-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mc4j+kNY4NR133mcoOgsaxHfltlQTdaFtXzCTberBFa/bIo088Luq2rjkPUHYPOC XEJ2q6quoKUDjU8x1ePCkA== 0000912057-96-030284.txt : 19961231 0000912057-96-030284.hdr.sgml : 19961231 ACCESSION NUMBER: 0000912057-96-030284 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961227 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IN HOME HEALTH INC /MN/ CENTRAL INDEX KEY: 0000818645 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 411458213 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17490 FILM NUMBER: 96686757 BUSINESS ADDRESS: STREET 1: 601 LAKESHORE PKWY STE 500 STREET 2: CARLSON CENTER CITY: MINNETONKA STATE: MN ZIP: 55343-3837 BUSINESS PHONE: 6124497500 MAIL ADDRESS: STREET 1: 601 LAKESHORE PKWY STREET 2: STE 500 CITY: MINNETONKA STATE: MN ZIP: 55305 FORMER COMPANY: FORMER CONFORMED NAME: IN HOME HEALTH INC DATE OF NAME CHANGE: 19880803 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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 SEPTEMBER 30, 1996 COMMISSION FILE NUMBER 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) CARLSON CENTER, SUITE 500 601 CARLSON PARKWAY MINNETONKA, MINNESOTA 55305-5214 (Address of principal executive offices) (Zip Code) 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 check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ----- Based on the closing sale price of $1.9375 on the NASDAQ National Market System, as of December 2, 1996 the aggregate market value of the registrant's common stock held by nonaffiliates was $18,440,013. As of December 2, 1996 the number of shares outstanding of the registrant's common stock, $.01 par value was 16,295,897 shares. Documents Incorporated by Reference: The Company's Proxy Statement for its Annual Meeting of Shareholders to be held March 6, 1997, (the "1997 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. TABLE OF CONTENTS Page(s) PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 3-8 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 8 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . 8 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . . 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters . . . . . . . . . . . . 9 Item 6. Selected Financial Data. . . . . . . . . . . . . . . 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . 10-13 Item 8. Financial Statements and Supplementary Data. . . . . 14-29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . 14 PART III Item 10. Directors and Executive Officers . . . . . . . . . . 30 Item 11. Executive Compensation . . . . . . . . . . . . . . . 30 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . 30 Item 13. Certain Relationships and Related Transactions . . . 30 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . 30-31 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2 PART I ITEM 1. BUSINESS In Home Health, Inc. (the "Company") specializes in providing comprehensive health care services to clients of all ages in their homes. The Company's services include nursing, infusion therapy, hospice, rehabilitation, personal care and homemaking. The Company currently provides services from 43 offices and eleven pharmacies in 20 geographic markets located in 14 states under the trade names "In Home Health" or "Home Health Plus". The Company was incorporated in Minnesota in 1983 and is the successor to the business of a non-profit corporation which provided home health services in Minneapolis-St. Paul beginning in 1977. The Company began expansion into new markets in 1984 with the opening of an office in St. Louis. All expansion into new geographic markets subsequent to St. Louis has been through acquisitions. On October 24, 1995 the Company consummated transactions with Manor Healthcare Corp. ("Manor Healthcare"), a wholly owned subsidiary of Manor Care, Inc., whereby Manor Healthcare acquired 64% of the voting power of the Company's voting capital stock and the Company received net cash proceeds of approximately $18 million. The agreement with Manor Healthcare contemplates that the Company will continue to operate in the lines of business in which it currently engages. INDUSTRY BACKGROUND Home health care is one of the fastest growing sectors of the healthcare industry. One of the major factors of this rapid growth is the ability of home health care to assist in containing the rising costs of health care. Consumers of all types, including governmental bodies, insurance companies and private payors are realizing the cost benefit of health care provided in the home versus the high cost of institutional health care. This realization combined with the aging population, the preference of receiving care in the comfort of the home and the advances in medical technology allowing increased treatments to be provided in the home are all attributing to the continued growth of the home health care industry. PRODUCTS AND SERVICES The Company offers its clients a broad range of professional and support services to meet medical and personal needs at home. All home health services are provided under a plan of care and orders from the client's physician. Services are available on a 24-hour a day basis every day of the year. Office hours are from 7 a.m. to 6 p.m. Monday through Friday, although personnel are available to respond to emergencies and fulfill service requests at all times. In fiscal 1996, approximately 49% of the Company's revenue was derived from paraprofessional services provided by home health aides and homemaker/companions, 29% was derived from medical/surgical nursing, 12% was attributable to rehabilitation services, 4% from infusion pharmacy products, 2% from critical care nursing, 2% from hospice services and 2% from medical supplies. The Company receives payment for its services from various sources. The following summarizes the Company's revenue by payor source:
SEPTEMBER 30 ---------------------------------- 1996 1995 1994 ---- ---- ---- Medicare, cost reimbursement 70% 76% 74% Insurance and County Governments 14% 12% 14% Private payors 14% 12% 12% Medicare Hospice Benefit, per diem based 2% - - ---- ---- ---- 100% 100% 100%
The Company's goal is to reduce the cost reimbursement Medicare program revenue percentage by focusing on increasing the revenue from other potentially more profitable payor sources. 3 The Company's services are provided by a variety of personnel: Critical Care Registered Nurses provide specialized nursing such as pain management, respiratory care and infusion therapy. Registered Nurses provide a broad range of nursing care including skilled observation and assessment, teaching and technical procedures. Licensed Practical/Vocational Nurses perform many technical nursing procedures, such as injections and dressing changes. Pharmacists prepare and dispense drug and nutritional therapies by physician order and monitor the client's treatment. Home Health Aides provide personal care such as bathing, assistance with walking, and other procedures that do not require professional nursing expertise. Homemakers/Companions assist with meal preparation and housekeeping, and provide companionship that can help maintain independent living. Physical Therapists assist clients to restore strength and range of joint motion for improved function; and retrain clients in all areas of ambulation and mobility. Occupational Therapists assist clients to become independent in activities of daily living, such as feeding, dressing, hygiene, and social activities. Speech Pathologists retrain clients to deal with speech, swallowing, language or hearing impediments to improve communication abilities. Social Workers assist clients and their families to deal with financial, personal and social concerns resulting from health problems. Spiritual Care Counselors coordinate the spiritual needs of clients and families and provide spiritual services in the home or inpatient facility as needed. Nutritionists assist with dietary modifications and therapeutic diets for the client. OPERATING DIVISIONS The Company has 43 office locations consisting of 30 branches and twelve satellites and one private duty site. Each of the Company's branches has two divisions, a Visit Division and an Extended Hours Division. In addition, 25 branches have a hospice division. The Company's satellite locations provide Visit Division services only. The Visit Division provides clients with short- term care, usually up to two hours per visit. The Extended Hours Division provides clients with care up to 24 hours per day. Hospice provides palliative care through an interdisciplinary team to the terminally ill client and the client's family. Hospice services are available to patients at home, in skilled nursing and assisted living facilities and in the hospital. The Visit Division charges by the visit, the Extended Hours Division charges by the hour and the Hospice Division charges by the day. In October 1996, the Company acquired a company in Baltimore which provides private duty services in Maryland. Each division operates with a registered nurse manager and a staff of professionals, including one or more home care coordinators who are registered nurses. The client is assigned to a registered nurse or therapist for case management. The home care coordinator establishes a plan of care for each client with the client's physician, supervises the services received by the client, and assesses the client's response to and need for continued care. Rehabilitation, nursing and other personnel provide services according to the physician's plan of care. As an expansion of the Visit Division services, the Company provides pharmaceutical drugs, fluids and supplies through its infusion pharmacies. The Company operates eleven infusion pharmacies which operate with one or more full time pharmacists who collaborate with the client's physician, nurse and other health care providers. 4 The Company's pharmacists prepare and dispense drug and nutritional therapies by physician order and monitor the client's response to treatment. The pharmacist is available to the client's physician and the Company's nurses 24 hours a day, 7 days a week, to answer questions regarding drug actions and interactions, dosage requirements and interpretation of laboratory data. The pharmacist and nurse may jointly visit clients in their home to evaluate their response to treatment. The pharmacist is responsible for complying with State and Federal regulations regarding the operation of an infusion pharmacy. Pharmacy quality assurance procedures are followed to assure all therapies are appropriate and that Company standards are being followed. QUALITY ASSURANCE In addition to the basic requirements necessary for licensure and certification, the Company has implemented several practices to help assure high quality home care service. Clients are sent evaluation surveys bi-monthly to detect and correct weaknesses. Survey results are reviewed quarterly, along with a sampling of client charts, by a committee of physicians, nurses and therapists. This committee determines if the medical needs were identified and addressed in the plan of care. Each branch has an advisory board composed of consumers and business and health professionals that meets at least annually to review programs and developments and to make recommendations to the management team. The Company has a Code of Ethics and Client Bill of Rights that are provided to all employees and clients. MARKETING Home health providers are usually referred to potential clients by other health care professionals. The Company seeks to build strong relationships with these professionals. The Company has identified many potential referral sources for home health services. These referral sources include physicians, hospitals, nursing homes, managed care organizations, community organizations, and other home care agencies. Word of mouth is also responsible for a significant number of home care referrals. One of the Company's goals is to broaden the referral base among managed care organizations, hospitals, nursing homes, physicians and health insurance payors by establishing and maintaining strong working relationships with them. In each geographic area in which the Company operates, customer relations managers are responsible for establishing and maintaining relationships with referral sources. They contact physicians, hospitals, nursing homes, managed care organizations and other health care providers to explain the services provided by the Company. Other health care professionals within the Company, such as pharmacists or nurse specialists, may accompany the customer relations manager to offer clinical or technical expertise. The customer relations managers are backed by a professional health care liaison team consisting of home care coordinators that are primarily registered nurses. The team takes referrals, assesses clients and identifies their needs, emphasizes the benefits of the Company's services, coordinates care and communicates with the referral source. The Director of Customer Relations in each market is responsible for making contractual arrangements with hospitals, HMOs, governments, clients and large physician groups. GEOGRAPHIC EXPANSION There were no acquisitions in fiscal 1996 or 1995. The Company entered three new geographic markets (Greensboro, NC; Toledo, OH and San Antonio, TX) and opened one office in an existing market in fiscal 1994. Greensboro was an expansion utilizing a Certificate of Need acquired in 1993. The other two markets were added through acquisitions. In October 1996, the Company acquired a company in Baltimore which provides private duty services in Maryland. These acquisitions all met the Company's goals of entering the largest U.S. metropolitan markets and brings the number of geographic markets in which the Company operates to 20. COMPETITION The home health care business has become highly competitive. There are three different types of providers involved in home health services: INSTITUTIONS: Hospitals and public health agencies typically provide only short term, intermittent care. Some larger institutions have entered into the extended hours, hospice and home infusion markets. NATIONAL SPECIALIZED HOME CARE PROVIDERS: These companies typically provide specialized care; for example, hospice, AIDS or infusion therapy, in multiple geographic markets. In the area of infusion therapy there are many significant competitors, although one provider is estimated to serve 40% of the home infusion therapy market. 