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 September 30, 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 November 13, 2006 2,414,872
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 September 30, 2006 and December 31, 2005.......................3
Condensed Consolidated Statements of Income for the Three Months Ending September 30, 2006 and September
30, 2005...................................................................................................4
Condensed Consolidated Statements of Income for the Nine Months Ending September 30, 2006 and September
30, 2005...................................................................................................5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and
September 30, 2005.........................................................................................6
Notes to Condensed Consolidated Financial Statements.......................................................7
Item 2. Managements's Discussion and Analysis of Financial Condition and Results of Operations..............14
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........................................26
Item 4. Controls and Procedures.............................................................................27
PART II. OTHER INFORMATION.......................................................................................28
Item 1. Legal Proceedings...................................................................................28
Item 1A. Risk Factors........................................................................................28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.........................................28
Item 3. Defaults Upon Senior Securities.....................................................................28
Item 4. Submission of Matters to a Vote of Security Holders.................................................28
Item 5. Other Informtion....................................................................................28
Item 6. Exhibits............................................................................................28
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2005
ASSETS 2006
------------------- -------------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 5,111,467 $ 6,188,321
Accounts receivable - net 11,368,707 9,639,342
Prepaid expenses and other current assets 1,150,678 1,141,213
Deferred tax assets 1,351,004 1,171,227
------------------- -------------------
TOTAL CURRENT ASSETS 18,981,856 18,140,103
------------------- -------------------
CASH HELD IN ESCROW - 1,006,696
PROPERTY AND EQUIPMENT - NET 1,299,622 1,312,375
GOODWILL 12,405,173 9,595,831
DEFERRED TAX ASSETS 329,709 361,301
OTHER ASSETS 172,901 126,849
------------------- -------------------
$ 33,189,261 $ 30,543,155
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,816,527 $ 2,531,565
Accrued other liabilities 5,142,146 6,207,962
Current portion - capital leases, notes 905,134 100,542
------------------ --------------------
TOTAL CURRENT LIABILITIES 8,863,807 8,840,069
------------------ --------------------
LONG-TERM LIABILITIES:
Revolving credit facility - -
Capital leases 143,827 220,901
Seller notes 640,000 900,000
Other liabilities 471,031 446,704
------------------ --------------------
TOTAL LONG-TERM LIABILITIES 1,254,858 1,567,605
------------------ --------------------
TOTAL LIABILITIES 10,118,665 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;
3,544,970 and 3,519,681 issued 354,497 351,970
Treasury stock, at cost, 1,122,987 and 1,120,511shares (8,200,095) (8,141,438)
Additional paid-in capital 27,248,713 27,027,846
Retained earnings 3,667,481 897,103
------------------ --------------------
TOTAL STOCKHOLDERS' EQUITY 23,070,596 20,135,481
------------------ --------------------
$ 33,189,261 $ 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
-----------------------------------------
September 30, September 30,
2006 2005
------------------ ------------------
Net service revenues $ 22,945,843 $ 18,361,498
Cost of service revenue (excluding amortization and 11,629,260 9,843,078
depreciation)
-------------------- -------------------
Gross margin 11,316,583 8,518,420
General and administrative expenses:
Salaries and benefits 6,193,950 4,887,241
Other 3,433,934 2,883,105
-------------------- -------------------
Total general and administrative expenses: 9,627,884 7,770,346
-------------------- -------------------
Operating income 1,688,699 748,074
Other income (expense):
Interest income (expense) 33,275 (70,178)
-------------------- -------------------
Income from continuing operations before income taxes 1,721,974 677,896
Income tax expense 676,987 262,065
-------------------- -------------------
Net income from continuing operations 1,044,987 415,831
Discontinued operations, net of tax: (19,048) (40,456)
Gain on sale, net of tax: - 5,003,485
-------------------- -------------------
Net income $ 1,025,939 $ 5,378,860
==================== ===================
Per share amounts-basic:
Average shares outstanding 2,411,561 2,332,027
Income from continuing operations 0.43 0.18
