UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
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. TM
(Exact name of registrant as specified in its charter)
Delaware 061-153720
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
9510 Ormsby Station Road, Suite 300 40223
(Address of principal executive offices) (Zip Code)
(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 and 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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer _____ Accelerated filer _____
Non-accelerated filer __X___
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 $.10 par value
Shares outstanding at May 12, 2006 2,409,170
ALMOST FAMILY, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION........................................................................................3
Item 1. Financial Statements....................................................................................3
Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005..............................3
Condensed Consolidated Statements of Income for the Three Months Ending March 31, 2006 and March 31, 2005.....4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and March 31,
2005..........................................................................................................5
Notes to Condensed Consolidated Financial Statements..........................................................6
Item 2. Managements's Discussion and Analysis of Financial Condition and Results of Operations.................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................................19
Item 4. Controls and Procedures................................................................................20
PART II. OTHER INFORMATION..........................................................................................21
Item 1. Legal Proceedings......................................................................................21
Item 1A. Risk Factors...........................................................................................21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds............................................21
Item 3. Defaults Upon Senior Securities........................................................................21
Item 4. Submission of Matters to a Vote of Security Holders....................................................21
Item 5. Other Informtion.......................................................................................21
Item 6. Exhibits...............................................................................................21
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 2006 2006
------------------- -------------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 7,601,230 $ 6,188,321
Accounts receivable - net 9,243,738 9,639,342
Prepaid expenses and other current assets 879,077 1,141,213
Deferred tax assets 1,320,207 1,171,227
------------------- -------------------
TOTAL CURRENT ASSETS $ 19,044,252 18,140,103
------------------- -------------------
CASH HELD IN ESCROW 1,013,949 1,006,696
PROPERTY AND EQUIPMENT - NET 1,142,867 1,312,375
GOODWILL 9,595,831 9,595,831
DEFERRED TAX ASSETS 361,301 361,301
OTHER ASSETS 140,447 126,849
------------------- -------------------
$ 31,298,647 $ 30,543,155
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,285,334 $ 2,531,565
Accrued other liabilities 6,295,254 6,207,962
Current portion - capital leases 101,908 100,542
------------------ --------------------
TOTAL CURRENT LIABILITIES 8,682,496 8,840,069
------------------ --------------------
LONG-TERM LIABILITIES:
Revolving credit facility - -
Capital leases 198,300 220,901
Seller notes 900,000 900,000
Other liabilities 457,758 446,704
------------------ --------------------
TOTAL LONG-TERM LIABILITIES 1,556,058 1,567,605
------------------ --------------------
TOTAL LIABILITIES 10,238,554 10,407,674
------------------ --------------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.05; authorized 2,000,000 shares;
none issued or outstanding - -
Common stock, par value $0.10; authorized 10,000,000 shares;
3,529,681 and 3,519,681 issued 352,970 351,970
Treasury stock, at cost, 1,120,511 shares (8,141,438) (8,141,438)
Additional paid-in capital 27,105,796 27,027,846
Retained earnings 1,742,765 897,103
------------------ --------------------
TOTAL STOCKHOLDERS' EQUITY 21,060,093 20,135,481
------------------ --------------------
$ 31,298,647 $ 30,543,155
================== ====================
See accompanying Notes to Condensed Consolidated Financial Statements
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
---------------------------------------
March 31, 2006 March 31, 2005
------------------ ------------------
Net service revenues $ 20,793,858 $ 18,299,564
Cost of service revenue (excluding amortization and 10,902,813 9,526,407
depreciation)
-------------------- -------------------
Gross margin 9,891,045 8,773,157
General and administrative expenses:
Salaries and benefits 5,734,376 4,679,030
Other 2,709,750 3,108,935
-------------------- -------------------
Total general and administrative expenses: 8,444,126 7,787,965
-------------------- -------------------
Operating income 1,446,919 985,192
Other income (expense):
Interest income (expense) 37,999 (55,236)
-------------------- -------------------
Income from continuing operations before income taxes 1,484,918 929,956
Income tax expense (573,178) (370,894)
-------------------- -------------------
Net income from continuing operations 911,740 559,062
Discontinued operations, net of tax: (66,078) (175,128)
-------------------- -------------------
Net income $ 845,662 $ 383,934
==================== ===================
Per share amounts-basic:
Average shares outstanding 2,409,052 2,316,741
Income from continuing operations $ 0.38 $ 0.24
Income (loss) from discontinued operations (0.03) (0.07)
