-----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, RNz4CsMzrTh3/uptAxYMNvM0lhvjyiCuey9kBtYmIaOmB3PPE2IIYoVEI4ElYC/M Sc24QhXnYTWKTGvfTO1+4g== 0001047469-99-028537.txt : 19990727 0001047469-99-028537.hdr.sgml : 19990727 ACCESSION NUMBER: 0001047469-99-028537 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990726 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-Q SEC ACT: SEC FILE NUMBER: 000-17490 FILM NUMBER: 99669860 BUSINESS ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: CARLSON CENTER SUITE 500 CITY: MINNETONKA STATE: MN ZIP: 55305-5214 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-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED JUNE 30, 1999 COMMISSION FILE NO. 0-17490 IN HOME HEALTH, INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1458213 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 601 CARLSON PARKWAY SUITE 500 MINNETONKA, MINNESOTA 55305-5214 (Address of principal executive offices) (Zip Code) 612-449-7500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ -- As of June 30, 1999, the number of shares outstanding of the registrant's common stock, $.03 par value was 5,479,736 shares. IN HOME HEALTH, INC. TABLE OF CONTENTS
PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - June 30, 1999 and September 30, 1998 2-3 Consolidated Statements of Income - For the Three Months and Nine Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Cash Flows - For the Nine Months Ended June 30, 1999 and 1998 5 Notes to Unaudited Consolidated Financial Statements 6-8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-12 PART II. OTHER INFORMATION 13
IN HOME HEALTH, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS AND SHARES IN THOUSANDS) ASSETS
June 30, 1999 Sept. 30, (Unaudited) 1998 ------------- ----------- Current Assets: Cash and cash equivalents $ 19,094 $ 21,462 Accounts receivable, net of allowances of $1,094 and $1,175 at June 30, 1999 and September 30, 1998, respectively 11,897 13,598 Deferred income tax 1,075 1,269 Prepaid expenses and other current assets 831 970 ---------- ----------- Total current assets 32,897 37,299 ---------- ----------- Property: Furniture and equipment 7,365 8,123 Computer equipment and software 6,640 6,771 Leasehold improvements 441 529 ---------- ----------- Total 14,446 15,423 Accumulated depreciation (10,939) (10,954) ---------- ----------- Property - net 3,507 4,469 ---------- ----------- Other Assets: Accounts receivable, long-term 977 988 Goodwill, net 5,155 5,274 Other assets 245 330 ---------- ----------- Total other assets 6,377 6,592 ---------- ----------- Total Assets $ 42,781 $ 48,360 ---------- ----------- ---------- -----------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 2 IN HOME HEALTH, INC. CONSOLIDATED BALANCE SHEETS (CONTINUED) (DOLLARS AND SHARES IN THOUSANDS) LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, 1999 Sept. 30, (Unaudited) 1998 ------------- --------- Current Liabilities: Current maturities of long-term debt $ 111 $ 219 Accounts payable 2,973 2,612 Accounts payable - related party 123 111 Accrued liabilities: Third party 5,372 12,669 Compensation 3,847 3,225 Insurance 3,363 3,246 Restructuring 150 456 Other 600 538 -------- -------- Total current liabilities 16,539 23,076 -------- -------- Long-Term Debt 48 44 Deferred Revenue 7 41 Deferred Rent Payable 151 198 Deferred Income Tax 1,075 1,288 Commitments and Contingencies -- -- Redeemable Convertible Preferred Stock - $1.00 par value, $13,000 redemption value, authorized 130 shares; issued and outstanding June 30 and September 30 - 130 shares 12,732 12,584 Shareholders' Equity: Redeemable Convertible Preferred Stock - $1.00 par value, $7,000 redemption value, authorized 70 shares; issued and outstanding June 30 and September 30 - 70 shares 7,000 7,000 Preferred stock - authorized 800 shares -- -- Common stock - $.03 par value, authorized 13,334 shares; issued and outstanding June 30 - 5,480 shares and September 30 - 5,479 shares 164 164 Additional paid-in capital 23,675 23,675 Retained deficit (18,610) (19,710) -------- -------- Total shareholders' equity 12,229 11,129 -------- -------- Total Liabilities and Shareholders' Equity $ 42,781 $ 48,360 -------- -------- -------- --------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 3 IN HOME HEALTH, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1999 AND 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended June 30 June 30 ---------------------- ---------------------- 1999 1998 1999 1998 ------- ------- ------- ------- Revenue [including (unfavorable) favorable Medicare reserve adjustments of ($55), ($66), $2,141, and $4,163 for the respective periods] $20,165 $22,904 $59,815 $77,201 ------- ------- ------- ------- Operating Expenses: Direct costs of revenue (primarily payroll related costs) 11,237 12,604 32,338 43,932 General, administrative and selling expenses 8,030 9,665 25,275 31,432 ------- ------- ------- ------- Total operating expenses 19,267 22,269 57,613 75,364 ------- ------- ------- ------- Income from operations 898 635 2,202 1,837 ------- ------- ------- ------- Interest: Interest income 256 321 874 811 Interest expense (5) (20) (28) (57) ------- ------- ------- ------- Net interest income 251 301 846 754 ------- ------- ------- ------- Income before income taxes 1,149 936 3,048 2,591 Income tax expense -- -- -- -- ------- ------- ------- ------- Net income $ 1,149 $ 936 $ 3,048 $ 2,591 ------- ------- ------- ------- ------- ------- ------- ------- Net income available to common shareholders $ 500 $ 287 $ 1,100 $ 593 ------- ------- ------- ------- ------- ------- ------- ------- Basic and diluted earnings per share $ .09 $ .05 $ .20 $ .11 ------- ------- ------- ------- ------- ------- ------- -------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 4 IN HOME HEALTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998 (DOLLARS IN THOUSANDS)
