NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Description of Business

The consolidated financial statements include the accounts of Almost Family, Inc. (a Delaware corporation) and its wholly-owned subsidiaries (collectively “Almost Family” or the “Company”). The Company is a leading provider of cost efficient, high quality home healthcare care services and related innovations to drive savings for payors and improve patient outcomes and experience.

On the first day of fiscal 2017, the Company acquired an 80% controlling interest in the entity holding the home health and hospice assets of Community Health Systems, Inc. (NYSE: CYH) (“CHS-JV”). Community Health Systems, Inc. ("CHS") is one of the largest publicly-traded hospital companies in the United States and a leading operator of general acute care hospitals in communities across the country. CHS retained the remaining 20%. The purchase price of $128.9 million was funded through borrowings on the Company's revolving credit facility, which resulted in a deposit in the December 30, 2016 balance sheet. The deposit was converted to purchase consideration at closing. The borrowing was subsequently repaid with proceeds from the Company’s stock offering on January 25, 2017. The final purchase price is subject to a working capital adjustment. At acquisition, the CHS-JV operated 74 home health and 15 hospice branch locations in 22 states.

On June 18, 2016, the Company acquired certain home health agency assets primarily in Wisconsin, but also in Connecticut and Kentucky (collectively, the “Wisconsin Acquisition”). On January 5, 2016, the Company acquired 100% of the equity of Long Term Solutions, Inc. (“LTS”) for a purchase price of $37 million. On January 5, 2016, the Company purchased the assets of a Medicare-certified home health agency owned by Bayonne Visiting Nurse Association (“Bayonne”) located in New Jersey. On November 5, 2015, the Company completed the acquisition of Black Stone Operations, LLC (“Black Stone”). Black Stone owned and operated personal care and skilled home health services in western Ohio. On August 29, 2015, the Company completed the acquisition of Bracor, Inc. (dba “WillCare”). WillCare owned and operated Home Health (“HH”) and Personal Care (“PC”) branch locations in New York (12), and Connecticut (1). On July 22, 2015, the Company acquired Ingenios Health (“Ingenios”). Ingenios is a leading provider of technology enabled in-house clinical assessments for Medicare Advantage, Managed Medicaid and Commercial Exchange lives in four states and Washington, D.C. On March 2, 2015, the Company acquired the stock of WillCare’s Ohio operations. On January 29, 2015, the Company acquired a noncontrolling interest in a development stage analytics and software company, Care Journey (formerly NavHealth, Inc.). The acquisitions are more fully described in Note 11, “Acquisitions.”

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). All intercompany balances and transactions have been eliminated. The Company does not have other comprehensive income or losses, therefore net income is equivalent to comprehensive income for all periods presented.

Reclassifications

Consistent with the terms of the Company’s revolving credit facility, the Company now classifies unused commitment (“Unused”) and Letter of Credit (“LOC”) fees as a part of interest expense. Historically, such costs were included in General and administrative – Other. Unused and LOC fees for prior periods were reclassified to interest expense for consistency. Unused and LOC fees included in Interest expense for the year ended 2017 were $0.7 million and $0.4 million, respectively, while 2016 amounts were $0.1 million and $0.4 million, respectively, and 2015 amounts were $0.3 million and $0.2 million, respectively.

Fiscal Year End

The Company uses a 52-53 week fiscal reporting calendar under which annual results are reported in four equal 13-week quarters. Every fifth year, one quarter will include 14 weeks and that year will include 53 weeks of operating results. All references herein for the years 2017, 2016 and 2015 represent the fiscal years ended December 29, 2017, December 30, 2016, and January 1, 2016, respectively.

