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, 2005
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.
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(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
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(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 June 14, 2005 was
5,664,124.
NATIONAL HOME HEALTH CARE CORP.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 2005
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets as of April 30, 2005 and July 31, 2004 (unaudited) 3-4
Statements of Operations for the three months ended April 30,
2005 and April 30, 2004 and the nine months ended April 30,
2005 and April 30, 2004 (unaudited) 5
Statements of Cash Flows for the nine months ended April 30, 2005
and April 30, 2004 (unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-16
Item 3. Quantitative and Qualitative Disclosure About Market Risk
16
Item 4. Controls and Procedures
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
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NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, 2005 July 31, 2004
----------- -----------
ASSETS
Current:
Cash and cash equivalents $16,767,000 $20,185,000
Investments 19,000 19,000
Accounts receivable less allowance for possible losses of
$1,115,000 and $1,122,000 18,833,000 18,084,000
Prepaid expenses and other assets 710,000 801,000
Income taxes receivable 307,000 -
Deferred income taxes 462,000 527,000
----------- -----------
Total current assets 37,098,000 39,616,000
Furniture, equipment and leasehold
improvements, net 1,833,000 1,083,000
Goodwill 11,621,000 10,628,000
Other intangible assets, net 1,253,000 1,589,000
Deposits and other assets 3,615,000 570,000
----------- -----------
TOTAL $55,420,000 $53,486,000
=========== ===========
(continued)
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NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
April 30, 2005 July 31, 2004
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,563,000 $ 3,322,000
Estimated third-party payor settlements 221,000 696,000
Deferred revenue 459,000 402,000
Income taxes payable - 27,000
------------ ------------
Total current liabilities 4,243,000 4,447,000
Stockholders' equity:
Common stock, $.001 par value; authorized
20,000,000 shares, issued 7,125,544 shares 7,000 7,000
Additional paid-in capital 26,529,000 26,174,000
Retained earnings 28,474,000 26,342,000
------------ ------------
55,010,000 52,523,000
Less: treasury stock (1,461,360 and 1,424,883 shares) at cost (3,833,000) (3,484,000)
------------ ------------
Total stockholders' equity 51,177,000 49,039,000
------------ ------------
TOTAL $ 55,420,000 $ 53,486,000
============ ============
See accompanying notes to consolidated financial statements.
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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,
--------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net patient revenue $24,201,000 $23,739,000 $72,590,000 $71,022,000
----------- ----------- ----------- -----------
Operating expenses:
Cost of revenue 16,327,000 15,163,000 48,110,000 46,688,000
General and administrative 6,615,000 5,895,000 19,238,000 17,568,000
Amortization of intangibles 139,000 128,000 411,000 383,000
Allowance for possible losses 88,000 680,000 258,000 840,000
----------- ----------- ----------- -----------
Total operating expenses 23,169,000 21,866,000 68,017,000 65,479,000
----------- ----------- ----------- -----------
Income from operations 1,032,000 1,873,000 4,573,000 5,543,000
Other income:
Interest 82,000 43,000 193,000 99,000
----------- ----------- ----------- -----------
Income before taxes 1,114,000 1,916,000 4,766,000 5,642,000
Provision for income taxes 353,000 703,000 1,791,000 2,142,000
----------- ----------- ----------- -----------
Net income $ 761,000 $ 1,213,000 $ 2,975,000 $ 3,500,000
=========== =========== =========== ===========
Net income per share:
Basic $ 0.13 $ 0.22 $ 0.53 $ 0.63
=========== =========== =========== ===========
Diluted $ 0.13 $ 0.21 $ 0.52 $ 0.62
Weighted average shares outstanding:
Basic 5,664,124 5,547,431 5,628,541 5,512,845
=========== =========== =========== ===========
Diluted 5,751,360 5,677,173 5,727,175 5,683,347
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
April 30,
------------------------------
2005 2004
------------ ------------
Cash flows from operating activities:
Net income $ 2,975,000 $ 3,500,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 684,000 630,000
Provision for doubtful accounts, net of writeoffs (7,000) (456,000)
Unrealized (gain) on investments - (3,000)
Loss on sale of assets 3,000 -
Deferred income taxes 65,000 (58,000)
Tax benefit realized from the exercise of stock options by
employees - 99,000
Changes in assets and liabilities:
Accounts receivable (742,000) 509,000
Prepaid expenses and other 261,000 16,000
Income taxes receivable (334,000) (47,000)
