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Table of Contents

 

 

 

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 September 30, 2014

 

OR

 

o         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

 


 

GRAPHIC

 

ALMOST FAMILY, INC.

(Exact name of Registrant as specified in its charter)

 


 

Delaware

 

06-1153720

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification
Number)

 

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

(Address of principal executive offices)

 

(502) 891-1000

(Registrant’s telephone number, including area code)

 

Not Applicable

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

 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller Reporting Company ¨

 

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 November 5, 2014  9,475,831

 

 

 



Table of Contents

 

ALMOST FAMILY, INC. AND SUBSIDIARIES

 

FORM 10-Q

 

INDEX

 

PART I. FINANCIAL INFORMATION

3

 

 

Item 1.            Financial Statements. Consolidated Financial Statements and Supplementary Data (unaudited except December 31, 2013 Consolidated Balance Sheet)

3

 

 

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013

3

 

 

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2014 and 2013

4

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013

5

 

 

Notes to Consolidated Financial Statements

6

 

 

Item 2.            Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

Item 3.            Quantitative and Qualitative Disclosures about Market Risk

26

 

 

Item 4.            Controls and Procedures

26

 

 

PART II. OTHER INFORMATION

26

 

 

Item 1.            Legal Proceedings

26

 

 

Item 1A. Risk Factors

27

 

 

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

27

 

 

Item 3.            Defaults Upon Senior Securities

27

 

 

Item 4.            Mine Safety Disclosures

27

 

 

Item 5.            Other Information

27

 

 

Item 6.            Exhibits

27

 

2



Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

 

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

September 30, 2014

 

 

 

 

 

(UNAUDITED)

 

December 31, 2013

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

5,358

 

$

12,246

 

Accounts receivable - net

 

72,092

 

61,651

 

Prepaid expenses and other current assets

 

9,344

 

10,278

 

Deferred tax assets

 

14,398

 

11,532

 

TOTAL CURRENT ASSETS

 

101,192

 

95,707

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT - NET

 

6,119

 

8,142

 

GOODWILL

 

190,656

 

192,575

 

OTHER INTANGIBLE ASSETS

 

56,308

 

55,075

 

OTHER ASSETS

 

614

 

774

 

TOTAL ASSETS

 

$

354,889

 

$

352,273

 

 

 

 

 

 

 

 LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

10,326

 

$

11,526

 

Accrued other liabilities

 

40,333

 

38,916

 

Current portion - notes payable and capital leases

 

92

 

702

 

TOTAL CURRENT LIABILITIES

 

50,751

 

51,144

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

Revolving credit facility

 

52,525

 

56,000

 

Deferred tax liabilities

 

21,016

 

25,580

 

Other

 

2,420

 

1,856

 

TOTAL LONG-TERM LIABILITIES

 

75,961

 

83,436

 

TOTAL LIABILITIES

 

126,712

 

134,580

 

 

 

 

 

 

 

NONCONTROLLING INTEREST - REDEEMABLE

 

3,639

 

3,639

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock, par value $0.05; authorized 2,000 shares; none issued or outstanding

 

 

 

Common stock, par value $0.10; authorized 25,000; 9,562 and 9,500 issued and outstanding

 

956

 

950

 

Treasury stock, at cost, 94 and 92 shares of common stock

 

(2,393

)

(2,340

)

Additional paid-in capital

 

105,189

 

103,858

 

Noncontrolling interest - nonredeemable

 

(170

)

(203

)

Retained earnings

 

120,956

 

111,789

 

TOTAL STOCKHOLDERS’ EQUITY

 

224,538

 

214,054

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

354,889

 

$

352,273

 

 

See accompanying Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share data)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Net service revenues

 

$

123,742

 

$

88,471

 

$

368,711

 

$

260,325

 

Cost of service revenues (excluding depreciation & amortization)

 

66,487

 

47,375

 

197,446

 

138,967

 

Gross margin

 

57,255

 

41,096

 

171,265

 

121,358

 

General and administrative expenses:

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

34,992

 

25,569

 

104,596

 

74,755

 

Other

 

13,244

 

10,891

 

43,966

 

32,106

 

Deal and transition costs

 

1,655

 

848

 

6,012

 

987

 

Total general and administrative expenses

 

49,891

 

37,308

 

154,574

 

107,848

 

Operating income

 

7,364

 

3,788

 

16,691

 

13,510

 

Interest expense, net

 

(396

)

(11

)

(1,073

)

(40

)

Income before income taxes

 

6,968

 

3,777

 

15,618

 

13,470

 

Income tax expense

 

(2,810

)

(1,462

)

(6,245

)

(5,264

)

Net income from continuing operations

 

4,158

 

2,315

 

9,373

 

8,206

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Loss from operations, net of tax of ($26), ($72), ($116) and ($74)

 

(38

)

(186

)

(173

)

(476

)

Gain on sale, net of tax of $973

 

 

 

 

168

 

Loss on discontinued operations

 

(38

)

(186

)

(173

)

(308

)

Net income

 

4,120

 

2,129

 

9,200

 

7,898

 

Net income - noncontrolling interests

 

(338

)

 

(185

)

 

Net income attributable to Almost Family, Inc.

