<PAGE>
UNITED STATES
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 QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NO. 0-17490
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 Identification No.)
incorporation or organization)
601 CARLSON PARKWAY
SUITE 500
MINNETONKA, MINNESOTA 55305-5214
(Address of principal executive offices)
(Zip Code)
952-449-7500
(Registrant's telephone number, including area code)
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 X No
--- ---
As of April 21, 2000, the number of shares outstanding of the
registrant's common stock, $.03 par value was 5,520,553 shares.
<PAGE>
IN HOME HEALTH, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
March 31, 2000 and September 30, 1999 2-3
Consolidated Statements of Income -
For the Three Months and Six Months Ended March 31,
2000 and 1999 4
Consolidated Statements of Cash Flows -
For the Six Months Ended March 31,
2000 and 1999 5
Notes to Unaudited Consolidated Financial Statements 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10-13
PART II. OTHER INFORMATION 14
</TABLE>
1
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IN HOME HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
March 31, 2000 Sept. 30,
(Unaudited) 1999
----------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 15,395 $ 21,406
Accounts receivable, net of allowances of $1,271 and
$1,079 at March 2000 and September 1999, respectively 13,043 11,937
Deferred income taxes 933 1,006
Prepaid expenses and other current assets 806 668
------- -------
Total current assets 30,177 35,017
------ ------
Property:
Furniture and equipment 7,218 7,202
Computer equipment and software 5,851 6,099
Leasehold improvements 413 399
------- -------
Total 13,482 13,700
Accumulated depreciation (10,408) (10,433)
------ ------
Property - net 3,074 3,267
------ ------
Other Assets:
Accounts receivable, long-term 8,241 4,658
Goodwill, net 5,056 5,115
Other assets 104 92
------- -------
Total other assets 13,401 9,865
------ ------
Total Assets $ 46,652 $ 48,149
====== ======
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
2
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IN HOME HEALTH, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 2000 Sept. 30,
(Unaudited) 1999
----------- --------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 26 $ 67
Accounts payable 4,170 4,045
Accrued liabilities:
Third party 7,353 10,209
Compensation 4,878 3,869
Insurance 2,454 2,593
Other 450 552
------- -------
Total current liabilities 19,331 21,335
------ ------
Long-Term Debt 33 43
Deferred Rent Payable 112 144
Deferred Income Taxes 933 1,006
Commitments and Contingencies -- --
Redeemable Convertible Preferred Stock - $1.00 par value, $13,000 redemption
value, authorized 130 shares; issued
and outstanding March 31 and September 30 - 130 shares 12,882 12,782
Shareholders' Equity:
Redeemable convertible preferred stock - $1.00 par value, $7,000 redemption
value, authorized 70 shares; issued
and outstanding March 31 and September 30 - 70 shares 7,000 7,000
Preferred stock - authorized 800 shares -- --
Common stock - $.03 par value, authorized 13,334 shares; issued and
outstanding March 31 and September 30 - 5,521 shares 166 166
Additional paid-in capital 23,739 23,739
Retained deficit (17,544) (18,066)
------ ------
Total shareholders' equity 13,361 12,839
------ ------
Total Liabilities and Shareholders' Equity $ 46,652 $ 48,149
====== ======
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
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IN HOME HEALTH, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
-------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue [including (unfavorable) favorable
Medicare reserve adjustments of ($63),
$2,139, ($163), and $2,196 for the
respective periods] $ 24,244 $ 21,079 $ 47,075 $ 39,650
------ ------ ------ ------
Operating Expenses:
Direct costs of revenue (primarily payroll
related costs) 13,987 10,742 27,073 21,101
General, administrative and selling expenses 9,647 9,211 18,749 17,245
------ ------ ------ ------
Total operating expenses 23,634 19,953 45,822 38,346
------ ------ ------ ------
Income from operations 610 1,126 1,253 1,304
------- ------ ------ ------
Interest:
Interest income 305 273 574 618
Interest expense (3) (17) (5) (23)
-------- ------- -------- -------
Net interest income 302 256 569 595
------- ------- ------- -------
Income before income taxes 912 1,382 1,822 1,899
Income tax expense -- -- -- --
-------- ------- ------- --------
Net income $ 912 $ 1,382 $ 1,822 $ 1,899
====== ====== ====== ======
Net income available to common
shareholders $ 262 $ 732 $ 522 $ 600
====== ====== ====== ======
Basic and diluted earnings per share $ .05 $ .13 $ .09 $ .11
======= ======= ====== ======
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
4
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IN HOME HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,822 $ 1,899
Adjustments:
