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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 1994 0-17490
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IN HOME HEALTH, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1458213
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CARLSON CENTER, SUITE 500
601 LAKESHORE PARKWAY
MINNETONKA, MINNESOTA 55305-5214
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 612-449-7500
------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $ .01 PER SHARE
------------------------
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 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 checkmark 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A. ___
Based on the closing sale price of $2.125 on the NASDAQ National Market
System, as of December 1, 1994 the aggregate market value of the registrant's
common stock held by nonaffiliates was $31,769,451.
As of December 1, 1994 the number of shares outstanding of the registrant's
common stock, $.01 par value was 15,939,433 shares.
Documents Incorporated by Reference: The Company's Proxy Statement for its
Annual Meeting of Shareholders to be held March 2, 1995, (the "1994 Proxy
Statement"), a definitive copy of which will be filed within 120 days of the
close of the past fiscal year, is incorporated by reference into Part III of
this Form 10-K/A.
This Form 10-K/A consists of 34 pages (including exhibits). The Index to
Exhibits is contained on page 28.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
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<S> <C> <C> <C>
PART II Item 7. Management's Discussion and Analysis of Financial Condition and Results of 3-7
Operations.......................................................................
Item 8. Financial Statements and Supplementary Data....................................... 7-24
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................. 25-26
SIGNATURES.................................................................................................. 27
</TABLE>
2
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PART II
ITEM 7. "ITEM 7" IS HEREBY AMENDED TO READ AS FOLLOWS:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table indicates the percentage relationship of income and
expense items to revenue as set forth in the Company's consolidated statements
of income and the percentage changes from year to year.
<TABLE>
<CAPTION>
PERCENT OF PERCENT CHANGE
REVENUES -----------------
------------------ 1993 TO 1992 TO
1994 1993 1992 1994 1993
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue................................. 100% 100% 100% 16% 38%
Direct Costs of Revenue................. 58 55 55 22% 39%
---- ---- ----
Gross Profit............................ 42 45 45 9% 38%
General, Administrative and Selling
Expenses............................... 41 43 40 12% 47%
---- ---- ----
Income From Operations.................. 1% 2% 5% (44%) (37%)
</TABLE>
Revenue for 1994 increased 16% over 1993. Revenue increased 17% as a result
of increased services provided in geographic markets in which the Company
operated at the beginning of the prior year ("existing markets"), and 5% as a
result of acquisitions. This is offset by a 6% decrease in revenue as a result
of the Medicare reserve (4%) and pricing and mix changes (2%). In 1993 revenue
increased 38% over 1992. 1993 revenue increased 23% as a result of increased
services in existing markets, 15% as a result of acquisitions, and 1% as a
result of pricing and mix adjustments. This was offset by a 1% decrease due to
the Medicare reserve. Medicare reserves of $3,861,000 and $1,100,000 were
recorded as adjustments to revenue in 1994 and 1993, respectively. The Company's
growth within existing markets is the result of industry growth, the Company's
marketing efforts, improved name recognition and the growth of infusion
operations. In 1994 the Company entered the Toledo and San Antonio markets
through acquisitions and expanded into the Greensboro market utilizing a
Certificate of Need acquired in 1993. In 1993 the Company entered the
Raleigh-Durham, Dallas and Norfolk geographic markets, all of which were through
acquisitions.
The breakdown by division of the Company's total revenue is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Extended Hours Division........................................ 18% 20% 25%
---- ---- ----
---- ---- ----
Visit Division -- Service...................................... 78% 77% 71%
Infusion Product................................ 4% 3% 4%
---- ---- ----
82% 80% 75%
---- ---- ----
---- ---- ----
</TABLE>
While Extended Hours Division revenue increased 7% and 9% in 1994 and 1993,
respectively, Visit Division revenue increased 18% and 48% in the comparable
periods, increasing its relative contribution to total revenue. Within the Visit
Division, infusion product revenue growth was 32% and 18% in 1994 and 1993,
respectively. This change in revenue mix is the result of stronger market demand
for Visit Division services, which are primarily Medicare reimbursed, along with
acquisitions of primarily visit-based businesses and the growth of infusion
products revenue. The reductions in the rate of the Company's growth is due
primarily to cash constraints resulting from disputes with Medicare fiscal
intermediaries which are discussed under "Liquidity and Capital Resources" and
Note 5 of the financial statements.
3
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Direct costs of revenue, as a percentage of revenue, were 58% in 1994 as
compared to 55% in 1993 and 1992. The change in 1994, resulting from an increase
of direct costs of 22% over 1993, whereas revenues increased only 16%, was due
to volume increase, the recording of the revenue reserve which reduced revenues,
fewer and smaller acquisitions and reductions in operational support staff
resulting in a smaller relative increase in general, administrative and selling
expense. In 1993, the increase in the less profitable Visit Division services
has resulted in a slightly higher percentage increase for direct costs, as
contrasted with the revenue increase, compared to 1992. Direct costs, as a
percentage of revenue before Medicare reserves, were 56%, 54%, and 55% in 1994,
1993 and 1992, respectively.
Total operating expenses as a percentage of revenue have increased 18% in
1994 and 42% in 1993, which exceeds the increase in revenues of 16% in 1994 and
38% in 1993. The greater percentage increases in total operating costs, as
compared to the revenue increases, are due to the growth in the less profitable
Visit Division services and the increases in reserves for disputed costs (which
reduce the magnitude of the increase in revenues).
With the growth in the Companys operations, revenues and direct costs of
revenues in 1994 have grown at a greater pace than general, administrative and
selling expenses (see table above). The disproportionate increases in these
elements, combined with the greater increase in direct costs of revenue (22%) in
relation to the increase in revenue (16%), results in a decrease in gross profit
in 1994 to 42%, as compared to 45% in 1993. The gross profit percentage is 45%
for both 1993 and 1992. Although general, administrative and selling expenses in
1993 have increased at a greater rate than direct costs (which ordinarily would
result in an increase in the gross profit percentage), the change in the mix of
services and revenue sources (to a higher volume of the less profitable Visit
Division services) has resulted in no change in the gross profit percentage.
Gross profit, as a percentage of revenue before Medicare reserves, was 44%, 46%
and 45% in 1994, 1993 and 1992, respectively.
Management's plans to address the decline in operating profit include
increasing the volume of the more profitable Extended Hours Division through
increased marketing and contracting efforts. In addition, the Company will
pursue an increase in its more profitable infusion products revenue.
General, administrative and selling expenses as a percent of revenue
decreased to 41% of revenue in 1994 compared to 43% and 40% in 1993 and 1992,
respectively. The decrease in 1994 was due to revenue growth this year at
locations acquired in prior years without related growth in expenses, as well as
a conscious effort to control expense. The increase from 40% in 1992 to 43% in
1993 was due to additional overhead associated with the acquisition and
integration of new branch offices and geographic markets and start-up expenses
associated with a new management information system.
Net interest expense increased $189,000 in 1994 over 1993 and $356,000 in
1993 over 1992. The increase was the result of greater borrowing under long-term
equipment leases and reduced short-term investments.
Income taxes in 1994 were 64% of pretax income, compared to 44% in 1993 and
38% in 1992. The increase in 1994 in the effective tax rate is due to
non-deductible expenses being a higher proportion of pretax earnings. The
increase in 1993 in the effective tax rate is the result of the Company adopting
Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for
Income Taxes" and higher non-deductible expenses relative to lower pretax
income.
Net income was $247,000, $1,015,000, and $2,303,000 for the years 1994, 1993
and 1992, respectively. The primary reason for the reduction in profitability
was the addition of reserves related to the Medicare payment dispute which is
discussed below and in Note 5. Additions to the Medicare reserves totaled
$3,861,000 in 1994 and $1,100,000 in 1993.