-------------------- -------------------
Net income $ 0.35 $ 0.17
==================== ===================
Per share amounts-diluted:
Average shares outstanding 2,649,649 2,622,067
Income from continuing operations $ 0.34 $ 0.21
Income (loss) from discontinued operations (0.02) (0.06)
-------------------- -------------------
Net income $ 0.32 $ 0.15
==================== ===================
See accompanying Notes to Condensed Consolidated Financial Statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
-----------------------------------------
March 31, 2006 March 31, 2005
------------------- --------------------
Cash flows from operating activities:
Net income $ 845,662 $ 383,934
Less loss from discontinued operations (66,078) (175,128)
------------------- --------------------
Income from continuing operations 911,740 559,062
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
Depreciation and amortization 295,767 336,621
Interest earned on escrow funds (7,254) -
Provision for uncollectible accounts 106,193 260,576
Deferred income taxes (148,980) (99,486)
------------------- --------------------
$ 1,157,466 $ 1,056,773
Change in certain net assets, net of the effects of acquisitions:
(Increase) decrease in:
Accounts receivable 289,411 111,097
Prepaid expenses and other current assets 244,775 283,172
Other assets (13,598) (3,918)
Increase (decrease) in:
Accounts payable and accrued expenses (147,885) 1,012,710
------------------- --------------------
Net cash provided by operating activities $ 1,530,169 2,459,834
------------------- --------------------
Cash flows from investing activities:
Capital expenditures (108,897) (57,942)
Acquisitions, net of cash acquired - (160,776)
------------------- --------------------
Net cash used in investing activities $ (108,897) $ (218,718)
------------------- --------------------
Cash flows from financing activities:
Net revolving credit facility repayments - (1,967,367)
Proceeds from stock option exercises 26,250 7,375
Tax benefit of options exercised 52,700 10,250
Principal payments on capital leases and notes payable (21,235) -
------------------- --------------------
Net cash provided by/(used in) financing activities $ 57,715 (1,949,742)
------------------- --------------------
Cash flows from discontinued operations:
Operating activities (66,078) (138,222)
Investing activities - (21,855)
Financing activities - (110,444)
------------------- --------------------
Net cash used in discontinued operations (66,078) (270,521)
------------------- --------------------
Net increase in cash and cash equivalents 1,412,909 20,853
Cash and cash equivalents at beginning of period 6,188,321 873,486
------------------- --------------------
Cash and cash equivalents at end of period $ 7,601,230 $ 894,339
=================== ====================
See accompanying Notes to Condensed Consolidated Financial Statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated financial statements for the three
months ended March 31, 2006 have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been omitted pursuant to such rules and regulations. Accordingly, the
reader of this Form 10-Q is referred to our Form 10-K for the year ended
December 31, 2005 for further information. In the opinion of management of the
Company, the accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments) necessary
to present fairly the financial position at March 31, 2006 and the results of
operations and cash flows for the three months ended March 31, 2006 and 2005.
The results of operations for the three months ended March 31, 2006 are not
necessarily indicative of the operating results for the year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Financial Statement Reclassifications
Certain amounts have been reclassified in the March 2005 consolidated financial
statements and related notes in order to conform to the 2006 presentation. Such
reclassifications had no effect on previously reported net income.
2. Net Revenues
The Company is paid for its services primarily by Federal and state third-party
reimbursement programs, commercial insurance companies, and patients. Revenues
are recorded at established rates in the period during which the services are
rendered. Appropriate allowances to give recognition to third party payment
arrangements are recorded when the services are rendered.
Laws and regulations governing the Medicare and Medicaid programs are extremely
complex and subject to interpretation. It is common for issues to arise related
to: 1) the determination of cost-reimbursed revenues, 2) medical coding,
particularly with respect to Medicare, 3) patient eligibility, particularly
related to Medicaid, and 4) other reasons unrelated to credit risk, all of
which may result in adjustments to recorded revenue amounts. Management
continuously evaluates the potential for revenue adjustments and when
appropriate provides allowances for losses based upon the best available
information. There is at least a reasonable possibility that recorded estimates
could change by material amounts in the near term.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Segment Data
The Company has two reportable segments, Visiting Nurse (VN) and Personal Care
(PC). Reportable segments have been identified based upon how management has
organized the business by services provided to customers and the criteria in
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information."
The Company's VN segment provides skilled medical services in patients' homes
largely to enable recipients to reduce or avoid periods of hospitalization
and/or nursing home care. VN Medicare revenues are generated on a per episode
basis rather than a fee per visit or day of care. Approximately 93% of the VN
segment revenues are generated from the Medicare program while the balance is
generated from Medicaid and private insurance programs.
