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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2002
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 1-09848
ALMOST FAMILY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1153720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207
(Address of principal executive offices) (Zip Code)
(502) 899-5355
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, par value $.10 per share NASDAQ SmallCap System
Preferred Stock Purchase Rights
Indicate by check mark whether the Registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes__X__ No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____X__.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes No __X__.
As of March 18, 2003, 2,280,727 shares of the Registrant's Common Stock were
outstanding. The aggregate market value of Registrant's Common Stock held by
non-affiliates of the Registrant as of March 28, 2003 was approximately
$9,716,000 (based on the last sale price of a share of the common stock as of
March 28, 2003 ($4.26), as reported by the NASDAQ SmallCap System).
The definitive proxy statement relating to the registrant's Annual Meeting of
Stockholders, to be held May 12, 2003, is incorporated by reference in Part III
to the extent described therein.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
Item 14. Controls and Procedures
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K
PART I
ITEM 1. BUSINESS
Strategic Mission Statement
Almost Family, Inc. TM and subsidiaries (collectively "Almost Family" or the
"Company") provide alternatives for seniors and other adults with special needs
and their families who wish to avoid nursing home placement as long as possible
and remain independent, through its network of adult day care (ADC) centers and
ancillary services. The Company was incorporated in Delaware in 1985. On January
31, 2000, the Company changed its name to Almost Family, Inc. from Caretenders
(R) HealthCorp.
Decision to Retain VN Operations
As reported in the Company's Form 10-K for the nine months ended December 31,
2001, the Company in September 2001 terminated its previously adopted plan of
disposition for its Visiting Nurse (VN) operations. This decision followed a
period of extensive analysis and evaluation of numerous alternatives for the
business unit. In the Board's judgment, given the significant external and
internal changes that have taken place with regard to the future prospects of
the VN segment, retaining the VN segment was the best option available to
maximize shareholder value. In the accompanying financial statements, the
Company, in accordance with applicable accounting rules, terminated the use of
discontinued operations accounting treatment for the VN segment. VN segment
results are now reported as an on-going part of the continuing operations of the
Company for all periods presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Change in Fiscal Year End
Also in September 2001, the Company changed its fiscal year end from March 31 to
December 31 effective December 31, 2001. Pursuant to the Securities Exchange Act
of 1934, the accompanying financial statements included herein present
information for the year ended December 31, 2002, the nine months ended December
31, 2001 and for the year ended March 31, 2001 .
Restatement of Financial Statements
As reported in the Company's Form 10-K for the nine months ended December 2001,
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. Previously reported net income was reduced by approximately $934,000 or
$0.28 per diluted share in the year ended March 31, 2001 and $ 363,000 or $0.12
per diluted share in the year ended March 31, 2000.
On February 20, 2002, the Board of Directors appointed a Special Committee of
two independent directors and directed the Committee to investigate the causes
of the accounting errors. The Special Committee retained counsel previously
unaffiliated with the Company to assist its inquiry, and counsel in turn engaged
forensic accountants also unaffiliated with the Company. The principal
conclusions of the Special Committee were that a former officer, the Vice
President of Human Resources responsible for managing the Company's
self-insurance programs, negligently, and at times intentionally, provided
inaccurate information to the Company's financial accounting staff, and to its
independent public accountants, that caused the Company to record a receivable
to which it was not entitled and to understate certain liabilities, particularly
with respect to the medical, workers' compensation and automobile self-insurance
programs. The Special Committee reported the results of the inquiry to the
Securities and Exchange Commission. The Special Committee also made a
recommendation to the Board not to pursue legal action against the former
officer. Based on its assessment of the costs of pursuing legal action against
the former employee and the amount and likelihood of any potential recovery, the
Board has determined not to pursue such action at this time.
The Company has adopted significant changes in its administrative procedures and
internal controls relating to accounting for its self-insurance programs,
including requirements that third-party financial information be provided to
both financial accounting and operating personnel, improvements in the
methodology for expensing the cost of claims incurred but not paid, and year end
validation by third-party experts of the Company's estimated liability for
unpaid claims.
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. It is possible that additional costs
related to the investigation may be incurred in future periods.
Operating Segments
The Company operates in two reportable business segments: Adult Day Health
Services (ADHS), and Visiting Nurses (VN). Reportable segments have been
identified based upon how management has organized the business by services
provided to customers and the criteria in SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's ADHS segment includes
the aggregation of its ADC in-center operations and in-home personal care
operations (also referred to as "personal care"), both of which predominantly
provide long-term health care and custodial services that enable recipients to
avoid nursing home admission. Sources of reimbursement, reimbursement rates per
day and contribution margins from the Company's ADC and personal care operations
are substantially alike. The Company's VN segment provides skilled medical
services in patients' homes largely to enable recipients to reduce or avoid
periods of hospitalization and/or nursing home care. Approximately 88% of the VN
segment revenues are generated from the Medicare program. VN Medicare revenues
are generated on a per episode basis rather than a fee per visit or day of care.
General and administrative expenses incurred at the corporate level have not
been allocated to the segments. The Company has operations in Alabama,
Connecticut, Florida, Indiana, Kentucky, Maryland, Massachusetts, and Ohio.
Financial information for the Company's two operating segments is presented in
Note 13 to the financial statements.
Adult Day Health Services
Adult day health services are alternative methods of providing care for seniors
and other adults who without such care would likely be institutionalized. The
field has grown rapidly, from just 15 centers in the United States in the early
1970s to approximately 3,500 today. Still in a developmental stage, the industry
is highly fragmented with the majority of adult day health centers operated by
the non-profit sector. To the Company's best knowledge, it is the largest
provider in the country when measured in terms of adult day care center revenues
and days of patient care.
The Company's adult day health centers, referred to also as "Adult Day Care"
centers, provide professional, high quality adult day health services for
disabled or frail adults who require some care or supervision, but who do not
require intensive medical attention or institutionalization. The average center
has capacity for over 60 guests per day. Many operate seven days a week. The
Company also provides transportation services to and from its centers.
The centers offer a range of therapeutic and medical services designed to
promote the independence of participants and provide respite to families and
caregivers. On-site staff nurses administer medications and give attention to
medical care. Other services include (i) a light breakfast, a hot lunch, and an
afternoon snack; (ii) highly structured, individualized and creative activity
programs which include recreation, education, field trips, sports, crafts, music
and group conversations; and (iii) family counseling. The Company currently has
twenty-five (25) adult day care centers.
In addition to services provided in the Company's physical locations, some adult
day health services, referred to as "Personal Care" are also provided in the
patients' homes. These services (generally provided by para-professional staff
such as home health aides) are very similar in nature to the care provided in
the Company's facilities. This flexibility allows the patient and/or his or her
family to select the venue (or combination of venues) of care that is
appropriate for them. Many Almost Family, Inc. adult day health patients receive
care both at home and in the Company's facilities. The Company currently
operates twenty-four (24) personal care locations.
Visiting Nurse Services
Visiting Nurse services consist primarily of the provision of skilled in-home
medical services to patients in need of short-term recuperative health care. A
majority of the Company's patients receive this care immediately following a
period of hospitalization or care in another type of in-patient facility. The
Company operates eight (8) Medicare-certified home health agencies with a total
of seventeen (17) locations. In the year ended December 31, 2002, approximately
88% of the visiting nurse segment revenues were derived from the Federal
Medicare program.
The visiting nurse segment, which uses the trade name "CaretendersTM", provides
a comprehensive range of Medicare-certified home health nursing services. Payors
also include Medicaid and private insurance companies. Professional staff
including registered nurses, licensed practical nurses, physical, speech and
occupational therapists, and medical social workers implement and monitor
medical treatment plans prescribed by physicians. Professional staff are subject
to state licensing requirements in the particular states in which they practice.
Para-professional staff, primarily home health aides, also provide care to these
patients.
As of December 31, 2002, the Company provided services through operating units
in the following locations:
Adult Day Personal Care Visiting Nurse
Locations Care Centers Branches Branches
- ------------------------- ----------------- -------------- -------------
Kentucky:
Louisville 2 1 1
Lebanon Junction - - 1
Lexington 1 2 1
Elizabethtown 1 - 1
Owensboro 1 1 1
Northern KY (metro 1 1 1
Cincinnati)
Bardstown 1 - -
Frankfort 1 1 1
Indiana:
Evansville 1 1 1
Ohio:
Cincinnati 1 1 -
Columbus 1 1 -
Cleveland - 3 -
Massachusetts:
Boston - 1 1
Connecticut:
Stamford - 1 -
Middlebury/Waterbury 1 1 -
Danbury 1 1 -
West Haven - 1 -
Bridgeport - 1 -
Maryland:
Baltimore area 10 - -
Alabama:
Birmingham - 1 -
Florida:
Fort Lauderdale - 1 1
Port St. Lucie - - 1
Vero Beach - - 1
West Palm Beach 1 1 1
Fort Myers 1 1 1
Sarasota - 1 1
Port Charlotte - - 1
Naples - 1 1
----------- ------------------- ----------------
Total 25 24 17
=========== =================== ================
Daily capacity for in-facility care was 1,691 and 1,827 guests per day at
December 31, 2002 and December 31, 2001, respectively.
Compensation for Services
Almost Family, Inc. is compensated for its services by (i) Medicaid, (ii)
Medicare (VN only), and (iii) other third party payors (e.g. insurance companies
and other government funds), and (iv) private pay (paid by personal funds). See
"Item 1. Business -- Payment Sources". Almost Family, Inc. employs compensation
specialists who advise patients as to the availability of sources of payment for
its services.
See "Government Regulations" and "Cautionary Statements - Forward Outlook and
Risks". Management will monitor the effects of such items and may consider
modifications to its expansion and development strategy when and if necessary.
Acquisitions
The Company continually considers and reviews, subject to availability of
capital, possible acquisitions of businesses that provide health care services
similar to those currently offered by Almost Family, Inc. Factors which may
affect future acquisition decisions include the quality and potential
profitability of the business under consideration, and the Company's
profitability and ability to finance the transaction.
On July 18, 2002, the Company completed the 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 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 $3.7 million to revenues and $345,000 to consolidated pre-tax
income from the date of acquisition through December 31, 2002.
The following table summarizes the approximate fair values of the assets
acquired and liabilities assumed at the date of the Medlink acquisition (rounded
to nearest thousands):
Accounts receivable $ 698,000
Property, plant and equipment 35,000
Goodwill 2,552,000
----------------
Assets acquired 3,285,000
Liabilities assumed (39,000)
----------------
Net assets acquired $ 3,246,000
================
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:
Year Ended December 31,
-------------------------------------------------
2002 2001
-------------------------------------------------
Revenues $ 89,260,078 $ 85,282,640
Income from continuing
operations 1,624,350 2,929,227
Earnings per share:
Basic $ 0.67 $ 1.11
Diluted $ 0.60 $ 0.95
During 1997, the Company acquired one adult day care center. During 1998, the
Company completed transactions to acquire two personal care and two visiting
nurse operations. These operations added to the Company's market presence in
Florida, Connecticut and Ohio. During each of the years ended March 31, 1999,
2000 and 2001 the Company acquired one adult day care center. No pro forma
financial information has been provided as the acquisitions, individually and in
the aggregate, were not significant compared to the Company's existing
operations.
Competition, Marketing and Customers
The adult day health services industry is highly competitive but fragmented.
Competitors include: other adult day health centers, ancillary programs provided
by nursing homes and hospitals, other government-financed facilities, assisted
living and retirement communities, home health providers and senior adult
associations. Almost Family, Inc. competes by offering a high quality of care
and by helping families identify and access solutions for care. Adult day health
services' competitive advantages include member activity programs, superior
facilities and transportation services.
The visiting nurse industry is likewise highly competitive and fragmented.
Visiting nurse programs enable patients to be discharged from in-patient
facilities sooner than would otherwise be possible, and in many instances to
remain in their own homes longer. Competitors include other free-standing
proprietary agencies and a significant number of hospital based agencies. In
some locations, county health departments operate home health agencies. The
Federal Centers for Medicare and Medicaid Services (CMS, formerly HCFA)
estimates total national annual Medicare home health spending of approximately
$11 billion. To the Company's best knowledge, no individual provider has more
than 2% market share.
The Company believes the primary competitive factors are quality of service and
reputation among referral sources. However, competitors are increasingly
focusing attention on providing alternative site health care services. The
Company markets its services through its site managers and marketing staff.
These individuals contact referral sources in their areas to market the
Company's services. Major referral sources include: physicians, hospital
discharge planners, Offices on Aging, social workers, and group living
facilities. The Company also utilizes consumer-direct sales, marketing and
advertising programs designed to attract customers.
Government Regulations
Overview
The health care industry has experienced, and is expected to continue to
experience, extensive and dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is subjecting the health care
industry to significant reform. Health care reforms have been enacted as
discussed elsewhere in this document and proposals for additional changes are
continuously formulated by departments of the Federal government, Congress, and
state legislatures.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of Medicare and Medicaid are expected to
continue. Such future changes may further impact reimbursement for the Company's
services. There can be no assurance that future legislation or regulatory
changes will not have a material adverse effect on the operations of the
Company.
Medicare Rates
A Medicare rate decrease of approximately 5.3% went into effect October 1, 2002.
As a result, revenues for the year ended December 31, 2002 were approximately
$348,000 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 year ended December 31, 2002,
the Company's revenues would have been lower by approximately $718,000. Under
existing law and regulation, Medicare rates will change each October 1, based on
a statutory formula the intent of which is to cause reimbursement rates to
reflect changes in the costs of providing services. Refer to the Cautionary
Statements - Forward Outlook and Risks below, the Notes to the accompanying
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations for additional information.
Permits and Licensure
Many states require companies providing certain health care services to be
licensed as adult day care centers or home health agencies. In addition, certain
health care practitioners employed by the Company require state licensure and/or
registration and must comply with laws and regulations governing standards of
practice. The failure to obtain, renew or maintain any of the required
regulatory approvals or licenses could adversely affect the Company's business.
The Company believes it is currently licensed appropriately where required by
the laws of the states in which it operates. There can be no assurance that
either the states or the Federal government will not impose additional
regulations upon the Company's activities which might adversely affect its
business, results of operations or financial condition.
Certificates of Need
Certain states require companies providing health care services to obtain a
certificate of need issued by a state health-planning agency. Where required by
law, the Company has obtained certificates of need from those states in which it
operates. There can be no assurance that the Company will be able to obtain any
certificates of need which may be required in the future if the Company expands
the scope of its services or if state laws change to impose additional
certificate of need requirements, and any attempt to obtain additional
certificates of need will cause the Company to incur certain expenses.
Other Regulations
A series of laws and regulations dating back to the Omnibus Budget
Reconciliation Act of 1987 ("OBRA 1987") and through the Balanced Budget Act of
1997 have been enacted and apply to the Company. Changes in applicable laws and
regulations have occurred from time to time since OBRA 1987 including
reimbursement reductions and changes to payment rules. Changes are also expected
to occur continuously for the foreseeable future.
As a provider of services under Medicare and Medicaid programs, the Company is
subject to the Medicare and Medicaid anti-kickback statute, also known as the
"fraud and abuse law." This law prohibits any bribe, kickback, rebate or
remuneration of any kind in return for, or as an inducement for, the referral of
Medicare or Medicaid patients. The Company may also be affected by the Federal
physician self-referral prohibition, known as the "Stark" law, which, with
certain exceptions, prohibits physicians from referring patients to entities in
which they have a financial interest. Many states in which the Company operates
have adopted similar self-referral laws, as well as laws that prohibit certain
direct or indirect payments or fee-splitting arrangements between health care
providers, if such arrangements are designed to induce or to encourage the
referral of patients to a particular provider.
Health care is an area of extensive and dynamic regulatory change. Changes in
laws or regulations or new interpretations of existing laws or regulations can
have a dramatic effect on permissible activities, the relative costs associated
with doing business, and the amount and availability of reimbursement by
government and third-party payors. Furthermore, the Company will be required to
comply with applicable regulations in each new state in which it desires to
provide services.
As a result of the Health Insurance Portability and Accountability Act of 1996
and other legislative and administrative initiatives, Federal and state
enforcement efforts against the health care industry have increased
dramatically, subjecting all health care providers to increased risk of scrutiny
and increased compliance costs.
The Company is subject to routine and periodic surveys and audits by various
governmental agencies. Management believes that the Company is in material
compliance with applicable laws. The Company, however, is unable to predict what
additional government regulations, if any, affecting its business may be enacted
in the future, how existing or future laws and regulations might be interpreted
or whether the Company will be able to comply with such laws and regulations
either in the markets in which it presently conducts, or wishes to commence,
business.
Health Insurance Portability and Accountability Act (HIPAA)
The Health Insurance Portability and Accountability Act (HIPAA) was enacted by
the Federal government on August 12, 1996, and requires organizations to adhere
to certain standards to protect data integrity, confidentiality and
availability. HIPAA also mandates, among other things, that the Department of
Health and Human Services adopt standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and
enhance the effectiveness and efficiency of the health care industry. The
Department of Health and Human Services must adopt standards for the following:
o Electronic transactions and code sets;
o Unique identifiers for providers, employers, health plans and
individuals; o Security and electronic signatures; o Privacy; and
o Enforcement.
Although HIPAA was intended ultimately to reduce administrative expenses and
burdens faced within the health care industry, the Company believes the law will
initially bring about significant and, in some cases, costly changes. The
Department of Health and Human Services has released two rules to date mandating
the use of new standards with respect to certain health care transactions and
health information. The first rule establishes uniform standards for common
health care transactions, including:
o Health care claims information;
o Plan eligibility, referral certification and authorization;
o Claims status;
o Plan enrollment and disenrollment; o Payment and remittance
advice; o Plan premium payments; and o Coordination of benefits.
Second, the Department of Health and Human Services has released standards
relating to the privacy of individually identifiable health information. These
standards not only require compliance with rules governing the use and
disclosure of protected health information, but they also require the Company to
impose those rules, by contract, on any business associate to whom we disclose
protected information. The Department of Health and Human Services has only
recently issued rules governing the security of health information.
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 Company expects to be able to comply with
the new standards as the payors implement them. The Department of Health and
Human Services issued the privacy standards on December 28, 2000, and, after
certain delays, they became effective on April 14, 2001, with a compliance date
of April 14, 2003. Once the Department of Health and Human Services has issued
the security regulations in final form, affected parties will have approximately
two years to be fully compliant. Sanctions for failing to comply with the HIPAA
provisions related to health information practices include criminal and civil
penalties.