LIQUIDITY & CAPITAL RESOURCES
During fiscal 1994 the Company's cash and cash equivalents decreased
$2,170,000 to $911,000 at September 30, 1994. Accounts receivable classified as
current decreased from $18,346,000 at September 30, 1993 to $16,503,000 at
September 30, 1994. Both of the changes relate to disputes concerning
4
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payment for services to Medicare beneficiaries. Approximately 74%, 73% and 68%
of revenue for the years ended September 30, 1994, 1993 and 1992, respectively,
is derived from services provided to Medicare beneficiaries. Payment for these
services is made by the Medicare program based on reimbursable costs incurred in
rendering the services. Payments are made via an interim payment rate as
services are rendered. Cost reports are filed with Medicare on an annual basis,
which are subject to audit and retroactive adjustment by Medicare. The Company
reports revenue only for those costs that it believes are reasonably assured of
recovery under the applicable Medicare statutes and regulations. The Company
utilizes an extensive system of internal controls to ensure such proper
reporting of revenues. The Company employs personnel with significant Medicare
reimbursement experience to prepare its cost reports, and to monitor its
operations on an ongoing basis to identify and minimize those costs which are
not reimbursed. As a part of its system of internal controls, the Company uses a
detailed analysis process in calculating its Medicare revenue. This process
considers applicable statutes and regulations, administrative and judicial
decisions, consultation with independent industry experts and legal counsel,
disputed costs, and historical knowledge from past Medicare audits. Results of
this analysis are extrapolated to other open cost reporting years for all of the
Company's operations to determine the gross amount of reimbursement that would
be affected. The Company, through this ongoing control and monitoring process,
provides a reserve (by means of a revenue reduction) for any costs incurred
which the Company believes are not reasonably assured of recovery.
Over the years, Medicare, in connection with its retrospective audit
process, has taken certain positions with respect to certain types of costs,
claiming that they are not reimbursable and thus not recoverable by the Company
from the Medicare program. These positions are based on interpretations
promulgated after the period covered by the cost reports and applied
retroactively, on interpretations of cost reimbursement principles that are
contrary to the Company's interpretations, or on what the Company believes to be
misapplications of specific reimbursement principles, that could not have been
foreseen. These positions taken by Medicare are usually determined from
Medicare's Notice of Program Reimbursement (NPR) which typically are not
received until two to three years after the services are rendered. Upon receipt
of an NPR that contains denial of certain costs as reimbursable, the Company
assesses the probability of its success in challenging positions taken by
Medicare that are contrary to the Company's positions. In those situations where
the Company decides to not challenge the NPR, any revenue relating to costs for
which Medicare has denied reimbursement as well as the extrapolated impact on
other open cost reporting years, if not written off or provided for earlier, is
written off as a revenue reduction at that time. The results of all NPRs are
included in the analysis process in calculating net Medicare revenue.
The Company has received NPRs challenging $9.6 million of costs as of
September 30, 1994. There was an additional $10.4 million of costs at September
30, 1994 related to open cost reporting years that are similar to the costs that
have been challenged on NPRs. Together these amounts ($20 million at September
30, 1994) comprise the total amount the Company considers to be disputed costs.
The major cost category in dispute, accounting for approximately half of total
disputed costs, is the treatment of certain personnel costs relating to the
Company's community liaison positions, which Medicare alleges are unreimbursable
sales costs; other costs in dispute relate to the cost of physical therapists
employed by the Company, administration and general costs allocated to branch
operations, certain corporate expenses, and cost transfers among branch
operations. These disputed costs (including the extrapolated impact) of $20
million at September 30, 1994 arose in the fiscal years ended September 30, 1994
($7.2 million), 1993 ($6.4 million), 1992 ($4.3 million), and 1991 ($2.1
million). The amount of disputed costs has increased over the last several years
as the Company has received the NPRs and has extrapolated that amount of costs
that may be challenged to other open cost reporting years. The normal Medicare
administrative appeal process may take several years to resolve these types of
disputes.
The Company disagrees with the positions taken by the Medicare fiscal
intermediaries and the Health Care Financing Administration and is vigorously
pursuing these matters through administrative and legal channels. The Company
has filed two suits against the U.S. Department of Health and
5
<PAGE>
Human Services (HHS) and several members of the Blue Cross Association which HHS
uses to administer the Medicare program. The two suits allege that the
defendants have unjustly withheld payments that are owed to the Company for
services it provided to Medicare beneficiaries from fiscal 1989 through fiscal
1994.
The Company, based on its disputed cost analysis process, believes that
recovery of $4,961,000 of total disputed costs (including the extrapolated
impact) may not be reasonably assured and, accordingly, has established a
reserve in that amount as of September 30, 1994. The remaining net amount of
disputed costs has been included in revenues in the respective years in which
services were rendered and, to the extent not paid to the Company, is included
in accounts receivable. Total accounts receivable (net of reserves) due from
Medicare at September 30, 1994 and 1993 were $20,599,000 and $20,120,000,
respectively, including the receivables (net of reserves) for disputed costs of
$12,347,000 and $5,730,000, respectively. In view of the expectation that
resolution of the disputed costs will not likely be accomplished within the next
twelve months, related net receivables of $9,979,000 and $3,849,000 as of
September 30, 1994 and 1993, respectively, have been classified as a non-current
asset.
Operating activities provided $982,000 in cash during 1994. In 1993
operating activities provided $951,000 in cash and in 1992 operating activities
used $1,035,000 in cash. Total accounts receivable (current and long-term)
increased 19%, 28% and 96% during 1994, 1993 and 1992, respectively. The
increase in 1994 was due to the Medicare disputes noted above. The increases in
1993 and 1992 were due to increased revenue. The average age of total
receivables is 80 and 73 days as of September 30, 1994 and 1993, respectively.
Investing activities used $1,519,000, $3,152,000, and $2,603,000 in cash
during 1994, 1993 and 1992, respectively. The Company acquired two companies
during 1994, three companies during 1993, and five companies during 1992. The
1994 acquisitions were made with $341,000 in cash, issuance of 10,000 shares of
common stock and the assumption of $264,000 in notes payable. In connection with
its acquisitions and expansion of branches, the Company acquired property and
developed software, which was funded by $995,000 in cash and $753,000 of
capitalized leases in 1994, $2,466,000 in cash and $3,713,000 of capitalized
leases in 1993 and $1,961,000 in cash and $3,848,000 of capitalized leases in
1992.
Financing activities used $1,633,000 and $2,218,000 in cash during 1994 and
1993, respectively, principally for repayment of long-term debt. Financing
activities provided $6,397,000 in 1992 principally through the issuance of
common stock which was offset in part by payment of long-term debt and capital
lease obligations.
The Company has a line of credit with a commercial bank that will expire in
December 1995. Under the credit line, the Company may borrow or obtain letters
of credit, all of which in the aggregate may not exceed the lesser of $7.5
million or a borrowing base (which was $8,511,000 at September 30, 1994) that
consists of 80% of eligible accounts receivable. Substantially all the Company's
receivables and general intangible assets are pledged to secure the credit line.
As of September 30, 1994 the Company had no outstanding borrowings and had
utilized $4,130,000 of the credit facility as the basis for a letter of credit.
The interest rate on the line of credit is prime plus .75% (9.5% at August 4,
1995). The credit agreement obligates the Company to, among other things,
maintain certain financial ratios and limits the payment of dividends. As of
September 30, 1994, the Company was not in compliance with certain covenants of
the credit agreement, but has since obtained a waiver of this non-compliance.
The bank has advised the Company that it does not intend to renew the line of
credit agreement beyond the expiration date. The bank has also advised the
Company that the letter of credit must be replaced by December 15, 1995 or the
bank will draw upon the line of credit to fund a collateral account to
accommodate any cash requirements of the letter of credit. The Company is
currently considering possible alternative sources of financing, which may
include establishment of a line of credit with a new lender or other financing
of certain accounts receivable and fixed assets.
6
<PAGE>
Because of the pending Medicare disputes and their effect on liquidity, the
Company has significantly reduced its efforts to expand its business. This
posture is expected to continue until a significant portion of the Medicare cost
disputes are resolved, and it is uncertain when this will occur. The Company
continues to lease the majority of its capital additions (primarily office
furniture and equipment). Currently the Company has no other material
commitments which will require a significant use of cash.