Depreciation and amortization 614 759
Loss on disposal of assets 39 197
Accounts receivable (4,689) 1,376
Prepaid expenses and other assets (151) (2)
Accounts payable 125 630
Accrued liabilities (2,088) (5,375)
Deferred revenue -- (27)
Deferred rent payable (32) (28)
Deferred income taxes -- (19)
-------- --------
Net cash used by operating activities (4,360) (590)
------- --------
Cash Flows From Investing Activities:
Acquisition of property and agencies (413) (57)
Other 13 7
-------- --------
Net cash used by investing activities (400) (50)
------- --------
Cash Flows From Financing Activities:
Payment of long-term debt (51) (127)
Preferred dividends paid (1,200) (1,200)
------- -------
Net cash used by financing activities (1,251) (1,327)
------- -------
Cash and Cash Equivalents:
Net decrease (6,011) (1,967)
Beginning of period 21,406 21,462
------ ------
End of period $ 15,395 $ 19,495
====== ======
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
5
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IN HOME HEALTH, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
1. FINANCIAL STATEMENTS
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal, recurring accruals) necessary to present fairly the financial position
of the Company and its subsidiaries as of March 31, 2000 and the results of
operations for the three and six months and cash flows for the six months ended
March 31, 2000 and 1999. The results of operations for any interim period are
not necessarily indicative of the results for the year. These interim
consolidated financial statements should be read in conjunction with the
Company's annual financial statements and related notes in the Company's Form
10-K.
Certain reclassifications have been made to the fiscal 1999 financial
statements to conform to the presentations adopted in fiscal 2000. These
reclassifications had no effect on net income, earnings per share or
shareholders' equity as previously reported.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is effective for the Company on
October 1, 2000. SFAS 133 requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company is currently reviewing the standard and its effect on
the financial statements, but does not expect it to have a significant effect on
its financial position or the results of its operations.
2. BASIC AND DILUTED EARNINGS PER SHARE
The following table reflects the calculation of basic and diluted
earnings per share for the three and six months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
THREE MONTHS SIX MONTHS
------------ ----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS PER SHARE:
Net income $ 912 $ 1,382 $ 1,822 $ 1,899
Dividends on preferred stock (600) (600) (1,200) (1,200)
Preferred stock accretion (50) (50) (100) (99)
----- ------ ------ ------
Net income available to
common shareholders $ 262 $ 732 $ 522 $ 600
===== ====== ====== ======
Weighted average shares outstanding 5,521 5,480 5,521 5,480
Dilutive effect of outstanding stock options 100 -- 112 --
------ ------ ------ ------
Dilutive potential shares outstanding 5,621 5,480 5,633 5,480
===== ====== ====== ======
Basic and diluted earnings per share $ .05 $ .13 $ .09 $ .11
===== ====== ====== ======
</TABLE>
6
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Options to purchase 406,721 shares of common stock were outstanding at
March 31, 2000. Of these, 170,313 and 172,912 were dilutive for the three months
and six months, respectively, and included in the computation above while the
remaining options were not included in the computation of diluted earnings per
share as their exercise prices were greater than the average market price of the
common shares. Options to purchase 220,734 shares of common stock were
outstanding at March 31, 1999 and were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of the common shares for the three and six month
periods ended March 31, 1999.
Redeemable convertible preferred stock was issued to ManorCare Health
Services, Inc., a wholly owned subsidiary of Manor Care, Inc. ("Manor Care"), in
October 1995. As of March 31, 2000, 130,000 preferred shares may be redeemed in
cash at the option of the holder or the Company on or after October 24, 2000,
while 70,000 shares can be redeemed only at the option of the Company on or
after that date. The redeemable preferred shares have voting rights on an as-if
converted basis, and are initially convertible into 3,333,334 common shares at
an initial conversion price of $6.00 per share. The impact of the redeemable
convertible preferred stock on diluted earnings per share would be anti-dilutive
and, therefore, has been excluded.
3. COMMITMENTS AND CONTINGENCIES
Approximately 50% of revenue for both six month periods ended March 31,
2000 and 1999 was derived from services provided to Medicare beneficiaries for
which payment is based on cost. Payments for these services are made by the
Medicare program based on reimbursable costs incurred in rendering services.
