SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 AUGUST 31, 2000, 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 0-25777
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3476656
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1983 Marcus Avenue, Lake Success, New York 11042
(Address of principal executive offices) (Zip Code)
(516) 358-1000
(Registrant's telephone number, including area code)
(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 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 No X
The number of shares of common stock outstanding on October 10,
2000 were 11,809,653 shares.
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TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
August 31, 2000 and February 29, 2000 2
Condensed Statements of Consolidated
Operations - Three and six months ended
August 31, 2000 and 1999 3
Condensed Statements of Consolidated Cash
Flows - Six months ended August 31, 2000
and 1999 4
Notes to Condensed Consolidated Financial
Statements 5-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-10
Factors Affecting the Company's Future
Performance 10-13
PART II OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14-15
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TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
AUGUST 31, FEBRUARY 29,
2000 2000
(UNAUDITED)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 1,033 $ 9,299
Accounts receivable, net of allowance
for doubtful accounts of $6,077
and $5,900, respectively 55,581 55,221
Prepaid expenses and other current assets 2,418 3,056
Total current assets 59,032 67,576
FIXED ASSETS, net of accumulated depreciation
of $7,914 and $6,054, respectively 16,887 18,243
INTANGIBLE ASSETS, net of accumulated
amortization of $9,307 and $8,984,
respectively 4,165 4,489
OTHER ASSETS 3,077 3,203
TOTAL $ 83,161 $ 93,511
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 18,228 $ 23,784
Accrued payroll and payroll related expenses 21,154 22,996
Current portion of Medicare and
Medicaid liabilities 8,706 10,401
Current portion of long-term debt 6,424 5,872
Total current liabilities 54,512 63,053
LONG-TERM DEBT 62,416 53,351
LONG-TERM MEDICARE AND MEDICAID LIABILITIES 42,746 43,936
OTHER LIABILITIES 2,892 3,162
TOTAL LIABILITIES 162,566 163,502
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock - $.01 par value; 50,000,000 shares
authorized; 11,809,653 shares outstanding at
August 31 and February 29, 2000 118 118
Additional paid-in capital 50,981 50,921
Accumulated deficit (130,504) (121,030)
Total stockholders' equity (deficit) (79,405) (69,991)
TOTAL $ 83,161 $ 93,511
<FN>
See notes to condensed consolidated financial statements.
</FN>
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TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
CONTINUING OPERATIONS:
REVENUES:
Service revenues $ 56,183 $ 65,370 $112,814 $135,297
Sale of licensees and fees, net 15 362 44 530
Total revenues 56,198 65,732 112,858 135,827
Costs and Expenses:
Service costs 33,979 41,947 69,117 86,432
General and administrative costs 22,770 25,863 44,816 53,028
Total operating expenses 56,749 67,810 113,933 139,460
(Loss) before interest, depreciation,
amortization and income taxes (551) (2,078) (1,075) (3,633)
INTEREST AND OTHER EXPENSES:
Interest expense 3,323 1,500 6,629 1,896
Interest (income) (129) (278) (364) (373)
Depreciation and amortization 1,130 1,095 2,252 2,324
Other (income) expense, net (93) (378) (168) (529)
Total interest and other expense 4,231 1,939 8,349 3,318
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (4,782) (4,017) (9,424) (6,951)
PROVISION FOR INCOME TAXES 25 25 50 50
NET (LOSS) FROM CONTINUING OPERATIONS (4,807) (4,042) (9,474) (7,001)
INCOME FROM DISCONTINUED OPERATIONS
(NET OF INCOME TAXES) - 1,476 - 2,251
NET (LOSS) $ (4,807) $ (2,566) $ (9,474) $(4,750)
INCOME (LOSS) PER COMMON SHARE-BASIC:
Continuing operations $ (.41) $ (.34) $ (.80) $ (.59)
Discontinued operations - .12 - .19
Net (loss) $ (.41) $ (.22) $ (.80) $ (.40)
INCOME (LOSS) PER COMMON SHARE-DILUTED:
Continuing operations $ (.41) $ (.34) $ (.80) $ (.59)
Discontinued operations - .12 - .19
Net (loss) $ (.41) $ (.22) $ (.80) $ (.40)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 11,810 11,810 11,810 11,810
Diluted 11,810 11,810 11,810 11,810
<FN>
See notes to condensed consolidated financial statements.