ITEM 8. "ITEM 8" IS HEREBY AMENDED TO READ AS FOLLOWS:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Consolidated Balance Sheets........................................... 8-9
Consolidated Statements of Income..................................... 10
Consolidated Statements of Shareholders' Equity....................... 11
Consolidated Statements of Cash Flows................................. 12
Notes to Consolidated Financial Statements............................ 13-23
Independent Auditors' Report.......................................... 24
</TABLE>
7
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IN HOME HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1993
(DOLLARS AND SHARES IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................................... $ 911 $ 3,081
Accounts receivable (net of allowances of $1,029 and $859 in 1994
and 1993, respectively)............................................ 16,503 18,346
Prepaid income tax.................................................. 459 538
Deferred income tax................................................. 800 1,017
Prepaid expenses and other current assets........................... 1,438 1,044
------- -------
Total current assets.............................................. 20,111 24,026
------- -------
Property:
Furniture and equipment............................................. 9,007 8,581
Leasehold improvements.............................................. 654 574
Computer equipment and software..................................... 7,057 6,310
------- -------
Total............................................................. 16,718 15,465
Accumulated depreciation............................................ (4,993) (2,940)
------- -------
Property -- Net................................................... 11,725 12,525
------- -------
Other Assets:
Accounts receivable................................................. 9,979 3,849
Goodwill............................................................ 5,906 5,307
Covenants not to compete............................................ 128 491
Deposits............................................................ 559 509
Other assets........................................................ 652 842
------- -------
Total other assets................................................ 17,224 10,998
------- -------
Total Assets.......................................................... $49,060 $47,549
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
8
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IN HOME HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 AND 1993
(DOLLARS AND SHARES IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt................................ $ 2,286 $ 2,214
Accounts payable.................................................... 3,821 3,913
Accrued liabilities:
Compensation...................................................... 3,486 2,671
Insurance......................................................... 2,960 3,446
Other............................................................. 488 383
------- -------
Total current liabilities....................................... 13,041 12,627
------- -------
Long-Term Debt........................................................ 3,304 4,740
Deferred Revenue...................................................... 1,632 --
Deferred Rent Payable................................................. 516 536
Deferred Income Tax................................................... 2,085 2,187
Commitments and Contingencies......................................... -- --
Shareholders' Equity:
Preferred stock -- authorized 1,000 shares.......................... -- --
Common stock -- $.01 par value: authorized -- 40,000 shares; issued
and outstanding -- 1994 -- 15,944 shares 1993 -- 15,518 shares..... 159 155
Additional paid-in capital.......................................... 23,828 23,056
Retained earnings................................................... 4,495 4,248
------- -------
Total shareholders' equity...................................... 28,482 27,459
------- -------
Total Liabilities and Shareholders' Equity............................ $49,060 $47,549
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
IN HOME HEALTH, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Revenue............................................................... $120,485 $103,761 $75,072
-------- -------- -------
Operating Expenses:
Direct costs of revenue (primarily payroll related costs)........... 69,411 57,059 41,111
General, administrative and selling expenses........................ 49,721 44,270 30,121
-------- -------- -------
Total operating expenses.......................................... 119,132 101,329 71,232
-------- -------- -------
Income From Operations................................................ 1,353 2,432 3,840
-------- -------- -------
Interest:
Interest expense.................................................... 698 575 417
Interest income..................................................... (29) (95) (293)
-------- -------- -------
Net interest expense.............................................. 669 480 124
-------- -------- -------
Income Before Income Taxes............................................ 684 1,952 3,716
Income Tax Expense.................................................... 437 865 1,413
-------- -------- -------
Income Before Cumulative Effect of Change in Accounting Principle..... 247 1,087 2,303
Cumulative Effect of Change in Accounting Principle................... -- 72 --
-------- -------- -------
Net Income........................................................ $ 247 $ 1,015 $ 2,303
-------- -------- -------
-------- -------- -------
Net Income Per Common and Common Equivalent Share:
Primary............................................................. $ .02 $ .06 $ .15
-------- -------- -------
-------- -------- -------
Fully diluted....................................................... $ .02 $ .06 $ .14
-------- -------- -------
-------- -------- -------
Weighted Average Common and Common Equivalent Shares Outstanding:
Primary............................................................. 16,013 16,056 15,780
-------- -------- -------
-------- -------- -------
Fully diluted....................................................... 16,013 16,056 15,913
-------- -------- -------
-------- -------- -------
</TABLE>
Net income per share impact of the cumulative effect of the change in accounting
principle is less than $.01.
See accompanying notes to consolidated financial statements.
10
<PAGE>
IN HOME HEALTH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ ---------- --------
<S> <C> <C> <C> <C>
Balance -- September 30, 1991............................... 11,603 $116 $12,826 $ 930
Common stock issued for:
Class C warrant exercise.................................. 2,726 27 7,446 --
Underwriter warrant exercise.............................. 34 1 48 --
Private warrant exercise.................................. 140 1 86 --
Employee stock plans...................................... 528 5 617 --
Acquisitions.............................................. 120 1 569 --
Net income.................................................. -- -- -- 2,303
------ ------ ---------- --------
Balance -- September 30, 1992............................... 15,151 151 21,592 3,233
Common stock issued for:
Employee stock plans...................................... 194 2 521 --
Acquisitions.............................................. 173 2 943 --
Net income.................................................. -- -- -- 1,015
------ ------ ---------- --------
Balance -- September 30, 1993............................... 15,518 155 23,056 4,248
Common stock issued for:
Employee stock plans...................................... 266 3 745 --
Acquisitions.............................................. 10 -- 28 --
Exchange for warrants..................................... 150 1 (1) --
Net income.................................................. -- -- -- 247
------ ------ ---------- --------
Balance -- September 30, 1994............................... 15,944 $159 $23,828 $4,495
------ ------ ---------- --------
------ ------ ---------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
IN HOME HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.......................................................... $ 247 $ 1,015 $ 2,303
Adjustments:
Depreciation and amortization..................................... 3,233 2,146 1,513
Accounts receivable............................................... (4,172) (4,232) (8,305)
Prepaid expenses and other assets................................. (210) (141) (206)
Accounts payable.................................................. (216) 545 1,329
Accrued liabilities............................................... 360 1,073 1,387
Deferred revenue.................................................. 1,632 -- --
Deferred rent payable............................................. (20) 139 245
Deferred income tax............................................... 128 406 699
------- ------- -------
Net cash provided (used) by operating activities................ 982 951 (1,035)
------- ------- -------
Cash Flows From Investing Activities:
Acquisition of businesses........................................... (389) (699) (803)
Acquisition of property............................................. (995) (2,466) (1,961)
Advances to officers and employees.................................. (135) 13 161
------- ------- -------
Net cash used by investing activities........................... (1,519) (3,152) (2,603)
------- ------- -------
Cash Flows From Financing Activities:
Payment of long-term debt........................................... (2,381) (2,741) (1,834)
Proceeds from issuance of common stock.............................. 748 523 8,231
------- ------- -------
Net cash provided (used) by financing activities................ (1,633) (2,218) 6,397
------- ------- -------
Cash and Cash Equivalents:
Net increase (decrease)............................................. (2,170) (4,419) 2,759
Beginning of year................................................... 3,081 7,500 4,741
------- ------- -------
End of year..................................................... $ 911 $ 3,081 $ 7,500
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- In Home Health specializes in high-quality health services to
clients in their own homes, including infusion therapy, high-tech nursing,
rehabilitation and personal care.
BASIS OF CONSOLIDATION -- The consolidated financial statements include the
accounts of In Home Health, Inc. and its subsidiaries (the "Company"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS -- Securities which are readily convertible into cash with
original maturities of three months or less are considered cash equivalents.