Loss from discontinued operations (0.01) (0.02)
Income from gain on sale - 2.15
-------------------- -------------------
Net income $ 0.43 $ 2.31
==================== ===================
Per share amounts-diluted:
Average shares outstanding 2,654,387 2,639,214
Income from continuing operations 0.39 0.16
Loss from discontinued operations (0.01) (0.02)
Income from gain on sale - 1.90
-------------------- -------------------
Net income $ 0.39 2.04
==================== ===================
See accompanying Notes to Condensed Consolidated Financial Statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine months ended
------------------ --- ------------------
September 30, September 30,
2006 2005
------------------ ------------------
Net service revenues $ 65,586,220 $ 55,863,907
Cost of service revenue (excluding amortization and 33,954,893 29,375,781
depreciation)
-------------------- -------------------
Gross margin 31,631,327 26,488,126
General and administrative expenses:
Salaries and benefits 17,734,629 14,535,006
Other 9,211,719 9,028,214
-------------------- -------------------
Total general and administrative expenses: 26,946,348 23,563,220
-------------------- -------------------
Operating income 4,684,979 2,924,906
Other income (expense):
Interest income (expense) 94,220 (182,041)
-------------------- -------------------
Income from continuing operations before income taxes 4,779,199 2,742,865
Income tax expense 1,901,259 1,064,654
-------------------- -------------------
Net income from continuing operations 2,877,940 1,678,211
Discontinued operations, net of tax: (107,561) (296,264)
Gain on sale, net of tax: - 5,003,485
-------------------- -------------------
Net income $ 2,770,379 $ 6,385,432
==================== ===================
Per share amounts-basic:
Average shares outstanding 2,414,872 2,326,690
Income from continuing operations 1.19 0.72
Loss from discontinued operations (0.04) (0.13)
Income from gain on sale - 2.15
-------------------- -------------------
Net income $ 1.15 $ 2.74
==================== ===================
Per share amounts-diluted:
Average shares outstanding 2,662,542 2,629,386
Income from continuing operations 1.08 0.64
Loss from discontinued operations (0.04) (0.11)
Income from gain on sale - 1.90
-------------------- -------------------
Net income $ 1.04 $ 2.43
==================== ===================
See accompanying Notes to Condensed Consolidated Financial Statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
-----------------------------------------
September 30, September 30,
2006 2005
------------------- --------------------
Cash flows from operating activities:
Net income $ 2,770,379 $ 6,385,432
Less (loss)/income from discontinued operations (107,561) 4,707,221
------------------- --------------------
Income from continuing operations 2,877,940 1,678,211
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
Depreciation and amortization 846,621 1,023,584
Interest earned on escrow funds 6,696 -
Provision for uncollectible accounts 451,679 685,615
Deferred income taxes (148,185) (135,023)
------------------- --------------------
$ 4,034,751 $ 3,252,387
Change in certain net assets, net of the effects of acquisitions:
(Increase) decrease in:
Accounts receivable (1,090,710) 768,320
Prepaid expenses and other current assets (178,291) (545,780)
Other assets (38,184) (18,007)
Increase (decrease) in:
Accounts payable and accrued expenses (536,401) 484,934
------------------- --------------------
Net cash provided by operating activities $ 2,191,165 3,941,854
------------------- --------------------
Cash flows from investing activities:
Capital expenditures (729,219) (284,245)
Acquisitions, net of cash acquired (3,281,666) (2,796,083)
------------------- --------------------
Net cash used in investing activities $ (4,010,884) $ (3,080,328)
------------------- --------------------
Cash flows from financing activities:
Net revolving credit facility borrowings - (3,769,575)
Proceeds from stock option exercises 25,269 47,156
Tax benefit of options exercised 139,468 63,800
Principal (payments)/borrowings on capital leases and notes (72,481) (300,000)
payable
------------------- --------------------
Net cash provided by/(used in) financing activities $ 92,256 $ (3,958,619)
------------------- --------------------
Cash flows from discontinued operations:
Operating activities 650,609 10,834,660
Investing activities - 3,131,073
Financing activities - (1,627,710)
------------------- --------------------
Net cash provided by discontinued operations $ 650,609 12,338,023
------------------- --------------------
Net (decrease)/increase in cash and cash equivalents (1,076,854) 9,240,930
Cash and cash equivalents at beginning of period 6,188,321 873,486
------------------- --------------------
Cash and cash equivalents at end of period $ 5,111,467 $ 10,114,416
=================== ====================
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 and
nine months ended September 30, 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 September 30, 2006 and the results
of operations and cash flows for the nine months ended September 30, 2006 and
2005.
