2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
/ X / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-09848
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:
Title of Each Class Name of Each Exchange on 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 March 28, 2002, 2,480,562 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 March 28, 2002 was approximately
$28,030,350 (based on the last sale price of a share of the common stock as of
March 28, 2002 ($11.30), as reported by the NASDAQ SmallCap System).
DOCUMENTS INCORPORATED BY REFERENCE
None.
37
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
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 (ADC) 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.
Recent Developments
Restatement of Financial Statements
As a result of accounting errors, the Company has restated its previously issued
financial statements for the fiscal years ended March 31, 2001 and March 31,
2000, and its previously issued financial results for the quarterly periods in
those fiscal years and the quarterly periods ended June 30 and September 30,
2001. Previously reported net income has been reduced by approximately $934,000
or $0.28 per diluted share in the year ended March 31, 2001 and $ 363,000 or
$0.12 per diluted share in the year ended March 31, 2000. The components of the
restatement and its effect on previously issued financial statements are set
forth in Management's Discussion and Analysis of Results of Operations and
Financial Condition, and Note 1 to the Financial Statements. The effect on
quarterly financial information is set forth in Note 13 to the financial
statements. On February 15, 2002, the Company issued a press release stating,
and notified the Securities and Exchange Commission, that it expected to restate
its financial statements.
The Company has adopted significant changes in its administrative procedures and
internal controls relating to accounting for its self-insurance programs,
including requirements that third-party financial information be provided to
both financial accounting and operating personnel, improvements in the
methodology for expensing the cost of claims incurred but not paid, and year end
validation by third-party experts of the Company's estimated liability for
unpaid claims.
On February 20, 2002, the Board of Directors appointed a Special Committee of
two independent directors, Tyree Wilburn and Jonathan Goldberg, and directed the
Committee to investigate the causes of the accounting errors. As authorized by
the Board, the Special Committee retained counsel (Wilmer, Cutler & Pickering)
previously unaffiliated with the Company to assist its inquiry, and counsel in
turn engaged forensic accountants (Ten Eyck Associates, Inc.) also unaffiliated
with the Company. The investigation of the Special Committee is substantially
complete. The principal conclusions are that a former officer, the Vice
President of Human Resources responsible for managing the Company's
self-insurance programs, negligently, and at times intentionally, provided
inaccurate information to the Company's financial accounting staff, and to its
independent public accountants, that caused the Company to record a receivable
to which it was not entitled and to understate certain liabilities, particularly
with respect to the medical, workers' compensation and automobile self-insurance
programs.
The Board has asked the Special Committee to (1) make additional recommendations
to improve the Company's administrative processes and internal controls; (2)
make a recommendation regarding whether to pursue legal action against the
former officer; and (3) report the results of the inquiry to the Securities and
Exchange Commission.
The Company anticipates that the after-tax cost of conducting the investigation
into this matter, consisting primarily of professional fees, will be
approximately $360,000 or $0.12 per diluted share. This cost will be included in
the Company's results of operations for the quarter ended March 31, 2002.
[$400k pre-tax. still awaiting estimates from accountants and lawyers]
Decision to Retain VN Operations
On September 14, 2001, the Company announced that its Board of Directors voted
to terminate its previously adopted plan of disposition for its Visiting Nurse
(VN) operations. This decision followed a period of extensive analysis and
evaluation of numerous alternatives for the business unit. In the Board's
judgment, given the significant external and internal changes that have taken
place with regard to the future prospects of the VN segment, retaining the VN
segment was the best option available to maximize shareholder value. In the
accompanying financial statements, the Company has, in accordance with
applicable accounting rules terminated the use of discontinued operations
accounting treatment for the VN segment. VN segment results are now reported as
an on-going part of the continuing operations of the Company for all periods
presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine-months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Change in Fiscal Year End
Also on September 14, 2001, the Company announced that it has changed its fiscal
year end from March 31 to December 31 effective December 31, 2001. Pursuant to
the Securities Exchange Act of 1934, the accompanying financial statements
included herein present information for the nine-months ended December 31, 2001,
and for the twelve months ended March 31, 2001 and 2000. To facilitate an
understanding of current operating results Management's Discussion and Analysis
of Financial Position and Results of Operations includes the nine-months ended
December 31, 2001 compared to the nine-months ended December 31, 2000.
Operating Segments
The Company operates in two reportable business segments: Adult Day Health
Services (ADHS), and Visiting Nurses (VN). Reportable segments have been
identified based upon how management has organized the business by services
provided to customers and the criteria in SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's ADHS segment includes
the aggregation of its ADC in-center operations and in-home personal care
operations (also referred to as "personal care"), both of which predominantly
provide long-term health care and custodial services that enable recipients to
avoid nursing home admission. Sources of reimbursement, reimbursement rates per
day and contribution margins from the Company's ADC and personal care operations
are substantially alike. The Company's VN segment provides skilled medical
services in patients' homes largely to enable recipients to reduce or avoid
periods of hospitalization and/or nursing home care. Approximately 83% of the VN
segment revenues are generated from the Medicare program. VN Medicare revenues
are generated on a per episode basis rather than a fee per visit or day of care.
General and administrative expenses incurred at the corporate level have not
been allocated to the segments. The Company has operations in Alabama,
Connecticut, Florida, Indiana, Kentucky, Maryland, Massachusetts, and Ohio.
Financial information for the Company's two operating segments is presented in
Note12 to the financial statements.
Adult Day Health Services
Adult day health services are alternative methods 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 approximately 3,500 today. Still in a developmental stage, the industry
is highly fragmented with the majority of adult day health centers operated by
the non-profit sector. To the Company's best knowledge, it is the largest
provider in the country when measured in terms of adult day care center revenues
and days of patient care.
The Company's adult day health centers, referred to also as "Adult Day Care"
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. Many 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) highly structured, individualized and creative activity
programs which include recreation, education, field trips, sports, crafts, music
and group conversations; and (iii) family counseling. The Company currently has
twenty-eight (28) adult day care centers.
In addition to services provided in the Company's physical locations, some adult
day health services, referred to as "Personal Care" 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. The Company currently
operates twenty-one (21) personal care branch locations.
Visiting Nurse Services
Visiting Nurse services consist primarily of the provision of skilled in-home
medical services to patients in need of short-term recuperative health care. A
majority of the Company's patients receive this care immediately following a
period of hospitalization or care in another type of in-patient facility. The
Company operated eight (8) Medicare-certified home health agencies with a total
of sixteen (16) branch locations. In the nine-months ended December 31, 2001,
approximately 83% of the visiting nurse segment revenues were derived from the
Federal Medicare program.
The visiting nurse segment, which uses the trade name "CaretendersTM", provides
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.
As of December 31, 2001, the Company provides services through operating units
in the following locations:
Adult Day Personal Care Visiting Nurse
Locations Care Centers Branches Branches
------------------- ---------------- --------------- ----------------
Kentucky:
Louisville 2 1 2
Lexington 1 2 1
Elizabethtown 1 - 1
Owensboro 1 1 1
Northern KY 1 1 1
(metro
Cincinnati)
Bardstown 1 - -
Frankfort 1 1 1
Indiana:
Evansville 1 1 1
Ohio:
Cincinnati 1 1 -
Columbus 1 1 -
Cleveland 1 1 -
Massachusetts:
Boston - 1 1
Connecticut:
Stamford (1) - 1 -
Middlebury 1 1 -
Danbury 1 1 -
Seymour 1 - -
West Haven - 1 -
Maryland:
Baltimore area 10 - -
Alabama:
Birmingham (2) - 1 -
Florida:
Fort Lauderdale - 1 1
West Palm Beach 1 1 2
Miami (3) 1 - -
Fort Myers 1 1 1
Sarasota - 1 1
Port Charlotte - - 1
Naples - 1 1
---------------- --------------- ----------------
Total 28 21 16
================ =============== ================
(1) The Company closed its in-center facility in this market in late fiscal
2001 but continues to provide personal care services in patients' homes.
(2) The Company closed its in-center facility in this market in late fiscal
2000 but continues to provide personal care services in patients' homes.
(3) The Company operates a center in Miami pursuant to a management agreement
with the National Parkinsons Foundation.
Daily capacity for in-facility care was 1,827 and 1,671 guests per day at
December 31, 2001 and March 31, 2001, respectively.
During the nine-months ended December 31, 2001 the Company added the Miami
facility.
Compensation for Services
Almost Family, Inc. is compensated for its services by (i) Medicaid, (ii)
Medicare (VN only), and (iii) other third party payors (e.g. insurance companies
and other government funds), and (iv) private pay (paid by personal 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 personal care and two visiting
nurse operations. These operations added to the Company's market presence in
Florida, Connecticut and Ohio. During each of the fiscal years ended March 31,
1999, 2000 and 2001 the Company acquired one adult day care center. 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.
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. To the Company's best knowledge, it is the largest provider in the
country when measured in terms of adult day care center revenues and days of
patient care. Almost Family, Inc. competes by offering a high quality of care
and by helping families identify and access solutions for care. Adult day health
services' competitive advantages include member activity programs, superior
facilities and transportation services.
The visiting nurse industry is likewise highly competitive and fragmented.
Visiting nurse programs enable patients to be discharged from in-patient
facilities sooner than would otherwise be possible, and in many instances to
remain in their own homes longer. Competitors include other free-standing
proprietary agencies and a significant number of hospital based agencies. In
some locations, county health departments operate home health agencies. The
Federal Centers for Medicare and Medicaid Services (CMS, formerly HCFA)
estimates total national annual Medicare home health spending of approximately
$15 billion. To the Company's best knowledge, no individual provider has more
than 2% market share.
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. The
Company markets its services through its site managers and marketing staff.
These individuals contact referral sources in their areas to market the
Company's services. Major referral sources include: physicians, hospital
discharge planners, Offices on Aging, social workers, 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.
Medicare Rates
A Medicare rate increase of 5.3% for Visiting Nurse services went into effect
October 1, 2001. A Medicare rate decrease is scheduled to go into effect October
1, 2002. The Company estimates that if such rate cut is enacted it will have the
approximate effect of reversing on October 1, 2002, the rate increase that went
into effect on October 1, 2001. Refer to the 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 Medicare and 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.
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, and requires organizations to adhere
to certain standards to protect data integrity, confidentiality and
availability. HIPAA also mandates, among other things, that the Department of
Health and Human Services adopt standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and
enhance the effectiveness and efficiency of the health care industry. The
Department of Health and Human Services must adopt standards for the following:
o Electronic transactions and code sets;
o Unique identifiers for providers, employers, health plans and
individuals; o Security and electronic signatures; o Privacy; and o
Enforcement.
Although HIPAA was intended ultimately to reduce administrative expenses and
burdens faced within the health care industry, the Company believes the law will
initially bring about significant and, in some cases, costly changes. The
Department of Health and Human Services has released two rules to date mandating
the use of new standards with respect to certain health care transactions and
health information. The first rule establishes uniform standards for common
health care transactions, including:
o Health care claims information;
o Plan eligibility, referral certification and authorization; o Claims
status; o Plan enrollment and disenrollment; o Payment and remittance
advice; o Plan premium payments; and o Coordination of benefits.
Second, the Department of Health and Human Services has released standards
relating to the privacy of individually identifiable health information. These
standards not only require compliance with rules governing the use and
disclosure of protected health information, but they also require the Company to
impose those rules, by contract, on any business associate to whom we disclose
protected information. The Department of Health and Human Services has proposed
rules governing the security of health information, but has not yet issued these
rules in final form.
The Department of Health and Human Services finalized the electronic transaction
standards on August 17, 2000. Payors are required to comply with the transaction
standards by October 16, 2002 or October 16 2003, depending on the size of the
payor and whether the payor requests a one-year waiver. Following compliance by
its payors, the Company must comply with the transaction standards, to the
extent it uses electronic data interchange. The Department of Health and Human
Services issued the privacy standards on December 28, 2000, and, after certain
delays, they became effective on April 14, 2001, with a compliance date of April
14, 2003. Once the Department of Health and Human Services has issued the
security regulations in final form, affected parties will have approximately two
years to be fully compliant. Sanctions for failing to comply with the HIPAA
provisions related to health information practices include criminal and civil
penalties.
Management is in the process of evaluating the effect of HIPAA on the Company.
At this time, management anticipates that the Company will be able to fully
comply with those HIPAA requirements that have been adopted. However, management
cannot at this time estimate the cost of compliance, nor can it estimate the
cost of compliance with standards that have not yet been finalized by the
Department of Health and Human Services. Although the new and proposed health
information standards are likely to have a significant effect on the manner in
which the Company handles health data and communicates with payors, based on
current knowledge, the Company believes that the cost of our compliance will not
have a material adverse effect on its business, financial condition or results
of operations.
Payment Sources
The Company receives payments from Medicare, Medicaid, 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 Medicare or 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. The Company could be adversely impacted by
circumstances which affect the ability or desire of seniors to pay for the
Company's services.
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):
Nine Months
Payor Group Ended Year Ended
December 31, March 31, Year Ended
2001 2001 March 31, 2000
------------------------------------------ ------------ -----------------
Medicare 29.2% 28.5% 38.1%
Medicaid and other
Government 51.5% 46.9% 43.6%
Programs
Insurance and Private Pay 19.3% 24.6% 18.3%
Changes in payment sources are primarily a result of the impact of changes in
the types of customers the Company attracts. The Company has a significant
dependence on state Medicaid reimbursement programs. Although the Company is not
aware of any significant initiatives currently underway that would have a
material adverse impact on the Medicaid reimbursement programs or the Company,
the Company could be materially impacted by unfavorable changes in the future
should they occur. For the nine months ended December 31, 2001, approximately
17%, 17%, 6%, 4% and 3% of the Company's revenues were generated from Medicaid
reimbursement programs in the states of Maryland, Kentucky, Connecticut, Indiana
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 Costs
Self-Insurance Programs. The Company bears significant risk under its
self-insured employee health, automobile and workers' compensation programs. The
Company's self-insured health program has an excess-loss insurance policy that
reimburses the Company for covered expenses (up to a certain amount) of a
specific deductible for each covered person and an annual aggregate deductible
for all covered claims. The Company's current excess loss insurance policy ends
April 30, 2002. Based on information provided by its broker and third-party
administrator, the Company expects health insurance costs to increase between
10% to 20% during 2002 due to the inflation of medical care costs. Under its
automobile and workers' compensation self-insurance programs, the Company bears
risk up to $100,000 per incident.