Management is in the process of implementing changes in its operations to comply
with the privacy and electronic transaction and code sets aspects of HIPAA and
anticipates that the Company will be able to fully and timely comply with those
requirements. The cost of complying with privacy standards is not expected to
have a material effect on the Company's results of operations or financial
position. Independent of HIPAA requirements, the Company has been developing new
information systems with improved functionality to facilitate improved billing
and collection activities, reduced administrative costs and improved management
decision support information. The Company has incorporated the HIPAA mandated
electronic transaction and code sets into this new software.
Regulations with regard to the security components of HIPAA, have only recently
been published. Those regulations are required to be implemented by April 2005.
Management cannot at this time estimate the cost of compliance with the security
regulations.
Payment Sources
The Company receives payments from Medicare, Medicaid, private pay and insurance
policies as detailed below. The Company's dependence on government sponsored
reimbursement programs makes it vulnerable to possible legislative and
administrative regulations and budget cut-backs that could adversely affect the
number of persons eligible for such programs, the amount of allowed
reimbursements or other aspects of the program, any of which could materially
affect the Company. In addition, loss of certification or qualification under
Medicare or Medicaid programs could materially affect the Company's ability to
effectively market its services.
In addition to its dependence on Medicare and Medicaid reimbursement, the
Company's future operating results may be dependent in part upon its ability to
attract customers able to pay for the Company's charges from their own and their
families' financial resources. The Company could be adversely impacted by
circumstances which affect the ability or desire of seniors to pay for the
Company's services, including a general economic or stock market downturn, with
resulting effects on retirement wealth and spending.
The following table sets forth the Company's revenues derived from each major
class of payor during the indicated periods (by percentage of net revenues):
Nine Months Ended
Year Ended December 31, Year Ended
Payor Group December 31, 2002 2001 March 31, 2001
- ------------------------- --------------------- --------------- ---------------
Medicare 29.7% 29.2% 28.5%
Medicaid and other
government Programs 48.8% 51.5% 46.9%
Insurance and private pay 21.5% 19.3% 24.6%
Changes in payment sources are primarily a result of the impact of changes in
the types of customers the Company attracts. The Company has a significant
dependence on state Medicaid reimbursement programs. For the year ended December
31, 2002, approximately 17.0%, 13.7%, 5.9%, 5.3%, 2.9%, 2.9% and 1.1% of the
Company's revenues were generated from Medicaid reimbursement programs in the
states of Kentucky, Maryland, Connecticut, Ohio, Massachusetts, Florida and
Indiana, respectively. In March 2003, the Commonwealth of Kentucky passed a new
budget. This budget is intended to constrain Medicaid spending and Kentucky's
Medicaid program is currently formulating new regulations to implement the
budget. Because the regulations are in the development stage, the Company is
currently unable to predict what impact they may have on the Company's
operations. There can be no assurance that these changes will not have a
material adverse effect on the Company.
In determining charge rates for goods and services provided to customers, the
Company evaluates several factors including cost and market competition. The
Company also negotiates contract rates with third party providers such as
insurance companies. The rates of reimbursement for Medicaid and other
Government programs are generally dictated by those programs.
Insurance Costs
Self-Insurance Programs. The Company bears significant risk under its
self-insured employee health, automobile and workers' compensation programs. The
Company's self-insured health program has an excess-loss insurance policy that
reimburses the Company for covered expenses (up to a certain amount) of a
specific deductible for each covered person and an annual aggregate deductible
for all covered claims. The Company's current excess loss insurance policy ends
April 30, 2003. Based on information provided by its broker and third-party
administrator, the Company expects health insurance costs to increase between
10% to 20% during 2003 due to the inflation of medical care costs. Under its
automobile and workers' compensation self-insurance programs, the Company bears
risk up to $100,000 per incident.
The Company records estimated liabilities for its health, automobile, and
workers' compensation self-insurance programs based on information provided by
the third-party plan administrators, historical claims experience, the life
cycle of claims, expected costs of claims incurred but not paid, and expected
costs to settle unpaid claims.
General and Professional Liability. The Company is party to various other legal
matters arising in the ordinary course of business, including patient
care-related claims and litigation. The Company carries insurance coverage for
this exposure however its deductible per claim increased from $5,000 to $25,000
effective July 1, 2001. At December 31, 2002, recorded reserves for the general
and professional coverage totaled approximately $177,000.
The Company monitors its estimated self-insurance liabilities on a quarterly
basis. As facts change, it may become necessary to make adjustments that could
be material to the Company's results of operations and financial condition.
The Company believes that its present insurance coverage is adequate. However,
due to insurance market conditions, the Company will face significant cost
increases and higher deductibles upon renewal on April 1, 2003. The Company is
currently contemplating alternatives including potentially accepting additional
self-insurance risk in lieu of higher premium costs.
Employees and Labor Relations
As of December 31, 2002 the Company had approximately 3,000 employees. None of
the Company's employees are represented by a labor organization. Management
believes its relationship with the Company's employees is satisfactory.
Discontinued Operations
As part of a formal plan of separation, the Company on November 12, 1999 sold
its product operations (consisting of infusion therapy and respiratory and
medical equipment businesses) to Lincare Holdings, Inc. in an asset sale for
$14.5 million and announced that it would pursue available strategic
alternatives to complete the separation of its visiting nurse operations.
Proceeds from the sale were used to repay obligations outstanding under the
Company's bank line of credit. As a result of the operational separations, the
Company recorded a one-time net of tax charge of approximately $5 million or
($1.60 per share) in the quarter ended September 30, 1999. That charge reduced
the book value of the operations to the expected net realizable value, provided
for losses on fulfilling certain obligations and close down costs and included
the estimated future operating results of the visiting nurse operations prior to
separation. As a result of those actions, the visiting nurse operations were
accounted for as discontinued operations in the Company's financial statements
for periods reported from September 1999 through June 2001.
The Company incurred losses operating the division prior to the implementation
of Medicare's Prospective Payment System (PPS) and made substantial payments for
the release of lease obligations, and for other costs. During that same time
frame the Company closed 3 of its then 11 operating VN agencies. The Company
continues to operate the remaining 8 agencies located in Kentucky (4), Florida
(3) and Massachusetts .
On September 14, 2001, the Company's Board of Directors voted to terminate its
previously adopted plan of disposition for its Visiting Nurse (VN) operations.
This decision followed a period of extensive analysis and evaluation of numerous
alternatives for the business unit. In the Board's judgment, given the
significant external and internal changes that have taken place with regard to
the future prospects of the VN segment, retaining the VN segment was the best
option available to maximize shareholder value. In the accompanying financial
statements, the Company has, in accordance with applicable accounting rules
terminated the use of discontinued operations accounting treatment for the VN
segment. VN segment results are now reported as an on-going part of the
continuing operations of the Company for all periods presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Cautionary Statements - Forward Outlook and Risks
Information provided herein by the Company contains, and from time to time the
Company may disseminate material and make statements which may contain,
"forward-looking" information, as that term is defined by the Private Securities
Litigation Reform Act of 1995 (the "Act"). These cautionary statements are being
made pursuant to the provisions of the Act and with the intention of obtaining
the benefits of "safe harbor" provisions of the Act. The Company cautions
investors that any forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements as a result of various factors
including but not limited to the following:
a) Regulation and Reform
Legislative proposals are continually introduced or proposed in Congress and in
state legislatures that would effect major changes in the health care system,
either nationally or at the state level. However, the Company cannot predict
whether any of the proposals will be adopted, and if adopted, no assurance can
be given that the implementation of such reforms will not have a material impact
on the operations of the Company.
b) Medicaid Concentration, Including Kentucky Budget and Regulation Changes
The Company has a significant dependence on state Medicaid reimbursement
programs. For the year ended December 31, 2002, approximately 17.0%, 13.7%,
5.9%, 5.3%, 2.9%, 2.9% and 1.1% of the Company's revenues were generated from
Medicaid reimbursement programs in the states of Kentucky, Maryland,
Connecticut, Ohio, Massachusetts, Florida and Indiana, respectively. The Company
could also be materially impacted by unfavorable changes in reimbursement
programs in these states. In March 2003, the Commonwealth of Kentucky passed a
new budget. This budget is intended to constrain Medicaid spending and
Kentucky's Medicaid program is currently formulating new regulations to
implement the budget. Because the regulations are in the development stage, the
Company is currently unable to predict what impact they may have on the
Company's operations. There can be no assurance that these changes will not have
a material adverse effect on the Company.
c) Other Reimbursement Changes
The Company derives substantial portions of its revenues from third-party
payors, including government reimbursement programs such as Medicare, Medicaid
and non-government sources such as commercial insurance companies, HMOs, PPOs
and contract services. These payors continuously seek ways to limit payments to
health care providers. There can be no assurance that payments under these
programs will be sufficient to cover the costs of providing patients care. The
Company cannot predict whether and what additional proposals or cost containment
measures will be adopted or, if adopted, what effect, if any, such proposals
might have on the operations of the Company.
d) Competition
The Company competes with numerous well-established competitors which have
substantially greater financial resources than the Company. Competitors are
increasingly focusing attention on providing alternative site health care
services, specifically on adult day health services. Such increasing competition
may adversely affect revenues and profitability of Company operations.
e) Insurance
The Company believes its present insurance coverage is adequate. However, there
can be no assurance that such insurance will be available, or, if available,
that such insurance will be either adequate to cover the Company's liabilities
or available at affordable rates. In addition, increasing insurance costs, and
the increasing unwillingness of insurance companies to insure against certain
types of losses, raise some questions as to whether the Company will be able to
obtain or continue its present insurance coverage. The inability to obtain
adequate insurance coverage at affordable rates, or a loss of existing coverage,
could have a material effect on the Company. The Company is exposed to insurance
risk under its automobile, workers' compensation and medical self-insurance
programs. Accordingly, the Company's future operating costs are subject to
changes in these programs. The Company is party to various other legal matters
arising in the ordinary course of business, including patient care-related
claims and litigation. The Company carries insurance coverage for this exposure
however its deductible per claim increased from $5,000 to $25,000 effective July
1, 2001. At December 31, 2002, recorded reserves for the general and
professional coverage totaled approximately $177,000. The Company monitors its
estimated self-insurance liabilities on a quarterly basis. As facts change, it
may become necessary to make adjustments that could be material to the Company's
results of operations and financial condition. Due to insurance market
conditions, the Company will face significant cost increases and higher
deductibles upon renewal on April 1, 2003. The Company is currently
contemplating alternatives including potentially accepting additional
self-insurance risk in lieu of higher premium costs.
f) Private Payment Sources
The Company's future operating results may be dependent in part upon its ability
to attract customers able to pay for the Company's charges from their own and
their families' financial resources. Circumstances which adversely affect the
ability or desire of seniors to pay for the Company's services, such as a
general economic downturn, could have an adverse effect on the Company. In the
event that the Company encounters difficulty in attracting seniors with adequate
resources to pay for the Company's services, the Company would be adversely
affected.
g) Acquisitions
The Company seeks to establish and increase market share through acquisitions in
existing and new markets. The Company evaluates potential acquisition candidates
that would complement or expand its current services. In attempting to make
acquisitions, the Company competes with other providers, some of which have
greater financial resources than the Company. Management currently believes that
acquisition candidates meeting the criteria of its acquisition strategy will
continue to be identified in the future and certain of these candidates will be
acquired by the Company. However, there can be no assurance that suitable
acquisitions will continue to be identified or that acquisitions can be
consummated on acceptable terms. See separate Cautionary Statement regarding
financing.
h) Inclement Weather
The Company provides its services to individuals in home and community settings.
Due to the Company's geographic concentrations, severe weather such as snow and
hurricanes may hinder the Company's ability to provide its services and can
impact the Company's operating results, particularly in Maryland and the New
England states.
i) Financing
The Company's ability to pursue its strategic plan is dependent upon its ability
to obtain financing on satisfactory terms and conditions. If the Company is
unable to obtain satisfactory financing it would have an adverse impact on the
Company's liquidity and its ability to execute its development plans. The
Company is subject to certain restrictive covenants under its bank financing
arrangement. There can be no assurance that the Company will remain in
compliance with these covenants in future periods.
j) ADC Expansion or Contraction Dependent on Medicaid Programs
As described above, the Company's adult day care operations are highly dependent
upon state Medicaid program reimbursement rates, access controls and operating
regulations. Significant financial issues are currently being faced by many
state Medicaid programs. Future expansion of the Company's adult day care
operations is also dependent on Medicaid reimbursement. Additionally, as
Medicaid programs change, the Company may find it necessary to exit certain
markets and/or entire states if the Company determines it is unable to operate
profitably in those areas.
k) Visiting Nurse Operations Medicare Reimbursement Rates
A Medicare rate decrease of approximately 5.3% went into effect October 1, 2002.
As a result, revenues for the year ended December 31, 2002 were approximately
$348,000 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 year ended December 31, 2002,
the Company's revenues would have been lower by approximately $718,000. Under
existing law and regulation, Medicare rates will change each October 1, based on
a statutory formula the intent of which is to cause reimbursement rates to
reflect changes in the costs of providing services. There can be no assurance
that Medicare laws, regulations and reimbursement rates will not be changed in
an adverse way in the future.
ITEM 2. PROPERTIES
The Company's executive offices are located in Louisville, Kentucky in
approximately 21,000 square feet of space leased from an unaffiliated party.
The Company has 42 real estate leases ranging from approximately 200 to 24,000
square feet of space in their respective locations. See "Item 1. Business -
Operating Segments" and Note 9 to the Company's audited consolidated financial
statements. The Company believes that its facilities are adequate to meet its
current needs, and that additional or substitute facilities will be available if
needed.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is subject to claims and suits arising in the
ordinary course of its business, including claims for damages for personal
injuries. In the opinion of management, the ultimate resolution of any of these
pending claims and legal proceedings will not have a material effect on the
Company's financial position or results of operations.
On January 26, 1994 Franklin Capital Associates L.P. (Franklin), Aetna Life and
Casualty Company and Aetna Casualty and Surety Company shareholders, who at one
time held approximately 320,000 shares of the Company's common stock
(approximately 13% of shares outstanding) filed suit in Chancery Court of
Williamson County, Tennessee claiming unspecified damages not to exceed three
million dollars in connection with registration rights they received in the
Company's acquisition of certain home health operations in February 1991. The
1994 suit alleged that the Company failed to use its best efforts to register
the shares held by the plaintiffs as required by the merger agreement. The
Company settled with both Aetna parties shortly before the case went to trial in
February 2000. In mid-trial Franklin voluntarily withdrew its complaint
reserving its legal rights to bring a new suit as allowed under Tennessee law.
In April 2000, Franklin re-filed its lawsuit. The second trial took place in
February 2003; however, no ruling has been issued. Estimated costs of litigation
are included in accrued liabilities on the accompanying balance sheet. The
Company can give no assurance that it will be successful in its defense.
Accordingly, the Company is unable to predict what impact, if any, the ultimate
resolution of this matter may have on its financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Almost Family, Inc. was held on
October 14, 2002.
(c) Certain matters voted upon at the meeting and the votes cast with
respect to such matters are as follows:
Proposals and Vote Tabulations
Votes Cast
Broker
Management Proposals For Against Abstain Non-votes
- -------------------------- ---------- ------------ ------------ -----------
Approval of the appointment of
independent auditors for 2002 2,098,396 452 600 0
Election of Directors
Director Votes Received Votes Withheld
- -------------------------- ------------------- -------------------
William B. Yarmuth 2,083,020 16,428
Steven B. Bing 2,087,340 12,108
Donald G. McClinton 2,087,120 12,328
Tyree G. Wilburn 2,032,512 66,936
Jonathan D. Goldberg 2,087,360 12,088
Wayne T. Smith 2,087,360 12,088
W. Earl Reed, III 2,087,220 12,228
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ SmallCap System. The stock is
traded under the symbol "AFAM" (formerly CTND). Set forth below are the high and
low sale prices for the common stock for the periods indicated reported by
NASDAQ:
Closing Common Stock Prices
Quarter Ended: High Low
-------------- ---- ---
June 30, 2000 $3.00 $2.19
September 30, 2000 $4.28 $2.19
December 31, 2000 $5.25 $3.47
March 31, 2001 $6.13 $3.50
June 30, 2001 $7.75 $5.77
September 30, 2001 $11.00 $7.90
December 31, 2001 $16.30 $9.20
March 31, 2002 $16.42 $9.20
June 30, 2002 $11.75 $9.79
September 30, 2002 $11.63 $7.15
December 31, 2002 $7.47 $4.75
On March 28, 2003, the last reported sale price for the Common Stock reported by
NASDAQ was $4.26 and there were approximately 475 holders of record of the
Company's Common Stock. No cash dividends have been paid by the Company during
the periods indicated above. The Company does not presently intend to pay
dividends on its common stock and will retain its earnings for future operations
and growth of its business.
Equity Compensation Plan
The information required by this part of Item 5 is incorporated herein by
reference from our Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 12, 2003 appearing under the caption "Executive
Compensation Plan Table" of such Proxy Statement.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived from the
consolidated financial statements of the Company for the periods and at the
dates indicated. The information is qualified in its entirety by and should be
read in conjunction with the consolidated financial statements and related notes
included elsewhere in this and prior year Form 10-Ks.
