-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DVFcP/Xob/ZwWahUcDxmRmr5D93m/tFj07T650PycuHuWgksIWClvpYJC4B5TxNV KLATSiROKP+g0qczB0wWNg== 0000354761-96-000006.txt : 19961120 0000354761-96-000006.hdr.sgml : 19961120 ACCESSION NUMBER: 0000354761-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961118 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL HEALTH AFFILIATES INC CENTRAL INDEX KEY: 0000354761 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 222362097 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09255 FILM NUMBER: 96668527 BUSINESS ADDRESS: STREET 1: 900 SYLVAN AVE CITY: ENGLEWOOD CLIFFS STATE: NJ ZIP: 07632 BUSINESS PHONE: 2015674600 MAIL ADDRESS: STREET 1: 900 SYLVAN AVENUE CITY: ENGLEWOOD STATE: NJ ZIP: 07632 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 OR 15 (d) of the Securities Exchange Act of 1934 For the quarter ended September 30, 1996 Commission file number 0-11895 CONTINENTAL HEALTH AFFILIATES, INC. (Exact name of registrant as specified in its charter) Delaware 22-2362097 (State of other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 910 Sylvan Avenue Englewood Cliffs, NJ 07632 (Address of principal executive offices) Registrant's telephone number, including area code (201) 567 - 4600 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 short 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 As of November 6, 1996, the Registrant had outstanding 9,291,166 shares of its $.01 par value Common Stock. CONTINENTAL HEALTH AFFILIATES, INC. Index Page Number PART I - FINANCIAL INFORMATION: Item 1 Consolidated Balance Sheets September 30, 1996 (Unaudited) and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 2 Consolidated Statements of Operations (Unaudited) for the three months ended September 30, 1996 and 1995 . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows (Unaudited) for the three months ended September 30, 1996 and 1995 . . . . . . . . . . . . . 4 Notes to Unaudited Consolidated Financial Statements . . . . . . 5 - 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . .7 - 10 PART II - OTHER INFORMATION 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 CONTINENTAL HEALTH AFFILIATES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) September 30 June 30, Assets 1996 1996 (Unaudited) Current assets: Cash and cash equivalents $1,211 $2,900 Patients' funds 190 184 Accounts receivable, net of allowances for uncollectible accounts of $4,370 and $4,193 11,876 10,177 Inventories 2,339 1,996 Deferred income taxes 822 822 Prepaid expenses and other current assets 1,775 1,151 Total current assets 18,213 17,230 Property and equipment, at cost, net of accumulated depreciation and amortization of $4,747 and $4,363 54,211 54,453 Deferred income taxes 52 52 Other assets 3,651 3,837 Total assets $76,127 $75,572 Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $103 $128 Current portion of long-term debt 2,811 3,355 Accounts payable 7,737 7,913 Other current liabilities 6,769 5,789 Total current liabilities 17,420 17,185 Long-term debt, net of current portion 50,799 50,574 Deferred income 40 72 Other liabilities 8 16 Minority interest in subsidiary 2,142 2,029 Mandatorily redeemable preferred stock (includes $216 current portion) 3,500 3,500 Commitments and contingencies Stockholders' equity: Preferred stock, $.02 par value; $100 liquidation preference; 1,000,000 shares authorized; 13,884 shares outstanding 1 1 Common stock, $.02 par value; 15,000,000 shares authorized; 9,288,716 and 9,286,216 shares outstanding 188 186 Additional paid-in capital 21,438 21,470 Accumulated deficit (19,409) (19,461) Total stockholders' equity 2,218 2,196 Total liabilities and stockholders' equity $76,127 $75,572
See accompanying notes to consolidated financial statements. CONTINENTAL HEALTH AFFILIATES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) (Unaudited) Three months ended September 30, 1996 1995 Revenues: Nursing home services $12,012 $9,336 Infusion therapy and other medical services 6,782 6,302 Total revenues 18,794 15,638 Operating expenses: Personnel 8,777 7,442 Medical and nutritional product 3,123 3,218 Health care and lodging 2,564 2,735 Selling, general and administrative 1,654 1,501 Provision for uncollectible accounts 249 432 Depreciation and amortization 491 176 Total operating expenses 16,858 15,504 Income from operations 1,936 134 Interest and dividend income 29 91 Interest and other financing costs (1,719) (242) Other income, net 108 314 Minority interest in loss (earnings) of subsidiary (113) (87) Income before income taxes 241 210 Provision for income taxes 189 -- Net income 52 210 Preferred dividends (35) (35) Net income available to common shareholders $17 $175 Earnings per share: Net income available to common shareholders $0.00 $0.02 Weighted average number of common and common equivalent shares 9,783,350 7,941,409