5 OTHER INDEPENDENT HOME CARE COMPANIES: These are generally locally owned and specialize in home care. Some of these organizations provide only homemaker and chore-person services, and others provide a broad range of home care services. The Company believes that the primary competitive factors are the price of the services and quality considerations such as responsiveness, the technical ability of the professional staff and the ability to provide comprehensive services. Many of the Company's competitors are large and established organizations with significantly greater resources than the Company. Large hospital systems may enjoy a particular competitive advantage due to their ready access to a large client base. REGULATION As a provider of health care services, the Company is subject to laws and regulations administered by the various states. As a result of their certification in the Medicare program, branches are subject to certain federal laws and regulations. The Company's provision of pharmaceuticals and other supplies for home infusion therapy subjects the Company to additional regulation, such as the need for licensing as a pharmacy and the need to comply with various federal and state laws and regulations governing pharmacies and the handling of pharmaceuticals. The Company has all necessary licenses and permits for its current operations. Providers of home health services may be subject to increasing regulation in the future. Compliance with laws and regulations could increase the cost and time necessary to allow the Company to operate successfully and may affect the Company in other respects not presently foreseeable. In order to receive Medicare reimbursement, the Company must satisfy conditions for participation established by the United States Department of Health and Human Services relating to standards of medical care. Loss of certification in the Medicare program would result in the loss of a significant portion of the Company's revenues. Four of the Company's branches are participating in a test program related to proposed legislation to amend the current cost reimbursement Medicare program. The proposed legislation which establishes a prospective pay system provides set fees for services. This program would allow companies to potentially profit from Medicare provided services. The prospective pay system is still in the formative stages and could have a significant impact on the profitability of Medicare related revenues. INSURANCE General and professional liability insurance are maintained by the Company which includes coverage up to $65,000,000 per occurrence and $131,000,000 per year. There can be no assurance that the Company will not be subject to claims in excess of its insurance coverage or that such insurance will continue to be available. To date, the Company has had no professional liability losses. SERVICE MARKS AND TRADEMARKS The Company operates under the names "In Home Health" and "Home Health Plus", which are registered service marks. The Company believes that because its business derives principally from referrals by other health care providers, it is not materially dependent on any trademarks or service marks. EMPLOYEES On September 30, 1996, the Company employed 1,150 persons on a full- time basis and approximately 2,600 persons on a part-time basis. Substantially all of the part-time employees were in direct health care. None of the Company's employees are represented by unions. 6 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and members of the Board of Directors for the Company are as follows: NAME AGE POSITION(S) HELD ---- --- ---------------- Mark L. Gildea (1) 44 Chief Executive Officer and Director Thomas R. Gross 43 Acting Chief Financial Officer and Vice President - Controller Jeffrey M. Jasnoff 36 Vice President - Human Resources James J. Lynn 54 Director Joseph R. Buckley 49 Director (1) (2) (3) James H. Rempe 66 Director (1) (2) (3) Donald C. Tomasso 51 Director (1) (3) (1) Messrs. Gildea, Buckley, Rempe and Tomasso were elected as members of the Board of Directors effective October 24, 1995. (2) Member of the Audit Committee. (3) Member of the Compensation Committee. Mr. Gildea has served as Chief Executive Officer of the Company since October 24, 1995. Previously he served as President, Alternate Site Services Division of Manor Healthcare from December 1994 through February 1996 and as Vice President of Managed Care of Manor Healthcare from December 1993 to December 1994. Prior to joining Manor Healthcare, he was employed as Executive Vice President of Option Care, Inc. from October, 1992 to December, 1993. He was previously employed by Caremark, Inc. for over 10 years where he held various positions including Area Vice President. Mr. Gross has served as Vice President - Controller of the Company since September 1993 and has been Acting Chief Financial Officer since October 1996. Previously he was employed by Honeywell Inc. for fifteen years in various management, analyst and accounting positions in its Space and Aviation, Home and Building Control, Research and Development and Corporate Financial Business Units. Mr. Jasnoff has served as Vice President of Human Resources of the Company since October 24, 1995. Previously he served as the Director of Human Resources for the Medbridge Division of Manor Care. Prior to joining Manor Care he was the Director of Human Resources for Genesis Health Ventures in Pennsylvania and was also employed by Subaru of America where he held various national human resource management positions. Mr. Lynn has been a director of the Company since 1987 and has served as Director of Management Development of the Company since October 1995. He had served as Vice President - Marketing and Human Resources of the Company on a nominal basis from 1986 to 1990. Since 1981 Mr. Lynn has been a principal of Lynn & Associates, a management consulting company of which Mr. Lynn is the founder and President. Mr. Buckley has served as Executive Vice President of Manor Healthcare and Manor Care, Inc. since March 1996, Director of Vitalink since July 1996, and was President, Assisted Living Division of Manor Healthcare from February 1995 to March 1996, and Senior Vice President - Information Resources and Development of Manor Care, Inc. from June 1990 to February 1995. He previously served as Vice President - Information Resources of Manor Care, Inc. from July 1989 to June 1990 and as Vice President - Real Estate of Manor Care, Inc. from September 1983 to July 1989. 7 Mr. Rempe has served as Senior Vice President, General Counsel and Secretary of Manor Care, Inc. since August 1981. He has served in the same capacity with Manor Healthcare since December 1980 and with Choice Hotels International, Inc. from February 1981 until November 1996. He is a Director of Vitalink Pharmacy Services, Inc. and has served as its Secretary since January 1983. Mr. Tomasso has served as President of Manor Healthcare since September 1996, and previously as President, Long Term Care Division, of Manor Healthcare since February 1995, as President and Chief Operating Officer of Manor Healthcare from May 1991 to February 1995 and as a Director of Manor Healthcare since June 1991. He has been Chairman and Chief Executive Officer of Vitalink Pharmacy Services, Inc. since February 1995, a Director since 1991 and was its Vice Chairman from September 1991 to February 1995. From September 1990 through March 1991 he was President of AMF Bowling Centers, Inc. Mr. Tomasso was previously employed by Marriott Corporation for more than five years, including as Executive Vice President/General Manager of its Roy Rogers Division. ITEM 2. PROPERTIES The Company's executive offices are located in Minnetonka, Minnesota, a suburb of Minneapolis, in approximately 27,900 square feet of leased space. The Company's 43 office locations each lease approximately 2,000 to 7,000 square feet of office space in their respective locations. The Company's leased properties are suitable and adequate for its current needs and additional space is expected to be available as needed at competitive rates. ITEM 3. LEGAL PROCEEDINGS On October 28 and November 14, 1994 the Company filed two suits in Federal District Court for the District of Minnesota against the U.S. Department of Health and Human Services (HHS) and several regional members of the Blue Cross Association which HHS used to administer the Medicare program. One of these suits concerns the Company's reimbursement claim for personnel costs relating to the Company's community liaison positions, which Medicare auditors contend are nonreimbursable sales costs. In June 1996, the HHS Provider Reimbursement Review Board (PRRB) ruled that approximately 53% of the approximately $1.7 million in costs at issue in the case were reimbursable. This ruling was reversed in August 1996 by the Health Care Financing Administration (HCFA) and the case in U.S. District Court is now an appeal of that administrative action. The second suit concerns reimbursement of certain costs of physical therapists employed by the Company, which Medicare auditors contend are subject to certain ceilings. In March 1996 the PRRB ruled that all of the disputed costs in that case were reimbursable to the Company, and in May 1996 the ruling was reversed by HCFA. The District Court case is now an appeal of that administrative action. The Company has several cases pending before the PRRB concerning reimbursement from Medicare for community liaison employee costs in other years, the costs of physical therapists employed by the Company, the allocation of administrative and general costs to branch operations and certain corporate expenses. See Note 5 of the financial statements for discussion of the Medicare cost reimbursement disputes. The Company is also a party to various other claims and legal proceedings which management believes are in the normal course of business and will not involve any material loss. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1996. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The Company's Common Stock is registered under Section 12(g) of the Securities Exchange Act of 1934 and is traded on the NASDAQ National Market System under the symbol "IHHI". As of December 2, 1996 there were approximately 1,329 record holders of the common stock. The closing sale price for the common stock as reported by NASDAQ for each quarter of the two most recent fiscal years were:
Year Ended September 30 ------------------------------------------------------- 1996 1995 -------------------- --------------------- High Low High Low ----- ------ ------ ------- First Quarter 3 1/8 2 1/16 2 5/8 1 13/16 Second Quarter 2 3/4 2 3/16 2 9/16 1 3/4 Third Quarter 2 1/2 1 7/8 2 15/16 2 3/16 Fourth Quarter 2 5/16 1 3/4 3 3/32 2 9/16
These prices do not include retail markups, markdowns or commissions and may not represent actual transactions. ITEM 6. SELECTED FINANCIAL DATA (Dollars and Shares in Thousands, except per share amounts) STATEMENT OF OPERATIONS DATA
Year Ended September 30 ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 Revenue $ 125,086 $ 129,816 $ 120,485 $ 103,761 $ 75,072 Income (loss) from operations (1,814) 3,774 1,353 2,432 3,840 Income (loss) before income taxes (1,165) 3,007 684 1,952 3,716 Net income (loss) (982) 1,621 247 1,015 2,303 Income (loss) applicable to common stock (3,501) 1,621 247 1,015 2,303 Income (loss) per common and common equivalent shares (.21) .10 .02 .06 .15 Weighted average common and common equivalent shares outstanding - primary 16,465 16,304 16,013 16,056 15,780 BALANCE SHEET DATA September 30 --------------------------------------------------------------------- 1996 1995 1994 1993 1992 Current assets $ 44,053 $ 21,394 $ 23,926 $ 28,975 $ 25,955 Current liabilities 33,170 21,289 20,707 19,457 9,072 Total assets 82,683 57,559 56,726 54,379 38,761 Long-term debt 1,080 2,443 3,304 4,740 3,552 Redeemable convertible preferred stock 18,766 - - - - Shareholders' equity 26,758 30,509 28,482 27,459 24,976