</FN>
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TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands) Six Months Ended
August 31,
2000 1999
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Cash Flows from Operating Activities:
Net (loss) $(9,474) $(4,750)
Adjustments to reconcile net (loss) to net
cash provided by operations:
Depreciation and amortization of fixed assets 1,928 2,085
Amortization of intangibles and goodwill 324 239
Allowance for doubtful accounts 177 1,142
Income tax refund received - 1,733
Gain on sale of assets (23) (65)
Increase (decrease) in other liabilities (270) 668
Change in operating assets and liabilities:
Accounts receivable (537) 280
Accrued payroll and payroll related expenses (1,842) 642
Prepaid expenses and other current assets 638 (252)
Accounts payable and accrued expenses (5,556) 3,242
Decrease in Medicare and Medicaid liabilities (2,885) (2,657)
Other assets 186 851
Net assets of discontinued operations - (8,949)
Net cash used in operating activities (17,334) (5,791)
Cash Flows from Investing Activities:
Proceeds from sale of assets 25 65
Additions to fixed assets, net (574) (2,726)
Net cash used in investing activities (549) (2,661)
Cash Flows from Financing Activities:
Borrowings under secured credit facilities 10,570 8,645
Proceeds from note payable 1,000 -
Payments of notes payable and other
long-term liabilities (1,953) (315)
Net cash provided by financing activities 9,617 8,330
Net (decrease) in Cash
and Cash Equivalents (8,266) (122)
Cash and Cash Equivalents, Beginning
of Period 9,299 1,323
Cash and Cash Equivalents, End of Period $ 1,033 $ 1,201
Supplemental Data:
Cash paid (received) for:
Interest $ 7,005 $ 897
Income taxes, net $ (36) $ 118
Acquisition of business through
issuance of notes payable $ - $ 310
<FN>
See notes to condensed consolidated financial statements.
</FN>
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TENDER LOVING CARE HEALTH CARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS - The accompanying unaudited condensed
consolidated financial statements reflect the home health care
service operations of Tender Loving Care Health Care Services,
Inc. ( "TLCS" or the "Company") and its related financial
position and cash flows. On October 20, 1999, the Company
began operations as an independent, publicly traded company
resulting from the spin-off of the home health care operations
previously owned by Staff Builders, Inc. ("SBLI") ("the spin-
off"). The spin-off was accomplished by TLCS acquiring 100% of
the outstanding capital stock of the SBLI subsidiaries engaged
in the home health care business with a pro rata distribution
made to SBLI stockholders of all of the shares of TLCS common
stock owned by SBLI ("the Distribution"). The Distribution
was made by issuing one share of TLCS common stock for every
two shares of SBLI Class A and Class B common stock which were
outstanding on October 12, 1999 ("the Record Date"). Based
upon the 23,619,388 shares of SBLI common stock which were
outstanding on the Record Date, 11,809,694 shares of TLCS
common stock were distributed to holders of SBLI Class A and
Class B common stock. All references to shares outstanding
prior to the spin-off date have been retroactively adjusted
for the spin-off. Since the spin-off date, TLCS and SBLI have
been separate, stand-alone companies, with TLCS operating the
home health care business segment and SBLI operating the
supplemental staffing business segment.
The spin-off was reported as a reverse spin-off for
financial statement purposes because a greater proportion of
the former assets and operations of SBLI are held by TLCS
after the spin-off. Therefore, the spin-off has been
reflected for financial statement purposes as if TLCS was the
continuing company and the stock of SBLI was distributed as a
dividend to TLCS stockholders. Accordingly, the TLCS
financial statements reflect the financial position and
results of operations of the home health care business segment
as continuing operations and the results of operations of the
supplemental staffing business segment now owned by SBLI as
discontinued operations.
