30
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 September 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes _____ No __x__
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 September 30, 2002 2,268,427
ALMOST FAMILY, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002
and December 31, 2001 3
Consolidated Statements of Operations for the Three
Months ended September 30, 2002 and 2001 4
Consolidated Statements of Operations for the Nine
Months ended September 30, 2002 and 2001 5
Consolidated Statements of Cash Flows for the Nine
Months ended September 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 13-28
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 29
Item 4. Controls and Procedures 29
Part II. Other Information
Items 1 through 6 30
ALMOST FAMILY, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
ASSETS September 30, December 31,
2002 2001
------------- -------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 1,503,423 $ 1,928,391
Accounts receivable - net 16,943,589 17,896,966
Prepaid expenses and other current assets 673,288 1,021,417
Deferred tax assets 2,043,003 1,764,281
------------- -----------
TOTAL CURRENT ASSETS 21,163,303 22,611,055
PROPERTY AND EQUIPMENT - NET 8,676,453 8,113,938
COST IN EXCESS OF NET ASSETS ACQUIRED - NET 6,298,409 3,783,448
DEFERRED TAX ASSETS - 143,662
OTHER ASSETS 1,081,533 1,224,546
----------- -------------
$37,219,698 $35,876,649
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $10,492,707 $ 10,309,546
Current portion - capital lease obligation 372,791 338,402
------------ -------------
10,865,498 10,647,948
------------ -------------
LONG-TERM LIABILITIES:
Revolving credit facility 13,846,081 12,586,532
Capital lease obligation 937,736 837,934
Term Debt 638,758 352,687
Other liabilities 1,001,940 1,070,137
------------- -------------
Deferred tax liabilities 226,682 -
------------- -------------
TOTAL LONG-TERM LIABILITIES 16,651,030 14,847,290
------------- -------------
TOTAL LIABILITIES 27,516,695 25,495,238
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Common stock, par value $0.10; authorized
10,000,000 shares; 3,349,674 and 3,317,874
issued and outstanding 334,970 331,790
Treasury stock, at cost, 1,081,247 and (7,658,081) (5,783,597)
837,312 shares
Additional paid-in capital 26,265,403 26,040,728
Accumulated deficit (9,239,289) (10,207,510)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 9,703,003 10,381,411
------------- -------------
$ 37,219,698 $ 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
----------------------------
September 30, September 30,
2002 2001(1)
------------ -------------
Net revenues $21,908,806 $19,663,245
Cost of services 18,256,946 15,959,656
General and administrative expenses 1,933,077 1,622,585
Depreciation and amortization expense 570,554 413,116
Provision for uncollectible accounts 366,765 278,885
------------ ------------
Income before other income (expense) and
income taxes 781,464 1,389,003
Other income (expense):
Interest expense 212,111 226,489
------------ ------------
Income before income taxes 569,353 1,162,514
Income tax expense 228,226 488,256
------------ ------------
Net income from continuing operations $ 341,127 $ 674,258
Discontinued Operations:
Gain from reversal of previously recorded
disposal charge, net of applicable
income tax provision - 1,087,350
------------ ------------
Net Income $ 341,127 $ 1,761,608
============ ============
Earnings per Share - Basic
Weighted Average Basic Shares 2,397,563 2,486,720
Net income (loss) from continuing
operations $ 0.14 $ 0.27
Discontinued Operations:
Gain from reversal of previously recorded
disposal charge, net
of applicable income tax provision - 0.44
------------ ------------
Net Income $ 0.14 $ 0.71
============ ============
Earnings per share amounts - Diluted:
Weighted Average Diluted Shares 2,812,119 2,954,975
Net income (loss) from continuing
operations $ 0.12 $ 0.23
Discontinued Operations:
Gain from reversal of previously recorded
disposal charge, net of applicable
income tax provision - 0.37
------------ ------------
Net Income $ 0.12 $ 0.60
============ ============
(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)
Nine Months Ended
----------------------------
September 30, September 30,
2002 2001(1)
------------ -------------
Net revenues $63,302,774 $58,489,743
Cost of services 51,940,365 47,728,902
General and administrative expenses 5,636,449 4,939,158
Depreciation and amortization expense 1,623,574 1,099,177
Provision for uncollectible accounts 1,060,021 849,335
Costs associated with restatement of 815,794 -
financial statements (Note 2)
------------- -------------
Income before other income (expense) and 2,226,571 3,873,171
income taxes
Other income (expense):
Interest expense 612,063 641,475
------------- -------------
Income before income taxes 1,614,508 3,231,696
Income tax expense 646,288 1,398,125
------------- -------------
Net income from continuing operations $ 968,220 $ 1,833,571
Discontinued Operations:
Gain from reversal of previously recorded
disposal charge, net of applicable income
tax provision - 1,087,350
------------- -------------
Net Income $ 968,220 $ 2,920,921
============= =============
Earnings per Share - Basic
Weighted Average Basic Shares 2,464,858 2,496,026
Net income (loss) from continuing $ 0.39 $ 0.73
operations
Discontinued Operations:
Gain from reversal of previously recorded
disposal charge, net of applicable
