Almost Family (AFAM) 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 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.  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 x 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 November 1, 2013  9,408,651

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 September 30, 2013 and December 31, 2012		3
	Consolidated Statements of Income for the Three and Nine months Ended September 30, 2013 and 2012		4
	Consolidated Statements of Cash Flows for the Nine months Ended September 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	25
Item 4.		Mine Safety Disclosures	25
Item 5.		Other Information	25
Item 6.		Exhibits	25

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2013
(In thousands)	(UNAUDITED)			December 31, 2012
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	28,096		$	26,120
Accounts receivable - net	48,060			49,971
Prepaid expenses and other current assets	7,045			6,968
Deferred tax assets	7,044			6,580
TOTAL CURRENT ASSETS	90,245			89,639
PROPERTY AND EQUIPMENT - NET	5,775			5,401
GOODWILL	141,370			132,014
OTHER INTANGIBLE ASSETS	21,121			19,967
OTHER ASSETS	626			781
OTHER ASSETS, HELD FOR SALE	—			1,457
	$	259,137		$	249,259
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,862		$	4,599
Accrued other liabilities	22,097			21,874
Current portion of notes payable	842			625
TOTAL CURRENT LIABILITIES	27,801			27,098
LONG-TERM LIABILITIES:
Notes payable	116			500
Deferred tax liabilities	17,356			16,785
Other liabilities	169			561
TOTAL LONG-TERM LIABILITIES	17,641			17,846
TOTAL LIABILITIES	45,442			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; 9,500 and 9,421 issued and outstanding	950			942
Treasury stock, at cost, 91 and 91 shares of common stock	(2,320		)	(2,320		)
Additional paid-in capital	103,419			101,945
Retained earnings	111,646			103,748
TOTAL STOCKHOLDERS’ EQUITY	213,695			204,315
	$	259,137		$	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 September 30,						Nine months Ended September 30,
	2013			2012			2013			2012
Net service revenues	$	88,818		$	83,880		$	261,471		$	257,027
Cost of service revenues (excluding depreciation & amortization)	47,551			43,803			139,565			132,951
Gross margin	41,267			40,077			121,906			124,076
General and administrative expenses:
Salaries and benefits	25,814			23,334			75,170			72,193
Other	11,739			9,871			33,281			29,874
Total general and administrative expenses	37,553			33,205			108,451			102,067
Operating income	3,714			6,872			13,455			22,009
Interest expense, net	(13		)	(17		)	(42		)	(87		)
Income before income taxes	3,701			6,855			13,413			21,922
Income tax expense	(1,462		)	(2,708		)	(5,264		)	(8,547		)
Net income from continuing operations	$	2,239		$	4,147		$	8,149		$	13,375
Discontinued operations:
(Loss) gain from operations, net of tax of ($72), ($32), ($74) and $127	$	(110	)	$	(48	)	$	(420	)	$	204
Gain on sale, net of tax of $973	—			—			169			—
(Loss) gain on discontinued operations	(110		)	(48		)	(251		)	204
Net income	$	2,129		$	4,099		$	7,898		$	13,579
Per share amounts-basic:
Average shares outstanding	9,302			9,256			9,269			9,262
Continued operations	$	0.24		$	0.45		$	0.88		$	1.44
Discontinued operation	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	0.03
Net income	$	0.23		$	0.44		$	0.85		$	1.47
Per share amounts-diluted:
Average shares outstanding	9,348			9,315			9,354			9,329
Continued operations	$	0.24		$	0.45		$	0.87		$	1.43
Discontinued operation	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	0.03
Net income	$	0.23		$	0.44		$	0.84		$	1.46