Medicare makes interim payments as services are rendered and the Company files
cost reports 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 probable (as defined in Statement of Financial Accounting Standards
No. 5) of recovery under the applicable Medicare statutes and regulations and
reports related accounts receivable balances at net realizable value.
Over the years, Medicare auditors employed by the Medicare fiscal
intermediaries have, in connection with their retrospective audit process, taken
certain positions with respect to certain types of costs, claiming that such
costs are not reimbursable and thus not recoverable by the Company under the
Medicare program. When the Company disagrees with findings of the Medicare
fiscal intermediaries, it seeks relief through administrative and legal
channels. Based on a detailed analysis of statutes and regulations,
administrative and judicial decisions, and consultation with independent
industry experts and legal counsel, the Company provides a reserve (by means of
a revenue deduction) for any costs incurred which are not probable of recovery.
At March 31, 2000, total disputed costs were $11,521,000. The Company believes
that recovery of $3,280,000 of such costs (including extrapolation for all
unsettled cost reporting periods) may not be probable and, accordingly, has
established reserves totaling $3,280,000 at March 31, 2000.
At March 31, 2000, disputed costs totaling $8,241,000 were not reserved.
Of these costs, $2,770,000 relates to a miscalculation on the part of the
Company's fiscal intermediary regarding the accounting for a previously signed
agreement concerning the allocation of the Company's home office costs. In
connection with this miscalculation, the Company requested and received an
interim payment of $3,000,000 during the quarter ended March 31, 2000.
$1,445,000 of unreserved disputed costs involves the Company's home
office costs (including extrapolation for all unsettled cost reporting periods)
as they relate to the pharmacy operations in the Company's branch offices. The
Company's fiscal intermediary has adopted an allocation method of the
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Company's home office costs that the Company believes is in violation of a
written agreement between the Company and its fiscal intermediary. The Company
believes that it will prevail in this issue.
$2,685,000 of unreserved disputed costs involves the Company's skilled
nursing costs related to fiscal intermediary audited results. The Company's
fiscal intermediary has allocated such costs to all services of the Company in
spite of the fact that the activities of the Company's skilled nursing staff are
100% attributable to the Company's Visits services. The Company believes that it
will prevail in this issue.
$969,000 of unreserved disputed costs involves the Company's payments for
services from Manor Care (including extrapolation for all unsettled cost
reporting periods). Beginning in fiscal 1996, the Company made payments to Manor
Care in return for services performed on behalf of the Company. To ensure that
the expenses incurred by Manor Care were not submitted to Medicare on both the
Company's and on Manor Care's cost reports, the Company's fiscal intermediary
requested documentation that the amounts were removed from Manor Care's cost
report. The Company is working with Manor Care to provide such documentation.
The Company believes that it will prevail in this issue.
$372,000 of unreserved disputed costs involves the costs of certain
administrative/clerical personnel (including extrapolation for all unsettled
cost reporting periods). The Company's fiscal intermediary has allocated such
costs across all services of the Company in spite of the fact that they are
incurred primarily for the Visits services due to the relatively high need for
documentation and filing for the Visits services. The Company believes that it
will prevail in this issue.
At March 31, 2000, total accounts receivable (net of reserves) due from
the Medicare cost reimbursement system were $13,032,000. Based on the progress
toward resolution of the disputed costs, management estimates that net
receivables of $8,241,000 will not be realized within the next twelve months,
and, accordingly, has classified net receivables of that amount as a non-current
asset. Accrued liabilities to third-party of $7,353,000 at March 31, 2000
represent payments from Medicare in excess of amounts that the Company will be
entitled to upon ultimate settlement of Medicare cost reports.
4. INCOME TAXES
At September 30, 1999, the Company had federal operating loss
carryforwards of $5,245,000 which will expire in 2012 and 2013. Management
believes it is more likely than not that certain of these net operating loss
carryforwards and other temporary differences may expire unused and,
accordingly, has established a valuation allowance against them. During the six
months ended March 31, 2000, income tax expense of approximately $725,000 was
offset by utilizing a portion of the net operating loss carryforwards versus
$750,000 for the same period of the previous year.
5. SEGMENT INFORMATION
The Company's management analyzes operating performance on a geographic
basis and considers each branch an operating segment. All branches offer
substantially the same services to similar types of clients entirely within the
United States. Additionally, all branches operate in the same regulatory
environment and utilize similar processes to provide care to their clients. For
financial reporting purposes, all the Company's operating segments are
aggregated into one reportable segment. Therefore, the Company has concluded
that the current reportable segment is consistent with the "management approach"
methodology.
