Almost Family (AFAM) 10-Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
[   ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to____________
Commission  file number  001-09848
ALMOST FAMILY, INC.
(Exact name of Registrant as specified in its charter)
Delaware	06-1153720
(State or other jurisdiction of incorporation or organization	(I.R.S. Employer Identification Number)
9510 Ormsby Station Road, Suite 300, Louisville, Kentucky 40223
(Address of principal executive offices)
(502) 891-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [  ].
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [  ] No [  ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer [  ]                          Accelerated filer [X]                    Non-accelerated filer  [  ]                         Smaller Reporting Company [  ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ]   No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class of Common Stock    $0.10 par value Shares outstanding at October 31, 2009  9,146,295

ALMOST FAMILY, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements.  Consolidated Financial Statements and Supplementary Data (unaudited except December 31, 2008 Consolidated Balance Sheet)	3
	Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008	3
	Consolidated Statements of Income for the Three Months Ended September 30, 2009 and September 30, 2008	4
	Consolidated Statements of Income for the Nine Months Ended September 30, 2009 and September 30, 2008	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and September 30, 2008	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
PART II.	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 1.A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 4.	Other Information	30
Item 6.	Exhibits	31

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS	September 30, 2009 (UNAUDITED)		December 31, 2008
CURRENT ASSETS:
Cash and cash equivalents	$	10,072,590	$	1,301,178
Accounts receivable – net		38,404,378		34,760,021
Prepaid expenses and other current assets		2,930,547		3,113,737
Deferred tax assets		7,098,046		4,437,979
TOTAL CURRENT ASSETS		58,505,561		43,612,915
PROPERTY AND EQUIPMENT – NET		4,095,383		4,199,067
GOODWILL		98,179,506		92,170,091
OTHER INTANGIBLE ASSETS		14,613,918		16,715,369
OTHER ASSETS		576,137		518,317
	$	175,970,505	$	157,215,759
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	5,293,798	$	5,320,763
Accrued other liabilities		19,502,196		22,436,430
Current portion – capital leases and notes payable		493,210		4,774,249
TOTAL CURRENT LIABILITIES		25,289,204		32,531,442
LONG-TERM LIABILITIES:
Revolving credit facility		-		23,998,428
Capital lease obligations		-		111,002
Notes payable		4,300,000		3,100,000
Deferred tax liabilities		3,218,179		1,215,816
Other liabilities		1,149,412		1,476,843
TOTAL LONG-TERM LIABILITIES		8,667,591		29,902,089
TOTAL LIABILITIES		33,956,795		62,433,531
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.05; authorized 2,000,000 shares; none issued or outstanding		-		->
Common stock, par value $0.10; authorized 25,000,000 shares; 9,146,295 and 8,136,723 issued and outstanding		914,630		813,672>
Additional paid-in capital		94,310,539		64,935,673
Retained earnings		46,788,541		29,032,883
TOTAL STOCKHOLDERS’ EQUITY		142,013,710		94,782,228
	$	175,970,505	$	157,215,759

See accompanying Notes to Consolidated Financial Statements.

3

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three months ended September 30,
	2009			2008
Net service revenues	$	76,294,375		$	58,437,365
Cost of service revenues		35,779,006			26,953,672
Gross margin		40,515,369			31,483,693
General and administrative expenses:
Salaries and benefits		20,799,942			16,352,793
Other		9,378,248			7,262,549
Total general and administrative expenses		30,178,190			23,615,342
Operating income		10,337,179			7,868,351
Interest expense, net		(156,326	)		(355,077	)
Income from continuing operations before income taxes		10,180,853			7,513,274
Income tax expense		(3,985,767	)		(2,729,479	)
Net income from continuing operations		6,195,086			4,783,795
Discontinued operations, net of tax benefits of $18,384 and $12,759		(28,624	)		(79,039	)
Net income	$	6,166,462		$	4,704,756
Per share amounts-basic:
Average shares outstanding		8,282,209			8,137,326
Income from continuing operations	$	0.75		$	0.59
Loss from discontinued operations		-			(0.01	)
Net income	$	0.75		$	0.58
Per share amounts-diluted:
Average shares outstanding		8,457,329			8,357,332
Income from continuing operations	$	0.73		$	0.57
Loss from discontinued operations		-			(0.01	)
Net income	$	0.73		$	0.56

See accompanying Notes to Consolidated Financial Statements.

4

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Nine months ended September 30,
	2009			2008
Net service revenues	$	219,828,607		$	145,621,947
Cost of service revenues		102,494,108			67,995,016
Gross margin		117,334,499			77,626,931
General and administrative expenses:
Salaries and benefits		60,469,972			39,805,479
Other		26,840,565			18,875,416
Total general and administrative expenses		87,310,537			58,680,895
Operating income		30,023,962			18,946,036
Interest expense, net		(673,186	)		(733,833	)
Income from continuing operations before income taxes		29,350,776			18,212,203
Income tax expense		(11,488,120	)		(6,996,271	)
Net income from continuing operations		17,862,656			11,215,932
Discontinued operations, net of tax benefits of $27,061 and $63,661		(106,999	)		(119,165	)
Net income	$	17,755,657		$	11,096,767
Per share amounts-basic:
Average shares outstanding		8,164,360			7,111,182
Income from continuing operations	$	2.19		$	1.58
Loss from discontinued operations		(0.01	)		(0.02	)
Net income	$	2.18		$	1.56
Per share amounts-diluted:
Average shares outstanding		8,318,411			7,298,718
Income from continuing operations	$	2.15		$	1.54
Loss from discontinued operations		(0.01	)		(0.02	)
Net income	$	2.14		$	1.52

See accompanying Notes to Consolidated Financial Statements.

5

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine months ended September 30,
	2009			2008
Cash flows from operating activities:
Net income	$	17,755,657		$	11,096,767
Loss from discontinued operations		(106,999	)		(119,165	)
Income from continuing operations		17,862,656			11,215,932
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		1,752,952			1,151,087
Provision for uncollectible accounts		3,164,030			2,375,792
Stock-based compensation		1,218,909			527,462
Deferred income taxes		(657,704	)		(1,152,716	)
		23,340,843			14,117,557
Change in certain net assets, net of the effects of acquisitions:
Accounts receivable		(6,642,774	)		(11,716,548	)
Prepaid expenses and other current assets		183,190			(789,821	)
Other assets		(57,821	)		(26,455	)
Accounts payable and accrued expenses		(22,981	)		2,154,591
Net cash provided by operating activities		16,800,457			3,739,324
Cash flows from investing activities:
Capital expenditures		(1,382,133	)		(621,360	)
Acquisitions, net of cash acquired		(6,406,358	)		(58,593,323	)
Net cash used in investing activities		(7,788,491	)		(59,214,683	)
Cash flows from financing activities:
Net revolving credit facility (repayments) borrowings		(23,998,428	)		14,096,873
Proceeds from stock option exercises		78,110			54,876
Tax benefit from non-qualified stock option exercises		211,417			84,448
Proceeds from stock offering, net		27,967,387			41,820,562
Principal payments on capital leases and notes payable		(4,392,041	)		(200,086	)
Net cash (used in) provided by financing activities		(133,555	)		55,856,673
Cash flows from discontinued operations:
Operating activities		(106,999	)		(119,165	)
Investing activities		-			-
Financing activities		-			-
Net cash used in discontinued operations		(106,999	)		(119,165	)
Net increase in cash and cash equivalents		8,771,412			262,149
Cash and cash equivalents at beginning of period		1,301,178			473,222
Cash and cash equivalents at end of period	$	10,072,590		$	735,371
Summary of non-cash investing and financing activities:
Acquisitions funded by notes payable	$	1,200,000		$	3,000,000
Acquisitions funded by stock	$	-		$	1,000,000

See accompanying Notes to Consolidated Financial Statements.

