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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
Commission file number 1-9848
ALMOST FAMILY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1153720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Mallard Creek Road, Suite 400,
Louisville, Kentucky 40207
(Address of principal executive offices) (Zip Code)
(502) 899-5355
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- ------------------------
Common Stock, par value $.10 per share NASDAQ SmallCap System
Preferred Stock Purchase Rights
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 if disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ____X__
-
As of June 12, 2001, 2,510,062 shares of the Registrant's Common Stock were
outstanding. The aggregate market value of Registrant's Common Stock held by
non-affiliates of the Registrant as of June 12, 2001 was approximately
$18,200,000 (based on the last sale price of a share of the common stock as of
June 12, 2001 ($7.25), as reported by the National Association of Securities
Dealers, Inc. ("NASDAQ") SmallCap System).
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
24
PART I
ITEM 1. BUSINESS
Strategic Mission Statement
Almost Family, Inc TM. and subsidiaries (collectively "Almost Family " or the
"Company") provide alternatives for seniors and other adults with special needs
and their families who wish to avoid nursing home placement as long as possible
and remain independent, through its network of adult day care centers and
ancillary services. The Company was incorporated in Delaware in 1985. On January
31, 2000 the Company changed its name to Almost Family, Inc. from Caretenders
(R) HealthCorp.
Adult Day Health Services
Adult day health services is an alternative method of providing care for seniors
and other adults who without such care would likely be institutionalized. The
field has grown rapidly, from just 15 centers in the United States in the early
1970s to over 4,000 today. Still in its early stages, the industry is highly
fragmented with the majority of adult day health centers operated by the
non-profit sector. To the best of its knowledge and belief, Almost Family, Inc.
is one of the largest for-profit providers of adult day care services in the
U.S.
The Company's adult day health centers provide professional, high quality adult
day health services for disabled or frail adults who require some care or
supervision, but who do not require intensive medical attention or
institutionalization. The average center has capacity for over 60 guests per
day. Most operate seven days a week. The Company also provides transportation
services to and from the center.
The centers offer a range of therapeutic and medical services designed to
promote the independence of participants and provide respite to families and
caregivers. On-site staff nurses administer medications and give attention to
medical care. Other services include (i) a light breakfast, a hot lunch, and an
afternoon snack; (ii) a highly structured, individualized and creative
activities program which includes recreation, education, field trips, sports,
crafts, music and group conversations; and (iii) family counseling.
In addition to services provided in the Company's physical locations, some adult
day health services are also provided in the patients' homes. These services
(generally provided by para-professional staff such as home health aides) are
very similar in nature to the care provided in the Company's facility. This
flexibility allows the patient and/or his or her family to select the venue (or
combination of venues) of care that is appropriate for them. Many Almost Family,
Inc. adult day health patients receive care both at home and in the Company's
facilities.
As of March 31, 2001, the Company provides services through centers in the
following locations:
Adult Day
Locations Health Centers
------------------- ----------------
Kentucky:
Louisville area 2
Lexington area 1
Elizabethtown 1
area
Owensboro area 1
Frankfort area 1
Indiana:
Evansville 1
Ohio:
Cincinnati 1
Columbus 1
Cleveland 1
Massachusetts:
Boston (1) 1
Connecticut:
Stamford (4) 1
Middlebury 1
Danbury 1
Seymour 1
West Haven (1) 1
Maryland:
Baltimore area (2) 10
Alabama:
Birmingham (3) 1
Florida:
Fort Lauderdale (1) 1
West Palm Beach 1
Fort Myers (1) 1
Sarasota (1) 1
Naples (1) 1
----------------
Total 32
================
(1)Physical facilities for in-center adult day health services are not in place
in these locations. However, some in home adult day health services are
currently provided. These locations are currently being evaluated for
development of in-center facilities.
(2)For the year ended March 31, 2001 approximately 25% of the Company's
revenues and 46% of center contribution were generated from Maryland
operations where approximately 90% of that revenue is derived from Maryland
Medicaid reimbursement programs
(3)The Company closed its in-center facility in this market in late fiscal 2000
but continues to provide adult day health services in patients' homes.
(4)The Company closed its in-center facility in this market in late fiscal 2001
but continues to provide adult day health services in patients' homes.
Daily capacity for in-facility care was 1,636 and 1,621 guests per day at March
31, 2001 and 2000 respectively.
During fiscal 2001, the Company acquired one new facility and closed the
in-center component of one facility.
Compensation for Services
Almost Family, Inc. is compensated for its services through (i) private pay
(paid by personal funds), (ii) Medicaid, and (iii) other third party payors
(e.g. insurance companies and other government funds). See "Item 1. Business
- -- Payment Sources". Almost Family, Inc. employs compensation specialists
who advise patients as to the availability of sources of payment for its
services.
See "Government Regulations" and "Cautionary Statements - Forward Outlook and
Risks". Management will monitor the effects of such items and may consider
modifications to its expansion and development strategy when and if necessary.
Acquisitions
The Company continually considers and reviews, subject to availability of
capital, possible acquisitions of businesses that provide health care services
similar to those currently offered by Almost Family, Inc. Factors which may
affect future acquisition decisions include the quality and potential
profitability of the business under consideration, and the Company's
profitability and ability to finance the transaction.
During 1997, the Company acquired one adult day care center. During 1998, the
Company completed transactions to acquire two adult day health services
operations. These operations added to the Company's market presence in Florida,
Connecticut and Ohio. No pro forma financial information has been provided as
the acquisitions, individually and in the aggregate, were not significant
compared to the Company's existing operations. During each of 1999, 2000 and
2001 the Company acquired one adult day care center.
Competition, Marketing and Customers
The adult day health services industry is highly competitive but fragmented.
Competitors include: other adult day health centers, ancillary programs provided
by nursing homes and hospitals, other government-financed facilities, assisted
living and retirement communities, home health providers and senior adult
associations.
The Company believes the primary competitive factors are quality of service and
reputation among referral sources. However, competitors are increasingly
focusing attention on providing alternative site health care services. Almost
Family, Inc. competes by offering a high quality of care and by helping families
identify and access solutions for care. Adult day care competitive advantages
include transportation and superior facilities and guest activity programs.
The Company markets its adult day health services through its adult day health
center directors and the marketing staff. The directors contact referral sources
in their areas to market the Company's services. Major referral sources include:
Offices on Aging, social workers, hospital discharge planners and group living
facilities. The Company also utilizes consumer-direct sales, marketing and
advertising programs designed to attract customers.
Government Regulations
Overview
The health care industry has experienced, and is expected to continue to
experience, extensive and dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is subjecting the health care
industry to significant reform. Health care reforms have been enacted as
discussed elsewhere in this document and proposals for additional changes are
continuously formulated by departments of the federal government, Congress, and
state legislatures.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of Medicare and Medicaid are expected to
continue. Such future changes may further impact reimbursement for the Company's
services. There can be no assurance that future legislation or regulatory
changes will not have a material adverse effect on the operations of the
Company.
Refer to the sections on Reimbursement Changes and Cautionary Statements -
Forward Outlook and Risks below, the notes to the accompanying financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for additional information.
Permits and Licensure
Many states require companies providing certain health care services to be
licensed as adult day care centers or home health agencies. In addition, certain
health care practitioners employed by the Company require state licensure and/or
registration and must comply with laws and regulations governing standards of
practice. The failure to obtain, renew or maintain any of the required
regulatory approvals or licenses could adversely affect the Company's business.
The Company believes it is currently licensed appropriately where required by
the law of the states in which it operates. There can be no assurance that
either the states or the federal government will not impose additional
regulations upon the Company's activities which might adversely affect its
business, results of operations or financial condition.
Certificates of Need
Certain states require companies providing health care services to obtain a
certificate of need issued by a state health-planning agency. Where required by
law, the Company has obtained certificates of need from those states in which it
operates. There can be no assurance that the Company will be able to obtain any
certificates of need which may be required in the future if the Company expands
the scope of its services or if state laws change to impose additional
certificate of need requirements, and any attempt to obtain additional
certificates of need will cause the Company to incur certain expenses.
Other Regulations
A series of laws and regulations dating back to the Omnibus Budget
Reconciliation Act of 1987 ("OBRA 1987") and through the Balanced Budget Act of
1997 have been enacted and apply to the Company. Changes in applicable laws and
regulations have occurred from time to time since OBRA 1987 including
reimbursement reduction and changes to payment rules. Changes are also expected
to occur continuously for the foreseeable future.
As a provider of services under Medicaid programs, the Company is subject to the
Medicare and Medicaid anti-kickback statute, also known as the "fraud and abuse
law." This law prohibits any bribe, kickback, rebate or remuneration of any kind
in return for, or as an inducement for, the referral of Medicare or Medicaid
patients. The Company may also be affected by the federal physician
self-referral prohibition, known as the "Stark" law, which, with certain
exceptions, prohibits physicians from referring patients to entities in which
they have a financial interest. Many states in which the Company operates have
adopted similar self-referral laws, as well as laws that prohibit certain direct
or indirect payments or fee-splitting arrangements between health care
providers, if such arrangements are designed to induce or to encourage the
referral of patients to a particular provider.
Health care is an area of extensive and dynamic regulatory change. Changes in
laws or regulations or new interpretations of existing laws or regulations can
have a dramatic effect on permissible activities, the relative costs associated
with doing business, and the amount and availability of reimbursement by
government and third-party payors. Furthermore, the Company will be required to
comply with applicable regulations in each new state in which it desires to
provide services.
As a result of the Health Insurance Portability and Accountability Act of 1996
and other legislative and administrative initiatives, Federal and state
enforcement efforts against the health care industry have increased
dramatically, subjecting all health care providers to increased risk of scrutiny
and increased compliance costs.
The Company is subject to routine and periodic surveys and audits by various
governmental agencies. Management believes that the Company is in material
compliance with applicable laws. The Company, however, is unable to predict what
additional government regulations, if any, affecting its business may be enacted
in the future, how existing or future laws and regulations might be interpreted
or whether the Company will be able to comply with such laws and regulations
either in the markets in which it presently conducts, or wishes to commence,
business.
Payment Sources
The Company receives payments from Medicaid programs, private pay and insurance
policies as detailed below. As noted above, the Company's dependence on
government sponsored reimbursement programs makes it vulnerable to possible
legislative and administrative regulations and budget cut-backs that could
adversely affect the number of persons eligible for such programs, the amount of
allowed reimbursements or other aspects of the program, any of which could
materially affect the Company. In addition, loss of certification or
qualification under Medicaid programs could materially affect the Company's
ability to effectively market its services.
In addition to its dependence on Medicare and Medicaid reimbursement, the
Company's future operating results may be dependent in part upon its ability to
attract customers able to pay for the Company's charges from their own and their
families' financial resources. Circumstances which adversely affect the ability
or desire of seniors to pay for the Company's services could have an adverse
effect on the Company.
The following table sets forth the Company's revenues from continuing operations
derived from each major class of payor during the following fiscal years (by
percentage of net revenues):
Payor Group 2001 2000 1999
- --------------------------------- -----------------------
Medicare 0.0% 0.00% 0.0%
Medicaid and other
Government programs 65.3% 62.8% 58.9%
Insurance and Private
Pay 34.7% 37.2% 41.1%
Changes in payment sources from 2000 to 2001 are primarily a result of the
impact of changes in the types of customers it attracts. For the year ended
March 31, 2001 approximately 25% of the Company's revenues and 46% of center
contribution were generated from Maryland operations where approximately 90% of
that revenue is derived from Maryland Medicaid reimbursement programs. Although
the Company is not aware of any significant initiatives currently underway that
would have a material adverse impact on the Maryland reimbursement program or
the Company, the Company could be materially impacted by unfavorable changes in
the future should they occur. Additionally, for the year ended March 31, 2001,
approximately 18.7%, 8.8% and 4.6% of the Company's revenues were generated from
Medicaid reimbursement programs in the states of Kentucky, Connecticut and
Massachusetts, respectively.
In determining charge rates for goods and services provided to customers, the
Company evaluates several factors including cost and market competition. The
Company also negotiates contract rates with third party providers such as
insurance companies. The rates of reimbursement for Medicaid and other
Government programs are generally dictated by those programs.
Insurance
The Company and its subsidiaries carry general liability and professional
liability insurance. The Company also carries product liability insurance
associated with those operations requiring such coverage, including the durable
medical equipment operations. The Company's properties are covered by casualty
insurance policies. The Company carries directors and officers liability
insurance. The Company carries automobile collision and liability coverage and
statutory workers' compensation coverage. The Company believes that its present
insurance coverage is adequate.
Employees and Labor Relations
As of March 31, 2001 the Company had approximately 2,400 employees. None of the
Company's employees are represented by a labor organization. Management believes
its relationship with the Company's employees is satisfactory.
Discontinued Operations
In addition to its Adult Day Health Services operations, the Company has
historically operated two additional segments, 1) Visiting Nurses, and 2)
Product Operations under the trade name "CaretendersTM".
Caretenders' Visiting Nurse operations provide a comprehensive range of
Medicare-certified home health nursing services. Payors also include Medicaid
and private insurance companies. Professional staff including registered nurses,
licensed practical nurses, physical, speech and occupational therapists, and
medical social workers implement and monitor medical treatment plans prescribed
by physicians. Professional staff are subject to state licensing requirements in
the particular states in which they practice. Para-professional staff, primarily
home health aides, also provide care to these patients.