income tax provision - 0.44
------------- -------------
Net Income $ 0.39 $ 1.17
============= =============
Earnings per share amounts - Diluted:
Weighted Average Diluted Shares 2,913,739 2,916,231
Net income (loss) from continuing $ 0.33 $ 0.63
operations
Discontinued Operations:
Gain from reversal of previously recorded
disposal charge, net of applicable
income tax provision - 0.37
------------- -------------
Net Income $ 0.33 $ 1.00
============= =============
(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)
Nine Months Ended
-------------------------------
September 30, September 30,
2002 2001(1)
------------- ---------------
Cash flows from operating activities:
Net income $ 968,220 $ 2,920,921
Less net income (loss) from discontinued
operations - 1,087,350
------------- ---------------
Net Income (loss) from continuing
operations 968,220 1,833,571
Adjustments to reconcile net income to
net cash provided (used) in operating
activities:
Depreciation and amortization 1,623,574 1,099,178
Deferred income taxes 230,059 345,931
Provision for uncollectible accounts 1,060,021 849,335
------------- ---------------
3,881,874 4,128,015
Change in certain net assets, net of
effects of business acquisition:
(Increase) decrease in:
Accounts receivable 591,812 (1,394,564)
Prepaid expenses and other
current assets 287,190 (1,182,929)
Other assets 143,013 (95,196)
Increase (decrease) in:
Accounts payable and accrued 144,258 367,134
liabilities
Other liabilities (68,196) (176,192)
------------- ---------------
Net cash provided (used) by 4,979,951 1,646,268
operating activities ------------- ---------------
Cash flows from investing activities:
Capital expenditures (1,751,318) (2,649,097)
Acquisition of business (2,874,513) (66,020)
------------- ---------------
Net cash provided (used) by (4,625,831) (2,715,117)
investing activities ------------- ---------------
Cash flows from financing activities:
Net revolving credit facility
borrowings 1,259,549 4,428,119
Repurchase of common shares (1,874,484) (5,687,622)
Proceeds from stock option exercises 89,418 329,956
Principal payments on debt and (253,571) 380,542
capital leases ------------- ---------------
Net cash provided (used) by financing
activities (779,088) (549,005)
------------- ---------------
Net increase/(decrease) in cash (424,968) (1,617,854)
Cash and cash equivalents at beginning of
period 1,928,391 2,166,147
------------- ---------------
Cash and cash equivalents at end of period $ 1,503,423 $ 548,293
============= ===============
(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
and nine months ended September 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 September 30, 2002 and the results of
operations and cash flows for the periods ended September 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 nine months ended September 30, 2002
are not necessarily indicative of the operating results for the year.
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.
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.
The ability of payors to meet their obligations depends upon their financial
stability, future legislation and regulatory actions. With the exception of the
matter discussed in Note 11, 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.
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.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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 nine month periods ended September 30,
2001 are set forth in the following table (amounts rounded to nearest
thousand dollars):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2001
------------------------------
Increase in health self-insurance expense $ 485,000 $ 1,287,000
Increase (decrease) in workers compensation
and automobile self-insurance expense (75,000) (18,000)
Reversal of previously recorded management
bonuses that will not be paid as a result of (106,000) (293,000)
the restatement
Additional revenues recorded from amending
Medicare and Medicaid cost reports due to
restatement - (64,000)
-----------------------------
Total reduction in pre-tax income due to
restatement 304,000 912,000
Income tax effect (135,000) (403,000)
------------------------------
Total reduction in net income due to restatement 169,000 509,000
Net income as previously reported 1,931,000 3,430,000
------------------------------
Net income as restated $1,762,000 $ 2,921,000
==============================
Basic Earnings Per Share
As previously reported $ 0.78 $ 1.36
As restated $ 0.71 $ 1.17
Diluted Earnings Per Share
As previously reported $ 0.66 $ 1.16
As restated $ 0.60 $ 1.00
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.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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 employee 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 moved 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 were made and the rates the Company charges
employees for coverage were increased.
Under its automobile and workers' compensation self-insurance programs, the
Company bears risk up to $100,000 per incident and up to an annual aggregate
deductible. The Company carries insurance coverage for amounts in excess of the
$100,000 per incident amount and for amounts in excess of the annual aggregate
deductible. Additionally, the Company also carries umbrella coverage.
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.