8
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Revenue by service for the three and six months ended March 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------ ----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Visits $ 13,563 $ 11,729 $ 26,183 $ 20,989
Extended Hours 6,242 5,658 12,342 11,300
Hospice 3,988 3,393 7,726 6,738
Other 451 299 824 623
-------- -------- -------- --------
$ 24,244 $ 21,079 $ 47,075 $ 39,650
====== ====== ====== ======
</TABLE>
Revenue from Medicare was $16,019,000 and $30,818,000 for the three and
six months ended March 31, 2000 compared to $14,370,000 and $26,057,000 for the
same periods of the prior year.
9
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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 level of operation and financial condition. This discussion should be
read with the consolidated financial statements appearing in Item 1.
RESULTS OF OPERATIONS
The Balanced Budget Act of 1997 (the "Budget Act") and the Omnibus
Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999
(the "Appropriations Act") require the Health Care Financing Administration
("HCFA") to implement a prospective payment system ("PPS") for home health
agencies by October 1, 2000. Until PPS is implemented, the Budget Act
established an Interim Payment System ("IPS") that reimburses home health
agencies the lesser of: (1) actual, reasonable costs, (2) per-visit cost limits,
or (3) newly implemented per-beneficiary cost limits. In response to the
implementation of IPS, the Company initiated a series of cost reduction programs
and care delivery process improvements. The regulations governing PPS are
expected to be released during July 2000.
Revenue for the three and six months ended March 31, 2000 increased 15%
and 19%, respectively, over the same periods in the prior year. Second quarter
1999 revenue was positively impacted by $2,183,000 due to final settlements
received by the Company on several reimbursement issues with HCFA. Visit revenue
increased 16% and 25% due to an increase in visit volume and increased business
from six home health agencies purchased in October 1999. Extended Hours revenue
increased 10% and 9% due primarily to the additional revenue generated by the
newly acquired agencies. Hospice revenue increased 18% and 15% due to increased
overall patient census. Other revenue increased 51% and 32% due to a modest
increase in service volume.
Direct costs, as a percent of revenue, were 58% and 58% for the three and
six months ended March 31, 2000 versus 51% and 53% for the same periods of the
previous year. Direct costs as a percent of revenue for the three and six months
ended March 31, 1999, excluding the impact of the $2,183,000 settlement
received, would have been 57% and 56%, respectively. The increased percent of
revenues was primarily due to lower margin patient services in the newly
acquired agencies and increases in direct labor rates in excess of rate
increases provided by the Company's primary payers. General, administrative and
selling expenses, as a percent of revenue, were 40% and 40% for the three and
six months ended March 31, 2000 compared to 44% and 43% for the same periods
last year. The decrease in general, administrative and selling expenses, as a
percent of revenue, was principally due to continued controls over corporate
overhead leveraged over the expanded revenue base generated through increased
volume.
Net interest income for the three and six months ended March 31, 2000 was
$302,000 and $569,000 versus $256,000 and $595,000 for the same periods of the
previous year. The three month increase in interest income is principally due to
$71,000 of interest received for Medicare settlements. Overall, the Company has
realized increases in interest rates on its short-term cash investments, offset
by lower average cash balances due to repayments to Medicare of $5,067,000
during the six months
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ended March 31, 2000.
Net income for the three and six months ended March 31, 2000 was $912,000
and $1,822,000, compared to $1,382,000 and $1,899,000 for the same periods of
the previous year. In the three months ended March 31, 1999, the Company
recorded $2,183,000 of revenue for Medicare-related settlements. Excluding the
impact of this adjustment, the Company had net losses of $801,000 and $284,000
for the three and six months ended March 31, 1999. The improvement in net
income, excluding the prior year revenue adjustment, principally resulted from
continued controls over corporate overhead leveraged over the expanded revenue
base generated by increased visit volume, hospice volume and additional revenue
from the newly acquired agencies. Net income available to common shareholders
was $262,000 and $522,000 for the three and six months ended March 31, 2000,
compared to $732,000 and $600,000 for the same periods of the previous year. The
difference between net income and net income available to common shareholders is
primarily the result of the preferred stock dividend to ManorCare Health
Services, Inc., a wholly owned subsidiary of Manor Care, Inc. ("Manor Care") for
its $20 million preferred stock investment in the Company. Basic and diluted
earnings per share for the three and six months ended March 31, 2000 were $.05
and $.09 compared to $.13 and $.11 per share last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $6,011,000 to
$15,395,000 at March 31, 2000 from $21,406,000 at September 30, 1999. During the
six months ended March 31, 2000, the Company paid $1,200,000 to Manor Care for
preferred stock dividends, repaid Medicare $10,227,000, received $3,000,000
related to prior year Medicare audits and received a one-time lump-sum
adjustment of $2,160,000 for increased reimbursement rates due to increased
visit volume.