The Visiting Nurse operations consist of 8 Medicare-certified home health
agencies operating in Kentucky (4), Florida (3), and, Massachusetts (1).
Caretenders' Product operations, with locations in Louisville and Lexington, KY
and Birmingham, AL provided a wide array of infusion therapy, oxygen therapy and
other product related services.
As part of a formal plan of separation, the Company on November 12, 1999 sold
its product operations (consisting of infusion therapy and respiratory and
medical equipment businesses) to Lincare Holdings, Inc. in an asset sale for
$14.5 million and is pursuing available strategic alternatives to complete the
separation of its visiting nurse operations. Proceeds from the sale were used to
repay obligations outstanding under the Company's bank line of credit. As a
result of the operational separations, the Company recorded a one-time net of
tax charge of approximately $5 million or ($1.60 per share) in the quarter ended
September 30, 1999. This charge reduced the book value of the operations to
their expected net realizable value, provided for losses on fulfilling certain
obligations and close down costs and included the estimated future operating
results of the visiting nurse operations prior to separation. These charges have
been accounted for as discontinued operations in the accompanying financial
statements.
The estimated loss on disposal of discontinued operations reflected in the
accompanying financial statements includes management's estimate of the results
of operating the visiting nurse segment prior to disposal and the estimated
financial results of such disposal based on information available at the time
such loss was recorded. Rates established under Medicare Prospective Payment
System for home care (PPS) will have a material impact on the disposal value of
the visiting nurse operations, as described in more detail below.
Revenues from discontinued operations were approximately $25,534,000,
$46,742,000 and $57,542,000 for the years ended March 31, 2001, 2000 and 1999
respectively. Refer to Management's discussion and analysis of Financial
Condition and Results of Operations and the notes to the financial statements
under Part II, Items 7 and 8, respectively for additional financial information
regarding discontinued operations.
The Company's decisions with respect to the visiting nurse operations resulted
from changes in Medicare reimbursement brought about by the Balanced Budget Act
of 1997 (the BBA) and its resulting impact on the home health market place and
the Company. The BBA included a requirement for implementation of a prospective
payment system or "PPS" which would not be cost-based, no later than October 1,
2000. PPS went into effect on that date. The financial statements and
managements' discussion and analysis of results of operations and financial
condition included in this Form 10K provide additional information on the impact
of PPS on the Company's visiting nurse operations. 85% of the Visiting Nurse
segment revenues are generated from the Medicare program.
The BBA and subsequent amendments, as they currently stand, call for a reduction
in PPS reimbursement rates of 15% effective October 1, 2002. The Federal budget
for the coming federal fiscal year is currently being developed in Congress and
legislative proposals have been made to eliminate, and/or postpone this
reduction. However, unless Congress and the President change the law as it
currently exists, the 15% rate cut will take place on October 1, 2002. The
Company is unable to predict whether such a rate cut will take place. Should
such a rate cut take place, it would have a material adverse effect on the
financial performance and the potential disposition value of the VN business
segment. The Company is continuing to evaluate its strategic alternatives for
this business segment, the outcome of which will be highly dependant upon the
resolution of the 15% rate cut issue.
Cautionary Statements - Forward Outlook and Risks
Information provided herein by the Company contains, and from time to time the
Company may disseminate material and make statements which may contain,
"forward-looking" information, as that term is defined by the Private Securities
Litigation Reform Act of 1995 (the "Act"). These cautionary statements are being
made pursuant to the provisions of the Act and with the intention of obtaining
the benefits of "safe harbor" provisions of the Act. The Company cautions
investors that any forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements as a result of various factors
including but not limited to the following:
a) Regulation and Reform
Legislative proposals are continually introduced or proposed in Congress and in
some state legislatures that would effect major changes in the health care
system, either nationally or at the state level. However, the Company cannot
predict whether any of the proposals will be adopted, and if adopted, no
assurance can be given that the implementation of such reforms will not have a
material impact on the operations of the Company.
b) Medicaid Concentration
For the year ended March 31, 2001 approximately 25% of the Company's revenues
and 46% of center contribution were generated from Maryland operations where
approximately 90% of that revenue is derived from Maryland Medicaid
reimbursement programs. Although the Company is not aware of any significant
initiatives currently underway that would have a material adverse impact on the
Maryland reimbursement program or the Company, the Company could be materially
impacted by unfavorable changes in the future should they occur. Additionally,
for the year ended March 31, 2001, approximately 18.7%, 8.8% and 4.6% of the
Company's revenues were generated from Medicaid reimbursement programs in the
states of Kentucky, Connecticut and Massachusetts, respectively. The Company
could also be materially impacted by unfavorable changes in reimbursement
programs in these states.
c) Other Reimbursement Changes
The Company derives substantial portions of its revenues from third-party
payors, including government reimbursement programs such as Medicare, Medicaid
and non-government sources such as commercial insurance companies, HMOs, PPOs
and contract services. These payors continuously seek ways to limit payments to
health care providers. There can be no assurance that payments under these
programs will be sufficient to cover the costs of providing patients care. The
Company cannot predict whether and what additional proposals or cost containment
measures will be adopted or, if adopted, what effect, if any, such proposals
might have on the operations of the Company.
d) Competition
The Company competes with numerous well-established competitors which have
substantially greater financial resources than the Company. Competitors are
increasingly focusing attention on providing alternative site health care
services, specifically on adult day health services. Such increasing competition
may adversely affect revenues and profitability of Company operations.
e) Insurance
The Company believes its present insurance coverage is adequate. However, there
can be no assurance that such insurance will be available, or, if available,
that such insurance will be either adequate to cover the Company's liabilities
or available at affordable rates. In addition, increasing insurance costs, and
the increasing unwillingness of insurance companies to insure against certain
types of losses, raise some questions as to whether the Company will be able to
obtain or continue its present insurance coverage. The inability to obtain
adequate insurance coverage at affordable rates, or a loss of existing coverage,
could have a material effect on the Company.
f) Private Payment Sources
The Company's future operating results may be dependent in part upon its ability
to attract customers able to pay for the Company's charges from their own and
their families' financial resources. Circumstances which adversely affect the
ability or desire of seniors to pay for the Company's services could have an
adverse effect on the Company. In the event that the Company encounters
difficulty in attracting seniors with adequate resources to pay for the
Company's services, the Company would be adversely affected.
g) Acquisitions
The Company seeks to establish and increase market share through acquisitions in
existing and new markets. The Company evaluates potential acquisition candidates
that would complement or expand its current services. In attempting to make
acquisitions, the Company competes with other providers, some of which have
greater financial resources than the Company. Management currently believes that
acquisition candidates meeting the criteria of its acquisition strategy will
continue to be identified in the future and certain of these candidates will be
acquired by the Company. However, there can be no assurance that suitable
acquisitions will continue to be identified or that acquisitions can be
consummated on acceptable terms. See separate cautionary statement regarding
financing.
h) Inclement Weather
The Company provides its services to individuals in home and community settings.
Due to the Company's geographic concentrations, severe weather such as snow and
hurricanes may hinder the Company's ability to provide its services and can
impact the Company's operating results, particularly in Maryland and the New
England states.
i) Financing
The Company's ability to pursue its strategic plan is dependent upon its ability
to obtain financing on satisfactory terms and conditions. If the Company is
unable to obtain satisfactory financing it would have an adverse impact on the
Company's liquidity and its ability to execute its development plans.
j) ADC Development
During fiscal 2002, the Company plans to develop 3-6 new adult day health
centers after which the Company plans to continue development efforts at a
similar or accelerated pace. The Company's ability to achieve its development
plans will depend upon a variety of factors, many of which are beyond the
Company's control. There can be no assurance that the Company will not suffer
delays in its development program, which could slow the Company's growth. The
successful development of additional operations will involve a number of risks
including the possibility that the Company may be unable to locate suitable
sites at acceptable prices or may be unable to obtain, or may experience delays
in obtaining, necessary zoning, land use, building, occupancy, licensing and
other required governmental permits and authorizations or in actual
construction. The implementation of the Company's development strategy is also
dependent upon the Company's profitability, the financial performance of its
adult day care operations, the availability of financing and the other
Cautionary Statements listed above.
k) Visiting Nurse Operations
The Company operates Medicare certified home health agencies, under a plan of
disposition. The ultimate outcome of that plan of disposition is highly
dependant upon the Prospective Payment System (PPS) as described elsewhere
herein. The Company is unable to predict at this time what Medicare payment
rates will be under PPS, specifically related to the currently legislated 15%
rate cut scheduled for October 1, 2002. Likewise the Company is unable to
predict what impact, if any, PPS rate changes will have on the disposition
values of its visiting nurse operations. The Company's VN operations are also
subject to the risks outlined in "c) Other Reimbursement Changes" above. 85% of
the Visiting Nurse segment revenues are generated from the Medicare program.
ITEM 2. PROPERTIES
The Company's executive offices are located in Louisville, Kentucky in
approximately 21,000 square feet of space leased from an unaffiliated party.
The Company has 35 real estate leases ranging from approximately 200 to 24,000
square feet of space in their respective locations. See "Item 1. Business -
Adult Day Health Services" and Note 8(c) to the Company's audited consolidated
financial statements The Company believes that its facilities are adequate to
meet its current needs, and that additional or substitute facilities will be
available if needed.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is subject to claims and suits arising in the
ordinary course of its business, including claims for damages for personal
injuries. In the opinion of management, the ultimate resolution of any of these
pending claims and legal proceedings will not have a material effect on the
Company's financial position or results of operations.
On January 26, 1994 Franklin Capital Associates L.P., Aetna Life and Casualty
Company and Aetna Casualty and Surety Company, shareholders, who at one time
held approximately 320,000 shares of the Company's common stock (approximately
13% of shares outstanding) filed suit in Chancery Court of Williamson County,
Tennessee claiming unspecified damages not to exceed three million dollars in
connection with registration rights they received in the Company's acquisition
of certain home health operations in February 1991. The 1994 suit alleged that
the Company failed to use its best efforts to register the shares held by the
plaintiffs as required by the merger agreement. The Company settled with Aetna
shortly before the case went to trial in February 2000. In mid-trial Franklin
voluntarily withdrew its complaint reserving its legal rights to bring a new
suit as allowed under Tennessee law. In May 2000, Franklin refiled its lawsuit.
The Company believes it has meritorious defenses to the claims and does not
expect that the ultimate outcome of the suit will have a material impact on the
Company's results of operations, liquidity or financial position. The Company
plans to vigorously defend its position in this case. Estimated costs of
litigation have been included in the Company's one-time charge for discontinuing
its home health operations recorded in September 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ SmallCap System. The stock is
traded under the symbol "AFAM" (formerly CTND). Set forth below are the high and
low sale prices for the common stock for the periods indicated reported by
NASDAQ:
Closing Common Stock Prices
Quarter Ended: High Low
-------------- ---- ---
June 30, 1999 $3.00 $1.50
September 30, 1999 $2.81 $1.50
December 31, 1999 $3.00 $1.50
March 31, 2000 $3.44 $1.75
June 30, 2000 $3.00 $2.19
September 30, 2000 $4.28 $2.19
December 31, 2000 $5.25 $3.47
March 31, 2001 $6.13 $3.50
On June 12, 2001, the last reported sale price for the Common Stock reported by
NASDAQ was $7.25 and there were approximately 629 holders of record of the
Company's Common Stock. No cash dividends have been paid by the Company. The
Company does not presently intend to pay dividends on its common stock and will
retain its earnings for future operations and growth of its business.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived from the
consolidated financial statements of the Company for the periods and at the
dates indicated. The information is qualified in its entirety by and should be
read in conjunction with the consolidated financial statements and related notes
included elsewhere in this and prior year Form 10-Ks.
Consolidated Selected Financial Information
(Dollar amounts in 000's
except per share data) Year Ended March 31,
-------------------------- -------------------------------------------------
2001 2000 1999 1998 1997
--------- ---------- ---------- --------- --------
Results of Operations
Net revenues $49,681 $44,724 $39,619 $30,384 $24,702
Net Income (loss)
Continuing Operations 1,601 175 (374) (1,633) (1,967)
Discontinued Operations 610 (4,918) (5,682) 3,045 3,727
Total $ 2,212 $(4,743) $(6,228) $ 1,412 $ 1,759
Per share:
Basic:
Number of shares 3,146 3,124 3,120 3,120 3,119
Net Income (loss)
Continuing Operations $ 0.51 $ 0.06 $(0.12) $ (0.52) $ (0.63)
Discontinued Operations 0.19 (1.58) (1.82) 0.98 1.19
Total $ 0.70 $ (1.52) $(2.00) $ 0.45 $ 0.56
Diluted:
Number of shares 3,306 3,124 3,120 3,162 3,142
Net Income (loss)
Continuing Operations $ 0.48 $ 0.06 $(0.12) $ (0.52) $ (0.63)
Discontinued Operations 0.18 (1.58) (1.82) 0.96 1.19
Total $ 0.67 $ (1.52) $(2.00) $ 0.45 $ 0.56
Balance sheet Data as of:
2001 2000 1999 1998 1997
--------- ---------- --------- ---------- ---------
Working capital $ 5,234 $ 2,879 $12,592 $13,950 $17,471
Total assets 21,617 18,151 36,354 40,793 33,450
Long term liabilities 6,859 1,689 15,825 14,016 9,961
Total liabilities 13,062 6,998 20,499 18,710 12,787
Stockholders' equity 8,555 11,153 15,855 22,083 20,663
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As described elsewhere herein, the Company has sold its product operations and
is pursuing strategic alternatives for its visiting nurse operations.