Insurance Renewals. The Company believes that its present insurance coverage is
adequate. The current insurance contracts run through April 1, 2003. While the
Company believes it will be able to purchase insurance coverage in the future
there can be no assurance that the Company will be able to do so, nor is the
Company currently able to predict changes in the cost of insurance renewal.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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 Adult Day Care (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 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.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Three Months September Nine Months September
-------------------------- --------------------------
2002 2001 2002 2001
------------- ----------- ------------- ---------
Net Revenues
Adult day health services $15,164,663 $12,802,771 $42,032,355 $38,095,476
Visiting nurses 6,744,143 6,860,474 21,270,419 20,394,267
------------- ----------- ------------- ----------
$21,908,806 $19,663,245 $63,302,774 $58,489,743
============= =========== ============= ==========
Contribution
Adult day health services 584,658 731,703 1,518,641 2,541,941
Visiting nurses 603,518 939,428 2,704,968 2,102,919
------------- ----------- ------------- ----------
1,188,176 1,671,131 4,223,609 4,644,860
Corporate/Unallocated 618,823 508,617 2,609,101(1) 1,413,164
------------- ----------- ------------- ----------
Pre-Tax Income $ 569,353 $ 1,162,514 $ 1,614,508 $ 3,231,696
============= =========== ============= ==========
(1) Includes approximately $816,000 related to the cost of conducting an
investigation of the restatement of the financial statements.
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 nine-month periods
ended September 30, 2001 would have been approximately $20,000 and $60,000,
respectively, higher under SFAS 142. The change in goodwill recorded during the
quarter ended September 30, 2002 related solely to the business acquisition
described in Note 9.
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 adopted SFAS No.
144 on January 1, 2002 and 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 $489,000 and $284,000 and
$1,069,000 and $971,000 were capitalized in the three-months and nine months
ended September 2002 and 2001, respectively. Capitalized software development
costs are amortized over a three-year period following the initial
implementation of the software.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
8. Medicare Rate Change
A Medicare rate decrease of approximately 5.3% went into effect October 1, 2002.
Medicare reimburses the Company's Visiting Nurse Segment for patient care
episodes up to 60 days in length. Because Medicare made the rate change
effective for episodes ending on or after October 1, 2002 a portion of the
patient episodes provided in the quarter ended September 30, 2002 were impacted.
As a result, revenues for the quarter ended September 30, 2002 were
approximately $61,000 lower than they would have been if the rate cut had not
been enacted. If the rate cut had been in effect for the entire three and nine
months ended September 30, 2002, the Company's revenues would have been lower by
approximately $208,000 and $718,000 respectively.
9. Acquisition of Ohio Home Care Provider
On July 18, 2002, the Company completed its previously announced acquisition of
the business and assets of Medlink of Ohio (Medlink). Medlink is a provider of
in-home personal care services with branch operations in Cleveland and Akron
Ohio. The acquired operations, which currently generate approximately $6 million
of revenues annually, give the Company significant market presence in the
northeast Ohio area, and are included in the Company's Adult Day Health Services
Segment.
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. The acquired operations added
approximately $1.4 million to revenues and $180,000 to the consolidated pre-tax
income for the quarter ended September 30, 2002.
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition. Since the acquisition was
just completed in the current quarter, the Company has not yet finalized the
valuation of intangible assets; thus, the allocation of the purchase price is
subject to refinement.
At July 18, 2002 (rounded to nearest thousands):
Accounts receivable $ 698,000
Property, plant and equipment 35,000
Goodwill 2,515,000
-----------
Assets acquired 3,248,000
Liabilities assumed (39,000)
-----------
Net assets acquired $ 3,209,000
===========
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
9. Acquisition of Ohio Home Care Provider (continued)
The unaudited pro forma consolidated results of operations of the Company as if
this acquisition had been made at the beginning of 2001 are as follows:
Three Months September Nine Months September
---------------------------------------------------------
2002 2001 2002 2001
------------- -------------------------- -------------
Revenues $22,298,872 $ 21,225,649 $ 67,695,061 $ 61,980,284
Net Income from
continuing
operations 370,539 780,396 1,272,090 2,084,991
Earnings per Share
Basic $ 0.15 $ 0.31 $ 0.52 $ 0.84
Diluted $ 0.13 $ 0.26 $ 0.44 $ 0.71
10. Share Redemption
On August 19, 2002, the Company acquired 210,100 shares of its own common shares
from a private investor at a total cost of approximately $1.5 million. The
Company also purchased an additional 29,500 shares of its common stock in open
market purchases for a total cost of approximately $300,000 during the quarter
ended September 30, 2002.
11. Ky Transportation Program
Prior to July 1, 2002, the Medicaid program of the Commonwealth of Kentucky
managed its transportation program internally. Effective July 1, 2002 the
Medicaid program contracted with an independent broker (the Broker) for the
management of its transportation reimbursement program in the Louisville KY
area. The Broker then contracted with the Company, among others, for the
provision of transportation services to Medicaid beneficiaries. Company services
pursuant to the contract are limited to transportation of Medicaid beneficiaries
who also attend the Company's in-center adult day care programs. The Broker
almost immediately began to encounter significant financial difficulties and has
paid the Company for only a small portion of the amounts due for services
rendered. On October 22, 2002, three of the Broker's other contracted providers
filed a motion with U.S. Bankruptcy Court to liquidate the Broker under Chapter
7 of the Federal Bankruptcy Code.
