e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the quarterly period ended June 30, 2006
OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 000-50118
VistaCare, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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06-1521534
(I.R.S. Employer Identification No.) |
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4800 North Scottsdale Road,
Suite 5000
Scottsdale, Arizona
(Address of principal executive offices)
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85251
(Zip code) |
(480) 648-4545
(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, as amended (the “Exchange Act”),
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. þ
Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
As of August 4, 2006, there were outstanding 16,432,319 shares of the issuer’s Class A Common
Stock, $0.01 par value per share.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
VISTACARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
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June 30, |
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September 30, |
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2006 |
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2005 |
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(unaudited) |
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(note 1) |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
16,657 |
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$ |
25,962 |
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Short-term investments |
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27,961 |
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27,413 |
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Patient accounts receivable (net of
allowance for denials of $2,145 and $1,594
at June 30, 2006 and September 30, 2005,
respectively) |
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26,517 |
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20,202 |
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Patient accounts receivable — room & board
(net of allowance for denials of $543 and
$1,527 at June 30, 2006 and September 30,
2005, respectively) |
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5,664 |
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9,149 |
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Prepaid expenses |
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4,120 |
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3,811 |
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Tax receivable |
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3,220 |
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4,329 |
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Deferred tax assets |
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10,696 |
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8,826 |
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Total current assets |
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94,835 |
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99,692 |
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Fixed assets, net |
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6,435 |
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5,757 |
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Goodwill |
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24,002 |
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24,002 |
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Other assets |
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5,885 |
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7,310 |
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Total assets |
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$ |
131,157 |
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$ |
136,761 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
914 |
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$ |
1,445 |
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Accrued expenses |
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22,452 |
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27,652 |
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Accrued Medicare Cap |
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15,392 |
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18,057 |
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Total current liabilities |
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38,758 |
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47,154 |
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Deferred tax liability-non-current |
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4,140 |
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2,745 |
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Stockholders’ equity: |
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Class A Common Stock, $0.01 par value;
authorized 33,000,000 shares; 16,421,924
and 16,376,529 shares issued and
outstanding at June 30, 2006 and September
30, 2005, respectively |
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164 |
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164 |
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Additional paid-in capital |
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109,638 |
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108,054 |
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Deferred compensation |
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— |
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(555 |
) |
Accumulated deficit |
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(21,543 |
) |
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(20,801 |
) |
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Total stockholders’ equity |
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88,259 |
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86,862 |
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Total liabilities and stockholders’ equity |
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$ |
131,157 |
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$ |
136,761 |
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See accompanying notes to consolidated financial statements.
1
VISTACARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share information)
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Net patient revenue |
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$ |
59,914 |
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$ |
57,476 |
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$ |
175,475 |
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$ |
171,547 |
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Operating expenses: |
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Patient care expenses |
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38,215 |
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36,113 |
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111,453 |
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106,546 |
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Sales, general and administrative
expenses |
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20,623 |
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19,026 |
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61,675 |
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57,382 |
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Depreciation |
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|
636 |
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|
507 |
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1,875 |
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1,440 |
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Amortization |
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636 |
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|
549 |
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1,935 |
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2,034 |
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Total operating expenses |
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60,110 |
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56,195 |
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176,938 |
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167,402 |
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Operating (loss) income |
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(196 |
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1,281 |
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(1,463 |
) |
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4,145 |
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Non-operating income (expense): |
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Interest income |
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338 |
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|
381 |
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1,017 |
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|
849 |
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Other expense |
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(77 |
) |
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(176 |
) |
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(317 |
) |
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(480 |
) |
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Total non-operating income, net |
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261 |
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205 |
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700 |
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369 |
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Net income (loss) before income taxes |
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65 |
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1,486 |
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(763 |
) |
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4,514 |
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Income tax expense (benefit) |
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258 |
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|
506 |
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(21 |
) |
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1,695 |
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Net (loss) income |
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$ |
(193 |
) |
|
$ |
980 |
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$ |
(742 |
) |
|
$ |
2,819 |
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Net (loss) income per share: |
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Basic net (loss) income per share |
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$ |
(0.01 |
) |
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$ |
0.06 |
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$ |
(0.05 |
) |
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$ |
0.17 |
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Diluted net (loss) income per share |
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$ |
(0.01 |
) |
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$ |
0.06 |
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$ |
(0.05 |
) |
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$ |
0.17 |
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Weighted average shares outstanding: |
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Basic |
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16,408 |
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16,362 |
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16,387 |
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16,299 |
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Diluted |
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16,408 |
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|
16,909 |
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16,387 |
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16,899 |
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See accompanying notes to consolidated financial statements.
2
VISTACARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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2006 |
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2005 |
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2006 |
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|
2005 |
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Operating activities |
|
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Net (loss) income |
|
$ |
(193 |
) |
|
$ |
980 |
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$ |
(742 |
) |
|
$ |
2,819 |
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities: |
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|
|
|
|
|
|
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Depreciation |
|
|
636 |
|
|
|
507 |
|
|
|
1,875 |
|
|
|
1,440 |
|
Amortization |
|
|
636 |
|
|
|
549 |
|
|
|
1,935 |
|
|
|
2,034 |
|
Share-based compensation |
|
|
749 |
|
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|
80 |
|
|
|
1,773 |
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|
225 |
|
Deferred income tax (benefit) expense |
|
|
(185 |
) |
|
|
335 |
|
|
|
(475 |
) |
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|
172 |
|
Loss on disposal of assets |
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|
39 |
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|
109 |
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|
185 |
|
|
|
346 |
|
Changes in operating assets and liabilities: |
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|
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Patient accounts receivable, net |
|
|
3,644 |
|
|
|
(2,531 |
) |
|
|
(2,830 |
) |
|
|
(4,980 |
) |
Prepaid expenses and other |
|
|
446 |
|
|
|
(59 |
) |
|
|
582 |
|
|
|
462 |
|
Payment of Medicare Cap assessments |
|
|
(90 |
) |
|
|
(1,125 |
) |
|
|
(6,211 |
) |
|
|
(7,492 |
) |
Increase in accrual for Medicare Cap |
|
|
1,150 |
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|
1,500 |
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|
3,546 |
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|
4,500 |
|
Accounts payable and accrued expenses |
|
|
(2,410 |
) |
|
|
(3,070 |
) |
|
|
(5,730 |
) |
|
|
382 |
|
|
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Net cash provided by (used in) operating activities |
|
|
4,422 |
|
|
|
(2,725 |
) |
|
|
(6,092 |
) |
|
|
(92 |
) |
Investing activities |
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Short-term investments purchased |
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(2,149 |
) |
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(240 |
) |
|
|
(4,225 |
) |
|
|
(23,014 |
) |
Short-term investments sold |
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|
1,937 |
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|
— |
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|
3,677 |
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|
12,480 |
|
Acquisition |
|
|
— |
|
|
|
(300 |
) |
|
|
— |
|
|
|
(300 |
) |
Purchases of equipment |
|
|
(438 |
) |
|
|
(508 |
) |
|
|
(2,679 |
) |
|
|
(1,765 |
) |
Internally developed software expenditures |
|
|
(142 |
) |
|
|
(134 |
) |
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|
(357 |
) |
|
|
(752 |
) |
(Increase) decrease in other assets |
|
|
(553 |
) |
|
|
(1,062 |
) |
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|
7 |
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(1,384 |
) |
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Net cash used in investing activities |
|
|
(1,345 |
) |
|
|
(2,244 |
) |
|
|
(3,577 |
) |
|
|
(14,735 |
) |
Financing activities |
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Proceeds from issuance of common stock from exercise of stock
options and employee stock purchase plan |
|
|
180 |
|
|
|
257 |
|
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|
364 |
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|
1,118 |
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|
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Net cash provided by financing activities |
|
|
180 |
|
|
|
257 |
|
|
|
364 |
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|
|
1,118 |
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|
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|
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Net increase (decrease) in cash and cash equivalents |
|
|
3,257 |
|
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|
(4,712 |
) |
|
|
(9,305 |
) |
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|
(13,709 |
) |
Cash and cash equivalents, beginning of period |
|
|
13,400 |
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|
|
19,690 |
|
|
|
25,962 |
|
|
|
28,687 |
|
|
|
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|
|
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|
|
|
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Cash and cash equivalents, end of period |
|
$ |
16,657 |
|
|
$ |
14,978 |
|
|
$ |
16,657 |
|
|
$ |
14,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and short-term investments, end of period |
|
$ |
44,618 |
|
|
$ |
58,677 |
|
|
$ |
44,618 |
|
|
$ |
58,677 |
|
|
|
|
|
|
|
|
|
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|
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|
See accompanying notes to consolidated financial statements.