Accordingly, the results of continuing operations presented below include only
the result of the Company's adult day health services operations consisting of
in-center adult day care and personal care services provided in the patients'
homes.
RESULTS OF CONTINUING OPERATIONS
The financial tables that follow are presented for continuing operations
excluding non-recurring items (loss on disposal of certain operations and loss
on building sale in 2000):
Year Ended March 31, 2001 Compared with Year Ended March 31, 2000
-----------------------------------------------------------------
2001 2000 Change
--------------------- --------------------- --------------------
Amount % Rev. Amount % Rev. Amount %
Net Revenues $49,680,572 100.0% $44,723,677 100.0% $4,956,895 11.1%
Cost of Services 41,364,291 83.3% 37,330,896 83.5% 4,033,395 10.8%
----------- ---------- ----------
Center Contribution 8,316,281 16.7% 7,392,781 16.5% 923,500 12.5%
General & Administrative 3,788,991 7.6% 4,417,438 9.9% (628,447) -14.2%
Depreciation and Amortization 864,428 1.7% 940,390 2.1% (75,962) -8.1%
Provision for uncollectible
accounts 566,601 1.1% 906,614 2.0% (340,013) -37.5%
Interest, Net 73,877 0.1% 317,550 0.7% (243,673) -76.7%
--------- ---------- -----------
Income from continuing operations
before non-recurring items
and taxes $3,022,384 6.1% $ 810,789 1.8% $2,211,595 NM
========== ========== ==========
NM=Not Meaningful
Net Revenues
Net revenues increased 11% to $49.7 million from $44.7 million in the prior
year. Growth came primarily from volumes, which grew to 704,698 days of care in
2001 from 636,394 in 2000. Average revenue per day of care was unchanged as mix
changes offset price increases of about 5%. Increased volumes were derived
primarily from increased occupancy in the adult day care centers which grew to
74.4% of capacity in 2001 from 73% of capacity in 2000. Average capacity
increased to 1,678 in 2001 from 1,588 in 2000. As of April 1, 2001 total system
capacity was 1,636 guests per day.
Cost of Services
Cost of services as a percent of revenues declined to 83.3% in 2001 from 83.5%
in 2000 primarily as a result of increased volumes of business and increased
occupancy rates for in-facility care.
General and Administrative
The decrease of $628,447 is due primarily to reduced administrative costs due to
the Company's strategic repositioning and down-sizing activities (primarily
labor reductions made in 2000 now having a full year effect in 2001). G&A as a
percent of revenues dropped to 7.6% in 2001 from 9.9% in 2000.
Depreciation and Amortization
Depreciation and amortization decreased by 8% or $76,000 due to certain property
items reaching the end of their useful lives.
Provision for Uncollectible Accounts
Management establishes an allowance for uncollectible accounts based on its
estimate of probable collection losses. The decrease in provision for
uncollectible accounts resulted from improved collection results.
Interest, Net
The decrease in interest, net is primarily a result of lower average outstanding
debt levels associated with the Company's improved operating results and
proceeds from the sale of the product operations.
Year Ended March 31, 2000 Compared with Year Ended March 31, 1999
-----------------------------------------------------------------
2000 1999 Change
---------------------- --------------------- --------------------
Amount % Rev. Amount % Rev. Amount %
Net Revenues $44,723,677 100.0% $39,619,347 100.0% $5,104,330 12.9%
Cost of Services 37,330,896 83.5% 33,651,115 85.0% 3,679,781 10.9%
---------- ----------- ----------
Center Contribution 7,392,781 16.5% 5,968,232 15.0% 1,424,549 23.9%
General & Administrative 4,417,438 9.9% 4,586,673 11.6% (169,235) -3.7%
Depreciation and Amortization 940,390 2.1% 916,876 2.3% 23,514 2.6%
Provision for uncollectible
accounts 906,614 2.0% 460,356 1.2% 446,258 96.9%
Goodwill Write-down - 0.0% 113,196 0.3% (113,196) NM
Interest, Net 317,550 0.7% 527,435 1.3% (209,885) -39.8%
--------- ---------- ----------
Income from continuing operations
before non-recurring items,
taxes, and accounting change $ 810,789 1.8% $ (636,304) -1.6% $1,447,093 NM
NM=Not Meaningful
Net Revenues
Net revenues increased 13% to $44.7 million from $39.6 million in the prior
year. Growth came primarily from volumes, which grew to 636,394 days of care in
2000 from 544,283 in 1999. Average revenue per day of care increased
approximately 11.5% as a result of pricing and mix changes. Increased volumes
were derived primarily from increased occupancy in the adult day care centers
which grew to 73% of capacity in 2000 from 70% of capacity in 1999. Average
capacity increased to 1,588 in 2000 from 1,496 in 1999. As of April 1, 2000
total system capacity was 1,621 guests per day.
Cost of Services
Cost of services as a percent of revenues declined to 84% in 2000 from 85% in
1999 primarily as a result of increased volumes of business and increased
occupancy rates for in-facility care.
General and Administrative
The decrease of $169,235 is due primarily to reduced administrative costs due to
the Company's strategic repositioning and down-sizing activities. G&A as a
percent of revenues dropped to 9.9% in 2000 from 11.6% in 1999.
Depreciation and Amortization
Depreciation and amortization increased by 3% or $23,514 due to capital
expenditures.
Provision for Uncollectible Accounts
Management establishes an allowance for uncollectible accounts based on its
estimate of probable collection losses. The increase in provision for
uncollectible accounts resulted from certain individual customer accounts which
became aged during the period.
Interest, Net
The decrease in interest, net is primarily a result of lower average outstanding
debt levels associated with the Company's improved operating results and
proceeds from the sale of the product operations.
Income Taxes - Years Ended March 31, 2001 and 2000
As of March 31, 2001, the Company has net deferred tax assets of approximately
$2,710,000. The net deferred tax asset is composed of $2,185,000 of long-term
deferred tax assets and $525,000 of current deferred tax assets.
The Company has provided a valuation allowance against certain net deferred tax
assets based upon management's estimation of realizability of those assets
through future taxable income. This valuation was based in large part on the
Company's history of generating operating income or losses in individual tax
locales and expectations for the future. The Company's ability to generate the
expected amounts of taxable income from future operations is dependent upon
general economic conditions, competitive pressures on revenues and margins and
legislation and regulation at all levels of government. Management has
considered the above factors in reaching its conclusions that it is more likely
than not that future taxable income will be sufficient to fully utilize the net
deferred tax assets. However, there can be no assurances that the Company will
meet its expectations of future taxable income.
The effective income tax rate was approximately 47% of income before income
taxes for 2001 as compared to an effective income tax rate of approximately 42%
for 2000 and 1999. The provision (benefit) in 2000 and 1999 resulted directly
from the recognition of income (losses) incurred from continuing operations and
was provided at a lower than statutory rate due to the tax implications of state
and local net operating loss carryforwards arising from the 2000 and 1999 losses
in certain jurisdictions.
Loss on Disposal of Certain Operations
The accompanying income statement for fiscal 2000 includes a one-time charge of
$416,808 ($241,749 after tax or $0.08 per share) related to the closure of the
Company's Birmingham AL adult day care center. The charge consists of future
lease obligations and unamortized leasehold improvements
Building Sale
In May 1999, the Company sold an office building resulting in a non-operating
loss of $91,701. The transaction generated net cash of $79,093 after repaying
mortgage debt of approximately $40,000.
Discontinued Operations
As part of a formal plan of separation, the Company on November 12, 1999 sold
its product operations (consisting of infusion therapy and respiratory and
medical equipment businesses) to Lincare Holdings, Inc. in an asset sale for
$14.5 million and is pursuing available strategic alternatives to complete the
separation of its visiting nurse operations. Proceeds from the sale were used to
repay obligations outstanding under the Company's bank line of credit. As a
result of the operational separations, the Company has recorded a one-time net
of tax charge of approximately $5 million or ($1.60) in the quarter ended
September 30, 1999. This charge reduced the book value of the operations to
their expected net realizable value, provides for losses on fulfilling certain
obligations and close down costs and included the estimated future operating
losses of the visiting nurse operations prior to separation. These changes have
been accounted for as discontinued operations in the accompanying financial
statements.
The estimated loss on disposal of discontinued operations reflected in the
accompanying financial statements includes management's estimate of the results
of operating the visiting nurse segment prior to disposal and the estimated
financial results of such disposal based on information available at the time
the loss was recorded.
Revenues from discontinued operations were approximately $25,534,000,
$46,742,000 and $57,542,000 for the years ended March 31, 2001, 2000 and 1999
respectively. For periods prior to the sale, interest expense has been allocated
to continuing and discontinued operations on the basis of relative net assets.
Accordingly, interest expense has been allocated to discontinued operations in
the amounts of approximately $741,000, $613,000 and $1,034,000 for the years
ended March 31, 2001, 2000 and 1999 respectively.
The accompanying balance sheet includes net current assets and liabilities of
discontinued operations, consisting primarily of accounts receivable, inventory,
accounts payable and accrued liabilities, and long term assets of discontinued
operations consisting primarily of property, plant and equipment, net of
accumulated depreciation, goodwill and debt.
Visiting Nurse Operations
The results of operations for the visiting nurse segment for the fiscal year
ended March 31, 2001 are presented in the table below. The second half columns
present the results of operations for the six-month period from October 1, 2000
through March 31, 2001, during which Medicare PPS was in effect. The first half
columns present the results of operations for the six-month period from April 1,
2000 through September 30, 2000, during which Medicare PPS was not in effect.
85% of the Visiting Nurse segment revenues are generated from the Medicare
program.
Second Half, First Half, Change 1st Half
With-PPS Pre-PPS to 2nd
----------------------------------------------------------------------
Amount % Rev Amount % Rev Amount %
-----------------------------------------------------------------------
Net Revenues $13,419,967 100.0% $12,114,361 100.0% $1,305,606 10.8%
Cost of Services 9,635,702 71.8% 10,562,056 87.2% (926,354) -8.8%
General & Admin Cost 1,788,372 13.3% 1,814,408 15.0% (26,036) -1.4%
Depreciation & Amortization 366,000 2.7% 298,059 2.5% 67,941 22.8%
Bad Debt Expense 300,959 2.2% 267,363 2.2% 33,596 12.6%
----------- ---------- ----------
EBIT 1,328,934 9.9% (827,525) -6.8% 2,156,459
Interest Expense 380,235 2.8% 361,542 3.0% 18,693 5.2%
----------- ----------- ----------
Pre-tax Income 948,699 7.1% (1,189,067) -9.8% 2,137,766
Income tax 338,734 2.5% (451,845) -3.7% 790,579
----------- ----------- ----------
Net income (loss) 609,965 4.5% (737,222) -6.1% 1,347,187
Less previously provided - 0.0% 737,222 6.1% (737,222)
----------- ----------- ----------
Reported in income
statement 609,965 4.5% - 0.0% 609,965
=========== =========== ==========
EBITDA (1) 1,694,934 12.6% (529,466) -4.4% 2,224,400
(1) Earnings before interest, taxes, depreciation and amortization
The segment's financial performance under PPS is in part a result of the
Company's work to prepare for operation under PPS and in part due to higher
reimbursement rates under PPS. As shown in the table above, the VN operations
incurred net losses in the first six months of this fiscal year operating under
the old cost-based reimbursement system. In the second six months, the Company
earned a higher rate of reimbursement and incurred lower operating costs on its
VN operations than were earned and incurred respectively in the first half.
Costs of services, primarily labor and related costs, were reduced by almost 9%.
The Company cared for 4,560 Medicare patients in the second half of the year
compared to 4,377 Medicare patients in the first half. Additionally, the Company
has reduced unprofitable insurance and managed care business.
Depreciation increased due to investment in a computerized clinical management
system to support operation under PPS. Bad debt expense approximated 2% of
revenues based on historical collection results. Since Medicare PPS is still
relatively new, this 2% rate may differ in the future. Interest expense, is
primarily related to bank borrowings.
Although discontinued operations accounting treatment is being used for this
segment, earnings are reported in the Company's income statement for the second
half of the year. Under discontinued operations accounting rules, losses
incurred in the comparable periods of last year and in the first half of this
year were previously provided for in the one-time charge recorded in fiscal
2000. Thus, in the table shown above the line "Less previously provided" reduces
the reported operating losses for the first half to zero.
The BBA and subsequent amendments, as they currently stand, call for a reduction
in PPS reimbursement rates of 15% effective October 1, 2002. The Federal budget
for the coming federal fiscal year is currently being developed in Congress and
legislative proposals have been made to eliminate, and/or postpone this
reduction. However, unless Congress and the President change the law as it
currently exists, the 15% rate cut will take place on October 1, 2002. The
Company is unable to predict whether such a rate cut will take place. Should
such a rate cut take place, it would have a material adverse effect on the
financial performance and the potential disposition value of the VN business
segment. The Company is continuing to evaluate its strategic alternatives for
this business segment, the outcome of which will be highly dependant upon the
resolution of the 15% rate cut issue.
