Almost Family (AFAM) 10-Q 2013 Q2 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 June 30, 2013

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.  Yesx  No o.

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 x  No o.

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 o Accelerated filer x Non-accelerated filer  o Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  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 August 2, 2013  9,407,651

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, 2012 Consolidated Balance Sheet)			3
	Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012		3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2013 and 2012		4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012		5
	Notes to Consolidated Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.		Controls and Procedures	23
PART II. OTHER INFORMATION			24
Item 1.		Legal Proceedings	24
Item 1A.		Risk Factors	24
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.		Defaults Upon Senior Securities	24
Item 4.		Mine Safety Disclosures	24
Item 5.		Other Information	24
Item 6.		Exhibits	25

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2013
(In thousands)	(UNAUDITED)			December 31, 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	31,380		$	26,120
Accounts receivable - net	55,500			49,971
Prepaid expenses and other current assets	5,779			6,968
Deferred tax assets	6,780			6,580
TOTAL CURRENT ASSETS	99,439			89,639
PROPERTY AND EQUIPMENT - NET	5,412			5,401
GOODWILL	131,061			132,014
OTHER INTANGIBLE ASSETS	19,921			19,967
OTHER ASSETS	673			781
OTHER ASSETS, HELD FOR SALE	—			1,457
	$	256,506		$	249,259
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	7,191		$	4,599
Accrued other liabilities	20,953			21,874
Current portion of notes payable	625			625
TOTAL CURRENT LIABILITIES	28,769			27,098
LONG-TERM LIABILITIES:
Notes payable	—			500
Deferred tax liabilities	16,777			16,785
Other liabilities	288			561
TOTAL LONG-TERM LIABILITIES	17,065			17,846
TOTAL LIABILITIES	45,834			44,944
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.05; authorized 2,000 shares; none issued or outstanding	—			—
Common stock, par value $0.10; authorized 25,000; 9,473 and 9,421 issued and outstanding	947			942
Treasury stock, at cost, 91 and 91 shares of common stock	(2,320		)	(2,320		)
Additional paid-in capital	102,527			101,945
Retained earnings	109,518			103,748
TOTAL STOCKHOLDERS’ EQUITY	210,672			204,315
	$	256,506		$	249,259

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share data)

	Three Months Ended June 30,						Six months Ended June 30,
	2013			2012			2013			2012
Net service revenues	$	86,818		$	85,296		$	172,653		$	173,147
Cost of service revenues (excluding depreciation & amortization)	46,348			44,469			92,014			89,147
Gross margin	40,470			40,827			80,639			84,000
General and administrative expenses:
Salaries and benefits	24,929			24,120			49,356			48,860
Other	11,094			9,329			21,542			20,003
Total general and administrative expenses	36,023			33,449			70,898			68,863
Operating income	4,447			7,378			9,741			15,137
Interest expense, net	(11		)	(32		)	(29		)	(70		)
Income before income taxes	4,436			7,346			9,712			15,067
Income tax expense	(1,852		)	(2,902		)	(3,802		)	(5,839		)
Net income from continuing operations	$	2,584		$	4,444		$	5,910		$	9,228
Discontinued operations:
(Loss) gain from operations, net of tax of $49, $68, ($2) and $159	$	(230	)	$	105		$	(309	)	$	252
Gain on sale, net of tax of $973	169			—			169			—
(Loss) gain on discontinued operations	(61		)	105			(140		)	252
Net Income	$	2,523		$	4,549		$	5,770		$	9,480
Per share amounts-basic:
Average shares outstanding	9,270			9,255			9,253			9,265
Continued operations	$	0.28		$	0.48		$	0.64		$	1.00
Discontinued operation	$	(0.01	)	$	0.01		$	(0.02	)	$	0.02
Net income	$	0.27		$	0.49		$	0.62		$	1.02
Per share amounts-diluted:
Average shares outstanding	9,348			9,315			9,332			9,328
Continued operations	$	0.28		$	0.48		$	0.63		$	0.99
Discontinued operation	$	(0.01	)	$	0.01		$	(0.01	)	$	0.03
Net income	$	0.27		$	0.49		$	0.62		$	1.02

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	5,770		$	9,480
(Loss) gain on discontinued operations, net of tax	(140		)	252
Net income from continuing operations	5,910			9,228
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation and amortization	1,298			1,247
Provision for uncollectible accounts	2,575			1,118
Stock-based compensation	654			746
Deferred income taxes	793			991
	11,230			13,330
Change in certain net assets and liabilities, net of the effects of acquisitions:
Decrease (increase) in:
Accounts receivable	(8,489		)	(4,481		)
Prepaid expenses and other current assets	1,078			(502		)
Other assets	107			(90		)
Increase (decrease) in:
Accounts payable and accrued expenses	1,449			(771		)
Net cash from operating activities	5,375			7,486
Cash flows from investing activities:
Capital expenditures	(1,251		)	(1,012		)
Acquisitions, net of cash acquired	(50		)	—
Net cash from investing activities	(1,301		)	(1,012		)
Cash flows from financing activities:
Proceeds from exercise of stock options	—			70
Purchase of common stock in connection with share awards	—			(1,852		)
Tax impact of share awards	(67		)	(142		)
Principal payments on capital leases and notes payable	(500		)	(1,200		)
Net cash from financing activities	(567		)	(3,124		)
Cash flows from discontinued operations
Operating activities	(1,330		)	586
Investing activities	3,083			(20		)
Net cash from discontinued operations	1,753			566
Net change in cash and cash equivalents	5,260			3,916
Cash and cash equivalents at beginning of period	26,120			33,693
Cash and cash equivalents at end of period	$	31,380		$	37,609

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise indicated, all dollars and share amounts are in thousands, except per share data)

1.             Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2013 and 2012 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  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 Almost Family, Inc.’s (the “Company”) Form 10-K for the year ended December 31, 2012 for further information.  In the opinion of management of the Company, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position at June 30, 2013, the results of operations for the three and six month periods ended June 30, 2013 and cash flows for the six month periods ended June 30, 2013 and 2012.  The results of operations for the three and six month periods ended June 30, 2013 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.

