1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to_______
Commission file number 1-9848
ALMOST FAMILY, INC. TM
(Exact name of registrant as specified in its charter)
Delaware 06-1153720
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
100 Mallard Creek Road, Suite 400 40207
(Address of principal executive offices) (Zip Code)
(502) 899-5355
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X____ No ____.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock $.10 par value
Shares outstanding at June 30, 2001 2,493,862
ALMOST FAMILY, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2001
and March 31, 2001 3
Consolidated Statements of Operations for the Three
Months ended June 30, 2001 and 2000 4
Consolidated Statements of Cash Flows for the Three
Months ended June 30, 2001 and 2000 5
Notes to Interim Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 17
Part II. Other Information
Items 1 through 6 18
ALMOST FAMILY, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 2001 March 31, 2001
------ ------------- ---------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 840,262 $ 2,490,600
Accounts receivable - net 7,532,705 7,186,387
Prepaid expenses and other current assets 1,262,569 1,235,584
Deferred tax assets 688,812 525,257
Net assets of discontinued operations - -
------------- -------------
TOTAL CURRENT ASSETS 10,324,348 11,437,828
PROPERTY AND EQUIPMENT - NET 5,249,575 4,685,832
COST IN EXCESS OF NET ASSETS ACQUIRED - NET 2,450,756 2,477,341
DEFERRED TAX ASSETS 2,009,485 2,184,348
OTHER ASSETS 822,680 832,275
LONG TERM ASSETS OF DISCONTINUED OPERATIONS, NET - -
------------- -------------
$ 20,856,844 $ 21,617,624
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 5,661,123 $ 5,913,669
Current portion - capital lease obligation 289,900 289,900
------------- -------------
5,951,023 6,203,569
------------- -------------
LONG-TERM LIABILITIES:
Revolving Credit Facility 4,852,206 6,010,247
Capital Lease Obligation 130,440 218,920
Other liabilities 628,139 629,616
------------- -------------
TOTAL LONG-TERM LIABILITIES 5,610,785 6,858,783
------------- -------------
TOTAL LIABILITIES 11,561,808 13,062,352
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $0.10; authorized
10,000,000 shares; 3,289,997 issued
and outstanding 329,000 329,000
Treasury stock, at cost, 796,112 and
779,912 shares (5,380,457) (5,266,919)
Additional paid-in capital 25,731,726 25,731,726
Accumulated deficit (11,385,233) (12,238,535)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 9,295,036 8,555,272
------------- -------------
$ 20,856,844 $ 21,617,624
============= =============
See accompanying notes to interim consolidated financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
-----------------------------
June 30, 2001 June 30, 2000
------------- --------------
Net revenues $12,555,117 $ 11,776,440
Cost of sales and services 10,346,112 9,725,079
General and administrative expenses 1,119,618 1,093,392
Depreciation and amortization expense 229,606 264,558
Provision for uncollectible accounts 137,104 133,873
------------- -------------
Income before other income (expense) and 722,677 559,538
income taxes
Other income (expense):
Interest expense (115,386) (13,908)
------------- -------------
Income before income taxes 607,291 545,630
Income tax expense 253,306 254,916
------------- -------------
Net income from continuing operations 353,985 290,714
Discontinued operations:
Net income from operations net of
applicable income taxes of $360,981 499,710 -
Estimated loss on disposal, net of
applicable income taxes - -
------------- -------------
Net income $ 853,695 $ 290,714
============= =============
Per share amounts - Basic:
Average shares outstanding - Basic 2,505,435 3,141,186
Net income from continuing operations $ 0.14 $ 0.09
Discontinued operations
Income from operations, net of
applicable income taxes 0.20 -
------------- -------------
Net income $ 0.34 $ 0.09
============= =============
Per share amounts - Diluted:
Average shares outstanding - Diluted 2,884,467 3,173,501
Net income from continuing
operations $ 0.12 $ 0.09
Discontinued operations
Income from operations, net of
applicable income taxes 0.17 -
------------ -----------
Net income $ 0.30 $ 0.09
============ ===========
See accompanying notes to interim consolidated financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months Ended
-------------------------------
June 30, 2001 June 30, 2000
--------------- ---------------
Cash flows from operating activities:
Net income $ 853,695 $ 290,714
Less net income from discontinued
operations 499,710 -
--------------- ---------------
Net income from continuing operations 353,985 290,714
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 229,606 264,558
Provision for uncollectible accounts 137,104 133,873
Deferred taxes 11,308 -
--------------- ---------------
732,003 689,145
Change in certain net assets
(Increase) decrease in:
Accounts receivable (483,420) (138,403)