See accompanying notes to consolidated financial statements. CONTINENTAL HEALTH AFFILIATES, INC. Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Three months ended September 30, 1996 1995 Operating activities: Net income $52 $210 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 491 176 Amortization of deferred financing costs 43 15 Provision for uncollectible accounts 249 432 Amortization of deferred income (32) (292) Provision for deferred income taxes 189 -- (Gain) loss on foreign currency debt (77) (24) Minority interest 113 87 Increase (decrease) in cash due to changes in: Accounts receivable (1,948) (1,394) Inventories (343) 144 Prepaid expenses and other current assets (624) (434) Other assets 143 (19) Accounts payable (176) 1,206 Other current liabilities 796 663 Other liabilities (8) (244) Net cash provided by (used in) operating activities (1,132) 526 Investing activities: Expenditures for property and equipment (249) (99) Net cash provided by (used in) investing activities (249) (99) Financing activities: Conversion of trade payables into notes 904 -- Net proceeds from long-term borrowings -- 515 Payments of short-term borrowings (492) (736) Payments of long-term borrowings (685) (114) Payment of preferred dividends (35) (35) Net cash used in financing activities (308) (370) Net increase (decrease) in cash and cash equivalents (1,689) 57 Cash and cash equivalents, beginning of the period 2,900 546 Cash and cash equivalents, end of the period $1,211 $603 Supplemental disclosure of cash flow data: Interest paid $1,276 $100 Income taxes paid $53 $0
See accompanying notes to consolidated financial statements. CONTINENTAL HEALTH AFFILIATES, INC. (Unaudited) Notes to Consolidated Financial Statements 1. The Company The Company's operations consist primarily of nursing home services and infusion therapy and other medical services. Nursing home services include the ownership, leasing, operation and management of nursing homes. Infusion therapy and other medical services include enteral and other medical services, primarily for patients in nursing homes, and intravenous and other infusion therapies for patients at home and in nursing homes. The Company is subject to certain risks and uncertainties as a result of changes that could occur in the healthcare industry, including Medicare and Medicaid reimbursement rates. 2. Basis of Presentation The consolidated financial statements include the accounts of Continental Health Affiliates, Inc. ("Continental") and its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Continental owns 59% of the common stock of Infu-Tech, Inc. ("Infu-Tech"); the other 41% is publicly traded. The minority interest in the consolidated financial statements represents the minority stockholders' proportionate share of equity in Infu-Tech. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to 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 accrual adjustments, considered necessary for a fair presentation have been included. In addition, during the quarter, management reviewed various estimates of certain liabilities and the adequacy of bad debt provisions and recorded an aggregate of $312,000 as credits. These are discussed in the management discussion and analysis section. Operating results for the three month period ended September 30, 1996, are not necessarily indicative of the results that may be expected for year end June 30, 1997. These financial statements and notes should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1996. 3. Subsequent Event On October 4, 1996, the Company completed an exchange offer to holders of its 14 % Subordinated Debentures that were due on September 1, 1996. The Company offered for each $1,000 principal amount of subordinated debentures a share of a new 11% convertible Preferred Stock with a liquidation preference of $1,000. Of the total of $1.2 million subordinated debentures outstanding, $474,000 principal elected to exchange into Series A 11% Convertible Preferred Stock. CONTINENTAL HEALTH AFFILIATES, INC. (Unaudited) Notes to Consolidated Financial Statements The new Preferred Stock will be convertible for three years into Continental Health common stock which, at the time of conversion, has a market value totalling 110% of the liquidation preference of the Preferred Stock. After the three years, the Preferred Stock will be convertible into common stock which has a market value totalling 100% of the liquidation preference of the Preferred Stock. Holders of the Preferred Stock will be entitled to dividends totalling $110 per share per year, equal to 11% of the liquidation preference of the Preferred Stock. After three years, Continental Health will have the right either to (1) redeem the Preferred Stock for $1,000 per share or (2) convert the outstanding Preferred Stock into Continental Health common stock which has a market value at the time of conversion equal to 100% of the liquidation preference of the Preferred Stock. 