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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to_______
Commission file number 1-9848
ALMOST FAMILY, INC. TM
(Exact name of registrant as specified in its charter)
Delaware 061-153720
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
100 Mallard Creek Road, Suite 400 40207
(Address of principal executive offices) (Zip Code)
(502) 899-5355
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock $.10 par value
Shares outstanding at June 30, 2002 2,497,027
ALMOST FAMILY, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I.Financial Information
Item 1.Financial Statements
Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001 3
Consolidated Statements of Operations for the Three
Months ended June 30, 2002 and 2001 4
Consolidated Statements of Operations for the Six
Months ended June 30, 2002 and 2001 5
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 2002 and 2001 6
Notes to Interim Consolidated Financial Statements 7-12
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-23
Item 3.Quantitative and Qualitative Disclosures About Market
Risk 24
Part II. Other Information
Items 1 through 6 25
ALMOST FAMILY, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
------ 2002 2001
--------------- ---------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 1,403,686 $ 1,928,391
Accounts receivable - net 16,111,139 17,896,966
Prepaid expenses and other current assets 978,858 1,021,417
Deferred tax assets 1,744,028 1,764,281
--------------- ---------------
TOTAL CURRENT ASSETS 20,237,711 22,611,055
PROPERTY AND EQUIPMENT - NET 8,537,841 8,113,938
COST IN EXCESS OF NET ASSETS ACQUIRED - NET 3,783,448 3,783,448
DEFERRED TAX ASSETS 31,699 143,662
OTHER ASSETS 1,120,786 1,224,546
--------------- ---------------
$ 33,711,485 $ 35,876,649
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 10,317,617 $ 10,309,546
Current portion - capital lease obligation 372,819 338,402
--------------- ----------------
10,690,436 10,647,948
--------------- ----------------
LONG-TERM LIABILITIES:
Revolving Credit Facility 9,517,177 12,586,532
Capital Lease Obligation 1,013,600 837,934
Mortgage Liability 345,927 352,687
Other liabilities 1,031,988 1,070,137
--------------- ----------------
TOTAL LONG-TERM LIABILITIES 11,908,692 14,847,290
--------------- ----------------
TOTAL LIABILITIES
22,599,128 25,495,238
--------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Common stock, par value $0.10; authorized
10,000,000 shares; 3,338,674 and 3,317,874
issued and outstanding 333,870 331,790
Treasury stock, at cost, 841,647 and
837,312 shares (5,836,866) (5,783,597)
Additional paid-in capital 26,093,248 26,040,728
Accumulated deficit (9,477,895) (10,207,510)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 11,112,357 10,381,411
--------------- ---------------
$ 33,711,485 $ 35,876,649
=============== ===============
See accompanying notes to interim consolidated financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
---------------------------------
June 30, 2002 June 30, 2001(1)
-------------- ----------------
Net revenues $20,843,416 $19,273,646
Cost of sales and services 17,001,896 15,568,558
General and administrative expenses 1,876,777 1,497,412
Depreciation and amortization expense 562,228 404,078
Provision for uncollectible accounts 345,113 320,676
------------ --------------
Income before other income (expense) and 1,057,402 1,482,922
income taxes
Other income (expense):
Interest expense (179,498) (230,650)
--------------- --------------
Income before income taxes 877,904 1,252,272
Income tax expense 351,128 526,225
--------------- --------------
Net income $ 526,776 $ 726,047
=============== ==============
Earnings per Share - Basic
Weighted Average Basic Shares 2,499,447 2,505,435
--------------- --------------
Net income per share $ 0.21 $ 0.29
=============== ==============
Earnings per share amounts - Diluted:
Weighted Average Diluted Shares 2,948,255 2,884,467
--------------- --------------
Net income per share $ 0.18 $ 0.25
=============== ==============
(1) Where appropriate, amounts for these periods have been restated and
reclassified as discussed in Notes 2 and 4 to the financial statements.
See accompanying notes to interim consolidated financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
--------------------------------
June 30, 2002 June 30, 2001(1)
-------------- ----------------
Net revenues $ 41,393,969 $ 38,826,498
Cost of sales and services 33,672,350 31,769,120
General and administrative expenses 3,714,441 3,317,348
Depreciation and amortization expense 1,053,021 686,061
Provision for uncollectible accounts 693,256 570,450
Costs associated with restatement of
financial statements (Note 2) 815,794 -
---------------- ----------------
Income before other income (expense) and
income taxes 1,445,107 2,483,519
Other income (expense):
Interest expense (399,952) (414,987)
---------------- ----------------
Income before income taxes 1,045,155 2,068,532
Income tax expense
418,062 909,867
---------------- ----------------
Net income $ 627,093 $ 1,158,665
================ ================
Earnings per Share - Basic
Weighted Average Basic Shares 2,499,254 2,826,766
---------------- ----------------
Net income per share $ 0.25 $ 0.41
================ ================
Earnings per share amounts - Diluted:
Weighted Average Diluted Shares 2,969,291 3,092,965
---------------- ----------------
Net income per share $ 0.21 $ 0.37
================ ================
(1) Where appropriate, amounts for these periods have been restated and
reclassified as discussed in Notes 2 and 4 to the financial statements.