 

$

3,782

 

$

2,129

 

$

9,015

 

$

7,898

 

 

 

 

 

 

 

 

 

 

 

Per share amounts-basic:

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

9,347

 

9,302

 

9,326

 

9,269

 

Income from continuing operations attributable to Almost Family, Inc.

 

$

0.41

 

$

0.25

 

$

0.99

 

$

0.89

 

Discontinued operations

 

 

(0.02

)

(0.02

)

(0.03

)

Net income attributable to Almost Family, Inc.

 

$

0.41

 

$

0.23

 

$

0.97

 

$

0.86

 

 

 

 

 

 

 

 

 

 

 

Per share amounts-diluted:

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

9,443

 

9,348

 

9,444

 

9,354

 

Income from continuing operations attributable to Almost Family, Inc.

 

$

0.40

 

$

0.25

 

$

0.97

 

$

0.88

 

Discontinued operations

 

 

(0.02

)

(0.02

)

(0.03

)

Net income attributable to Almost Family, Inc.

 

$

0.40

 

$

0.23

 

$

0.95

 

$

0.85

 

 

See accompanying Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

ALMOST FAMILY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

Cash flows of operating activities:

 

 

 

 

 

Net income

 

$

9,200

 

$

7,898

 

Loss on discontinued operations, net of tax

 

(173

)

(308

)

Net income from continuing operations

 

9,373

 

8,206

 

Adjustments to reconcile income to net cash of operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,165

 

2,004

 

Provision for uncollectible accounts

 

6,745

 

3,884

 

Stock-based compensation

 

1,337

 

1,039

 

Deferred income taxes

 

1,577

 

1,108

 

 

 

22,197

 

16,241

 

Change in certain net assets and liabilities, net of the effects of acquisitions:

 

 

 

 

 

Accounts receivable

 

(23,290

)

(1,602

)

Prepaid expenses and other current assets

 

235

 

(131

)

Other assets

 

160

 

151

 

Accounts payable and accrued expenses

 

(176

)

(270

)

Net cash (used in) provided by operating activities

 

(874

)

14,389

 

 

 

 

 

 

 

Cash flows of investing activities:

 

 

 

 

 

Capital expenditures

 

(870

)

(1,620

)

Acquisitions, net of cash acquired

 

(969

)

(12,011

)

Net cash used in investing activities

 

(1,839

)

(13,631

)

 

 

 

 

 

 

Cash flows of financing activities:

 

 

 

 

 

Credit facility repayments, net

 

(3,475

)

 

Proceeds from stock options exercises

 

39

 

4

 

Purchase of common stock in connection with share awards

 

(52

)

 

Tax impact of share awards

 

(39

)

(61

)

Payment of special dividend in connection with share awards

 

(35

)

 

Principal payments on notes payable and capital leases

 

(655

)

(532

)

Net cash used in financing activities

 

(4,217

)

(589

)

 

 

 

 

 

 

Cash flows from discontinued operations

 

 

 

 

 

Operating activities

 

40

 

(1,268

)

Investing activities

 

2

 

3,075

 

Net cash provided by discontinued operations

 

42

 

1,807

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(6,888

)

1,976

 

Cash and cash equivalents at beginning of period

 

12,246

 

26,120

 

Cash and cash equivalents at end of period

 

$

5,358

 

$

28,096

 

 

See accompanying Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

ALMOST FAMILY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

1.             Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements for the three and nine months ended September 30, 2014 and 2013 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations.  Accordingly, the reader of this Form 10-Q is referred to Almost Family, Inc.’s (the “Company”) Annual Report on Form 10-K/A for the year ended December 31, 2013 for further information.  In the opinion of management of the Company, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position at September 30, 2014, the results of operations for the three and nine month periods ended September 30, 2014 and 2013 and cash flows for the nine month periods ended September 30, 2014 and 2013.  The results of operations for the three and nine month periods ended September 30, 2014 are not necessarily indicative of the operating results for the year.

 

On December 6, 2013, the Company completed the acquisition of Omni Home Health Holdings, Inc. (“SunCrest”).  Branded principally under the SunCrest name, its subsidiaries owned and operated 66 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia, Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama.  On October 4, 2013, the Company acquired a controlling interest in Imperium Health Management, LLC (“Imperium”), a development-stage enterprise that provided strategic health management services to Accountable Care Organizations (“ACOs”).  On July 17, 2013, the Company acquired the assets of the Medicare-certified home health agencies owned by Indiana Home Care Network (“IHCN”).  The acquisitions are more fully described in Note 10, “Acquisitions.”  The results of operations for SunCrest and IHCN are principally reported within the Company’s Visiting Nurse (VN) reportable segment, while Imperium results are currently included in general and administrative expenses.  Results of operations for each acquisition are included from the acquisition date forward.