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	7,898		$	13,579
(Loss) gain on discontinued operations, net of tax	(251		)	204
Net income from continuing operations	8,149			13,375
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation and amortization	2,005			1,893
Provision for uncollectible accounts	4,087			1,926
Stock-based compensation	1,039			1,128
Deferred income taxes	1,108			2,674
Change in certain net assets and liabilities, net of the effects of acquisitions:
Accounts receivable	(1,884		)	(5,918		)
Prepaid expenses and other current assets	(129		)	(595		)
Other assets	151			179
Accounts payable and accrued expenses	(279		)	(1,009		)
Net cash from operating activities	14,247			13,653
Cash flows from investing activities:
Capital expenditures	(1,625		)	(1,498		)
Acquisitions, net of cash acquired	(12,011		)	(538		)
Net cash from investing activities	(13,636		)	(2,036		)
Cash flows from financing activities:
Proceeds from exercise of stock options	4			70
Purchase of common stock in connection with share awards	—			(1,852		)
Tax impact of share awards	(61		)	(142		)
Principal payments on notes payable and capital leases	(532		)	(1,200		)
Net cash from financing activities	(589		)	(3,124		)
Cash flows from discontinued operations:
Operating activities	(1,129		)	561
Investing activities	3,083			(31		)
Net cash from discontinued operations	1,954			530
Net change in cash and cash equivalents	1,976			9,023
Cash and cash equivalents at beginning of period	26,120			33,693
Cash and cash equivalents at end of period	$	28,096		$	42,716
Summary of non-cash investing and financing activities:
Acquisitions funded by stock	$	500		$	—

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 nine months ended September 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”) Annual Report on 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 September 30, 2013, the results of operations for the three and nine month periods ended September 30, 2013 and cash flows for the nine month periods ended September 30, 2013 and 2012.  The results of operations for the three and nine month periods ended September 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.  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, Indiana, Illinois, and Pennsylvania.  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.

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 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

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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						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Net service revenues:
Visiting Nurse	$	67,802		$	64,632		$	201,153		$	199,255
Personal Care	21,016			19,248			60,318			57,772
	88,818			83,880			261,471			257,027
Operating income before corporate expenses:
Visiting Nurse	7,316			8,986			22,497			30,367
Personal Care	2,566			2,822			7,739			7,583
	9,882			11,808			30,236			37,950
Corporate expenses	6,168			4,936			16,781			15,941
Operating income	$	3,714		$	6,872		$	13,455		$	22,009
Interest expense, net	(13		)	(17		)	(42		)	(87		)
Income tax expense	(1,462		)	(2,708		)	(5,264		)	(8,547		)
Net income from continuing operations	$	2,239		$	4,147		$	8,149		$	13,375

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 $119 and $188 were capitalized in the three months ended September 30, 2013 and 2012, respectively.  Software development costs of approximately $524 and $465 were capitalized in the nine months ended September 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:

			Other Intangible Assets
			Certificates
			of Need and		Trade			Non-compete
	Goodwill		licenses		Names			Agreements			Total
Balances at 12-31-12	$	132,014	$	9,391	$	10,421		$	155		$	19,967
Changes	9,356		1,100		75			50			1,225
Amortization	—		—		(8		)	(63		)	(71		)
Balances at 9-30-13	$	141,370	$	10,491	$	10,488		$	142		$	21,121

Of total goodwill, $110,396 and $30,974 relates to the VN segment and the PC segment, respectively. Changes to goodwill include VN segment acquisition additions and adjustments related to a previous acquisition.  Changes in other intangible assets relate to preliminary purchase allocations of current period

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acquisitions.  Amortization expense recognized on finite-lived intangible assets for the third quarter of 2013 and 2012 was $26 and $19, respectively, and $71 and $52 for the nine month period ended September 30, 2013 and 2013, respectively.

5.Revolving Credit Facility

At September 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 the London Interbank Offered Rate (LIBOR) plus a margin (ranging from 2.25% to 3.25%, 2.25% at September 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 nine months ended September 30, 2013 and 2012.  The weighted average LIBOR rates were 2.53% and 2.72% for the nine months ended September 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 September 30, 2013, the formula permitted $73.1 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 $66.7 million being available for use at September 30, 2013.  As of September 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 $160.5 million at September 30, 2013.  At such date, the Company’s net worth was approximately $213.7 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
			Wtd Avg. Grant				Wtd Avg. Ex.
	Shares		Price		Shares		Price
December 31, 2012	50		$	31.35	341		$	25.62
Granted	58		20.29		68		20.71
Vested or exercised	(7	)	42.72		(1	)	4.28
Forfeited	—		—		(23	)	30.77
September 30, 2013	101		$	24.16	385		$	24.51

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		Nine Months Ended
	September 30,		September 30,
	2013	2012	2013	2012
Basic weighted average outstanding shares	9,302	9,256	9,269	9,262
Add common equivalent shares representing shares issuable upon exercise of dilutive awards	46	59	85	67
Diluted weighted average number of shares	9,348	9,315	9,354	9,329
Anti-dilutive shares excluded from calculation	378	218	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 September 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 Director and Officer (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 working on a response to the shareholder demand.  As a further result of the demand from the plaintiff shareholder, the Company’s outside directors have filed a motion with the Court of Appeals asking the Court to dismiss the appeal as moot.  That motion is fully briefed and awaits decision by the Court.