The Company is engaged in discussions with Kentucky Medicaid officials for the
resolution of amounts due the Company for provision of these transportation
services to Kentucky Medicaid beneficiaries. As of October 31, 2002, the Broker
owed the Company approximately $500,000 for services provided through that date.
Although the Company currently believes it will be successful in ultimately
collecting the amounts currently due it under this arrangement, there can be no
assurance that such amounts will in fact be collected. Should it become evident
in the future that a material amount will not be collectible, the Company would,
at that time, record an additional provision for uncollectible accounts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statements - Forward Outlook and Risks
Some of the matters discussed in this filing include forward-looking statements.
Statements that are predictive in nature, that depend upon or refer to future
events or conditions or that include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," "thinks," and similar expressions
are forward-looking statements. 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, those set forth in 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.
Although we believe that these statements are based upon reasonable assumptions,
we can give no assurance that the anticipated results will be achieved. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on these forward-looking statements. These forward-looking statements
are made as of the date of this filing. We assume no obligation to update or
revise them or provide reasons why actual results may differ.
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.
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 nine month periods ended September 30,
2002 are set forth in the following table (amounts rounded to nearest thousand
dollars):
Three Months ended Nine Months Ended
September 30, September 30,
2001 2001
------------------------------
Increase in health self-insurance expense $ 485,000 $ 1,287,000
Increase (decrease) in workers compensation
and automobile (75,000) (18,000)
self-insurance expense
Reversal of previously recorded management
bonuses that will not be paid as a result of (106,000) (293,000)
the restatement
Additional revenues recorded from amending
Medicare and - (64,000)
Medicaid cost reports due to restatement
------------------------------
Total reduction in pre-tax income due to
restatement 304,000 912,000
Income tax effect (135,000) (403,000)
------------------------------
Total reduction in net income due to
restatement 169,000 509,000
Net income as previously reported 1,931,000 3,430,000
------------------------------
Net income as restated $1,762,000 $ 2,921,000
==============================
Basic Earnings Per Share
As previously reported $ 0.78 $ 1.36
As restated $ 0.71 $ 1.17
Diluted Earnings Per Share
As previously reported $ 0.66 $ 1.16
As restated $ 0.60 $ 1.00
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.
RESULTS OF CONTINUING OPERATIONS
Three Months Ended September 30, 2002 Compared with Three Months Ended
September 30, 2001
Consolidated 2002 2001 (1) Change
------------
-----------------------------------------------------
Amount % Rev Amount % Rev Amount %
-----------------------------------------------------
Net Revenues ADHS $15,164,663 69.2% $12,802,771 65.1% $2,361,892 18.4%
VN 6,744,143 30.8% 6,860,474 34.9% (116,331) -1.7%
----------- ------------ ----------
$21,908,806 100.0% $19,663,245 100.0% $2,245,561 11.4%
=========== ============ ==========
Operating Income ADHS $ 790,213 5.2% $ 872,756 6.8% $ (82,543) -9.5%
VN 610,074 9.1% 1,024,864 14.9% (414,790)-40.5%
----------- ------------ ----------
1,400,287 6.4% 1,897,620 9.7% (497,333)-26.2%
Unallocated corporate
expenses 618,823 2.8% 508,617 2.6% 110,206 21.7%
----------- ------------ ----------
EBIT 781,464 3.6% 1,389,003 7.1% (607,539)-43.7%
Interest expense 212,111 1.0% 226,489 1.2% (14,378) -6.3%
Income taxes 228,226 1.0% 488,256 2.5% (260,030)-53.3%
----------- ------------ ----------
Net from continuing
operations $ 341,127 1.6% $ 674,258 3.4% $ (333,131)-49.4%
=========== ============ ==========
EBITDA (2) $ 1,352,018 6.2% $ 1,802,119 9.2% $ (450,101)-25.0%
Effective Tax Rate 40% 42% (2%)
(1)Where appropriate, amounts for these periods have been restated and
reclassified as discussed in the Company's Form 10-K for the nine-months
ended December 31, 2001.
(2)Earnings before interest, taxes, depreciation and amortization.
The Company's net revenues grew approximately $2.2 million or 11.4%. The
acquisition of Medlink OH accounted for approximately $1.4 million of the
revenue growth between periods with the balance of ADHS revenue growth coming
primarily from adult day care (ADC) in-center volume growth. VN segment revenues
declined primarily due to lower reimbursement rates from both the Medicare and
the Kentucky Medicaid programs. Operating income before unallocated corporate
expense decreased from the same period last year primarily as a result of
increased insurance costs, increased labor costs in the adult day care centers
and lower VN reimbursement rates. Additional costs were also incurred for
increased staffing for training, auditing, information systems and compliance
programs. The Medlink acquisition added approximately $180,000 to pre-tax income
in the quarter ended September 30, 2002.
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 September 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 carry forwards. Taxable income is expected to be
generated in those jurisdictions during the fiscal year ending December 31,
2002.