See accompanying notes to interim consolidated financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months Ended
-------------------------------------
June 30, 2002 June 30, 2001(1)
------------------ ------------------
Cash flows from operating activities:
Net income $ 627,093 $ 1,158,665
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Depreciation and amortization 1,053,021 686,061
Deferred income taxes 132,216 (130,372)
Provision for uncollectible accounts 693,256 570,450
------------------ ------------------
2,505,586 2,284,804
Change in certain net assets (Increase) decrease in:
Accounts receivable 1,092,571 (468,626)
Prepaid expenses and other current assets 1,933 (553,606)
Other assets 103,761 (128,335)
Increase (decrease) in:
Accounts payable and accrued liabilities 110,593 1,074,013
Other liabilities (38,149) (146,651)
------------------ ------------------
Net cash provided (used) by operating
activities 3,776,295 2,061,599
Cash flows from investing activities:
Capital expenditures (1,062,465) (1,712,461)
Goodwill - (22,120)
------------------ ------------------
Net cash provided by (used in) investing (1,062,465) (1,734,581)
activities ------------------ ------------------
Cash flows from financing activities:
Net revolving credit facility borrowings (3,069,355) 3,437,430
Repurchase of common shares (53,269) (5,284,482)
Proceeds from stock option exercises 54,600 305,557
Principal payments on debt and capital leases (170,511) (111,408)
------------------ ------------------
Net cash provided (used) by financing
activities (3,238,535) (1,652,903)
------------------ ------------------
Net increase/(decrease) in cash (524,705) (1,325,885)
Cash and cash equivalents at beginning of period 1,928,391 2,166,147
------------------ ------------------
Cash and cash equivalents at end of period $ 1,403,686 $ 840,262
================== ==================
(1) Where appropriate, amounts for these periods have been restated and
reclassified as discussed in Notes 2 and 4 to the financial statements.
See accompanying notes to interim consolidated financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements for the three
months ended June 30, 2002 and 2001 have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
Accordingly, the reader of this Form 10-Q is referred to the Company's
Form 10-K for the nine months ended December 31, 2001 for further
information. In the opinion of management of the Company, the accompanying
unaudited interim financial statements reflect all adjustments (consisting
of normally recurring adjustments) necessary to present fairly the
financial position at June 30, 2002 and the results of operations and cash
flows for the periods ended June 30, 2002 and 2001. Refer to the Company's
Form 10-K for the nine-months ended December 31, 2001 for a complete
discussion of the restatement of the Company's financial statements for
the fiscal years ended March 31, 2001 and 2000, the Company's change in
fiscal year, and the Company's decision to retain its Visiting Nurse (VN)
operating segment.
The results of operations for the three and six months ended June 30, 2002
are not necessarily indicative of the operating results for the year.
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.
2. RESTATEMENT OF FINANCIAL STATEMENTS
As a result of accounting errors, the Company 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. Refer to the Company's Form 10-K for the
nine-months ended December 31, 2001, as amended, and the Forms 10-Q/A for
the quarterly periods ended June 30 and September 30, 2001, for a complete
discussion and analysis of the underlying causes and effects of the
restatement.
Components of the restatement and their approximate effect on previously
reported net income, for the three and six month periods ended June 30, 2001
are set forth in the following table (amounts rounded to nearest thousand
dollars):
Three Months Six Months
Ended June 30, Ended June 30
2001 2001
--------------- ---------------
Increase in health
self-insurance expense $ 476,000 $ 802,000
Increase (decrease) in workers
compensation and automobile
self-insurance expense (73,000) $ 57,000
Reversal of previously recorded
management bonuses that will
not be paid as a result of the
restatement (187,000) (187,000)
Additional revenues recorded
from amending Medicare and
Medicaid cost reports due to
Restatement - (64,000)
--------------- ---------------
Total reduction in pre-tax
income due to restatement 216,000 608,000
--------------- ---------------
Income tax effect 91,000 275,000
--------------- ---------------
Total reduction in net income
due to restatement 125,000 333,000
Net income as previously
Reported 852,000 1,493,000
--------------- ---------------
Net income as restated $ 727,000 $ 1,160,000
=============== ===============
Basic Earnings Per Share
As previously reported $ 0.34 $ 0.55
As restated $ 0.29 $ 0.41
Diluted Earnings Per Share
As previously reported $ 0.30 $ 0.48
As restated $ 0.25 $ 0.37
In the quarter ended March 31, 2002, the Company recorded approximately
$816,000 (pre-tax) related to the cost of conducting the investigation into
this matter, consisting primarily of professional fees. There can be no
assurance that additional costs will not be incurred in subsequent periods.
