ALMOST FAMILY INC - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXHIBIT 31-1 - ALMOST FAMILY INC	exhibit31-1.htm
EX-31.2 - EXHIBIT 31-2 - ALMOST FAMILY INC	exhibit31-2.htm
EX-32.1 - EXHIBIT 32-1 - ALMOST FAMILY INC	exhibit32-1.htm
EX-32.2 - EXHIBIT 32-2 - ALMOST FAMILY INC	exhibit32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________

FORM 10-Q

_____________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

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

For the transition period from ___________to____________

Commission file number 001-09848

_____________

ALMOST FAMILY, INC.

(Exact name of Registrant as specified in its charter)

_____________

Delaware		06-1153720
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

9510 Ormsby Station Road, Suite 300, Louisville, Kentucky 40223

(Address of principal executive offices)

(502) 891-1000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨

No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class of Common Stock $0.10 par value

Shares outstanding at August 3, 2010 9,248,603

ALMOST FAMILY, INC. AND SUBSIDIARIES

FORM 10-Q

Index

PART I.

Item 1.

Item 2.

Item 3.

Item 4.

PART II.

Item 1.

Item 1A.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Financial Information

Financial Statements. Consolidated Financial Statements and Supplementary Data (unaudited except December 31, 2009 Consolidated Balance Sheet)

Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009

Consolidated Statements of Income for the Three Months Ended June 30, 2010 and June 30, 2009

Consolidated Statements of Income for the Six Months Ended June 30, 2010 and June 30, 2009

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and March 31, 2009

Notes to Consolidated Financial Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures about Market Risk

Controls and Procedures

Other Information

Legal Proceedings

Risk Factors

Unregistered Sales of Equity Securities and Use of Proceeds

Defaults Upon Senior Securities

(Removed and Reserved)

Other Information

Exhibits

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	June 30, 2010
ASSETS	(UNAUDITED)			December 31, 2009
CURRENT ASSETS:
Cash and cash equivalents	$	31,352		$	19,389
Accounts receivable - net		41,333			35,121
Prepaid expenses and other current assets		2,456			2,544
Deferred tax assets		8,111			7,786
TOTAL CURRENT ASSETS		83,252			64,840

PROPERTY AND EQUIPMENT - NET		4,353			4,291
GOODWILL		99,134			99,133
OTHER INTANGIBLE ASSETS		14,387			14,538
OTHER ASSETS		588			587
	$	201,714		$	183,389

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,912		$	3,360
Accrued other liabilities		20,613			20,076
Current portion - capital leases and notes payable		1,688			1,836
TOTAL CURRENT LIABILITIES		26,213			25,272

LONG-TERM LIABILITIES:
Revolving credit facility		-			-
Capital lease obligations		-			40
Notes payable		1,300			2,800
Deferred tax liabilities		6,673			5,258
Other liabilities		885			1,042
TOTAL LONG-TERM LIABILITIES		8,858			9,140
TOTAL LIABILITIES		35,071			34,412

STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.05; authorized
2,000 shares; none issued or outstanding		-			-
Common stock, par value $0.10; authorized
25,000; 9,251 and 9,151
issued and outstanding		925			915
Treasury stock, at cost, 2 and 0 shares		(70	)		-
Additional paid-in capital		96,407			94,465
Retained earnings		69,381			53,597
TOTAL STOCKHOLDERS' EQUITY		166,643			148,977
	$	201,714		$	183,389

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share data)

	Three Months ended June 30,
	2010			2009
Net service revenues	$	85,606		$	74,594
Cost of service revenues (excluding depreciation and amortization)		38,629			34,498
Gross margin		46,977			40,096
General and administrative expenses:
Salaries and benefits		22,879			20,670
Other		10,078			9,307
Total general and administrative expenses		32,957			29,977
Operating income		14,020			10,119
Interest expense, net		(61	)		(204	)
Income from continuing operations before income taxes		13,959			9,915
Income tax expense		(5,618	)		(3,866	)
Net income from continuing operations		8,341			6,049
Discontinued operations, net of tax benefits of ($.5) and $36		1			(55	)
Net income	$	8,342		$	5,994

Per share amounts-basic:
Average shares outstanding		9,110			8,176
Income from continued operations	$	0.92		$	0.74
Loss from discontinued operations		-			(0.01	)
Net income	$	0.92		$	0.73

Per share amounts-diluted:
Average shares outstanding		9,366			8,389
Income from continued operations	$	0.89		$	0.72
Loss from discontinued operations		-			(0.01	)
Net income	$	0.89		$	0.71

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share data)

	Six Months ended June 30,
	2010			2009
Net service revenues	$	167,384		$	143,534
Cost of service revenues (excluding depreciation and amortization)		76,215			66,713
Gross margin		91,169			76,821
General and administrative expenses:
Salaries and benefits		45,193			39,672
Other		19,362			17,462
Total general and administrative expenses		64,555			57,134
Operating income		26,614			19,687
Interest expense, net		(150	)		(517	)
Income from continuing operations before income taxes		26,464			19,170
Income tax expense		(10,651	)		(7,528	)
Net income from continuing operations		15,813			11,642
Discontinued operations, net of tax benefits of $19 and $34		(28	)		(53	)
Net income	$	15,785		$	11,589

Per share amounts-basic:
Average shares outstanding		9,079			8,164
Income from continued operations	$	1.74		$	1.43
Loss from discontinued operations		-			(0.01	)
Net income	$	1.74		$	1.42

Per share amounts-diluted:
Average shares outstanding		9,354			8,278
Income from continued operations	$	1.69		$	1.41
Loss from discontinued operations		-			(0.01	)
Net income	$	1.69		$	1.40

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Six Months ended June 30,
	2010			2009
Cash flows from operating activities:
Net income	$	15,785		$	11,589
Loss from discontinued operations		(28	)		(53	)
Income from continuing operations		15,813			11,642
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities:
Depreciation and amortization		1,366			1,152
Provision for uncollectible accounts		1,854			1,902
Stock-based compensation		871			772
(Gain) Loss from sale of asset		(2	)		-
Deferred income taxes		1,090			8
		20,992			15,476
Change in certain net assets and liabilities, net of the effects of acquisitions:
(Increase) decrease in:
Accounts receivable		(8,067	)		(5,309	)
Prepaid expenses and other current assets		(4	)		301
Other assets		(1	)		(49	)
Increase (decrease) in:
Accounts payable and accrued expenses		932			(1,354	)
Net cash provided by operating activities		13,852			9,065

Cash flows from investing activities:
Capital expenditures		(1,196	)		(479	)
Cash proceeds from sale of asset		13			-
Acquisitions, net of cash acquired		(1	)		(6,407	)
Net cash used in investing activities		(1,184	)		(6,886	)

Cash flows from financing activities:
Net revolving credit facility (repayments) borrowings		-			1,557
Proceeds from exercise of stock options		380			84
Purchase of common stock in connection with exercise of stock options		(628	)		(6	)
Tax benefit from exercise of non-qualified stock options		1,258			211
Principal payments on capital leases and notes payable		(1,687	)		(4,220	)
Net cash used in financing activities		(677	)		(2,374	)

Cash flows from discontinued operations:
Operating activities		(28	)		(53	)
Investing activities		-			-
Financing activities		-			-
Net cash used in discontinued operations		(28	)		(53	)

Net increase (decrease) in cash and cash equivalents		11,963			(248	)
Cash and cash equivalents at beginning of period		19,389			1,301
Cash and cash equivalents at end of period	$	31,352		$	1,053

Summary of non-cash investing and financing activities:
Value of stock in lieu of payroll taxes	$	628		$	6

See accompanying Notes to Consolidated Financial Statements.

