Almost Family (AFAM) 10-Q 2014 Q1 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 March 31, 2014

OR

oTRANSITION 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 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 May 2, 2014  9,448,431

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, 2013 Consolidated Balance Sheet)	3
	Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013	3
	Consolidated Statements of Income for the Three Ended March 31, 2014 and 2013	4
	Consolidated Statements of Cash Flows for the Three months Ended March 31, 2014 and 2013	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	21
PART II. OTHER INFORMATION		21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	March 31, 2014
	(UNAUDITED)			December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,359		$	12,246
Accounts receivable - net	62,367			61,651
Prepaid expenses and other current assets	8,708			10,278
Deferred tax assets	13,532			11,532
TOTAL CURRENT ASSETS	92,966			95,707
PROPERTY AND EQUIPMENT - NET	7,450			8,142
GOODWILL	193,208			192,575
OTHER INTANGIBLE ASSETS	55,052			55,075
OTHER ASSETS	718			774
TOTAL ASSETS	$	349,394		$	352,273
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	10,688		$	11,526
Accrued other liabilities	37,654			38,916
Current portion - notes payable and capital leases	167			702
TOTAL CURRENT LIABILITIES	48,509			51,144
LONG-TERM LIABILITIES:
Revolving credit facility	53,000			56,000
Deferred tax liabilities	27,081			25,580
Other liabilities	1,680			1,856
TOTAL LONG-TERM LIABILITIES	81,761			83,436
TOTAL LIABILITIES	130,270			134,580
NONCONTROLLING INTEREST - REDEEMABLE	3,639			3,639
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; 9,542 and 9,500 issued and outstanding	954			950
Treasury stock, at cost, 94 and 92 shares of common stock	(2,393		)	(2,340		)
Additional paid-in capital	104,161			103,858
Noncontrolling interest - nonredeemable	(299		)	(203		)
Retained earnings	113,062			111,789
TOTAL STOCKHOLDERS’ EQUITY	215,485			214,054
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	349,394		$	352,273

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 March 31,
	2014			2013
Net service revenues	$	120,032		$	85,453
Cost of service revenues (excluding depreciation & amortization)	65,532			45,445
Gross margin	54,500			40,008
General and administrative expenses:
Salaries and benefits	33,658			24,351
Other	15,409			10,368
Deal and transition costs	3,115			11
Total general and administrative expenses	52,182			34,730
Operating income	2,318			5,278
Interest expense, net	(347		)	(18		)
Income before income taxes	1,971			5,260
Income tax expense	(817		)	(1,950		)
Net income from continuing operations	1,154			3,310
Discontinued operations:
Loss from operations, net of tax of ($48) and ($51)	(70		)	(63		)
Loss on discontinued operations	(70		)	(63		)
Net income	1,084			3,247
Net loss - noncontrolling interests	189			—
Net income attributable to Almost Family, Inc.	$	1,273		$	3,247
Per share amounts-basic:
Average shares outstanding	9,293			9,254
Income from continuing operations attributable to Almost Family, Inc.	$	0.14		$	0.36
Discontinued operations	$	(0.01	)	$	(0.01	)
Net income attributable to Almost Family, Inc.	$	0.13		$	0.35
Per share amounts-diluted:
Average shares outstanding	9,426			9,338
Income from continuing operations attributable to Almost Family, Inc.	$	0.14		$	0.36
Discontinued operations	$	(0.01	)	$	(0.01	)
Net income attributable to Almost Family, Inc.	$	0.13		$	0.35