3
VISTACARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2006
Description of Business
VistaCare, Inc. (VistaCare, Company, “we” or similar pronoun), is a Delaware corporation
providing medical care designed to address the physical, emotional, and spiritual needs of patients
with a terminal illness and the support of their family members. Hospice services are provided
predominately in the patient’s home or other residence of choice, such as a nursing home or
assisted living facility, or in a hospital or in-patient unit. VistaCare provides in-patient
services at its in-patient units and through leased beds at unrelated hospitals and skilled nursing
facilities on a per diem basis. VistaCare provides services in Alabama, Arizona, Colorado, Georgia,
Indiana, Massachusetts, New Mexico, Nevada, Ohio, Oklahoma, Pennsylvania, South Carolina, Texas and
Utah.
The accompanying interim consolidated financial statements of VistaCare have been prepared in
conformity with U.S. generally accepted accounting principles, consistent in all material respects
with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended September
30, 2005 (“fiscal 2005”), except for the adoption of Statement of Financial Accounting Standards
No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”) – See Note 1.
1. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include accounts of VistaCare and
its wholly owned subsidiaries: VistaCare USA, Inc., Vista Hospice Care, Inc., and FHI Health
Services, Inc. (including its wholly-owned subsidiaries). Intercompany transactions and balances
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered necessary,
consisting of normal recurring accruals, for a fair presentation have been included. Operating
results for the three and nine months ended June 30, 2006 are not necessarily indicative of the
results that may be expected for the fiscal year ending September 30, 2006.
The balance sheet at September 30, 2005 has been derived from the audited financial statements
at that date but does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further information, refer to
the consolidated financial statements and footnotes thereto included in VistaCare, Inc.’s Form 10-K
for the year ended September 30, 2005.
Per Share Information
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted
average number of shares outstanding during the period. Diluted net (loss) income per share is
computed by dividing net (loss) income by the weighted average number of shares outstanding during
the period plus the effect of potentially dilutive securities. We did not include 2.8 million
shares and 0.8 million shares for the three months ended June 30, 2006 and June 30, 2005,
respectively, because they would have been anti-dilutive. Similarly, we did not include 2.8 million
shares and 1.1 million shares in the diluted per share calculation for the nine months ended June
30, 2006 and June 30, 2005, respectively, because inclusion of the securities would be
anti-dilutive.
Stock Based Compensation
At June 30, 2006, the Company had two active share-based compensation plans. Stock option
awards granted from these plans are granted at the fair market value (i.e., the closing price of
the stock on the NASDAQ Global Market) on the date of grant, and vest over a period determined at
the time the options are granted, ranging from immediate vesting to five years graded vesting, and
generally
4
have a maximum term of ten years. When options are exercised, new shares of the Company’s
Class A common stock are issued under these share-based compensation plans. A total of 4.3 million
shares are authorized for issuance under these plans.
Prior to October 1, 2005, the Company accounted for the plans under the measurement and
recognition provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations, as permitted by Financial Accounting Standards Board (FASB) Statement No. 123,
Accounting for Stock-Based Compensation. Under APB Opinion No. 25, stock options granted to
employees and directors at market required no recognition of compensation cost. A share-based
compensation pro forma disclosure regarding the pro forma effect on net earnings assuming
compensation cost had been recognized in accordance with Statement of Financial Accounting Standard
No. 123 Stock-Based Compensation is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2005 |
|
|
2005 |
|
Net income: |
|
|
|
|
|
|
|
|
As reported: |
|
$ |
980 |
|
|
$ |
2,819 |
|
Deduct total stock-based employee
compensation expense determined under fair
value method for all awards, net of tax
impact |
|
|
(3,219 |
) |
|
|
(4,005 |
) |
|
|
|
|
|
|
|
Pro forma net loss to stockholders |
|
$ |
(2,239 |
) |
|
$ |
(1,186 |
) |
|
|
|
|
|
|
|
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.06 |
|
|
$ |
0.17 |
|
Pro forma |
|
|
(0.14 |
) |
|
|
(0.07 |
) |
Diluted net income(loss) per share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.06 |
|
|
$ |
0.17 |
|
Pro forma |
|
|
(0.14 |
) |
|
|
(0.07 |
) |
Weighted average shares used in computation: |
|
|
|
|
|
|
|
|
Basic |
|
|
16,362 |
|
|
|
16,299 |
|
Diluted |
|
|
16,362 |
|
|
|
16,299 |
|
Since we reported a proforma net loss for the three and nine months ended June 30, 2005,
potentially diluted shares were excluded from the calculation because they would have been
antidilutive.
Effective October 1, 2005, the Company adopted the fair value recognition provisions of FASB
Statement No. 123(R), Share-Based Payment (SFAS No. 123(R)), which requires companies to measure
and recognize compensation expense for all share-based payments at fair value. SFAS No. 123(R)
eliminates the ability to account for share-based compensation transactions using APB Opinion No.
25, and generally requires that such transactions be accounted for using prescribed
fair-value-based methods. SFAS No. 123(R) permits public companies to adopt its requirements using
one of two methods: (a) the “modified prospective” method in which compensation costs are
recognized beginning with the effective date based on the requirements of SFAS No. 123(R) for all
share-based payments granted or modified after the effective date, and based on the requirements of
SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R)
that remain unvested on the effective date; or (b) the “modified retrospective” method which
includes the requirements of the modified prospective method described above, but permits companies
to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma
disclosures either for all periods presented or prior interim periods of the year of adoption.
Effective October 1, 2005, the Company adopted SFAS No. 123(R) using the modified prospective
method. Other than certain options previously issued at an amount determined to be below fair value
for financial accounting purposes, no share-based employee compensation cost has been reflected in
net income prior to the adoption of SFAS No. 123(R). The Company calculates the fair value of stock
options using the Black-Scholes model. Results for prior periods have not been restated.
The adoption of SFAS No. 123(R) increased the Company’s net loss before income tax expense for
the three months ended June 30, 2006 and nine months ended June 30, 2006 by approximately $0.7
million and $1.4 million, respectively, and increased its net loss for the three months ended June
30, 2006 and nine months ended June 30, 2006 by approximately $0.5 million and $1.0 million,
respectively. Basic and diluted net income per share for both the three months and nine months
ended June 30, 2006 would have been $0.02 and $0.02, respectively, if the Company had not adopted
SFAS No. 123(R), compared to reported basic and diluted net loss for both the three months and nine
months ended June 30, 2006 per share of $0.01 and $0.05, respectively. As of June 30, 2006, total
unrecognized compensation cost related to stock option awards if no forfeiture rate was applied,
was approximately $8.8 million and the related weighted-average period over which it is expected to
be recognized is approximately 3.4 years.
Prior to the adoption of SFAS No. 123(R), the Company presented all benefits of tax deductions
resulting from the exercise of share-based compensation as operating cash flows in the Statement of
Cash Flows. SFAS No. 123(R) requires the benefits of realized
5
tax deductions in excess of the compensation cost recognized for those options (excess tax
benefits) to be classified as financing cash flows. The Company had no such amounts during the
three and nine months ended June 30, 2006.
Compensation expense related to share-based awards is generally amortized over the
vesting period with 10% recorded as patient care expenses and 90% recorded in sales, general and
administrative expenses in the consolidated statements of operations.
A summary of stock options within the Company’s share-based compensation plans and changes for
the nine months ended June 30, 2006 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of |
|
|
Weighted |
|
|
Weighted Average |
|
|
Aggregate |
|
| |
|
Shares Under |
|
|
Average |
|
|
Remaining |
|
|
Intrinsic |
|
| |
|
Option |
|
|
Exercise Price |
|
|
Contractual Term |
|
|
Value |
|
Balance at September 30, 2005 |
|
|
2,638,814 |
|
|
$ |
16.72 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
358,600 |
|
|
|
13.93 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(20,873 |
) |
|
|
4.94 |
|
|
|
|
|
|
|
|
|
Terminated/expired |
|
|
(326,584 |
) |
|
|
20.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006 |
|
|
2,649,957 |
|
|
$ |
16.03 |
|
|
|
8.0 |
|
|
$5.5 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during both the three and nine months ended June 30,
2006 was $0.1 million and $0.2 million respectively. Options exercisable under the Company’s
share-based compensation plans at June 30, 2006 were 1.8 million shares, with an average exercise
price of $16.61, an average remaining contractual term of 8 years, and an aggregate intrinsic value
of $(5.5) million. Cash received by the Company related to the exercise of options during both the
three and nine months ended June 30, 2006 amounted to $0.1 million.