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ALMOST FAMILY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise indicated, all dollars and share amounts are in thousands)

1. Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2010 and 2009 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. Accordingly, the reader of this Form 10-Q is referred to our Form 10-K for the year ended December 31, 2009 for further information. In the opinion of management of Almost Family, Inc., (the “Company”), the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position at June 30, 2010 and the results of operations for the three and six month periods and cash flows for the six month period ended June 30, 2010 and 2009.

The results of operations for the three and six month periods ended June 30, 2010 are not necessarily indicative of the operating results for the year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Financial Statement Reclassifications

Certain amounts have been reclassified in the 2009 consolidated financial statements and related notes in order to conform to the 2010 presentation. Such reclassifications had no effect on previously reported net income.

2. Net Service 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. From time to time issues may arise related to: 1) medical coding, particularly with respect to Medicare, 2) patient eligibility, particularly related to Medicaid, and 3) other matters unrelated to credit risk, all of which may result in adjustments to recorded revenue amounts. Management 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.

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3. Segment Data

The Company has two reportable segments, Visiting Nurse (VN) and Personal Care (PC). Reportable segments have been identified based upon how management has organized the business by services provided to customers and the criteria in ASC 280, Segment Reporting.

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 69% of the PC segment revenues are generated from Medicaid and other government programs while the balance is generated from insurance programs and private pay patients.

Certain general and administrative expenses incurred at the corporate level have not been allocated to the segments.

The Company has service locations in Florida, Kentucky, Connecticut, New Jersey, Ohio, Massachusetts, Alabama, Missouri, Illinois, Pennsylvania and Indiana.

	Three Months ended June 30,				Six Months ended June 30,
	2010		2009		2010		2009
	Amount		Amount		Amount		Amount
Net service revenues:
Visiting Nurse	$	74,947	$	63,957	$	146,488	$	122,705
Personal Care		10,659		10,637		20,896		20,830
	$	85,606	$	74,594	$	167,384	$	143,535
Operating income before corporate expenses:
Visiting Nurse	$	17,698	$	13,356	$	33,581	$	25,657
Personal Care		1,495		1,239		2,746		2,342
		19,193		14,595		36,327		27,999
Corporate expenses		5,173		4,476		9,713		8,312
Operating income	$	14,020	$	10,119	$	26,614	$	19,687

4. Capitalized Software Development Costs

The Company capitalizes the cost of internally generated computer software developed for the Company’s own use. Software development costs of approximately $226 and $11 were capitalized in the three months ended June 30, 2010 and 2009, respectively and $314 and $17 were capitalized in the six months ended June 30, 2010 and 2009, respectively. Capitalized software development costs are amortized over a three-year period following the initial implementation of the software.

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5. Goodwill and Other Intangible Assets

The goodwill and indefinite-lived intangible assets acquired are stated at fair value at date of acquisition. Subsequent to its acquisitions, the Company conducts annual reviews for impairment, or more frequently if circumstances indicate impairment may have occurred. The Company has completed its most recent annual impairment test as of December 31, 2009 and has determined that no impairment exists.

Other intangible assets consist of Certificates of Need and licenses, trade names and non-compete agreements. Intangible assets are amortized on a straight-line basis over their estimated useful lives. For entities acquired subsequent to 2007, licenses, provider numbers, certificates of need and trade names have indefinite lives and are not amortized. The cost of non-compete agreements are amortized over the life of the agreement, usually 3 years, beginning after any earn-out period. The Company reviews definite lived intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

The following table summarizes the activity related to our goodwill and other intangible assets, net for 2010:

			Other Intangible Assets
	Goodwill		Certificates of Need and licenses		Trade Name		Non-compete Agreements			Total
Balances at 12-31-09	$	99,133	$	6,591	$	7,581	$	366		$	14,538
Additions		1		-		-		-			-

Amortization		-		-		-		(151	)		(151	)
Balances at 6-30-10	$	99,134	$	6,591	$	7,581	$	215		$	14,387

Of total goodwill, $95,307 relates to the Visiting Nurse segment and $3,827 relates to the Personal Care segment. Amortization expense recognized on intangible assets for the second quarter of 2010 and 2009 was $76 in both periods. Amortization expense recognized for the six months ended June 30, 2010 and 2009, was $151 for both periods.

6. Revolving Credit Facility

At June 30, 2010, the Company had a $75 million senior secured revolving credit facility with JP Morgan Chase Bank, NA, as Administrative Agent, Fifth Third Bank, as Syndication Agent and certain other lenders. The facility consists of a $75 million credit line with a maturity date of July 15, 2011 and an “accordion” feature providing for potential future expansion of the facility to $100 million. Borrowings (other than letters of credit) under the credit facility are at either the bank’s prime rate plus a margin (ranging from 0.00% to 1.00%, currently 0.00%) or LIBOR plus a margin (ranging from 1.60% to 2.60%, currently 1.60%). The margin for prime rate or LIBOR borrowings is determined by the Company’s leverage. Borrowings under the Agreement are secured by a first priority perfected security interest in all tangible and intangible assets of the Company, and all existing and future direct and indirect subsidiaries of the Company as guarantors. At June 30, 2010, the Company had no borrowings outstanding.

The weighted average prime rate-based interest rate was 3.25% and 3.50% for the quarters ended June 30, 2010 and 2009, respectively. The weighted average LIBOR rate was 2.03% and 2.28% for the second quarter of 2010 and 2009, respectively. The Company pays a commitment fee of 0.25% per annum on the unused facility balance. Borrowings are available equal to a multiple of 3.0 times earnings before interest, taxes, depreciation and amortization (“EBITDA”). “EBITDA” may include “Acquired EBITDA” from proforma acquisitions pursuant to a calculation rider, up to 50% of “Adjusted EBITDA”, as defined. Borrowings under the facility may be used for general corporate purposes, including acquisitions. As of June 30, 2010, the formula permitted all $75 million to be used, of which no amounts were outstanding. The Company has irrevocable letters of credit, totaling $6.3 million outstanding in connection with its self-insurance programs. Thus, a total of $68.7 million was available for use at June 30, 2010. The

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Company’s revolving credit facility is subject to various financial covenants. As of June 30, 2010, the Company was in compliance with the covenants. Under the most restrictive of its covenants, the Company was required to maintain minimum net worth of at least $151.6 million at June 30, 2010. At such date the Company’s net worth was approximately $166.6 million.