Consolidated Selected Financial Information
(Dollar amounts in 000's Year Ended Nine Months Year Ended
except per share data) Year Ended December 31, Ended December Year Ended Year Ended March 31,
December 31, 2001 31, 2002 March 31, March 31, 1999
2002 (unaudited) 2001 2000
-------------------------------------------------- -------------------------------------------
Results of operations data:
Net revenues $ 85,770 $ 79,306 $ 59,754 $ 75,455 $ 79,343 $ 74,045
Income (loss) from:
Continuing operations $ 1,345 $ 2,674 $ 2,241 $ 541 $ (3,391) $ (8,104)
Discontinued operations - 1,087 1,087 737 (1,715) 1,876
-------------------------------------------------- -------------------------------------------
Net income (loss) $ 1,345 $ 3,761 $ 3,328 $ 1,278 $ (5,106) $ (6,228)
================================================== ===========================================
Per share:
Basic:
Number of shares 2,416 2,646 2,478 3,146 3,124 3,119
Income (loss) from:
Continuing operations $ 0.56 $ 1.01 $ 0.90 $ 0.17 $ (1.08) $ (2.60)
Discontinued operations - 0.44 0.44 0.23 (0.55) 0.60
-------------------------------------------------- -------------------------------------------
Net income (loss) $ 0.56 $ 1.42 $ 1.34 $ 0.40 $ (1.63) $ (2.00)
================================================== ===========================================
Diluted:
Number of shares 2,720 3,077 2,909 3,307 3,124 3,120
Income (loss) from:
Continuing operations $ 0.49 $ 0.87 $ 0.77 $ 0.16 $ (1.08) $ (2.60)
Discontinued operations - 0.35 0.37 0.22 (0.55) 0.60
-------------------------------------------------- -------------------------------------------
Net income (loss) $ 0.49 $ 1.22 $ 1.14 $ 0.38 $ (1.63) $ (2.00)
================================================== ===========================================
Balance sheet data as of: December December March March March
2002 2001 2001 2000 1999
-------------- --------------- ------------ --------------- --------------
Working capital $ 10,466 $ 11,963 $ 9,741 $ 5,511 $ 9,529
Total assets 36,800 35,877 33,984 28,392 42,762
Long-term liabilities 17,071 14,847 13,482 4,777 13,562
Total liabilities 26,696 25,495 26,726 17,603 26,907
Stockholders' equity 10,104 10,381 7,258 10,790 15,855
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Decision to Retain VN Operations
As reported in the Company's Form 10-K for the nine months ended December 31,
2001, the Company in September 2001 terminated its previously adopted plan of
disposition for its Visiting Nurse (VN) operations. This decision followed a
period of extensive analysis and evaluation of numerous alternatives for the
business unit. In the Board's judgment, given the significant external and
internal changes that have taken place with regard to the future prospects of
the VN segment, retaining the VN segment was the best option available to
maximize shareholder value. In the accompanying financial statements, the
Company, in accordance with applicable accounting rules, terminated the use of
discontinued operations accounting treatment for the VN segment. VN segment
results are now reported as an on-going part of the continuing operations of the
Company for all periods presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Change in Fiscal Year End
Also in September 2001, the Company changed its fiscal year end from March 31 to
December 31 effective December 31, 2001. Pursuant to the Securities Exchange Act
of 1934, the accompanying financial statements included herein present
information for the year ended December 31, 2002, the nine months ended December
31, 2001 and for the year ended March 31, 2001 .
To facilitate an understanding of current operating results Management's
Discussion and Analysis of Financial Position and Results of Operations includes
the unaudited year ended December 31, 2001 compared to the audited year ended
December 31, 2002.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States.
When more than one accounting principle, or the method of its application, is
generally accepted, the Company selects the principle or method that is
appropriate in the specific circumstances. Application of these accounting
principles requires management to make estimates about the future resolution of
existing uncertainties; as a result, actual results could differ from these
estimates. In preparing these financial statements, management has made its best
estimates and judgments of the amounts and disclosures included in the financial
statements, giving due regard to materiality.
Receivables and Revenue Recognition
Revenues are recognized when the related patient services are provided.
Receivables and revenues are stated at amounts estimated by management to be
their net realizable values. Certain classes of patients rely on a common source
of funds to pay the cost of their care, such as the Federal Medicare program and
various state Medicaid programs. Medicare program revenues for the years prior
to the implementation of the prospective payment system and certain Medicaid
program revenues are subject to audit and retroactive adjustment by government
representatives. The Company believes that any differences between the net
revenues recorded and final determination will not materially affect the
Company's results of operations or financial condition. However, it is possible
such differences could be material.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of its accounts receivable based on
certain factors, such as payor types, historical collection trends and aging
categories. The Company calculates its reserve for bad debts based on the length
of time that the receivables are past due. The percentage applied to the
receivable balances in the various aging categories is based on historical
collection experience.
Insurance Programs
Self-Insurance Programs. The Company bears significant risk under its
self-insured employee health, automobile and workers' compensation programs. The
Company's self-insured health program has an excess-loss insurance policy that
reimburses the Company for covered expenses (up to a certain amount) of a
specific deductible for each covered person and an annual aggregate deductible
for all covered claims. The Company's current excess loss insurance policy ends
April 30, 2003. Based on information provided by its broker and third-party
administrator, the Company expects health insurance costs to increase between
10% to 20% during 2003 due to the inflation of medical care costs. Under its
automobile and workers' compensation self-insurance programs, the Company bears
risk up to $100,000 per incident.
The Company records estimated liabilities for its health, automobile, and
workers' compensation self-insurance programs based on information provided by
the third-party plan administrators, historical claims experience, the life
cycle of claims, expected costs of claims incurred but not paid, and expected
costs to settle unpaid claims.
General and Professional Liability. The Company is party to various other legal
matters arising in the ordinary course of business, including patient
care-related claims and litigation. The Company carries insurance coverage for
this exposure however its deductible per claim increased from $5,000 to $25,000
effective July 1, 2001. At December 31, 2002, recorded reserves for the general
and professional coverage totaled approximately $177,000.
The Company monitors its estimated self-insurance liabilities on a quarterly
basis. As facts change, it may become necessary to make adjustments that could
be material to the Company's results of operations and financial condition.
The Company believes that its present insurance coverage is adequate. However,
due to insurance market conditions, the Company will face significant cost
increases and higher deductibles upon renewal on April 1, 2003. The Company is
currently contemplating alternatives including potentially accepting additional
self-insurance risk in lieu of higher premium costs.
Impairment of Property, Equipment and Intangible Assets
The Company evaluates its property and equipment and intangible assets on a
periodic basis to determine if facts and circumstances suggest that the assets
may be impaired or the estimated useful life of the assets may need to be
changed. The Company considers internal and external factors of the individual
facility or asset, including changes in the regulatory environment, changes in
national health care trends, current period cash flow loss combined with a
history of cash flow losses and local market developments. If these factors and
the projected undiscounted cash flow of the facility or asset over the asset's
remaining life indicate that the carrying value of the asset will not be
recovered, the carrying value will be adjusted to its fair value if it is lower.
There were no impairment charges recorded during the year ended December 31,
2002, however, if the projections or management's assumptions change in the
future, the Company may be required to record impairment charges not
previously recorded for its assets.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations" (SFAS 141) and SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements established new accounting and
reporting standards for business combinations and associated goodwill and
intangible assets. SFAS 141 eliminated the pooling of interest method of
accounting and amortization of goodwill for business combinations initiated
after June 30, 2001. SFAS 142, effective January 1, 2002, requires that goodwill
and intangible assets with indefinite useful lives can no longer be amortized,
but instead must be tested for impairment at least annually. The Company has
completed the required initial and annual tests for impairment and concluded
that no impairment currently exists.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 142). This statement supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", and the accounting and reporting provisions for APB Opinion No.
30, "Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". SFAS 144 requires that one accounting model be used
for long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. The Company adopted SFAS 144
on January 1, 2002, and there was no effect on the financial position and
results of operations of the Company during the year ended December 31, 2002.
Accounting for Income Taxes
As of December 31, 2002, the Company has net deferred tax assets of
approximately $1.6 million. The net deferred tax asset is composed of
approximately $3.0 million of long-term deferred tax assets and $1.4 million of
long-term deferred tax liabilities. The Company has provided a valuation
allowance against certain net deferred tax assets based upon management's
estimation of realizability of those assets through future taxable income. This
valuation was based in large part on the Company's history of generating
operating income or losses in individual tax locales and expectations for the
future. The Company's ability to generate the expected amounts of taxable income
from future operations is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation at
all levels of government. Management has considered the above factors in
reaching its conclusion that it is more likely than not that future taxable
income will be sufficient to fully utilize the net deferred tax assets (net of
the valuation allowance) as of December 31, 2002. However, there can be no
assurances that the Company will meet its expectations of future taxable income.
Operating Segments
The Company operates in two reportable business segments: Adult Day Health
Services (ADHS), and Visiting Nurses (VN). Reportable segments have been
identified based upon how management has organized the business by services
provided to customers and the criteria in SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's ADHS segment includes
the aggregation of its ADC in-center operations and in-home personal care
operations, both of which provide predominantly long-term health care and
custodial services that enable recipients to avoid nursing home admission.
Sources of reimbursement, reimbursement rates per day and contribution margins
from the Company's ADC and personal care operations are substantially alike. The
Company's VN segment provides skilled medical services in patients' homes
largely to enable recipients to reduce or avoid periods of hospitalization
and/or nursing home care. Approximately 88% of the VN segment revenues are
generated from the Medicare program. VN Medicare revenues are generated on a per
episode basis rather than a fee per visit or day of care. General and
administrative expenses incurred at the corporate level have not been allocated
to the segments. The Company has operations in Alabama, Connecticut, Florida,
Indiana, Kentucky, Maryland, Massachusetts, and Ohio. Financial information for
the Company's two operating segments is presented in Note 13 to the financial
statements.
Seasonality
The Company's ADHS segment normally experiences seasonality in its operating
results. Specifically, the quarters ended December and March typically generate
lower operating income than the quarters ended June and September as the holiday
season and winter weather tend to temporarily lower ADC in-center attendance,
particularly in Maryland and Connecticut. Partially offsetting this, the
Company's VN segment operations located in southeast and southwest Florida
normally experience higher admissions during the March quarter than in the other
quarters due to seasonal population fluctuations.
RESULTS OF CONTINUING OPERATIONS
Year Ended December 31, 2002 Compared with Unaudited Year Ended December 31,
2001 and the Nine months Ended December 31, 2001
Year Ended
Consolidated December 2001 Nine months Ended
December 2002 (unaudited) Change December 2001
------------------------ ------------------------- --------------------------- -------------------------
Amount %Rev Amount %Rev Amount % Amount %
-------------- --------- --------------- --------- --------------- ----------- --------------- ---------
Net revenues:
ADHS $ 56,970,241 66.4% $ 51,447,232 64.9% $ 5,523,009 10.7% $ 38,709,644 64.8%
VN 28,799,296 33.6% 27,859,182 35.1% 940,114 3.4% 21,043,917 35.2%
-------------- --------------- --------------- ---------------
$ 85,769,537 100.0% $ 79,306,414 100.0% $ 6,463,123 8.1% $ 59,753,561 100.0%
============== =============== =============== ===============
Operating income:
ADHS $ 2,465,057 4.3% $ 3,847,080 7.5% $(1,382,023) -35.9% $ 2,928,096 7.6%
VN 3,590,936 12.5% 3,774,342 13.5% (183,406) -4.9% 3,190,514 15.2%
-------------- --------------- --------------- ---------------
6,055,993 7.1% 7,621,422 9.6% (1,565,429) -20.5% 6,118,610 10.2%
Unallocated
corporate expense 3,109,675 3.6% 2,045,057 2.6% 1,064,618 52.1% 1,542,712 2.6%
-------------- --------------- --------------- --------------
2,946,318 3.4% 5,576,365 7.0% (2,630,047) -47.2% 4,575,898 7.7%
Interest expense 813,555 0.9% 896,339 1.1% (82,784) -9.2% 712,003 1.2%
Income taxes 787,850 0.9% 2,006,474 2.5% (1,218,624) -60.7% 1,622,831 2.7%
-------------- --------------- --------------- ---------------
Income from continuing
operations
$ 1,344,913 1.6% $ 2,673,552 3.4% $ (1,328,639) -49.7% $ 2,241,064 3.8%
============= ============== =============== ===============
The commentary that follows explains the comparison of the year ended December
31, 2002 to the unaudited results for the year ended December 31, 2001. These
explanations consider the comparisons of the percentage of revenue information
shown above for the year ended December 31, 2001 and the nine months ended
December 31, 2001.
The Company's net revenues for the year ended December 31, 2002 grew
approximately $6.5 million or 8.1% over the year ended December 31, 2001. The
acquisition of Medlink OH accounted for approximately $3.7 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
grew primarily due to increased patient volumes. A Medicare rate decrease of
approximately 5.3% went into effect October 1, 2002. As a result, revenues for
the year ended December 31, 2002 were approximately $348,000 lower than they
would have been if the rate cut had not been enacted. Operating income before
unallocated corporate expense decreased from the same period last year primarily
as a result of increased insurance costs and increased labor costs in both
segments. Additional costs were also incurred for increased staffing for
training, auditing, information systems and compliance programs. The Medlink
acquisition added approximately $345,000 to pre-tax income in the year ended
December 31, 2002. Unallocated corporate expenses in 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 disclosed in the Company's Form 10-K for the nine months ended
December 31, 2001. It is possible that additional costs related to the
investigation may be incurred in future periods. Interest expense in 2002 was
lower than in 2001 primarily as a result of lower interest rates.
In December 2002, the Company closed adult day care centers located in Seymour
CT, Mentor OH, and Miami FL. Those centers generated after-tax operating losses
of approximately $198,000 ($0.07 per diluted share) and $135,000 ($0.05 per
diluted share) in the years ended December 31, 2002 and 2001, respectively.
The effective income tax rate was approximately 37% of income before income
taxes for 2002 as compared to an effective income tax rate of approximately 43%
for 2001. The lower tax rate in 2002 is a result of changes in the distribution
of taxable income and losses in the various state and local jurisdictions in
which the Company operates.
Adult Day Health Services (ADHS) Segment-Year Ended December 31, 2002 and 2001
(Unaudited) and the Nine months Ended December 31, 2001 The Company's ADHS
segment includes the aggregation of its ADC in-center operations and in-home
personal care operations, both of which predominantly provide long-term health
care and custodial services that enable patients to avoid nursing home
admission. Sources of reimbursement, reimbursement rates per day and
contribution margins from the Company's ADC and in-home personal care operations
are substantially alike.
Year Ended
December 2001 Nine months Ended
December 2002 (unaudited) Change December 2001
------------------------ --------------------------- ---------------------- -------------------------
% % %
Amount Rev Amount Rev Amount % Amount Rev
-------------- --------- ----------------- --------- ------------- -------- --------------- ---------
Net revenues $ 56,970,241 100.0% $ 51,447,232 100.0% $ 5,523,009 10.7% $ 38,709,644 100.0%
Cost of services 49,368,309 86.7% 43,812,778 85.2% 5,555,531 12.7% 32,739,103 84.6%
General and administrative 3,061,539 5.4% 2,511,118 4.9% 550,421 21.9% 1,978,221 5.1%
Depreciation and
amortization 1,130,099 2.0% 718,101 1.4% 411,998 57.4% 647,029 1.7%
Uncollectible accounts 945,237 1.7% 558,155 1.1% 387,082 69.4% 417,195 1.1%
-------------- ----------------- ------------- ---------------
Operating income $ 2,465,057 4.3% $ 3,847,080 7.5% $(1,382,023) -35.9% $ 2,928,096 7.6%
============== ================= ============= ===============
Admissions 3,982 4,456 (474) -10.6% 3,364
Patients months of care 60,810 56,255 4,555 8.1% 42,509
Patient days of care 785,577 712,621 72,956 10.2% 538,918
Revenue per patient day $ 72.52 $ 72.19 $ 0.33 0.5% $ 71.83
ADC in-center
Avg. weekday attendance 1,304 1,228 76 6.2% 1,244
Avg. center capacity 1,791 1,685 106 6.3% 1,689
Average occupancy 72.8% 72.9% -0.1% 73.7%
ADHS revenues increased 10.7% to $57.0 million in 2002 from $51.4 million in
2001. The acquisition of Medlink Ohio, an in-home personal care operation,
accounted for approximately $3.7 million of the increase. The remainder of the
increase was generated predominantly from increased ADC in-center volumes.
Average revenue per day of care increased about 0.5% over the December 2001
period as a result of mix changes and higher reimbursement rates. Occupancy in
the adult day care centers was 72.8% of capacity in 2002 and 72.9% of capacity
in 2001. Average capacity increased as the addition of new centers in Kentucky
and Florida during 2001 slightly more than offset the capacity closed. In
December 2002, the Company closed centers located in Seymour CT, Mentor OH, and
Miami FL. Those centers generated operating losses of approximately $313,000 and
$224,000 in the years ended December 31, 2002 and 2001, respectively. As of
December 31, 2002, total system capacity was 1,691 guests per day.
Cost of services as a percent of revenues increased to 86.7% in 2002 from 85.2%
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 training, auditing,
information systems and compliance programs. 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. From July 1, 2002
forward, services provided are 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. As a
result of the net effect of these reimbursement and cost changes, ADHS segment
operating income for the year ended December 31, 2002 was approximately $140,000
lower than it would have been if such changes had not taken place.
Visiting Nurse (VN) Segment-Year Ended December 31, 2002 and 2001 (Unaudited)
and the Nine months Ended December 31, 2001 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 88% 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.
Year Ended
December 2001 Nine Months
December 2002 (unaudited) Change December 2001
------------------------- -------------------------- ------------------------------------------------
Amount % Rev Amount % Rev Amount % Amount %
-------------- ---------- ---------------- --------- -------------- --------- ------------- ---------
Net revenues $ 28,799,296 100.0% $ 27,859,182 100.0% $ 940,115 3.4% $ 21,043,917 100.0%
Cost of services 21,221,243 73.7% 20,528,923 73.7% 692,320 3.4% 15,401,130 73.2%
General and administrative 2,386,998 8.3% 2,210,303 7.9% 176,695 8.0% 1,436,452 6.8%
Depreciation and
amortization 884,608 3.1% 765,237 2.7% 119,371 15.6% 544,259 2.6%
Uncollectible accounts 715,511 2.5% 580,376 2.1% 135,135 23.3% 471,562 2.2%
-------------- ---------------- -------------- --------------
Operating income $ 3,590,936 12.5% $ 3,774,342 13.5% $ (183,406) -4.9% $ 3,190,514 15.2%
-------------- ---------------- -------------- --------------
Admissions 8,895 8,289 606 7.3% 6,068
Patient months of care 22,865 22,477 389 1.7% 16,371
Revenue per patient month $ 1,260 $ 1,239 $ 20.06 1.6% $ 1,285
VN revenues increased 3.4% to $28.8 million in 2002 from $27.9 million in 2001.
Average revenue per patient month of care increased about 1.6% over the December
2001 period as a result of mix changes and the net effect of a 5% rate increase
which went into effect October 2001 and a 5.3% rate decrease which went into
effect October 1, 2002. Costs of services, primarily labor and related costs,
grew at approximately the same rate as revenues. Increased general and
administrative and depreciation costs were incurred due to increased staffing,
and continued investment in information systems. The Company generated 7% more
admissions in 2002 than in 2001 while patient months of care increased about 2%
due to a shorter average length of stay.
A Medicare rate decrease of approximately 5.3% went into effect October 1, 2002.
