Overview
Advocat Inc. provides long-term care services to nursing center patients in
eight states, primarily in the Southeast and Southwest. Our centers provide a
range of health care services to their patients and residents. In addition to
the nursing, personal care and social services usually provided in long-term
care centers, we offer a variety of comprehensive rehabilitation services as
well as nutritional support services. As of June 30, 2012, our continuing
operations consist of 47 nursing centers with 5,445 licensed nursing beds. We
own 9 and lease 38 of our nursing centers included in continuing operations. The
nursing center and licensed nursing bed count includes 90 beds at our recently
opened West Virginia nursing center. This new nursing center is licensed to
operate by the state of West Virginia and was recently certified. During the
certification process, the nursing center limited the number of patients it
accepted. The nursing center and licensed nursing bed count does not include the
recently leased 88-bed skilled nursing center in Clinton, Kentucky. We will
include this center once it is reopened as a licensed nursing center.
Strategic operating initiatives
During the third quarter of 2010 we identified several key strategic objectives
to increase shareholder value through improved operations and business
development. These strategic operating initiatives included: improving skilled
mix in our nursing centers, improving our average Medicare rate, implementing
Electronic Medical Records ("EMR") to improve Medicaid capture, accelerate
center renovations and complete strategic acquisitions. We have experienced
success in these initiatives and expect to continue to build on these
improvements. We describe each of these below as well as provide metrics for our
most recent quarter versus the third quarter of 2010, the quarter before we
embarked on our strategic operating initiatives.
Improving skilled mix and average Medicare rate:
Our strategic operating initiatives of improving our skilled mix and our average
Medicare rate required investing in nursing and clinical care to treat more
acute patients along with nursing center based marketing representatives to
attract these patients. These initiatives developed referral and managed care
relationships that have attracted and are expected to continue to attract
quality payor sources for patients covered by Medicare and managed care. A
comparison of our most recent quarter versus the third quarter of 2010, the
quarter before we embarked on our strategic operating initiatives, reflects our
success with these strategic operating initiatives:
Three Months Ended
June 30, September 30,
2012 2010
As a percent of total census:
Medicare census 13.4 % 12.8 %
Managed care census 2.4 % 1.1 %
Total skilled mix census 15.8 % 13.9 %
As a percent of total revenues:
Medicare revenues 30.8 % 29.9 %
Managed care revenues 4.7 % 2.5 %
Total skilled mix revenues 35.5 % 32.4 %
Medicare average rate per day: $ 412.95 $ 388.37
Implementing Electronic Medical Records to improve Medicaid capture:
Another strategic operating initiative was implementing EMR to improve Medicaid
revenue capture, primarily in our states where the Medicaid payments are acuity
based. We completed the implementation of Electronic Medical Records in all our
nursing centers in December 2011, on time and under budget, and since
implementation have increased our average Medicaid rate despite rate cuts in
certain acuity based states. A comparison of our most recent quarter versus the
third quarter of 2010 reflects our success with increasing our average Medicaid
rate per day:
Three Months Ended
June 30, September 30,
2012 2010
Medicaid average rate per day: $ 157.88 $ 148.21
Accelerate center renovations:
As part of our strategic operating initiatives we have accelerated our program
for improving our physical plants. Since 2005, we have been completing strategic
renovations of certain facilities that improve quality of care and
profitability. We plan to continue these nursing center renovation projects and
accelerate this strategy using the knowledge obtained in the first few years of
this program. A comparison of our most recent quarter versus the third quarter
of 2010 reflects our success with accelerating center renovations:
June 30, September 30,
2012 2010
Renovated nursing centers 18 15
Amounts expended on renovations (in millions) $ 27.0 $ 22.1
Complete strategic acquisitions:
Our strategic operating initiatives include a renewed focus on completing
strategic acquisitions. We continue to pursue and investigate opportunities to
acquire, lease or develop new facilities, focusing primarily on opportunities
within our existing areas of operation. We expect to announce additional
development projects in the near future. A comparison of our current nursing
center and bed count (including the recently leased nursing center in Clinton,
Kentucky) versus the third quarter of 2010, the quarter before we embarked on
our strategic operating initiatives, reflects our success with strategic
acquisitions:
June 30, September 30,
2012 2010
Nursing centers 48 46
Licensed nursing beds 5,533 5,364
We are incurring expenses and start-up losses in connection with these
initiatives, as described more fully in "Results of Operations." These
investments in business initiatives have increased our operating expenses during
2012 and 2011 as well as the latter portion of 2010. While we expect to see
additional non-recurring start-up losses, we also expect our investments to
create additional revenue and improved profitability over the next several
quarters.
Basis of Financial Statements. Our patient revenues consist of the fees charged
for the care of patients in the nursing centers we own and lease. Our operating
expenses include the costs, other than lease, professional liability,
depreciation and amortization expenses, incurred in the operation of the nursing
centers we own and lease. Our general and administrative expenses consist of the
costs of the corporate office and regional support functions. Our interest,
depreciation and amortization expenses include all such expenses across the
range of our operations.
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Critical Accounting Policies and Judgments
A "critical accounting policy" is one which is both important to the
understanding of our financial condition and results of operations and requires
management's most difficult, subjective or complex judgments often involving
estimates of the effect of matters that are inherently uncertain. Actual results
could differ from those estimates and cause our reported net income or loss to
vary significantly from period to period. Our critical accounting policies are
more fully described in our 2011 Annual Report on Form 10-K.
Revenue Sources
We classify our revenues from patients and residents into four major categories:
Medicaid, Medicare, managed care, and private pay and other. Medicaid revenues
are composed of the traditional Medicaid program established to provide benefits
to those in need of financial assistance in the securing of medical services.
Medicare revenues include revenues received under both Part A and Part B of the
Medicare program. Managed care revenues include payments for patients who are
insured by a third-party entity, typically called a Health Maintenance
Organization, often referred to as an HMO plan, or are Medicare beneficiaries
who assign their Medicare benefits to a managed care replacement plan often
referred to as Medicare replacement products. The private pay and other revenues
are composed primarily of individuals or parties who directly pay for their
services. Included in the private pay and other are patients who are hospice
beneficiaries as well as the recipients of Veterans Administration benefits.
Veterans Administration payments are made pursuant to renewable contracts
negotiated with these payors.