A summary of restricted stock activity within the Company’s share-based compensation plans and
changes for the nine months ended June 30, 2006 is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
Grant Date |
|
| Nonvested Shares |
|
Shares |
|
|
Fair Value |
|
Nonvested at September 30, 2005 |
|
|
15,000 |
|
|
$ |
16.00 |
|
Granted |
|
|
175,000 |
|
|
|
13.47 |
|
Vested |
|
|
(3,600 |
) |
|
|
— |
|
Forfeited |
|
|
(31,800 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Nonvested at June 30, 2006 |
|
|
154,600 |
|
|
$ |
13.54 |
|
|
|
|
|
|
|
|
The total fair value of restricted shares vested during both the three and nine months ended
June 30, 2006 and June 30, 2005 was $0.1 million and zero, respectively.
The fair value of each stock option award is estimated on the date of the grant using the
Black-Scholes option pricing model with the following assumptions:
| |
|
|
|
|
| |
|
Three and Nine Months Ended |
|
Three and Nine Months Ended |
| |
|
June 30, 2006 |
|
June 30, 2005 |
Expected dividend yield |
|
0.0% |
|
0.0% |
Expected stock price volatility |
|
0.5 |
|
0.5 |
Risk-free interest rate range |
|
3.9% to 5.2% |
|
2.8% to 3.6% |
Expected life of options |
|
7.5 years |
|
5 years |
The risk-free interest rate is based on the U.S. treasury security rate in effect as of the
date of grant. The expected lives of options for the three months ended June 30, 2006 and June 30,
2005 is an average of the contractual terms and vesting periods, and historical data, respectively.
The weighted average fair value of stock options granted during the three months ended June 30,
2006 and June 30, 2005 was $8.21 and $7.85, respectively. The expected stock price volatility is
based on historical trading of the company’s stock.
Income Taxes
VistaCare accounts for income taxes under the liability method as required by FASB Statement
No. 109, Accounting for Income Taxes. Under the liability method, deferred taxes are determined
based on temporary differences between financial statement and tax
6
bases of assets and liabilities existing at each balance sheet date using enacted tax rates
for years in which the related taxes are expected to be paid or recovered.
Reclassifications
Certain amounts have been reclassified to conform to the current presentation.
2. Accrued Expenses
A summary of accrued expenses follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
September 30, |
|
| |
|
2006 |
|
|
2005 |
|
Patient care expenses |
|
$ |
10,864 |
|
|
$ |
13,186 |
|
Administrative expenses |
|
|
5,281 |
|
|
|
3,713 |
|
Salaries and payroll taxes |
|
|
2,602 |
|
|
|
4,888 |
|
Paid time-off |
|
|
1,878 |
|
|
|
2,115 |
|
Self-insurance health expenses |
|
|
1,520 |
|
|
|
3,011 |
|
Taxes |
|
|
307 |
|
|
|
739 |
|
|
|
|
|
|
|
|
Total accrued expenses |
|
$ |
22,452 |
|
|
$ |
27,652 |
|
|
|
|
|
|
|
|
3. Litigation
Between August and September 2004, approximately five complaints were filed individually and
on behalf of all others similarly situated in the United States District Court for the District of
Arizona against the Company and two of our officers alleging violations of the federal securities
laws arising out of declines in the Company’s stock price in 2004. Specifically, the complaints
alleged claims in connection with various statements and purported omissions to the public and to
the securities markets relating to the Company’s August 2004 announcement of our decision to accrue
an increased amount for the quarter ended June 30, 2004 for potential liability due to the Medicare
Cap on reimbursement for hospice services. The five lawsuits were consolidated in April 2005. On
June 16, 2006, the Company entered into a settlement agreement with the plaintiffs, agreeing to pay
$4,600,000 to settle this case, all of which is being paid for by insurance. The settlement was
preliminarily approved by the Court on July 6, 2006 and is set for a final determination on
September 29, 2006. Should the Court grant final approval of the settlement, the case will be
dismissed with prejudice. No assurances can be given that the Court will ultimately approve the
settlement. If the Court does not approve the settlement, the Company will continue to vigorously
defend the action.
Between August and September 2004, two shareholders filed separate derivative lawsuits
purportedly on behalf of the Company against several present and former officers and members of the
Board of Directors of the Company in the United States District Court for the District of Arizona.
The two derivative complaints, which have been consolidated, allege breaches of fiduciary duties,
abuse of control, mismanagement, waste of corporate assets and unjust enrichment, as a result of
the same activities alleged in the lawsuits discussed above. The derivative complaint seeks
attorney fees and the payment of damages to the Company. As of the date of this report, the
defendants filed a motion to dismiss and no discovery has occurred.
We are also subject to a variety of other claims and suits that arise from time to time in the
ordinary course of our business. While management currently believes that resolving all of the
matters discussed herein individually or in aggregate, will not have a material adverse impact on
our financial position or our results of operations, the litigation and other claims that we face
are subject to inherent uncertainties and management’s view of these matters may change in the
future. Should an unfavorable final outcome occur, there exists the possibility of a material
adverse impact on our financial position, results of operations and cash flows for the period in
which the effect becomes probable and reasonably estimable.
7
4. Dilutive Securities
The following table presents the calculation of basic and diluted net (loss) income per share
(in thousands, except per share information):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
June 30, |
|
|
June 30, |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(193 |
) |
|
$ |
980 |
|
|
$ |
(742 |
) |
|
$ |
2,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net (loss) income
per share — weighted average shares |
|
|
16,408 |
|
|
|
16,362 |
|
|
|
16,387 |
|
|
|
16,299 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
0 |
|
|
|
547 |
|
|
|
0 |
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net (loss)
income per share — adjusted weighted
average shares and assumed conversion |
|
|
16,408 |
|
|
|
16,909 |
|
|
|
16,387 |
|
|
|
16,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income to stockholders |
|
$ |
(0.01 |
) |
|
$ |
0.06 |
|
|
$ |
(0.05 |
) |
|
$ |
0.17 |
|
Diluted net (loss) income to stockholders |
|
$ |
(0.01 |
) |
|
$ |
0.06 |
|
|
$ |
(0.05 |
) |
|
$ |
0.17 |
|
5. Subsequent Events
On July 5, 2006 the Company was informed by the Centers for Medicare and Medicaid Services and
the Indiana Medicaid program that the Company would have the right to bill up to $0.9 million for
past services that were not determined to be eligible for payments at the time of service. Certain
uncertainties exist with respect to the information required for billing and collection so the
Company will not record the related revenues until all uncertainties are satisfied.
In addition, in the third quarter of 2006, the Company decided, for strategic reasons, to sell
its Cincinnati, Ohio program. A sale agreement was executed on July 31, 2006, and the parties are
pursing satisfaction of the conditions for closing. The sale of the Cincinnati program is
anticipated to be completed in the fourth quarter of 2006. Management determined the program’s
financial performance to be immaterial to separately disclose as an asset held for sale on the
consolidated financial statements for the three and nine months ending June 30, 2006. The Company
does not expect a loss on this sale.
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
At June 30, 2006, we operated 57 hospice programs under 37 Medicare provider numbers including
five in-patient units, and served approximately 5,265 patients in 14 states. During fiscal year
2006, we are planning to continue development of our new programs and in-patient units. Our net
patient revenue increased to $59.9 million for the three months ended June 30, 2006, from $57.5
million for the three months ended June 30, 2005 and increased to $175.5 million for the nine
months ended June 30, 2006 from $171.5 million for the nine months ended June 30, 2005. Our net
patient revenue for the three months ended June 30, 2006 includes a reduction of $1.2 million, as
compared to a reduction of $1.5 million for the three months ended June 30, 2005, and a reduction
of $3.5 million for the nine months ended June 30, 2006, as compared to a reduction of $4.5 million
for the nine months ended June 30, 2005.
For the three months ended June 30, 2006, we recorded a net loss of $0.2 million, as compared
to net income of $1.0 million for the three months ended June 30, 2005. Net loss for the nine
months ended June 30, 2006 was $0.7 million, compared to net income of $2.8 million for the nine
months ended June 30, 2005. Our 2006 results were positively impacted by a 3.7% increase in
Medicare hospice reimbursement rates effective October 1, 2005. Our 2006 results were negatively
impacted by the Indiana decertification (see “Current and Subsequent Events” below) and increases
in patient care labor expense, increases in sales, general and administrative expense, new program
and in-patient unit development costs and share-based compensation expense pursuant to SFAS 123(R).