NOTES RECEIVABLES FROM OFFICER -- Included in prepaid expenses and other
current assets are advances to an officer of the Company in the amount of
$150,000 as of September 30, 1994. There were no advances to officers at
September 30, 1993.
PROPERTY AND PROPERTY UNDER CAPITALIZED LEASES -- Property and property
under capitalized leases are stated at cost and depreciated or amortized over
estimated useful lives (from three to twelve years) using the straight-line
method. Property acquired by capital lease for the years ended September 30,
1994, 1993 and 1992 was $753,000, $3,713,000 and $3,848,000, respectively.
GOODWILL -- Costs in excess of net assets of acquired businesses have been
capitalized and are being amortized over 40 years. Accumulated amortization was
$420,000 and $268,000 at September 30, 1994 and 1993, respectively.
COVENANTS NOT TO COMPETE -- Covenants not to compete are being amortized
over the terms of the various agreements (from two to five years). Accumulated
amortization was $579,000 and $1,326,000 at September 30, 1994 and 1993,
respectively.
DEFERRED REVENUE -- Deferred revenue relates to the timing difference in
recording certain software development costs for financial statement purposes
and Medicare cost reporting purposes. Incremental costs relating to the
development of software for certain major management information system projects
undertaken during 1992 through 1994 have been capitalized and are included in
computer equipment and software on the balance sheet. For Medicare cost
reimbursement purposes, the Company has filed amended cost reports for prior
years to include in reimbursable costs the amount of expenditures in the year
they were incurred. Accordingly, as of September 30, 1994, the Company has
reported an amount of deferred revenue, representing the Medicare impact of the
difference between the reimbursable costs reported on the Medicare cost reports
and the unamortized balance of capitalized software development costs. The
deferred revenues are being recorded to revenue when the amortization of the
related software development expenses is recorded (over a five year period).
Unamortized software development costs are $2,368,000 and $2,734,000 as of
September 30, 1994 and 1993, respectively.
DEFERRED RENT PAYABLE -- Deferred rent payable has been recorded for
long-term office space operating leases which contain initial rent inducements.
Rental expense is being amortized on a straight-line basis over the terms of the
operating leases.
INCOME TAXES -- The Company adopted Statement of Financial Accounting
Standard (SFAS) No. 109, "Accounting for Income Taxes" in 1993. Under SFAS No.
109, the deferred tax provision is determined under the liability method. Under
this method, deferred tax assets and liabilities are recognized based on
differences between the financial statement and tax bases of assets and
liabilities using presently enacted tax rates.
13
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION -- Revenues are recognized at the time the service is
provided to the client. The Company records revenue for services to Medicare
beneficiaries at the time the services are rendered and based on the Medicare
cost reimbursement principles. Under those principles, Medicare reimburses the
Company for the reasonable costs (as defined) incurred in providing care to
Medicare beneficiaries. The Company reports as reimbursable costs in the
Medicare cost reports only those costs it believes to be reimbursable under the
applicable Medicare cost reimbursement principles. In determining the amount of
revenue to be recorded, those costs are reduced for costs that are in excess of
reimbursable cost limits, and for costs for which reimbursement may be
questionable based on the Company's understanding of reimbursement principles in
effect at that time. Accordingly, this process results in recording revenue only
for the costs that the Company believes are reasonably assured of recovery.
Refer to Note 5 for additional information.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE -- Net income per common
and common equivalent share is computed by dividing net income by the weighted
average number of common stock and dilutive common stock equivalents
outstanding. Common stock equivalents result from dilutive stock options and
warrants. Any differences in common stock equivalents for primary and fully
diluted shares are the result of the quoted market price of the Company's common
stock being higher at the end of the period than the average market price during
the period.
14
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
2. ACQUISITIONS
The Company acquired all of the issued and outstanding capital stock of two,
three and five home health care companies during the years ended September 30,
1994, 1993 and 1992, respectively. The acquisitions accounted for as purchases
for financial reporting purposes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
CONSIDERATION:
CASH TOTAL VALUE
NOTES PAYABLE OF
ACQUISITION ISSUED CONSIDERATION GOODWILL
COMPANY NAME DATE COMMON STOCK PAID RECORDED
<S> <C> <C> <C> <C>
Professional Medical Personnel, October, 1991 $ 77 $173 $ 240
Inc. & Professional Medical 96
Personnel-Home Health Care --
Division, Inc.
Meyer Care SF, Inc. October, 1991 $ 500 $700 $ 429
100
26 shares
Faust Home Health Care, Inc. & June, 1992 $ 170 $205 $ 177
Faust Health Care Network, Inc. 35
--
Professional Home Care of July, 1992 $ 150 $550 $1,228
Washington, Inc. --
79 shares
CareServices of Raleigh Limited January, 1993 $ 210 $569 $ 548
Partnership, CareServices of --
Raleigh, NC, Inc. and CareServices 58 shares
of Greensboro, NC, Inc.
Accent on Care Home Health January, 1993 $ 25 $100 $ 155
Services, Ltd. 25
8 shares
Home Care Resources, Inc., HCR February, 1993 $ 205 $741 $ 852
Associates, Inc. and Physician --
Home Health Care, Inc. 107 shares
ENS, Inc. January, 1994 $ 41 $ 69 $ 232
--
10 shares
RI Partners and RHC Partners May, 1994 $ 300 $300 $ 516
--
--
</TABLE>
The purchase price has been allocated to the net assets acquired, including
intangible assets, based on their fair market values at the acquisition dates.
The net assets acquired in these acquisitions consisted primarily of accounts
receivable and current liabilities. The consolidated statements of operations
include the results of operations of these companies since their respective
acquisition dates. The fair market value of the common stock issued for the
acquisitions in 1994, 1993 and 1992 was $28,000, $945,000 and $500,000,
respectively. Additional goodwill of $421,000 was recorded in
15
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
2. ACQUISITIONS (CONTINUED)
1993 related to 1992 acquisitions. Notes payable issued for the acquisitions in
1993 and 1992 were $25,000 and $231,000, respectively. The Company incurred
$95,000, $264,000 and $390,000 of costs in 1994, 1993 and 1992, respectively, in
connection with the acquisitions.
The following table summarizes the Company's unaudited pro forma operating
results as if the 1994 and 1993 acquisitions had occurred at the beginning of
1993 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30
------------------
1994 1993
-------- --------
<S> <C> <C>
Service revenue............................................. $121,277 $106,602
-------- --------
-------- --------
Net income.................................................. $ 250 $ 904
-------- --------
-------- --------
Net income per common and common
equivalent share -- primary................................ $ .02 $ .06
-------- --------
-------- --------
</TABLE>
The pro forma operating results for 1992, if the 1993 acquisitions had
occurred at the beginning of 1992, include service revenue of $80,061,000, net
income of $2,227,000 and net income per share -- primary of $.14.
The pro forma operating results do not purport to be indicative of the
results that actually would have been obtained had the combined operations been
conducted during the periods presented and are not intended to be a projection
of future operating results.
VALLEY HOME HEALTH
Effective September 1, 1992, the Company acquired all of the stock of Valley
Home Health, Inc. by issuing 41,204 shares of the Company's common stock.
The Valley Home Health, Inc. acquisition was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements for 1992 have
been restated to include the accounts and operations of Valley Home Health.
Revenues and net income (loss) of the separate companies for the periods
preceding the acquisition were (in thousands):
<TABLE>
<CAPTION>
11 MONTHS
ENDED
AUGUST 31,
1992
(UNAUDITED)
-----------
<S> <C>
Revenues:
In Home........................................................ $67,010
Valley Home.................................................... 924
-----------
Combined....................................................... $67,934
-----------
-----------
Net Income (Loss):
In Home........................................................ $ 2,131
Valley Home.................................................... (62)
-----------
Combined....................................................... $ 2,069
-----------
-----------
</TABLE>
16
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
3. NOTE PAYABLE -- BANK
The Company has an agreement with a bank which provides for a line of credit
equal to the lesser of $7.5 million or a borrowing base (which was $8,511,000 at
September 30, 1994) that consists of 80% of eligible accounts receivable. As of
September 30, 1994 the Company had utilized $4,130,000 of the facility for an
irrevocable standby letter of credit to secure workers' compensation
commitments. The interest rate on the line of credit is prime plus .75% (8.5% at
September 30, 1994). Borrowings are due at the expiration of the agreement and
are collateralized by accounts receivable and intangibles. The Company had no
bank borrowings at September 30, 1994 and 1993.
