UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 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 1-09848
ALMOST FAMILY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1153720
(State or other jurisdiction of (IRS Employer Identification No.)
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)
None.
(Former name, former address and former fiscal year, if changed since
last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.10 per share, with
Preferred Stock Purchase Rights
Name of Each Exchange on Which Registered:
Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes____ No__X__
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes____ No__X__
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ______
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___
As of June 30, 2006, the aggregate market value of the registrant's common stock
held by non-affiliates of the registrant was $25,936,973 based on the last sale
price of a share of the common stock as of June 30, 2006 ($12.01), as reported
by the NASDAQ SmallCap System.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 27, 2007
- ------------------------------------- ---------------------------------------
Common Stock, $.10 par value per share 5,415,636 Shares
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant's Annual Meeting of
Stockholders is incorporated by reference in Part III to the extent described
therein.
TABLE OF CONTENTS
PART I..............................................................................................................4
- ------
Item 1. Business.............................................................................................5
Item 1A. Risk Factors.........................................................................................14
Item 1B. Unresolved Staff Comments............................................................................22
Item 2. Properties...........................................................................................22
Item 3. Legal Proceedings....................................................................................22
Item 4. Submission of Matters to a Vote of Security Holders.................................................22
PART II.............................................................................................................22
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.......................................................................................................23
Item 6. Selected Financial Data..............................................................................24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...........................................38
Item 8. Financial Statements and Supplementary Data..........................................................39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................62
Item 9A. Controls and Procedures..............................................................................62
Item 9B. Other Information....................................................................................62
PART III............................................................................................................63
Item 10. Directors, Executive Officers and Corporate Governance...............................................63
Items 11, 12, 13 and 14. Executive Compensation; Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters; Certain Relationships and Related Transactions; and Principal Accountant Fees
and Services.....................................................................................................64
PART IV.............................................................................................................65
Item 15. Exhibits and Financial Statement Schedules...........................................................65
Special Caution Regarding Forward-Looking Statements
Certain statements contained in this annual report on Form 10-K, 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" and elsewhere in this report. 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. The Company has provided a detailed discussion of risk factors
within this annual report on Form 10-K and various filings with the SEC. The
reader is encouraged to review these risk factors and filings.
PART I
ITEM 1. BUSINESS
In this report, the terms "Company," "we," "us" or "our" mean Almost Family,
Inc. and all subsidiaries included in our consolidated financial statements.
Introduction
Almost Family, Inc. TM and subsidiaries (collectively "Almost Family") is a
leading regional provider of home health nursing services. We have service
locations in Florida, Kentucky, Ohio, Connecticut, Massachusetts, Alabama,
Indiana, Illinois and Missouri (in order of revenue significance).
We were incorporated in Delaware in 1985. Through a predecessor merged into the
Company in 1991, we have been providing health care services, primarily home
health care, since 1976. On January 31, 2000, we changed the Company's name to
Almost Family, Inc. from Caretenders (R) HealthCorp. We reported approximately
$92 million of revenues from continuing operations in the year ended December
31, 2006. Unless otherwise indicated, the financial information included in Part
I is for continuing operations.
All share and per share information in this Form 10-K has been adjusted to
reflect a 2-for-1 stock split in the form of a stock dividend in January 2007.
How We Are Currently Organized and Operate
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."
Our VN segment provides skilled medical services in patients' homes largely to
enable recipients to reduce or avoid periods of hospitalization and/or nursing
home care. VN Medicare revenues are generated on a per episode basis rather than
a fee per visit or hourly basis. Approximately 92% of the VN segment revenues
are generated from the Medicare program while the balance is generated from
Medicaid and private insurance programs.
Our PC segment services are also provided in patients' homes. These services
(generally provided by paraprofessional staff such as home health aides) are
generally of a custodial rather than skilled nature. PC revenues are generated
on an hourly basis. Approximately 71% of the PC segment revenues are generated
from Medicaid and other government programs while the balance is generated from
insurance programs and private pay patients.
Additional financial information about our segments can be found at Note 11 of
our consolidated financial statements and related notes included elsewhere in
this Form 10-K.
On September 30, 2005, we sold our Adult Day Care (ADC) business segment. The
ADC segment information has been reclassified from continuing operations into
discontinued operations for all periods presented.
Our View on Reimbursement and Diversification of Risk
Our Company is highly dependent on government reimbursement programs which pay
for the majority of the services we provide to our patients. Reimbursement under
these programs, primarily Medicare and Medicaid, is subject to frequent changes
as policy makers balance constituents' needs for health care services within the
constraints of the specific government's fiscal budgets.
We believe that an important key to our historical success and to our future
success is our ability to adapt our operations to meet changes in reimbursement
as they occur. One important way in which we have achieved this adaptability in
the past, and in which we plan to achieve it in the future, is to maintain some
level of diversification in our business mix.
The execution of our business plan will place primary emphasis on the
development of our Visiting Nurse operations. Our Personal Care operation will
help us maintain a level of diversification of reimbursement risk that we
believe is appropriate.
Our Business Plan
Our future success depends on our ability to execute our business plan. Over the
next three to five years we will try to accomplish the following:
o Generate meaningful same store sales growth through the focused
provision of high quality services and attending to the needs of our
patients;
o Expand the significance of our Visiting Nurse, Medicare-based, home
health services by selectively acquiring other quality providers, and
through the startup of new agencies; and
o Expand our capital base through both earnings performance and by
seeking additional capital investments in our Company.
Overview of Our Services
Visiting Nurse Services (VN)
Our Visiting Nurse services consist primarily of the provision of skilled
in-home medical services to patients in need of short-term recuperative health
care. A majority of our patients receive this care immediately following a
period of hospitalization or care in another type of in-patient facility. We
operate twenty-eight (28) Medicare-certified home health agencies with a total
of fourty six (46) locations. In the year ended December 31, 2006, approximately
92% of our visiting nurse segment revenues were derived from the Federal
Medicare program.
Our Visiting Nurse segment, which uses the trade name "CaretendersTM" or
"Mederi-Caretenders" as primary trade names in most of its markets, provides a
comprehensive range of Medicare-certified home health nursing services. We
also receive payment from Medicaid and private insurance companies. Our
professional staff includes registered nurses, licensed practical nurses,
physical, speech and occupational therapists, and medical social workers. They
monitor medical treatment plans prescribed by physicians. Our professional staff
is subject to state licensing requirements in the particular states in which
they practice. Para-professional staff members (primarily home health aides)
also provide care to these patients.
Our Visiting Nurse segment operations located in Florida normally experience
higher admissions during the March quarter than in the other quarters due to
seasonal population fluctuations. Approximately 60% of our revenues are
generated from our operations in Florida.
Personal Care Services (PC)
Our PC segment services are also provided in patients' homes. These services
(generally provided by para-professional staff such as home health aides) are
generally of a custodial rather than skilled nature. PC revenues are generated
on an hourly basis. We currently operate twenty four (24) personal care
locations.
As of December 31, 2006, our operating locations were as follows:
Visiting Nurse Personal Care
Locations Branches Branches
--------------------------- ----------------------- ----------------------
Florida:
Bradenton 2 -
Brandon 1 -
Brooksville 1 -
Delray 1 -
Fort Lauderdale 1 1
Fort Myers 1 1
Gainesville 1 -
Holiday 1 -
Inverness 1 -
Melbourne 1 -
Naples 1 1
Ocala 1 -
Orlando 1 -
Palm Coast 1 -
Pinellas Park 1 -
Port Charlotte 1 -
Port St. Lucie 1 1
Sarasota 1 1
Sebring 1 -
St. Augustine 1 1
Tavares 1 -
Titusville 1 -
Vero Beach 1 -
West Palm Beach 1 1
Kentucky:
Elizabethtown 1 1
Frankfort 1 -
Lebanon Junction 1 1
Lexington 1 1
Louisville 1 1
Northern KY (metro
Cincinnati) 1 1
Owensboro 1 1
Shelbyville 1 -
Ohio:
Akron 1 1
Cincinnati - 1
Cleveland 2 2
Columbus - 1
Youngstown 1 -
Connecticut:
Bridgeport - 1
Danbury - 1
Stamford - 1
Waterbury - 1
West Haven - 1
Massachusetts:
Boston 1 1
Indiana:
New Albany 1 -
Illinois:
Breese 1 -
Homewood 1 -
Swansea 1 -
Missouri:
St. Louis 1 -
Sullivan 1 -
Alabama:
Birmingham 1 1
----------------------- ----------------------
Total 44 24
======================= ======================
Compensation for Services
We are compensated for our services by (i) Medicare (Visiting Nurse only), (ii)
Medicaid (iii) other third party payors (e.g. insurance companies and other
sources), and (iv) private pay (paid by personal funds). The rates of
reimbursement we receive from Medicare, Medicaid and Other Government programs
are generally dictated by those programs. In determining charge rates for goods
and services provided to our other customers, we evaluate several factors
including cost and market competition. We sometimes negotiate contract rates
with third party providers such as insurance companies.
Our reliance on government sponsored reimbursement programs makes us vulnerable
to possible legislative and administrative regulations and budget cut-backs that
could adversely affect the number of persons eligible for such programs, the
amount of allowed reimbursements or other aspects of the program, any of which
could materially affect us. In addition, loss of certification or qualification
under Medicare or Medicaid programs could materially affect our ability to
effectively market our services.
The following table sets forth our revenues from continuing operations derived
from each major class of payor during the indicated periods (by percentage of
net revenues):
Year Ended Year Ended Year Ended
Payor Group December 31, 2006 December 31, 2005 December 31, 2004
---------------------------------------------------------- ----------------------- -----------------------------
Medicare 55.6% 49.0% 44.0%
Medicaid and Other Government
Programs 31.0% 34.3% 36.8%
Insurance and private pay 13.4% 16.7% 19.2%
Medicare revenues are earned only in our VN segment where they account for 92%
of segment revenues. Historical changes in payment sources are primarily a
result of changes in the types of customers we attract.
As shown above, approximately 31% of our 2006 revenues were derived from state
Medicaid and Other Government Programs, many of which periodically face
significant budget issues. The financial condition of the Medicaid programs in
each of the states in which we operate is cyclical and many may be expected from
time to time to take actions or evaluate taking actions to control the rate
of growth of Medicaid expenditures. Among these actions are the following:
o Redefining eligibility standards for Medicaid coverage
o Redefining coverage criteria for home and community based care services
o Slowing payments to providers by increasing the minimum time in which payments
are made
o Limiting reimbursement rate increases
o Changing regulations under which providers must operate
The actions that might be taken or considered are because the number of
Medicaid beneficiaries and their related expenditures are growing at a faster
rate than the government's revenue. Medicaid is consuming a greater percentage
of the budget. This issue is exacerbated when revenues slow in a slowing
economy. We believe that these financial issues are cyclical in nature rather
than indicative of the long-term prospect for Medicaid funding of health care
services. Additionally, we believe our services offer the lowest cost
alternative to institutional care and are a part of the solution to the states'
Medicaid financing problems. It is possible however, that the actions taken by
the state Medicaid programs in the future could have a significant unfavorable
impact on our results of operations, financial condition and liquidity.
See "Government Regulation" and "Risk Factors." We will monitor the effects of
such items and may consider modifications to our expansion and development
strategy when and if necessary.
Acquisitions
Over the next three to five years we will actively seek to acquire quality
providers of Medicare-certified home health services. We may consider
acquisitions of businesses that provide health care services similar to those we
currently offer in our Personal Care segment but we expect most of our
acquisition activity to be focused on Visiting Nurse operations.
Factors which may affect future acquisition decisions include the quality and
potential profitability of the business under consideration, and our
profitability and ability to finance the transaction.
Acquisitions During 2006
During 2006, we acquired 24 visiting nurse branch locations one of which was
essentially a startup operation. These operations added to our market presence
in Florida, and gave us market presence in Alabama, Illinois and Missouri.
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 $1.8 million was paid $1.4 million
in cash 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 acquired operations
generated net revenues of approximately $1.7 million in the year ended December
31, 2005.
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 $982,000 was paid $810,000 in cash 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 acquired operation generated net Medicare revenues of approximately
$1.8 million in the year ended June 30, 2006.
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 $1.4 million was paid $1.3 million in cash 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 acquired operation generated net Medicare revenues of
approximately $1.8 million in the year ended December 31, 2005.
On December 3, 2006, the Company acquired all the Medicare-certified home health
agencies owned and operated by Mederi, Inc., located in Coconut Grove, Florida.
The total purchase price of $20.4 million was paid $11.7 million in cash,
approximately $3 million or 100,000 shares of Almost Family common stock
(restricted) with the $4 million balance in the form of two notes payable
bearing interest at 6% payable quarterly with the principal due in a balloon
payment two years from the closing date. The company assumed employee paid-
time-off liabilities of approximately $397,000 and a Medicare liability of
approximately $1.3 million. Additional consideration of up to $5.5 million in
cash may be paid to the seller contingent primarily upon the achievement of
certain revenue targets in the two years following the closing. The cash portion
of the transaction was funded from borrowings available on the Company's
existing senior credit facility with JP Morgan Chase Bank, NA. The acquired
operations generated net revenues of approximately $23.8 million in the year
ended June 30, 2006. The Mederi acquisition significantly expands the
Company's presence and penetration in the state of Florida and gives the
Company new market presence in the states of Missouri and Illinois.
Acquisitions During 2005
During 2005, we acquired three visiting nurse operations one of which was
essentially a startup operation. These operations added to our market
presence in Florida.
One April 1, 2005 we acquired all the assets and business operations of a
Medicare-certified visiting nurse agency in Bradenton, Florida. The total
purchase price of $3.2 million was paid in the form of $2.5 million in cash
with the $700,000 balance in the form of a note payable bearing
interest at 6% payable quarterly and the note balance due in two years
after closing. We funded the cash portion of the purchase price with
available borrowings on our revolving credit facility.
On November 12, 2005 we acquired all the assets and business operations of a
Medicare-certified visiting nurse agency located in St. Augustine, Florida.
The total purchase price of $800,000 was paid in the form of $600,000
in cash with the balance in the form of a note payable bearing
interest at 6% due in its entirety three years after closing. We funded the
cash portion of the purchase price with cash on hand.
Competition, Marketing and Customers
The visiting nurse industry is highly competitive and fragmented.
Competitors include larger publicly held companies such as Gentiva
(NasdaqGS:GTIV) and Amedisys (NasdaqGS:AMED), numerous privately held
multi-site home care companies, privately held single-site agencies and a
significant number of hospital-based agencies. In some locations, county
health departments operate home health agencies. Competition for customers
at the local market level is very fragmented and market specific. Generally
each local market has its own competitive profile and no one competitor has
significant market share across all our markets. To our best knowledge, no
individual provider has more than 3% share of the national market.
We believe the primary competitive factors are quality of service and reputation
among referral sources. However, competitors are increasingly focusing attention
on providing alternative site health care services. We market our services
through our site managers and marketing staff. These individuals contact
referral sources in their areas to market our services. Major referral sources
include: physicians, hospital discharge planners, Offices on Aging, social
workers, and group living facilities. We also utilize consumer-direct sales,
marketing and advertising programs designed to attract customers.
The personal care industry is likewise highly competitive but fragmented.
Competitors include home health providers, senior adult associations, and the
private hiring of caregivers. We market our services primarily through our site
managers, and we compete by offering a high quality of care and by helping
families identify and access solutions for care.
Government Regulation
Overview
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 and proposals for additional changes are
continuously formulated by departments of the Federal government, Congress, and
state legislatures.
We expect government officials 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. We expect legislative changes to "balance the
budget" and slow the annual rate of growth of Medicare and Medicaid to continue.
Such future changes may further impact reimbursement for our services. There can
be no assurance that future legislation or regulatory changes will not have a
material adverse effect on our operations.
Medicare Rates
On October 1, 2000, Medicare implemented the Prospective Payment System ("PPS")
and began paying providers of home health care at fixed, predetermined rates for
services and supplies bundled into 60-day episodes of home health care. An
episode of home health care spans a 60-day period, starting with the first day
a billable visit is furnished to a Medicare beneficiary and ending 60 days
later. If a patient is still in treatment on the 60th day a new episode begins
on the 61st day regardless of whether a billable visit is rendered on that day
and ends 60 days later. The first day of a consecutive episode, therefore, is
not necessarily the new episode's first billable visit. A base episode payment
is established by the Medicare Program through federal legislation for all
episodes of care ended on or after the applicable time periods detailed below:
Period Base episode
Payment (1)
October 1, 2002 through September 30, 2003 $ 2,159
October 1, 2003 through March 31, 2004 $ 2,231
April 1, 2004 through December 31, 2004 $ 2,213
January 1, 2005 through December 31, 2005 $ 2,264
January 1, 2006 through December 31, 2006 $ 2,264
(1) The actual episode payment rates, as presented in the table vary,
depending on the home health resource groups ("HHRGs") to which Medicare
patients are assigned and the per episode payment is typically reduced or
increased by such factors as the patient's clinical, functional, and
services utilization characteristics.
Under PPS for Medicare reimbursement, we record net revenues are recorded based
on a reimbursement rate that varies based on the severity of the patient's
condition, service needs and other related factors. We record net revenues as
services are rendered to patients over the 60-day episode period. At the end of
each month, a portion of our revenue is estimated for episodes in progress.
Medicare reimbursement, on an episodic basis, is subject to adjustment if there
are significant changes in the patient's condition during the treatment period
or if the patient is discharged but readmitted to another agency within the same
60-day episodic period. Our evenue recognition under the Medicare reimbursement
program is based on certain variables including, but not limited, to: (i)
changes in the base episode payments established by the Medicare Program; (ii)
adjustments to the base episode payments for partial episodes and for other
factors, such as case mix, geographic wages, low utilization and intervening
events; and, (iii) recoveries of overpayments. Adjustments to revenue result
from differences between estimated and actual reimbursement amounts, an
inability to obtain appropriate billing documentation or authorizations
acceptable to the payor and other reasons unrelated to credit risk. We recognize
Medicare revenue on an episode-by-episode basis during the course of each
episode over its expected number of visits.
Effective January 1, 2007, the Medicare standard episode rates increased 3.3%.
Based on current law and regulation, Medicare rates will change each January 1
thereafter, based on a statutory formula the intent of which is to cause
reimbursement rates to reflect changes in the costs of providing services minus
0.8% per year.
Refer to the "Risk Factors" below, the "Notes to the Consolidated Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional information.