Critical Accounting Policy Update
Adoption of SFAS No. 123(R)
Effective October 1, 2005, the Company adopted SFAS No. 123(R), Share-Based Payment. This new
accounting standard requires all stock-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair values. The Company
adopted this accounting treatment on the modified prospective basis. Prior to the adoption of SFAS
No. 123(R), the Company accounted for share-based payments to employees under APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Accordingly, stock-based
compensation was included as pro forma disclosure in the financial statement footnotes. For the
three months ended June 30, 2006 and June 30, 2005, we included $0.8 million and $0.1 million of
share-based compensation expense in our sales, general and administrative expenses and patient care
expenses, and $1.8 million and $0.2 million for the nine months ended June 30, 2006 and June 30,
2005, respectively. The recognized tax benefit for stock-based compensation was $0.2 million and
$0.5 million for the three and nine months ended June 30, 2006, respectively.
Current and Subsequent Events
On October 17, 2005, we were notified by the Centers for Medicare and Medicaid Services
(“CMS”) that as a result of surveys conducted by the Indiana State Department of Health, the
Medicare provider agreement for our Indianapolis hospice program was being terminated effective
October 15, 2005. The termination also impacted our Terre Haute, Indiana program since the two
programs shared a Medicare provider number. Since a hospice provider must be certified in the
Medicare program to participate in the Indiana Medicaid program, on October 20, 2005, we were
similarly notified that our Indianapolis and Terre Haute programs were terminated as Medicaid
providers effective October 15, 2005. The terminations limited our reimbursement (for services
provided to patients being served on the effective date of termination) and no reimbursement was
available for any services to patients admitted into the affected programs after the date of
termination. We took steps to allow the patients and families of the affected programs to remain
under our care. Some patients transferred to another of our Indiana programs, some patients
transferred to competitor programs, and we continued to serve some patients at the Indianapolis and
Terre Haute programs without the expectation of reimbursement. We appealed the termination
determination. With no admission of liability or fault on our part and no admission of error or
fault by CMS, on July 5, 2006 a settlement was reached in order to avoid the unnecessary expense of
litigation and arrive at a final resolution of the matter. Under the terms of the settlement, CMS
agreed to modify the effective date of the termination to December 27, 2005 and we agreed to
dismiss our appeal. As a result of the settlement, during the fourth quarter of fiscal year 2006
we will be able to bill and should receive payment for properly reimbursable services provided to
patients through January 26, 2006, not to exceed $0.8 million. We have entered into a similar
settlement with the Indiana Medicaid program, and anticipate billing and receiving payment during
the fourth quarter for properly reimbursable services to Medicaid beneficiaries in the approximate
amount of $0.1 million. Certain uncertainties exist with respect to the information required for
billing and collection, so the company will not record the related revenues until all uncertainties
are satisfied. We will record the additional reimbursement as net patient revenue in the period our
billings are approved by our Medicare Intermediary and the Indiana Medicaid program.
9
We applied to separate Terre Haute from Indianapolis’s provider number, and were approved for
a separate provider number for Terre Haute as of March 7, 2006. From November 15, 2005 to March 6,
2006, due to the termination of our Medicare and Medicaid provider agreements as discussed above,
we could not admit new patients to our Terre Haute program but we continued to provide care for
existing patients without the expectation of receiving reimbursement. We began receiving
reimbursement for Medicare and Medicaid services for our patients transferred to our new Terre
Haute provider number as of March 7, 2006. This transfer of patients, which has been as seamless as
possible to the patients and families, was a time consuming process of discharging the patient from
one provider number and admitting the same patient through a standard admission process at the new
provider number. These Terre Haute patient transfers were processed over several weeks and by the
end of April 2006, all patients were transferred to the new provider number.
Following
the decertification action discussed above, in order to continue to
serve the Indianapolis community, we applied for permission to
relocate our Bloomington, Indiana program to Indianapolis, which
relocation was approved by the Indiana State Department of Health on
November 11, 2005. We also requested that our Bloomington office be
approved as an alternative delivery site (“ADS”) for the program that
had been relocated to Indianapolis. We also received approval for
the Bloomington office to become an ADS for the relocated program.
In early March, 2006, we began to admit new Indianapolis and
Bloomington patients. Due to the relocation, the Indianapolis
program received a Medicare certification survey. There were no
significant findings as a result of the survey, and our plan of
correction was accepted June 30, 2006.
Our operating results throughout Indiana were impacted by the need to devote leadership and
program team resources to implement and convert to a new documentation system that is intended to
better meet the preferences of the Indiana State Department of Health. As a result of these costs
and other costs associated with our recertification efforts, and our inability to admit new
patients to our Terre Haute program between October 15, 2005 and March 7, 2006, our nine months
ended June 30, 2006 pre-tax earnings performance was negatively impacted by approximately $6.9
million compared to the nine months ended June 30, 2005, the loss primarily consisted of $1.8
million for unreimbursed patient care services provided, $5.7 million for our estimated additional
lost revenues due to our inability to maintain the programs at historical levels, and $1.0 million
for legal, training, and travel costs related to the certification matters partially offset by
lower expenses of approximately $1.6 million primarily due to a lower payroll expense.
During the first and second quarters, we consolidated our four Utah programs into two
programs. On December 16, 2005, we combined our patients from our Lehi, Utah program with our Salt
Lake City, Utah program. On February 1, 2006, we consolidated our Logan, Utah program into our
Ogden, Utah program. In both cases, we were able to execute the transition with no impact on
patient care, while reducing operating expenses and estimated Medicare Cap liability.
On February 8, 2006, VistaCare and Emory Healthcare announced the opening of a 28-bed hospice
in-patient unit operated by VistaCare at the Bud Terrace Wesley Woods Skilled Nursing facility to
enhance the depth and scope of end-of-life care services in the Atlanta, Georgia metropolitan area
and throughout the Emory Healthcare system.
On January 10, 2006 we opened a 16 bed in-patient unit in Evansville, Indiana at Trilogy
Health Systems’ River Pointe Health Campus.
On May 31, 2006, James T. Robinson was appointed as our Chief Marketing Officer (CMO) and
Executive Vice President of Marketing. In his role as CMO, Mr. Robinson has assumed leadership of
our sales, marketing, marketing communications and strategic planning. Since 1997, Mr. Robinson
served at HealthBanks, Inc. as its President and Chief Executive Officer. Prior to HealthBanks, he
served as Vice President of Marketing, Sales, and Business Development for Avicenna Systems
Corporation (now part of WebMD), an Internet health information start-up company he co-founded and
sold in 1996. Mr. Robinson also has held a variety of sales and marketing management positions with
St. Jude Medical, Inc., Hewlett Packard Medical Systems, and the Xerox Corporation.
On
June 8, 2006 we admitted our first patient to a 16 bed in-patient
unit we opened in Lubbock, Texas at the Carillon Senior
Living Campus.
In addition, in the third quarter of 2006, for strategic reasons, the Company decided to sell
its Cincinnati, Ohio program. An agreement related to the sale was executed on July 31, 2006, and
the parties are pursing satisfaction of the conditions for closing. The sale of the Cincinnati
program is anticipated to be completed in the fourth quarter of 2006. Management determined the
program’s financial performance to be immaterial to separately disclose as an asset held for sale
on the consolidated financial statements for the three and nine months ending June 30, 2006. The
company does not expect a loss on this sale.
10
VISTACARE, INC.