The results of operations for the three and nine months ended September 30,
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 September 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.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 of FASB, Accounting for Uncertainty in Income Taxes (FIN
48). FIN 48 addresses the accounting for income taxes by prescribing the
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. In addition, FIN 48 expands the
disclosure requirements concerning unrecognized tax benefits as well as any
significant changes that may occur in the next twelve months associated with
such unrecognized tax benefits. FIN 48 is effective for the Company in fiscal
2007. We have not determined the impact, if any, of adopting FIN 48.
In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measurements. SFAS No. 157 requires companies to
determine fair value based on the price that would be received to sell the
asset or paid to transfer the liability to a market participant. SFAS No. 157
emphasizes that fair value is a market-based measurement; not an
entity-specific measurement. The effective date of SFAS No. 157 will be the
first quarter of 2008. We have not determined the impact, if any, of adopting
SFAS No. 157.
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) medical coding, particularly with respect to Medicare, 2) patient
eligibility, particularly related to Medicaid, 3) the determination of
cost-reimbursed revenues, 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 91% 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, Alabama and Indiana (in
order of revenue significance).
Three months ended September 30, Nine months ended September 30,
------------------- -- ----------------- ------------------- -- -------------------
2006 2005 2006 2005
------------------- ----------------- ------------------- -------------------
Net Revenues
Visiting nurses $ 13,627,142 $ 9,517,030 $ 38,169,315 $ 29,257,631
Personal care 9,318,701 8,844,468 27,416,905 26,606,276
------------------- ----------------- ------------------- -------------------
$ 22,945,843 $ 18,361,498 $ 65,586,220 $ 55,863,907
=================== ================= =================== ===================
Operating Income
Visiting nurses $ 1,919,746 $ 903,041 $ 5,838,213 $ 3,970,174
Personal care 1,218,925 820,964 2,639,527 2,320,813
------------------- ----------------- ------------------- -------------------
3,138,671 1,724,005 8,477,740 6,290,987
Unallocated corporate expenses 1,449,972 975,931 3,792,761 3,366,081
------------------- ----------------- ------------------- -------------------
Operating income $ 1,688,699 $ 748,074 $ 4,684,979 $ 2,924,906
=================== ================= =================== ===================
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 $68,000 and $57,000 were
capitalized in the three months ended September 30, 2006 and 2005, respectively
and $185,000 and $129,000 were capitalized in the nine months ended September
30, 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 7.50% and 5.72% for the quarters ended September 30, 2006 and 2005
respectively. The weighted average interest rates were 7.17% and 5.27% for the
nine months ended September 30, 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 September 30, 2006, the formula
permitted approximately $22.5 million to be used and the Company had irrevocable
letters of credit, totaling $2.6 million outstanding in connection with the
Company's self-insurance programs. Thus, a total of $19.9 million was available
for use at September 30, 2006. The Company's revolving credit facility is
subject to various financial covenants. As of September 30, 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 and nine months ended September
30, 2005 would have been adjusted to the following pro forma amounts:
For periods ended September 30, 2005
------------------- ------------------
Three Months Nine Months
------------------- ------------------
Net income as reported $ 5,378,860 $ 6,385,432
Pro forma stock-based comp-
ensation expense, net of tax 3,533 10,599
------------------- ------------------
Pro forma net income $ 5,375,327 $ 6,374,833
=================== ==================
Earnings per common share:
Basic - as reported $ 2.31 $ 2.74
Basic - pro forma $ 2.31 $ 2.74
Diluted - as reported $ 2.04 $ 2.43
Diluted - proforma $ 2.04 $ 2.42
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 September 30, 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 September 30, 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 period.
Nine months ended September 30,
2006
----------------------------------
Risk-free interest rates 5.72%
Expected life of options (in years) 9.30
Expected volatility 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 September 30, 2006, there was approximately $15,800 of unrecognized
compensation cost related to share-based compensation that is expected to be
recognized over the remainder of the year and next year.