4. Cash and Cash Equivalents Cash and cash equivalents at September 30, 1996 and June 30, 1996 includes $1,094,000 and $691,000 respectively, held by Infu-Tech. In connections with Infu-Tech's initial public offering, a management and non-competition agreement between Continental and its 59% owned subsidiary, Infu-Tech, expiring September 30, 1997, prohibits Infu-Tech from lending money to (or borrowing money from) Continental and its other subsidiaries subsequent to December 31, 1992. The Company classifies all highly liquid investments with maturities of three months or less when purchased as cash equivalents. CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Results of Operations Three Months Ended September 30, 1996 and 1995 (Unaudited) Total revenues were $3,156,000, or 20% higher for 1996 compared to 1995 in part because of revenues of $2,681,000 pertaining to the Heritage Facility acquired in October 1995. Revenues were negatively impacted by $535,000 attributable to the low census at the West Palm Beach, Florida nursing home as a result of a suspension of admissions which was removed in May 1996 and low occupancy during the summer in Florida. Nursing home services revenues increased by $2,676,000, or 29%. Excluding revenues pertaining to the Heritage Facility, nursing home services revenues decreased by $5,000. Infusion therapy and other medical services revenues increased by $480,000, or 8%, from $6,302,000 in 1995 to $6,782,000 in 1996, primarily due to a $168,000, or 4%, increase in home infusion division revenues which was caused by a 11% increase in the number of patients serviced with improved pricing. Due to the passage of time, it appeared that claims, against which the Company had established reserves, would not be made. Accordingly, during the quarter, the Company extinguished the reserves, resulting in $167,000 in revenue in the quarter. Personnel costs increased by $1,335,000, or 18%. Excluding the Heritage Facility, personnel costs decreased by $102,000, or 1%. Costs of medical and nutritional products sold to patients and other customers decreased by $95,000, or 3%, from $3,218,000 in 1995 to $3,123,000 in 1996. As a percentage of infusion therapy and other medical services revenues, medical and nutritional product costs was 46% in 1996 and 51% in 1995. Infu-Tech is participating in group purchasing programs that make bulk purchases more economical and the cost of nutritional product for the quarter was based upon a physical inventory count at September 30, 1996. Health care and lodging expenses, which are incurred in connection with nursing home services, decreased by $171,000 or 6% due to a $749,000 decrease of rent expense as a result of the acquisition of nursing homes which were previously leased, offset by expenses of the Heritage Facility. Excluding the Heritage Facility, health care and lodging expenses decreased by $688,000 or 25%. Selling, general and administrative costs increased by $153,000 or 10%. Excluding the Heritage Facility, selling, general and administrative costs increased by $87,000, or 6% primarily due to an increase in legal fees and the engagement of an investor relations firm. The provision for uncollectible accounts was 1.3% of revenues in 1996 and 2.8% in 1995. The reduced provision included the effects of a $146,000 reduction in the reserve for uncollectible accounts as a result of revised estimates of collectibility. CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations As a result of the acquisition of four facilities in the October 31, 1995 refinancing, depreciation and amortization expenses increased by $315,000 and interest and other financing costs increased by $1,477,000. Other income of $108,000 in 1996 consisted of amortization of deferred income of $32,000 and an unrealized foreign currency translation gain of $76,000. Other income of $314,000 in 1995 consisted of amortization of deferred income of $290,000 and an unrealized foreign currency translation gain of $24,000. Minority interest in profit of subsidiary of $113,000 in 1996 and $87,000 in 1995 represents the portion of the net income of Infu-Tech allocable to minority stockholders. The provision for income taxes in fiscal 1996 reflects the utilization of the Company's net operating losses in the prior fiscal year. The preferred stock dividend related to 5% exchangeable preferred stock. Dividends on subsidiaries' preferred stock issued as part of the October 