Prepaid expenses and other
current assets (30,817) (396,298)
Increase (decrease) in:
Accounts payable and accrued
liabilities (252,948) (202,988)
--------------- ---------------
Net cash provided (used) by
operating activities (35,182) (48,544)
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (762,932) (259,742)
Other assets 9,596 (55,232)
Goodwill - (5,000)
--------------- ---------------
Net cash used by investing
activities (753,336) (319,974)
--------------- ---------------
Cash flows from financing activities:
Net revolving credit facility
borrowings (payments) (1,158,035) (377,115)
Principal payments on capital leases (88,480) -
Repurchase of common shares (113,538) -
Other (1,477) 7,663
--------------- ---------------
Net cash used by financing
activities (1,361,530) (369,452)
--------------- ---------------
Cash flows provided (used) by 499,710 -
discontinued operations
--------------- ---------------
Net increase (decrease) in cash (1,650,338) (737,970)
Cash and cash equivalents at beginning of 2,490,600 1,427,537
period
--------------- ---------------
Cash and cash equivalents at end of period $ 840,262 $ 689,567
=============== ===============
See accompanying notes to interim consolidated financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements for the three
months ended June 30, 2001 and 2000 have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
Accordingly, the reader of this Form 10-Q is referred to the Company's Form
10-K for the year ended March 31, 2001 for further information. In the
opinion of management of the Company, the accompanying unaudited interim
financial statements reflect all adjustments (consisting of normally
recurring adjustments) necessary to present fairly the financial position
at June 30, 2001 and the results of operations and cash flows for the
periods ended June 30, 2001 and 2000.
The results of operations for the three months ended June 30, 2001 are not
necessarily indicative of the operating results for the year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
2. COMMITMENTS AND CONTINGENCIES
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.
Franklin
On January 26, 1994 Franklin Capital Associates L.P., Aetna Life and
Casualty Company and Aetna Casualty and Surety Company, shareholders, who
at one time held approximately 320,000 shares of the Company's common stock
(approximately 13% of shares outstanding) filed suit in Chancery Court of
Williamson County, Tennessee claiming unspecified damages not to exceed
three million dollars in connection with registration rights they received
in the Company's acquisition of certain home health operations in February
1991. The 1994 suit alleged that the Company failed to use its best efforts
to register the shares held by the plaintiffs as required by the merger
agreement. The Company settled with Aetna shortly before the case went to
trial in February 2000. In mid-trial Franklin voluntarily withdrew its
complaint reserving its legal rights to bring a new suit as allowed under
Tennessee law. In May 2000, Franklin re-filed its lawsuit. The Company
believes it has meritorious defenses to
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
2. COMMITMENTS AND CONTINGENCIES (continued)
the claims and does not expect that the ultimate outcome of the suit will
have a material impact on the Company's results of operations, liquidity or
financial position.
The Company plans to vigorously defend its position in this case. Estimated
costs of litigation have been included in the Company's one-time charge for
discontinuing its home health operations recorded in September 1999.
3. FINANCIAL STATEMENT RECLASSIFICATIONS
Certain amounts have been reclassified in the 2001 financial statements in
order to conform to the 2000 presentation. Such reclassifications had no
effect on previously reported net income (loss).
4. DISCONTINUED OPERATIONS
As part of a formal plan of separation, the Company on November 12, 1999
sold its product operations (consisting of infusion therapy and
respiratory and medical equipment businesses) to Lincare Holdings, Inc. in
an asset sale for $14.5 million and is pursuing available strategic
alternatives to complete the separation of its visiting nurse operations.
Proceeds from the sale were used to repay obligations outstanding under
the Company's bank line of credit. As a result of the operational
separations, the Company has recorded a one-time net of tax charge of
approximately $5 million or ($1.60) in the quarter ended September 30,
1999. This charge reduced the book value of the operations to their
expected net realizable value, provides for losses on fulfilling certain
obligations and close down costs and includes the estimated future
operating results of the visiting nurse operations prior to separation. As
a result the visiting nurse operations are being accounted for as
discontinued operations in the accompanying financial statements.