 

Use of Estimates

 

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

 

Recently Issued Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which impacts virtually all aspects of an entity’s revenue recognition.  The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The standard is effective for annual reporting periods beginning after December 15, 2016.  The Company has not yet completed its assessment of the impact of the new standard, including possible transition alternatives, on the Company’s financial statements.

 

6



Table of Contents

 

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements.  To qualify as a discontinued operation the standard requires a disposal to represent a strategic shift that has, or will have, a major effect on an entity’s operations and financial results.  The standard also expands the disclosures for discontinued operations and requires new disclosures related to individually material dispositions that do not qualify as discontinued operations.  The standard is effective prospectively for fiscal years beginning after December 15, 2014, with early adoption permitted.  The implementation of this standard is not expected to have a material impact on the Company’s financial statements, but could impact the reporting of any future dispositions.

 

Discontinued Operations

 

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

 

Contingent Service Revenues

 

Through its Imperium ACO enablement company, the Company provides strategic health management services to ACOs that have been approved to participate in the Medicare Shared Savings Program (“MSSP”).  While the Company does not have ownership interests in ACO’s, it does have service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any.  ACOs are entities that contract with Centers for Medicare and Medicaid Services (CMS) to serve the Medicare fee-for-service population with the goal of better care for individuals, improved health for populations and lower costs.  ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved.  The MSSP is relatively new and therefore has limited historical experience, which impacts the Company’s ability to accurately accumulate and interpret the data available for calculating an ACOs’ shared savings, if any.  MSSP payments are not recognized in revenue until persuasive evidence of an arrangement exists, services have been rendered, the payment is fixed and determinable and collectability is assured.  The Company had $1.6 million in MSSP revenue for the quarter and nine-month periods ended September 30, 2014, which is included in general and administrative expenses.

 

2.           Segment Data

 

The Company has two reportable segments, VN and Personal Care (PC), which operate locations in Florida, Ohio, Tennessee, Kentucky, Connecticut, New Jersey, Massachusetts, Indiana, Pennsylvania, Georgia, Missouri, Illinois, Mississippi and Alabama.  Reportable segments have been identified based upon how management has organized the business by services provided to customers and the criteria in ASC 280, Segment Reporting.  The Company does not allocate certain expenses to the reportable segments.  These expenses, including Imperium, are included in corporate expenses.

 

The VN segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or avoid periods of hospitalization and/or nursing home care.  Approximately 91% of the VN segment revenues are generated from the Medicare program while the balance is generated from Medicaid and private insurance programs.  VN Medicare revenues include revenues from all Medicare sources including traditional Medicare and Medicare Advantage, whether paid on a per episode basis or a per visit basis.

 

The PC segment services are also provided in patients’ homes.  These services (generally provided by paraprofessional staff such as home health aides) are generally of a custodial rather than skilled nature.  PC revenues are generated  on an hourly basis.  Approximately 77% of the PC segment revenues are generated

 

7



Table of Contents

 

from Medicaid and other government programs while the balance is generated from insurance programs and private pay patients.

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Net service revenues:

 

 

 

 

 

 

 

 

 

Visiting Nurse

 

$

97,835

 

$

67,455

 

$

293,029

 

$

200,007

 

Personal Care

 

25,907

 

21,016

 

75,682

 

60,318

 

 

 

123,742

 

88,471

 

368,711

 

260,325

 

Operating income before corporate expenses:

 

 

 

 

 

 

 

 

 

Visiting Nurse

 

12,544

 

7,389

 

35,487

 

22,562

 

Personal Care

 

2,873

 

2,566

 

8,733

 

7,739

 

 

 

15,417

 

9,955

 

44,220

 

30,301

 

Corporate expenses

 

6,398

 

5,319

 

21,517

 

15,804

 

Deal and transition costs

 

1,655

 

848

 

6,012

 

987

 

Operating income

 

7,364

 

3,788

 

16,691

 

13,510

 

Interest expense, net

 

(396

)

(11

)

(1,073

)

(40

)

Income tax expense

 

(2,810

)

(1,462

)

(6,245

)

(5,264

)

Net income from continuing operations

 

$

4,158

 

$

2,315

 

$

9,373

 

$

8,206

 

 

3.             Capitalized Software Development Costs

 

The Company capitalizes the cost of internally generated computer software developed for the Company’s own use.  Software development costs of approximately $74 and $119 were capitalized in the three months ended September 30, 2014 and 2013, respectively.  Software development costs of approximately $266 and $524 were capitalized in the nine months ended September 30, 2014 and 2013, respectively.  Capitalized software development costs are amortized over the estimated useful life, generally three years, once the software is ready for its intended use.