6

ALMOST FAMILY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.           Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements for the three and nine months ended September 30, 2009 and 2008 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. Accordingly, the reader of this Form 10-Q is referred to our Form 10-K for the year ended December 31, 2008 for further information. In the opinion of management of Almost Family, Inc., (the “Company”), the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position at September 30, 2009 and the results of operations for the three and nine month periods and cash flows for the nine month period ended September 30, 2009 and 2008.

The results of operations for the three and nine month periods ended September 30, 2009 are not necessarily indicative of the operating results for the year.

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.

Financial Statement Reclassifications

Certain amounts have been reclassified in the 2008 consolidated financial statements and related notes in order to conform to the 2009 presentation. Such reclassifications had no effect on previously reported net income.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) confirmed the “FASB Accounting Standards Codification” (ASC) as the single source of authoritative nongovernmental U.S. GAAP.  The ASC does not change current U.S. GAAP, but instead simplifies user access to all authoritative U.S. GAAP by providing authoritative literature related to a particular topic in one place.  All existing accounting standard documents have been superseded and all other accounting literature not included in the ASC is considered nonauthoritative.  We adopted the ASC as of July 1, 2009, which did not impact on our financial position, results of operations, or cash flows at September 30, 2009.

2.           Net 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.

7

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, 3) the determination of cost-reimbursed revenues, and 4) other matters unrelated to credit risk, all of which may result in adjustments to recorded revenue amounts. Management 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.

3.          Segment Data

The Company has two reportable segments, Visiting Nurse (VN) and Personal Care (PC). Reportable segments have been identified based upon how management has organized the business by services provided to customers and the criteria in ASC 280, Segment Reporting.

The Company’s VN segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or avoid periods of hospitalization and/or nursing home care. VN Medicare revenues are generated on a per episode basis rather than a fee per visit or day of care. Approximately 90% of the VN segment revenues are generated from the Medicare program while the balance is generated from Medicaid and private insurance programs.

The Company’s PC segment services are also provided in patients’ homes. These services (generally provided by paraprofessional staff such as home health aides) are generally of a custodial rather than skilled nature. PC revenues are generated on an hourly basis. Approximately 66% of the PC segment revenues are generated from Medicaid and other government programs while the balance is generated from insurance programs and private pay patients.

Certain general and administrative expenses incurred at the corporate level have not been allocated to the segments.

The Company has service locations in Florida, Kentucky, Connecticut, New Jersey, Ohio, Massachusetts, Alabama, Missouri, Illinois, Pennsylvania and Indiana.

	Three months ended September 30,				Nine months ended September 30,
	2009		2008		2009		2008
Net Revenues
Home Health Care
Visiting nurses	$	65,738,993	$	48,621,039	$	188,443,726	$	117,317,207
Personal care		10,555,382		9,816,326		31,384,881		28,304,740
Net  revenues	$	76,294,375	$	58,437,365	$	219,828,607	$	145,621,947
Operating Income
Home Health Care
Visiting nurses	$	13,418,391	$	10,000,146	$	38,902,918	$	24,037,766
Personal care		1,263,325		901,983		3,597,234		2,425,635
Operating income before unallocated corporate expenses		14,681,716		10,902,129		42,500,152		26,463,401
Unallocated corporate expenses		4,344,538		3,033,778		12,476,189		7,517,365
Operating income	$	10,337,178	$	7,868,351	$	30,023,962	$	18,946,036

8

4.          Capitalized Software Development Costs

The Company capitalizes the cost of internally generated computer software developed for the Company’s own use. Software development costs of approximately $64,000 and $73,000 were capitalized in the three months ended September 30, 2009 and 2008, respectively, and $72,000 and $187,000 were capitalized in the nine months ended September 30, 2009 and 2008, respectively. Capitalized software development costs are amortized over a three-year period following the initial implementation of the software.

5.           Goodwill and Other Intangible Assets

The goodwill and indefinite lived intangible assets acquired are stated at cost.  Subsequent to its acquisitions, the Company conducts annual reviews for impairment, or more frequently if circumstances indicate impairment may have occurred.  The Company has completed its most recent annual impairment test as of December 31, 2008 and has determined that no impairment exists.

Other intangible assets consist of Certificates of Need and licenses, trade names and non-compete agreements.  Intangible assets are amortized on a straight-line basis over their estimated useful lives.  For entities acquired subsequent to 2007, the Company decided that licenses, provider numbers, certificates of need and trade names have indefinite lives and are not amortized. The cost of non-compete agreements are amortized over the life of the agreement, usually 3 years, beginning after any earn-out period.  The Company reviews intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

 The following table summarizes the activity related to our goodwill and other intangible assets, net for 2009:

			Other Intangible Assets, Net
			Certificates			Acquired
			of Need and			Name of			Non-compete
	Goodwill		Licenses			Business			Agreements			Total
Balance at 12-31-08	$	92,170,091	$	7,390,256		$	8,650,667		$	674,447		$	16,715,369
Additions		4,255,578		300,000			200,000			-			500,000
Reclassification*		1,753,837		(1,099,000	)		(1,270,000	)		(9,836	)		(2,378,836	)
Amortization		-		-			-			(222,615	)		(222,615	)
Balance at 9-30-09	$	98,179,506	$	6,591,256		$	7,580,667		$	441,996		$	14,613,918

*relates to finalization of purchase accounting for Patient Care, Inc.  See Note 12.

Of total goodwill, $94,352,644 relates to the Visiting Nurse segment and $3,826,862 relates to the Personal Care segment.  Amortization expense recognized on intangible assets for the third quarter was $71,145 in 2009 and $150,490 in 2008.  Amortization expense recognized for the nine months ended September 30, 2009 and 2008, was $222,615 and $367,190, respectively.

6.           Revolving Credit Facility

At September 30, 2009, the Company had a $75 million senior secured revolving credit facility with JP Morgan Chase Bank, NA, as Administrative Agent, Fifth Third Bank, as Syndication Agent and certain other lenders.  The facility consists of a $75 million credit line with a maturity date of July 15, 2011 and an “accordion” feature providing for potential future expansion of the facility to $100 million.  Borrowings (other than letters of credit) under the credit facility are at either the bank’s prime rate plus a margin (ranging from 0.00% to 1.00%, currently 0.00%) or LIBOR plus a margin (ranging from 1.60% to 2.60%, currently 1.60%).  The margin for prime rate or LIBOR borrowings is determined by the Company’s leverage.  Borrowings under the Agreement are secured by a first priority perfected security interest in all tangible and intangible assets of the Company, and all existing and future direct and indirect subsidiaries of the Company as guarantors.  At September 30, 2009, the Company had no borrowings outstanding.

9

The weighted average prime rate-based interest rates were 3.25% and 5.50% for the quarters ended September 30, 2009 and 2008, respectively.  The weighted average LIBOR rate was 2.10% for the third quarter of 2009.  The Company pays a commitment fee of 0.25% per annum on the unused facility balance. Borrowings are available equal to a multiple of 3.0 times earnings before interest, taxes, depreciation and amortization (“EBITDA”). “EBITDA” may include “Acquired EBITDA” from proforma acquisitions pursuant to a calculation rider, up to 50% of “Adjusted EBITDA”, as defined. Borrowings under the facility may be used for general corporate purposes, including acquisitions. As of September 30, 2009, the formula permitted all $75 million to be used, of which no amounts were outstanding. The Company has irrevocable letters of credit, totaling $5.9 million outstanding in connection with its self-insurance programs. Thus, a total of $69.1 million was available for use at September 30, 2009. The Company’s revolving credit facility is subject to various financial covenants. As of September 30, 2009, the Company was in compliance with the covenants. Under the most restrictive of its covenants, the Company was required to maintain minimum net worth of at least $133.6 million at September 30, 2009.  At such date the Company’s net worth was approximately $142.0 million.