Approximately 50% of revenue for both six month periods ended March 31,
2000 and 1999 was derived from services provided to Medicare beneficiaries for
which payment is based on cost. Payments for these services are made by the
Medicare program based on reimbursable costs incurred in rendering services.
Medicare makes interim payments as services are rendered and the Company files
cost reports 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 probable (as defined in Statement of Financial Accounting Standards
No. 5) of recovery under the applicable Medicare statutes and regulations and
reports related accounts receivable balances at net realizable value.
Over the years, Medicare auditors employed by the Medicare fiscal
intermediaries have, in connection with their retrospective audit process, taken
certain positions with respect to certain types of costs, claiming that such
costs are not reimbursable and thus not recoverable by the Company under the
Medicare program. When the Company disagrees with findings of the Medicare
fiscal intermediaries, it seeks relief through administrative and legal
channels. Based on a detailed analysis of statutes and regulations,
administrative and judicial decisions, and consultation with independent
industry experts and legal counsel, the Company provides a reserve (by means of
a revenue deduction) for any costs incurred which are not probable of recovery.
At March 31, 2000, total disputed costs were $11,521,000. The Company believes
that recovery of $3,280,000 of such costs (including extrapolation for all
unsettled cost reporting periods) may not be probable and, accordingly, has
established reserves totaling $3,280,000 at March 31, 2000.
At March 31, 2000, disputed costs totaling $8,241,000 were not reserved.
Of these costs, $2,770,000 relates to a miscalculation on the part of the
Company's fiscal intermediary regarding the
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accounting for a previously signed agreement concerning the allocation of the
Company's home office costs. In connection with this miscalculation, the Company
requested and received an interim payment of $3,000,000 during the quarter ended
March 31, 2000.
$1,445,000 of unreserved disputed costs involves the Company's home
office costs (including extrapolation for all unsettled cost reporting periods)
as they relate to the pharmacy operations in the Company's branch offices. The
Company's fiscal intermediary has adopted an allocation method of the Company's
home office costs that the Company believes is in violation of a written
agreement between the Company and its fiscal intermediary. The Company believes
that it will prevail in this issue.
$2,685,000 of unreserved disputed costs involves the Company's skilled
nursing costs related to fiscal intermediary audited results. The Company's
fiscal intermediary has allocated such costs to all services of the Company in
spite of the fact that the activities of the Company's skilled nursing staff are
100% attributable to the Company's Visits services. The Company believes that it
will prevail in this issue.
$969,000 of unreserved disputed costs involves the Company's payments for
services from Manor Care (including extrapolation for all unsettled cost
reporting periods). Beginning in fiscal 1996, the Company made payments to Manor
Care in return for services performed on behalf of the Company. To ensure that
the expenses incurred by Manor Care were not submitted to Medicare on both the
Company's and on Manor Care's cost reports, the Company's fiscal intermediary
requested documentation that the amounts were removed from Manor Care's cost
report. The Company is working with Manor Care to provide such documentation.
The Company believes that it will prevail in this issue.
$372,000 of unreserved disputed costs involves the costs of certain
administrative/clerical personnel (including extrapolation for all unsettled
cost reporting periods). The Company's fiscal intermediary has allocated such
costs across all services of the Company in spite of the fact that they are
incurred primarily for the Visits services due to the relatively high need for
documentation and filing for the Visits services. The Company believes that it
will prevail in this issue.
At March 31, 2000, total accounts receivable (net of reserves) due from
the Medicare cost reimbursement system were $13,032,000. Based on the progress
toward resolution of the disputed costs, management estimates that net
receivables of $8,241,000 will not be realized within the next twelve months,
and, accordingly, has classified net receivables of that amount as a non-current
asset. Accrued liabilities to third-party of $7,353,000 at March 31, 2000
represent payments from Medicare in excess of amounts that the Company will be
entitled to upon ultimate settlement of Medicare cost reports.
