The following discussion should be read in conjunction with our unaudited
condensed consolidated financial statements and accompanying notes for the three
and six months ended June 30, 2011 and 2012 as well as our consolidated
financial statements and accompanying notes and management's discussion and
analysis of financial condition and results of operations included in our Form
10-K for the year ended December 31, 2011. For purposes of "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
references to Q2 2012 and Q2 2011 mean the three months ended June 30, 2012 and
the three months ended June 30, 2011, respectively. In addition, references to
YTD 2012 and YTD 2011 mean the six months ended June 30, 2012 and the six months
ended June 30, 2011, respectively.
Overview of our business
We provide government sponsored social services directly and through
not-for-profit social services organizations whose operations we manage, and we
arrange for and manage non-emergency transportation services. As a result of and
in response to the large and growing population of eligible beneficiaries of
government sponsored social services and non-emergency transportation services,
increasing pressure on governments to control costs and increasing acceptance of
privatized social services, we have grown both organically and by consummating
strategic acquisitions.
We believe our business model enables us to be nimble in the face of uncertain
market conditions. We are focused on legislative trends both at the federal and
state levels as the federal government has enacted healthcare reform
legislation. We believe that the passage of healthcare reform legislation in the
first quarter of 2010 could accelerate the demand for our services when it takes
effect. Moreover, we believe we will have enhanced opportunities going forward
due to the recent U.S. Supreme Court decision providing for state led voluntary
increases in Medicaid enrollment under the 2010 healthcare reform legislation
where states may choose to opt into increased enrollment by accepting federal
incentives designed to fund all of the enrollment expansion.
While we believe we are well positioned to benefit from healthcare reform
legislation and to offer our services to a growing population of individuals
eligible to receive our services, there can be no assurances that programs under
which we provide our services will receive continued or increased funding.
Additionally, there can be no assurance of when the legislation will be
implemented or when, and if, we will see any positive impact.
While we believe we are positioned to potentially benefit from recent trends
that favor our in-home provision of social services, budgetary pressures still
exist that could reduce funding for the services we provide. Medicaid budgets
are fluid and dramatic changes in the financing or structure of Medicaid could
have a negative impact on our business. We believe our business model allows us
to make adjustments to help mitigate state budget pressures that are impacted by
federal spending and system reforms that could challenge our overall profit
margins.
With respect to our non-emergency transportation management services segment, or
NET Services, Q2 2012 consisted of multiple implementations throughout the
country. We increased staff hiring and expansion efforts during Q2 2012
associated with bringing on one additional region in Georgia, which began
April 1, 2012, and a second additional region in that state that began July 1,
2012, the Texas (Dallas) contract, which started in April 2012, and the first
phase of the New York City contract, which began on May 1, 2012 (with the second
phase commencing in August 2012). In addition, our Connecticut Medicaid contract
was expanded to incorporate the entire covered population in the state and we
added a couple of managed care contracts in New York.
As of June 30, 2012, we provided social services directly to approximately
53,000 clients, and had approximately 13.6 million individuals eligible to
receive services under our non-emergency transportation services contracts. We
provided services to these clients from nearly 400 locations in 43 states, the
District of Columbia, United States, and British Columbia and Alberta, Canada.
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Our working capital requirements are primarily funded by cash from operations
and borrowings from our credit facility, which provides funding for general
corporate purposes and acquisitions. We remain focused on deleveraging our
balance sheet and continue to identify opportunities to further diversify our
service offerings.
Critical accounting estimates
In preparing our financial statements in accordance with accounting principles
generally accepted in the United States, or GAAP, we are required to make
estimates and judgments that affect the amounts reflected in our financial
statements. We base our estimates on historical experience and on various other
assumptions we believe to be reasonable under the circumstances. However, actual
results may differ from these estimates under different assumptions or
conditions.
Critical accounting policies are those policies most important to the portrayal
of our financial condition and results of operations. These policies require our
most difficult, subjective or complex judgments, often employing the use of
estimates about the effect of matters inherently uncertain. Our most critical
accounting policies pertain to revenue recognition, accounts receivable and
allowance for doubtful accounts, accounting for business combinations, goodwill
and other intangible assets, accrued transportation costs, accounting for
management agreement relationships, loss reserves for certain reinsurance and
self-funded insurance programs, stock-based compensation and income taxes.
As of June 30, 2012, there has been no change in our accounting policies or the
underlying assumptions or methodology used to fairly present our financial
position, results of operations and cash flows for the periods covered by this
report. In addition, no triggering events have come to our attention pursuant to
our review of goodwill and long-lived assets that would indicate impairment of
these assets as of June 30, 2012. However, it is possible that a triggering
event could occur by December 31, 2012 that would indicate a possible impairment
of the intangible assets of one of our operating subsidiaries.
For further discussion of our critical accounting policies see management's
discussion and analysis of financial condition and results of operations
contained in our Form 10-K for the year ended December 31, 2011.
Results of operations
Segment reporting. Our financial operating results are organized and reviewed by
our chief operating decision maker along our service lines in two reportable
segments - Social Services and NET Services. We operate these reportable
segments as separate divisions and differentiate the segments based on the
nature of the services they offer as more fully described in our Form 10-K for
the year ended December 31, 2011.
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Consolidated Results. The following table sets forth the percentage of
consolidated total revenues represented by items in our unaudited condensed
consolidated statements of income for the periods presented:
Three months ended Six months ended
June 30, June 30,
2011 2012 2011 2012
Revenues:
Home and community based services 34.6 % 28.2 % 34.2 % 30.2 %
Foster care services 3.7 3.0 3.7 3.1
Management fees 1.4 1.1 1.4 1.1
Non-emergency transportation services 60.3 67.7 60.7 65.6
Total revenues 100.0 100.0 100.0 100.0
Operating expenses:
Client service expense 32.9 27.4 32.4 29.1
Cost of non-emergency transportation services 56.2 64.8 55.8 62.6
General and administrative expense 5.3 4.9 5.3 4.9
Depreciation and amortization 1.4 1.3 1.4 1.4
Total operating expenses 95.8 98.4 94.9 98.0
Operating income 4.2 1.6 5.1 2.0
Non-operating expense:
Interest expense (income), net 1.0 0.7 1.3 0.7
Loss on extinguishment of debt - - 0.5 -
Gain on bargain purchase (1.2 ) - (0.6 ) -
Income before income taxes 4.4 0.9 3.9 1.3
Provision for income taxes 1.2 0.4 1.3 0.5
Net income 3.2 % .5 % 2.6 % .8 %
Overview of trends of our results of operations for YTD 2012
Our Social Services revenues for YTD 2012 as compared to YTD 2011 were favorably
impacted by the additional revenue contributed by The ReDCo Group, Inc., or
ReDCo, which we acquired in June 2011, continued increases in Medicaid
enrollment, our preferred provider status we enjoy in many of our markets, and
relatively stable rates overall. Partially offsetting increases in these
revenues for YTD 2012 as compared to YTD 2011, was the impact of contract
reductions and terminations and reforms such as managed care in certain of our
markets where tighter controls over authorizations and referrals are being
implemented in response to continuing state budget challenges.