The following table sets forth net patient and resident revenues related to our
continuing operations by payor source for the periods presented (dollar amounts
in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
Medicaid $ 40,229 52.2 % $ 37,774 47.7 % $ 79,066 51.3 % $ 75,655 48.4 %
Medicare 23,751 30.8 28,422 35.9 49,301 32.0 55,248 35.4
Managed care 3,617 4.7 3,079 3.9 6,891 4.5 6,141 3.9
Private Pay and other 9,495 12.3 9,897 12.5 18,932 12.2 19,258 12.3
Total $ 77,092 100.0 % $ 79,172 100.0 % $ 154,190 100.0 % $ 156,302 100.0 %
The following table sets forth average daily skilled nursing census by payor
source for our continuing operations for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011
Medicaid 2,813 68.2 % 2,761 66.6 % 2,796 68.0 % 2,776 67.0 %
Medicare 552 13.4 607 14.6 572 13.9 602 14.5
Managed care 98 2.4 78 1.9 94 2.3 79 1.9
Private Pay and other 659 16.0 701 16.9 649 15.8 689 16.6
Total 4,122 100.0 % 4,147 100.0 % 4,111 100.0 % 4,146 100.0 %
Consistent with the nursing home industry in general, changes in the mix of a
facility's patient population among Medicaid, Medicare, managed care, and
private pay and other can significantly affect the profitability of the
facility's operations.
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Health Care Industry
The health care industry is subject to numerous laws and regulations of federal,
state and local governments. These laws and regulations include, but are not
necessarily limited to, matters such as licensure, accreditation, government
health care program participation requirements, reimbursement for patient
services, quality of resident care and Medicare and Medicaid fraud and abuse.
Over the last several years, government activity has increased with respect to
investigations and allegations concerning possible violations by health care
providers of fraud and abuse statutes and regulations as well as laws and
regulations governing quality of care issues in the skilled nursing profession
in general. Violations of these laws and regulations could result in exclusion
from government health care programs together with the imposition of significant
fines and penalties, as well as significant repayments for patient services
previously billed. Compliance with such laws and regulations is subject to
ongoing government review and interpretation, as well as regulatory actions in
which government agencies seek to impose fines and penalties. The Company is
involved in regulatory actions of this type from time to time.
In March 2010, significant legislation concerning health care and health
insurance was passed, including the "Patient Protection and Affordable Care
Act", ("Affordable Care Act") along with the "Health Care and Education
Reconciliation Act of 2010" ("Reconciliation Act") collectively defined as the
"Legislation." As previously noted, we expect this Legislation to impact our
Company, our employees and our patients and residents in a variety of ways. This
Legislation significantly changes the future responsibility of employers with
respect to providing health care coverage to employees in the United States. Two
of the main provisions of the Legislation become effective in 2014 whereby most
individuals will be required to either have health insurance or pay a fine and
employers with 50 or more employees will either have to provide minimum
essential coverage or will be subject to additional taxes. We have not estimated
the financial impact of the Legislation and the costs associated with complying
with the increased levels of health insurance we will be required to provide our
employees and their dependents in future years. We expect the Legislation will
result in increased operating expenses.
We also expect for this Legislation to continue to impact our Medicaid and
Medicare reimbursement as well, though the exact timing and level of that impact
is currently unknown. The Legislation expands the role of home based and
community services, which may place downward pressure on our sustaining
population of Medicaid residents.
On June 28, 2012 the United States Supreme Court ruled that the enactment of the
Affordable Care Act did not violate the Constitution of the United States. This
ruling permits the implementation of most of the provisions of the Affordable
Care Act to proceed. The provisions of the Affordable Care Act discussed above
are only examples of federal health reform provisions that we believe may have a
material impact on the long-term care industry and on our business. We
anticipate that many of the provisions of the legislation may be subject to
further clarification and modification through the rule making process and could
have a material adverse impact on our results of operations.
Medicare and Medicaid Reimbursement
A significant portion of our revenues are derived from government-sponsored
health insurance programs. Our nursing centers derive revenues under Medicaid,
Medicare, managed care, private pay and other third party sources. We employ
specialists in reimbursement at the corporate level and use third party services
to monitor regulatory developments, to comply with reporting requirements and to
ensure that proper payments are made to our operated nursing centers. It is
generally recognized that all government-funded programs have been and will
continue to be under cost containment pressures, but the extent to which these
pressures will affect our future reimbursement is unknown.
Medicare
Effective October 1, 2011, Medicare rates were reduced by a nationwide average
of 11.1%, the net effect of a reduction to restore overall payments to their
intended levels on a prospective basis and the application of a 2.7% market
basket increase and a negative 1.0% productivity adjustment required by the
Affordable Care Act. The final Centers for Medicare and Medicaid Services
("CMS") rule also adjusts the method by which group therapy is counted for
reimbursement purposes and, for patients receiving therapy, changes the timing
of
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reassessment for purposes of determining patient RUG categories. These October
2011Medicare reimbursement changes decreased our Medicare revenue and our
Medicare rate per patient day. The new regulations also resulted in an increase
in costs to provide therapy services to our patients.
The Budget Control Act of 2011 ("BCA"), enacted on August 2, 2011, increased the
United States debt ceiling and linked the debt ceiling increase to corresponding
deficit reductions through 2021. The BCA also established a 12 member joint
committee of Congress known as the Joint Select Committee on Deficit Reduction
("Super Committee"). The Super Committee's objective was to create proposed
legislation to reduce the United States federal budget deficit by $1.5 trillion
for fiscal years 2012 through 2021. Part of the BCA required this legislation to
be enacted by December 23, 2011 or approximately $1.2 trillion in domestic and
defense spending reductions would automatically begin January 1, 2013, split
between domestic and defense spending. As no legislation was passed that would
achieve the targeted savings, payments to Medicare providers are potentially
subject to these automatic spending reductions, limited to not more than a 2%
reduction. At this time it is unclear how this automatic reduction may be
applied to various Medicare healthcare programs. Reductions to Medicare
reimbursement from the BCA could have a material adverse effect on our operating
results and cash flows.
In July 2012, CMS issued Medicare payment rates, effective October 1, 2012, that
are expected to increase reimbursement to skilled nursing centers by
approximately 1.8% compared to the fiscal year ending September 30, 2012. The
increase is the net effect of a 2.5% inflation increase as measured by the SNF
market basket, offset by a 0.7% negative productivity adjustment required by the
Affordable Care Act. Effective January 1, 2013, the increase is scheduled to be
offset by the 2% reduction called for by the BCA discussed above.