Recently Adopted Accounting Pronouncements

In the first quarter of 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) ASU 2016-09, Compensation – Stock Compensation (“ASU 2016-09”). Under the new guidance, the Company recognizes all excess tax benefits or losses, if applicable, related to stock-based compensation as a component of income taxes in its consolidated statement of income and as operating cash flow in its consolidated statement of cash flows (with other income tax cash flows). Previous guidance required recognition as additional paid-in capital and classified those amounts as financing activity in the statement of cash flows. As a result, net income and operating cash flows for the year-ended 2017 include excess tax benefits of approximately $2.1 million. Prior financial statements did not require adjustment under the new guidance. The future impact of adopting this new standard on the Company’s financial statements will be dependent on the timing and intrinsic value of future share-based compensation award exercises. The adoption of this standard will increase the volatility of the income tax provision in the Company’s results of operations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-01, Business Combinations (“Topic 805”), Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 changes the definition of a business in an effort to assist entities with evaluating whether a set of transferred assets and activities is a business when accounting for acquisitions, disposals, goodwill, impairment and consolidations. The guidance will require an entity to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and thus is not a business combination. The guidance is effective for annual and interim impairment tests performed for periods beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2017-01.

In January 2017, the FASB issued ASU 2017-04, Intangible – Goodwill and Other, Simplifying the Test for Goodwill Impairment, (“ASU 2017-04”) that simplifies the measurement for goodwill impairment into a single step. The guidance eliminates Step 2 of the goodwill impairment test that required a hypothetical purchase price allocation of an implied fair value of goodwill to measure a goodwill impairment charge. Under the new guidance, entities failing Step 1 of the goodwill impairment test will always record an impairment charge based on the excess of a reporting unit’s carrying amount over it fair value. ASU 2017-04 does not change Step 1 guidance. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods in those years. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the impact of ASU 2017-04.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 clarifies how entities should classify eight categories of cash receipts and cash payments on the statement of cash flows including debt prepayment or extinguishment costs, maturity of a zero coupon bond, settlement of contingent consideration liabilities of a business combination, proceeds from insurance settlement and distribution from certain equity method investees. It also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact ASU 2016-15 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term. The ASU further requires disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. The Company is currently evaluating the impact ASU 2016-02 will have on its consolidated financial statements and associated disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 affects virtually all aspects of an entity’s revenue recognition, including determining the measurement of revenue and the timing of when it is recognized for the transfer of goods or services to customers. The Company adopted Topic 606 effective for the next fiscal year beginning after December 29, 2017 using a modified retrospective approach.

Based on the assessment of the guidance, no opening balance sheet adjustment to retained earnings was identified; however, a reclassification of all bad debt expense to net patient service revenue on a go-forward basis will occur, as the standard largely limits bad debt expense to bankruptcies or changes in credit risk.

A significant element of implementing Topic 606 is reviewing sources of revenue and evaluating the characteristics of the patient population to develop the appropriate portfolio distribution with similar characteristics that when evaluated under the new revenue standard, will result in a materially consistent revenue amount for such portfolios as if each patient account was evaluated on a “contract-by-contract” basis. The Company’s review supports an allocation of patients to portfolios that is consistent with our current MD&A, segment and footnote disclosures. Additionally, the Company believes the adoption will have minimal impact on our financial statement disclosures.

Application of this guidance by the healthcare industry is continuing to develop, and changes could arise that are inconsistent with the Company’s year-end assessment. The Company will continue to monitor the application of Topic 606 by peer organizations.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Uninsured deposits at December 29, 2017 and December 30, 2016 were approximately $7,524 and $7,845, respectively. These amounts have been deposited with national financial institutions.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives (generally two to ten years for medical and office equipment and three years for internally developed software). Leasehold improvements are depreciated over the terms of the respective leases (generally three to ten years). Buildings are depreciated over the estimated life of the 39 years. Such costs are periodically reviewed for recoverability when impairment indicators are present. Such indicators include, among other factors, operating losses, unused capacity, market value declines and technological obsolescence. Recorded values of asset groups of property, plant and equipment that are not expected to be recovered through undiscounted future net cash flows are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale).