3. COMMITMENTS AND CONTINGENCIES
Insurance Programs
Self-Insurance Programs. The Company bears significant risk under its
self-insured employee health, automobile and workers' compensation
programs. A brief description of each program is set forth below:
The Company's self-insured health program has an excess-loss insurance
policy that reimburses the Company for covered expenses, in excess of a
specific deductible for each covered person and an annual aggregate
deductible for all covered claims. Effective September 1, 2002, the
Company will move the management of the health program from a regional
third party administrator to Cigna Healthcare, a national insurance
carrier. Additionally, as of September 1, 2002, certain changes in the
benefits are being made and the rates the Company charges employees for
coverage are being increased. Based on information provided by its broker
and Cigna, the Company expects health insurance claims to increase between
10% and 20% during 2002 due to the inflation of medical care costs. The
cost of the Company's self-insured health program was approximately
$1,066,000 and $802,000 in the three months ended June 30, 2002 and 2001
and approximately $1,856,000 and $1,508,000 in the six months ended June
30, 2002 and 2001 respectively.
Under its automobile and workers' compensation self-insurance programs,
the Company bears risk up to specified amount per incident. The Company
carries insurance coverage for amounts in excess of that specified amount,
an annual aggregate deductible and umbrella coverage. The cost of the
Company's self-insured automobile and workers compensation program was
approximately $450,000 and $371,000 in the three months ended June 30,
2002 and 2001 and approximately $974,000 and $817,000 in the six months
ended June 30, 2002 and 2001 respectively.
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, and umbrella 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 cost of the Company's
other insurance coverages was approximately $149,000 and $124,000 in the
three months ended June 30, 2002 and 2001 and approximately $291,000 and
$231,000 in the six months ended June 30, 2002 and 2001 respectively.
The Company believes that its present insurance coverage is adequate. The
Company's total cost of all its insurance programs was approximately
$1,665,000 and $1,298,000 in the three months ended June 30, 2002 and 2001
and approximately $3,122,000 and $2,556,000 in the six months ended June
30, 2002 and 2001 respectively.
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), and
others 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 the non-Franklin plaintiffs 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.. 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 accrued in the accompanying balance sheets.
4. FINANCIAL STATEMENT RECLASSIFICATIONS
Certain amounts have been reclassified in the 2001 financial statements
in order to conform to the 2002 presentation. Such reclassifications
had no effect on previously reported net income (loss). These
reclassifications include reclassifying the Company's Visiting Nurse
(VN) segment from discontinued to continuing operations as described
in the Company's Form 10-K for the nine-months ended December 31, 2001.
5. 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 in-home
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 87% 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. Certain 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.
Three Months June Six Months June
------------------------------ --------------------------------
2002 2001 2002 2001
-------------- ------------ --------------- --------------
Net Revenues
Adult day health services 13,682,392 12,555,117 26,867,694 $ 25,292,705
Visiting nurses 7,161,024 6,718,529 14,526,275 13,533,793
-------------- ------------ --------------- --------------
$ 20,843,416 $ 19,273,646 $ 41,393,969 $ 38,826,498
============== ============ =============== ==============
Operating Income (loss)
Adult day health services 560,557 1,056,304 1,131,220 1,895,275
Visiting nurses 1,013,243 874,310 2,136,757 1,458,139
-------------- ------------ --------------- --------------
1,573,800 1,930,614 3,267,977 3,353,414
Corporate/Unallocated 516,398 447,692 1,822,870 869,895
-------------- ------------ --------------- --------------
Earnings before
interest and taxes (EBIT) $ 1,057,402 1,482,922 $ 1,445,107 $ 2,483,519
============== ============ =============== ==============
6. Accounting Pronouncement
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 established new accounting
and reporting standards for business combinations and associated goodwill
and intangible assets. SFAS 141 eliminated the pooling of interest method
of accounting and amortization of goodwill for business combinations
initiated after June 30, 2001. SFAS 142, adopted by the Company January 1,
2002, requires that goodwill and intangible assets with indefinite useful
lives can no longer be amortized, but instead must be tested for impairment
at least annually. The Company has completed the initial test for
impairment and concluded that no impairment currently exists. Net income
for the three and six-month periods ended June 30, 2001 would have been
approximately $20,000 and $40,000, respectively, higher under SFAS 142.
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. There was no effect on the financial
position and results of operations of the Company.
7. Capitalized Software Development Costs
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 approximately $280,000 and
$560,000 and $269,000 and $663,000 were capitalized in the three-months and
six months ended June 2002 and 2001, respectively. Capitalized software
development costs are amortized over a three-year period following the
initial implementation of the software.
8. Medicare Rate Changes
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. In July 2002, the new Medicare payment rates,
effective October 1, 2002, were announced. The decrease will have the
approximate effect of eliminating the October 1, 2001 rate increase. If the
rate cut had been in effect in the three and six months ended June 30,
2002, the Company's revenues would have been lower by approximately
$270,000 and $530,000 respectively.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Kentucky Medicaid/Waiver Home Care Programs
Effective July 1, 2002, the state of Kentucky changed its reimbursement
program for skilled and non-skilled home health services. Prior to July 1,
2002, the services had been reimbursed on a cost-based system. Effective
July 1, 2002 services will be reimbursed on a fee per unit of service
basis. Revenues under these programs were approximately $1,796,000 and
$3,615,000 during the three and six months ended June 30, 2002,
respectively. Had the new reimbursement system been in place during those
periods the Company's revenue would have been lower by approximately
$220,000 and $430,000 respectively. The Company is in the process of
implementing changes to its operations designed to reduce operating costs.