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Three Months Ended March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	1,084		$	3,247
Loss on discontinued operations, net of tax	(70		)	(63		)
Net income from continuing operations	1,154			3,310
Adjustments to reconcile income to net cash provided by operating activities:
Depreciation and amortization	1,102			627
Provision for uncollectible accounts	2,144			1,036
Stock-based compensation	414			287
Deferred income taxes	(362		)	90
	4,452			5,350
Change in certain net assets and liabilities, net of the effects of acquisitions:
Accounts receivable	(2,907		)	(366		)
Prepaid expenses and other current assets	1,554			1,624
Other assets	55			52
Accounts payable and accrued expenses	(2,770		)	2,714
Net cash provided by operating activities	384			9,374
Cash flows from investing activities:
Capital expenditures	(350		)	(688		)
Acquisitions, net of cash acquired	—			—
Net cash used in investing activities	(350		)	(688		)
Cash flows from financing activities:
Credit facility repayments	(3,000		)	—
Proceeds from stock options exercises	39			—
Purchase of common stock in connection with share awards	(52		)	—
Tax impact of share awards	(54		)	—
Payment of special dividend	(35		)	—
Principal payments on notes payable and capital leases	(558		)	—
Net cash used in financing activities	(3,660		)	—
Cash flows from discontinued operations
Operating activities	(261		)	(168		)
Investing activities	—			(2		)
Net cash used in discontinued operations	(261		)	(170		)
Net change in cash and cash equivalents	(3,887		)	8,516
Cash and cash equivalents at beginning of period	12,246			26,120
Cash and cash equivalents at end of period	$	8,359		$	34,636

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 months ended March 31, 2014 and 2013 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, 2013 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 March 31, 2014, the results of operations for the three month periods ended March 31, 2014 and 2013 and cash flows for the three month periods ended March 31, 2014 and 2013.  The results of operations for the three month periods ended March 31, 2014 are not necessarily indicative of the operating results for the year.

On December 6, 2013, the Company completed the acquisition of Omni Home Health Holdings, Inc. (“SunCrest”).  Branded principally under the SunCrest name, its subsidiaries own and operate 66 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia, Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama.  On October 4, 2013, the Company acquired a controlling interest in Imperium Health Management, LLC (“Imperium”), a development-stage enterprise that provides strategic health management services to Accountable Care Organizations (“ACO’s”).  On July 17, 2013, the Company acquired the assets of the Medicare-certified home health agencies owned by Indiana Home Care Network (“IHCN”).  The acquisitions are more fully described in Note 12, “Acquisitions”. The results of operations for SunCrest and IHCN are principally reported within the Company’s Visiting Nurse (VN) reportable segment, while Imperium results are currently included in general and administrative expenses.  Results of operations for each acquisition are included from the acquisition date forward.

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.  In the first quarter of 2014, the Company’s VN segment exited a market in the Northeast through the closure of a branch location. In conjunction with the SunCrest acquisition, the Company acquired some operations which had been discontinued prior to acquisition.  During the quarter ended June 30, 2013, the Company completed the sale of two Alabama locations, which operated in the VN segment.  The operations and any related gain on sale for these operations were reclassified from continuing operations into discontinued operations for all periods

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presented.  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, Tennessee, Kentucky, Connecticut, New Jersey, Massachusetts, Indiana, Pennsylvania, Georgia, Missouri, Illinois, Mississippi and Alabama.  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 90% 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 revenues are generated on an hourly basis.  Approximately 71% 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 March 31,
	2014			2013
Net service revenues:
Visiting Nurse	$	95,756		$	66,551
Personal Care	24,276			18,902
	120,032			85,453
Operating income before corporate expenses:
Visiting Nurse	9,507			8,337
Personal Care	2,524			1,998
	12,031			10,335
Deal and transition costs	3,115			11
Corporate expenses	6,598			5,046
Operating income	2,318			5,278
Interest expense, net	(347		)	(18		)
Income tax expense	(817		)	(1,950		)
Net income from continuing operations	$	1,154		$	3,310

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 $84 and $282 were capitalized in the three months ended March 31, 2014 and 2013, 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

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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, 2013 and determined that no impairment existed.

The following table summarizes the activity related to goodwill and other intangible assets for 2014:

			Other Intangible Assets
	Goodwill		Certificates of Need and licenses		Trade Names		Non-compete Agreements			Total
Balances at 12-31-13	$	192,575	$	38,321	$	16,691	$	63		$	55,075
Changes	633		—		—		—			—
Amortization	—		—		—		(23		)	(23		)
Balances at 3-31-14	$	193,208	$	38,321	$	16,691	$	40		$	55,052

At March 31, 2014, the VN segment includes $155,637, $37,541, $13,311 and $8, while the PC segment includes $37,571, $780, $3,380 and $32 of total goodwill, certificates of need and licenses, trade names and non-compete agreements, respectively.  At March 31, 2013, the VN segment includes $102,497, $8,781, $7,701 and $31, while the PC segment includes $30,974, $610, $2,720 and $100 of total goodwill, certificates of need and licenses, trade names and non-compete agreements, respectively.  Changes to goodwill include VN segment acquisition adjustments related primarily to the SunCrest acquisition.  Amortization expense recognized on finite-lived intangible assets for the first quarter of 2014 and 2013 was $23.