Discontinued Operations

The Company follows the guidance in Accounting Standards Codification (ASC) 205-20, Discontinued Operations and, when appropriate, reclassifies operating units closed, sold or held for sale out of continuing operations and into discontinued operations for all periods presented.  During the quarter ended June 30, 2013, the Company completed the sale of its only two Alabama locations, which operated in the Visiting Nurse (VN) segment.  The operations and gain on sale related to the Alabama operations were reclassified from continuing operations into discontinued operations for all periods presented.  Other Assets Held for Sale primarily relate to prior period VN segment goodwill that was allocated to the Company’s Alabama operations.  The effective tax rate for discontinued operations is unusually high due primarily to the impact of writing off non-deductible goodwill in addition to providing a valuation allowance for Alabama net operating loss carryforwards.  Unless otherwise noted, amounts in these Notes to Consolidated Financial Statements exclude amounts attributable to discontinued operations.

2.           Segment Data

The Company has two reportable segments, VN and Personal Care (PC), which operate locations in Florida, Ohio, Kentucky, Connecticut, New Jersey, Massachusetts, Missouri, Illinois, Pennsylvania and Indiana.  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 does not allocate certain expenses to the reportable segments.  These expenses are included in corporate expenses below.

The 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.  Approximately 93% of the VN segment revenues are generated from the Medicare program while the balance is generated from Medicaid and private insurance

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programs.  VN Medicare revenues include revenues from all Medicare sources including traditional Medicare and Medicare Advantage, whether paid on a per episode basis or a per visit basis.

The 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 85% 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.

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net service revenues:
Visiting Nurse	$	66,418		$	66,018		$	133,351		$	134,623
Personal Care	20,400			19,278			39,302			38,524
	86,818			85,296			172,653			173,147
Operating income before corporate expenses:
Visiting Nurse	6,827			10,607			15,181			21,380
Personal Care	3,176			2,303			5,173			4,761
	10,003			12,910			20,354			26,141
Corporate expenses	5,556			5,532			10,613			11,004
Operating income	$	4,447		$	7,378		$	9,741		$	15,137
Interest expense, net	(11		)	(32		)	(29		)	(70		)
Income tax expense	(1,852		)	(2,902		)	(3,802		)	(5,839		)
Net income from continuing operations	$	2,584		$	4,444		$	5,910		$	9,228

3.             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 $136 and $118 were capitalized in the three months ended June 30, 2013 and 2012, respectively.  Software development costs of approximately $405 and $276 were capitalized in the six months ended June 30, 2013 and 2012, respectively.  Capitalized software development costs are amortized over the estimated useful life, generally three years, once the software is ready for its intended use.

4.             Goodwill and Other Intangible Assets

The Company conducts annual reviews for impairment, or more frequently if circumstances indicate impairment may have occurred.  Other intangible assets consist of certificates of need and licenses, trade names and non-compete agreements.  Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives.  Licenses, provider numbers, certificates of need and trade names have indefinite lives and are reviewed at least annually for possible impairment, or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.  The Company completed its most recent annual impairment test of goodwill and other indefinite-lived intangible assets as of December 31, 2012 and determined that no impairment existed.

The following table summarizes the activity related to goodwill and other intangible assets for 2013:

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				Other Intangible Assets
	Goodwill			Certificates of Need and licenses		Trade Names		Non-compete Agreements			Total
Balances at 12-31-12	$	132,014		$	9,391	$	10,421	$	155		$	19,967
Changes	(953		)	—		—		—			—
Amortization	—			—		—		(46		)	(46		)
Balances at 6-30-13	$	131,061		$	9,391	$	10,421	$	109		$	19,921

Of total goodwill, $100,087 and $30,974 relates to the VN segment and the PC segment, respectively. Changes to goodwill are related to VN segment adjustments related to a previous acquisition and a small acquisition.  Amortization expense recognized on finite-lived intangible assets for the second quarter of 2013 and 2012 was $23 and $17, respectively, and $46 and $33 for the six month period ended June 30, 2013 and 2013, respectively.

5.             Revolving Credit Facility

At June 30, 2013, the Company had a $125 million senior secured revolving credit facility with JP Morgan Chase Bank, NA, as Administrative Agent, Bank of America, as Syndication Agent and certain other lenders (the “Facility”).  The Facility consists of a $125 million credit line with a maturity date of December 2, 2015 and an “accordion” feature providing for potential future expansion of the Facility to $175 million.  Borrowings (other than letters of credit) under the credit facility are at either the bank’s prime rate plus a margin (ranging from 1.25% to 2.25%, currently 1.25%) or LIBOR plus a margin (ranging from 2.25% to 3.25%, 2.25% at June 30, 2013).  The margin for prime rate or LIBOR borrowings is determined by the Company’s leverage.  Borrowings under the Facility 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.