7.           Fair Value Measurements

The Company’s financial instruments consist of cash, accounts receivable, payables and debt instruments.  The book values of cash, accounts receivable and payables are considered representative of their respective fair values.  The fair value of the Company’s debt instruments approximates their carrying values as substantially all of such debt instruments have rates which fluctuate with changes in market rates.

Fair value is based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.  Fair value is a market-based measurement, not an entity-specific measurement.

ASC 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

·   Level 1: Quoted market prices in active markets for identical assets or liabilities.

·   Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

·   Level 3: Unobservable inputs that are not corroborated by market data.

The Company does not have any assets or liabilities carried at fair value that are measured on a recurring basis.  The Company does have goodwill and other intangible assets that are reviewed for impairment on annual basis in the fourth quarter for purposes of the intangible asset impairment test.

8.           Stock-Based Compensation

Stock option grant date fair values are determined at the date of grant using a Monte Carlo option valuation model with suboptimal exercise behavior. In the quarter ended March 31, 2009, 58,300 options were issued at an average strike price of $32.85 (fair market value on the dates of grant) to directors and employees. Director options vest at May 15, 2010 and employee options vest ratably over 4 years.  There were no stock option grants in the quarter ended September 30, 2009.

10

Changes in option shares outstanding are summarized as follows:

	Shares	Wtd. Avg Ex. Price
December 31, 2008	374,139	$	14.24
Granted	58,300		33.40
Exercised	(18,750)		(4.49)
Terminated	(8,500)		(15.16)
September 30, 2009	405,189	$	17.46

In addition, in the three months ended March 31, 2009, the Company awarded 23,500 restricted shares of Common Stock with a value of $766,675 to certain employees pursuant to the Company’s 2007 Stock and Incentive Compensation Plan.  These awards provide for “cliff” vesting upon the third anniversary of date of grant.  There were no restricted stock awards in the quarter ended September 30, 2009.

9.           Earnings Per Common Share

A reconciliation of the weighted average shares outstanding used in the calculation of basic and diluted earnings per common share is as follows:

	Three months ended September 30,		Nine months ended September 30,
	2009	2008	2009	2008
Shares used to compute  basic earnings per common share –weighted average shares outstanding	8,282,209	8,137,326	8,164,360	7,111,182
Dilutive effect of stock options	175,120	220,006	154,049	187,536
Shares used to compute diluted earnings per common share	8,457,329	8,357,332	8,318,411	7,298,718

10.         Equity Issuances

In the second quarter of 2008, the Company sold 2,512,500 shares of common stock in a public offering for proceeds of $41.8 million after deducting the underwriting discounts and offering expenses.  In conjunction with the stock offering, the Company retired all of its outstanding Treasury Stock.

In December 2008, the Company filed a shelf registration statement to provide for the issuance of up to $150 million of any combination of common stock, preferred stock, warrants and debt securities.

On August 5, 2009, we entered into a Distribution Agreement with J.P. Morgan Securities Inc.  According to the provisions of this Agreement, we may offer and sell from time to time up to 1,600,000 shares of common stock having an aggregate offering price of up to $50 million through J.P. Morgan, as distribution agent.  Sales of stock will be made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices, or as otherwise agreed between us and J.P. Morgan.  Under the terms of this Agreement, we also may sell shares of common stock to J.P. Morgan as principal for its own account at a price agreed upon at the time of the sale.  Any sale of shares of common stock to J.P. Morgan as principal would be pursuant to the terms of a separate agreement that would be entered into between us and J.P. Morgan.

This Agreement provides us the right, but not the obligation, to sell shares of common stock in the future, at prices we deem appropriate.  We retain at all times complete control over the amount and timing of each sale, and we will designate the maximum number of shares of common stock to be sold through J.P. Morgan, on a daily basis or otherwise as we and J.P. Morgan agree.  J.P. Morgan will then use commercially reasonable efforts to sell, as our distribution agent and on our behalf, all of the designated shares of common stock.  We may instruct J.P. Morgan not to sell shares of common stock if the sales cannot be effected at or above the price designated by us in any such instruction.  Either we or J.P. Morgan may suspend the offering of shares of common stock pursuant to the Agreement upon proper notice and subject to other conditions.

11

During the third quarter of 2009, we issued 967,556 of our shares of common stock pursuant to this Agreement.  After commissions of $719 thousand, we received net proceeds of approximately $28.0 million for the issuance of these shares of common stock, and we used the proceeds to reduce the borrowings under our bank credit facility.  As of September 30, 2009 a maximum of 632,444 shares remain available for sale subject to a maximum additional value limit of approximately $22 million.

11.         Commitments and Contingencies

Insurance Programs

We bear significant insurance risk under our large-deductible workers’ compensation insurance program and our self-insured employee health program.  Under the workers’ compensation insurance program, we bear risk up to $400,000 per incident.  We purchase stop-loss insurance for the employee health plan that places a specific limit, generally $100,000, on our exposure for any individual covered life.

We record estimated liabilities for our 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.  We monitor our estimated insurance-related liabilities on a monthly basis.  As facts change, it may become necessary to make adjustments that could be material to our results of operations and financial condition.

Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted against us by various claimants.  The claims are in various stages of processing and some may ultimately be brought to trial.  We are aware of incidents that have occurred through September 30, 2009 that may result in the assertion of additional claims.  We currently carry professional and general liability insurance coverage for this exposure with no deductible.

Legal Proceedings

The Company is currently, and from time to time, subject to claims and suits arising in the ordinary course of its business, including claims for damages for personal injuries. In the opinion of management, the ultimate resolution of any of these pending claims and legal proceedings will not have a material effect on the Company’s financial position or results of operations.

12.         Acquisitions

On June 1, 2009, the Company acquired the assets of the Medicare-certified home health agencies affliliated with Florida-based Central Florida Health Alliance (CFHA), a two-hospital health care company system with home health branches in Leesburg and The Villages for a purchase price of $5.2 million, consisting of $4.0 million in cash and a $1.2 million promissory note.  The cash portion of the transaction was funded from borrowings available on the Company’s existing senior credit facility with JP Morgan Chase Bank, NA.

The Company has finalized the purchase accounting for the Patient Care acquisition, completed in August 2008, resulting in a reduction in other intangible assets of approximately $2.4 million, a reduction of other accrued liabilities of $625,000 and a increase to goodwill of $1.8 million.

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13.         Income Taxes

Based on the Company’s evaluation, management has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.  The evaluation was performed for the tax years ended December 31, 2004 through 2008.  For federal tax purposes, the Company is currently subject to examinations for tax years 2005 and 2007 while for state purposes, tax years 2004 and forward are subject to examination, depending on the specific state rules and regulations.  The Internal Revenue Service has completed its examination of the tax year ended December 31, 2006.  The tax impact of the 2006 audit assessment including interest was immaterial to the financial statements.

The Company may from time to time be assessed interest and penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results. Assessments for interest and/or penalties are classified in the consolidated financial statements as general and administrative expenses other.

The Company’s effective income tax rate from continuing operations for the three month periods ended September 30, 2009 and 2008 was approximately 39.1% and 36.3%, respectively.  This effective rate differs from the Federal statutory rate of 35.0% primarily due to state and local taxes, net of Federal benefit of approximately 4.1% in 2009 and 1.3 % in 2008.