These actions are being taken during the quarter ended September 30, 2002
and will not be fully in effect until later quarters.
10. Subsequent Event - Acquisition of Ohio Home Care Provider
On July 15, 2002, the Company completed its previously announced
acquisition of the business and assets of Medlink of Ohio (Medlink).
Medlink is a provider of home and community based health care services with
branch operations in Cleveland and Akron Ohio. The acquired operations
currently generate approximately $6 million of revenues annually. The
purchase price was approximately $3.2 million, $2.9 million of which was
funded from the Company's bank credit facility. The balance was financed
with a three-year note payable to the seller.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Restatement of Financial Statements
As a result of accounting errors, the Company 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. Refer to the Company's Form 10-K for the nine-months ended December 31,
2001, as amended, and the Forms 10-Q/A for the quarterly periods ended June 30,
and September 30, 2001 for a complete discussion and analysis of the underlying
causes and effects of the restatement.
Components of the restatement and their approximate effect on previously
reported net income, for the three and six month periods ended June 30, 2002 are
set forth in the following table (amounts rounded to nearest thousand dollars):
Three Months Six Months
Ended June 30, Ended June 30,
2001 2001
--------------- ---------------
Increase in health self-insurance
expense $ 476,000 $ 802,000
Increase (decrease) in workers
compensation and automobile
self-insurance expense (73,000) $ 57,000
Reversal of previously recorded
management bonuses that will
not be paid as a result of the
restatement (187,000) (187,000)
Additional revenues recorded
from amending Medicare and
Medicaid cost reports due to
restatement - (64,000)
--------------- ---------------
Total reduction in pre-tax
income due to restatement 216,000 608,000
Income tax effect 91,000 275,000
--------------- ---------------
Total reduction in net income
due to restatement 125,000 333,000
Net income as previously
reported 852,000 1,493,000
--------------- ---------------
Net income as restated $ 727,000 1,160,000
=============== ===============
Basic Earnings Per Share
As previously reported $ 0.34 $ 0.53
As restated $ 0.29 $ 0.41
Diluted Earnings Per Share
As previously reported $ 0.30 $ 0.48
As restated $ 0.25 $ 0.37
In the quarter ended March 31, 2002, the Company recorded approximately $816,000
(pre-tax) related to the cost of conducting the investigation into this matter,
consisting primarily of professional fees. There can be no assurance that
additional costs will not be incurred in subsequent periods.
Critical Accounting Policies
Refer to the "Critical Accounting Policies" section of Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Form 10-K for the nine months ended December 31, 2001 for a detailed discussion
of the Company's critical accounting policies.
RESULTS OF CONTINUING OPERATIONS
Three Months Ended June 30, 2002 Compared with Three Months Ended June 30, 2001
Consolidated 2002 2001 Change
------------
--------------------- ---------------------- ----------------------
Amount % Rev Amount % Rev Amount %
------------ -------- ------------- -------- ------------ ---------
Net Revenues ADHS $ 13,682,392 65.6% $ 12,555,117 65.1% $ 1,127,275 9.0%
VN 7,161,024 34.4% 6,718,529 34.9% 442,495 6.6%
------------ ------------- ------------
$ 20,843,416 100.0% $ 19,273,646 100.0% $ 1,569,770 8.1%
============ ============= ============
Operating Income ADHS $ 560,557 4.1% $ 1,056,304 5.5% $ (495,747) -46.9%
VN 1,013,243 14.1% 874,310 4.5% 138,933 15.9%
------------ ------------- ------------
1,573,800 7.6% 1,930,614 10.0% (356,814) -18.5%
Unallocated corporate expenses 516,398 2.5% 447,692 2.3% 68,706 15.3%
------------ ------------- ------------
EBIT 1,057,402 5.1% 1,482,922 7.7% (425,520) -28.7%
Interest expense 179,498 0.9% 230,650 1.2% (51,152) -22.2%
Income taxes 351,128 1.8% 526,225 2.7% (175,096) -33.3%
------------ ------------- ------------
Net from continuing operations $ 526,776 2.4% $ 726,047 3.8% $ (199,272) -27.4%
============ ============= ============
EBITDA $ 1,619,630 7.8% $ 1,887,000 9.8% $ (267,370) -14.2%
(1) Earnings Before Interest Taxes Depreciation and Amortization
The Company's net revenues grew approximately $1.6 million or 8% as a result of
increased days of care in the ADHS segment as well as improved reimbursement and
patient volumes in the VN segment. Operating income before unallocated corporate
expense decreased from the same period last year primarily as a result of
increased labor costs in the adult day care centers and increased insurance
costs. Additional costs were also incurred for increased staffing for training,
auditing, information systems and compliance programs.