9 ITEM 7. 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 operations and the percentage changes from year to year.
Percent of Revenues Percent Change - ---------------------------------------------------------------------------------------------------- 1995 1994 1996 1995 1994 to 1996 to 1995 ---- ---- ---- ------- ------- - ---------------------------------------------------------------------------------------------------- Revenue 100% 100% 100% (4)% 8% Direct Costs of Revenue 54 57 58 (9)% 7% --- --- --- Gross Profit 46 43 42 4% 9% General, Administrative and Selling Expenses 47 40 41 15% 5% --- --- --- Income (Loss) From Operations (1)% 3% 1% (148)% 179% - ----------------------------------------------------------------------------------------------------
Revenue for 1996 decreased 4%. Revenue decreased 12% as a result of reduced volume in the Visit division. This is offset by a 4% increase in revenue as a result of pricing and mix changes and a 4% increase related to increased volume from Extended Hours, Infusion and Hospice services. Revenue for 1995 increased 8% over 1994 as a result of increased services provided in existing markets (11%) and acquisitions obtained during 1994 (2%), offset by pricing and mix changes (7%). In 1994, the Company entered the Toledo, Ohio and San Antonio, Texas markets through acquisitions and expanded into the Greensboro, North Carolina market. There were no acquisitions or expansions into new markets during 1996 or 1995. The breakdown by division of the Company's total revenue is as follows:
- ------------------------------------------------------------------------------------- Year Ended September 30 1996 1995 1994 ---- ---- ---- - ------------------------------------------------------------------------------------- Extended Hours Division 21% 19% 18% -- -- -- -- -- -- Visit Division - Service 72% 78% 78% Infusion Product 4% 3% 4% -- -- -- 76% 81% 82% -- -- -- -- -- -- Hospice Division 3% 0% 0% -- -- -- -- -- -- - -------------------------------------------------------------------------------------
Extended Hours Division revenue increased 7% and 11% in 1996 and 1995, respectively. Hospice revenue increased from $270,000 in 1995 to $3,117,000 in 1996. The increase is a result of thirteen additional markets providing the hospice service in 1996. Overall Visit Division revenue declined 9% in 1996 as a result of service revenue decreasing 11%, offset by infusion product revenue increasing 33%. Visit Division revenue increased 7% in 1995. The increases in extended hours, infusion product and hospice revenue are due to the Company's focus on increasing non-Medicare business lines. These increases were offset by reduced volume in the Visit Division. Direct costs of revenue, as a percentage of sales, were 54%, 57% and 58% in 1996, 1995 and 1994, respectively. The change in 1996 was due to an increase in general, administrative and selling expenses which results in increased Visit Division revenue. The change in 1995 was principally a result of the decrease in additions to the Medicare reserve as a percent of revenue. Direct costs, as a percentage of revenue before Medicare reserves, were 53%, 56% and 56% in 1996, 1995 and 1994, respectively. 10 General, administrative and selling expenses as a percent of revenue increased to 47% in 1996 compared to 40% in 1995 and 41% in 1994. The increase is primarily due to the addition of certain management personnel necessary to achieve strategic plans, increased costs associated with the expansion of the Hospice Division, fourth quarter charges to record a settlement totaling $1,600,000 with the Company's former President and former Chief Financial Officer and other various relocations and severance agreements during the year. Net interest income for 1996 was $649,000 compared to net interest expense of $767,000 in 1995 and $669,000 in 1994. Interest income is a result of earnings on the cash proceeds from the investment by Manor Healthcare on October 24, 1995 (see Note 10 to the accompanying financial statements). Income tax benefit was 16% of loss before tax in 1996. Income taxes were 46% and 64% of pretax income for 1995 and 1994, respectively. The fluctuation in effective tax rates is due to changes in the proportion of non- deductible expenses to pretax income or loss. Income (loss) applicable to common shareholders was ($3,501,000), $1,621,000 and $247,000 for the years 1996, 1995 and 1994, respectively. The primary reasons for the change from 1995 to 1996 are dividend and accretion expenses on preferred stock issued to Manor Healthcare (see Note 6 to the financial statements) of $2,519,000, settlements totaling $1,600,000 to the Company's former President and former Chief Financial Officer, other relocation and severance expenses and volume declines within the Visit Division. The principal reason for the change in profitability from 1994 to 1995 was the larger addition to the Medicare reserves in 1994. Additions to the Medicare reserves totaled $2,067,000 in 1996, $1,435,000 in 1995 and $3,861,000 in 1994. LIQUIDITY & CAPITAL RESOURCES During fiscal 1996 the Company's cash and cash equivalents increased $14,952,000 to $18,617,000 at September 30, 1996. The increase in cash was principally a result of the issuance of preferred stock and common stock warrants to Manor Healthcare (see Note 10 to the financial statements). Approximately 72%, 76% and 74% of revenue for 1996, 1995 and 1994, respectively, was derived from services provided to Medicare beneficiaries. Primarily all of the payments for these services are 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 probable (as defined in Statement of Financial Accounting Standards No. 5) of recovery under the applicable Medicare statutes and regulations and reports its accounts receivable balances at net realizable value. 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 seek to 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 at the time services are rendered. This process considers the nature and amounts of the disputed costs (as described in more detail below) along with several authoritative, legal and historical sources of information including: - - Applicable statutes and regulations, such as those contained in the Title XVIII of the Social Security Act, particularly Sec. 1861 (V) (1) (A) "Reasonable Cost" and 42 C.F.R. 413.9 "Cost Related to Patient Care", Health Care Financing Administration (HCFA) Publication 11 "Home Health Agency Manual", applicable sections of HCFA Publication 15-1 "Provider Reimbursement Manual" and intermediary letters and program memoranda issued by HCFA. - - Administrative decisions and rulings on related issues by the Provider Reimbursement Review Board and Administrative Law Judges. - - Judicial decisions from Federal District Courts on relevant cases. - - Consultation with independent industry experts such as Medicare Cost Reimbursement Consultants. - - Opinions of outside legal counsel who specialize in dealing with Medicare reimbursement issues. - - Historical knowledge gained internally from past Medicare audits. - - Meetings and other communication with Medicare Intermediaries, Blue Cross Association and HCFA. This detailed analysis process is updated on a quarterly basis, taking into account any new information (such as decisions relating to the Company's disputed costs, and administrative and judicial decisions relating to similar issues) that may affect the determination of the net realizable value of accounts receivable or of liabilities to repay amounts received for disputed costs. Results of this detailed analysis process are extrapolated to other unaudited cost reporting years for all of the Company's operations, including 11 operations that have not yet been audited by Medicare, to estimate 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 probable of recovery. This reserve is reported as a reduction of accounts receivable for disputed costs for which the Company may not ultimately receive payment. The Company has also reported as a liability disputed costs for which it has received payment, which may have to be returned to Medicare. Accordingly, the Company believes that its accounts receivable are stated at net realizable value, and that it has recorded all probable liabilities for repayment of disputed costs. 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 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, 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 at the time services were rendered and revenue recorded. These positions taken by Medicare auditors 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. In those situations where the Company decides to not challenge an NPR finding, any revenue relating to these costs, as well as the extrapolated impact, if any, on other open costs 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 as described above. The Company has received NPRs challenging $17.8 million of costs as of September 30, 1996. There was an additional $16.0 million of costs at September 30, 1996 related to open cost reporting years that are similar to the costs that have been challenged on NPRs. Together these amounts ($33.8 million at September 30, 1996) comprise the total amount the Company considers to be disputed costs. The major cost category in dispute, accounting for approximately 57% of total disputed costs, is the treatment of certain personnel costs relating to the Company's community liaison positions, which Medicare auditors allege are unreimbursable sales costs; other costs in dispute relate to the cost of physical therapists employed by the Company, the method of allocation of administrative and general costs to branch operations and certain corporate expenses. These disputed costs (including the extrapolated impact) of $33.8 million at September 30, 1996 arose in the fiscal years ended September 30, 1996 ($6.6 million), 1995 ($6.0 million), 1994 ($8.2 million), 1993 ($6.5 million), 1992 ($4.4 million), and 1991 ($2.1 million). The amount of disputed costs has increased over the last several years as the Company's operations have grown, Medicare auditors have taken positions to disallow certain costs in certain cost reports as non-reimbursable, and the Company has extrapolated that amount of costs that may be challenged to other unaudited 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' auditors and the Health Care Financing Administration, and is vigorously pursuing these matters through administrative and legal channels. The disputed cost analysis process related to the community liaison and physical therapist positions (which comprise 66% of disputed costs) encompassed all of the authoritative, legal and historical sources discussed above. Based on this review the Company believes that the majority of the community liaison costs are probable of recovery, and that a relatively small portion of these costs are not probable of recovery. The Company has established, and is continuing to add to, a reserve for the portion of these costs not considered probable of recovery. Since the reserves have been established, the Company has continued to review whether the level is appropriate. Nothing has occurred in the legal or administrative process which the Company is pursuing concerning the disputes which has caused the Company to conclude that the reserve should be changed. Therefore, no change has been made in the rate of reserve used to record additional reserves on community liaison related costs incurred on an ongoing basis. On the physical therapist issue, the Company believes Medicare has no basis in the regulations for its disallowance of certain costs related to physical therapists employed by the Company, and therefore the Company has not established a reserve for these disputed costs. Legal opinions have been received on both the community liaison and physical therapist issues from an attorney specializing in Medicare reimbursement issues indicating that it is probable that the Company will prevail in both