 

4.             Goodwill and Other Intangible Assets

 

The Company conducts annual reviews for impairment, or more frequently if circumstances indicate impairment may have occurred.  Other intangible assets consist of certificates of need and licenses, trade names and non-compete agreements.  Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives.  Licenses, provider numbers, certificates of need and trade names have indefinite lives and are reviewed at least annually for possible impairment, or whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.  The Company completed its most recent annual impairment test of goodwill and other indefinite-lived intangible assets as of December 31, 2013 and determined that no impairment existed.

 

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

 

 

 

 

 

Other Intangible Assets

 

 

 

Goodwill

 

Certificates
of Need and
Licenses

 

Trade
Names

 

Non-compete
Agreements

 

Total

 

Balances at 12-31-13

 

$

192,575

 

$

38,321

 

$

16,691

 

$

63

 

$

55,075

 

Acquisitions

 

 

1,290

 

 

 

1,290

 

Changes

 

(1,919

)

 

 

 

 

Amortization

 

 

 

 

(57

)

(57

)

Balances at 9-30-14

 

$

190,656

 

$

39,611

 

$

16,691

 

$

6

 

$

56,308

 

 

At September 30, 2014, the VN segment includes $153,085, $38,831, $13,311 and $0, while the PC segment includes $37,571, $780, $3,380 and $6 of total goodwill, certificates of need and licenses, trade names and non-compete agreements, respectively.  At September 30, 2013, the VN segment included $110,396, $9,881,

 

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Table of Contents

 

$7,768 and $75, while the PC segment included $30,974, $610, $2,720 and $66 of total goodwill, certificates of need and licenses, trade names and non-compete agreements, respectively.  Acquisitions primarily related to the Caldwell County Home Health acquisition in April of 2014.  Changes to goodwill primarily include VN segment acquisition adjustments related to the SunCrest acquisition.  Please refer to Note 10, “Acquisitions” for further discussion.  Amortization expense recognized on finite-lived intangible assets for the third quarter of 2014 and 2013 was $11 and $26, respectively, and for the nine month period ending September 30, 2014 and 2013 was $57 and $71, respectively.

 

5.             Revolving Credit Facility

 

At September 30, 2014, the Company had a $125 million senior secured revolving credit facility with JP Morgan Chase Bank, NA, as Administrative Agent, Bank of America, as Syndication Agent and certain other lenders (the “Facility”).  The Facility consists of a $125 million credit line with a maturity date of December 2, 2015 and an “accordion” feature providing for potential future expansion of the Facility to $175 million.  Borrowings (other than letters of credit) under the credit facility are at either the bank’s prime rate plus a margin (ranging from 1.25% to 2.25%, 1.75% at September 30, 2014) or the London Interbank Offered Rate (LIBOR) plus a margin (ranging from 2.25% to 3.25%, 2.50% at September 30, 2014).  The margin for prime rate or LIBOR borrowings is determined by the Company’s leverage.  Borrowings under the Facility are secured by a first priority perfected security interest in all tangible and intangible assets of the Company, and all existing and future direct and indirect subsidiaries of the Company, as guarantors.

 

The weighted average prime rate-based interest rates were 4.83% and 4.50% for the three months ended September 30, 2014 and 2013, respectively.  The weighted average LIBOR rates were 2.90% and 2.51% for the three months ended September 30, 2014 and 2013, respectively.  The Company pays a quarterly commitment fee of 0.30% to 0.50% on the average daily unused facility balance based on leverage. Borrowings are subject to various covenants including a multiple of 3.0 times earnings before interest, income tax, depreciation and amortization (“EBITDA”).  “EBITDA” may include “Acquired EBITDA” from proforma acquisitions pursuant to a calculation rider, up to 50% of “Adjusted EBITDA,” as defined.  Borrowings under the Facility may be used for general corporate purposes, including acquisitions.  As of September 30, 2014, the formula permitted $44.4 million to be used.  The Company had irrevocable letters of credit totaling $7.5 million outstanding in connection with the Company’s self-insurance programs, which resulted in a total of $36.9 million being available for use at September 30, 2014.  As of September 30, 2014, the Company was in compliance with the Facility’s various financial covenants.  Under the most restrictive of its covenants, the Company was required to maintain minimum net worth of at least $161.2 million at September 30, 2014.  At such date, the Company’s net worth was approximately $224.5 million.

 

6.             Fair Value Measurements

 

The Company’s financial instruments consist of cash, accounts receivable, payables and debt instruments.  The carrying values of cash, accounts receivable and payables are considered representative of their respective fair values due to the short-term nature of these instruments.  The fair value of the Company’s debt instruments approximates their carrying values as substantially all of such debt instruments have rates which fluctuate with changes in market rates.  The Company does not have any assets or liabilities carried at fair value that are measured on a recurring basis.