The Company's PC segment services are also provided in patients' homes. These
services (generally provided by paraprofessional staff such as home health
aides) are generally of a custodial rather than skilled nature. PC revenues are
generated on an hourly basis. Approximately 70% of the PC segment revenues are
generated from Medicaid and other government programs while the balance is
generated from insurance programs and private pay patients.
Certain general and administrative expenses incurred at the corporate level have
not been allocated to the segments. The Company has service locations in
Florida, Kentucky, Ohio, Connecticut, Massachusetts, Indiana and Alabama (in
order of revenue significance).
Three months ended March 31,
----------------------------------------
2006 2005
------------------- -----------------
Net Revenues
Home Health Care
Visiting nurses $ 11,943,043 $ 9,543,132
Personal care 8,850,815 8,756,432
------------------- -----------------
$ 20,793,858 18,299,564
=================== ===================
Operating Income
Home Health Care
Visiting nurses $ 2,029,679 $ 1,686,071
Personal care 546,434 624,763
------------------- -----------------
2,576,113 2,310,834
Unallocated corporate expenses
1,129,194 1,325,642
------------------- -----------------
Operating income $ 1,446,919 $ 985,192
=================== =================
4. Capitalized Software Development Costs
Consistent with AICPA Statement of Position 98-1, the Company capitalizes the
cost of internally generated computer software developed for the Company's own
use. Software development costs of approximately $35,000 and $3,000 were
capitalized in the three months ended March 31, 2006 and 2005, respectively.
Capitalized software development costs are amortized over a three-year period
following the initial implementation of the software.
5. Revolving Credit Facility
The Company has a $22.5 million credit facility with JP Morgan Chase Bank, NA
(successor by merger to Bank One, NA), as amended August 11, 2005, with an
expiration date of September 30, 2008. The credit facility bears interest at the
bank's prime rate plus a margin (ranging from -0.75% to -0.25%, currently
- -0.75%) dependent upon total leverage and is secured by substantially all assets
and the stock of the Company's subsidiaries. The weighted average interest rates
were 5.27% and 4.73% for the quarters ended March 31, 2006 and 2005,
respectively. The Company pays a commitment fee of 0.25% per annum on the unused
facility balance. Borrowings are available equal to the greater of: a) a
multiple of four times earnings before interest, taxes, depreciation and
amortization (As Defined EBITDA) or b) an asset based formula, primarily based
on accounts receivable. "As Defined EBITDA" of acquired operations, up to 50% of
base "As Defined EBITDA," may be included in the availability calculations.
Borrowings under the facility may be used for working capital, capital
expenditures, acquisitions, development and growth of the business and other
corporate purposes. As of March 31, 2006, the formula permitted approximately
$22.5 million to be used. The Company has an irrevocable letter of credit,
totaling $5.4 million outstanding in connection with the Company's
self-insurance programs. Thus, a total of $17.1 million was available for use at
March 31, 2006. The Company's revolving credit facility is subject to various
financial covenants. As of March 31, 2006, the Company was in compliance with
the covenants. Under the most restrictive of the Company's covenants, the
Company is required to maintain minimum net worth of at least $10.5 million.
6. Stock-Based Compensation
Stock options are granted under various stock compensation programs to employees
and independent directors. The Company accounts for stock option grants in
accordance with SFAS No. 123R "Share-Based Payment", adopted effective January
1, 2006, using the modified prospective method of application, the adoption of
which had no significant effect on income from operations, income before taxes,
net income, cash flow from operations, cash flow from financing activities and
basic and diluted earnings per share. Prior to the first quarter of fiscal 2006,
the Company accounted for stock-based compensation arrangements in accordance
with the provisions and related interpretations of Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees". Had compensation cost
for stock-based compensation been determined consistent with SFAS No. 123R, the
net income and earnings per share for the three months ended March 31, 2005
would have been adjusted to the following pro forma amounts:
Three months ended March 31, 2005
Net income as reported $ 383,934
Pro forma stock-based comp-
ensation expense, net of tax 3,047
-------------------
Pro forma net income $ 380,887
===================
Earnings per common share:
Basic - as reported $ 0.17
Basic - pro forma $ 0.16
Diluted - as reported $ 0.15
Diluted - proforma $ 0.15
Under the modified prospective approach, SFAS 123(R) applies to new stock
options granted on or after January 1, 2006 as well as grants that were
outstanding as of December 31, 2005 including those that are subsequently
modified, repurchased or cancelled. Under the modified prospective method,
compensation cost recognized in the quarter ended March 31, 2006 includes
compensation cost for all stock options granted prior to, but not yet vested as
of December 31, 2005 in accordance with the provisions of SFAS 123(R). Prior
periods were not restated to reflect the impact of adopting the new standard.