5.Revolving Credit Facility

At March 31, 2014, 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%, 2.50% at March 31, 2014).  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 months ended March 31, 2014 and 2013.  The weighted average LIBOR rates were 2.45% and 2.54% for the three months ended March 31, 2014 and 2013, 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 proforma acquisitions pursuant to a calculation rider, up to 50% of “Adjusted EBITDA,” as defined.  Borrowings under the Facility may be used for general corporate purposes, including acquisitions.  As of March 31, 2014, the formula permitted $27.0 million to be used.  The Company had irrevocable letters of credit totaling $7.1 million outstanding in connection with the Company’s self-insurance programs, which resulted in a total of $19.9 million being available for use at March 31, 2014.  As of March 31, 2014, 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 $161.3 million at March 31, 2014.  At such date, the Company’s net worth was approximately $215.5 million.

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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.

7.Stock-Based Compensation

The Company issues both restricted share and option awards to employees and non-employee directors. Restricted share awards to employees 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. Exercise Price
December 31, 2013	100		$	24.12	383		$	24.52
Granted	40		24.28		70		24.28
Vested or exercised	(17	)	36.69		(2	)	19.40
Forfeited	—		—		(5	)	24.04
March 31, 2014	123		$	22.37	446		$	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 March 31,
	2014	2013
Basic weighted average outstanding shares	9,293	9,254
Add common equivalent shares representing shares issuable upon exercise of dilutive awards	133	84
Diluted weighted average number of shares	9,426	9,338
Anti-dilutive shares excluded from calculation	96	254

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 $250 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 March 31, 2014 that may result in the assertion of additional claims.  The Company currently carries professional and

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general liability insurance coverage (on a claims made basis) for this exposure with no deductible.  The Company also carries D&O coverage (also on a claims made basis) for potential claims against the Company’s directors and officers, including securities actions, with deductibles ranging from $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 insurance-related liabilities and recoveries, if any, on a monthly basis and records amounts due under insurance policies in other current assets, while recording the estimated carrier liability in other current liabilities.  As facts change, it may become necessary to make adjustments that could be material to the Company’s results of operations and financial condition.

Legal Proceedings

The Company is currently, and from time to time, subject to claims and suits arising in the ordinary course of its business, including claims for damages for personal injuries.  In the opinion of management, 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 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 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 filed a motion with the Court of Appeals asking the Court to dismiss the appeal as moot.  On March 11, 2014, the Court of Appeals denied the outside directors’ motion to dismiss the appeal as moot.  Moreover, the Court of Appeals on its own motion abated the appeal.  The abatement removed the appeal from the Court’s active appellate docket.  The Court stated that upon the Board’s response to the shareholder demand, the parties should file a motion to redocket the case.

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 matters.

10.Acquisitions

The Company completed each of the following acquisitions in pursuit of its strategy for operational expansion in the eastern United States through an expanded service base and enhanced position in certain geographic areas.  The purchase price of each acquisition was determined based on the Company’s analysis of comparable acquisitions, expected cash flows and arm’s length negotiation with the sellers.  Each acquisition was included in the Company’s consolidated financial statements from the respective acquisition date.

Goodwill recognized from the acquisitions primarily relates to expected contributions of each entity to the overall corporate strategy in addition to synergies and acquired workforce, which are not separable from

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goodwill.  Goodwill and other intangible assets generated in asset purchase transactions are expected to be amortizable for tax purposes on a straight-line basis over 15 years, unless otherwise noted.  Goodwill and other intangible assets generated in stock purchase transactions are not amortizable, unless otherwise noted.  The purchase price allocations for 2013 acquisitions remain preliminary as the Company is continuing to obtain information regarding acquired assets and liabilities.

On December 6, 2013, the Company acquired the stock of SunCrest.  SunCrest and its subsidiaries own and operate 66 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia, Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama.  The total SunCrest purchase price for the stock was $76.6 million, subject to a working capital adjustment which is expected to be finalized in 2014.  The purchase price consisted of cash consideration of $75.1 million, of which $0.5 million remained unpaid at March 31, 2014 and a $1.5 million note payable, net of acquired cash balances of $2.2 million.  The following table summarizes the approximate estimated fair values of the assets acquired and liabilities assumed in the SunCrest acquisition.