7. Fair Value Measurements

The Company’s financial instruments consist of cash, accounts receivable, payables and debt instruments. The carrying values of cash, accounts receivable and payables are considered representative of their respective fair values due to the short term nature of these instruments. The fair value of the Company’s debt instruments approximates their carrying values as substantially all of such debt instruments have rates which fluctuate with changes in market rates.

Fair value is based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. Fair value is a market-based measurement, not an entity-specific measurement.

Assets and liabilities carried at fair value are classified and disclosed in one of the following categories:

·	Level 1: Quoted market prices in active markets for identical assets or liabilities.

·	Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

·	Level 3: Unobservable inputs that are not corroborated by market data.

The Company does not have any assets or liabilities carried at fair value that are measured on a recurring basis.

8. Stock-Based Compensation

Stock option grant date fair values are determined at the date of grant using a Monte Carlo option valuation model with suboptimal exercise behavior. Employee options vest ratably over 4 years. There were no stock option grants in the quarter ended June 30, 2010.

Changes in option shares outstanding are summarized as follows:

	Shares			Wtd Avg Ex. Price
December 31, 2009		430		$	18.87

Granted		-			-
Exercised		(92	)		4.87
Terminated		(13	)		(29.00	)
June 30, 2010		325		$	22.45

In the three months ended June 30, 2010, the Company awarded 23 restricted shares of Common Stock with a value of $964 pursuant to the Company’s 2007 Stock and Incentive Compensation Plan. These awards vest ratably over 3 years.

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9. Earnings Per Common Share

A reconciliation of the weighted average shares outstanding used in the calculation of basic and diluted earnings per common share is as follows:

	Three Months ended June 30,		Six Months ended June 30,
	2010	2009	2010	2009
Basic weighted average outstanding shares	9,110	8,176	9,079	8,164
Add common equivalent shares representing shares issuable upon exercise of dilutive options	256	213	275	114
Diluted weighted average number of shares at year end	9,366	8,389	9,354	8,278

10. Equity Issuances

On August 5, 2009, the Company entered into a Distribution Agreement with J.P. Morgan Securities Inc. According to the provisions of this Agreement, we could offer and sell from time to time up to 1,600 shares of common stock having an aggregate offering price of up to $50 million through J.P. Morgan, as distribution agent. Sales of stock were made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices. We issued 967 of our shares of Common Stock pursuant to this Agreement. The Distribution Agreement terminated June 30, 2010.

11. Commitments and Contingencies

Insurance Programs

The Company bears significant insurance risk under our large-deductible workers’ compensation insurance program and our self-insured employee health program. Under the workers’ compensation insurance program, we bear risk up to $400 per incident. We purchase stop-loss insurance for the employee health plan that places a specific limit, generally $100, on our exposure for any individual covered life.

The Company records 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. Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted against us by various claimants. The claims are in various stages of processing and some may ultimately be brought to trial. We are aware of incidents that have occurred through June 30, 2010 that may result in the assertion of additional claims. We currently carry professional and general liability insurance coverage for this exposure with no deductible.

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.

On April 27, 2010, The Wall Street Journal published an article exploring the relationship between the Centers for Medicare & Medicaid Services home health payment policies and the utilization rates of certain home health agencies.

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Following The Wall Street Journal article, on May 12, 2010, the United States Senate Finance Committee sent a letter to each of the publicly traded companies mentioned in the article requesting information including Medicare utilization rates for therapy visits. The Company is in the process of responding to the request for information and is cooperating fully with the Senate Finance Committee regarding the requested information.

Subsequently, on June 30, 2010, the Company received a civil subpoena for documents and notice of investigation from the Securities and Exchange Commission. The subpoena seeks documents related to the Company’s home health care services and operations, including reimbursements under the Medicare home health prospective payment system, since January 1, 2000. The Company is in the process of supplying the requested documents and is cooperating fully with the SEC regarding the document request.

Four derivative complaints have been filed in Jefferson Circuit Court, Kentucky, against the members of the Company’s board of directors and its chief financial officer. All four lawsuits name the Company as a nominal defendant. All of the complaints refer to The Wall Street Journal article and the subsequent governmental investigations and make various allegations that the individual defendants breached duties owed to the Company in connection with Medicare reimbursements for home therapy visits. The complaints seek damages from each of the individual defendants on behalf of the Company, various corporate governance reforms, and an award of attorneys’ fees and costs. The Company is reviewing the complaints and has not yet filed a responsive pleading.

The suits are titled: (i) Daniel Himmel, derivatively on behalf of Almost Family, Inc. v. William B. Yarmuth, et al., filed on July 14, 2010, (ii) Jared White, derivatively on behalf of Almost Family, Inc. v. William B. Yarmuth, et al., filed on July 22, 2010, (iii) Norman Cohen, derivatively on behalf of Almost Family, Inc. v. William B. Yarmuth, et al., filed on July 26, 2010, and (iv) Richard Margolis, derivatively on behalf of Almost Family, Inc. v. William B. Yarmuth, et al., filed on July 27, 2010.

On August 3, 2010, a putative class action lawsuit was filed in the U.S. District Court for the Western District of Kentucky, City of Livonia Employees’ Retirement System v. Almost Family, Inc., et al. The complaint also refers to The Wall Street Journal article and the subsequent governmental investigations and alleges that the Company, its chief executive officer and chief financial officer violated federal securities laws. The complaint seeks damages and an award of attorneys’ fees and costs. The Company is reviewing the complaint and has not yet filed a responsive pleading.

12. Acquisitions

There were no acquisitions during the quarter ended June 30, 2010.

13. Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes. The Company’s effective income tax rate from continuing operations for the three month period ended June 30, 2010 and 2009 was 40.3% and 39.0%, respectively and 40.3% and 39.3% for the six month period ended June 30, 2010 and 2009, respectively. The increase is primarily attributable to estimated permanently nondeductible expenses and an increase in state and local tax.

Certain tax authorities may periodically audit the Company. Based on the Company’s annual evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Additionally, the Company may from time to time be assessed interest and penalties by tax jurisdictions. Any such assessments historically have been immaterial to the Company’s financial results and are classified as other general and administrative expenses in the financial statements.

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14. Discontinued Operations

The Company reclassifies operating units closed, sold, or held for sale out of continuing operations and into discontinued operations for all periods presented. During the three month period ending June 30, 2010, one PC facility met the criteria to be classified as discontinued operations. This facility has been classified as discontinued operations in this report for all periods presented. Net revenue from discontinued operations was approximately $15 and $269 in the quarters ended June 30, 2010 and 2009, respectively. Net (gains) loss from the discontinued operations were approximately ($1) and $55 in the quarters ended June 30, 2010 and 2009, respectively. Net revenue from discontinued operations was approximately $5 and $524 in the six month period ended June 30, 2010 and 2009, respectively. Net losses from the discontinued operations were approximately $28 and $53 in the six month period ended June 30, 2010 and 2009, respectively. Such amounts are included in net loss from discontinued operations in the accompanying financial statements.