Accounts payable, accrued expenses and other liabilities 241,000 (25,000)
Estimated third-party payor settlements (475,000) (59,000)
Deferred revenue 57,000 (21,000)
------------ ------------
Net cash provided by operating activities 2,728,000 4,085,000
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,016,000) (138,000)
Purchase of assets of business (4,293,000) -
------------ ------------
Net cash used in investing activities (5,309,000) (138,000)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 355,000 520,000
Purchase of treasury shares (349,000) (7,000)
Payment of cash dividend (843,000) -
------------ ------------
Net cash provided by (used in) financing activities (837,000) 513,000
------------ ------------
Net increase (decrease) in cash and cash equivalents (3,418,000) 4,460,000
Cash and cash equivalents-beginning of period 20,185,000 14,252,000
------------ ------------
Cash and cash equivalents-end of period $ 16,767,000 $ 18,712,000
============ ============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Taxes $ 2,059,000 $ 2,148,000
Interest $ 16,000 $ 15,000
See accompanying notes to consolidated financial statements.
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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 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, 2005 are not necessarily indicative of the results that may be
expected for the year ending July 31, 2005. 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, 2004.
NOTE 2 - ACQUISITIONS
On October 6, 2004, the Company, through a wholly-owned subsidiary in
Connecticut, acquired certain assets from On Duty Metropolitan Connecticut, LLC
("On Duty"). On Duty provided home health care services in New Haven and
Fairfield Counties. The purchase price of $1,078,000, including acquisition
costs of $103,000, was financed using internal funds. The acquisition was
accounted for as a purchase.
On April 12, 2005, the Company, through a wholly-owned subsidiary in New
Jersey, signed an agreement to acquire certain assets from Helping Hands Health
Care ("Helping Hands"). Helping Hands provided home health care services in
Bergen, Hudson, Passaic, Union, Middlesex, Somerset and Ocean County, New
Jersey. The purchase price of $3,152,000, including acquisition costs of
$152,000, was financed using internal funds. The acquisition was accounted for
as a purchase. The acquisition was completed on May 22, 2005. The purchase price
of $3,152,000 is included in deposits and other assets on the April 30, 2005
Balance Sheet of the Company.
NOTE 3 - RECLASSIFICATIONS
Certain reclassifications have been made in prior periods' financial
statements to conform to classifications used in the current period.
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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,
-----------------------
2005 2004
Shares Shares
--------- ---------
Basic EPS 5,664,124 5,547,431
Effect of dilutive securities 87,236 129,742
--------- ---------
Diluted EPS 5,751,360 5,677,173
========= =========
For the nine months ended
April 30,
-----------------------
2005 2004
Shares Shares
--------- ---------
Basic EPS 5,628,541 5,512,845
Effect of dilutive securities 98,634 170,502
--------- ---------
Diluted EPS 5,727,175 5,683,347
========= =========
-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, 2004 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 external factors that could significantly impact
its business, including potential reductions in reimbursement rates by Medicare,
Medicaid and other third party payers for the Company's services, retroactive
adjustments due to prior year audits, reviews and investigations, government
fraud and abuse initiatives and other such factors that are beyond the control
of the Company. These factors could cause future results to differ materially
from historical results.
As a Medicaid provider, the Company is subject to routine, unscheduled
audits. These audits may result in the application of a statistically-derived
adjustment factor to the Company's revenues, which may have an adverse impact on
the Company's results of operations. Although the audits to date have not
resulted in any material adjustments, such audits were conducted at a time when
the Company had significantly lower Medicaid revenues. There can be no assurance
that future Medicaid audits will not have a material adverse impact on the
Company.
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 the
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-
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specific per patient cost limit, based on 1994 costs adjusted for inflation.
Under IPS, most Medicare providers were actually reimbursed under an
agency-specific per patient cost limit. Effective October 1, 2000, 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 geographic differences in wages across
the country. Medicare provides home health agencies with payments for 60-day
"episodes of care".