Permits and Licensure
Many states require companies providing certain health care services to be
licensed as home health agencies. In addition, certain health care practitioners
employed by us require state licensure and/or registration and must comply with
laws and regulations governing standards of practice. The failure to obtain,
renew or maintain any of the required regulatory approvals or licenses could
adversely affect our business. We believe we are currently licensed
appropriately where required by the laws of the states in which we operate.
There can be no assurance that either the states or the Federal government will
not impose additional regulations upon our activities which might adversely
affect our results of operations, financial condition, or liquidity.
Certificates of Need
Certain states require companies providing health care services to obtain a
certificate of need issued by a state health-planning agency. Where required by
law, we have obtained certificates of need from those states. There can be no
assurance that we will be able to obtain any certificates of need which may be
required in the future if we expand the scope of our services or if state laws
change to impose additional certificate of need requirements, and any attempt to
obtain additional certificates of need will cause us to incur certain expenses.
Other Regulations
A series of laws and regulations dating back to the Omnibus Budget
Reconciliation Act of 1987 ("OBRA 1987") and through the Medicare Prescription
Drug Bill of 2003 have been enacted and apply to us. Changes in applicable laws
and regulations have occurred from time to time since OBRA 1987 including
reimbursement reductions and changes to payment rules. Changes are also expected
to occur continuously for the foreseeable future.
As a provider of services under Medicare and Medicaid programs, we are subject
to the Medicare and Medicaid anti-kickback statute, also known as the "fraud and
abuse law." This law prohibits any bribe, kickback, rebate or remuneration of
any kind in return for, or as an inducement for, the referral of Medicare or
Medicaid patients. We may also be affected by the Federal physician
self-referral prohibition, known as the "Stark" law, which, with certain
exceptions, prohibits physicians from referring patients to entities in which
they have a financial interest or from which they receive financial benefit.
Many states in which we operate have adopted similar self-referral laws, as well
as laws that prohibit certain direct or indirect payments or fee-splitting
arrangements between health care providers, if such arrangements are designed to
induce or to encourage the referral of patients to a particular provider.
Health care is an area of extensive and dynamic regulatory change. Changes in
laws or regulations or new interpretations of existing laws or regulations can
have a dramatic effect on our permissible activities, the relative costs
associated with our doing business, and the amount and availability of
reimbursement we receive from government and third-party payors. Furthermore, we
will be required to comply with applicable regulations in each new state in
which we desire to provide services.
As a result of the Health Insurance Portability and Accountability Act of 1996
and other legislative and administrative initiatives, Federal and state
enforcement efforts against the health care industry have increased
dramatically, subjecting all health care providers to increased risk of scrutiny
and increased compliance costs.
We are subject to routine and periodic surveys and audits by various
governmental agencies. We believe that we are in material compliance with
applicable laws. However, we are unable to predict what additional government
regulations, if any, affecting our business may be enacted in the future, how
existing or future laws and regulations might be interpreted or whether we will
be able to comply with such laws and regulations either in the markets in which
we presently conduct, or wish to commence, business.
Health Insurance Portability and Accountability Act (HIPAA)
The Health Insurance Portability and Accountability Act (HIPAA) was enacted by
the Federal government on August 12, 1996, and requires organizations to adhere
to certain standards to protect data integrity, confidentiality and
availability. HIPAA also mandates, among other things, that the Department of
Health and Human Services adopt standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and
enhance the effectiveness and efficiency of the health care industry. We
implemented changes in our operations to comply with HIPAA and we believe we are
in compliance.
Insurance Programs and Costs
We bear significant insurance risk under our large-deductible workers'
compensation insurance programs and our self-insured employee health
program. Under our workers' compensation insurance program, we bear risk up to
$250,000 per incident. We purchase stop-loss insurance for our 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 also know of incidents that have occurred through December 31, 2006
that may result in the assertion of additional claims. We carry insurance
coverage for this exposure; however our 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.
We believe that our present insurance coverage is adequate. As part of our
on-going risk management and cost control efforts, we continually seek
alternatives that might provide a different balance of cost and risk, including
potentially accepting additional self-insurance risk in lieu of higher premium
costs.
Executive Officers
See Part III, Item 10 of this Form 10-K for information about the company's
executive officers.
Employees and Labor Relations
As of December 31, 2006 we had approximately 4,000 employees. None of our
employees are represented by a labor organization. We believe our relationship
with our employees is satisfactory.
Discontinued Operations
On September 30, 2005, the Company completed an asset sale transaction to divest
its adult day care (ADC) segment to Active Services, Inc. ADC operations are now
reported as discontinued operations.
The purchase price consisted of $13.6 million cash plus assumption of
approximately $1.4 million of debt. In return, Active Services acquired
substantially all the assets and assumed certain working capital liabilities
related to Almost Family's 19 medical adult day care centers which generated
approximately $21.0 million in annual revenues. The transaction closed on
September 30, 2005. Proceeds of the sale were used to retire debt with the
balance invested in cash equivalents at December 31, 2005. The Company reported
an after-tax gain on the sale totaling $5.2 million.
We follow the guidance in SFAS 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" and, when appropriate, reclassify operating units closed,
sold, or held for sale out of continuing operations and into discontinued
operations for all periods presented. At the year ended December 31, 2006,
the VN segment had one facility that met the criteria to be reclassified as
discontinued operations. For all the years presented in this report, this
facility has been reclassified. Net losses from the discontinued operations
were approximately ($34,000), ($221,000) and ($363,000) in the years
ended December 31, 2006, 2005 and 2004 respectively, and such amounts are
included in net loss from discontinued operations in the accompanying financial
statements.
Website Access to Our Reports
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports are available free of charge on
our website at www.almostfamily.com as soon as reasonably practicable after such
material is electronically filed with or furnished to the Securities and
Exchange Commission. Also, copies of our annual report will be made available,
free of charge, upon written request.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a degree of risk. You should consider
carefully the following risks, as well as other information in this filing and
the incorporated documents before investing in our common stock.
Risks Related to Our Industry
Our profitability depends principally on the level of government-mandated
payment rates. Reductions in rates or rate increases that do not cover cost
increases may adversely affect our business.
We generally receive fixed payments from Medicare for our services based on the
level of care that we provide patients. Consequently, our profitability largely
depends upon our ability to manage the cost of providing services. Although
current Medicare legislation provides for an annual adjustment of the various
payment rates based on the increase or decrease of the medical care expenditure
category of the Consumer Price Index, these Medicare payment rate increases may
be less than actual inflation or could be eliminated or reduced in any given
year. Consequently, if our cost of providing services, which consists primarily
of labor costs, is greater than the current Medicare payment rate, our
profitability would be negatively impacted.
If any of our agencies fail to comply with the conditions of participation in
the Medicare program, that agency could be terminated from the Medicare
program, which would adversely affect our net patient service revenue and
profitability.
Each of our home care agencies must comply with the extensive conditions of
participation in the Medicare program. If any of our agencies fail to meet any
of the Medicare conditions of participation, that agency may receive a notice of
deficiency from the applicable state surveyor. If that agency then fails to
institute a plan of correction to correct the deficiency within the correction
period provided by the state surveyor, that agency could be terminated from the
Medicare program. Any termination of one or more of our home care agencies from
the Medicare program for failure to satisfy the program's conditions of
participation could adversely affect our net service revenue and profitability.
We are subject to extensive government regulation. Any changes to the laws and
regulations governing our business, or the interpretation and enforcement of
those laws or regulations, could cause us to modify our operations and could
negatively impact our operating results.
The federal government and the states in which we operate regulate our industry
extensively. The laws and regulations governing our operations, along with the
terms of participation in various government programs, regulate how we do
business, the services we offer, and our interactions with patients and the
public. These laws and regulations, and their interpretations, are subject to
frequent change. Changes in existing laws and regulations, or their
interpretations, or the enactment of new laws or regulations could reduce our
profitability by:
o increasing our liability;
o increasing our administrative and other costs;
o increasing or decreasing mandated services;
o forcing us to restructure our relationships with referral sources and
providers; or
o requiring us to implement additional or different programs and systems.
For example, Congress enacted the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"), which mandates that provider organizations
enhance privacy protections for patient health information. This requires
companies like us to develop, maintain and monitor administrative, information,
and security systems to prevent inappropriate release of protected health
information. Compliance with this law has added, and will continue to add, costs
that affect our profitability. Failure to comply with HIPAA could result in
fines and penalties, as well as our exclusion from Medicare and Medicaid
programs.
In addition, we are subject to various routine and non-routine governmental
reviews, audits, and investigations. Violation of the laws governing our
operations, or changes in interpretations of those laws, could result in the
imposition of fines, civil or criminal penalties, the termination of our rights
to participate in federal and state-sponsored programs, and the suspension or
revocation of our licenses. If we become subject to material fines or if other
sanctions or other corrective actions are imposed on us, we might suffer a
substantial reduction in profitability.
If we are unable to maintain relationships with existing patient referral
sources or to establish new referral sources, our growth and profitability could
be adversely affected.
Our success depends significantly on referrals from physicians, hospitals, and
other patient referral sources in the communities that our home care agencies
serve, as well as on our ability to maintain good relationships with these
referral sources. Our referral sources are not contractually obligated to refer
home care patients to us and may refer their patients to other providers. Our
growth and profitability depend on our ability to establish and maintain close
working relationships with these patient referral sources and to increase
awareness and acceptance of the benefits of home care by our referral sources
and their patients. We cannot assure you that we will be able to maintain our
existing referral source relationships or that we will be able to develop and
maintain new relationships in existing or new markets. Our loss of, or failure
to maintain, existing relationships or our failure to develop new relationships
could adversely affect our ability to expand our operations and operate
profitably.
We are subject to federal and state laws that govern our financial
relationships with physicians and other healthcare providers, including
potential or current referral sources.
We are required to comply with federal and state laws, generally referred to as
"anti-kickback laws," that prohibit certain direct and indirect payments or
fee-splitting arrangements between healthcare providers that are designed to
encourage the referral of patients to a particular provider for medical
services. In addition to enacting anti-kickback laws, some of the states in
which we operate have enacted laws prohibiting certain business relationships
between physicians and other providers of healthcare services. We currently have
contractual relationships with certain physicians who provide consulting
services to our company. Many of these physicians are current or potential
referral sources. Although we believe our physician consultant arrangements
currently comply with state and federal anti-kickback laws and state laws
regulating relationships between healthcare providers, we cannot assure you that
courts or regulatory agencies will not interpret these laws in ways that will
implicate our physician consultant arrangements. Violations of anti-kickback and
similar laws could lead to fines or sanctions that may have a material adverse
effect on our operations.
We may be subject to substantial malpractice or other similar claims.
The services we offer involve an inherent risk of professional liability and
related substantial damage awards. On any given day, we have several hundred
nurses and other direct care personnel driving to and from patients' homes where
they deliver medical and other care. Due to the nature of our business, we and
the caregivers who provide services on our behalf may be the subject of medical
malpractice claims. These caregivers could be considered our agents, and, as a
result, we could be held liable for their medical negligence. We cannot predict
the effect that any claims of this nature, regardless of their ultimate outcome,
could have on our business or reputation or on our ability to attract and retain
patients and employees. We maintain malpractice liability insurance and are
responsible for amounts in excess of the limits of our coverage.
Delays in reimbursement may cause liquidity problems.
Our business is characterized by delays in reimbursement from the time we
provide services to the time we receive reimbursement or payment for these
services. If we have information system problems or issues that arise with
Medicare, we may encounter delays in our payment cycle. Such a timing delay may
cause working capital shortages. Working capital management, including prompt
and diligent billing and collection, is an important factor in our results of
operations and liquidity. We cannot assure you that system problems, Medicare
issues or industry trends will not extend our collection period, adversely
impact our working capital, or that our working capital management procedures
will successfully negate this risk. There are often timing delays when
attempting to collect funds from Medicaid programs. We cannot assure you that
delays in receiving reimbursement or payments from these programs will not
adversely impact our working capital.
Our industry is highly competitive.
Our home health care agencies compete with local and regional home health care
companies, hospitals, nursing homes, and other businesses that provide home
nursing services, some of which are large established companies that have
significantly greater resources than we do. Our primary competition comes from
local companies in each of our markets, and these privately-owned or
hospital-owned health care providers vary by region and market. We compete based
on the availability of personnel; the quality, expertise, and value of our
services; and in select instances, on the price of our services. Increased
competition in the future from existing competitors or new entrants may limit
our ability to maintain or increase our market share. We cannot assure you that
we will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse impact on our
business, financial condition, or results of operations.
Some of our existing and potential new competitors may enjoy greater name
recognition and greater financial, technical, and marketing resources than we
do. This may permit our competitors to devote greater resources than we can to
the development and promotion of services. These competitors may undertake more
far-reaching and effective marketing campaigns and may offer more attractive
opportunities to existing and potential employees and services to referral
sources.
We expect our competitors to develop new strategic relationships with providers,
referral sources, and payors, which could result in increased competition. The
introduction of new and enhanced service offerings, in combination with industry
consolidation and the development of strategic relationships by our competitors,
could cause a decline in revenue or loss of market acceptance of our services or
make our services less attractive. Additionally, we compete with a number of
non-profit organizations that can finance acquisitions and capital expenditures
on a tax-exempt basis or receive charitable contributions that are unavailable
to us.
We expect that industry forces will continue to have an impact on our business
and that of our competitors. In recent years, the health care industry has
undergone significant changes driven by efforts to reduce costs, and we expect
these cost containment measures to continue in the future. Frequent regulatory
changes in our industry, including reductions in reimbursement rates and changes
in services covered, have increased competition among home health care
providers. If we are unable to react competitively to new developments, our
operating results may suffer.
A shortage of qualified registered nursing staff and other caregivers
could adversely affect our ability to attract, train and retain qualified
personnel and could increase operating costs.
We rely significantly on our ability to attract and retain caregivers who
possess the skills, experience, and licenses necessary to meet the requirements
of our patients. We compete for personnel with other providers of home nursing
services. Our ability to attract and retain caregivers depends on several
factors, including our ability to provide these caregivers with attractive
assignments and competitive benefits and salaries. We cannot assure you that we
will succeed in any of these areas. In addition, there are occasional shortages
of qualified healthcare personnel in some of the markets in which we operate. As
a result, we may face higher costs of attracting caregivers and providing them
with attractive benefit packages than we originally anticipated, and, if that
occurs, our profitability could decline. Finally, although this is currently not
a significant factor in our existing markets, if we expand our operations into
geographic areas where healthcare providers have historically unionized, we
cannot assure you that the negotiation of collective bargaining agreements will
not have a negative effect on our ability to timely and successfully recruit
qualified personnel. Generally, if we are unable to attract and retain
caregivers, the quality of our services may decline, and we could lose patients
and referral sources.
Risks Related to Our Business
We depend on Medicare for the largest portion of our revenues.
For the years ended December 31, 2006, 2005 and 2004, we received 56%, 49% and
45%, respectively, of our revenue from Medicare. Further, the acquisitions
completed by us in 2006 substantially increase our dependence on Medicare
reimbursement. Reductions in Medicare reimbursement could have an adverse impact
on our profitability. Such reductions in payments to us could be caused by:
o administrative or legislative changes to the base episode rate;
o the elimination or reduction of annual rate increases based on medical
inflation;
o the imposition by Medicare of co-payments or other mechanisms shifting
responsibility for a portion of payment to beneficiaries;
o adjustments to the relative components of the wage index;
o changes to our case mix or therapy thresholds; or
o other adverse changes to the way we are paid for delivering our services.
The Medicare Payment Advisory Commission (MedPAC), an independent federal body
established to advise Congress on issues affecting the Medicare Program, has
recently recommended implementation of pay-for-performance initiatives for home
care providers. If implemented, Medicare will differentiate reimbursement rates
for Medicare home health service providers based on quality measures. While we
believe that we provide high quality services to our patients, there can be no
assurances that a pay-for-performance reimbursement system will not adversely
affect our Medicare reimbursement rates and, consequently, our results of
operations.
Our non-Medicare revenues and profitability also are affected by the continuing
efforts of third-party payors to contain or reduce the costs of health care by
lowering reimbursement rates, narrowing the scope of covered services,
increasing case management review of services, and negotiating reduced contract
pricing. Any changes in reimbursement levels from these third-party payor
sources and any changes in applicable government regulations could have a
material adverse effect on our revenues and profitability. We can provide no
assurance that we will continue to maintain the current payor or revenue mix.
Migration of our Medicare beneficiary patients to Medicare managed care
providers could negatively impact our operating results.
Historically, we have generated a substantial portion of our revenue from the
Medicare fee-for-service market. Under the Medicare Prescription Drug
Improvement and Modernization Act of December 2003 ("MMA"), however, the United
States Congress allocated significant additional funds and other incentives to
Medicare managed care providers in order to promote greater participation in
those plans by Medicare beneficiaries. If these increased funding levels have
the intended result, the size of the potential Medicare fee-for-service market
could decline, thereby reducing the size of our potential patient population,
which could cause our operating results to suffer.
Our growth strategy depends on our ability to manage growing and changing
operations.
Our business plan calls for significant growth in our business over the next
several years. This growth will place significant demands on our management
systems, internal controls, and financial and professional resources. In
addition, we will need to further develop our financial controls and reporting
systems to accommodate future growth. This could require us to incur expenses
for hiring additional qualified personnel, retaining professionals to assist in
developing the appropriate control systems, and expanding our information
technology infrastructure. Our inability to manage growth effectively could have
a material adverse effect on our financial results.
Our growth strategy depends on our ability to develop and to acquire additional
agencies on favorable terms and to integrate and operate these agencies
effectively. If we are unable to do so, our future growth and operating results
could be negatively impacted.
Development. We expect to continue to open agencies in our existing and new
markets. Our new agency growth, however, will depend on several factors,
including our ability to:
o obtain locations for agencies in markets where need exists;
o identify and hire a sufficient number of sales personnel and appropriately
trained home care and other health care professionals;
o obtain adequate financing to fund growth; and
o operate successfully under applicable government regulations.
Acquisitions. We are focusing significant time and resources on the acquisition
of home healthcare providers, or of certain of their assets, in targeted
markets. We may be unable to identify, negotiate, and complete suitable
acquisition opportunities on reasonable terms. We may incur future liabilities
related to acquisitions. Should any of the following problems, or others, occur
as a result of our acquisition strategy, the impact could be material:
o difficulties integrating personnel from acquired entities and other corporate
cultures into our business;
o difficulties integrating information systems;
o the potential loss of key employees or referral sources of acquired
companies or a reduction in patient referrals by hospitals from which
we have acquired home health care agencies;
o the assumption of liabilities and exposure to undisclosed liabilities of
acquired companies;
o the acquisition of an agency with undisclosed compliance problems;
o the diversion of management attention from existing operations;
o difficulties in recouping partial episode payments and other types of
misdirected payments for services from the previous owners; or
o an unsuccessful claim for indemnification rights from previous owners
for acts or omissions arising prior to the date of acquisition.