1999 1998 ------- ------- Cash Flows From Operating Activities: Net income $ 3,048 $ 2,591 Adjustments: Depreciation and amortization 1,107 1,913 Loss on disposal of assets 322 267 Accounts receivable 1,712 1,387 Prepaid expenses and other assets 130 3,634 Accounts payable 361 (1,696) Accounts payable - related party 12 4,108 Accrued liabilities (6,802) (3,475) Deferred revenue (34) (316) Deferred rent payable (47) (41) Deferred income tax (19) (84) ------- ------- Net cash (used) provided by operating activities (210) 8,288 ------- ------- Cash Flows From Investing Activities: Acquisition of property (185) (28) Repayments of advances to officers and employees 9 7 ------- ------- Net cash used by investing activities (176) (21) ------- ------- Cash Flows From Financing Activities: Payment of long-term debt (182) (662) Preferred dividends paid (1,800) (1,800) ------- ------- Net cash used by financing activities (1,982) (2,462) ------- ------- Cash and Cash Equivalents: Net (decrease) increase (2,368) 5,805 Beginning of period 21,462 13,853 ------- ------- End of period $19,094 $19,658 ------- ------- ------- -------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 5 IN HOME HEALTH, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. FINANCIAL STATEMENTS In the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company and its subsidiaries as of June 30, 1999 and the results of operations for the three and nine months and cash flows for the nine months ended June 30, 1999 and 1998. The results of operations for any interim period are not necessarily indicative of the results for the year. These interim consolidated financial statements should be read in conjunction with the Company's annual financial statements and related notes in the Company's fiscal 1998 Form 10-K. 2. BASIC AND DILUTED EARNINGS PER SHARE The following table reflects the calculation of basic and diluted earnings per share for the three and nine months ended June 30, 1999 and 1998.
(in thousands, except per share amounts) Three Months Nine Months --------------- ---------------- 1999 1998 1999 1998 ------ ------ ------ ------ EARNINGS PER SHARE: Net income $1,149 $ 936 $3,048 $2,591 Dividends on preferred stock (600) (600) (1,800) (1,800) Preferred stock accretion (49) (49) (148) (198) ------ ------ ------ ------ Net income available to common shareholders $ 500 $ 287 $1,100 $ 593 ------ ------ ------ ------ ------ ------ ------ ------ Weighted average shares outstanding 5,480 5,466 5,480 5,466 ------ ------ ------ ------ ------ ------ ------ ------ Basic and diluted earnings per share $ .09 $ .05 $ .20 $ .11 ------ ------ ------ ------ ------ ------ ------ ------
Options to purchase 503,896 and 356,981 shares of common stock were outstanding at June 30, 1999 and 1998, respectively. These options were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. Redeemable convertible preferred stock was issued to ManorCare Health Services, Inc., a wholly owned subsidiary of HCR Manor Care, Inc. ("HCR"), in October 1995. As of June 30, 1999, 130,000 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, while 70,000 shares can be redeemed only at the option of the Company on and after the fifth anniversary. The redeemable preferred shares are initially convertible into 3,333,334 common shares at an initial conversion price of $6.00 per share. In December 1998, an agreement was signed with HCR to modify the terms of the preferred shares. Under the terms of the modification agreement, HCR irrevocably waived the voting rights of the preferred stock, except with respect to any proposal presented to the Company's stockholders to (i) wind up, dissolve or liquidate the Company or revoke or forfeit its charter, (ii) amend the Company's articles of incorporation, (iii) merge or consolidate or enter into an exchange agreement with another corporation, or (iv) sell, lease, transfer or otherwise dispose of all or substantially all of the Company's 6 assets not in the usual and regular course of business. In consideration, the Company waived its right to pay dividends on the preferred stock in shares of its common stock. The impact of the redeemable convertible preferred stock on diluted earnings per share would be anti-dilutive and, therefore, has been excluded from the computation of basic and diluted earnings per share. 3. RESTRUCTURING CHARGE During fiscal 1997, the Company recorded $2,476,000 in restructuring charges as a result of the implementation of a plan to restructure its field operations and reduce the Company's cost structure. The charge included $1,820,000 of costs associated with lease costs and related equipment write-offs associated with the closing of eight pharmacies, the consolidation of seven sites in multi-site markets, the relocation of eight other sites to more economical locations and $361,000 of severance costs related to administrative staff reductions. Total expenditures related to facilities consolidation were $107,000 during the nine months ended June 30, 1999 as compared to $566,000 for the same period of the previous year. As of June 30, 1999, $150,000 of costs, comprised of lease costs and related equipment write-offs associated with vacated sites, remain to be paid out and are included in other current liabilities. The restructuring plan is substantially complete. 