The Company is required to maintain certain financial ratios and is limited
to paying dividends equal to 25% of the prior twelve month earnings. As of
September 30, 1994, the Company was out of compliance with certain provisions of
its credit agreement underlying its line of credit and letter of credit
facility. The bank has agreed to waive these covenant violations. The bank has
advised the Company that it does not intend to renew the line of credit
agreement beyond the expiration date. The line of credit, as amended on June 29,
1995, expires on December 31, 1995. The bank has also advised the Company that
the letter of credit must be replaced by December 15, 1995 or the bank will draw
upon the line of credit to fund a collateral account to accommodate any cash
requirements of the letter of credit. The Company is currently considering
possible alternative sources of financing, which may include establishment of a
line of credit with a new lender or other financing of certain accounts
receivable and fixed assets.
4. LONG-TERM DEBT
Following is a summary of long-term debt at September 30 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Obligations under capitalized leases, up to 37.2% (primarily 5.5%
to 15.9%), due through July 1999................................ $5,220 $6,523
Installment notes payable, 6.5% to 6.9%, due through December
1995, secured by property....................................... 370 431
------ ------
Total............................................................ 5,590 6,954
Less current maturities.......................................... 2,286 2,214
------ ------
Long-term debt................................................... $3,304 $4,740
------ ------
------ ------
</TABLE>
Future minimum payments as of September 30, 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITALIZED INSTALLMENT
SEPTEMBER 30 LEASES NOTES TOTAL
- ------------------------------------------------ ----------- ----------- ------
<S> <C> <C> <C>
1995............................................ $2,498 $369 $2,867
1996............................................ 2,192 1 2,193
1997............................................ 1,523 -- 1,523
1998............................................ 638 -- 638
1999............................................ 115 -- 115
----------- ----- ------
Total minimum payments.......................... 6,966 370 7,336
Less amounts representing interest.............. 1,746 -- 1,746
----------- ----- ------
Present value of future minimum payments........ 5,220 370 5,590
Less current maturities......................... 1,917 369 2,286
----------- ----- ------
Long-term debt.................................. $3,303 $ 1 $3,304
----------- ----- ------
----------- ----- ------
</TABLE>
17
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
4. LONG-TERM DEBT (CONTINUED)
Assets recorded under capital leases are included in property at cost of
$7,993,000 and $7,435,000, and accumulated depreciation of $1,854,000 and
$1,356,000 at September 30, 1994 and 1993, respectively. Interest paid for the
years ended September 30, 1994, 1993 and 1992 was $687,000, $546,000 and
$403,000, respectively.
5. MEDICARE COST REIMBURSEMENT
Approximately 74%, 73% and 68% of revenue for the years ended September 30,
1994, 1993 and 1992, respectively, is derived from services provided to Medicare
beneficiaries. Payment for these services is made by the Medicare program based
on reimbursable costs incurred in rendering the services. Payments are made via
an interim payment rate as services are rendered. Cost reports are filed with
Medicare on an annual basis, which are subject to audit and retroactive
adjustment by Medicare. The Company reports revenue only for those costs that it
believes are reasonably assured of recovery under the applicable Medicare
statutes and regulations. The Company utilizes an extensive system of internal
controls to ensure such proper reporting of revenues. The Company employs
personnel with significant Medicare reimbursement experience to prepare its cost
reports, and to monitor its operations on an ongoing basis to identify and
minimize those costs which are not reimbursed. As a part of its system of
internal controls, the Company uses a detailed analysis process in calculating
its Medicare revenue. This process considers applicable statutes and
regulations, administrative and judicial decisions, consultation with
independent industry experts and legal counsel, disputed costs, and historical
knowledge from past Medicare audits. Results of this analysis are extrapolated
to other open cost reporting years for all of the Company's operations to
determine the gross amount of reimbursement that would be affected. The Company,
through this ongoing control and monitoring process, provides a reserve (by
means of a revenue reduction) for any costs incurred which the Company believes
are not reasonably assured of recovery.
Over the years, Medicare, in connection with its retrospective audit
process, has taken certain positions with respect to certain types of costs,
claiming that they are not reimbursable and thus not recoverable by the Company
from the Medicare program. These positions are based on interpretations
promulgated after the period covered by the cost reports and applied
retroactively, on interpretations of cost reimbursement principles that are
contrary to the Company's interpretations, or on what the Company believes to be
misapplications of specific reimbursement principles, that could not have been
foreseen. These positions taken by Medicare are usually determined from
Medicare's Notice of Program Reimbursement (NPR) which typically are not
received until two to three years after the services are rendered. Upon receipt
of an NPR that contains denial of certain costs as reimbursable, the Company
assesses the probability of its success in challenging positions taken by
Medicare that are contrary to the Company's positions. In those situations where
the Company decides to not challenge the NPR, any revenue relating to costs for
which Medicare has denied reimbursement as well as the extrapolated impact on
other open cost reporting years, if not written off or provided for earlier, is
written off as a revenue reduction at that time. The results of all NPRs are
included in the analysis process in calculating net Medicare revenue.
The Company has received NPRs challenging $9.6 million of costs as of
September 30, 1994. There was an additional $10.4 million of costs at September
30, 1994 related to open cost reporting years that are similar to the costs that
have been challenged on NPRs. Together these amounts ($20 million at September
30, 1994) comprise the total amount the Company considers to be disputed costs.
The major cost category in dispute, accounting for approximately half of total
disputed costs, is the treatment of certain personnel costs relating to the
Company's community liaison positions, which Medicare alleges are unreimbursable
sales costs; other costs in dispute relate to the cost of
18
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
5. MEDICARE COST REIMBURSEMENT (CONTINUED)
physical therapists employed by the Company, administration and general costs
allocated to branch operations, certain corporate expenses, and cost transfers
among branch operations. These disputed costs (including the extrapolated
impact) of $20 million at September 30, 1994 arose in the fiscal years ended
September 30, 1994 ($7.2 million), 1993 ($6.4 million), 1992 ($4.3 million) and
1991 ($2.1 million). The amount of disputed costs has increased over the last
several years as the Company has received the NPRs and has extrapolated that
amount of costs that may be challenged to other open cost reporting years. The
normal Medicare administrative appeal process may take several years to resolve
these types of disputes.
The Company disagrees with the positions taken by the Medicare fiscal
intermediaries and the Health Care Financing Administration and is vigorously
pursuing these matters through administrative and legal channels. The Company
has filed two suits against the U.S. Department of Health and Human Services
(HHS) and several members of the Blue Cross Association which HHS uses to
administer the Medicare program. The two suits allege that the defendants have
unjustly withheld payments that are owed to the Company for services it provided
to Medicare beneficiaries from fiscal 1989 through fiscal 1994.
The Company, based on its disputed cost analysis process, believes that
recovery of $4,961,000 of total disputed costs (including the extrapolated
impact) may not be reasonably assured and, accordingly, has established a
reserve in that amount as of September 30, 1994. The remaining net amount of
disputed costs has been included in revenues in the respective years in which
services were rendered and, to the extent not paid to the Company, is included
in accounts receivable. Total accounts receivable (net of reserves) due from
Medicare at September 30, 1994 and 1993 were $20,599,000 and $20,120,000,
respectively, including the receivables (net of reserves) for disputed costs of
$12,347,000 and $5,730,000, respectively. In view of the expectation that
resolution of the disputed costs will not likely be accomplished within the next
twelve months, related net receivables of $9,979,000 and $3,849,000 as of
September 30, 1994 and 1993, respectively, have been classified as a non-current
asset.