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.Acquisitions

On July 19, 2013, the Company acquired the assets of the Medicare-certified home health agencies owned by Indiana based Home Care Network for a purchase price of $12.5 million, consisting of $12.0 million in cash and $0.5 million in Almost Family, Inc. common stock.  The cash portion of the transaction was funded from cash on hand.  A preliminary allocation of purchase price resulted primarily in the allocation of $0.7 million to both accounts receivable and property plant and equipment with the remainder being allocated to goodwill and intangible assets.  Adjustments to the current fair value estimates may occur in future periods as the process conducted for various valuations and assessments is finalized.

11.Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes.  The Company’s effective income tax rates from continuing operations for the three and nine month periods ended September 30, 2013 and 2012 were approximately 39.5% and 39.5%, respectively, and 39.2% and 39.0%, respectively.  The lower year to date income tax rates from continuing operations was primarily due to a benefit resulting from the January 2, 2013 retroactive extension of the Work Opportunity Tax Credit that was recognized in the first quarter of 2013, while 2012 included the favorable impact of certain tax planning strategies.

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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.

12.Subsequent Events

In October of 2013, the Company acquired a controlling interest in Imperium Health Management, LLC, (Imperium) a Louisville, KY based, development-stage enterprise that provides strategic health management services to Accountable Care Organizations (ACO’s).  The Company acquired a 61.5% interest in Imperium for a total of $5.8 million of which $3 million went into Imperium for its general corporate purposes including pursuit of its business plan.  The transaction was funded from cash on hand.  The purchase price is expected to be primarily allocated to goodwill.

On November 4, 2013, the Company signed a definitive agreement to acquire the stock of Omni Home Health Holdings, Inc. (operating as SunCrest Healthcare) and subsidiaries, for approximately $75.5 million, subject to a working capital adjustment.  The transaction will be primarily funded from the Company’s existing cash and borrowings from its senior secured revolving credit facility.  The transaction is expected to close before the end of the year pending regulatory approvals and the satisfaction of customary closing conditions.  The Company expects the acquisition will add approximately $150 million in revenue across nine states, of which approximately $134 million will be classified in the Company’s VN segment, with the remainder classified in the PC segment.  The acquisition includes new service areas in Tennessee, Georgia, Mississippi and Alabama, while expanding the Company’s existing geographic footprint in Florida, Pennsylvania, Indiana, Illinois and Kentucky.

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

The Company

Almost Family, Inc. 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.

12

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, Indiana and Pennsylvania (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.

Discontinued Operations

When appropriate, we reclassify 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, we completed the sale of our only two Alabama locations, which operated in our VN segment.  The operations and gain on sale related thereto were reclassified from continuing operations to discontinued operations for all periods presented.  Unless otherwise noted, Management’s Discussion and Analysis of Financial Condition and Results of Operations excludes amounts attributable to discontinued operations.

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” including but not limited to 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 September 30, 2013 by $1.2 million and reduced our diluted EPS by $0.08. Similar amounts for the year to date period ended September 30, 2013 were $3.0 million and $0.20, respectively.

·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, none of our providers were on RAP Suppression.

·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 November 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%.

13

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.

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 ongoing 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 September 30,
	2013					2012					Change
(In thousands)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues:
Visiting Nurse	$	67,802		76.3	%	$	64,632		77.1	%	$	3,170		4.9	%
Personal Care	21,016			23.7	%	19,248			22.9	%	1,768			9.2	%
	88,818			100.0	%	83,880			100.0	%	4,938			5.9	%
Operating income before corporate expenses:
Visiting Nurse	7,316			10.8	%	8,986			13.9	%	(1,670		)	-18.6	%
Personal Care	2,566			12.2	%	2,822			14.7	%	(256		)	-9.1	%
	9,882			11.1	%	11,808			14.1	%	(1,926		)	-16.3	%
Corporate expenses	6,168			6.9	%	4,936			5.9	%	1,232			25.0	%
Operating income	3,714			4.2	%	6,872			8.2	%	(3,158		)	-46.0	%
Interest expense, net	(13		)	0.0	%	(17		)	0.0	%	4			-23.5	%
Income tax expense	(1,462		)	-1.6	%	(2,708		)	-3.2	%	1,246			-46.0	%
Net income from continuing operations	$	2,239		2.5	%	$	4,147		4.9	%	$	(1,908	)	-46.0	%
EBITDA from continuing operations (1)	$	4,806		5.4	%	$	7,900		9.4	%	$	(3,094	)	-39.2	%

(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, along with an acquisition during the third quarter in the VN segment, 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 increased to 6.9% from 5.9% in the prior year primarily due to $0.8 million in deal and transition costs incurred in 2013, up from $0.2 million in the prior year period, with the remainder primarily due to the reversal of incentives in the third quarter of 2012 which were accrued in the first half of 2012.