The weighted average prime rate-based interest rate was 4.50% for both the three and six months ended June 30, 2013 and 2012.  The weighted average LIBOR rates were 2.53% and 2.72% for the three and six months ended June 30, 2013 and 2012, respectively.  The Company pays a quarterly commitment fee of 0.30% to 0.50% on the average daily unused facility balance based on leverage. Borrowings are subject to various covenants including a multiple of 3.0 times earnings before interest, income tax, depreciation and amortization (“EBITDA”).  “EBITDA” may include “Acquired EBITDA” from pro-forma 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 June 30, 2013, the formula permitted $82.2 million to be used, of which no amounts were outstanding.  The Company had irrevocable letters of credit totaling $5.5 million outstanding in connection with the Company’s self-insurance programs, which resulted in a total of $76.1 million being available for use at June 30, 2013.  As of June 30, 2013, the Company was in compliance with the Facility’s various financial covenants.  Under the most restrictive of its covenants, the Company was required to maintain minimum net worth of at least $159.4 million at June 30, 2013.  At such date, the Company’s net worth was approximately $210.7 million.

6.             Fair Value Measurements

The Company’s financial instruments consist of cash, accounts receivable, payables and debt instruments.  The carrying values of cash, accounts receivable and payables are considered representative of their respective fair values due to the short-term nature of these instruments.  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.  The Company does not have any assets or liabilities carried at fair value that are measured on a recurring basis.

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7.             Stock-Based Compensation

The Company issues both restricted share and option awards to employees and non-employee directors.  Restricted share awards cliff vest on the third anniversary, while option share awards vest annually in 25% increments over four years.  Stock option grant date fair values are determined at the date of grant using a Monte Carlo option valuation model with suboptimal exercise behavior.  Changes in awards outstanding are summarized as follows:

	Restricted shares				Options
	Shares		Wtd Avg. Grant Price		Shares		Wtd Avg. Ex. Price
December 31, 2012	50		$	31.35	341		$	25.62
Granted	58		20.29		68		20.71
Vested or exercised	(7	)	42.72		—		—
Forfeited	—		—		(23	)	30.77
June 30, 2013	101		$	24.16	386		$	24.46

8.             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 June 30,		Six Months Ended June 30,
	2013	2012	2012	2011
Basic weighted average outstanding shares	9,270	9,255	9,253	9,265
Add common equivalent shares representing shares issuable upon exercise of dilutive awards	78	60	79	63
Diluted weighted average number of shares	9,348	9,315	9,332	9,328
Anti-dilutive shares excluded from calculation	254	178	254	218

9.             Commitments and Contingencies

Insurance Programs

The Company bears significant insurance 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 is aware of incidents that have occurred through June 30, 2013 that may result in the assertion of additional claims.  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 certain securities actions, with deductibles ranging from $100 to $250 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

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insurance-related liabilities and recoveries, if any, on a monthly basis and as required by Accounting Standards Update (ASU) 2010-24, Health Care Entities (Topic 954):  Presentation of Insurance Claims and Related Insurance Recoveries, has recorded 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.

Legal Proceedings & Investigations

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, after discussions with legal counsel, the ultimate resolution of any of these ordinary course pending claims and legal proceedings will not have a material effect on the Company’s financial position or results of operations.

As previously disclosed, four derivative complaints were filed in Jefferson Circuit Court, Kentucky, against the members of the Company’s board of directors (the Board) and chief financial officer.  All four lawsuits named the Company as a nominal defendant and were consolidated into a single action.  All of the complaints and the resulting consolidated complaint refer to an April 27, 2010 The Wall Street Journal article and the subsequent governmental investigations.  On February 13, 2012, the independent directors filed a motion to dismiss the complaint.  On October 2, 2012, the Court entered an order granting the motion to dismiss and dismissing the complaint with prejudice.  On November 1, 2012 the plaintiffs filed an appeal of the Court’s ruling with the Kentucky Court of Appeals.  Briefing to the Court of Appeals is complete.  In the meantime, the Board has received a demand letter dated July 17, 2013, from counsel for one of the derivative plaintiff shareholders.  The letter states that the shareholder believes certain of the Company’s officers and directors violated their fiduciary duties based on allegations similar to those described in the consolidated complaint.  The letter requests that the Board take appropriate action against the individuals in question.  The Board is considering how to respond to the shareholder demand.

As previously disclosed, a fifth derivative complaint involving Richard W. Carey was filed in U.S. District Court for the Western District of Kentucky.  The lawsuit names the Company as a nominal defendant and is substantially duplicative of the derivative complaint pending in the Jefferson Circuit Court.  The Court granted the defendants’ motion to stay the lawsuit pending further order of the Court.

The Company is unable to assess the probable outcome or potential liability, if any, arising from these unresolved matters.

10.          Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes.  The Company’s effective income tax rates for the three and six month periods ended June 30, 2013 and 2012 were approximately 41.7% and 39.5%, respectively, and 39.1% and 38.8%, respectively.  The change in rate for the second quarter of 2013 was primarily due to the first quarter of 2013 including a benefit resulting from the January 2, 2013 retroactive extension of the Work Opportunity Tax Credit.  Also impacting the change in the effective tax rate is the increase in permanent differences in relation to pre-tax income in addition to increases in our state income tax rates.

Certain tax authorities may periodically audit the Company.  Based on the Company’s evaluation, the Company concluded that no significant uncertain tax positions require recognition in the consolidated financial statements.  Additionally, the Company may from time to time be assessed interest and penalties by tax jurisdictions.  Any such assessments historically have been immaterial to the Company’s financial results and are classified as other general and administrative expenses in the consolidated statements of income.