The Company records estimated liabilities for its health, automobile, and
workers' compensation self-insurance programs based on information provided by
the third-party plan administrators, historical claims experience, the life
cycle of claims, expected costs of claims incurred but not paid, and expected
costs to settle unpaid claims. The Company monitors its estimated liabilities on
a quarterly basis and, when necessary, may make material adjustments to them in
the future.
Other Insurance. The Company's properties are covered by casualty insurance
policies. The Company also carries directors and officers, general and
professional liability insurance. The Company's deductible amount for general
and professional claims was $5,000 per claim prior to July 1, 2001 and $25,000
thereafter.
The Company believes that its present insurance coverage is adequate. However,
in the wake of the terrorist events of September 11, 2001, the Company's outside
insurance agent has advised that the annual cost of its insurance programs
(excluding health) will increase by approximately $500,000 ($290,000 after tax)
upon renewal on April 1, 2002. The Company also has been advised that it is
possible that the amount of coverage the Company is able to purchase may
decline.
Employees and Labor Relations
As of December 31, 2001 the Company had approximately 3,000 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
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 announced that it would pursue 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) in the quarter ended September 30, 1999. That charge reduced the book
value of the operations to the 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. As a result of those actions, the visiting nurse operations were
accounted for as discontinued operations in the Company's financial statements
for periods reported from September 1999 through June 2001.
The Company incurred losses operating the division prior to the implementation
of Medicare's Prospective Payment System (PPS) and made substantial payments for
the release of lease obligations, and for other costs. During that same time
frame the Company closed 3 of its then 11 operating VN agencies. The Company
continues to operate the remaining 8 agencies located in Kentucky (4), Florida
(3) and Massachusetts (1).
On September 14, 2001, the Company's Board of Directors voted to terminate its
previously adopted plan of disposition for its Visiting Nurse (VN) operations.
This decision followed a period of extensive analysis and evaluation of numerous
alternatives for the business unit. In the Board's judgment, given the
significant external and internal changes that have taken place with regard to
the future prospects of the VN segment, retaining the VN segment was the best
option available to maximize shareholder value. In the accompanying financial
statements, the Company has, in accordance with applicable accounting rules
terminated the use of discontinued operations accounting treatment for the VN
segment. VN segment results are now reported as an on-going part of the
continuing operations of the Company for all periods presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine-months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Revenues from discontinued operations (product segment only) were approximately
$12.5 million for the year ended March 31, 2000. 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.
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
The Company has a significant dependence on state Medicaid reimbursement
programs. Although the Company is not aware of any significant initiatives
currently underway that would have a material adverse impact on the Medicaid
reimbursement programs or the Company, the Company could be materially impacted
by unfavorable changes in the future should they occur. For the nine months
ended December 31, 2001, approximately 17%, 17%, 6%, 4% and 3% of the Company's
revenues were generated from Medicaid reimbursement programs in the states of
Maryland, Kentucky, Connecticut, Indiana 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. Additionally, the Company is
exposed to insurance risk under its automobile, workers' compensation and
medical self-insurance programs. Accordingly, the Company's future operating
costs are subject to changes in these programs.
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. The
Company is subject to certain restrictive covenants under its financing
arrangement. There can be no assurance that the Company will remain in
compliance with these covenants in future periods.
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 Medicare Reimbursement Rates
A Medicare rate increase of 5.3% went into effect October 1, 2001 in the
Visiting Nurse segment. A Medicare rate decrease is scheduled to go into effect
October 1, 2002. The Company currently estimates that if such rate cut is
enacted it would have the approximate effect of reversing on October 1, 2002,
the rate increase that went into effect on October 1, 2001. However, the
Medicare program has not yet announced what the rates would actually be.
Accordingly, there can be no assurance that the Company's estimate will prove
accurate.
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 51 real estate leases ranging from approximately 200 to 24,000
square feet of space in their respective locations. See "Item 1. Business -
Operating Segments" and Note 8 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 April 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 are included in accrued liabilities on the accompanying balance
sheet. However, the Company can give no assurance that the accrued amount will
be sufficient to cover the cost of the litigation and the Company can give no
assurance that it will be successful in its defense.
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
June 30, 2001 $7.75 $5.77
September 30, 2001 $11.00 $7.90
December 31, 2001 $16.30 $9.20
On March 28, 2002, the last reported sale price for the Common Stock reported by
NASDAQ was $11.30 and there were approximately 470 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. The information below has
been restated as described in Part I and in the notes to the financial
statements.
Consolidated Selected Financial Information (AS RESTATED)
(Dollar amounts in Nine Nine
000's Months Months
except per share Ended Ended Year Year Year Year
data) December December Ended Ended Ended Ended
31, 2001 31, 2000 March 31, March 31, March 31, March 31,
(1) 2001 (1) 2000 1999 1998 (1)
(unaudited) (1) (1)
--------------------- ---------- ---------- ---------------------
Results of Operations
Net revenues $ 59,754 $ 55,902 $ 75,455 $ 79,343 $ 74,045 $ 70,440
Net Income (loss)
Continuing
Operations 2,241 108 541 (3,391) $ (8,104) $ (1,645)
Discontinued 1,087 737 737 (1,715) 1,876 3,057
Operations
Total $ 3,328 $ 845 $ 1,278 $ (5,106) $ (6,228) $ 1,412
Per share:
Basic:
Number of shares 2,478 3,146 3,146 3,124 3,119 3,119
Net Income (loss)
Continuing $ 0.90 $ 0.03 $ 0.17 $ (1.08) $ (2.60) $(0.53)
Operations
Discontinued 0.44 0.23 0.23 (0.55) 0.60 0.98
Operations
Total $ 1.34 $ 0.26 $ 0.40 $ (1.63) $ (2.00) $ 0.45
Diluted:
Number of shares 2,909 3,307 3,307 3,124 3,120 3,162
Net Income (loss)
Continuing $ 0.77 $ 0.03 $ 0.16 $ (1.08) $ (2.60) $ 0.53
Operations
Discontinued 0.37 0.22 0.22 (0.55) 0.60 0.98
Operations
Total $ 1.14 $ 0.25 $ 0.38 $ (1.63) $ (2.00) $ 0.45
Balance sheet Data as December March March March March
of: 2001 2001 2000 1999 1998
---------- ---------- --------- ---------- ---------
Working capital $ 11,963 $ 9,741 $ 5,511 $ 9,529 $10,908
Total assets 35,877 33,984 28,392 42,762 49,533
Long term liabilities 14,847 13,482 4,777 13,562 11,962
Total liabilities 25,495 26,726 17,603 26,907 27,450
Stockholders' equity 10,381 7,258 10,790 15,855 22,083
(1) Where appropriate amounts for these periods have been restated and
reclassified as discussed in Note 1 to the financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Restatement of Financial Statements
As a result of accounting errors, the Company has restated its previously issued
financial statements for the fiscal years ended March 31, 2001 and 2000, and its
previously issued financial results for the quarterly periods in those fiscal
years and the quarterly periods ended June 30 and September 30, 2001. Previously
reported net income has been reduced by approximately $934,000 or $0.28 per
diluted share in the year ended March 31, 2001 and $ 363,000 or $0.12 per
diluted share in the year ended March 31, 2000. The components of the
restatement and its effect on previously issued financial statements are set
forth below and in Note 1 to the accompanying financial statements. The effect
on quarterly financial information is set forth in Note 13 to the financial
statements. On February 15, 2002, the Company issued a press release stating,
and notified the Securities and Exchange Commission, that it expected to restate
its financial statements.
The Company has adopted significant changes in its administrative procedures and
internal controls relating to accounting for its self-insurance programs,
including requirements that third-party financial information be provided to
both financial accounting and operating personnel, improvements in the
methodology for expensing the cost of claims incurred but not paid, and year end
validation by third-party experts of the Company's estimated liability for
unpaid claims.
On February 20, 2002, the Board of Directors appointed a Special Committee of
two independent directors, Tyree Wilburn and Jonathan Goldberg, and directed the
Committee to investigate the causes of the accounting errors. As authorized by
the Board, the Special Committee retained counsel (Wilmer, Cutler & Pickering)
previously unaffiliated with the Company to assist its inquiry, and counsel in
turn engaged forensic accountants (Ten Eyck Associates, Inc.) also unaffiliated
with the Company. The investigation of the Special Committee is substantially
complete. The principal conclusions are that a former officer, the Vice
President of Human Resources responsible for managing the Company's
self-insurance programs, negligently, and at times intentionally, provided
inaccurate information to the Company's financial accounting staff, and to its
independent public accountants, that caused the Company to record a receivable
to which it was not entitled and to understate certain liabilities, particularly
with respect to the medical, workers' compensation and automobile self-insurance
programs.
The Board has asked the Special Committee to (1) make additional recommendations
to improve the Company's administrative processes and internal controls; (2)
make a recommendation regarding whether to pursue legal action against the
former officer; and (3) report the results of the inquiry to the Securities and
Exchange Commission.
The Company anticipates that the after-tax cost of conducting the investigation
into this matter, consisting primarily of professional fees, will be
approximately $360,000 or $0.12 per diluted share. This cost will be included in
the Company's results of operations for the quarter ended March 31, 2002.
Components of the restatement and their approximate effect on previously
reported net income (loss), are set forth in the following table
(amounts rounded to nearest thousand dollars):
March 31, 2001 March 31, 2000
--------------- --------------
Increase in health self-insurance
expense $ 1,509,000 $ 811,000
Increase in workers compensation and
automobile self-insurance expense 493,000 208,000
Additional revenues recorded from
amending Medicare and Medicaid
cost reports due to restatement (240,000) (390,000)
--------------- --------------
Total reduction in pretax income
due to restatement 1,762,000 629,000
Income tax effect (828,000) (266,000)
--------------- --------------
Total reduction in net income
due to restatement 934,000 363,000
income tax effect
Net income (loss) as previously 2,212,000 (4,743,000)
reported
--------------- --------------
Net income (loss) as restated $ 1,278,000 $(5,106,000)
=============== ==============
Basic Earnings (Loss) Per Share
As previously reported $ 0.70 $ (1.52)
As restated $ 0.40 $ (1.63)
Diluted Earnings (Loss) Per Share
As previously reported $ 0.67 $ (1.52)
As restated $ 0.38 $ (1.63)
As shown in Note 13 to the financial statements the self-insurance accounting
issues described above also resulted in a reduction of net income of $125,000 or
$0.04 per diluted share and $176,000 or $0.07 per diluted share in the quarters
ended June 30 and September 30, 2001 respectively.
Decision to Retain VN Operations
On September 14, 2001, the Company announced that its Board of Directors voted
to terminate its previously adopted plan of disposition for its Visiting Nurse
(VN) operations. This decision followed a period of extensive analysis and
evaluation of numerous alternatives for the business unit. In the Board's
judgment, given the significant external and internal changes that have taken
place with regard to the future prospects of the VN segment, retaining the VN
segment was the best option available to maximize shareholder value. In the
accompanying financial statements, the Company has, in accordance with
applicable accounting rules terminated the use of discontinued operations
accounting treatment for the VN segment. VN segment results are now reported as
an on-going part of the continuing operations of the Company for all periods
presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine-months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Change in Fiscal Year End
Also on September 14, 2001, the Company announced that it has changed its fiscal
year end from March 31 to December 31 effective December 31, 2001. Pursuant to
the Securities Exchange Act of 1934, the accompanying financial statements
included herein present audited information for the nine-months ended December
31, 2001, and for the twelve months ended March 31, 2001 and 2000. To facilitate
the an understanding of current operating results, Management's Discussion and
Analysis of Financial Position and Results of Operations includes the
nine-months ended December 31, 2001 compared to the unaudited results for the
nine-months ended December 31, 2000.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States.
When more than one accounting principle, or the method of its application, is
generally accepted, the Company selects the principle or method that is
appropriate in the specific circumstances. Application of these accounting
principles requires management to make estimates about the future resolution of
existing uncertainties; as a result, actual results could differ from these
estimates. In preparing these financial statements, management has made its best
estimates and judgments of the amounts and disclosures included in the financial
statements, giving due regard to materiality.
Receivables and Revenue Recognition
Revenues are recognized when the related patient services are provided.
Receivables and revenues are stated at amounts estimated by management to be
their net realizable values. Certain classes of patients rely on a common source
of funds to pay the cost of their care, such as the Federal Medicare program and
various state Medicaid programs. Medicare program revenues for the years prior
to the implementation of the prospective payment system and certain Medicaid
program revenues are subject to audit and retroactive adjustment by government
representatives. The Company believes that any differences between the net
revenues recorded and final determination will not materially affect the
Company's results of operations or financial condition.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of its accounts receivable based on
certain factors, such as payor types, historical collection trends and aging
categories. The Company calculates its reserve for bad debts based on the length
of time that the receivables are past due. The percentage applied to the
receivable balances in the various aging categories is based on historical
experience and has been consistently applied.
Insurance Programs
Self-Insurance Programs. The Company bears significant risk under its
self-insured employee health, automobile and workers' compensation programs. The
Company's self-insured health program has an excess-loss insurance policy that
reimburses the Company for covered expenses (up to a certain amount) of a
specific deductible for each covered person and an annual aggregate deductible
for all covered claims. The Company's current excess loss insurance policy ends
April 30, 2002. Based on information provided by its broker and third-party
administrator, the Company expects health insurance costs to increase between
10% to 20% during 2002 due to the inflation of medical care costs. Under its
automobile and workers' compensation self-insurance programs, the Company bears
risk up to $100,000 per incident.
The Company records estimated liabilities for its health, automobile, and
workers' compensation self-insurance programs based on information provided by
the third-party plan administrators, historical claims experience, the life
cycle of claims, expected costs of claims incurred but not paid, and expected
costs to settle unpaid claims. The Company monitors its estimated liabilities on
a quarterly basis and, when necessary, may make material adjustments to them in
the future.
Other Insurance. The Company's properties are covered by casualty insurance
policies. The Company also carries directors and officers, general and
professional liability insurance. The Company's deductible amount for general
and professional claims was $5,000 per claim prior to July 1, 2001 and $25,000
thereafter.