As a result, revenues for the year ended December 31, 2002 were approximately
$348,000 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 year ended December 31, 2002,
the Company's revenues would have been lower by approximately $718,000. Under
existing law and regulation, Medicare rates will change each October 1, based on
a statutory formula the intent of which is to cause reimbursement rates to
reflect changes in the costs of providing services.
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 $98,000 in the
year ended December 31, 2002.
Nine Months Ended December 31, 2001 Compared with Unaudited Nine Months Ended
December 31, 2000 and the Year Ended March 31, 2001
Nine Months Ended
Consolidated December 2000 Year Ended
December 2001 (unaudited) Change March 2001
------------------------ ------------------------- --------------------------- -------------------------
Amount %Rev Amount %Rev Amount % Amount %
-------------- --------- --------------- --------- --------------- ----------- --------------- ---------
Net revenues:
ADHS $ 38,709,644 64.8% $ 36,942,984 66.1% $ 1,766,660 4.8% $ 49,680,572 65.8%
VN 21,043,917 35.2% 18,958,949 33.9% 2,084,968 11.0% 25,774,214 34.2%
-------------- --------------- --------------- ---------------
$ 59,753,561 100.0% $ 55,901,933 100.0% $ 3,851,628 6.9% $ 75,454,786 100.0%
============== =============== =============== ==============
Operating income:
ADHS $ 2,928,096 7.6% $ 2,683,335 7.3% $ 244,761 9.1% $ 3,522,306 7.1%
VN 3,190,514 15.2% (667,134) -3.5% 3,857,648 NM (83,305) -0.3%
-------------- -------------- --------------- ---------------
6,118,610 10.2% 2,016,201 3.6% 4,102,409 NM 3,439,001 4.6%
Unallocated
corporate expense 1,542,712 2.6% 1,181,302 2.1% 361,410 30.6% 1,603,505 2.1%
-------------- -------------- --------------- ---------------
4,575,898 7.7% 834,899 1.5% 3,740,999 NM 1,835,496 2.4%
Interest expense 712,003 1.2% 631,316 1.1% 80,687 12.8% 815,653 1.1%
Income taxes 1,622,831 2.7% 95,663 0.2% 1,527,168 NM 479,305 0.6%
-------------- --------------- --------------- ---------------
Income from continuing
operations
$ 2,241,064 3.8% $ 107,920 0.2% $ 2,133,144 NM $ 540,538 0.7%
============== =============== ============== ===============
NM = Not Meaningful
The commentary that follows explains the comparison of the nine months ended
December 31, 2001 to the unaudited results for the nine months ended December
31, 2000. The explanations set forth below consider the comparisons of the
percentage of revenue information shown above for the nine months ended December
31, 2001 and the year ended March 31, 2001.
The Company's net revenues for the nine months ended December 31, 2002 grew $3.9
million or 6.9% over the nine months ended December 31, 2001 primarily as a
result of improved reimbursement and patient volumes in the VN segment and to a
lesser extent pricing improvements in the ADHS Segment. Likewise operating
income before unallocated corporate expense improved $4.1 million during the
period ended December 31, 2001 primarily as a result of the Company's actions to
adapt its operations to the new Medicare PPS reimbursement system which took
effect on October 1, 2001. Unallocated corporate overhead increased as a result
of additional expenditures in information systems, additional staff support for
operational audits and communication and increased compensation expense. Refer
to the segment discussions below for additional information.
The increase in interest is primarily a result of higher average outstanding
debt levels associated with the Company's use of approximately $5.2 million for
the repurchase of a large block of the Company's stock in March 2001, partially
offset by lower interest rates in 2001.
The effective income tax rate was approximately 42% of income before income
taxes in 2001 as compared to an effective income tax rate of approximately 47%
in the December 2000 and March 2001 periods. The higher tax rate used in the
prior periods was a result of taxable losses incurred in certain state and local
jurisdictions and the establishment of a valuation allowance against the
realizability of the related net operating loss carryforwards. Taxable income
was generated in those jurisdictions in 2001.
Adult Day Health Services (ADHS) Segment-Nine months Ended December 31, 2001 and
2000 (Unaudited) and the Year Ended March 31, 2001
The Company's ADHS segment includes the aggregation of its ADC in-center
operations and in-home personal care operations, both of which predominantly
provide long-term health care and custodial services that enable patients to
avoid nursing home admission. Sources of reimbursement, reimbursement rates per
day and contribution margins from the Company's ADC and in-home personal care
operations are substantially alike.
Nine Months Ended
December 2000 Year Ended
December 2001 (unaudited) Change March 2001
------------------------ ---------------------------- --------------------- ------------------------
% % %
Amount Rev Amount Rev Amount % Amount Rev
-------------- --------- ------------------ --------- ------------- ------- --------------- --------
Net revenues $ 38,709,644 100.0% $ 36,942,984 100.0% $1,766,660 4.8% $49,680,572 100.0%
Cost of services 32,739,103 84.6% 31,409,698 85.0% 1,329,405 4.2% 42,482,598 85.5%
General and administrative 1,978,221 5.1% 1,767,537 4.8% 210,684 11.9% 2,360,589 4.8%
Depreciation and amortization 647,029 1.7% 656,773 1.8% (9,744) -1.5% 748,478 1.5%
Uncollectible accounts 417,195 1.1% 425,641 1.2% (8,446) -2.0% 566,601 1.1%
-------------- ------------------ ------------- ---------------
Operating income $ 2,928,096 7.6% $ 2,683,335 7.3% $ 244,761 9.2% $ 3,522,306 7.1%
============== ================== ============= ===============
Admissions 3,364 3,496 (132) -3.8% 4,588
Patients months of care 42,509 41,322 1,187 2.9% 55,068
Patient days of care 538,918 537,397 1,521 0.3% 710,452
Revenue per patient day $ 71.83 $ 68.74 $ 3.09 4.5% $ 69.93
ADC in-center
Avg. weekday attendance 1,244 1,248 (4) -0.3% 1,231
Avg. center capacity 1,689 1,671 18 1.1% 1,671
Average occupancy 73.7% 74.7% -1.0% 73.7%
ADHS revenues increased 4.8% to $38.7 million in 2001 from $36.9 million in
2000. Average revenue per day of care increased about 4.5% and 2.7% over the
December 2000 and March 2001 periods, respectively, as a result of mix changes
and higher reimbursement rates. The Company had one more center in operation in
2000 than in 2001. Occupancy in the adult day care centers was 73.7% of capacity
in 2001 and 74.7% of capacity in 2000. Average capacity increased as the
addition of new centers in Kentucky and Florida slightly more than offset the
capacity closed in 2001. As of December 31, 2001, total system capacity was
1,827 guests per day. In addition to the above, net revenues for the nine months
ended December 31, 2001 included a one-time, non-recurring supplemental
reimbursement of $210,000 from the Maryland Medicaid program.
Cost of services as a percent of revenues decreased to 84.6% in the period ended
December 2001 from 85.0% and 85.5% in the December 2000 and March 2001 periods,
respectively, primarily as a result of the pricing, volume and capacity changes
discussed above. General and administrative expenses were relatively unchanged
between periods and increased slightly as a percent of revenues. Depreciation
and amortization decreased due to certain property items reaching the end of
their useful lives. Management establishes an allowance for uncollectible
accounts based on its estimate of probable collection losses. The provision for
uncollectible accounts was just over 1% of revenue in both nine-month periods.
During the nine months ended December 31, 2001, the Company opened three new
Adult Day Care facilities: Ft. Myers FL, Bardstown KY and Ft. Thomas KY
(Cincinnati metro area). These facilities generated a combined pre-tax loss of
$293,000 in the December 2001 period.
Visiting Nurse (VN) Segment-Nine months Ended December 31, 2001 and 2000
(Unaudited) and the Year Ended March 31, 2001
The Company's VN segment provides skilled medical services in patients' homes to
enable recipients to reduce or avoid periods of hospitalization and/or nursing
home care. Approximately 83% of the VN segment revenues come from the Medicare
program and are generated on a per episode basis rather than a daily fee basis
as in ADHS. During the entirety of the December 2001 period, Medicare PPS was in
effect. From April 1, 2000 through September 30, 2000, Medicare's cost-based
reimbursement system was in effect. For all periods after September 30, 2000,
Medicare PPS was in effect.
Nine Months Ended
December 2000 Year Ended
December 2001 (unaudited) Change March 2001
--------------- ---------- --------------- --------- -------------- -------- -------------- ---------
Amount % Rev Amount % Rev Amount % Amount %
--------------- ---------- --------------- --------- -------------- -------- -------------- ---------
Net revenues $ 21,043,917 100.0% $ 18,958,949 100.0% $ 2,084,968 11.0% $ 25,774,214 100.0%
Cost of services 15,401,130 73.2% 16,876,850 89.0% (1,475,720) -8.7% 22,004,512 85.4%
General and admininstrative 1,436,452 6.8% 1,898,306 10.0% (461,854) -24.3% 2,672,287 10.4%
Depreciation & amortization 544,259 2.6% 443,081 2.3% 101,178 22.8% 664,060 2.6%
Uncollectible accounts 471,562 2.2% 407,846 2.2% 63,716 15.6% 516,660 2.0%
--------------- --------------- --------------- ----------------
Operating income (loss) $ 3,190,514 15.2% $ (667,134) -3.5% $ 3,857,648 NM $ (83,305) -0.3%
--------------- --------------- --------------- ----------------
Admissions 6,068 5,516 552 10.0% 7,737
Patient months of care 16,371 17,051 (680) -4.0% 23,157
Revenue per patient month $ 1,285 $ 1,112 $ 173 15.6% $ 1,113
The VN segment's financial performance under PPS is, in part, a result of the
Company's work to prepare for operation under PPS and in part due to higher
reimbursement rates under PPS. As shown in the table above, the VN operations
incurred losses in the December 2000 and March 2001 periods as a result of
operating under the old cost-based reimbursement system for portions of each
period. In the December 2001 period, the Company earned a higher rate of
reimbursement and incurred lower operating costs in its VN operations than were
earned and incurred, respectively, in the December 2000 and March 2001 periods.
Costs of services, primarily labor and related costs, were reduced due to
increased staff productivity and a reduction in the amount of unprofitable
insurance and managed care cases. These reductions were accomplished in large
part due to substantial investments made in information systems software
employed in the operation of the segment. The Company plans to continue its
efforts to refine and improve the operating efficiencies of the segment. The
Company generated 10% more admissions in the nine months ended December 31, 2001
versus the nine months ended December 31, 2000 while patient months of care
declined 4% due to a shorter average length of stay. Bad debt expense
approximated 2% of revenues in all periods shown above based on historical
collection results. Since Medicare PPS is still relatively new, this rate may
differ in the future.
A Medicare rate increase of 5.3% went into effect October 1, 2001.
Liquidity and Capital Resources
Revolving Credit Facility. The Company has a $22.5 million credit facility with
Bank One Kentucky NA with an expiration date of December 31, 2003. On February
7, 2003, the bank formally committed to an extension through June 30, 2004. The
credit facility bears interest at the bank's prime rate plus a margin (ranging
from 0% to 1.0%, currently 0%) dependent upon total leverage and is secured by
substantially all assets and the stock of the Company's subsidiaries. The
weighted average interest rates were 5.0%, 7.3% and 10.0% for the year ended
December 31, 2002, the nine months ended December 31, 2001 and the year ended
March 31, 2001, respectively. The interest rate in effect at December 31, 2002
was 4.25%. The Company pays a commitment fee of 0.5% per annum on the unused
facility balance. Borrowings are available equal to the greater of: a) a
multiple of earnings before interest, taxes, depreciation and amortization (as
defined) or b) an asset based formula, primarily based on accounts receivable.
Borrowings under the facility may be used for working capital, capital
expenditures, acquisitions, development and growth of the business and other
corporate purposes. As of December 31, 2002 the formula permitted approximately
$19.3 million to be used, of which approximately $14.5 million was outstanding.
Additionally, an irrevocable letter of credit, totaling $3.0 million, was
outstanding in connection with the Company's self-insurance programs. Thus, a
total of $17.5 million was either outstanding or committed as of December 31,
2002 while an additional $1.8 million was available for use. The Company's
revolving credit facility is subject to various financial covenants. As of
December 31, 2002, the Company was in compliance with the covenants. Based on
current facts, the Company expects the amount available in excess of the amount
outstanding under the facility through March 31, 2003 to be consistent with the
amounts as of December 31, 2002.
The Company believes that this facility will be sufficient to fund its operating
needs for at least the next year. Management will continue to evaluate
additional capital, including possible debt and equity investments in the
Company, to support a more rapid development of the business than would be
possible with internal funds.
Stock and Warrant Redemption. In March 2001, the Company redeemed 748,501 shares
of common stock and a warrant to purchase 200,000 shares of common stock (at an
exercise price of $12.50 per share). The Company's cost of redemption totaled
approximately $5.1 million. On August 19, 2002, the Company redeemed 210,100
shares of its common stock from a private investor at a total cost of
approximately $1.5 million.
On-Going Stock Buy Back Program. In March 2001, following the Stock and Warrant
Redemption discussed above, the Company's Board of Directors authorized up to an
additional $1 million to be used to acquire shares of the Company's common
stock. In April 2001, the Company initiated a stock repurchase plan in
compliance with Rule 10b-18 of the Securities Exchange Act of 1934. This plan
permits purchases to take place selectively from time to time in open market
purchases through a broker or in privately negotiated transactions. During the
year ended December 31, 2002, a total of 39,971 shares were repurchased under
this program, all of which were in open market purchases. A total of $374,456
was expended on these purchases for an average acquisition cost of $9.37 per
share.
Cash Flows
Key elements to the Consolidated Statements of Cash Flows for the years ended
December 31, 2002, March 31, 2001 and nine months ended December 31, 2001 were:
Net Change in Cash and Cash Equivalents Nine Months
Year Ended Ended
December 31, December 31, 2001 Year Ended
2002 March 31, 2001
-------------------- ------------------- ---------------------
Provided by (used in)
Operating activities $ 5,006,854 $ 1,173,330 $ 260,537
Investing activities (5,669,491) (2,088,473) (2,882,079)
Financing activities (292,220) 345,943 3,685,621
-------------------- ------------------- --------------------
Net increase (decrease) in cash and cash
equivalents $ (954,857) $ (569,200) $ 1,064,079
==================== =================== ====================
Year Ended December 31, 2002
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. Substantially all the increase in accounts receivable resulted
from revenue growth. Days sales outstanding were approximately 73 and 82 at
December 31, 2002 and 2001, respectively. The decrease in accounts payable and
accrued liabilities resulted primarily from a lower liability under the
self-insured employee health program. This lower liability resulted from a) an
intentional acceleration of the claims payment process and b) lower employee
participation due to an increase in required employee contributions. Net cash
used in investing activities resulted principally from amounts invested in the
acquisition of Medlink Ohio, improvements in information systems and adult day
health services expansion activities. Net cash used by financing activities
resulted primarily from borrowings on the Company's credit facility, payment of
capital lease and debt obligations, repurchases of common stock, and proceeds
from stock option exercises.
Nine Months Ended December 31, 2001
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. Substantially all the increase in accounts receivable resulted
from revenue growth. Days sales outstanding were approximately 81 at both
December 31, 2001 and March 31, 2001. Substantially all the decrease in accounts
payable and accrued liabilities resulted from the reversal of the remainder of
accounting reserves originally recorded at the time discontinued operations
accounting treatment was adopted for the VN segment which is included in the
income from discontinued operations. Net cash used in investing activities
resulted principally from amounts invested in adult day health services
expansion activities and improvements in information systems. Net cash used by
financing activities resulted primarily from borrowings on the Company's credit
facility, payment of capital lease and debt obligations, repurchases of common
stock, and proceeds from stock option exercises.
Year Ended March 31, 2001
Net cash used in operating activities resulted principally from current period
income, net of changes in accounts receivable, accounts payable and accrued
expenses. Substantially all the increase in accounts receivable resulted from an
increase in days sales outstanding which were approximately 81 at March 31, 2001
and 70 at March 31, 2000. Accounts receivable increased primarily as a result of
under-payments from the Kentucky Medicaid program. Accounts payable and accrued
liabilities grew as a result of an increase in the number of days expenses
outstanding due to slower payment of liabilities, partially offset by a decline
in average daily expenses. Days expenses (excluding depreciation and bad debt
expense) were approximately 68 at March 31, 2001 and 58 at March 31, 2000. Net
cash used in investing activities resulted principally from amounts invested in
adult day health services expansion activities and improvements in information
systems. Net cash used by financing activities resulted primarily from
borrowings on the Company's credit facility, payment of capital lease and debt
obligations, repurchases of common stock, and proceeds from stock option
exercises.
Contractual Obligations. The following table provides information about the
payment dates of the Company's contractual obligations at December 31, 2002,
excluding current liabilities except for the current portion of long-term debt
(amounts in thousands):
2003 2004 2005 2006 2007 & Later
------------ ------------ ------------ ------------ -----------------
Revolving credit facility $ - $ 14,482 $ - $ - $ -
Capital lease obligations 509 262 222 222 411
Notes payable 68 65 362 47 195
Operating leases 1,895 1,414 1,042 378 100
------------ ------------ ------------ ------------ -----------------
Total $ 2,472 $ 16,223 $ 1,626 $ 647 $ 706
============ ============ ============ ============ =================
The Company believes that a certain amount of debt has an appropriate place in
its overall capital structure and it is not the Company's strategy to eliminate
all debt financing. The Company believes that it will be able to refinance the
revolving credit facility when it matures. Based on the Company's ability to
refinance the revolving credit facility when it matures, the Company believes
that its cash flow from operations will be sufficient to cover operating needs,
future capital expenditure requirements and scheduled debt payments of
miscellaneous small borrowing arrangements and capitalized leases. In addition,
it is likely that the Company will pursue growth from acquisitions, partnerships
and other ventures that would be funded from excess cash from operations, credit
available under the bank credit agreement and other financing arrangements that
are normally available in the marketplace.
Commitments and Contingencies
Letter of Credit. The Company has an outstanding letter of credit of $3.0
million at December 31, 2002, which benefits its third-party
insurer/administrator for its automobile and workers' compensation
self-insurance programs.
Acquisition Agreements. The Company currently has no obligations related to
acquisition agreements. However, the Company periodically seeks acquisition
candidates and may reasonably be expected to enter into acquisitions in the
future.