 

7.             Stock-Based Compensation

 

The Company issues both restricted share and option awards to employees and non-employee directors.  Restricted share awards to employees cliff vest on the third anniversary, while option share awards vest annually in 25% increments over four years.  Stock option grant date fair values are determined at the date of grant using a Monte Carlo option valuation model with suboptimal exercise behavior.  Changes in awards outstanding are summarized as follows:

 

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Table of Contents

 

 

 

Restricted shares

 

Options

 

 

 

Shares

 

Wtd Avg. Grant
Price

 

Shares

 

Wtd Avg.
Exercise Price

 

December 31, 2013

 

100

 

$

24.12

 

383

 

$

24.52

 

Granted

 

60

 

23.27

 

70

 

24.28

 

Vested or exercised

 

(38

)

24.01

 

(2

)

19.40

 

Forfeited

 

 

 

(7

)

23.37

 

September 30, 2014

 

122

 

$

22.68

 

444

 

$

24.53

 

 

8.             Earnings per Common Share

 

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

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Basic weighted average outstanding shares

 

9,347

 

9,302

 

9,326

 

9,269

 

Add common equivalent shares representing shares issuable upon exercise of dilutive awards

 

96

 

46

 

118

 

85

 

Diluted weighted average number of shares

 

9,443

 

9,348

 

9,444

 

9,354

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive shares excluded from calculation

 

96

 

377

 

96

 

254

 

 

9.             Commitments and Contingencies

 

Insurance Programs

 

The Company bears significant insurance risk under its large-deductible workers’ compensation insurance program and its self-insured employee health program.  Under the workers’ compensation insurance program, the Company bears risk up to $250 per incident, after which stop-loss coverage is maintained.  The Company purchases stop-loss insurance for the employee health plan that places a specific limit, generally $300, on its exposure for any individual covered life.

 

Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted against the Company by various claimants.  The claims are in various stages of processing and some may ultimately be brought to trial.  The Company is aware of incidents that have occurred through September 30, 2014 that may result in the assertion of additional claims.  The Company currently carries professional and general liability insurance coverage (on a claims made basis) for this exposure with no deductible.  The Company also carries D&O coverage (also on a claims made basis) for potential claims against the Company’s directors and officers, including securities actions, with deductibles ranging from $100 to $250 per claim.

 

The Company records estimated liabilities for its insurance programs based on information provided by the third-party plan administrators, historical claims experience, the life cycle of claims, expected costs of claims incurred but not paid, and expected costs to settle unpaid claims.  The Company monitors its estimated insurance-related liabilities and recoveries, if any, on a monthly basis and records amounts due under insurance policies in other current assets, while recording the estimated carrier liability in other current liabilities.  As facts change, it may become necessary to make adjustments that could be material to the Company’s results of operations and financial condition.

 

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Table of Contents

 

Legal Proceedings

 

The Company is currently, and from time to time, subject to claims and suits arising in the ordinary course of its business, including claims for damages for personal injuries.  In the opinion of management, after discussions with legal counsel, the ultimate resolution of any of these ordinary course pending claims and legal proceedings will not have a material effect on the Company’s financial position or results of operations.

 

As previously disclosed, four derivative complaints were filed in Jefferson Circuit Court, Kentucky, against the members of the Company’s board of directors, president and chief executive officer, and chief financial officer.  All four lawsuits named the Company as a nominal defendant and were consolidated into a single action.  All of the complaints and the resulting consolidated complaint refer to an April 27, 2010 The Wall Street Journal article and the subsequent governmental investigations.  On October 2, 2012, the Court entered an order granting the independent directors’ motion to dismiss and dismissing the complaint with prejudice, of which order two plaintiffs filed an appeal with the Kentucky Court of Appeals.  After briefing was complete, the Board received a demand letter dated July 17, 2013, from counsel for one of the derivative plaintiff shareholders.  The Board appointed a Special Litigation Committee to respond to the shareholder demand.  The Special Litigation Committee completed its investigation and presented its findings to the Board on June 25, 2014.  The Special Litigation Committee concluded that it would not be in the best interest of the Company or its shareholders to pursue the claims raised in the shareholder demand.  In accordance with the instruction from the Kentucky Court of Appeals to file a motion to redocket the appeal once the Special Litigation Committee responded to the shareholder demand, the Company moved to redocket the case and dismiss the appeal.  On September 15, 2014, the Kentucky Court of Appeals granted a joint motion to dismiss the appeal. Accordingly, the Kentucky state court proceedings stand dismissed with prejudice.

 

As previously disclosed, a fifth derivative complaint involving Richard W. Carey was filed in U.S. District Court for the Western District of Kentucky.  The lawsuit names the Company as a nominal defendant and is substantially duplicative of the derivative complaint filed in the Jefferson Circuit Court described in the preceding paragraph.  The U.S. District Court granted the defendants’ motion to stay the lawsuit pending further order of the Court.  On October 31, 2014, the parties filed a joint Stipulation and Agreed Order for Dismissal with the Court. The Court entered the Order on November 5, 2014, effectively concluding all litigation in regard to these matters.