The Company believes that its present insurance coverage is adequate. However,
in the wake of the terrorist events of September 11, 2001, the Company's outside
insurance agent has advised that the annual cost of its insurance programs
(excluding health) will increase by approximately $500,000 ($290,000 after tax)
upon renewal on April 1, 2002. The Company also has been advised that it is
possible that the amount of coverage the Company is able to purchase may
decline.
Impairment of Property, Equipment and Intangible Assets
The Company evaluates its property and equipment and intangible assets on a
periodic basis to determine if facts and circumstances suggest that the assets
may be impaired or the life of the asset may need to be changed. The Company
considers internal and external factors of the individual facility or asset,
including changes in the regulatory environment, changes in national health care
trends, current period cash flow loss combined with a history of cash flow
losses and local market developments. If these factors and the projected
undiscounted cash flow of the entity over its remaining life indicate that the
asset will not be recoverable, the carrying value will be adjusted to its fair
value if it is lower. There were no impairment charges recorded during the
nine-months ended December 31, 2001, however, if the projections or assumptions
change in the future, the Company may be required to record impairment charges
not previously recorded for its assets.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations" (SFAS 141) and SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements established new accounting and
reporting standards for business combinations and associated goodwill and
intangible assets. SFAS 141, which took effect immediately, eliminated the
pooling of interest method of accounting and amortization of goodwill for
business combinations initiated after June 30, 2001. SFAS 142, effective January
1, 2002, requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually. The Company is currently in the process of determining the impact of
these standards on the Company's results of operations and financial position.
The initial test for impairment, pursuant to SFAS 142, will be completed by the
Company by June 30, 2002. The accompanying income statements include goodwill
amortization expense of approximately $113,146, $150,289, and $163,309 in the
nine months ended December 31, 2001 and the years ended March 31, 2001 and 2000
respectively.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 142). This statement supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", and the accounting and reporting provisions for APB Opinion No.
30, "Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". SFAS 144 requires that one accounting model be used
for long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. The Company will adopt the
provisions of SFAS 144 as of January 1, 2002, and is currently evaluating the
impact SFAS 144 may have on its financial position and results of operations.
Accounting for Income Taxes
As of December 31, 2001, the Company has net deferred tax assets of
approximately $1.9 million. The net deferred tax asset is composed of
approximately $3.4 million of long-term deferred tax assets and $1.5 million of
long-term deferred tax liabilities. 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 conclusion that it is more likely than not that future taxable
income will be sufficient to fully utilize the net deferred tax assets (net of
valuation allowance). However, there can be no assurances that the Company will
meet its expectations of future taxable income.
Operating Segments
The Company operates in two reportable business segments: Adult Day Health
Services (ADHS), and Visiting Nurses (VN). Reportable segments have been
identified based upon how management has organized the business by services
provided to customers and the criteria in SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's ADHS segment includes
the aggregation of its ADC in-center operations and in-home personal care
operations, both of which provide predominantly long-term health care and
custodial services that enable recipients to avoid nursing home admission.
Sources of reimbursement, reimbursement rates per day and contribution margins
from the Company's ADC and personal care operations are substantially alike. The
Company's VN segment provides skilled medical services in patients' homes
largely to enable recipients to reduce or avoid periods of hospitalization
and/or nursing home care. Approximately 83% of the VN segment revenues are
generated from the Medicare program. VN Medicare revenues are generated on a per
client basis rather than a fee per visit or day of care. General and
administrative expenses incurred at the corporate level have not been allocated
to the segments. The Company has operations in Alabama, Connecticut, Florida,
Indiana, Kentucky, Maryland, Massachusetts, and Ohio. Financial information for
the Company's two operating segments is presented in Note 12 to the financial
statements.
Seasonality
The Company's ADHS segment normally experiences seasonality in its operating
results. Specifically, the quarters ended December and March typically generate
lower operating income than the quarters ended June and September as the holiday
season and winter weather tend to temporarily lower ADC in-center attendance,
particularly in Maryland and Connecticut. Partially offsetting this, the
Company's VN segment operations located in southeast and southwest Florida
normally experience higher admissions during the March quarter than in the other
quarters due to seasonal population fluctuations.
RESULTS OF CONTINUING OPERATIONS
Nine Months Ended December 31, 2001 Compared with Unaudited Nine Months Ended
December 31, 2000 and the Year Ended March 31, 2001 (as restated)
Consolidated Nine Months Ended
------------ December 2000 Year Ended
December 2001 (unaudited) Change March 2001
----------------------------------------------------------------------------------
Amount %Rev Amount %Rev Amount %Rev Amount %Rev
----------------------------------------------------------------------------------
Net Revenues:
ADHS $38,709,645 64.8% $36,942,984 66.1% $1,766,661 4.8% $49,680,572 65.8%
VN 21,043,917 35.2% 18,958,949 33.9% 2,084,967 11.0% 25,774,214 34.2%
------------ ----------- ---------- -----------
$59,753,561 100.0% $55,901,933 100.0% $3,851,628 6.9% $75,454,786 100.0%
============ =========== ========== ===========
Operating Income:
ADHS $ 2,928,096 7.6% $ 2,683,335 7.3% $ 244,762 9.1% $3,522,306 7.1%
VN 3,190,513 15.2% (667,134) -3.5% 3,857,647 NM (83,305) -0.3%
---------- ----------- ---------- -----------
6,118,610 10.2% 2,016,201 3.6% 4,102,409 NM 3,439,001 4.6%
Unallocated
Corporate
Expense 1,542,712 2.6% 1,181,302 2.1% 361,410 30.6% 1,603,505 2.1%
---------- ----------- ---------- -----------
EBIT 4,575,898 7.7% 834,899 1.5% 3,740,999 NM 1,835,496 2.4%
Interest expense 712,002 1.2% 631,316 1.1% 80,686 12.8% 815,653 1.1%
Income taxes 1,622,831 2.7% 95,663 0.2 1,527,168 NM 479,305 0.6%
---------- ----------- ---------- -----------
Net income from
continuing
operations $2,241,064 3.8% $107,920 0.2% $2,133,145 NM $ 540,538 0.7%
========== =========== ========== ===========
EBITDA (1) $5,846,102 9.8% $2,081,403 3.7% $3,764,699 180.9% $3,363,983 4.5%
Effective 42.0% 47.0% -5.0% 47.0%
Tax Rate
(1) Earnings before interest, taxes, depreciation and amortization
The commentary that follows explains the comparison of the nine months ended
December 31, 2001 to the unaudited results for the nine months ended December
31, 2000. The explanations set forth below consider the comparisons of the
percentage of revenue information shown above for the nine months ended December
31, 2001 and the year ended March 31, 2001.
The Company's net revenues grew $3.8 million or 6.9% primarily as a result of
improved reimbursement and patient volumes in the VN segment and to a lesser
extent pricing improvements in the ADHS Segment. Likewise operating income
before unallocated corporate expense improved $4.1 million during the period
ended December 31, 2001 primarily as a result of the Company's actions to adapt
its operations to the new Medicare PPS reimbursement system which took effect on
October 1, 2001. Unallocated corporate overhead increased as a result of
additional expenditures in information systems, additional staff support for
operational audits and communication and increased compensation expense. Refer
to the segment discussions below for additional information.
The increase in interest is primarily a result of higher average outstanding
debt levels associated with the Company's use of approximately $5.2 million for
the repurchase of a large block of the Company's stock in March 2001, partially
offset by lower interest rates in 2001.
The effective income tax rate was approximately 42% of income before income
taxes in 2001 as compared to an effective income tax rate of approximately 47%
in the December 2000 and March 2001 periods. The higher tax rate used in the
prior periods was a result of taxable losses incurred in certain state and local
jurisdictions and the establishment of a valuation allowance against the
realizability of the related net operating loss carryforwards. Taxable income
was generated in those jurisdictions in 2001.
Adult Day Health Services (ADHS) Segment-Nine-Months Ended December 31, 2001 and
2000 (Unaudited) and the Year Ended March 31, 2001 (as restated) The Company's
ADHS segment includes the aggregation of its ADC in-center operations and
in-home personal care operations, both of which predominantly provide long-term
health care and custodial services that enable patients to avoid nursing home
admission. Sources of reimbursement, reimbursement rates per day and
contribution margins from the Company's ADC and in-home personal care operations
are substantially alike.
Nine Months Ended
December 2000 Year Ended
December 2001 (unaudited) Change March 2001
---------------------------------------------------------------------
% % % %
Amount Rev Amount Rev Amount Rev Amount Rev
--------------------------------------------------------------------------------
Net revenues $38,709,645 100.0% $36,942,984 100.0% $1,766,661 4.8% $49,680,572 100.0%
Cost of services 32,739,103 84.6% 31,409,698 85.0% 1,329,405 4.2% 42,482,598 85.5%
General & admin 1,978,222 5.1% 1,767,537 4.8% 210,685 11.9% 2,360,589 4.8%
Depreciation & 647,029 1.7% 656,773 1.8% (9,745) -1.5% 748,478 1.5%
amortization
Uncollectible accounts 417,195 1.1% 425,641 1.2% (8,446) -2.0% 566,601 1.1%
---------- ---------- ---------- ------------
Operating income $ 2,928,096 7.6% $ 2,683,335 7.3% $ 244,762 9.2% $ 3,522,306 7.1%
========== =========== ========== ============
EBITDA $ 3,575,125 9.2% $ 3,340,108 9.0% $ 235,017 7.0% $ 4,270,784 8.6%
Admissions 3,364 3,496 (132) -3.8% 4,588
Patients months of care 42,509 41,322 1,187 2.9% 55,068
Patient days of care 538,918 537,397 1,521 0.3% 710,452
Revenue per patient day $ 71.83 $ 68.74 $ 3.09 4.5% $ 69.93
ADC in-center
Avg. weekday attend. 1,244 1,248 (4) -0.3% 1,231
Avg. center capacity 1,689 1,671 18 1.1% 1,671
Average occupancy 73.6% 74.7% -1.1% 73.7%
The commentary that follows explains the comparison of the nine months ended
December 31, 2001 to the unaudited results for the nine months ended December
2000. The explanations set forth below also address the comparisons of the
percentage of revenue information shown above for the year ended March 31, 2001.
ADHS revenues increased 4.8% to $38.7 million in 2001 from $36.9 million in
2000. Average revenue per day of care increased about 4.5% and 2.7% over the
December 2000 and March 2001 periods, respectively as a result of mix changes
and higher reimbursement rates. The Company had one more center in operation in
2000 than in 2001. Occupancy in the adult day care centers was 73.6% of capacity
in 2001 and 74.7% of capacity in 2000. Average capacity increased as the
addition of new centers in Kentucky and Florida slightly more than offset the
capacity closed last year. As of December 31, 2001, total system capacity was
1,827 guests per day. In addition to the above, net revenues for the nine-months
ended December 31, 2001 included a one-time, non-recurring supplemental
reimbursement of $210,000 from the Maryland Medicaid program.
Cost of services as a percent of revenues decreased to 84.6% in 2001 from 85.0%
and 85.5% in the December 2000 and March 2001 periods, respectively, primarily
as a result of the pricing, volume and capacity changes discussed above. General
and administrative expenses were relatively unchanged between periods and
increased slightly as a percent of revenues. Depreciation and amortization
decreased due to certain property items reaching the end of their useful lives.
Management establishes an allowance for uncollectible accounts based on its
estimate of probable collection losses. The provision for uncollectible accounts
was just over 1% of revenue in both periods.
During the nine months ended December 31, 2001, the Company opened three new
Adult Day Care facilities: Ft. Myers FL, Bardstown KY and Ft. Thomas KY
(Cincinnati metro area). These facilities generated a pre-tax loss of $293,000
in the December 2001 period.
Visiting Nurse (VN) - Segment-Nine-Months Ended December 31, 2001 and 2000
(Unaudited) and the Year Ended March 31, 2001 (as restated) The Company's VN
segment provides skilled medical services in patients' homes to enable
recipients to reduce or avoid periods of hospitalization and/or nursing home
care. Approximately 83% of the VN segment revenues come from the Medicare
program and are generated on a per episode basis rather than a daily fee basis
as in ADHS. During the entirety of the December 2001 period, Medicare PPS was in
effect. From April 1, 2000 through September 30, 2000 Medicare's cost-based
reimbursement system was in effect. For all periods after September 30, 2000,
Medicare PPS was in effect.
Nine Months Ended December 2000 Year Ended
December 2001 (unaudited) Change March 2001
-----------------------------------------------------------------------
Amount % Rev Amount % Rev Amount % Amount %
-------------------------------------------------------------------------
Net revenues $21,043,917 100.0% $18,958,94 100.0% $2,084,967 11.0% $25,774,214 100.0%
Cost of services 15,401,130 73.2% 16,876,850 89.0% (1,475,719) -8.7% 22,004,512 85.4%
General & admin 1,436,452 6.8% 1,898,306 10.0% (461,854) -24.3% 2,672,287 10.4%
Depreciation & 544,259 2.6% 443,081 2.3% 101,178 22.8% 664,060 2.6%
amortization
Uncollectible accounts 471,563 2.2% 407,846 2.2% 63,716 15.6% 516,660 2.0%
----------- --------- --------- ------------
Operating income $3,190,513 15.2% $(667,134) -3.5% $3,857,647 NM $ (83,305) -0.3%
----------- ---------- --------- ------------
EBITDA $3,734,772 17.8% $(224,053) -1.2% $3,958,825 NM $ 580,755 2.3%
Admissions 6,068 5,516 552 10.0% 7,737
Patient months of care 16,371 17,051 (680) -4.0% 23,157
Revenue per patient
month $ 1,285 $ 1,112 $ 173 15.6% $ 1,113
The commentary that follows explains the comparison of the nine months ended
December 31, 2001 to the unaudited results for the nine months ended December
2000. The explanations set forth below also address comparisons of the
percentage of revenue information shown above for the year ended March 31, 2001.
The VN 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 losses in the December 2000 and March 2001 periods as a result of
operating under the old cost-based reimbursement system for portions of each
period. In the December 2001 period, the Company earned a higher rate of
reimbursement and incurred lower operating costs in its VN operations than were
earned and incurred, respectively, in the December 2000 and March 2001 periods.