General and Professional Liability. The Company is party to various other legal
matters arising in the ordinary course of business, including patient
care-related claims and litigation. The Company carries insurance coverage for
this exposure however its deductible per claim increased from $5,000 to $25,000
effective July 1, 2001. At December 31, 2002, recorded reserves for the general
and professional coverage totaled approximately $177,000. The Company monitors
its estimated self-insurance liabilities on a quarterly basis. As facts change,
it may become necessary to make adjustments that could be material to the
Company's results of operations and financial condition. The Company believes
that its present insurance coverage is adequate. However, due to insurance
market conditions, the Company will face significant cost increases and higher
deductibles upon renewal on April 1, 2003. The Company is currently
contemplating alternatives including potentially accepting additional
self-insurance risk in lieu of higher premium costs.
Other Litigation. On January 26, 1994 Franklin Capital Associates L.P.
(Franklin), Aetna Life and Casualty Company and Aetna Casualty and Surety
Company shareholders, who at one time held approximately 320,000 shares of the
Company's common stock (approximately 13% of shares outstanding) filed suit in
Chancery Court of Williamson County, Tennessee claiming unspecified damages not
to exceed three million dollars in connection with registration rights they
received in the Company's acquisition of certain home health operations in
February 1991. The 1994 suit alleged that the Company failed to use its best
efforts to register the shares held by the plaintiffs as required by the merger
agreement. The Company settled with both Aetna parties shortly before the case
went to trial in February 2000. In mid-trial Franklin voluntarily withdrew its
complaint reserving its legal rights to bring a new suit as allowed under
Tennessee law. In April 2000, Franklin re-filed its lawsuit. The second trial
took place in February 2003; however, no ruling has been issued. Estimated costs
of litigation are included in accrued liabilities on the accompanying balance
sheet. The Company can give no assurance that it will be successful in its
defense. Accordingly, the Company is unable to predict what impact, if any, the
ultimate resolution of this matter may have on its financial position or results
of operations.
Medicaid Dependence. The Company has a significant dependence on state Medicaid
reimbursement programs. For the year ended December 31, 2002, approximately
17.0%, 13.7%, 5.9%, 5.3%, 2.9%, 2.9% and 1.1% of the Company's revenues were
generated from Medicaid reimbursement programs in the states of Kentucky,
Maryland, Connecticut, Ohio, Massachusetts, Florida and Indiana, respectively.
The Company could also be materially impacted by unfavorable changes in
reimbursement programs in these states. In March 2003, the Commonwealth of
Kentucky passed a new budget. This budget is intended to constrain Medicaid
spending and Kentucky's Medicaid program is currently formulating new
regulations to implement the budget. Because the regulations are in the
development stage, the Company is currently unable to predict what impact they
may have on the Company's operations. There can be no assurance that these
changes will not have a material adverse effect on the Company.
Health Care Reform
The health care industry has experienced, and is expected to continue to
experience, extensive and dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is subjecting the health care
industry to significant reform. Health care reforms have been enacted as
discussed elsewhere in this document. Proposals for additional changes are
continuously formulated by departments of the Federal government, Congress, and
state legislatures.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of expenditures are expected to continue. Such
future changes may further impact reimbursement. There can be no assurance that
future legislation or regulatory changes will not have a material adverse effect
on the operations of the Company.
Federal and State legislative proposals continue to be introduced that would
impose more limitations on payments to providers of health care services such as
the Company. Many states have enacted, or are considering enacting, measures
that are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations may be enacted
in the future affecting its business or how existing or future laws and
regulations might be interpreted, or whether the Company will be able to comply
with such laws and regulations in its existing or future markets.
Refer to the sections on Reimbursement Changes and Cautionary Statements -
Forward Outlook and Risks in Part I, and the notes to the accompanying financial
statements and elsewhere in this Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional information.
Health Insurance Portability and Accountability Act (HIPAA)
The Health Insurance Portability and Accountability Act (HIPAA) was enacted by
the Federal government on August 12, 1996, and requires organizations to adhere
to certain standards to protect data integrity, confidentiality and
availability. HIPAA also mandates, among other things, that the Department of
Health and Human Services adopt standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and
enhance the effectiveness and efficiency of the health care industry. The
Department of Health and Human Services must adopt standards for the following:
o Electronic transactions and code sets;
o Unique identifiers for providers, employers, health plans and
individuals; o Security and electronic signatures; o Privacy; and
o Enforcement.
Although HIPAA was intended ultimately to reduce administrative expenses and
burdens faced within the health care industry, the Company believes the law will
initially bring about significant and, in some cases, costly changes. The
Department of Health and Human Services has released two rules to date mandating
the use of new standards with respect to certain health care transactions and
health information. The first rule establishes uniform standards for common
health care transactions, including:
o Health care claims information;
o Plan eligibility, referral certification and authorization;
o Claims status;
o Plan enrollment and disenrollment; o Payment and remittance
advice; o Plan premium payments; and o Coordination of benefits.
Second, the Department of Health and Human Services has released standards
relating to the privacy of individually identifiable health information. These
standards not only require compliance with rules governing the use and
disclosure of protected health information, but they also require the Company to
impose those rules, by contract, on any business associate to whom we disclose
protected information. The Department of Health and Human Services has only
recently issued rules governing the security of health information.
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 Company expects to be able to comply with
the new standards as the payors implement them. The Department of Health and
Human Services issued the privacy standards on December 28, 2000, and, after
certain delays, they became effective on April 14, 2001, with a compliance date
of April 14, 2003. Once the Department of Health and Human Services has issued
the security regulations in final form, affected parties will have approximately
two years to be fully compliant. Sanctions for failing to comply with the HIPAA
provisions related to health information practices include criminal and civil
penalties.
Management is in the process of implementing changes in its operations to comply
with the privacy and electronic transaction and code sets aspects of HIPAA and
anticipates that the Company will be able to fully and timely comply with those
requirements. The cost of complying with privacy standards is not expected to
have a material effect on the Company's results of operations or financial
position. Independent of HIPAA requirements, the Company has been developing new
information systems with improved functionality to facilitate improved billing
and collection activities, reduced administrative costs and improved management
decision support information. The Company has incorporated the HIPAA mandated
electronic transaction and code sets into this new software.
Regulations with regard to the security components of HIPAA, have only recently
been published. Those regulations are required to be implemented by April 2005.
Management cannot at this time estimate the cost of compliance with the security
regulations.
Impact of Inflation
Management does not believe that inflation has had a material effect on income
during the past several years.
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
Derivative Instruments
The Company does not use derivative instruments.
Market Risk of Financial Instruments
The Company's primary market risk exposure with regard to financial instruments
is to changes in interest rates.
At December 31, 2002, a hypothetical 100 basis point increase in short-term
interest rates would result in a reduction of approximately $144,000 in annual
pre-tax earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Year Ended
Year Ended Ended Year Ended December 31,
December 31, December 31, March 31, 2001
2002 2001 2001 (unaudited)
------------------------------------------------------------------------
Net revenues $ 85,769,537 $ 59,753,561 $ 75,454,786 $ 79,306,414
Cost of sales and services 70,589,552 48,140,233 64,487,110 64,341,701
General and administrative expenses 7,580,281 4,878,469 6,520,432 6,697,630
Cost of restatement 815,794 - - -
Depreciation and amortization expense 2,176,844 1,270,204 1,528,487 1,552,187
Provision for uncollectible accounts 1,660,748 888,757 1,083,261 1,138,531
---------------- ------------------ ----------------- -----------------
Income from continuing operations before other
Income (expense) and income taxes 2,946,318 4,575,898 1,835,496 5,576,365
Other income (expense):
Interest expense (813,555) (712,003) (815,653) (896,339)
---------------- ------------------ ----------------- -----------------
Income from continuing operations before
income taxes 2,132,763 3,863,895 1,019,843 4,680,026
Provision for income taxes 787,850 1,622,831 479,305 2,006,474
---------------- ------------------ ----------------- -----------------
Income from continuing operations $ 1,344,913 $ 2,241,064 540,538 2,673,552
Income from discontinued operations:
Reclassification of VN operating losses previously
provided, net of income taxes of $451,844 - - 737,220 -
Gain from reversal of previously recorded
disposal charge, net of income - 1,087,350 - 1,087,350
taxes of $695,000 --------------- ------------------ ----------------- -----------------
Net income $ 1,344,913 $ 3,328,414 $ 1,277,758 $ 3,760,902
================ ================== ================= =================
Per share amounts-Basic:
Average shares outstanding 2,416,224 $ 2,478,000 $ 3,145,511 $ 2,646,177
Income from continuing operations $ 0.56 $ 0.90 $ 0.17 $ 1.01
Income from discontinued operations:
Reclassification of VN operating losses previously
provided, net of income taxes - - 0.23 -
Gain from reversal of previously recorded disposal
charge, net of income taxes - 0.44 - 0.41
---------------- ------------------ ----------------- -----------------
Net income $ 0.56 $ 1.34 $ 0.40 $ 1.42
================ ================== ================= =================
Per share amounts-Diluted:
Average shares outstanding 2,719,809 $ 2,909,285 $ 3,306,682 $ 3,077,462
Income from continuing operations 0.49 $ 0.77 $ 0.16 $ 0.87
Income from discontinued operations:
Reclassification of VN operating losses previously
provided, net of income taxes - - 0.22 -
Gain from reversal of previously recorded
dispoal charge, net of income taxes - 0.37 - 0.35
---------------- ------------------ ----------------- -----------------
Net income $ 0.49 $ 1.14 $ 0.38 $ 1.22
================ ================== ================= =================
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS December 31, 2002 December 31, 2001
------
------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 973,534 $ 1,928,391
Accounts receivable - net 17,118,539 17,896,966
Prepaid expenses and other current assets 602,759 1,021,417
Deferred tax assets 1,396,306 1,764,281
----------------- -------------------
TOTAL CURRENT ASSETS 20,091,138 22,611,055
PROPERTY AND EQUIPMENT - NET 9,149,782 8,113,938
COST IN EXCESS OF NET ASSETS ACQUIRED - NET 6,335,783 3,783,448
DEFERRED TAX ASSETS 212,914 143,662
OTHER ASSETS 1,010,406 1,224,546
---------------- -------------------
$ 36,800,023 $ 35,876,649
================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 9,272,300 $ 10,309,546
Current portion - capital leases and term debt 352,452 338,402
----------------- ------------------
9,624,752 10,647,948
------------------ ------------------
LONG-TERM LIABILITIES:
Revolving credit facility 14,482,237 12,586,532
Capital leases 882,809 837,934
Mortgage and acquisition notes payable 560,118 352,687
Other liabilities 1,146,023 1,070,137
--------------- ------------------
TOTAL LONG-TERM LIABILITIES 17,071,187 14,847,290
--------------- ------------------
TOTAL LIABILITIES 26,695,939 25,495,238
---------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $0.10; authorized 10,000,000
shares; 3,369,674 and 3,317,874 issued and
outstanding, respectively 336,970 331,790
Treasury stock, at cost, 1,087,383 and 837,312
shares respectively (7,706,152) (5,783,597)
Additional paid-in capital 26,335,863 6,040,728
Accumulated deficit (8,862,597) (10,207,510)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 10,104,084 10,381,411
$ 36,800,023 $ 35,876,649
================== ==================
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Stock Treasury Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------------ ------------ ----------- -------------- --------------- ---------------- ----------------
Balance, March 31, 2000 3,151,163 $315,119 10,000 $ (95,975) $25,384,270 $(14,813,682) $ 10,789,732
Options Exercised 138,811 13,881 347,456 361,337
Repurchased Shares 769,912 (5,170,944) (5,170,944)
Net income 1,277,758 1,277,758
------------ ------------ ----------- -------------- --------------- ---------------- ---------------
Balance, March 31, 2001 3,289,974 329,000 779,912 (5,266,919) 25,731,726 (13,535,924) 7,257,883
Options Exercised 27,900 2,790 77,973 80,763
Repurchased Shares 57,400 (516,678) (516,678)
Tax benefit from exercise of
non-qualified stock options 231,029 231,029
Net Income 3,328,414 3,328,414
------------ ------------ ----------- -------------- --------------- ---------------- ---------------
Balance, December 31, 2001 3,317,874 331,790 837,312 5,783,597) 26,040,728 (10,207,510) 10,381,411
Options Exercised 51,800 5,180 136,927 142,107
Repurchased Shares 250,071 (1,922,555) (1,922,555)
Tax benefit from exercise of
non-qualified stock options 158,208 158,208
Net Income 1,344,913 1,344,913
------------ ------------ ----------- -------------- --------------- ---------------- ---------------
Balance, December 31, 2002 3,369,674 $ 336,970 1,087,383 $(7,706,152) 26,335,863 (8,862,597) 10,104,084
============ ============ =========== ============== =============== ================ ===============
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
2002 2001 2001
---------------- ----------------- ---------------
Cash flows from operating activities:
Net income $ 1,344,913 $ 3,328,414 $ 1,277,758
Less income from discontinued operations - 1,087,350 737,220
---------------- ----------------- ---------------
Income from continuing operations 1,344,913 2,241,064 540,538
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization 2,176,844 1,270,204 1,528,487
Provision for uncollectible accounts 1,660,748 888,757 1,083,262
Deferred income taxes 456,930 1,027,291 125,239
---------------- ----------------- ---------------
5,639,435 5,427,316 3,277,526
Change in certain net assets, net of the effects of acquisitions and
dispositions:
(Increase) decrease in:
Accounts receivable (183,865) (2,060,042) (2,650,703)
Prepaid expenses and other current assets 337,406 (144,372) (991,118)
Other assets 214,141 (370,830) (84,340)
Increase (decrease) in:
Accounts payable and accrued expenses (1,076,149) (1,977,800) 986,547
Other liabilities 75,886 299,058 (277,375)
---------------- ----------------- ---------------
Net cash provided by operating activities 5,006,854 1,173,330 260,537
---------------- ----------------- ---------------
Cash flows from investing activities:
Capital expenditures (2,738,779) (2,088,473) (2,836,709)
Acquisitions, net of cash acquired (2,930,712) - (45,370)
---------------- ----------------- ---------------
Net cash used in provided by investing activities (5,669,491) (2,088,473) (2,882,079)
---------------- ----------------- ---------------
Cash flows from financing activities:
Net revolving credit facility borrowings 1,895,705 795,894 8,633,013
Repurchase of common shares (1,922,555) (516,678) (5,170,944)
Proceeds from stock option exercises 142,107 311,792 361,337
Principal payments on debt and capital leases (407,477) (245,065) (137,785)
---------------- ----------------- ---------------
Net cash provided by (used in) financing activities (292,220) 345,943 3,685,621
---------------- ----------------- ---------------
Net (decrease) increase in cash and cash equivalents (954,857) (569,200) 1,064,079
Cash and cash equivalents at beginning of period 1,928,391 2,497,591 1,433,512
--------------- ----------------- ---------------
Cash and cash equivalents at end of period $ 973,534 $ 1,928,391 $ 2,497,591
================ ================= ===============
Supplemental disclosures of cash flow information:
Cash payment of interest, net of amounts capitalized $ 822,000 $ 653,000 $ 829,000
Cash payment of taxes $ 465,000 $ 1,412,000 $ 706,000
Summary of non-cash investing activities:
Capital expenditures financed under capital leases $ 373,833 $ 841,961 $ 611,456
Acquisition note payable $ 300,000 $ - $ -
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Almost Family,
Inc. (a Delaware corporation) and its wholly-owned subsidiaries (collectively
"Almost Family" or the "Company"). The Company provides alternatives for seniors
and other adults with special needs and their families who wish to avoid nursing
home placement as long as possible and remain independent, through its network
of adult day care centers and ancillary services. The Company also operates a
chain of Medicare-certified home health agencies under the trade name
"CaretendersTM". The Company has operations in Alabama, Connecticut, Florida,
Indiana, Kentucky, Maryland, Massachusetts, and Ohio. All material intercompany
transactions and accounts have been eliminated in consolidation.
Decision to Retain VN Operations
As reported in the Company's Form 10-K for the nine months ended December 31,
2001, the Company in September 2001 terminated its previously adopted plan of
disposition for its Visiting Nurse (VN) operations. This decision followed a
period of extensive analysis and evaluation of numerous alternatives for the
business unit. In the Board's judgment, given the significant external and
internal changes that have taken place with regard to the future prospects of
the VN segment, retaining the VN segment was the best option available to
maximize shareholder value. In the accompanying financial statements, the
Company, in accordance with applicable accounting rules, terminated the use of
discontinued operations accounting treatment for the VN segment. VN segment
results are now reported as an on-going part of the continuing operations of the
Company for all periods presented.
As a result of the decision to retain its VN segment, the Company recorded, in
the nine months ended December 31, 2001, a one-time after-tax gain of
approximately $1.1 million, or $0.37 per diluted share, resulting from the
reversal of the remainder of accounting reserves originally recorded at the time
discontinued operations accounting treatment was adopted for this segment.
Change in Fiscal Year End
Also in September 2001, the Company changed its fiscal year end from March 31 to
December 31 effective December 31, 2001. Pursuant to the Securities Exchange Act
of 1934, the accompanying financial statements included herein present
information for the year ended December 31, 2002, the nine months ended December
31, 2001 and for the year ended March 31, 2001 .
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Uninsured deposits at December 31, 2002, and December 31, 2001 were
approximately $973,000 and $1.9 million, respectively. These amounts have been
deposited with national financial institutions.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives. The estimated useful lives
of depreciable assets are as follows:
Estimated
Useful Life
Buildings and improvements 30
Leasehold improvements 3-10
Medical equipment 2-10
Office and other equipment 3-10
Transportation equipment 3-5
Internally generated software 3
COST IN EXCESS OF NET ASSETS ACQUIRED
The cost in excess of fair value of net assets acquired is stated at cost.
