Caretenders sells its product operations to focus on adult day care

By MEREDITH BONNER

HHBR Editor

Caretenders (Louisville, KY) has decided to get out of the home care business and focus solely on its more lucrative adult day care services unit.

The company sold its product operations, which include its infusion therapy and respiratory and medical equipment business, to Lincare Holdings (Clearwater, FL) for $14.5 million and is also pursuing strategic alternatives for its visiting nurse operations. Caretenders Chairman/ CEO William Yarmuth said the company is looking at "a full range of possibilities, from shutting the operations down to selling (the unit)."

Before the sale of the product operations unit, Caretenders had about 3,500 workers. The vast majority of those product workers now work for Lincare, the company said, while the visiting nurses will continue at Caretenders until the fate of that unit is decided.

Caretender’s home care operations have been hit hard by the Medicare reimbursement cuts, as have home care operations throughout the industry.

The company reported a net loss in 2Q99 of $4.8 million, $1.53 per share, compared to a net loss in 2Q98 of $156,133, 5 cents per share. But the loss includes a one-time, net-of-tax charge of $5 million, $1.60 per share, which was incurred as a result of the operational separation. Excluding the product operations and visiting nurse unit, the company’s day care operations brought in net operating income of $199,388, 6 cents per share, in 2Q99. In 2Q99 ended Sept. 30, Caretenders saw total revenues of $11.1 million, compared to 2Q98 revenues of $9.9 million.

CFO Steve Guenthner told the Courier-Journal, of Louisville, that the "improvement year to year is really being driven by increased occupancy" in the day centers. The occupancy rate improved from 69% in 2Q98 to 74% in 2Q99. And the day care center operations have grown from last year, when the company had 22 day care centers. As of March 31, the company had 25 day care centers. In contrast, the company had 43 home care units last year, and only 12 as of March 31.

Caretenders said proceeds from the sale are being used to repay obligations outstanding under the company’s bank line of credit. Immediately after closing, $4 million remained outstanding on the line of credit. The company has retained certain assets and liabilities associated with the product operations, the liquidation of which is expected to generate additional proceeds of $3 million, thus reducing the company’s bank borrowings to nearly zero. Borrowing capacity will then be available to the company to pursue further development of the adult day care business.

"We are very excited to now be able to focus our undivided energy on our adult day health services operations, and we are pleased that the product transaction will provide us with improved access to the capital we need to grow, "Yarmuth said. "We believe the opportunities available to us to maximize shareholder value are much stronger in adult day care that in the other divisions. This realignment will enable us to be almost entirely debt-free, have borrowing capacity available to fund growth, and deliver higher earnings per share to our shareholders."

According to Yarmuth, the company also believes opportunities for employees in the product and visiting nurse divisions will improve as a result of the realignment. "They will benefit from the dedicated focus on their specialty areas," he said. "We will continue to work diligently to ensure smooth transitions for employees, patients, and referral sources."