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11.          Subsequent Events

Management has evaluated all events and transactions that occurred after June 30, 2013.  The Company had no material subsequent events requiring recognition in the consolidated financial statements.  On July 19, 2013, the Company’s VN segment acquired certain assets of Indiana Home Care Network for approximately $12.5 million.  The Company is currently working through a preliminary purchase price analysis, which at this time primarily includes goodwill, intangible assets and accounts receivable.

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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:

·general economic and business conditions;

·demographic changes;

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

·legislative proposals for healthcare reform;

·changes in Medicare and Medicaid reimbursement levels;

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

·the Company’s ability to control costs, particularly labor and employee benefits;

·liability and other claims asserted against the Company;

·potential audits and investigations by government and regulatory agencies, including the impact of any negative publicity or litigation;

·ability to attract and retain qualified personnel;

·availability and terms of capital;

·loss of significant contracts or reduction in revenues associated with major payor 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 the acquisition, 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 ended December 31, 2012 and this Form 10-Q.  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. The Company has provided a detailed discussion of risk factors in its Form 10-K and various filings with the Securities and Exchange Commission (SEC).  The reader is encouraged to review these risk factors and filings.

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Critical Accounting Policies

Refer to the “Critical Accounting Policies” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for the year ended December 31, 2012 for a detailed discussion of our critical accounting policies.  There have been no material changes to our critical accounting policies and estimates in 2013.

Operating Segments

We have two reportable segments, Visiting Nurse (VN) and Personal Care (PC), which operate locations in Florida, Ohio, Kentucky, Connecticut, New Jersey, Massachusetts, Missouri, Illinois, Pennsylvania and Indiana (in order of revenue significance).  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.  Approximately 93% of the VN segment revenues are generated from the Medicare program, while the balance is generated from Medicaid and private insurance programs.  VN Medicare revenues include revenues from all Medicare sources including traditional Medicare and Medicare Advantage, whether paid on a per episode basis or a per visit basis.

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 85% 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.

Health Care Reform Legislation and Medicare Regulations

The reader is encouraged to review our detailed discussion of Health Care Reform Legislation and Medicare Regulations in the similarly titled section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” along with the discussion under “Government Regulation” in Part I, Item 1, “Business” and Item 1A, “Risk Factors” in the Company’s annual report on Form 10-K for year ended December 31, 2012.  Additional developments since filing the Form 10-K include:

·All Medicare providers, including the Company, became subject to a 2% rate reduction as specified in the Budget Control Act of 2011, commonly referred to as “Sequestration”, which went into effect during the first quarter of 2013 for episodes ended after March 31, 2013.  Sequestration reduced our revenues and pretax earnings during the quarter ended June 30, 2013 by $1.2 million and reduced our diluted EPS by $0.08.

·In April 2013, one of our fiscal intermediaries, Palmetto Government Benefits Administration (Palmetto), announced plans to temporarily limit certain providers’ ability to bill Request for Anticipated Payment (RAP) claims which advance partial funding to providers prior to submission of final claims following the end of the episode (RAP Suppression).  As of the date of this filing, only two of our providers remain on RAP Suppression.  We will continue to work with Palmetto regarding the release of these remaining two providers from RAP Suppression.  The RAP Suppression and associated changes in our internal processing increased our accounts receivable by approximately $5.7 million (or approximately 9 days sales) as of June 30, 2013.

·On June 28, 2013, the Centers for Medicare and Medicaid Services issued the proposed rule for 2014.  The proposed rule included the maximum rebasing cut in Medicare reimbursement rates (3.5% rate reduction in each of the years 2014-2017) allowable by the Patient Protection and Affordable Care Act (the ACA), which was signed into law in March 2010.  The rebasing cuts are in addition to other legislated cuts for that same period by the ACA.  The 2014 proposed rule is currently open for comment.  The final rule is expected to be released in late October 2013.

·As a result of these proposed 2014 rates, other legislated changes and our current mix of business, we currently expect our 2014 rates to reflect an effective rate cut ranging from 1.0% to 1.5%.

These matters may have a material adverse impact on our results of operations or financial condition.  Although we are formulating plans and developing appropriate courses of action related to these changes, there can be no assurance that such plans or courses of action will prove successful.  Such changes may cause us to change our business model, increase costs or reduce our revenues in ways not currently contemplated by us, or may result in recognition of an impairment of our recorded goodwill or intangible assets.

13

Shareholder Litigation

See Note 9 to the consolidated financial statements and Part II, Item 1, “Legal Proceedings” of this Form 10-Q for a discussion of certain litigation.  The Company is unable to predict the outcome of these matters. However, the Company may incur on-going expenses, net of insurance recoveries, if any, related to defense of such complaints.

Seasonality

Our VN 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.

14

RESULTS OF OPERATIONS

THREE MONTHS

Consolidated

	Three Months Ended June 30,
	2013					2012					Change
(In thousands)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues:
Visiting Nurse	$	66,418		76.5	%	$	66,018		77.4	%	$	400		0.6	%
Personal Care	20,400			23.5	%	19,278			22.6	%	1,122			5.8	%
	86,818			100.0	%	85,296			100.0	%	1,522			1.8	%
Operating income before corporate expenses:
Visiting Nurse	6,827			10.3	%	10,607			16.1	%	(3,780		)	-35.6	%
Personal Care	3,176			15.6	%	2,303			11.9	%	873			37.9	%
	10,003			11.5	%	12,910			15.1	%	(2,907		)	-22.5	%
Corporate expenses	5,556			6.4	%	5,532			6.5	%	24			0.4	%
Operating income	4,447			5.1	%	7,378			8.6	%	(2,931		)	-39.7	%
Interest expense, net	(11		)	0.0	%	(32		)	0.0	%	21			-65.6	%
Income tax expense	(1,852		)	-2.1	%	(2,902		)	-3.4	%	1,050			-36.2	%
Net income from continuing operations	$	2,584		3.0	%	$	4,444		5.2	%	$	(1,860	)	-41.9	%
EBITDA from continuing operations (1)	$	5,484		6.3	%	$	8,395		9.8	%	$	(2,911	)	-34.7	%

(1)  See Page 22 for discussion of EBITDA.