The effective income tax rate was approximately 40% of income before income
taxes for 2002 as compared to an effective income tax rate of approximately 42%
for 2001. The higher tax rate used in the quarter ended June 30, 2001 was a
result of taxable losses incurred in certain state and local jurisdictions and
the establishment of a valuation allowance against the realization of the
related net operating loss carryforwards. Taxable income is expected to be
generated in those jurisdictions during the fiscal year ending December 31,
2002.
As of June 30, 2002, the Company has net deferred tax assets of approximately
$1,776,000. The net deferred tax asset is composed of $32,000 of long-term
deferred tax assets and $1,744,000 of current deferred tax assets. The Company
has provided a valuation allowance against certain net deferred tax assets based
upon the expected realization of those assets through future taxable income.
This valuation was based in large part on the Company's history of generating
operating income or losses in individual tax locales and expectations for the
future. The Company's ability to generate the expected amounts of taxable income
from future operations is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation at
all levels of government. Management has considered the above factors in
reaching its conclusions that it is more likely than not that future taxable
income will be sufficient to fully utilize the net deferred tax assets. However,
there can be no assurances that the Company will meet its expectations of future
taxable income.
Adult Day Health Services (ADHS) Segment-Three Months
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 patients
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.
Three Months Ended June 30,
2002 2001 Change
---------------------- ---------------------- --------------------
Amount % Rev Amount % Rev Amount %
------------- -------- ------------- -------- ----------- --------
Net Revenues $ 13,682,392 100.0% $ 12,555,117 100.0% $1,127,275 9.0%
Cost of Services 11,748,148 85.9% 10,546,443 84.0% 1,201,705 11.4%
General & Administrative 885,202 6.5% 607,259 4.8% 277,944 45.8%
Depreciation & Amortization 286,112 2.1% 208,007 1.6% 78,105 37.5%
Uncollectible Accounts 202,372 1.5% 137,104 1.1% 65,268 47.6%
------------- ------------- -----------
Operating Income $ 560,557 4.1% $ 1,056,304 8.5% $ (495,747) -46.9%
============= ============= ===========
EBITDA $ 846,669 6.2% $ 1,264,310 9.6% $ (417,641) -33.0%
Admissions 1,094 1,143 (49) -4.3%
Patient months of care 15,360 14,053 1,307 9.3%
Patient days of care 195,975 177,006 18,969 10.7%
Revenue Per Patient Day $69.82 $70.93 $ (1.11) -1.6%
ADC In-Center
Average Weekday Attendance 1,335 1,227 108 8.8%
Center Capacity 1,791 1,633 158 9.7%
Center Occupancy Rate 74.6% 75.2% 1.4% 1.9%
ADHS revenues increased 9% to $13.7 million for the three months ended June 30,
2002 from $12.6 million in the same quarter of the prior year. Average revenue
per day of care declined about 2% as a result of changes in the mix of business
between states in which the Company provides services. Volumes increased due to
higher attendance levels in the Company's adult day care in-center programs.
Occupancy in the adult day care centers was 74.6% of capacity in the 2002 period
and 75.2% of capacity in the 2001 period. The occupancy rate decreased due to an
increase in average center capacity of approximately 10% with the opening of new
centers in Bardstown and Ft. Thomas KY, and Ft. Myers FL. As of July 1, 2002,
total system capacity was 1,791 guests per day.
Cost of services as a percent of revenues increased to 85.9% in 2002 from 84.0%
in 2001 primarily as a result of higher staffing costs in the adult day centers.
General and administrative expenses increased significantly with the addition of
staff support for information systems, operational audits, training and employee
communications. Depreciation and amortization increased primarily due to the
addition of new guest transportation vans and investments in information
technology. The provision for uncollectible accounts was just over 1% of
revenues in both periods. Management establishes an allowance for uncollectible
accounts based on its estimate of probable collection losses.
Effective July 1, 2002, the state of Kentucky changed its reimbursement program
for skilled and non-skilled home health services. Prior to July 1, 2002, the
services had been reimbursed on a cost-based system. Effective July 1, 2002
services will be reimbursed on a fee per unit of service basis. Revenues under
these programs were approximately $1,796,000 and $3,615,000 during the three and
six months ended June 30, 2002, respectively. Had the new reimbursement system
been in place during those periods the Company's revenue would have been lower
by approximately $220,000 and $430,000 respectively. The Company is in the
process of implementing changes to its operations designed to reduce operating
costs. These actions are being taken during the quarter ended September 30, 2002
and will not be fully in effect until later quarters.
ADHS 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.
Visiting Nurse (VN) Segment-Three Months
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 87% 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.