Liquidity and Capital Resources
Revolving Credit Facility
Prior to May 30, 2001, the Company had a $20 million revolving credit facility
with Bank One Kentucky, NA. The facility had an expiration date of January 10,
2002. On May 30, 2001 the facility was replaced with a $22.5 million facility
with similar terms and conditions. The new expiration date is June 30, 2003. The
credit facility bears interest at prime plus a margin (ranging from 0% to 1.0%,
currently 0.50%) dependent upon total leverage and is secured by substantially
all assets and the stock of the Company's subsidiaries. Borrowings are available
equal to the greater of: a) a multiple of earnings before interest, taxes,
depreciation and amortization (as defined) or, b) an asset based formula,
primarily based on accounts receivable. Borrowings under the facility may be
used for working capital, capital expenditures, development and growth of the
business and other corporate purposes. As of May 30, 2001 the formula permitted
up to a total of $21 million to be used of which approximately $12.4 million was
drawn or committed.
As part of a formal plan of separation, the Company sold its product operations
(consisting of infusion therapy and respiratory and medical equipment
businesses) to Lincare Holdings, Inc. in an asset sale for $14.5 million and is
pursuing available strategic alternatives to complete the separation of its
visiting nurse operations. Proceeds from the sale were used to repay obligations
outstanding under the Company's bank line of credit. As of March 31, 2001
approximately $11.8 million remained outstanding on the line of credit.
Additionally, an irrevocable letter of credit totaling $2.4 million has been
issued by the bank in connection with the Company's insurance program. Thus, a
total of $14.2 million was either outstanding or committed as of March 31,2001
while an additional $2 million was available for use. As of March 31, 2001,
approximately $5.8 million of debt has been classified with net assets from
discontinued operations in the accompanying balance sheet.
The Company believes that this facility will be sufficient to fund its operating
needs for at least the next twelve months.
Management will continue to evaluate additional capital including possible debt
and equity investments in the Company to support a more rapid development of the
business than would be possible with internal funds.
Cash Flows and Financial Conditions
Key elements to the Consolidated Statements of Cash Flows were (in thousands):
Net Change in Cash and Cash Equivalents 2001 2000 1999
- ------------------------------------- ----------- ----------- -----------
Continuing Operations
Provided by (used in)
Operating activities $ 1,721 $ 2,592 $ 558
Investing activities (1,817) (810) (525)
Financing activities 549 (14,901) 1,512
------------ ---------- ---------
453 (13,119) 1,545
Discontinued operations 610 13,510 (1,327)
------------- ---------- ----------
Net Change in Cash and Cash $ 1, 063 $ 391 $ 218
============ ========== =========
Equivalents
2001
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. The increase in accounts receivable resulted from volume
increases. Days sales outstanding was 53 at March 31, 2001 and 2000. The
increase in accounts payable and accrued liabilities resulted from additional
volume and insurance reserves. In December, the Company issued a $2.4 million
letter of credit in favor of its self-insurance plan administrator, resulting in
a refund of $2.3 million of cash previously on deposit. Net cash used in
investing activities resulted principally from amounts invested in adult day
health services expansion activities and improvements in information systems.
Net cash provided by financing activities resulted primarily from borrowings on
the Company's credit facility and proceeds from stock option exercises net of
the redemption of $5,000,000 of outstanding stock.
2000
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. The increase in accounts receivable resulted from volume
increases. Days sales outstanding declined to 53 from 59 at March 31, 2000. The
increase in accounts payable and accrued liabilities resulted from additional
volume and increased tax liabilities. Net cash used in investing activities
resulted principally from amounts invested in adult day health services
expansion activities, and improvements in information systems and, net of cash
generated from the sale of a building. Net cash used in financing activities
resulted primarily from reduced borrowings under the Company's credit facility
resulting from proceeds from the sale of the product operations, and reduced
mortgage obligations related to the building sold.
1999
Net cash provided by operating activities resulted principally from current
period loss, net of changes in accounts receivable, accounts payable and accrued
expenses. The decrease in accounts receivable resulted from volume decreases.
The decrease in accounts payable and accrued liabilities resulted principally
from the timing of payments. Net cash used in investing activities resulted
principally from amounts invested in adult day health services expansion
activities, and improvements in information systems. Net cash provided by
financing activities resulted primarily from borrowings under the Company's
credit facility.
Health Care Reform
The health care industry has experienced, and is expected to continue to
experience, extensive and dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is subjecting the health care
industry to significant reform. Health care reforms have been enacted as
discussed elsewhere in this document and proposals for additional changes are
continuously formulated by departments of the federal government, Congress, and
state legislatures.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of expenditures are expected to continue. Such
future changes may further impact reimbursement. There can be no assurance that
future legislation or regulatory changes will not have a material adverse effect
on the operations of the Company.
State legislative proposals continue to be introduced that would impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations may be enacted
in the future affecting its business or how existing or future laws and
regulations might be interpreted, or whether the Company will be able to comply
with such laws and regulations in its existing or future markets.
Refer to the sections on Reimbursement Changes and Cautionary Statements -
Forward Outlook and Risks in Part I, and the notes to the accompanying financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations all included in this Form 10K for additional information.
Health Insurance Portability and Accountability Act (HIPAA)
The Health Insurance Portability and Accountability Act (HIPAA) was enacted by
the federal government on August 12, 1996, which requires organizations to
adhere to certain standards to protect data integrity, confidentiality and
availability. The primary impact will fall on entities, which work with medical
records, patient accounting or enrollment, human resources, and information
technology. HIPAA standards are expected to be implemented generally within two
years of the effective date of the final rule. The first requirements under
HIPAA relate to data integrity and privacy and are effective October 2002 and
March 2003, respectively. Other components are expected to be finalized in the
near future. The Company plans to be compliant with the HIPAA regulations by
their effective dates and does not expect compliance will have a materially
adverse impact on its financial position or results of operations.
Impact of Inflation
Management does not believe that inflation has had a material effect on income
during the past several years.
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
Derivative Instruments
The Company does not use derivative instruments.
Market Risk of Financial Instruments
The Company's primary market risk exposure with regard to financial instruments
is to changes in interest rates.
At March 31, 2001, a hypothetical 100 basis point increase in short-term
interest rates would result in a reduction of approximately $64,000 in annual
pre-tax earnings from continuing operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
2001 2000 1999
------------- -------------- -------------
Net revenues $49,680,572 $44,723,677 $39,619,347
Cost of sales and services 41,364,291 37,330,896 33,651,115
Selling, general and administrative expenses 3,788,991 4,417,438 4,586,673
Depreciation and amortization expense 864,428 940,390 916,876
Provision for uncollectible accounts 566,601 906,614 460,356
Goodwill write-down - - 113,196
Loss on disposal of certain operations - 416,808 -
------------ -------------- -----------
Income (loss) from continuing operations
before other income (expense) and income taxes 3,096,261 711,531 (108,869)
Other income (expense):
Loss on building sale - (91,701) -
Interest expense (73,877) (317,550) (527,435)
------------- -------------- -----------
Income (loss) from continuing operations 3,022,384 302,280 (636,304)
before income taxes
Provision (benefit) for income taxes 1,420,521 126,958 (262,475)
------------- -------------- -----------
Net income (loss) from Continuing Operations 1,601,863 175,322 (373,829)
------------- -------------- -----------
Discontinued operations:
Income (loss) from operations, net of
applicable income
Taxes of $339,000, $59,000 and $(1,802,000) 609,985 81,724 (5,681,864)
Loss on disposal, net of applicable income - (5,000,000) -
taxes of $491,000
------------- -------------- -----------
609,985 (4,918,276) (5,681,864)
Cumulative effect on prior years of a change
in method of accounting for pre-opening costs,
net of applicable income taxes of $122,000 - - (171,974)
------------- -------------- -----------
Net income (loss) $2,211,848 $(4,742,954) $(6,227,667)
============= ============== ===========
Per share amounts-Basic
Average shares outstanding 3,145,511 3,124,016 3,120,413
Net Income (loss) from Continuing Operations $ 0.51 $ 0.06 $ (0.12)
Discontinued operations
Income (loss) from operations, net of 0.19 0.03 (1.82)
applicable income taxes
Loss on disposal, net of applicable income - (1.60) -
taxes
Cumulative effect on prior years of a change in
method of accounting for pre-opening costs,
net of applicable - - (0.06)
income taxes
------------- -------------- ------------
Net income (loss) $ 0.70 $ (1.52) $ (2.00)
============= ============== ============
Per share amounts-Diluted
Average shares outstanding 3,306,682 3,124,016 3,120,413
Net Income (loss) from Continuing Operations $ 0.48 $ 0.06 $ (0.12)
Discontinued operations
Income (loss) from operations, net of 0.18 0.03 (1.82)
applicable income taxes
Loss on disposal, net of applicable income - (1.60) -
taxes
Cumulative effect on prior years of a change in
method of accounting for pre-opening costs,
net of applicable - - (0.06)
income taxes
------------- -------------- -------------
Net income (loss) $ 0.67 $ (1.52) $ (2.00)
============= ============== =============
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
ASSETS 2001 2000
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $2,490,600 $1,427,537
Accounts receivable - net 7,186,387 6,459,004
Prepaid expenses and other current assets 1,235,584 184,580
Deferred tax assets 525,257 116,835
Net assets of discontinued operations - -
------------ ------------
TOTAL CURRENT ASSETS 11,437,828 8,187,956
PROPERTY AND EQUIPMENT - NET 4,685,832 3,079,636
COST IN EXCESS OF NET ASSETS ACQUIRED - NET 2,477,341 2,537,740
DEFERRED TAX ASSETS 2,184,348 3,429,093
OTHER ASSETS 832,275 916,482
LONG TERM ASSETS OF DISCONTINUED OPERATIONS, - -
NET
------------ ------------
$21,617,624 $18,150,907
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $5,913,669 $5,309,359
Current portion - capital lease obligation 289,900 -
------------- -------------
6,203,569 5,309,359
------------- -------------
LONG-TERM LIABILITIES:
Revolving Credit Facility 6,010,247 651,221
Capital Lease Obligation 218,920 -
Other liabilities 629,616 1,037,296
------------- -------------
TOTAL LONG-TERM LIABILITIES 6,858,783 1,688,517
------------- -------------
TOTAL LIABILITIES 13,062,352 6,997,876
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $0.10; authorized
10,000,000 shares; 3,289,997 and 3,151,186
issued and outstanding 329,000 315,119
Treasury stock, at cost, 779,912 and
10,000 shares (5,266,919) (95,975)
Additional paid-in capital 25,731,726 25,384,270
Accumulated deficit (12,238,535) (14,450,383)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 8,555,272 11,153,031
------------- -------------
$21,617,624 $18,150,907
============= =============
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended March 31, 2001, 2000 and 1999
Additional Total
Common Stock Treasury Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------- --------- ------- -------- ---------- ----------- -----------
Balance, March 31, 1998 3,130,413 $313,044 10,000 $ (95,975) $25,345,586 $(3,479,762) $22,082,893
Net Loss (6,227,667) (6,227,667)
--------- --------- ------- --------- ----------- ---------- -----------
Balance, March 31, 1999 3,130,413 313,044 10,000 (95,975) 25,345,586 (9,707,429) 15,855,226
Options Exercised 20,750 2,075 38,684 40,759
Net Loss (4,742,954) (4,742,954)
------- --------- ------- --------- ---------- ---------- -----------
Balance, March 31, 2000 3,151,163 $315,119 10,000 $ (95,975) $25,384,270 $(14,450,383) $11,153,031
Options Exercised 138,811 13,881 347,456 361,337
Repurchased Shares 769,912 (5,170,944) (5,170,944)
Net Income 2,211,848 2,211,848
--------- --------- ------- ----------- ----------- ------------ ------------
Balance, March 31, 2001 3,289,974 $329,000 779,912 $(5,266,919) $25,731,726 $(12,238,535) $ 8,555,272
=========== ========= ======= ============ =========== ============= ============
For the periods presented, there are no elements of other comprehensive
income as defined by the Statements of Financial Accounting Standards, No.
130 Reporting Comprehensive Income.
The accompanying notes to consolidated financial statements are an
integral part of these statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $2,211,848 $(4,742,954) $(6,227,667)
Less net income (loss) from discontinued 609,985 (5,681,864)
operations (4,918,276)
----------- ----------- ------------
Net income (loss) from continuing operations 1,601,863 175,322 (545,803)
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
Operating activities:
Depreciation and amortization 864,428 940,390 916,876
Provision for uncollectible accounts 566,601 906,614 460,356
Goodwill write-down - - 113,196
Loss on disposal of certain operations - 508,509
Cumulative effect of change in accounting - - 171,974
principle
Deferred income taxes 836,323 (81,928) (307,710)
----------- ----------- ----------
3,869,215 2,448,907 808,889
Change in certain net assets, net of the
effects of acquisitions
and dispositions:
(Increase) decrease in:
Accounts receivable (1,293,984) (935,250) 78,384
Prepaid expenses and other current assets (1,134,790) (99,009) 70,974
Other Assets 84,207 (631,887) (4,217)
Increase (decrease) in:
Accounts payable and accrued expenses 604,310 1,279,261 (692,135)
Other liabilities (407,680) 530,563 295,928
----------- ----------- ---------
Net cash provided by (used in) operating
activities 1,721,278 2,592,585 557,823
----------- ----------- ----------
Cash flows from investing activities:
Capital expenditures (1,773,123) (809,551) (524,533)
Acquisitions, net of cash acquired (44,496) (120,000) -
Proceeds from sale of assets - 119,009 -
----------- ----------- -----------
Net cash (used in) provided by investing
activities (1,817,619) (810,542) (524,533)
----------- ------------ ------------
Cash flows from financing activities:
Net revolving credit facility borrowings 5,359,026 (14,941,786) 1,512,361
Repurchase of common shares (5,170,944) - -
Proceeds from stock option exercises 361,337 40,759 -
----------- ----------- ------------
Net cash provided by (used in) financing
activities 549,419 (14,901,027) 1,512,361
----------- ----------- ------------
Net Cash Provided by (used in) Discontinued
Operations and change in investment in
Discontinued Operations 609,985 13,509,570 (1,327,255)
----------- ----------- ------------
Net (decrease) increase in cash and cash
equivalents 1,063,063 390,586 218,396
Cash and cash equivalents at beginning of year 1,427,537 1,036,951 818,555
----------- ----------- ------------
Cash and cash equivalents at end of year $2,490,600 $1,427,537 $1,036,951
=========== =========== ============
Cash Paid for:
Interest $ 829,000 $ 989,000 $1,541,000
Taxes $ 706,000 $ 232,000 $ 175,000
The accompanying notes to consolidated financial statements are an
integral part of these statements.