Therapy Services. There are annual Medicare Part B reimbursement limits on
therapy services that can be provided to an individual. The limits impose a
$1,870 per patient annual ceiling on physical and speech therapy services, and a
separate $1,870 per patient annual ceiling on occupational therapy services. CMS
established an exception process to permit therapy services in certain
situations and we provide services that are reimbursed under the exceptions
process. The exceptions process has been extended several times, most recently
by the Middle Class Tax Relief and Job Creation Act of 2012 which extended this
exception process through December 31, 2012. It is unknown if any further
extension of the therapy cap exceptions will be included in future legislation.
If the exception process is discontinued, it is expected that the reimbursement
limitations will reduce therapy revenues and negatively impact our operating
results and cash flows.
On November 2, 2010, CMS released a final proposed rule as part of the Medicare
Physician Fee Schedule ("MPFS") that was effective January 1, 2011. The policy
impacts the reimbursement we receive for Medicare Part B therapy services in our
facilities. The policy provides that Medicare Part B pay the full rate for the
therapy unit of service that has the highest Practice Expense (PE) component for
each patient on each day they receive multiple therapy treatments. Reimbursement
for the second and subsequent therapy units for each patient each day they
receive multiple therapy treatments is reimbursed at a rate equal to 75% of the
applicable PE component.
Medicare Part B therapy services in our centers are determined according to
MPFS. Annually since 1997, the MPFS has been subject to a sustainable growth
rate adjustment ("SGR") intended to keep spending growth in line with allowable
spending. Each year since the SGR was enacted, this adjustment produced a
scheduled negative update to payment for physicians, therapists and other
healthcare providers paid under the MPFS. Congress has stepped in with so-called
"doc fix" legislation numerous times to stop payment cuts to physicians, most
recently by the Middle Class Tax Relief and Job Creation Act of 2012, which
stopped these payment cuts through December 31, 2012. If the fix to payment cuts
is discontinued, it is expected that we will see a reduction in therapy revenues
that will negatively impact our operating results and cash flows.
The Middle Class Tax Relief and Job Creation Act of 2012 also resulted in a
reduction of bad debt treated as an allowable cost. Prior to this act, Medicare
reimburses providers for beneficiaries' unpaid coinsurance and deductible
amounts after reasonable collection efforts at a rate between 70 and 100 percent
of beneficiary bad debt. This provision reduces bad debt reimbursement for all
providers to 65 percent.
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Medicaid
Several states in which we operate face budget shortfalls, which could result in
reductions in Medicaid funding for nursing centers. The federal government made
an effort to address the financial challenges state Medicaid programs are facing
by increasing the amount of Medicaid funding available to states. Pressures on
state budgets are expected to continue in the future and are expected to result
in Medicaid rate reductions.
We receive the majority of our annual Medicaid rate increases during the third
quarter of each year. The rate changes received in the third quarter of 2011,
along with increased Medicaid acuity in our acuity based states, was the primary
contributor to our 4.7% increase in average rate per day for Medicaid patients
in 2012 compared to 2011.
We are unable to predict what, if any, reform proposals or reimbursement
limitations will be implemented in the future, or the effect such changes would
have on our operations. For the six months ended June 30, 2012, we derived 32.0%
and 51.3% of our total patient revenues related to continuing operations from
the Medicare and Medicaid programs, respectively. Any health care reforms that
significantly limit rates of reimbursement under these programs could,
therefore, have a material adverse effect on our profitability.
We will attempt to increase revenues from non-governmental sources to the extent
capital is available to do so. However, private payors, including managed care
payors, are increasingly demanding that providers accept discounted fees or
assume all or a portion of the financial risk for the delivery of health care
services. Such measures may include capitated payments, which can result in
significant losses to health care providers if patients require expensive
treatment not adequately covered by the capitated rate.
Licensure and other Health Care Laws
All our nursing centers must be licensed by the state in which they are located
in order to accept patients, regardless of payor source. In most states, nursing
centers are subject to certificate of need laws, which require us to obtain
government approval for the construction of new nursing centers or the addition
of new licensed beds to existing centers. Our nursing centers must comply with
detailed statutory and regulatory requirements on an ongoing basis in order to
qualify for licensure, as well as for certification as a provider eligible to
receive payments from the Medicare and Medicaid programs. Generally, the
requirements for licensure and Medicare/Medicaid certification are similar and
relate to quality and adequacy of personnel, quality of medical care, record
keeping, dietary services, resident rights, and the physical condition of the
center and the adequacy of the equipment used therein. Each center is subject to
periodic inspections, known as "surveys" by health care regulators, to determine
compliance with all applicable licensure and certification standards. Such
requirements are both subjective and subject to change. If the survey concludes
that there are deficiencies in compliance, the center is subject to various
sanctions, including but not limited to monetary fines and penalties, suspension
of new admissions, non-payment for new admissions and loss of licensure or
certification. Generally, however, once a center receives written notice of any
compliance deficiencies, it may submit a written plan of correction and is given
a reasonable opportunity to correct the deficiencies. There can be no assurance
that, in the future, we will be able to maintain such licenses and
certifications for our facilities or that we will not be required to expend
significant sums in order to comply with regulatory requirements. Recently, we
have experienced an increase in the severity of survey citations and the size of
monetary penalties, consistent with industry trends.
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Contractual Obligations and Commercial Commitments
We have certain contractual obligations of continuing operations as of June 30,
2012, summarized by the period in which payment is due, as follows (dollar
amounts in thousands):
Less than 1 to 3 3 to 5 After
Contractual Obligations Total 1 year Years Years 5 Years
Long-term debt obligations (1) $ 36,756 $ 3,307 $ 5,841 $ 27,608 $ -
Settlement obligations (2) $ 2,252 $ 2,252 $ - $ - $ -
Executive severance (3) $ 416 $ 416 $ - $ - $ -
Series C Preferred Stock (4) $ 4,918 $ 4,918 $ - $ - $ -
Elimination of Preferred Stock
Conversion feature (5) $ 4,293 $ 687 $ 1,374 $ 1,374 $ 858
Operating leases $ 570,330 $ 24,105 $ 49,431 $ 51,839 $ 444,955
Required capital expenditures under
operating leases (6) $ 17,855 $ 268 $ 536 $ 536 $ 16,515
Total $ 636,820 $ 35,953 $ 57,182 $ 81,357 $ 462,328
(1) Long-term debt obligations include scheduled future payments of principal
and interest of long-term debt and amounts outstanding on our capital lease
obligations.