4. COMMITMENTS AND CONTINGENCIES Approximately 49% and 56% of revenue for the nine months ended June 30, 1999 and 1998, respectively, was derived from services provided to Medicare beneficiaries, for which payment is based on cost. Payments for reimbursable services are made by the Medicare program based on reimbursable costs incurred in rendering services. Medicare makes interim payments as services are rendered, and the Company files cost reports annually, 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. 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. When the Company disagrees with findings of the Medicare fiscal intermediaries, it seeks relief through administrative and legal channels. Based on a detailed analysis of statutes and regulations, administrative and judicial decisions, and consultation with independent industry experts and legal counsel, the Company provides a reserve (by means of a revenue deduction) for any costs incurred which are not probable of recovery. At June 30, 1999, total disputed costs were $3,372,000; the Company believes that recovery of $2,395,000 of such costs (including extrapolation for all unsettled cost reporting periods) may not be probable and, accordingly, has established reserves totaling $2,395,000 as of June 30, 1999. At June 30, 1999, unreserved disputed costs totaling $977,000 related to the compensation of physical therapists employed by the Company. The Medicare intermediary took the position that contractor physical therapist salary equivalency guidelines should be applied to the Company's employee physical therapists, and thus disallowed certain physical therapy costs for the fiscal 1992 cost reporting period. The Company appealed to the Provider Reimbursement Review Board ("PRRB") and received a favorable ruling in February 1996. In April 1996, the Health Care Financing Administration ("HCFA") reversed the PRRB ruling and disallowed all of the disputed costs. The Company appealed to the U.S. Federal District Court ("District Court") in Minneapolis, which ruled in favor of the Company, declaring HCFA's decision contrary to law and setting it aside. In August 1998, 7 HCFA appealed the decision to the Eighth Circuit Court of Appeals, where this case was heard in June 1999. The decision of the Eighth Circuit is pending. The Company, based on its assessment and the opinion of its legal counsel, Lindquist & Vennum P.L.L.P. of Minneapolis, Minnesota, continues to believe that it is probable that the Company will ultimately prevail in this case. At June 30, 1999, total accounts receivable (net of reserves) due from Medicare were $6,237,000. Based on the progress toward resolution of the disputed costs, management estimates that net receivables of $977,000 will not be realized within the next twelve months, and accordingly, has classified such receivables as non-current. Accrued liabilities to third-party at June 30, 1999 represent payments from Medicare in excess of amounts that the Company believes it will be entitled to upon ultimate settlement of Medicare cost reports. 5. INCOME TAXES At September 30, 1998, the Company had federal operating loss carryforwards of $9,100,000 which will expire in 2012. Management believes it is more likely than not that certain of these net operating loss carryforwards and other temporary differences may expire unused and, accordingly, has established a valuation allowance against them. During the nine months ended June 30, 1999, income tax expense of $1,200,000 was offset by utilizing a portion of the net operating loss carryforwards versus $1,100,000 for the same period of the previous year. 6. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 131 "Disclosures about Segments of an Enterprise and Related Information" which is effective for the Company in fiscal 1999. The Company is continuing to evaluate the effect of SFAS No. 131 on its financial statement disclosures and will implement the Standard in its fiscal 1999 Form 10-K. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's level of operation and financial condition. This discussion should be read with the consolidated financial statements appearing in Item 1. RESULTS OF OPERATIONS The Balanced Budget Act of 1997 (the "Budget Act") and the Omnibus Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999 (the "Appropriations Act") require HCFA to implement a prospective payment system ("PPS") for home health agencies by October 1, 2000. Until PPS is implemented, the Budget Act established an Interim Payment System ("IPS"), effective October 1, 1997, that reimburses home health agencies the lesser of: (1) actual, reasonable costs, (2) per-visit cost limits, or (3) newly implemented per-beneficiary cost limits. The IPS program rates were announced April 1, 1998, but given effect retroactively to October 1, 1997. In response to the implementation of IPS, the