Net service revenues increased year over year primarily as a result of volume growth in both our VN and PC segments, which was partially offset by the VN segment’s Medicare rate cut and Medicare Advantage shift.  Refer to segment discussions for further detail.

Corporate expenses as a percent of revenue decreased to 6.4% from 6.5% in the prior year primarily due to lower incentive accruals in 2013 as compared to 2012 due to current year performance.

The effective tax rate was approximately 41.7% in the second quarter of 2013, which increased from the 39.5% for the second quarter of 2012 primarily due to a combination of increases in permanent differences compared to pre-tax income and estimated state tax rates.

15

Visiting Nurse Segment

	Three Months Ended June 30,
	2013					2012					Change
(In thousands, except for statistics)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues	$	66,418		100.0	%	$	66,018		100.0	%	$	400		0.6	%
Cost of service revenues	32,829			49.4	%	30,985			46.9	%	1,844			6.0	%
Gross margin	33,589			50.6	%	35,033			53.1	%	(1,444		)	-4.1	%
General and administrative expenses:
Salaries and benefits	19,854			29.9	%	18,803			28.5	%	1,051			5.6	%
Other	6,908			10.4	%	5,623			8.5	%	1,285			22.9	%
Total general and administrative expenses	26,762			40.3	%	24,426			37.0	%	2,336			9.6	%
Operating income before corporate expenses	$	6,827		10.3	%	$	10,607		16.1	%	$	(3,780	)	-35.6	%
Average number of locations	104					106					(2		)	-1.9	%
All payors:
Patient months	54,140					53,903					237			0.4	%
Admissions	15,559					15,290					269			1.8	%
Billable visits	481,641					462,045					19,596			4.2	%
Medicare:
Admissions (1)	14,226			91	%	13,840			91	%	386			2.8	%
Revenue (in thousands)	$	61,617		93	%	$	61,080		93	%	$	537		0.9	%
Revenue per admission	$	4,331				$	4,413				$	(82	)	-1.9	%
Billable visits (1)	410,661			85	%	381,689			83	%	28,972			7.6	%
Recertifications	7,673					7,582					91			1.2	%
Payor mix % of Admissions
Traditional Medicare Episodic	91.9		%			94.4		%			-2.5		%
Replacement Plans Paid Episodically	2.8		%			3.0		%			-0.2		%
Replacement Plans Paid Per Visit	5.3		%			2.6		%			2.7		%
Non-Medicare:
Admissions (1)	1,333			9	%	1,450			9	%	(117		)	-8.1	%
Revenue (in thousands)	$	4,801		7	%	$	4,938		7	%	$	(137	)	-2.8	%
Revenue per admission	$	3,602				$	3,406				$	196		5.8	%
Billable visits (1)	70,980			15	%	80,356			17	%	(9,376		)	-11.7	%
Recertifications	1,453					1,575					(122		)	-7.7	%
Payor mix % of Admissions
Medicaid & other governmental	31.1		%			34.6		%			-3.5		%
Private payors	68.9		%			65.4		%			3.5		%

(1)  Percentages pertain to percentage of total admissions or total billable visits, as applicable.

16

Visiting Nurse segment net service revenues increased by $0.4 million between years primarily due to a 2% increase in admissions and a 1% increase in re-certifications, partially offset by a 2% Medicare sequestration rate cut ($1.2 million) and a $0.7 million reduction due to the shift of certain Medicare Advantage plans from paying episodically to paying on a per visit basis.

Cost of service revenues grew 6% primarily due to a 4.2% increase in visits and a 1.5% increase in average wage rates.  General and administrative expenses — salaries and benefits increased approximately $1.1 million primarily due to an increase in the size of our sales force, a smaller increase in branch-level administrative personnel costs and an increase of approximately 1.5% in average wage rates.

General and administrative expenses — other increased primarily due to an increase in the provision for uncollectible accounts arising from the same quarter of the prior year having an unusually low provision, the mix shift of Medicare Advantage business from episodic to per-visit reimbursement and to a lesser degree a slow-down in episodic claims processing.

As a result, VN segment operating income before corporate expenses declined $3.8 million to $6.8 million from $10.6 million in 2012, while operating income before corporate expenses as a percent of revenues decreased to 10.3% in 2013 from 16.1% in 2012.