15. Subsequent Events

Management has evaluated all events and transactions that occurred after June 30, 2010. The Company had no material subsequent events requiring recognition in the consolidated financial statements or any non-recognized subsequent events requiring disclosure.

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

The Company

Almost Family, Inc. TM and subsidiaries (collectively “Almost Family”) is a leading regional provider of home health nursing services. In this report, the terms “Company,” “we,” “us” or “our” mean Almost Family, Inc. and all subsidiaries included in our consolidated financial statements.

Cautionary Statements - Forward Outlook and Risks

Certain statements contained in this quarterly report on Form 10-Q, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” “assumes,” “trends” and similar expressions, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company’s current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the following:

·	general economic and business conditions;

·	demographic changes;

·	changes in, or failure to comply with, existing governmental regulations;

·	legislative proposals for healthcare reform;

·	changes in Medicare and Medicaid reimbursement levels;

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

·	liability and other claims asserted against the Company;

·	potential audits and investigations by government and regulatory agencies; including the impact of any negative publicity or litigation;

·	ability to attract and retain qualified personnel;

·	availability and terms of capital;

·	loss of significant contracts or reduction in revenues associated with major payer sources;

·	ability of customers to pay for services;

·	business disruption due to natural disasters or terrorist acts;

·	ability to successfully integrate the operations of acquired businesses and achieve expected synergies and operating efficiencies from the acquisition, in each case within expected time-frames or at all;

·	significant deterioration in economic conditions and significant market volatility;

·	effect on liquidity of the Company's financing arrangements; and,

·	changes in estimates and judgments associated with critical accounting policies and estimates.

For a detailed discussion of these and other factors that could cause the Company’s actual results to differ materially from the results contemplated by the forward-looking statements, please refer to Item 1A. “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s annual report on Form 10-K for year ended December 31, 2009 and this Form 10-Q. The reader is encouraged to review these risk factors and filings.

The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Except as required by law, the Company assumes no responsibility for updating forward-looking statements to reflect unforeseen or other events after the date of this report.

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Critical Accounting Policies

Refer to the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2009 for a detailed discussion of our critical accounting policies.

Operating Segments

We have two reportable segments, Visiting Nurse (VN) and Personal Care (PC). Reportable segments have been identified based upon how management has organized the business by services provided to customers and the criteria in ASC 280, Segment Reporting.

Our VN segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or avoid periods of hospitalization and/or nursing home care. 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.

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 69% of the PC segment revenues are generated from Medicaid and other government programs while the balance is generated from insurance programs and private pay patients.

Certain general and administrative expenses incurred at the corporate level have not been allocated to the segments.

We have service locations in Florida, Kentucky, Connecticut, New Jersey, Ohio, Massachusetts, Alabama, Missouri, Illinois, Pennsylvania, and Indiana (in order of pro forma revenue significance).

Health Care Reform Legislation and Medicare Regulations

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA), and on March 30, 2010, the President signed the Health Care and Education Affordability Reconciliation Act of 2010. These “acts” are collectively referred to below as the “Legislation.” Many of the provisions of the Legislation do not take effect for an extended period of time and most will require the publication of implementing regulations and/or the issuance of programmatic guidelines. Additionally, very often, sweeping new legislation is followed by subsequent legislation to address previously unanticipated consequences, or to further define provisions that were too vague to implement based on the language of the original legislation. In our view it is reasonable to expect this to occur over the next few years.

Among other things, the Legislation as it currently exists:

·	Reduces Medicare reimbursement rates for home health care services we provide to our patients. While implications on rates for years 2011-2013 appear clear, implications on rates are significantly less clear for years 2014-2017 in which the rebasing described below is to occur.

·	Imposes new requirements on employer-sponsored health plans including expanding eligibility of employees and dependants, which may increase the cost of providing such benefits.

·	Includes enhanced program integrity provisions, provider billing limitations, provider overpayment notification requirements and overpayment recoupment capabilities for the Centers for Medicare and Medicaid Services (CMS).

·	Includes a number of other provisions that could reasonably be expected to have an impact on our business.

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As a result of the broad scope of the Legislation, the significant changes it will effect in the healthcare industry and society generally, and the complexity of the technical issues it addresses, we are unable to predict, at this time, all the ramifications the Legislation and the (as yet unreleased) implementing regulations may have on our business as a health care provider or a sponsor of an employee health insurance benefit plan. The Legislation and implementing regulations and programmatic guidelines could have a material adverse impact on our results of operations or financial condition in ways not currently anticipated by us.

Additionally, we may be unable to take actions to mitigate any or all of the negative implications of the Legislation and implementing regulations or programmatic guidelines.

Some of the more significant changes to home health reimbursement included in the Legislation, as it currently exists, are as follows:

·	A “Market Basket Update” reduction of 1% per year in each of 2011, 2012, and 2013 which will reduce our annual cost inflation updates. CMS market basket updates are to reflect price inflation experienced by health care providers.

·	A 3% “Rural Rate Add-on” effective April 1, 2010 through December 2015. Approximately 8% of our Medicare patients live in rural areas.

A 10% “Outlier Cap” which limits the amount of “outlier” reimbursement a provider may receive to 10% of total reimbursement. Less than 1% of our revenue would be considered “outlier” reimbursement. Home health agencies receive additional or “outlier” payments for 60-day home health episodes of care which carry unusually high costs.

A “Rebasing” of rates phased in over four years from 2014 through 2017. These provisions require CMS to recalculate or “rebase” home health reimbursement to more closely align with the costs of providing care. Any reduction in reimbursement rates resulting from “rebasing” cannot exceed 3.5% per year in each of the four phase-in years. There are certain requirements for the Medicare Payment Advisory Commission (“MedPac”) and the HHS Secretary to assess and report on the impact of rebasing on access and quality of care. Home health reimbursement rates have not been “rebased” since the inception of the prospective payment system in October 1, 2000. Accordingly, we cannot predict the impact this “rebasing” work may have when it is completed three years from now.

·	Beginning in 2015, an annual “Productivity” adjustment, estimated to result in a 1% per year payment reduction.

Broader policy changes are contained in the Health Care Reform Legislation, that seek to expand access to affordable health insurance. The legislative changes will affect provider operations in addition to payments. For example, the Legislation includes a requirement that physicians ordering home health services document a face-to-face encounter with the patient. The Legislation also includes a number of pilot programs, demonstration projects and studies, the results of which could lead to alternative health care delivery and payment systems. The President is charged with appointing a 15-member Independent Medicare Advisory Board (“IMAB”) empowered to recommend changes to the President and Congress to reduce the growth of Medicare spending.

Independent of the Legislation, CMS when establishing Medicare rates for 2010 included a “market basket update” rate increase of 2.0% plus a 2.5% “outlier policy” adjustment minus a 2.75% “case mix creep” adjustment.