We believe the trend away from the more expensive out of home providers in favor
of home and community based delivery systems like ours will continue. In
addition, we believe that our effective low cost home and community based
service delivery system is becoming more attractive to certain payers that have
historically only contracted with not-for-profit social services organizations.
Our NET Services revenue for YTD 2012 as compared to YTD 2011 was favorably
impacted by a new contract in Wisconsin effective July 1, 2011, the
re-contracting of the Missouri program in November 2011, an expansion of our
contracts in New Jersey, Connecticut, South Carolina and Georgia, a new contract
in Texas that started in April 2012, phase one of a state administered New York
City contract, that started in May 2012, as well as the continued expansion of
our California ambulance commercial and managed care lines of business. We
incurred additional operating and implementation costs related to these market
expansions including staffing, training, travel and communication costs and will
continue to incur these implementation costs as we continue to operationalize
additional New York City phases through the rest of the year. In addition, we
experienced higher utilization in YTD 2012 as compared to YTD 2011 due to the
impact of an unusually mild
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winter in certain of our markets, which resulted in higher transportation costs
for YTD 2012. While we expect margins to improve as start-up costs will be lower
for the remainder of 2012, utilization may continue to increase throughout 2012,
which could unfavorably impact the results of our operations for the year.
Q2 2012 compared to Q2 2011
Revenues
Three Months Ended
June 30, Percent
2011 2012 change
Home and community based services $ 81,336,156 $ 78,623,571 -3.3 %
Foster care services 8,668,639 8,363,365 -3.5 %
Management fees 3,335,063 3,113,519 -6.6 %
Non-emergency transportation services 141,970,203 188,836,700 33.0 %
Total revenues $ 235,310,061 $ 278,937,155 18.5 %
Home and community based services. Contract amount reductions in Arizona,
contract terminations in Texas and Canada and reforms in managed care in certain
regional markets led to a decrease in home and community based services revenue
for Q2 2012 as compared to Q2 2011. The decrease in revenue was partially offset
by additional revenue related to the acquisition of ReDCo in June 2011,
increased census in certain locations and the impact of new programs being
implemented in various markets.
Foster care services. Our foster care services revenue decreased from Q2 2011 to
Q2 2012 primarily as a result of a new per diem rate structure implemented in
Indiana in January 2012, which reduced payments for foster care services in that
state as well as a decrease in foster care services provided in Arizona. This
decrease, however, was partially offset by increased foster care services
provided in Tennessee as we continue to build our foster care program in that
state.
Management fees. Fees for management services provided to certain not-for-profit
organizations under management services agreements decreased in Q2 2012 as
compared to Q2 2011 primarily due to our acquisition of ReDCo, with whom we
previously had a management services agreement. The acquisition of ReDCo
resulted in a reduction of management fees of approximately $304,000 in Q2 2012.
Non-emergency transportation services. The increase in NET Services revenue was
favorably impacted by the following:
• a new contract in Wisconsin effective July 1, 2011;
• re-contracting of the Missouri program in November 2011;
• geographical expansion in New Jersey;
• expansion of our regional Connecticut contract to a statewide contract;
• re-award of the two additional South Carolina regions;
• the award of an additional region in Georgia;
• a new contract in Texas starting in April 2012;
• phase one of a state administered New York City contract which began in
May 2012; and
• continued expansion of our California ambulance commercial and managed
care lines of business.
A significant portion of this revenue was generated under capitated contracts
where we assumed the responsibility of meeting the transportation needs of
beneficiaries residing in a specific geographic region. Due to the fixed revenue
stream and variable expense structure of our NET Services operating segment,
expenses related to this segment vary with seasonal fluctuations. We expect our
operating results will continuously fluctuate on a quarterly basis.
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Operating expenses
Client service expense. Client service expense included the following for Q2
2011 and Q2 2012:
Three months ended
June 30, Percent
2011 2012 change Payroll and related costs $ 55,211,402$ 57,400,232
4.0 %
Purchased services 8,489,269 6,575,356 -22.5 %
Other operating expenses 13,528,646 12,348,635
-8.7 %
Stock compensation 176,108 203,095 15.3 %
Total client service expense $ 77,405,425$ 76,527,318
-1.1 %
Payroll and related costs. Our payroll and related costs increased from Q2 2011
to Q2 2012 because we added over 600 new employees in connection with the
acquisition of ReDCo, which resulted in an increase in payroll and related costs
of approximately $4.4 million for Q2 2012 as compared to Q2 2011. In addition,
we experienced increased healthcare claims activity under our self-funded
employee health plan, which resulted in increased expense of approximately
$587,000 for Q2 2012 as compared to Q2 2011. These increases were partially
offset by decreased payroll and related costs in Texas and Canada as a result of
contract terminations. As a percentage of revenue, excluding NET Services
revenue, payroll and related costs increased from 59.2% for Q2 2011 to 63.7% for
Q2 2012 primarily due to the impact of higher payroll and related costs of ReDCo
relative to its revenue contribution.
Purchased services. We subcontract with a network of providers for a portion of
the workforce development services we provide throughout British Columbia. In
addition, we incur a variety of other support service expenses in the normal
course of business including foster parent payments, pharmacy payments and
out-of-home placements. Included in Q2 2012 were decreased costs resulting from
contract terminations in Canada of approximately $1.3 million, other support
services of approximately $157,000 and foster parent payments of approximately
$470,000, as compared to Q2 2011. Purchased services, as a percentage of
revenue, excluding NET Services revenue, decreased from 9.1% for Q2 2011 to 7.3%
for Q2 2012 due to the impact of nominal additional purchased services expense
incurred by ReDCo relative to the revenue contributed by this acquired business.
Other operating expenses. Other operating expenses decreased as a result of
costs associated with Texas and Canada operations decreasing due to contract
terminations. These decreases were partially offset by the acquisition of ReDCo
which added approximately $737,000 to other operating expenses for Q2 2012 as
compared to Q2 2011. As a result, other operating expenses, as a percentage of
revenue, excluding NET Services revenue, decreased from 14.5% for Q2 2011 to
13.7% for Q2 2012.