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting of only normal and recurring accruals)
necessary to present fairly the financial position of the
Company and its subsidiaries as of August 31, 2000 and
February 29, 2000 and the results of operations and the cash
flows for the six months ended August 31, 2000 and 1999. The
results for the three and six months ended August 31, 2000 and
1999 are not necessarily indicative of the results for an
entire year. It is suggested that these condensed
consolidated financial statements be read in conjunction with
the Company's audited financial statements as of February 29,
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2000 and for the year then ended which are included in the
Company's annual report on Form 10-K.
2. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE - The
calculation of basic and diluted earnings (loss) per share was
calculated for all periods in accordance with the requirements
of Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
The shares used in computing basic and diluted earnings (loss)
per share were 11,809,653 shares for the three and six months
ended August 31, 2000 and 1999. The calculations of earnings
(loss) per share reflect the weighted average number of shares
outstanding as a result of the Distribution (see Note 1.) The
weighted average number of shares outstanding reflect the
Distribution as if it occurred as of March 1, 1999.
3. MEDICARE REPAYMENT PLAN - In December 1999, the Company
reached an agreement with the Federal Health Care Financing
Administration ("HCFA") for a five year plan for repayment of
certain Medicare liabilities. The repayment plan will be in
effect through September 2004. The total principal portion of
Medicare and Medicaid liabilities was $51.5 million and $54.3
million at August 31, 2000 and February 29, 2000,
respectively. Under this repayment agreement, the Company is
repaying excess periodic interim payments ("PIP") received as
well as certain Medicare audit liabilities.
On July 11, 2000, the Company was notified in writing that a
moratorium was granted to the Company whereby no payments will
be required until November 2000, at which time the Company
will be required to pay principal and interest aggregating
$1.0 million per month through March 2001. All remaining
liabilities as of April 2001 for periods covered by this
repayment plan including accrued interest, will then be paid
in equal monthly installments over the remaining 42 months of
the repayment plan through September 2004.
The Medicare repayment plan covers excess quarterly PIP
amounts received through August 31, 1999, audit liabilities
for which assessments have been made to date and assessments
which will be made in future periods through April 2001. Any
overpayments or audit liabilities that are successfully
appealed by the Company will be subtracted from the total
amount owed under the repayment plan. Interest is accrued
from the date of each assessment at the government rate of
interest, as revised from time to time (currently at 13.875%
per annum) on all Medicare liabilities except for the PIP
related liability for which interest accrues beginning one
year after the date of the respective assessment, less any
payments made.
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4. CONTINGENCIES - On September 20, 1995, the United States
Attorney for the Eastern District of Pennsylvania alleged that
between 1987 and 1989, a corporation, substantially all assets
and liabilities of which were acquired by a subsidiary of the
Company in 1993, submitted false claims to Medicare. The
alleged false claims and false statements were made before the
Company acquired that corporation in 1993. The Company has
negotiated a settlement of the outstanding claims for
approximately $650 thousand, payable over twelve months, the
conclusion of which is pending final government signatures.
On December 21, 1998, H.L.N. Corporation, Frontlines
Homecare, Inc., E.T.H.L., Inc., Phoenix Homelife Nursing,
Inc., and Pacific Rim Health Care Services, Inc., former home
care licensees (franchisees) of the Company for the territory
comprising certain counties in and around Los Angeles,
California and their holding company, instituted an action
against the Company's subsidiaries, Staff Builders, Inc.,
Staff Builders International, Inc. and Staff Builders
Services, Inc., and certain executive officers of the Company
in the Superior Court for the State of California, County of
Los Angeles. The action was removed to United States District
Court for the Central District of California on December 22,
1998. Plaintiffs filed a First Amended Complaint in the
Central District on January 8, 1999 and September 1, 1999,
respectively, to challenge the termination of the four
franchise agreements between the Company and certain of the
named plaintiffs, seeking damages for violations of California
franchise law, breach of contract, fraud and deceit, unfair
trade practices, claims under the RICO, negligence,
intentional interference with contractual rights, declaratory
and injunctive relief and a request for an accounting.