issues. The Company received in March a favorable ruling on the physical therapist issue by the HHS Provider Reimbursement Review Board (PRRB). In May 1996, this ruling was reversed by the Health Care Financing Administration. The Company has appealed the decision to the U.S. Federal District Court in Minneapolis. Because the PRRB previously ruled in the Company's favor, the Company believes it has a strong basis for a favorable outcome on such an appeal. In June 1996, the PRRB ruled that approximately 53% of the $1,700,000 of community liaison costs subject to review as part of this hearing were reimbursable to the Company. In August 1996, the Health Care Financing Administration reversed this ruling. The Company had previously recorded a reserve equal to 16% of all revenue related to the $1,700,000 of costs as well as other personnel costs relating to the Company's community liaison position. After careful assessment of the PRRB and Health Care Financing Administrator decisions and the facts and documentation supporting the nature of 12 the personnel costs at issue, the Company continues to believe that the majority of the community liaison costs are recoverable under the Medicare program. The Company has concluded that the reserve on this issue in total remains appropriate and have appealed the decision to the U.S. Federal District Court in Minneapolis. The Company, based on its analysis process, believes that recovery of $7,239,000 of total disputed costs (including the extrapolated impact) may not be probable and, accordingly, has established reserves which totaled that amount as of September 30, 1996. The net amount of disputed costs which the Company believes is probable of recovery 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, 1996 were $33,244,000, including the receivables (net of reserves) for disputed costs of $25,014,000. As of September 30, 1996 the Company had received $13,568,000 in payments from Medicare for disputed costs. Medicare may seek repayment for such amounts and accordingly, the potential liability for repayments is recorded as Accrued Liabilities - Third Party. The Company believes it is probable that it has not incurred any other liability to repay disputed costs. 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 $22,018,000 as of September 30, 1996 have been classified as a non-current asset. Operating activities provided $2,747,000, $5,135,000 and $982,000 in cash during 1996, 1995 and 1994, respectively. Total accounts receivable (current and long-term) increased 31% during 1996, decreased 7% during 1995 and increased 18% during 1994. The increase in 1996 was due primarily to the increase in disputed costs. The decrease during 1995 was due to improved collection efforts and timing of payments from Medicare. The increase in 1994 was due to the Medicare disputes noted above. Investing activities used $1,695,000, $772,000 and $1,519,000 in cash during 1996, 1995 and 1994, respectively. In connection with expansion of the Company's operations, the Company acquired property and purchased software, which was funded by $1,494,000 in cash and $148,000 of capitalized leases in 1996, $785,000 in cash and $1,256,000 of capitalized leases in 1995 and $995,000 in cash and $753,000 of capitalized leases in 1994. The Company acquired two companies during 1994 with $341,000 in cash, issuance of 10,000 shares of common stock and the assumption of $264,000 in notes payable. Financing activities generated $18,250,000 in cash during 1996 as a result of issuance of preferred stock and warrants (as mentioned in Note 10 to the financial statements) and issuance of common stock, offset by payments of preferred dividends of $2,253,000 and repayments of long-term debt of $2,097,000. Financing activities used $1,609,000 and $1,633,000 in cash during 1995 and 1994, respectively, principally for repayment of long-term debt. The Company has letter of credit facilities for $5,435,000. The letters of credit are collateralized by secured investments and will expire on December 12, 1996. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page(s) Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 15-16 Consolidated Statements of Operations . . . . . . . . . . . . 17 Consolidated Statements of Shareholders' Equity. . . . . . . . 18 Consolidated Statements of Cash Flows . . . . . . . . . . . . 19 Notes to Consolidated Financial Statements . . . . . . . . . . 20-28 Independent Auditors' Report . . . . . . . . . . . . . . . . . 29 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 14 IN HOME HEALTH, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995 (DOLLARS AND SHARES IN THOUSANDS) ASSETS
1996 1995 ---- ---- Current Assets: Cash and cash equivalents $ 18,617 $ 3,665 Accounts receivable, net of allowances of $802 and $867 in 1996 and 1995, respectively 19,418 14,130 Prepaid income tax 1,037 - Deferred income tax 3,389 2,129 Prepaid expenses and other current assets 1,592 1,470 ------ ------ Total current assets 44,053 21,394 ------ ------ Property: Furniture and equipment 9,954 9,997 Computer equipment and software 8,561 7,480 Leasehold improvements 823 807 ------ ------ Total 19,338 18,284 Accumulated depreciation (9,437) (7,163) ------ ------ Property - net 9,901 11,121 ------ ------ Other Assets: Accounts receivable 22,018 17,592 Goodwill, net 5,590 5,748 Other assets 1,121 1,704 ------ ------ Total other assets 28,729 25,044 ------ ------ Total Assets $ 82,683 $ 57,559 ------ ------ ------ ------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 15 IN HOME HEATH, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995 (DOLLARS AND SHARES IN THOUSANDS) LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995 ---- ---- Current Liabilities: Current maturities of long-term debt $ 1,455 $ 2,041 Accounts payable 3,662 4,468 Accounts payable - related party 1,006 - Accrued liabilities: Third party 13,568 4,480 Compensation 6,859 4,142 Insurance 6,133 5,127 Income tax - 240 Other 487 791 ------ ------ Total current liabilities 33,170 21,289 ------ ------ Long-Term Debt 1,080 2,443 Deferred Revenue 820 1,242 Deferred Rent Payable 267 351 Deferred Income Tax 1,822 1,725 Commitments and Contingencies - - Redeemable Convertible Preferred Stock - $1.00 par value, $20,000 redemption value, authorized 200 shares; issued and outstanding 1996 - 200 shares; 1995 - none 18,766 - Shareholders' Equity: Preferred stock - authorized 800 shares - - Common stock - $.01 par value: authorized - 40,000 shares; issued and outstanding - 1996 - 16,541 shares 1995 - 16,277 shares 165 163 Additional paid-in capital 23,978 24,230 Retained earnings 2,615 6,116 ------ ------ Total shareholders' equity 26,758 30,509 ------ ------ Total Liabilities and Shareholders' Equity $ 82,683 $ 57,559 ------ ------ ------ ------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 16 IN HOME HEALTH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994 ---- ---- ---- Revenue (net of Medicare reserves of $2,067, $1,435 and $3,861 in 1996, 1995 and 1994, respectively) $ 125,086 $ 129,816 $ 120,485 -------- -------- -------- Operating Expenses: Direct costs of revenue (primarily payroll related costs) 67,108 74,082 69,411 General, administrative and selling expenses 59,792 51,960 49,721 -------- -------- -------- Total operating expenses 126,900 126,042 119,132 -------- -------- -------- Income (loss) from operations (1,814) 3,774 1,353 Interest: Interest expense (450) (790) (698) Interest income 1,099 23 29 -------- -------- -------- Net interest income (expense) 649 (767) (669) Income (loss) before income taxes (1,165) 3,007 684 Income tax expense (benefit) (183) 1,386 437 -------- -------- -------- Net income (loss) $ (982) $ 1,621 $ 247 -------- -------- -------- -------- -------- -------- Income (loss) applicable to common stock $ (3,501) $ 1,621 $ 247 -------- -------- -------- -------- -------- -------- Income (loss) per common and common equivalent share $ (.21) $ .10 $ .02 -------- -------- -------- -------- -------- -------- Weighted average common and common equivalent shares outstanding - primary 16,465 16,304 16,013 -------- -------- -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 17 IN HOME HEALTH, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (DOLLARS AND SHARES IN THOUSANDS)
Common Stock Additional ------------ paid-in Retained Shares Amount capital earnings ------ ------ ------- -------- 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 Common stock issued for: Employee stock plans 442 5 685 - Exchange for options (109) (1) (283) - Net income - - - 1,621 ------ ----- ------ ----- Balance - September 30, 1995 16,277 163 24,230 6,116 Common stock issued for: Employee stock plans 270 2 541 - Exchange for options (6) - (12) - Offering costs - - (2,281) - Issuance of warrants - - 1,500 - Net loss - - - (982) Preferred dividends - - - (2,253) Preferred stock accretion - - - (266) ------ ----- ------ ----- Balance - September 30, 1996 16,541 $ 165 $23,978 $2,615 ------ ----- ------ ----- ------ ----- ------ -----
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 18 IN HOME HEALTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (DOLLARS IN THOUSANDS)
1996 1995 1994 ---- ---- ---- Cash Flows From Operating Activities: Net income (loss) $ (982) $ 1,621 $ 247 Adjustments: Depreciation and amortization 3,227 3,226 3,233 Accounts receivable (9,714) (760) (5,008) Prepaid expenses and other assets (582) (833) (210) Accounts payable (806) 647 (216) Accounts payable - related party 1,006 - - Accrued liabilities 12,267 3,478 1,196 Deferred revenue (422) (390) 1,632 Deferred rent payable (84) (165) (20) Deferred income tax (1,163) (1,689) 128 ------ ------ ------ Net cash provided by operating activities 2,747 5,135 982 ------ ------ ------ Cash Flows From Investing Activities: Acquisition of property (1,494) (785) (995) Advances to officers and employees (201) 13 (135) Acquisition of businesses - - (389) ------ ------ ------ Net cash used by investing activities (1,695) (772) (1,519) ------ ------ ------ Cash Flows From Financing Activities: Payment of long-term debt (2,097) (2,015) (2,381) Issuance of preferred stock and warrants 17,719 - - Preferred dividends paid (2,253) - - Issuance of common stock 531 406 748 ------ ------ ------ Net cash provided (used) by financing activities 13,900 (1,609) (1,633) ------ ------ ------ Cash and Cash Equivalents: Net increase (decrease) 14,952 2,754 (2,170) Beginning of year 3,665 911 3,081 ------ ------ ------ End of year $ 18,617 $ 3,665 $ 911 ------ ------ ------ ------ ------ ------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 19 IN HOME HEALTH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 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, hospice, 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. FAIR VALUE OF FINANCIAL INSTRUMENTS - The book value of accounts receivable; cash and cash equivalents; accounts payable and accrued liabilities approximates fair value due to the short-term nature of these balances. USE OF ESTIMATES - The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. NOTES RECEIVABLE FROM OFFICERS - Included in prepaid expenses and other current assets are advances to officers of the Company in the amount of $342,000 and $150,000 as of September 30, 1996 and 1995, respectively. 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, 1996, 1995 and 1994 was $148,000, $1,256,000 and $753,000, respectively. GOODWILL - Costs in excess of net assets of acquired businesses have been capitalized and are being amortized over 40 years. Accumulated amortization was $737,000 and $578,000 at September 30, 1996 and 1995, 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 includes in reimbursable costs the amount of expenditures in the year they were incurred. 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 $1,186,000 and $1,799,000 as of September 30, 1996 and 1995, 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 - Deferred tax assets and liabilities are recognized based on differences between the financial statement and tax bases of assets and liabilities in accordance with SFAS No. 109 "Accounting for Income Taxes". 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 20 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. 2. INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Primary income (loss) per common and common equivalent share is computed by dividing the income (loss) applicable to common stock, as adjusted for the dividends and accretion on the preferred stock (see Note 6) by the weighted average number of shares of common stock and common stock equivalents, consisting of dilutive stock options and warrants, outstanding during the period. Income (loss) per share assuming full dilution would be substantially the same. Primary income (loss) per share for the years ended September 30, 1996, 1995 and 1994 are as follows:
1996 1995 1994 ---- ---- ---- Shares outstanding: Weighted average outstanding 16,340 16,062 15,656 Shares issuable in connection with stock options and warrants less shares purchasable from proceeds 125 242 357 ------ ------ ------ Adjusted outstanding 16,465 16,304 16,013 ------ ------ ------ ------ ------ ------ Adjusted net income (loss) applicable to common stockholders: Net income (loss) $ (982) $ 1,621 $ 247 Dividends on preferred stock (2,253) - - Preferred stock accretion (266) - - ------ ------ ------ Income (loss) applicable to common stock $(3,501) $ 1,621 $ 247 ------ ------ ------ ------ ------ ------ Income (loss) per common and common equivalent share $ (.21) $ .10 $ .02 ------ ------ ------ ------ ------ ------
3. ACQUISITIONS There were no acquisitions during the years ended September 30, 1996 and 1995. The Company acquired all of the issued and outstanding capital stock of two home health care companies during the year ended September 30, 1994. The acquisitions, accounted for as purchases for financial reporting purposes, are summarized as follows (in thousands):
- --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- CONSIDERATION: TOTAL VALUE OF GOODWILL ACQUISITION CASH CONSIDERATION RECORDED COMPANY NAME DATE COMMON STOCK PAID - --------------------------------------------------------------------------------------------------- ENS, Inc. January, 1994 $ 41 $ 69 $ 232 10 shares - --------------------------------------------------------------------------------------------------- RI Partners and RHC Partners May, 1994 $ 300 $ 300 $ 516 - - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
21 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 was $28,000. The Company incurred $95,000 of costs in 1994 in connection with the acquisitions. 4. LONG-TERM DEBT Long-term debt consists of obligations under capitalized leases with interest rates up to 13.2%, due through July 2000. Future minimum payments as of September 30, 1996 are as follows (in thousands): YEAR ENDING SEPTEMBER 30 ----------------------- 1997 $ 1,715 1998 849 1999 242 2000 44 ----- Total minimum payments 2,850 Less amounts representing interest 315 ----- Present value of future minimum payments 2,535 Less current maturities 1,455 ----- Long-term debt $ 1,080 ----- ----- Assets recorded under capital leases are included in property at cost of $7,032,000 and $9,885,000, and accumulated depreciation of $2,997,000 and $3,719,000 at September 30, 1996 and 1995, respectively. Interest paid for the years ended September 30, 1996, 1995 and 1994 was $450,000, $779,000 and $687,000, respectively. 5. MEDICARE COST REIMBURSEMENT Approximately 72%, 76% and 74% of revenue for the years ended September 30, 1996, 1995 and 1994, respectively, was derived from services provided to Medicare beneficiaries. Primarily all of the payments for these services are 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 probable (as defined in Statement of Financial Accounting Standards No. 5) of recovery under the applicable Medicare statutes and regulations and reports its accounts receivable balances at net realizable value. 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 seek to 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 at the time services are rendered. This process considers the nature and amounts of the disputed costs (as described in more detail below) along with several authoritative, legal and historical sources of information including: - Applicable statutes and regulations, such as those contained in the Title XVIII of the Social Security Act, particularly Sec. 1861 (V) (1) (A) "Reasonable Cost" and 42 C.F.R. 413.9 "Cost Related to Patient Care", Health Care Financing Administration (HCFA) Publication 11 "Home Health Agency Manual", applicable sections of HCFA Publication 15-1 "Provider Reimbursement Manual" and intermediary letters and program memoranda issued by HCFA. 22 - Administrative decisions and rulings on related issues by the Provider Reimbursement Review Board and Administrative Law Judges. - Judicial decisions from Federal District Courts on relevant cases. - Consultation with independent industry experts such as Medicare Cost Reimbursement Consultants. - Opinions of outside legal counsel who specialize in dealing with Medicare reimbursement issues. - Historical knowledge gained internally from past Medicare audits. - Meetings and other communication with Medicare Intermediaries, Blue Cross Association and HCFA. This detailed analysis process is updated on a quarterly basis, taking into account any new information (such as decisions relating to the Company's disputed costs, and administrative and judicial decisions relating to similar issues) that may affect the determination of the net realizable value of accounts receivable or of liabilities to repay amounts received for disputed costs. Results of this detailed analysis process are extrapolated to other unaudited cost reporting years for all of the Company's operations, including operations that have not yet been audited by Medicare, to estimate 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 probable of recovery. This reserve is reported as a reduction of accounts receivable for disputed costs for which the Company may not ultimately receive payment. The Company has also reported as a liability disputed costs for which it has received payment, which may have to be returned to Medicare. Accordingly, the Company believes that its accounts receivable are stated at net realizable value, and that it has recorded all probable liabilities for repayment of disputed costs. 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 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 at the time services were rendered and revenue recorded. These positions taken by Medicare auditors 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. In those situations where the Company decides to not challenge an NPR finding, any revenue relating to these costs, as well as the extrapolated impact, if any, on other open costs 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 as described above. The Company has received NPRs challenging $17.8 million of costs as of September 30, 1996. There was an additional $16.0 million of costs at September 30, 1996 related to open cost reporting years that are similar to the costs that have been challenged on NPRs. Together these amounts ($33.8 million at September 30, 1996) comprise the total amount the Company considers to be disputed costs. The major cost category in dispute, accounting for approximately 57% of total disputed costs, is the treatment of certain personnel costs relating to the Company's community liaison positions, which Medicare auditors allege are unreimbursable sales costs; other costs in dispute relate to the cost of physical therapists employed by the Company, the method of allocation of administrative and general costs to branch operations and certain corporate expenses. These disputed costs (including the extrapolated impact) of $33.8 million at September 30, 1996 arose in the fiscal years ended September 30, 1996 ($6.6 million), 1995 ($6.0 million), 1994 ($8.2 million), 1993 ($6.5 million), 1992 ($4.4 million), and 1991 ($2.1 million). The amount of disputed costs has increased over the last several years as the Company's operations have grown, Medicare auditors have taken positions to disallow certain costs in certain cost reports as non-reimbursable, and the Company has extrapolated that amount of costs that may be challenged to other unaudited 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' auditors and the Health Care Financing Administration, and is vigorously pursuing these matters through administrative and legal channels. The disputed cost analysis process related to the community liaison and physical therapist positions (which comprise 66% of disputed costs) encompassed all of the authoritative, legal and historical sources discussed above. Based on this review the Company believes that the majority of the community liaison costs are probable of recovery, and that a relatively small portion of these costs are not probable of recovery. The Company has established, and is continuing to add to, a reserve for the portion of these costs not considered probable of recovery. Since the reserves have been established, the Company has continued to review whether the level is appropriate. Nothing has occurred in the legal or administrative process which the Company is pursuing concerning the disputes which has caused the Company to conclude that the reserve should be changed. Therefore, no change has been 23 made in the rate of reserve used to record additional reserves on community liaison related costs incurred on an ongoing basis. On the physical therapist issue, the Company believes Medicare has no basis in the regulations for its disallowance of certain costs related to physical therapists employed by the Company, and therefore the Company has not established a reserve for these disputed costs. Legal opinions have been received on both the community liaison and physical therapist issues from an attorney specializing in Medicare reimbursement issues indicating that it is probable that the Company will prevail in both issues. The Company received in March a favorable ruling on the physical therapist issue by the HHS Provider Reimbursement Review Board (PRRB). In May 1996, this ruling was reversed by the Health Care Financing Administration. The Company has appealed the decision to the U.S. Federal District Court in Minneapolis. Because the PRRB previously ruled in the Company's favor, the Company believes it has a strong basis for a favorable outcome on such an appeal. In June 1996, the PRRB ruled that approximately 53% of the $1,700,000 of community liaison costs subject to review as part of this hearing were reimbursable to the Company. In August 1996, the Health Care Financing Administration reversed this ruling. The Company had previously recorded a reserve equal to 16% of all revenue related to the $1,700,000 of costs as well as other personnel costs relating to the Company's community liaison position. After careful assessment of the PRRB and Health Care Financing Administrator's decisions and the facts and documentation supporting the nature of the personnel costs at issue, the Company continues to believe that the majority of the community liaison costs are recoverable under the Medicare program. The Company has concluded that the reserve on this issue in total remains appropriate and have appealed the decision to the U.S. Federal District Court in Minneapolis. The Company, based on its analysis process, believes that recovery of $7,239,000 of total disputed costs (including the extrapolated impact) may not be probable and, accordingly, has established reserves which totaled that amount as of September 30, 1996. The net amount of disputed costs which the Company believes is probable of recovery 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, 1996 were $33,244,000, including the receivables (net of reserves) for disputed costs of $25,014,000. As of September 30, 1996 the Company had received $13,568,000 in payments from Medicare for disputed costs. Medicare may seek repayment for such amounts and accordingly, the potential liability for repayments is recorded as Accrued Liabilities - Third Party. The Company believes it is probable that it has not incurred any other liability to repay disputed costs. 