HIGHLIGHTS
(dollars in millions, except per day/per diem and per beneficiary)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Twelve months Ended |
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
| |
|
|
|
|
|
June 30, 2006 |
|
|
June 30, 2005 |
|
|
September 30, 2005 |
|
|
June 30, 2006 |
|
|
June 30, 2005 |
|
| Patient Statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average Daily Census (ADC) |
|
|
5,213 |
|
|
|
5,387 |
|
|
|
5,376 |
|
|
|
5,206 |
|
|
|
5,354 |
|
| Ending census on last day of period |
|
|
5,265 |
|
|
|
5,459 |
|
|
|
5,510 |
|
|
|
5,265 |
|
|
|
5,459 |
|
| Patient days |
|
|
474,408 |
|
|
|
490,244 |
|
|
|
1,962,098 |
|
|
|
1,421,375 |
|
|
|
1,461,659 |
|
| In-patient days (general in-patient) |
|
|
5,681 |
|
|
|
3,663 |
|
|
|
17,335 |
|
|
|
15,638 |
|
|
|
13,164 |
|
| Admissions |
|
|
4,368 |
|
|
|
4,428 |
|
|
|
17,574 |
|
|
|
12,932 |
|
|
|
13,343 |
|
| Diagnosis mix of admitted patients: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancer |
|
|
31.8 |
% |
|
|
30.5 |
% |
|
|
30.8 |
% |
|
|
31.2 |
% |
|
|
30.4 |
% |
|
|
Alzheimers/Dementia |
|
|
11.9 |
% |
|
|
10.1 |
% |
|
|
11.4 |
% |
|
|
12.5 |
% |
|
|
11.2 |
% |
|
|
Heart disease |
|
|
18.7 |
% |
|
|
18.3 |
% |
|
|
18.0 |
% |
|
|
18.9 |
% |
|
|
18.3 |
% |
|
|
Respiratory |
|
|
9.0 |
% |
|
|
9.1 |
% |
|
|
8.6 |
% |
|
|
9.3 |
% |
|
|
8.9 |
% |
|
|
Failure to thrive/Rapid decline |
|
|
22.0 |
% |
|
|
22.8 |
% |
|
|
22.8 |
% |
|
|
21.2 |
% |
|
|
23.0 |
% |
|
|
All other |
|
|
6.6 |
% |
|
|
9.2 |
% |
|
|
8.4 |
% |
|
|
6.9 |
% |
|
|
8.2 |
% |
| Discharges |
|
|
4,289 |
|
|
|
4,273 |
|
|
|
17,382 |
|
|
|
13,150 |
|
|
|
13,043 |
|
| Average length of stay on discharged patients |
|
|
109 |
|
|
|
113 |
|
|
|
113 |
|
|
|
112 |
|
|
|
115 |
|
| Median length of stay on discharged patients |
|
|
29 |
|
|
|
31 |
|
|
|
31 |
|
|
|
30 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Program site Statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Programs |
|
|
57 |
|
|
|
58 |
|
|
|
58 |
|
|
|
57 |
|
|
|
58 |
|
| In-patient units (included within a program) |
|
|
5 |
|
|
|
1 |
|
|
|
2 |
|
|
|
5 |
|
|
|
1 |
|
| Medicare provider numbers |
|
|
37 |
|
|
|
37 |
|
|
|
37 |
|
|
|
37 |
|
|
|
37 |
|
| Programs by ADC size
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
0-60 ADC |
|
|
22 |
|
|
|
21 |
|
|
|
21 |
|
|
|
22 |
|
|
|
21 |
|
|
|
61-100 ADC |
|
|
16 |
|
|
|
14 |
|
|
|
15 |
|
|
|
16 |
|
|
|
14 |
|
|
|
100-200 ADC |
|
|
14 |
|
|
|
17 |
|
|
|
16 |
|
|
|
14 |
|
|
|
17 |
|
|
|
200+ ADC |
|
|
5 |
|
|
|
6 |
|
|
|
6 |
|
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net patient revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net patient revenue |
|
$ |
59.9 |
|
|
$ |
57.5 |
|
|
$ |
225.4 |
|
|
$ |
175.5 |
|
|
$ |
171.5 |
|
| Net patient revenue per day of care |
|
$ |
126.00 |
|
|
$ |
117.00 |
|
|
$ |
115.00 |
|
|
$ |
123.00 |
|
|
$ |
117.00 |
|
| Patient revenue payor % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare |
|
|
92.5 |
% |
|
|
92.7 |
% |
|
|
92.5 |
% |
|
|
92.5 |
% |
|
|
93.0 |
% |
|
|
Medicaid |
|
|
4.5 |
% |
|
|
4.5 |
% |
|
|
4.6 |
% |
|
|
4.5 |
% |
|
|
4.2 |
% |
|
|
Private insurers and managed care |
|
|
3.0 |
% |
|
|
2.8 |
% |
|
|
2.9 |
% |
|
|
3.0 |
% |
|
|
2.8 |
% |
| Level of care % of patient revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Routine home care |
|
|
93.9 |
% |
|
|
96.1 |
% |
|
|
95.4 |
% |
|
|
94.7 |
% |
|
|
95.6 |
% |
|
|
General in-patient care |
|
|
5.0 |
% |
|
|
3.0 |
% |
|
|
3.7 |
% |
|
|
4.3 |
% |
|
|
3.6 |
% |
|
|
Continuous home care |
|
|
1.0 |
% |
|
|
0.7 |
% |
|
|
0.7 |
% |
|
|
0.8 |
% |
|
|
0.6 |
% |
|
|
Respite in-patient care |
|
|
0.1 |
% |
|
|
0.2 |
% |
|
|
0.2 |
% |
|
|
0.2 |
% |
|
|
0.2 |
% |
| Level of care base Medicare per diem
reimbursement rates in effect: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Routine home care |
|
$ |
126.49 |
|
|
$ |
121.98 |
|
|
$ |
121.98 |
|
|
$ |
126.49 |
|
|
$ |
121.98 |
|
|
|
General in-patient care |
|
$ |
562.69 |
|
|
$ |
542.61 |
|
|
$ |
542.61 |
|
|
$ |
562.69 |
|
|
$ |
542.61 |
|
|
|
Continuous home care |
|
$ |
738.26 |
|
|
$ |
711.92 |
|
|
$ |
711.92 |
|
|
$ |
738.26 |
|
|
$ |
711.92 |
|
|
|
Respite in-patient care |
|
$ |
130.85 |
|
|
$ |
126.18 |
|
|
$ |
126.18 |
|
|
$ |
130.85 |
|
|
$ |
126.18 |
|
|
|
Increase in base rates |
|
|
3.7 |
% |
|
|
3.3 |
% |
|
|
3.3 |
% |
|
|
3.7 |
% |
|
|
3.3 |
% |
| Hospice Medicare Cap per beneficiary |
|
$ |
20,585.39 |
|
|
$ |
19,777.51 |
|
|
$ |
19,777.51 |
|
|
$ |
20,585.39 |
|
|
$ |
19,777.51 |
|
| Accrued Medicare Cap liability (1) |
|
$ |
15.4 |
|
|
$ |
16.6 |
|
|
$ |
18.1 |
|
|
$ |
15.4 |
|
|
$ |
16.6 |
|
| Estimated Medicare Cap reductions to
revenue |
|
$ |
1.2 |
|
|
$ |
1.5 |
|
|
$ |
11.9 |
|
|
$ |
3.5 |
|
|
$ |
4.5 |
|
| Medicare Cap paid |
|
$ |
(0.1 |
) |
|
$ |
(1.1 |
) |
|
$ |
(13.4 |
) |
|
$ |
(6.2 |
) |
|
$ |
(7.5 |
) |
| Estimated payment denials |
|
$ |
(0.2 |
) |
|
$ |
0.6 |
|
|
$ |
6.2 |
|
|
$ |
1.5 |
|
|
$ |
2.9 |
|
| Allowance for denials reserve |
|
$ |
2.7 |
|
|
$ |
3.1 |
|
|
$ |
3.1 |
|
|
$ |
2.7 |
|
|
$ |
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nursing home expenses |
|
$ |
12.0 |
|
|
$ |
12.0 |
|
|
$ |
53.1 |
|
|
$ |
35.6 |
|
|
$ |
35.6 |
|
| Nursing home revenues |
|
$ |
(11.0 |
) |
|
$ |
(10.8 |
) |
|
$ |
(47.9 |
) |
|
$ |
(33.1 |
) |
|
$ |
(32.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nursing home costs, net |
|
$ |
1.0 |
|
|
$ |
1.2 |
|
|
$ |
5.2 |
|
|
$ |
2.5 |
|
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
We have not received all of the assessment letters for our fiscal year ended September 30, 2005 as of the date of this report. |
11
Glossary
As used in this report, the following terms have the meanings indicated.
Average Daily Census (ADC): Total patient days for all patients divided by the number of days
during the period.
In-patient days: Total patient days in an acute care facility (hospital based or company owned).
Patient Day: A day we provide service to a patient.
Admissions: New admissions including re-admissions.
Discharges: Total patients deceased or discharged from service.
Average length of stay: Total days of care for patients discharged during the period divided by the
total patients discharged.
Program: A separate hospice location operated under the same management as other company hospices.
Provider number: Unique identifiers assigned by Medicare and Medicaid to their providers.
Medicare Cap: The limitation on overall aggregate payments made to a hospice for services provided
to Medicare beneficiaries during a cap period that begins November 1 and ends October 31 each year,
assessed on an individual provider number basis.
Medicare Cap Calculation: A calculation made by the Medicare fiscal intermediary pursuant to
applicable Medicare regulations to determine whether a hospice provider has received payments in
excess of the Medicare Cap. The total Medicare payments received under a given provider number for
services provided to all Medicare hospice care beneficiaries served within the provider number
between each November 1 and October 31 is determined (“Total Payments”). The number of Medicare
beneficiaries electing to receive hospice care for the first time from that hospice provider during
September 28 of each year and September 27 of the following year is determined (“Beneficiaries”).