Changes in option shares outstanding are summarized as follows:
Wtd. Avg
Shares Ex. Price
------------- ----------------
December 31, 2005 388,000 $ 3.45
Granted - -
Exercised (38,255) $ 4.63
Terminated - -
------------- ----------------
September 30, 2006 349,745 $ 3.37
============= ================
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 September 30, Nine months ended September 30,
---------------------------------------------------------------------------------------
2006 2005 2006 2005
------------------- ------------------ ------------------ -------------------
Shares used to compute basic
earnings per common share -
weighted average shares
outstanding 2,411,561 2,332,027 2,414,872 2,326,690
Dilutive effect of stock options 242,826 307,187 247,670 302,696
------------------- ------------------ ------------------ -------------------
Shares used to compute diluted
earnings per common share 2,654,387 2,639,214 2,662,542 2,629,386
=================== ================== ================== ===================
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
September 30, 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. Acquisitions
Ocala, Florida
On April 8, 2006, the Company acquired all the assets and business operations of
a Medicare-certified home health agency with branches located in Ocala and Palm
Coast, Florida. The total purchase price of $1.685 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 balance due
in a balloon payment 30 months from the closing date. The remaining $5,000 is
compromised of assumed employee time off liabilities. 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.
Birmingham, Alabama
On June 30, 2006, the Company acquired all the assets and business operations of
a Medicare-certified home health agency located in Birmingham, Alabama. The
total purchase price of $830,000 was paid $670,000 in cash at closing with the
$100,000 balance in the form of a note payable bearing interest at 6% payable
quarterly with the principal due in a balloon payment 18 months from the closing
date. The remaining $60,000 is comprised of assumed employee time off
liabilities. The Company funded the cash portion of the purchase price from
available cash on deposit. The acquired operation generated net Medicare
revenues of approximately $1.8 million in the year ended September 30, 2005.
Ft. Lauderdale, Florida
On September 18, 2006, the Company acquired the business operations of a
Medicare-certified home health agency located in Ft. Lauderdale, Florida. The
total purchase price of $1.1 million was paid $950,000 in cash at closing with
the $100,000 balance in the form of a note payable bearing interest at 6%
payable quarterly with the principal due in a balloon payment 12 months from the
closing date. The remaining $50,000 is comprised of assumed employee time off
liabilities. The Company funded the cash portion of the purchase price from
available cash on deposit. The acquired operation generated net Medicare
revenues of approximately $1.8 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; and
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 91% 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, Alabama and Indiana (in order of
revenue significance).
Seasonality
Our VN segment normally experiences seasonality in its operating results.
Specifically, on a quarterly basis, the VN Segment typically generates higher
operating income in the first quarter and lower operating income in the third
quarter 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 September 30, 2006 Compared with three months ended
September 30, 2005
Consolidated Three Months 2006 2005 Change
- ------------------------------
----------------- --------- ------------------- ---------- ----------------- -----------
Amount % Rev Amount % Rev Amount %
----------------- --------- ------------------- ---------- ----------------- -----------
Net Service Revenues:
Visiting Nurse $ 13,627,142 59.4% $ 9,517,030 51.8% $ 4,110,112 43.2%
Personal Care 9,318,701 40.6% 8,844,468 48.2% 474,233 5.4%
----------------- ---------------- ---------------
$ 22,945,843 100.0% 18,361,498 100.0% 4,584,345 25.0%
================= ================ ===============
Operating Income
Visiting Nurse $ 1,919,746 14.1% 903,041 9.5% 1,016,705 112.6%
Personal Care 1,218,925 13.1% 820,964 9.3% 397,961 48.5%
----------------- ------------------ ---------------
3,138,671 13.7% 1,724,005 9.4% 1,414,666 82.1%
Corporate Expense 1,449,972 6.3% 975,931 5.3% 474,041 48.6%
----------------- ------------------ ---------------
Income before Interest Expense
and Income Taxes 1,688,699 7.4% 748,074 4.1% 940,625 125.7%
Interest (Income)
Expense (33,275) -0.1% 70,178 0.4% (103,453) -147.4%
Income Taxes 676,987 3.0% 262,065 1.4% 414,922 158.3%
----------------- ------------------ ---------------
Net Income from Continuing $ 1,044,987 4.6% 415,831 2.3% $ 629,156 151.3%
================= ================== ===============
EBITDA from Continuing Operations $ 1,949,354 $ 1,084,522 $ 864,832 79.7%
On a consolidated basis, our $4.6 million of revenue growth came from 1) same
store sales growth ($2.2 million or 49% of the growth), 2) acquisitions ($1.4
million or 30% of the growth) and 3) startups ($967,000 or 21% of the growth).