Plaintiffs seek an unspecified amount of damages. Discovery
is currently in process.
On July 17, 1998, the Federal government ordered that a
complaint filed by Ali Waris, the former owner of a home
health care agency purchased by the Company in 1993, be
unsealed and served upon Staff Builders, Inc. and Targa Group,
Inc., a former licensee (franchisee) of the Company. The
government elected not to intervene in the action, in which
Mr. Waris claimed damages for alleged violations of the False
Claims Act by the Company in connection with payments
claimed by the Company on its cost report for consulting
services. The case was dismissed pursuant to the Company's
motion and Mr. Waris appealed. The appeal has been stayed by
the Court pending finalization of the settlement agreement,
whereby the cost report issues will be settled directly with
the United States Government for $160 thousand, payable over
twelve months, in exchange for the withdrawal of Mr. Waris'
lawsuit.
On April 30, 1999, Nursing Services of Iowa, Inc., Helen
Kelly, Geri-Care Home Health, Inc. and Jacquelyn Klooster, two
former home health care licensees of the Company and their
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principals in Des Moines and Sioux City, Iowa, respectively,
commenced an action in the United States District Court for
the Southern District of Iowa, Central Division against the
Company's subsidiaries, Staff Builders International, Inc.,
Staff Builders Services, Inc., Staff Builders, Inc., and
certain executive officers of the Company. The action alleges
claims under the RICO, claiming a series of deliberate and
illegal actions designed to defraud Staff Builders'
franchisees, as well as claims for negligence, breach of
fiduciary duty, breach of contract, fraudulent
misrepresentation and violation of the Iowa franchise law. The
complaint seeks unspecified money damages, a claim for
treble damages on the RICO claims and punitive and exemplary
damages. Pursuant to the Company motion, all of the RICO
counts except for one count were dismissed by the Court.
Discovery is currently in process.
The Company is a defendant in several civil actions which
are routine and incidental to its business. The Company
purchases insurance in such amounts which management believes
to be reasonable and prudent.
Although the Company cannot estimate the ultimate cost of
its open legal matters with precision, it has recorded a loss
accrual at August 31, 2000 and February 29, 2000 for the
aggregate, estimated amount to litigate or resolve such
matters. In the opinion of management, the outcome of pending
litigation will not have a material adverse effect on the
Company's consolidated financial position or results of
operations. However, unfavorable resolutions of these actions
could have an adverse impact on liquidity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition.
This discussion should be read in conjunction with the Condensed
Consolidated Financial Statements appearing in Item 1.
Results of Operations
Total revenues decreased by $9.5 million or 14.5% for the three
months ended August 31, 2000 to $56.2 million from $65.7 million
for the three months ended August 31, 1999. For the six months
ended August 31, 2000 ("the 2000 period"), total revenues decreased
by $23.0 million or 16.9% to $112.8 million from $135.8 million for
the six months ended August 31, 1999 ("the 1999 period"). The
decrease in total revenues in the 2000 period was primarily due to
a decrease in the number of locations to 90 as of August 31, 2000
as compared to 107 as of August 31, 1999.
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The following are the Company's service revenues by payment
source:
Three Months Ended Six Months Ended
August 31, August 31,
2000 1999 2000 1999
Medicare 47.5% 41.4% 46.8% 43.4%
Medicaid 26.6 28.7 26.6 27.2
Insurance, contracts and
individuals 25.7 29.3 26.0 28.7
Other 0.2 0.6 0.6 0.7
Total 100.0% 100.0% 100.0% 100.0%
Direct service costs were 60.5% and 64.2% of service revenues for
the three months ended August 31, 2000 and 1999, and 61.3% and
63.9% for the six months ended August 31, 2000 and 1999,
respectively. These decreases in operating costs as a percentage
of service revenues were primarily due to the reduction in service
wages as a percentage of related service revenues. The reduction
in service wages reflects part of the Company's continuing
improvement in service utilization and management of related
caregiver costs.