 

10.          Acquisitions

 

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

 

Goodwill recognized from the acquisitions primarily relates to expected contributions of each entity to the overall corporate strategy in addition to synergies and acquired workforce, which are not separable from goodwill.  Goodwill and other intangible assets generated in asset purchase transactions are expected to be amortizable for tax purposes on a straight-line basis over 15 years, unless otherwise noted.  Goodwill and other intangible assets generated in stock purchase transactions are not amortizable for tax purposes, unless otherwise noted.  The purchase price allocations for the SunCrest and subsequent acquisitions remain preliminary as the Company is continuing to obtain information regarding acquired assets and liabilities.

 

On December 6, 2013, the Company acquired the stock of SunCrest.  SunCrest and its subsidiaries owned and operated 66 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia, Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama.  The total SunCrest purchase price for the stock was $76.6 million, subject to a working capital adjustment which is expected to be finalized in 2014.  The purchase price consisted of cash consideration of $75.1 million and a $1.5 million note payable, net of acquired cash balances of $2.2 million.   The following table summarizes the approximate fair values of the assets acquired and liabilities assumed in the SunCrest acquisition, which includes adjustments to accounts receivable and deferred taxes as the Company continues to gather facts on underlying accounts.

 

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Accounts Receivable

 

$

10,270

 

Property, plant & equipment

 

2,276

 

Other assets

 

2,432

 

Goodwill

 

42,143

 

Other intangibles

 

33,390

 

Assets acquired

 

90,511

 

Liabilities assumed

 

(13,954

)

Net assets acquired

 

$

76,557

 

 

Amortizable goodwill and intangibles acquired in the SunCrest acquisition are expected to provide an annual tax deduction approximating $7.9 million through 2023.

 

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

 

 

 

Three months
ended
September 30,

 

Nine months ended
September 30,

 

 

 

2013

 

2013

 

Revenues

 

$

121,732

 

$

372,855

 

Net income from continuing operations

 

$

2,406

 

$

9,294

 

Net income

 

$

2,220

 

$

8,986

 

Earnings per share from continuing operations

 

 

 

 

 

Basic

 

$

0.26

 

$

1.00

 

Diluted

 

$

0.24

 

$

0.96

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.26

 

$

0.97

 

Diluted

 

$

0.24

 

$

0.96

 

 

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

 

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

 

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

 

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11.          Income Taxes

 

The Company’s effective income tax rates from continuing operations for the three and nine month periods ended September 30, 2014 and 2013 were approximately 42.4% and 39.5%, respectively, and 40.5% and 39.2%, respectively.  The lower income tax rate in 2013 occurred primarily due to the Work Opportunity Tax Credit (WOTC) not being extended for 2012 until 2013 which resulted in our 2013 effective tax rate including the WOTC benefit for 2 years (2013 and 2012).  The WOTC has not yet been extended for 2014.

 

Accounting principles generally accepted in the United States prescribe a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return.  The evaluation of a tax position is a two-step process.  The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position.  The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized.  The Company had $0.7 million of unrecognized tax benefits at September 30, 2014, the total amount of which, if recognized, would affect the tax rate.  The Company includes the full amount of unrecognized tax benefits in other liabilities in the Consolidated Balance Sheets.  Additionally, the Company may from time to time be assessed interest and penalties by tax jurisdictions.  Any such assessments historically have been immaterial to the Company’s financial results and are classified as other general and administrative expenses in the consolidated statements of income.

 

12.          Subsequent Events

 

Management has evaluated all events and transactions that occurred after September 30, 2014.  During this period, the Company had no material subsequent events requiring recognition in the consolidated financial statements or any non-recognized subsequent events requiring disclosure.

 

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Table of Contents

 

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

 

The Company

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

 

Cautionary Statements - Forward Outlook and Risks

 

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

 

·                  general economic and business conditions;

·                  demographic changes;

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

·                  legislative proposals for healthcare reform;

·                  changes in Medicare and Medicaid reimbursement levels;

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

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

·                  liability and other claims asserted against the Company;

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

·                  ability to attract and retain qualified personnel;

·                  availability and terms of capital;

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

·                  ability of customers to pay for services;

·                  business disruption due to natural disasters or terrorist acts;

·                  ability to effectively integrate, manage and keep secure our information systems;

·                  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/A for year ended December 31, 2013 and this Form 10-Q.  The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this report.  Except as required by law, the Company assumes no responsibility for updating forward-looking statements to reflect unforeseen or other events after the date of this report. The Company has provided a detailed discussion of risk factors in its Form 10-K/A and various filings with the Securities and Exchange Commission (SEC).  The reader is encouraged to review these risk factors and filings.