The estimated loss on disposal of discontinued operations reflected in the
financial statements for the fiscal year ended March 31, 2000 included
management's estimate of the results of operating the visiting nurse
segment prior to disposal and the estimated financial results of such
disposal based on information then available. The Company's decisions with
respect to the visiting nurse operations resulted from changes in Medicare
reimbursement brought about by the Balanced Budget Act of 1997 (the BBA)
and its resulting impact on the home health market place and the Company.
The BBA included a requirement for implementation of a prospective payment
system or "PPS" which would not be cost-based, no later than October 1,
2000. PPS went into effect on that date.
Although discontinued operations accounting treatment is being used for
this segment, earnings are reported in the Company's income statement.
Under discontinued operations accounting rules, losses incurred in the
comparable periods of last year were previously provided for in the
one-time charge recorded in the Company's fiscal 2000 year. Thus, in the
table shown below the line "Less previously provided" reduces the reported
operating losses for the quarter ended June 30, 2000.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4. DISCONTINUED OPERATIONS (continued)
The BBA and subsequent amendments, as they currently stand, call for a
reduction in PPS reimbursement rates of 15% effective October 1, 2002. The
Federal budget for the coming Federal fiscal year is currently being
developed in Congress, and legislative proposals have been made to
eliminate and/or postpone this reduction. However, unless Congress and the
President change the law as it currently exists, the 15% rate cut will
take place on October 1, 2002. The Company is unable to predict whether
such a rate cut will take place. Should such a rate cut take place, it
would have a material adverse effect on the financial performance and the
potential disposition value of the VN business segment. The Company is
continuing to evaluate its strategic alternatives for this business
segment, the outcome of which will be highly dependent upon the resolution
of the 15% rate cut issue.
During June 2001, the Centers for Medicare and Medicaid Services (CMS,
formerly HCFA)announced a rate increase, expected to be approximately 5.3%
for the Company's agencies, to go into effect October 1, 2001.
The accompanying balance sheets include net current assets and liabilities
of discontinued operations, consisting primarily of accounts receivable,
inventory, accounts payable and accrued liabilities, and long term assets
of discontinued operations consisting primarily of property, and
equipment, net of accumulated depreciation and goodwill.
Discontinued Operations - Statements of Operations
With PPS Before PPS
Three Three
Months Months
Ended 6/2001 Ended 6/2000 Change
-------------- ------------- ------------
Revenues $ 6,718,529 $ 6,669,235 $ 49,294
Operating Expenses 5,742,575 6,858,407 (1,115,832)
Interest Expense 115,263 161,546 (46,283)
-------------- ------------- ------------
Pre-tax Income (loss) 860,691 (350,718) 1,211,409
Income Taxes 360,981 (161,330) 522,311
-------------- ------------- ------------
Net Income (loss) 499,710 (189,388) 689,098
Less previously provided - (189,388) 189,388
-------------- ------------- ------------
Shown in accompanying
Statements of Operations $ 499,710 $ - 499,710
============== ============= ============
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - DISCONTINUED OPERATIONS (continued)
Discontinued Operations - Balance Sheet Information
6/2001 3/2001
------------------ ------------------
Accounts Receivable $ 8,584,303 $ 8,909,068
Other Current Assets 2,475,803 2,391,308
Current Liabilities 5,232,033 5,040,223
Revolving Credit Facility 5,353,656 5,780,392
Long-Term Liabilities 474,417 479,761
------------------ ------------------
Net Assets Held for Sale $ - $ -
================== ==================
For the quarter ended June 30, 2001, discontinued operations cash provided by
operating activities was $1,195,134, cash used in investing activities was
$263,487, and cash used in financing activities was $931,647.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As described elsewhere herein, the Company has sold its product operations and
is pursuing strategic alternatives for its visiting nurse operations.
Accordingly, the results of continuing operations presented below include only
the result of the Company's adult day health services operations consisting of
in-center adult day care and personal care services provided in the patients'
homes.