As of September 30, 2002, the Company has current net deferred tax assets of
approximately $2,043,000 and long-term net deferred tax liabilities of $227,000.
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 alike.
Three Months Ended September 30,
2002 2001 Change
-------------------------------------------------------
Amount % Rev Amount % Rev Amount %
-------------------------------------------------------
Net Revenues $15,164,663 100.0% $12,802,771 100.0% $2,361,892 18.4%
Cost of Services 13,029,282 85.9% 10,921,792 85.3% 2,107,490 19.3%
General & 828,254 5.5% 665,020 5.2% 163,234 24.5%
Administrative
Depreciation & 281,810 1.9% 203,757 1.6% 78,053 38.3%
Amortization
Uncollectible Accounts 235,104 1.6% 139,446 1.1% 95,658 68.6%
------------ ------------ ----------
Operating Income $ 790,213 5.2% $ 872,756 6.8% $ (82,543) -9.5%
============ ============ ==========
EBITDA $ 1,072,023 7.1% $ 1,076,513 8.4% $ (4,490) -0.4%
Admissions 1,000 1,198 (198)-16.5%
Patient months of care 16,249 14,187 2,062 14.5%
Patient days of care 214,652 178,440 36,212 20.3%
Revenue Per Patient
Day $ 70.65 $ 71.75 $ (1.10) -1.5%
ADC In-Center
Average Weekday
Attendance 1,321 1,235 86 6.9%
Center Capacity 1,791 1,679 112 6.7%
Center Occupancy Rate 73.7% 73.5% 0.2% 0.3%
ADHS revenues increased 18% to $15.1 million for the three months ended
September 30, 2002 from $12.8 million in the same quarter of the prior year for
a total increase of $2.3 million. The acquisition of Medlink Ohio, an in home
personal care operation, accounted for approximately $1.4 million of the
increase. The remainder of the increase was generated predominately from
increased ADC in-center volumes. 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. ADC 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 73.7% of capacity in the 2002 period and 73.5% of capacity in
the 2001 period.
The average center capacity increased approximately 7% with the opening of new
centers in Bardstown and Ft. Thomas KY, and Ft. Myers FL. As of October 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 85.3%
in 2001 primarily as a result of increased insurance costs and 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. Management establishes an
allowance for uncollectible accounts based on its estimate of probable
collection losses.
Effective July 1, 2002, the Commonwealth of Kentucky changed its reimbursement
program for in-home personal care services (non-skilled). Prior to July 1, 2002,
the services had been reimbursed on a cost-based system. Effective July 1, 2002
services are now reimbursed on a fee per unit of service basis at a rate lower
than the historical reimbursement rates. The Company has implemented changes to
its operations designed to reduce operating costs. These actions were taken
during the quarter ended September 30, 2002 and thus will not be fully in effect
until later quarters. The net effect of these reimbursement and cost changes was
to lower ADHS segment operating income by approximately $69,000 in the quarter
ended September 30, 2002.
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 September 30,
2002 2001 Change
-------------------------------------------------------
Amount % Rev Amount % Rev Amount %
-------------------------------------------------------
Revenues $6,744,143 100.0% $6,860,474 100.0% $(116,331) -1.7%
Cost of Services 5,227,664 77.5% 5,037,864 73.4% 189,800 3.8%
General & Admin 532,767 7.9% 478,693 7.0% 54,074 11.3%
Depreciation &
Amortization 241,977 3.6% 179,614 2.6% 62,363 34.7%
Uncollectible Accounts 131,661 2.0% 139,439 2.0% (7,778) -5.6%
----------- ----------- ----------
Operating Income $ 610,074 9.0% $1,024,864 14.9% (414,790) -40.5%
=========== =========== ==========
EBITDA $ 852,051 12.6% $1,204,478 17.6% $(352,427) -29.3%
Admissions 2,092 1,960 132 6.7%
Patient Months of Care 5,424 5,261 163 3.1%
Revenue per Patient
Month $ 1,243 $ 1,304 $ (61) -4.6%
A Medicare rate decrease of approximately 5.3% went into effect October 1, 2002.
Medicare reimburses the Company's Visiting Nurse Segment for patient care
episodes up to 60 days in length. Because Medicare made the rate change
effective for episodes ending on or after October 1, 2002 a portion of the
patient episodes provided in the quarter ended September 30, 2002 were impacted.
As a result, revenues for the quarter ended September 30, 2002 were
approximately $61,000 lower than they would have been if the rate cut had not
been enacted. If the rate cut had been in effect for the entire three and nine
months ended September 30, 2002, the Company's revenues would have been lower by
approximately $208,000 and $718,000 respectively.
Effective July 1, 2002, the Commonwealth of Kentucky changed its reimbursement
program for in-home health services (skilled). Prior to July 1, 2002, the
services had been reimbursed on a cost-based system. Effective July 1, 2002
services are now reimbursed on a fee per unit of service basis at a rate lower
than the historical reimbursement rates. The net effect of the reimbursement
change was to lower VN segment operating income by approximately $62,000 in the
quarter ended September 30, 2002.