Goodwill and Other Intangible Assets

Goodwill and indefinite lived intangible assets acquired are stated at fair value at the date of acquisition. Subsequent to acquisition, the Company conducts annual reviews for impairment, or more frequently if circumstances indicate impairment may have occurred. In 2017 the Company performed qualitative assessments to determine whether any goodwill or indefinite lived assets were impaired. Specifically the Company evaluated the relevant events and circumstances, such as the market conditions, financial performance, and share price to determine if any impairment is indicated. Based on our 2017 analysis, an impairment of goodwill or indefinite lived assets was not indicated. Had the qualitative assessment indicated impairment, the Company would perform the following quantitative tests as performed in 2016 and 2015 as follows:

The Company’s quantitative test of goodwill is based on its identified reporting units, which are the same as its reportable segments. The quantitative test for goodwill compares the carrying value to the estimated fair value of its reporting units, determined using a combination of the market approach (guideline company and similar transaction method) and income approach (discounted cash flow analysis). The Company’s quantitative test of indefinite-lived intangible assets, principally trade names, certificates of need, provider numbers and licenses, uses a “relief-from-royalty” valuation method compared to the carrying value. Significant assumptions inherent in the valuation methodologies for goodwill and other intangibles are employed and include, but are not limited to, such estimates as future projected business results, growth rates, legislated changes in payment rates, weighted-average cost of capital for a market participant, royalty and discount rates.

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, such as the cost of non-compete agreements for which their estimated useful life is usually 3 years, beginning after the earn-out period, if any.

The following table summarizes the activity related to the Company’s goodwill and other intangible assets:


			Other Intangible Assets
			Certificates
			of Need and		Trade		Non-compete		Customer
	Goodwill		Licenses		Names		Agreements		Relationships		Total
Balances at January 1, 2016	$	277,061	$	46,044	$	18,401	$	184	$	—	$	64,629
Acquisitions		28,415		5,388		4,930		600		10,190		21,108
Amortization		—		—		(8)		(164)		(502)		(674)
Balances at December 30, 2016		305,476		51,432		23,323		620		9,688		85,063
Acquisitions		85,278		52,103		9,880		490		—		62,473
Assets held for sale		—		(1,290)		—		—		—		(1,290)
Amortization		—		—		—		(216)		(508)		(724)
Balances at December 29, 2017	$	390,754	$	102,245	$	33,203	$	894	$	9,180	$	145,522

See Note 11 for further discussion of acquisitions.

The following table summarizes the Company’s goodwill and other intangible assets by segment:


			Other Intangible Assets
			Certificates
			of Need and		Trade		Non-compete		Customer
	Goodwill		Licenses		Names		Agreements		Relationships		Total
Home Health	$	193,824	$	47,252	$	13,198	$	69	$	—	$	60,519
Other Home-Based Services		75,003		4,180		5,195		69		—		9,444
Healthcare Innovations		36,649		—		4,930		482		9,688		15,100
December 30, 2016 balances	$	305,476	$	51,432	$	23,323	$	620	$	9,688	$	85,063

Home Health	$	272,306	$	92,585	$	21,668	$	420	$	—	$	114,673
Other Home-Based Services		81,799		9,660		6,605		112		—		16,377
Healthcare Innovations		36,649		—		4,930		362		9,180		14,472
December 29, 2017 balances	$	390,754	$	102,245	$	33,203	$	894	$	9,180	$	145,522

Capitalization Policies

Maintenance, repairs and minor replacements are charged to expense as incurred. Major renovations and replacements are capitalized to appropriate property and equipment accounts. Upon sale or retirement of property, the cost and related accumulated depreciation are eliminated from the accounts and the related gain or loss is recognized in the consolidated statement of income.

The Company capitalizes the cost of internally developed computer software for the Company’s own use. Software development costs of approximately $951, $1,279 and $788 were capitalized in 2017, 2016 and 2015, respectively.

Assets Held for Sale

As of December 29, 2017, Assets Held for Sale includes the land, building, CON licenses and all related equipment and fixtures of one hospice facility that the Company is actively marketing and intends to sale.

Insurance Programs

The Company bears significant risk under its large-deductible workers’ compensation insurance program and its self-insured employee health program. Under the workers’ compensation insurance program, the Company bears risk up to $400 per incident, after which stop-loss coverage is maintained. The Company purchases stop-loss insurance for the employee health plan that places a specific limit, generally $300, on its exposure for any individual covered life.

Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted against the Company by various claimants. The claims are in various stages of processing and some may ultimately be brought to trial. The Company currently carries professional and general liability insurance coverage (on a claims made basis) for this exposure with no deductible. The Company also carries D&O coverage (also on a claims made basis) for potential claims against the Company’s directors and officers, including securities actions, with deductibles ranging from $175 to $500 per claim.

The Company records estimated liabilities for its insurance programs based on information provided by the third-party plan administrators, historical claims experience, the life cycle of claims, expected costs of claims incurred but not paid, and expected costs to settle unpaid claims. The Company monitors its estimated insurance-related liabilities and recoveries, if any, on a monthly basis and records amounts due under insurance policies in other current assets, while recording the estimated carrier liability in other current liabilities. As facts change, it may become necessary to make adjustments that could be material to the Company’s results of operations and financial condition.

Accounting for Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the Company’s book and tax bases of assets and liabilities and tax carry-forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of changes in tax rates on deferred taxes is recognized in the period in which the enactment dates change. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized.

Noncontrolling Interest

Noncontrolling interest represents the ownership interests of minority shareholders in the operating results of the period. The following details the minority shareholders’ interest that is excluded from the Consolidated Statements of Income.


	2017		2016		2015
CHS-JV	$	3,506	$	—	$	—
Other		(115)		(135)		(369)
Noncontrolling interest - nonredeemable		3,391		(135)		(369)
Noncontrolling interest - redeemable - Imperium		132		654		(99)
Net income attributable to noncontrolling interests	$	3,523	$	519	$	(468)

The Company currently owns a 72% controlling interest in Imperium. The Company is party to a put and call arrangement with respect to the remaining 28% non-controlling interest in Imperium. The redemption value for both the put and the call arrangement is equal to fair value. Due to the existing put and call arrangements, the noncontrolling interest is considered to be redeemable and is recorded on the balance sheet as a redeemable noncontrolling interest outside of permanent equity. The redeemable noncontrolling interest is recognized at the higher of 1) the accumulated earnings associated with the noncontrolling interest or 2) the redemption value as of the balance sheet date.

Seasonality

Our HH segment operations located in Florida normally experience higher admissions during the first quarter and lower admissions during the third quarter than in the other quarters due to seasonal population fluctuations. Florida operations generated approximately 20% of our 2017 revenue.

In our HCI segment, first quarter assessment revenues are traditionally lower than the other quarters due to the seasonal nature of our Medicare Advantage plan customers, while the majority of our ACO Management revenues have historically been generated in the third quarter.

Further, our third quarter falls within the “Hurricane season” including the peak months of August and September. Our operations may thus be subject to periods of unexpected disruption, which lower volumes and increase costs. The impact of lost admissions, visits, assessments and revenue on operating income was approximately $3.25 million in the third quarter of 2017.

Net Service Revenues

The Company is paid for its services primarily by federal and state third-party reimbursement programs, commercial insurance companies, and patients. Revenues are recorded at established rates in the period during which the services are rendered. Appropriate allowances to give recognition to third party payment arrangements are recorded when the services are rendered.

Approximately 75% of the Company’s consolidated net service revenues are derived from the Medicare program. Net service revenues are recorded under the Medicare prospective payment program (PPS) based on a 60-day episode payment rate that is subject to adjustment based on certain variables including, but not limited to: (a) changes in the base episode payments established by the Medicare program; (b) adjustments to the base episode payments for case-mix and geographic wages; (c) a low utilization payment adjustment (LUPA) if the number of visits was fewer than five; (d) a partial payment if a patient is transferred to another provider or if a patient is received from another provider before completing the episode; (e) a payment adjustment based upon the level of therapy services required (thresholds set at 6, 14 and 20 visits); (f) an outlier payment if the patient’s care was unusually costly (capped at 10% of total reimbursement); (g) the number of episodes of care provided to a patient; and (h) a 2% reduction for sequestration.