The effective tax rate was approximately 39.5% in the third quarter of 2013, which was unchanged from the third quarter of 2012.

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Visiting Nurse Segment

	Three Months Ended September 30,
	2013					2012					Change
(In thousands, except for statistics)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues	$	67,802		100.0	%	$	64,632		100.0	%	$	3,170		4.9	%
Cost of service revenues	33,119			48.8	%	30,791			47.6	%	2,328			7.6	%
Gross margin	34,683			51.2	%	33,841			52.4	%	842			2.5	%
General and administrative expenses:
Salaries and benefits	20,462			30.2	%	18,402			28.5	%	2,060			11.2	%
Other	6,905			10.2	%	6,453			10.0	%	452			7.0	%
Total general and administrative expenses	27,367			40.4	%	24,855			38.5	%	2,512			10.1	%
Operating income before corporate expenses	$	7,316		10.8	%	$	8,986		13.9	%	$	(1,670	)	-18.6	%
Average number of locations	110					104					6			5.8	%
All payors:
Patient months	54,345					52,266					2,079			4.0	%
Admissions	15,323					15,055					268			1.8	%
Billable visits	484,197					453,422					30,775			6.8	%
Medicare:
Admissions (1)	14,031			92	%	13,381			89	%	650			4.9	%
Revenue (in thousands)	$	62,740		93	%	$	59,838		93	%	$	2,902		4.8	%
Revenue per admission	$	4,472				$	4,472				$	(0	)	0.0	%
Billable visits (1)	414,591			86	%	377,835			83	%	36,756			9.7	%
Recertifications	8,412					7,837					575			7.3	%
Payor mix % of Admissions
Traditional Medicare Episodic	92.6		%			94.0		%			-1.4		%
Replacement Plans Paid Episodically	2.2		%			2.9		%			-0.7		%
Replacement Plans Paid Per Visit	5.2		%			3.1		%			2.1		%
Non-Medicare:
Admissions (1)	1,292			8	%	1,673			11	%	(381		)	-22.8	%
Revenue (in thousands)	$	5,062		7	%	$	4,794		7	%	$	268		5.6	%
Revenue per admission	$	3,918				$	2,866				$	1,052		36.7	%
Billable visits (1)	69,606			14	%	75,586			17	%	(5,980		)	-7.9	%
Recertifications	1,311					1,603					(292		)	-18.2	%
Payor mix % of Admissions
Medicaid & other governmental	38.2		%			40.4		%			-2.2		%
Private payors	61.8		%			59.6		%			2.2		%
	$	—				$	—

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

The Indiana Home Care acquisition, which closed on July 19, 2013, increased net service revenues by $2.2 million and operating income before corporate expenses by $0.6 million.

Visiting Nurse segment net service revenues increased by $3.2 million, or 4.9%, from the prior year due to acquired and organic Medicare volume growth which combined to increase Medicare admissions and recertifications by 4.9% and 7.3%, respectively (both increased 2.2% organically). These increases were partially offset by a 2.0% Medicare sequestration rate cut ($1.2 million) and a $0.6 million reduction due to the shift of certain Medicare Advantage plans from paying episodically to paying on a per visit basis (the MA Shift).

Cost of service revenues grew 7.6% primarily due to an overall 6.8% increase in visits.  General and administrative expenses — salaries and benefits increased approximately

16

$2.1 million primarily due to acquired and organic volume increases with the remainder due to a planned temporary increase in branch-level administrative personnel and an increase in the size of our sales force.

General and administrative expenses — other increased primarily due to an increase in the provision for uncollectible accounts related to the MA Shift.

As a result, VN segment operating income before corporate expenses declined $1.7 million to $7.3 million from $9.0 million in 2012, while operating income before corporate expenses as a percent of revenues decreased to 10.8% in 2013 from 13.9% in 2012.