The final phase of the Act implemented a 15% cut in Medicare reimbursement
rates effective October 1, 2002. In two 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 effect 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 43%, 42% and 47% of net patient revenue for the
fiscal years ended July 31, 2004, 2003 and 2002, respectively, were derived from
state sponsored Medicaid programs. 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.
RECENT MATTERS
On or about October 8, 2004, New England Home Care, Inc. ("New England'),
the Company's Medicare certified and state licensed home health care subsidiary
in Connecticut was notified by the Division of Health Systems Regulation for the
Connecticut Department of Public Health ("DPH") of New England's alleged lack of
compliance with a Condition of Participation and nine standards for continued
Certification for Participation in the Title XVIII Medicare Program ("Summary
Statement of Deficiencies"). On October 12, 2004, New England received notice
from DPH of alleged violation of Connecticut state regulations based on
substantially the same grounds as the Summary Statement of Deficiencies. DPH
notified New England that consideration for continued Medicare certification
would be based on New England's submission of a Plan of Correction addressing
the cited deficiencies and DPH's acceptance of that Plan of Correction by
November 12, 2004.
A Title XVIII Medicare Follow Up Survey was concluded at New England on
November 30, 2004. The results of the survey indicated that one Condition of
Participation and eight standards continued to be out of compliance. Although
New England disputes certain of the deficiencies cited by DPH, New England
intends to comply fully with DPH's direction and has submitted a Plan of
Correction. A further survey was taken on December 16, 2004. New England was
orally advised that the DPH was satisfied with the results of such survey. In
February 2005 the DPH submitted a proposed Consent Order to New England. The
Consent Order would
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resolve the pending allegations by the DPH, adopt certain policies substantially
in accordance with the Plan of Correction and remain in effect for two years.
The failure by New England to sign a consent order satisfactory to the DPH or
comply with it could result in a recommendation from DPH that New England's
Title XVIII Medicare participation be terminated and that New England no longer
be certified as an approved provider of services reimbursed under the Medicare
program and be prohibited from participating in that program as well as the
Medicaid program. Revenues derived from New England's participation in the
Medicare and Medicaid programs for the fiscal year ended July 31, 2004 were 32%
of the Company's total revenues for such period.
In December 2004, New York State adopted legislation to increase the State
minimum wage from $5.15 per hour to $7.15 over a two-year period. The law
increased the minimum wage to $6.00 per hour starting January 1, 2005. The
minimum wage will be raised to $6.75 on January 1, 2006 and again on January 1,
2007 to $7.15 per hour. This minimum wage legislation will impact the Company's
New York operations on two fronts. Firstly, the Company will be paying higher
base wages and secondly, overtime in New York is computed at 1.5 times the state
minimum wage, thus increasing overtime costs to the Company.
On May 13, 2005, Accredited Health Services, Inc., the Company's licensed
home care subsidiary in New Jersey received a copy of a Petition for
Certification of Representative, pursuant to the provisions of the National
Labor Relations Act. The Company has had a preliminary meeting before the
National Labor Relations Board ("NLRB") in Newark, New Jersey with SEIU 1199 New
Jersey Health Care Union, AFL-CIO ("SEIU 1199") to address certain issues
regarding the Petition and timing of any election. It is expected that a union
vote will be held on a to be determined date by the NLRB. The Company has begun
informing its employees of their rights.
RESULTS OF OPERATIONS AND EFFECTS OF INFLATION
THREE MONTHS ENDED APRIL 30, 2005 COMPARED TO THREE MONTHS ENDED APRIL 30, 2004.