During the quarter ended March 31, 2006 the Company granted no share-based
compensation but intends to comply with the provisions of SFAS 123(R) on all
future issuances.
The Company uses the Black-Scholes option pricing model to
estimate the fair value of stock-based compensation with the following
weighted-average assumptions for the indicated periods.
Three months ended March 31,
2006 2005
-------------------- --------------------
Risk-free interest rates 4.44% 5.72%
Expected life of options (in years) 10 9.30
Expected volatility 45.81% 50.0%
Expected annual dividend yield - -
The assumptions above are based on multiple factors, including historical
exercise patterns of employees in relatively homogeneous groups with respect to
exercise and post-vesting employment termination behaviors, expected future
exercise patterns for these same homogeneous groups and the implied volatility
of its stock.
At March 31, 2006, there was approximately $14,000 of unrecognized compensation
cost related to share-based compensation that is expected to be recognized over
the remainder of the year.
Changes in option shares outstanding are summarized as follows:
Wtd. Avg
Shares Ex. Price
------------- ----------------
December 31, 2005 388,000 3.45
Granted - -
Exercised (10,000) 2.63
Terminated - -
March 31, 2006 378,000 3.47
7. Earnings Per Common Share
There were no adjustments required to be made to net income for purposes of
computing basic and diluted 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,
------------------------------------------
2006 2005
------------------- ------------------
Shares used to compute basic
earnings per common share -
weighted average shares
outstanding 2,409,052 2,316,741
Dilutive effect of stock options 240,597 305,326
------------------- ------------------
Shares used to compute diluted
earnings per common share 2,649,649 2,622,067
=================== ==================
8. 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
$250,000 per incident. The Company purchases stop-loss insurance for the
employee health plan that places a specific limit, generally $100,000, 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, 2006 that may result in the assertion of additional claims. The
Company carries insurance coverage for this exposure; however, its deductible
per claim increased effective July 21, 2005 from $250,000 to $500,000.
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 on a monthly basis. As facts change, it
may become necessary to make adjustments that could be material to the Company's
results of operations and financial condition.
Total premiums, excluding the Company's exposure to claims and deductibles, for
all its non-health insurance programs decreased to approximately $2.3 million
for the contract year ending March 31, 2006 (of which approximately $922,000 was
associated with discontinued operations) as compared to approximately $2.8
million for the contract year ended March 31, 2005 (of which approximately $1.4
million was associated with discontinued operations). On March 31, 2006, the
Company completed its renewal for the contract year ending March 31, 2007 with
total estimated premiums of $1.1 million with no changes in coverage or
deductibles.
Legal Proceedings
The Company is currently, and from time to time, subject to claims and suits
arising in the ordinary course of its business, including claims for damages for
personal injuries. In the opinion of management, the ultimate resolution of any
of these pending claims and legal proceedings will not have a material effect on
the Company's financial position or results of operations.
9. Subsequent Event - Acquisition
On April 8, 2006, the Company purchased a Medicare-certified home health agency
with branches located in Ocala and Palm Coast, Florida. The Company acquired all
the assets and business operations of this agency. The total purchase price of
$1.7 million was paid $1.34 million in cash at closing with the $340,000 balance
in the form of a note payable bearing interest at 6% payable quarterly with the
principal and all accrued and unpaid interest due in full 30 months from the
closing date. The Company funded the cash portion of the purchase price from
available cash on deposit. The acquired operations generated net revenues of
approximately $1.7 million in the year ended December 31, 2005.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company
Almost Family, Inc. TM and subsidiaries (collectively "Almost Family") is a
leading regional provider of home health nursing services and adult day health
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:
o general economic and business conditions;
o demographic changes;
o changes in, or failure to comply with, existing governmental regulations;
o legislative proposals for healthcare reform;
o changes in Medicare and Medicaid reimbursement levels;
o effects of competition in the markets in which the Company operates;
o liability and other claims asserted against the Company;
o ability to attract and retain qualified personnel;
o availability and terms of capital;
o loss of significant contracts or reduction in revenues associated with major
payer sources;
o ability of customers to pay for services;
o business disruption due to natural disasters or terrorist acts;
o 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;
o effect on liquidity of the Company's financing arrangements;
o changes in estimates and judgments associated with critical
accounting policies and estimates.
For a detailed discussion of these and other factors that could cause the
Company's actual results to differ materially from the results contemplated by
the forward-looking statements, please refer to Item 1A. "Risk Factors" and Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's annual report on Form 10-K for year ending December
31, 2005. The reader is encouraged to review these risk factors and filings.