Stock compensation. Stock compensation expense primarily consisted of
approximately $143,000 and $203,000 for Q2 2011 and Q2 2012, respectively, which
represents the amortization of the fair value of stock options and restricted
stock awarded to key employees since January 1, 2009 under our 2006 Long-Term
Incentive Plan, or 2006 Plan.
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Cost of non-emergency transportation services.
Three months ended June 30, Percent
2011 2012 Change
Payroll and related costs $ 13,962,856 $ 19,356,926 38.6 %
Purchased services 112,150,642 154,992,030 38.2 %
Other operating expenses 5,786,875 5,902,240 2.0 %
Stock compensation 326,995 387,831 18.6 %
Total cost of non-emergency
transportation services $ 132,227,368 $ 180,639,027 36.6 %
Payroll and related costs. The increase in payroll and related costs of our NET
Services operating segment for Q2 2012 as compared to Q2 2011 was due to
additional staff hired for the statewide Wisconsin contract effective July 1,
2011, as well as all other new contracts and contract expansions in New Jersey,
Georgia, Connecticut, Texas and New York, along with additional staffing needed
for expansion of the California ambulance commercial and managed care lines of
business. In addition, we re-entered the State of Missouri on October 31, 2011
and expanded in South Carolina in February 2012. We continue to provide
implementation efforts for the additional phases set to go live in New York for
the remainder of the year, as well as additional managed care organization
implementations. Payroll and related costs, as a percentage of NET Services
revenue, increased from 9.8% for Q2 2011 to 10.3% for Q2 2012 as we have added
additional call center staff to ensure our compliance with the more demanding
service authorization process and intake response time requirements of some of
our new contracts.
Purchased services. Through our NET Services operating segment we subcontract
with third party transportation providers to provide non-emergency
transportation services to our clients. Since Q2 2011, we have added numerous
regional and statewide contracts starting July 1, 2011 through June 30, 2012.
These factors resulted in an increase in purchased transportation costs for Q2
2012 as compared to Q2 2011. As a percentage of NET Services revenue, purchased
services increased from approximately 79.0% for Q2 2011 to approximately 82.1%
for Q2 2012 as a result of higher utilization rates from new contracts as well
as increased utilization within our expanded contracts primarily related to
school based programs serviced during Q2 2012.
Other operating expenses. Other operating expenses of our NET Services operating
segment increased for Q2 2012 as compared to Q2 2011 due primarily to increased
telecommunication expenses to support new contracts and expanded markets as well
as an increase in business taxes. These increases were partially offset by a
decrease in our claims expenses associated with Provado Insurance Services, Inc.
(our licensed captive insurance subsidiary domiciled in the State of South
Carolina), or Provado, which did not renew its reinsurance agreement or assume
liabilities for insurance policies after February 15, 2011. Other operating
expenses as a percentage of revenue decreased from 4.1% for Q2 2011 to 3.1% for
Q2 2012 as a result of these primary factors.
Stock compensation. Stock compensation expense primarily consisted of
approximately $300,000 and $389,000 for Q2 2011 and Q2 2012, respectively, which
represents the amortization of the fair value of stock options and restricted
stock awarded to employees of our NET Services operating segment since
January 1, 2009 under our 2006 Plan.
General and administrative expense.
Three months ended
June 30, Percent
2011 2012 change
$ 12,413,172 $ 13,791,288 11.1 %
The increase in corporate administrative expenses for Q2 2012 as compared to Q2
2011 was primarily a result of an increase of approximately $880,000 in rent and
related charges, of which approximately $359,000 related to the ReDCo
acquisition. Additionally, stock compensation expense
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related to restricted stock awards increased from Q2 2011 to Q2 2012 due
primarily to the accelerated vesting of restricted stock grants due to the
passing of a company director. Corporate administrative costs also included
expenses of approximately $519,000 related to our consideration of strategic
alternatives, which resulted in increased expense for Q2 2012 as compared to Q2
2011. As a percentage of revenue, general and administrative expense decreased
from 5.3% for Q2 2011 to 4.9% for Q2 2012.
Depreciation and amortization.
Three months
ended June 30, Percent
2011 2012 change
$3,328,498 $ 3,609,911 8.5 %
As a percentage of revenues, depreciation and amortization was approximately
1.4% for Q2 2011 and 1.3% for Q2 2012.
Non-operating (income) expense
Interest expense. Our current and long-term debt obligations have decreased from
approximately $167.5 million at June 30, 2011 to $145.5 million at June 30,
2012, which was a significant factor contributing to the decrease in our
interest expense for Q2 2012 as compared to Q2 2011.
Gain on bargain purchase. On June 1, 2011, we acquired all of the equity
interest of ReDCo. The fair value of the net assets acquired of approximately
$11.3 million exceeded the purchase price of the business of approximately $8.6
million. Accordingly, the acquisition was accounted for as a bargain purchase
and, as a result, we recognized a gain of approximately $2.7 million associated
with the acquisition.
Interest income. Interest income for Q2 2011 and Q2 2012 was approximately
$49,000 and $43,000, respectively, and resulted primarily from interest earned
on interest bearing bank and money market accounts.
Provision for income taxes
Our effective tax rate from continuing operations for Q2 2011 and Q2 2012 was
27.0% and 43.3%, respectively. Our effective tax rate was higher than the United
States federal statutory rate of 35.0% for Q2 2012 due primarily to state taxes
as well as non-deductible stock option expense. The tax rate for Q2 2011 was
favorably impacted by the gain on bargain purchase, recorded net of deferred
taxes of approximately $1.4 million, which was not subject to income taxation.
YTD 2012 compared to YTD 2011
Revenues
Six Months Ended
June 30, Percent
2011 2012 change
Home and community based services $ 158,580,443 $ 162,748,721 2.6 %
Foster care services 16,919,892 16,718,044 -1.2 %
Management fees 6,680,003 6,109,051 -8.5 %
Non-emergency transportation services 280,936,059 353,508,456 25.8 %
Total revenues $ 463,116,397 $ 539,084,272 16.4 %
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Home and community based services. The acquisition of ReDCo in June 2011 added
approximately $14.0 million to home and community based services revenue for YTD
2012 as compared to YTD 2011. Additionally, our YTD 2012 revenues were favorably
impacted by increased census in certain locations as well as new programs being
implemented in various markets. This increase in revenue was partially offset by
the impact of the reduction of contract amounts in Arizona, contract
terminations in Texas and Canada and reforms in managed care in certain regions.
Foster care services. Our foster care services revenue decreased from YTD 2011
to YTD 2012 primarily as a result of a new per diem rate structure implemented
in Indiana in January 2012, which reduced payments for foster care services in
that state as well as a decrease in foster care services provided in Arizona.