We may require additional capital to pursue our acquisition strategy.
At December 31, 2006, we had cash and cash equivalents of approximately $4
million and additional borrowing capacity of approximately $11 million. Based on
our current plan of operations, including acquisitions, we cannot assure you
that this amount will be sufficient to support our current growth strategies. We
cannot readily predict the timing, size, and success of our acquisition efforts
and the associated capital commitments. If we do not have sufficient cash
resources, our growth could be limited unless we obtain additional equity or
debt financing. At some future point we may elect to issue additional equity
securities in conjunction with raising capital or completing an acquisition. We
cannot assure you that such issuances will not be dilutive to existing
shareholders.
Our business depends on our information systems. Our inability to effectively
integrate, manage, and keep secure our information systems could disrupt our
operations.
Our business depends on effective and secure information systems that assist us
in, among other things, monitoring utilization and other cost factors,
processing claims, reporting financial results, measuring outcomes and quality
of care, managing regulatory compliance controls, and maintaining operational
efficiencies. These systems include software developed in-house and systems
provided by external contractors and other service providers. To the extent that
these external contractors or other service providers become insolvent or fail
to support the software or systems, our operations could be negatively affected.
Our agencies also depend upon our information systems for accounting, billing,
collections, risk management, quality assurance, payroll, and other information.
If we experience a reduction in the performance, reliability, or availability of
our information systems, our operations and ability to produce timely and
accurate reports could be adversely affected.
Our information systems and applications require continual maintenance,
upgrading, and enhancement to meet our operational needs. Our acquisition
activity requires transitions and integration of various information systems. We
regularly upgrade and expand our information systems' capabilities. If we
experience difficulties with the transition and integration of information
systems or are unable to implement, maintain, or expand our systems properly, we
could suffer from, among other things, operational disruptions, regulatory
problems, and increases in administrative expenses.
Our business requires the secure transmission of confidential information over
public networks. Advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments could result in compromises or
breaches of our security systems and patient data stored in our information
systems. Anyone who circumvents our security measures could misappropriate our
confidential information or cause interruptions in our services or operations.
The Internet is a public network, and data is sent over this network from many
sources. In the past, computer viruses or software programs that disable or
impair computers have been distributed and have rapidly spread over the
Internet. Computer viruses could be introduced into our systems, or those of our
providers or regulators, which could disrupt our operations or make our systems
inaccessible to our providers or regulators. We may be required to expend
significant capital and other resources to protect against the threat of
security breaches or to alleviate problems caused by breaches. Our security
measures may be inadequate to prevent security breaches, and our business
operations would be negatively impacted by cancellation of contracts and loss of
patients if security breaches are not prevented.
Further, our information systems are vulnerable to damage or interruption from
fire, flood, natural disaster, power loss, telecommunications failure, break-ins
and similar events. A failure to restore our information systems after the
occurrence of any of these events could have a material adverse effect on our
business, financial condition and results of operations. Because of the
confidential health information we store and transmit, loss of
electronically-stored information for any reason could expose us to a risk of
regulatory action, litigation, possible liability and loss.
Our clinical software system has been developed in-house. Failure of, or
problems with, our system could harm our business and operating results.
We have developed and utilize a proprietary clinical software system to collect
assessment data, log patient visits, generate medical orders, and monitor
treatments and outcomes in accordance with established medical standards. The
system integrates billing and collections functionality as well as accounting,
human resource, payroll, and employee benefits programs provided by third
parties. Problems with, or the failure of, our technology and systems could
negatively impact data capture, billing, collections, and management and
reporting capabilities. Any such problems or failures could adversely affect our
operations and reputation, result in significant costs to us, and impair our
ability to provide our services in the future. The costs incurred in correcting
any errors or problems may be substantial and could adversely affect our
profitability.
We depend on outside software providers.
We depend on the proper functioning and availability of our information systems
in operating our business, some of which are provided by outside software
providers. These information systems and applications require continual
maintenance, upgrading, and enhancement to meet our operational needs. If our
providers are unable to maintain or expand our information systems properly, we
could suffer from operational disruptions and an increase in administrative
expenses, among other things.
The inability or failure of management in the future to conclude that we
maintain effective internal controls over financial reporting, or the
inability of our independent auditor to issue a report attesting to
management's assessment of our internal controls over financial reporting,
could have a material adverse effect on our financial position, results of
operations and liquidity.
Under the Sarbanes-Oxley Act of 2002, beginning in 2007, we anticipate becoming
an accelerated filer which, will require us to report in our Annual Report on
Form 10-K on the effectiveness of our internal controls over financial
reporting, and our independent auditor will be required to attest to
management's assessment of our internal controls over financial reporting.
Significant resources will be required to establish that we are in full
compliance with the newly adopted financial reporting controls and procedures.
If we fail to have, or management or our independent auditor is unable to
conclude that we maintain, effective internal controls and procedures for
financial reporting, we could be unable to provide timely and reliable financial
information which could have a material adverse effect on our financial
position, results of operations and liquidity.
Our insurance liability coverage may not be sufficient for our business needs.
We maintain professional liability insurance for the Company with a deductible
of $500,000 per incident. We also bear significant insurance risk under our
large-deductible workers' compensation insurance program and our self-insured
employee health program. Under our workers' compensation insurance program, we
bear risk up to $250,000 per incident. We purchase stop-loss insurance for our
employee health plan that places a specific limit, generally $100,000, on our
exposure for any individual covered life. However, we cannot assure you that
claims will not be made in the future in excess of the limits of such insurance,
if any, nor can we assure you that any such claims, if successful and in excess
of such limits, will not have a material adverse effect on our ability to
conduct business or on our assets. Our insurance coverage also includes fire,
property damage, and general liability with varying limits. Although we maintain
insurance consistent with industry practice, we cannot assure you that the
insurance we maintain will satisfy claims made against us. In addition, as a
result of operating in the home healthcare industry, our business entails an
inherent risk of claims, losses and potential lawsuits alleging employee
accidents that are likely to occur in a patient's home. Finally, we cannot
assure you that insurance coverage will continue to be available to us at
commercially reasonable rates, in adequate amounts or on satisfactory terms. Any
claims made against us, regardless of their merit or eventual outcome, could
damage our reputation and business.
We have established reserves for Medicare liabilities that may be payable by us
in the future. These liabilities may be subject to audit or further review, and
we may owe additional amounts beyond what we expect and have reserved for.
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.
We depend on the services of our executive officers and other key employees.
Our success depends upon the continued employment of certain members of our
senior management team, including our Chairman and Chief Executive Officer,
William B. Yarmuth, and our other named executive officers. We also depend upon
the continued employment of the individuals that manage several of our key
functional areas, including operations, business development, accounting,
finance, human resources, marketing, information systems, contracting and
compliance. The departure of any member of our senior management team may
materially adversely affect our operations.
Our operations could be affected by natural disasters.
A substantial number of our agencies are located in the Florida, increasing our
exposure to hurricanes and other natural disasters. The occurrence of natural
disasters in the markets in which we operate could not only affect the
day-to-day operations of our agencies, but also could also disrupt our
relationships with patients, employees and referral sources located in the
affected areas. In addition, any episode of care that is not completed due to
the impact of a natural disaster will generally result in lower revenue for the
episode. We cannot assure you that hurricanes or other natural disasters will
not have a material adverse impact on our business, financial condition or
results of operations in the future.
Risks Related to Ownership of Our Common Stock
The price of our common stock may be volatile and this may adversely affect our
stockholders.
The price at which our common stock trades may be volatile. The stock market has
from time to time experienced significant price and volume fluctuations that
have affected the market prices of securities, particularly securities of health
care companies. The market price of our common stock may be influenced by many
factors, including:
o our operating and financial performance;
o variances in our quarterly financial results compared to expectations;
o the depth and liquidity of the market for our common stock;
o future sales of common stock or the perception that sales could occur;
o investor perception of our business and our prospects;
o developments relating to litigation or governmental investigations;
o changes or proposed changes in health care laws or regulations or
enforcement of these laws and regulations, or announcements relating to
these matters; or
o general economic and stock market conditions
In addition, the stock market in general has experienced price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of health care provider companies. These broad market and industry
factors may materially reduce the market price of our common stock, regardless
of our operating performance. In the past, securities class-action litigation
has often been brought against companies following periods of volatility in the
market price of their respective securities. We may become involved in this type
of litigation in the future. Litigation of this type is often expensive to
defend and may divert our management team's attention as well as resources from
the operation of our business.
Sales of substantial amounts of our common stock, or the availability of
those shares for future sale, could adversely affect our stock price and limit
our ability to raise capital.
At December 31, 2006, 5,118,628 shares of our common stock were outstanding.
There are 831,986 shares of our common stock that may be issued under our 2000
employee stock purchase plan. As of December 31, 2006, 614,060 shares of our
common stock were issuable upon the exercise of stock options. The market price
of our common stock could decline as a result of sales of substantial amounts of
our common stock in the public or the perception that substantial sales could
occur. These sales also may make it more difficult for us to sell common stock
in the future to raise capital.
We do not anticipate paying dividends on our common stock in the foreseeable
future, and you should not expect to receive dividends on shares of our common
stock.
We do not pay dividends and intend to retain all future earnings to finance the
continued growth and development of our business. In addition, we do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Any future payment of cash dividends will depend upon our financial condition,
capital requirements, earnings, and other factors deemed relevant by our board
of directors.
Our Board of Directors may use anti-takeover provisions or issue stock to
discourage control contests.
We have implemented anti-takeover provisions or provisions that could have an
anti-takeover effect, including (1) advance notice requirements for director
nominations and stockholder proposals and (2) a stockholder rights plan, also
known as a "poison pill." These provisions, and others that the Board of
Directors may adopt hereafter, may discourage offers to acquire us and may
permit our Board of Directors to choose not to entertain offers to purchase us,
even if such offers include a substantial premium to the market price of our
stock. Therefore, our stockholders may be deprived of opportunities to profit
from a sale of control.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our executive offices are located in Louisville, Kentucky in approximately
25,000 square feet of space leased from an unaffiliated party.
We have 70 real estate leases ranging from approximately 200 to 24,000 square
feet of space in their respective locations. See "Item 1. Business - Operating
Segments" and Note 9 to our audited consolidated financial statements. We
believe that our facilities are adequate to meet our current needs, and that
additional or substitute facilities will be available if needed.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are subject to claims and suits arising in the ordinary
course of our business, including claims for damages for personal injuries. In
our opinion the ultimate resolution of any of these pending claims and legal
proceedings will not have a material effect on our financial position or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the fourth
quarter of fiscal 2006.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global stock market under the symbol
"AFAM" Set forth below are the high and low sale prices for the common stock
for the periods indicated reported by NASDAQ:
Closing Common Stock Prices
- ---------------------------
Quarter Ended: High Low
- -------------- ---- ---
December 31, 2004 $ 7.23 $ 4.01
March 31, 2005 $ 7.43 $ 6.50
June 30, 2005 $ 7.06 $ 5.60
September 30, 2005 $ 8.16 $ 6.86
December 31, 2005 $ 8.13 $ 7.45
March 31, 2006 $ 9.00 $ 7.05
June 30, 2006 $ 12.44 $ 8.97
September 30, 2006 $ 12.00 $ 11.60
December 31, 2006 $ 21.91 $ 9.65
On March 27, 2006, the last reported sale price for the common stock reported by
NASDAQ was $26.03 and there were approximately 405 holders of record of our
common stock. No cash dividends have been paid by us during the periods
indicated above. We do not presently intend to pay dividends on our common stock
and will retain our earnings for future operations and the growth of our
business.
Issuer Purchases of Equity Securities (1)
(d) Maximum Number
(or Approximate
(c) Total Number of Dollar Value) of
(a) Total Number Shares (or Units) Shares (or Units) that
of Shares (or (b) Average Price Purchased as Part of May Yet Be
Units) Purchased Paid per Share (or Publicly Announced Purchased Under the
(1) Unit) Plans or Programs Plans or Programs
- --------------------------- --------------------- --------------------- ------------------------ -------------------------
Quarter # 1 -
January 1, 2006 -
March 31, 2006 - $ - - -
Quarter # 2 -
April 1, 2006 -
June 30, 2006 4,952 $ 11.89 - -
Quarter # 3 -
July 1, 2006 -
September 30, 2006 - $ - - -
Quarter # 4 -
October 1, 2006 -
December 31, 2006 - $ -
--------------------- --------------------- ------------------------ -------------------------
Total 4,952 $ 11.89 - -
===================== ===================== ======================== =========================
(1) All shares included herein were submitted by optionees in lieu of cash
purchase price that would have otherwise been due on option exercise in
transactions approved by the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived from the
consolidated financial statements of the Company for the periods and at the
dates indicated. The information is qualified in its entirety by and should be
read in conjunction with the consolidated financial statements and related notes
included elsewhere in this and prior year Form 10-Ks.
Year Ended December 31,
(Dollar amounts in 000's
except per share data) 2006 2005 2004 2003 2002
--------------------------------------------------------------------------------------
Results of operations data:
Net revenues $ 91,812 $ 75,087 $ 65,261 $ 61,032 $ 58,368
Income (loss) from:
Continuing operations $ 4,273 $ 2,951 $ 1,706 $ 785 $ 573
Discontinued operations (34) 4,917 (449) (674) 441
--------------------------------------------------------------------------------------
Net income $ 4,239 $ 7,868 $ 1,257 $ 111 $ 1,014
======================================================================================
Per share: (1)
Basic:
Number of shares
(in 000's) 4,853 4,674 4,606 4,590 4,832
Income (loss) from:
Continuing operations $ 0.88 $ 0.63 $ 0.37 $ 0.17 $ 0.12
Discontinued operations (0.01) 1.05 (0.10) (0.15) 0.09
--------------------------------------------------------------------------------------
Net income $ 0.87 $ 1.68 $ 0.27 $ 0.02 $ 0.21
======================================================================================
Diluted:
Number of shares
(in 000's) 5,327 5,218 5,134 5,078 5,440
Income (loss) from:
Continuing operations $ 0.80 $ 0.57 $ 0.33 $ 0.15 $ 0.11
Discontinued operations - 0.94 (0.09) (0.13) 0.08
--------------------------------------------------------------------------------------
Net income $ 0.80 $ 1.51 $ 0.24 $ 0.02 $ 0.19
======================================================================================
(1) all share and per share information has been adjusted to reflect a 2-for-1
common stock split completed in January 2007.
December 31,
Balance sheet data as of: 2006 2005 2004 2003 2002
-----------------------------------------------------------------------
Balance sheet data as of:
Working capital $ 7,163 $ 9,300 $ 8,752 $ 13,320 $ 16,405
Total assets 53,395 30,543 25,578 31,781 34,113
Long-term liabilities 13,520 1,568 5,552 12,575 16,237
Total liabilities 25,656 10,408 13,431 21,002 23,486
Stockholders' equity 27,740 20,135 12,147 10,779 10,627
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
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."
Our VN segment provides skilled medical services in patients' homes largely to
enable recipients to reduce or avoid periods of hospitalization and/or nursing
home care. VN Medicare revenues are generated on a per episode basis rather than
a fee per visit or an hourly basis. Approximately 92% of the VN segment revenues
are generated from the Medicare program while the balance is generated from
Medicaid and private insurance programs.
Our PC segment services are also provided in patients' homes. These services
(generally provided by paraprofessional staff such as home health aides) are
generally of a custodial rather than skilled nature. PC revenues are typically
generated on an hourly basis. Approximately 71% of the PC segment revenues are
generated from Medicaid and other government programs while the balance is
generated from insurance programs and private pay patients.
Our View on Reimbursement and Diversification of Risk
Our Company is highly dependent on government reimbursement programs which pay
for the majority of the services we provide to our patients. Reimbursement under
these programs, primarily Medicare and Medicaid, is subject to frequent changes
as policy makers balance their own needs to meet the health care needs of
constituents while also meeting their fiscal objectives.
We believe that an important key to our historical success and to our future
success is our ability to adapt our operations to meet changes in reimbursement
as they occur. One important way in which we have achieved this adaptability in
the past, and in which we plan to achieve it in the future, is to maintain some
level of diversification in our business mix.
The execution of our business plan emphasizes our Visiting Nurse operations. Our
Personal Care operations will help us maintain a level of diversification of
reimbursement risk that we believe is appropriate.
Our Business Plan
Our future success depends on our ability to execute our business plan. Over the
next three to five years we will try to accomplish the following:
o Generate meaningful same store sales growth through the focused
provision of high quality services and attending to the needs of our
patients;
o Expand the significance of our Visiting Nurse, Medicare-based, home
health services by selectively acquiring other quality providers and
through the startup of new agencies; and
o Expand our capital base through both earnings performance and by
seeking additional capital investments in our Company.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States.
When more than one accounting principle, or the method of its application, is
generally accepted, we select the principle or method that is appropriate in the
specific circumstances. Application of these accounting principles requires us
to make estimates about the future resolution of existing uncertainties; as a
result, actual results could differ from these estimates. In preparing these
financial statements, we have made our best estimates and judgments of the
amounts and disclosures included in the financial statements, giving due regard
to materiality.
Receivables and Revenue Recognition
We recognize revenues when patient services are provided. Our receivables and
revenues are stated at amounts estimated by us to be their net realizable
values. 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, and 3) 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.
Medicare Revenue Recognition
On October 1, 2000, Medicare implemented the Prospective Payment System ("PPS")
and began paying providers of home health care at fixed, predetermined rates for
services and supplies bundled into 60-day episodes of home health care. An
episode of home health care spans a 60-day period, starting with the first day a
billable visit is furnished to a Medicare beneficiary and ending 60 days later.
If a patient is still in treatment on the 60th day a new episode begins on the
61st day regardless of whether a billable visit is rendered on that day and ends
60 days later. The first day of a consecutive episode, therefore, is not
necessarily the new episode's first billable visit. A base episode payment is
established by the Medicare Program through federal legislation for all episodes
of care ended on or after the applicable time periods detailed below:
Base episode
Period Payment (1)
October 1, 2002 through September 30, 2003 $ 2,159
October 1, 2003 through March 31, 2004 $ 2,231
April 1, 2004 through December 31, 2004 $ 2,213
January 1, 2005 through December 31, 2005 $ 2,264
January 1, 2006 through December 31, 2006 $ 2,264
(1) The actual episode payment rates, as presented in the table vary, depending
on the home health resource groups ("HHRGs") to which Medicare patients are
assigned and the per episode payment is typically reduced or increased by
such factors as the patient's clinical, functional, and services
utilization characteristics.