Company initiated a series of cost reduction programs and care delivery process improvements. Revenue for the three and nine months ended June 30, 1999 decreased 12% and 23%, respectively, over the same periods in the prior year. The decreases in revenue occurred primarily in cost reimbursed revenue due to cost reduction initiatives in response to lower Medicare payments under the new per-beneficiary limits announced in 1998. Visit Division revenue decreased 17% and 32% for the three and nine months ended June 30, 1999 compared to the same periods last year due to a decrease in patient visits and corporate cost reductions implemented in an effort to minimize the impact of IPS. Extended Hours Division revenue declined 13% and 15% for the three and nine months ended June 30, 1999 compared to the same periods last year due to a reduction in the volume of new low margin cases accepted and a lack of staffing for certain service offerings in several markets. Hospice Division revenue increased 13% and 14% for the three and nine months ended June 30, 1999 as compared to last year due to increased patient census. Direct costs, as a percent of revenue, were 56% and 54% for the three and nine months ended June 30, 1999 versus 55% and 57% for the same periods of the previous year. General, administrative and selling expenses for the three and nine months ended June 30, 1999 were $8,030,000 and $25,275,000 compared to $9,665,000 and $31,432,000 for the same periods last year. The decreases were due to the cost reduction initiatives implemented last year. As a percent of revenue, such expenses were 40% and 42% for the three and nine months ended June 30, 1999 versus 42% and 41% last year. Net interest income for the three and nine months ended June 30, 1999 was $251,000 and $846,000 versus $301,000 and $754,000 for the same periods of the previous year. Net income for the three and nine months ended June 30, 1999 was $1,149,000 and $3,048,000, compared to $936,000 and $2,591,000 for the same periods of the previous year. Net income available 9 to common shareholders was $500,000 and $1,100,000 for the three and nine months ended June 30, 1999, compared to $287,000 and $593,000 for the same periods of the previous year. The difference between net income and net income available to common shareholders is primarily the result of the preferred stock dividend to ManorCare Health Services, Inc., a wholly owned subsidiary of HCR Manor Care, Inc. ("HCR") for its $20 million preferred stock investment in the Company. Basic and diluted earnings per share were $.09 and $.20 for the three and nine month periods ended June 30, 1999, compared to $.05 and $.11 for the same periods of the previous year. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents decreased $2,368,000 to $19,094,000 at June 30, 1999 from $21,462,000 at September 30, 1998. Net cash used by operating activities for the nine months ended June 30, 1999 was $210,000. During the same period, the Company paid $1,800,000 to HCR for preferred stock dividends. Approximately 49% and 56% of revenue for the nine months ended June 30, 1999 and 1998, respectively, was derived from services provided to Medicare beneficiaries, for which payment is based on cost. Payments for reimbursable services are made by the Medicare program based on reimbursable costs incurred in rendering services. Medicare makes interim payments as services are rendered, and the Company files cost reports annually, 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. 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. When the Company disagrees with findings of the Medicare fiscal intermediaries, it seeks relief through administrative and legal channels. Based on a detailed analysis of statutes and regulations, administrative and judicial decisions, and consultation with independent industry experts and legal counsel, the Company provides a reserve (by means of a revenue deduction) for any costs incurred which are not probable of recovery. At June 30, 1999, total disputed costs were $3,372,000; the Company believes that recovery of $2,395,000 of such costs (including extrapolation for all unsettled cost reporting periods) may not be probable and, accordingly, has established reserves totaling $2,395,000 as of June 30, 1999. At June 30, 1999, unreserved disputed costs totaling $977,000 related to the compensation of physical therapists employed by the Company. The Medicare intermediary took the position that contractor physical therapist salary equivalency guidelines should be applied to the Company's employee physical therapists, and thus disallowed certain physical therapy costs for the fiscal 1992 cost reporting period. The Company appealed to the Provider Reimbursement Review Board ("PRRB") and received a favorable ruling in February 1996. In April 1996, the Health Care Financing Administration ("HCFA") reversed the PRRB ruling and disallowed all of the disputed costs. The Company appealed to the U.S. Federal District Court ("District Court") in Minneapolis, which ruled in favor of the Company, declaring HCFA's decision contrary to law and setting it aside. In August 1998, HCFA appealed the decision to the Eighth Circuit Court of Appeals, where this case was heard in June 1999. The decision of the Eighth Circuit is pending. The Company, based on its assessment and the opinion of