RESULTS OF CONTINUING OPERATIONS
The financial tables that follow are presented for continuing operations:
Three Months Ended June 30, 2001 Compared with Three Months Ended June 30, 2000
2001 2000 Change
-------------------------------------------------------
-------------------------------------------------------
Amount % Rev Amount % Rev Amount %
-------------------------------------------------------
Net Revenues $12,555,117 100.0% $11,776,440 100.0% $778,677 6.6%
Cost of Services 10,346,112 82.4% 9,725,079 82.5% 621,033 6.4%
------------ ------------ ---------
Center Contribution 2,209,005 17.6% 2,051,361 17.5% 157,644 7.7%
General & Admin Cost 1,119,618 8.9% 1,093,392 9.3% 26,226 2.4%
Depreciation &
Amortization 229,606 1.8% 264,558 2.2% (34,952) -13.2%
Uncollectible Accounts 137,104 1.1% 133,873 1.1% 3,231 2.4%
------------ ------------ ---------
EBIT (1) 722,677 5.8% 559,538 4.8% 163,139 29.2%
Interest Expense 115,386 0.9% 13,908 0.1% 101,478 729.6%
------------ ------------ ---------
Pre-tax Income 607,291 4.8% 545,630 4.7% 61,661 11.2%
Income tax 253,306 2.0% 254,916 2.2% (1,611) -0.6%
------------ ------------ ---------
Net income (loss) $353,985 2.8% $290,714 2.5% $63,272 21.8%
============ ============ =========
EBITDA (2) $952,283 7.6% $824,096 7.0% $128,187 15.5%
(1) Earnings before interest and taxes
(2) Earnings before interest, taxes, depreciation and amortization
Net Revenues
Net revenues increased 6.6% to $12.6 million for the three months ended June 30,
2001 from $11.8 million in the same quarter of the prior year. Average revenue
per day of care increased about 7% as a result of mix changes and higher
reimbursement rates. Volumes decreased to 175,730 days of care in the 2001
period from 176,702 in the 2000 period primarily as a result of the closure of
the Stamford, CT and Birmingham, AL days centers last fiscal year. These centers
were not profitable and were closed to improve the overall financial performance
of the Company. Occupancy in the adult day care centers was 74.2% of capacity in
the 2001 period and 78.3% of capacity in the 2000 period. Average capacity
increased to 1,676 in the 2001 period from 1,604 in the 2000 period as the
addition of new centers in Kentucky and Connecticut more than offset the
capacity closed last year. As of July 1, 2001, total system capacity was 1,676
guests per day.
The Company has been notified by the Medicaid programs of certain states in
which it operates that those programs have increased reimbursement rates paid
for adult day care services. In the aggregate, the Medicaid rates received by
the Company for services provided in those states on or after July 1, 2001 will
be approximately 2% higher than the rates received for similar services in the
quarter ended June 30, 2001. During that quarter, the Company's Medicaid program
revenues in the affected states were approximately $3 million.
Cost of Services
Cost of services as a percent of revenues declined to 82.4% in 2001 from 82.5%
in 2000 primarily as a result of the pricing, volume and capacity changes
discussed above.
General and Administrative
General and administrative expenses were relatively unchanged between periods
and, as a percent of revenues, dropped to 8.9% in 2001 from 9.3% in 2000.
Depreciation and Amortization
Depreciation and amortization decreased by 13% or $35,000 due to certain
property items reaching the end of their useful lives.
Provision for Uncollectible Accounts
Management establishes an allowance for uncollectible accounts based on its
estimate of probable collection losses. The provision for uncollectible accounts
was 1.1% of revenue in both periods.
Interest, Net
The increase in interest, net 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.
Income Taxes
As of June 30, 2001, the Company has net deferred tax assets of approximately
$2,698,000. The net deferred tax asset is composed of $2,009,000 of long-term
deferred tax assets and $689,000 of current deferred tax assets.
The Company has provided a valuation allowance against certain net deferred tax
assets based upon management's estimation of realizability of those assets
through future taxable income. This valuation was based in large part on the
Company's history of generating operating income or losses in individual tax
locales and expectations for the future. The Company's ability to generate the
expected amounts of taxable income from future operations is dependent upon
general economic conditions, competitive pressures on revenues and margins and
legislation and regulation at all levels of government. Management has
considered the above factors in reaching its conclusions that it is more likely
than not that future taxable income will be sufficient to fully utilize the net
deferred tax assets. However, there can be no assurances that the Company will
meet its expectations of future taxable income.
The effective income tax rate was approximately 42% of income before income
taxes for 2001 as compared to an effective income tax rate of approximately 47%
for 2000. The higher tax rate used in the quarter ended June 30, 2000 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 during the quarter ended June 30, 2001.