General and administrative costs were $22.8 million and $25.9
million for the three months ended August 31, 2000 and 1999 and
$44.8 million and $53.0 million, or 39.7% and 39.2% of related
service revenues in the 2000 and 1999 periods, respectively. The
decrease in general and administrative costs was primarily due to
the decrease in the number of operating locations, as well as steps
taken to reduce operating costs.
Interest expense was approximately $6.6 million in the 2000 period
as compared to $1.9 million in the 1999 period. The increase in
interest expense in the 2000 period was primarily due to the
increase in the level of borrowings under the Company's secured
financing facility and an increase in interest expense related to
the Company's Medicare liabilities which are being paid pursuant to
a five-year repayment plan.
Health Care Reform
HCFA has implemented the prospective payment system ("PPS")
effective October 1, 2000. This system incorporates a 60 day
episode payment for services furnished to an eligible beneficiary
under a Medicare home health plan of care. The Company has
completed its operational readiness program which facilitated an
orderly transition from the prior cost based reimbursement interim
payment system to PPS. Home health care providers have an
opportunity to generate profits under PPS if costs are contained
under the per-episode reimbursement amounts.
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Liquidity and Capital Resources
On December 13, 1999, the Company obtained new financing for its
operations to replace its then existing line of credit facility
which was due to expire on February 29, 2000. The financing is an
accounts receivable purchase program under which the Company may
sell to an entity, which provides health care accounts receivable
financing, up to $60 million of the Company's eligible receivables.
On July 11, 2000, the Company was notified in writing by HCFA that
a moratorium was granted to the Company whereby no payments will be
required under the Medicare repayment plan until November 2000, at
which time the Company will be required to pay principal and
interest aggregating $1.0 million per month through March 2001.
All remaining liabilities as of April 2001 for periods covered by
this repayment plan, including accrued interest, will then be paid
in equal monthly installments over the remaining 42 months of the
repayment plan through September 2004.
Under PPS, the Company bills Medicare for each 60-day episode of
care. The Company is permitted to render such billing after the
first patient visit within the episode period has been made. The
Company expects to receive 60% of such billing in approximately two
weeks after Medicare's receipt of the billing. The remaining 40%
shall be received after the 60-day episode has ended and final
billing for the entire episode has been received by Medicare, for
which receipt is expected in approximately two weeks thereafter.
All final billing must be received by Medicare within 120 days
after the first visit is rendered, to enable final collection of
all amounts receivable and retention of amounts received to date
for each episode of care. Under the prior IPS methodology, the
Company was reimbursed according to the lower of its actual costs,
per-visit limits or annual per-beneficiary limits.
On May 31, 2000, the Company received $1.0 million from an outside
investor. As consideration for the amount received, TLCS issued a
subordinated promissory note payable in the amount of $1.0 million
and warrants to purchase 333,333 shares of TLCS common stock. The
note payable bears interest at 8% per annum and requires 36 monthly
principal payments of approximately $12 thousand from January 2002
through December 2004 with the remaining principal balance of
approximately $571 thousand payable on January 1, 2005. Interest
is accrued commencing May 31, 2000 and is payable monthly from
January 2001 until the outstanding principal is paid. The warrants
are exercisable at $.20 per share and expire on January 1, 2005.
A significant concern for the Company is to maintain adequate cash
resources as it progresses through the beginning phase under PPS.