51
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Almost Family,
Inc. and its wholly-owned subsidiaries ("the Company"). Almost Family, Inc. and
subsidiaries (collectively "Almost Family" or the "Company") provide
alternatives for seniors and other adults with special needs and their families
who wish to avoid nursing home placement as long as possible and remain
independent, through its network of adult day care centers and ancillary
services. Refer also to Note 11 for a discussion of discontinued operations. The
Company has operations in Alabama, Connecticut, Florida, Indiana, Kentucky,
Maryland, Massachusetts, and Ohio. All material intercompany transactions and
accounts have been eliminated in consolidation. The Company operates in one
segment.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Uninsured deposits at March 31, 2001, and 2000 were approximately $2.4 million
and $1.3 million, respectively. These amounts have been deposited with national
financial institutions.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives. The estimated useful lives
of depreciable assets are as follows:
Estimated
Useful Life
Buildings and improvements 30
Leasehold improvements 3-10
Medical equipment 2-10
Office and other equipment 3-10
Transportation equipment 3-5
COST IN EXCESS OF NET ASSETS ACQUIRED
The costs in excess of fair value of net assets acquired are stated at cost and
amortized on a straight-line basis over their estimated useful lives which
generally range from 20 (approximately $1.2 million, net) to 40 years
(approximately $1.3 million, net).
Subsequent to its acquisitions, the Company evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
goodwill may warrant revision or that the remaining balance of goodwill may not
be recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company utilizes appropriate methods (such as
undiscounted cash flows over the remaining life of the goodwill) in measuring
whether or not the goodwill is recoverable.
During the quarter ended June 30, 1998, the Company recorded a write-down of
goodwill of $113,196 before taxes. The write-down of goodwill was required under
Statement of Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of"
based upon management's estimate of the future cash flows from operations in one
of its adult day health centers.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITALIZATION POLICIES
Maintenance, repairs and minor replacements are charged to expense as incurred.
Major renovations and replacements are capitalized to appropriate property and
equipment accounts. Upon sale or retirement of property, the cost and related
accumulated depreciation are eliminated from the accounts and the related gain
or loss is recognized in income.
Construction costs incurred to ready a project for its intended use are
capitalized for major development projects and are amortized over the lives of
the related assets.
PREOPENING COSTS
Effective April 1, 1998, the Company adopted AICPA Statement of Position 98-5
"Reporting on the Costs of Start-up Activities" (SOP 98-5) which requires all
costs incurred readying a new business for operation prior to revenue generation
to be expensed as incurred. The Company had previously deferred such costs and
amortized them over a period of 24 months, which was permissible previous to the
issuance of SOP 98-5. Accordingly, the accompanying statement of operations for
the year ended March 31, 1999 includes a non-recurring, net of tax, expense of
approximately $172,000 for the cumulative effect of this change in accounting
principle.
NET REVENUES
The Company is paid for its services primarily by federal and state third-party
reimbursement programs, commercial insurance companies, and patients. Revenues
are recorded at established rates in the period during which the services are
rendered. Appropriate allowances to give recognition to third party payment
arrangements are recorded when the services are rendered.
Approximately 9.2%, 9.8%, and 8.4%, of net revenues for the fiscal years ended
March 31, 2001, 2000, and 1999, respectively, were derived under federal and
state third-party cost-based reimbursement programs. These revenues are based on
cost reimbursement principles and are subject to examination and retroactive
adjustment by agencies administering the programs. Management continuously
evaluates the outcome of these reimbursement examinations and provides
allowances for losses based upon the best available information. In the opinion
of management, adjustments, if any, would not be material to the financial
position or the results of operations of the Company.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended March 31, 2001 approximately 25% of the Company's revenues
and 46% of center contribution were generated from Maryland operations where
approximately 90% of that revenue is derived from Maryland Medicaid
reimbursement programs. Although the Company is not aware of any significant
initiatives currently underway that would have a material adverse impact on the
Maryland reimbursement program or the Company, the Company could be materially
impacted by unfavorable changes in the future should they occur. The following
table sets forth the percent of the Company's revenues generated from state
Medicaid programs:
Year Ended March 31,
------------------------------------------------
2001 2000 1999
--------------- -------------- ---------------
Maryland 25.0% 27.3% 29.4%
Kentucky 18.7% 14.8% 10.0%
Connecticut 8.8% 9.8% 10.8%
Massachusetts 4.6% 3.2% 1.4%
Indiana 4.2% 4.8% 4.8%
Ohio 3.5% 2.7% 2.4%
Florida 0.5% 0.2% 0.0%
--------------- -------------- ---------------
Total 65.3% 62.8% 58.9%
=============== ============== ===============
* less than 1%
Concentrations in the Company's accounts receivable are similar to those in
revenue shown in the table above. The ability of payors to meet their
obligations depends upon their financial stability, future legislation and
regulatory actions. The Company does not believe there are any significant
credit risks associated with receivables from federal and state third-party
reimbursement programs. The allowance for doubtful accounts principally consists
of management's estimate of amounts that may prove uncollectible for coverage,
eligibility and technical reasons. The allowance for uncollectible accounts was
approximately $1,410,000 and $862,000 at March 31, 2001, and 2000 respectively.
NET INCOME (LOSS) PER SHARE
Net income per share is presented as a unit of basic shares outstanding and
diluted shares outstanding. Diluted shares outstanding is computed based on the
weighted average number of common shares and common equivalent shares
outstanding. Common equivalent shares result from dilutive stock options and
warrants. The following table is a reconciliation of basic to diluted shares
used in the earnings per share calculation:
For the Fiscal Years Ended March 31,
------------------------------------
2001 2000 1999
---- ---- ----
Basic weighted average outstanding
shares 3,145,511 3,124,016 3,120,413
Add-common equivalent shares
representing shares issuable upon
exercise of dilutive options 161,171 - -
----------- ---------- ----------
Diluted weighted average number of
shares at year end(1 3,306,682 3,124,016 3,120,413
============ =========== ===========
Due to the net losses incurred in fiscal 2000 and 1999, common equivalent shares
are excluded due to their anti-dilutive effect.
(1) In March 2001, the Company repurchased 769,912 shares of common stock and a
warrant for 200,000 shares for $5.1 million. Actual common shares outstanding as
of March 31, 2001 were 2,510,062.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. Refer also to the notes "NET
REVENUES" and "HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET
CONDITIONS".
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable and
payable and debt instruments. The book values of cash and accounts receivable
and payable are considered representative of their respective fair values. The
fair value of the Company's debt instruments approximate their carrying values
as substantially all of such debt has rates which fluctuate with changes in
market rates.
FINANCIAL STATEMENT RECLASSIFICATIONS
Certain amounts have been reclassified in the 2000 and 1999 financial statements
in order to conform them to the 2001 presentation. Such reclassifications had no
effect on previously reported net income (loss).
NOTE 2 - HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET CONDITIONS
Health Care Reform
The health care industry has experienced, and is expected to continue to
experience, extensive and dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is subjecting the health care
industry to significant reform. Health care reforms have been enacted as
discussed elsewhere in this document and proposals for additional changes are
continuously formulated by departments of the federal government, Congress, and
state legislatures.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of expenditures are expected to continue. Such
future changes may further impact reimbursement. There can be no assurance that
future legislation or regulatory changes will not have a material adverse effect
on the operations of the Company.
State legislative proposals continue to be introduced that would impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations may be enacted
in the future affecting its business or how existing or future laws and
regulations might be interpreted, or whether the Company will be able to comply
with such laws and regulations in its existing or future markets.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at March 31, 2001 and 2000 consisted of
the following:
2001 2000
------------ -----------
Trade payables $1,910,298 $1,581,748
Wages and employee 2,660,413 2,214,073
benefits
Accrued taxes 1,049,734 1,158,878
Other 293,224 354,660
------------ ----------
$5,913,669 $5,309,359
============ ==========
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consist of the
following:
March 31, 2001 March 31, 2000
--------------- --------------
Buildings and improvements $ 1,161,408 $ 820,299
Leasehold improvements 3,817,575 3,527,844
Medical equipment 531,041 520,057
Computer equipment 3,474,829 2,752,998
Office and other equipment 1,578,507 1,523,815
Transportation equipment 2,114,545 1,252,996
-------------- -------------
12,677,905 10,398,009
Less accumulated depreciation (7,992,073) (7,318,373)
--------------- -------------
$ 4,685,832 $3,079,636
=============== =============
Depreciation expense was approximately $674,000, $840,000 and $825,000 for the
fiscal years ended March 31, 2001, 2000, and 1999, respectively.
NOTE 5 - REVOLVING CREDIT FACILITY
As of March 31, 2001, the Company had a $20 million revolving credit facility
with Bank One Kentucky, NA. The credit facility bore interest at prime plus a
margin (ranging from 0% to 1.0%, currently 0.50%, and was 8.5% at March 31, 2001
was ) dependent upon total leverage and is secured by substantially all assets
and the stock of the Company's subsidiaries. Borrowings were available equal to
the greater of: a) a multiple of earnings before interest, taxes, depreciation
and amortization (as defined) or, b) an asset based formula, primarily based on
accounts receivable. Borrowings under the facility were available for working
capital, capital expenditures, development and growth of the business and other
corporate purposes. The facility had an expiration date of January 10, 2002. As
of March 31, 2001 approximately $11.8 million remained outstanding on the line
of credit. Additionally, an irrevocable letter of credit totaling $2.4 million
has been issued by the bank in connection with the Company's insurance program.
Thus, a total $14.2 million was either outstanding or committed as of March 31,
2001 while an additional $2 million was available for use. As of March 31, 2001,
approximately $5.8 million of debt has been classified with net assets from the
discontinued operations in the accompanying consolidated balance sheets. See
Note 11 regarding discontinued operations and Note 13 regarding replacement of
the credit facility. The Company's revolving credit facility is subject to
various financial covenants. As of March 31, 2001 and 2000, the Company was in
compliance.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the Company's book
and tax bases of assets and liabilities and tax carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The principal tax carryforwards and temporary differences were as follows:
March 31, 2001 March 31, 2000
--------------- ----------------
Deferred tax assets
Nondeductible reserves and
allowances $1,419,000 $2,995,000
Intangibles 1,940,000 2,440,000
Net operating loss and other
carryforwards 1,105,000 997,000
Other 7,000 -
------------- -------------
4,471,000 6,432,000
Valuation allowance (1,105,000) (997,000)
------------- -------------
$3,366,000 $5,435,000
============= =============
Deferred tax liabilities
Accounts receivable $ 404,000 $1,580,000
Accelerated depreciation 252,000 (143,000)
Other - 452,000
------------- -------------
656,000 1,889,000
------------- -------------
Net deferred tax assets $2,710,000 $3,546,000
============= =============
The Company has state and local net operating loss carryforwards of
approximately $13,800,000, which expire on various dates through 2016.
Provision (benefit) for income taxes consists of the following:
March 31,
---------------------------------------------------
2001 2000 1999
---------------- ----------------- --------------
Federal - Current $ 750,000 $ 383,000 $ 41,000
State and local - Current 173,000 536,000 345,000
Deferred 836,000 (242,000) (2,573,000)
---------------- ----------------- --------------
$ 1,759,000 $ 677,000 $(2,187,000)
================ ================= ==============
Shown in the accompanying income statements as:
Continuing Operations $ 1,420,000 $ 127,000 $ (263,000)
Discontinued Operations
From Operations 339,000 59,000 (1,802,000)
From Loss on disposal - 491,000 -
Accounting Change - - (122,000)
---------------- ----------------- --------------
$ 1,759,000 $ 677,000 $(2,187,000)
================ ================= ==============
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the statutory to the effective rate of the Company (for
continuing operations only) is as follows:
March 31,
------------------------------------------------
2001 2000 1999
--------------- -------------- ---------------
Tax provision (benefit) using
statutory rate $1,028,000 $ 103,000 $ (216,000)
Goodwill 11,000 34,000 73,000
Valuation Allowance 108,000 (131,000) -
State and local taxes, net of
Federal benefit 223,000 108,000 (41,000)
Other, net 50,000 13,000 (79,000)
--------------- -------------- ---------------
Tax provision (benefit)
Continuing Operations $1,420,000 $ 127,000 $ (263,000)
=============== ============== ===============
The Company has provided a valuation allowance against certain net deferred tax
assets based upon management's estimation of realizability of those assets
through future taxable income. This valuation was based in large part on the
Company's history of generating operating income or losses in individual tax
locales and expectations for the future. The Company's ability to generate the
expected amounts of taxable income from future operations to realize its
recorded net tax assets is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation at
all levels of government. There can be no assurances that the Company will meet
its expectations of future taxable income. However, management has considered
the above factors in reaching its conclusions that it is more likely than not
that future taxable income will be sufficient to fully utilize the net deferred
tax assets as of March 31, 2001.