Three Months Ended June 30,
2002 2001 Change
---------------------- --------------------- ---------------------
Amount % Rev Amount % Rev Amount %
------------ --------- ------------ -------- ------------ --------
Revenues $ 7,161,024 100.0% $ 6,718,529 100.0% $ 442,495 6.6%
Cost of Services 5,253,748 73.4% 5,022,112 74.8% 231,636 4.6%
General & Admin 527,383 7.4% 464,062 6.9% 63,321 13.6%
Depreciation & Amortization 223,910 3.1% 174,472 2.6% 49,438 28.3%
Uncollectible Accounts 142,740 2.0% 183,573 2.7% (40,833) -22.2%
------------ ------------ ------------
Operating Income $ 1,013,243 14.2% $ 874,310 13.0% 138,933 15.9%
============ ============ ============
EBITDA $ 1,237,153 17.3% $ 1,048,782 15.6% $ 188,371 18.0%
Admissions 2,075 1,987 88 4.4%
Patient Months of Care 5,584 5,508 76 1.4%
Revenue per Patient Month $ 1,282 $ 1,220 $ 62 5.1%
Costs of services, primarily labor and related costs, grew at approximately the
same rate as admissions with relatively flat staff productivity. The increase in
revenue per patient month resulted primarily from a price increase from the
Medicare program. Increased general and administrative and depreciation costs
were incurred due to increased staffing, and continued investment in information
systems, respectively. The Company generated 4% more admissions in 2002 than in
2001 while patient months of care increased about 1% due to a shorter average
length of stay. Bad debt expense approximated 2% of revenues in 2002 due to
provision made for Medicare PPS collectibility. 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 in the
Visiting Nurse segment. A Medicare rate decrease is scheduled to go into effect
October 1, 2002. In July 2002, the new Medicare payment rates, effective October
1, 2002, were announced. The decrease will have the approximate effect of
eliminating the October 1, 2001 rate increase. If the rate cut had been in
effect in the three and six months ended June 30, 2002, the Company's revenues
would have been lower by approximately $270,000 and $530,000 respectively. The
Company continues to commit significant resources to its operational model under
the Medicare PPS reimbursement system especially in light of the uncertainty
surrounding the proposed rate cut scheduled to take effect October 2002.
Due to current competitive market conditions in two of the Company's eight VN
agencies, the Company expects VN revenues for the quarter ended September 30,
2002 to be lower than VN revenues for the June 2002 quarter with a corresponding
decline in profitability. Although the Company expects this trend to reverse in
the December 2002 quarter, there can be no assurance that it will reverse.
VN Seasonality
The Company's VN segment normally experiences seasonality in its operating
results. Specifically, the VN Segment typically generates lower operating income
in the quarter ended September than in the other quarters due to the seasonality
of senior population in the Company's south Florida markets.
Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001
Consolidated 2002 2001 Change
------------
--------------------- ---------------------- ----------------------
Amount % Rev Amount % Rev Amount % Rev
------------ -------- ------------- -------- ------------ ---------
Net Revenues ADHS $ 26,867,694 64.9% $ 25,292,705 65.1% $1,574,989 6.2%
VN 14,526,275 35.1% 13,533,793 34.9% 992,482 7.3%
------------ ------------- ------------
41,393,969 100.0% 38,826,498 100.0% 2,567,471 6.6%
============ ============= ============
Operating Income ADHS 1,131,220 4.2% 1,895,275 4.9% (764,055) -40.3%
VN 2,136,757 14.7% 1,458,139 10.8% 678,618 46.5%
------------ ------------- ------------
3,267,977 15.7% 3,353,414 8.6% (85,437) -2.5%
Unallocated corporate expenses 1,822,870 4.4% 869,895 2.2% 952,975 109.6%
------------ ------------- ------------
EBIT 1,445,107 6.9% 2,483,519 6.4% (1,038,412) -41.8%
Interest expense 399,952 1.9% 414,987 1.1% (15,035) -3.6%
Income taxes 418,062 2.2% 909,867 2.3% (491,805) -54.1%
------------ ------------- ------------
Net from continuing operations $ 627,093 2.9% $ 1,158,665 3.0% $(531,572) -45.9%
============ ============= ============
EBITDA $ 2,498,127 12.0% $ 3,169,580 8.2% $(671,453) -21.2%
(2) Earnings Before Interest Taxes Depreciation and Amortization
The Company's net revenues grew approximately $2.6 million or 7% as a result of
increased days of care in the ADHS segment as well as improved reimbursement and
patient volumes in the VN segment. Operating income before unallocated corporate
expense decreased from the same period last year. As noted in the discussion of
quarterly results, operating income for the six months ended June 30, 2002 was
unfavorably impacted by increased labor costs in the adult day care centers,
increased insurance costs, and increased costs for training, auditing, systems
and compliance programs. Unallocated corporate expenses in the six months ended
June 30, 2002 include approximately $816,000, consisting primarily of
professional fees, related to the cost of conducting the investigation into the
restatement of the Company's financial statements as previously discussed. There
can be no assurance that additional costs will not be incurred in subsequent
periods.
The effective income tax rate was approximately 40% of income before income
taxes for 2002 as compared to an effective income tax rate of approximately 44%
for 2001. The higher tax rate used in the quarter ended June 30, 2001 was a
result of taxable losses incurred in certain state and local jurisdictions and
the establishment of a valuation allowance against the realization of the
related net operating loss carryforwards. Taxable income is expected to be
generated in those jurisdictions during the fiscal year ending December 31,
2002.