Discontinued Operations
As part of a formal plan of separation, the Company on November 12, 1999 sold
its product operations (consisting of infusion therapy and respiratory and
medical equipment businesses) to Lincare Holdings, Inc. in an asset sale for
$14.5 million and is pursuing available strategic alternatives to complete the
separation of its visiting nurse operations. Proceeds from the sale were used to
repay obligations outstanding under the Company's bank line of credit. As a
result of the operational separations, the Company has recorded a one-time net
of tax charge of approximately $5 million or ($1.60) in the quarter ended
September 30, 1999. This charge reduced the book value of the operations to
their expected net realizable value, provides for losses on fulfilling certain
obligations and close down costs and included the estimated future operating
losses of the visiting nurse operations prior to separation. The estimated loss
on disposal of discontinued operations reflected in the financial statements for
the fiscal year ended March 31, 2000 included management's estimate of the
results of operating the visiting nurse segment prior to disposal and the
estimated financial results of such disposal based on information then available
The accompanying balance sheet includes net current assets and liabilities of
discontinued operations, consisting primarily of accounts receivable, inventory,
accounts payable and accrued liabilities, and long term assets of discontinued
operations consisting primarily of property, plant and equipment, net of
accumulated depreciation, goodwill and debt. (See Note 4 to the financial
statements).
Visiting Nurse Operations
The results of operations for the visiting nurse segment for the three months
ended June 30, 2001 and 2000 are presented in the table below. The QE 6/2001
columns present the results of operations for the quarter ended June 30, 2001,
during which Medicare PPS was in effect. The QE 6/2000 columns present the
results of operations for the quarter ended June 30, 2000, during which Medicare
PPS was not in effect. Approximately 85% of the Visiting Nurse segment revenues
are generated from the Medicare program.
QE 6/2001, With-PPS QE 6/2000, Pre-PPS Change
-------------------------------------------------------
Amount % Rev Amount % Rev Amount %
-------------------------------------------------------
Net Revenues $6,718,529 100.0% $6,669,235 100.0% $49,294 0.7%
Cost of Services 4,357,492 64.9% 5,609,946 84.1% (1,252,454)-22.3%
------------ ----------- ----------
Center contribution 2,361,037 35.1% 1,059,289 15.9% 1,301,748 122.9%
General & Admin Cost 1,027,038 15.3% 1,006,594 15.1% 20,444 2.0%
Depreciation &
Amortization 174,472 2.6% 183,530 2.8% (9,058) -4.9%
Uncollectible Accounts 183,573 2.7% 58,337 0.9% 125,236 214.7%
------------ ----------- ----------
EBIT (1) 975,954 14.5% (189,172) -2.8% 1,165,126 NM
Interest Expense 115,263 1.7% 161,546 2.4% (46,283)-28.6%
------------ ----------- ----------
Pre-tax Income 860,691 12.8% (350,718) -5.3% 1,211,409 NM
Income tax 360,981 5.4% (161,330) -2.4% 522,311 NM
------------ ----------- ----------
Net income (loss) 499,710 7.4% (189,388) -2.8% 689,098 NM
Less previously provided - 0.0% (189,388) 2.8% 189,388 NM
------------ ----------- ----------
Reported in income
statement 499,710 7.4% - 0.0% 499,710 NM
============ =========== ==========
EBITDA (2) 1,150,426 17.1% (5,642) -0.1% 1,156,067 NM
(1) Earnings before interest and taxes
(2) Earnings before interest, taxes, depreciation and amortization
NM - Not Meaningful
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 net losses in the quarter ended June 30, 2000 as it was then still
operating under the old cost-based reimbursement system. In the quarter ended
June 30, 2001, 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 quarter ended June 30, 2000. Costs of services, primarily
labor and related costs, were reduced by 22% due to staffing reductions,
increased staff productivity and a reduction in the amount of unprofitable
insurance and managed care cases. The Company cared for approximately 3,300
Medicare patients in each of the two quarters presented.
Bad debt expense approximated 3% of revenues based on historical collection
results. Since Medicare PPS is still relatively new, this 3% rate may differ in
the future. Under the cost-reimbursed system in place during 2000, estimated
Medicare bad debts were netted against the revenue line. Interest expense
decreased between periods primarily as a result of repayment of certain Medicare
liabilities that were outstanding in the prior year.
Although discontinued operations accounting treatment is being used for this
segment, earnings are reported in the Company's income statement for the quarter
ended June 30, 2001. Under discontinued operations accounting rules, losses
incurred in the comparable period of last year were previously provided for in
the one-time charge recorded in fiscal 2000. Thus, in the table shown above the
line "Less previously provided" reduces the reported operating losses for the
quarter ended June 30, 2000 to zero.