The Company’s effective income tax rate from continuing operations for the nine month periods ended September 30, 2009 and 2008 was approximately 39.1% and 38.4%, respectively.  This effective rate differs from the Federal statutory rate of 35.0% primarily due to state and local taxes, net of Federal benefit of approximately 4.1% in 2009 and 3.4% in 2008.

14.          Discontinued Operations

The Company reclassifies operating units closed, sold, or held for sale out of continuing operations and into discontinued operations for all periods presented.  During the three month period ending September 30, 2009, one PC facility met the criteria to be classified as discontinued operations.  This facility has been classified as discontinued operations in this report for all periods presented.  Net revenues from discontinued operations were approximately $320,000 and $263,000 in the quarters ended September 30, 2009 and 2008, respectively.  Net losses from the discontinued operations were approximately $29,000 and $79,000 in the quarters ended September 30, 2009 and 2008, respectively.  Such amounts are included in net loss from discontinued operations in the accompanying financial statements.

15.   Subsequent Events

Management has evaluated all events and transactions that occurred after September 30, 2009 through November 4, 2009, the date of issuance of the financial statements.  During this period, the Company had no material subsequent events requiring recognition in the consolidated financial statements or any non-recognized subsequent events requiring disclosure.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company

Almost Family, Inc. TM and subsidiaries (collectively “Almost Family”) is a leading regional provider of home health nursing services. In this report, the terms “Company,” “we,” “us” or “our” mean Almost Family, Inc. and all subsidiaries included in our consolidated financial statements.

Cautionary Statements - Forward Outlook and Risks

Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” “assumes,” “trends” and similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based upon the Company’s current plans, expectations and projections about future events.  However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  These factors include, among others, the following:

▪ enactment of currently proposed health care reform legislation;

▪ changes in Medicare reimbursement levels, including, if enacted, those changes outlines in President Obama’s proposed budget for the Federal 2010 fiscal year;

▪ changes in Medicaid reimbursement levels

▪ general economic and business conditions;

▪ demographic changes;

▪ changes in, or failure to comply with, existing governmental regulations;

▪ legislative proposals for healthcare reform;

▪ effects of competition in the markets in which the Company operates;

▪ liability and other claims asserted against the Company;

▪ ability to attract and retain qualified personnel;

▪ availability and terms of capital;

▪ loss of significant contracts or reduction in revenues associated with major payer sources;

▪ ability of customers to pay for services;

▪ business disruption due to natural disasters or terrorist acts;

▪ ability to successfully integrate the operations of acquired businesses and achieve expected synergies and operating efficiencies from acquisitions, in each case within expected time-frames or at all;

▪ significant deterioration in economic conditions and significant market volatility;

▪ effect on liquidity of the Company’s financing arrangements; and

▪ changes in estimates and judgments associated with critical accounting policies and estimates.

For a detailed discussion of these and other factors that could cause the Company’s actual results to differ materially from the results contemplated by the forward-looking statements, please refer to Item 1A. “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s annual report on Form 10-K for year ending December 31, 2008 and this Form 10-Q.  The reader is encouraged to review these risk factors and filings.

The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report.  Except as required by law the Company assumes no responsibility for updating forward-looking statements to reflect unforeseen or other events after the date of this report.

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Critical Accounting Policies

Refer to the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2008 for a detailed discussion of our critical accounting policies.

Operating Segments

We have two reportable segments, Visiting Nurse (VN) and Personal Care (PC).  Reportable segments have been identified based upon how management has organized the business by services provided to customers and the criteria in ASC 280, Segment Reporting.

Our VN segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or avoid periods of hospitalization and/or nursing home care.  VN Medicare revenues are generated on a per episode basis rather than a fee per visit or day of care. Approximately 90% of the VN segment revenues are generated from the Medicare program while the balance is generated from Medicaid and private insurance programs.

Our PC segment services are also provided in patients’ homes.  These services (generally provided by paraprofessional staff such as home health aides) are generally of a custodial rather than skilled nature. PC revenues are generated on an hourly basis.  Approximately 66% of the PC segment revenues are generated from Medicaid and other government programs while the balance is generated from insurance programs and private pay patients.

Certain general and administrative expenses incurred at the corporate level have not been allocated to the segments.

We have service locations in Florida, Kentucky, Connecticut, New Jersey, Ohio, Massachusetts, Alabama, Missouri, Illinois, Pennsylvania, and Indiana (in order of pro forma revenue significance).

Health Care Reform Efforts Currently Underway in Congress

The US Congress is currently contemplating a comprehensive reform of the US health care system.  Three committees of the US House of Representatives have approved measures, which have subsequently been merged by House leadership that, if enacted would reduce home health reimbursement rates.  That measure is expected to be considered by the full House in the near future.  Two committees of the US Senate, the Senate Committee on Health, Education, Labor and Pensions (HELP) and the Senate Finance Committee (SFC) have also approved measures that are currently being merged by Senate leadership, after which they are expected to be considered by the full Senate.  Should both the House and the Senate pass legislation, both measures would then be considered by a joint committee for reconciliation of differences and then resubmitted back to both bodies for final vote.  Should such legislation be passed by both houses of Congress it would then be submitted to the President for his signature.  In the event that comprehensive health care reform is not passed into law, the Congress and the President could still enact legislation that could impact the Company’s reimbursement rates.

Independent of these legislative developments, on October 30, 2009 the Centers for Medicare and Medicaid Services (CMS) published final regulations for Medicare reimbursement for home health services which, unless pre-empted by legislative action, would go into effect on January 1, 2010 and would increase our Medicare reimbursement rates for 2010 by about 1.8%.

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There can be no assurance that comprehensive health care reform in any form will or will not be passed into law.  Accordingly, the Company is unable to predict what impact the ultimate Federal budget or the Congress’ consideration of comprehensive health care reform might have on our financial condition, our results of operations or the realizability of the carrying amount of our assets, in particular intangible assets including goodwill.  We may be unable to take actions to mitigate any of whatever negative reimbursement changes might ultimately be enacted.  The reimbursement changes ultimately enacted could have a material and adverse effect on our liquidity, results of operations and financial position.  Further provisions of any ultimate health care reform may impact the health insurance benefits we currently offer or may be required to offer our employees which could also have a material and adverse effect on our liquidity, results of operations and financial position.

It is reasonable to expect that the proposed changes, if enacted, might have a more immediate and negative impact on those providers generating lower margins than us, with more leverage relative to earnings than us, with less capital resources than us, or with less ability to adapt their operations.  Certain aspects of the proposed legislation appear to align with the 2009 report of the Medicare Payment Advisory Commission (MedPac).  MedPac suggests, in connection with its recommendation for a rebasing or recalculation of home health reimbursement rates for 2011, that such change may result in some agencies exiting Medicare.  Based on this and our own interpretation of the potential implications of such a rebasing we believe that the proposal, if enacted, may result in a contraction of the number of home health providers.  In the event of such a contraction in the number of providers, we believe the surviving providers may benefit from a higher rate of admissions growth than would have otherwise occurred.  Those surviving providers may earn incremental margins on those higher admissions that may serve to offset a portion of the rate reduction from the Medicare program.  However, there can be no assurance that we will be successful in attracting such higher admissions.

It is also reasonable to expect that the proposed rate cuts, if enacted, will present additional opportunities for us to make acquisitions of other providers at valuations and on terms that are attractive to us and enable us to spread our segment and unallocated corporate overhead expenses across a larger business base.  However there can be no assurance that we will be successful in making such acquisitions.