Costs of services, primarily labor and related costs, grew at approximately the
same rate as patient months of care with relatively flat staff productivity. The
decrease in revenue per patient month resulted primarily from the reimbursement
changes described above. Increased general and administrative and depreciation
costs were incurred due to increased staffing, and continued investment in
information systems, respectively. The Company generated 7% more admissions in
2002 than in 2001 while patient months of care increased about 3% due to a
shorter average length of stay.
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.
Nine Months Ended September 30, 2002 Compared with Nine Months Ended
September 30, 2001
Consolidated 2002 2001 (1) Change
------------ -----------------------------------------------------
Amount % Rev Amount % Rev Amount % Rev
-----------------------------------------------------
Net Revenues ADHS $42,032,355 66.4% $38,095,476 65.1% $3,936,879 10.3%
VN 21,270,419 33.6% 20,394,267 34.9% 876,152 4.3%
----------- ------------ -----------
63,302,774 100.0% 58,489,743 100.0% 4,813,031 8.2%
=========== ============ ===========
Operating Income ADHS 2,067,276 4.9% 2,803,332 7.4% (736,056)-26.3%
VN 2,768,396 13.0% 2,483,003 12.2% 285,393 11.5%
----------- ------------ -----------
4,835,672 7.6% 5,286,335 9.0% (450,663) -8.5%
Unallocated corporate
expenses 2,609,101 4.1% 1,413,164 2.4% 1,195,937 84.6%
---------- ------------ -----------
EBIT 2,226,571 3.5% 3,873,171 6.6% (1,646,600)-42.5%
Interest expense 612,063 1.0% 641,475 1.1% (29,412) -4.6%
Income taxes 646,288 1.0% 1,398,125 2.4% (751,837)-53.8%
----------- ------------ -----------
Net from continuing
operations $ 968,220 1.5% $ 1,833,571 3.1% $ (865,351)-47.2%
=========== ============ ===========
EBITDA (2) $ 3,850,145 6.1% $ 4,972,348 8.5% $(1,122,203)-22.6%
Effective Tax Rate 40% 43% (3%)
(1)Where appropriate, amounts for these periods have been restated and
reclassified as discussed in the Company's Form 10-K for the nine-months
ended December 31, 2001.
(2)Earnings before interest, taxes, depreciation and amortization.
The Company's net revenues grew approximately $4.8 million or 8% as a result of
increased days of care in the ADHS segment and improved patient volumes
partially offset by lower volumes in the VN segment. The acquisition of the
Medlink Ohio in-home personal care operations accounted for $1.4 million of the
revenue growth between periods. 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 nine months ended September 30, 2002
was unfavorably impacted by increased insurance costs, unfavorable reimbursement
changes, increased labor costs in the adult day care centers, and increased
costs for training, auditing, systems and compliance programs. The Medlink
acquisition added approximately $180,000 to pre-tax income in the nine months
ended September 30, 2002. Unallocated corporate expenses in the nine months
ended September 30, 2002 included 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 43%
for 2001. The higher tax rate used in the nine months ended September 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 carry forwards. Taxable income is expected to be
generated in those jurisdictions during the fiscal year ending December 31,
2002.
Adult Day Health Services (ADHS) Segment-Nine Months
Nine Months Ended June 30,
2002 2001 Change
-------------------------------------------------------
Amount % Rev Amount % Rev Amount %
---------------------------------------------------------
Net Revenues $ 42,032,355 100.0% $38,095,476 100.0% $3,936,879 10.3%
Cost of Services 36,164,795 86.0% 32,541,263 85.4% 3,623,532 11.1%
General & administrative 2,361,072 5.6% 1,841,170 4.8% 519,902 28.2%
Depreciation
Amortization 809,666 1.9% 492,201 1.3% 317,465 64.5%
Uncollectible Accounts 629,546 1.5% 417,510 1.1% 212,036 50.8%
------------ ------------ ---------
Operating Income $ 2,067,276 4.9% $ 2,803,332 7.4% $(736,056)-26.3%
============ ============ =========
EBITDA $ 2,876,942 6.8% $ 3,295,534 8.7% $(418,592)-12.7%
Admissions 3,074 3,433 (359)-10.5%
Patient months of care 46,160 41,986 4,174 9.9%
Patient days of care 595,720 528,887 66,833 12.6%
Revenue Per Patient Day $ 70.56 $ 72.03 $ (1.47) -2.0%
ADC In-Center
Average Weekday Attendance 1,320 1,214 106 8.8%
Center Capacity 1,791 1,661 130 7.8%
Center Occupancy Rate 73.7% 73.1% 0.6% 0.8%
ADHS revenues increased 10% to $42 million for the nine months ended September
30, 2002 from $38.1 million in the same nine months of the prior year for a
total increase $4 million. The acquisition of Medlink Ohio accounted for
approximately $1.4 million of the increase. The remainder of the increase was
generated predominately from increased ADC in-center volumes. 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. ADC volumes increased due
to higher attendance levels in the Company's adult day care in-center program.