Under PPS for Medicare reimbursement, we record net revenues based on a
reimbursement rate that varies based on the severity of the patient's condition,
service needs and other related factors. We record net revenues as services are
rendered to patients over the 60-day episode period. At the end of each month,
a portion of our revenue is estimated for episodes in progress.
Medicare reimbursement, on an episodic basis, is subject to adjustment if
there are significant changes in the patient's condition during the treatment
period or if the patient is discharged but readmitted to another agency within
the same 60-day episodic period. Our revenue recognition under the Medicare
reimbursement program is based on certain variables including, but not limited,
to: (i) changes in the base episode payments established by the Medicare
Program; (ii) adjustments to the base episode payments for partial episodes and
for other factors, such as case mix, geographic wages, low utilization and
intervening events; and, (iii) recoveries of overpayments. Adjustments to
revenue result from differences between estimated and actual reimbursement
amounts, an inability to obtain appropriate billing documentation or
authorizations acceptable to the payor and other reasons unrelated to credit
risk. We recognize Medicare revenue on an episode-by-episode basis during the
course of each episode over its expected number of visits.
Effective January 1, 2007, the Medicare standard episode rates increased 3.3%.
Based on current law and regulation, Medicare rates will change each January 1
thereafter, based on a statutory formula the intent of which is to cause
reimbursement rates to reflect changes in the costs of providing services minus
0.8% per year.
Medicare reimbursement, on an episodic basis, is subject to adjustment if there
are significant changes in the patient's condition during the treatment period
or if the patient is discharged but readmitted to another agency within the same
60-day episodic period. Revenue recognition under the Medicare reimbursement
program is based on certain variables including, but not limited, to: (i)
changes in the base episode payments established by the Medicare Program; (ii)
adjustments to the base episode payments for partial episodes and for other
factors, such as case mix, geographic wages, low utilization and intervening
events; and, (iii) recoveries of overpayments. Adjustments to revenue result
from differences between estimated and actual reimbursement amounts, an
inability to obtain appropriate billing documentation or authorizations
acceptable to the payor and other reasons unrelated to credit risk. We recognize
Medicare revenue on an episode-by-episode basis during the course of that
episode over its expected number of visits.
Allowance for Doubtful Accounts
We evaluate the collectibility of our accounts receivable based on certain
factors, such as payor types, historical collection trends and aging categories.
We calculate our reserve for bad debts based on the length of time that the
receivables are past due. The percentage applied to the receivable balances in
the various aging categories is based on historical collection experience.
Insurance Programs
We bear significant insurance risk under our large-deductible workers'
compensation insurance program and our self-insured employee health program.
Under our workers' compensation insurance program, we bear risk up to $250,000
per incident. We purchase stop-loss insurance for our 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 also know of incidents that have occurred through December 31, 2006
that may result in the assertion of additional claims. We carry insurance
coverage for this exposure; however, our 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.
We believe that our present insurance coverage is adequate. As part of our
on-going risk management and cost control efforts, we continually seek
alternatives that might provide a different balance of cost and risk, including
potentially accepting additional self-insurance risk in lieu of higher premium
costs.
Goodwill and Other Intangible Assets
We perform impairment tests of goodwill and indefinite lived assets as required
by Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and
Other Intangible Assets. The impairment analysis requires numerous subjective
assumptions and estimates to determine fair value of the respective reporting
units as required by SFAS No. 142. As of December 31, 2006, we completed our
impairment review and determined that no impairment charge was required.
Depending on level of sales, our liquidity and other factors, we may
be required to recognize impairment charges in the future.
Accounting for Income Taxes
As of December 31, 2006, we have net deferred tax assets of approximately
$1,826,000. The net deferred tax asset is composed of approximately $1,536,000
of current deferred tax assets and approximately $290,000 of long-term deferred
tax assets. We have provided a valuation allowance against certain net deferred
tax assets based upon our estimation of realizability of those assets through
future taxable income. This valuation was based in large part on our history of
generating operating income or losses in individual tax locales and expectations
for the future. Our ability to generate the expected amounts of taxable income
from future operations is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation at
all levels of government. We have considered the above factors in reaching our
conclusion that it is more likely than not that future taxable income will be
sufficient to fully utilize the net deferred tax assets (net of the valuation
allowance) as of December 31, 2006. However, there can be no assurances that we
will meet our expectations of future taxable income.
During the years ended December 31, 2006, 2005 and 2004, based on changes in
facts and circumstances, changes occurred in the Company's expectations with
regard to the generation of future taxable income in certain tax jurisdictions.
Accordingly, the state and local tax provision for 2006, 2005 and 2004 included
an increase (reduction) in recorded valuation allowances of approximately
$152,000 and $21,000 respectively.
Seasonality
Our Visiting Nurse segment operations located in Florida normally experience
higher admissions during the March quarter than in the other quarters due to
seasonal population fluctuations.
Acquisitions
Over the next three to five years we will actively seek to acquire quality
providers of Medicare-certified home health services like our current Visiting
Nurse segment operations. We may consider acquisitions of businesses that
provide health care services similar to those we currently offer in our Personal
Care segment but we expect most of our acquisition activity to be focused on
Visiting Nurse operations.
Factors which may affect future acquisition decisions include the quality and
potential profitability of the business under consideration, and our
profitability and ability to finance the transaction.
Acquisitions During 2006
During 2006, we acquired 24 visiting nurse operations one of which was
essentially a startup operation. These operations added to our market presence
in Florida, and gave us market presence in Alabama, Illinois and Missouri.
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 $1.8 million was paid $1.4
million in cash 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.
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 $982,000 was paid $810,000 in cash 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 June 30, 2006.
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 $1.4 million was paid $1.3 million in cash
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.
On December 3, 2006, the Company acquired all the Medicare-certified home health
agencies owned and operated by Mederi, Inc., located in Coconut Grove, Florida.
The total purchase price of $20.4 million was paid $11.7 million in cash,
approximately $3 million or 100,000 shares of Almost Family common stock
(restricted) with the $4 million balance in the form of two notes payable
bearing interest at 6% payable quarterly with the principal due in a balloon
payment two years from the closing date. The Company assumed employee paid-
time-off liabilities of approximately $397,000 and a Medicare liability of
approximately $1.3 million. Additional consideration of up to $5.5
million in cash may be paid to the seller contingent primarily upon the
achievement of certain revenue targets in the two years following the closing.
The cash portion of the transaction was funded from borrowings available on the
Company's existing senior credit facility with JP Morgan Chase Bank, NA. The
acquired operations generated approximately $23.8 million in the year
ended June 30, 2006. The Mederi acquisition significantly expands the
Company's presence and penetration in the state of Florida and gives the
Company new market presence in the states of Missouri and Illinois.
Acquisitions During 2005
During 2005, we acquired three visiting nurse operations one of which was
essentially a startup operation. These operations added to our market presence
in Florida.
On April 1, 2005 we acquired all the assets and business operations of a
Medicare-certified visiting nurse agency located in Bradenton, Florida.
The total purchase price of $3.2 million was paid in the form of $2.5 million
in cash with the $700,000 balance in the form of a note payable
bearing interest at 6% payable quarterly and the note balance due in two
years after closing. We funded the cash portion of the purchase price
with available borrowings on our revolving credit facility.
On November 12, 2005 we acquired all the assets and business operations of a
Medicare-certified visiting nurse agency located in St. Augustine, Florida.
The total purchase price of $800,000 was paid in the form of $600,000
in cash with the balance in the form of a note payable bearing
interest at 6% due in its entirety three years after closing. We funded the
cash portion of the purchase price with cash on hand.
RESULTS OF OPERATIONS
Continuing Operations
Year Ended December 31, 2006 Compared with Year Ended December 31, 2005
Consolidated -------------------------------------------------------------------------------------------------
------------ 2006 2005 Change
Amount % Rev Amount % Rev Amount % Rev
-------------------------------------------------------------------------------------------------
Net Revenue
Visiting nurses $ 55,190,258 60.1% $39,732,561 52.9% $ 15,457,697 38.9%
Personal care 36,621,690 39.9% 35,354,834 47.1% 1,266,856 3.6%
--------------------- -------------------- ---------------------
$ 91,811,948 100.0% 75,087,395 100.0% $ 16,724,553 22.3%
===================== ==================== =====================
Operating income:
Visiting nurses $ 9,004,859 16.3% $ 5,372,837 13.5% $ 3,632,022 67.6%
Personal care 3,781,372 10.3% 3,278,887 9.3% 502,485 15.3%
--------------------- -------------------- ---------------------
12,786,231 13.9% 8,651,724 11.5% 4,134,507 47.8%
Corporate expense 5,749,115 6.3% 4,449,661 5.9% 1,299,454 29.2%
--------------------- -------------------- ---------------------
7,037,116 7.7% 4,202,063 5.6% 2,835,053 67.5%
Interest expense (54,440) -0.1% 112,608 0.1% (167,048) -148.3%
Gain on Franklin
Litigation - 0.0% (267,426) -0.4% 267,426 -100.0%
Income taxes $ 2,818,030 3.1% 1,406,274 1.9% 1,411,756 100.4%
--------------------- -------------------- ---------------------
Income from continuing
operations $ 4,273,526 4.7% $ 2,950,607 3.9% $ 1,322,919 44.8%
===================== ==================== =====================
EBITDA $ 8,040,882 $ 5,658,718 $ 2,382,164 42.1%
Our net revenues increased approximately $16.7 million or 22% with 39% growth in
VN and 4% growth in PC. VN revenue growth was driven by admissions growth,
start-up operations and acquisitions. Acquired VN operations contributed
approximately $5.0 million of revenue in 2006, while startup VN operations
contributed approximately $1.9 million of revenue in 2006. The remaining $8.7
million of revenue growth came from locations in operation in both periods
which, in the aggregate grew approximately 22% over revenue generated in 2005.
The PC revenue and operating income increased due to increased volumes.
EBITDA increased 42% between periods primarily due to revenue increases.
Corporate expenses increased due to increased incentive provisions, executive
compensation, and increased recruiting efforts.
As a result of the settlement of the Franklin litigation, a non-taxable gain of
$267,426 was recognized in 2005. The effective continuing operations tax rate is
approximately 39.7% for the year ended December 31, 2006 and 34.2% excluding the
non-taxable litigation gain, in 2005. The lower effective tax rate for
continuing operations in 2005 resulted primarily from the reversal of a
valuation allowance of $152,000 (3.6% of pretax income) related to certain state
net operating loss carry forwards.
Visiting Nurse Segment-Year Ended December 31, 2006 and 2005
Approximately 92% of the VN segment revenues are generated from the Medicare
program while the balance is generated from Medicaid and private insurance
programs. In addition to our focus on operating income from the Visiting Nurse
segment, we also measure this segment's performance in terms of admissions,
patient months of care, revenue per patient month and cost of services per
patient month.
2006 2005 Change
--------------------------------------------------------------------------------------
Amount % Rev Amount % Rev Amount %
---------------- ----------- ------------------- --------- --------------- -----------
Net service revenues $ 55,190,258 100.0% $ 39,732,561 100.0% $ 15,457,697 38.9%
Cost of service revenues 22,231,988 40.3% 15,710,599 39.5% 6,521,389 41.5%
---------------- ------------------- ---------------
Gross margin 32,958,270 59.7% 24,021,962 60.5% 8,936,308 37.2%
General and administrative
expenses:
Salaries and benefits 16,430,442 29.8% 12,546,171 31.6% 3,884,271 31.0%
Other 7,522,969 13.6% 6,102,954 15.4% 1,420,015 23.3%
---------------- ------------------- ---------------
Total general and administrative
expenses: 23,953,411 43.4% 18,649,125 46.9% 5,304,286 28.4%
---------------- ------------------- ----------------
Operating income $ 9,004,859 16.3% $ 5,372,837 13.5% $ 3,632,022 67.6%
================ =================== ================
All Payors:
Admissions 18,921 14,130 4,791 33.9%
Patient months of care 46,266 33,461 12,805 38.3%
Revenue per patient month $ 1,193 $ 1,187 $ 6 0.5%
Cost of services per patient
month $ 481 $ 470 $ 11 2.3%
Billable Visits 359,273 267,966 91,307 34.1%
Average number of operations 32.7 24.9 7.8 31.3%
Medicare Statistics:
Admissions 16,906 12,817 4,089 31.9%
Medicare Revenue % of Total 92.4% 92.5% -0.1% -0.1%
VN operating income for the twelve months was approximately $9 million versus
$5.4 million last year. Acquired VN operations contributed approximately $5.0
million of revenue in 2006, while startup VN operations contributed
approximately $1.9 million of revenue in 2006. The remaining $8.7 million of
revenue growth came from locations in operation in both periods which, in the
aggregate grew approximately 22% over revenue generated in 2005. Admissions grew
about 33.9% over the prior year while patient months increased 38.3%. Operating
costs per patient month increased approximately 2.3% primarily due to higher
wage rates and employee benefits related to the direct provision of service.
General and administrative expenses increased 28% primarily as a result of a 31%
increase in units of operation between 2006 and 2005.
Personal Care (PC) Segment-Year Ended December 31, 2006 and 2005
Approximately 71% of the PC segment revenues are generated from Medicaid and
other government programs while the balance is generated from insurance programs
and private pay patients.
2006 2005 Change
---------------- ----------- ------------------- --------- --------------- ---------
Amount % Rev Amount % Rev Amount %
---------------- ----------- ------------------- --------- --------------- ---------
Net services revenue $ 36,621,690 100.0% $ 35,354,834 100.0% $ 1,266,856 3.6%
Cost of service revenues 24,718,305 67.5% 23,668,395 66.9% 1,049,910 4.4%
---------------- ------------------- ---------------
Gross margin 11,903,385 32.5% 11,686,439 33.1% 216,946 1.9%
General and administrative
expenses:
Salaries and benefits 5,241,923 14.3% 4,737,422 13.4% 504,501 10.6%
Other 2,880,090 7.9% 3,670,130 10.4% (790,040) -21.5%
---------------- ------------------- ---------------
Total general and administrative
expenses: 8,122,013 22.2% 8,407,552 23.8% (285,539) -3.4%
---------------- ------------------- ---------------
Operating income $ 3,781,372 10.3% $ 3,278,887 9.3% $ 502,485 15.3%
================ =================== ===============
Admissions 2,494 2,577 (83) -3.2%
Patient months of care 41,458 40,256 1,202 3.0%
Patient days of care 515,534 492,552 22,982 4.7%
Billable hours 2,081,769 2,048,823 32,946 1.6%
Revenue per billable hour $ 17.59 $ 17.26 $ 0.33 1.9%
PC operating income was about $3.7 million for the twelve months ended December
2006 compared to $3.3 million for the same period of last year. Startups
contributed approximately $430,000 in revenues and $234,000 in operating losses
in 2006. Admissions decreased about 3.2% over the prior year while Patient
Months of Care increased 3.0%, reflecting an increase in the average length of
stay.
General and Administrative Expenses: Salaries and Benefits increased about
$505,000 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 $790,000, 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.
Year Ended December 31, 2005 Compared with Year Ended December 31, 2004
Consolidated
------------ --------------------------------------------------------------------------------------
2005 2004 Change
Amount % Rev Amount % Rev Amount % Rev
--------------------------------------------------------------------------------------
Net Revenues:
Visiting nurses $39,732,561 52.9% $ 31,718,144 48.6% $ 8,014,417 25.3%
Personal care 35,354,834 47.1% 33,542,824 51.4% 1,812,010 5.4%
------------------ ------------------ -----------------
75,087,395 100.0% 65,260,968 100.0% $ 9,826,427 15.1%
================== ================== =================
Operating income:
Visiting nurses $ 5,372,837 13.5% $ 4,947,201 15.6% $ 425,636 8.6%
Personal care 3,278,887 9.3% 2,309,410 6.9% 969,477 42.0%
------------------ ------------------ -----------------
8,651,724 11.5% 7,256,611 11.1% 1,395,113 19.2%
Corporate expense 4,449,661 5.9% 4,165,428 6.4% 284,233 6.8%
------------------ ------------------ -----------------
4,202,063 5.6% 3,091,183 4.7% 1,110,880 35.9%
Litigation loss (267,426) -0.4% - 0.0% (267,426) 0.0%
Interest expense 112,608 0.1% 270,843 0.4% (158,235) -58.4%
Income taxes 1,406,274 1.9% 1,114,714 1.7% 291,560 26.2%
------------------ ------------------ -----------------
Income from continuing operations $ 2,950,607 3.9% $ 1,705,626 2.6% $ 1,244,981 73.0%
================== ================== =================
EBITDA $ 5,658,718 $ 4,459,466 $ 1,199,252 26.9%
Our net revenues increased approximately $9.8 million or 15% with 25% growth in
VN and 5% growth in PC. VN revenue growth was driven by admissions growth and
acquisitions. New VN operations started in late 2004 and early 2005 generated
approximately $2.6 million in revenue and operating losses of $145,000 in the
twelve months ended December 31, 2005. Acquired operations added approximately
$3.1 million in revenues and about $645,000 in operating income. PC revenue and
operating income increased due to increased volumes. EBITDA increased 26.9%
between periods primarily due to revenue increases. Corporate expenses increased
due to increased incentive provisions partially offset by a decrease in
professional fees related to a 2004 union defense related to one of our personal
care locations.
As a result of the settlement of the Franklin litigation, a non-taxable gain of
$267,426 was recognized in 2005. Excluding this non-taxable litigation gain, the
effective continuing operations income tax rate was approximately 34.2% and
39.5% of income before income taxes in 2005 and 2004, respectively. The lower
effective tax rate for continuing operations in 2005 resulted primarily from the
reversal of a valuation allowance of $152,000 (3.6% of pretax income) related to
certain state net operating loss carry forwards.