31, 1995 refinancing are accounted for under interest and financing costs. The net income for the quarter was negatively impacted due to the low occupancy rate at the Company's West Palm Beach, Florida, long term care facility. Its operating loss was $391,000. On the other hand, during the quarter, the adjustments in the accounts receivable reserves and related liabilities, as discussed above, increased first quarter consolidated results by $312,000. The net income available to common shareholders in 1996 was $17,000 or 0 cents per share compared to net income available to common shareholders in 1995 of $175,000 or 2 cents per share. Liquidity and Capital Resources At September 30, 1996, the Company had stockholders' equity of $2,218,000 and total liabilities of $71,767,000. The total liabilities at September 30, 1996 included debt of $54,299,000, which included SFr 735,795 (approximately $494,000) principal amount of 6% Swiss franc denominated convertible bonds which remain unpaid although they matured on June 27, 1995 (the "Bonds"); SFr 619,500 (approximately $494,000) principal amount of 8% Swiss franc denominated bonds due June 27, 1998; $272,000 principal amount of a secured loan ("Secured Loan") due November 1997; $1,213,000 principal amount of 8% notes due 1999; and $3,400,000 principal amount of 6% notes due 2003. On October 4, 1996, an Exchange Offer made by the Company to exchange shares of a new 11% Convertible Preferred Stock for all its remaining 14-1/8% Subordinated Debentures due September 1, 1996 expired. $474,000 face amount of debentures were exchanged and $474,000 was returned to the Company from the escrow account which had been established with the Trustee to repay the holders. On October 31, 1995, the Company made a 15 year borrowing of $41.0 million secured by mortgages on four of the Company's nursing homes and a five year borrowing of $1.5 million secured by 8 acres of land in West Orange, New Jersey. In addition, four subsidiaries of the Company sold preferred stock for a total of $3.5 million. The $46.0 million borrowing (three of which previously had been operated by the Company under leases and the fourth of which the Company had sold in 1990 and managed under CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations a management contract since then) and to repay $301,000, and extend the balance of a $601,000 secured note which would have matured in December 1995. At the same time, the Company converted $1,476,000 of trade payables into a three year note. Subsequently, in September 1996 the Company converted an additional $904,467 of trade payables into one to three year notes. The current portion of the total borrowings issued on October 31, 1995 totals $1.2 million. When the Bonds matured on June 27, 1995, SFr 2,900,000 (approximately $2,525,000) principal amount, together with accrued interest of SFr 174,000 (approximately $152,000), was outstanding. Between June 30, 1995 and June 30, 1996, the Company acquired SFr 2,164,000 principal amount of Bonds, including accrued interest on those Bonds, for a total of SFr 1,122,375 and $315,000 plus a SFr 619,500 note maturing in June 1998. In September 1996, the Company deposited $78,000 with its agent in Switzerland against SFr 85,000 principal amount of Bonds (with interest) being redeemed. The Company's cash and cash equivalents balance decreased from $2,900,000 at June 30, 1996 to $1,211,000 at September 30, 1996. Included in the September 30, 1996 balance is $1,094,000 held by Infu-Tech. In connections with the initial public offering of Infu-Tech common stock, the Company entered into a management and non-competition agreement with Infu-Tech, expiring September 30, 1997, which prohibits Infu-Tech from lending money to (or borrowing money from) the remainder of the Company. The Company in total used $1,132,000 of cash in operating activities primarily due to an increase in accounts receivable of $1,948,000, an increase in prepaid and other current assets of $624,000, a decrease in accounts payable of $176,000 offset by an increase in other current liabilities of $796,000 and net income of $52,000. Of the $1,948,000 increase in accounts receivable, $1,041,000 is attributable to Infu-Tech. At September 30, 1996, the balance in net accounts receivable for Infu-Tech was 13% higher than the balance at June 30, 1996. Infu-Tech's overall outstanding net accounts receivable has increased from 84 days sales at June 30, 1996 to 91 days sales at September 30, 1996, primarily as a result of a slow down in payments from Medicare and managed care companies. Medicare payments have been delayed due to changes in reimbursement policies, while managed care companies have experienced delays in processing payments due to a higher