 

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Table of Contents

 

Critical Accounting Policies

 

Refer to the “Critical Accounting Policies” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K/A for the year ended December 31, 2013 for a detailed discussion of our critical accounting policies.  There have been no material changes to our critical accounting policies and estimates in 2014.

 

Acquisitions

 

On July 17, 2013, the Company acquired the assets of the six Medicare-certified home health agencies owned by Indiana Home Care Network (“IHCN”).  On December 6, 2013, we acquired SunCrest which owned and operated 66 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia, Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama.  On October 4, 2013, we acquired a controlling interest in Imperium, a development-stage enterprise that provides strategic health management services to Accountable Care Organizations (“ACO’s”).

 

Operating Segments

 

We have two reportable segments, Visiting Nurse (VN) and Personal Care (PC), which operate locations in Florida, Ohio, Tennessee, Kentucky, Connecticut, New Jersey, Massachusetts, Indiana, Pennsylvania, Georgia, Missouri, Illinois, Mississippi and Alabama (in order of revenue significance).  Reportable segments have been identified based upon how management has organized the business by services provided to customers and the criteria in ASC 280, Segment Reporting.

 

Our VN segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or avoid periods of hospitalization and/or nursing home care.  Approximately 91% of the VN segment revenues are generated from the Medicare program, while the balance is generated from Medicaid and private insurance programs.  VN Medicare revenues include revenues from all Medicare sources including traditional Medicare and Medicare Advantage, whether paid on a per episode basis or a per visit basis.

 

Our PC segment services are also provided in patients’ homes.  These services (generally provided by paraprofessional staff such as home health aides) are generally of a custodial rather than skilled nature. PC revenues are generated on an hourly basis.  Approximately 77% 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.

 

The results of operations for SunCrest and IHCN are principally reported within the Company’s Visiting Nurse reportable segment, while Imperium results are included in corporate expenses.  Results of operations are included from the acquisition date forward.

 

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

 

Discontinued Operations

 

When appropriate, we reclassify operating units closed, sold, or held for sale out of continuing operations and into discontinued operations for all periods presented.  In the first quarter of 2014, our VN segment exited a market in the Northeast through the closure of a branch location.  In conjunction with our SunCrest acquisition, we acquired some operations which had been discontinued prior to our acquisition.  During the quarter ended June 30, 2013, we completed the sale of two Alabama locations, which operated in our VN segment.  The operations and gain on sale, if any, related to these locations were reclassified from continuing operations to discontinued operations for all periods presented.  Unless otherwise noted, Management’s Discussion and Analysis of Financial Condition and Results of Operations excludes amounts attributable to discontinued operations.

 

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Table of Contents

 

Contingent Service Revenues

 

Through our Imperium ACO enablement company, we provide strategic health management services to ACOs that have been approved to participate in the Medicare Shared Savings Program (“MSSP”).  While we do not have ownership interests in ACO’s, we do have service agreements with ACOs that provide for sharing of MSSPs received by the ACO, if any.  ACOs are entities that contract with Centers for Medicare and Medicaid Services (CMS) to serve the Medicare fee-for-service population with the goal of better care for individuals, improved health for populations and lower costs.  ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such beneficiaries and certain quality performance measures are achieved.  The MSSP is relatively new and therefore has limited historical experience, which impacts our ability to accurately accumulate and interpret the data available for calculating an ACOs’ shared savings, if any.  MSSP payments are not recognized in revenue until persuasive evidence of an arrangement exists, services have been rendered, the payment is fixed and determinable and collectability is assured.  We had $1.6 million in MSSP revenue for the quarter and nine-month periods ended September 30, 2014.

 

Health Care Reform Legislation and Medicare Regulations

 

The reader is encouraged to review our detailed discussion of Health Care Reform Legislation and Medicare Regulations in the similarly titled section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” along with the discussion under “Government Regulation” in Part I, Item 1, “Business” including but not limited to Item 1A. “Risk Factors” in the Company’s annual report on Form 10-K/A for year ended December 31, 2013.  Additional developments since filing the Form 10-K/A include:

 

·                  On October 30, 2014, the Centers for Medicare and Medicaid Services issued the final rule for 2015.  The final rule included the maximum rebasing cut in Medicare reimbursement rates (3.5% rate reduction in each of the years 2014-2017) allowable by the Patient Protection and Affordable Care Act (the ACA), which was signed into law in March 2010.  The rebasing cuts are in addition to other legislated cuts for that same period by the ACA.

·                  Effective January 1, 2015, Connecticut will increase the fee schedule for services provided by the Connecticut Home Care Program for Elders by 1%.  These services include fees for service programs such as in-home nursing care, home health aide, occupational, speech and physical therapies, nursing assessment and evaluation and related home care services.

·                  Effective July 1, 2014, Tennessee implemented a 1% across the board rate cut for all medical and behavioral health services including home care under TennCare (the state Medicaid Program).  In addition to this rate cut, Tennessee imposed an additional 1% across the board cut for TennCare services including home care effective July 1, 2015.