Costs of services, primarily labor and related costs, were reduced due to
increased staff productivity and a reduction in the amount of unprofitable
insurance and managed care cases. These reductions were accomplished in large
part due to substantial investments made in information systems software
employed in the operation of the segment. The Company plans to continue its
efforts to refine and improve the operating efficiencies of the segment. The
Company generated 10% more admissions in the nine months ended December 31, 2001
versus the nine months ended December 31, 2000 while patient months of care
declined 4% due to a shorter average length of stay. Bad debt expense
approximated 2% of revenues in all periods shown above based on historical
collection results. Since Medicare PPS is still relatively new, this rate may
differ in the future.
A Medicare rate increase of 5.3% went into effect October 1, 2001. A Medicare
rate decrease is scheduled to go into effect October 1, 2002. The Company
currently estimates that if such rate cut is enacted it would have the
approximate effect of reversing on October 1, 2002, the rate increase that went
into effect on October 1, 2001. However, the Medicare program has not yet
announced what the rates would actually be. Accordingly, there can be no
assurance that the Company's estimate will prove accurate.
Twelve Months Ended March 31, 2001 Compared with Twelve Months Ended March 31, 2000 (All as
- --------------------------------------------------------------------------------------------
Restated)
- ---------
Twelve Months Ended
Consolidated March 2001 March 2000 Change
------------
-----------------------------------------------------------
Amount % Rev Amount % Rev Amount Percent
-----------------------------------------------------------
Net revenues ADHS $49,680572 65.8% $44,723,514 56.4% $ 4,957,058 11.1%
VN 25,774,214 34.2% 34,619,609 43.6% (8,845,395) -25.6%
----------- ------------ -----------
$75,454,786 100.0% $79,343,123 -4.9% (3,888,337) 4.9%
============ ============ ===========
Operating income ADHS $ 3,522,306 7.1% $ 2,198,437 4.9% $ 1,323,869 60.2%
VN (83,305) -0.3% (4,945,278) -14.3% 4,861,973 NM
------------ ------------ -----------
3,439,001 4.6% (2,746,841) -3.5% 6,185,842 NM
Unallocated corporate
expenses 1,603,505 2.1% 1,996,910 2.5% (393,405) -19.7%
------------ ------------ -----------
EBIT 1,835,496 2.4% (4,743,751) -6.0% 6,579,247 NM
Interest expense 815,643 1.1% 656,434 0.8% 159,219 24.3%
Income taxes 479,305 0.6% 2,008,867) -2.5% 2,747,780 NM
------------ ------------ -----------
Net income (loss) from
continuing operations $ 540,538 0.7% $(3,391,318) -4.3% $3,672,248 NM
============ ============ ===========
EBITDA $3,363,983 4.5% $(3,110,758) -3.9% $6,474,741 NM
Effective tax rate 47.0% 37.0% 5.0%
The Company's net revenues declined $3.9 million or 4.9% primarily as a result
of the closure of three of the Company's 11 home health agencies and an
intentional reduction in non-profitable insurance cases in the VN segment. ADHS
Segment revenues grew $5 million or 11% on volume growth of 16%. Operating
income before unallocated corporate expense improved $6.2 million primarily as a
result of the Company's actions to adapt its operations to new Medicare PPS
reimbursement system which took effect on October 1, 2001. ADHS operating income
before unallocated corporate expenses grew over 60% on increased volumes.
Unallocated corporate expenses decreased primarily due to a comprehensive
overhaul of the Company's organizational structure following the sale of the
product operations in 2000. Refer to the segment discussions below for
additional information.
The increase in interest is primarily a result of higher average outstanding
debt levels in the year ended March 2001.
The effective income tax rate was approximately 47% of income before income
taxes in 2001 as compared to an effective income tax rate of approximately 37%
in 2000. The higher tax rate used in 2001 was a result of taxable losses
incurred in certain state and local jurisdictions and the establishment of a
valuation allowance against the realizability of the related net operating loss
carryforwards. Taxable income was generated in those jurisdictions 2001.
ADHS Segment-Years Ended March 31, 2001 and 2000 (As Restated)
Years Ended
March 2001 March 2000 Change
-------------------------------------------------------
Amount % Rev Amount % Rev Amount Percent
-------------------------------------------------------
Net revenues $49,680,572 100.0% $44,723,514 100.0% $4,957,058 11.1%
Cost of services 42,482,598 85.5% 38,139,827 85.2% 4,342,771 11.4%
General & admin 2,360,589 4.8% 2,451,903 5.5% (91,314) -3.7%
Depreciation & 748,478 1.5% 1,026,734 2.3% (278,256) -27.1%
amortization
Uncollectible accounts 566,601 1.1% 906,612 2.0% (340,011) -37.5%
---------- ------------ ---------
Operating income $3,522,306 7.1% $ 2,198,438 4.9% $1,323,868 60.2%
========== ============ ==========
EBITDA $4,270,784 8.6% $ 3,225,172 7.2% $1,045,612 32.4%
Admissions 4,588 4,852 (264) -5.4%
Patients months of care 55,068 50,727 4,341 8.6%
Patient days of care 710,452 615,084 95,368 15.5%
Revenue per patient $ 69.93 $ 72.71 $ (2.78) -3.8%
day
ADC in-center
Avg. weekday attend. 1,231 1,069 162 15.1%
Avg. center capacity 1,671 1,404 267 19.0%
Average occupancy 73.7% 76.1% -2.4%
Net revenues increased 11% to $49.7 million in 2001 from $44.7 million in 2000.
Revenue growth came from volumes due to increased attendance in the adult day
care centers and higher unit sales in in-home personal care programs. Average
revenue per patient day of care decreased as increased volumes in lower unit
revenue components offset reimbursement rate increases. Average capacity
increased to 1,671 in 2001 period from 1,404 in 2000. Occupancy in the adult day
care centers was 73.7% of capacity in 2001 and 76.2% of capacity in 2000 with
the decline coming from the addition of capacity. The Company had four more
adult day care facilities in 2001 than in 2000.
Cost of services as a percent of revenues increased primarily as a result of the
pricing, volume and capacity changes discussed above. General and administrative
expenses decreased despite higher volumes and revenues primarily due to an
overhaul of the Company's organizational structure following the sale of the
product operations in 2000. Depreciation and amortization decreased due to
certain property items reaching the end of their useful lives. Management
establishes an allowance for uncollectible accounts based on its estimate of
probable collection losses.
VN Segment-Years Ended March 31, 2001 and 2000 (As Restated)
From April 1, 2000 through September 30, 2000 Medicare's cost-based
reimbursement system was in effect. For all periods after September 30, 2000,
Medicare PPS was in effect. Medicare's cost-based reimbursement system was in
effect for all of the year ended March 31, 2000.
Years Ended
March 2001 March 2000 Change
-------------------------------------------------------
Amount % Rev Amount % Rev Amount Percent
-------------------------------------------------------
Net revenues $25,774,214 100.0% $34,619,609 100.0% $(8,845,395) -25.6%
Cost of services 22,004,512 85.4% 36,370,532 105.1% (14,366,020) -39.5%
General & admin 2,672,287 10.4% 2,077,611 6.0% 594,676 28.6%
Depreciation & 664,060 2.6% 241,024 0.7% 423,036 175.5%
amortization
Uncollectible accounts 516,660 2.0% 875,721 2.5% (359,061) -41.0%
----------- ----------- -----------
Operating income $ (83,305) -0.3% $(4,945,278) -14.3% $4,861,974 NM%
----------- ----------- -----------
EBITDA $580,755 2.3% $(4,704,255)-13.6% $5,285,010 NM%
Admissions 7,737 11,621 (3,884) -33.4%
Patient months of care 23,157 36,926 (13,769) -37.3%
Rev. per patient month $ 1,113 $ 938 $ 175 18.7%
As indicated above, in 2000 the VN segment generated significant operating
losses. Prior to the sale of the product operations, the Company was able to
sustain this level of operating losses due to profits in the product segment on
patients from the same referral and payment sources, which more than offset the
VN losses. Specifically, Medicare, private insurance and managed care business
was profitable in the product operations and unprofitable in the VN segment.
After the sale of the product operations in November 1999, the Company took
steps to significantly reduce the amount of private insurance/managed care
business and to completely redesign its operating structure to lower operating
costs. This included closing three of the Company's eleven home health agencies
and implementing new information systems, productivity standards and labor
reductions in the remaining agencies over the second half of 2000 and the first
half of 2001.
The following table sets forth the change in operating results during the fiscal
year ended March 31, 2001 in periods of PPS reimbursement and cost
reimbursement:
10/1-3/31, 4/1-9/30, Pre-PPS Change 1st Half
With-PPS to 2nd
--------------------------------------------------------
Amount % Rev Amount % Rev Amount %
--------------------------------------------------------
Net revenues $13,543,764 100.0% $12,230,450 100.0% $1,313,314 10.7%
Cost of services 10,610,861 78.3% 11,393,651 93.2% (782,790) -6.9%
General & administrative 1,260,820 9.3% 1,411,467 11.5% (150,647) -10.7%
Depreciation & amortization 366,000 2.7% 298,060 2.4% 67,940 22.8%
Uncollectible accounts 249,298 1.8% 267,362 2.2% (18,064) -6.8%
----------- ------------ -----------
Operating income $ 1,056,785 7.8% $ (1,140,090) -9.3% $2,196,875 NM
----------- ------------ -----------
EBITDA 1,422,785 10.5% (842,031) -6.9% 2,264,815 NM
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 the fiscal year ended March 31,
2001 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 7%. 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, as noted above the Company 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.
Liquidity and Capital Resources
Revolving Credit Facility. The Company has a $22.5 million credit facility with
Bank One Kentucky NA which expires June 30, 2003. The credit facility bears
interest at the bank's prime rate plus a margin (ranging from 0% to 1.0%,
currently 0%) 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, acquisitions, development and
growth of the business and other corporate purposes. As of December 2001 the
formula permitted the entire $22.5 million to be used of which approximately
$12.6 million was outstanding. Additionally, an irrevocable letter of credit,
totaling $2.7 million, was outstanding in connection with the Company's
self-insured workers compensation and transportation insurance programs. Thus, a
total of $15.3 million was either outstanding or committed as of December 31,
2001 while an additional $7.2 million was available for use. Additionally, at
December 31, 2001, the Company had approximately $1.9 million in cash. The
Company's revolving credit facility is subject to various financial covenants.
As of December 31, 2001, the Company was in compliance with the covenants.
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.
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. The following table shows the accretive impact of this
redemption on consolidated diluted earnings per share for nine-months ended
December 31, 2001:
Nine-Months
Ended
December 31,
2001
----------------
Consolidated Net Income
As stated $3,328,414
Interest on borrowings for redemption 336,000
Income tax effect (125,520)
----------------
Net Income if shares had not been
redeemed 3,538,894
----------------
Weighted average diluted shares
outstanding
As stated 2,909,285
Shares redeemed 748,501
----------------
Diluted shares if shares had not
been redeemed 3,657,786
----------------
Diluted EPS
As stated $ 1.14
If shares had not been redeemed 0.97
----------------
Accretive effect of share redemption $ 0.17
================
Percent accretive 15%
================
On-Going Stock Buy Back Program. In March 2001, following the Stock and Warrant
Redemption discussed above, the Company's Board of Directors authorized up to an
additional $1 million to be used to acquire shares of the Company's common
stock. In April 2001, the Company initiated a stock repurchase plan in
compliance with Rule 10B-18 of the Securities Exchange Act of 1934. This plan
permits purchases to take place selectively from time to time in open market
purchases through a broker or in privately negotiated transactions. During the
nine months ended December 31, 2001, a total of 57,400 shares were repurchased
under this program, all of which were in open market purchases. A total of
$516,678 was expended on these purchases for an average acquisition cost of
$9.00 per share. These purchases did not have a material effect on net income or
earnings per share for the nine-months ended December 31, 2001.
Cash Flows
Key elements to the Consolidated Statements of Cash Flows for the nine months
ended December 31, 2001 and years ended March 31, 2001 and 2000 were:
Net Change in Cash and Cash Equivalents Nine Months
Ended Year Ended Year
December 31, March 31, Ended March
2001 2001 31, 2000
------------- ------------- --------------
Provided by (used in)
Operating activities $ 1,173,330 $ 260,536 $ 3,122,691
Investing activities (2,088,473) (2,882,070) (1,329,989)
Financing activities 345,943 3,685,622 (12,407,475)
Discontinued operations - - 11,009,535
------------- ------------- --------------
Net increase(decrease) in cash
and cash equivalents $ (569,200) $ 1,064,079 $ 394,762
============= ============= ==============
Nine Months Ended December 31, 2001
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. Substantially all the increase in accounts receivable resulted
from revenue growth. Days sales outstanding were approximately 81 at both
December 31, 2001 and March 31, 2001. Substantially all the decrease in accounts
payable and accrued liabilities resulted from the reversal of the remainder of
accounting reserves originally recorded at the time discontinued operations
accounting treatment was adopted for the VN segment which is included in the net
income from discontinued operations. 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 used by
financing activities resulted primarily from borrowings on the Company's credit
facility, payment of capital lease and debt obligations, repurchases of common
stock, and proceeds from stock option exercises.
Year Ended March 31, 2001
Net cash used in operating activities resulted principally from current period
income, net of changes in accounts receivable, accounts payable and accrued
expenses. Substantially all the increase in accounts receivable resulted from
and increase in days sales outstanding which were approximately 81 at March 31,
2001 and 70 at March 31, 2000. Accounts receivable increased primarily as a
result of under-payments from the Kentucky Medicaid program. Accounts payable
and accrued liabilities grew as a result of an increase in the number of days
expenses outstanding due to slower payment of liabilities, partially offset by a
decline in average daily expenses. Days expenses (excluding depreciation and bad
debt expense) were approximately 68 at March 31, 2001 and 58 at March 31, 2000.
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 used by financing activities resulted primarily
from borrowings on the Company's credit facility, payment of capital lease and
debt obligations, repurchases of common stock, and proceeds from stock option
exercises.
Year Ended March 31, 2000
Net cash provided by operating activities resulted principally from current
period loss, net of changes in accounts receivable, accounts payable and accrued
expenses. Changes in continuing operations accounts receivable were
insignificant. Accounts payable and accrued liabilities increased principally
due to the inclusion of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for the VN segment. 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 used by financing activities resulted primarily from payments
on the Company's credit facility from the proceeds of the sale of the product
operations in November 1999 as described in Note 10 to the financial statements.