Independent of the Legislation, in March 2010, the Medicare Payment Advisory Commission (MedPac) issued its annual report to the Congress on Medicare Payment Policy in which it makes specific recommendations for payment policy changes for all categories of providers including home health. Its recommendations for 2011 regarding home health include elimination of the market basket update, consideration of stronger program controls including some that may impact how rebasing is implemented, and a study to identify categories of patients who are likely to receive the greatest benefit from home health care. We are unable to predict whether, or in what form, the Congress or CMS might implement MedPac’s recommendations.

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Independent of the Legislation, effective January 1, 2010, CMS implemented a prohibition of the sale or transfer of the Medicare Provider Agreement for any Medicare-certified home health agency that has been in existence for less than 36 months or that has undergone a change of ownership (including as small as a 5% change) in the last 36 months. This “36 Month Rule” limitation may reduce the number of home health agencies that otherwise would have been available for acquisition and may limit our ability to successfully pursue our acquisition strategy.

On July 16, 2010 CMS released proposed revisions to Medicare home health reimbursement rates and regulations for 2011. Among other changes, the proposed rules include:

·	A “market basket update” rate increase of 2.4%, less 1.0% from the Legislation, minus the 2.5% “outlier provision”, less a 3.79% “case mix creep” adjustment (for an effective rate cut of 4.75%)

·	Removing two diagnosis codes related to hypertension from inclusion in the calculation of case-weight

·	Regulations implementing a requirement included in the Legislation for a face-to-face encounter between the patient and the physician ordering home health services

·	Regulations intended to address concerns over therapy utilization by requiring additional documentation justifying therapy visits based on specific goals, accepted standards of care, and widely accepted objective and quantifiable measures of patients’ progress towards those goals

·	Revisions to its previously issued “36 Month Rule”

The proposed rules are subject to a 60 day comment period and further change by CMS. Final rules are expected to be published in late 2010 and go into effect January 1, 2011.

There has been a great deal of legislative and regulatory change enacted or proposed in the last several months and, as indicated above, not all implementing regulations have been published. Additionally, as also indicated above it is reasonable to expect more changes. Management is currently working to evaluate the implications of these changes and to develop appropriate courses of action for the Company.

Given the broad and far reaching implications of all these changes, the incomplete nature of these changes, the pace at which the changes are taking place and the prospects for future changes to be made, we cannot predict the ultimate impact, which may be material and adverse, that health care reform efforts and resulting Medicare reimbursement rates will have on our liquidity, our results of operation, the realizability of the carrying amounts of our intangible assets including goodwill or our financial condition. Further, we are unable to predict what effect, if any, such material adverse effect, if it were to occur, might have on our ability to continue to comply with the financial covenants of our revolving credit facility and our ability to continue to access debt capital through that facility.

We may contemplate formulating and taking actions intended to mitigate or otherwise offset some of the negative effects of the proposed reimbursement changes. These actions may include any or all of the following:

Attempting to increase our revenues by: investing more resources in sales and marketing activities, development of diagnosis related specialty programs and increasing our educational programs regarding the value of home health to drive admission growth, establishing startup branch operations to expand our service territories, and acquisitions of underperforming providers with strong referral relationships,

Attempting to reduce our costs by: developing a more efficient delivery model, increasing the productivity standards for our staff, optimizing the appropriate use of different levels of professional staff, limiting or eliminating the growth in wage rates, limiting or reducing the size of our work force, closing unprofitable branch operations and accelerating our efforts to evaluate the use of various technological approaches to the delivery of patient care,

·	Evaluating the potential implications of health care reform on our employee benefit plans, and possible changes we may need to make to our plans, and

·	Potentially other actions we deem appropriate.

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Although we will attempt to mitigate or otherwise offset the negative effect of health care reform on our reimbursement revenue and our employee benefit plans, our actions may not ultimately be cost effective or prove successful.

Governmental Inquiries and Derivative Complaints

See Note 11 to the financial statements and Part II Item 1 of this Form 10-Q for a discussion of certain governmental inquiries and subsequent related litigation. The Company is unable to predict the outcome of these matters. However the Company does expect to incur on-going expenses related to responding to these inquiries and complaints.

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Seasonality

Our Visiting Nurse segment operations located in Florida normally experience higher admissions during the first quarter and lower admissions during the third quarter than in the other quarters due to seasonal population fluctuations.

RESULTS OF OPERATIONS

THREE MONTHS

Consolidated


(In thousands)
	Three Months ended June 30,
	2010					2009					Change
	Amount		% Rev			Amount		% Rev			Amount			%
Net service revenues:
Visiting Nurse	$	74,947		87.5	%	$	63,957		85.7	%	$	10,990			17.2	%
Personal Care		10,659		12.5	%		10,637		14.3	%		22			0.2	%
	$	85,606		100.0	%	$	74,594		100.0	%	$	11,012			14.8	%
Operating income before corporate expenses:
Visiting Nurse	$	17,698		23.6	%	$	13,356		20.9	%	$	4,342			32.5	%
Personal Care		1,495		14.0	%		1,239		11.6	%		256			20.7	%
		19,193		22.4	%		14,595		19.6	%		4,598			31.5	%
Corporate expenses		5,173		6.0	%		4,476		6.0	%		697			15.6	%
Operating income		14,020		16.4	%		10,119		13.6	%		3,901			38.6	%
Interest expense, net		61		0.1	%		204		0.3	%		(143	)		-70.1	%
Income tax expense		5,618		6.6	%		3,866		5.2	%		1,752			45.3	%
Net income from continuing operations	$	8,341		9.7	%	$	6,049		8.1	%	$	2,292			37.9	%

EBITDA from continuing operations	$	15,158		17.7	%	$	11,139		14.9	%	$	4,019			36.1	%

On a consolidated basis, our second quarter 2010 net service revenues increased about 15% to approximately $86 million compared to $75 million in the second quarter of 2009. Organic revenue growth was approximately $10 million or approximately 92% of our total growth, while acquisitions provided the balance of the increase at approximately $1 million.

Operating income as a percent of revenue increased to 16.4% in the second quarter of 2010 from 13.6% in 2009, primarily due to 16% organic revenue growth in the VN segment which included an approximately 2% rate increase from Medicare in January 2010. Additional Medicare reimbursement related to the April 1, 2010 rural rate add-on and a one-time payment related to our successful participation in CMS’ Home Health Pay-for-Performance demonstration project increased our revenues and operating income by $304.

Lower claims in the Company’s self-insured health and workers compensation programs improved operating income by approximately $776 in the quarter ended June 30, 2010 as compared to the same period in the prior year. Corporate expenses included approximately $250 of professional fees associated with the matters described in Legal Proceedings in the notes to the financial statements and in Part II Item 1.

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Interest expense declined substantially as we used operating cash flows and the proceeds from a 2009 equity offering to repay amounts outstanding under our bank credit facility. We had no outstanding borrowings on our line of credit as of June 30, 2010. The effective income tax rate from continuing operations was approximately 40.3% in 2010 and 39.0% in 2009.