Personal Care Segment

	Three Months Ended June 30,
	2013				2012				Change
(In thousands, except for statistics)	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues	$	20,400	100.0	%	$	19,278	100.0	%	$	1,122	5.8	%
Cost of service revenues	13,519		66.3	%	13,483		69.9	%	36		0.3	%
Gross margin	6,881		33.7	%	5,795		30.1	%	1,086		18.7	%
General and administrative expenses:
Salaries and benefits	2,462		12.1	%	2,429		12.6	%	33		1.4	%
Other	1,243		6.1	%	1,063		5.5	%	180		16.9	%
Total general and administrative expenses	3,705		18.2	%	3,492		18.1	%	213		6.1	%
Operating income before corporate expenses	$	3,176	15.6	%	$	2,303	11.9	%	$	873	37.9	%
Average number of locations	60				60				—		0.0	%
Admissions	1,154				1,120				34		3.0	%
Patient months of care	17,565				17,339				226		1.3	%
Billable hours	1,080,733				1,030,546				50,187		4.9	%
Revenue per billable hour	$	18.88			$	18.71			$	0.17	0.9	%

Net service revenues increased $1.1 million, to $20.4 million in 2013, from $19.3 million in 2012 primarily due to a 5% increase in billable hours.  Cost of service revenues as a percentage of net service revenues decreased to 66.3% in the second quarter of 2013 from 69.9% in 2012 primarily due to lower workers compensation expense during the period.

Total general and administrative expenses as a percent of net service revenue increased slightly to 18.2% from 18.1% of net service revenues in 2013 and 2012, primarily due to slightly higher bad debt provision in the current period.

As a result, PC segment operating income before corporate expenses increased to $3.2 million from $2.3 million in 2012, while operating income before corporate expenses as a percent of revenues increased to 15.6% in 2013 from 11.9% in 2012.

17

RESULTS OF OPERATIONS

SIX MONTHS

Consolidated

	Six Months Ended June 30,
	2013					2012					Change
(In thousands)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues:
Visiting Nurse	$	133,351		77.2	%	$	134,623		77.8	%	$	(1,272	)	-0.9	%
Personal Care	39,302			22.8	%	38,524			22.2	%	778			2.0	%
	172,653			100.0	%	173,147			100.0	%	(494		)	-0.3	%
Operating income before corporate expenses:
Visiting Nurse	15,181			11.4	%	21,380			15.9	%	(6,199		)	-29.0	%
Personal Care	5,173			13.2	%	4,761			12.4	%	412			8.7	%
	20,354			11.8	%	26,141			15.1	%	(5,787		)	-22.1	%
Corporate expenses	10,613			6.1	%	11,004			6.4	%	(391		)	-3.6	%
Operating income	9,741			5.6	%	15,137			8.7	%	(5,396		)	-35.6	%
Interest expense, net	(29		)	0.0	%	(70		)	0.0	%	41			-58.6	%
Income tax expense	(3,802		)	-2.2	%	(5,839		)	-3.4	%	2,037			-34.9	%
Net income from continuing operations	$	5,910		3.4	%	$	9,228		5.3	%	$	(3,318	)	-36.0	%
EBITDA from continuing operations (1)	$	11,693		6.8	%	$	17,130		9.9	%	$	(5,437	)	-31.7	%

(1)  See Page 22 for discussion of EBITDA.

The year over year decline in revenue was primarily driven by unfavorable impact of Medicare Advantage changes and Medicare rate cuts in our VN segment, partially offset by volume growth.  Refer to segment discussions for further detail.

Corporate expenses as a percent of revenue decreased to 6.1% from 6.4% in the prior year primarily due to lower incentive accruals in 2013 as compared to 2012.

The effective tax rate was approximately 39.1% in the first six months of 2013, which increased from 38.8% for the same period in 2012 due primarily to a combination of increases in permanent differences compared to pre-tax income and estimated state tax rates.

18

Visiting Nurse Segment

	Six Months Ended June 30,
	2013					2012					Change
(In thousands, except for statistics)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues	$	133,351		100.0	%	$	134,623		100.0	%	$	(1,272	)	-0.9	%
Cost of service revenues	65,363			49.0	%	62,721			46.6	%	2,642			4.2	%
Gross margin	67,988			51.0	%	71,902			53.4	%	(3,914		)	-5.4	%
General and administrative expenses:
Salaries and benefits	39,406			29.6	%	38,180			28.4	%	1,226			3.2	%
Other	13,401			10.0	%	12,342			9.2	%	1,059			8.6	%
Total general and administrative expenses	52,807			39.6	%	50,522			37.5	%	2,285			4.5	%
Operating income before corporate expenses	$	15,181		11.4	%	$	21,380		15.9	%	$	(6,199	)	-29.0	%
Average number of locations	104					106					(2		)	-1.9	%
All payors:
Patient months	108,539					109,698					(1,159		)	-1.1	%
Admissions	31,864					31,361					503			1.6	%
Billable visits	954,189					933,064					21,125			2.3	%
Medicare:
Admissions (1)	29,235			92	%	28,466			91	%	769			2.7	%
Revenue (in thousands)	$	123,732		93	%	$	124,681		93	%	$	(949	)	-0.8	%
Revenue per admission	$	4,232				$	4,380				$	(148	)	-3.4	%
Billable visits (1)	814,032			85	%	774,530			83	%	39,502			5.1	%
Recertifications	15,287					15,286					1			0.0	%
Payor mix % of Admissions
Traditional Medicare Episodic	91.5		%			94.0		%			-2.5		%
Replacement Plans Paid Episodically	2.7		%			3.7		%			-1.0		%
Replacement Plans Paid Per Visit	5.8		%			2.3		%			3.5		%
Non-Medicare:
Admissions (1)	2,629			8	%	2,895			9	%	(266		)	-9.2	%
Revenue (in thousands)	$	9,619		7	%	$	9,942		7	%	$	(323	)	-3.2	%
Revenue per admission	$	3,659				$	3,434				$	225		6.5	%
Billable visits (1)	140,157			15	%	158,534			17	%	(18,377		)	-11.6	%
Recertifications	2,897					3,090					(193		)	-6.2	%
Payor mix % of Admissions
Medicaid & other governmental	29.7		%			34.5		%			-4.8		%
Private payors	70.3		%			65.5		%			4.8		%

(1)  Percentages pertain to percentage of total admissions or total billable visits, as applicable.