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 $22,018,000 as of September 30, 1996 have been classified as a non-current asset. 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK Redeemable convertible preferred stock was issued to Manor Healthcare on October 24, 1995 (see Note 10 to the financial statements). The preferred shares may be redeemed in cash at the option of the holder or the Company on and after the fifth anniversary of their issuance. The redeemable preferred shares have voting rights on an as-if converted basis, and are initially convertible into 10 million common shares at an initial conversion price of $2.00 per share. The redeemable preferred shares bear dividends payable quarterly at 12% per annum. The redeemable preferred stock will accrete over five years from its fair value of $18,500,000 on the date of issuance to its redeemable value of $20,000,000 as of the redemption date. 7. 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 $4,237,000, $4,005,000 and $3,666,000, for the years ended September 30, 1996, 1995 and 1994, respectively. Future minimum rental payments as of September 30, 1996 for operating leases with noncancelable terms in excess of one year are as follows (in thousands): 24 YEAR ENDING SEPTEMBER 30 --------------------- 1997 $ 3,221 1998 2,280 1999 1,766 2000 920 2001 639 Thereafter 117 ----- Total minimum payments $ 8,943 ----- ----- The Company has letter of credit facilities totaling $5,435,000. The letters of credit are collateralized by secured investments and will expire on December 12, 1996. 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. 8. 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 3,800,000 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):
NUMBER OF SHARES ------------------------ AVAILABLE FOR GRANT OUTSTANDING EXERCISE PRICES --------- ----------- --------------- 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 canceled 211 (211) $ 1.03 to $5.94 ----- ----- Balance - September 30, 1994 365 1,435 $ .53 to $5.63 Additional options authorized 650 - Options granted (637) 637 $ 1.75 to $3.06 Options exercised - (314) $ .53 to $2.50 Options canceled 273 (273) $ 1.03 to $5.44 ----- ----- Balance - September 30, 1995 651 1,485 $ .53 to $5.63 Additional options authorized 650 - Options granted (1,130) 1,130 $ 2.13 to $3.09 Options exercised - (118) $ 1.03 to $3.00 Options canceled 432 (432) $ 1.03 to $5.31 ----- ----- Balance - September 30, 1996 603 2,065 $ .53 to $5.63 ----- ----- ----- -----
At September 30, 1996, options for the purchase of 747,000 shares of common stock are currently exercisable at prices ranging from $.53 to $5.63 per share. In 1995, two officers of the Company surrendered 109,000 shares of common stock to the Company at fair market value in lieu of cash payment for the exercise of 194,000 options. 25 WARRANTS As of September 30, 1996, private warrants issued in October 1995 to purchase 6,000,000 shares of common stock and expiring in October 1998 are exercisable at $3.75 per share (see Note 10 to the financial statements). 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 151,000 shares were issued on September 30, 1996 at $1.86 per share, 124,000 shares were issued on September 30, 1995 at $1.96 per share and 144,000 shares were issued on September 30, 1994 at $1.96 per share. At September 30, 1996 there were 83,115 shares available for future offerings. 9. INCOME TAXES The income tax provision for the years ended September 30, 1996, 1995 and 1994 consisted of (in thousands):
1996 FEDERAL STATE TOTAL ------- ----- ----- Current $ 883 $ 97 $ 980 Deferred (1,026) (137) (1,163) ------- ------- ------- $ (143) $ (40) $ (183) ------- ------- ------- ------- ------- ------- 1995 FEDERAL STATE TOTAL ------- ----- ----- Current $ 2,505 $ 593 $ 3,098 Deferred (1,380) (332) (1,712) ------- ------- ------- $ 1,125 $ 261 $ 1,386 ------- ------- ------- ------- ------- ------- 1994 FEDERAL STATE TOTAL ------- ----- ----- Current $ 483 $ 46 $ 529 Deferred (138) 46 (92) ------- ------- ------- $ 345 $ 92 $ 437 ------- ------- ------- ------- ------- -------
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, 1996, 1995 and 1994 as follows (in thousands):
1996 1995 1994 ---- ---- ---- Tax at Federal statutory rate $ (396) $ 1,022 $ 233 State income taxes, net of Federal benefit 21 231 92 Officers life insurance 35 24 24 Goodwill amortization 41 33 44 Meals and entertainment 106 81 32 Other 10 (5) 12 ------ ------ ------ Income tax expense (benefit) $ (183) $ 1,386 $ 437 ------ ------ ------ ------ ------ ------
The tax benefit related to the exercise of employee stock options is recorded as additional paid-in-capital. Income taxes paid during the years ended September 30, 1996, 1995 and 1994 were $2,257,000, $2,376,000 and $31,000, respectively. The tax effect of the temporary differences giving rise to the Company's deferred tax assets and liabilities at September 30, 1996 and 1995 are as follows: 26
1996 1995 ---------------------- ---------------------- CURRENT LONG-TERM CURRENT LONG-TERM ASSET LIABILITY ASSET LIABILITY ------- --------- ------- --------- Bad debt allowance $ 299 $ - $ 335 $ - Depreciation and amortization - 1,730 - 2,031 Insurance accruals 2,464 - 1,397 - Capitalized items expensed for taxes - 500 - 372 Deferred revenue - (306) - (479) Vacation 341 - 318 - Contract settlement 220 - - - Other 65 (102) 79 (199) ------ ------ ------ ------ $ 3,389 $ 1,822 $ 2,129 $ 1,725 ------ ------ ------ ------ ------ ------ ------ ------
10. RELATED PARTY TRANSACTIONS On October 24, 1995, the Company closed an agreement with Manor Healthcare, a wholly owned subsidiary of Manor Care, Inc., a national health care and international lodging firm. Pursuant to this agreement, the Company conducted a cash self-tender offer and purchased 6,750,000 shares of its common stock (41% of outstanding) at $3.40 per share and Manor Healthcare purchased 6,750,000 shares from the Company at $3.40 per share. In addition, Manor Healthcare invested $20 million to purchase redeemable convertible preferred shares and a warrant to purchase 6,000,000 shares of common stock at an exercise price of $3.75 per share (see Notes 6 and 8). The Purchase Agreement with Manor Healthcare also contemplated that the Company and Manor Healthcare would enter into agreements or arrangements which they deem prudent and mutually beneficial for the provision of services between them on terms that are fair to each party. The Company and Manor Healthcare entered into an agreement dated February 27, 1996 whereby Manor Healthcare or its parent company, Manor Care, Inc. will provide to the Company certain administrative services, financial and treasury management services, reimbursement services, legal services, accounting services and other similar types of services through June 30, 1996. The Company continues to operate under this agreement which is renewable for three month periods and is terminable upon 90 day notice. Administrative fees of $1,006,000 were accrued from October 24, 1995 based on a time allocation method which Manor Healthcare utilized to charge administrative services to all of its subsidiaries. Management believes that the foregoing charges are reasonable allocations of the costs incurred by Manor Healthcare on the Company's behalf. Based solely on this accrual, $1,006,000 was payable (but not paid) to Manor Healthcare at September 30, 1996. 11. QUARTERLY FINANCIAL DATA (UNAUDITED) FISCAL 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenue $32,468 $31,792 $30,302 $30,524 Income (loss) from operations 109 82 179 (2,184) Loss applicable to common stock (404) (546) (560) (1,991) Loss per common and common equivalent share (.02) (.03) (.03) (.12)
27 FISCAL 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenue $32,334 $32,593 $32,239 $32,650 Income from operations 995 1,018 820 941 Income applicable to common stock 422 421 347 431 Income per common and common equivalent share .03 .03 .02 .02
During the fourth quarter of fiscal 1996, the Company recorded one time charges of $1,600,000 for a settlement with the former President and former Chief Financial Officer on October 22, 1996 and $700,000 for relocations and other severance agreements. The Company also repurchased 244,805 shares of common stock at market value as part of the settlement with the former officers. 12. RECENTLY ISSUED ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which will be effective in fiscal 1997. The Company has not determined the effect of the new standard on the financial statements. 28 INDEPENDENT AUDITORS' REPORT In Home Health, Inc.: We have audited the accompanying consolidated balance sheets of In Home Health, Inc. as of September 30, 1996 and 1995 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1996. Our audits also included the consolidated financial statement schedule listed in the Index at Item 14(a)2. These consolidated financial statements and the consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedule, 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. /s/ Deloitte & Touche LLP Minneapolis, Minnesota November 12, 1996 29 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Information required under this Item with respect to directors will be contained in the section entitled "Election of Directors" in the Company's 1997 Proxy Statement, and is incorporated herein by reference. Information concerning executive officers is set forth in the section entitled "Executive Officers of the Registrant" in Part I of this Form 10-K pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION Information required under this item will be contained in the section entitled "Executive Compensation and Other Information" in the Company's 1997 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this item will be contained in the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Company's 1997 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this item will be contained in the section entitled "Election of Directors - Certain Transactions" in the Company's 1997 Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. 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 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 are listed below with their location in this report. PAGE ---- In Home Health, Inc.: Independent Auditors' Report. . . . . . . . . . . . . . . . . . 29 Schedules for the Years Ended September 30, 1996, 1995 and 1994: II - Valuation and Qualifying Accounts and Reserves . . . . 34 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 No reports on Form 8-K were filed during the fourth quarter of fiscal 1996. 30 (c) EXHIBITS: Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation, as amended. (i) 3.2 Restated Bylaws. (i) 4.1 Form of specimen Common Stock certificate. (ii) 4.2 Form of specimen certificate for Series A Preferred Stock. (i) 4.3 Certificate of Designation of the Series, Number of Shares in Series, Dividend Rate, Redemption Price, Liquidation Price, Conversion Right and Other Rights and Preferences of the Series A Preferred Stock ($1.00 par value) of In Home Health, Inc. (i) 10.1 Management Incentive Plan in place for fiscal 1996. 