Visiting Nurse Segment-Year Ended December 31, 2005 and 2004
-------------------------------- ---------------------------- ---------------------------
2005 2004 Change
-------------------------------- ---------------------------- ---------------------------
Amount % Rev Amount % Rev Amount %
---------------- -- ----------- ------------------ ---------- --------------- -----------
Net service revenues $ 39,732,561 100.0% $ 31,718,144 100.0% $ 8,014,417 25.3%
Cost of service revenues 15,710,599 39.5% 12,340,750 38.9% 3,369,849 27.3%
---------------- ------------------ ---------------
Gross margin 24,021,962 60.5% 19,377,394 61.1% 4,644,568 24.0%
General and administrative
expenses:
Salaries and benefits 12,546,171 31.6% 9,375,724 29.6% 3,170,447 33.8%
Other 6,102,954 15.4% 5,054,470 15.9% 1,048,484 20.7%
---------------- ------------------ ---------------
Total general and administrative
expenses: 18,649,125 46.9% 14,430,194 45.5% 4,218,931 29.2%
---------------- ------------------ ---------------
Operating income $ 5,372,837 13.5% $ 4,947,200 15.6% $ 425,637 8.6%
================ ================== ===============
Admissions 14,130 11,564 2,566 22.2%
Patient months of care 33,461 26,515 6,946 26.2%
Revenue per patient month $ 1,187 $ 1,196 $ (9) -0.7%
Cost of services per patient month $ 470 $ 465 $ 5 1.1%
Billable Visits 267,966 250,161 17,805 7.1%
Average number of operations 24.9 19.3 5.6 29.0%
Medicare Statistics:
Admissions 12,817 10,622 2,195 20.7%
Medicare Revenue % of Total 92.5% 90.7% 1.8% 2.0%
VN operating income for the twelve months was approximately $5.3 million versus
$4.8 million last year. New VN operations started in late 2004 and early 2005
generated approximately $2.6 million in revenue and operating losses of $145,000
in the twelve months ended December 31, 2005. Acquired operations added
approximately $3.1 million in revenues and about $645,000 in operating income.
Excluding these start-up and acquisition operations, operating income grew 14%
as a percentage of revenue. Admissions grew about 22% over the prior year while
patient months increased at a slightly higher 26% from the effect of the
existing patient base in acquired operations. Revenue per patient month
decreased slightly due to changes in geographic mix and differences in local
market wage indexes included in Medicare reimbursement rates. Operating costs
per patient month increased approximately 0.9% due to higher wage rates and
employee benefits. General and administrative expenses increased primarily as a
result of a 29% increase in the average number of locations in operation in 2006
versus 2005.
Personal Care Segment-Year Ended December 31, 2005 and 2004
----------------------------- ------------------------------ -------------------------
2005 2004 Change
----------------- ----------- ------------------ ----------- --------------- ---------
Amount % Rev Amount % Rev Amount %
----------------- ----------- ------------------ ----------- --------------- ---------
Net services revenue $ 35,354,834 100.0% $ 33,542,824 100.0% $ 1,812,010 5.4%
Cost of service revenues 23,668,395 66.9% 22,535,777 67.2% 1,132,618 5.0%
----------------- ------------------ ---------------
Gross margin 11,686,439 33.1% 11,007,047 32.8% 679,392 6.2%
General and administrative
expenses:
Salaries and benefits 4,737,422 13.4% 4,692,234 14.0% 45,188 1.0%
Other 3,670,130 10.4% 4,005,403 11.9% (335,273) -8.4%
----------------- ------------------ ---------------
Total general and
administrative expense: 8,407,552 23.8% 8,697,637 25.9% (290,085) -3.3%
----------------- ------------------ ---------------
Operating income $ 3,278,887 9.3% $ 2,309,410 6.9% $ 969,477 42.0%
================= ================== ===============
Admissions 2,577 2,560 17 0.7%
Patient months of care 40,256 36,760 3,496 9.5%
Patient days of care 492,552 464,611 27,941 6.0%
Billable hours 2,048,823 1,840,638 208,185 11.3%
Revenue per billable hour $ 17.26 $ 17.93 $ (0.67) -3.7%
PC operating income for the year ended December 31, 2005 was about $3.3 million
versus $2.3 million in the year ended December 31, 2004. Revenue increased over
5.4% due to volume increases. Cost of services grew at a slower rate due to
improved management of direct margins and changes in payor and service mix.
General and administrative salaries and benefits were relatively unchanged while
the general and administrative expenses decreased primarily die to lower bad
debt losses from improved billing and collection efforts.
Liquidity and Capital Resources
Revolving Credit Facility. The Company has a $22.5 million credit facility with
JP Morgan Chase Bank, NA, as amended on 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 7.24% and
5.27% for the years ended December 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
December 31, 2006, the formula permitted approximately $22.5 million to be used,
of which $8.4 was outstanding. The Company has irrevocable letters of credit,
totaling $2.6 million outstanding in connection with its self-insurance
programs. Thus, a total of $11.5 million was available for use at December 31,
2006. The Company's revolving credit facility is subject to various financial
covenants. As of December 31, 2006, the Company was in compliance with the
covenants. Under the most restrictive of its covenants, the Company is required
to maintain minimum net worth of at least $10.5 million.
The Company believes that this facility will be sufficient to fund its operating
needs for at least the next year. The Company will continue to evaluate
additional capital, including possible debt and equity investments in the
Company, to support a more rapid development of the business than would be
possible with internal funds.
Cash Flows
Key elements to the Consolidated Statements of Cash Flows for the years ended
December 31, 2006, 2005 and 2004 were as follows:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
Net Change in Cash and Cash Equivalents 2006 2005 2004
- --------------------------------------- -------------------- -------------------- -------------------
Provided by (used in):
Operating activities $ 5,373,797 $ 5,355,608 $ 3,515,869
Investing activities (16,384,862) (3,749,895) (275,076)
Financing activities 8,794,247 (4,022,360) (7,090,272)
Discontinued operations activities 154,089 7,731,481 3,303,475
-------------------- -------------------- -------------------
Net increase / (decrease) in cash and cash
Equivalents $ (2,062,729) $ 5,314,834 $ (546,004)
==================== ==================== ===================
2006 Compared to 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 50 at
December 31, 2006, and 48 at December 31, 2005, primarily due to a slow down in
the processing of claims in acquired operations as they are converted to our
information system. The increase in combined accounts payable and accrued
liabilities resulted primarily from an increase in insurance liabilities,
accrued accounts payable and accrued taxes. Net cash used in investing
activities resulted principally from the acquisition of home health agencies.
Net cash used in financing activities resulted primarily from the borrowings on
our credit facility for the current year acquisitions.
2005 Compared to 2004
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 48 at
December 31, 2005, and 53 at December 31, 2004, due to improved collection
efforts and to a lesser degree changes in payor mix. The increase in combined
accounts payable and accrued liabilities resulted primarily from an increase in
insurance liabilities, accrued accounts payable and accrued taxes. Net cash used
in investing activities resulted principally from the acquisition of home health
agencies. Net cash used in financing activities resulted primarily from the
payoff of our credit facility from the ADC divesture and other principal
reductions of our debt obligations.
Contractual Obligations. The following table provides information about the
payment dates of our contractual obligations at December 31, 2006, excluding
current liabilities except for the current portion of long-term debt (amounts in
thousands):
2007 2008 2009 2010 2011 Total
------------ ------------- ------------ ------------ -------------- ------------
Revolving credit facility $ - $ 8,466 $ - $ - $ $ 8,466
Capital lease obligations 118 118 - - - 236
Notes payable 2,215 540 4,000 - - 6,775
Operating leases 2,701 2,012 1,060 526 280 6,579
------------ ------------- ------------ ------------ -------------- ------------
Total $ 5,034 $ 11,136 $ 5,060 $ 526 $ 280 $ 22,036
============ ============= ============ ============ ============== ============
We believe that a certain amount of debt has an appropriate place in our overall
capital structure and it is not our strategy to eliminate all debt financing. We
believe that our cash flow from operations, and borrowing capacity on our bank
credit facility will be sufficient to cover operating needs, future capital
expenditure requirements and scheduled debt payments of miscellaneous small
borrowing arrangements and capitalized leases. In addition, it is likely that we
will pursue growth from acquisitions, partnerships and other ventures that would
be funded from excess cash from operations, credit available under the bank
credit agreement and other financing arrangements that are normally available in
the marketplace.
Commitments and Contingencies
Letters of Credit. We have outstanding letters of credit totaling $2.6 million
at December 31, 2006, which benefit our third-party insurer/administrators for
our self-insurance programs. The amount of such insurance program letter of
credit is subject to negotiation annually upon renewal and may vary in the
future based upon such negotiation, our historical claims experience and
expected future claims. It is reasonable to expect that the amount of the letter
of credit will increase in the future, however, we are unable to predict to what
degree.
We currently have no obligations related to acquisition agreements. However, we
periodically seek acquisition candidates and may reasonably be expected to enter
into acquisitions in the future.
General and Professional Liability. 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 also know of incidents that have
occurred through December 31, 2006 that may result in the assertion of
additional claims. We carry insurance coverage for this exposure; however our
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.
Medicaid Dependence
We have a significant dependence on state Medicaid reimbursement programs. For
the year ended December 31, 2006, approximately 12.0%, 8.6%, 6.1%, 2.2%, 1.7%,
and 0.4% of our revenues were generated from Medicaid reimbursement programs in
the states of Ohio, Kentucky, Connecticut, Massachusetts, Florida and Alabama,
respectively.
Approximately 31% of our 2006 revenues were derived from state
Medicaid and Other Government Programs, many of which periodically face
significant budget issues. The financial condition of the Medicaid programs in
each of the states in which we operate is cyclical and many may be expected from
time to time to take actions or evaluate taking actions to control the rate
of growth of Medicaid expenditures. Among these actions are the following:
o Redefining eligibility standards for Medicaid coverage
o Redefining coverage criteria for home and community based care services
o Slowing payments to providers by increasing the minimum time in which payments
are made
o Limiting reimbursement rate increases
o Changing regulations under which providers must operate
The actions that might be taken or considered are because the number of
Medicaid beneficiaries and their related expenditures are growing at a faster
rate than the government's revenue. Medicaid is consuming a greater percentage
of the budget. This issue is exacerbated when revenues slow in a slowing
economy. We believe that these financial issues are cyclical in nature rather
than indicative of the long-term prospect for Medicaid funding of health care
services. Additionally, we believe our services offer the lowest cost
alternative to institutional care and are a part of the solution to the states'
Medicaid financing problems. It is possible however, that the actions taken by
the state Medicaid programs in the future could have a significant unfavorable
impact on our results of operations, financial condition and liquidity.
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 "Reimbursement Changes and Risk Factors" in Part I, 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.
Discontinued Operations
We follow the guidance in SFAS 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" and, when appropriate, reclassify operating units closed,
sold, or held for sale out of continuing operations and into discontinued
operations for all periods presented. As a result of the sale of the ADC
segment, it has been reclassified in our financial statements as further
explained in the notes to the financial statements. Revenues from the
discontinued ADC segment were approximately $0, $16.5 million, $23.2 million
in the years ended December 31, 2006, 2005 and 2004 respectively.
Additionally, during 2006, the VN segment had one facility that met the
criteria to be reclassified as discontinued operations. For all the years
presented in the accompanying financial statements, this facility has been
reclassified. Net losses from the discontinued operations were approximately
($34,000), ($221,000) and ($363,000) in the years ended December 31, 2006, 2005
and 2004 respectively, and such amounts are included in net loss from
discontinued operations in the accompanying financial statements.
Impact of Inflation
We do 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 and the footnotes to the tables, 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:
Year Ended December 31,
---------------------- ------------------------ -----------------------
2006 2005 2004
---------------------- ------------------------ ------------------------
Net income from continuing operations $ 4,273,526 $ 2,950,607 $ 1,705,626
Add back:
Interest (income) expense (54,440) 112,608 270,843
Income taxes 2,818,030 1,406,274 1,114,714
Depreciation and amortization 1,003,766 1,189,229 1,368,283
---------------------- ------------------------ -----------------------
Earnings before interest, income taxes,
depreciation and amortization (EBITDA) from
continuing operations $ 8,040,882 $ 5,658,718 $ 4,459,466
====================== ======================== =======================
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Derivative Instruments
We do 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 December 31, 2006, a hypothetical 100 basis point increase in short-term
interest rates would result in a reduction of approximately $85,000 in annual
pre-tax earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2006 2005 31, 2004
------------------------------------------------------
Net service revenues $ 91,811,948 $ 75,087,395 $ 65,260,968
Cost of service revenue (excluding amortization and depreciation) 46,963,399 39,379,063 34,876,661
------------------ ----------------------------------
Gross margin 44,848,549 35,708,332 30,384,307
General and administrative expenses:
Salaries and benefits 24,726,844 19,699,644 16,024,202
Other 13,084,589 11,806,625 11,268,922
------------------ ----------------------------------
Total general and administrative expenses: 37,811,433 31,506,269 27,293,126
------------------ ----------------------------------
Operating income 7,037,116 4,202,063 3,091,183
Other income (expense):
Franklin litigation - 267,426 -
Interest (income) expense 54,440 (112,608) (270,843)
------------------ ----------------------------------
Income from continuing operations before income taxes 7,091,556 4,356,881 2,820,340
Income tax expense (2,818,030) (1,406,274) (1,114,714)
------------------ ----------------------------------
Net income from continuing operations 4,273,526 2,950,607 1,705,626
Discontinued operations :
Loss from operations, net of tax of $23,873, $288,756 and
$58,364 (34,083) (287,837) (448,651)
Income on gain of sale, net of tax of $3,155,995 - 5,205,698 -
------------------ ----------------------------------
Gain / (loss) on discontinued operations (34,083) 4,917,861 (448,651)
------------------ ----------------------------------
Net income $ 4,239,443 $ 7,868,468 $ 1,256,975
================== ==================================
Per share amounts-basic: (1)
Average shares outstanding 4,853,535 4,674,578 4,606,534
Income from continuing operations $ 0.88 $ 0.63 $ 0.37
Income (loss) from discontinued operations (0.01) 1.05 (0.10)
------------------ ----------------------------------
Net income $ 0.87 $ 1.68 $ 0.27
================== ==================================
Per share amounts-diluted: (1)
Average shares outstanding 5,326,997 5,218,658 5,134,936
Income from continuing operations $ 0.80 $ 0.57 $ 0.33
Income (loss) from discontinued operations - 0.94 (0.09)
------------------ ----------------------------------
Net income $ 0.80 $ 1.51 $ 0.24
================== ==================================
(1) All share and per share information has been adjusted to reflect a 2-for-1
common stock split completed in January 2007.
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS As of December 31,
------ 2006 2005
------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 4,125,592 $ 6,188,321
Accounts receivable - net 12,781,866 9,639,342
Prepaid expenses and other current assets 855,021 1,141,213
Deferred tax assets 1,535,639 1,171,227
------------------- -------------------
TOTAL CURRENT ASSETS 19,298,118 18,140,103
CASH HELD IN ESCROW - 1,006,696
PROPERTY AND EQUIPMENT - NET 1,516,856 1,312,375
GOODWILL AND OTHER INTANGIBLE ASSETS 32,094,317 9,595,831
DEFERRED TAX ASSETS 290,647 361,301
OTHER ASSETS 195,555 126,849
------------------- -------------------
$ 53,395,493 $ 30,543,155
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,545,991 $ 2,531,565
Accrued liabilities 6,267,796 6,207,962
Current portion - capital leases and notes payable 2,321,675 100,542
------------------ ------------------
12,135,462 8,840,069
------------------ ------------------
LONG-TERM LIABILITIES:
Revolving credit facility 8,465,935 -
Capital leases 113,891 220,901
Notes payable 4,540,000 900,000
Other liabilities 400,296 446,704
------------------ ------------------
TOTAL LONG-TERM LIABILITIES 13,520,122 1,567,605
------------------ ------------------
TOTAL LIABILITIES 25,655,584 10,407,674
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY: (1)
Common stock, par value $0.10; authorized 20,000,000 shares;
7,357,620 and 7,039,362 issued, respectively 735,762 703,936
Treasury stock, at cost, 2,245,974 shares (8,200,095) (8,141,438)
Additional paid-in capital 30,067,696 26,675,880
Retained Earnings 5,136,546 897,103
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 27,739,909 20,135,481
------------------ ------------------
$ 53,395,493 $ 30,543,155
================== ==================
(1) All share and related information has been adjusted to reflect a 2-for-1
common stock split completed in January 2007.
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (1)
Additional Retained Total
Common Stock Treasury Stock Paid-in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
------------- ------------- ---------- -------------- --------------- ---------------- ---------
Balance, December 31, 2003 6,789,748 $ 678,975 2,193,566 $ (7,772,048) $ 26,099,819 $ (8,228,340) $10,778,406
Options Exercised 40,000 4,000 64,750 68,750
Tax benefit from exercise of
non-qualified stock options 42,580 42,580
Net Income 1,256,975 1,256,975
-------------------------------------------------------------------------------------------------
Balance, December 31, 2004 6,829,748 $ 682,975 2,193,566 $ (7,772,048) $ 26,207,149 $ (6,971,365) $12,146,711
Options exercised, net of shares
surrendered or withheld 209,614 20,961 47,456 (369,390) (271,945) (620,374)
Tax benefit from exercise of
non-qualified stock options 740,676 740,676
Net Income 7,868,468 7,868,468
------------- ------------- ---------- -------------- --------------- ---------------- --------
Balance, December 31, 2005 7,039,362 $ 703,936 2,241,022 $ (8,141,438) $ 26,675,880 $ 897,103 $20,135,481
Options exercised, net of shares
surrendered or withheld 118,258 $ 11,826 4,952 (58,657) (542,934) (559,765)
Stock-based compensation 14,131 14,131
Stock provided in acquisitions 200,000 20,000 2,972,000 2,992,000
Tax benefit from exercise of
non-qualified stock options 958,619 958,619
Net Income 4,239,443 4,239,443
------------- ------------- ---------- -------------- --------------- --------------------------
Balance, December 31, 2006 7,357,620 $ 735,762 2,245,974 $ (8,200,095) $ 30,067,696 $ 5,136,546 $27,739,909
============= ============= ========== ============== =============== ============= ============
(1) All share and related information has been adjusted to reflect a 2-for-1
common stock split completed in January 2007.