NET PATIENT REVENUE. For the three months ended April 30, 2005, net
patient revenue increased $462,000, or 1.9%, to $24,201,000 from $23,739,000 for
the three months ended April 30, 2004. This increase was attributable to an
increase in net patient revenue of $832,000, resulting from the Company's
expansion in New Jersey, Connecticut and Massachusetts, partially offset by (i)
a decrease of $208,000 as a result of fewer hours being subcontracted to the
Company from other Medicare certified agencies in New York and the Company
terminating operations in Suffolk County, New York in May 2004, and (ii) a
decrease of $160,000 in staffing revenue as a result of the Company terminating
its staffing operations in New York and New Jersey during the fiscal year ended
July 31, 2004. The increase in Connecticut was partially attributable to
increased Medicaid reimbursement rates for certain nursing visits effective May
1, 2004 and the acquisition of On Duty. Net patient revenue for the three months
ended April 30, 2004 included a retroactive amount of $739,000, representing the
increase in Medicaid reimbursement rates in Connecticut for the period July 1,
2003 through April 30, 2004.
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GROSS PROFIT. Gross profit margin decreased to 32.5% for the three months
ended April 30, 2005 from 36.1% for the three months ended April 30, 2004. This
decrease is attributable to (i) higher wages paid to home health aides in New
York as a result of the union contract that was effective May 2004 and the
increase in the minimum wage in New York that was effective January 2005, (ii) a
nonrecurring payment of $255,000 in retroactive wages to home health aides that
worked on Medicaid cases in Westchester County, New York during calendar year
2004, in conformity with the living wage law that was enacted in Westchester
County, New York for 2004, (iii) increases in direct payments to all caregivers
and increased worker compensation costs and (iv) the retroactive amount of
$739,000 received in the three months ended April 30, 2004.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$720,000, or 12.2%, to $6,615,000 for the three months ended April 30, 2005 from
$5,895,000 for the three months ended April 30, 2004. This increase is primarily
attributable to (i) increased legal and consulting fees in Connecticut resulting
from the DPH survey, (ii) increased administrative personnel in Connecticut to
cure the deficiencies resulting from the DPH survey and (iii) increases in
administrative personnel and occupancy costs resulting from the expansion of
operations in New Jersey and Massachusetts. As a percentage of net patient
revenue, general and administrative expenses increased to 27.3% for the three
months ended April 30, 2005 from 24.8 % for the three months ended April 30,
2004.
AMORTIZATION. Amortization of intangibles increased $11,000, or 8.6%, to
$139,000 for the three months ended April 30, 2005 from $128,000 for the three
months ended April 30, 2004. This increase is attributable to the acquisition of
On Duty in October 2004.
PROVISION FOR POSSIBLE LOSSES. The Company recorded a provision for
possible losses of $88,000 for the three months ended April 30, 2005, as
compared to $680,000 for the three months ended April 30, 2004. The Company set
up allowances for accounts receivable balances from certain Medicare certified
home health care agencies in the amount of $600,000 in the prior three-month
period, as the Company anticipated not receiving certain payments in accordance
with contract terms.
INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations decreased $841,000, or 44.9% to $1,032,000 for the three months ended
April 30, 2005 from $1,873,000 for the three months ended April 30, 2004.
INTEREST INCOME. Interest income increased $39,000, or 90.7%, to $82,000
for the three months ended April 30, 2005 from $43,000 for the three months
ended April 30, 2004. This increase is attributable to the higher cash balances
of the Company and increased interest rates.
INCOME TAXES. The Company's effective tax rate decreased to 31.7 % for
the three months ended April 30, 2005 from 36.7% for the three months ended
April 30, 2004. 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, 2004.
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NET INCOME. Net income decreased $452,000, or 37.3%, to $761,000, or $.13
per diluted share, in the three months ended April 30, 2005 from $1,213,000, or
$.21 per diluted share, in the three months ended April 30, 2004.
NINE MONTHS ENDED APRIL 30, 2005 COMPARED TO NINE MONTHS ENDED APRIL 30, 2004
NET PATIENT REVENUE. For the nine months ended April 30, 2005, net patient
revenue increased $1,568,000, or 2.2%, to $72,590,000 from $71,022,000 for the
nine months ended April 30, 2004. This increase was attributable to an increase
in net patient revenue of $4,607,000, resulting from the Company's expansion in
New Jersey, Connecticut and Massachusetts, partially offset by (i) a decrease of
$1,697,000 as a result of fewer hours being subcontracted to the Company from
other Medicare certified agencies in New York and the Company terminating
operations in Suffolk County, New York in May 2004 and (ii) a decrease of
$1,342,000 in staffing revenue as a result of the Company terminating its
staffing operations in New York and New Jersey during the fiscal year ended July
31, 2004. The increase in Connecticut was partially attributable to increased
Medicaid reimbursement rates for certain nursing visits effective May 1, 2004
and the acquisition of On Duty. Net patient revenue for the nine months ended
April 30, 2004 included a retroactive amount of $739,000, representing the
increase in Medicaid reimbursement rates in Connecticut for the period July 1,
2003 through April 30, 2004.