Contractual Obligations. The following table provides information about the
payment dates of the Company's contractual obligations at December 31, 2001,
excluding current liabilities except for the current portion of long-term debt
(amounts in thousands):
2002 2003 2004 2005 2006 & Later
--------- ---------- --------- --------- ------------
Revolving credit $ - $ 12,586 $ - $ - $ -
facility
Capital lease 364 241 173 157 438
obligations
Mortgage debt 47 47 47 47 316
Operating leases 3,194 1,928 1,414 1,042 378
--------- ---------- --------- --------- ------------
Total $ 3,605 $ 14,802 $ 1,634 $ 1,246 $ 1,132
========= ========== ========= ========= ===========
The Company believes that its cash flow from operations will be sufficient to
cover debt payments, future capital expenditures and operating needs. In
addition, it is likely that the Company will pursue growth from acquisitions,
partnerships and other ventures that would be funded from excess cash from
operations, credit available under the bank credit agreement and other financing
arrangements that are normally available in the marketplace.
Commitments and Contingencies
Letter of Credit. The Company has an outstanding letter of credit of $2.7
million at December 31, 2001, which benefits its third-party
insurer/administrator for its automobile and workers' self-insurance
compensation programs.
Acquisition Agreements. The Company currently has no obligations related to
acquisition agreements. However, the Company is actively seeking acquisition
candidates and may reasonably be expected to enter into acquisitions in the
future.
General and Professional Liability. The Company is party to various other legal
matters arising in the ordinary course of business, including patient
care-related claims and litigation. The Company carries insurance coverage for
this exposure however its deductible per claim increased from $5,000 to $25,000
effective July 1, 2001. At December 31, 2001, the general and professional
liability consisted of reserves of $85,000. The Company can give no assurance
that this liability will not require material adjustment in future periods.
Other Litigation. 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 April 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 are included in
accrued liabilities on the accompanying balance sheet. However, the Company can
give no assurance that the accrued amount will be sufficient to cover the cost
of the litigation and the Company can give no assurance that it will be
successful in its defense.
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. 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.
Federal and 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 elsewhere in this Management's Discussion and Analysis of
Financial Condition and Results of Operations 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, and requires organizations to adhere
to certain standards to protect data integrity, confidentiality and
availability. HIPAA also mandates, among other things, that the Department of
Health and Human Services adopt standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and
enhance the effectiveness and efficiency of the health care industry. The
Department of Health and Human Services must adopt standards for the following:
o Electronic transactions and code sets;
o Unique identifiers for providers, employers, health plans and
individuals; o Security and electronic signatures; o Privacy; and o
Enforcement.
Although HIPAA was intended ultimately to reduce administrative expenses and
burdens faced within the health care industry, the Company believes the law will
initially bring about significant and, in some cases, costly changes. The
Department of Health and Human Services has released two rules to date mandating
the use of new standards with respect to certain health care transactions and
health information. The first rule establishes uniform standards for common
health care transactions, including:
o Health care claims information;
o Plan eligibility, referral certification and authorization; o Claims
status; o Plan enrollment and disenrollment; o Payment and remittance
advice; o Plan premium payments; and o Coordination of benefits.
Second, the Department of Health and Human Services has released standards
relating to the privacy of individually identifiable health information. These
standards not only require compliance with rules governing the use and
disclosure of protected health information, but they also require the Company to
impose those rules, by contract, on any business associate to whom we disclose
protected information. The Department of Health and Human Services has proposed
rules governing the security of health information, but has not yet issued these
rules in final form.
The Department of Health and Human Services finalized the electronic transaction
standards on August 17, 2000. Payors are required to comply with the transaction
standards by October 16, 2002 or October 16, 2003, depending on the size of the
payor and whether the payor requests a one-year waiver. Following compliance by
its payors, the Company must comply with the transaction standards, to the
extent it uses electronic data interchange. The Department of Health and Human
Services issued the privacy standards on December 28, 2000, and, after certain
delays, they became effective on April 14, 2001, with a compliance date of April
14, 2003. Once the Department of Health and Human Services has issued the
security regulations in final form, affected parties will have approximately two
years to be fully compliant. Sanctions for failing to comply with the HIPAA
provisions related to health information practices include criminal and civil
penalties.
Management is in the process of evaluating the effect of HIPAA on the Company.
At this time, management anticipates that the Company will be able to fully
comply with those HIPAA requirements that have been adopted. However, management
cannot at this time estimate the cost of compliance, nor can it estimate the
cost of compliance with standards that have not yet been finalized by the
Department of Health and Human Services. Although the new and proposed health
information standards are likely to have a significant effect on the manner in
which the Company handles health data and communicates with payors, based on
current knowledge, the Company believes that the cost of our compliance will not
have a material adverse effect on its business, financial condition 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 December 31, 2001, a hypothetical 100 basis point increase in short-term
interest rates would result in a reduction of approximately $126,000 in annual
pre-tax earnings from continuing operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AS RESTATED SEE NOTE 1)
Nine Nine Months
Months Year Ended
Ended Ended December 31, Year Ended
December March 31, 2001 (1) March 31,
2001 2001 (1) (unaudited) 2001 (1)
------------ ----------- ---------- -------------
Net revenues 59,753,561 75,454,786 55,901,933 79,343,123
Cost of sales and services 48,140,233 64,487,110 48,286,548 74,510,359
General and administrative expenses 4,878,469 6,520,432 4,700,495 6,161,188
Depreciation and amortization expense 1,270,204 1,528,487 1,246,504 1,632,993
Provision for uncollectible accounts 888,757 1,083,261 833,487 1,782,333
------------ ----------- ---------- -------------
Income (loss) from continuing operations
before other income (expense) and
and income taxes 4,575,898 1,835,495 834,999 (4,743,750)
Other income (expense):
Interest expense (712,002) (815,653) (631,316) (656,434)
----------- ----------- ------------ ------------
Income (loss) from continuing operations
before income taxes 3,863,895 1,019,842 203,583 (5,400,184)
Provision (benefit) for income taxes 1,622,831 479,305 95,663 (2,008,836)
------------ ----------- ---------- -------------
Net income (loss) from continuing operations $2,241,064 $ 540,537 $ 107,920 $(3,391,348)
------------ ----------- ---------- -------------
Discontinued operations:
Income from operations, net of income - - - 1,148,724
taxes of $831,000
Loss on disposal, net of income taxes of - - -
$1,591,000 (2,863,628)
Reclassification of VN operating losses
previously provided, net
of income taxes of $451,844 - 737,220 737,220 -
Gain from reversal of previously
recorded disposal charge, net of
income taxes of $695,000 1,087,350 - - -
------------ ----------- ------------ ------------
Net income (loss) $ 3,328,414 $ 1,277,757 $ 845,140 $(5,106,252)
============ =========== ============ ============
Per share amounts-Basic
Average shares outstanding 2,478,000 3,145,511 3,145,511 3,124,016
Net income (loss) from continuing operations $ 0.90 $ 0.17 $ 0.03 $ (1.08)
Discontinued operations
Income (loss) from operations, net of
applicable income taxes - - - 0.37
Loss on disposal, net of applicable
income taxes - - - (0.92)
Reclassification of VN operating losses
previously provided, net of income taxes - 0.23 0.23 -
Gain from reversal of previously recorded
disposal charge, net of income taxes 0.44 - - -
------------ ----------- ----------- -------------
Net income (loss) $ 1.34 $ 0.40 $ 0.26 $ (1.63)
============ =========== ========================
Per share amounts-Diluted
Average shares outstanding
2,909,285 3,306,682 3,306,682 3,124,016
Net Income (loss) from continuing operations $ 0.77 $ 0.16 $ 0.03 $ (1.08)
Discontinued operations
Income (loss) from operations, net of - - - 0.37
applicable income taxes
Loss on disposal, net of applicable - - - (0.92)
income taxes
Reclassification of VN operating losses
previously provided, net of income taxes - 0.22 0.22 -
Gain from reversal of previously recorded
disposal charge, net of income taxes 0.37 - - -
------------ ----------- ------------------------
Net income (loss) $ 1.14 $ 0.38 $ 0.25 $ (1.63)
============ =========== ========================
(1) Where appropriate, amounts for these periods have been restated and
reclassified as discussed in Note 1 to the financial statements.
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AS RESTATED SEE NOTE 1)
December 31, March 31,
ASSETS 2001 2001 (1)
------ ------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,928,391 $ 2,497,591
Accounts receivable - net 17,896,966 16,725,681
Prepaid expenses and other current assets 1,021,417 2,262,088
Deferred tax assets 1,764,281 1,499,975
------------- -------------
TOTAL CURRENT ASSETS 22,611,055 22,985,335
PROPERTY AND EQUIPMENT - NET 8,113,938 5,365,092
COST IN EXCESS OF NET ASSETS ACQUIRED - NET 3,783,448 2,477,341
DEFERRED TAX ASSETS 143,662 2,184,348
OTHER ASSETS 1,224,546 971,663
------------- -------------
$35,876,649 $ 33,983,779
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 10,309,546 $ 13,232,053
Current portion - capital leases and term
debt 338,402 11,886
------------- -------------
10,647,948 13,243,939
------------- -------------
LONG-TERM LIABILITIES:
Revolving credit facility 12,586,532 11,790,638
Capital leases and term debt 837,934 508,820
Mortgage liability 352,687 411,421
Other liabilities 1,070,137 771,078
------------- -------------
TOTAL LONG-TERM LIABILITIES 14,847,290 13,481,957
------------- -------------
TOTAL LIABILITIES 25,495,238 26,725,896
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $0.10; authorized
10,000,000 shares; 3,317,874
and 3,289,974 issued and outstanding,
respectively 331,790 329,000
Treasury stock, at cost, 837,312 and
779,912 shares, respectively (5,783,597) (5,266,919)
Additional paid-in capital 26,040,728 25,731,726
Accumulated deficit (10,207,510) (13,535,924)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 10,381,411 7,257,883
------------- -------------
$ 35,876,649 $ 33,983,779
============= =============
(1) Where appropriate, amounts for these periods have been restated and
reclassified as discussed in Note 1 to the financial statements.
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 (2) Nine
months ended December 31, 2001 and years ended march 2001 and 2000
(AS RESTATED SEE NOTE 1)
Common Stock Treasury Stock Additional Total
---------------- --------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------- --------- ------- --------- ---------- ------------ -----------
Balance, March 31, 1999 3,130,413 $313,044 10,000 $ (5,975) $25,345,586 $ (9,707,429) $15,855,226
Options Exercised 20,750 2,075 38,684 40,759
Net Loss (5,106,252) (5,106,252)
------- --------- ------- --------- ---------- ------------ -----------
Balance, March 31, 2000 (1) 3,151,163 315,119 10,000 (95,975) 25,384,270 (14,813,681) 10,789,733
Options Exercised 138,811 13,881 347,456 361,337
Repurchased Shares 769,912 (5,170,944) (5,170,944)
Net Income 1,277,757 1,277,757
------- --------- ------- --------- ---------- ----------- -----------
Balance, March 31, 2001 (1) 3,289,974 $329,000 779,912 $(5,266,919) $25,731,726 $(13,535,924) $7,257,883
Options Exercised 27,900 2,790 77,973 80,763
Repurchased Shares 57,400 (516,678) (516,678)
Tax benefit from
exercise of non-qualified 231,029 231,029
stock options
Net Income 3,328,414 3,328,414
--------- --------- ------- ----------- ---------- ------------- ----------
Balance, December 31, 2001 3,317,874 $331,790 837,312 $(5,783,597) $26,040,728 $(10,207,510) $10,381,411
========= ========= ======= =========== ========== ============= ==========
(1) Where appropriate, amounts for these periods have been restated and
reclassified as discussed in Note 1 to the financial statements.
(2) For the periods presented, there are no elements of other comprehensive
income as defined by Statement 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
(AS RESTATED SEE NOTE 1)
Nine
Months
Ended Year Ended Year Ended
December 31, March 31, March 31,
2001 2001 (1) 2001 (1)
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $3,238,414 $ 1,277,757 $ (5,106,252)
Less net income (loss) from discontinued
operations 1,087,350 737,220 (1,714,904)
----------- ----------- -----------
Net income (loss) from continuing operations 2,241,064 540,537 (3,391,348)
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
Operating activities:
Depreciation and amortization 1,270,204 1,528,488 1,632,993
Provision for uncollectible accounts 888,757 1,083,262 1,782,333
Deferred income taxes 1,027,291 125,239 (345,561)
----------- ----------- -----------
5,427,316 3,277,525 (321,583)
Change in certain net assets, net of the
effects of acquisitions and dispositions:
(Increase) decrease in:
Accounts receivable (2,060,042) (2,650,703) (331,613)
Prepaid expenses and other current assets (144,372) (991,118) 204,662
Other Assets (370,830) (84,340) 16,315
Increase (decrease) in:
Accounts payable and accrued expenses (1,977,800) 986,547 2,835,903
Other liabilities 299,058 (277,375) 719,007
----------- ----------- ---------
Net cash provided by (used in) operating 1,173,330 260,536 3,122,691
----------- ----------- ---------
Cash flows from investing activities:
Capital expenditures (2,088,473) (2,836,709) (1,209,989)
Acquisitions, net of cash acquired - (45,370) (120,000)
----------- ----------- -----------
Net cash (used in) provided by investing
activities (2,088,473) (2,882,079) (1,329,989)
----------- ----------- -----------
Cash flows from financing activities:
Net revolving credit facility borrowings 795,894 8,633,013 (12,435,382)
Repurchase of common shares (516,678) (5,170,944) -
Proceeds from stock option exercises 311,792 361,337 40,759
Principal payments on debt and capital leases (245,065) (137,785) (12,852)
----------- ----------- -----------
Net cash provided by (used in) financing 345,943 3,685,622 (12,407,475)
----------- ----------- -----------
Net cash provided by (used in) discontinued
operations and change in investment in
discontinued operations - - 11,009,535
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (569,200) 1,064,079 394,762
Cash and cash equivalents at beginning of year 2,497,591 1,433,512 1,038,751
----------- ----------- -----------
Cash and cash equivalents at end of year $1,928,391 $2,497,591 $1,433,512
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash payment of interest $ 653,000 $ 829,000 $ 989,000
Cash payment of taxes $1,412,000 $ 706,000 $ 232,000
Summary of non-cash investing activities:
Capital expenditures financed under capital
leases $ 841,961 $ 611,456 $ -
(1) Where appropriate, amounts for these periods have been restated and
reclassified. See Note 1 to the financial statements.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
73
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AS RESTATED SEE NOTE 1)
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. (a Delaware corporation) and its wholly-owned subsidiaries (collectively
"Almost Family" or the "Company"). The Company provides 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 also operates a
chain of Medicare-certified home health agencies under the trade name
"CaretendersTM". 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.