Subsequent to its acquisitions, the Company evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life of
goodwill may warrant revision or that the remaining balance of goodwill may not
be recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company utilizes appropriate methods in measuring
whether or not the goodwill is recoverable.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations" (SFAS 141) and SFAS No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). These statements established new accounting and
reporting standards for business combinations and associated goodwill and
intangible assets. SFAS 141 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 required initial and annual tests for impairment and
concluded that no impairment currently exists. If the Company had accounted for
its goodwill under SFAS No. 142 for all periods presented, the Company's net
income and income per share would have been as follows:
Year Ended Nine Months Ended Year Ended
December 31, December 31, March 31,
2002 2002 2001
--------------------------------------------------
Net income as reported $ 1,344,913 $ 3,328,414 $ 1,277,758
Add back:
Goodwill amortization, net of tax - 65,540 79,500
-----------------------------------------------------
Adjusted net income $ 1,344,913 $ 3,393,954 $ 1,357,258
=====================================================
Basic earnings per share:
Net income as reported $ 0.56 $ 1.34 $ 0.40
Add back:
Goodwill amortization, net of tax - 0.03 0.03
-----------------------------------------------------
Adjusted net income $ 0.56 $ 1.37 $ 0.43
=====================================================
Diluted earnings per share:
Net income as reported $ 0.49 $ 1.14 $ 0.38
Add back:
Goodwill amortization, net of tax - 0.03 0.03
-----------------------------------------------------
Adjusted net income $ 0.49 $ 1.17 $ 0.41
=====================================================
The following table sets forth changes in the Company's goodwill for the fiscal
year ended December 31, 2002. All transactions occurred in the ADHS segment:
Balance at January 1, 2002 $3,783,448
Goodwill acquired (Note 11) 2,552,335
--------------
Balance as of December 31, 2002 $6,335,783
==============
Accumulated goodwill amortization at December 31, 2001 was approximately $2
million.
LONG-LIVED ASSETS
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 during the year ended December 31, 2002.
CAPITALIZATION POLICIES
Maintenance, repairs and minor replacements are charged to expense as incurred.
Major renovations and replacements are capitalized to appropriate property and
equipment accounts. Upon sale or retirement of property, the cost and related
accumulated depreciation are eliminated from the accounts and the related gain
or loss is recognized in income.
Construction costs incurred to ready a project for its intended use are
capitalized for major development projects and are amortized over the lives of
the related assets. Consistent with AICPA Statement of Position 98-1, the
Company capitalizes the cost of internally generated computer software developed
for the Company's own use. Software development costs of $1,381,280, $911,001
and $1,217,448 were capitalized in the year ended December 31, 2002, the nine
months ended December 31, 2001 and the year ended March 31, 2001, respectively.
Capitalized software costs for the year ended December 31, 2002 included $26,520
of capitalized interest expense. Capitalized software development costs are
amortized over a three-year period following the initial implementation of the
software.
NET REVENUES
The Company is paid for its services primarily by Federal and state third-party
reimbursement programs, commercial insurance companies, and patients. Revenues
are recorded at established rates in the period during which the services are
rendered. Appropriate allowances to give recognition to third party payment
arrangements are recorded when the services are rendered.
Approximately 4.8%, 9.9%, and 22.3% of net revenues for the year ended December
31, 2002, the nine months ended December 31, 2001 and the year ended March 31,
2001, respectively, were derived under Federal and state third-party cost-based
reimbursement programs. These revenues were based on cost reimbursement
principles and are subject to examination and retroactive adjustment by agencies
administering the programs. Laws and regulations governing the Medicare and
Medicaid programs are extremely complex and subject to interpretation. As a
result, there is a least a reasonable possibility that recorded estimates could
change by material amounts in the near term. Management continuously evaluates
the outcome of these reimbursement examinations and provides allowances for
losses based upon the best available information. In the opinion of management,
adjustments, if any, would not be material to the financial position or the
results of operations of the Company.
The Company has a significant dependence on state Medicaid reimbursement
programs. The Company could be materially impacted by unfavorable changes
in reimbursement programs in the states in which it operates. In March 2003,
the Commonwealth of Kentucky passed a new budget. This budget is intended to
constrain Medicaid spending and Kentucky's Medicaid program is currently
formulating new regulations to implement the budget. Because the regulations are
in the development stage, the Company is currently unable to predict what impact
they may have on the Company's operations. It is possible that these future
changes may have a material adverse effect on the Company.
The following table sets forth the percent of the Company's revenues generated
from Medicare, state Medicaid programs and other payors:
Year Ended Nine Months Ended Year Ended
December 31, 2002 December 31, 2001 March 31, 2001
----------------------- --------------------- -----------------------
Medicare 29.7% 29.2% 28.5%
Medicaid & other government programs:
Kentucky 17.0% 17.1% 14.9%
Maryland 13.7% 16.0% 16.5%
Connecticut 5.9% 6.3% 5.8%
Ohio 5.3% 3.7% 2.5%
Massachusetts 2.9% 2.9% 3.2%
Florida 2.9% 1.9% 0.4%
Indiana 1.1% 3.6% 3.6%
----------------------- --------------- ---------------
subtotal 48.8% 51.5% 46.9%
All other payers 21.5% 19.3% 24.6%
----------------------- ------------------ ---------------
Total 100.0% 100.0% 100.0%
======================= ================== ===============
Concentrations in the Company's accounts receivable were as follows:
As of December 31, 2002 As of December 31, 2001
------------------------------------- ----------------------------
Amount Percent Amount Percent
----------------------- ------------- ----------------- --------------
Medicare $ 4,845,084 24.9% $6,677,227 32.9%
----------------------- ------------- ----------------- --------------
Medicaid & other government programs:
Kentucky 5,211,503 26.8% 4,179,934 20.6%
Maryland 847,290 4.4% 1,083,617 5.3%
Connecticut 1,125,538 5.8% 994,571 4.9%
Ohio 1,904,768 9.8% 557,773 2.7%
Massachusetts 677,862 3.5% 839,130 4.1%
Florida 429,567 2.2% 518,191 2.6%
Indiana 984,321 5.1% 782,215 3.9%
----------------------- ----------------- -------------- --------------
subtotal 11,180,849 57.6% 8,955,431 44.1%
---------------------- ----------------- ---------------- --------------
All other payers 3,401,962 17.5% 4,684,560 23.0%
----------------------- --------------- ----------------- --------------
subtotal 19,427,895 100.0% 20,317,218 100.0%
============= ==============
Allowance for uncollectible accounts (2,309,356) (2,420,252)
----------------------- -----------------
$ 17,118,539 $17,896,966
======================= =================
At December 31, 2002 and 2001, the Company had approximately $4,491,000 and
$7,615,000 of net receivables outstanding specifically related to filed or
estimated cost reports. Of these amounts, approximately $2,271,000 and
$4,014,000, respectively, were due from the Kentucky Medicaid program.
The ability of payors to meet their obligations depends upon their financial
stability, future legislation and regulatory actions. The Company does not
believe there are any significant credit risks associated with receivables from
Federal and state third-party reimbursement programs. The allowance for doubtful
accounts principally consists of management's estimate of amounts that may prove
uncollectible for coverage, eligibility and technical reasons.
NET INCOME PER SHARE
Net income per share is presented as a unit of basic shares outstanding and
diluted shares outstanding. Diluted shares outstanding is computed based on the
weighted average number of common shares and common equivalent shares
outstanding. Common equivalent shares result from dilutive stock options and
warrants. The following table is a reconciliation of basic to diluted shares
used in the earnings per share calculation:
Year Ended Nine Months Ended Year Ended
December 31, 2002 December 31, 2001 March 31, 2001
------------------------------------------------------
Basic weighted average outstanding shares 2,416,224 2,478,000 3,145,511
Add-common equivalent shares representing
shares issuable upon exercise of dilutive
options 303,585 431,285 161,171
------------------------------------------------------
Diluted weighted average number of shares at
year end 2,719,809 2,909,285 3,306,682
=====================================================
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 reporting
period. Actual results could differ from those estimates. Refer also to "NET
REVENUES" above and to Note 2 -- "HEALTHCARE REFORM LEGISLATION, REGULATIONS AND
MARKET CONDITIONS".
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
payables and debt instruments. The book values of cash, accounts receivable and
payables are considered representative of their respective fair values. The fair
value of the Company's debt instruments approximates their carrying values as
substantially all of such debt has rates which fluctuate with changes in market
rates.
STOCK-BASED COMPENSATION
The Company applies APB Opinion 25 and related interpretations in accounting for
its stock option plans. In 1995, Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" (SFAS 123) was issued and, if
fully adopted, changes the method of recognition of costs on plans similar to
the Company's. The Company adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the Company's stock
option grants since options granted have been at exercise prices at lease equal
to fair value of the Company's common stock at the grant date. Had compensation
cost for the stock option grants been determined based upon the fair value at
the grant date for the awards in the year ended December 31, 2002, the nine
months ended December 31, 2001 and the year ended March 31, 2001 consistent with
the provisions of SFAS 123, the effect on net income and earnings per share
would have been reduced to the following pro forma amounts:
Nine Months Ended
Year Ended December December 31, 2001 Year Ended
31, 2002 March 31,
2001
--------------------- -------------------- -----------------------
Net income, as reported: $ 1,344,913 $ 3,328,414 $ 1,277,758
Pro forma stock-based
compensation expense, net of 67,722 60,959 67,643
tax
--------------------- -------------------- -----------------------
Pro forma net income $ 1,277,191 $ 3,267,455 $ 1,210,115
===================== ==================== =======================
Pro forma earnings per share:
Basic $ 0.53 $ 1.32 $ 0.38
Diluted $ 0.47 $ 1.12 $ 0.37
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred. Advertising expense
was $146,218, $193,280 and $208,314 for the year ended December 31, 2002, the
nine months ended December 31, 2001 and the year ended March 31, 2001,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued Statement of Financial Accounting Standard No.
146, "Accounting for Costs Associated With Exit or Disposal Activities," (SFAS
146) which is effective for exit or disposal activities that are initiated after
December 31, 2002. SFAS 146 nullifies EITF Issue 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
at fair value when the liability is incurred. A commitment to an exit or
disposal plan no longer will be sufficient basis for recording a liability for
those activities. The adoption of SFAS 146 in 2003 is not expected to have an
immediate impact on the Company's financial condition or results of operations,
however, should Company have future exit or disposal activities, SFAS 146 would
apply to the accounting for those activities.
NOTE 2 - HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET CONDITIONS
Health Care Reform
The health care industry has experienced, and is expected to continue to
experience, extensive and dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is subjecting the health care
industry to significant reform. Health care reforms have been enacted and
proposals for additional changes are continuously formulated by departments of
the Federal government, Congress, and state legislatures.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of expenditures are expected to continue. Such
future changes may further impact reimbursement. There can be no assurance that
future legislation or regulatory changes will not have a material adverse effect
on the operations of the Company.
State legislative proposals continue to be introduced that would impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations may be enacted
in the future affecting its business or how existing or future laws and
regulations might be interpreted, or whether the Company will be able to comply
with such laws and regulations in its existing or future markets.
Health Insurance Portability and Accountability Act (HIPAA)
The Health Insurance Portability and Accountability Act (HIPAA) was enacted by
the Federal government on August 12, 1996, and requires organizations to adhere
to certain standards to protect data integrity, confidentiality and
availability. HIPAA also mandates, among other things, that the Department of
Health and Human Services adopt standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and
enhance the effectiveness and efficiency of the health care industry. Management
is in the process of implementing changes in its operations to comply with the
privacy and electronic transaction and code sets aspects of HIPAA and
anticipates that the Company will be able to fully and timely comply with those
requirements. The cost of complying with privacy standards is not expected to
have a material effect on the Company's results of operations or financial
position. Independent of HIPAA requirements, the Company has been developing new
information systems with improved functionality to facilitate improved billing
and collection activities, reduced administrative costs and improved management
decision support information. The Company has incorporated the HIPAA mandated
electronic transaction and code sets into this new software.
Regulations with regard to the security components of HIPAA, have only recently
been published. Those regulations are required to be implemented by April 2005.
Management cannot at this time estimate the cost of compliance with the security
regulations.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued expenses consist of the following:
December 31, December 31,
2002 2001
-------------------------------------------
Trade payables $2,711,970 $ 3,106,033
Wages and employee benefits 2,308,313 2,086,971
Insurance accruals 2,781,557 3,582,595
Accrued taxes 895,740 962,637
Accrued professional fees and other $ 574,720 571,310
---------------------------------------
9,272,300 $ 10,309,546
=======================================
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consist of the
following:
December 31, December 31,
2002 2001
-------------------- --------------------
Land $ 450,000 $ 450,000
Buildings and improvements 1,463,603 1,460,092
Leasehold improvements 4,740,948 4,596,628
Medical equipment 660,729 603,568
Computer equipment and software 8,119,040 6,134,926
Office and other equipment 2,878,420 2,566,738
Transportation equipment 3,433,934 2,988,972
-------------------- --------------------
21,746,674 18,800,924
Less accumulated depreciation (12,596,892) (10,686,986)
-------------------- --------------------
$ 9,149,782 $ 8,113,938
==================== ====================
Depreciation expense (including depreciation on assets held under capital
leases) was $2,069,319, $1,117,621 and $1,404,720 for the year ended December
31, 2002, the nine months ended December 31, 2002 and the year ended March 31,
2001, respectively.
NOTE 5 - REVOLVING CREDIT FACILITY
Revolving Credit Facility. The Company has a $22.5 million credit facility with
Bank One Kentucky NA with an expiration date of December 31, 2003. On February
7, 2003, the bank formally committed to an extension through June 30, 2004. The
credit facility bears interest at the bank's prime rate plus a margin (ranging
from 0% to 1.0%, currently 0%) dependent upon total leverage and is secured by
substantially all assets and the stock of the Company's subsidiaries. The
weighted average interest rates were 5.0%, 7.3% and 10.0% for the year ended
December 31, 2002, the nine months ended December 31, 2001 and the year ended
March 31, 2001, respectively. The interest rate in effect at December 31, 2002
was 4.25%. The Company pays a commitment fee of 0.5% per annum on the unused
facility balance. Borrowings are available equal to the greater of: a) a
multiple of earnings before interest, taxes, depreciation and amortization (as
defined) or, b) an asset based formula, primarily based on accounts receivable.
Borrowings under the facility may be used for working capital, capital
expenditures, acquisitions, development and growth of the business and other
corporate purposes. As of December 31, 2002 the formula permitted approximately
$19.3 million to be used of which approximately $14.5 million was outstanding.
Additionally, an irrevocable letter of credit, totaling $3.0 million, was
outstanding in connection with the Company's self- insurance programs. Thus, a
total of $17.5 million was either outstanding or committed as of December 31,
2002 while an additional $1.8 million was available for use. The Company's
revolving credit facility is subject to various financial covenants. As of
December 31, 2002, the Company was in compliance with the covenants.
NOTE 6 - INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the Company's book
and tax bases of assets and liabilities and tax carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The principal tax carryforwards and temporary differences were as follows:
December 31, December 31,
2002 2001
--------------------- -----------------
Deferred tax assets
Nondeductible reserves and
allowances $ 664,000 $ 506,000
Intangibles 1,488,000 1,419,000
Insurance accruals 811,000 1,005,000
Net operating loss carryforwards 768,000 1,058,000
--------------------- -----------------
3,731,000 3,988,000
Valuation allowance (701,000) (1,058,000)
--------------------- -----------------
3,030,000 2,930,000
--------------------- -----------------
Deferred tax liabilities
Accelerated depreciation (1,421,000) (1,022,000)
--------------------- -----------------
Net deferred tax assets $ 1,609,000 $ 1,908,000
===================== =================
Deferred tax assets are reflected in
the accompanying balance sheets as:
Current $ 1,396,000 $ 1,764,000
Long-term 213,000 144,000
--------------------- -----------------
Net deferred tax assets $ 1,609,000 $ 1,908,000
===================== =================
The Company has state and local net operating loss carryforwards of
approximately $16.7 million which expire on various dates through 2016.
Provision (benefit) for income taxes consists of the following:
Nine Months
Year Ended Ended December Year Ended
December 31, 2002 31, March 31,
2001 2001
-------------------- ------------------- ------------------
Federal - current $ (234,000) $ 895,000 $ 750,000
State and local - current 43,000 254,000 173,000
Deferred 979,000 1,169,000 8,000
-------------------- ------------------- ------------------
$ 788,000 $ 2,318,000 $ 931,000
==================== =================== ==================
Shown in the accompanying statements of income as:
Continuing operations $ 788,000 $ 1,623,000 $ 479,000
Discontinued operations:
From reclassification of VN
operating losses previously provided - - 452,000
Gain from reversal of previously
recorded disposal charge - 695,000 -
-------------------- ------------------- ------------------
$ 788,000 $ 2,318,000 $ 931,000
==================== =================== ==================
A reconciliation of the statutory to the effective rate of the Company (for
continuing operations only) is as follows:
Nine Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
2002 2001 2001
----------------------- --------------------- -----------------------
Tax provision using statutory rate 34.0% 34.0% 34.0%
Goodwill -% 0.6% 1.1%
Valuation allowance (3.4%) (1.2%) 10.6%
State and local taxes, net of Federal benefit 5.0% 6.4% (3.6%)
Other, net 1.4% 2.2% 4.9%
----------------------- --------------------- ----------------------
Tax provision for continuing operations 37.0% 42.0% 47.0%
======================= ===================== =======================
The Company has provided a valuation allowance against certain net deferred tax
assets based upon management's estimation of realizability of those assets
through future taxable income. This valuation was based in large part on the
Company's history of generating operating income or losses in individual tax
locales and expectations for the future. The Company's ability to generate the
expected amounts of taxable income from future operations to realize its
recorded net deferred tax assets is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation at
all levels of government. There can be no assurances that the Company will meet
its expectations of future taxable income. However, management has considered
the above factors in reaching its conclusion that it is more likely than not
that future taxable income will be sufficient to realize the net deferred tax
assets as of December 31, 2002.
During the year ended December 31, 2002, the nine months ended December 31, 2001
and the year ended March 31, 2001, based on changes in facts and circumstances,
favorable changes occurred in the Company's expectations with regard to the
generation of future taxable income in certain tax jurisdictions. Accordingly,
the state and local tax provision for these periods include a reduction of
previously recorded valuation allowances of approximately $73,000, $47,000 and
$131,000, respectively.
NOTE 7 - Stockholders' Equity
Employee Stock Option Plans
The Company has the following stock option plans:
1. The Company has a Nonqualified Stock Option Plan which provides for the
granting of options to key employees, officers, and directors, to purchase up to
220,000 shares of the Company's common stock. The period of time for granting
options under this plan has expired. As of December 31, 2002, options for 40,500
shares were outstanding under this plan.
2. The Company has a 1991 Long-term Incentive Nonqualified Stock Option Plan
which provides for options to purchase up to 500,000 shares of the Company's
common stock to key employees, officers, and directors. The period of time for
granting options under this plan has expired. As of December 31, 2002, options
for 420,193 shares were outstanding under this plan.