This decrease, however, was partially offset by increased foster care services
provided in Tennessee as we continue to build our foster care program in that
state.
Management fees. Fees for management services provided to certain not-for-profit
organizations under management services agreements decreased in YTD 2012 as
compared to YTD 2011 primarily due to our acquisition of ReDCo, with whom we
previously had a management services agreement. The acquisition of ReDCo
resulted in a reduction of management fees of approximately $761,000 in YTD
2012.
Non-emergency transportation services. The increase in NET Services revenue was
favorably impacted by the following:
• a new contract in Wisconsin effective July 1, 2011;
• re-contracting of the Missouri program in November 2011;
• geographical expansion and positive rate adjustment of our contracts in
New Jersey;
• expansion of our regional Connecticut contract to a statewide contract;
• re-award of the two additional South Carolina regions in February 2012;
• the award of an additional region in Georgia;
• a new contract in Texas starting in April 2012;
• phase one of a state administered New York City contract which began in
May 2012; and
• continued expansion of our California ambulance commercial and managed
care lines of business.
A significant portion of this revenue was generated under capitated contracts
where we assumed the responsibility of meeting the transportation needs of
beneficiaries residing in a specific geographic region. Due to the fixed revenue
stream and variable expense structure of our NET Services operating segment,
expenses related to this segment vary with seasonal fluctuations. We expect our
operating results will continuously fluctuate on a quarterly basis.
Operating expenses
Client service expense. Client service expense included the following for YTD
2011 and YTD 2012:
Six months ended
June 30, Percent
2011 2012 change Payroll and related costs $ 108,722,645$ 117,713,192
8.3 %
Purchased services 17,004,314 14,310,172 -15.8 %
Other operating expenses 24,141,580 24,254,712
0.5 %
Stock compensation 350,800 459,867 31.1 %
Total client service expense $ 150,219,339$ 156,737,943
4.3 %
Payroll and related costs. Our payroll and related costs increased from YTD 2011
to YTD 2012 because we added over 600 new employees in connection with the
acquisition of ReDCo, which resulted in an increase in payroll and related costs
of approximately $10.7 million for YTD 2012 as compared to YTD
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2011. In addition, we experienced increased healthcare claims activity under our
self-funded employee health plan, which resulted in increased expense of
approximately $847,000 for YTD 2012 as compared to YTD 2011. These increases
were partially offset by decreased payroll and related costs in Texas and Canada
as a result of contract terminations. As a percentage of revenue, excluding NET
Services revenue, payroll and related costs increased from 59.7% for YTD 2011 to
63.4% for YTD 2012 primarily due to the impact of higher payroll and related
costs of ReDCo relative to its revenue contribution.
Purchased services. We subcontract with a network of providers for a portion of
the workforce development services we provide throughout British Columbia. In
addition, we incur a variety of other support service expenses in the normal
course of business including foster parent payments, pharmacy payments and
out-of-home placements. Included in YTD 2012 were decreased costs resulting from
contract terminations in Canada of approximately $1.4 million, other support
services of approximately $496,000 and decreased foster parent payments of
approximately $801,000, as compared to YTD 2011. Purchased services, as a
percentage of revenue, excluding NET Services revenue, decreased from 9.3% for
YTD 2011 to 7.7% for YTD 2012 due to the impact of nominal additional purchased
services expense incurred by ReDCo relative to the revenue contributed by this
acquired business.
Other operating expenses. The acquisition of ReDCo added approximately $2.0
million to other operating expenses for YTD 2012 as compared to YTD 2011, which
was partially offset by decreased costs associated with Texas and Canada
operations due to contract terminations. As a result, other operating expenses,
as a percentage of revenue, excluding NET Services revenue, decreased from 13.3%
for YTD 2011 to 13.1% for YTD 2012.
Stock compensation. Stock compensation expense primarily consisted of
approximately $269,000 and $398,000 for YTD 2011 and YTD 2012, respectively,
which represents the amortization of the fair value of stock options and
restricted stock awarded to key employees since January 1, 2009 under our 2006
Long-Term Incentive Plan, or 2006 Plan.
Cost of non-emergency transportation services.
Six months ended June 30, Percent
2011 2012 Change
Payroll and related costs $ 27,790,257 $ 37,372,977 34.5 %
Purchased services 218,358,984 288,464,208 32.1 %
Other operating expenses 11,598,795 11,024,195 -5.0 %
Stock compensation 587,751 756,313 28.7 %
Total cost of non-emergency
transportation services $ 258,335,787 $ 337,617,693 30.7 %
Payroll and related costs. The increase in payroll and related costs of our NET
Services operating segment for YTD 2012 as compared to YTD 2011 was due to
additional staff hired in the second quarter of 2011 related to a new statewide
Wisconsin contract effective July 1, 2011, as well as the expansion of our
existing business in New Jersey, along with additional staffing needed for
expansion of the California ambulance commercial and managed care lines of
business. In addition, we re-entered the State of Missouri on October 31, 2011
and hired staff for program implementations in Connecticut, Georgia, South
Carolina, Texas and New York City which began operations at various times from
January 2012 to May 2012. Payroll and related costs, as a percentage of NET
Services revenue, increased from 9.9% for YTD 2011 to 10.6% for YTD 2012 as some
of these new contracts are more labor intensive than our historical programs.
Purchased services. Through our NET Services operating segment we subcontract
with third party transportation providers to provide non-emergency
transportation services to our clients. In YTD 2012, we experienced higher
utilization than in YTD 2011 primarily due to relatively warmer weather
resulting in fewer cancellations of scheduled trips. Additionally, since YTD
2011, we have added a statewide contract in Wisconsin, completed the operations
expansion into all counties in New Jersey as well as adding all of New Jersey's
managed care lives to the population we serve. Furthermore, we began a
state-wide contract in Missouri and are serving an additional population in the
state of Connecticut. These factors resulted in an increase in purchased
transportation costs for YTD 2012 as compared to YTD 2011. As a percentage of
NET Services revenue, purchased services increased from approximately 77.7% for
YTD 2011 to approximately 81.6% for YTD 2012 as a result of higher utilization
rates from new contracts as well as increased utilization within our expanded
contracts.
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Other operating expenses. Other operating expenses of our NET Services operating
segment decreased for YTD 2012 as compared to YTD 2011 due primarily to a
decrease in claims expense related to Provado, which did not renew its
reinsurance agreement or assume liabilities for insurance policies after
February 15, 2011. This decrease was partially offset by increases in our
telecommunications expenses to support new contracts and expansions, as well as
increases in other implementation related costs. Other operating expenses as a
percentage of revenue decreased from 4.1% for YTD 2011 to 3.1% for YTD 2012 as a
result of these factors.