VN revenues grew 43% while PC revenues grew 5%. VN same store revenues grew by
20%. Our VN operating income included operating income from acquisitions of
about $6,000 and operating income from new start-up agencies of about $229,000.
PC startup operations generated approximately $63,000 of operating losses in the
September 2006 quarter, while the existing locations increased operating income
by 37.9% or an additional $439,000.
The effective income tax rate was approximately 39.3% and 38.7% of income before
income taxes in 2006 and 2005, respectively. The effective tax rate was higher
in 2006 due to the suspension of the Work Opportunity Tax Credit and changes in
effective state and local tax rates.
Visiting Nurse (VN) Segment-Three Months
Three months ended September 30,
--------------------------- -------------------------- ---------------------------
2006 2005 Change
---------------- ---------- ---------------- --------- ---------------- ----------
Amount % Rev Amount % Rev Amount %
---------------- ---------- ---------------- --------- ---------------- ----------
Net Service Revenues $ 13,627,142 100.0% $ 9,517,030 100.0% $ 4,110,112 43.2%
Cost of Service Revenues 5,581,293 41.0% 3,894,350 40.9% 1,686,943 43.3%
---------------- ---------------- ----------------
Gross Margin 8,045,849 59.0% 5,622,680 59.1% 2,423,169 43.1%
General and Administrative
Expenses
Salaries and Benefits 4,143,665 30.4% 3,203,352 33.7% 940,313 29.4%
Other 1,982,438 14.5% 1,516,287 15.9% 466,151 30.7%
---------------- ---------------- ----------------
Total General and Administrative
Expenses 6,126,103 45.0% 4,719,639 49.6% 1,406,464 29.8%
---------------- ---------------- ----------------
Operating Income $ 1,919,746 14.1% $ 903,041 9.5% $ 1,016,705 112.6%
================ ================ ================
All Payors:
Admissions 4,736 3,540 1,196 33.8%
Patient Months of Care 11,386 8,412 2,974 35.4%
Revenue per Patient Month $ 1,197 $ 1,131 $ 66 5.8%
Cost of Services per Patient Month $ 490 $ 463 $ 27 5.8%
Billable Visits 90,063 67,142 22,921 34.1%
Average Number of Locations 31.1 25.0 6.1 24.4%
Medicare Statistics:
Admissions 4,085 3,174 911 28.7%
Medicare Revenue % of Total 91% 93% -2%
Our VN revenue grew 43% over the same period last year. This revenue growth was
generated from same store growth ($1.9 million or 19.7%), acquisitions ($1.4
million), and startups ($859,000). Admissions grew about 32% over the prior year
while patient months increased 35%, reflecting a small increase in the average
length of stay.
VN operating income for the quarter increased 112.6% from last year primarily as
a result of volume growth. Operating income in the segment included operating
income from acquisitions of about $6,000 and operating income from new start-up
agencies of about $229,000.
Our Gross Margin as a percent of revenue declined 0.1% between years as a result
of our granting annual wage increases to employees while receiving no rate
increase from Medicare in 2006 largely offset by improved employee productivity.
Our General and Administrative Expenses: Salaries and Benefits increased as a
result of the increase in the average number of locations in operation between
periods, increases in wage rates, a large workers compensation claim in one of
our locations and the addition of segment management staff driven by the
execution of our strategic plan to develop the visiting nurse segment. While our
average number of locations increased by 24%, General and Administrative
Expenses: Other increased 31% due to higher recruiting expense, real estate
leases and advertising expenses in relation to our continued efforts in the
development of the visiting nurse segment partially offset by lower insurance
costs.