The Company has unused letter of credit facilities for $1,915,000. These
credit facilities are collateralized by secured investments and expire in
December 2000.
The redeemable convertible preferred stock issued to Manor Care includes
130,000 shares that may be redeemed at the option of Manor Care or the Company
at $13,000,000 face value on or after October 24, 2000 and 70,000 shares with a
face value of $7,000,000 that may only be redeemed at the option of the Company.
Management has performed preliminary evaluations on a number of financing
alternatives in the event Manor Care elects to redeem the $13,000,000 of
preferred stock. Management believes that cash provided from operations along
with existing cash balances will be sufficient to
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finance the Company's operations through October 24, 2000, and long-term
financing alternatives will be available to meet the Company's future needs,
however there are no assurances such long-term financing will ultimately be
obtained.
FORWARD LOOKING INFORMATION
Statements included in this Form 10-Q that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and are
subject to certain risks and uncertainties that could cause actual results to
differ materially. The Company's ability to succeed in the future is dependent
upon government regulation, third party reimbursement, competition and factors
affecting the health care industry in general. The Company's future results of
operations and financial condition will be affected by factors such as (i)
proposed changes to the Medicare reimbursement system from a retrospective
cost-based system to a prospective payment system, (ii) settlements which may be
reached with the HCFA regarding cost reports, and (iii) its ability to establish
and maintain close working relationships with referral sources, including
payers, hospitals, physicians and other health care professionals. As a result
of these developments, the Company is not able to conclude that it is more
likely than not that it will be able to generate future earnings which will
allow it to utilize its NOLs and, accordingly, has established a valuation
allowance against the NOLs. Please refer to our Form 10-K for the fiscal year
ended September 30, 1999 for a more thorough discussion of forward looking
information.
13
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS - None.
ITEM 2 - CHANGE IN SECURITIES - None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
The Company held its Annual Meeting of Shareholders on February 23,
2000. The shareholders present in person or in proxy voted to elect the
present board of directors. Each nominee received the number of votes
indicated below. There were no broker non-votes with respect to the
election of directors.
NOMINEES VOTES FOR WITHHELD
Wolfgang von Maack 5,063,093 162,370
James J. Lynn, Ed.D. 5,067,524 157,939
Clyde Michael Ford 5,067,924 157,539
Judith Irene Storfjell, Ph.D. 5,068,009 157,454
Eugene Terry 5,062,880 162,583
The shareholders ratified the selection of Deloitte & Touche LLP as the
Company's independent auditors for 2000 by a vote of 5,187,899 shares
in favor, 11,827 shares against, 25,737 abstaining and zero shares
broker non-voted. The shareholders did not approve the proposal to
increase the number of shares available under the 1995 Stock Option
Plan by a vote of 1,708,032 shares in favor, 2,571,425 shares against,
18,465 abstaining and 927,541 shares broker non-voted.
ITEM 5 - OTHER INFORMATION - None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K - None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Form 10-Q report to be signed on its behalf by
the undersigned, thereunto duly authorized.
In Home Health, Inc.
-------------------------------
Registrant
Date: April 24, 2000 /s/ C. Michael Ford
-------------------------------
C. Michael Ford
Interim Chief Executive Officer
Date: April 24, 2000 /s/ Robert J. Hoffman, Jr.
-------------------------------
Robert J. Hoffman, Jr.
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, THE STATEMENTS OF INCOME, AND THE STATEMENTS OF CASH FLOWS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 15,395
<SECURITIES> 0
<RECEIVABLES> 22,555
<ALLOWANCES> 1,271
<INVENTORY> 0
<CURRENT-ASSETS> 30,177
<PP&E> 13,482
<DEPRECIATION> 10,408
<TOTAL-ASSETS> 46,652
<CURRENT-LIABILITIES> 19,331
<BONDS> 0
0
19,882
<COMMON> 166
<OTHER-SE> 6,195
<TOTAL-LIABILITY-AND-EQUITY> 46,652
<SALES> 0
<TOTAL-REVENUES> 47,075
<CGS> 0
<TOTAL-COSTS> 27,073
<OTHER-EXPENSES> 18,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (569)
<INCOME-PRETAX> 1,822
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,822
<EPS-BASIC> .09
<EPS-DILUTED> .09
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