10.2 Lease agreement dated October 24, 1991 with Minnesota CC Properties, as amended. (i) 10.3 The Company's 1987 Stock Option Plan, as amended. (i) 10.4 The Company's 1995 Stock Option Plan, as amended. (i) 10.5 Asset purchase agreement between In Home Health, Inc., Carol I. Peake and ENS, Inc. dated January 14, 1994. (iii) 10.6 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. (iv) 10.7 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. (iv) 10.8 Securities Purchase and Sale Agreement dated May 2, 1995, as amended between the Company and Manor Healthcare Corp. (v) 10.9 Employment Agreement between the Company and Judy M. Figge dated May 2, 1995. (v) 10.10 Employment Agreement between the Company and Kenneth J. Figge dated May 2, 1995. (v) 10.11 Employment Agreement between the Company and James J. Lynn dated October 24, 1995. (v) 10.12 Employment Agreement between the Company and Cathy R. Reeves dated October 24, 1995. (v) 10.13 Employment Agreement between the Company and Margaret L. Maxon dated October 24, 1995. (v) 10.14 Letter of Credit Agreement dated December 14, 1995 with Harris Trust and Savings Bank. (i) 10.15 Administrative Services Agreement dated February 27, 1996 between In Home Health, Inc. and Manor Care, Inc. 11 Computation of Per Share Earnings 23 Independent Auditors' Consent 27 Financial Data Schedule (i) Incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended September 30, 1995. (ii) Incorporated herein by reference to the Registrant's Registration Statement (Form S-18) No. 33 -17228C. (iii) Incorporated herein by reference to the Registrant's current report on Form 8-K dated January 17, 1994. (iv) Incorporated herein by reference to the Registrant's current report on Form 8-K dated May 26, 1994. (v) Incorporated herein by reference to the Registrant's current report on Form 8-K dated May 2, 1995. (vi) Filed as Appendix II to the Company's definitive Proxy Statement for the Special Meeting of Shareholders held October 23, 1995. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Minnetonka, Minnesota. IN HOME HEALTH, INC. By: /s/ Mark L. Gildea ------------------------------------ Mark L. Gildea, Chief Executive Officer Date: December 27, 1996 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. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Mark L. Gildea Chief Executive Officer December 27, 1996 - ------------------------- and Director Mark L. Gildea (principal executive officer) /s/ Thomas R. Gross Acting Chief December 27, 1996 - ------------------------- Financial Officer Thomas R. Gross and Vice President - Controller /s/ James J. Lynn Director December 27, 1996 - ------------------------- James J. Lynn /s/ Joseph R. Buckley Director December 27, 1996 - ------------------------- Joseph R. Buckley /s/ Donald C. Tomasso Director December 27, 1996 - ------------------------- Donald C. Tomasso /s/ James H. Rempe Director December 27, 1996 - ------------------------- James H. Rempe 32 IN HOME HEALTH, INC. SCHEDULE AND EXHIBIT INDEX SCHEDULE PAGE ---- II Valuation and Qualifying Accounts and Reserves 34 EXHIBIT 10.1 Management Incentive Plan in place for fiscal 1996 35 10.15 Administrative Services Agreement dated February 27, 1996 between In Home Health, Inc. and Manor Care, Inc. 38 11 Computation of Earnings per Share 48 23 Independent Auditors' Consent 49 27 Financial Data Schedule 50 33 SCHEDULE II IN HOME HEALTH, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994 (DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - ---------------------------------------------------------------------------------------------------------------------------------- Additions ------------------------------ (2) (1) Charged Balance Balance at Charged to to Other at Beginning Costs and Accounts- Deductions End of Classification of Period Expenses Describe -Describe Period (B) (A) - ---------------------------------------------------------------------------------------------------------------------------------- 1996 - ---- Allowance for Doubtful Accounts - Current $ 867 $ 560 $ - $ 625 $ 802 Medicare Reserve 6,396 - 2,067 1,224 7,239 1995 - ---- Allowance for Doubtful Accounts - Current $ 1,029 $ 856 $ - $ 1,018 $ 867 Medicare Reserve 4,961 - 1,435 - 6,396 1994 - ---- Allowance for Doubtful Accounts - Current $ 859 $ 914 $ - $ 744 $ 1,029 Medicare Reserve 1,100 - 3,861 - 4,961
(A) Write-off of bad debts, net of recoveries and acquisition balances. (B) Adjustment to Medicare reserve. 34 EX-10.1 2 EXHIBIT 10.1 IN HOME HEALTH, INC. MANAGEMENT INCENTIVE PLAN FISCAL YEAR 1996 Employee Name: Position Title: Maximum Benefit %: In Home Health has annual incentive plans for key positions. The purpose of these plans is: * To ensure a competitive total compensation package for key management and support positions. * To attract, retain and motivate qualified employees in key management and support positions. * To stimulate higher performance levels by clarifying and strengthening the links between an individual's contributions and their compensation. * To assure that corporate goals and objectives are an integral part of every employee's performance. ELIGIBILITY The plans are intended to include those management and support personnel who have measurable effects on financial results. Positions will be identified by the Executive Management Team and the Compensation Committee of the Board of Directors. TOTAL COMPENSATION OPPORTUNITY The total compensation package, composed of base salary and benefits, plus the management incentive plan, is designed to provide participants with an opportunity to earn above average compensation for meeting and exceeding the plan objectives. ANNUAL INCENTIVE MOTIVATION An incentive will be motivational if: 1. the opportunity is large enough to be of significance to the individual, and 35 2. the individual perceives that he/she can reasonably impact and/or control the expected results which are set forth in the compensation plan. INCENTIVE ELEMENTS For fiscal year 1996, the emphasis will be placed on Net Income. No bonus will be paid to any manager where a loss occurs in their area of responsibility, even if the loss was planned or if the Company incurs a loss for the year. GENERATION OF INCENTIVE POOL Each year, incentive dollars will be integrated into the operating budget based on performance projections for individuals and the corporation. INCENTIVE PAYMENTS Incentive payments will be paid annually. Payments will be made when the audited results of the preceding fiscal year are available and the individual incentive amount has been approved by the appropriate department head and at least one executive officer. The incentive amount is a percentage of base salary in effect on the last day of the fiscal year. NEW HIRES Participants hired during the year must be employed for at least 6 of the 12 months of the fiscal year in order to be eligible for the incentive. A prorated payment may be made based on the number of full months (6 to 11 months) worked during the fiscal year. Exceptions to this policy must receive the prior written approval of the Chief Executive Officer. TRANSFERS, PROMOTIONS AND LEAVES If an employee is transferred or promoted into an incentive eligible position during the fiscal year, he/she will be eligible for incentive when they complete at least six (6) months of employment in the position. A prorated payment may be made based on the number of full months (six to eleven) worked in the eligible position. If the employee is promoted from one eligible position to another eligible position and is in the higher position at least six months, the amount paid may be prorated according to the number of months worked in each position. If the employee is in the new position for less than six months, the incentive will not be prorated but will be based on the lower position's incentive rate. An employee transferring into a lower incentive from a higher incentive position will receive the lower incentive rate for the entire year. An employee who transfers out of an eligible incentive position any time during the year is ineligible for any incentive relating to that year. 36 An employee on an unpaid leave of absence will not be paid incentive for the months or portions of months absent. The amount will be prorated for the full months worked in an eligible position. TERMINATION In the event a participant is terminated for cause, no incentive will be paid. When a participant voluntarily terminates their position before the incentive award is due to be paid, payment of the incentive will not be made. Exceptions to this policy may be made at the discretion of the Chief Executive Officer and must be in writing. Payments to former employee will be made on the normal schedule. REGIONAL OR AREA POSITIONS All Corporate, area or regional positions will participate in the Company's Annual Incentive Plan utilizing the Company's consolidated results to determine their Management Incentive compensation for the year. Branch and Pharmacy General Managers will participate in the General Managers Incentive Plan. Details of the pertinent plan will be distributed to the participants. DURATION OF PLAN The company may change, modify, or amend this plan at any time. This plan is for fiscal year 1996 only and no plan for fiscal year 1997 or any other fiscal year is implied. PERCENTAGE OF INCENTIVE ELEMENT ACHIEVED % OF MAXIMUM PAYOUT - ---------------------------------------- ------------------- less than 80.0% 0% 80 - 84.9% 20% 85 - 89.9% 34% 90 - 94.9% 48% 95 - 99.9% 61% 100 - 104.9% 75% 105 - 109.9% 81% 110 - 114.9% 88% 115 - 119.9% 94% 120 + 100% 37 EX-10.15 3 EXHIBIT 10.15 ADMINISTRATIVE SERVICES AGREEMENT AGREEMENT entered into as of this 27th day of February, 1996 by and between Manor Care, Inc., a Delaware corporation (together with its subsidiaries and affiliates, other than In Home Health, Inc., hereinafter referred to as "Manor Care") and In Home Health, Inc. a Minnesota corporation (together with its subsidiaries, hereinafter referred to as "In Home"). WHEREAS, Manor Care and In Home desire to formalize the provision of services by Manor Care to In Home; NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and sufficient consideration, the receipt of which is acknowledged, the parties agree as follows: 1. SCOPE OF AGREEMENT. Manor Care will, consistent with the terms of this Agreement, provide, or cause to be provided to In Home, those certain corporate, administrative and management services listed on Exhibit A ( each service individually referred to as a "Service" and all services collectively referred to as the"Services") attached hereto and made part of this Agreement, and In Home, in consideration thereof, shall pay Manor Care in accordance with Section 3 below. 2. TERM. This Agreement shall have a retroactive commencement date of November 1, 1995 and shall terminate as of 38 June 30, 1996. Thereafter, Manor Care agrees to provide the Services on a quarter-to-quarter basis, beginning July 1, 1996 and continuing until terminated by either party either as to a particular Service or as to the Services by means of at least ninety (90) days prior written notice. 