 30, 2004 as compared to net cash provided by
operating activities of $3,157,000 for the nine months ended April 30, 2003. The
increase in net cash provided by operating activities of $928,000 is
attributable to a decrease in operating assets of $3,156,000, offset by a
decrease in operating cash flow of $1,699,000 and a decrease in operating
liabilities of $529,000 over the comparable period for the nine months ended
April 30, 2003. Net cash used in investing activities for the nine months ended
April 30, 2004, consisted of the purchase of equipment. The net cash used in
investing activities for the nine months ended April 30, 2003 consisted of the
purchase of assets of businesses and the purchase of equipment. Net cash
provided by financing activities for the nine months ended April 30, 2004
consisted of the proceeds from the exercise of stock options, offset by the
purchase of treasury shares. Net cash used in financing activities for the nine
months ended April 30, 2003 consisted of the purchase of treasury shares, offset
by the proceeds from the exercise of stock options.
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 150 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 75 days at April 30, 2004 as compared to 69 days at April 30, 2003.
The Company has a $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 April
30, 2004 there was no outstanding balance under the credit facility.
The Company intends to incur capital expenditures of approximately
$1,000,000 during the next twelve month period 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 and hardware 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 needs with its current cash balances, cash
flow from operations and its credit facility.
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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 Principal 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 Principal 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.
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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 has begun producing
documents in response to the subpoena and 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 March 16, 2004, the Company filed a report on Form 8-K under Item 12
thereof referencing a press release dated March 16, 2004, announcing the
Company's financial results for the Company's second fiscal quarter ended
January 31, 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL HOME HEALTH CARE CORP.
Date: June 14, 2004. /s/ Robert P. Heller
----------------------------------------------
Robert P. Heller
Vice President of Finance (principal financial
officer and principal accounting officer)
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EXHIBIT INDEX
Exhibit Document
Number --------
- -------
31.1* Certification of 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* Certification 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
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