3. The Company has a 1993 Stock Option Plan for Non-employee Directors which
provides options to purchase up to 120,000 shares of the Company's common stock
to directors who are not employees. Each newly elected director or any director
who did not possess options to purchase 10,000 shares of the Company's common
stock were automatically granted options to purchase 10,000 shares of common
stock under this plan at an exercise price based on the market price as of the
date of grant. As of December 31, 2002, all option shares available under this
plan have been granted and options for 93,500 shares were outstanding under this
plan.
4. The Company has a 2000 Stock Option Plan which provides for options to
purchase up to 500,000 shares of the Company's common stock to key employees and
officers. The Board of Directors determines the amount and terms of the options,
which cannot exceed ten years. As of December 31, 2002, options for 74,007
shares had been granted and were outstanding under this plan. Shares available
for future grant amount to 425,993 shares at December 31, 2002.
Changes in qualified options, non-qualified options, and supplemental
non-qualified options and warrants outstanding are summarized as follows:
Warrants Options
--------------------------- -------------------------------
Wtd. Avg Wtd. Avg
Shares Ex. Price Shares Ex. Price
--------------------------- ------------- -------------
March 31, 2000 200,000 $ 12.50 590,211 $ 2.49
Granted - 261,000 $ 4.24
Exercised - (138,811) $ 2.60
Acquired (200,000) $ 12.50 -
Terminated (19,500) $ 3.06
------------- ----------
March 31, 2001 - 692,900 $ 3.11
Granted - 10,000 $ 8.75
Exercised - (27,900) $ 2.60
Terminated - (7,500) $ 4.25
------------- ----------
December 31, 2001 - 667,500 $ 3.06
Granted - 12,500 $ 10.51
Exercised - (51,800) $ 2.80
Terminated - - $ -
------------- ----------
December 31, 2002 - 628,200 $ 3.38
============= ==========
The following table details exercisable options and related information:
Year Ended Nine Months Ended Year Ended
December 31, 2002 December 31, 2001 March 31, 2001
------------------ ------------------- -------------------
Exercisable at end of year 493,325 425,250 433,775
Weighted average exercise price $ 2.98 $ 2.76 $ 2.53
Weighted average fair value
of options granted during the year $ 0.69 $ 0.68 $ 0.71
The fair value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for awards in the year ended December 31, 2002, the nine months
ended December 31, 2001 and the year ended March 31, 2001, respectively:
risk-free interest rates of 5.72%, 5.40% and 6.18%, expected volatility of
approximately 50%, 50% and 50%, expected lives of 9.30, 9.57 and 9.59 years and
no expected dividend yields.
The following table summarizes information about stock options outstanding at
December 31, 2002:
Options Outstanding Options Exercisable
--------------------------------------------------------------------------- -----------------------------------
Outstanding Wtd. Avg. Exercisable
Range of As of Remaining Wt. Avg. As of Wt. Avg.
Ex. Price December 31, 2002 Contractual Life Ex. Price December 31, 2002 Ex. Price
----------------- ------------------ ------------------- -------------- ------------------- -------------
$2.19-2.50 187,500 6.19 $2.19 187,500 $2.19
$2.50 - 3.00 186,200 3.31 $3.16 176,075 $2.77
Over $3.00 254,500 8.11 $4.41 129,750 $4.40
------------------ -------------------
$2.19 - $10.59 628,200 6.11 $3.38 493,325 $2.98
================== ===================
Shareholders Rights Plan
On February 1, 1999 the Company implemented a shareholder protection rights
plan. One right was distributed as a dividend on each share of common stock of
the Company held of record as of the close of business on February 16, 1999.
Subject to the terms and conditions of the plan, the rights will be exercisable
only if a person or group acquires beneficial ownership of 20% or more of the
Company's common stock or announces a tender or exchange offer upon consummation
of which, such person or group would beneficially own 20% or more of the common
stock of the Company. If the rights are triggered, then each right not owned by
the acquiring person or group entitles its holder to purchase shares of Company
common stock at the right's current exercise price, having a value of twice the
right's exercise price. The Company may redeem the rights at any time until the
close of business on the tenth business day following an announcement by the
Company that an acquiring person or group has become the beneficial owner of 20%
or more of the Company's common stock.
Directors Deferred Compensation Plan
The Company has a Non-Employee Directors Deferred Compensation Plan which allows
Directors to elect to receive fees for Board services in the form of shares of
the Company's common stock. The Plan authorized 100,000 shares for such use. As
of December 31, 2002, 41,100 shares have been allocated in deferred accounts,
11,356 have been issued to previous Directors and 47,544 remain available for
future allocation. Allocated shares are to be issued to Directors when they
cease to be Directors or upon a change in control. Directors' fees are expensed
as incurred whether paid in cash or deferred into the Plan.
NOTE 8 - RETIREMENT PLANS
The Company administers a 401 (k) defined contribution retirement plan for the
benefit of the majority of its employees, who have completed 90 days of service
and been credited with 1,000 hours of service as defined by the plan agreement.
The Company matches contributions in an amount equal to one-quarter of the first
10% of each participant's contribution to the plan. 401 (k) assets are held by
an independent trustee, are not assets of the Company, and accordingly are not
reflected in the Company's balance sheets. Additionally, the Company administers
a "rabbi trust" Executive Retirement Plan (ERP) for highly-compensated employees
who, under IRS rules, are not eligible to participate in the 401 (k) plan. The
Company matches contributions in an amount equal to one-quarter of the first 10%
of each participant's contribution to the plan. ERP assets are assets of the
Company until distributed to the employees following retirement or termination
of employment. Employees with assets in the ERP are general creditors of the
Company. Accordingly, as of December 31, 2002, ERP assets of approximately
$762,000 and liabilities of $916,000 are reflected in the Company's balance
sheets. The Company's expense for both retirement plans was approximately
$83,000, $102,000 and $169,000 for the year ended December 31, 2002, the nine
months ended December 31, 2001 and the year ended March 31, 2001, respectively.
In February 2003, the ERP was terminated and amounts due to participants were
paid out at the time of termination.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain real estate, office space, vehicles and equipment
under non-cancelable operating leases expiring at various dates through 2008 and
which contain various renewal and escalation clauses. Rent expense amounted to
approximately $4,094,986, $2,982,784 and $4,165,406 for the year ended December
31, 2002, the nine months ended December 31, 2001 and the year ended March 31,
2001, respectively. At December 31, 2002 the minimum rental payments under these
leases were as follows:
2003 $1,894,624
2004 1,413,734
2005 1,042,171
2006 378,180
2007 and thereafter 100,284
-------------------------
$4,828,993
=========================
Capital Leases and Term Debt
The Company has certain assets, primarily vehicles, under capital leases. The
leases include interest of approximately annually 7.0%. Assets held under
capital leases are carried at cost of approximately $1.7 million with
accumulated depreciation of approximately $376,000 as of December 31, 2002.
The Company has a mortgage liability on one parcel of real property. The
liability bears interest at an annual rate of 8.0% and is secured by a mortgage
on the property. Additionally, as described in Note 11, the Company has an
unsecured $300,000 note payable to a seller bearing interest at 6%.
Future minimum lease payments and principal and interest payments on the term
debt are as follows:
Year Ending December 31, Mortgage Acquisition
Capital Leases Liability Note Payable Total
----------------- --------------- ------------------ --------------------
2003 $ 509,189 $ 47,080 $ 21,400 $ 577,669
2004 262,263 47,080 18,000 327,343
2005 221,517 47,080 314,600 583,197
2006 221,517 47,080 - 268,597
2007 and thereafter 411,257 194,516 - 605,773
----------------- --------------- ------------------ --------------------
1,625,743 382,836 354,000 2,362,579
Less: amount representing
interest (437,562) (75,638) (54,000) (567,200)
----------------- --------------- ------------------ --------------------
Present value of minimum
lease/principal payments 1,188,181 307,198 300,000 1,795,379
Less: current portion 305,372 47,080 - 352,452
----------------- --------------- ------------------ --------------------
$ 882,809 $ 260,118 $ 300,000 $ 1,442,927
================= =============== ================== ====================
Employment Contracts
The Company has an employment contract with an officer. In connection with this
contract, the Company is contractually obligated to pay an annual base salary of
$250,000 for one year with automatic one-year renewals. In addition, the
agreement contains contingent obligations associated with performance bonuses
and severance.
Insurance Programs
Self-Insurance Programs. The Company bears significant risk under its
self-insured employee health, automobile and workers' compensation programs. The
Company's self-insured health program has an excess-loss insurance policy that
reimburses the Company for covered expenses (up to a certain amount) of a
specific deductible for each covered person and an annual aggregate deductible
for all covered claims. The Company's current excess loss insurance policy ends
April 30, 2003. Based on information provided by its broker and third-party
administrator, the Company expects health insurance costs to increase between
10% to 20% during 2003 due to the inflation of medical care costs. Under its
automobile and workers' compensation self-insurance programs, the Company bears
risk up to $100,000 per incident.
The Company records estimated liabilities for its health, automobile, and
workers' compensation self-insurance programs based on information provided by
the third-party plan administrators, historical claims experience, the life
cycle of claims, expected costs of claims incurred but not paid, and expected
costs to settle unpaid claims.
General and Professional Liability. The Company is party to various other legal
matters arising in the ordinary course of business, including patient
care-related claims and litigation. The Company carries insurance coverage for
this exposure however its deductible per claim increased from $5,000 to $25,000
effective July 1, 2001. At December 31, 2002, recorded reserves for the general
and professional coverage totaled approximately $177,000. The Company monitors
its estimated self-insurance liabilities on a quarterly basis. As facts change,
it may become necessary to make adjustments that could be material to the
Company's results of operations and financial condition. The Company believes
that its present insurance coverage is adequate. However, due to insurance
market conditions, the Company will face significant cost increases and higher
deductibles upon renewal on April 1, 2003. The Company is currently
contemplating alternatives including potentially accepting additional
self-insurance risk in lieu of higher premium costs.
Legal Proceedings
The Company is currently, and from time to time, subject to claims and suits
arising in the ordinary course of its business, including claims for damages for
personal injuries. In the opinion of management, the ultimate resolution of any
of these pending claims and legal proceedings will not have a material effect on
the Company's financial position or results of operations.
On January 26, 1994 Franklin Capital Associates L.P. (Franklin), Aetna Life and
Casualty Company and Aetna Casualty and Surety Company shareholders, who at one
time held approximately 320,000 shares of the Company's common stock
(approximately 13% of shares outstanding) filed suit in Chancery Court of
Williamson County, Tennessee claiming unspecified damages not to exceed three
million dollars in connection with registration rights they received in the
Company's acquisition of certain home health operations in February 1991. The
1994 suit alleged that the Company failed to use its best efforts to register
the shares held by the plaintiffs as required by the merger agreement. The
Company settled with both Aetna parties shortly before the case went to trial in
February 2000. In mid-trial Franklin voluntarily withdrew its complaint
reserving its legal rights to bring a new suit as allowed under Tennessee law.
In April 2000, Franklin re-filed its lawsuit. The second trial took place in
February 2003; however, no ruling has been issued. Estimated costs of litigation
are included in accrued liabilities on the accompanying balance sheet. The
Company can give no assurance that it will be successful in its defense.
Accordingly, the Company is unable to predict what impact, if any, the
ultimate resolution of this matter may have on its financial position or
results of operations.
NOTE 10 - STOCK AND WARRANT REDEMPTION
In March 2001 the Company redeemed 748,501 shares of common stock and a warrant
to purchase 200,000 shares of common stock (at an exercise price of $12.50 per
share). On August 19, 2002, the Company redeemed 210,100 shares of its common
stock from a private investor at a total cost of approximately $1.5 million.
During the year ended December 31, 2002, the Company also purchased an
additional 39,971 shares of its common stock in open market purchases for a
total cost of approximately $374,000. During the nine months ended December 31,
2001, a total of 57,400 shares were repurchased under this program, all of which
were in open market purchases for a total of $516,678.
NOTE 11 -- ACQUISITION
On July 18, 2002, the Company completed the 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 $3.7 million to revenues and $345,000 to the consolidated pre-tax
income from the acquisition date through December 31, 2002.
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition. 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 2,552,000
----------------
Assets acquired 3,285,000
Liabilities assumed (39,000)
----------------
Net assets acquired $ 3,246,000
================
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:
Year Ended December 31,
--------------------------------------
2002 2001
--------------- ------------------
Revenues $ 89,260,078 $ 85,282,640
Income from continuing operations 1,624,350 2,929,227
Earnings per share:
Basic $ 0.67 $ 1.11
Diluted $ 0.60 $ 0.95
NOTE 12 KENTUCKY TRANSPORTATION PROGRAM
Prior to July 1, 2002, the Commonwealth of Kentucky managed its Medicaid
transportation program internally. Effective July 1, 2002 the Commonwealth
contracted with an independent broker (the Broker) for the management of the
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 December 31, 2002, the Broker
owed the Company approximately $534,000 for services provided through that date,
which amount is included in accounts receivable, net on the accompanying balance
sheet. The Company currently believes it will be successful in ultimately
collecting the amounts currently due it under this arrangement Should it become
evident in the future that some or all of the balance due will not be
collectible, the Company would, at that time, record an additional provision for
uncollectible accounts which could be material.
NOTE 13 - SEGMENT DATA
The Company operates in two reportable business segments: Adult Day Health
Services (ADHS), and Visiting Nurses (VN). Reportable segments have been
identified based upon how management has organized the business by services
provided to customers and the criteria in SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's ADHS segment includes
the aggregation of its ADC in-center operations and in-home personal care
operations, both of which provide predominantly long-term health care and
custodial services that enable recipients to avoid nursing home admission.
Sources of reimbursement, reimbursement rates per day and contribution margins
from the Company's ADC and personal care operations are substantially alike. The
Company's VN segment provides skilled medical services in patients' homes
largely to enable recipients to reduce or avoid periods of hospitalization
and/or nursing home care. Approximately 88% of the VN segment revenues are
generated from the Medicare program. VN Medicare revenues are generated on a per
episode basis rather than a fee per visit or day of care. General and
administrative expenses incurred at the corporate level have not been allocated
to the segments. The Company has operations in Alabama, Connecticut, Florida,
Indiana, Kentucky, Maryland, Massachusetts, and Ohio.
Nine Months
Year Ended Ended Year Ended
December 31, 2002 December 31, 2001 March 31, 2001
----------------------------------------------------------------------------------------------------
Net revenues
Adult day health services $ 56,970,241 $ 38,709,644 $ 49,680,572
Visiting nurses 28,799,296 21,043,917 25,774,214
------------------- ------------------- --------------------
$ 85,769,537 $ 59,753,561 $ 75,454,786
=================== =================== ====================
Operating income (loss)
Adult day health services $ 2,465,057 $ 2,928,096 $ 3,522,306
Visiting nurses 3,590,936 3,190,514 (83,305)
Corporate/Unallocated (3,109,675) (1,542,712) (1,603,505)
------------------- ------------------- --------------------
$ 2,946,318 $ 4,575,898 $ 1,835,496
=================== =================== ====================
Identifiable assets
Adult day health services $ 19,595,876 $ 16,834,795 $ 14,204,837
Visiting nurses 11,351,794 11,116,605 9,924,038
Corporate/Unallocated 5,852,353 7,925,248 9,854,904
------------------- ------------------- --------------------
$ 36,800,023 $ 35,876,648 $ 33,983,779
=================== =================== ====================
Identifiable liabilities
Adult day health services $ 14,519,278 $ 12,704,474 $ 11,737,127
Visiting nurses 10,283,596 11,230,945 11,654,429
Corporate/Unallocated 1,893,065 1,559,818 3,334,340
------------------- ------------------- --------------------
$ 26,695,939 $ 25,495,237 $ 26,725,896
=================== =================== ====================
Capital expenditures
Adult day health services $ 670,180 $ 1,493,615 $ 2,019,508
Visiting nurses 514,315 566,085 755,050
Corporate/Unallocated 1,554,284 28,773 62,151
------------------- ------------------- --------------------
$ 2,738,779 $ 2,088,473 $ 2,836,709
=================== =================== ====================
Depreciation and amortization
Adult day health services $ 1,130,099 $ 647,029 $ 748,478
Visiting nurses 884,608 544,259 664,060
Corporate/Unallocated 162,137 78,916 115,949
------------------- ------------------- --------------------
$ 2,176,844 $ 1,270,204 $ 1,528,487
=================== =================== ====================
NOTE 14 - QUARTERLY FINANCIAL DATA-- (UNAUDITED)
Summarized quarterly financial data for the year ended December 31, 2002 and the
nine months ended December 31, 2001 are as follows (in thousands except per
share data):
Year Ended December 31, 2002 Nine Months Ended December 31, 2001
-------------------------------------------------- ----------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30,
2002 2002 2002 2002 2001 2001 2001
-------------------------------------------------- ----------------------------------------
Net Revenues $ 22,467 $ $21,909 $ 20,843 $ 20,551 $ 20,817 $ $19,663 $ 19,274
Gross Profit 3,814 3,652 3,842 3,872 4,189 3,704 3,706
Income from
continuing operations 377 341 527 100 840 674 727
Net income 377 341 527 100 840 1,761 727
Net income
per share
Basic $ 0.17 $ 0.14 $ 0.21 $ 0.04 $ 0.34 $ 0.71 $ 0.29
Diluted $ 0.15 $ 0.12 $ 0.18 $ 0.03 $ 0.29 $ 0.61 $ 0.25
In the quarter ended March 31, 2002, the Company recorded approximately $816,000
(pre-tax) related to the cost, consisting primarily of professional fees, of
conducting an investigation into the restatement of the Company's financial
statements. Additional costs related to this matter may be incurred in future
periods. Refer to the Company's annual report on Form 10-K for the nine months
ended December 31, 2001 for additional information.
Report of Independent Auditors
Board of Directors and Stockholders
Almost Family, Inc.
We have audited the accompanying consolidated balance sheet of Almost Family,
Inc. and subsidiaries as of December 31, 2002, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
index at item 15(b). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit. The
financial statements of Almost Family, Inc. and subsidiaries and the financial
statement schedule as of December 31, 2001 and for the nine months ended
December 31, 2001 and the year ended March 31, 2001, were audited by other
auditors, who have ceased operations, whose report dated March 28, 2002,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Almost Family, Inc. and subsidiaries at December 31, 2002, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the 2002 basic financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
As discussed in Note 1, in 2002 the Company changed its method of accounting for
goodwill.