The reader should not place undue reliance on forward-looking statements, which
speak only as of the date of this report. Except as required under the federal
securities laws and the rules and regulations of the Securities and Exchange
Commission ("SEC"), the Company does not have any intention or obligation to
publicly release any revisions to forward-looking statements to reflect
unforeseen or other events after the date of this report.
Critical Accounting Policies
Refer to the "Critical Accounting Policies" section of Management's Discussion
and Analysis of Financial Condition and Results of Operations included in our
Form 10-K for the year ended December 31, 2005 for a detailed discussion of our
critical accounting policies.
Operating Segments
We have two reportable segments, Visiting Nurse (VN) and Personal Care (PC).
Reportable segments have been identified based upon how management has organized
the business by services provided to customers and the criteria in SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information."
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. VN Medicare revenues are generated on a per episode basis rather than
a fee per visit or day of 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.
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 70% of the PC segment revenues are generated
from Medicaid and other government programs while the balance is generated from
insurance programs and private pay patients.
Certain general and administrative expenses incurred at the corporate level have
not been allocated to the segments. We have service locations in Florida,
Kentucky, Ohio, Connecticut, Massachusetts, Indiana and Alabama (in order of
revenue significance).
Seasonality
Our VN segment normally experiences seasonality in its operating results.
Specifically, the VN Segment typically generates lower operating income in the
quarter ended September than in the other quarters due to the seasonality of
senior population in our south Florida markets. Our PC segment generally does
not experience significant seasonality in its operating results.
RESULTS OF OPERATIONS
Three months ended March 31, 2006 Compared with three months ended
March 31, 2005
Consolidated 2006 2005 Change
------------ ----------------- ----------- ----------------- ----------- ---------------- ----------
Amount % Rev Amount % Rev Amount %
----------------- ----------- ----------------- ----------- ---------------- ----------
Net revenues:
Visiting Nurse $ 11,943,043 57.4% $ 9,543,132 52.1% $ 2,399,911 25.1%
Personal Care 8,850,815 42.6% 8,756,432 47.9% 94,383 1.1%
----------------- ----------------- ----------------
$ 20,793,858 100.0% $ 18,299,564 100.0% $ 2,494,294 13.6%
================= ================= ================
Operating income
Visiting Nurse $ 2,029,679 9.8% $ 1,686,071 9.2% $ 343,608 20.4%
Personal Care 546,434 2.6% 624,763 3.4% (78,329) -12.5%
----------------- ----------------- ----------------
2,576,113 12.4% 2,310,834 12.6% 265,279 11.5%
Corporate expense 1,129,194 5.4% 1,325,642 7.2% (196,448) -14.8%
----------------- ----------------- ----------------
Income before interest expense
and income taxes 1,446,919 7.0% 985,192 5.4% 461,727 46.9%
Interest (income)
expense (37,999) -0.2% 55,236 0.3% (93,235) -168.8%
Income taxes 573,178 2.8% 370,894 2.0% 202,284 54.5%
----------------- ----------------- ----------------
Net income from continuing
operations $ 911,740 4.4% $ 559,062 3.1% $ 352,678 63.1%
================= ================= ================
EBITDA from continuing operations $ 1,725,324 $ 1,307,621 $ 417,703 31.9%
Our net revenues increased approximately $2.5 million or 13.6% with 25.1% growth
in VN and 1.1% growth in PC. As further explained below, our VN revenue growth
was driven by a combination of acquisitions, startups and same store growth.
Despite the repeal of the annual Medicare rate increase due January 1, 2006, VN
same store revenues grew 8%. Our VN operating income included operating income
from acquisitions of about $360,000 and operating losses from new start-up
agencies of about $50,000. As further explained below, our PC operating income
was unfavorably impacted by increased workers compensation insurance costs, and
to a lesser degree increases in administrative wage rates. Our PC startup
operations during 2006 generated approximately $48,000 of operating losses in
the March 2006 quarter. Our corporate expenses decreased due to an incurrence of
approximately $120,000 in professional fees related to the successful defense of
an employment related lawsuit and costs associated with an acquisition
opportunity we abandoned in the quarter ending March 31, 2005.
The effective income tax rate was approximately 38.6% and 39.9% of income before
income taxes in 2006 and 2005, respectively.