Occupancy in the adult day care centers was 73.7% of capacity in the 2002 period
and 73.1% of capacity in the 2001 period even with the addition of new capacity
between periods. Average center capacity increased 7.8% due to the opening of
new centers in Bardstown and Ft. Thomas KY, and Ft. Myers FL. As of October 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 85.4%
in 2001 primarily as a result of increased insurance costs and 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 as a percent of revenues is a result of payer mix changes in the make
up of revenues.
Visiting Nurse (VN) Segment-Nine Months
Nine Months Ended September 30,
2002 2001 Change
-------------------------------------------------------
Amount % Rev Amount % Rev Amount %
-------------------------------------------------------
Revenues $21,270,419 100.0% $20,394,267 100.0% $ 876,152 4.3%
Cost of services 15,775,570 74.2% 15,187,639 74.5% 587,931 3.9%
General &
administrative 1,613,323 7.6% 1,716,734 8.4% (103,411) -6.0%
Depreciation &
amortization 682,655 3.2% 575,065 2.8% 107,590 18.7%
Uncollectible accounts 430,475 2.0% 431,826 2.1% (1,351) -0.3%
----------- ----------- ----------
Operating income $ 2,768,396 13.0% $ 2,483,003 12.2% $ 285,393 11.5%
=========== =========== ==========
EBITDA $ 3,451,051 16.2% $ 3,058,067 15.0% $ 392,984 12.9%
Admissions 6,515 6,168 347 5.6%
Patient Months of Care 16,911 16,875 36 0.2%
Revenue per Patient $ 1,258 $ 1,209 $ 49 4.1%
Month
In 2002, the Company earned a higher rate of reimbursement in its VN operations
than was earned in 2001. Costs of services, primarily labor and related costs,
grew 3.9% primarily due to changes in employee pay rates and insurance costs.
The Company generated 6% more admissions in 2002 than in 2001 while patient
months of care grew only slightly due to a shorter average length of stay.
General and administrative costs declined primarily due to a reduction in labor
costs. Depreciation and amortization increased primarily due to investments in
computer hardware and software.
Insurance Programs (Consolidated)
As described in the notes to the financial statements, the Company bears
significant risk under its self-insurance programs. The following table sets
forth the recorded expense of the Company's self-insurance and insurance
programs for the three and nine month periods ended September 30, 2002 and 2001:
Three Months Nine Months
---------------------------- -------------------------
2002 2001 2002 2001
------------- ------------- ------------ -----------
Employee health $ 953,000 $ 832,000 $ 2,810,000 $ 2,340,000
Workers compensation 286,000 254,000 1,025,000 830,000
Automobile 312,000 131,000 547,000 372,000
Property, casualty,
general and professional 255,000 132,000 546,000 363,000
liability
------------- ------------- ------------ -----------
$ 1,806,000 $ 1,349,000 $ 4,928,000 $ 3,905,000
============= ============= ============ ============
Effective September 1, 2002, the Company moved 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 were made and the rates the Company charges employees
for coverage were increased. Based on information provided by its broker and
Cigna, the Company expects health insurance claims experience to increase
between 10% and 20% during 2002 due to the inflation of medical care costs.
Self-insured workers compensation expense approximated 2.4%-3% of covered
payroll in all periods presented.
Self-insured automobile expense recorded during the quarter ended September 30,
2002 includes estimated liabilities of approximately $190,000 on two specific
incidents. One of these incidents, recorded at the $100,000 stop loss amount,
occurred during the quarter ended September 30, 2002. The remaining $90,000 of
additional liability was recorded to raise the total estimated loss to the
$100,000 stop loss amount on an incident which occurred prior to this quarter.
This additional liability was recorded due to a change in estimated losses made
by the third party administrator. In the five year history of this self insured
auto program, the Company has incurred a total of five claims in excess of the
stop loss. As noted above, two of these five exceeded the stop loss in the
quarter ended September 30, 2002. The self-insured auto program relates
specifically to the Company's in-center adult day care programs reported within
the adult day health services segment.
Property, casualty, general and professional liability costs increased between
periods as a result of higher premium costs and an increase in the Company's
per-claim deductible amount from $5,000 to $25,000.
As indicated by the September 2002 quarter experience the nature of the risks
underlying these programs will result in significant volatility in insurance
related costs on an on-going basis.
Liquidity and Capital Resources
Acquisition of Ohio Home Care Provider
On July 18, 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, which currently generate
approximately $6 million of revenues annually, give the Company significant
market presence in the northeast Ohio area, and are included in the Company's
adult day health services segment. 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
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 September 30, 2002, a total of 90,071
shares have been repurchased under this program in open market purchases. A
total of $843,112 has been expended in these open market purchases for an
average acquisition cost of $9.32 per share. For the quarter ended September 30,
2002, 29,500 shares were purchased for $291,731 for an average acquisition cost
of $9.84 per share.