The BBA and subsequent amendments, as they currently stand, call for a reduction
in PPS reimbursement rates of 15% effective October 1, 2002. The Federal budget
for the coming Federal fiscal year is currently being developed in Congress, and
legislative proposals have been made to eliminate and/or postpone this
reduction. However, unless Congress and the President change the law as it
currently exists, the 15% rate cut will take place on October 1, 2002. The
Company is unable to predict whether such a rate cut will take place. Should
such a rate cut take place, it would have a material adverse effect on the
financial performance and the potential disposition value of the VN business
segment. The Company is continuing to evaluate its strategic alternatives for
this business segment, the outcome of which will be highly dependent upon the
resolution of the 15% rate cut issue.
During June 2001, CMS (formerly HCFA) announced a rate increase, expected to be
approximately 5.3% for the Company's agencies, to go into effect October 1,
2001.
Liquidity and Capital Resources
Revolving Credit Facility
Prior to May 30, 2001, the Company had a $20 million revolving credit facility
with Bank One Kentucky, NA. The facility had an expiration date of January 10,
2002. On May 30, 2001 the facility was replaced with a $22.5 million facility
with similar terms and conditions. The new expiration date is June 30, 2003. The
credit facility bears interest at prime plus a margin (ranging from 0% to 1.0%,
currently 0.50%) dependent upon total leverage and is secured by substantially
all assets and the stock of the Company's subsidiaries. Borrowings are available
equal to the greater of: a) a multiple of earnings before interest, taxes,
depreciation and amortization (as defined) or, b) an asset based formula,
primarily based on accounts receivable. Borrowings under the facility may be
used for working capital, capital expenditures, development and growth of the
business and other corporate purposes. As of June 2001 the formula permitted the
entire $22.5 million to be used of which approximately $10.2 million was
outstanding. Additionally, an irrevocable letter of credit, totaling $2.4
million, is outstanding in connection with the Company's insurance program.
Thus, a total of $12.6 million was either outstanding or committed as of June
30, 2001 while an additional $9.5 million was available for use. As of June 30,
2001, approximately $5.4 million of debt has been classified with net assets
from discontinued operations in the accompanying balance sheet.
The Company believes that this facility will be sufficient to fund its operating
needs for at least the next twelve months.
Management will continue to evaluate additional capital, including possible debt
and equity investments in the Company, to support a more rapid development of
the business than would be possible with internal funds.
On-Going Stock Buy Back Program
In March 2001, following the Stock and Warrant Redemption discussed below, 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 quarter ended June 30, 2001, a
total of 16,200 shares were repurchased under this program, all of which were in
open market purchases. A total of $122,394 was expended in these purchases for
an average acquisition cost of $7.00 per share. These purchases did not have a
material effect on net income or earnings per share for the quarter ended June
30, 2001.
Stock and Warrant Redemption
In March 2001, the Company redeemed 748,501 shares of common stock and a warrant
to purchase 200,000 shares of common stock (at an exercise price of $12.50 per
share). The Company's cost of redemption totaled approximately $5.1 million. As
of March 31, 2001 a total of 2,510,062 common shares were outstanding. The
following table shows the accretive impact of this redemption on consolidated
basic earnings per share for quarter ended June 30, 2001 as compared to the same
period last year:
Effect of Stock Redemption on Basic EPS
Three Months Ended June 30,
---------------------------
2001 2000
------------- ------------
Consolidated Net Income
As stated $853,695 $290,714
Interest on borrowings for
redemption 104,000 -
Income tax effect (43,680) -
------------- ------------
Net Income if shares had not been
redeemed $914,015 $290,714
------------- ------------
Weighted Average Basic Shares Outstanding
As stated 2,505,435 3,141,186
Shares Redeemed 748,501 -
------------- ------------
Basic shares if shares had not been
redeemed 3,253,936 3,141,186
------------- ------------
Basic EPS
As stated $ 0.34 $ 0.09
Basic shares if shares had not been
redeemed 0.28 0.09
------------- ------------
Accretive effect of share redemption $ 0.06 $ 0.00
============= ============
Percent accretive 21.4% 0.0%
============= ============
Cash Flows
Key elements to the Consolidated Statements of Cash Flows for the periods ending
June 30, 2001 and 2000 were:
Net Change in Cash and Cash Equivalents 2001 2000
- ---------------------------------------- --------- -----------
Continuing Operations
Provided by (used in)
Operating activities $(35,182) $(48,544)
Investing activities (753,336) (319,974)
Financing activities (1,361,530) (369,452)
----------- ---------
(2,150,048) (737,970)
Discontinued operations 499,710 -
----------- -----------