Accounts Receivable	$	16,237
Property, plant & equipment	2,266
Other assets	2,933
Goodwill	44,728
Other intangibles	33,390
Assets acquired	99,554
Liabilities assumed	(22,997		)
Net assets acquired	$	76,557

Amortizable goodwill and intangibles acquired in the SunCrest acquisition are expected to provide an annual tax deduction approximating $2.8 million through 2020.

The unaudited proforma results of operations for the Company as if the SunCrest acquisition had been made at the beginning of 2013 are as follows:

	Three months ended March 31,
	2013
Revenues	$	125,921
Net income from continuing operations	$	4,258
Net income	$	4,195
Earnings per share from continuing operations
Basic	$	0.46
Diluted	$	0.45
Earnings per share
Basic	$	0.46
Diluted	$	0.45

The proforma information presented above is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred if the transaction described had been completed as of the beginning of 2013.  In addition, future results may vary from the results reflected in such information.

On October 4, 2013, the Company acquired 61.5% of Imperium for $5.8 million, of which $3.0 million was working capital for Imperium.  Imperium is a development-stage enterprise that provides strategic health management services to ACOs.  Substantially all of the purchase price was allocated to goodwill.  The Company is party to a put and call arrangement with respect to the remaining 38.5% non-controlling interest in Imperium that becomes exercisable five years after the initial investment date.  The redemption value for both the put and the call arrangement is equal to fair value.  Due to the existing put and call arrangements, the non-controlling interest is considered to be redeemable and is recorded on the balance sheet as a redeemable non-controlling interest outside of permanent equity.  The redeemable non-controlling interest is recognized at the higher of 1) the accumulated earnings associated with the non-controlling interest or 2) the redemption value as of the balance sheet date.

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On July 17, 2013, the Company acquired the assets of the Medicare-certified home agencies owned by IHCN.  IHCN operated six home health agencies primarily in northern Indiana for a total purchase price of $12.5 million consisting of cash and $0.5 million of Almost Family, Inc. common stock.  A preliminary allocation of purchase price resulted in the allocation of $9.9 million to goodwill, $1.8 million to identified intangibles with the remainder primarily due to property plant and equipment and accounts receivable.

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 month periods ended March 31, 2014 and 2013 were approximately 41.5% and 37.1%, respectively.  The higher year to date 2014 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 (WOTC) that was recognized in the first quarter of 2013.  Further, the WOTC has not yet been extended to 2014.

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

Management has evaluated all events and transactions that occurred after March 31, 2014.  During this period, the Company had no material subsequent events requiring recognition in the consolidated financial statements or any non-recognized subsequent events requiring disclosure.

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

The Company

Almost Family, Inc. 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;

·changes in laws and regulations with respect to Accountable Care Organizations;

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

·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, 2013 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, 2013 for a detailed discussion of our critical accounting policies.  There have been no material changes to our critical accounting policies and estimates in 2014.

Operating Segments

We have two reportable segments, Visiting Nurse (VN) and Personal Care (PC), which operate locations in Florida, Ohio, Tennessee, Kentucky, Connecticut, New Jersey, Massachusetts, Indiana, Pennsylvania, Georgia, Missouri, Illinois, Mississippi and Alabama (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 90% 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 71% 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.

During 2013, we completed three acquisitions.  On December 6, 2013, the Company completed the acquisition of Omni Home Health Holdings, Inc. (“SunCrest”).  SunCrest subsidiaries own and operate 66 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia, Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama.  On October 4, 2013, we acquired a controlling interest in Imperium Health Management, LLC (“Imperium”), a development-stage enterprise that provides strategic health management services to Accountable Care Organizations (“ACO’s”).  On July 17, 2013, the Company acquired the assets of the Medicare-certified home health agencies owned by Indiana Home Care Network (“IHCN”).  The results of operations for SunCrest and IHCN are principally reported within the Company’s Visiting Nurse reportable segment, while Imperium results are included in corporate expenses.  Results of operations are included from the acquisition date forward.