The reserve balance of $4,961,000 at September 30, 1994 has been recorded
during fiscal 1993 ($1,100,000) and fiscal 1994 ($3,861,000), based on the
timing of information that was available to make an assessment of assurance of
recovery of the disputed costs. In connection therewith, based on information
that became available in the last fiscal quarters of 1994 and 1993, adjustments
to the Medicare reserves of $2,639,000 and $1,100,000 were recorded in those
fiscal quarters.
6. COMMITMENTS AND CONTINGENCIES
The Company is obligated under several noncancelable operating leases for
office space and equipment. Total rental expense for all operating leases was
$3,666,000, $2,763,000 and $2,007,000, for the years ended September 30, 1994,
1993 and 1992, respectively.
19
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum rental payments as of September 30, 1994 for operating leases
with noncancelable terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
- ---------------------------------------------------------------
<S> <C>
1995........................................................... $ 3,240
1996........................................................... 3,065
1997........................................................... 2,226
1998........................................................... 2,020
1999........................................................... 941
Thereafter..................................................... 631
---------
Total minimum payments......................................... $ 12,123
---------
---------
</TABLE>
The Company is a party to various claims and legal proceedings which
management believes are in the normal course of business and will not involve
any material loss.
7. CAPITAL TRANSACTIONS
STOCK OPTION PLAN
The Company has adopted a stock option plan to provide for the granting of
options to purchase up to a maximum of 2,500,000 shares of common stock. The
options are granted at exercise prices equal to the fair market value of the
common stock at the date of grant. The following is a summary of stock option
activity (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------
AVAILABLE
FOR GRANT OUTSTANDING EXERCISE PRICES
----------- ------------- -----------------
<S> <C> <C> <C>
Balance -- September 30, 1991............................... 980 1,459 $ .53 to $3.38
Options granted............................................. (214) 214 $ 3.63 to $5.38
Options exercised........................................... -- (446) $ .58 to $2.97
Options cancelled........................................... 88 (88) $ .86 to $5.06
--- -----
Balance -- September 30, 1992............................... 854 1,139 $ .53 to $5.38
Options granted............................................. (449) 449 $ 2.94 to $5.94
Options exercised........................................... -- (76) $ .69 to $4.44
Options cancelled........................................... 109 (109) $ 1.03 to $5.50
--- -----
Balance -- September 30, 1993............................... 514 1,403 $ .53 to $5.94
Options granted............................................. (360) 360 $ 1.88 to $4.06
Options exercised........................................... -- (117) $ .54 to $2.69
Options cancelled........................................... 211 (211) $ 1.03 to $5.94
--- -----
Balance -- September 30, 1994............................... 365 1,435 $ .53 to $5.63
--- -----
--- -----
</TABLE>
At September 30, 1994, options for the purchase of 896,000 shares of common
stock are currently exercisable at prices ranging from $.53 to $5.63 per share.
WARRANTS
As of September 30, 1994, private warrants issued in January 1993 totalling
96,000 and expiring January 1996, are exercisable at $6.00 per share.
20
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
7. CAPITAL TRANSACTIONS (CONTINUED)
In November 1991, 2,726,000 shares of common stock were issued upon the
exercise of Class C warrants which were issued in connection with the Company's
1990 public offering. The Company received proceeds of $7,473,000 upon these
warrant exercises. In April 1994, 150,000 shares of common stock were issued in
exchange for 300,000 private warrants issued in January 1991 and expiring
January 1996.
STOCK PURCHASE PLAN
The Company has a plan whereby eligible employees may purchase the Company's
common stock at the lower of 85% of the market price at the time of grant or the
time of purchase. There are 700,000 shares reserved for this plan of which
144,000 shares were issued on September 30, 1994 at $1.96 per share, 116,000
shares were issued on September 30, 1993 at $3.40 per share, and 82,000 shares
were issued on September 30, 1992 at $3.05 per share.
8. INCOME TAXES
The income tax provision for the years ended September 30, 1994, 1993 and
1992 consisted of (in thousands):
<TABLE>
<CAPTION>
1994 FEDERAL STATE TOTAL
- -------------------------------------------------- ------- ----- ------
<S> <C> <C> <C>
Current........................................... $ 483 $ 46 $ 529
Deferred.......................................... (138) 46 (92)
------- ----- ------
$ 345 $ 92 $ 437
------- ----- ------
------- ----- ------
<CAPTION>
1993 FEDERAL STATE TOTAL
- -------------------------------------------------- ------- ----- ------
<S> <C> <C> <C>
Current........................................... $ 437 $ 94 $ 531
Deferred.......................................... 291 43 334
------- ----- ------
$ 728 $ 137 $ 865
------- ----- ------
------- ----- ------
<CAPTION>
1992 FEDERAL STATE TOTAL
- -------------------------------------------------- ------- ----- ------
<S> <C> <C> <C>
Current........................................... $ 952 $ 225 $1,177
Deferred.......................................... 191 45 236
------- ----- ------
$ 1,143 $ 270 $1,413
------- ----- ------
------- ----- ------
</TABLE>
The income tax expense differs from the amount computed by applying the
Federal statutory rate to income before income taxes for each of the years ended
September 30, 1994, 1993 and 1992 as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ------
<S> <C> <C> <C>
Tax at Federal statutory rate................................. $233 $664 $1,263
State income taxes, net of Federal benefit.................... 92 90 178
Officers life insurance....................................... 24 45 27
Goodwill amortization......................................... 44 44 23
Meals and entertainment....................................... 32 34 16
Other......................................................... 12 (12) (94)
---- ---- ------
Income tax expense............................................ $437 $865 $1,413
---- ---- ------
---- ---- ------
</TABLE>
The tax benefit related to the exercise of employee stock options is
recorded as additional paid-in-capital.
21
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
8. INCOME TAXES (CONTINUED)
Income taxes paid during the years ended September 30, 1994, 1993 and 1992
were $31,000, $1,566,000 and $801,000, respectively.
The Company adopted SFAS No. 109 as of the beginning of fiscal year 1993.
The cumulative effect on prior years of this change in accounting principle
reduced 1993 net income by $72,000, and is reported separately in the
consolidated statement of income for the year ended September 30, 1993.
The tax effect of the temporary differences giving rise to the Company's
deferred tax assets and liabilities at September 30, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ----------------------
CURRENT LONG-TERM CURRENT LONG-TERM
ASSET LIABILITY ASSET LIABILITY
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Bad debt allowance......................................... $ 397 $ -- $ 320 $ --
Depreciation and amortization.............................. -- 2,047 -- 1,749
Insurance accruals......................................... 225 -- 561 --
Capitalized items expensed for taxes....................... -- 516 -- 437
Vacation................................................... 240 -- 189 --
AMT credit carry forward................................... -- (321) -- --
Other...................................................... (62) (157) (53) 1
----- ----------- --------- -----------
$ 800 $ 2,085 $ 1,017 $ 2,187
----- ----------- --------- -----------
----- ----------- --------- -----------
</TABLE>
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Service revenue.......................................... $ 29,780 $ 30,167 $ 30,591 $ 29,947
Income (loss) from operations............................ 1,375 979 597 (1,598)
Net income (loss)........................................ 646 410 152 (961)
Net income (loss) per share.............................. .04 .03 .01 (.06)
</TABLE>
See Note 5 for a discussion of a fourth quarter adjustment recorded to the
Company's Medicare reserve.
FISCAL 1993 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Service revenue.......................................... $ 23,378 $ 25,613 $ 27,520 $ 27,250
Income (loss) from operations............................ 1,007 944 621 (140)
Net income (loss)........................................ 486 491 286 (248)
Net income (loss) per share.............................. .03 .03 .02 (.02)
</TABLE>
The first quarter of 1993 net income and earnings per share data has been
restated for the cumulative effect of adopting SFAS No. 109 of $72,000.
See Note 5 for a discussion of a fourth quarter adjustment recorded to the
Company's Medicare reserve.