Personal Care Segment

	Three Months Ended September 30,
	2013				2012				Change
(In thousands, except for statistics)	Amount		% Rev		Amount		% Rev		Amount			%
Net service revenues	$	21,016	100.0	%	$	19,248	100.0	%	$	1,768		9.2	%
Cost of service revenues	14,408		68.6	%	13,005		67.6	%	1,403			10.8	%
Gross margin	6,608		31.4	%	6,243		32.4	%	365			5.8	%
General and administrative expenses:
Salaries and benefits	2,642		12.6	%	2,468		12.8	%	174			7.1	%
Other	1,400		6.7	%	953		5.0	%	447			46.9	%
Total general and administrative expenses	4,042		19.2	%	3,421		17.8	%	621			18.2	%
Operating income before corporate expenses	$	2,566	12.2	%	$	2,822	14.7	%	$	(256	)	-9.1	%
Average number of locations	60				60				—			0.0	%
Admissions	1,018				1,052				(34		)	-3.2	%
Patient months of care	17,590				17,689				(99		)	-0.6	%
Billable hours	1,176,802				1,072,936				103,866			9.7	%
Revenue per billable hour	$	17.86			$	17.94			$	(0.08	)	-0.5	%

Net service revenues increased $1.8 million, or 9.2% to $21.0 million in 2013, from $19.2 million in 2012 due to a 9.7% volume increase in billable hours.  Cost of service revenues as a percentage of net service revenues increased to 68.6% in the third quarter of 2013 from 67.6% in 2012 primarily due to changes in mix related to faster growth in lower margin business.

Total general and administrative expenses as a percent of net service revenue increased to 19.2% from 17.8% of net service revenues in 2013 and 2012, primarily due to $0.4 million higher bad debt provision in the current period as the prior year period included a benefit while the current period expense includes a more normal level of expense.

As a result, PC segment operating income before corporate expenses decreased slightly to $2.6 million from $2.8 million in 2012, while operating income before corporate expenses as a percent of revenues decreased to 12.2% in 2013 from 14.7% in 2012.

17

RESULTS OF OPERATIONS

NINE MONTHS

Consolidated

	Nine Months Ended September 30,
	2013					2012					Change
(In thousands)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues:
Visiting Nurse	$	201,153		76.9	%	$	199,255		77.5	%	$	1,898		1.0	%
Personal Care	60,318			23.1	%	57,772			22.5	%	2,546			4.4	%
	261,471			100.0	%	257,027			100.0	%	4,444			1.7	%
Operating income before corporate expenses:
Visiting Nurse	22,497			11.2	%	30,367			15.2	%	(7,870		)	-25.9	%
Personal Care	7,739			12.8	%	7,583			13.1	%	156			2.1	%
	30,236			11.6	%	37,950			14.8	%	(7,714		)	-20.3	%
Corporate expenses	16,781			6.4	%	15,941			6.2	%	840			5.3	%
Operating income	13,455			5.1	%	22,009			8.6	%	(8,554		)	-38.9	%
Interest expense, net	(42		)	0.0	%	(87		)	0.0	%	45			-51.7	%
Income tax expense	(5,264		)	-2.0	%	(8,547		)	-3.3	%	3,283			-38.4	%
Net income from continuing operations	$	8,149		3.1	%	$	13,375		5.2	%	$	(5,226	)	-39.1	%
EBITDA from continuing operations (1)	$	16,499		6.3	%	$	25,030		9.7	%	$	(8,531	)	-34.1	%

(1)  See Page 22 for discussion of EBITDA.

The year over year increase in revenue was primarily driven by volume growth in our VN and PC segments, which was partially offset by Medicare rate cuts and the MA Shift in our VN segment.  Refer to segment discussions for further detail.

Corporate expenses as a percent of revenue increased slightly to 6.4% from 6.2% in the prior year primarily due to higher levels of deal related costs.

The effective tax rate was approximately 39.2% in the first nine months of 2013, which increased slightly from the 39.0% for the same period in 2012.