Personal Care (PC) Segment-Three Months
Three months ended September 30,
--------------------------- ---------------------------- -------------------------
2006 2005 Change
--------------- ----------- ---------------- ----------- --------------- ---------
Amount % Rev Amount % Rev Amount %
--------------- ----------- ---------------- ----------- --------------- ---------
Net Service Revenues $ 9,318,701 100.0% $ 8,844,468 100.0% $ 474,233 5.4%
Cost of Service Revenues 6,047,968 64.9% 5,948,671 67.3% 99,297 1.7%
--------------- ---------------- ---------------
Gross Margin 3,270,733 35.1% 2,895,797 32.7% 374,936 12.9%
General and Administrative
Expenses
Salaries and Benefits 1,276,695 13.7% 1,187,066 13.4% 89,629 7.6%
Other 775,113 8.3% 887,767 10.0% (112,654) -12.7%
--------------- ---------------- ---------------
Total General and Administrative
Expenses 2,051,808 22.0% 2,074,833 23.5% (23,025) -1.1%
--------------- ---------------- ---------------
Operating Income $ 1,218,925 13.1% $ 820,964 9.3% $ 397,961 48.5%
=============== ================ ===============
Admissions 627 579 48 8.3%
Patient Months of Care 10,396 10,093 303 3.0%
Patient Days of Care 130,412 125,190 5,222 4.2%
Billable Hours 530,435 517,515 12,920 2.5%
Revenue per Billable Hour $ 17.57 $ 17.09 $ 0.48 2.8%
PC operating income for the quarter was about $1.2 million versus $821,000 in
the corresponding period of last year. Startups contributed approximately
$111,000 in revenues and $63,000 in operating losses for the quarter ending
September 30, 2006. Admissions increased about 8% over the prior year while
Patient Months of Care increased 3%, reflecting a decrease in the average length
of stay.
Our Revenue per Billable Hour increased 2.8% due to changes in the mix of
business. Gross Margin as a percent of revenue increased 1.7% to 35.1% as a
result of lower workers compensation costs.
General and Administrative Expenses: Salaries and Benefits increased about
$90,000 due to the start up of three new locations, additional segment
management staff, wage increases and workers compensation experience. General
and Administrative Expenses: Other decreased approximately $113,000, primarily
from lower bad debt provision due to improved collection efforts in the accounts
receivable and lower liability insurance costs.
Nine months ended September 30, 2006 Compared with nine months ended
September 30, 2005
Consolidated Nine Months 2006 2005 Change
- ------------------------
----------------- ---------- ------------------ ----------- ----------------- -----------
Amount % Rev Amount % Rev Amount %
----------------- ---------- ------------------ ----------- ----------------- -----------
Net Service Revenues:
Visiting Nurse $ 38,169,315 58.2% $ 29,257,631 52.4% $ 8,911,684 30.5%
Personal Care 27,416,905 41.8% 26,606,276 47.6% 810,629 3.0%
----------------- ------------------ -----------------
65,586,220 100.0% 55,863,907 100.0% 9,722,313 17.4%
================= ================== =================
Operating Income
Visiting Nurse $ 5,838,213 15.3% 3,970,174 13.6% 1,868,039 47.1%
Personal Care 2,639,527 9.6% 2,320,813 8.7% 318,714 13.7%
----------------- ------------------ -----------------
8,477,740 12.9% 6,290,987 11.3% 2,186,753 34.8%
Corporate Expense 3,792,761 5.8% 3,366,081 6.0% 426,680 12.7%
----------------- ------------------ -----------------
Income before Interest Expense
and Income Taxes 4,684,979 7.1% 2,924,906 5.2% 1,760,073 60.2%
Interest (Income)
Expense (94,220) -0.1% 182,041 0.3% (276,261) -151.8%
Income Taxes 1,901,259 2.9% 1,064,654 1.9% 836,605 78.6%
----------------- ------------------ -----------------
Net Income from Continuing
Operations $ 2,877,940 4.4% $ 1,678,211 3.0% $ 1,199,729 71.5%
================= ================== =================
EBITDA from Continuing Operations $ 5,479,515 $ 3,906,224 $ 1,573,291 40.3%
On a consolidated basis, our $9.7 million of revenue growth came from 1) same
store sales growth ($5.5 million or 56% of the growth), 2) acquisitions ($2.7
million or 28% of the growth) and 3) startups ($1.5 million or 16% of the
growth).
VN revenues grew 31% while PC revenues grew 3%. VN same store revenues grew by
17%. Our VN operating income included operating income from acquisitions of
about $72,000 and operating income from new start-up agencies of about $7,000.
PC startup operations generated approximately $191,000 of operating losses in
the nine months ended September 2006, while the existing locations increased
operating income by 17% or an additional $544,000.