22
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
10. SUBSEQUENT EVENTS
On May 2, 1995, the Company entered into an agreement to form a strategic
partnership with Manor Care, Inc. (Manor Care), a national health care and
international lodging firm. Pursuant to this partnership, Manor Care will
purchase up to 6.4 million common shares from the Company for $3.40 in cash per
share. The Company will conduct a cash self-tender for 6.4 million of its shares
(40% of outstanding) at $3.40 per share. In addition, Manor Care will invest $20
million in the Company in exchange for voting convertible preferred stock. Manor
Care will also receive a three year warrant to purchase an additional 6 million
shares of common stock at an exercise price of $3.75 per share. This transaction
is subject to, among other conditions, the approval of the Company's
shareholders and the completion of the self-tender by the Company.
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
In Home Health, Inc.:
We have audited the accompanying consolidated balance sheets of In Home
Health, Inc. as of September 30, 1994 and 1993 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended September 30, 1994. Our audits also included the
financial statement schedules listed in the Index at Item 14(a)2. These
financial statements and the financial statement schedules 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 generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of In Home Health, Inc. as of
September 30, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1994 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 8 to the consolidated financial statements, effective
October 1, 1992 the Company changed its method of accounting for income taxes.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
November 18, 1994, except for the
second paragraph of Note 3 and Note 10,
as to which the date is June 29, 1995.
24
<PAGE>
PART IV
ITEM 14. "ITEM 14" IS HEREBY AMENDED TO READ AS FOLLOWS:
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of this Report
1. Financial Statements
The Consolidated Financial Statements filed with this Form 10-K/A are listed
in Item 8 above.
2. Financial Statement Schedules
The schedules required to be filed as part of this Annual Report on Form
10-K/A are listed below with their location in this report.
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
In Home Health, Inc.:
Independent Auditors' Report.............................................. 24
Schedules for the Years Ended September 30, 1994, 1993 and 1992:
II -- Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other than Related Parties........ 29
VIII -- Valuation and Qualifying Accounts and Reserves.............. 30
</TABLE>
All schedules, other than indicated above, are omitted because of the
absence of the conditions under which they are required or because the
information required is shown in the consolidated financial statements or notes
thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Articles of Incorporation, as amended. (iii)
3.2 Restated Bylaws, as amended. (iii)
4.1 Form of specimen Common Stock certificate. (i)
10.1 Revolving Credit Agreement dated September 24, 1992 as amended June 29, 1995 with First Bank
National Association.
10.2 Management Incentive Plan in place for fiscal 1994. (x)
10.3 Lease Agreement dated September 27, 1987 with Willow Development, as amended December 12, 1989. (ii)
10.4 Lease agreement dated October 24, 1991 with Minnesota CC Properties. (vii)
10.5 The Company's Stock Option Plan, as amended. (iii)
10.6 Stock exchange agreement between In Home Health, Inc. and Robert L. Hancock dated January 11, 1993.
(iv)
10.7 Asset purchase agreement between In Home Health, Inc., Robert L. Hancock and CareServices of Raleigh
Limited Partnership dated January 11, 1993. (iv)
10.8 Asset purchase agreement between In Home Health, Inc., Carolyn Kelley and Accent On Care Home Health
Services, Ltd. dated January 22, 1993. (v)
10.9 Stock exchange agreement between In Home Health, Inc., John B. Syer, Scott L. Pachter, R. Evelyn
Wool, Anita W. Fuering, Carol L. Michaelis, Cynthia A. Heide, Jane M. Hixon, Margaret D. Sullivan
and Stephanie H. Shipman dated February 12, 1993. (vi)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.10 Asset purchase agreement between In Home Health, Inc., Carol I. Peake and ENS, Inc. dated January
14, 1994. (viii)
10.11 Partnership purchase agreement between In Home Health, Inc. and Riata Health Care, Inc., Red Health
Care, Inc., Crimson Health Care, Inc., William W. Sullivan, Jr., Warren Neely and Dennis Gutzman
dated May 23, 1994. (ix)
10.12 Asset purchase agreement between In Home Health, Inc., RI Investments, Inc. Green Investments, Inc.,
Maroon Investments, Inc., William W. Sullivan, Jr., Warren Neely, Dennis Gutzman and RI Partners
dated May 23, 1994. (ix)
11 Computation of Per Share Earnings (x)
24 Independent Auditors' Consent
<FN>
- ------------------------
(i) Incorporated herein by reference to the Registrant's Registration
Statement (Form S-18) No. 33-17228C.
(ii) Incorporated herein by reference to the Registrant's Registration
Statement (Form S-1) No. 33-35424.
(iii) Incorporated herein by reference to the Registrant's annual report on
Form 10-K for the year ended September 30, 1992.
(iv) Incorporated herein by reference to the Registrant's current report on
Form 8-K dated January 15, 1993.
(v) Incorporated herein by reference to the Registrant's current report on
Form 8-K dated January 22, 1993.
(vi) Incorporated herein by reference to the Registrant's current report on
Form 8-K dated February 12, 1993.
(vii) Incorporated herein by reference to the Registrant's annual report on
Form 10-K for the year ended September 30, 1991.
(viii) Incorporated herein by reference to the Registrant's current report on
Form 8-K dated January 17, 1994.
(ix) Incorporated herein by reference to the Registrant's current report on
Form 8-K dated May 26, 1994.
(x) Incorporated herein by reference to the Registrant's current report on
Form 10-K for the year ended September 30, 1994.
</TABLE>
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 on
Form 10-K/A to Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, in Minnetonka, Minnesota.
IN HOME HEALTH, INC.
By: /s/ JUDY M. FIGGE
-----------------------------------
Judy M. Figge, President
Date: August 11, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date set forth above.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------------------- -------------------
<C> <S> <C>
/s/ JUDY M. FIGGE President, Chief Executive Officer and
----------------------------------- Director (principal executive officer) August 11, 1995
Judy M. Figge
/s/ KENNETH J. FIGGE Executive Vice President, Chief Financial
----------------------------------- Officer, Secretary, and Director (principal August 11, 1995
Kenneth J. Figge financial officer)
/s/ JAMES J. LYNN
----------------------------------- Director August 11, 1995
James J. Lynn
/s/ S. MARCUS FINKLE
----------------------------------- Director August 11, 1995
S. Marcus Finkle
/s/ SHELDON LIEBERBAUM
----------------------------------- Director August 11, 1995
Sheldon Lieberbaum
</TABLE>
27
<PAGE>
IN HOME HEALTH, INC.
SCHEDULE AND EXHIBIT INDEX
<TABLE>
<CAPTION>
SCHEDULE PAGE
- -------- ----
<C> <S> <C>
II Amounts Receivable from Related Parties and Underwriters,
Promotors, and Employees Other than Related Parties........ 29
VIII Valuation and Qualifying Accounts and Reserves.............. 30
<CAPTION>
EXHIBIT
- --------
<C> <S> <C>
10.1 Amendment No. 3 to Second Amended and Restated Credit
Agreement.................................................. 31
24 Independent Auditors' Consent............................... 34
</TABLE>
28
<PAGE>
SCHEDULE II
IN HOME HEALTH, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN B COLUMN D -- DEDUCTIONS COLUMN E --
------------ BALANCE AT
COLUMN A BALANCE AT COLUMN C ------------------------ END OF PERIOD
- ---------------------------------------- BEGINNING OF --------- AMOUNT AMOUNTS ------------------------
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN-OFF CURRENT NOT-CURRENT
- ---------------------------------------- ------------ --------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994
Kenneth J. Figge........................ -0- $ 150 -0- -0- $ 150 -0-
1993
None
Notes receivable are due on demand. Interest is prime + .25%.