At this point, we are unable to predict what actions Congress may take in passing health care reform or the budget for 2010.  The implications on the potential budget for 2011, which would actually be passed some time during 2010, are even less predictable.

We can provide you with no assurance that the ultimate outcome of health care reform efforts and/or the Federal budget and resulting Medicare reimbursement rates will not have a material adverse effect on our liquidity, our results of operation, the realizability of the carrying amounts of our intangible assets including goodwill or our financial condition.  Further, we are unable to predict what effect, if any, such material adverse effect, if it were to occur, might have on our ability to continue to comply with the financial covenants of our revolving credit facility and our ability to continue to access debt capital through that facility.

We are currently formulating actions intended to mitigate or otherwise offset some of the negative effects of the proposed reimbursement changes.  These actions may include any or all of the following:

·   Attempting to increase our revenues by: investing more resources in sales and marketing activities to drive admission growth, establishing startup branch operations to expand our service territories, and acquisitions of underperforming providers with strong referral relationships,

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·   Attempting to reduce our costs by: developing a more efficient delivery model, increasing the productivity standards for our staff, limiting or eliminating the growth in wage rates, limiting or reducing the size of our work force, closing unprofitable branch operations and accelerating our efforts to evaluate the use of various technological approaches to the delivery of patient care,

·   Evaluating the potential implications of health care reform proposals on our employee benefit plans and possible changes we may need to make to our plans should the reform proposals become law, and

·   Potentially other actions we deem appropriate.

Although we will attempt to mitigate or otherwise offset the negative effect of health care reform on our reimbursement and our employee benefit plans, there can be no assurance that our actions will ultimately be cost effective or prove successful.

Seasonality

Our Visiting Nurse 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.

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RESULTS OF OPERATIONS

THREE MONTHS

Consolidated three months ended September 30,
	2009						2008						Change
	Amount			% Rev			Amount			% Rev			Amount			%
Net revenues:
Visiting Nurse	$	65,738,993			86.2	%	$	48,621,039			83.2	%	$	17,117,954			35.2	%
Personal Care		10,555,382			13.8	%		9,816,326			16.8	%		739,056			7.5	%
	$	76,294,375			100.0	%	$	58,437,365			100.0	%	$	17,857,010			30.6	%
Operating income before corporate expenses:
Visiting Nurse	$	13,418,391			20.4	%	$	10,000,146			20.6	%	$	3,418,245			34.2	%
Personal Care		1,263,325			12.0	%		901,983			9.2	%		361,342			40.1	%
		14,681,716			19.2	%		10,902,129			18.7	%		3,779,587			34.7	%
Corporate expense		4,344,538			5.7	%		3,033,778			5.2	%		1,310,759			43.2	%
Operating income		10,337,178			13.5	%		7,868,351			13.5	%		2,468,828			31.4	%
Interest expense, net		(156,326	)		0.2	%		(355,077	)		0.6	%		(198,751	)		-56.0	%
Income tax expense		(3,985,767	)		5.2	%		(2,729,479	)		4.7	%		1,256,288>			46.0	%
Net income from continuing operations	$	6,195,086			8.1	%	$	4,783,795			8.2	%	$	1,411,290			29.5	%
EBITDA from continuing operations	$	11,385,337			14.9	%	$	8,571,218			14.7	%	$	2,814,119			32.8	%

On a consolidated basis, our third quarter 2009 net service revenues increased about 31% to approximately $76 million compared to $58 million in the third quarter of 2008. Organic revenue growth was approximately $11 million or approximately 60% of our total growth, while acquisitions provided the balance of the increase at approximately $7 million.

Operating income as a percent of revenue was constant at 13.5% in the third quarter of 2009 and 2008. Interest expense was incurred on funds borrowed to finance our acquisitions.  The effective income tax rate from continuing operations was approximately 39.1% in 2009 and 36.3% in 2008.

Net income from continuing operations for the third quarter of 2009 was $6.2 million or $0.73 per diluted share compared to $4.8 million or $0.57 per diluted share in 2008.

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Visiting Nurse (VN) Segment-Three Months

Three months ended September 30,
	2009					2008					Change
	Amount		% Rev			Amount		% Rev			Amount		%
Net service revenues	$	65,738,993		100.0	%	$	48,621,039		100.0	%	$	17,117,954		35.2	%
Cost of service revenues		28,769,132		43.8	%		20,267,645		41.7	%		8,501,487		41.9	%
Gross margin		36,969,861		56.2	%		28,353,394		58.3	%		8,616,467		30.4	%
General and administrative expenses:
Salaries and benefits		17,136,610		26.1	%		12,915,765		26.6	%		4,220,845		32.7	%
Other		6,414,860		9.8	%		5,437,483		11.2	%		977,377		18.0	%
Total general and administrative expenses		23,551,470		35.8	%		18,353,248		37.7	%		5,198,223		28.3	%
Operating income	$	13,418,391		20.4	%	$	10,000,146		20.6	%	$	3,418,245		34.2	%
Average number of locations		82					64					18		28.1	%
All payors:
Patient months		47,744					36,454					11,290		31.0	%
Admissions		12,878					10,339					2,539		24.6	%
Billable visits		416,328					309,183					107,145		34.7	%
Medicare statistics:
Revenue	$	59,380,507		90.3	%	$	43,374,706		89.2	%	$	16,005,801		36.9	%
Billable visits		360,681					261,426					99,255		38.0	%
Admissions		11,616					9,479					2,137		22.5	%
Episodes started		19,479					14,562					4,917		33.8	%
Revenue per completed episode	$	3,002				$	2,926				$	76		2.6	%
Visits per episode		17.8					17.4					0.4		2.4	%

Net service revenues in the visiting nurse segment for the third quarter of 2009 rose 35.2% to approximately $66 million.  The $17 million increase came from a combination of organic growth of about $10 million and from acquired operations of approximately $7 million.  Our VN organic revenue growth rate was 24.4% for the three months ended September 2009.  Revenue per completed episode increased about 2.6% over 2008 due to an increase in the acuity level and changes in the geographic mix of the patients we served.  The increase in the acuity level of patients served is also reflected in the increase in average number of visits per episode.

Gross margin decreased from 58.3% in 2008 to 56.2% in 2009 due to the effect of flat Medicare reimbursement rates and continuing increases in direct care wage rates.  Total general and administrative expenses as a percent of revenue declined from 37.7% to approximately 35.8% as additional volumes and branches spread general and administrative expenses over a larger revenue base.

Operating income before corporate expense in the VN segment for the third quarter of 2009 increased 34% to $13 million from approximately $10 million in 2008.  VN segment operating margins declined 0.2% of revenue due to pressures from a Medicare rate freeze.