Visiting Nurse (VN) Segment

	Three Months ended June 30,
(In thousands, except for statistics)	2010					2009					Change
	Amount		% Rev			Amount		% Rev			Amount			%
Net service revenues	$	74,947		100.0	%	$	63,957		100.0	%	$	10,990			17.2	%
Cost of service revenues		31,630		42.2	%		27,297		42.7	%		4,333			15.9	%
Gross margin		43,317		57.8	%		36,660		57.3	%		6,657			18.2	%
General and administrative expenses:
Salaries and benefits		19,221		25.6	%		16,726		26.2	%		2,495			14.9	%
Other		6,398		8.5	%		6,578		10.3	%		(180	)		-2.7	%
Total general and administrative expenses		25,619		34.2	%		23,304		36.4	%		2,315			9.9	%
Operating income	$	17,698		23.6	%	$	13,356		20.9	%	$	4,342			32.5	%

Average number of locations		87					77					10			13.0	%

All payors:
Patients Months		51,850					46,940					4,910			10.5	%
Admissions		14,408					12,994					1,414			10.9	%
Billable Visits		476,313					406,360					69,953			17.2	%

Medicare Statisitics:
Revenue (in thousands)	$	68,958		92.0	%	$	57,520		89.9	%	$	11,438			19.9	%
Billable visits		400,296					349,792					50,504			14.4	%
Admissions		13,093					11,869					1,224			10.3	%
Episodes		21,447					18,893					2,554			13.5	%

Revenue per completed episode	$	3,182				$	2,972				$	210			7.1	%
Visits per episode		18.1					17.7					0.4			2.3	%

Net service revenues in the visiting nurse segment for the second quarter of 2010 rose 17.2% to approximately $75 million. The $11 million increase came from a combination of organic growth of about $10 million and from acquired operations of approximately $1 million. Our VN organic revenue growth rate was 16% for the three months ended June 30, 2010. Revenue per completed episode increased about 7.1% over 2009 due to the January 1 and April 1, 2010 Medicare rate increases and due to an increase in the acuity level of the patients we served. The increase in the acuity level of patients served is also reflected in an increase in average number of visits per episode. Medicare revenue and billable visits grew faster than admissions as a result of a high level of admissions in late in the first quarter of 2010 which generated revenue and billable visits in the second quarter of 2010. Revenues for the quarter ended June 30, 2010 included approximately $193 from 3% rural rate add-on implemented on April 1, 2010 and a one-time payment of $111 from CMS’ home health Pay for Performance demonstration project.

Gross margin increased from 57.3% in 2009 to 57.8% in 2010 primarily due to increases in Medicare reimbursement rates and lower self-insured claims. Other general and administrative expenses declined due to acquisition costs of $260 incurred in the second quarter of 2009 and lower bad debts in 2010. Additionally, total general and administrative expenses as a percent of revenue declined from 36.4% to approximately 34.2% primarily due to expenses being spread over a larger revenue base.

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Personal Care (PC) Segment

	Three Months ended June 30,
(In thousands, except for statistics)	2010					2009					Change
	Amount		% Rev			Amount		% Rev			Amount			%
Net service revenues	$	10,659		100.0	%	$	10,637		100.0	%	$	22			0.2	%
Cost of service revenues		6,998		65.7	%		7,200		67.7	%		(202	)		-2.8	%
Gross margin		3,661		34.3	%		3,437		32.3	%		224			6.5	%
General and administrative expenses:
Salaries and benefits		1,352		12.7	%		1,360		12.8	%		(8	)		-0.6	%
Other		814		7.6	%		838		7.9	%		(24	)		-2.9	%
Total general and administrative expenses		2,166		20.3	%		2,198		20.7	%		(32	)		-1.5	%
Operating income	$	1,495		14.0	%	$	1,239		11.6	%	$	256			20.7	%

Average number of locations		23					23					-			0.0	%

Admissions		763					827					(64	)		-7.7	%
Patient months of care		11,831					11,825					6			0.1	%
Patient days of care		152,964					151,117					1,847			1.2	%
Billable hours		583,722					593,771					(10,049	)		-1.7	%
Revenue per billable hour	$	18.26				$	17.91				$	0.35			1.9	%

The increase in gross margin and operating income as a percent of revenue in our Personal Care segment was a result of management actions to improve cost controls and the efficiency of our operations combined with lower self-insured claims in 2010. While admissions growth is constrained to some degree by challenged Medicaid programs in the states we serve, net service revenues in the segment for the second quarter remained constant at approximately $10.6 million. Revenue per billable hour increased primarily as a result of mix changes across the states we serve. General and administrative expenses did not change materially.

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SIX MONTHS

Consolidated


(In thousands)
	Six Months ended June 30,
	2010					2009					Change
	Amount		% Rev			Amount		% Rev			Amount			%
Net service revenues:
Visiting Nurse	$	146,488		87.5	%	$	122,705		85.5	%	$	23,783			19.4	%
Personal Care		20,896		12.5	%		20,830		14.5	%		66			0.3	%
	$	167,384		100.0	%	$	143,535		100.0	%	$	23,849			16.6	%
Operating income before corporate expenses:
Visiting Nurse	$	33,581		22.9	%	$	25,657		20.9	%	$	7,924			30.9	%
Personal Care		2,746		13.1	%		2,342		11.2	%		404			17.3	%
		36,327		21.7	%		27,999		19.5	%		8,328			29.7	%
Corporate expenses		9,713		5.8	%		8,312		5.8	%		1,401			16.9	%
Operating income		26,614		15.9	%		19,687		13.7	%		6,927			35.2	%
Interest expense, net		150		0.1	%		517		0.4	%		(367	)		-71.0	%
Income tax expense		10,651		6.4	%		7,528		5.2	%		3,123			41.5	%
Net income from continuing operations	$	15,813		9.4	%	$	11,642		8.1	%	$	4,171			35.8	%

EBITDA from continuing operations	$	28,851		17.2	%	$	21,611		15.1	%	$	7,240			33.5	%

On a consolidated basis, our year to date 2010 net service revenues increased about 17% to approximately $167 million compared to $144 million in the same period of 2009. Organic revenue growth was approximately $22 million or approximately 92% of our total growth, while acquisitions provided the balance of the increase at approximately $2 million.

Operating income as a percent of revenue increased to 15.9% in 2010 from 13.7% in 2009, primarily due to 18% organic revenue growth in the VN segment which included an approximately 2% rate increase from Medicare in January 2010. Additional Medicare reimbursement related to the April 1, 2010 rural rate add-on and a one-time payment related to our successful participation in CMS’ Home Health Pay-for-Performance demonstration project increased our revenues and operating income by $304.