</TABLE>
29
<PAGE>
SCHEDULE VIII
IN HOME HEALTH, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- ----------- ------------------------ ----------- -----------
ADDITIONS
------------------------
(2)
(1) CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS END OF
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE -DESCRIBE PERIOD
- ----------------------------------------- ----------- ----------- ----------- ----------- -----------
(B) (A)
<S> <C> <C> <C> <C> <C>
1994
Allowance for Doubtful Accounts
Current................................ $ 859 $ 914 $ -- $ 744 $ 1,029
Medicare Reimbursement Reserve........... 1,100 -- 3,861 -- 4,961
1993
Allowance for Doubtful Accounts
Current................................ $ 576 $ 427 $ -- $ 144 $ 859
Medicare Reimbursement Reserve........... -- -- 1,100 -- 1,100
1992
Allowance for Doubtful Accounts
Current................................ $ 255 $ 440 $ -- $ 119 $ 576
<FN>
- ------------------------
(A) Write-off of Bad Debts, Net of Recoveries and acquisition balances.
(B) Adjustment to Medicare reserve.
</TABLE>
30
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 3 TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 3 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment No. 3") is entered into as of the 30th day of June, 1995, by and
between IN HOME HEALTH, INC., a Minnesota corporation (the "Borrower") and FIRST
BANK NATIONAL ASSOCIATION, a national banking association (the "Bank").
RECITALS
FIRST: Borrower is indebted to the Bank pursuant to the terms of a Second
Amended and Restated Credit Agreement dated March 31, 1994, as amended (the
"Credit Agreement"), as evidenced by a Substitute Revolving Credit Note dated
June 30, 1994, in the original principal amount of $15,000,000 (the "Revolving
Note").
SECOND: All indebtedness of the Borrower to the Bank is secured by a
Security Agreement dated September 24, 1992, executed by the Borrower in favor
of the Bank, as successor by merger to Marquette Bank Minneapolis, National
Association.
THIRD: The Borrower and the Bank have agreed to amend certain terms and
provisions of the Credit Agreement and address certain existing Events of
Default, all as more particularly set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Bank agree as follows:
1. DEFINED TERMS. All capitalized terms used in this Amendment No. 3 which
are not otherwise defined herein shall have the meanings ascribed to them in the
Credit Agreement.
2. WAIVER. Borrower acknowledges that an Event of Default exists under the
Credit Agreement due to the breach of Section 6.6 of the Credit Agreement as a
result of making a loan to a director and officer of the Borrower. Subject to
the conditions to the effectiveness of this Amendment No. 3 as set forth in
paragraph 6 below, the Bank hereby waives the above-described Event of Default
through and including September 30, 1995; PROVIDED, HOWEVER, that the waiver
granted herein is limited to the specific Event of Default described in this
paragraph and is not intended, and shall not be construed, to be a general
waiver of any term or provision of the Credit Agreement or any other existing or
future Default or Event of Default.
3. AMENDMENTS. The Credit Agreement is hereby amended as follows:
(a) The definition of "Maturity Date" in Section 1 of the Credit
Agreement is hereby amended by deleting the date "June 30, 1995" contained
therein and inserting the date "December 31, 1995" in its stead.
(b) Section 2.7(a) of the Credit Agreement is hereby amended by
inserting the phrase "until September 30, 1995 and Four Million Eight
Hundred Thousand and NO/100 Dollars ($4,800,000.00) after September 30,
1995" immediately after the phrase "Four Million Five Hundred Twenty
Thousand and NO/100 Dollars ($4,520,000.00)".
(c) Section 2.7(c) of the Credit Agreement is amended by deleting the
date "June 15, 1995" and inserting "December 15, 1995" in its stead.
4. CONSTRUCTION. All references in the Credit Agreement to "this Credit
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment No. 3.
31
<PAGE>
5. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this
Amendment No. 3 and to grant the waiver hereunder, the Borrower hereby warrants
and represents to the Bank that it is duly authorized to execute and deliver
this Amendment No. 3 and to perform its obligations under the Credit Agreement
as amended hereby and that this Amendment No. 3 and all other documents executed
by the Borrower in connection herewith constitute the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms. The Credit Agreement, as amended hereby, and the Revolving Note, shall
continue to be secured by the Security Agreement, without loss of lien or
priority. The Borrower further represents and warrants that it has been advised
by the Bank that the Bank does not intend to renew the Revolving Credit
Commitment after December 31, 1995, that the Bank intends to terminate the
Revolving Credit Commitment on December 31, 1995 (unless earlier terminated in
accordance with the terms of the Credit Agreement) and that the Bank will notify
the beneficiaries of any letters of credit on or before June 30, 1995, that any
letters of credit will not be renewed on their expiry date.
6. EFFECTIVE DATE. This Amendment No. 3 shall become effective on the date
first set forth above upon the satisfaction of each of the following conditions
precedent:
(a) WARRANTIES. Before and after giving effect to this Amendment No.
3, the representations and warranties in Section 4 of the Credit Agreement
shall be true and correct as though made on the date hereof, except for
changes that are permitted by the terms of the Credit Agreement. The
execution by the Borrower of this Amendment No. 3 shall be deemed a
representation that the Borrower has complied with the foregoing condition.
(b) DEFAULTS. After giving effect to this Amendment No. 3, no Default
or Event of Default shall have occurred and be continuing under the Credit
Agreement. The execution by the Borrower of this Amendment No. 3 shall be
deemed a representation that the Borrower has complied with the foregoing
condition.
(c) DOCUMENTS. The following shall have been delivered to the Bank,
each in form and substance satisfactory to the Bank:
(i) AMENDMENT NO. 3. This Amendment No. 3 appropriately completed
and duly executed by the Borrower.
(ii) SECRETARY'S CERTIFICATE. A Secretary's Certificate signed by
the Borrower's corporate secretary certifying that copies of the Articles
of Incorporation and the Bylaws of the Borrower attached thereto are in
full force and effect.
(iii) LEGAL FEES AND EXPENSES. Payment of the legal fees and expenses
of counsel for the Bank incurred in connection with the preparation,
negotiation and execution of this Amendment No. 3.
7. EXPENSES. The Borrower agrees to reimburse the Bank upon demand for all
reasonable expenses (including attorneys' fees and legal expenses) incurred by
the Bank in the preparation, negotiation and execution of this Amendment No. 3,
and any other document required to be furnished herewith, and in enforcing the
obligations of the Borrower under the Credit Agreement as amended hereby, which
obligations of the Borrower shall survive any termination of the Credit
Agreement.
8. COUNTERPARTS. This Amendment No. 3 may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same instrument.
9. SEVERABILITY. Any provision of this Amendment No. 3 which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
32
<PAGE>
10. SUCCESSORS; ENFORCEABILITY. This Amendment No. 3 shall be binding upon
the Borrower and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Bank and the successors and assigns
of the Bank. Except as hereby amended, the terms and provisions of the Credit
Agreement shall remain in full force and effect and the Credit Agreement is
hereby ratified and confirmed in all respects.
11. ENTIRE AGREEMENT. The Credit Agreement, as amended hereby, together
with the other Loan Documents constitute the entire agreement of the parties and
all other agreements, whether oral or in writing, are merged into the Credit
Agreement, as amended hereby, and are superseded hereby.
12. GOVERNING LAW. THIS AMENDMENT NO. 3 SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE LAW OF CONFLICTS) OF THE
STATE OF MINNESOTA, GIVING EFFECT TO LAWS APPLICABLE TO NATIONAL BANKS.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment No.
3 to be executed by their duly authorized officers as of the date and year first
above written.
IN HOME HEALTH, INC.,
a Minnesota corporation
By __________/s/ M.J. KENNEDY_________
Its __________VP-TREASURER_________
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By ________/s/ CONRAD A. KEECH________
Its _________VICE PRESIDENT________
33
<PAGE>
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
In Home Health, Inc.
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (No. 33-75876 and 33-75830) and to the Registration Statements on
Form S-3 (No. 33-77174) of our report dated November 18, 1994, except for the
second paragraph of Note 3 and Note 10, as to which the date is June 29, 1995,
appearing in this Annual Report on Form 10-K/A of In Home Health, Inc. for the
year ended September 30, 1994.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 11, 1995
34