Visiting Nurse (VN) Segment-Three Months
Three months ended March 31,
-------------------------- ---------------------------- ------------------------
2006 2005 Change
--------------- ---------- ----------------- ---------- -------------- ---------
Amount % Rev Amount % Rev Amount %
--------------- ---------- ----------------- ---------- -------------- ---------
Net service revenues $ 11,943,043 100.0% $ 9,543,132 100.0% $ 2,399,911 25.1%
Cost of service revenue 4,721,260 39.5% 3,593,954 37.7% 1,127,306 31.4%
--------------- ----------------- --------------
Gross margin 7,221,783 60.5% 5,949,178 62.3% 1,272,605 21.4%
General and administrative
expenses:
Salaries and benefits 3,708,300 31.0% 2,873,457 30.1% 834,843 29.1%
Other 1,483,804 12.4% 1,389,650 14.6% 94,154 6.8%
--------------- ----------------- --------------
Total general and administrative
expenses: 5,192,104 43.5% 4,263,107 44.7% 928,997 21.8%
--------------- ----------------- --------------
Operating income $ 2,029,679 17.0% $ 1,686,071 17.7% 343,608 20.4%
=============== ================= ==============
All payors:
Admissions 4,459 3,472 987 28.4%
Patient months of care 9,623 7,652 1,971 25.8%
Revenue per patient month $ 1,241 $ 1,247 $ (6) -0.5%
Cost of services per patient
month $ 491 $ 470 $ 21 4.5%
Billable visits 78,671 66,847 11,824 17.7%
Average number of locations 28 24 4 16.7%
Medicare statistics:
Admissions 3,944 3,187 757 23.8%
Medicare revenue % of total 92.6% 92.7% -0.1%
Our VN revenue grew 25.1% over the same period last year. This revenue growth
was generated from acquisitions ($1.3 million), startups ($325,000) and same
store growth ($780,000 or 8%). VN operating income for the quarter increased
20.4% from last year. Operating income in the segment included operating income
from acquisitions of about $360,000 and operating losses from new start-up
agencies of about $50,000. Our startup operations contributed about $150,000 to
cost of service revenues and about $187,000 to general and administrative
salaries and benefits.
During the quarter Medicare repealed retroactive to January 1, 2006, a
previously implemented rate increase of approximately 3% which would have
provided approximately $270,000 in additional revenue for the March 2006
quarter. However, due to market competition for skilled staff we gave our
employees pay rate increases of about 3% effective January 1, 2006 resulting in
a reduction of gross margin as compared to the prior year.
Our General and administrative salaries and benefits increased as a result of
the increase in the average number of locations in operation between periods,
increases in wage rates and the addition of segment management staff driven by
our focus on the execution of our strategic plan to develop the visiting nurse
segment. General and administrative other increased only 6.8% despite a 16.7%
increase in average number of locations due to lower insurance, information
systems depreciation and travel cost.
Admissions grew about 28.4% over the prior year while patient months increased
25.8%, reflecting a small decrease in the average length of stay. Operating
costs per patient month increased about 4.5% primarily due to the effect of
startup operations and as a result of increased administrative expenses, wage
rates and employee benefits.
Personal Care (PC) Segment-Three Months
Three months ended March 31,
--------------------------- ---------------------------- -------------------------
2006 2005 Change
--------------- ----------- ---------------- ----------- --------------- ---------
Amount % Rev Amount % Rev Amount %
--------------- ----------- ---------------- ----------- --------------- ---------
Net service revenues $ 8,850,815 100.0% $ 8,756,432 100.0% $ 94,383 1.1%
Cost of service revenues 6,181,553 69.8% 5,932,452 67.7% 249,101 4.2%
--------------- ---------------- ---------------
Gross margin 2,669,262 30.2% 2,823,980 32.3% (154,718) -5.5%
General and administrative
Expenses:
Salaries and benefits 1,370,116 15.5% 1,179,302 13.5% 190,814 16.2%
Other 752,712 8.5% 1,019,915 11.6% (267,202) -26.2%
--------------- ---------------- ---------------
Total general and administrative
expenses: 2,122,828 24.0% 2,199,217 25.1% (76,389) -3.5%
--------------- ---------------- ---------------
Operating income $ 546,434 6.2% $ 624,763 7.1% $ (78,329) -12.5%
=============== ================ ===============
Admissions 856 800 56 7.0%
Patient months of care 10,337 9,879 458 4.6%
Patient days of care 125,587 119,273 6,314 5.3%
Billable hours 506,525 504,367 2,158 0.4%
Revenue per billable hour $ 17.47 $ 17.36 $ 0.11 0.6%
PC operating income for the quarter was about $546,000 versus $625,000 in the
corresponding period of last year. Startups contributed approximately $119,000
in revenues and $48,000 in operating losses for the quarter ending March 31,
2006. Gross margin percentage decreased 1.4% due to unfavorable workers
compensation experience in the personal care segment, with the balance due to
changes in service and payor mix.