its legal counsel, Lindquist & Vennum P.L.L.P. of Minneapolis, Minnesota, continues to believe that it is probable that the Company will ultimately prevail in this case. 10 At June 30, 1999, total accounts receivable (net of reserves) due from Medicare were $6,237,000. Based on the progress toward resolution of the disputed costs, management estimates that net receivables of $977,000 will not be realized within the next twelve months, and accordingly, has classified such receivables as non-current. Accrued liabilities to third-party at June 30, 1999 represent payments from Medicare in excess of amounts that the Company believes it will be entitled to upon ultimate settlement of Medicare cost reports. The Company has unused letter of credit facilities from a commercial bank totaling $1,915,000. These credit facilities are collateralized by secured investments and will expire in December 1999. Management believes cash provided by operations and existing cash balances are sufficient to meet the Company's financial requirements for the foreseeable future. YEAR 2000 The Company has assessed and continues to assess the potential impact of the Year 2000 issue affecting most corporations, primarily concerning the ability of information systems to properly recognize and process information relating to the year 2000 and beyond. The Company began addressing the Year 2000 issue in fiscal 1997, primarily in the business systems area, such as general ledger, payroll, and accounts payable, which were modified and are now compliant. The programming changes for the internally developed operations systems have been completed. The wide area network and phone systems have also been updated. During the third quarter of fiscal 1999, the Company replaced its current hardware system and is substantially Year 2000 compliant. The estimated cost of Year 2000 compliance is $275,000, and is not expected to have a material impact on the Company's financial performance. Principal risk areas for the Company would be the potential inability to bill its principal third-party payer, Medicare, for services rendered to patients, or the inability of the third-party payer's systems to recognize the billing data, delaying payment for services rendered. HCFA's March 31, 1999 Quarterly Progress Report states that all 25 of their internal mission critical systems are compliant. Of their external mission critical systems, 75 of 82 are compliant and the remaining 7 are to be retired. The Company's principal Fiscal Intermediary, United Government Services, anticipates all information technology under their control will be compliant by November 1, 1999. The Company is not aware of any significant exposure due to its own or the systems of third-parties; however, there can be no guarantee that the systems of third-parties on which the Company relies will be converted in a timely manner, or that such failure would not have a material adverse impact on the Company. The Company will continue to monitor information provided by HCFA and United Government Services and develop contingency plans as conditions merit. FORWARD LOOKING INFORMATION Statements included in this Form 10-Q that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially. The Company's ability to succeed in the future is dependent upon government regulation, third party reimbursement, competition and factors affecting the health care industry in general. The Company's future results of operations and financial condition will be affected by factors such as (i) 11 proposed changes to the Medicare reimbursement system from a retrospective cost-based system to a prospective payment system, (ii) settlements which may be reached with HCFA regarding cost reports, and (iii) its ability to establish and maintain close working relationships with referral sources, including payers, hospitals, physicians and other health care professionals. As a result of these developments, the Company is not able to conclude that it is more likely than not that it will be able to generate future earnings which will allow it to utilize its NOLs and, accordingly, has established a valuation allowance against the NOLs. Please refer to our Form 10-K for the fiscal year ended September 30, 1998 for a more thorough discussion of forward looking information. 12 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS - None. ITEM 2 - CHANGE IN SECURITIES - None. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None ITEM 5 - OTHER INFORMATION - None. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K - None. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q report to be signed on its behalf by the undersigned thereunto duly authorized. IN HOME HEALTH, INC. ------------------------------------- Registrant Date: July 26, 1999 /S/WOLFGANG VON MAACK ------------------------------------- Wolfgang von Maack Chief Executive Officer Date: July 26, 1999 /S/ROBERT J. HOFFMAN, JR. ------------------------------------- Robert J. Hoffman, Jr. Chief Financial Officer 14 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS, THE STATEMENTS OF INCOME, AND THE STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 19,094 0 13,968 1,094 0 32,897 14,446 10,939 42,781 16,539 0 0 19,732 164 5,065 42,781 0 59,815 0 32,338 25,275 0 (846) 3,048 0 3,048 0 0 0 3,048 .20 .20
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