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Visiting Nurse Segment

	Nine Months Ended September 30,
	2013					2012					Change
(In thousands, except for statistics)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues	$	201,153		100.0	%	$	199,255		100.0	%	$	1,898		1.0	%
Cost of service revenues	98,483			49.0	%	93,511			46.9	%	4,972			5.3	%
Gross margin	102,670			51.0	%	105,744			53.1	%	(3,074		)	-2.9	%
General and administrative expenses:
Salaries and benefits	59,867			29.8	%	56,582			28.4	%	3,285			5.8	%
Other	20,306			10.1	%	18,795			9.4	%	1,511			8.0	%
Total general and administrative expenses	80,173			39.9	%	75,377			37.8	%	4,796			6.4	%
Operating income before corporate expenses	$	22,497		11.2	%	$	30,367		15.2	%	$	(7,870	)	-25.9	%
Average number of locations	106					105					1			1.0	%
All payors:
Patient months	163,349					159,104					4,245			2.7	%
Admissions	47,240					46,676					564			1.2	%
Billable visits	1,438,304					1,380,321					57,983			4.2	%
Medicare:
Admissions (1)	43,289			92	%	41,976			90	%	1,313			3.1	%
Revenue (in thousands)	$	186,473		93	%	$	184,519		93	%	$	1,954		1.1	%
Revenue per admission	$	4,308				$	4,396				$	(88	)	-2.0	%
Billable visits (1)	1,229,145			85	%	1,152,365			83	%	76,780			6.7	%
Recertifications	24,439					23,275					1,164			5.0	%
Payor mix % of Admissions
Traditional Medicare Episodic	91.9		%			94.0		%			-2.1		%
Replacement Plans Paid Episodically	2.5		%			3.4		%			-0.9		%
Replacement Plans Paid Per Visit	5.6		%			2.6		%			3.0		%
Non-Medicare:
Admissions (1)	3,951			8	%	4,700			10	%	(749		)	-15.9	%
Revenue (in thousands)	$	14,680		7	%	$	14,736		7	%	$	(56	)	-0.4	%
Revenue per admission	$	3,716				$	3,135				$	580		18.5	%
Billable visits (1)	209,159			15	%	227,956			17	%	(18,797		)	-8.2	%
Recertifications	4,031					4,693					(662		)	-14.1	%
Payor mix % of Admissions
Medicaid & other governmental	33.0		%			38.5		%			-5.5		%
Private payors	67.0		%			61.5		%			5.5		%
	$	—				$	—

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

The Indiana Home Care acquisition, which closed on July 19, 2013, increased net service revenues by $2.2 million and operating income before corporate expenses by $0.6 million.

Visiting Nurse segment net service revenues increased by $1.9 million due to organic and acquired volume growth which combined to increase Medicare admissions and recertifications by 3.1% and 5.0%, respectively.  These increases were partially offset by a 2.0% Medicare sequestration rate cut ($3.0 million) and a $2.4 million reduction due to the MA Shift.

Cost of service revenues grew 5.3% primarily due to a 4.2% increase in visits.  General and administrative expenses — salaries and benefits increased approximately $3.3 million primarily due to the aforementioned organic and acquired volume increases with the remainder due to an increase in the size of our sales force and a planned temporary increase in branch-level administrative personnel.

General and administrative expenses — other increased primarily due to an increase in the provision for uncollectible accounts relative to having an unusually low provision from the same period of the prior year with the remainder due to additional provision related to the MA shift.

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As a result, VN segment operating income before corporate expenses declined $7.9 million to $22.5 million from $30.4 million in 2012, while operating income before corporate expenses as a percent of revenues decreased to 11.2% in 2013 from 15.2% in 2012.

Personal Care Segment

	Nine Months Ended September 30,
	2013				2012				Change
(In thousands, except for statistics)	Amount		% Rev		Amount		% Rev		Amount			%
Net service revenues	$	60,318	100.0	%	$	57,772	100.0	%	$	2,546		4.4	%
Cost of service revenues	41,059		68.1	%	39,431		68.3	%	1,628			4.1	%
Gross margin	19,259		31.9	%	18,341		31.7	%	918			5.0	%
General and administrative expenses:
Salaries and benefits	7,555		12.5	%	7,443		12.9	%	112			1.5	%
Other	3,965		6.6	%	3,315		5.7	%	650			19.6	%
Total general and administrative expenses	11,520		19.1	%	10,758		18.6	%	762			7.1	%
Operating income before corporate expenses	$	7,739	12.8	%	$	7,583	13.1	%	$	156		2.1	%
Average number of locations	60				60				—			0.0	%
Admissions	3,261				3,247				14			0.4	%
Patient months of care	52,494				52,024				470			0.9	%
Billable hours	3,393,413				3,195,530				197,883			6.2	%
Revenue per billable hour	$	17.78			$	18.08			$	(0.30	)	-1.7	%

Net service revenues increased $2.5 million, or 4.4%, to $60.3 million in 2013 from $57.8 million in 2012, primarily due to a 6.2% increase in billable hours which was partially offset by mix changes.  Cost of service revenues as a percentage of net service revenues decreased slightly to 68.1% in the third quarter of 2013 from 68.3% 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 increased to 19.1% in the current period from 18.6% in the 2012 period primarily due to $0.5 million higher bad debt provision in the current period as the prior year period included a benefit, while the current period expense includes a more normal level of expense.