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Visiting Nurse (VN) Segment

	Six Months ended June 30,
(In thousands, except for statistics)	2010					2009					Change
	Amount		% Rev			Amount		% Rev			Amount		%
Net service revenues	$	146,488		100.0	%	$	122,705		100.0	%	$	23,783		19.4	%
Cost of service revenues		62,282		42.5	%		52,675		42.9	%		9,607		18.2	%
Gross margin		84,206		57.5	%		70,030		57.1	%		14,176		20.2	%
General and administrative expenses:
Salaries and benefits		37,701		25.7	%		32,098		26.2	%		5,603		17.5	%
Other		12,924		8.8	%		12,275		10.0	%		649		5.3	%
Total general and administrative expenses		50,625		34.6	%		44,373		36.2	%		6,252		14.1	%
Operating income	$	33,581		22.9	%	$	25,657		20.9	%	$	7,924		30.9	%

Average number of locations		86					76					10		13.2	%

All payors:
Patients Months		102,371					90,061					12,310		13.7	%
Admissions		29,077					25,654					3,423		13.3	%
Billable Visits		937,176					777,811					159,365		20.5	%

Medicare Statisitics:
Revenue (in thousands)	$	134,504		91.8	%	$	109,718		89.4	%	$	24,786		22.6	%
Billable visits		782,721					664,529					118,192		17.8	%
Admissions		26,360					23,352					3,008		12.9	%
Episodes		41,871					36,167					5,704		15.8	%

Revenue per completed episode	$	3,150				$	2,939				$	211		7.2	%
Visits per episode		18.0					17.5					0.5		2.9	%

Net service revenues in the visiting nurse segment for year to date 2010 rose 19.4% to approximately $146 million. The $24 million increase came from a combination of organic growth of about $22 million and from acquired operations of approximately $2 million. Our VN organic revenue growth rate was 17.9% for the six months ended June 30, 2010. Revenue per completed episode increased about 7.2% over 2009 due the January 1 and April 1, 2010 Medicare rate increases and due to an increase in the acuity level of the patients we served. The increase in the acuity level of patients served is also reflected in the increase in average number of visits per episode. Revenues for the quarter ended June 30, 2010 included approximately $193 thousand from 3% rural rate add-on implemented on April 1, 2010 and a one-time payment of $111 thousand from CMS’ home health Pay for Performance demonstration project.

Gross margin increased from 57.1% in 2009 to 57.5% in 2010 primarily due to increases in Medicare reimbursement rates and lower self-insured claims. Other general and administrative expenses declined due to acquisition costs of $260 incurred in the second quarter of 2009 and lower bad debts in 2010. Additionally, total general and administrative expenses as a percent of revenue declined from 36.2% to approximately 34.6% primarily due to expenses being spread over a larger revenue base.

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Personal Care (PC) Segment

	Six Months ended June 30,
(In thousands, except for statistics)	2010					2009					Change
	Amount		% Rev			Amount		% Rev			Amount			%
Net service revenues	$	20,896		100.0	%	$	20,830		100.0	%	$	66			0.3	%
Cost of service revenues		13,933		66.7	%		14,202		68.2	%		(269	)		-1.9	%
Gross margin		6,963		33.3	%		6,628		31.8	%		335			5.1	%
General and administrative expenses:
Salaries and benefits		2,702		12.9	%		2,716		13.0	%		(14	)		-0.5	%
Other		1,515		7.3	%		1,570		7.5	%		(55	)		-3.5	%
Total general and administrative expenses		4,217		20.2	%		4,286		20.6	%		(69	)		-1.6	%
Operating income	$	2,746		13.1	%	$	2,342		11.2	%	$	404			17.3	%

Average number of locations		23					22					1			4.5	%

Admissions		1,585					1,682					(97	)		-5.8	%
Patient months of care		23,630					23,518					112			0.5	%
Patient days of care		301,623					296,578					5,045			1.7	%
Billable hours		1,154,415					1,164,019					(9,604	)		-0.8	%
Revenue per billable hour	$	18.10				$	17.89				$	0.21			1.2	%

The increase in gross margin and operating income as a percent of revenue in our Personal Care segment was a result of management actions to improve cost controls and the efficiency of our operations, combined with lower self-insured claims in 2010. While admissions growth is constrained to some degree by challenged Medicaid programs in the states we serve, net service revenues in the segment for 2010 remained constant at approximately $20.8 million. Revenue per billable hour increased primarily as a result of mix changes across the states we serve. General and administrative expenses did not change materially.

Insurance Programs

We bear significant insurance risk under our large-deductible workers’ compensation insurance program and our self-insured employee health program. Under the workers’ compensation insurance program, we bear risk up to $400,000 per incident. We purchase stop-loss insurance for the employee health plan that places a specific limit, generally $100,000, on our exposure for any individual covered life.

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.

Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted against us by various claimants. The claims are in various stages of processing and some may ultimately be brought to trial. We are aware of incidents that have occurred through June 30, 2010 that may result in the assertion of additional claims. We currently carry professional and general liability insurance coverage for this exposure with no deductible.

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Liquidity and Capital Resources

Equity Distribution Program

On August 5, 2009, the Company entered into a Distribution Agreement with J.P. Morgan Securities Inc. According to the provisions of this Agreement, the Company could offer and sell from time to time up to 1,600 shares of common stock having an aggregate offering price of up to $50 million through J.P. Morgan, as distribution agent. Sales of stock were made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices. The Distribution Agreement terminated June 30, 2010.

Revolving Credit Facility

We believe that this facility plus cash on hand will be sufficient to fund our operating needs for at least the next year. We will continue to evaluate additional capital, including possible debt and equity investments in the Company, to support a more rapid development of the business than would be possible with internal funds.

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Cash Flows

Key elements to the Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 were:

Net Change in Cash and Cash Equivalents	2010			2009
Provided by (used in):
Operating activities	$	13,852		$	9,065
Investing activities		(1,184	)		(6,886	)
Financing activities		(677	)		(2,374	)
Discontinued operations activities		(28	)		(53	)
Net increase in cash and cash equivalents	$	11,963		$	(248	)

2010

Net cash provided by operating activities resulted primarily from current period income of $15.8 million, net of changes in accounts receivable, accounts payable and accrued expenses. Accounts receivable days revenues outstanding were 44 at June 30, 2010 and 41 at December 31, 2009. The cash used in investing activities is primarily due to capital expenditures of $1.2 million. Net cash used in financing activities resulted primarily from stock option exercises and payment of $1.6 million on an acquisition related notes payable. The Company’s stock option plans permit optionees to have option shares withheld on exercises in lieu of submitting to the Company the amount necessary for income tax withholdings. Such withholding of shares in lieu of taxes is shown in the cash flow as a repurchase of shares in the amount of $628 thousand. The Company receives a current tax deduction for compensation expense subject to IRS limits. Such deductions related to stock option exercises in 2010 are shown in the cash flow statement as a cash flow influx of approximately $1.3 million.