Restatement of Financial Statements
As a result of accounting errors, the Company has restated its previously issued
financial statements for the fiscal years ended March 31, 2001 and March 31,
2000, and its previously issued financial results for the quarterly periods in
those fiscal years and the quarterly periods ended June 30 and September 30,
2001. Previously reported net income has been reduced by approximately $934,000
or $0.28 per diluted share in the year ended March 31, 2001 and $363,000 or
$0.12 per diluted share in the year ended March 31, 2000. The components of the
restatement and its effect on previously issued financial statements are set
forth below. The effect on quarterly financial information is set forth in Note
13 to the financial statements. On February 15, 2002, the Company issued a press
release stating, and notified the Securities and Exchange Commission, that it
expected to restate its financial statements.
The Company has adopted significant changes in its administrative procedures and
internal controls relating to accounting for its self-insurance programs,
including requirements that third-party financial information be provided to
both financial accounting and operating personnel, improvements in the
methodology for expensing the cost of claims incurred but not paid, and year end
validation by third-party experts of the Company's estimated liability for
unpaid claims.
On February 20, 2002, the Board of Directors appointed a Special Committee of
two independent directors, Tyree Wilburn and Jonathan Goldberg, and directed the
Committee to investigate the causes of the accounting errors. As authorized by
the Board, the Special Committee retained counsel (Wilmer, Cutler & Pickering)
previously unaffiliated with the Company to assist its inquiry, and counsel in
turn engaged forensic accountants (Ten Eyck Associates, Inc.) also unaffiliated
with the Company. The investigation of the Special Committee is substantially
complete. The principal conclusions are that a former officer, the Vice
President of Human Resources responsible for managing the Company's
self-insurance programs, negligently, and at times intentionally, provided
inaccurate information to the Company's financial accounting staff, and to its
independent public accountants, that caused the Company to record a receivable
to which it was not entitled and to understate certain liabilities, particularly
with respect to the medical, workers' compensation and automobile self-insurance
programs.
The Board has asked the Special Committee to (1) make additional recommendations
to improve the Company's administrative processes and internal controls; (2)
make a recommendation regarding whether to pursue legal action against the
former officer; and (3) report the results of the inquiry to the Securities and
Exchange Commission.
Components of the restatement and their tax effect on previously reported
net income (loss), are set forth in the following table (amounts rounded to
nearest thousand dollars):
March 31, 2001 March 31, 2000
--------------- --------------
Increase in health self-insurance
expense $ 1,509,000 $ 811,000
Increase in workers' compensation and
automobile self-insurance expense 493,000 208,000
Additional revenues recorded from
amending Medicare and Medicaid
cost reports due to restatement (240,000) (390,000)
--------------- --------------
Total reduction in pretax income
due to restatement 1,762,000 629,000
Income tax effect (828,000) (266,000)
--------------- --------------
Total reduction in net income
due to restatement 934,000 363,000
Net income (loss) as previously
reported 2,212,000 (4,743,000)
--------------- --------------
Net income (loss) as restated $ 1,278,000 $(5,106,000)
=============== ==============
Basic Earnings (Loss) Per Share
As previously reported $ 0.70 $ (1.52)
As restated $ 0.40 $ (1.63)
Diluted Earnings (Loss) Per Share
As previously reported $ 0.67 $ (1.52)
As restated $ 0.38 $ (1.63)
The restatement of insurance expense also results in amendment of the Company's
Medicare and KY Medicaid cost reports for the periods indicated. The amendments
are expected to result in additional reimbursement due to the Company of
approximately $240,000 and $390,000 related to the years ended March 31, 2001
and 2000 respectively. Accordingly, the Company has recorded the expected
additional reimbursement in net revenues and accounts receivable in the affected
periods. Substantially all of the restatement of insurance expense is reflected
in the cost of services line in the accompanying income statements. The
restatement of insurance assets and liabilities resulted in a reduction of
prepaid expenses and other assets (which previously included a reinsurance
receivable) of approximately $538,000 at March 31, 2001. The balance of the
restatement increased accounts payable and accrued liabilities by approximately
$1,464,000 and $1,019,000 at March 31, 2001 and 2000 respectively. Consolidated
net equity decreased by the amount of the restatement impact on net income.
As shown in Note 13 to the financial statements the self-insurance accounting
issues described above also resulted in a reduction of net income of $125,000 or
$0.04 per diluted share and $176,000 or $0.07 per diluted share in the quarters
ended June 30 and September 30, 2001 respectively.
The Company anticipates that the after-tax cost of conducting the investigation
into this matter, consisting primarily of professional fees, will be
approximately $360,000 or $0.12 per diluted share. This cost will be included in
the Company's results of operations for the quarter ended March 31, 2002.
Decision to Retain VN Operations
On September 14, 2001, the Company announced that its Board of Directors voted
to terminate its previously adopted plan of disposition for its Visiting Nurse
(VN) operations. This decision followed a period of extensive analysis and
evaluation of numerous alternatives for the business unit. In the Board's
judgment, given the significant external and internal changes that have taken
place with regard to the future prospects of the VN segment, retaining the VN
segment was the best option available to maximize shareholder value. In the
accompanying financial statements, the Company has, in accordance with
applicable accounting rules terminated the use of discontinued operations
accounting treatment for the VN segment. VN segment results are now reported as
an on-going part of the continuing operations of the Company for all periods
presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine-months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Change in Fiscal Year End
Also on September 14, 2001, the Company announced that it has changed its fiscal
year end from March 31 to December 31 effective December 31, 2001. Pursuant to
the Securities Exchange Act of 1934, the accompanying financial statements
included herein present information for the nine-months ended December 31, 2001,
and for the twelve months ended March 31, 2001 and 2000.
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 December 31, 2001, and March 31, 2001 were approximately
$1.9 million and $2.5 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
Internally generated software 3
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 at December 31, 2001
and $1.0 million, net at March 31, 2001, respectively) to 40 years
(approximately $2.6 million, net, at December 31, 2001 and $1.4 million, net at
March 31, 2001). Accumulated amortization of goodwill was $2 million and $1
million at December 31, 2001 and March 31, 2001, respectively.
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.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (SFAS 141) and SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements establish new accounting and
reporting standards for business combinations and associated goodwill and
intangible assets. SFAS 141, effective immediately, eliminates the pooling of
interest method of accounting and amortization of goodwill for business
combinations initiated after June 30, 2001. SFAS 142, effective January 1, 2002,
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually. The
Company is currently reviewing the new accounting pronouncements to determine
their impact on the Company's results of operations and financial position. The
initial test for impairment will be completed by the Company by June 30, 2002.
The accompanying income statements include goodwill amortization expense of
$113,146, $150,229 and $163,309 in the nine months ended December 31, 2001 and
the years ended March 31, 2001 and 2000, respectively.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement supercedes SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", and the accounting and reporting provisions for APB Opinion No. 30,
"Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". SFAS 144 requires that one accounting model be used
for long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. The Company will adopt the
provisions of SFAS 144 as of January 1, 2002, and is currently evaluating the
impact SFAS 144 may have on its financial position and results of operations.
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. Consistent with AICPA Statement of Position 98-1, the
Company capitalizes the cost of internally generated computer software developed
for the Company's own use. Software development costs of $911,001, $1,217,448
and $792,397 were capitalized in the nine-months ended December 31, 2001 and the
years ended March 31, 2001 and 2000, respectively. Capitalized software
development costs are amortized over a three-year period following the initial
implementation of the software.
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 9.9%, 22.3%, and 44.0% of net revenues for the nine months ended
December 31, 2001 and the years ended March 31, 2001 and 2000, 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.
The Company has a significant dependence on state Medicaid reimbursement
programs. Although the Company is not aware of any significant initiatives
currently underway that would have a material adverse impact on the Medicaid
reimbursement programs or the Company, the Company could be materially impacted
by unfavorable changes in the future should they occur. For the nine months
ended December 31, 2001, approximately 17%, 17%, 6%, 4% and 3% of the Company's
revenues were generated from Medicaid reimbursement programs in the states of
Maryland, Kentucky, Connecticut, Indiana and Massachusetts, respectively.
The following table sets forth the percent of the Company's revenues generated
from Medicare, state Medicaid programs and other payors:
Nine Months
Ended Year Ended Year Ended
December 31, 2001 March 31, 2001 March 31, 2000
--------------- -------------- -----------------
Medicare 29.2% 28.5% 38.1%
--------------- -------------- -----------------
Medicaid Programs
Maryland 16.0% 16.5% 15.4%
Kentucky 17.1% 14.9% 14.2%
Connecticut 6.3% 5.8% 5.5%
Massachusetts 2.9% 3.2% 2.4%
Indiana 3.6% 3.6% 3.8%
Ohio 3.7% 2.5% 1.9%
Florida 1.9% 0.4% 0.4%
--------------- -------------- ---------------
Medicaid subtotal 51.5% 46.9% 43.6%
All other payers 19.3% 24.6% 18.3%
--------------- -------------- ---------------
Total 100.0% 100.0% 100.0%
=============== ============== ===============
Concentrations in the Company's accounts receivable were as follows:
As of December 31, 2001 As of March 31, 2001
Amount Percent Amount Percent
---------------- --------- ------------ ---------
Medicare $6,677,227 32.9% $ 5,579,851 30.0%
---------------- --------- ------------ ---------
Medicaid Programs:
Maryland 1,083,617 5.3% 973,955 5.2%
Kentucky 4,179,934 20.6% 4,923,872 26.5%
Connecticut 994,571 4.9% 788,450 4.2%
Massachusetts 839,130 4.1% 740,009 4.0%
Indiana 782,215 3.9% 992,638 5.3%
Ohio 557,773 2.7% 316,524 1.7%
Florida 518,191 2.6% 385,853 2.1%
---------------- --------- ------------ ---------
Medicaid subtotal 8,955,431 44.1% 9,121,301 49.0%
---------------- --------- ------------ ---------
All other payers 4,684,560 23.0% 3,907,649 21.0%
---------------- --------- ------------ ---------
Subtotal 20,317,218 100.0% 18,608,801 100.0%
========= ==========
Allowance for
uncollectible accounts (2,420,252) (1,883,120)
---------------- ------------
$17,896,966 $ 16,725,681
================ ============
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.
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:
Nine Months Year Ended Year Ended
Ended March 31, March 31,
December 31, 2001 2001 2000
-------------------- ----------- ------------
Basic weighted average outstanding
shares 2,478,000 3,145,511 3,124,016
Add-common equivalent shares
representing shares issuable upon
exercise of dilutive options 431,285 161,171 -
Diluted weighted average number of ------------ ----------- -----------
shares at year end(1) 2,909,285 3,306,682 3,124,016
============ =========== ===========
Due to the net loss incurred in fiscal 2000, common equivalent shares are
excluded due to their anti-dilutive effect.
(1) In March 2001, the Company repurchased 748,501 shares of common stock and a
warrant for 200,000 shares for $5.2 million. Actual common shares outstanding as
of December 31, 2001 and March 31, 2001 were 2,480,562, and 2,510,062
respectively.
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 approximates 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 March 2001 and 2000 financial
statements in order to conform them to the 2001 presentation. Such
reclassifications had no effect on previously reported net income (loss). These
reclassifications include reclassifying the Company's Visiting Nurse segment
from discontinued to continuing operations as described previously.
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.
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, and requires organizations to adhere
to certain standards to protect data integrity, confidentiality and
availability. HIPAA also mandates, among other things, that the Department of
Health and Human Services adopt standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and
enhance the effectiveness and efficiency of the health care industry. The
Department of Health and Human Services must adopt standards for the following:
o Electronic transactions and code sets;
o Unique identifiers for providers, employers, health plans and
individuals; o Security and electronic signatures; o Privacy; and o
Enforcement.
Although HIPAA was intended ultimately to reduce administrative expenses and
burdens faced within the health care industry, the Company believes the law will
initially bring about significant and, in some cases, costly changes. The
Department of Health and Human Services has released two rules to date mandating
the use of new standards with respect to certain health care transactions and
health information. The first rule establishes uniform standards for common
health care transactions, including:
o Health care claims information;
o Plan eligibility, referral certification and authorization; o Claims
status; o Plan enrollment and disenrollment; o Payment and remittance
advice; o Plan premium payments; and o Coordination of benefits.
Second, the Department of Health and Human Services has released standards
relating to the privacy of individually identifiable health information. These
standards not only require compliance with rules governing the use and
disclosure of protected health information, but they also require the Company to
impose those rules, by contract, on any business associate to whom we disclose
protected information. The Department of Health and Human Services has proposed
rules governing the security of health information, but has not yet issued these
rules in final form.
The Department of Health and Human Services finalized the electronic transaction
standards on August 17, 2000. Payors are required to comply with the transaction
standards by October 16, 2002 or October 16 2003, depending on the size of the
payor and whether the payor requests a one-year waiver. Following compliance by
its payors, the Company must comply with the transaction standards, to the
extent it uses electronic data interchange. The Department of Health and Human
Services issued the privacy standards on December 28, 2000, and, after certain
delays, they became effective on April 14, 2001, with a compliance date of April
14, 2003. Once the Department of Health and Human Services has issued the
security regulations in final form, affected parties will have approximately two
years to be fully compliant. Sanctions for failing to comply with the HIPAA
provisions related to health information practices include criminal and civil
penalties.
Management is in the process of evaluating the effect of HIPAA on the Company.