GROSS PROFIT. Gross profit margin decreased to 33.7% for the nine months
ended April 30, 2005 from 34.3% for the nine months ended April 30, 2004. This
decrease was attributable to (i) higher wages paid to home health aides in New
York as a result of the union contract that was effective May 1, 2004 and the
increase in the minimum wage in New York that was effective January 2005, (ii) a
nonrecurring payment of $255,000 in retroactive wages to home health aides that
worked on Medicaid cases in Westchester County, New York during calendar year
2004, in conformity with the living wage law that was enacted in Westchester
County, New York for 2004, (iii) increases in direct payments to all caregivers
and increased worker compensation costs and (iv) the retroactive amount of
$739,000 received in the nine months ended April 30, 2004.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$1,670,000, or 9.5%, to $19,238,000 for the nine months ended April 30, 2005
from $17,568,000 for the nine months ended April 30, 2004. This increase is
primarily attributable to (i) increased legal and consulting fees in Connecticut
resulting from the DPH survey, (ii) increased administrative personnel in
Connecticut to cure the deficiencies resulting from the DPH survey and (iii)
increases in administrative personnel and occupancy costs resulting from the
expansion of operations in New Jersey and Massachusetts. As a percentage of net
patient revenue, general and administrative expenses increased to 26.5% for the
nine months ended April 30, 2005 from 24.7% for the nine months ended April 30,
2004.
AMORTIZATION. Amortization of intangibles increased $28,000, or 7.3%, to
$411,000 for the nine months ended April 30, 2005 from $383,000 for the nine
months ended April 30, 2004. This increase is attributable to the acquisition of
On Duty in October 2004.
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PROVISION FOR POSSIBLE LOSSES. The Company recorded a provision for
possible losses of $258,000 for the nine months ended April 30, 2005, as
compared to $840,000 for the nine months ended April 30, 2004. This decrease is
explained in the above three-month discussion.
INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations decreased $970,000, or 17.5%, to $4,573,000 for the nine months ended
April 30, 2005 from $5,543,000 for the nine months ended April 30, 2004.
INTEREST INCOME. Interest income increased $94,000, or 94.9%, to $193,000
for the nine months ended April 30, 2005 from $99,000 for the nine months ended
April 30, 2004. This increase is attributable to the higher cash balances of the
Company and increased interest rates.
INCOME TAXES. The Company's effective tax rate decreased to 37.6% for the
nine months ended April 30, 2005 from 38.0% for the nine months ended April 30,
2004. This decrease is attributable to an increase in work opportunity tax
credits in the current nine-month period.
NET INCOME. Net income decreased $525,000, or 15.0%, to $2,975,000, or $.52
per diluted share, in the nine months ended April 30, 2005 from $3,500,000, or
$.62 per diluted share, in the nine months ended April 30, 2004.
The rate of inflation had no material effect on operations for the nine
months ended April 30, 2005.
FINANCIAL CONDITION AND CAPITAL RESOURCES
Current assets decreased to $37,098,000 and current liabilities decreased
to $4,243,000 at April 30, 2005. This resulted in a decrease in working capital
of $2,314,000 from $35,169,000 at July 31, 2004 to $32,855,000 at April 30,
2005. Cash and cash equivalents decreased $3,418,000 to $16,767,000 at April 30,
2005 from $20,185,000 at July 31, 2004. The decrease in cash and cash
equivalents was primarily attributable to the acquisition of On Duty in October
2004, the prepayment of the purchase price for Helping Hands in April 2005 and
the payment of cash dividends of $843,000 during the current fiscal year.