As a result, management continues to pursue various strategies,
including but not limited to, obtaining additional financing, cost
reductions, change in revenue mix and negotiating with new and
existing payor sources to render additional services at optimum
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reimbursement rates. Additionally, while the Company has obtained
a new financing arrangement under which the Company sells its trade
accounts receivable, the financing facility is not obligated to
continually purchase such receivables. Further, the Company has
obtained favorable extended payment terms from some of its trade
creditors and is continuing to negotiate extended payment terms
with other vendors. However, there can be no assurance that the
Company's creditors will not demand immediate payment of amounts in
arrears or that they will continue to extend additional credit to
the Company. There can be no assurance that the Company's actions
will be successful to provide adequate funds for its current level
of operations and to pay the Company's past-due obligations.
FORWARD-LOOKING STATEMENTS
Certain statements in this report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
typically identified by the inclusion of phrases such as "the
Company anticipates", "the Company believes" and other phrases of
similar meaning. These forward looking statements are based on the
Company's current expectations. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance or achievements of
the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-
looking statements. The potential risks and uncertainties which
could cause actual results to differ materially from the Company's
expectations include the impact of further changes in the Medicare
reimbursement system, including any changes to the current
prospective payment system; government regulation; health care
reform; pricing pressures from third-party payors, including
managed care organizations; retroactive Medicare audit adjustments;
Year 2000 failures; changes in laws and interpretations of laws or
regulations relating to the health care industry; and inability to
obtain financing on satisfactory terms.
GOVERNMENT REGULATION. As a home health care provider, the Company
is subject to extensive and changing state and Federal regulations
relating to the licensing and certification of its offices and the
sale and delivery of its products and services. The Federal
government and Medicare fiscal intermediaries have become more
vigilant in their review of Medicare reimbursements to home health
care providers generally, and are becoming more restrictive in
their interpretation of those costs for which reimbursement will be
allowed to such providers. Changes in the law and regulations as
well as new interpretations enforced by the relevant regulatory
agencies could have an adverse effect on the Company's operations
and the cost of doing business.
THIRD-PARTY REIMBURSEMENT AND MANAGED CARE. Because the Company is
reimbursed for its services primarily by the Medicare/Medicaid
programs, insurance companies, managed care companies and other
third-party payors, the implementation of alternative payment
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methodologies for any of these payors could have an impact on
revenues and profit margins. Generally, managed care companies
have sought to contain costs by reducing payments to providers.
Continued cost reduction efforts by managed care companies could
adversely affect the Company's results of operations.
HEALTH CARE REFORM. A new prospective payment system ("PPS")
became effective for all home health care agencies on October 1,
2000. Home health care providers have an opportunity to generate
profits under PPS if costs are contained under the per-episode
reimbursement amounts. However, unforeseen changes in health care
reimbursement regulations could adversely affect the Company's
ability to generate a profit under PPS. In addition, because PPS
requires significant changes in billing methodology, the Company's
systems may not be able to adapt immediately or sufficiently to all
such changes.
As Congress and state entities assess alternative health care
delivery systems and payment methodologies, the Company cannot
predict which additional reforms may be adopted or what impact they
may have on the Company. Additionally, uncertainties relating to
the nature and outcomes of health care reforms have also generated
numerous realignments, combinations and consolidations in the
health care industry which may also have an adverse impact on the
Company's business strategy and results of operations.
BUSINESS CONDITIONS. The Company must continue to establish and
maintain close working relationships with physicians and physician
groups, managed care organizations, hospitals, clinics, nursing
homes, social service agencies and other health care providers.
There can be no assurance that the Company will continue to
establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the
increasing market demand for the type of services offered.
ATTRACTION AND RETENTION OF LICENSEES AND EMPLOYEES. Maintaining
quality licensees, managers and branch administrators will play a
significant part in the future success of the Company. The
Company's professional nurses and other health care personnel are
also key to the continued provision of quality care to the
Company's patients. The possible inability to attract and retain
qualified licensees, skilled management and sufficient numbers of
credentialed health care professionals and para-professionals and
information technology personnel could adversely affect the
Company's operations and quality of service.