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.  In the first quarter of 2014, our VN segment exited a market in the Northeast through the closure of a branch location. In conjunction with our SunCrest acquisition, we acquired some operations which had been discontinued prior to our acquisition.  During the quarter ended June 30, 2013, we completed the sale of two Alabama locations, which operated in our VN segment.  The operations and gain on sale, if any, related to these locations 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.

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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, 2013.

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 currently 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 (which generated approximately 38% of that segment’s revenues in the first quarter of 2014) normally experience higher admissions during the first quarter and lower admissions during the third quarter than in the other quarters due to seasonal population fluctuations.

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RESULTS OF OPERATIONS

THREE MONTHS

Consolidated

(In thousands)

	Three Months Ended March 31,
	2014					2013					Change
	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues:
Visiting Nurse	$	95,756		79.8	%	$	66,551		77.9	%	$	29,205		43.9	%
Personal Care	24,276			20.2	%	18,902			22.1	%	5,374			28.4	%
	120,032			100.0	%	85,453			100.0	%	34,579			40.5	%
Operating income before corporate expenses:
Visiting Nurse	9,507			9.9	%	8,337			12.5	%	1,170			14.0	%
Personal Care	2,524			10.4	%	1,998			10.6	%	526			26.3	%
	12,031			10.0	%	10,335			12.1	%	1,696			16.4	%
Deal and transition costs	3,115			2.6	%	11			0.0	%	3,104			NM
Corporate expenses	6,598			5.5	%	5,046			5.9	%	1,552			30.8	%
Operating income	2,318			1.9	%	5,278			6.2	%	(2,960		)	-56.1	%
Interest expense, net	(347		)	-0.3	%	(18		)	0.0	%	(329		)	NM
Income tax expense	(817		)	-0.7	%	(1,950		)	-2.3	%	1,133			-58.1	%
Net income from continuing operations	$	1,154		1.0	%	$	3,310		3.9	%	$	(2,156	)	-65.1	%
EBITDA from continuing operations	$	3,834		3.2	%	$	6,192		7.2	%	$	(2,358	)	-38.1	%

(1)See Page 20 for discussion of EBITDA.

The year over year increase in revenue was primarily driven by growth in our VN and PC segments (both acquired and organic), which was partially offset by Medicare rate cuts.  Refer to segment discussions for further detail.

Deal and transition costs increased $3.1 million primarily related to the SunCrest acquisition on December 6, 2013.

Corporate expenses as a percent of revenue decreased slightly to 5.5% from 5.9% in the prior year primarily due to the impact of the 2013 acquisitions on net service revenue and corporate expenses.

Interest expense increased $0.3 million due to borrowings on our line of credit in conjunction with the SunCrest acquisition.

The effective tax rate was approximately 41.5% for the first quarter of 2014, which increased slightly from the 37.1% in 2013, primarily due to a benefit in the prior year period resulting from the January 2, 2013 retroactive extension of the Work Opportunity Tax Credit (WOTC) that was recognized in the first quarter of 2013.  The WOTC has not yet been extended to 2014.