The number of Beneficiaries is multiplied by the per beneficiary cap amount for the applicable cap
period (“Cap Amount”). If the Total Payments are greater than the Cap Amount, the provider refunds
the difference.
In-patient unit: Patient care provided in a hospital or other facility when pain and other symptoms
cannot be managed effectively in a home setting. In the in-patient units we operate, we care for
our own patients and a limited number of other hospices’ patients. In some of our programs we
contract with other in-patient units to provide care for our patients.
Results of Operations
The following table sets forth selected consolidated financial information as a percentage of
net patient revenue for the periods
indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Nine Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Net patient revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient care expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits and payroll taxes |
|
|
42.4 |
% |
|
|
40.3 |
% |
|
|
41.3 |
% |
|
|
40.4 |
% |
Pharmaceuticals |
|
|
5.0 |
% |
|
|
4.7 |
% |
|
|
4.9 |
% |
|
|
4.8 |
% |
Durable medical equipment |
|
|
4.7 |
% |
|
|
5.1 |
% |
|
|
4.8 |
% |
|
|
5.0 |
% |
Other (including in-patient arrangements, nursing home
costs, net, purchased services, travel and supplies) |
|
|
11.7 |
% |
|
|
12.7 |
% |
|
|
12.5 |
% |
|
|
11.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total patient care expenses |
|
|
63.8 |
% |
|
|
62.8 |
% |
|
|
63.5 |
% |
|
|
62.1 |
% |
Sales, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits and payroll taxes |
|
|
21.1 |
% |
|
|
20.1 |
% |
|
|
20.5 |
% |
|
|
20.1 |
% |
Office leases |
|
|
2.8 |
% |
|
|
2.6 |
% |
|
|
2.9 |
% |
|
|
2.6 |
% |
Other (including severance, travel, marketing and charitable
contributions) |
|
|
10.5 |
% |
|
|
10.4 |
% |
|
|
11.7 |
% |
|
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales, general and administrative expenses |
|
|
34.4 |
% |
|
|
33.1 |
% |
|
|
35.1 |
% |
|
|
33.5 |
% |
12
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Nine Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Depreciation and amortization |
|
|
2.1 |
% |
|
|
1.8 |
% |
|
|
2.2 |
% |
|
|
2.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(0.3 |
)% |
|
|
2.3 |
% |
|
|
(0.8 |
)% |
|
|
2.4 |
% |
Non-operating income |
|
|
0.4 |
% |
|
|
0.3 |
% |
|
|
0.4 |
% |
|
|
0.2 |
% |
Income tax (benefit) expense |
|
|
0.4 |
% |
|
|
0.9 |
% |
|
|
(0.0 |
)% |
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(0.3 |
)% |
|
|
1.7 |
% |
|
|
(0.4 |
)% |
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended June 30, 2006, Compared to Three and Nine Months Ended June 30, 2005
Net Patient Revenue
Net patient revenue is the amount we are entitled to collect for our services, which is
determined by the number of billable patient days, the level of care, the payor and the geographic
area. These are adjusted for estimated Medicare Cap liabilities and estimated payment denials. Net
patient revenue increased $2.4 million, or 4.2%, to $59.9 million for the three months ended June
30, 2006, compared to $57.5 million for the three months ended June 30, 2005. Net patient revenue
increased $3.9 million, or 2.3%, to $175.5 million for the nine months ended June 30, 2006,
compared to $171.5 million for the nine months ended June 30, 2005. Net patient revenue per day of
care increased to approximately $126 per day for the three months ended June 30, 2006 from
approximately $117 per day for the three months ended June 30, 2005. Net patient revenue per day of
care increased to approximately $123 per day for the nine months ended June 30, 2006 from
approximately $117 per day for the nine months ended June 30, 2005. Overall increases in net
patient revenue were primarily due to:
| • |
|
a Medicare reimbursement rate increase of 3.7%, effective October 1, 2005; |
| • |
|
an increase in the number of in-patient days, which have a higher per diem rate, of 2,018 days to 5,681 days for the
three months ended June 30, 2006, from 3,663 days from the three months ended June 30, 2005, and an increase of 2,484
days to 15,648 days for the nine months ended June 30, 2006, from 13,164 days for the nine months ended June 30, 2005; |
| • |
|
a reduction in our allowance for denials for patient accounts receivable and room and board of $0.7 million, to $0.4
million for the three months ended June 30, 2006, from $0.3 million for the three months ended June 30, 2005 and of
$1.0 million, to $0.8 million for the nine months ended June 30, 2006, from $1.8 million for the nine months ended June
30, 2005; and |
| • |
|
a reduction in our estimated Medicare Cap provision of $0.3 million, to $1.2 million for the three months ended June
30, 2006, from $1.5 million for the three months ended June 30, 2005 and of $1.0 million, to $3.5 million for the nine
months ended June 30, 2006, from $4.5 million for the nine months ended June 30, 2005. |
These revenue increases were offset by the negative impact of approximately $2.1 million and
$7.4 million for the three and nine months ended June 30, 2006, respectively, as compared to the
three and nine months ended June 30, 2005, as a result of the decertification of our Indianapolis,
Indiana program. Our net revenues for the four affected Indiana sites were $2.7 million for the
three months ended June 30, 2006 as compared to $4.8 million for the three months ended June 30,
2005 and were $6.8 million for the
nine months ended June 30, 2006 as compared to $14.2 million for the nine months ended June
30, 2005. This decertification also negatively impacted our Terre Haute program since it shared a
Medicare provider number with our Indianapolis location, and our Bloomington and Seymour programs,
to which some of our patients were transferred. This is discussed further under the heading
“Current and Subsequent Events” in Management’s Discussion and Analysis of Financial Condition and
Results of Operations included in this report.
We are subject to Medicare Cap limits based on the total amount of Medicare payments that will
be made to each of our provider numbers. We actively monitor each of our programs, by provider
number, as to their program specific admission, discharge rate and average length of stay data in
an attempt to determine whether they have the potential to exceed the annual Medicare Cap. When we
determine that a provider number has the potential to exceed the annual Medicare Cap based upon
trends, we attempt to institute corrective action, such as a change in patient mix or increase in
patient admissions. However, to the extent we believe our corrective action will not avoid a
Medicare Cap charge, we estimate the amount that we could be required to repay Medicare following
the end of the Medicare Cap year, and accrue that amount in proportion to the number of months that
have elapsed in the Medicare Cap year as a reduction to net patient revenue.
We reduced our Medicare cap expense by $0.3 million from $1.5 million for the three months
ended June 30, 2005, to $1.2 million for the three months ended June 30, 2006. In addition, we
reduced our Medicare cap expense by $1.0 million, from $4.5 million for the nine months ended June
30, 2005, to $3.5 million for the nine months ended June 30, 2006. The $3.5 million for the nine
months
13
ended June 30, 2006 represents approximately seventy-five percent of the total estimated
accrual for patient service dates during 2006, including pro-ration for estimated services that
these patients in 2006 may receive from other hospice programs. We have not yet received any final
assessment letters for the 2005 Medicare Cap year for exceeding the Medicare Cap, except for one
pending notification received prior to the filing of this from 10-Q in the amount of $0.6 million
which we have begun to access as to its propriety. As of June 30, 2006 and September 30, 2005, our
accrued expenses included $15.4 million and $18.1 million, respectively, for Medicare Cap accrued
liability.
We recorded reductions to gross patient revenue for estimated payment denials, contractual
adjustments (such as differences in payments by commercial payors) and subsequent changes to
initial level of care determinations (made retroactively by VistaCare staff after initial
admission) of $1.5 million for the nine months ended June 30, 2006, compared to $2.9 million for
the nine months ended June 30, 2005. The allowance for denials on patient accounts receivable and
room and board was $2.7 million and $3.1 million at June 30, 2006 and September 30, 2005,
respectively.
Patient Care Expenses
Patient care expenses consist primarily of salaries, benefits, payroll taxes and mileage costs
associated with patient care and direct patient care expenses for pharmaceuticals, durable medical
equipment, medical supplies, in-patient facilities, nursing home costs and purchased services such
as ambulance, infusion and radiology. Patient care expenses increased $2.1 million, or 5.8%, to
$38.2 million for the three months ended June 30, 2006 from $36.1 million for the three months
ended June 30, 2005, and increased $5.0 million, or 4.6%, to $111.5 million for the nine months
ended June 30, 2006 from $106.5 million for the nine months ended June 30, 2005. As a percentage of
net patient revenue, patient care expenses increased to 63.8% for the three months ended June 30,
2006 from 62.8% for the three months ended June 30, 2005, and increased to 63.5% for the nine
months ended June 30, 2006 from 62.1% for the nine months ended June 30, 2005, primarily
attributable to lower revenues due to the decertification of
Indianapolis and higher costs, as described below.