Stock compensation. Stock compensation expense primarily consisted of
approximately $521,000 and $706,000 for YTD 2011 and YTD 2012, respectively,
which represents the amortization of the fair value of stock options and
restricted stock awarded to employees of our NET Services operating segment
since January 1, 2009 under our 2006 Plan.
General and administrative expense.
Six months ended
June 30, Percent
2011 2012 change
$ 24,336,953 $ 26,530,063 9.0 %
The increase in corporate administrative expenses for YTD 2012 as compared to
YTD 2011 was primarily a result of an increase of approximately $1.7 million in
rent and related charges, of which approximately $971,000 related to the ReDCo
acquisition. Additionally, stock compensation expense related to restricted
stock awards increased from Q2 2011 to Q2 2012 due primarily to the accelerated
vesting of restricted stock grants due to the death of a company director.
Corporate administrative costs also included expenses of approximately $591,000
related to our consideration of strategic alternatives, which resulted in
increased expense for YTD 2012 as compared to YTD 2011. As a percentage of
revenue, general and administrative expense decreased from 5.3% for YTD 2011 to
4.9% for YTD 2012.
Depreciation and amortization.
Six months ended
June 30, Percent
2011 2012 change
$ 6,577,576 $ 7,235,666 10.0 %
As a percentage of revenues, depreciation and amortization was approximately
1.4% for YTD 2011 and YTD 2012.
Non-operating (income) expense
Interest expense. Our current and long-term debt obligations have decreased from
approximately $167.5 million at June 30, 2011 to $145.5 million at June 30,
2012, which was a significant factor contributing to the decrease in our
interest expense for YTD 2012 as compared to YTD 2011. Additionally, in March
2011, our interest rate under our credit facility decreased from LIBOR plus 6.5%
to LIBOR plus 2.75% due to the refinancing of our long-term debt.
Loss on extinguishment of debt. Loss on extinguishment of debt for YTD 2011 of
approximately $2.5 million resulted from the write-off of deferred financing
fees related to our credit facility that was repaid in full in March 2011. We
accounted for the unamortized deferred financing fees related to the previous
credit facility under ASC 470-50 - Debt Modifications and Extinguishments. As
current and previous credit facilities were loan syndications, and a number of
lenders participated in both credit facilities, the Company evaluated the
accounting for financing fees on a lender by lender basis, which resulted in a
loss on extinguishment of debt of $2.5 million.
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Gain on bargain purchase. On June 1, 2011, we acquired all of the equity
interest of ReDCo. The fair value of the net assets acquired of approximately
$11.3 million exceeded the purchase price of the business of approximately $8.6
million. Accordingly, the acquisition was accounted for as a bargain purchase
and, as a result, we recognized a gain of approximately $2.7 million associated
with the acquisition.
Interest income. Interest income for YTD 2011 and YTD 2012 was approximately
$108,000 and $84,000, respectively, and resulted primarily from interest earned
on interest bearing bank and money market accounts.
Provision for income taxes
Our effective tax rate from continuing operations for YTD 2011 and YTD 2012 was
32.9% and 38.3%, respectively. Our effective tax rate was higher than the United
States federal statutory rate of 35.0% for YTD 2012 due primarily to state taxes
as well as non-deductible stock option expense. Additionally, our effective tax
rate for YTD 2012 was favorably impacted by the final determination of the tax
benefits related to certain liabilities assumed as a result of a 2011
acquisition. The tax rate for YTD 2011 was favorably impacted by the gain on
bargain purchase, recorded net of deferred taxes of approximately $1.4 million,
which was not subject to income taxation.
Seasonality
Our quarterly operating results and operating cash flows normally fluctuate as a
result of seasonal variations in our business. In our Social Services operating
segment, lower client demand for our home and community based services during
the holiday and summer seasons generally results in lower revenue during those
periods; however, our expenses related to the Social Services operating segment
do not vary significantly with these changes. As a result, our Social Services
operating segment experiences lower operating margins during the holiday and
summer seasons. Our NET Services operating segment also experiences fluctuations
in demand for our non-emergency transportation services during the summer,
winter and holiday seasons. Due to higher demand in the summer months and lower
demand in the winter and holiday seasons, coupled with a fixed revenue stream
based on a per member per month based structure, our NET Services operating
segment normally experiences lower operating margins in the summer season and
higher operating margins in the winter and holiday seasons.
We expect quarterly fluctuations in operating results and operating cash flows
to continue as a result of the seasonal demand for our home and community based
services and non-emergency transportation services. As we enter new markets, we
could be subject to additional seasonal variations along with any competitive
response by other social services and transportation providers.
Liquidity and capital resources
Short-term liquidity requirements consist primarily of recurring operating
expenses and debt service requirements. We expect to meet these requirements
through available cash, generation of cash from our operating segments, and from
our revolving credit facility.
Sources of cash for YTD 2012 were primarily from operations. Our balance of cash
and cash equivalents was approximately $43.2 million at December 30, 2011 and
$50.2 million at June 30, 2012. Approximately $3.3 million of cash was held by
WCG International Ltd. (our foreign wholly-owned subsidiary), or WCG, at
June 30, 2012. We had restricted cash of approximately $15.5 million and $14.6
million at December 31, 2011 and June 30, 2012, respectively, related to
contractual obligations and activities of our captive insurance subsidiaries and
other subsidiaries. At December 31, 2011 and June 30, 2012, our total debt was
approximately $150.5 million and $145.5 million, respectively.
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Cash flows
Operating activities. Net income of approximately $4.5 million plus net non-cash
depreciation, amortization, amortization of deferred financing costs, provision
for doubtful accounts, stock-based compensation, deferred income taxes and other
items of approximately $11.6 million was partially offset by the growth of our
accounts receivable of approximately $9.9 million for YTD 2012. The growth of
our accounts receivable during YTD 2012 was primarily attributable to our
revenue growth.
The decrease in management fee receivable resulted in additional cash provided
by operations of approximately $936,000. A net increase in accounts payable and
accrued expenses resulted in cash provided by operating activities of
approximately $977,000, while increases in deferred revenue resulted in cash
provided by operating activities of approximately $1.7 million. An increase in
accrued transportation costs, due to growth of our non-emergency transportation
services costs, resulted in cash provided by operating activities of
approximately $11.3 million. Reinsurance liability reserves related to our
reinsurance programs increased resulting in cash provided by operating
activities of approximately $2.9 million. Other long-term liabilities increased
since December 31, 2011 due primarily to the cash receipt of approximately $3.3
million from British Columbia related to an arbitral award, however, in the
event British Columbia prevails in its arguments during the appeal process,
British Columbia will seek immediate repayment of the amount of the arbitral
award. Additionally, an increase in other receivables, partially due to a stop
loss receivable related to our self-funded health insurance program, resulted in
cash used in operating activities of approximately $989,000, while an increase
in our prepaid expenses and other assets resulted in cash used in operating
activities of approximately $9.2 million. The increase in prepaid expenses and
other assets was primarily attributable to an increase in prepaid insurance, as
we renewed our insurance contracts during Q2 2012, and estimated tax payments we
made during 2012. As a result of the foregoing, net cash flows from operating
activities totaled approximately $17.1 million for YTD 2012.