General and administrative salaries and benefits increased about $191,000 due to
additional segment management staff, wage increases and workers compensation
experience. General and administrative expenses other includes a decrease of
about $136,000, primarily due to a reduction in bad debt expense as a result of
improved accounts receivable collection efforts, lower liability insurance costs
and lower information systems depreciation. Admissions increased about 7.0% over
the prior year while patient months increased 4.6%, reflecting a decrease in the
average length of stay.
Insurance Programs
We bear significant insurance risk under our large-deductible workers'
compensation insurance program and our self-insured employee health program.
Under the workers' compensation insurance program, we bear risk up to $250,000
per incident. We purchase stop-loss insurance for the employee health plan that
places a specific limit, generally $100,000, on our exposure for any individual
covered life.
Malpractice and general patient liability claims for incidents which may give
rise to litigation have been asserted against us by various claimants. The
claims are in various stages of processing and some may ultimately be brought to
trial. We are aware of incidents that have occurred through March 31, 2006 that
may result in the assertion of additional claims. We carry insurance coverage
for this exposure; however, its deductible per claim increased effective July
21, 2005 from $250,000 to $500,000.
We record estimated liabilities for our insurance programs based on information
provided by the third-party plan administrators, historical claims experience,
the life cycle of claims, expected costs of claims incurred but not paid, and
expected costs to settle unpaid claims. We monitor our estimated
insurance-related liabilities on a monthly basis. As facts change, it may become
necessary to make adjustments that could be material to our results of
operations and financial condition.
Total premiums, excluding our exposure to claims and deductibles, for all our
non-health insurance programs decreased to approximately $2.3 million for the
contract year ending March 31, 2006 (of which approximately $922,000 was
associated with discontinued operations) as compared to approximately $2.8
million for the contract year ended March 31, 2005 (of which approximately $1.4
million was associated with discontinued operations). On March 31, 2006, we
completed our renewal for the contract year ending March 31, 2007 with total
estimated premiums of $1.1 million with no changes in coverage or deductibles.
Liquidity and Capital Resources
Revolving Credit Facility
We have a $22.5 million credit facility with JP Morgan Chase Bank, NA, as
amended August 11, 2005, with an expiration date of September 30, 2008. The
credit facility bears interest at the bank's prime rate plus a margin (ranging
from -0.75% to -0.25%, currently -0.75%) dependent upon total leverage and is
secured by substantially all assets and the stock of our subsidiaries. The
weighted average interest rates were 5.27% and 4.73% for the quarters ended
March 31, 2006 and 2005, respectively. We pay a commitment fee of 0.25% per
annum on the unused facility balance. Borrowings are available equal to the
greater of: a) a multiple of four times earnings before interest, taxes,
depreciation and amortization (As Defined EBITDA) or b) an asset based formula,
primarily based on accounts receivable. "As Defined EBITDA" of acquired
operations, up to 50% of base "As Defined EBITDA," may be included in the
availability calculations. Borrowings under the facility may be used for working
capital, capital expenditures, acquisitions, development and growth of the
business and other corporate purposes. As of March 31, 2006, the formula
permitted approximately $22.5 million to be used. We have an irrevocable letter
of credit, totaling $5.4 million outstanding in connection with our
self-insurance programs. Thus, a total of $17.1 million was available for use at
March 31, 2006. Our revolving credit facility is subject to various financial
covenants. As of March 31, 2006, we were in compliance with the covenants. Under
the most restrictive of our covenants, we are required to maintain minimum net
worth of at least $10.5 million.
Cash Flows
Key elements to the Consolidated Statements of Cash Flows for the three months
ending March 31, 2006 and 2005 were:
Net Change in Cash and Cash Equivalents 2006 2005
- --------------------------------------------------------------------------------
Provided by (used in):
Operating activities $ 1,530,169 $ 2,459,834
Investing activities (108,897) (218,718)
Financing activities 57,715 (1,949,742)
Discontinued operations activities (66,078) (270,521)
-----------------------------------
Net increase in cash and cash equivalents $ 1,412,909 $ 20,853
===================================
2006
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. Accounts receivable days revenues outstanding were 40 at March
31, 2006, and 48 at December 31, 2005. The variation in operating activities
from 2006 to 2005 was primarily caused by the timing of accrued payroll at the
end of each quarter. The quarter ending March 2005 included one full week of
accrued payroll and payroll taxes while the quarter ending March 2006 included
no accrual at all. Net cash used in investing activities resulted principally
from improvements in our information systems. Net cash used in financing
activities resulted primarily from stock option exercises net of capital lease
payments.