The increase in patient care expenses relates to the higher salaries, benefits, payroll taxes,
and travel costs of hospice care providers of $2.4 million for the three months ended June 30, 2006
compared to the three months ended June 30, 2005 and $4.0 million for the nine months ended June
30, 2006 compared to the nine months ended June 30, 2005. These increases were attributable to
increases in costs of in-patient unit (IPU) nurses, contracted labor, physician visits and travel
expenses. These higher salaries, benefits and payroll taxes were partially offset by lower health
insurance expenses of $1.3 million for the nine months ended June 30, 2006 compared to the nine
months ended June 30, 2005 relating to a decline in our claim experience and reimbursement lag
time. For the nine months ended June 30, 2006 as compared to the nine months ended June 30, 2005,
patient care expenses also increased from higher in-patient expenses of $0.9 million for in-patient
rent and in-patient hospital and higher mileage reimbursements of $0.7 million from higher mileage
reimbursement rates.
These patient care expense increases were partially offset by a reduction in net room and
board expenses of $0.2 million and $0.5 million for the three and nine months ended June 30, 2006
compared to the three and nine months ended June 30, 2005. Nursing home expenses totaled
approximately $12.0 million for both the three months ended June 30, 2006 and June 30, 2005, and
$35.6 million for both the nine months ended June 30, 2006 and June 30, 2005. Nursing home
revenues totaled approximately $11.0 million and $10.8
million for the three months ended June 30, 2006 and June 30, 2005, respectively, and $33.1
million and $32.6 million for the nine months ended June 30, 2006 and June 30, 2005, respectively.
Our nursing home costs, net, were $1.0 million and $1.2 million for the three months ended June 30,
2006 and June 30, 2005, respectively, and $2.5 million and $3.0 million for the nine months ended
June 30, 2006 and June 30, 2005, respectively.
Sales, General and Administrative Expenses
Sales, general and administrative (SG&A) expenses primarily include salaries, payroll taxes,
benefits and travel expenses associated with our staff not directly involved with patient care,
bonuses for all employees, marketing, office leases, professional services and use taxes. SG&A
expenses increased $1.6 million, or 8.4%, to $20.6 million for the three months ended June 30, 2006
from $19.0 million for the three months ended June 30, 2005, and increased $4.3 million, or 7.5%,
to $61.7 million for the nine months ended June 30, 2006 from $57.4 million for the nine months
ended June 30, 2005. As a percentage of net patient revenue, SG&A expenses increased to 34.4% for
the three months ended June 30, 2006 from 33.1% for the three months ended June 30, 2005, and
increased to 35.1% for the nine months ended June 30, 2006 from 33.5% for the nine months ended
June 30, 2005.
The increases in SG&A expenses were due to $0.8 million and $1.7 million of share-based
compensation expense under SFAS 123(R), $0.2 million and $0.7 million higher rent from the
additional programs added during the last year, and $0.1 million and $0.7 million higher legal
expense due to outside legal services related to the Indiana decertification for the three months
ended and for the
14
nine months ended in the respective 2006 periods versus the comparable 2005
periods. For the three months ended June 30, 2006 as compared to the three months ended June 30,
2005, SG&A expenses increased due to higher program bonus expenses of $0.7 million and $0.6 million
for the nine months ended June 30, 2006 as compared to the nine months ended June 30, 2005. For the
nine months ended June 30, 2006 as compared to the nine months ended June 30, 2005, SG&A expenses
also increased $0.4 million for finance professional fees.
Depreciation
Depreciation is calculated on the straight-line method for equipment, computers, leasehold
improvements and furniture and fixtures. Depreciation expense increased slightly, due to asset
requirements of our new programs added during 2005 and 2006, to $0.6 million from $0.5 million for
the three months ended June 30, 2006 and June 30, 2005, respectively, and $1.9 million from $1.4
million for the nine months ended June 30, 2006 and June 30, 2005, respectively.
Amortization
Amortization is calculated over a three year period for capitalized software and capitalized
software development and a five year period for an acquisition related covenant not to compete.
Amortization was $0.6 million and $0.5 million for the three months ended June 30, 2006 and June
30, 2005, respectively, and $1.9 million from $2.0 million for the nine months ended June 30, 2006
and June 30, 2005, respectively.
Non-Operating Income
Non-operating income primarily relates to interest income net of other expenses. Non-operating
income was $0.3 million and $0.2 million for the three months ended June 30, 2006 and June 30,
2005, respectively, and $0.7 million from $0.4 million for the nine months ended June 30, 2006 and
June 30, 2005, respectively.
Income Tax
For the three months ended June 30, 2006 and 2005, our income tax expense was $0.3 million and
$0.5 million, respectively. For the nine months ended June 30, 2006, we had an income tax benefit
of $0.1 million as compared to an income tax expense of $1.7 million for the nine months ended June
30, 2005.
The effective rate for the three months ended June 30, 2006 was approximately 400%. This
unusual relationship was caused by a change in the statutory state tax rate used to measure the
value of deferred tax assets relating to revised state apportionment factors. It was further
affected by the impact of the non-deductible portion of our SFAS 123(R) charges given the small
amount of pre-tax income. The effective rate for the three months ended June 30, 2005 was 34.1%
which more closely approximates our statutory rates. The effective rate for the nine months ended
June 30, 2006 and June 30, 2005 was 2.8% and 37.5%, respectively. The decrease in the effective
rate for the three months ended June 30, 2006 was comprised of a decrease in earnings, an increase
in permanent tax
adjustments for 2006 mainly associated with SFAS 123(R) but was mainly due to the change in
our statutory state tax rate which was applied to our deferred tax assets.
Liquidity and Capital Resources
Our principal liquidity requirements have been for working capital and capital expenditures.
We have financed these requirements primarily with cash flow from operations. We raised net
proceeds of $48.1 million from our initial public offering of stock in December 2002. We used the
net proceeds to repay debt of $11.0 million, with the balance invested in short-term investments.
As of June 30, 2006, we had cash and cash equivalents and short-term investments of $44.6 million,
working capital of approximately $56.2 million and the potential to borrow up to $50.0 million
depending on eligible receivables under our revolving credit and term loan facility described
below.
Net cash provided in operating activities for the three months ended June 30, 2006 was $4.4
million as compared to cash used for operating activities of $2.7 million for the three months
ended June 30, 2005, and $6.1 million of cash used in operating activities for the nine months
ended June 30, 2006 as compared to cash used by operating activities of $0.1 million for the nine
months ended June 30, 2005. The increases in cash provided by operating activities were primarily
due to the increase for non-cash expenses related to the share based compensation, increases in
cash provided by accounts receivable, and lower payment of Medicare Cap assessments for the three
months ended June 30, 2006 compared to the three months ended June 30, 2005. The increase in cash
used in operating
15
activities were primarily due to the increase for non-cash expenses related to
the deferred income tax benefit, lower payment of Medicare Cap assessments, and the increase in
cash used in accounts payable and accrued expenses for the nine months ended June 30, 2006 compared
to the nine months ended June 30, 2005.
Net cash used by investing activities was $1.3 million as compared to cash used in investing
activities of $2.2 million for the three months ended June 30, 2006 and June 30, 2005,
respectively, and $3.6 million and $14.7 million cash used in investing activities for the nine
months ended June 30, 2006 and June 30, 2005, respectively. The decrease in cash used in investing
activities for the three months ended June 30, 2006 as compared to the three months ended June 30,
2005, related primarily to the decrease in other assets.
Net cash provided by financing activities was $0.2 million and $0.3 million for the three
months ended June 30, 2006 and June 30, 2005, respectively, and $0.4 million and $1.1 million for
the nine months ended June 30, 2006 and June 30, 2005, respectively. Cash provided by financing
activities principally resulted from the exercise of employee stock options and employee stock
purchases.
In December 2004, we renewed a $30.0 million revolving line of credit and entered into a $20.0
million term loan (credit facility). The credit facility is collateralized by substantially all of
our assets including cash, accounts receivable and equipment. Loans under the revolving line of
credit bear interest at an annual rate equal to the one-month London Interbank Borrowing Rate in
effect from time to time plus 3.0-5.0%. Accrued interest under the revolving line of credit is due
weekly.
Under the revolving line of credit, we may borrow, repay and re-borrow an amount equal to the
lesser of: (i) $30.0 million or (ii) 85.0% of the net value of eligible accounts receivable. Under
the term loan, borrowings are based on allowable total indebtedness based on a multiplier of cash
flow as defined in the loan agreement. The maturity date of the credit facility is December 22,
2009. No borrowings were made under the credit facility during the third quarter and as of June 30,
2006, there was no balance outstanding on the revolving line of credit or on the term loan.