During fiscal 2000, based on changes in facts and circumstances, favorable
changes occurred in the Company's expectations with regard to the generation of
future taxable income in certain tax jurisdictions. Accordingly, the state and
local tax provision for fiscal 2000 includes a reduction of previously recorded
valuation allowances of approximately $131,000.
As of March 31, 2001, the Company has fully utilized its Federal net operating
loss carryforward. State and local net operating loss carryforwards expire at
various times through 2016.
NOTE 7 - Stockholders Equity
Employee Stock Option Plans
1. The Company has a Nonqualified Stock Option Plan which provides for the
granting of options to key employees, officers, and directors, to purchase up to
220,000 shares of the Company's common stock. The Board of Directors determined
the amount and terms of the options which cannot exceed ten years. The period of
time for granting options under this plan has expired.
2. The Company has a Supplemental Nonqualified Stock Option Plan which provides
options to purchase up to 40,000 shares of the Company's common stock to key
employees and non-employee consultants. The Board of Directors determined the
amount and terms of the options, which cannot exceed ten years. The period of
time for granting options under this plan has expired.
3. The Company has a 1991 Long-term Incentive Nonqualified Stock Option Plan
which provides options to purchase up to 500,000 shares of the Company's common
stock to key employees, officers, and directors. The Board of Directors will
determine the amount and terms of the options, which cannot exceed ten years.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. The Company has a 1993 Stock Option Plan for Non-employee Directors which
provides options to purchase up to 120,000 shares of the Company's common stock
to directors who are not employees. Each newly elected director or any director
who does not possess options to purchase 10,000 shares of the Company's common
stock will automatically be granted options to purchase 10,000 shares of common
stock at an exercise price based on the market price as of the date of grant.
5. The Company has a 2000 stock option plan which provides options to purchase
up to 500,000 shares of the Company's common stock to key employees and
officers. The Board of Directors will determine the amount and terms of the
options, which cannot exceed ten years.
Changes in qualified options, non-qualified options, and supplemental
non-qualified options and warrants outstanding are summarized as follows:
Warrants Options
----------------------- ------------------------
Wtd. Avg Wtd. Avg
Shares Ex. Price Shares Ex. Price
---------- ----------- ---------- ------------
March 31, 1998 266,600 $12.03 433,000 $ 7.65
Granted - 271,800 $ 2.37
Exercised - - $ -
Terminated - (96,800) $ 6.69
---------- ----------
March 31, 1999 266,600 $12.03 608,000 $ 2.57
Granted - 14,000 $ 2.33
Exercised - (20,750) $ 1.96
Terminated (66,600) $10.62 (15,350) $ 6.09
-------- ----------
March 31, 2000 200,000 $12.50 585,900 $ 2.49
Granted - 261,000 $ 4.24
Exercised - (134,500) $ 2.60
Acquired (200,000) $12.50
Terminated - (19,500) $ 3.06
---------- ----------
March 31, 2001 - 692,900 $ 3.11
========== ==========
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table details exercisable options and related information:
2001 2000
------------ ------------
Excercisable at end of year 433,775 323,450
Weighted Average Exercise Price $ 2.68 $ 2.53
Weighted Average of Fair Value
of options Granted during
the year $ 0.74 $ 0.71
The Company applies APB Opinion 25 and related interpretations in accounting for
its stock option plans. In 1995, Statement of Financial Accounting Standards No.
123 "Accounting for Stock Based Compensation" (SFAS 123) was issued and, if
fully adopted, changes the method of recognition of costs on plans similar to
the Company's. The Company adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the Company's stock
option plans. Had compensation cost for the stock option plans been determined
based upon the fair value at the grant date for the awards in 2001, 2000 and
1999 consistent with the provisions of SFAS 123, the effect on net income and
earnings per share would have been reduced to the following pro forma amounts:
2001 2000 1999
--------------- -------------- -------------
Net Income: As Reported $ 2,211,848 $(4,742,954) $(6,227,667)
Pro Forma $ 2,144,048 $(4,853,780) $(6,394,105)
Basic EPS: As Reported $ 0.70 $ (1.52) $ (2.00)
Pro Forma $ 0.68 $ (1.55) $ (2.05)
Diluted EPS: As Reported $ 0.67 $ (1.52) $ (2.00)
Pro Forma $ 0.65 $ (1.55) $ (2.05)
Because the SFAS 123 method of accounting has not been applied to options
awarded prior to April 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The following table summarizes information about stock options outstanding at
March 31, 2001:
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------
Outstanding Wtd. Avg. Exercisable
As of Remaining As of
Range of March 31, Contractual Wt. Avg. March 31, Wt. Avg.
Ex. Price 2001 Life Ex. Price 2001 Ex. Price
------------ ------------- ------------- --------- -------------- --------
$2.00-2.50 192,500 7.9 $ 2.19 143,125 $2.19
$2.50-3.00 239,400 3.1 $ 2.63 236,900 $2.63
Over $3.00 261,000 9.8 $ 4.24 53,750 $4.24
------------- --------------
$2.19-16.55
692,900 5.7 $ 3.11 433,775 $2.68
============= ==============
The fair value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for awards in 2001 and 2000 respectively: risk-free interest
rates of 6.18% and 6.05%, expected volatility of approximately 50% and 50%,
expected lives of 5.95 and 9.76 years and no expected dividend yields.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shareholders Rights Plan
On February 1, 1999 the Company implemented a shareholder protection rights
plan. One right was distributed as a dividend on each share of common stock of
the Company held of record as of the close of business on February 16, 1999. The
rights will be exercisable only if a person or group acquires beneficial
ownership of 20% or more of the Company's common stock or announces a tender of
exchange offer upon consummation of which, such person or group would
beneficially own 20% or more of the common stock of the Company. If the rights
are triggered, then each right not owned by the acquiring person or group
entitles its holder to purchase shares of Company common stock at the right's
current exercise price, having a value of twice the right's exercise price. The
Company may redeem the rights at any time until the close of business on the
tenth business day following an announcement by the Company that an acquiring
person or group has become the beneficial owner of 20% or more of the Company's
common stock.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases certain real estate, office space, vehicles and equipment
under noncancellable operating leases expiring at various dates through 2008.
Rent expense amounted to approximately $2,900,000 for 2001 and $3,300,000 for
2000, and 1999, respectively. At March 31, 2001 the minimum rental payments
under these leases are as follows:
2002 $ 3,016,205
2003 1,549,921
2004 972,151
2005 581,987
2006 and thereafter 451,367
(b) Capital Leases
In January 2001, the Company acquired $611,456 of vehicles under a capital lease
with an annual interest rate of approximately 7.5%. Accumulated depreciation as
of March 31, 2001 is $102,636.
Future minimum lease payments are as follows:
Year Ending March 31, Amount
----------------
2002 $ 316,759
2003 169,955
2004 58,552
2005 4,553
----------------
549,819
Less: amount representing (40,999)
interest
----------------
Present value of minimum
lease payments 508,820
Less: current portion 289,900
----------------
$ 218,920
================
(c) Employment Contracts
The Company has an employment contract with an officer. In connection with this
contract, the Company is contractually obligated to pay an annual base salary of
$190,000 for one year with automatic one year renewals. In addition, the
agreement contains contingent obligations associated with performance bonuses
and severance.
(d) Medical Malpractice Claims
The Company has insurance coverage with respect to medical malpractice risks.
The malpractice insurance coverage provides coverage up to $1,000,000 per
occurrence, and has no deductible for which the Company would be responsible.
It is the Company's policy to record losses from asserted and unasserted claims
identified by the Company and unreported claims based on estimates that
incorporate the Company's past experience, as well as other considerations
including the nature of each claim or incident and relevant trend factors. Based
on these factors and the Company's insurance coverage, no accrual for potential
losses attributable to asserted and unasserted claims has been recorded in the
accompanying financial statements.
(e) Workers' Compensation and Auto Liability
The Company secures workers' compensation and auto liability insurance which
provides coverage in excess of certain per occurrence and aggregate limits. In
addition, the Company has purchased umbrella excess liability coverage. As of
March 31, 2001, the Company has posted a letter of credit to meet insurance
company requirements associated with such claims in the amount of $2.4 million.
In prior periods, such funds were required to be escrowed to fund a certain
level of liability associated with such claims. Management provides for an
estimated liability for such programs.
(f) Legal Proceedings
The Company is currently, and from time to time, subject to claims and suits
arising in the ordinary course of its business, including claims for damages for
personal injuries. In the opinion of management, the ultimate resolution of any
of these pending claims and legal proceedings will not have a material effect on
the Company's financial position or results of operations.
On January 26, 1994 Franklin Capital Associates L.P. (Franklin), Aetna Life and
Casualty Company and Aetna Casualty and Surety Company shareholders, who at one
time held approximately 320,000 shares of the Company's common stock
(approximately 13% of shares outstanding) filed suit in Chancery Court of
Williamson County, Tennessee claiming unspecified damages not to exceed three
million dollars in connection with registration rights they received in the
Company's acquisition of certain home health operations in February 1991. The
1994 suit alleged that the Company failed to use its best efforts to register
the shares held by the plaintiffs as required by the merger agreement. The
Company settled with both Aetna parties shortly before the case went to trial in
February 2000. In mid-trial Franklin voluntarily withdrew its complaint
reserving its legal rights to bring a new suit as allowed under Tennessee law.
In May 2000, Franklin refiled its lawsuit. The Company believes it has
meritorious defenses to the claims and does not expect that the ultimate outcome
of the suit will have a material impact on the Company's results of operations,
liquidity or financial position. The Company plans to vigorously defend its
position in this case. Estimated costs of litigation have been included in the
Company's one-time charge for discontinuing its home health operations recorded
in September 1999.
NOTE 9 - ACQUISITIONS
During fiscal 2001, the Company acquired one adult day care center for $45,000,
all of which has been accounted for as cost in excess of net assets acquired
(goodwill). This cost is being amortized on a straight line basis over its
estimated useful life (ten years) (see also Note 1). The impact of the above
acquisition was not significant for any of the periods presented and,
accordingly, proforma amounts are not presented illustrating the effects of such
acquisitions.
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for years ended March 31, 2001 and 2000 are
as follows (in thousands except per share data):
2001 2000
------------------------------------------- -------------------------------------
First Second Third Fourth First Second Third Fourth
------------------------------------------- -------------------------------------
Net Revenues $11,776 $12,545 $12,621 $12,738 $10,335 $11,105 $11,885 $11,399
Gross Profit 1,856 2,375 2,177 1,927 1,717 2,025 2,049 1,602
Net Income (Loss) -
Continuing Operations 291 504 438 369 3 199 234 (261)
Net Income (Loss) 291 504 666 751 59 (4,775) 234 (261)
Continuing
Operations
Net Income (Loss)
Per Share
Basic 0.09 0.16 0.14 0.12 0.00 0.06 0.08 (0.08)
Diluted 0.09 0.15 0.13 0.11 0.00 0.06 0.08 (0.08)
Net Income (Loss)
Per Share
Basic 0.09 0.16 0.21 0.24 0.02 (1.53) 0.08 (0.08)
Diluted 0.09 0.15 0.20 0.23 0.02 (1.53) 0.08 (0.08)
NOTE 11 - DISCONTINUED OPERATIONS
As part of a formal plan of separation, the Company on November 12, 1999 sold
its product operations (consisting of infusion therapy and respiratory and
medical equipment businesses) to Lincare Holdings, Inc. in an asset sale for
$14.5 million and is pursuing available strategic alternatives to complete the
separation of its visiting nurse operations. Proceeds from the sale were used to
repay obligations outstanding under the Company's bank line of credit. As a
result of the operational separations, the Company has recorded a one-time net
of tax charge of approximately $5 million or ($1.60) in the quarter ended
September 30, 1999. This charge reduced the book value of the operations to
their expected net realizable value, provides for losses on fulfilling certain
obligations and close down costs and includes the estimated future operating
results of the visiting nurse operations prior to separation. These changes have
been accounted for as discontinued operations in the accompanying financial
statements.
The estimated loss on disposal of discontinued operations reflected in the
accompanying financial statements includes management's estimate of the results
of operating the visiting nurse segment prior to disposal and the estimated
financial results of such disposal based on information currently available. The
Company's decisions with respect to the visiting nurse operations resulted from
changes in Medicare reimbursement brought about by the Balanced Budget Act of
1997 (the BBA) and its resulting impact on the home health market place and the
Company. The BBA included a requirement for implementation of a prospective
payment system or "PPS" which would not be cost-based, no later than October 1,
2000. PPS went into effect on that date.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - DISCONTINUED OPERATIONS (continued)
Although discontinued operations accounting treatment is being used for this
segment, these earnings are reported in the Company's income statement for the
second half of fiscal 2001. Under discontinued operations accounting rules,
losses incurred in the comparable periods of last year and in the first half of
this year were previously provided for in the one-time charge recorded in our
fiscal 2000 year. Thus, in the table shown below the line "Less previously
provided" reduces the reported operating losses for the first half to zero.