volume of claims. As a result, Infu- Tech has experienced increased delays in having its claims processed as well as an increase in the number of initial claims rejected. This is an industry-wide problem and Infu-Tech believes that claims processing will improve and the days' sales outstanding of accounts receivable will decrease as these problems are resolved. The increase in accounts receivable attributable to the nursing home division was due to an accrual of retroactive Medicare payments resulting from anticipated rate adjustments. The Company (excluding Infu-Tech) used $1,566,000 of cash in operating activities. The Company has no arrangements under which it can make borrowings. At September 30, 1996, the Company had working capital of $793,000. Excluding Infu-Tech, which had working capital of $4.9 million, the Company's working capital was a deficit of $4,145,000. Further, at September 30, 1996, Infu- Tech's cash and cash equivalents of $1,094,000 were $403,000 more than the balance of $691,000 at June 30, 1996 and its accounts payable of $3,735,000 were $956,000 higher than the $2,779,000 at June 30, 1996. During the quarter ended September 30, 1996, the Company repaid $685,000 of long-term borrowings and paid preferred dividends of $35,000. At September 30, 1996, the Company had approximately $2.8 million of debt due in 1997 primarily CONTINENTAL HEALTH AFFILIATES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations relating to the Nomura financing debt (the October 1995 loan used to acquire four nursing homes). In November 1996, the Company will begin to make mandatory redemption payments of its subsidiaries' Preferred Stock of $73,000 per month (principal and interest). The Company does not have any material commitments for capital expenditures. The Company believes that it will be able to generate sufficient funds to meet ongoing obligations from operating cash flow or the realization of assets into cash. CONTINENTAL HEALTH AFFILIATES, INC. Part II Other Information Item 1 Legal Proceedings The action entitled Rubin v. Continental Health Affiliates as reported in the annual report on Form 10-K (item 3) for the year ended June 30, 1996, has been settled. The settlement does not have a material adverse effect upon the Company's financial condition or results of operations. The West Palm Beach, Florida nursing home was re-surveyed in October 1996 and found to be in substantial compliance thereby abrogating further regulatory action. Settlement of a proposed fine recommended by the State agency because of prior state survey deficiencies would not have a material adverse effect upon the Company's financial condition or results of operations. Item 2 Changes in Securities NONE Item 3 Defaults Upon Senior Securities NONE Item 4 Submission of Matters to Vote of Security Holders NONE Item 5 Other Information NONE Item 6 Exhibits and Reports on Form 8-K A. Exhibits - The following exhibits are filled herewith or incorporated herein. .1 Calculation of earnings per share - three months ended September 30, 1996. .2 Calculation of earnings per share - three months ended September 30, 1995. B. Reports on Form 8-K during the quarter ended September 30, 1996: NONE CONTINENTAL HEALTH AFFILIATES, INC. 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. Continental Health Affiliates, Inc. Date November 18, 1996 /s/ Jack Rosen Jack Rosen Chairman and Director (Chief Executive Officer) Date November 18, 1996 /s/ S. Colin Neill S. Colin Neill Vice President and Chief Financial Officer Exhibit A.1 CONTINENTAL HEALTH AFFILIATES, INC. Calculation of Earnings Per Share (Unaudited) Three Months ended September 30, 1996 Primary Net income available to common shareholders $ 17,000 Adjustment of shares outstanding: Weighted average number of shares outstanding 9,288,216 Average net additional equivalent shares issuable 495,134 Weighted average number of common shares and common shares equivalent 9,783,350 Earnings per share $ 0 Exhibit A.2 CONTINENTAL HEALTH AFFILIATES, INC. Calculation of Earnings Per Share (Unaudited) Three Months ended September 30, 1995 Primary Net income available to common shareholders $ 175,000 Adjustment of shares outstanding: Weighted average number of shares outstanding 7,941,409 Average net additional equivalent shares issuable --- Weighted average number of common shares and common shares equivalent 7,941,409 Earnings per share $ 0.02 EX-27 2
5 3-MOS JUN-30-1997 SEP-30-1996 1,211,000 0 16,246,000 4,370,000 2,339,000 18,213,000 58,958,000 4,747,000 76,127,000 17,420,000 50,799,000 3,500,000 1,000 188,000 2,029,000 76,127,000 18,794,000 18,794,000 3,123,000 16,858,000 0 249,000 1,719,000 241,000 189,000 52,000 0 0 0 17,000 0 0
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