Share Redemption
On August 19, 2002 the Company purchased 210,100 shares of its common stock from
a private investor for a total of approximately $1.5 million. This purchase
approved by the Company's Board of Directors, was made outside the On-Going
Stock Buy Back Program discussed above.
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 facility has been extended through
December 31, 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 September 30, 2002 the formula permitted approximately
$21.7 million to be used of which approximately $13.8 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 $16.5 million was either
outstanding or committed as of September 30, 2002 while an additional $5.2
million was available for use. Additionally, at September 30, 2002, the Company
had approximately $1.5 million in cash. The Company's revolving credit facility
is subject to various financial covenants. As of September 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.
The following table sets forth what the balance in the revolving credit facility
would have been if not for the Medlink acquisition and the share redemptions
described above.
September June 30, December
30, 2002 2002 Change 31, 2001 Change
----------- ------------ ------------ ----------- ---------
As Recorded $13,846,081 $9,517,177 $4,328,904 $12,586,532 $ 1,259,549
Medlink purchase 2,874,513 - 2,874,513 - 2,874,513
Share buy backs 1,821,215 - 1,821,215 - 1,821,215
---------- ------------ ------------ ----------- ----------
Balance
excluding
above items $9,150,353 $9,517,177 $ (366,824) $12,586,532 $ (3,436,179)
=========== ============ =========== =========== ============
Cash Flows
Key elements to the Consolidated Statements of Cash Flows for the periods ending
September 30, 2002 and 2001 were:
Net Change in Cash and Cash Equivalents 2002 2001
--------------------------------------- --------------- --------------
Continuing Operations
Provided by (used in)
Operating activities $ 4,979,951 $ 1,646,268
Investing activities (4,625,831) (2,715,117)
Financing activities (779,088) (549,005)
--------------- --------------
Net increase (decrease) in cash
and cash equivalents $ (424,968) $(1,617,854)
=============== ==============
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 70 at
September 30, 2002, down from 80 at December 31, 2001 due primarily to the
collection of Medicare cost report settlements. The Medlink acquisition
increased AR by $1.8 million at September 30, 2002 as delays in Medicaid
processing normally encountered due to a change in ownership caused a temporary
interruption in cash receipts. Normal cash processing has resumed subsequent to
September 30, 2002. Excluding the effects of Medlink, days sales outstanding at
September 30, 2002 were 67. Net cash used in investing activities resulted
principally from the cash paid in the acquisition of Medlink and from
improvements in information systems. Net cash used by financing activities
resulted primarily from the redemption of common shares and payments of capital
lease obligations net of borrowings on the Company's credit facility.
2001
Net cash used in 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 a small increase in
days sales outstanding. Days sales outstanding were 80 at September 30, 2001, up
from 76 at March 31, 2001. The decrease in accounts payable and accrued
liabilities resulted primarily from the payment of fiscal year-end 2001
management incentives of approximately $500,000. Net cash used in investing
activities resulted principally from amounts invested in adult day health
services expansion activities and improvements in information systems. During
the quarter, the Company made capital expenditures for the expansion of one
center each in Louisville and Maryland and for a new center being constructed in
Ft. Myers, FL. Net cash used by financing activities resulted primarily from
re-payments on the Company's credit facility, payment of capital lease
obligations and repurchase of the common stock. Additionally, in a non-cash
transaction, the Company entered into a lease transaction accounted for as a
capital lease, for ten new ADC transportation vehicles, largely to replace older
vehicles.
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 payers. 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. Economic conditions are such that 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. Payers are required to comply with the
transaction standards by October 16, 2002 or October 16, 2003, depending on the
size of the payer and whether the payer requests a one-year waiver. The Company
has requested and received such a one-year waiver. Following compliance by its
payers, 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 payers, 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 nine-month periods
ended September 30, 2001 would have been approximately $20,000 and $60,000,
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. The Company implemented SFAS
No. 144 on January 1, 2002 and 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 September 30, 2002, a hypothetical 100 basis point increase in short-term
interest rates would result in a reduction of approximately $138,460 in annual
pre-tax earnings from continuing operations.
ITEM 4. CONTROLS AND PROCEDURES.
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 12a-15. Based
upon that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. Disclosure controls and procedures are controls and procedures that
are designed to ensure that information required to be disclosed in Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.
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 August 19, 2002, Item 5, to
report the redemption of 210,100 shares of its common stock and
the continuation of an issuer repurchase program.
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: November 13, 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
CERTIFICATIONS
I, William B. Yarmuth, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Almost Family, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
BY /s/ William B. Yarmuth
William B. Yarmuth
Chairman of the Board, President &
Chief Executive Officer
I, C. Steven Guenthner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Almost Family, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
BY /s/ C. Steven Guenthner
C. Steven Guenthner
Senior Vice President & 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 September 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
November 13, 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 September 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
November 13, 2002