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Personal Care (PC) Segment-Three Months

	Three months ended September 30,
	2009					2008					Change
	Amount		% Rev			Amount		% Rev			Amount			%
Net service revenues	$	10,555,382		100.0	%	$	9,816,326		100.0	%	$	739,056			7.5	%
Cost of service revenues		7,008,874		66.4	%		6,686,027		68.1	%		322,847			4.8	%
Gross margin		3,546,508		33.6	%		3,130,299		31.9	%		416,209			13.3	%
General and administrative expenses:
Salaries and benefits		1,377,430		13.0	%		1,340,411		13.7	%		37,020			2.8	%
Other		905,752		8.6	%		887,906		9.0	%		17,847			2.0	%
Total general and  administrative expenses		2,283,183		21.6	%		2,228,316		22.7	%		54,866			2.5	%
Operating income	$	1,263,325		12.0	%	$	901,983		9.2	%	$	361,342			40.1	%
Admissions		804					861					(57	)		-6.6	%
Patient months of care		11,822					10,941					881			8.1	%
Patient days of care		152,272					137,878					14,394			10.4	%
Billable hours		590,662					544,512					46,150			8.5	%
Revenue per billable hour	$	17.87				$	18.03				$	(0.16	)		-0.9	%

In early 2009 we placed our Personal Care segment operations under the direction of new management and we believe our results of operations have improved as a result of that change.  While admissions growth is constrained to some degree by challenged Medicaid programs in the states we serve, net service revenues in the segment for the third quarter increased 7.5% to approximately $11 million from approximately $10 million in the same period of last year based on increased volume offset by slightly lower pricing and slightly lower direct costs per unit of service.  Revenue per billable hour decreased primarily as a result of mix changes across the states we serve.  General and administrative expense as a percent of revenues decreased primarily due to expenses being spread over a larger revenue base.  Operating income before corporate expense in the PC segment for the third quarter was $1.3 million in 2009 and $0.9 million in 2008.

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NINE MONTHS

	Consolidated nine months ended September 30
	2009						2008						Change
	Amount			% Rev			Amount			% Rev			Amount			%
Net service revenues:
Visiting Nurse	$	188,443,726			85.7	%	$	117,317,207			80.6	%	$	71,126,519			60.6	%
Personal Care		31,384,881			14.3	%		28,304,740			19.4	%		3,080,141			10.9	%
	$	219,828,607			100.0	%	$	145,621,947			100.0	%	$	74,206,660			51.0	%
Operating income before corporate expenses:
Visiting Nurse	$	38,902,918			20.6	%	$	24,037,766			20.5	%	$	14,865,152			61.8	%
Personal Care		3,597,234			11.5	%		2,425,635			8.6	%		1,171,599			48.3	%
		42,500,152			19.3	%		26,463,401			18.2	%		16,036,751			60.6	%
Corporate expense		12,476,189			5.7	%		7,517,365			5.2	%		4,958,824			66.0	%
Operating income		30,023,962			13.7	%		18,946,036			13.0	%		11,077,927			58.5	%
Interest expense, net		(673,186	)		0.3	%		(733,833	)		0.5	%		(60,647	)		-8.3	%
Income tax expense		(11,488,120	)		5.2	%		(6,996,271	)		4.8	%		4,491,849>			64.2	%
Net income from continuing operations	$	17,862,656			8.1	%	$	11,215,932			7.7	%	$	6,646,725			59.3	%
EBITDA from continuing operations	$	32,995,823			15.0	%	$	20,624,585			14.2	%	$	12,371,239			60.0	%

On a consolidated basis, our year to date 2009 net service revenues increased about 51% to approximately $220 million compared to $146 million in the same period of 2008. Organic revenue growth was approximately $34 million or approximately 46% of our total growth, while acquisitions provided the balance of the increase at approximately $40 million.

Operating income as a percent of revenues increased to 13.7% in 2009 versus 13.0% in 2008 based on our ability to leverage our existing infrastructure over a larger revenue base. Net income from continuing operations for 2009 was $17.9 million or $2.15 per diluted share compared to $11.2 million or $1.54 per diluted share in 2008.

Interest expense was incurred on funds borrowed to finance our acquisitions.  The weighted average prime rated based interest rates were 3.25% and 5.5% for the nine months ended September 30, 2009 and 2008, respectively.  The weighted average LIBOR-based interest rate was 2.26% for 2009.  The effective income tax rate from continuing operations was approximately 39.1% in 2009 and 38.4% in 2008.

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Visiting Nurse (VN) Segment-Nine Months

	Nine months ended September 30,
	2009					2008					Change
	Amount		% Rev			Amount		% Rev			Amount		%
Net service revenues	$	188,443,726		100.0	%	$	117,317,206		100.0	%	$	71,126,519		60.6	%
Cost of service revenues		81,442,579		43.2	%		48,451,348		41.3	%		32,991,231		68.1	%
Gross margin		107,001,146		56.8	%		68,865,858		58.7	%		38,135,288		55.4	%
General and administrative expenses:
Salaries and benefits		49,370,800		26.1	%		31,252,717		26.6	%		18,118,082		58.0	%
Other		18,727,429		9.9	%		13,575,375		11.6	%		5,152,054		38.0	%
Total general and administrative expenses		68,098,228		36.1	%		44,828,092		38.2	%		23,270,136		51.9	%
Operating income	$	38,902,918		20.7	%	$	24,037,766		20.5	%	$	14,865,152		61.8	%
Average number of locations		78					58					20		34.5	%
All payors:
Patient months		137,805					90,451					47,354		52.4	%
Admissions		38,532					28,149					10,383		36.9	%
Billable visits		1,194,139					737,318					456,821		62.0	%
Medicare statistics:
Revenue	$	169,098,518		89.7	%	$	107,772,323		91.9	%	$	61,326,195		56.9	%
Billable visits		1,025,210					654,542					370,668		56.6	%
Admissions		34,968					25,702					9,266		36.0	%
Episodes started		56,703					37,401					19,302		51.6	%
Revenue per completed episode	$	2,943				$	2,832				$	111		3.9	%
Visits per episode		17.5					17.2					0.3		1.9	%

Net service revenues in the visiting nurse segment for 2009 rose 60.6% to approximately $188 million.  The $71 million increase came from a combination of organic growth of about $31 million and from acquired operations of approximately $40 million. Our VN organic revenue growth rate was 32% for the nine months ended September 2009.  The Patient Care acquisition contributed $38.3 million in revenue for the nine months as compared to $7.6 million in 2008.  Revenue per completed episode increased about 4.0% over 2008 due to an increase in the acuity level and changes in the geographic mix of the patients we served.  The increase in the acuity level of patients served is also reflected in the increase in average number of visits per episode.

Gross margin decreased from 58.7% in 2008 to 56.8% in 2009 due to the effect of flat Medicare reimbursement rates and continuing increases in direct care wages and mileage reimbursement.  Total general and administrative expenses as a percent of revenue declined from 38.2% to approximately 36.1% as additional volumes and branches spread general and administrative expenses over a larger revenue base.

Operating income before corporate expense in the VN segment for 2009 increased 61.8% to approximately $39 million from approximately $24 million in 2008.

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Personal Care (PC) Segment-Nine Months

	Nine months ended September 30
	2009					2008					Change
	Amount		% Rev			Amount		% Rev			Amount			%
Net service revenues	$	31,384,881		100.0	%	$	28,304,740		100.0	%	$	3,080,141			10.9	%
Cost of service revenues		21,213,734		67.6	%		19,543,624		69.0	%		1,670,110			8.5	%
Gross margin		10,171,148		32.4	%		8,761,116		31.0	%		1,410,032			16.1	%
General and administrative expenses:
Salaries and benefits		4,094,663		13.0	%		3,900,849		13.8	%		193,814			5.0	%
Other		2,479,251		7.9	%		2,434,632		8.6	%		44,619			1.8	%
Total general and administrative expenses		6,573,914		20.9	%		6,335,481		22.4	%		238,433			3.8	%
Operating income	$	3,597,234		11.5	%	$	2,425,635		8.6	%	$	1,171,599			48.3	%
Admissions		2,445					2,586					(141	)		-5.5	%
Patient months of care		35,340					31,986					3,354			10.5	%
Patient days of care		448,331					401,539					46,792			11.7	%
Billable hours		1,756,498					1,563,377					193,121			12.4	%
Revenue per billable hour	$	17.87				$	18.10				$	(0.23	)		-1.3	%

Net service revenues in the personal care segment for 2009 increased 11% to approximately $31 million from approximately $28 million in the same period of last year based on increased volume, offset by slightly lower pricing and slightly lower direct costs per unit of service.  General and administrative expense as a percent of revenues decreased primarily due to expenses being spread over a larger revenue base.  Operating income before corporate expense in the PC segment was $3.6 million in 2009 and $2.4 million in 2008.