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
2006 2005 2004
---------------- ----------------- ----------------
Cash flows from operating activities:
Net income $ 4,239,443 $ 7,868,468 $ 1,256,975
Gain /(loss) on discontinued operations, net of tax (34,083) 4,917,861 (448,651)
---------------- ----------------- ----------------
Income from continuing operations 4,273,526 2,950,607 1,705,626
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
Depreciation and amortization 1,003,766 1,189,229 1,368,283
Interest earned on escrow funds 6,696 - -
Stock-based compensation 14,131 - -
Tax benefit from non-qualified stock option exercises - 73,088 42,580
Provision for uncollectible accounts 687,103 935,141 1,326,765
Deferred income taxes 276,242 (406,218) (120,727)
---------------- ----------------- ----------------
6,261,464 4,741,847 4,322,527
Change in certain net assets and liabilities, net of the
effects of acquisitions:
(Increase) decrease in:
Accounts receivable (1,847,111) (60,902) (190,496)
Prepaid expenses and other current assets 117,554 (427,402) (32,598)
Other assets (68,706) (22,063) (6,806)
Increase (decrease) in:
Accounts payable and accrued expenses 910,596 1,124,128 (576,758)
---------------- ----------------- ----------------
Net cash provided by operating activities 5,373,797 5,355,608 3,515,869
---------------- ----------------- ----------------
Cash flows from investing activities:
Capital expenditures (858,290) (456,349) (161,549)
Acquisitions, net of cash acquired (15,526,572) (3,293,546) (113,527)
---------------- ----------------- ----------------
Net cash used in investing activities (16,384,862) (3,749,895) (275,076)
---------------- ----------------- ----------------
Cash flows from financing activities:
Net revolving credit facility borrowings (repayments) 8,465,935 (3,769,575) (7,121,848)
Proceeds from stock option exercises 154,647 47,215 68,750
Tax benefit from non-qualified stock option exercises 214,207 - -
Principal payments on capital leases and notes payable (40,542) (300,000) (37,174)
---------------- ----------------- ----------------
Net cash provided by (used in) financing activities 8,794,247 (4,022,360) (7,090,272)
---------------- ----------------- ----------------
Cash flows from discontinued operations
Operating activities (845,911) (533,423) 2,802,473
Investing activities 1,000,000 8,448,286 740,568
Financing activities - (183,382) (239,566)
---------------- ----------------- ----------------
Net cash provided by discontinued operations 154,089 7,731,481 3,303,475
---------------- ----------------- ----------------
Net increase / (decrease) in cash and cash equivalents (2,062,729) 5,314,834 (546,004)
Cash and cash equivalents at beginning of period 6,188,321 873,487 1,419,491
---------------- ----------------- ----------------
Cash and cash equivalents at end of period $ 4,125,592 $ 6,188,321 $ 873,487
================ ================= ================
Supplemental disclosures of cash flow information:
Cash payment of interest, net of amounts capitalized $ 61,000 $ 325,000 $ 517,000
Cash payment of taxes $ 2,872,000 $ 4,489,000 $ 993,000
Summary of non-cash investing and financing activities:
Capital expenditures financed under capital leases $ - $ 321,444 $ 556,520
Acquisition funded by notes payable $ 5,854,666 $ 900,000 $ -
Value of stock option shares withheld in lieu of payroll taxes $ 744,412 $ 667,587 $ -
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Almost Family,
Inc. (a Delaware corporation) and its wholly-owned subsidiaries (collectively
"Almost Family" or the "Company"). The Company has operations in Alabama,
Connecticut, Florida, Illinois, Indiana, Kentucky, Massachusetts, and Ohio. All
material intercompany transactions and accounts have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Uninsured deposits at December 31, 2006 and 2005 were approximately $4.1 million
and $6.2 million respectively. These amounts have been deposited with national
financial institutions.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives. The estimated useful lives
of depreciable assets are as follows:
Estimated
Useful Life
In Years
Leasehold improvements 3-10
Medical equipment 2-10
Office and other equipment 3-10
Transportation equipment 3-5
Internally generated software 3
GOODWILL AND OTHER INTANGIBLE ASSETS
The goodwill acquired is stated at cost. Subsequent to its acquisitions, the
Company conducts the required annual tests for impairment under Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets. The Company has concluded that no impairment exists for all periods
presented in the accompanying financial statements. Impairment is examined
more frequently when events and circumstances have occurred that indicate
the remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company utilizes
appropriate methods in measuring whether or not the goodwill is recoverable.
The Company has completed the required annual tests for impairment under
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets for 2006, 2005, and 2004, and concluded that no impairment
exists.
There were additions to the Company's goodwill of $22,498,487 for the fiscal
year ended December 31, 2006 for four acquisitions. The Company has made a
preliminary allocation of purchase price in the Mederi acquisition as further
described in Note 13, in which it has allocated approximately $1.1 million to
intangible assets other than goodwill. These intangible assets include trade
name and trade dress, provider agreements and licenses. As also further
described in Note 13, the Company is currently in the process of finalizing its
valuation of the assets acquired and liabilities assumed for the Mederi
acquisition, to assist it in allocating the purchase price to the individual
assets acquired and liabilities assumed. The preliminary allocation of purchase
price included in the current period balance sheet is based on the Company's
current best estimate and is subject to revision based on final determination of
fair value. The Company anticipates that the valuation of Mederi, with which it
has engaged an independent valuation firm to assist, will be completed prior to
the first anniversary of the acquisition.
Accumulated goodwill amortization at December 31, 2006 and 2005 was
approximately $4 million.
LONG-LIVED ASSETS
SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
specifies circumstances in which certain long-lived assets must be reviewed
for impairment. Application of this standard for 2006, 2005, and 2004, has
resulted in no impairment.
CAPITALIZATION POLICIES
Maintenance, repairs and minor replacements are charged to expense as incurred.
Major renovations and replacements are capitalized to appropriate property and
equipment accounts. Upon sale or retirement of property, the cost and related
accumulated depreciation are eliminated from the accounts and the related gain
or loss is recognized in income.
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 $220,000, $184,000 and $218,000
were capitalized in the years ended December 31, 2006 and 2005 and 2004,
respectively.
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.
Changes in Contractual Allowance Estimates Pertaining to Prior Periods
Approximately 98% of the Company's revenues are earned on a "fee for service"
basis. For all services provided, the Company uses either payor-specific or
patient-specific fee schedules for the recording of revenues at the amounts
actually expected to be received. Changes in estimates related to prior period
contractual allowances decreased revenues by $63,000, $89,000, and $82,000 in
the years ended December 31, 2006, 2005 and 2004, respectively.
Approximately 31% of the Company's 2006 revenues were derived from state
Medicaid and other government programs, some of which are currently facing
significant budget issues. It is possible that the actions taken by the state
Medicaid programs in the future could have a significant unfavorable impact on
the Company's results of operations, financial condition and liquidity.
Revenue and Receivable Concentrations
The following table sets forth the percent of the Company's revenues generated
from Medicare, state Medicaid programs and other payors:
Year Ended December 31,
2006 2005
----------------------- ---------------------
Medicare 55.6% 49.0%
Medicaid & other government programs:
Ohio 12.0% 14.1%
Kentucky 8.6% 8.0%
Connecticut 6.1% 6.3%
Massachusetts 2.2% 2.7%
Florida 1.7% 1.9%
Others 0.4% 1.3%
----------------------- ---------------------
Subtotal 31.0% 34.3%
All other payors 13.4% 16.7%
----------------------- ---------------------
Total 100.0% 100.0%
======================= =====================
Concentrations in the Company's accounts receivable were as follows:
As of December 31, 2006 As of December 31, 2005
------------------------------------- ----------------------------------
Amount Percent Amount Percent
-------------------------------------- ----------------- --------------
Medicare $ 6,744,667 45.3% $ 4,331,255 37.9%
Medicaid & other government programs:
Kentucky 1,118,658 7.5% 1,331,193 11.6%
Ohio 1,546,935 10.4% 1,381,775 12.1%
Connecticut 1,145,112 7.7% 946,378 8.3%
Massachusetts 243,406 1.6% 346,526 3.0%
Florida 425,384 2.9% 245,787 2.1%
Others 39,366 0.3% 568,582 5.0%
----------------------- ------------- ----------------- --------------
Subtotal 4,518,861 30.4% 4,820,241 42.1%
----------------------- ------------- ----------------- --------------
All other payers 3,619,164 24.3% 2,283,646 20.0%
----------------------- ------------- ----------------- --------------
Subtotal 14,882,692 100.0% 11,435,142 100.0%
Allowance for uncollectible accounts (2,100,826) (1,795,800)
----------------------- -----------------
$ 12,781,866 $ 9,639,342
======================= =================
At December 31, 2006 and 2005, the Company had approximately ($806,000) and
($68,000) of net payables outstanding specifically related to filed or estimated
cost reports. Of these amounts, approximately ($267,000) and ($287,000),
respectively, were due to the Kentucky Medicaid program.
The ability of payors to meet their obligations depends upon their financial
stability, future legislation and regulatory actions. The Company does not
believe there are any significant credit risks associated with receivables from
Federal and state third-party reimbursement programs. The allowance for doubtful
accounts principally consists of management's estimate of amounts that may prove
uncollectible for coverage, eligibility and technical reasons.
Payor Mix Concentrations and Related Aging of Accounts Receivable
The approximate breakdown of accounts receivable by payor classification as of
December 31, 2006 and 2005 is set forth in the following tables:
As of December 31, 2006: Percent of Accounts Receivable
>1yr
Payor 0-120 121-365 <2yrs >2yrs Total
- ------------------------------ ------------ ------------ ---------- ---------- -------------
Medicare 35% 2% -% -1% 37%
Medicaid & Government 26% 4% 1% -% 31%
Self Pay 22% -% 1% -% 23%
Insurance 7% 2% -% -% 9%
------------ ------------ ---------- ---------- -------------
Total 90% 8% 2% -1% 100%
As of December 31, 2005: Percent of Accounts Receivable
>1yr
Payor 0-120 121-365 <2yrs >2yrs Total
- ------------------------------ ------------ ------------ ---------- ---------- -------------
Medicare 37% 1% -% -% 38%
Medicaid & Government 32% 7% 3% -% 42%
Self Pay 8% 2% 1% -% 11%
Insurance 6% 2% 1% -% 9%
------------ ------------ ---------- ---------- -------------
Total 83% 12% 5% -% 100%
The balance sheet as of December 31, 2006 reflects a 32.6% increase in net
accounts receivable from December 31, 2005 of which 27.4% of the increase was
due to the acquired accounts receivable purchased during the year. The balance
sheet as of December 31, 2006 reflects a 2.8% decrease from December 31, 2004
despite increasing sales over that time frame. Days sales outstanding increased
to 50 days at December 31, 2006 from 48 days at December 31, 2005 and 52 days at
December 31, 2004.
Allowance for Uncollectible Accounts by Payor Mix and Related Aging
The Company records an estimated allowance for uncollectible accounts by
applying estimated bad debt percentages to its accounts receivable agings. The
percentages to be applied by payor type are based on the Company's historical
collection and loss experience. The Company's effective allowances for bad debt
were as follows:
As of December 31, 2006: Percent of Accounts Receivable
>1yr
Payor 0-120 121-365 <2yrs >2yrs
- ---------------------------------- -------------- ------------ ---------- -----------
Medicare 3% 18% 100% 100%
Medicaid & Government 1% 13% 77% 100%
Self Pay -% 10% 69% 100%
Insurance 2% 22% 83% 100%
-------------- ------------ ---------- -----------
Total 2% 17% 85% 100%
As of December 31, 2005: Percent of Accounts Receivable
>1yr
Payor 0-120 121-365 <2yrs >2yrs
- ---------------------------------- -------------- ------------ ---------- -----------
Medicare 3% 18% 100% 100%
Medicaid & Government 2% 14% 76% 100%
Self Pay 1% 11% 73% 100%
Insurance 2% 17% 74% 100%
-------------- ------------ ---------- -----------
Total 2% 15% 95% 100%
The Company's provision for uncollectible accounts for the years ended December
31, 2006, 2005 and 2004 was $687,000, $935,000 and $1,327,000, respectively.
STOCK SPLIT
All share and per share information in the accompanying financial statements
and the notes thereto have been adjusted to give effect to the 2-for-1 split
in the form of a dividend completed in January 2007.
NET INCOME PER SHARE
Net income per share is presented as a unit of basic shares outstanding and
diluted shares outstanding. Diluted shares outstanding is computed based on the
weighted average number of common shares and common equivalent shares
outstanding. Common equivalent shares result from dilutive stock options. The
following table is a reconciliation of basic to diluted shares used in the
earnings per share calculation:
Year Ended December 31,
2006 2005 2004
------------------------------------------------------
Basic weighted average outstanding shares 4,853,535 4,674,578 4,606,534
Add-common equivalent shares representing
shares issuable upon exercise of dilutive
options 473,462 544,080 528,402
-----------------------------------------------------
Diluted weighted average number of shares at
year end 5,326,997 5,218,658 5,134,936
=====================================================
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. Refer also to "NET
REVENUES" above and to Note 2 -- "HEALTHCARE REFORM LEGISLATION, REGULATIONS AND
MARKET CONDITIONS."
FINANCIAL STATEMENT RECLASSIFICATIONS
Certain prior period amounts and data have been reclassified in the financial
statements and related notes in order to conform to the 2006 presentation. Such
reclassifications had no effect on previously reported net income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
payables and debt instruments. The book values of cash, accounts receivable and
payables are considered representative of their respective fair values. The fair
value of the Company's debt instruments approximates their carrying values as
substantially all of such debt has rates which fluctuate with changes in market
rates.
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 year ended December 31, 2005, 2004 and
2003 would have been adjusted to the following pro forma amounts:
Year Ended December 31,
2005 2004
------------------ -------------------
Net income as reported $ 7,868,468 $ 1,256,975
Pro forma stock-based comp-
ensation expense, net of tax 14,131 13,525
------------------ -------------------
Pro forma net income $ 7,854,337 $ 1,243,450
================== ===================
Earnings per common share:
Basic - as reported $ 1.68 $ 0.27
Basic - pro forma $ 1.68 $ 0.27
Diluted - as reported $ 1.51 $ 0.24
Diluted - proforma $ 1.51 $ 0.24
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 year ended December 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 year ended December 31, 2006 the Company granted no share-based
compensation but intends to comply with the provisions of SFAS 123(R) on all
future issuances.
At December 31, 2006, there was approximately $12,300 of unrecognized
compensation cost related to share-based compensation that is expected to be
recognized over the year ended December 31, 2007.
Changes in option shares outstanding are summarized as follows:
Wtd. Avg
Shares Ex. Price
------------- ----------------
December 31, 2005 776,000 $ 1.72
Granted - -
Exercised (123,160) $ 1.34
Terminated (38,780) $ 1.26
------------- ----------------
December 31, 2006 614,060 $ 1.83
============= ================
NEW ACOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, 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. The adoption of FIN 48 during the first quarter of 2007 is not expected
to have a material effect on the Company's financial statements.
In September 2006, the FASB issued (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.
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred. Advertising expense
was $179,575, $87,740 and $73,251 for the years ended December 31, 2006, 2005,
and 2004, respectively.
DISCONTINUED OPERATIONS
The Company follows the guidance in SFAS 144 No. "Accounting for the Impairment
or Disposal of Long-Lived Assets" and, when appropriate, reclassifies operating
units closed, sold, or held for sale out of continuing operations and into
discontinued operations for all periods presented. The Adult Day Care (ADC)
segment which was sold in September 2005, has been reclassified in the Company's
financial statements as further explained elsewhere in the notes to the
financial statements.
Additionally, during 2006, the visiting nurse segment had one facility that met
the criteria to be reclassified as discontinued operations. For all the years
presented in the accompanying financial statements, this facility has been
reclassified.
NOTE 2 - HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET
CONDITIONS
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 and
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 reimbursement. There can be no assurance that
future legislation or regulatory changes will not have a material adverse effect
on the operations of the Company.
State legislative proposals continue to be introduced that would impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations may be enacted
in the future affecting its business or how existing or future laws and
regulations might be interpreted, or whether the Company will be able to comply
with such laws and regulations in its existing or future markets.
NOTE 3 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
As of December 31,
2006 2005
------------------- ------------------
Wages and employee benefits $ 3,433,763 $ 1,800,516
Insurance accruals 1,863,100 1,993,747
Accrued taxes 737,265 795,594
Accrued professional fees and other 180,151 147,013
Insurance and other accruals related
to sold ADC operations: 53,517 1,471,092
------------------- ------------------
$ 6,267,796 $ 6,207,962
=================== ==================
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consist of the
following:
As of December 31,
2006 2005
-------------------- ------------------
Leasehold improvements $ 1,285,323 $ 1,251,156
Medical equipment 405,562 202,464
Computer equipment and software 9,487,154 8,697,618
Office and other equipment 1,648,789 1,546,627
-------------------- ------------------
12,826,828 11,697,865
Less accumulated depreciation (11,309,972) (10,385,490)
-------------------- ------------------
$ 1,516,856 $ 1,312,375
==================== ==================
Depreciation and amortization expense (including amortization of assets held
under capital leases) was $1,003,766, $1,189,229 and $1,368,460 for the years
ended December 31, 2006, 2005 and 2004, respectively.
NOTE 5 - REVOLVING CREDIT FACILITY
Revolving Credit Facility. The Company has a $22.5 million credit facility with
JP Morgan Chase Bank, NA, as amended on 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 -0.5%) 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 7.24% and
5.27% for the years ended December 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 Definded
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
December 31, 2006, the formula permitted approximately $22.5 million to be used,
of which $8.4 was outstanding. The Company has irrevocable letters of credit,
totaling $2.6 million outstanding in connection with its self-insurance
programs. Thus, a total of $11.5 million was available for use at December 31,
2006. The Company's revolving credit facility is subject to various financial
covenants. As of December 31, 2006, the Company was in compliance with the
covenants. Under the most restrictive of its covenants, the Company is required
to maintain minimum net worth of at least $10.5 million.
NOTE 6 - INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the Company's book
and tax bases of assets and liabilities and tax carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The principal tax carryforwards and temporary differences were as follows:
As of December 31,
2006 2005
--------------------- -------------------
Deferred tax assets
Nondeductible reserves and
allowances $ 1,005,000 $ 530,000
Intangibles 211,000 763,000
Insurance accruals 531,000 641,000
Net operating loss carryforwards 686,000 624,000
--------------------- -------------------
2,433,000 2,558,000
Valuation allowance (367,000) (329,000)
--------------------- -------------------
2,066,000 2,229,000
Deferred tax liabilities
Accelerated depreciation (240,000) (697,000)
--------------------- -------------------
Net deferred tax assets $ 1,826,000 $ 1,532,000
===================== ===================
Deferred tax assets are reflected in the accompanying balance
sheets as:
Current $ 1,536,000 $ 1,171,000
Long-term 290,000 361,000
--------------------- -------------------
Net deferred tax assets $ 1,826,000 $ 1,532,000
===================== ===================
The Company has state and local net operating loss carryforwards of
approximately $14.6 million which expire on various dates through 2016.