At the beginning of each Medicare episode the Company calculates an estimate of the amount of expected reimbursement based on the variables outlined above and recognizes Medicare revenue on an episode-by-episode basis during the course of each episode over its expected number of visits. Over the course of each episode, as changes in the variables become known, adjustments are calculated and recorded as needed to reflect changes in expectations for that episode from those established at the start of the 60 day period until its ultimate outcome at the end of the 60 day period is known.

Substantially all remaining revenues are earned on a per visit, hour or unit basis (as opposed to episodic). For all services provided, the Company uses either payor-specific or patient-specific fee schedules for the recording of revenues at the amounts actually expected to be received.

Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. It is common for issues to arise related to: 1) medical coding, particularly with respect to Medicare, 2) patient eligibility, particularly related to Medicaid, and 3) other reasons unrelated to credit risk, all of which may result in adjustments to recorded revenue amounts. The Company continuously evaluates the potential for revenue adjustments and when appropriate provides allowances for losses based upon the best available information. There is at least a reasonable possibility that recorded estimates could change by material amounts in the near term. Changes in estimates related to prior periods (increased) decreased revenues by approximately ($780), ($608), and ($365) in 2017, 2016 and 2015, respectively.

Revenue and Receivable Concentrations

The following table sets forth the percent of the Company’s revenues generated from Medicare, state Medicaid programs and other payors for the year ended:


	2017		2016		2015
Medicare	75.1	%	68.2	%	71.4	%
Medicaid & other government programs:
Ohio	7.5	%	9.6	%	9.1	%
Connecticut	3.4	%	5.0	%	5.5	%
New York	3.1	%	4.0	%	1.7	%
Tennessee	1.9	%	2.3	%	3.2	%
Kentucky	1.1	%	1.0	%	1.7	%
Wisconsin	1.4	%	0.9	%	—	%
Florida	0.6	%	0.3	%	0.9	%
Others	0.8	%	0.1	%	0.4	%
Subtotal	19.8	%	23.2	%	22.5	%
All other payors	5.1	%	8.6	%	6.1	%
Total	100.0	%	100.0	%	100.0	%

Concentrations in the Company’s accounts receivable were as follows:


	2017				2016
	Amount		Percent		Amount		Percent
Medicare	$	96,464	62.6	%	$	64,128	53.2	%
Medicaid & other government programs:
Ohio		9,341	6.1	%		10,937	9.1	%
Connecticut		5,638	3.7	%		6,735	5.6	%
Kentucky		4,135	2.7	%		3,741	3.1	%
Tennessee		3,549	2.3	%		5,756	4.8	%
New York		3,444	2.2	%		3,216	2.7	%
Wisconsin		3,416	2.2	%		4,451	3.7	%
Florida		3,229	2.1	%		3,338	2.8	%
Others		2,423	1.6	%		651	0.5	%
Subtotal		35,175	22.8	%		38,825	32.2	%
All other payors		22,402	14.5	%		17,561	14.6	%
Subtotal		154,041	100.0	%		120,514	100.0	%
Allowances		(28,181)				(21,302)
Total	$	125,860			$	99,212

The ability of payors to meet their obligations depends upon their financial stability, future legislation and regulatory actions. The Company does not believe there are any significant credit risks associated with receivables from federal and state third-party reimbursement programs. The allowance for uncollectible accounts principally consists of management’s estimate of amounts that may prove uncollectible for coverage, eligibility and other technical reasons.

Payor Mix Concentrations and Related Aging of Accounts Receivable

The approximate breakdown by payor classification as a percent of total accounts receivable, net of contractual allowances, if any, were as follows:


	2017
Payor	0-90		91-180		181-365		>1 yr.		Total
Medicare	31	%	13	%	13	%	5	%	62	%
Medicaid & Government	11	%	3	%	4	%	6	%	24	%
Self Pay	1	%	—	%	1	%	—	%	2	%
Insurance	5	%	1	%	2	%	4	%	12	%
Total	48	%	17	%	20	%	15	%	100	%


	2016
Payor	0-90		91-180		181-365		>1 yr.		Total
Medicare	27	%	13	%	8	%	5	%	53	%
Medicaid & Government	15	%	5	%	4	%	8	%	32	%
Self Pay	1	%	—	%	—	%	—	%	1	%
Insurance	6	%	2	%	2	%	4	%	14	%
Total	49	%	20	%	14	%	17	%	100	%

Variations between years are largely attributable to acquisitions and systems conversions.