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Visiting Nurse Segment

	Three Months Ended March 31,
	2014					2013					Change
(In thousands, except for statistics)	Amount			% Rev		Amount			% Rev		Amount			%
Net service revenues	$	95,756		100.0	%	$	66,551		100.0	%	$	29,205		43.9	%
Cost of service revenues	48,298			50.4	%	32,314			48.6	%	15,984			49.5	%
Gross margin	47,458			49.6	%	34,237			51.4	%	13,221			38.6	%
General and administrative expenses:
Salaries and benefits	27,282			28.5	%	19,476			29.3	%	7,806			40.1	%
Other	10,669			11.1	%	6,424			9.7	%	4,245			66.1	%
Total general and administrative expenses	37,951			39.6	%	25,900			38.9	%	12,051			46.5	%
Operating income before corporate expenses	$	9,507		9.9	%	$	8,337		12.5	%	$	1,170		14.0	%
Average number of locations	172					102					70			68.6	%
All payors:
Patient months	81,451					54,582					26,869			49.2	%
Admissions	25,189					16,253					8,936			55.0	%
Billable visits	656,976					469,291					187,685			40.0	%
Medicare:
Admissions (1)	22,475			89	%	14,956			92	%	7,519			50.3	%
Revenue (in thousands)	$	88,872		93	%	$	61,738		93	%	$	27,134		44.0	%
Revenue per admission	$	3,954				$	4,128				$	(174	)	-4.2	%
Billable visits (1)	570,864			87	%	400,783			85	%	170,081			42.4	%
Recertifications	11,880					7,960					3,920			49.2	%
Payor mix % of Admissions
Traditional Medicare Episodic	83.3		%			91.0		%			-7.7		%
Replacement Plans Paid Episodically	3.1		%			2.6		%			0.5		%
Replacement Plans Paid Per Visit	13.6		%			6.4		%			7.2		%
Non-Medicare:
Admissions (1)	2,714			11	%	1,297			8	%	1,417			109.3	%
Revenue (in thousands)	$	6,884		7	%	$	4,814		7	%	$	2,070		43.0	%
Revenue per admission	$	2,536				$	3,712				$	(1,175	)	-31.7	%
Billable visits (1)	86,112			13	%	68,508			15	%	17,604			25.7	%
Recertifications	1,514					1,337					177			13.2	%
Payor mix % of Admissions
Medicaid & other governmental	23.8		%			28.5		%			-4.7		%
Private payors	76.2		%			71.5		%			4.7		%

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

Visiting Nurse segment net service revenues increased primarily due to the SunCrest acquisition (December 6, 2013) combined with the IHCN Acquisition (July 19, 2013) increased net service revenues by $32.5 million and operating income before corporate expenses by $2.7 million.

Excluding acquisitions, revenues decreased by $3.3 million, as a result of Medicare rate cuts of $1.8 million, with the remainder due to lower volumes and changes in patient mix.  Medicare rate cuts were comprised of a 2.0% Medicare sequestration cut effective for episodes ended after March 2013 and a 1.15% 2014 rate cut on episodes ending after December 31, 2013.

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Cost of service revenues grew primarily due to acquired volume growth and to a lesser degree an increase in cost per visit primarily related to the SunCrest acquisition.

General and administrative expenses — salaries and benefits as a percentage of revenue declined slightly to 28.5% from 29.3% primarily related to lower staffing levels in our acquired operations as a percentage of revenue.  General and administrative expenses — other as a percentage of revenue increased to 11.1% from 9.7% primarily due a higher provision for bad debts, which was due to aging out of non-episodic accounts along with increased reserve estimates related to ADR and RAC audit activity, which are under appeal.  Hearing of appeals has been suspended due to a backlog at the administrative law judge level as a result of industry wide appeal volumes.

As a result, VN segment operating income before corporate expenses increased $1.2 million to $9.5 million from $8.3 million in the first quarter of 2013, while operating income before corporate expenses as a percent of revenues decreased to 9.9% in 2014 from 12.5% in 2013.

Personal Care Segment

	Three Months Ended March 31,
	2014				2013				Change
(In thousands, except for statistics)	Amount		% Rev		Amount		% Rev		Amount		%
Net service revenues	$	24,276	100.0	%	$	18,902	100.0	%	$	5,374	28.4	%
Cost of service revenues	17,144		70.6	%	13,131		69.5	%	4,013		30.6	%
Gross margin	7,132		29.4	%	5,771		30.5	%	1,361		23.6	%
General and administrative expenses:
Salaries and benefits	2,929		12.1	%	2,452		13.0	%	477		19.5	%
Other	1,679		6.9	%	1,321		7.0	%	358		27.1	%
Total general and administrative expenses	4,608		19.0	%	3,773		20.0	%	835		22.1	%
Operating income before corporate expenses	$	2,524	10.4	%	$	1,998	10.6	%	$	526	26.3	%
Average number of locations	61				61				—		0.0	%
Admissions	1,436				1,089				347		31.9	%
Patient months of care	19,594				17,339				2,255		13.0	%
Billable hours	1,267,045				1,069,437				197,608		18.5	%
Revenue per billable hour	$	19.16			$	17.67			$	1.48	8.4	%

Net service revenues increased $5.4 million, or 28.4%, to $24.3 million in 2014 from $18.9 million in 2013, primarily due to the SunCrest acquisition which increased revenues by $3.9 million, with the remainder due primarily to organic volume growth.  Cost of service revenues as a percentage of net service revenues increased slightly to 70.6% in 2014 from 69.5% in 2013, primarily due to changes in business mix partially due to the SunCrest acquisition.