Investing activities. Net cash used in investing activities totaled
approximately $5.1 million for YTD 2012. We spent approximately $6.3 million,
net, for property and equipment to support the growth of our operations. Changes
in restricted cash, primarily related to cash restricted in relation to our auto
liability program, resulted in cash provided by investing activities of
approximately $980,000.
Financing activities. Net cash used in financing activities totaled
approximately $4.9 million for YTD 2012, which resulted primarily from
repayments on our term loan.
Exchange rate change. The effect of exchange rate changes on our cash flow
related to the activities of WCG for YTD 2012 was a decrease to cash of
approximately $84,000.
Obligations and commitments
Convertible senior subordinated notes. On November 13, 2007, we issued the Notes
under the amended note purchase agreement dated November 9, 2007 to the
purchasers named therein in connection with the acquisition of Charter LCI
Corporation, including its subsidiaries, in December 2007, or LogistiCare. The
proceeds of $70.0 million were used to partially fund the cash portion of the
purchase price paid by us to acquire LogistiCare. The Notes are general
unsecured obligations subordinated in right of payment to any existing or future
senior debt including our credit facility described below.
We pay interest on the Notes in cash semiannually in arrears on May 15 and
November 15 of each year. The Notes will mature on May 15, 2014.
During 2011, we repurchased approximately $20.0 million principal amount of the
Notes with cash.
Credit facility. On March 11, 2011, we replaced the then existing credit
facility, or Old Credit Facility, with a new credit agreement and paid all
amounts due under the Old Credit Facility with cash in the amount of $12.3
million and proceeds from the new credit agreement as discussed in further
detail below.
On March 11, 2011, we entered into a new credit agreement, or Credit Agreement,
with Bank of America, N.A., as administrative agent, swing line lender and
letter of credit issuer, SunTrust Bank, as syndication agent, Bank of Arizona,
Alliance Bank of Arizona and Royal Bank of Canada, as co-documentation agents,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and SunTrust Robinson
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Humphrey, Inc., as joint lead arrangers and joint book managers and other
lenders party thereto. The Credit Agreement provides us with a senior secured
credit facility, or the Senior Credit Facility, in aggregate principal amount of
$140.0 million, comprised of a $100.0 million term loan facility and a $40.0
million revolving credit facility. There is an option to increase the amount of
the term loan facility and/or the revolving credit facility by an aggregate
amount of up to $85.0 million as described below. The Senior Credit Facility
includes sublimits for swingline loans and letters of credit in amounts of up to
$10.0 million and $25.0 million, respectively. On March 11, 2011, we borrowed
the entire amount available under the term loan facility and used the proceeds
thereof to refinance the Old Credit Facility. Prospectively, the proceeds of the
Senior Credit Facility may be used to (i) fund ongoing working capital
requirements; (ii) make capital expenditures; (iii) repay the Notes; and
(iv) other general corporate purposes.
Interest on the outstanding principal amount of the loans accrues, at our
election, at a per annum rate equal to the London Interbank Offering Rate, or
LIBOR, plus an applicable margin or the base rate plus an applicable margin. The
applicable margin ranges from 2.25% to 3.00% in the case of LIBOR loans and
1.25% to 2.00% in the case of the base rate loans, in each case, based on our
consolidated leverage ratio as defined in the Credit Agreement. The interest
rate applied to our term loan at June 30, 2012 was 3.25%. Interest on the loans
is payable at least once every three months in arrears. In addition, we are
obligated to pay a quarterly commitment fee based on a percentage of the unused
portion of each lender's commitment under the revolving credit facility and
quarterly letter of credit fees based on a percentage of the maximum amount
available to be drawn under each outstanding letter of credit. The commitment
fee and letter of credit fee ranges from 0.35% to 0.50% and 2.25% to 3.00%,
respectively, in each case, based on our consolidated leverage ratio.
We are subject to financial covenants, including consolidated net leverage and
consolidated net senior leverage covenants as well as a consolidated fixed
charge covenant. We were in compliance with all financial covenants as of
June 30, 2012.
Borrowings under the revolving credit facility totaled $8.0 million as of
June 30, 2012. Additionally, $25 million of the revolving credit facility may be
allocated to collateralize certain letters of credit. As of June 30, 2012, there
were six letters of credit in the amount of approximately $6.7 million
collateralized under the revolving credit facility. At June 30, 2012, our
available credit under the revolving credit facility was $25.3 million.
The terms of the Notes and the Credit Agreement are more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the heading entitled "Liquidity and capital resources"
included in our Annual Report on Form 10-K for the year ended December 31, 2011.
Contingent obligations. Under The Providence Service Corporation Deferred
Compensation Plan, as amended, or Deferred Compensation Plan, eligible employees
and independent contractors or a participating employer (as defined in the
Deferred Compensation Plan) may defer all or a portion of their base salary,
service bonus, performance-based compensation earned in a period of 12 months or
more, commissions and, in the case of independent contractors, compensation
reportable on Form 1099. The Deferred Compensation Plan is unfunded and benefits
are paid from our general assets. As of June 30, 2012, there were seven
participants in the Deferred Compensation Plan. We also maintain a
409(A) Deferred Compensation Rabbi Trust Plan for highly compensated employees
of our NET Services operating segment. Benefits are paid from our general assets
under this plan. As of June 30, 2012, 18 highly compensated employees
participated in this plan.
Management agreements
We maintain management agreements with a number of not-for-profit social
services organizations that require us to provide management and administrative
services for each organization. In exchange for these services, we receive a
management fee that is either based upon a percentage of the revenues of these
organizations or a predetermined fee. The not-for-profit social services
organizations managed by us that qualify under Section 501(c)(3) of the Internal
Revenue Code, referred to as a 501(c)(3) entity, each maintain a board of
directors, a majority of which are independent. All economic decisions by the
board of
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any 501(c)(3) entity that affect us are made solely by the independent board
members. We encourage each managed entity to obtain a third party fairness
opinion regarding our management fee from an independent appraiser retained by
the independent board members of the tax exempt organizations.