SATISFACTORY FINANCING. Proceeds from the Company's financing
program provided some working capital and the ability to pay
portions of certain accumulated indebtedness. The Company has
negotiated deferred payment terms for certain of its Medicare and
Medicaid liabilities and has made or is in the process of making
arrangements with many of its other creditors to either reduce its
liability to them, defer and/or extend payment of the liability, or
a combination of all. Management cannot provide assurance that any
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or a sufficient number of such arrangements can be attained or that
the Company's vendors will continue to extend credit. In such
event, or if the Company's revenues do not meet expectations or its
costs escalate, the Company may be unable to pay its debts as they
become due. Pursuant to the Company's agreement with HCFA to repay
accumulated Medicare liabilities, the Company will be required to
pay excess periodic interim payments received as well as certain
Medicare liabilities through September 2004. United Government
Services collects amounts due under the repayment plan by
offsetting against current remittances due to the Company. If no
Medicare accounts receivable are available for offset as amounts
become due under the repayment plan, then all amounts owed pursuant
to this repayment plan may become immediately due and payable.
YEAR 2000. The Company has made upgrades to substantially all of
its computer systems and equipment. Such upgrades served to
satisfy the anticipated impacts of the so-called Year 2000 issue on
our information technology systems. As of October 16, 2000, the
Company has not experienced any materially important business
disruptions or system failures as a result of Year 2000 issues, nor
is it aware of any Year 2000 issues that have impacted its payor
sources, suppliers or other significant third parties to an extent
significant to the Company.
However, Year 2000 compliance has many elements and potential
consequences, some of which may not be foreseeable or may be
realized in future periods. Consequently, there can be no
assurance that unforeseen circumstances may not arise, or that the
Company will not in the future identify equipment or systems which
are not Year 2000 compliant.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 24, 2000, the Company entered into a
definitive Settlement Agreement with the United States
Government in connection with home health services and
related supplies submitted by the Company's former
licensee in Port St. Lucie, Florida in his illegal efforts to
defraud both the Company and the Federal Government. The $1.4
million that the Company has already paid back to the
Government represented single damages for the Government's
allegations of fraudulent billings that the licensee
submitted to the Company for submission in its cost reports
to Medicare. In connection with the settlement, the Company
has entered into a Corporate Integrity Agreement with the
Office of Inspector General of the Department of Health and
Human Services for a period of five years. Most of the
compliance activities set forth in the Integrity Agreement are
already a part of the Company's Compliance Program; in
addition to the procedures already followed under the
existing Corporate Compliance Program, the Company will hire
an independent review organization to review the findings made
by its Internal Audit Department in conducting random
billing reviews as well as an annual billing review of the
Port St. Lucie operation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation of
the Company, filed with the Secretary of State of
Delaware on October 14, 1999. (A)
3.2 Amended and Restated By-laws of the Company. (A)
10.1 Stipulation of Settlement between the Company, certain
of its subsidiaries, Staff Builders, Inc., a Delaware
corporation, ATC Healthcare Services, Inc., ATC
Staffing Services, Inc. and Keycorp Leasing LTD.
10.2 Settlement Agreement dated August 30, 2000 between the
Company, certain of its subsidiaries, Staff Builders,
Inc., a Delaware corporation, the United States of
America and Robert G. Pina, Jr. and Sheila R. Pina.
10.3 Corporate Integrity Agreement, dated August 24, 2000
between the Company and certain of its subsidiaries and
the Office of the Inspector General of the United
States Department of Health and Human Services.
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NOTES TO EXHIBITS
(A) Incorporated by reference to the Company's Form 10-Q
(File No. 0-25777) filed with the Commission on October
20, 1999.
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant for the
quarter ended August 31, 2000.
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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.
Tender Loving Care Health
Care Services, Inc.
Dated: October 16, 2000 By:/s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
and Director
Dated: October 16, 2000 By:/s/ Dale R. Clift
Dale R. Clift
President and
Chief Operating Officer
Dated: October 16, 2000 By:/s/ Willard T. Derr
Willard T. Derr
Chief Financial Officer,
Sr. Vice President, Corporate
Controller and Treasurer
(Principal Financial and
Accounting Officer)
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