The credit facility contains certain customary covenants including those that restrict our
ability to incur additional indebtedness, pay dividends under certain circumstances, permit liens
on property or assets, make capital expenditures, make certain investments, and prepay or redeem
debt or amend certain agreements relating to outstanding indebtedness. While we were in compliance
with all of the credit facility covenants at June 30, 2006, we may require a lender waiver and we
would need to complete certain administrative procedures in order to borrow under the current terms
of the credit facility.
We expect that our principal liquidity requirements will be for working capital, the
development of new hospice programs, new in-patient units, the acquisition of other hospice
programs, the implementation of a new patient care management system and for other capital
expenditures. We expect that our existing funds, cash flows from operations and potential borrowing
capacity under our credit agreement will be sufficient to fund our principal liquidity requirements
for at least the next twelve months. Our future liquidity requirements and the adequacy of our
available funds will depend on many factors, including payment for our services, regulatory changes
and compliance with new regulations, expense levels, future development of new hospice programs,
development and implementation of the new patient care management system future development of new
in-patient units, acquisitions of other hospice programs and capital expenditures.
Interest Rate and Foreign Exchange Risk
Interest Rate Risk
We do not expect our cash flow to be affected to any significant degree by a sudden change in
market interest rates. We have not implemented a strategy to manage interest rate market risk
because we do not believe that our exposure to this risk is material at this time. We invest excess
cash balances in money market instruments with average maturities of less than 90 days.
Foreign Exchange
We operate our business within the United States and execute all transactions in U.S. dollars.
Payment, Legislative and Regulatory Changes
We are almost exclusively dependent on payments from the Medicare and Medicaid programs. These
programs are subject to statutory and regulatory changes, possible retroactive and prospective rate
adjustments, administrative rulings, rate freezes and funding reductions. Reductions in amounts
paid by these programs for our services or changes in methods or regulations governing
16
payments for
our services could have a materially adverse effect on our patient care revenues, cash flow from
operations and profitability.
Inflation
The healthcare industry is labor intensive. Historically, wages and other expenses increased
during periods of inflation and labor shortages in the marketplace. In addition, suppliers pass
along rising costs to us in the form of higher prices for the goods and services we purchase. We
have implemented control measures designed to curb increases in operating expenses; however, we
cannot predict our ability to cover or offset future cost increases.
Forward-Looking Statements
Certain statements contained in this quarterly report on Form 10-Q and the accompanying
tables, including statements with respect to VistaCare’s anticipated growth in net patient revenue,
organic patient census and diluted earnings per share, are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,”
“hope,” “anticipate,” “plan,” “expectations,” “forecast,” “goal,” “targeted” and similar
expressions identify forward-looking statements, which speak only as of the date the statement was
made. VistaCare does not undertake and specifically disclaims any obligation to publicly update or
revise any forward-looking statements, whether as a result of new information, future events or
otherwise. These statements are based on current expectations and assumptions and involve various
risks and uncertainties, which could cause VistaCare’s actual results to differ from those
expressed in such forward-looking statements. These risks and uncertainties arise from, among other
things, possible changes in regulations governing the hospice care industry, periodic changes in
reimbursement levels and procedures under Medicare and Medicaid programs, difficulties predicting
patient length of stay and estimating potential Medicare reimbursement obligations, patient
discharge rate, challenges inherent in VistaCare’s growth strategy, the current shortage of
qualified nurses and other healthcare professionals, VistaCare’s dependence on patient referral
sources, and other factors detailed under the caption “Factors that May Affect Future Results” or
“Risk Factors” in VistaCare’s most recent report on Form 10-K and its other filings with the
Securities and Exchange Commission. You are cautioned not to place undue reliance on such
forward-looking statements and there are no assurances that the matters contained in such
statements will be achieved.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may affect us due to adverse changes in financial
market prices and rates. We have not entered into derivative or hedging transactions to manage any
market risk. We do not believe that our exposure to market risk is material at this time.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer (CEO) and Chief
Financial Officer (CFO) evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of June 30, 2006. In
designing and evaluating our disclosure controls and procedures, our management recognized that any
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives, and our management necessarily applied its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on this
evaluation, our CEO and CFO concluded that, as of June 30, 2006, our disclosure controls and
procedures were (1) designed to ensure that information required to be disclosed by us is
accumulated and communicated to management, including our CEO and CFO, by others within those
entities, to allow timely decisions regarding required disclosure and (2) effective, in that they
provide reasonable assurance that information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Changes in Internal Controls.
There have been no changes in our internal controls over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that occurred during the period
covered by this report that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
18
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
Between August and September 2004, approximately five complaints were filed individually and
on behalf of all others similarly situated in the United States District Court for the District of
Arizona against the Company and two of our officers alleging violations of the federal securities
laws arising out of declines in the Company’s stock price in 2004. Specifically, the complaints
alleged claims in connection with various statements and purported omissions to the public and to
the securities markets relating to the Company’s August 2004 announcement of our decision to accrue
an increased amount for the quarter ended June 30, 2004 for potential liability due to the Medicare
Cap on reimbursement for hospice services. The five lawsuits were consolidated in April 2005. On
June 16, 2006, the Company entered into a settlement agreement with the plaintiffs, agreeing to pay
$4,600,000 to settle this case, all of which is being paid for by insurance. The settlement was
preliminarily approved by the Court on July 6, 2006 and is set for a final determination on
September 29, 2006. Should the Court grant final approval of the settlement, the case will be
dismissed with prejudice. No assurances can be given that the Court will ultimately approve the
settlement. If the Court does not approve the settlement, the Company will continue to vigorously
defend the action.
Between August and September 2004, two shareholders filed separate derivative lawsuits
purportedly on behalf of the Company against several present and former officers and members of the
Board of Directors of the Company in the United States District Court for the District of Arizona.
The two derivative complaints, which have been consolidated, allege breaches of fiduciary duties,
abuse of control, mismanagement, waste of corporate assets and unjust enrichment, as a result of
the same activities alleged in the lawsuits discussed above. The derivative complaint seeks
attorney fees and the payment of damages to the Company. As of the date of this report, the
defendants filed a motion to dismiss and no discovery has occurred.
We are also subject to a variety of other claims and suits that arise from time to time in the
ordinary course of our business. While management currently believes that resolving all of the
matters discussed herein, individually or in aggregate, will not have a material adverse impact on
our financial position or our results of operations, the litigation and other claims that we face
are subject to inherent uncertainties and management’s view of these matters may change in the
future. Should an unfavorable final outcome occur, there exists the possibility of a material
adverse impact on our financial position, results of operations and cash flows for the period in
which the effect becomes probable and reasonably estimable.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the
year ended September 30, 2005, which could materially affect our financial condition, results of
operations or our future results. The risks described in our Annual Report on Form 10-K are not the
only risks we face. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our financial condition,
results of operations and our future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Sales of Unregistered Securities. None.
(b) Use of Proceeds from Registered Securities. On December 23, 2002, we completed an initial
public offering of shares of our Class A common stock. The shares were registered under the
Securities Act of 1933 on a registration statement on Form S-1 (Registration No. 333-98033), which
was declared effective by the Securities and Exchange Commission on December 17, 2002. Our net
proceeds from the offering were $48.1 million, which we used to repay debt of $11.0 million, with
the balance invested in short-term investments. None of the offering proceeds were used in the
three-months ended June 30, 2006.
(c) Repurchases of Securities. We did not repurchase any of our securities during the nine
months ended June 30, 2006.
(d) Restrictions Upon the Payment of Dividends. We are prohibited under our credit facility
from paying any cash dividends if there is a default under the facility or if the payment of any
cash dividends would result in default.
19
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.
Exhibits: The exhibits are listed in the Exhibit Index to this report and incorporated herein.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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VISTACARE, INC. |
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Date: August 9, 2006
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By:
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/s/ Richard R. Slager
Richard R. Slager
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President and Chief Executive Officer |
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Date: August 9, 2006
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By:
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/s/ Henry L. Hirvela
Henry L. Hirvela
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Chief Financial Officer |
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(Principal Financial Officer) |
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21
EXHIBIT INDEX
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| Exhibit |
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| Number |
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Description |
31.1
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Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Executive Officer. |
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31.2
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Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 of the Chief Financial Officer. |
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32.1
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Certification pursuant to 18 U.S.C. Section 1350 of the Chief Executive Officer. |
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32.2
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Certification pursuant to 18 U.S.C. Section 1350 of the Chief Financial Officer. |
22