Allowance for Uncollectible Accounts by Payor Mix and Related Aging

The Company records an estimated allowance for uncollectible accounts by applying estimated bad debt percentages to its accounts receivable aging. The percentages to be applied by payor type are based on the Company’s historical collection and loss experience. The Company’s effective allowances for uncollectible accounts as a percent of accounts receivable were as follows:


	2017
Payor	0-90		91-180		181-365		>1 yr.		>2 yrs.
Medicare	1	%	2	%	20	%	77	%	100	%
Medicaid & Government	1	%	3	%	15	%	81	%	100	%
Self Pay	0	%	5	%	24	%	70	%	100	%
Insurance	1	%	3	%	18	%	79	%	100	%
Total	1	%	2	%	19	%	78	%	100	%


	2016
Payor	0-90		91-180		181-365		>1 yr.		>2 yrs.
Medicare	1	%	3	%	16	%	73	%	100	%
Medicaid & Government	1	%	3	%	16	%	81	%	100	%
Self Pay	1	%	6	%	28	%	100	%	100	%
Insurance	2	%	4	%	20	%	75	%	100	%
Total	1	%	3	%	17	%	77	%	100	%

Variations between years are largely attributable to collection results for specific payors.

The Company’s allowance for uncollectible accounts at December 29, 2017 and December 30, 2016 was approximately $27,047 and $21,302, respectively.

Contingent Service Revenues

The Company, through its Imperium acquisition, provides strategic health management services to ACOs that have been approved to participate in the Medicare Shared Savings Program (“MSSP”). In some cases, the Company also had ownership interests in ACOs beginning January 1, 2015.

ACOs are entities that contract with CMS to serve the Medicare fee-for-service population with the goal of better care for individuals, improved health for populations and lower costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved. The MSSP is relatively new and therefore has limited historical experience, which impacts the Company’s ability to accurately accumulate and interpret the data available for calculating an ACO’s shared savings, if any. MSSP payments are not recognized in revenue until persuasive evidence of an agreement exists, services have been rendered, the payment is fixed and determinable and collectability is insured, which is generally satisfied upon cash receipt. Under such agreements, the Company recognized $2.3 million and $4.3 million in MSSP payments for cash received during 2017 and 2016 related to savings generated for the program periods ended 2016 and 2015, respectively, which are included in the Company’s Healthcare Innovations segment revenues. The Company has yet to recognize potential MSSP payments, if any, for savings generated for the 2017 program period.

Weighted Average Shares

Net income per share is presented as a unit of basic shares outstanding and diluted shares outstanding. Diluted shares outstanding is computed based on the weighted average number of common shares and common equivalent shares outstanding. Common equivalent shares result from dilutive stock options and unvested restricted shares. The following table is a reconciliation of basic to diluted shares used in the earnings per share calculation for the fiscal year ended:


	2017	2016	2015
Basic weighted average outstanding shares	13,539	10,153	9,505
Dilutive effect of outstanding compensation awards	218	193	240
Diluted weighted average outstanding shares	13,757	10,346	9,745

The assumed conversions to common stock of 58, 76 and 20 of the Company’s outstanding stock options and unmet performance shares were excluded from the diluted EPS computation in 2017, 2016 and 2015, respectively, because these items, on an individual basis, have an anti-dilutive effect on diluted EPS.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

Stock options and restricted stock are granted under various stock compensation programs to employees and independent directors. The Company accounts for such grants in accordance with ASC Topic 718, Compensation — Stock Compensation and amortizes the fair value of awards, after estimated forfeiture, on a straight-line basis over the requisite service periods.

Accounting for Leases

The Company accounts for operating leases using the straight-line rents method, which amortizes contracted total rents due evenly over the lease term.

Advertising Costs

The Company expenses the costs of advertising, as incurred. Advertising expense was $643, $403 and $393 for 2017, 2016 and 2015, respectively.