The effective income tax rate was approximately 39.8% and 38.8% of income before
income taxes in 2006 and 2005, respectively. The effective tax rate was higher
in 2006 due to the suspension of the Work Opportunity Tax Credit and changes in
effective state and local tax rates.
Visiting Nurse (VN) Segment-Nine Months
Nine months ended September 30,
--------------------------- -------------------------- -------------------------
2006 2005 Change
---------------- ---------- ---------------- --------- ---------------- --------
Amount % Rev Amount % Rev Amount %
---------------- ---------- ---------------- --------- ---------------- --------
Net Service Revenues $ 38,169,315 100.0% $ 29,257,631 100.0% $ 8,911,684 30.5%
Cost of Service Revenues 15,471,866 40.5% 11,496,868 39.3% 3,974,998 34.6%
---------------- ---------------- ----------------
Gross Margin 22,697,449 59.5% 17,760,763 60.7% 4,936,686 27.8%
General and Administrative
Expenses
Salaries and Benefits 11,654,868 30.5% 9,311,659 31.8% 2,343,209 25.2%
Other 5,204,368 13.6% 4,478,930 15.3% 725,438 16.2%
---------------- ---------------- ----------------
Total General and Administrative
Expenses 16,859,236 44.2% 13,790,589 47.1% 3,068,647 22.3%
---------------- ---------------- ----------------
Operating Income $ 5,838,213 15.3% $ 3,970,174 13.6% $ 1,868,039 47.1%
================ ================ ================
All Payors:
Admissions 13,549 10,516 3,083 28.8%
Patient Months of Care 32,391 24,759 7,632 30.8%
Revenue per Patient Month $ 1,178 $ 1,182 $ (4) -0.3%
Cost of Services per Patient Month $ 478 $ 464 $ 14 3.0%
Billable Visits 252,073 200,140 51,933 25.9%
Average Number of Locations 29.4 24.5 4.9 20.0%
Medicare Statistics:
Admissions 12,019 9,551 2,468 25.8%
Medicare Revenue % of Total 92% 93% -1%
Our VN revenue grew 30.5% over the same period last year. This revenue growth
was generated from same store growth ($5.0 million or 56.1%), acquisitions ($2.4
million), and startups ($1.5 million). Admissions grew about 28% over the prior
year while patient months increased 31%, reflecting a small increase in the
average length of stay.
VN operating income for the nine months ended September 30, 2006 increased 47.1%
from last year. Operating income in the segment included operating income from
acquisitions of about $72,000 and operating income from new start-up agencies of
about $7,000.
Our Gross Margin as a percent of revenue decreased 1.2% between years as a
result of our granting annual wage increases to employees while receiving no
rate increase from Medicare in 2006.
Our General and Administrative Expenses: Salaries and Benefits increased as a
result of the increase in the average number of locations in operation between
periods, increases in wage rates, incentive compensation and the addition of
segment management staff driven by the execution of our strategic plan to
develop the visiting nurse segment. While our average number of locations
increased by 20%, General and Administrative Expenses: Other increased 16.2% due
to higher recruiting expense, real estate leases and advertising expenses in
relation to our continued efforts in the development of the visiting nurse
segment partially offset by lower insurance costs.
Personal Care (PC) Segment-Nine Months
Nine months ended September 30,
--------------------------- ---------------------------- -------------------------
2006 2005 Change
--------------- ----------- ---------------- ----------- --------------- ---------
Amount % Rev Amount % Rev Amount %
--------------- ----------- ---------------- ----------- --------------- ---------
Net Service Revenues $ 27,416,905 100.0% $ 26,606,276 100.0% $ 810,629 3.0%
Cost of Service Revenues 18,483,028 67.4% 17,878,844 67.2% 604,184 3.4%
--------------- ---------------- ---------------
Gross Margin 8,933,877 32.6% 8,727,432 32.8% 206,445 2.4%
General and Administrative
Expenses:
Salaries and Benefits 4,001,841 14.6% 3,528,689 13.3% 473,152 13.4%
Other 2,292,509 8.4% 2,877,930 10.8% (585,421) -20.3%
--------------- ---------------- ---------------
Total General and Administrative
Expenses: 6,294,350 23.0% 6,406,619 24.1% (112,269) -1.8%
--------------- ---------------- ---------------
Operating Income $ 2,639,527 9.6% $ 2,320,813 8.7% $ 318,714 13.7%
=============== ================ ===============
Admissions 1,913 1,957 (44) -2.2%
Patient Months of Care 31,216 29,925 1,291 4.3%
Patient Days of Care 384,224 368,033 16,191 4.4%
Billable Hours 1,556,182 1,541,027 15,155 1.0%
Revenue per Billable Hour $ 17.62 $ 17,27 $ 0.35 2.0%
PC operating income was about $2.6 million through September 2006 compared to
$2.3 million for the same period of last year. Startups contributed
approximately $310,000 in revenues and $191,000 in operating losses for the nine
months ending September 30, 2006. Admissions decreased about 2.2% over the prior
year while Patient Months of Care increased 4.3%, reflecting an increase in the
average length of stay. Average Revenue per Billable Hour increased 2.0% while
our Gross Margin as a percentage of revenue increased 2.4% primarily due to
changes in mix of business.