Management fees generated under our management agreements represented 1.4% and
1.1% of our revenue for YTD 2011 and YTD 2012, respectively. In accordance with
our management agreements with these not-for-profit organizations, we have
obligations to manage their business and services.
Management fee receivable at December 31, 2011 and June 30, 2012 totaled $3.5
million and $2.6 million, respectively, and management fee revenue was
recognized on all of these receivables. In order to enhance liquidity of the
entities we manage, we may allow the managed entities to defer payment of their
respective management fees. In addition, since government contractors who
provide social or similar services to government beneficiaries sometimes
experience collection delays due to either lack of proper documentation of
claims, government budgetary processes or similar reasons outside the
contractors' control (either directly or as managers of other contracting
entities), we generally do not consider a management fee receivable to be
uncollectible due solely to its age until it is 365 days old.
The following is a summary of the aging of our management fee receivable
balances as of June 30, September 30 and December 31, 2011 and March 31 and
June 30, 2012:
Less than Over
At 30 days 30-60 days 60-90 days 90-180 days 180 days
June 30, 2011 $ 891,478 $ 585,124 $ 546,777 $ 1,376,551 $ 1,192,619
September 30, 2011 $ 1,040,141 $ 720,301 $ 520,413 $ 1,450,984 $ 107,100
December 31, 2011 $ 772,298 $ 441,360 $ 457,214 $ 1,766,067 $ 100,419
March 31, 2012 $ 962,069 $ 489,541 $ 502,887 $ 998,347 $ 114,322
June 30, 2012 $ 989,679 $ 521,250 $ 506,583 $ 458,148 $ 125,684
Each month we evaluate the solvency, outlook and ability to pay outstanding
management fees of the entities we manage. If the likelihood that we will not be
paid is other than remote, we defer the recognition of these management fees
until we are certain that payment is probable. We have deemed payment of all of
the management fee receivables to be probable based on our collection history
with these entities as the long-term manager of their operations.
Our days sales outstanding for our managed entities decreased from 102 days at
December 31, 2011 to 78 days at June 30, 2012.
Reinsurance and Self-Funded Insurance Programs
Reinsurance
We reinsure a substantial portion of our general and professional liability and
workers' compensation costs under reinsurance programs through our wholly-owned
captive insurance subsidiary, Social Services Providers Captive Insurance
Company, or SPCIC. We also provide reinsurance for policies written by a third
party insurer for general liability, automobile liability, and automobile
physical damage coverage to certain members of the network of subcontracted
transportation providers and independent third parties under our NET Services
operating segment through Provado. Provado, a wholly-owned subsidiary of
LogistiCare, is a licensed captive insurance company domiciled in the State of
South Carolina. The decision to reinsure our risks and provide a self-funded
health insurance program to our employees was made based on current conditions
in the insurance marketplace that have led to increasingly higher levels of
self-insurance retentions, increasing number of coverage limitations, and
fluctuating insurance premium rates.
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SPCIC:
SPCIC, which is a licensed captive insurance company domiciled in the State of
Arizona, reinsures third-party insurers for general and professional liability
exposures for the first dollar of each and every loss up to $1.0 million per
loss and $5.0 million in the aggregate. The cumulative reserve for expected
losses since inception in 2005 of this reinsurance program at June 30, 2012 was
approximately $3.4 million. The excess premium over our expected losses may be
used to fund SPCIC's operating expenses, fund any deficit arising in workers'
compensation liability coverage, provide for surplus reserves, and to fund any
other risk management activities.
SPCIC reinsures a third-party insurer for worker's compensation insurance for
the first dollar of each and every loss up to $350,000 per occurrence with an
$8.0 million annual policy aggregate limit. The cumulative reserve for expected
losses since inception in 2005 of this reinsurance program at June 30, 2012 was
approximately $4.6 million.
Based on an independent actuarial report, our expected losses related to
workers' compensation and general and professional liability in excess of our
liability under our associated reinsurance programs at June 30, 2012 was
approximately $3.2 million. We recorded a corresponding receivable from
third-party insurers and liability at June 30, 2012 for these expected losses,
which would be paid by third-party insurers to the extent losses are incurred.
We have an umbrella liability insurance policy providing additional coverage in
the amount of $25.0 million in the aggregate in excess of the policy limits of
the general and professional liability insurance policy and automobile liability
insurance policy.
SPCIC had restricted cash of approximately $9.9 million and $10.7 million at
December 31, 2011 and June 30, 2012, respectively, which was restricted to
secure the reinsured claims losses of SPCIC under the general and professional
liability and workers' compensation reinsurance programs. The full extent of
claims may not be fully determined for years. Therefore, the estimates of
potential obligations are based on recommendations of an independent actuary
using historical data, industry data, and our claims experience. Although we
believe that the amounts accrued for losses incurred but not reported under the
terms of our reinsurance programs are sufficient, any significant increase in
the number of claims or costs associated with these claims made under these
programs could have a material adverse effect on our financial results.
Provado:
Under a reinsurance agreement with a third party insurer, Provado reinsures the
third party insurer for the first $250,000 of each loss for each line of
coverage, subject to an annual aggregate equal to 107.7% of gross written
premium, and certain claims in excess of $250,000 to an additional aggregate
limit of $1.1 million. The cumulative reserve for expected losses of this
reinsurance program at June 30, 2012 was approximately $3.6 million. Effective
February 15, 2011, Provado did not renew its reinsurance agreement and will not
assume liabilities for policies after that date. It will continue to administer
existing policies for the foreseeable future and resolve remaining and future
claims related to these policies.
The liabilities for expected losses and loss adjustment expenses are based
primarily on individual case estimates for losses reported by claimants. An
estimate is provided for losses and loss adjustment expenses incurred but not
reported on the basis of our claims experience and claims experience of the
industry. These estimates are reviewed at least annually by independent
consulting actuaries. As experience develops and new information becomes known,
the estimates are adjusted.
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Providence Liability Insurance Coverages
During the Q2 2012, we increased our reinsurance of a third-party insurer for
worker's compensation insurance for the first dollar of each and every loss up
to $350,000 per occurrence, from $250,000 per occurrence, and increased the
annual policy aggregate limit from $6.0 million to $8.0 million. The table below
summarizes our liability insurance programs as of June 30, 2012.