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Insurance Programs

We bear significant insurance risk under our large-deductible workers’ compensation insurance program and our self-insured employee health program.  Under the workers’ compensation insurance program, we bear risk up to $400,000 per incident.  We purchase stop-loss insurance for the employee health plan that places a specific limit, generally $100,000, on our exposure for any individual covered life.

We record estimated liabilities for our 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.  We monitor our estimated insurance-related liabilities on a monthly basis.  As facts change, it may become necessary to make adjustments that could be material to our results of operations and financial condition.

Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted against us by various claimants.  The claims are in various stages of processing and some may ultimately be brought to trial.  We are aware of incidents that have occurred through September 30, 2009 that may result in the assertion of additional claims.  We currently carry professional and general liability insurance coverage for this exposure with no deductible.

Liquidity and Capital Resources

Equity Distribution Program

On August 5, 2009, we entered into a Distribution Agreement with J.P. Morgan Securities Inc.  According to the provisions of this Agreement, we may offer and sell from time to time up to 1,600,000 shares of common stock having an aggregate offering price of up to $50 million through J.P. Morgan, as distribution agent.  Sales of stock will be made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices, or as otherwise agreed between us and J.P. Morgan.  Under the terms of this Agreement, we also may sell shares of common stock to J.P. Morgan as principal for its own account at a price agreed upon at the time of the sale.  Any sale of shares of common stock to J.P. Morgan as principal would be pursuant to the terms of a separate agreement that would be entered into between us and J.P. Morgan.

This Agreement provides us the right, but not the obligation, to sell shares of common stockin the future, at prices we deem appropriate.  We retain at all times complete control over the amount and timing of each sale, and we will designate the maximum number of shares of common stock to be sold through J.P. Morgan, on a daily basis or otherwise as we and J.P. Morgan agree.  J.P. Morgan will then use its commercially reasonable efforts to sell, as our distribution agent and on our behalf, all of the designated shares of common stock.  We may instruct J.P. Morgan not to sell shares of common stock if the sales cannot be effected at or above the price designated by us in any such instruction.  Either we or J.P. Morgan may suspend the offering of shares of common stock pursuant to the Agreement upon proper notice and subject to other conditions.

During the third quarter of 2009, we issued 967,556 of our shares of common stock pursuant to this Agreement.  After commissions of $719 thousand, we received net proceeds of approximately $28.0 million for the issuance of these shares, and we used the proceeds to reduce the borrowings under our bank credit facility.  As of September 30, 2009 a maximum of 632,444 shares remain available for sale subject to a maximum additional value limit of approximately $22 million.

Revolving Credit Facility

At September 30, 2009, the Company had a $75 million senior secured revolving credit facility with JP Morgan Chase Bank, NA, as Administrative Agent, Fifth Third Bank, as Syndication Agent and certain other lenders.  The facility consists of a $75 million credit line with a maturity date of July 15, 2011 and an “accordion” feature providing for potential future expansion of the facility to $100 million.  Borrowings (other than letters of credit) under the credit facility are at either of the bank’s prime rate plus a margin (ranging from 0.00% to 1.00%, currently 0.00%) or LIBOR plus a margin (ranging from 1.60% to 2.60%, currently 1.60%).  The margin for prime rate or LIBOR borrowings is determined by the Company’s leverage.  Borrowings under the Agreement are secured by a first priority perfected security interest in all tangible and intangible assets of the Company, and all existing and future direct and indirect subsidiaries of the Company as guarantors.

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The weighted average prime rated-based interest rates were 3.25% and 5.50% for the quarters ended September 30, 2009 and 2008, respectively.  The weighted average LIBOR-based borrowing rate was 2.10% for the third quarter of 2009.  The Company pays a commitment fee of 0.25% per annum on the unused facility balance. Borrowings are available equal to a multiple of 3.0 times earnings before interest, taxes, depreciation and amortization (“EBITDA”). “EBITDA” may include “Acquired EBITDA” from proforma acquisitions pursuant to a calculation rider, up to 50% of “Adjusted EBITDA”, as defined. Borrowings under the facility may be used for general corporate purposes, including acquisitions.

As of September 30, 2009, the formula permitted all $75 million to be used, of which no amounts were outstanding. The Company has irrevocable letters of credit, totaling $5.9 million outstanding in connection with its self-insurance programs. Thus, a total of $69.1 million was available for use at September 30, 2009. The Company’s revolving credit facility is subject to various financial covenants. As of September 30, 2009, the Company was in compliance with the covenants. Under the most restrictive of its covenants, the Company was required to maintain minimum net worth of at least $133.6 million at September 30, 2009.  At such date our net worth was approximately $142 million.

We believe that this facility plus cash on hand will be sufficient to fund our operating needs for at least the next year.  We will continue to evaluate additional capital, including possible debt and equity investments in the Company, to support a more rapid development of the business than would be possible with internal funds.

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Cash Flows

Key elements to the Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 were:

Net Change in Cash and Cash Equivalents	2009			2008
Provided by (used in):
Operating activities	$	16,800,457		$	3,739,324
Investing activities		(7,788,491	)		(59,214,683	)
Financing activities		(133,555	)		55,856,673
Discontinued operations activities		(106,999	)		(119,165	)
Net increase in cash and cash equivalents	$	8,771,412		$	262,149

2009

Net cash provided by operating activities resulted primarily from current period income of $17.8 million, net of changes in accounts receivable, accounts payable and accrued expenses.  Accounts receivable days revenues outstanding were 46 at September 30, 2009 and 48 at December 31, 2008.  The cash used in investing activities is primarily due to the final payment of purchase price of $2.8 million from the 2006 Mederi acquisition, $3.6 million for a current period acquisition and capital expenditures of $1.4.  Net cash used in financing activities resulted from satisfaction of a $4 million note payable from the 2006 Mederi acquisition, net proceeds from the sale of common stock of $28 million and net repayment of $24 million on our credit facility.

2008

Net cash used in operating activities resulted principally from current period income, net of changes in accounts receivable, accounts payable and accrued expenses.  Accounts receivable days revenues outstanding were 51 at September 30, 2008 and 44 at December 31, 2007.  The cash used in investing activities is primarily due to the Apex Home Healthcare acquisition completed in March 2008 and the Patient Care acquisition completed in August 2008.  Net cash provided by financing activities resulted primarily from the $41.8 million stock offering in April, 2008, partially offset by $14.1 million of credit facility repayment.

Health Care Reform

The health care industry has experienced, and is expected to continue to experience, extensive and dynamic change. In addition to economic forces and regulatory influences, continuing political debate is subjecting the health care industry to significant reform. Proposals for additional changes are continuously formulated by departments of the federal government, Congress, and state legislatures.

Government officials can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law or new interpretations of existing laws may have a dramatic effect on the definition of permissible or impermissible activities, the relative cost of doing business, and the methods and amounts of payments for medical care by both governmental and other payors. Legislative changes to “balance the budget” and slow the annual rate of growth of expenditures are expected to continue. Such future changes may further impact our reimbursement. There can be no assurance that future legislation or regulatory changes will not have a material adverse effect on our operations.

Federal and state legislative proposals continue to be introduced that would impose more limitations on payments to providers of health care services such as us. Many states have enacted, or are considering enacting, measures that are designed to reduce their Medicaid expenditures.