At this time, management anticipates that the Company will be able to fully
comply with those HIPAA requirements that have been adopted. However, management
cannot at this time estimate the cost of compliance, nor can it estimate the
cost of compliance with standards that have not yet been finalized by the
Department of Health and Human Services. Although the new and proposed health
information standards are likely to have a significant effect on the manner in
which the Company handles health data and communicates with payors, based on
current knowledge, the Company believes that the cost of our compliance will not
have a material adverse effect on its business, financial condition or results
of operations.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued expenses at December 31, and March 31, 2001
consisted of the following:
December 31, March 31,
2001 2001
------------ ------------
Trade payables $3,106,033 $2,766,626
Wages and employee 2,086,971 2,562,151
benefits
Insurance accruals 3,582,595 3,964,851
Accrued taxes 962,637 2,002,833
Accrued professional
fees and other 571,310 541,754
Accrued exit costs of
discontinued operations - 1,393,838
------------ ------------
$10,309,546 $13,232,053
============ ============
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consist of the
following:
December March 31,
31, 2001 2000
-------------- --------------
Buildings and improvements $ 1,910,092 $ 1,628,746
Leasehold improvements 4,596,628 4,156,227
Medical equipment 603,568 545,170
Computer equipment and software 6,134,926 5,063,763
Office and other equipment 2,566,738 2,360,563
Transportation equipment 2,988,972 2,126,103
Allowance related to discontinued - (946,115)
operations -------------- --------------
18,800,924 14,934,457
Less accumulated depreciation (10,686,986) (9,569,365)
-------------- --------------
$ 8,113,938 $ 5,365,092
============== ==============
Depreciation expense was approximately $1,117,621, $1,404,720 and $1,224,768 for
the nine months ended December 31, 2001, and the fiscal years ended March 31,
2001, and 2000, respectively.
NOTE 5 - REVOLVING CREDIT FACILITY
Revolving Credit Facility. The Company has a $22.5 million credit facility with
Bank One Kentucky NA which expires June 30, 2003. The credit facility bears
interest at the bank's prime rate plus a margin (ranging from 0% to 1.0%,
currently 0%) 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, acquisitions, development and
growth of the business and other corporate purposes. As of December 2001 the
formula permitted the entire $22.5 million to be used of which approximately
$12.6 million was outstanding. Additionally, an irrevocable letter of credit,
totaling $2.7 million, was outstanding in connection with the Company's
self-insured workers' compensation and transportation insurance programs. Thus,
a total of $15.3 million was either outstanding or committed as of December 31,
2001 while an additional $7.2 million was available for use. Additionally, at
December 31, 2001, the Company had approximately $1.9 million in cash. The
Company's revolving credit facility is subject to various financial covenants.
As of December 31, 2001, the Company was in compliance with the covenants.
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 sources, 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.
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:
December 31, March 31,
2001 2001
-------------- --------------
Deferred tax assets
Nondeductible reserves and
Allowances $ 506,000 $ 1,362,000
Intangibles 1,419,000 1,939,000
Insurance accruals 1,005,000 1,039,000
Net operating losses 1,058,000 1,105,000
-------------- -----------
3,988,000 5,445,000
Valuation allowance (1,058,000) (1,105,000)
-------------- ------------
$ 2,930,000 $ 4,340,000
============== ============
Deferred tax liabilities
Accounts receivable $ - $ (404,000)
Accelerated depreciation (1,022,000) (252,000)
-------------- -----------
(1,022,000) (656,000)
-------------- ------------
Net deferred tax assets $ 1,908,000 $ 3,684,000
============== ===========
Deferred tax assets are reflected in the accompanying balance sheets as:
Current $ 1,764,000 $ 1,500,000
Long-term 144,000 2,184,000
-------------- ------------
Net deferred tax assets $ 1,908,000 $ 3,684,000
============== ============
The Company has state and local net operating loss carryforwards of
approximately $13.8 million which expire on various dates through 2016.
Provision (benefit) for income taxes consists of the following:
Nine Months
Ended Year Ended Year Ended
December March 31, March 31,
31, 2001 2001 2000
-------------- ------------- -------------
Federal - Current $ 895,000 $ 750,000 $ 383,000
State and local - Current 254,000 173,000 536,000
Deferred 1,169,000 8,000 (506,000)
-------------- ------------- -------------
$2,318,000 $ 931,000 $ 413,000
============== ============= =============
Shown in the accompanying income statements as:
Continuing Operations $1,623,000 $ 479,000 $(2,009,000)
Discontinued Operations
From Operations - - 831,000
From Loss on disposal - - 1,591,000
From Reclassification of VN
operating losses previously
provided - 452,000 -
Gain from reversal of previously
recorded disposal charge 695,000 - -
-------------- ------------- -------------
$2,318,000 $ 931,000 $ 413,000
============== ============= =============
A reconciliation of the statutory to the effective rate of the Company (for
continuing operations only) is as follows:
Nine Months
Ended Year Ended Year Ended
December 31, March 31, March 31,
2001 2001 2000
--------------- -------------- ---------------
Tax provision (benefit) using
statutory rate 34.0% 34.0% (34.0%)
Goodwill 0.6% 1.1% 0.6%
Valuation Allowance (1.2%) 10.6% (2.4%)
State and local taxes, net of
Federal benefit 6.4% (3.6%) (1.2%)
Other, net 2.2% 4.9% (0.2%)
--------------- -------------- ----------
Tax provision (benefit)
Continuing Operations 42.0% 47.0% (37.2%)
=============== ============== ==========
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 conclusion that it is more likely than not
that future taxable income will be sufficient to fully utilize the net deferred
tax assets as of December 31, 2001 and March 31, 2001.
During the nine months ended December 31, 2001 and the year ended March 31,
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 these periods include a reduction of previously recorded valuation
allowances of approximately $47,000 and $131,000, respectively.
NOTE 7 - Stockholders Equity
Employee Stock Option Plans
The Company has the following 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.
The period of time for granting options under this plan has expired.
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.
All options available under this plan have been granted.
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, 1999 266,600 $ 12.03 608,000 $ 2.57
Granted - 14,000 $ 2.33
Exercised - (20,750) $ 1.96
Terminated (66,600) (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
Granted - 10,000 $ 8.75
Exercised - (27,900) $ 2.60
Terminated - (7,500) $ 4.25
---------- ----------
December 31, 2001 - 667,500 $ 3.06
========== ==========
The following table details exercisable options and related information:
Nine Months
Ended Year Ended
December 31, March 31,
2001 2001
------------- --------------
Exercisable at end of year 425,250 433,775
Weighted average exercise price $ 2.76 $ 2.53
Weighted average of fair value
of options granted during
the year $ 0.68 $ 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 the nine months
ended December 31, 2001, and the years ended March 31, 2001 and 2000 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:
Nine Months Year Ended Year Ended
Ended March 31, March 31,
December 31, 2001 2000
2001
--------------- -------------- ---------------
Net Income: As Reported $ 3,328,414 $ 1,277,757 $ (5,106,252)
Pro Forma $ 3,267,455 $ 1,210,115 $ (5,217,078)
Basic EPS: As Reported $ 1.34 $ 0.40 $ (1.63)
Pro Forma $ 1.32 $ 0.38 $ (1.67)
Diluted EPS: As Reported $ 1.14 $ 0.38 $ (1.63)
Pro Forma $ 1.12 $ 0.37 $ (1.67)
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
December 31, 2001:
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------
Outstanding Wtd. Avg. Exercisable
Range of As of Remaining As of
Ex. Price December Contractual Wt. Avg. December 31, Wt. Avg.
31, 2001 Life Ex. Price 2001 Ex. Price
------------ ------------- ------------- --------- -------------- --------
$2.19-2.50 192,500 7.19 $2.19 144,375 $2.19
$2.50 - 3.00 215,500 3.20 $2.63 213,500 $2.63
Over $3.00 259,500 9.11 $4.07 67,375 $4.39
------------- --------------
$2.19 - 8.75 667,500 6.65 $3.06 425,250 $2.76
============= ==============
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 the nine months ended December 2001 and the years
ended March 2001 and 2000, respectively: risk-free interest rates of 5.40% 6.18%
and 6.05%, expected volatility of approximately 50%, 50% and 50%, expected lives
of 9.57, 5.95 and 9.76 years and no expected dividend yields.
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 or
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 - RETIREMENT PLANS
The Company administers a 401 (k) defined contribution retirement plan for the
benefit of the majority of its employees, who have completed 90 days of service
and been credited with 1,000 hours of service as defined by the plan agreement.
The Company matches contributions in an amount equal to one-quarter of the first
10% of each participant's contribution to the plan. 401 (k) assets are held by
an independent trustee, are not assets of the Company, and accordingly are not
reflected in the Company's balance sheets. Additionally, the Company administers
a "rabbi trust" Executive Retirement Plan (ERP) for highly-compensated employees
who, under IRS rules are not eligible to participate in the 401K plan. The
Company matches contributions in an amount equal to one-quarter of the first 10%
of each participant's contribution to the plan. ERP assets are assets of the
Company until distributed to the employees following retirement or termination
of employment. Employees with assets in the ERP are general creditors of the
Company. Accordingly, assets of the ERP are reflected in the Company's balance
sheets in the amounts of $962,513 and $ 697,995 at December 31, 2001 and March
31, 2001 respectively. Equal amounts are also reflected as liabilities in the
accompanying balance sheets. The Company's expense for both these retirement
plans was $101,881, $169,106 and $137,972 for the nine months ended December 31,
2001 and the years ended March 31, 2001 and 2000 respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain real estate, office space, vehicles and equipment
under non-cancelable operating leases expiring at various dates through 2008.
Rent expense amounted to approximately $2,982,784, $4,165,406 and $4,562,074 for
the nine months ended December 31, 2001 and the years ended March 31, 2001 and
2000, respectively. At December 31, 2001 the minimum rental payments under these
leases are as follows:
2002 $3,193,684
2003 1,928,493
2004 1,413,734
2005 1,042,171
2006 and thereafter 378,180
Capital Leases and Term Debt
The Company has certain assets, primarily vehicles, under capital leases. The
leases include interest of approximately annually 7.0%. Assets held under
capital leases are carried at cost of $1.4 million with accumulated depreciation
of $106,938 as of December 31, 2001.
The Company also has a mortgage liability on one real property. The amount
outstanding as of December 31, 2001 was approximately $399,000. The liability
bears interest at an annual rate of 8.0% and is secured by a mortgage on the
property.
Future minimum lease payments and principal payments on the mortgage are as
follows:
Year Ending December 31, Capital Mortgage
Leases Liability Total
------------ ------------ ---------------
2002 $ 364,101 $ 47,080 $ 411,181
2003 240,923 47,080 288,003
2004 173,362 47,080 220,442
2005 157,012 47,080 204,092
2006 & thereafter 438,111 316,019 754,130
------------ ------------ ---------------
1,373,509 504,339 1,877,848
Less: amount representing
interest (244,253) (104,572) (348,825)
------------ ------------ ---------------
Present value of minimum
lease payments 1,129,256 399,767 1,529,023
Less: current portion 291,322 47,080 338,402
------------ ------------ ---------------
$ 837,934 $ 352,687 $ 1,190,621
============ ============ ===============
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
$250,000 for one year with automatic one-year renewals. In addition, the
agreement contains contingent obligations associated with performance bonuses
and severance.
Insurance Programs
Self-Insurance Programs. The Company bears significant risk under its
self-insured employee health, automobile and workers' compensation programs. The
Company's self-insured health program has an excess-loss insurance policy that
reimburses the Company for covered expenses (up to a certain amount) of a
specific deductible for each covered person and an annual aggregate deductible
for all covered claims. The Company's current excess loss insurance policy ends
April 30, 2002. Based on information provided by its broker and third-party
administrator, the Company expects health insurance costs to increase between
10% to 20% during 2002 due to the inflation of medical care costs. Under its
automobile and workers' compensation self-insurance programs, the Company bears
risk up to $100,000 per incident.
The Company records estimated liabilities for its health, automobile, and
workers' compensation self-insurance programs based on information provided by
the third-party plan administrators, historical claims experience, the life
cycle of claims, expected costs of claims incurred but not paid, and expected
costs to settle unpaid claims. The Company monitors its estimated liabilities on
a quarterly basis and, when necessary, may make material adjustments to them in
the future.
Other Insurance. The Company's properties are covered by casualty insurance
policies. The Company also carries directors and officers, general and
professional liability insurance. The Company's deductible amount for general
and professional claims was $5,000 per claim prior to July 1, 2001 and $25,000
thereafter.
The Company believes that its present insurance coverage is adequate. However,
in the wake of the terrorist events of September 11, 2001, the Company's outside
insurance agent has advised that the annual cost of its insurance programs
(excluding health) will increase by approximately $500,000 ($290,000 after tax)
upon renewal on April 1, 2002. The Company also has been advised that it is
possible that the amount of coverage the Company is able to purchase may
decline.
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 $3
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 April 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 10 - 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 announced that it would pursue available strategic
alternatives to complete the separation of its VN segment. 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) in the quarter
ended September 30, 1999. That charge reduced the book value of the operations
to the 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. As a result of
those actions, the visiting nurse operations were accounted for as discontinued
operations in the Company's financial statements for periods reported from
September 1999 through June 2001.
The Company incurred losses operating the VN segment prior to the implementation
of Medicare PPS and made substantial payments for the release of lease
obligations, and for other costs. During that same time frame the Company closed
3 of its then 11 operating VN agencies. The Company continues to operate the
remaining 8 agencies located in Kentucky (4), Florida (3) and Massachusetts (1).
On September 14, 2001, the Company's Board of Directors voted to terminate its
previously adopted plan of disposition for its VN segment. This decision
followed a period of extensive analysis and evaluation of numerous alternatives
for the business unit. In the Board's judgment, given the significant external
and internal changes that have taken place with regard to the future prospects
of the VN segment, retaining the VN segment was the best option available to
maximize shareholder value. In the accompanying financial statements, the
Company has, in accordance with applicable accounting rules terminated the use
of discontinued operations accounting treatment for the VN segment. VN segment
results are now reported as an on-going part of the continuing operations of the
Company for all periods presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine-months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Revenues from discontinued operations (product segment only) were approximately
$12.5 million for the year ended March 31, 2000.
NOTE 11 - 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 $5.2 million.
NOTE 12 - SEGMENT DATA
The Company operates in two reportable business segments: Adult Day Health
Services (ADHS), and Visiting Nurses (VN). Reportable segments have been
identified based upon how management has organized the business by services
provided to customers and the criteria in SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's ADHS segment includes
the aggregation of its ADC in-center operations and in-home personal care
operations, both of which provide predominantly long-term health care and
custodial services that enable recipients to avoid nursing home admission.
Sources of reimbursement, reimbursement rates per day and contribution margins
from the Company's ADC and personal care operations are substantially alike. The
Company's VN segment provides skilled medical services in patients' homes
largely to enable recipients to reduce or avoid periods of hospitalization
and/or nursing home care. Approximately 83% of the VN segment revenues are
generated from the Medicare program. VN Medicare revenues are generated on a per
client basis rather than a fee per visit or day of care. General and
administrative expenses incurred at the corporate level have not been allocated
to the segments. The Company has operations in Alabama, Connecticut, Florida,
Indiana, Kentucky, Maryland, Massachusetts, and Ohio.