Provision (benefit) for income taxes consists of the following:
Year Ended December 31,
2006 2005 2004
-------------------- ------------------- ------------------
Federal - current $ 2,447,000 1,481,000 959,000
State and local - current 490,000 197,000 162,000
Deferred (119,000) (272,000) (7,000)
-------------------- ------------------- ------------------
$ 2,818,000 1,406,000 1,114,000
==================== =================== ==================
Shown in the accompanying statements of income as:
Continuing operations $ 2,818,000 1,406,000 1,114,000
Discontinued operations (24,000) 2,868,000 (58,000)
-------------------- ------------------- ------------------
$ 2,794,000 4,274,000 1,056,000
==================== =================== ==================
A reconciliation of the statutory to the effective rate of the Company is as
follows:
Year Ended December 31,
2006 2005 2004
----------------------- ---------------------- -----------------------
Tax provision using statutory rate 34.0% 34.0% 34.0%
Valuation allowance - -3.6% -0.5%
State and local taxes, net of Federal benefit 5.5% 4.5% 5.7%
Other, net 0.2% -2.9% 0.3%
----------------------- ---------------------- -----------------------
Tax provision for continuing operations 39.7% 32.0% 39.5%
======================= ====================== =======================
The Company has provided a valuation allowance against certain net deferred tax
assets based upon management's estimation of realizability of those assets
through future taxable income. This valuation was based in large part on the
Company's history of generating operating income or losses in individual tax
locales and expectations for the future. The Company's ability to generate the
expected amounts of taxable income from future operations to realize its
recorded net deferred tax assets is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation at
all levels of government. There can be no assurances that the Company will meet
its expectations of future taxable income. However, management has considered
the above factors in reaching its conclusion that it is more likely than not
that future taxable income will be sufficient to realize the net deferred tax
assets as of December 31, 2006.
During the years ended December 31, 2006, 2005 and 2004, based on changes in
facts and circumstances, favorable changes occurred in the Company's
expectations with regard to the generation of future taxable income in certain
tax jurisdictions. Accordingly, the state and local tax provision for these
periods include an increase (reduction) of previously recorded valuation
allowances of approximately $35,000, ($152,000) and ($21,000), for the years
ended December 31, 2005 and 2004 respectively.
NOTE 7 - STOCKHOLDERS' EQUITY
Employee Stock Option Plans
The Company has the following stock option plans:
1. The Company has a 1991 Long-term Incentive Nonqualified Stock Option Plan
which provided for the granting of options to purchase up to 1,000,000 shares of
the Company's common stock to key employees, officers, and directors. The period
of time for granting options under this plan has expired. As of December 31,
2006, options for 431,046 shares were outstanding under this plan.
2. The Company has a 1993 Stock Option Plan for Non-employee Directors which
provided for the granting of options to purchase up to 240,000 shares of the
Company's common stock to directors who are not employees. Each newly elected
director or any director who did not possess options to purchase 20,000 shares
of the Company's common stock were automatically granted options to purchase
20,000 shares of common stock under this plan at an exercise price based on the
market price as of the date of grant. As of December 31, 2006, all option shares
available under this plan have been granted and options for 100,000 shares were
outstanding under this plan.
3. The Company has a 2000 Stock Option Plan which provides for options to
purchase up to 1,000,000 shares of the Company's common stock to key employees,
officers and directors. The Board of Directors determines the amount and terms
of the options, which cannot exceed ten years. As of December 31, 2006, options
for 83,014 shares had been granted and were outstanding under this plan. Shares
available for future grant amount to 831,986 shares at December 31, 2006.
Changes in option shares outstanding are summarized as follows:
Wtd. Avg
Shares Ex. Price
-------------- ---------------
December 31, 2003 1,127,000 1.70
Granted - -
Exercised (40,000) 1.72
Terminated (35,000) 4.77
--------------
December 31, 2004 1,052,000 1.60
Granted 20,000 2.70
Exercised (209,614) 1.45
Forfeited (86,386) 1.41
--------------
December 31, 2005 776,000 1.72
Granted - -
Exercised (123,160) 1.34
Forfeited (38,780) 1.26
--------------
December 31, 2006 614,060 $ 1.83
==============
The following table details exercisable options and related information:
Year Ended December 31,
2006 2005 2004
------------------ ------------------- -------------------
Exercisable at end of year 609,060 766,000 1,049,500
Weighted average exercise price $ 1.82 $ 1.70 $ 1.59
Weighted average fair value
of options granted during the year $ - $ 2.71 $ -
The fair value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for awards in the year ended December 31, 2005: risk-free
interest rates of 4.44%, expected volatility of approximately 45.81%, expected
lives of 10 years, and no expected dividend yields. There were no options
granted in 2006.
The following table summarizes information about stock options outstanding at
December 31, 2006:
Options Outstanding Options Exercisable
--------------------------------------------------------------------------- -----------------------------------
Outstanding Wtd. Avg. Exercisable
Range of As of Remaining Wt. Avg. As of Wt. Avg.
Ex. Price December 31, 2006 Contractual Life Ex. Price December 31, 2006 Ex. Price
----------------- ------------------ ------------------- -------------- ------------------ -------------
$1.10-1.25 190,164 2.17 $1.10 190,164 $1.10
$1.25 - 1.50 85,896 2.49 $2.01 80,896 $1.87
Over $1.5 338,000 4.12 $2.20 338,000 $2.20
------------------ ------------------
$1.10 - $5.30 614,060 3.29 $1.83 609,060 $1.81
================== ==================
Shareholders Rights Plan
On February 1, 1999 the Company implemented a shareholder protection rights
plan. One right was distributed as a dividend on each share of common stock of
the Company held of record as of the close of business on February 16, 1999.
Subject to the terms and conditions of the plan, the rights will be exercisable
only if a person or group acquires beneficial ownership of 20% or more of the
Company's common stock or announces a tender or exchange offer upon consummation
of which, such person or group would beneficially own 20% or more of the common
stock of the Company. If the rights are triggered, then each right not owned by
the acquiring person or group entitles its holder to purchase shares of Company
common stock at the right's current exercise price, having a value of twice the
right's exercise price. The Company may redeem the rights at any time until the
close of business on the tenth business day following an announcement by the
Company that an acquiring person or group has become the beneficial owner of 20%
or more of the Company's common stock.
Directors Deferred Compensation Plan
The Company has a Non-Employee Directors Deferred Compensation Plan which allows
Directors to elect to receive fees for Board services in the form of shares of
the Company's common stock. The Plan authorized 200,000 shares for such use. As
of December 31, 2006, 113,681 shares have been allocated in deferred accounts,
8,622 have been issued to previous Directors and 77,697 remain available for
future allocation. Allocated shares are to be issued to Directors when they
cease to be Directors or upon a change in control. Directors' fees are expensed
as incurred whether paid in cash or deferred into the Plan.
NOTE 8 - RETIREMENT PLAN
The Company administers a 401 (k) defined contribution retirement plan for the
benefit of the majority of its employees, who have completed 90 days of service
and been credited with 1,000 hours of service as defined by the plan agreement.
The Company matches contributions in an amount equal to one-quarter of the first
5% of each participant's contribution to the plan. 401 (k) assets are held by
an independent trustee, are not assets of the Company, and accordingly are not
reflected in the Company's balance sheets.
The Company's retirement plan expense was approximately $110,000, $103,000 and
$60,000 for the years ended December 31, 2006, 2005, and 2004, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain real estate, office space, and equipment under
non-cancelable operating leases expiring at various dates through 2012 and which
contain various renewal and escalation clauses. Rent expense amounted to
$2,374,379, $1,939,722 and $1,791,653 for years ended December 31,
2006, 2005 and 2004, respectively. At December 31, 2006 the minimum rental
payments under these leases were as follows:
2007 $ 2,700,858
2008 2,011,991
2009 1,060,139
2010 526,184
2011 279,761
Total $ 6,578,933
Capital Leases and Term Debt
The Company has certain assets, primarily computer equipment, under a capital
lease. The leases include interest of approximately 6.25% per annum. Assets held
under capital lease are carried at cost of approximately $321,000 with
accumulated depreciation of approximately $82,000 as of December 31, 2006.
The Company has seven unsecured notes payable totaling $5.4 million to sellers
bearing interest at 6% per annum at December 31, 2006, due in March, September
and December 2007, October and November 2008 and May 2009. Additionally, as
part of the acquisition of Mederi in December 2006, the Company assumed Mederi's
Medicare repayment plan obligation of $1,314,666 all of which is due in 2007
and which has been included in acquisition notes payable in the table below.
Future minimum lease payments and principal and interest payments on the term
debt are as follows:
Capital Acquisition
Year Ending December 31, Leases Notes Payable Total
------------------ ------------------ -------------------
2007 $ 117,784 $ 2,514,428 $ 2,632,212
2008 117,784 831,770 949,554
2009 - 4,081,589 4,081,589
2010 - - -
2011 - - -
Thereafter - - -
------------------ ------------------ -------------------
235,568 7,427,787 7,663,355
Less: amount representing
Interest (14,668) (673,121) (687,789)
------------------ ------------------ -------------------
Present value of minimum
lease/principal payments 220,900 6,754,666 6,975,566
Less: current portion 107,009 2,214,666 2,321,675
------------------ ------------------ -------------------
$ 113,891 $ 4,540,000 $ 4,653,891
================== ================== ===================
Insurance Programs
The Company bears significant insurance risk under our 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
December 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.
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.
NOTE 10 - STOCK REPURCHASES
During the year ended December 31, 2006, the Company redeemed 4,952 shares of
its common stock in conjunction with the exercise of employee stock options and
issuance of related stock. These were shares previously outstanding and owned by
option holders submitted them in lieu of the cash exercise price (an aggregate
of $(58,904) that would have otherwise been due on option exercise.
During the year ended December 31, 2005, the Company redeemed 23,728 shares of
its common stock in conjunction with the exercise of employee stock options,
and issuance of related stock. These were share previously outstanding and
owned by option holders submitted by them in lieu of the cash exercise price
(an aggregate of $(369,390) that would have otherwise been due on option
exercises.
NOTE 11 - 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 92% 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 71% of the PC segment revenues are
generated from Medicaid and other government programs while the balance is
generated from insurance programs and private pay patients.
Year Ended December 31,
2006 2005 2004
- ------------------------------------------------------------------------------------------------------------
Net revenues
Visiting nurses $ 55,190,258 $ 39,732,561 $ 31,718,144
Personal care 36,621,690 35,354,834 33,542,824
------------------- ------------------ -------------------
$ 91,811,948 $ 75,087,395 $ 65,260,968
=================== ================== ===================
Operating income (loss)
Visiting nurses $ 9,004,859 $ 5,372,837 $ 4,947,201
Personal care 3,781,371 3,278,887 2,309,410
Corporate (5,749,115) (4,449,661) (4,165,428)
------------------- ------------------ -------------------
$ 7,037,116 $ 4,202,063 $ 3,091,183
=================== ================== ===================
Identifiable assets
Visiting nurses $ 34,278,108 $ 8,567,595 $ 4,304,820
Personal care 9,129,308 9,350,761 9,467,064
Corporate 9,988,077 12,624,799 7,985,812
Discontinued operations - - 3,820,315
------------------- ------------------ -------------------
$ 53,395,493 $ 30,543,155 $ 25,578,011
=================== ================== ===================
Identifiable liabilities
Visiting nurses $ 10,828,431 $ 3,737,863 $ 2,140,354
Personal care 1,461,790 2,838,394 3,111,892
Corporate 13,365,363 3,831,417 8,179,054
------------------- ------------------ -------------------
$ 25,655,584 $ 10,407,674 $ 13,431,300
=================== ================== ===================
Capital expenditures
Visiting nurses $ 195,447 $ 85,963 $ 68,517
Personal care 27,605 6,768 5,615
Corporate 635,238 363,618 87,417
------------------- ------------------ -------------------
$ 858,290 $ 456,349 $ 161,549
=================== ================== ===================
Depreciation and amortization
Visiting nurses $ 173,415 $ 711,703 $ 842,213
Personal care 25,359 291,414 399,518
Corporate 804,992 186,112 126,553
------------------- ------------------ -------------------
$ 1,003,766 $ 1,189,229 $ 1,368,284
=================== ================== ===================
NOTE 12 - DISCONTINUED OPERATIONS
On September 30, 2005, the Company sold its adult day care (ADC) segment to
Active Services, Inc. ADC operations are now reported as discontinued
operations. The sale price consisted of $13.6 million cash plus assumption of
approximately $1.4 million of debt. In return, Active Services acquired
substantially all the assets and assume certain working capital liabilities
related to Almost Family's 19 medical adult day care centers which generated
approximately $21.0 million in annual revenues. The Company reported an
after-tax gain on the sale totaling $5.2 million.
Revenues from the discontinued ADC segment were approximately $0, $16.5 million
and $23.2 million in the years ended December 31, 2006, 2005 and 2004
respectively. Additionally, during 2006, the VN segment had one facility
that met the criteria to be relclassified as discontinued operations. For all
the years presented in the accompanying financial statements, this facility
has been reclassified. Net losses from the discontinued operations were
approximately ($34,000), ($221,000) and ($363,000) in the years ended
December 31, 2006, 2005 and 2004 respectively, and such amounts are included in
net loss from discontinued operations in the accompanying financial statements.
NOTE 13 -- ACQUISITIONS
Each of the following acquisitions was completed in order to pursue the
Company's strategy of expanding its visiting nurse operations in the eastern
United States by expanding its service base and enhancing its position in
certain geographic areas as a leading provider of home health services. The
purchase price of each acquisition was determined based on the Company's
analysis of comparable acquisitions and expected cash flows. Goodwill generated
from the acquisitions was recognized given the expected contributions of each
acquisition to the overall corporate strategy. Each of the acquisitions
completed was accounted for as a purchase and are included in the Company's
financial statements from the respective acquisition date. All goodwill
generated in the transactions below is expected to be deductible for tax
purposes.
Acquisitions During 2006
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 $1.8 million was paid $1.4 million
in cash plus $340,000 in 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. The purchase
price was allocated to tangible assets ($0.1 million) including primarily
receivables and fixed assets with the balalnce recorded in goodwill ($1.7
million).
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 $982,000 was paid $810,000 in cash plus $100,000
in 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 $72,000
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 June 30, 2006. The purchase price was allocateed to tangible assets
($0.93 million) including primarily receivables and fixed assets with the
balance recorded as goodwill (approximately $0.05 millions).
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 $1.4 million was paid $1.3 million in cash
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. The
Company recorded substantialy the entire purchase price as goodwill.
On December 3, 2006, the Company acquired all the Medicare-certified home health
agencies owned and operated by Mederi, Inc., located in Coconut Grove, Florida.
The total purchase price of $20.4 million was paid $11.7 million in cash,
approximately $3 million or 100,000 shares of Almost Family common stock
(restricted) with the $4 million balance in the form of two notes payable
bearing interest at 6% payable quarterly with the principal due in a balloon
payment two years from the closing date. The Company assumed employee paid-
time-off liabilities of approximately $397,000 and a Medicare liability of
approximately $1.3 million. Additional consideration of up to $5.5 million in
cash may be paid to the seller contingent primarily upon the achievement of
certain revenue targets in the two years following the closing. The cash portion
of the transaction was funded from borrowings available on the
Company's existing senior credit facility with JP Morgan Chase Bank, NA.
The acquired operations generated net revenues of approximately $23.8 million
in the year ended June 30, 2006. The Mederi acquisition significantly
expands the Company's presence and penetration in the state of Florida and
gives the Company new market presence in the states of Missouri and Illinois.
The following table summarizes the approximate estimated fair values of the
assets acquired and liabilities assumed of the Mederi, Inc. acquisition on
December 3, 2006:
Accounts receivable - net $ 902,000
Property, plant & equipment 220,000
Intangible Assets 1,120,000
Other Assets 87,000
Goodwill 18,082,000
Assets acquired 20,411,000
Liabilities assumed (1,752,000)
-----------------
Net assets acquired $ 18,659,000
=================
The Company is currently in the process of finalizing its valuation of the
assets acquired and liabilities assumed for the Mederi acquisition, to assist it
in allocating the purchase price to the individual assets acquired and
liabilities assumed. The preliminary allocation of purchase price included in
the current period balance sheet is based on the Company's current best estimate
and is subject to revision based on final determination of fair value. The
Company has engaged an independent valuation firm to assist with the valuation
of Mederi, which is expected to be completed prior to the first anniversary of
the acquisition.
The unaudited pro-forma results of operations of the Company as if the Mederi,
Inc. acquisition had been made at the beginning of 2005 are as follows:
Twelve Months ended December 31
------------------------------------------
2006 2005
---------------------- -------------------
Revenues $ 114,578,381 $ 98,466,791
Net Income from continuing
operations 3,814,218 1,749,589
Net Income 3,240,867
Earnings per share from continuing
operations
Basic $ 0.75 $ 0.36
Diluted $ 0.69 $ 0.32
Earnings per share
Basic $ 0.64 $ 1.29
Diluted $ 0.59 $ 1.16
The pro forma information presented above is presented for illustrative purposes
only and may not be indicative of the results of operations that would have
actually occurred if the transaction described had been completed as of the
beginning of 2005. In addition, future results may vary significantly from the
results reflected in such information.
Acquisitions During 2005
On April 1, 2005 the Company acquired all the assets and business operations of
a Medicare-certified visiting nurse agency located in Bradenton, Florida. The
total purchase price of $3.2 million was paid in the form of $2.5 million in
cash with the $700,000 balance in the form of a note payable bearing
interest at 6% payable quarterly and the note balance due in two years after
closing. The Company funded the cash portion of the purchase price with
available borrowings on our revolving credit facility. Approximately $2.9
million of the purchase price was allocated to goodwill with the balance
allocated to receivables and fixed assets.
On November 12, 2005 the Company acquired all the assets and business operations
of a Medicare-certified visiting nurse agency located in St. Augustine, Florida.
The total purchase price of $800,000 was paid in the form of $600,000 in cash
with the balance in the form of a note payable bearing interest at 6%
due in its entirety three years after closing. The Company funded the cash
portion of the purchase price with cash on hand. Approximately $0.78 million of
the purchase price was allocated to goodwill with the balance allocated to
receivables and fixed assets.