Visiting Nurse segment net service revenues decreased by $1.3 million between years primarily due to a 1.6% increase in admissions, partially offset by a 2% Medicare sequestration rate cut ($1.5 million) and a $1.7 million reduction due to the shift of certain Medicare Advantage plans from paying episodically to paying on a per visit basis.

Cost of service revenues grew 4.2% primarily due to a 2.3% increase in visits and a 1.5% increase in average wage rates.  General and administrative expenses — salaries and benefits increased approximately $1.2 million primarily due to an increase in the size of our sales force, a smaller increase in branch-level administrative personnel costs and an increase of approximately 1.5% in average wage rates.

19

General and administrative expenses — other increased primarily due to an increase in the provision for uncollectible accounts arising from the same period of the prior year having an unusually low provision, the mix shift of Medicare Advantage business from episodic to per-visit reimbursement and to a lesser degree a slow-down in episodic claims processing.

As a result, VN segment operating income before corporate expenses declined $6.2 million to $15.2 million from $21.4 million in 2012, while operating income before corporate expenses as a percent of revenues decreased to 11.4% in 2013 from 15.9% in 2012.

Personal Care Segment

	Six Months Ended June 30,
	2013				2012				Change
(In thousands, except for statistics)	Amount		% Rev		Amount		% Rev		Amount			%
Net service revenues	$	39,302	100.0	%	$	38,524	100.0	%	$	778		2.0	%
Cost of service revenues	26,651		67.8	%	26,425		68.6	%	226			0.9	%
Gross margin	12,651		32.2	%	12,099		31.4	%	552			4.6	%
General and administrative expenses:
Salaries and benefits	4,914		12.5	%	4,976		12.9	%	(62		)	-1.2	%
Other	2,564		6.5	%	2,362		6.1	%	202			8.6	%
Total general and administrative expenses	7,478		19.0	%	7,338		19.0	%	140			1.9	%
Operating income before corporate expenses	$	5,173	13.2	%	$	4,761	12.4	%	$	412		8.7	%
Average number of locations	60				60				—			0.0	%
Admissions	2,243				2,195				48			2.2	%
Patient months of care	34,904				34,335				569			1.7	%
Billable hours	2,098,121				2,104,859				(6,738		)	-0.3	%
Revenue per billable hour	$	18.73			$	18.30			$	0.43		2.3	%

Net service revenues increased $0.8 million, to $39.3 million in 2013 from $38.5 million in 2012, primarily due to changes in mix which increased our revenue per billable hour.  Cost of service revenues as a percentage of net service revenues decreased to 67.8% in the second quarter of 2013 from 68.6% in 2012 primarily due to lower workers compensation expense in the current year.

Total general and administrative expenses as a percent of net service revenue was unchanged at 19.0% of net service revenues in 2013 and 2012.

As a result, PC segment operating income before corporate expenses increased to $5.2 million from $4.8 million in 2012, while operating income before corporate expenses as a percent of revenues increased to 13.2% in 2013 from 12.4% in 2012.

20

Liquidity and Capital Resources

Revolving Credit Facility

We have a $125 million senior secured revolving credit facility with JP Morgan Chase Bank, NA, as Administrative Agent, Bank of America, as Syndication Agent and certain other lenders (the “Facility”).  The Facility consists of a $125 million credit line with a maturity date of December 2, 2015 and an “accordion” feature providing for potential future expansion of the Facility to $175 million.  Borrowings (other than letters of credit) under the credit facility are made at either: a) the bank’s prime rate plus a margin (ranging from 1.25% to 2.25%, currently 1.25%) or b) LIBOR plus a margin (ranging from 2.25% to 3.25%, 2.25% at June 30, 2013).  The margin for prime rate or LIBOR borrowings is determined by our leverage.  Borrowings under the Facility are secured by a first priority perfected security interest in all our tangible and intangible assets, and all our existing and future direct and indirect subsidiaries, as guarantors.

The weighted average prime rate-based interest rate was 4.50% for both the three and six months ended June 30, 2013 and 2012.  The weighted average LIBOR rates were 2.53% and 2.72% for the three and six months ended June 30, 2013 and 2012, respectively.  We pay a quarterly commitment fee of 0.30% to 0.50% on the average daily unused facility balance based on leverage. Borrowings are subject to various covenants including a multiple of 3.0 times earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA may include “Acquired EBITDA” from pro-forma 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 June 30, 2013, the formula permitted $82.2 million to be used against which we had irrevocable letters of credit totaling $5.5 million outstanding in connection with our self-insurance programs. As a result a total of $76.1 million was available for borrowing at June 30, 2013. As of June 30, 2013, we were in compliance with the Facility’s various financial covenants. Under the most restrictive of its covenants, we were required to maintain minimum net worth of at least $159.4 million at June 30, 2013.  At such date, our net worth was approximately $210.7 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.

Cash Flows

Key elements to the Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 were:

Net Change in Cash and Cash Equivalents (in thousands)	2013			2012
Provided by (used in):
Operating activities	$	5,375		$	7,486
Investing activities	(1,301		)	(1,012		)
Financing activities	(567		)	(3,124		)
Discontinued operations activities	1,753			566
Net change in cash and cash equivalents	$	5,260		$	3,916

2013

Net cash provided by operating activities resulted primarily from current period net income of $5.8 million plus certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses.  The decrease from 2012 is primarily due to a 2013 increase in accounts receivable due primarily to RAP Suppression related issues in our VN segment.  Such issues also drove increases in accounts receivable days revenues outstanding, which was 58 at June 30, 2013 and 53 at December 31, 2012.