Net Change in Cash and Cash $(1,650,338) $(737,970)
Equivalents ============ ==========
2001
Net cash used in operating activities resulted principally from current period
income, net of changes in accounts receivable, accounts payable and accrued
expenses. The increase in accounts receivable resulted from a small increase in
days sales outstanding. Days sales outstanding were 55 at June 30, 2001, up from
53 at March 31, 2001. The decrease in accounts payable and accrued liabilities
resulted primarily from the payment of fiscal year-end 2001 management
incentives of approximately $500,000. Thus, excluding this payment of prior year
bonus obligations, operating activities actually generated cash of about
$474,000. Net cash used in investing activities resulted principally from
amounts invested in adult day health services expansion activities and
improvements in information systems. During the quarter, the Company made
capital expenditures for the expansion of one center each in Louisville and
Maryland and for a new center being constructed in Ft. Myers, FL. Net cash
provided by financing activities resulted primarily from repayments on the
Company's credit facility, payment of capital lease obligations and repurchase
of the common stock.
2000
Net cash used by operating activities resulted principally from current period
income, net of changes in accounts receivable, accounts payable and accrued
expenses. The increase in prepaid expenses resulted from the timing of insurance
payments. The increase in accounts receivable resulted from volume increases.
Days sales outstanding declined to 50 from 53 at March 31, 2000. The decrease in
accounts payable and accrued liabilities resulted primarily from income tax
payments made during the quarter. 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 in financing
activities resulted primarily from lower borrowings under the Company's credit
facility.
Health Care Reform
The health care industry has experienced, and is expected to continue to
experience, extensive and dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is subjecting the health care
industry to significant reform. Health care reforms have been enacted as
discussed elsewhere in this document and proposals for additional changes are
continuously formulated by departments of the federal government, Congress, and
state legislatures.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of expenditures are expected to continue. Such
future changes may further impact reimbursement. There can be no assurance that
future legislation or regulatory changes will not have a material adverse effect
on the operations of the Company.
State legislative proposals continue to be introduced that would impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations may be enacted
in the future affecting its business or how existing or future laws and
regulations might be interpreted, or whether the Company will be able to comply
with such laws and regulations in its existing or future markets.
Refer to the sections on Reimbursement Changes and Cautionary Statements -
Forward Outlook and Risks in Part I, and the notes to the accompanying financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations all included in the Company Form 10K for the year ended
March 31, 2001 for additional information.
Health Insurance Portability and Accountability Act (HIPAA)
The Health Insurance Portability and Accountability Act (HIPAA) was enacted by
the federal government on August 12, 1996, which requires organizations to
adhere to certain standards to protect data integrity, confidentiality and
availability. The primary impact will fall on entities, which work with medical
records, patient accounting or enrollment, human resources, and information
technology. HIPAA standards are expected to be implemented generally within two
years of the effective date of the final rule. The first requirements under
HIPAA relate to data integrity and privacy and are effective October 2002 and
March 2003, respectively. Other components are expected to be finalized in the
near future. The Company plans to be compliant with the HIPAA regulations by
their effective dates and does not expect compliance will have a materially
adverse impact on its financial position or results of operations.
Impact of Inflation
Management does not believe that inflation has had a material effect on income
during the past several years.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Derivative Instruments
The Company does not use derivative instruments.
Market Risk of Financial Instruments
The Company's primary market risk exposure with regard to financial instruments
is to changes in interest rates.
At June 30, 2001, a hypothetical 100 basis point increase in short-term interest
rates would result in a reduction of approximately $48,000 in annual pre-tax
earnings from continuing operations.
Commission File No. 1-9848
Part II - Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) Form 8-K - None
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: July 31, 2001
ALMOST FAMILY, INC.
BY /s/ William B. Yarmuth
William B. Yarmuth,
Chairman of the Board, President
and Chief Executive Officer
BY /s/ C. Steven Guenthner
C. Steven Guenthner,
Senior Vice President and
Chief Financial Officer