NOTE 14 - QUARTERLY FINANCIAL DATA-- (UNAUDITED) (1)
Summarized quarterly financial data for the years ended December 31, 2006 and
2005 are as follows (in thousands except per share data):
Year Ended December 31, 2006 Year Ended December 31, 2005
-------------------------------------------------- ---------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
2006 2006 2006 2006 2005 2005 2005 2005
-------------------------------------------------- ----------------------------------------------------
Net service revenues $ 26,226 $ 22,946 $ 21,847 $ 20,793 $ 19,223 $ 18,361 $ 19,203 $ 18,299
Gross margin 13,217 11,316 10,424 9,891 9,220 8,518 9,196 8,773
Income from continuing
operations 1,396 1,045 921 912 1,272 415 703 559
Income (loss) from
discontinued operations 73 (19) (22) (66) 211 4,963 (81) (175)
Net income 1,469 1,026 899 846 1,483 5,378 622 384
Income from continuing
operations
Basic $ 0.28 $ 0.22 $ 0.19 $ 0.19 $ 0.30 $ 0.09 $ 0.15 $ 0.12
Diluted $ 0.26 $ 0.20 $ 0.17 $ 0.17 $ 0.24 $ 0.08 $ 0.13 $ 0.11
Income from discontinued
operations
Basic $ 0.01 $ - $ - $ (0.01) $ 0.05 $ 1.06 $ (0.02) $ (0.04)
Diluted $ 0.01 $ - $ - $ (0.01) $ 0.04 $ 0.94 $ (0.02) $ (0.03)
Net income (loss)
per share
Basic $ 0.29 $ 0.22 $ 0.19 $ 0.18 $ 0.35 $ 1.15 $ 0.13 $ 0.08
Diluted $ 0.27 $ 0.20 $ 0.17 $ 0.17 $ 0.28 $ 1.02 $ 0.11 $ 0.07
(1) All share and per share information has been adjusted to reflect a 2-for-1
common stock split completed in January 2007.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Almost Family, Inc.
We have audited the accompanying consolidated balance sheets of Almost Family,
Inc. and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2006. Our audits also
included the financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal controls over financial reporting. Our audits
included consideration of internal controls over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Almost Family,
Inc. and subsidiaries at December 31, 2006 and 2005, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2006, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2006, the Company changed its method of accounting for stock-
based compensation to conform to Statement of Financial Accounting Standards
No. 123(R), "Share-Based Payment".
/s/ Ernst & Young, LLP
---------------------
Ernst & Young, LLP
Louisville, Kentucky
March 28, 2007
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company's management, with participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures as of December 31, 2006. Based on
the evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective as of December 31, 2006. There were no changes in the Company's
internal controls over financial reporting during the fourth quarter of 2006
that have materially affected, or are reasonably likely to materially affect,
such internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is set forth in the Registrant's
definitive proxy statement to be filed with the Commission no later than 120
days after December 31, 2006, except for the information regarding executive
officers of the Company. The information required by this Item contained in such
definitive proxy statement is incorporated herein by reference.
The following table sets forth certain information with respect to the Company's
executive officers.
Name Age Position with the Company
- ----------------------------------------------------------------------------
William B. Yarmuth (1) 54 Chairman of the Board President
and Chief Executive Officer
C. Steven Guenthner (2) 46 Senior Vice President and
Chief Financial Officer
P. Todd Lyles (3) 45 Senior Vice President - Administration
Anne T. Liechty (4) 54 Senior Vice President - Operations
Mark Hunt (5) 47 Senior Vice President - Sales & Marketing
Phyllis Montville (6) 58 Vice President - Operations
David Pruitt (7) 43 Vice President - Operations
Executive officers of the Company are elected by the Board of Directors for one
year and serve at the pleasure of the Board of Directors with the exception of
William B. Yarmuth who has an employment agreement with the Company. There are
no family relationships between any director or executive officer.
(1) William B. Yarmuth has been a director of the Company since 1991, when
the Company acquired National Health Industries ("National"), where Mr.
Yarmuth was Chairman, President and Chief Executive Officer. After the
acquisition, Mr. Yarmuth became the President and Chief Operating
Officer of the Company. Mr. Yarmuth became Chairman and CEO in 1992. He
was Chairman of the Board, President and Chief Executive Officer of
National from 1981 to 1991.
(2) C. Steven Guenthner has been Senior Vice President and Chief Financial
Officer of the Company since 1992. From 1983 through 1992 Mr. Guenthner
was employed as a C.P.A. with Arthur Andersen LLP. Prior to joining the
Company he served as a Senior Manager in the firm's Accounting and
Audit division specializing in mergers and acquisitions, public
companies and the healthcare industry.
(3) P. Todd Lyles joined the Company as Senior Vice President Planning and
Development in October 1997 and now serves as Senior Vice President -
Administration. Prior to joining the Company Mr. Lyles was Vice
President Development for the Kentucky Division of Columbia/HCA, a
position he had held since 1993. Mr. Lyles experience also includes 8
years with Humana Inc. in various financial and hospital management
positions.
(4) Anne T. Liechty became Senior Vice President - VN Operations in 2001.
Ms. Liechty has been employed by the Company since 1986 in various
capacities including Vice President of Operations for the Company's VN
segment and its Product segment.
(5) Mark Hunt became Senior Vice President - Sales & Marketing in 2007. Mr.
Hunt came to Almost Family in February of 2007. Mr. Hunt had previously
worked for VistaCare, a national hospice provider, since 2004 as Vice
President of Sales and Vice President General Manager. Prior to that,
he spent 22 years in the healthcare supplier industry holding senior
positions in Sales, Corporate Accounts and General Management with
Baxter Healthcare, Span America and SSL Americas.
(6) Phyllis Montville became Vice President - Operations in 2006. Ms.
Montville came to the company in 2006 as Vice President of VN
Operations in Florida. She has 23 years experience in home care
management, most of which is in the Florida market. Ms. Montville owned
and operated her own franchise for 10 years. She started in the home
care field as a branch manager and home care nurse.
(7) David Pruitt became Vice President - Operations in 2002. Mr. Pruitt has
been employed by the company since 1996 in various roles in the
company's service divisions. Prior to 1996, he was employed by the
Medicare Intermediary in Columbia, South Carolina.
Code of Ethics and Business Conduct
The Company has adopted a Code of Ethics and Business Conduct that applies to
all its directors, officers (including its chief executive officer, chief
financial officer, chief accounting officer and any person performing similar
functions) and employees. The Company has made the Code of Ethics and Business
Conduct available on its website at www.almostfamily.com.
ITEMS 11, 12, 13 and 14. EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE: AND PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The Registrant intends to file a definitive proxy statement with the Commission
pursuant to Regulation 14A (17 CFR 240.14a) not later than 120 days after the
close of the fiscal year covered by this report. In accordance with General
Instruction G(3) to Form 10-K, the information called for by Items 11, 12, 13
and 14 is incorporated herein by reference to the definitive proxy statement.
Neither the report on Executive Compensation nor the performance graph included
in the Company's proxy statement shall be deemed incorporated herein by
reference.
Equity Compensation Plans
As of December 31, 2006, shares of common stock authorized for issuance under
our equity compensation plans are summarized in the following table. See note 7
to the consolidated financial statements for a description of the plans. The
table below is furnished pursuant to item 12.
Shares to Be Weighted-Average
Issued Upon Option Exercise Shares Available for
Plan Category Exercise Price Future Grants
-------------
-------------------- ------------------ ----------------------
Plans approved by shareholders 614,060 $ 1.83 831,986
Plans not approved by shareholders - - -
-------------------- ------------------ ----------------------
Total 614,060 $ 1.83 831,986
==================== ================== ======================
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Page Number
2005 The following items are filed as part of this report:
1. Index to Consolidated Financial Statements
Consolidated Statements of Income for the years ended December
31, 2006, 2005 and 2004 38
Consolidated Balance Sheets - December 31, 2006 and 2005 39
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and
2004 41
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2006,
2005 and 2004 40
Notes to Consolidated Financial Statements 42
Report of Independent Registered Public Accounting Firm 60
2. Index to Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 68
All other Schedules have been omitted because they are either not
required, not applicable or, the information has otherwise been
supplied in the financial statements or notes thereto.
(b) Exhibits required to be filed by Item 601 of Regulation S-K, and by Item 15 I below:
Number Description of Exhibit
3.1 Certificate of Incorporation, as amended, of the Registrant
(incorporated by reference to Exhibit No. 3.1 of the
Registrant's Annual Report on Form 10-K for the year ended
March 31, 1997)
3.2 Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3 of the Registrant's Current Report
on Form 8-K dated February 1, 1999)
4.1 Stockholder Protection Rights Agreement dated February 1,
1999, between the Registrant and Reliance Trust Company
(incorporated by reference to Exhibit 4 to the Registrant's
Current Report on Form 8-K dated February 1, 1999)
4.2 Other Debt Instruments - copies of other debt instruments for
which the total debt is less than 10% of assets will be
furnished to the Commission upon request.
10.1 Nonqualified Stock Option Plan, as amended (incorporated by
reference to the Registrant's Registration Statement on Form
S-8 Reg. No. 33-20815)
10.2 Supplemental Nonqualified Stock Option Plan (incorporated
by reference to Exhibit 19.4 to the Registrant's Report on
Form 10-Q for the Quarter Ended November 30, 1987 Commission
File No. 15342)
10.3 Incentive Stock Option Plan, as amended (incorporated by
reference to the Registrant's Registration Statement on Form
S-8 Reg. No. 33-20815)
10.4 Amendment to the Senior Service Corporation 1987 Nonqualified
Stock Option Plan (incorporated by reference to Exhibit 19.3
to the Registrant's Report on Form 10-Q for the quarter ended
November 30, 1989)
10.5 1991 Long-Term Incentive Plan (incorporated by references to
the Registrant's Registration Statement on Form S-8 Reg. No.
33-81124)
10.6 Employment Agreement, dated January 1, 1996, between the
Company and William B. Yarmuth (incorporated by reference to
the Registrant's report on Form 10K for the year ended March
31, 1996).
10.7 Loan Agreement between the Company and Bank One, KY
(incorporated by reference to the Registrant's report on Form
10K for the year ended March 31, 2001).
10.8 Third Amendment to Loan Agreement between the Company and Bank
One, NA, dated March 23, 2004 (incorporated by reference to
the Registrant's report on Form 10-K for the year ended
December 31, 2003)
10.9 Fourth Amendment to Loan Documents dated as of August 11,
2005, by and between (i) Almost Family, Inc., (ii) each of the
subsidiaries of AFI that is party to the Agreement, and (iii)
JP Morgan Chase Bank, N.A. (successor by merger to Bank One
N.A.). (incorporated by reference to the Registrant's report
on Form 10-Q for the quarter ended June 30, 2005).
10.10 2000 Stock Option Plan (incorporated by reference to the
Registrant's Registration Statement on Form S-8 Reg. No.
333-88744)
10.11 Non-Employee Director Deferred Compensation Plan
10.12 1993 Non-Employee Directors Stock Option Plan (incorporated by
reference to the Registrant's Registration Statement on Form
S-8 Reg. No. 333-881100)
10.12 Asset Purchase Agreement dated as of November 15, 2006, among
(x) the Registrant, Caretenders Visiting Services of Cook
County, LLC, Caretenders Visiting Services of Southern
Illinois, LLC, Caretenders Visiting Services of St. Louis,
LLC, and National Health Industries, Inc., (y) Health
Management Consultants, Inc., United Home Health Services of
Cook County, Inc. d/b/a Mederi of Cook County, and United Home
Health Service of St. Louis, Inc. d/b/a Mederi, and (z) David
Nesslein and Sandra Vazquez, (incorporated by reference to the
Registrant's report on Form 8K filed December 7, 2006)
10.13 Asset Purchase Agreement dated as of November 15, 2006, among
(x) the Registrant, Caretenders Visiting Services of Ocala,
LLC, Caretenders Visiting Services of Southwest Florida, Inc.,
Caretenders Visiting Services of Orlando, LLC, Caretenders
Visiting Services of District 7, LLC, Pro-Care Home Health of
Broward, Inc., Caretenders Visiting Services of Southeast
Florida, Inc., Caretenders Visiting Services of Hernando
County, LLC, Caretenders Visiting Services of District 6, LLC,
Caretenders Visiting Services of Pinellas County, LLC,
Caretenders Visiting Services of Cook County, LLC, and
National Health Industries, Inc., (y) Mederi, Inc., Mederi of
Collier County, Inc., Mederi of Manatee County, Inc., Mederi
of Pinellas County, Inc., Mederi of Alachua County, Inc.,
Mederi of Palm Beach County, Inc., Mederi of Orange County,
Inc., d/b/a Mederi of Brevard County, Inc., and United Home
Health Services, Inc. d/b/a Mederi of Illinois, and (z) David
Nesslein and Sandra Vazquez, (incorporated by
reference to the Registrant's report on Form 8K filed December
7, 2006)
21* List of Subsidiaries of Almost Family, Inc.
23.1* Consent of Ernst & Young LLP
31.1* Certification of Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended.
31.2* Certification of Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended.
32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C
1350, as adopted pursuant to section 906 of the Sarbanes Oxley
Act of 2002.
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C
1350, as adopted pursuant to section 906 of the Sarbanes Oxley
Act of 2002.
*Denotes filed herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALMOST FAMILY, INC.
March 29, 2007
/S/ William B. Yarmuth
---------------------
William B. Yarmuth
Chairman, President and Chief Executive Officer
/S/ C. Steven Guenthner
---------------------
C. Steven Guenthner
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:
/S/ William B. Yarmuth March 29, 2007
--------------------------------------------------
William B. Yarmuth Date
Director
/S/ Steven B. Bing March 29, 2007
- ------------------------------------------------------
Steven B. Bing Date
Director
/S/ Donald G. McClinton March 29, 2007
- ------------------------------------------------------
Donald G. McClinton Date
Director
/S/ Tyree G. Wilburn March 29, 2007
- ---------------------------------------------
Tyree G. Wilburn Date
Director
/S/ Jonathan D. Goldberg March 29, 2007
- ------------------------------------------------------
Jonathan D. Goldberg Date
Director
/S/ W. Earl Reed, III March 29, 2007
- -------------------------------------------------------
W. Earl Reed, III Date
Director
/S/ Henry M. Altman Jr. March 29, 2007
- ------------------------------------------------------
Henry M. Altman Jr. Date
Director
ALMOST FAMILY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
------------------------------
(1) (2)
Balance at Charged to Charged to
Beginning of Costs Other (3) Balance at
Description Period and Expenses Accounts Deductions End of Period
- --------------------------------------------------------------------------- ------------- --------------- ----------------
Allowance for bad debts:
Year Ended December 31, 2006 $ 1,795,800 $ 687,103 $ 599,513 $ 981,590 $ 2,100,826
Year Ended December 31, 2005 $ 2,081,394 $ 935,141 262,303 $ 1,483,038 $ 1,795,800
Year ended December 31, 2004 $ 1,717,185 $ 1,326,765 - $ 962,556 $ 2,081,394
(1) Charged to bad debt expense.
(2) Acquired Bad Debt Reserves.
(3) Write-off of accounts.
Exhibit 21
ALMOST FAMILY, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES AS OF DECEMBER 31, 2006
Subsidiaries of Almost Family, Inc.
Adult Day Care of America, Inc. Adult Day Care of Louisville, Inc.
Adult Day Care of Maryland, Inc. HouseCalls, Inc.
HHJC Holdings, Inc.
National Health Industries, Inc.
Pro-Care Home Health of Broward, Inc.
Subsidiaries of National Health Industries, Inc.
Freelife Rehab Resources, Inc. Caretenders Homecare, Inc.
Caretenders Infusion of Birmingham, Inc. Caretenders of Birmingham, Inc.
Caretenders of Boston, Inc. Caretenders of Cincinnati, Inc.
Caretenders of Columbus, Inc. Caretenders of Elizabethtown, Inc.
Caretenders of Indiana, Inc. Caretenders of Indianapolis, Inc.
Caretenders of Louisville, Inc. Caretenders of Northern Kentucky, Inc.
Caretenders of New Jersey, Inc. Caretenders of the Bluegrass, Inc.
Caretenders Visiting Services of Richmond, Inc.
Housecalls of America, Inc. Caretenders of Richmond, Inc.
Caretenders Infusion Corp. Metro Home Care, Inc.
National Orthopedic & Rehabilitation Services, Inc. Home Health of Jefferson County, Inc.
Special Healthcare Services, Inc. Reliable Home Healthcare, Inc.
Caretenders Visiting Services of Cincinnati, Inc. Caretenders of Cleveland, Inc.
Caretenders Visiting Services of Columbus, Inc. Caretenders of Fort Lauderdale, Inc.
Caretenders of Evansville, Inc. Caretenders of West Palm Beach, Inc.
Caretenders Visiting Service Employment, Inc. Caretenders of Charlotte, Inc.
Caretenders Visiting Services of Southwest FL, Inc. Caretenders of Southwest Florida, Inc.
Caretenders Visiting Services of Southeast FL, Inc.
Subsidiary of HHJC Holdings, Inc.
Home Health of Jefferson County, Inc. Caretenders of Marshall County, Inc.
Subsidiary of Adult Day Care of America, Inc.
Adult Day Clubs of America Joint Venture, Ltd.
Subsidiary of Caretenders Visiting Services of Southwest Florida, Inc.
Caretenders Visiting Services of Dist 6, LLC
Subsidiary of Housecalls of America, Inc.
Caretenders Visiting Services of Kentuckiana, Inc.
Subsidiary of Caretenders Visiting Services of Southeast Florida, Inc.
Caretenders Visiting Services of SE Florida, Inc.
Caretenders Visiting Services of Gainesville, LLC
Caretenders Visiting Services of Orlando, LLC
Caretenders Visiting Services of Palm Beach County, LLC
Caretenders Visiting Services of Dist 7, LLC
Caretenders Visiting Services of St Augustine, LLC
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement Form
S-8 No. 33-881100 pertaining to the 1993 Non-Employee Directors Stock Option
Incentive Plan, Registration Statement Form S-8 No. 33-81124 pertaining to the
1991 Long-Term Employee Stock Option Plan, Registration Statement Form S-8
No. 333-88744 pertaining to the 2000 Employee Stock Option Plan and Registration
Statement Form S-8 No. 333-43631 pertaining to the Non-Employee Directors
Deferred Compensation Plan, of our report dated March 28, 2007, with respect to
the consolidated financial statements and schedule of Almost Family, Inc. and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 2006.
/S/ ERNST & YOUNG LLP
------------------
ERNST & YOUNG LLP
Louisville, Kentucky
March 28, 2007