2005
Net cash provided by operating activities resulted principally from current
period income, net of changes in accounts receivable, accounts payable and
accrued expenses. Accounts receivable days revenues outstanding were 49 at March
31, 2005, and 53 at December 31, 2004. The increase in combined accounts payable
and accrued liabilities resulted primarily from an increase in insurance
liabilities, accrued payroll and employee benefits. Net cash used in investing
activities resulted principally from the acquisition of a small startup home
health agency in Gainesville, Florida. Net cash used in financing activities
resulted primarily from repayments on our credit facility and payment of capital
lease and debt obligations.
Health Care Reform
The health care industry has experienced, and is expected to continue to
experience, extensive and dynamic change. In addition to economic forces and
regulatory influences, continuing political debate is subjecting the health care
industry to significant reform. Health care reforms have been enacted as
discussed elsewhere in this document. Proposals for additional changes are
continuously formulated by departments of the Federal government, Congress, and
state legislatures.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of expenditures are expected to continue. Such
future changes may further impact our reimbursement. There can be no assurance
that future legislation or regulatory changes will not have a material adverse
effect on our operations.
Federal and State legislative proposals continue to be introduced that would
impose more limitations on payments to providers of health care services such as
us. Many states have enacted, or are considering enacting, measures that are
designed to reduce their Medicaid expenditures.
We cannot predict what additional government regulations may be enacted in the
future affecting our business or how existing or future laws and regulations
might be interpreted, or whether we will be able to comply with such laws and
regulations in our existing or future markets.
Refer to the sections on "Cautionary Statements - Forward Outlook and Risks" and
the "Notes to the Consolidated Financial Statements" and elsewhere in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information.
Impact of Inflation
Management does not believe that inflation has had a material effect on income
during the past several years.
Non-GAAP Financial Measure
The information provided in the some of the tables use certain non-GAAP
financial measures as defined under Securities and Exchange Commission (SEC)
rules. In accordance with SEC rules, the Company has provided, in the
supplemental information below, a reconciliation of those measures to the most
directly comparable GAAP measures.
EBITDA:
EBITDA is defined as income before depreciation and amortization, net interest
expense and income taxes. EBITDA is not a measure of financial performance under
accounting principles generally accepted in the United States of America. It
should not be considered in isolation or as a substitute for net income,
operating income, cash flows from operating, investing or financing activities,
or any other measure calculated in accordance with generally accepted accounting
principles. The items excluded from EBITDA are significant components in
understanding and evaluating financial performance and liquidity. Management
routinely calculates and communicates EBITDA and believes that it is useful to
investors because it is commonly used as an analytical indicator within our
industry to evaluate performance, measure leverage capacity and debt service
ability, and to estimate current or prospective enterprise value. EBITDA is also
used in measurements of borrowing availability and certain covenants contained
in our credit agreement.
The following table sets forth a reconciliation of Continuing Operations Net
Income -- As Adjusted to EBITDA:
Three months ended March 31,
--------------------- ------------------------
2006 2005
--------------------- ------------------------
Net income from continuing
operations $ 911,740 $ 559,062
Add back:
Interest expense (37,999) 55,236
Income taxes 573,178 370,894
Depreciation and amortization 278,405 322,429
--------------------- ------------------------
Earnings before interest, income taxes,
depreciation and amortization (EBITDA)
from continuing operations $ 1,725,324 $ 1,307,621
===================== ========================
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.
At March 31, 2006, a hypothetical 100 basis point increase in short-term
interest rates would result in an increase of approximately $ 66,000 change to
annual pre-tax earnings.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on the foregoing, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective, in all material respects, to
ensure that information required to be disclosed in the reports the Company
files and submits under the Exchange Act is recorded, processed, summarized and
reported as and when required.
The Company also conducted an evaluation of internal control over financial
reporting to determine whether any changes occurred during the quarter covered
by this report that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
Based on this evaluation, there has been no such change during the quarter
covered by this report.
Commission File No. 1-9848
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
Information regarding risk factors appears in our Form 10-K
for the year ending December 31, 2005, 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 previously
disclosed in our Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits
10.1
Executive Change of Control Security Agreement dated as of
September 30, 2005 between the Company and Mary Yarmuth.
31.1
Certifications of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2
Certifications of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1
Certifications of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2
Certifications of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 2006
ALMOST FAMILY, INC.
BY /s/ William B. Yarmuth
---------------------------------
William B. Yarmuth,
Chairman of the Board, President
and Chief Executive Officer
BY /s/ C. Steven Guenthner
---------------------------------
C. Steven Guenthner,
Senior Vice President and
Chief Financial Officer