Adult Day Health Services (ADHS) Segment-Six Months
Six Months Ended June 30,
2002 2001 Change
---------------------- ---------------------- ----------------------
Amount % Rev Amount % Rev Amount %
------------- -------- ------------- -------- ----------- ----------
Net Revenues $ 26,867,693 100.0% $ 25,292,705 100.0% $1,574,988 6.2%
Cost of Services 23,103,295 86.0% 21,619,342 85.5% 1,483,953 6.9%
General & Administrative 1,711,227 6.4% 1,200,312 5.0% 510,915 42.6%
Depreciation & Amortization 527,509 2.0% 299,712 1.2% 227,797 76.0%
Uncollectible Accounts 394,442 1.5% 278,064 1.1% 116,378 41.9%
------------- ------------- -----------
Operating Income $ 1,131,220 4.2% $ 1,895,275 7.3% $ (764,055) ` -40.3%
============= ============= ===========
EBITDA $ 1,658,730 6.2% $ 2,194,986 8.4% $ (536,256) -24.4%
Admissions 2,060 2,235 (175) -7.8%
Patient months of care 29,876 27,799 2,077 7.5%
Patient days of care 380,839 350,061 30,778 8.8%
Revenue Per Patient Day $ 70.55 $ 72.25 $ (1.70) -2.4%
ADC In-Center
Average Weekday Attendance 1,320 1,203 117 9.7%
Center Capacity 1,791 1,652 139 8.4%
Center Occupancy Rate 73.7% 72.8 % 0.9% 1.2%
ADHS revenues increased 6% to $26.8 million for the six months ended June 30,
2002 from $25.2 million in the same six months of the prior year. Average
revenue per day of care declined about 2% as a result of mix changes as in the
quarter. Volumes increased due to higher attendance levels in the Company's
adult day care in-center program, partially due to favorable weather conditions.
Occupancy in the adult day care centers was 73.7% of capacity in the 2002 period
and 72.8% of capacity in the 2001 period even with the addition of new capacity
between period. Average center capacity increased 8.4% due to the opening of new
centers in Bardstown and Ft. Thomas KY, and Ft. Myers FL. As of July 1, 2002,
total system capacity was 1,791 guests per day.
Cost of services as a percent of revenues increased to 86.0% in 2002 from 85.5%
in 2001 primarily as a result of higher staffing costs in the adult day centers.
General and administrative expenses increased significantly with the addition of
staff support for information systems, operational audits, training and employee
communications. Depreciation and amortization increased primarily due to the
addition of new guest transportation vans and investments in information
technology. The provision for uncollectible accounts was just over 1% of
revenues in both periods. Management establishes an allowance for uncollectible
accounts based on its estimate of probable collection losses.
Visiting Nurse (VN) Segment-Six Months
Six Months Ended June 30,
2002 2001 Change
---------------------- --------------------- ---------------------
Amount % Rev Amount % Rev Amount %
------------ --------- ------------ -------- ------------ --------
Revenues $ 14,526,275 100.0% $13,533,793 100.0% $ 992,482 7.3%
Cost of Services 10,569,055 72.8% 10,149,773 75.0% 419,282 4.1%
General & Admin 1,080,971 7.4% 1,238,043 9.2% (157,072) -12.7%
Depreciation & Amortization 440,678 3.0% 395,451 2.9% 45,227 11.4%
Uncollectible Accounts 298,814 2.1% 292,387 2.2% 6,427 2.2%
------------ ------------ ------------
Operating Income $ 2,136,757 14.7% $ 1,458,139 10.8% $ 678,618 46.5%
============ ============ ============
EBITDA $ 2,577,435 17.7% $ 1,853,589 13.7% $ 723,846 39.1%
Admissions 4,423 4,208 215 5.1%
Patient Months of Care 11,487 11,614 (127) -1.1%
Revenue per Patient Month $1,265 $1,165 $100 8.6%
In 2002, the Company earned a higher rate of reimbursement and incurred lower
operating costs in its VN operations than were earned and incurred,
respectively, in 2001, a result of the Company's work to prepare for operation
under PPS. Costs of services, primarily labor and related costs, grew slower
than admissions due to increased staff productivity. These reductions were
accomplished in large part due to substantial investments made in information
systems software employed in the operation of the segment. These efficiencies
and systems also reduced general and administrative expenses for the period. The
Company plans to continue its efforts to refine and improve the operating
efficiencies of the segment. The Company generated 5% more admissions in 2002
than in 2001 while patient months of care declined 1% due to a shorter average
length of stay. Bad debt expense approximated 2% of revenues in 2002 due to
provision made for Medicare PPS collectibility. Since Medicare PPS is still
relatively new, this rate may differ in the future.