3. FEES AND PAYMENT. A. In Home will pay Manor Care Forty Thousand Dollars ($40,000.00) per month for certain corporate, administrative and management services listed in Exhibit A, attached hereto. B. In addition to the amount paid under Section 3(A) of this Agreement, In Home will pay Manor Care Three Thousand Dollars ($3,000.00) per month for any and all services provided by the Manor Care Reimbursement Department under this Agreement. C. In Home will pay Manor Care an administrative fee for the support received from the Manor Care Managed Care Center ("Managed Care Center"). Such fee shall be equal to five (5) percent of the expenses incurred by the Managed Care Center. Such expenses are estimated by the parties to be approximately Fifteen Thousand Dollars ($15,000.00) per month. D. In Home will reimburse Manor Care for expenses incurred within the Manor Care Alternate Site Division ("Alternative Site") Departments 020-070, 020-071 and 020-074 for periods from November 1, 1995 forward. This does not include any portion of the Alternate Site Management Fee originally planned for Manor Care Fiscal Year 1996 or any expenses which should have been 39 accrued before November 1, 1995 and which ultimately will be transferred to Alternate Site Department 020-084 or such new department established for the same purpose. It is the intent of In Home to absorb the personnel related costs and other expenses of Alternate Site Departments 020-070, 020-071 and 020-074 into In Home by March, 1996. Thereafter, the only remaining expenses within Alternative Site Departments 020-070, 020-071 and 020-074 will be for the personnel and other expenses involved with the management and support of the Managed Care Center. Alternate Site will transfer $15,000 per month to the Managed Care Center for the management and support supplied by employees within Alternate Site and In Home. E. In Home will reimburse Manor Care for expenses incurred within the Manor Care Hospice Division Department 022-035 from November 1, 1995 forward. This does not include any portion of the Manor Care Hospice Division Management Fee originally planned for Manor Care Fiscal Year 1996 or any expenses which should have been accrued before November 1, 1995 and which will be transferred to Alternate Site Department 020-084 or such new department established for the same purpose. It is the intent of In Home to absorb the personnel related costs and other expenses of the Manor Care Hospice Division Department 022-035 into In Home by March, 1996. F. Alternate Site services for which In Home does not receive any benefit will be expenses separated into an Alternate Site Department 020-084 (Disease Management Department) and will be 40 included in Manor Care financials. Such expenses will include the planned Manor Care Fiscal Year 1996 Management Fees for its Alternate Site and Hospice Division. G. Reports for Alternate Site Departments 020-070, 020-071, 020-074, and Hospice Division Department 022-035 will be sent to Tom Gross, the In Home Vice President and Controller, for review and audit. Any correction from the incorrect assignment of cost will be corrected as soon as possible in the next month. H. In Home will receive a cost allocation from Manor Care's home office cost report (relating to provisions addressed in Subsections A-E of this Section 3) to include within In Home's cost report for allowable reimbursement from Medicare. Any changes in this allocation process requires the approval of the Audit Committee of In Home. I. Notwithstanding the above, any of the expenses paid by In Home under this Agreement for any Manor Care employee (whether actually transitioned to In Home during the period, or not) shall be returned or credited by Manor Care in the event that such employee is terminated on or before May 31, 1996 J. The Audit Committees of Manor Care and the special committee of the In Home Board of Directors will retrospectively review and agree to each company's fiscal year charges for the administrative service fees described herein, and prospectively review and agree to the succeeding year's budgeted administrative service fees. This will be done in both 1996 and all subsequent years during which this Agreement is in effect. 41 4. PERFORMANCE OF SERVICES. Manor Care shall perform the Services with the same degree of care, skill and prudence customarily exercised for its own operations. 5. LIMITATION ON LIABILITY; INDEMNIFICATION. Except as provided in the following sentence, neither party shall have any liability under this Agreement to the other party for damage or loss of any type suffered by the other party or any third party as a result of the performance or non-nonperformance of the Services provided hereunder and neither party will be responsible for general, special, indirect, incidental or consequential damages, whether known or unknown, that the other party or any third party may incur or experience on account of entering into or relying on this Agreement. Each party shall indemnify, defend and hold the other party, its directors, officers and employees harmless from and against all damages, losses and out-of-pocket expenses (including attorney fees) caused by or arising out of any willful failure to perform any obligation or agreement herein. 6. ASSIGNMENT. In Home shall not assign or transfer any of its rights under this Agreement without the prior written consent of Manor Care. 7. NOTICES. All notices, requests, demands and other communications provided for by this Agreement shall be in writing 42 and shall be deemed to have been given the earlier of when actually received or three (3) business days after such writing is deposited in the United States mail, registered or certified mail, return receipt requested, or sent by Federal Express or other similar overnight courier services, addressed to the parties as stated below or to such other address as a party may designate by notice: If to Manor Care: Manor Care, Inc. 10750 Columbia Pike Silver Spring, MD 20901 ATTN: General Counsel If to In Home: In Home Health, Inc. Carlson Center, Suite 500 601 Lake Shore Parkway Minnetonka, MN 55305-5215 ATTN: Chief Financial Officer 8. GOVERNING LAW. This agreement shall be governed by the laws of the State of Minnesota. 9. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding between the parties and supersedes all proposals, commitments, writings, negotiations and understandings, oral and written, and all other communications between the parties relating to the subject matter of this Agreement. This Agreement may not be amended or otherwise modified except in writing duly executed by all of the parties. A waiver by any party of any breach or violation of this Agreement shall not be deemed or construed as a waiver of any subsequent breach or violation thereof. 43 10. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. 11. SEVERABILITY. Should any part, term or condition hereof be declared illegal or unenforceable or in conflict with any other law, the validity of the remaining portions or provisions of this Agreement shall not be affected thereby, and the illegal or unenforceable portions of the Agreement shall be and hereby are redrafted to conform with applicable law, while leaving the remaining portions of this Agreement intact. 12. FORCE MAJEURE. No party shall be deemed to have breached this Agreement or be held liable for any failure or delay in the performance of all or any portion of its obligations under this Agreement if prevented from doing so by a cause or causes beyond its control. Without limiting the generality of the foregoing, such causes include acts of God or the public enemy, fires, floods, storms, earthquakes, riots, strikes, lock-outs, wars and war-operations, restraints of government power, communication line or other utility failure or other circumstances beyond such party's control, or by reason of the judgment, ruling or order of any court or agency of competent jurisdiction or change of law or regulation subsequent to the execution of this Agreement. 44 13. SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 7, this Agreement is solely for the benefit of the parties and their respective successors and assigns. There are no third party beneficiaries of or to this Agreement. 14. HEADINGS. Section headings are for convenience only and do not control or affect the meaning or interpretation of any terms or provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. MANOR CARE, INC. By: /s/ James H. Rempe ------------------------------------- Its Sr. V.P. ---------------------------------- IN HOME HEALTH, INC. By: /s/ Mark L. Gildea ------------------------------------- Its CEO ---------------------------------- 45 EXHIBIT A SERVICE TO BE PROVIDED 1. LEGAL SERVICES. Manor Care will provide ongoing legal services necessary to support the day-to-day business activities of In Home. Such services include, but are not limited to, legal support for development and implementation of a corporate compliance plan, acquisitions, preparation and filing of necessary reporting disclosures with the SEC and provision of public reports to investors upon request, labor and contracting matters. This Agreement constitutes prior written approval of In Home for Manor Care to engage outside legal services on behalf of In Home when necessary and to supervise such outside counsel. In Home will be billed directly for the cost of outside counsel. 2. CASH MANAGEMENT. Manor Care will provide ongoing cash management services to maintain cash resources required to carry out daily operating activities. Services include daily case concentration of depository receipts and daily funding of disbursement accounts for payroll and general operating expenditures. Additionally, all cash delivered to Manor Care will earn interest as provided in that certain Inter-Company Debt and Credit Agreement entered into between the parties. 3. FINANCE AND ACCOUNTING SERVICES. Manor Care will assist In Home in conducting any internal audits and in formulating and implementing various financial plans. 4. INSURANCE SERVICES. Manor Care will assist in providing to In Home general and professional liability, workers' compensation, comprehensive automobile liability and property insurance. 5. INFORMATION SERVICES. Manor Care will provide In Home with certain information support development and planning services. 6. HUMAN RESOURCES & TRAINING. Manor Care will provide In Home with support in maintaining and expanding In Home's work force through assistance in development of hiring programs, training programs, and maintenance of an employee database as may be required by federal, state and local mandates. 7. EMPLOYEE BENEFIT PLANS. Manor Care will, on behalf of In Home, provide advice and assistance, as needed, with respect to employee benefit plans, including among others, health, welfare and retirement plans, for the benefit of In Home employees. 46 8. REAL ESTATE. Manor Care will assist In Home in meeting its expansion requirements by identifying office space, home health care and hospice locations and negotiating leases and terms of purchase agreements. 9. OTHER SERVICES. As may be requested by In Home, Manor Care will, from time to time, provide services not described above, including, but not limited to, Government Relations, Purchasing and Reimbursement (the "Other Services"). 47 EX-11 4 EXHIBIT 11 EXHIBIT 11 IN HOME HEALTH, INC. COMPUTATION OF PER SHARE EARNINGS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1996 1995 1994 ------ ------ ------ PRIMARY: Income (loss) applicable to common stock $(3,501) $ 1,621 $ 247 ------ ------ ------ ------ ------ ------ Shares: Weighted average number of shares outstanding during the period 16,340 16,062 15,656 Shares issuable in connection with stock options and warrants less shares purchasable from proceeds 125 242 357 ------ ------ ------ Total shares 16,465 16,304 16,013 ------ ------ ------ ------ ------ ------ Income (loss) per common and common equivalent share $ (.21) $ .10 $ .02 ------ ------ ------ ------ ------ ------ ASSUMING FULL DILUTION: Income (loss) applicable to common stock $(3,501) $ 1,621 $ 247 ------ ------ ------ ------ ------ ------ Shares: Weighted average number of shares outstanding during the period 16,340 16,062 15,656 Shares issuable in connection with stock options and warrants less shares purchasable from proceeds 125 352 357 ------ ------ ------ Total shares 16,465 16,414 16,013 ------ ------ ------ ------ ------ ------ Income (loss) per common and common equivalent share $ (.21) $ .10 $ .02 ------ ------ ------ ------ ------ ------
48 EX-23 5 EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT In Home Health, Inc. We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-07511, 33-38504, 33-75876 and 33-75830) of our report dated November 12, 1996, appearing in this Annual Report on Form 10-K of In Home Health, Inc. for the year ended September 30, 1996. /s/ Deloitte & Touche LLP Minneapolis, Minnesota December 24, 1996 49 EX-27 6 EXHIBIT 27 (FDS)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS, THE STATEMENTS OF OPERATIONS AND THE STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS SEP-30-1996 OCT-01-1995 SEP-30-1996 18617 0 42238 802 0 44053 19338 9437 82683 33170 0 0 18766 165 26593 82683 0 125086 0 67108 59792 0 (649) (1165) (183) (982) 0 0 0 (982) (.21) 0
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