Total general and administrative expenses as a percent of net service revenue decreased to 19.0% in 2014 from 20.0% in 2013, primarily due to SunCrest acquisition related changes.

As a result, PC segment operating income before corporate expenses increased to $2.5 million from $2.0 million in 2013, while operating income before corporate expenses as percentage of revenue decreased 0.2%.

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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%, 2.50% at March 31, 2014).  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 months ended March 31, 2014 and 2013.  The weighted average LIBOR rates were 2.45% and 2.54% for the three months ended March 31, 2014 and 2013, 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 proforma acquisitions pursuant to a calculation rider, up to 50% of “Adjusted EBITDA,” as defined. Borrowings under the Facility may be used for general corporate purposes, including acquisitions. As of March 31, 2014, the formula permitted $27.0 million to be used against which we had irrevocable letters of credit totaling $7.1 million outstanding in connection with our self-insurance programs. As a result a total of $19.9 million was available for borrowing at March 31, 2014. As of March 31, 2014, 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 $161.3 million at March 31, 2014.  At such date, our net worth was approximately $215.5 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 three months ended March 31, 2014 and 2013 were:

Net Change in Cash and Cash Equivalents (in thousands)	2014			2013
(Used in) provided by:
Operating activities	$	384		$	9,374
Investing activities	(350		)	(688		)
Financing activities	(3,660		)	—
Discontinued operations activities	(261		)	(170		)
Net change in cash and cash equivalents	$	(3,887	)	$	8,516

2014

Net cash used in operating activities resulted primarily from current period net income of $1.3 million plus certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses.  The decrease from 2013 is primarily due to a decrease in accounts payable and accrued expenses acquired in the SunCrest acquisition along with a slight increase in accounts receivable days revenues outstanding, which was 47 at March 31, 2014 and 46 at December 31, 2013.

The cash used in investing activities was primarily due to capital expenditures, while cash used in financing activities was primarily related to a $3.0 million payment on the line of credit drawn with the SunCrest acquisition.

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Net cash used in discontinued operations was due to additional costs incurred as operating activities wind down for the discontinued operations.

2013

Net cash provided by operating activities resulted primarily from current period net income of $3.2 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 March 31, 2013 and 53 at December 31, 2012 due to processing delays as well as prepayment Additional Data Requests (ADR) from Palmetto Government Benefits Administration in our VN segment, which did not repeat in 2013.

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

Net cash provided by discontinued operations was due to cash used in operating activities for the discontinued operations.

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.

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

	Three Months Ended March 31,
(in thousands)	2014		2013
Net income from continuing operations	$	1,154	$	3,310
Add back:
Interest expense	347		18
Income tax expense	817		1,950
Depreciation and amortization	1,102		627
Amortization of stock-based compensation	414		287
Earnings before interest, income taxes, depreciation and amortization (EBITDA) from continuing operations	$	3,834	$	6,192

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments

The Company does not use derivative instruments.

Market Risk of Financial Instruments

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

At March 31, 2014, a hypothetical 100 basis point increase in short-term interest rates would result in a reduction of approximately $530,000 in our quarter pre-tax earnings.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures — As of March 31, 2014, 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 March 31, 2014.

Changes in Internal Control Over Financial Reporting - There were no changes in the Company’s internal control over financial reporting during the first quarter of 2014, that have materially affected, or are reasonably likely to materially affect, Almost Family, Inc.’s internal control over financial reporting.

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

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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, 2013, 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

Period	(a) Total Number of Shares (or Units) Purchased (1)	(b) Average Price Paid per Share (or Unit)		c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 -January 1, 2014 - January 31, 2014	—	$	—	—	—
Month #2 -February 1, 2014 - February 28, 2014	—	$	—	—	—
Month #1 -March 1, 2014 - March 31, 2014	1,922	$	27.25	—	—
Total	1,922	$	27.25	—	—

(1)  Shares were submitted by employees in lieu of tax withholding that would have otherwise been due on vesting of restricted shares approved by the Company’s  Board of Directors.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

31.1

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

31.2

Certifications of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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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 March 31, 2014, filed on May 9, 2014, 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  May 9, 2014	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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