(2) Settlement obligations relate to professional liability cases that will be
paid within the next twelve months. The professional liabilities are
included in our current portion of self-insurance reserves.
(3) Executive severance includes separation payments that will be paid within
the next twelve months. The separation payments are included in our accrued
payroll and employee benefits.
(4) Series C Preferred Stock equals the redemption value at the preferred
shareholder's earliest redemption date.
(5) Payments to Omega, from whom we lease 36 nursing centers, for the
elimination of the preferred stock conversion feature in connection with
restructuring the preferred stock and master lease agreements. Monthly
payments of approximately $57,000 will be made through the end of the
initial lease period that ends in September 2018.
(6) Includes annual expenditure requirements under operating leases.
We have employment agreements with certain members of management that provide
for the payment to these members of amounts up to 2 times their annual salary in
the event of a termination without cause, a constructive discharge (as defined),
or upon a change of control of the Company (as defined). The maximum contingent
liability under these agreements is approximately $1.1 million as of June 30,
2012. The terms of such agreements are for one year and automatically renew for
one year if not terminated by us or the employee. In addition, upon the
occurrence of any triggering event, those certain members of management may
elect to require that we purchase equity awards granted to them for a purchase
price equal to the difference in the fair market value of our common stock at
the date of termination versus the stated equity award exercise price. Based on
the closing price of our stock on June 30, 2012, there is no maximum contingent
liability for the repurchase of the equity grants. No amounts have been accrued
for these contingent liabilities.
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Results of Operations
The following tables present the unaudited interim statements of operations and
related data for the three and six month periods ended June 30, 2012 and 2011:
(in thousands) Three Months Ended June 30,
2012 2011 Change %
PATIENT REVENUES, net $ 77,092 $ 79,172 $ (2,080 ) (2.6 )
EXPENSES:
Operating 60,804 59,742 1,062 1.8
Lease 5,941 5,727 214 3.7
Professional liability 2,305 1,081 1,224 113.2
General and administrative 6,076 6,124 (48 ) (0.8 )
Depreciation and amortization 1,827 1,565 262 16.7
Total expenses 76,953 74,239 2,714 3.7
OPERATING INCOME 139 4,933 (4,794 ) (97.2 )
OTHER INCOME (EXPENSE):
Equity in net losses of investee (32 ) - (32 ) (100.0 )
Interest expense, net (703 ) (582 ) (121 ) (20.8 )
(735 ) (582 ) (153 ) (26.3 )
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (596 ) 4,351 (4,947 ) (113.7 )
BENEFIT (PROVISION) FOR INCOME TAXES 165 (1,412 )
1,577 111.7
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS $ (431 ) $ 2,939 $ (3,370 ) (114.7 )
(in thousands) Six Months Ended June 30,
2012 2011 Change %
PATIENT REVENUES, net $ 154,190 $ 156,302 $ (2,112 ) (1.4 )
EXPENSES:
Operating 122,345 120,599 1,746 1.4
Lease 11,763 11,441 322 2.8
Professional liability 4,634 2,772 1,862 67.2
General and administrative 12,898 12,178 720 5.9
Depreciation and amortization 3,649 3,121 528 16.9
Total expenses 155,289 150,111 5,178 3.4
OPERATING INCOME (1,099 ) 6,191 (7,290 ) (117.8 )
OTHER INCOME (EXPENSE):
Equity in net losses of investee (32 ) - (32 ) (100.0 )
Interest expense, net (1,403 ) (1,033 ) (370 ) (35.8 )
Debt retirement costs - (112 ) 112 100.0
(1,435 ) (1,145 ) (290 ) (25.3 )
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (2,534 ) 5,046 (7,580 ) (150.2 )
PROVISION FOR INCOME TAXES 868 (1,661 ) 2,529 152.3
NET INCOME FROM CONTINUING OPERATIONS $ (1,666 ) $ 3,385
$ (5,051 ) (149.2 )
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Three Months Ended Six Months Ended
Percentage of Net Revenues June 30, June 30,
2012 2011 2012 2011
PATIENT REVENUES, net 100.0 % 100.0 % 100.0 % 100.0 %
EXPENSES:
Operating 78.8 75.5 79.3 77.2
Lease 7.7 7.2 7.6 7.3
Professional liability 3.0 1.4 3.0 1.7
General and administrative 7.9 7.7 8.4 7.8
Depreciation and amortization 2.4 2.0 2.4 2.0
Total expenses 99.8 93.8 100.7 96.0
OPERATING INCOME 0.2 6.2 (0.7 ) 4.0
OTHER INCOME (EXPENSE):
Interest expense (1.0 ) (0.7 ) (0.9 ) (0.7 )
(1.0 ) (0.7 ) (0.9 ) (0.7 )
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (0.8 ) 5.5 (1.6 ) 3.3
BENEFIT (PROVISION) FOR INCOME TAXES 0.2 (1.8 ) 0.6 (1.1 )
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (0.6 )% 3.7 %
(1.0 )% 2.2 %
Three Months Ended June 30, 2012 Compared With Three Months Ended June 30, 2011
Patient Revenues
Patient revenues were $77.1 million in 2012 and $79.2 million in 2011. This
decrease in revenue is primarily attributable to the 11.1% cut to Medicare rates
implemented by CMS on October 1, 2011. Our newly opened West Virginia nursing
center has received its license to operate, and more recently obtained its
certification. The new nursing center contributed $0.2 million in revenue as its
certification was in process during the second quarter of 2012.
The following table summarizes key revenue and census statistics for continuing
operations for each period:
Three Months Ended
June 30,
2012 2011
Skilled nursing occupancy 76.8 %(1) 77.3 %
As a percent of total census:
Medicare census 13.4 % 14.6 %
Managed care census 2.4 % 1.9 %
As a percent of total revenues:
Medicare revenues 30.8 % 35.9 %
Medicaid revenues 52.2 % 47.7 %
Managed care revenues 4.7 % 3.9 %
Average rate per day:
Medicare $ 412.95 $ 464.71
Medicaid $ 157.88 $ 150.66
Managed care $ 377.76 $ 403.50
(1) Skilled nursing occupancy excludes our recently opened West Virginia nursing
center. This new nursing center is licensed to operate by the state of West
Virginia and during the second quarter limited its number of patients while
we completed the certification process.