The cash used in investing activities was primarily due to capital expenditures.

21

Net cash used in financing activities for the six months ended June 30, 2013 decreased over the prior year period primarily due to cash used in 2012 for a $1.7 million stock redemption of 72,000 shares related to the previous distribution of shares to non-employee directors pursuant to the termination of the Company’s Non-Employee Directors Deferred Compensation Plan.

Net cash provided by discontinued operations was due to the $3.0 million in proceeds from sale of the Alabama agencies, which was partially offset by cash used in operating activities for the discontinued operations.

2012

Net cash provided by operating activities resulted primarily from current period net income of $9.5 million plus certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses.  Accounts receivable days revenues outstanding was 50 at June 30, 2012 and 46 at December 31, 2011 due to processing delays as well as prepayment Additional Data Requests from Palmetto Government Benefits Administration in our VN segment.

The cash used in investing activities was primarily due to capital expenditures.

Net cash used in financing activities for the six months ended June 30, 2012 increased over the prior year period primarily due to cash used for a $1.7 million stock redemption of 72,000 shares related to the previous distribution of shares to non-employee directors pursuant to the termination of the Company’s Non-Employee Directors Deferred Compensation Plan and repayment of a $1.2 million acquisition related seller note.

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 some of the tables use certain non-GAAP financial measures as defined under 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 not a measure of financial performance under U.S generally accepted accounting principles. 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.

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

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2013		2012		2012		2011
Net income from continuing operations	$	2,584	$	4,444	$	5,910	$	9,228
Add back:
Interest expense	11		32		29		70
Income tax expense	1,852		2,902		3,802		5,839
Depreciation and amortization	670		632		1,298		1,247
Amortization of stock-based compensation	367		385		654		746
Earnings before interest, income taxes, depreciation and amortization (EBITDA) from continuing operations	$	5,484	$	8,395	$	11,693	$	17,130

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 June 30, 2013, the Company had 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 June 30, 2013, the Company’s management, with participation of the Company’s Chief Executive Officer and Principal 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 Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2013.

Changes in Internal Control Over Financial Reporting - There were no changes in the Company’s internal control over financial reporting during the second quarter of 2013, that have materially affected, or are reasonably likely to materially affect, Almost Family, Inc.’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are subject to various legal actions arising in the ordinary course of our business, including claims for damages for personal injuries.  In our opinion, after discussion with legal counsel, the ultimate resolution of any of these pending ordinary course claims and legal proceedings will not have a material effect on our financial position or results of operations.

As previously disclosed, four derivative complaints were filed in Jefferson Circuit Court, Kentucky, against the members of the Company’s board of directors and chief financial officer.  All four lawsuits named the Company as a nominal defendant and were consolidated into a single action.  All of the complaints and the resulting consolidated complaint refer to an April 27, 2010 The Wall Street Journal article and the subsequent governmental investigations.  On February 13, 2012, the independent directors filed a motion to dismiss the complaint.  On October 2, 2012, the Court entered an order granting the motion to dismiss and dismissing the complaint with prejudice.  On November 1, 2012 the plaintiffs filed an appeal of the Court’s ruling with the Kentucky Court of Appeals.  Briefing to the Court of Appeals is complete.  In the meantime, the Board has received a demand letter dated July 17, 2013, from counsel for one of the derivative plaintiff shareholders.  The letter states that the shareholder believes certain of the Company’s officers and directors violated their fiduciary duties based on allegations similar to those described in the consolidated complaint.  The letter requests that the Board take appropriate action against the individuals in question.  The Board is considering how to respond to the shareholder demand.

As previously disclosed, a fifth derivative complaint involving Richard W. Carey was filed in U.S. District Court for the Western District of Kentucky.  The lawsuit names the Company as a nominal defendant and is substantially duplicative of the derivative complaint pending in the Jefferson Circuit Court.  The Court granted the defendants’ motion to stay the lawsuit pending further order of the Court.

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in our Form 10-K for the year ending December 31, 2012, under the heading “Special Caution Regarding Forward — Looking Statements” and in the Form 10-K Part I, Item 1A. Risk Factors.  There have been no material changes from the risk factors disclosed in our Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

Effective August 3, 2013, Anne T. Liechty assumed the new non-executive position with the Company of Senior Vice President of Special Projects.  In connection with her reduced responsibilities, Ms. Liechty’s annual base salary will be $156,000.  Ms. Liechty has been employed by the Company since 1986, most recently as Senior Vice President — VN Operations — North.

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ITEM 6. EXHIBITS

10.1

Almost Family, Inc. 2013 Stock and Incentive Compensation Plan (incorporated by reference to Appendix A of the Definitive Proxy Statement on Schedule 14A as filed on April 4, 2013)

10.2

Offer of Employment letter dated March 12, 2013, between the Registrant and Daniel Schwartz.

31.1

Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

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

101

Financial statements from the quarterly report on Form 10-Q of Almost Family, Inc. for the quarter ended June 30, 2013, filed on August 6, 2013, formatted in XBRL:  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements.

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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  August 6, 2013	By:	/s/ William B. Yarmuth
		William B. Yarmuth
		Chairman of the Board and
		Chief Executive Officer
	By:	/s/ C. Steven Guenthner
		C. Steven Guenthner
		President and
		Principal Financial Officer

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