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We cannot predict what additional government regulations may be enacted in the future affecting our business or how existing or future laws and regulations might be interpreted, or whether we will be able to comply with such laws and regulations in our existing or future markets.

Refer to the sections on “Cautionary Statements – Forward Outlook and Risks” and the “Notes to the Consolidated Financial Statements” and elsewhere in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including specifically the section labeled Health Care Reform Efforts Currently Underway in Congress for additional information.

Medicare Reimbursement Regulations for 2009

Medicare rates for 2009 include a market basket update of 2.9% less a 2.75% “case mix creep” adjustment. Accordingly, 2009 Medicare rates are not materially different from 2008 rates.

Impact of Inflation

Management does not believe that inflation has had a material effect on income during the past several years.

Non-GAAP Financial Measure

The information provided in the some of the tables use certain non-GAAP financial measures as defined under Securities and Exchange Commission (“SEC”) rules. In accordance with SEC rules, the Company has provided, in the supplemental information below, a reconciliation of those measures to the most directly comparable GAAP measures.

EBITDA

EBITDA is defined as income before depreciation and amortization, net interest expense and income taxes. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of America. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from EBITDA are significant components in understanding and evaluating financial performance and liquidity. Management routinely calculates and communicates EBITDA and believes that it is useful to investors because it is commonly used as an analytical indicator within our industry to evaluate performance, measure leverage capacity and debt service ability, and to estimate current or prospective enterprise value. EBITDA is also used in certain covenants contained in our credit agreement.

The following table sets forth a reconciliation of Net Income from Continuing Operations to EBITDA:

	Three months ended September 30				Nine months ended September 30
	2009		2008		2009		2008
Net income from continuing operations	$	6,195,086	$	4,783,795	$	17,862,656	$	11,215,932
Add back:
Interest expense		156,326		355,077		673,186		733,833
Income tax expense		3,985,767		2,729,479		11,488,120		6,996,271
Depreciation and amortization		600,936		508,737		1,752,952		1,151,087
Amortization of stock-based compensation		447,222		194,130		1,218,909		527,462
Earnings before interest, income taxes, depreciation and amortization (EBITDA) from continuing operations	$	11,385,337	$	8,571,218	$	32,995,823	$	20,624,585

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments

The Company does not use derivative instruments.

Market Risk of Financial Instruments

Our primary market risk exposure with regard to financial instruments is to changes in interest rates on long-term obligations.

At September 30, 2009, the Company has no outstanding amounts on its revolving credit facility and, therefore, a hypothetical 100 basis point increase in short-term interest rates would have no impact on annual pre-tax earnings due to higher interest expense.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures – As of September 30, 2009, the Company’s management, with participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e).  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2009.

Changes in Internal Control Over Financial Reporting - There were no changes in the Company’s internal control over financial reporting during the third quarter of 2009, that have materially affected, or are reasonably likely to materially affect, Almost Family, Inc.’s internal control over financial reporting.

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Commission File No. 1-9848

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

Information regarding risk factors appears in our Form 10-K for the year ending December 31, 2008, under the heading “Special Caution Regarding Forward – Looking Statements” and in the Form 10-K Part I, Item 1A. Risk Factors.  Except as set forth below, there have been no material changes from the risk factors previously disclosed in our Form 10-K.

Health Care Reform Efforts Currently Underway in Congress

The US Congress is currently contemplating a comprehensive reform of the US health care system.  Three committees of the US House of Representatives have approved a measure, which have subsequently been merged by House leadership that, if enacted would reduce home health reimbursement rates.  That measure is expected to be considered by the full House in the near future.  Two committees of the US Senate, the Senate Committee on Health, Education, Labor and Pensions (HELP) and the Senate Finance Committee (SFC) have also approved measures that are currently being merged by Senate leadership, after which they are expected to be considered by the full Senate.  Should both the House and the Senate pass legislation, both measures would then by considered by a joint committee for reconciliation of differences and then resubmitted back to both bodies for final vote.  Should such legislation be passed by both houses of Congress it would then be submitted to the President for his signature.  In the event that comprehensive health care reform is not passed into law, the Congress and the President could still enact legislation that could impact the Company’s reimbursement rates.

Independent of these legislative developments, on October 30, 2009 the Centers for Medicare and Medicaid Services (CMS) published final regulations for Medicare reimbursement for home health services which, unless pre-empted by legislative action, would go into effect on January 1, 2010 and would increase our Medicare reimbursement rates for 2010 by about 1.8%.

There can be no assurance that comprehensive health care reform in any form will or will not be passed into law.  Accordingly, the Company is unable to predict what impact the ultimate Federal budget or the Congress’ consideration of comprehensive health care reform might have on our financial condition, our results of operations or the realizability of the carrying amount of our assets, in particular intangible assets including goodwill.  We may be unable to take actions to mitigate any of whatever negative reimbursement changes might ultimately be enacted.  The reimbursement changes ultimately enacted could have a material and adverse effect on our liquidity, results of operations and financial position.  Further provisions of any ultimate health care reform may impact the health insurance benefits we currently offer or may be required to offer our employees which could also have a material and adverse effect on our liquidity, results of operations and financial position.

At this point, we are unable to predict what actions Congress may take in passing health care reform or the budget for 2010.  The implications on the potential budget for 2011, which would actually be passed some time during 2010, are even less predictable.

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We can provide you with no assurance that the ultimate outcome of health care reform efforts and/or the Federal budget and resulting Medicare reimbursement rates will not have a material adverse effect on our liquidity, our results of operation, the realizability of the carrying amounts of our intangible assets including goodwill or our financial condition.  Further, we are unable to predict what effect, if any, such material adverse effect, if it were to occur, might have on our ability to continue to comply with the financial covenants of our revolving credit facility and our ability to continue to access debt capital through that facility.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

(a)           The annual meeting of stockholders of Almost Family, Inc. was held on August 10, 2009.

(c)           Certain matters voted upon at the meeting and the votes cast with respect to such matters are as follows:

Proposals and Vote Tabulations

	Votes Cast
Management Proposals	For	Against	Abstain	Broker Non-votes
Approval of the appointment of independent auditors for 2009	7,254,572	52,919	6,023	0
Approval of the 2009 Employee Stock Purchase Plan	4,621,468	60,767	11,729	2,619,550

Election of Directors

Director	Votes Received	Votes Withheld
William B. Yarmuth	7,109,947	203,567
Steven B. Bing	7,091,899	221,615
Donald G. McClinton	7,100,905	212,609
Tyree G. Wilburn	6,667,886	645,628
Jonathan D. Goldberg	6,793,345	520,169
W. Earl Reed, III	7,130,048	183,466
Henry M. Altman, Jr.	7,131,873	181,641

Item 5. Other information

At its regularly scheduled meeting on November 2, 2009 the Company’s Board of Directors changed John B. Walker’s title from Vice President and Chief Accounting Officer to Vice President -- Finance.  Mr. Walker’s previous duties as principal accounting officer will be added to the duties of C. Steven Guenthner, Senior Vice President and Chief Financial Officer.  Mr. Guenthner, 49, has served as the Company's Senior Vice President and Chief Financial Officer since 1992.  No compensation changes were made.  Messrs. Guenthner and Walker serve at the pleasure of the Board of Directors.

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Item 6. Exhibits

31.1

Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002.

31.2

Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002.

32.1

Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ALMOST FAMILY, INC.
Date:  November 4, 2009	By:	/s/  William B. Yarmuth
		William B. Yarmuth Chairman of the Board, President & Chief Executive Officer

By:	/s/  C. Steven Guenthner
	C. Steven Guenthner Senior Vice President and Chief Financial Officer

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