Liquidity and Capital Resources
Revolving Credit Facility
Revolving Credit Facility. The Company has a $22.5 million credit facility with
Bank One Kentucky NA, with an original expiration of June 30, 2003. The Company
has received a commitment letter from the bank that extends the facility through
September 30, 2003. The credit facility bears interest at the bank's prime rate
plus 0% to 1.0%, (currently 0%) dependent upon total leverage. The facility is
secured by substantially all assets of the Company and by 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 June 30, 2002 the formula permitted approximately $22
million to be used of which approximately $9.5 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 $12.2 million was either
outstanding or committed as of June 30, 2002 while an additional $9.8 million
was available for use. Additionally, at June 30, 2002, the Company had
approximately $1.4 million in cash. The Company's revolving credit facility is
subject to various financial covenants. As of June 30, 2002, 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 sources of 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.
Acquisition of Ohio Home Care Provider
On July 15, 2002, the Company completed its previously announced acquisition of
the business and assets of Medlink of Ohio (Medlink). Medlink is a provider of
home and community based health care services with branch operations in
Cleveland and Akron Ohio. The acquired operations currently generate
approximately $6 million of revenues annually. The purchase price was
approximately $3.2 million, $2.9 million of which was funded from the Company's
bank credit facility. The balance was financed with a three-year note payable to
the seller.
On-Going Stock Buy Back Program
On-Going Stock Buy Back Program. In March 2001 the Company's Board of Directors
authorized up to $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. Through June
30, 2002, a total of 60,571 shares have been repurchased under this program, all
of which were in open market purchases. A total of $551,381 has been expended in
these purchases for an average acquisition cost of $9.10 per share. For the
quarter ended June 30, 2002, 3,171 shares were purchased for an average
acquisition cost of $10.94
Cash Flows
Key elements to the Consolidated Statements of Cash Flows for the periods ending
June 30, 2002 and 2001 were:
Net Change in Cash and Cash Equivalents 2002 2001
- --------------------------------------- ----------------- ---------------
Continuing Operations
Provided by (used in)
Operating activities $ 3,776,295 $ 2,061,599
Investing activities (1,062,465) (1,734,581)
Financing activities (3,238,535) (1,652,903)
---------------- ---------------
Net increase (decrease) in cash and cash
equivalents $ (524,705) $ (1,325,885)
================= ===============
2002
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. Accounts receivable days sales outstanding were 71 at June 30,
2002, down from 80 at December 31, 2001 due primarily to the collection of
Medicare cost report settlements. The change in accounts payable and accrued
liabilities consisted principally of reduction of self-insurance liabilities.
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 repayments on the Company's credit facility and payment of capital lease
obligations.
2001
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. The increase in accounts receivable resulted from volume
increases. Days sales outstanding decreased slightly to 78 at June 30, 2001 from
81 at December 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 provided by
financing activities resulted primarily from borrowings under the Company's
credit facility and proceeds from stock option exercises, net of cash used for
repurchases of common stock.
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 section on Cautionary Statements - Forward Outlook and Risks in
Part I, and the Notes to the Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Company's
Form 10-K for the nine-months ended December 31, 2001 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 (HHS) 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.
On August 9, 2002, HHS published revisions to the previously issued privacy
standards.
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.
New Accounting Pronouncements
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 established new accounting and
reporting standards for business combinations and associated goodwill and
intangible assets. SFAS 141 eliminated the pooling of interest method of
accounting and amortization of goodwill for business combinations initiated
after June 30, 2001. SFAS 142, adopted by the Company January 1, 2002, requires
that goodwill and intangible assets with indefinite useful lives can no longer
be amortized, but instead must be tested for impairment at least annually. The
Company has completed the initial test for impairment and concluded that no
impairment currently exists. Net income for the three and six-month periods
ended June 30, 2001 would have been approximately $20,000 and $40,000,
respectively, higher under SFAS 142.
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. There was no effect on the
financial position and results of operations of the Company.
Impact of Inflation
Management does not believe that inflation has had a material effect on income
during the past several years.
ITEM 3. 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 June 30, 2002, a hypothetical 100 basis point increase in short-term interest
rates would result in a reduction of approximately $114,900 in annual pre-tax
earnings from continuing operations.
Commission File No. 1-9848
Part II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6
(a) Exhibits
99.1
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2
Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed a Form 8-K dated May 30, 2002, Item 4, to
report that the Audit Committee of its Board of Directors had
dismissed Arthur Andersen LLP as the Company's independent public
accountants and engaged Ernst & Young LLP to serve as the
Company's independent accountants.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2002
ALMOST FAMILY, INC.
BY /s/ William B. Yarmuth
------------------------
William B. Yarmuth,
Chairman of the Board, President
and Chief Executive Officer
BY /s/ C. Steven Guenthner
-------------------------
C. Steven Guenthner,
Senior Vice President and
Chief Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Almost Family, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, William
B. Yarmuth, Chairman of the Board, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ William B. Yarmuth
----------------------
William B. Yarmuth
Chairman of the Board, President and
Chief Executive Officer
August 14, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Almost Family, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, C.
Steven Guenthner, Senior Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ C. Steven Guenthner
-----------------------
C. Steven Guenthner
Senior Vice President and Chief
Financial Officer
August 14, 2002