Coverage Type Coverage Limit Reinsurance
Automobile $2,000,000 -
Crime $5,000,000 -
Director & Officer Liability $20,000,000 -
Employed Lawyers $1,000,000 -
Employment Practices Liability $5,000,000 -
Network Security and Privacy $5,000,000 -
General & Professional Liability $1,000,000 per loss; Fully reinsured by SPCIC
$5,000,000 aggregate
Umbrella $25,000,000 in excess of -
general and professional
liability and auto
liability
Workers' Compensation Statutory amounts Reinsured by SPCIC up to
$350,000 per claim with a
$8,000,000 aggregated
limit
While we are insured for these types of claims, damages exceeding our insurance
limits or outside our insurance coverage, such as a claim for fraud or punitive
damages, could adversely affect our cash flow and financial condition.
Health Insurance
We offer our employees an option to participate in a self-funded health
insurance program. As of June 30, 2012, health claims were self-funded with a
stop-loss umbrella policy with a third party insurer to limit the maximum
potential liability for individual claims to $200,000 per person and for a
maximum potential claim liability based on member enrollment.
Health insurance claims are paid as they are submitted to the plan
administrator. We maintain accruals for claims that have been incurred but not
yet reported to the plan administrator and therefore have not been paid. The
incurred but not reported reserve is based on an established cap and current
payment trends of health insurance claims. The liability for the self-funded
health plan of approximately $1.6 million and $2.0 million as of December 31,
2011 and June 30, 2012, respectively, was recorded in "Reinsurance liability
reserve" in our condensed consolidated balance sheets.
We charge our employees a portion of the costs of our self-funded group health
insurance programs. We determine this charge at the beginning of each plan year
based upon historical and projected medical utilization data. Any difference
between our projections and our actual experience is borne by us. We estimate
potential obligations for liabilities under this program to reserve what we
believe to be a sufficient amount to cover liabilities based on our past
experience. Any significant increase in the number of claims or costs associated
with claims made under this program above what we reserve could have a material
adverse effect on our financial results.
Liquidity matters
We believe that our existing cash and cash equivalents and cash availability
under the Credit Agreement provide funds necessary to meet our operating plan
for 2012. The expected operating plan for this period provides for full
operation of our businesses as well as interest and projected principal payments
on our debt.
We may access capital markets to raise equity financing for various business
reasons, including required debt payments and acquisitions. The timing, term,
size, and pricing of any such financing will depend on investor interest and
market conditions, and there can be no assurance that we will be able to obtain
any such financing. In addition, with respect to required debt payments, the
Credit Agreement requires us (subject to certain exceptions as set forth in the
Credit Agreement) to prepay the outstanding loans in an aggregate amount equal
to 100% of the net cash proceeds received from certain asset dispositions, debt
issuances, insurance and casualty awards and other extraordinary receipts.
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Our liquidity and financial position will continue to be affected by changes in
prevailing interest rates on the portion of debt that bears interest at variable
interest rates. We believe we have sufficient resources to fund our normal
operations for the foreseeable future.
New Accounting Pronouncements
In June 2011, the FASB issued ASU 2011-05-Comprehensive Income (Topic 220):
Presentation of Comprehensive Income, or ASU 2011-05. This ASU amends ASC Topic
220 to allow an entity the option to present the total of comprehensive income,
the components of net income, and the components of other comprehensive income
either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. In both choices, an entity is required to
present each component of net income along with total net income, each component
of other comprehensive income along with a total for other comprehensive income,
and a total amount for comprehensive income. ASU 2011-05 eliminates the option
to present the components of other comprehensive income as part of the statement
of changes in stockholders' equity. The amendments to the ASC by the ASU do not
change the items that must be reported in other comprehensive income or when an
item of other comprehensive income must be reclassified to net income.
Additionally, the FASB issued ASU 2011-12-Comprehensive Income (Topic 220):
Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in
Accounting Standards Update No. 2011-05 or ASU 2011-12 in December 2011. ASU
2011-12 defers the effective date of the requirement of ASU 2011-05 to present
separate line items on the income statement for reclassification adjustments of
items out of accumulated other comprehensive income into net income for all
periods presented. The deferral of the requirement for the presentation of
reclassification adjustments is intended to be temporary until the Board
reconsiders the operational concerns and needs of financial statement users. The
amendments are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011, with early adoption permitted. We
adopted ASU 2011-05 and ASU 2011-12 effective January 1, 2012. The adoption of
ASU 2011-05 and ASU 2011-12 impacted the presentation of other comprehensive
income as we previously presented the components of other comprehensive income
as part of the statement of changes in stockholders' equity.
In September 2011, the FASB issued ASU 2011-08-Intangibles - Goodwill and Other
(Topic 350): Testing Goodwill for Impairment, or ASU 2011-08. ASU 2011-08 is
intended to simplify how entities test goodwill for impairment. ASU 2011-08
permits an entity to first assess qualitative factors to determine whether it is
"more likely than not" that the fair value of a reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform
the two-step goodwill impairment test described in ASC Topic 350,
Intangibles-Goodwill and Other. ASU 2011-08 is effective for annual and interim
goodwill impairment tests performed for fiscal years beginning after
December 15, 2011. Early adoption is permitted, including for annual and interim
goodwill impairment tests performed as of a date before September 15, 2011, if
an entity's financial statements for the most recent annual or interim period
have not yet been issued. We adopted ASU 2011-08 effective January 1, 2012. The
adoption of ASU 2011-08 has not impacted our consolidated financial statements.
Pending Accounting Pronouncements
Other accounting standards and exposure drafts, such as exposure drafts related
to revenue recognition, leases and fair value measurements, that have been
issued or proposed by the FASB or other standards setting bodies that do not
require adoption until a future date are being evaluated to determine whether
adoption will have a material impact on our consolidated financial statements.
Forward-Looking Statements
Certain statements contained in this quarterly report on Form 10-Q, such as any
statements about our confidence or strategies or our expectations about
revenues, liabilities, results of operations, cash flows, ability to fund
operations, profitability, ability to meet financial covenants, contracts or
market opportunities, constitute forward-looking statements within the meaning
of section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are based on our current
expectations, assumptions, estimates and projections about our business and our
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industry. You can identify forward-looking statements by the use of words such
as "may," "should," "will," "could," "estimates," "predicts," "potential,"
"continue," "anticipates," "believes," "plans," "expects," "future," and
"intends" and similar expressions which are intended to identify forward-looking
statements.
The forward-looking statements contained herein are not guarantees of our future
performance and are subject to a number of known and unknown risks,
uncertainties and other factors disclosed in our annual report on Form 10-K for
the year ended December 31, 2011 and quarterly report on Form 10-Q for the
quarter ended March 31, 2012. Some of these risks, uncertainties and other
factors are beyond our control and difficult to predict and could cause our
actual results or achievements to differ materially from those expressed,
implied or forecasted in the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements
contained above and throughout this report. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statement was made. We do not intend to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