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The average Medicaid rate per patient day for 2012 increased 4.8% compared to
2011, resulting in an increase in revenue of $1.8 million. This average rate per
day for Medicaid patients is the result of rate increases in certain states and
increasing patient acuity levels. The average Medicare rate per patient day for
2012 decreased 11.1% compared to 2011, resulting in a net decrease in revenue of
$2.6 million. This decrease is primarily attributable to the October 1, 2011 CMS
implemented Medicare rate decrease of 11.1% partially offset by investments we
have made to improve our skilled care offerings.
Our total average daily census decreased by approximately 0.6% compared to 2011,
resulting in a revenue decrease of approximately $1.4 million. We experienced an
increase of $0.3 million in revenue delivery to our Medicare B patients in 2012
compared to 2011.
Operating expense
We have experienced a significant amount of non-recurring start-up losses during
2012 at our two new centers. We expect both of these centers to be accretive to
earnings in 2013. Our newly opened West Virginia nursing center contributed $0.6
million in start-up and additional operating expenses. Our newly leased Kentucky
nursing center, that we are in the process of reopening, contributed $0.1
million in additional operating costs.
Operating expense increased to $60.8 million in 2012 from $59.7 million in 2011,
an increase of $1.1 million, or 1.8%. Operating expense increased to 78.8% of
revenue in 2012, compared to 75.5% of revenue in 2011 due significantly to the
decrease in Medicare rates.
The largest component of operating expenses is wages, which increased to $37.6
million in 2012 from $37.5 million in 2011, an increase of $0.1 million, or
0.4%. Merit and inflationary raises for personnel were approximately 3.8% for
the quarter. Workers compensation insurance expense decreased approximately $0.1
million in 2012 compared to 2011. The decrease is the result of better claims
experience in 2012 compared to 2011.
Employee health insurance costs were approximately $0.2 million higher in 2012
compared to 2011. The Company is self-insured for the first $175,000 in claims
per employee each year, and we experienced a higher level of claims costs during
2012. Employee health insurance costs can vary significantly from year to year,
and we continually evaluate the provisions of these plans.
Bad debt expense increased approximately $0.2 million in 2012 compared to 2011.
Provider taxes increased $0.3 million primarily as a result of Alabama's
temporary provider tax increase. Ancillary and nursing costs were $0.3 million
lower in 2012 compared to 2011 due to lowering equipment costs through
purchasing certain types of equipment that had been leased previously, lower
census and our cost savings initiatives implemented in 2011 and 2012.
Lease expense
Lease expense increased to $5.9 million in 2012 from $5.7 million in 2011. The
increase in lease expense was rent for lessor funded property renovations and
$0.1 million in lease expense for the newly leased nursing center in Clinton,
Kentucky.
Professional liability
Professional liability expense was $2.3 million in 2012 compared to $1.1 million
in 2011, an increase of $1.2 million. We were engaged in 41 professional
liability lawsuits as of June 30, 2012, compared to 38 as of December 31, 2011.
Our cash expenditures for professional liability costs of continuing operations
were $1.7 million and $0.9 million for 2012 and 2011, respectively. Professional
liability expense and cash expenditures fluctuate from year to year based
respectively on the results of our third-party professional liability actuarial
studies and on the costs incurred in defending and settling existing claims. See
"Liquidity and Capital Resources" for further discussion of the accrual for
professional liability.
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General and administrative expense
General and administrative expenses were approximately $6.1 million in 2012 and
2011. Wage costs increased by $0.2 million while costs of our strategic
initiatives accounted for approximately $0.2 million, including consulting
services, legal and acquisition related expenses. We saw a $0.3 million increase
in legal expenses and our performance-based incentive expense was $0.5 million
lower in 2012. Our cost increases were offset by a $0.1 million decrease in
implementation costs of Electronic Medical Records when compared to 2011.
Depreciation and amortization
Depreciation and amortization expense was approximately $1.8 million in 2012 and
$1.6 million in 2011. The increase in 2012 is primarily due to depreciation and
amortization expenses related to capital expenditures for additions to property
and equipment, including equipment related to our EMR initiative.
Interest expense, net
Interest expense increased to $0.7 million in 2012 compared to $0.6 million in
2011. The $0.1 million increase in interest expense relates to the new nursing
center in West Virginia.
Income (loss) from continuing operations before income taxes; income (loss) from
continuing operations per common share
As a result of the above, continuing operations reported income (loss) before
income taxes of $(0.6) million and $4.4 million in 2012 and 2011, respectively.
The provision (benefit) for income taxes was $(0.2) million in 2012 and $1.4
million in 2011. The basic and diluted income (loss) per common share from
continuing operations were both $(0.09) in 2012 compared to $0.49 and $0.48 in
2011.
Six Months Ended June 30, 2012 Compared With Six Months Ended June 30, 2011
Patient Revenues
Patient revenues were $154.2 million in 2012 and $156.3 million in 2011. This
decrease in revenue is primarily attributable to the 11.1% cut to Medicare rates
implemented by CMS on October 1, 2011. Our newly opened West Virginia nursing
center has received its license to operate, and more recently obtained its
Medicare and Medicaid certification. The new nursing center contributed $0.3
million in revenue as its federal certification was in process during the first
half of 2012.
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The following table summarizes key revenue and census statistics for continuing
operations for each period:
Six Months Ended
June 30,
2012 2011
Skilled nursing occupancy 76.7 %(1) 77.3 %
As a percent of total census:
Medicare census 13.9 % 14.5 %
Managed care census 2.3 % 1.9 %
As a percent of total revenues:
Medicare revenues 32.0 % 35.4 %
Medicaid revenues 51.3 % 48.4 %
Managed care revenues 4.5 % 3.9 %
Average rate per day:
Medicare $ 414.30 $ 460.10
Medicaid $ 156.70 $ 149.67
Managed care $ 384.28 $ 408.68
(1) Skilled nursing occupancy excludes our recently opened West Virginia nursing
center. This new nursing center is licensed to operate by the state of West
Virginia and during the first six months had limited the number of patients
while we completed the certification process.