Operating activities provided net cash of $2,728,000 for the nine months
ended April 30, 2005 as compared to net cash provided by operating activities of
$4,085,000 for the nine months ended April 30, 2004. The decrease in net cash
provided by operating activities of $1,357,000 is attributable to an increase in
operating assets of $1,293,000, a decrease in operating liabilities of $72,000,
offset by an increase in operating cash flow of $8,000 over the comparable
period for the nine months ended April 30, 2004.
The net cash used in investing activities for the nine months ended April
30, 2005 consisted of the purchase of assets of business and the purchase of
equipment. Net cash used in investing activities for the nine months ended April
30, 2004 consisted of the purchase of equipment.
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The net cash used in financing activities for the nine months ended April
30, 2005 consisted of the purchase of treasury shares and the payment of a cash
dividend, partially offset by the proceeds from stock option exercises. The net
cash provided by financing activities for the nine months ended April 30, 2004
consisted of the proceeds from stock option exercises, partially offset by 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 in 90 to 120 days with respect to contracted and
insurance business and 8 to 45 days with respect to certain governmental payers,
such as Medicare and Medicaid programs. Accounts receivable turnover was 75 days
at both April 30, 2005 and April 30, 2004.
The Company has a $7,500,000 committed revolving line of credit facility
(the "credit facility") with its bank. The credit facility allows 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 in arrears. At April 30, 2005, there
was no outstanding balance under the credit facility.
In June 2004, the Board of Directors extended the Company's program to
repurchase its Common Stock for an additional year. Purchases of up to
$3,000,000 will be made from time to time in the open market and through
privately negotiated transactions, subject to general market and other
conditions. The buyback program will be financed out of existing cash or cash
equivalents.
The Company intends to incur additional capital expenditures of
approximately $500,000 during the fiscal year ended July 31, 2005 in connection
with the implementation of new computer software systems and hardware. The
Company has spent approximately $1,000,000 to date on this implementation. The
new hardware is 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, acquisitions and
cash dividends declared by the Board of Directors and otherwise meet its short
term and long term liquidity needs from its current cash balances, cash flow
from operations and its credit facility.
CONTRACTUAL OBLIGATIONS
The Company rents various office facilities through 2008 under terms of
several lease agreements that include escalation clauses. At April 30, 2005,
minimum rental commitments under noncancellable operating leases are as follows:
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Operating Leases
Less than 1 year $724,000
1-3 years $385,000
3-5 years -0-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
None.
ITEM 4. CONTROLS AND PROCEDURES.
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the reports that the
Company is required to file under the Securities Exchange Act of 1934 (the
"Exchange Act Reports") is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including the principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. The
Company's management necessarily has applied its judgment in assessing the costs
and benefits of such controls and procedures, which, by their nature, can
provide only reasonable assurance regarding management's control objectives.
Management believes that there are reasonable assurances that our controls and
procedures will achieve management's control objectives.
Prior to the filing date of this report, the Company carried out an
evaluation, under the supervision and with the participation of its management,
including the President and Chief Executive Officer and the Vice President of
Finance and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15 as of April 30, 2005. Based upon that evaluation, the
President and Chief Executive Officer and the Vice President of Finance and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (and its consolidated subsidiaries) required to be
included in its Exchange Act Reports.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
The evaluation referred to above did not identify any changes in the
Company's internal controls over financial reporting that occurred during the
quarter ended April 30, 2005 that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In October 2003, New England received a subpoena from the United States
Attorney's Office in New Haven, Connecticut. The subpoena sought 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
New England. 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. New England has produced documents
in response to the subpoena and intends to continue to cooperate with the
investigation.
ITEM 6. EXHIBITS.
The following exhibits are filed herewith:
Exhibit
Number Description
------ -----------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal
Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer.
32.1 Section 1350 Certification of Principal Executive Officer.
32.2 Section 1350 Certification of Principal Financial Officer.
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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, 2005 /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
Number Description
------ -----------
31.1* Rule 13a-14(a)/15d-14(a) Certification of Principal
Executive Officer.
31.2* Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer.
32.1* Section 1350 Certification of Principal Executive Officer.
32.2* Section 1350 Certification of Principal Financial Officer.
- ----------
* Filed herewith
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