As discussed above, the financial statements of the Company as of December 31,
2001 and for the nine months ended December 31, 2001 and the year ended March
31, 2001 were audited by other auditors who have ceased operations. As discussed
in Note 1, these financial statements have been revised to include the
transitional disclosures required by Statement of Financial Accounting Standards
(Statement) No. 142, "Goodwill and Other Intangible Assets," which was adopted
by the Company as of January 1, 2002. Our audit procedures with respect to the
disclosures in Note 1 with respect to 2001 included (a) agreeing the previously
reported net income to the previously issued financial statements and the
adjustments to reported net income representing amortization expense (including
any related tax effects) recognized in those periods related to goodwill to the
Company's underlying records obtained from management, and (b) testing the
mathematical accuracy of the reconciliation of adjusted net income to reported
net income. In our opinion, the disclosures for 2001 in Note 1 are appropriate.
However, we were not engaged to audit, review, or apply any procedures to the
2001 financial statements of the Company other than with respect to such
adjustments related to Note 1, and accordingly, we do not express an opinion or
any other form of assurance on the 2001 financial statements taken as a whole.
/S/ ERNST & YOUNG, LLP
------------------------------------
ERNST & YOUNG, LLP
Louisville, Kentucky
March 14, 2003
These Reports Have Not Been Reissued By Arthur Andersen LLP as Arthur Andersen
LLP Ceased Operations In August 2002.
The Following Reports Are Copies of the Previously Issued Arthur Andersen LLP
Reports.
Report of Independent Public Accountants
To the Stockholders of Almost Family, Inc.:
We have audited the accompanying consolidated balance sheets of Almost Family,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and March
31, 2001 (as restated--see Note 1) and the related consolidated STATEMENTS OF
INCOME, stockholders' equity, and cash flows for the nine months ended December
31, 2001 and for the two years in the period ended March 31, 2001 (as
restated--see Note 1). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Almost Family, Inc. and
subsidiaries as of December 31, 2001 and March 31, 2001, and the results of
their operations and their cash flows for the nine months ended December 31,
2001 and for the two years in the period ended March 31, 2001 in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 28, 2002
Report of Independent Public Accountants
To the Stockholders of Almost Family, Inc.:
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
Financial Statement Schedule is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 28, 2002
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Pursuant to prior authorization of the Company's Board of Directors, on May 30,
2002, the Audit Committee appointed the firm of Ernst & Young LLP to serve as
the independent public accountants to audit the financial statements of the
Company for the year ended December 31, 2002.
Pursuant to prior authorization of the Company's Board of Directors, the Audit
Committee dismissed Arthur Andersen LLP ("Arthur Andersen") as the Company's
independent certifying accountants on May 30, 2002. The reports of Arthur
Andersen on the Company's financial statements for the nine-months ended
December 31, 2001, and the fiscal years ended March 31, 2001 and March 31, 2000
did not contain any adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audit of the Company's financial statements for the
nine-months ended December 31, 2001, and the fiscal years ended March 31, 2001
and March 31, 2000 and through May 30, 2002, there were no disagreements with
Arthur Andersen on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures which, if not resolved to
the satisfaction of Arthur Andersen, would have caused the firm to make
reference to the matter in their report. During the period ended December 31,
2001, and the fiscal years ended March 31, 2001 and March 31, 2000, and the
subsequent interim period preceding the dismissal of Arthur Andersen on May 30,
2002, no reportable events (as defined in the SEC's Regulation S-K Item
304(a)(1)(v)) occurred in connection with the relationship between Arthur
Andersen and the Company, except as referred to in the next sentence. The
Company's consolidated balance sheet as of March 31, 2001 and the related
consolidated statement of operations, stockholders' equity and cash flows for
the two years in the period ended March 31, 2001 were restated as indicated in
Arthur Andersen's report included in the Company's Form 10-K for the period
ending December 31, 2001.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth in the Registrant's
definitive proxy statement to be filed with the Commission no later than 120
days after December 31, 2002, except for the information regarding executive
officers of the Company. The information required by this Item contained in such
definitive proxy statement is incorporated herein by reference.
The following table sets forth certain information with respect to the Company's
executive officers.
Name Age Position with the Company
- ------------------------------------------------------------------------------
William B. Yarmuth (1) 50 Chairman of the Board President
and Chief Executive Officer
C. Steven Guenthner (2) 42 Senior Vice President and
Chief Financial Officer
Mary A. Yarmuth (3) 56 Senior Vice President - Service Development
P. Todd Lyles (4) 41 Senior Vice President - Administration
Anne T. Liechty (5) 50 Senior Vice President - VN Operations
Executive officers of the Company are elected by the Board of Directors for one
year and serve at the pleasure of the Board of Directors with the exception of
William B. Yarmuth who has an employment agreement with the Company. Mary A.
Yarmuth is married to William B. Yarmuth. There are no other family
relationships between any director or executive officer.
(1) William B. Yarmuth has been a director of the Company since 1991, when
the Company acquired National Health Industries ("National"), where Mr.
Yarmuth was Chairman, President and Chief Executive Officer. After the
acquisition, Mr. Yarmuth became the President and Chief Operating
Officer of the Company. Mr. Yarmuth became Chairman and CEO in 1992. He
was Chairman of the Board, President and Chief Executive Officer of
National from 1981 to 1991.
(2) C. Steven Guenthner has been Senior Vice President and Chief Financial
Officer of the Company since 1992. From 1983 through 1992 Mr. Guenthner
was employed as a C.P.A. with Arthur Andersen LLP. Prior to joining the
Company he served as a Senior Manager in the firm's Accounting and
Audit division specializing in mergers and acquisitions, public
companies and the healthcare industry.
(3) Mary A. Yarmuth has served as Senior Vice President of the Company
since 1991, currently as Senior Vice President of Service Development.
From 1985 to 1991 Ms. Yarmuth served as President of the Company's
Nursing Division. Ms. Yarmuth joined National in 1978.
(4) P. Todd Lyles joined the Company as Senior Vice President Planning and
Development in October 1997 and now serves as Senior Vice President -
Administration. Prior to joining the Company Mr. Lyles was Vice
President Development for the Kentucky Division of Columbia/HCA, a
position he had held since 1993. Mr. Lyles experience also includes 8
years with Humana Inc. in various financial and hospital management
positions.
(5) Anne T. Liechty became Senior Vice President - VN Operations in 2001.
Ms. Liechty has been employed by the Company since 1986 in various
capacities including vice president of operations for the Company's VN
segment and its Product segment.
ITEM 11, 12 and 13. EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Registrant intends to file a definitive proxy statement with the Commission
pursuant to Regulation 14A (17 CFR 240.14a) not later than 120 days after the
close of the fiscal year covered by this report. In accordance with General
Instruction G(3) to Form 10K, the information called for by Items 11, 12 and 13
is incorporated herein by reference to the definitive proxy statement. Neither
the report on Executive Compensation nor the performance graph included in the
Company's proxy statement shall be deemed incorporated herein by reference.
Item 14. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended)
within 90 days prior to the filing date of this report. Based upon that
evaluation, the CEO and the CFO concluded that the disclosure controls and
procedures are effective in all material respects.
(b) Changes in Internal Controls
There have been no significant changes in our internal controls or in other
factors that could significantly affect the disclosure controls and procedures
subsequent to the date of evaluation.
- -------------------------------------------------------------------------------
PART IV
Item 15. Exhibits and Financial Statement Schedules and Reports on Form 8-K.
Page Number
(a) Index to Consolidated Financial Statements
Consolidated Statements of Income for the year ended December 31,
2002, the nine months ended December 31, 2001,
and the year ended March 31, 2001 34
Consolidated Balance Sheets - December 31, 2002 and 2001 35
Consolidated Statements of Stockholders' Equity for the year ended
December 31, 2002, the nine months ended December 31, 2001
and the year ended March 31, 2001 36
Consolidated Statements of Cash Flows for the year ended
December 31, 2002, the nine months ended December 31, 2001
and the year ended March 31, 2001 37
Notes to Consolidated Financial Statements 38 - 55
Report of Independent Auditors 56
Reports of Independent Public Accountants 57
(b) Index to Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 66
All other Schedules have been omitted because they are either not required, not
applicable or, the information has otherwise been supplied in the financial
statements or notes thereto.
S-1
Exhibit
Number Description of Exhibit
3.1 Certificate of Incorporation, as amended
3.2 Amended and Restated By-laws
4.1 Other Debt Instruments -- copies of other debt instruments for
which the total debt is less than 10% of assets will be
furnished to the Commission upon request.
10.1 Nonqualified Stock Option Plan, as amended (Incorporated
by reference to the Registrant's Registration
Statement on Form S-8 Reg. No. 33-20815)
10.2 Supplemental Nonqualified Stock Option Plan (Incorporated
by reference to Exhibit 19.4 to the Registrant's
Report on Form 10-Q for the Quarter Ended November 30, 1987
Commission File No. 15342)
10.3 Incentive Stock Option Plan, as amended (Incorporated by
reference to the Registrant's Registration Statement
on Form S-8 Reg. No. 33-20815)
10.4 Amendment to the Senior Service Corporation 1987 Nonqualified
Stock Option Plan (Incorporated by reference to Exhibit 19.3
to the Registrant's Report on Form 10-Q for the quarter ended
November 30, 1989)
10.5 1991 Long-Term Incentive Plan
10.6 Warrant Agreement, dated June 29, 1991, between the
Company and HEALTHSOUTH Rehabilitation Corporation
(incorporated by reference to Exhibit 10.88 to the
Registrant's Form S-1 Reg. 33-46565 dated April 23, 1993)
10.7 Employment Agreement, dated January 1, 1996, between the
Company and William B. Yarmuth
10.8 Asset Sale Agreements between the Company and Columbia/HCA
Healthcare Corporation
10.9 Management Services Agreement between the Company and
Columbia/HCA Healthcare Corporation
10.10 Asset Purchase Agreement between the Company and Home Care
Solutions, Inc.
10.11 Asset Purchase Agreement between the Company and Metro Home
Care, Inc.
10.12 Asset Purchase Agreement between the Company and Visiting
Nurse Association of Palm Beach County, Inc.
10.13 Loan Agreement between the Company and Bank One, KY
(incorporated by reference to the Registrant's report on Form
10K for the year ended March 31, 2001).
10.14 Stock Purchase Agreement between the Company and HealthSouth
Corporation (incorporated by reference to the Registrant's
report on Form 10K for the year ended March 31, 2001).
10.15* Asset Purchase Agreement between the Company and Medlink of
Ohio, Inc.
22* List of Subsidiaries of Almost Family, Inc.
23(a)* Consent of Ernst & Young LLP
23(b)* Information regarding consent of Arthur Andersen
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
None
(c) Exhibits
Described in Item 15(c) of this report
(d) Financial Statement Schedules
Described in Item 15(b) of this report
*Denotes filed herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALMOST FAMILY, INC.
March 31, 2003
S/ William B. Yarmuth
- ----------------------------------------------------------------
William B. Yarmuth
Chairman, President and Chief Executive Officer
S/ C. Steven Guenthner
- -----------------------------------------------------------------
C. Steven Guenthner
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below the following persons in the capacities and on the dates
indicated:
S/ William B. Yarmuth March 31, 2003
- -------------------------------------------------------------------------------
William B. Yarmuth Date
Director
S/ Donald G. McClinton March 31, 2003
- -------------------------------------------------------------------------------
Donald G. McClinton Date
Director
S/ Steven B. Bing March 31, 2003
- -------------------------------------------------------------------------------
Steven B. Bing Date
Director
S/ Tyree Wilburn March 31, 2003
- --------------------------------------------------------------------------------
Tyree Wilburn Date
Director
S/ Jonathan Goldberg March 31, 2003
- --------------------------------------------------------------------------------
Jonathan Goldberg Date
Director
S/ Wayne T. Smith March 31, 2003
- -------------------------------------------------------------------------------
Wayne T. Smith Date
Director
S/ W. Earl Reed, III March 31, 2003
- -------------------------------------------------------------------------------
W. Earl Reed, III Date
Director
CERTIFICATIONS
I, William B. Yarmuth, certify that:
1. I have reviewed this annual report on Form 10-K of Almost Family, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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
annual report (the "Evaluation Date"); and
c) presented in this annual 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
functions):
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
annual report whether 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: March 31, 2003
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 annual report on Form 10-K of Almost Family, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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
annual report (the "Evaluation Date"); and
c) presented in this annual 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
functions):
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
annual report whether 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: March 31, 2003
BY /s/ C. Steven Guenthner
- ----------------------------------
C. Steven Guenthner
Senior Vice President & Chief Financial Officer
ALMOST FAMILY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
(1)
Balance at Charged to Charged to
Beginning of Costs Other (2) Balance at
Description Period and Expenses Accounts Deductions End of Period
- --------------------------------------------------------------------------- ------------- --------------- ----------------
Allowance for bad debts:
Year ended December 31, 2002 $2,420,252 $1,660,748 - $1,771,644 $2,309,356
Nine months ended December 31, 2001 1,883,120 888,757 - 351,625 2,420,252
Year ended March 31, 2001 1,262,949 1,083,261 - 463,090 1,883,120
(1) Charged to bad debt expense.
(2) Write-off of accounts.
ALMOST FAMILY, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES AS OF DECEMBER 31, 2002
EXHIBIT 22
Subsidiaries of Almost Family, Inc.
Adult Day Care of America, Inc. Adult Day Care of Louisville, Inc.
Adult Day Care of Maryland, Inc. HouseCalls, Inc.
Adult Day Clubs of America Joint Venture, Ltd. HHJC Holdings, Inc.
National Health Industries, Inc.
Pro-Care Home Health of Broward, Inc.
Subsidiaries of National Health Industries, Inc.
Freelife Medical Equipment, Inc. Caretenders Homecare, Inc.
Caretenders Infusion of Birmingham, Inc. Caretenders of Birmingham, Inc.
Caretenders of Boston, Inc. Caretenders of Cincinnati, Inc.
Caretenders of Columbus, Inc. Caretenders of Elizabethtown, Inc.
Caretenders of Indiana, Inc. Caretenders of Indianapolis, Inc.
Caretenders of Lincoln Trail, Inc. Caretenders of Louisville, Inc.
Caretenders of New Jersey, Inc. Caretenders of Northern Kentucky, Inc.
Caretenders of Richmond, Inc. Caretenders of the Bluegrass, Inc.
Caretenders Visiting Services of Richmond, Inc. House Calls of America, Inc.
Caretenders Infusion Corp. Metro Home Care, Inc.
National Orthopedic & Rehabilitation Services, Inc. Physician Affiliates, Inc.
Special Healthcare Services, Inc. Reliable Home Healthcare, Inc.
Caretenders Visiting Services of Cincinnati, Inc. Caretenders of Cleveland, Inc.
Caretenders Visiting Services of Columbus, Inc. Caretenders of Fort Lauderdale, Inc.
Caretenders of Evansville, Inc. Caretenders of West Palm Beach, Inc.
Caretenders Visiting Services of Indianapolis, Inc. Caretenders of Charlotte, Inc.
Caretenders Visiting Services of Southwest FL, Inc. Caretenders of Southwest Florida, Inc.
Caretenders Visiting Services of Southeast FL, Inc.
Subsidiary of HHJC Holdings, Inc.
Home Health of Jefferson County, Inc. Caretenders of Marshall County, Inc.
Exhibit 23 (a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement Form
S-8 No. 33-33601 pertaining to the Company's Incentive Stock Option
Plan, Registration Statement Form S-8 No. 33-20815 pertaining to the 1987
Nonqualified Stock Option Plan, Registration Statement Form S-8 No. 33-881100
pertaining to the 1993 Non-Employee Directors Stock Option Plan, Registration
Statement Form S-8 No. 33-81124 pertaining to the 1991 Long-Term Incentive Plan,
Registration Statement Form S-8 No. 333-88744 pertaining to the 2000 Employee
Stock Option Plan, and Registration Statement Form S-8 No. 333-43631 pertaining
to the Non-Employee Directors Deferred Compensation Plan, of our report
dated March 14, 2003 with respect to the consolidated financial statements
and schedule of Almost Family, Inc. and subsidiaries included in the Annual
Report (Form 10-K) for the year ended December 31, 2002.
ERNST & YOUNG LLP
Louisville, Kentucky
March 27, 2003
EXHIBIT 23 (b)
INFORMATION REGARDING CONSENT OF ARTHUR ANDERSEN
Section 11 (a) of the Securities Act of 1933, as amended (the "Securities Act"),
provides that if part of a registration statement at the time it becomes
effective contains an untrue statement of a material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading, any person acquiring a security pursuant to such registration
statement (unless it is proved that at the time of such acquisition such person
knew of such untruth or omission) may assert a claim against, among others, an
accountant who has consented to be named as having certified any part of the
registration statement or as having prepared any report for use in connection
with the registration statement.
In August of 2002, Arthur Andersen LLP ("Andersen") ceased operations and
accordingly, Andersen is unable to consent to the incorporation by reference of
the Company's previously filed Registration Statements on Form S-8 (Registration
Nos. 33-33601, 33-81122, 33-20815, 33-881100, 33-81124, and 333-43631) and
Andersen's audit report with respect to Almost Family Inc.'s consolidated
financial statements as of December 31, 2001 and for the nine months ended
December 31, 2001 and the year ended March 31, 2001. Under these circumstances,
Rule 437a under the Securities Act permits Almost Family Inc. to file this Form
10-K, which is incorporated by reference into the Registration Statements,
without a written consent from Andersen. As a result, with respect to
transactions in Almost Family Inc. securities pursuant to the Registration
Statements that occur subsequent to the date this Form 10-K is filed with the
Securities and Exchange Commission, Andersen will not have any liability under
Section 11(a) of the Securities Act for any untrue statements of a material fact
contained in the financial statements audited by Andersen or any omissions of a
material fact required to be stated therein. Accordingly, you would be unable to
assert a claim against Andersen under Section 11(a) of the Securities Act, based
upon the incorporation by reference from this Form 10-K into the registration
statement, because Andersen has not consented to this incorporation.
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 Annual Report of Almost Family, Inc. (the
"Company") on Form 10-K for the period ended December 31, 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
March 31, 2003
A signed original of this written statement required by Section 906 has been
provided to Almost Family, Inc. and will by retained by Almost Family, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
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 Annual Report of Almost Family, Inc. (the
"Company") on Form 10-K for the period ended December 31, 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
March 31, 2003
A signed original of this written statement required by Section 906 has been
provided to Almost Family, Inc. and will by retained by Almost Family, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.