The average Medicaid rate per patient day for 2012 increased 4.7% compared to
2011, resulting in an increase in revenue of $3.6 million. This average rate per
day for Medicaid patients is the result of rate increases in certain states and
increasing patient acuity levels. The average Medicare rate per patient day for
2012 decreased 10.0% compared to 2011, resulting in a net decrease in revenue of
$4.8 million. This decrease is primarily attributable to the October 1, 2011 CMS
implemented Medicare rate decrease of 11.1% offset by investments we have made
to improve our skilled care offerings.
Our total average daily census decreased by approximately 0.8% compared to 2011,
resulting in a revenue decrease of approximately $1.1 million. We experienced an
increase of $1.1 million in revenue delivery to our Medicare B patients in 2012
compared to 2011.
Operating expense
We experienced a significant amount of non-recurring start-up losses during 2012
at our two new centers. We expect both of these centers to be accretive to
earnings in 2013. Our newly opened West Virginia nursing center contributed $1.0
million in start-up and additional operating expenses. Our newly leased Kentucky
nursing center, that we are in the process of reopening, contributed $0.1
million in additional operating costs.
Operating expense increased to $122.3 million in 2012 from $120.6 million in
2011, an increase of $1.7 million, or 1.4%. Operating expense increased to 79.3%
of revenue in 2012, compared to 77.2% of revenue in 2011 due significantly to
the reduction in Medicare rates.
The largest component of operating expenses is wages, which increased to $75.6
million in 2012 from $74.5 million in 2011, an increase of $1.1 million, or
1.5%. Merit and inflationary raises for personnel were approximately 3.9% for
the year. The extra day in February for leap year contributed $0.4 million of
the wage increases.
Workers compensation insurance expense decreased approximately $0.4 million in
2012 compared to 2011. The decrease is the result of better claims experience in
2012 compared to 2011.
Provider taxes increased by $0.3 million during 2012 compared to 2011 primarily
as a result of Alabama's temporary provider tax increase. Ancillary and nursing
costs were $0.7 million lower in 2012 compared to 2011 due to lowering equipment
costs through purchasing certain types of equipment that had been leased
previously, lower census and our cost savings initiatives implemented in 2011
and 2012.
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Bad debt expense increased approximately $0.5 million in 2012 compared to 2011.
Lease expense
Lease expense increased to $11.8 million in 2012 from $11.4 million in 2011. The
primary reason for the increase in lease expense was rent for lessor funded
property renovations along with the $0.1 million in additional lease expense for
the new nursing center in Clinton, Kentucky.
Professional liability
Professional liability expense was $4.6 million in 2012 compared to $2.8 million
in 2011, an increase of $1.8 million. We were engaged in 41 professional
liability lawsuits as of June 30, 2012, compared to 38 as of December 31, 2011.
Our cash expenditures for professional liability costs of continuing operations
were $3.1 million and $2.2 million for 2012 and 2011, respectively. Professional
liability expense and cash expenditures fluctuate from year to year based
respectively on the results of our third-party professional liability actuarial
studies and on the costs incurred in defending and settling existing claims. See
"Liquidity and Capital Resources" for further discussion of the accrual for
professional liability.
General and administrative expense
General and administrative expenses were approximately $12.9 million in 2012
compared to $12.2 million in 2011, an increase of $0.7 million, or 5.9%. Wage
costs increased by $0.7 million while costs of our strategic initiatives
accounted for approximately $0.5 million, including consulting services, legal
and acquisition related expenses. Performance-based incentive expense was $0.8
million lower in 2012. We also experienced an increase of approximately $0.5
million in severance and nonrecurring general and administrative costs. Our cost
increases were partially offset by a $0.3 million decrease in implementation
costs of Electronic Medical Records when compared to 2011.
Depreciation and amortization
Depreciation and amortization expense was approximately $3.6 million in 2012 and
$3.1 million in 2011. The increase in 2012 is primarily due to depreciation and
amortization expenses related to capital expenditures for additions to property
and equipment, including equipment related to our EMR initiative.
Interest expense, net
Interest expense increased to $1.4 million in 2012 compared to $1.0 million in
2011. The interest expense related to the new nursing center in West Virginia
was responsible for $0.3 million of our 2012 interest expense increase. As
discussed further in "Capital Resources" the increase in interest expense is
partially due to the change in interest rates on our Mortgage Loan to a fixed
rate of 7.07% from 4.01% and the additional $2.4 million in borrowings for
capital improvements at our owned homes.
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Income (loss) from continuing operations before income taxes; income (loss) from
continuing operations per common share
As a result of the above, continuing operations reported income (loss) before
income taxes of $(2.5) million and $5.0 million in 2012 and 2011, respectively.
The provision (benefit) for income taxes was $(0.9) million in 2012 and $1.7
million in 2011. The basic and diluted income (loss) per common share from
continuing operations were both $(0.33) in 2012 compared to $0.56 and $0.54 in
2011.
Liquidity and Capital Resources
Liquidity
Our primary source of liquidity is the net cash flow provided by the operating
activities of our facilities. We believe that these internally generated cash
flows will be adequate to service existing debt obligations, fund required
capital expenditures as well as provide cash flows for investing opportunities.
In determining priorities for our cash flow, we evaluate alternatives available
to us and select the ones that we believe will most benefit us over the long
term. Options for our cash include, but are not limited to, capital
improvements, dividends, purchase of additional shares of our common stock,
acquisitions, payment of existing debt obligations, preferred stock redemptions
as well as initiatives to improve nursing center performance. We review these
potential uses and align them to our cash flows with a goal of achieving long
term success.
Net cash provided by operating activities of continuing operations totaled $3.5
million in 2012 and $6.8 million in 2011.
Investing activities of continuing operations used cash of $2.1 million and $7.3
million in 2012 and 2011, respectively. These amounts primarily represent cash
used for purchases of property and equipment. We have used between $6.4 million
and $13.4 million for capital expenditures of continuing operations in each of
the three calendar years ended December 31, 2011. Purchases of property include
$0.1 and $2.1 million during 2012 and 2011, respectively, for assets added by
the entity that constructed the West Virginia nursing center that we are
consolidating. We used $0.6 million in restricted cash to fund capital
improvements at the four owned nursing centers that secure the mortgage loan
during 2012 and saw a net increase in these restricted funds during 2011 when
the funds were borrowed. Investing activities include a net investment in a
nonconsolidated joint venture partnership of $0.3 million.