General and Administrative Expenses: Salaries and Benefits increased about
$473,000 due to the startup of three new locations, additional segment
management staff, wage increases and workers compensation experience. General
and Administrative Expenses: Other decreased approximately $585,000, 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 expenses.
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 September 30, 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 (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 our subsidiaries. The weighted average interest rates were 7.50% and 5.72%
for the quarters ended September 30, 2006 and 2005 respectively. The weighted
average interest rates were 7.17% and 5.27% for the nine months ended September
30, 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 September 30, 2006, the formula
permitted approximately $22.5 million to be used and we had irrevocable letters
of credit, totaling $2.6 million outstanding in connection with our
self-insurance programs. Thus, a total of $19.9 million was available for use at
September 30, 2006. Our revolving credit facility is subject to various
financial covenants. As of September 30, 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 nine months
ending September 30, 2006 and 2005 were:
Net Change in Cash and Cash Equivalents 2006 2005
- --------------------------------------- ------------------- -------------------
Provided by (used in):
Operating activities $ 2,191,165 $ 3,941,854
Investing activities (4,010,884) (3,080,328)
Financing activities 92,256 (3,958,619)
Discontinued operations activities 650,609 12,338,023
------------------- --------------------
Net (decrease)/increase in cash and cash
equivalents $ (1,076,854) $ 9,240,930
=================== ====================
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 45 at
September 30, 2006, and 48 at December 31, 2005. Accrued other liabilities
includes a decrease from payments of historical claims exceeding new claims
experience of approximately $1.0 million. Net cash used in investing activities
resulted principally from acquisitions. Net cash provided by financing
activities resulted primarily from stock option exercises net of capital lease
payments. Cash provided by discontinued operations resulted primarily from the
release of the escrow account related to the ADC divesture and settlement of
insurance liabilities related to the adult day care segment sold in September
2005. Cash flows from operating activities for the nine months ended September
30, 2006 were negatively impacted by approximately $500,000 by a nationwide
two-week suspension of Medicare payments put in place by the Federal government
at the end of its fiscal year.
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 43 at
September 30, 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 and the acquisition of the
Bradenton, FL-based "Florida Home Health" agency. Net cash used in financing
activities resulted primarily from the payoff of our credit facility from the
ADC divesture and reduction of our 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 -- EBITDA:
Three months ended September 30,
Nine months ended September 30,
----------------------------------------------------------------------------------
2006 2005 2006 2005
---------------- ----------------- ---------------- ------------------
Net income from continuing
operations $ 1,044,987 $ 415,831 $ 2,877,940 $ 1,678,211
Add back:
Interest expense (33,275) 70,178 (94,220) 182,041
Income taxes 676,987 262,065 1,901,259 1,064,654
Depreciation and
amortization 260,655 336,448 794,536 981,318
---------------- ----------------- ---------------- ------------------
Earnings before interest,
income taxes, depreciation and
amortization (EBITDA) from
continuing operations
$ 1,949,354 $ 1,084,522 $ 5,479,515 $ 3,906,224
================ ================= ================ ==================
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 September 30, 2006, a hypothetical 100 basis point increase in short-term
interest rates would result in an increase of approximately $ 46,992 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 (as defined in Rule 13a-15(e) or Rule
15d-15(e) under the Exchange Act). 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
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 report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 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