Nine Months
Ended Year Ended Year Ended
December 31, March 31, March 31,
2001 2001 2000
---------------------------------------------------------------------------
Net Revenues
Adult day health $ 38,709,645 $ 49,680,572 $44,723,514
Visiting nurses 21,043,917 25,774,214 34,619,609
-------------- -------------- ------------
$ 59,753,561 $ 75,454,786 $79,343,123
============== ============== ============
Operating Income
Adult day health services $ 2,928,096 $ 3,522,306 $ 2,198,437
Visiting nurses 3,190,513 (83,305) (4,945,278)
Corporate/Unallocated (1,542,712) (1,603,505) (1,996,910)
-------------- -------------- --------------
$ 4,575,898 $ 1,835,496 $(4,743,751)
============== ============== ==============
Identifiable Assets
Adult day health services $ 16,834,795 $ 14,204,837 $11,830,778
Visiting nurses 11,116,605 9,924,038 8,197,922
Corporate/Unallocated 7,925,248 9,854,904 8,363,772
-------------- -------------- -------------
$ 35,876,649 $ 33,983,779 $28,392,473
============== ============== =============
Identifiable Liabilities
Adult day health services $ 12,704,474 $11,737,127 $ 8,042,344
Visiting nurses 11,230,945 11,654,429 6,900,792
Corporate/Unallocated 1,559,818 3,334,340 2,659,602
-------------- -------------- --------------
$ 25,495,238 $ 26,725,896 $ 17,602,739
============== ============== ==============
Capital Expenditures
Adult day health services $ 1,493,615 $ 2,019,508 $ 699,551
Visiting nurses 566,085 755,050 400,438
Corporate/Unallocated 28,773 62,151 110,000
-------------- -------------- --------------
$ 2,088,473 $ 2,836,709 $ 1,209,989
============== ============== ==============
Depreciation and
Amortization
Adult day health services $ 647,029 $ 748,478 $ 1,026,734
Visiting nurses 544,259 664,060 241,024
Corporate/Unallocated 78,916 115,949 365,235
-------------- -------------- --------------
$ 1,270,204 $ 1,528,487 $ 1,632,993
============== ============== ==============
NOTE 13 - QUARTERLY FINANCIAL DATA--AS RESTATED (UNAUDITED)
Summarized quarterly financial data for nine months ended December 31, 2001 and
the year ended March 31, 2001 are as follows (in thousands except per share
data):
Nine Months Ended Year Ended March 2001
December 2001
--------------------------- ------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept.30 June 30
2001 2001 2001 2001 2000 2000 2000
--------------------------- ------------------------------------
Net Revenues $20,817 $19,663 $19,274 $19,553 $19,350 $18,376 $18,176
Gross Profit 4,189 3,704 3,706 3,352 3,107 2,386 2,123
Net Income (Loss)
Continuing
Operations 840 674 727 433 424 (159) (158)
Net Income (Loss) $ 840 $ 1,761 $ 727 $ 433 $ 424 $ 325 $ 91
Continuing Operations
Net Income (Loss)
Per Share
Basic $ 0.34 $ 0.27 $ 0.29 $ 0.14 $ 0.13 $ (0.05)$ (0.05)
Diluted $ 0.29 $ 0.23 $ 0.25 $ 0.13 $ 0.13 $ (0.05)$ (0.05)
Net Income (Loss)
Per Share
Basic $ 0.34 $ 0.71 $ 0.29 $ 0.14 $ 0.13 $ 0.10 $ 0.03
Diluted $ 0.29 $ 0.61 $ 0.25 $ 0.13 $ 0.13 $ 0.10 $ 0.03
After-tax effect
of insurance restatement
issues:
Net income $ - $ (176) $ (125) $ (208) $ (249) $ (247) $ (230)
Per Share
Basic $ - $ (0.07) $ (0.05) $ (0.07) $ (0.08) $ (0.08)$ (0.07)
Diluted $ - $ (0.06) $ (0.04) $ (0.06) $ (0.08) $ (0.07)$ (0.07)
Restatement components:
Increase in health
self-insurance
expense $ - $ (485) $ (476) $ (326) $ (395) $ (400) $ (387)
Increase in workers
compensation
and automobile
self-insurance
expense $ - 75 73 (130) (135) (122) (106)
Reversal of
previously recorded
management bonuses
that will not be
paid as a result
of the
restatement - 106 187 - - - -
Additional revenues
recorded from
amending Medicare
and Medicaid
cost reports due
to restatement - - - 64 60 57 59
-------------------------------------------------------------
Reduction in pre-tax
income due to
restatement - (304) (216) (392) (470) (465) (434)
Income tax effect - 128 91 184 221 218 204
-------------------------------------------------------------
Reduction in net
income due to
restatement $ - $ (176) $ (125) $ (208) $ (249) $ (247) $ (230)
==============================================================
(1) All amounts for these periods have been restated and reclassified for
the issues discussed in Note 1 to the financial statements.
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 December 31, 2001 and March
31, 2001 (as restated--see Note 1) and the related consolidated statements of
operations, stockholders' equity, and cash flows for the nine months ended
December 31, 2001 and for the two years in the period ended March 31, 2001 (as
restated--see Note 1). 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 December 31, 2001 and March 31, 2001, and the results of
their operations and their cash flows for the nine months ended December 31,
2001 and for the two years in the period ended March 31, 2001 in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 28, 2002
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) 41 Senior Vice President and Chief
Financial Officer
Mary A. Yarmuth (3) 55 Senior Vice President - Service
Development
Todd Lyles (4) 40 Senior Vice President - Operations
Anne T. Liechty (11) 50 Senior Vice President - Operations
Steven B. Bing (5) 55 Director
Donald G. McClinton (6) 68 Director
Tyree G. Wilburn (7) 49 Director
Jonathan Goldberg (8) 50 Director
Wayne T. Smith (9) 55 Director
W. Earl Reed, III (10) 50 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 been a partner with The Allegro Group, a healthcare financial advisory firm
which advises public and private healthcare organizations since September, 1998.
Mr. Reed was Chairman, President and Chief Executive Officer of Rehab Designs of
America, a private venture-capital backed orthotics and prosthetics healthcare
company from March 1, 2000 through 2001. From 1987 to 1998, Mr. Reed was Chief
Financial Officer and member of the board of directors of Vencor, Inc. Rehab
Designs of America Corporation filed a voluntary petition for protection under
Chapter 11 of the federal bankruptcy code in February 2001. Vencor filed
voluntary petitions for protection under Chapter 11 of the federal bankruptcy
code in September 1999 and emerged in April 2001 after successfully completing
its financial restructuring.
(11) Anne T. Liechty became Senior Vice President -- VN Operations in 2001
Ms. Liechty has been employed by the Company since 1986 in various capacities
including vice president of operations for the Company's VN segment and its
Product segment.
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 the twelve months ended December 31, 2001.
- --------------------------------------------------------------------------------
Summary Compensation Table
Long-Term
Compensation
--------------
Securities
Underlying
Options/
Name and Principal Year Salary Bonus (No. of
Position (2) Shares)
------------------------- ------------ ------------------------
William B. Yarmuth 2002 $172,022 $ 0 0
Chairman of the Board, 2001 190,000 99,750 100,000
President and Chief 2000 190,000 50,000 (1) 0
Executive Officer 1999 190,000 0 100,000
C. Steven Guenthner 2002 118,551 0 0
Senior Vice President, 2001 136,638 51,736 20,000
Secretary/Treasurer and 2000 132,121 25,000 (1) 0
Chief Financial Officer 1999 130,050 0 20,000
Mary A. Yarmuth 2002 110,185 0 0
Senior Vice President - 2001 136,638 51,736 20,000
Service
Development 2000 132,121 0 0
1999 130,050 0 20,000
Patrick T. Lyles 2002 99,770 0 0
Senior Vice President 2001 126,079 31,826 10,000
2000 121,911 25,000 (1) 0
1999 120,000 0 15,000
Anne T. Liechty 2002 95,481
Senior Vice President -
Visiting Nurse
Operations
- --------------------------------------------------------------------------------
(1) Bonuses for these individuals were awarded by the Board for the
successful sale of the product operations in November 1999.
(2) 2002 amounts reflect the nine months ended December 31, 2001.
Option Grants in Fiscal 2001
There were no grants of stock options in fiscal 2001 to the executive officers
named in the Summary Compensation Table.
- --------------------------------------------------------------------------------
Compensation of Directors
Directors who are not also employees of the Company are entitled to compensation
at a rate of $2,500 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. There were no grants under the Directors' Plan in the nine-months
ended December 31, 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 $250,000 and is eligible for a performance based cash
incentive as determined by the Board. 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 December 31,
2001.
- --------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Shares Options at Fiscal In-the-Money Options
Acquired 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 $1,990,550 $1,332,000
C. Steven Guenthner 0 0 54,127 17,380 720,886 231,502
Mary A. Yarmuth 0 0 59,000 20,000 784,380 266,400
Patrick T. Lyles 0 0 33,750 11,250 413,650 103,230
Anne T. Liechty 0 0 33,750 11,250 138,966 174,825
Liechty
(1) These amounts represent the market value less the exercise price. The
market value of the common stock was $15.95 based on the closing price per
share at December 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 December 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) 19.74%
100 Mallard Creek Road, Suite 400
Louisville, KY 40207
Mary A. Yarmuth 530,972 (3) 19.74%
C. Steven Guenthner 85,841 (4) 3.39%
Steven B. Bing 13,840 (5) *
Donald G. McClinton 36,566 (6) 1.46%
Tyree Wilburn 23,000 (7) *
Jonathan Goldberg 24,856 (8) *
Wayne Smith 118,571 (9) 4.76%
W. Earl Reed, III 48,185 (13) 1.94%
Patrick T. Lyles 44,796 (10) 1.78%
Anne Liechty 16,228 (14)
Directors and Officers
as a Group (10 Persons) 942,855 (11) 32.68%
Additional Five Percent Beneficial Owners
Heartland Advisors, Inc. 250,000 10.08%
790 North Milwaukee Street
Milwaukee, WI 53202
Yarmuth Family Limited Partnership 157,723 (12) 6.36%
100 Mallard Creek Road, Suite 400
Louisville, KY 40207
- --------------------------------------------------------------------------------
David T. Russell, PhD
2001 East Jackson Street
Bloomington, IL 61701 237,100 9.56%
*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 13,500 shares subject to currently exercisable options.
(6) Includes 18,500 shares subject to currently exercisable options and 8,566
phantom shares within the Non-employee Deferred Compensation Plan.
(7) Includes 13,000 shares subject to currently exercisable options.
(8) Includes 12,500 shares subject to currently exercisable options and 8,356
phantom shares within the Non-employee Directors Deferred Compensation
Plan.
(9) Includes 1,625 shares subject to currently exercisable options and 7,946
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.
(13) Includes 6,500 shares subject to currently exercisable options and 1,685
phantom shares within the Non-employee Directors Deferred Compensation
Plan.
(14) Includes 14,425 shares subject to currently exercisable options.
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 nine months ended
December 31, 2001, and for the two years in the period ended
March 31, 2001 33
Consolidated Balance Sheets - December 31, 2001 and March 31, 2001
as restated 34
Consolidated Statements of Stockholders' Equity for nine months ended
December 31, 2001, and for the two years in the period ended 35
Consolidated Statements of Cash Flows for the nine months ended
December 31, 2001, and for the two years in the period ended
March 31, 2001 36
Notes to Consolidated Financial Statements 37-54
Report of Independent Public Accountants 55
(a)(2) Index to Financial Statement Schedule
Report of Independent Public Accountants 70
Schedule II - Valuation and Qualifying Accounts as restated 71
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 Health-
care 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.
(Incorporated by reference to the registrants report on Form 10-K
for the year ended March 31, 2001)
10.14 Stock Purchase Agreement between the Company and HealthSouth
Corporation.
(Incorporated by reference to the registrants report on Form 10-K
for the year ended March 31, 2001)
22* List of Subsidiaries of Almost Family, Inc.
23* Consent of Arthur Andersen LLP
99* Management's letter to the Securities and Exchange Commission
concerning Arthur Andersen LLP
(b) Reports on Form 8-K
On February 15, 2002, the Company filed a Current Report on Form 8-K dated
February 15, 2002. The Form 8-K reported at Item 5 the Company's expected
restatement of its financial statements for the fiscal years ended March 31,
2001 and 2000.
(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.
April 1, 2002
S/ William B. Yarmuth April 1, 2002
- ---------------------------------------------------------
William B. Yarmuth
Chairman, President and Chief Executive Officer
S/ C. Steven Guenthner April 1, 2002
- ---------------------------------------------------------
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 April 1, 2002
- ---------------------------------------------------------
William B. Yarmuth Date
Director
S/ Donald G. McClinton April 1, 2002
- ---------------------------------------------------------
Donald G. McClinton Date
Director
S/ Steven B. Bing April 1, 2002
- ---------------------------------------------------------
Steven B. Bing Date
Director
S/ Tyree Wilburn April 1, 2002
Tyree Wilburn Date
Director
S/ Jonathan Goldberg April 1, 2002
Jonathan Goldberg Date
Director
S/ Wayne T. Smith April 1, 2002
- ---------------------------------------------------------
Wayne T. Smith Date
Director
S/ W. Earl Reed, III April 1, 2002
- ---------------------------------------------------------
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
March 28, 2002
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 Charged to Charged
at Costs to (2) Balance at
Description Beginning and Other Deductions End of
of Expenses Accounts Period
Period
- ------------------------------------------------------------- ------------------
Allowance for bad debts:
Nine months ended December 1,883,120 888,757 351,625 2,420,252
31, 2001:
Year ended March 31, 2001: 1,262,949 1,083,261 463,090 1,883,120
Year ended March 31, 2000: 1,685,638 1,782,333 2,205,022 1,262,949
(1) Charged to bad debt expense.
(2) Write-off of accounts.
(1)
ALMOST FAMILY, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES AS OF DECEMBER 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. HHJC Holdings, Inc.
National Health Industries, 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,
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. 33-20815
related to the 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
March 28, 2002