The BBA and subsequent amendments, as they currently stand, call for a reduction
in PPS reimbursement rates of 15% effective October 1, 2002. The Federal budget
for the coming federal fiscal year is currently being developed in Congress and
legislative proposals have been made to eliminate, and/or postpone this
reduction. However, unless Congress and the President change the law as it
currently exists, the 15% rate cut will take place on October 1, 2002. The
Company is unable to predict whether such a rate cut will take place. Should
such a rate cut take place, it would have a material adverse effect on the
financial performance and the potential disposition value of the VN business
segment. The Company is continuing to evaluate its strategic alternatives for
this business segment, the outcome of which will be highly dependant upon the
resolution of the 15% rate cut issue.
Revenues from discontinued operations were approximately $25,534,000,
$46,742,000 and $57,542,000 for the years ended March 31, 2001, 2000 and 1999
respectively. Accordingly, interest expense has been allocated to discontinued
operations in the amounts of $741,000, $612,700, and $1,034,000 for the years
ended March 31, 2001, 2000 and 1999 respectively.
The accompanying balance sheets include net current assets and liabilities of
discontinued operations, consisting primarily of accounts receivable, inventory,
accounts payable and accrued liabilities, and long term assets of discontinued
operations consisting primarily of property, and equipment, net of accumulated
depreciation and goodwill.
Discontinued Operations - Statements of Operations
2001
--------------------------------------------------
With PPS Before PPS
10/1/00 to 4/1/00 to
3/31/01 9/30/00 Total 2000 1999
------------- ------------- ----------- ------------- ------------
Revenues $13,419,967 $12,114,361 $25,534,328 $46,742,259 $57,542,296
Operating Expenses 12,091,013 12,941,886 25,032,899 49,703,381 56,200,374
Goodwill/Restructuring
Charge - - - - 7,702,902
Interest Expense 380,235 361,542 741,777 612,700 1,034,481
------------- ------------ -------------- ------------- -----------
Pre-tax Income (loss) 948,719 (1,189,067) (240,348) (3,573,822) (7,395,461)
Income Taxes 338,734 (451,845) (113,111) (1,501,005) (1,924,156)
------------- ------------ -------------- ------------- -----------
Net Income before
Accounting Change 609,985 (737,222) (127,237) (2,072,817) (5,471,305)
Accounting Change - - - - (210,541)
------------- ------------ -------------- ------------- -----------
Net Income (loss) 609,985 (737,222) (127,237) (2,072,817) (5,681,864)
Less previously provided - (737,222) (737,222) (2,154,541) -
------------- ------------ -------------- ------------- -----------
Shown in accompanying
Statements of Operations $ 609,985 $ - $ 609,985 $ 81,724 $ (5,681,864)
============= ============ ============== ============= ============
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - DISCONTINUED OPERATIONS (continued)
Discontinued Operations - Balance Sheet Information
2001 2000
------------------ ------------------
Accounts Receivable $ 8,857,407 $ 8,308,894
Other Current Assets 1,273,017 1,152,631
Current Liabilities 3,870,271 6,428,495
Revolving Credit Facility 5,780,392 2,506,403
Long-Term Liabilities 479,761 526,627
------------------ ------------------
Net Assets Held for Sale $ - $ -
================== ==================
For the year ended March 31, 2001, discontinued operations cash used in
operating activities was $2,469,486, cash used in investing activities was
$757,637, and cash provided by financing activities was $3,227,123.
NOTE 12 - STOCK AND WARRANT REDEMPTION
In March 2001, the Company redeemed 748,501 shares of common stock and a warrant
to purchase 200,000 shares of common stock (at an exercise price of $12.50 per
share). The Company's cost of redemption totaled approximately $5.1 million. As
of March 31, 2001 a total of 2,510,062 common shares were outstanding.
NOTE 13 - SUBSEQUENT EVENT - DEBT REFINANCING
Prior to May 30, 2001, the Company had a $20 million revolving credit facility
with Bank One Kentucky, NA. The facility had an expiration date of January 10,
2002. On May 30, 2001 the facility was replaced with a $22.5 million facility
with similar terms and conditions with a new expiration date of June 30, 2003.
The credit facility bears interest at prime plus a margin (ranging from 0% to
1.0%, currently 0.50%) dependent upon total leverage and is secured by
substantially all assets and the stock of the Company's subsidiaries. Borrowings
are available equal to the greater of: a) a multiple of earnings before
interest, taxes, depreciation and amortization (as defined) or, b) an asset
based formula, primarily based on accounts receivable. Borrowings under the
facility may be used for working capital, capital expenditures, development and
growth of the business and other corporate purposes. As of May 30, 2001 the
formula permitted up to a total of $21 million to be used of which approximately
$12.4 million was drawn or committed.
Report of Independent Public Accountants
To the Stockholders of Almost Family, Inc.:
We have audited the accompanying consolidated balance sheets of Almost Family,
Inc. (a Delaware corporation) and subsidiaries as of March 31, 2001 and 2000 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended March 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Almost Family, Inc. and
subsidiaries as of March 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2001 in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
May 14, 2001
(except with respect to the matter discussed
in Note 13, as to which the date is May 30, 2001)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the Company's
directors and executive officers.
Name Age Position with the Company
- --------------------------------------------------------------------------------
William B. Yarmuth (1) 49 Chairman of the Board
President and Chief Executive Officer
C. Steven Guenthner (2) 40 Senior Vice President
and Chief Financial Officer
Mary A. Yarmuth (3) 55 Senior Vice President -
Service Development
Todd Lyles (4) 39 Senior Vice President -
Operations
Steven B. Bing (5) 54 Director
Donald G. McClinton (6) 67 Director
Tyree G. Wilburn (7) 48 Director
Jonathan Goldberg (8) 49 Director
Wayne T. Smith (9) 55 Director
W. Earl Reed, III (10) 49 Director
Executive officers of the Company are elected by the Board of Directors
for one year and serve at the pleasure of the Board of Directors with the
exception of William B. Yarmuth who has an employment agreement with the
Company. See Item 11 -- William B. Yarmuth Employment Agreement. Mary
A. Yarmuth is married to William B. Yarmuth. There are no other family
relationships between any director or executive officer.
Each Director is elected to hold office until the next annual meeting of
stockholders and until a successor is elected and qualified.
(1) William B. Yarmuth has been a director of the Company since 1991,
when the Company acquired National, where Mr. Yarmuth was Chairman,
President and Chief Executive Officer. After the acquisition, Mr.
Yarmuth became the President and Chief Operating Officer of the
Company. Mr. Yarmuth became Chairman and CEO in 1992. He was
Chairman of the Board, President and Chief Executive Officer of
National from 1981 to 1991.
(2) C. Steven Guenthner has been Senior Vice President and Chief Financial
Officer of the Company since 1992. From 1983 through 1992 Mr. Guenthner
was employed as a C.P.A. with Arthur Andersen LLP. Prior to joining the
Company he served as a Senior Manager in the firm's Accounting and Audit
division specializing in mergers and acquisitions, public companies and
the healthcare industry.
(3) Mary A. Yarmuth has served as Senior Vice President of the Company
since 1991, currently as Senior Vice President of Service
Development. From 1985 to 1991 Ms. Yarmuth served as President of
the Company's Nursing Division. Ms. Yarmuth joined National in
1981.
(4) P. Todd Lyles joined the Company as Senior Vice President Planning and
Development in October 1997 and now serves as Senior Vice President -
Operations with responsibility for the Company's Kentucky, Indiana and
Ohio operations. Prior to joining the Company Mr. Lyles was Vice President
Development for the Kentucky Division of Columbia/HCA, a position he had
held since 1993. Mr. Lyles experience also includes 8 years with Humana
Inc. in various financial and hospital management positions.
(5) Steven B. Bing was elected a Director in January 1992. Mr. Bing is
a principal and chief operating officer of Prosperitas Investment
Partner, L.P., a private investment company located in Louisville,
Kentucky. From 1989 to March 1992, Mr. Bing was President of ICH
Corporation, an insurance holding company. From 1984 to 1989, he
served as Senior Vice President of ICH Corporation. He is also a
director of the Fund for the Arts, other civic entities, and
various closely-held business entities.
(6) Donald G. McClinton was elected a director in October 1994. From
1986 to 1994, Mr. McClinton was co-chairman of Interlock
Industries, Inc., a privately held company engaged in metal
fabrication, corrugated container manufacturing, aluminum
processing and transportation. Presently, Mr. McClinton is
President and part owner of Skylight Thoroughbred Training Center,
Inc., a thoroughbred training center. He is also a director of
Jewish Hospital Systems, Inc., and Mid-America Bancorp.
(7) Tyree G. Wilburn was elected a director in January 1996. Mr.
Wilburn is a private investor. From 1992 to 1996, Mr. Wilburn was
Chief Development Officer of Community Health Systems, Inc. and,
most recently, Executive Vice President and Chief Financial and
Development Officer. From 1974 to 1992 Mr. Wilburn was with Humana
Inc. where he held senior and executive positions in mergers and
acquisitions, finance, planning, hospital operations, audit and
investor relations. He is also a director of several private
companies.
(8) Jonathan Goldberg was elected a director in February 1997. Mr.
Goldberg is the managing partner of the law firm of Goldberg and
Simpson and has served in that capacity for the last ten years.
(9) Wayne T. Smith was elected a director in March 1997. Mr. Smith is
President and Chief Executive Officer of Community Health Systems,
Inc. Mr. Smith was President, Chief Operating Officer and a
member of the Board of Directors of Humana, Inc. from 1993 to 1996
and served with Humana from 1973 to 1993 in various capacities,
including numerous vice president and divisional president
positions.
(10) W. Earl Reed, III was elected a director in November, 2000. Mr. Reed has
served as Chairman, President and Chief Executive Officer of Rehab Designs
of America, a private venture-capital backed orthotics and prosthetics
healthcare company since March 1, 2000. Mr. Reed has been a partner with
The Allegro Group, a healthcare financial advisory firm which advises
public and private healthcare organizations since September, 1998. From
1987 to 1998, Mr. Reed was Chief Financial Officer and member of the board
of directors of Vencor, Inc.
COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF 1934
-
Section 16 (a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of stock ownership and reports of
changes in stock ownership and to provide the company with copies of all such
forms they file. Based solely on its review of such copies or written
representations from reporting persons, the Company believes that all reports
were filed on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid by the
Company for services rendered in all capacities during the last three fiscal
periods to the Chief Executive Officer and the most highly compensated executive
officers during fiscal year 2001.
- ------------------------------------------------------------------------------
Summary Compensation Table
Long-Term
Compensation
--------------
Securities
Underlying
Name and Principal Options/
Position Year Salary Bonus (No. of Shares)
- ------------------------- ------ ------ ------ ---------------
William B. Yarmuth 2001 $190,000 $99,750 100,000
Chairman of the Board, 2000 190,000 50,000 (1) 0
President and Chief 1999 190,000 0 100,000
Executive Officer
C. Steven Guenthner 2001 136,638 51,736 20,000
Senior Vice President, 2000 132,121 25,000 (1) 0
Secretary/Treasurer and 1999 130,050 0 20,000
Chief Financial Officer
Mary A. Yarmuth 2001 136,638 51,736 20,000
Senior Vice President - 2000 132,121 0 0
Service Development 1999 130,050 0 20,000
Patrick T. Lyles 2001 126,079 31,826 10,000
Senior Vice President 2000 121,911 25,000 (1) 0
1999 120,000 0 15,000
- ------------------------------------------------------------------------------
(1) Bonuses for these individuals were awarded by the Board for the
successful sale of the product operations in November 1999.
Option Grants in Fiscal 2001
Set forth below is information with respect to grants of stock options in fiscal
2001 to the executive officers named in the Summary Compensation Table.
- ---------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Number of Percent of Total Price Appreciation For Option
Shares Options Granted Term
Underlying to Employees in Exercise or Expiration
Name Options Fiscal Year Base Price Date 5% 10%
- ------------------ -------- ------------------ ---------- -------- ------- --------
William B. Yarmuth 100,000 46.5% $4.25 2/4/2001 $267,280 $677,341
C. Steven Guenthner 20,000 9.3% $4.25 2/4/2001 $ 53,456 $135,468
Mary A. Yarmuth 20,000 9.3% $4.25 2/4/2011 $ 53,456 $135,468
Patrick T. Lyles 10,000 4.7% $4.25 2/4/2011 $ 26,728 $ 67,734
- ---------------------------------------------------------------------------------------------------
Compensation of Directors
Directors who are not also employees of the Company are entitled to compensation
at a rate of $2,000 for each Board of Directors meeting attended and $500 for
each committee meeting attended that is scheduled independently. In addition,
non-employee directors are eligible to receive stock options under the Almost
Family, Inc. 1993 Stock Option Plan for Non-Employee Directors (the "Directors'
Plan") adopted by the Board on February 17, 1993, and subsequently approved by
stockholders. Pursuant to the terms of the Directors' Plan, Mr. Reed was granted
options to purchase 10,000 shares of the Company's Common Stock at $3.88 per
share. Each non-employee director was granted options to purchase 6,000 shares
of the Company's common stock at $4.25 per share on February 5, 2001.The
Directors' options vest 25%, the day following six months after the date of
grant, and 25% on each of the first, second, and third anniversary dates of the
grant.