Financing activities of continuing operations used cash of $1.3 million in 2012
and provided cash of $0.4 million in 2011. Financing activities in 2012 reflect
debt of $0.6 million that was added by the entity that owns the West Virginia
nursing center that we are consolidating as well as payment of existing debt
obligations and capitalized leases of $0.7 million. Net cash provided in 2011
primarily resulted from payment and refinancing of existing mortgage obligations
of $20.6 million and paying $0.8 million in financing costs in connection with
the new mortgage loan under which we borrowed $23.0 million, including
approximately $2.4 million to fund capital improvements at our owned centers.
During 2011, we also paid $2.0 million on our outstanding revolving line of
credit. Increased debt for 2011 also reflects $1.8 million that was added by the
entity constructing the West Virginia facility that we were consolidating.
Financing activities reflect $0.8 million in common stock and preferred stock
dividends in 2012 and 2011, respectively.
Our cash expenditures related to professional liability claims were $3.1 million
and $2.2 million in 2012 and 2011, respectively. Although we work diligently to
limit the cash required to settle and defend professional liability claims, a
significant judgment entered against us in one or more legal actions could have
a material adverse impact on our cash flows and could result in our being unable
to meet all of our cash needs as they become due.
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Dividends
On August 3, 2012, the Board of Directors declared a quarterly dividend on
common shares of $0.055 per share. While the Board of Directors intends to pay
quarterly dividends, the Board will make the determination of the amount of
future cash dividends, if any, to be declared and paid based on, among other
things, the Company's financial condition, funds from operations, the level of
its capital expenditures and its future business prospects and opportunities.
Redeemable Preferred Stock
At June 30, 2012, we have outstanding 5,000 shares of Series C Redeemable
Preferred Stock ("Preferred Stock") that has a stated value of approximately
$4.9 million which pays an annual dividend rate of 7% of its stated value.
Dividends on the Preferred Stock are paid quarterly in cash. The Preferred Stock
was issued to Omega in 2006 and is not convertible, but has been redeemable at
its stated value at Omega's option since September 30, 2010, and since
September 30, 2007, has been redeemable at its stated value at our option.
Redemption under our option or Omega's is subject to certain limitations. We
believe we have adequate resources to redeem the Preferred Stock if Omega were
to elect to redeem it.
Professional Liability
We have professional liability insurance coverage for our nursing centers that,
based on historical claims experience, is likely to be substantially less than
the amount required to satisfy claims that were incurred. We have essentially
exhausted all of our general and professional liability insurance coverage for
claims first asserted prior to July 1, 2011.
Currently, our nursing centers are covered by one of two professional liability
insurance policies. Our nursing centers in Arkansas, Tennessee, all but one
facility in Kentucky and two centers in West Virginia are covered by an
insurance policy with coverage limits of $250,000 per medical incident and total
annual aggregate policy limits of $750,000. This policy provides the only
commercially affordable insurance coverage available for claims made during this
period against these nursing centers. Our nursing centers in Alabama, Florida,
Ohio, Texas and one center in each of Kentucky and West Virginia are covered by
an insurance policy with coverage limits of $1.0 million per medical incident,
subject to a deductible of $0.5 million per claim, with a total annual aggregate
policy limit of $15.0 million and a sublimit per center of $3.0 million.
As of June 30, 2012, we have recorded total liabilities for reported and settled
professional liability claims and estimates for incurred but unreported claims
of $20.4 million. Our calculation of this estimated liability is based on an
assumption that the Company will not incur a severely adverse judgment with
respect to any asserted claim; however, a significant judgment could be entered
against us in one or more of these legal actions, and such a judgment could have
a material adverse impact on our financial position and cash flows.
Capital Resources
As of June 30, 2012, we had $29.9 million of outstanding long term debt and
capital lease obligations. The $29.9 million total includes $1.6 million in
capital lease obligations and $5.8 million in a note payable for the nursing
center that was recently constructed in West Virginia. The balance of the long
term debt is comprised of $22.5 million owed on our mortgage loan.
We have agreements with a syndicate of banks for a mortgage loan and our
revolving credit facility. Under the terms of the agreements, the syndicate of
banks provided mortgage debt ("Mortgage Loan") with an original balance of $23
million with a five year maturity through March 2016 and a $15 million revolving
credit facility ("Revolver") through March 2016. The Mortgage Loan has a term of
five years with principal and interest payable monthly based on a 25 year
amortization. Interest is based on
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LIBOR plus 4.5% but is fixed at 7.07% based on the interest rate swap described
below. The Mortgage Loan is secured by four owned nursing centers, related
equipment and a lien on the accounts receivable of these facilities. The
Mortgage Loan and the Revolver are cross-collateralized. Our Revolver has an
interest rate of LIBOR plus 4.5%.
The Revolver is secured by accounts receivable and is subject to limits on the
maximum amount of loans that can be outstanding under the revolver based on
borrowing base restrictions. As of June 30, 2012, we had no borrowings
outstanding under the revolving credit facility. Annual fees for letters of
credit issued under this revolver are 3.00% of the amount outstanding. We have a
letter of credit of $4.6 million to serve as a security deposit for our Omega
lease. Considering the balance of eligible accounts receivable at June 30, 2012,
the letter of credit, the amounts outstanding under the revolving credit
facility and the maximum loan amount of $15.0 million, the balance available for
borrowing under the revolving credit facility is $10.4 million. Eligible
accounts receivable are calculated as defined and consider 80% of certain net
receivables while excluding receivables from private pay patients, those pending
approval by Medicaid and receivables greater than 90 days. The Mortgage Loan and
the Revolver are cross-collateralized.
Our lending agreements contain various financial covenants, the most restrictive
of which relate to minimum cash deposits, cash flow and debt service coverage
ratios. We are in compliance with all such covenants at June 30, 2012.
On March 13, 2012, we entered into amendments to our Mortgage Loan and Revolver
with the syndicate of banks. The amendments allow for the exclusion of certain
expenses when calculating the debt covenants and lowers the requirements for the
minimum fixed charge coverage ratio from 1.05 times fixed charges to 1.0 times
for each of the covenant measurement periods ending June 30, 2012 and
September 30, 2012. We paid the syndicate of banks an amendment fee of $30,000
in connection with this amendment.