2009

Net cash provided by operating activities resulted primarily from current period income of $11.6 million, net of changes in accounts receivable, accounts payable and accrued expenses. Accounts receivable days revenues outstanding were 47 at June 30, 2009 and 48 at December 31, 2008. The cash used in investing activities is primarily due to the final payment of purchase price of $2.8 million from the 2006 Mederi acquisition and $3.4 million for an acquisition in the second quarter. Net cash used in financing activities was due primarily to satisfaction of a $4 million note payable from the 2006 Mederi acquisition and net draws of $1.6 million on our credit facility.

Impact of Inflation

Management does not believe that inflation has had a material effect on income during the past several years.

Non-GAAP Financial Measure

The information provided in some of the tables use certain non-GAAP financial measures as defined under Securities and Exchange Commission (“SEC”) rules. In accordance with SEC rules, the Company has provided, in the supplemental information below, a reconciliation of those measures to the most directly comparable GAAP measures.

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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 U.S generally accepted accounting principles. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from EBITDA are significant components in understanding and evaluating financial performance and liquidity. Management routinely calculates and communicates EBITDA and believes that it is useful to investors because it is commonly used as an analytical indicator within our industry to evaluate performance, measure leverage capacity and debt service ability, and to estimate current or prospective enterprise value. EBITDA is also used in certain covenants contained in our credit agreement.

The following table sets forth a reconciliation of Net Income from Continuing Operations to EBITDA:

	Three Months ended June 30,				Six Months ended June 30,
	2010		2009		2010		2009
Net income from continuing operations	$	8,341	$	6,049	$	15,813	$	11,642
Add back:
Interest expense		61		204		150		517
Income tax expense		5,618		3,866		10,651		7,528
Depreciation and amortization		698		578		1,366		1,152
Amortization of stock-based compensation		440		442		871		772
Earnings before interest, income taxes, depreciation and amortization (EBITDA) from continuing operations	$	15,158	$	11,139	$	28,851	$	21,611

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Instruments

The Company does not use derivative instruments.

Market Risk of Financial Instruments

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

At June 30, 2010, the Company had no outstanding amounts on its revolving credit facility and, therefore, a hypothetical 100 basis point increase in short-term interest rates would have no impact on annual pre-tax earnings due to higher interest expense.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures – As of June 30, 2010, the Company’s management, with participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2010.

Changes in Internal Control Over Financial Reporting - There were no changes in the Company’s internal control over financial reporting during the second quarter of 2010, that have materially affected, or are reasonably likely to materially affect, Almost Family, Inc.’s internal control over financial reporting.

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Commission File No. 1-9848

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Following The Wall Street Journal article, on May 12, 2010, the United States Senate Finance Committee sent a letter to each of the publicly traded companies mentioned in the article requesting information regarding Medicare utilization rates for therapy visits. The Company is in the process of responding to the request for information and is cooperating fully with the Senate Finance Committee regarding the requested information.

On June 30, 2010, the Company received a civil subpoena for documents and notice of investigation from the Securities and Exchange Commission. The subpoena seeks documents related to the Company’s home health care services and operations, including reimbursements under the Medicare home health prospective payment system, since January 1, 2000. The Company is in the process of supplying the requested documents and is cooperating fully with the SEC regarding the document request.

Item 1A. Risk Factors

Information regarding risk factors appears in our Form 10-K for the year ending December 31, 2009, under the heading “Special Caution Regarding Forward – Looking Statements” and in the Form 10-K Part I, Item 1A. Risk Factors. Except as set forth below, there have been no material changes from the risk factors previously disclosed in our Form 10-K.

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The Health Care Reform Legislation and implementing regulations could have a material adverse impact on our results of operations or financial condition in ways not currently anticipated by us.

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act, and on March 30, 2010, the President signed the Health Care and Education Affordability Reconciliation Act of 2010. These “acts” are collectively referred to below as the “Legislation.” Many of the provisions of the Legislation do not take effect for an extended period of time and most will require the publication of implementing regulations and/or the issuance of programmatic guidelines. Additionally, very often, sweeping new legislation is followed by subsequent legislation to address previously unanticipated consequences, or to further define provisions that were too vague to implement based on the language of the original legislation. In our view it is reasonable to expect this to occur over the next few years.

Among other things, the Legislation as it currently exists:

·	Reduces Medicare reimbursement rates for home health care services we provide to our patients. While implications on rates for years 2011-2013 appear clear, implications on rates are significantly less clear for years 2014-2017 in which rebasing is to occur.

·	Imposes new requirements on employer-sponsored health plans including expanding eligibility of employees and dependants, which may increase the cost of providing such benefits.

·	Includes enhanced program integrity provisions, provider billing limitations, provider overpayment notification requirements and overpayment recoupment capabilities for CMS.

·	Includes a number of other provisions that could reasonably be expected to have an impact on our business.

Additionally, we may be unable to take actions to mitigate any or all of the negative implications of the Legislation and implementing regulations or programmatic guidelines.

Recent Governmental Inquiries into home health utilization and associated subsequent related litigation could have a material adverse impact on our business.

Refer to Part II Item 1. Legal Proceedings.

Given the preliminary stage of the Senate Finance Committee inquiry, the SEC investigation, and the related litigation, we are unable to assess the probable outcome or potential liability, if any, arising from these matters. Additional investigations by other government agencies may be initiated for which we could incur fines or other losses. Additionally, these inquiries could result in additional substantive actions from either a legislative or regulatory perspective that could have a material adverse effect on our results of operations or financial condition.

As described in more detail in our Form 10K, 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. As also described in our Form 10K, we rely significantly on our ability to attract and retain caregivers who possess the skills, experience, and licenses necessary to meet the needs of our patients. Negative publicity resulting from the recent governmental inquires and subsequent related litigation could impact our ability to obtain referrals of patients from our referral sources, attract new referral sources, retain our employees and/or attract new employees or impact us in other ways that we cannot currently predict. The loss of referrals, referral sources and/or employees, an impaired ability to attract new referrals, referral sources and/or employees or other implications we cannot currently predict could have a material adverse effect on our results of operations or financial condition.

Additionally, the expenses associated with responding to these governmental inquiries and subsequent related litigation could have a material adverse effect on our results of operation or financial condition.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities (1)
Period	(a) Total Number of Shares (or Units) Purchased (1)		(b) Average Price Paid per Share (or Unit)		c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

Month #1 -April 1, 2010 - April 30, 2010		-	$	-		-		-
Month # 2 - May 1, 2010 - May 31, 2010		1,712		40.97		-		-
Month # 3 - June 1, 2010 - June 30, 2010		-		-		-		-
Total		1,712	$	40.97		-		-

(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 3. Defaults Upon Senior Securities

None

Item 4. (Removed and Reserved).

Item 5. Other information

None

Item 6. Exhibits

31.1

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

Act of 2002.

31.2

Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley

Act of 2002.

32.1

Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ALMOST FAMILY, INC.

Date August 4, 2010	By:	/s/ William B. Yarmuth
		William B. Yarmuth
		Chairman of the Board, President & Chief Executive Officer


	By:	/s/ C. Steven Guenthner
		C. Steven Guenthner
		Senior Vice President and
		Chief Financial Officer

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