As a result, PC segment operating income before corporate expenses increased to $7.7 million from $7.6 million in 2012, while operating income before corporate expenses increased $0.2 million, or 2.1%.

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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 September 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 nine months ended September 30, 2013 and 2012.  The weighted average LIBOR rates were 2.53% and 2.72% for the nine months ended September 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 September 30, 2013, the formula permitted $73.1 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 $66.7 million was available for borrowing at September 30, 2013. As of September 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 $160.5 million at September 30, 2013.  At such date, our net worth was approximately $213.7 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 nine months ended September 30, 2013 and 2012 were:

Net Change in Cash and Cash Equivalents (in thousands)	2013			2012
Provided by (used in):
Operating activities	$	14,247		$	13,653
Investing activities	(13,636		)	(2,036		)
Financing activities	(589		)	(3,124		)
Discontinued operations activities	1,954			530
Net change in cash and cash equivalents	$	1,976		$	9,023

2013

Net cash provided by operating activities resulted primarily from current period net income of $7.9 million plus certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses.  The increase from 2012 is primarily due to a decrease in accounts receivable days revenues outstanding, which was 50 at September 30, 2013 and 53 at December 31, 2012.

The cash used in investing activities was primarily due to the Indiana Home Care acquisition completed in the third quarter of 2013, with the remainder due to capital expenditures.

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Net cash used in financing activities for the nine months ended September 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 in the second quarter of 2013, 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 $13.6 million plus certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses.  Accounts receivable days revenues outstanding was 52 at September 30, 2012 and 46 at December 31, 2011 due to processing delays as well as prepayment Additional Data Requests (ADR) 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 nine months ended September 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				Nine Months Ended
	September 30,				September 30,
(in thousands)	2013		2012		2013		2012
Net income from continuing operations	$	2,239	$	4,147	$	8,149	$	13,375
Add back:
Interest expense	13		17		42		87
Income tax expense	1,462		2,708		5,264		8,547
Depreciation and amortization	707		646		2,005		1,893
Amortization of stock-based compensation	385		382		1,039		1,128
Earnings before interest, income taxes, depreciation and amortization (EBITDA) from continuing operations	$	4,806	$	7,900	$	16,499	$	25,030

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, 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 September 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 September 30, 2013.

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 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 working on a response to the shareholder demand.  As a further result of the demand from the plaintiff shareholder, the Company’s outside directors have filed a motion with the Court of Appeals asking the Court to dismiss the appeal as moot.  That motion is fully briefed and awaits decision by the Court.

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

As partial consideration for the acquisition of the assets of the Indiana Home Care Network operated by Home Health Holdings, LLP completed on July 18, 2013, the Registrant issued $500,000 in value of Registrant’s common stock, i.e. 26,035 shares.  The per share value of the common stock issued was based on the average closing price of the Registrant’s common stock as reported on Nasdaq for the 10 trading days immediately before the public announcement of the acquisition transaction.  The common stock is “restricted stock” as defined in rule 144 under the Securities Act of 1933, as amended, (the “Securities Act”) and subject to a two-year contractual holding period.  The Registrant is relying on an exemption from registration provided under Section 4(2) of the Securities Act and Rule 506 of Regulation D under the Securities Act, which exemption the Registrant believes is available due in part to the facts that the placement involved no general solicitation, transfer of the shares is restricted and the status of Home Health Holdings, LLP as an “accredited investor” as defined in Regulation D under the Securities Act.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit 2.1

Stock Purchase Agreement dated as of November 4, 2013, by and among OMNI Home Health Holdings, Inc., OMNI Home Health Acquisition, LLC, National Health Industries, Inc., and Almost Family, Inc.  (exhibits & schedules omitted but will be furnished supplementally to the Securities & Exchange Commission upon request)

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 September 30, 2013, filed on November 7, 2013, formatted in XBRL:  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to 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  November 7, 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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