William Yarmuth Employment Agreement
On January 1, 1996, the Company entered into a new employment agreement with
William B. Yarmuth, its Chairman of the Board, President and Chief Executive
Officer. The initial term of the agreement was three years with subsequent
automatic one-year renewals, the second of which is now in effect. This
agreement replaced Mr. Yarmuth's previous agreement which was not scheduled to
expire until 1998. Under the terms of the current agreement, Mr. Yarmuth earns
an annual base salary of $190,000 and is eligible for a performance based cash
incentive of 35% of annual base salary. The agreement includes a covenant not to
compete for a period of two years and potential termination payments of two
times annual salary.
- ------------------------------------------------------------------------------
Aggregate Option Exercises in Last Fiscal Year and Year-End Option Values
Set forth below is information with respect to unexercised stock options held by
the executive officers named in the Summary Compensation Table at March 31,
2001.
- ---------------------------------------------------------------------------------------------------
Value of Unexercised
Shares Number of Unexercised in-the-Money Options
Acquired Options at Fiscal Yearend at Fiscal Yearend(1)
on Value ------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------- -------- -------- --------- ------------- ----------- -------------
William B. Yarmuth 100,000 $217,438 150,000 $100,000 $517,938 $239,563
C. Steven Guenthner 0 0 55,000 20,000 191,213 47,913
Mary A. Yarmuth 0 0 59,000 20,000 205,233 47,913
Patrick T. Lyles 0 0 33,750 11,250 119,153 28,884
(1) These amounts represent the market value less the exercise price. The
market value of the common stock was $6.13 based on the closing price per
share at March 31, 2001, on the NASDAQ SmallCap System.
- -----------------------------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based on information filed with the Securities and Exchange Commission and the
Company's stock records, the following table sets forth the beneficial ownership
of the Common Stock as of March 31, 2001, by (I) beneficial owners of more than
five percent of the Common Stock, (ii) each director and nominee for director,
(iii) current named executive officers and (iv) all directors and officers of
the Company as a group.
Shares of Capital
Stock Beneficially Owned (1)
- ------------------------------------------------------------------------------
Name and Address Amount and Nature Percentage
Directors and Executive Officers of Beneficial Ownership of Class
- -------------------------------- ----------------------- ----------
William B. Yarmuth 530,972 (2) 19.46%
100 Mallard Creek Road, Suite 400
Louisville, KY 40207
Mary A. Yarmuth 530,972 (3) 19.46%
C. Steven Guenthner 82,841 (4) 3.22%
Steven B. Bing 12,340 (5) *
Donald G. McClinton 33,808 (6) 1.33%
Tyree Wilburn 21,500 (7) *
Jonathan Goldberg 22,218 (8) *
Wayne Smith 115,573 (9) 4.55%
W. Earl Reed, III 40,000 1.59%
Patrick T. Lyles 44,796 (10) 1 75%
Directors and Officers
as a Group (10 Persons) 904,048 (11) 31.21%
Additional Five Percent Beneficial Owners
Heartland Advisors, Inc. 308,900 12.26%
790 North Milwaukee Street
Milwaukee, WI 53202
Yarmuth Family Limited Partnership 157,723 (12) 6.26%
100 Mallard Creek Road, Suite 400
Louisville, KY 40207
- ------------------------------------------------------------------------------
David T. Russell, PhD
2001 East Jackson Street
Bloomington, IL 61701 202,545 8.04%
* Represents less than 1% of the class.
(1) Based upon information furnished to the Company by the named persons, and
information contained in filings with the Securities and Exchange
Commission (the "Commission"). Under the rules of the Commission, a person
is deemed to beneficially own shares over which the person or group has or
shares voting or investment power or has the right to acquire beneficial
ownership within 60 days, and such shares are deemed to be outstanding for
the purpose of computing the percentage beneficially owned by such person
or group. Unless otherwise indicated, the named person has the sole voting
and investment power with respect to the number of shares of Common Stock
set forth opposite such person's name.
(2) Includes 8,886 shares as to which Mr. Yarmuth shares voting and
investment powers as a family trust and options for 150,000 shares
vested and exercisable, and 59,000 exercisable options owned by Mrs.
Yarmuth in addition to 32,427 shares owned directly by Mrs. Yarmuth.
(3) Includes the same ownership components as stated for Mr. Yarmuth.
(4) Includes 55,000 shares subject to currently exercisable options.
(5) Includes 12,000 shares subject to currently exercisable options.
(6) Includes 12,000 shares subject to currently exercisable options and 7,308
phantom shares within the Non-employee Deferred Compensation Plan.
(7) Includes 11,500 shares subject to currently exercisable options.
(8) Includes 11,000 shares subject to currently exercisable options and 7,218
phantom shares within the Non-employee Directors Deferred Compensation
Plan.
(9) Includes 11,000 shares subject to currently exercisable options and 6,448
phantom shares within the Non-employee Directors Deferred Compensation
Plan.
(10) Includes 33,750 shares subject to currently exercisable options.
(11) Includes currently exercisable options held by all directors and officers
as a group to purchase 355,250 shares of Common Stock and 20,974 shares
held by Non-employee Directors within the Non-employee Directors Deferred
Compensation Plan.
(12) Robert N. Yarmuth is the general partner and is the brother of
William B. Yarmuth.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
Item 14. Exhibits and Financial Statement Schedules and Reports on Form
8-K.
Page Number
------------
(a)(1) Index to Consolidated Financial Statements
Consolidated Statements of Operations for the three years
ended March 31, 2001, 2000, and 1999 25
Consolidated Balance Sheets - March 31, 2001 and 2000 26
Consolidated Statements of Stockholders' Equity for
the three years ended March 31, 2001, 2000, and 1999 27
Consolidated Statements of Cash Flows for the three years
ended March 31, 2001, 2000, and 1999 28
Notes to Consolidated Financial Statements 30 - 41
Report of Independent Public Accountants 42
(a)(2) Index to Financial Statement Schedule
Report of Independent Public Accountants 55
Schedule II - Valuation and Qualifying Accounts S-1
All other Schedules have been omitted because they are either not required, not
applicable or, the information has otherwise been supplied in the financial
statements or notes thereto.
Exhibit
Number Description of Exhibit
-------- ----------------------
3.1 Certificate of Incorporation, as amended
3.2 Amended and Restated By-laws
4.1 Other Debt Instruments -- copies of other debt instruments for which
the total debt is less than 10% of assets will be furnished to the
Commission upon request.
10.1 Nonqualified Stock Option Plan, as amended (Incorporated by
reference to the Registrant's Registration Statement on Form
S-8 Reg. No. 33-20815)
10.2 Supplemental Nonqualified Stock Option Plan (Incorporated
by reference to Exhibit 19.4 to the Registrant's Report on
Form 10-Q for the Quarter Ended November 30, 1987 Commission
File No. 15342)
10.3 Incentive Stock Option Plan, as amended (Incorporated by
reference to the Registrant's Registration Statement on Form
S-8 Reg. No. 33-20815)
10.4 Amendment to the Senior Service Corporation 1987 Nonqualified Stock
Option Plan (Incorporated by reference to Exhibit 19.3 to the
Registrant's Report on Form 10-Q for the quarter ended November 30,
1989)
10.5 1991 Long-Term Incentive Plan
10.6 Warrant Agreement, dated June 29, 1991, between the Company and
HEALTHSOUTH Rehabilitation Corporation (incorporated by reference to
Exhibit 10.88 to the Registrant's Form S-1 Reg.
33-46565 dated April 23, 1993)
10.7 Employment Agreement, dated January 1. 1996, between the
Company and William B. Yarmuth
10.8 Asset Sale Agreements between the Company and Columbia/HCA
Healthcare Corporation
10.9 Management Services Agreement between the Company and
Columbia/HCA Healthcare Corporation
10.10 Asset Purchase Agreement between the Company and Home Care
Solutions, Inc.
10.11 Asset Purchase Agreement between the Company and Metro Home
Care, Inc.
10.12 Asset Purchase Agreement between the Company and Visiting
Nurse Association of Palm Beach County, Inc.
10.13* Loan Agreement between the Company and Bank One, KY.
10.14* Stock Purchase Agreement between the Company and HealthSouth
Corporation.
22* List of Subsidiaries of Almost Family, Inc.
23* Consent of Arthur Andersen LLP
(b) Reports on Form 8-K
None
(c) Exhibits
Described in Item 14(a)(3) of this report
(d) Financial Statement Schedules
Described in Item 14(a)(2) of this report
*Denotes filed herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ALMOST FAMILY, INC.
June 20, 2001
S/ William B. Yarmuth June 20, 2001
- ----------------------------------------------------------
William B. Yarmuth
Chairman, President and Chief Executive Officer
S/ C. Steven Guenthner June 20, 2001
- ----------------------------------------------------------
C. Steven Guenthner
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below the following persons in the capacities and on the dates
indicated:
S/ William B. Yarmuth June 20, 2001
- ----------------------------------------------------------
William B. Yarmuth Date
Director
S/ Donald G. McClinton June 20, 2001
- ----------------------------------------------------------
Donald G. McClinton Date
Director
S/ Steven B. Bing June 20, 2001
- ----------------------------------------------------------
Steven B. Bing Date
Director
S/ Tyree Wilburn June 20, 2001
- -----------------------------------------------------------
Tyree Wilburn Date
Director
S/ Jonathan Goldberg June 20, 2001
- -----------------------------------------------------------
Jonathan Goldberg Date
Director
S/ Wayne T. Smith June 20, 2001
- ----------------------------------------------------------
Wayne T. Smith Date
Director
S/ W. Earl Reed, III June 20, 2001
- ----------------------------------------------------------
W. Earl Reed, III Date
Director
Report of Independent Public Accountants
To the Stockholders of Almost Family, Inc.:
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
Financial Statement Schedule is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
May 14, 2001
(except with respect to the
matter discussed in Note 13,
as to which the date is May 30, 2001)
S-1
ALMOST FAMILY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
----------------------
(1)
Balance at Charged to Charged to Balance
Beginning of Costs Other (2) at End
Description Period and Expenses Accounts Deductions of Period
------------------------ ----------- ------------ ----------- ----------- ----------
Year ended March 31, 2001:
Allowance for bad debts $ 862,156 $566,601 $ 335,273 $1,093,484
========= ======== ========== ==========
bad debts
Year ended March 31, 2000:
Allowance for bad debts $ 598,656 $940,390 $ 676,890 $ 862,156
========= ======== ========== ==========
Year ended March 31, 1999:
Allowance for bad debts $1,054,988 $916,876 $1,373,208 $ 598,656
========== ======== ========== ==========
(1) Charged to bad debt expense.
(2) Write-off of accounts.
ALMOST FAMILY, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES AS OF MARCH 31, 2001
EXHIBIT 22
Subsidiaries of Almost Family, Inc.
Adult Day Care of America, Inc. Adult Day Care of Louisville, Inc.
Adult Day Care of Maryland, Inc. HouseCalls, Inc.
Adult Day Clubs of America Joint Venture, Ltd. SEI PublishingCorporation
National Health Industries, Inc. HHJC Holdings, Inc.
Pro-Care Home Health of Broward, Inc.
Subsidiaries of National Health Industries, Inc.
Freelife Medical Equipment, Inc. Caretenders Homecare, Inc.
Caretenders Infusion of Birmingham, Inc. Caretenders of Birmingham, Inc.
Caretenders of Boston, Inc. Caretenders of Cincinnati, Inc.
Caretenders of Columbus, Inc. Caretenders of Elizabethtown, Inc.
Caretenders of Indiana, Inc. Caretenders of Indianapolis, Inc.
Caretenders of Lincoln Trail, Inc. Caretenders of Louisville, Inc.
Caretenders of New Jersey, Inc. Caretenders of Northern Kentucky, Inc.
Caretenders of Richmond, Inc. Caretenders of the Bluegrass, Inc.
Caretenders Visiting Services of Richmond, Inc. House Calls of America, Inc.
Caretenders Infusion Corp. Metro Home Care, Inc.
National Orthopedic & Rehabilitation Services, Inc. Physician Affiliates, Inc.
Special Healthcare Services, Inc. Reliable Home Healthcare, Inc.
Caretenders Visiting Services of Cincinnati, Inc. Caretenders of Cleveland, Inc.
Caretenders Visiting Services of Columbus, Inc. Caretenders of Fort Lauderdale, Inc.
Caretenders of Evansville, Inc. Caretenders of West Palm Beach, Inc.
Caretenders Visiting Services of Indianapolis, Inc. Caretenders of Charlotte, Inc.
Caretenders Visiting Services of Southwest FL, Inc. Caretenders of Southwest Florida, Inc.
Caretenders Visiting Services of Southeast FL, Inc.
Subsidiary of HHJC Holdings, Inc.
Home Health of Jefferson County, Inc. Caretenders of Marshall County, Inc.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously
filed Registration Statement File No. 33-33601 relating to the Company's
Incentive Stock Option Plan, Registration Statement File No. 33-81122
related to the 1987 Supplemental Nonqualified Stock Option Plan,
Registration Statement No. 33-10815 1987 Nonqualified Stock Option Plan,
Registration Statement No. 33-881100 related to the 1993 Non-Employee
Directors Stock Option Plan, Registration Statement No. 33-81124 related
to the 1991 Long-Term Incentive Plan, and Registration Statement File No.
333-43631 related to the Non-Employee Directors Deferred Compensation
Plan.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
June 20, 2001