Our calculated compliance with financial covenants is presented below:
Level at
Requirement June 30, 2012
Minimum fixed charge coverage ratio ³1.00:1.00 1.20:1.00
Minimum adjusted EBITDA ³$10.0 million $ 15.1 million
EBITDAR (mortgaged facilities) ³$ 3.3 million $ 3.7 million
We have consolidated $5.8 million in debt that was added by the entity that owns
one of our West Virginia nursing centers. The borrower is subject to covenants
concerning total liabilities to tangible net worth as well as current assets
compared to current liabilities. The borrower is in compliance with all such
covenants at June 30, 2012. The borrower's liabilities do not provide creditors
with recourse to our general assets.
As part of the debt agreements entered into in March 2011, we entered into an
interest rate swap agreement with a member of the bank syndicate as the
counterparty. The interest rate swap agreement has the same effective date,
maturity date and notional amounts as the Mortgage Loan. The interest rate swap
agreement requires us to make fixed rate payments to the bank calculated on the
applicable notional amount at an annual fixed rate of 7.07% while the bank is
obligated to make payments to us based on LIBOR on the same notional amounts. We
entered into the interest rate swap agreement to mitigate the variable interest
rate risk on our outstanding mortgage borrowings.
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Nursing Center Renovations
During 2005, we began an initiative to complete strategic renovations of certain
facilities to improve occupancy, quality of care and profitability. We developed
a plan to begin with those facilities with the greatest potential for benefit,
and began the renovation program during the third quarter of 2005. As of
June 30, 2012, we have completed renovations at eighteen facilities. We are
currently developing plans for additional renovation projects.
A total of $27.0 million has been spent on these renovation programs to date,
with $19.1 million financed through Omega, $6.1 million financed with internally
generated cash, and $1.8 million financed with long-term debt.
For the sixteen facilities with renovations completed as of the beginning of the
second quarter 2012 compared to the last twelve months prior to the commencement
of renovation, average occupancy increased from 71.2% to 77.9% and Medicare
average daily census increased from a total of 190 to 223 in the second quarter
of 2012.
Receivables
Our operations could be adversely affected if we experience significant delays
in reimbursement from Medicare, Medicaid and other third-party revenue sources.
Our future liquidity will continue to be dependent upon the relative amounts of
current assets (principally cash, accounts receivable and inventories) and
current liabilities (principally accounts payable and accrued expenses). In that
regard, accounts receivable can have a significant impact on our liquidity.
Continued efforts by governmental and third-party payors to contain or reduce
the acceleration of costs by monitoring reimbursement rates, by increasing
medical review of bills for services, or by negotiating reduced contract rates,
as well as any delay by us in the processing of our invoices, could adversely
affect our liquidity and results of operations.
Accounts receivable attributable to patient services of continuing operations
totaled $29.9 million at June 30, 2012 compared to $29.2 million at December 31,
2011, representing approximately 35 days and 34 days revenue in accounts
receivable, respectively. The increase in accounts receivable is due to
increases in payor sources with longer payment cycles, including managed care
payors, as well as an increase in Medicaid patients undergoing the initial
qualification process.
The allowance for bad debt was $3.4 million and $2.9 million at June 30, 2012
and December 31, 2011, respectively. We continually evaluate the adequacy of our
bad debt reserves based on patient mix trends, aging of older balances, payment
terms and delays with regard to third-party payors, collateral and deposit
resources, as well as other factors. We continue to evaluate and implement
additional procedures to strengthen our collection efforts and reduce the
incidence of uncollectible accounts.
Off-Balance Sheet Arrangements
We have a letter of credit outstanding of approximately $4.6 million as of
June 30, 2012, which serves as a security deposit for our facility lease with
Omega. The letter of credit was issued under our revolving credit facility. Our
accounts receivable serve as the collateral for this revolving credit facility.
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Forward-Looking Statements
The foregoing discussion and analysis provides information deemed by management
to be relevant to an assessment and understanding of our consolidated results of
operations and financial condition. This discussion and analysis should be read
in conjunction with our consolidated financial statements included herein.
Certain statements made by or on behalf of us, including those contained in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere, are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. Actual results could differ
materially from those contemplated by the forward-looking statements made
herein. In addition to any assumptions and other factors referred to
specifically in connection with such statements, other factors, many of which
are beyond our ability to control or predict, could cause our actual results to
differ materially from the results expressed or implied in any forward-looking
statements including, but not limited to, our ability to successfully operate
the new nursing center in West Virginia, our ability to successfully license,
certify and operate the new nursing center in Kentucky, our ability to increase
census at our renovated facilities, changes in governmental reimbursement,
including the impact of the CMS final rule that has resulted in a reduction in
Medicare reimbursement as of October 2011 and our ability to mitigate the impact
of the revenue reduction, government regulation, the impact of the recently
adopted federal health care reform or any future health care reform, any
increases in the cost of borrowing under our credit agreements, our ability to
comply with covenants contained in those credit agreements, the outcome of
professional liability lawsuits and claims, our ability to control ultimate
professional liability costs, the accuracy of our estimate of our anticipated
professional liability expense, the impact of future licensing surveys, the
outcome of proceedings alleging violations of laws and regulations governing
quality of care or violations of other laws and regulations applicable to our
business, impacts associated with the implementation of our electronic medical
records plan, the costs of investing in our business initiatives and
development, our ability to control costs, changes to our valuation of deferred
tax assets, changes in occupancy rates in our facilities, changing economic and
competitive conditions, changes in anticipated revenue and cost growth, changes
in the anticipated results of operations, the effect of changes in accounting
policies as well as others. Investors also should refer to the risks identified
in this "Management's Discussion and Analysis of Financial Condition and Results
of Operations" as well as risks identified in "Risk Factors" in our annual
report on Form 10-K for the year ended December 31, 2011 for a discussion of
various risk factors of the Company and that are inherent in the health care
industry. Given these risks and uncertainties, we can give no assurances that
these forward-looking statements will, in fact, transpire and, therefore,
caution investors not to place undue reliance on them. These assumptions may not
materialize to the extent assumed, and risks and uncertainties may cause actual
results to be different from anticipated results. These risks and uncertainties
also may result in changes to the Company's business plans and prospects. Such
cautionary statements identify important factors that could cause our actual
results to materially differ from those projected in forward-looking statements.
In addition, we disclaim any intent or obligation to update these
forward-looking statements.