 

These matters, if implemented, may have a material adverse impact on our results of operations or financial condition.  Although we are formulating plans and developing appropriate courses of action related to these changes, there can be no assurance that such plans or courses of action will prove successful.  Such changes may cause us to change our business model, increase costs or reduce our revenues in ways not currently contemplated by us, or may result in recognition of an impairment of our recorded goodwill or intangible assets.

 

Shareholder Litigation

 

See Note 9 to the consolidated financial statements and Part II, Item 1, “Legal Proceedings” of this Form 10-Q for a discussion of certain litigation.

 

Seasonality

 

Our VN segment operations in Florida, where nearly 40% of that segment’s revenues are generated, normally experience higher admissions during the first quarter and lower admissions during the third quarter than in the other quarters due to seasonal population fluctuations.

 

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Table of Contents

 

RESULTS OF OPERATIONS

THREE MONTHS

 

Consolidated

 

(In thousands)

 

 

 

Three Months Ended September 30,

 

 

2014

 

2013

 

Change

 

 

 

Amount

 

% Rev

 

Amount

 

% Rev

 

Amount

 

%

 

Net service revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Visiting Nurse

 

$

97,835

 

79.1

%

$

67,455

 

76.2

%

$

30,380

 

45.0

%

Personal Care

 

25,907

 

20.9

%

21,016

 

23.8

%

4,891

 

23.3

%

 

 

123,742

 

100.0

%

88,471

 

100.0

%

35,271

 

39.9

%

Operating income before corporate expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Visiting Nurse

 

12,544

 

12.8

%

7,389

 

11.0

%

5,155

 

69.8

%

Personal Care

 

2,873

 

11.1

%

2,566

 

12.2

%

307

 

12.0

%

 

 

15,417

 

12.5

%

9,955

 

11.3

%

5,462

 

54.9

%

Corporate expenses

 

6,398

 

5.2

%

5,319

 

6.0

%

1,079

 

20.3

%

Deal and transition costs

 

1,655

 

1.3

%

848

 

1.0

%

807

 

95.2

%

Operating income

 

7,364

 

6.0

%

3,788

 

4.3

%

3,576

 

94.4

%

Interest expense, net

 

(396

)

-0.3

%

(11

)

0.0

%

(385

)

NM

 

Income tax expense

 

(2,810

)

-2.3

%

(1,462

)

-1.7

%

(1,348

)

92.2

%

Net income from continuing operations

 

$

4,158

 

3.4

%

$

2,315

 

2.6

%

$

1,843

 

79.6

%

Adjusted EBITDA from continuing operations (1)

 

$

10,496

 

8.5

%

$

5,728

 

6.5

%

$

4,768

 

83.2

%

 


(1)          See Page 24 for discussion of EBITDA.

 

Approximately $34.0 million of our $35.3 million year over year increase in revenue was a result of our acquisition of SunCrest.  The balance was generated from organic growth, partially offset by Medicare rate cuts in the VN segment.  Refer to segment discussions for further operating performance details.

 

Corporate expenses increased by $1.1 million to $6.4 million from $5.3 million in the prior year.  The 2014 period includes $1.4 million of incremental home office costs associated with the SunCrest acquisition.  Imperium earned its first Medicare Shared Savings Program (MSSP) payment during the quarter of $1.6 million and incurred operating costs of $0.5 million.  Both the MSSP related revenue and operating costs of Imperium are included in corporate expenses.  Additionally, 2014 included $1.0 million of costs for performance incentive programs while the prior year had no such provision.

 

Deal and transition costs increased $0.8 million, primarily related to transition costs during the current quarter from the SunCrest acquisition on December 6, 2013. During the current quarter, we consolidated several overlapping-territory Florida branches related to the SunCrest acquisition and closed SunCrest’s Nashville based home office completing the last substantial steps of our integration plan.  As a result, deal and transition costs include certain one-time lease and related abandonment charges.

 

Interest expense increased $0.4 million due to borrowings on our line of credit in conjunction with the SunCrest acquisition.

 

Our effective tax rate for the third quarter of 2014 was 42.4% compared to 39.5% for the third quarter of 2013.  The lower income tax rate in 2013 occurred primarily due to the Work Opportunity Tax Credit (WOTC) not being extended for 2012 until 2013 which resulted in our 2013 effective tax rate including the WOTC benefit for 2 years (2013 and 2012).  The WOTC has not yet been extended for 2014. The current quarter also includes the cumulative catch up for an increase in our year to date effective tax rate to 40.5% from 39.5%. We currently expect our effective tax rate for 2014 to be 40.5%.

 

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Table of Contents

 

Visiting Nurse Segment

 

 

 

Three Months Ended September 30,

 

 

 

2014

 

2013

 

Change

 

(In thousands, except for statistics)

 

Amount

 

% Rev

 

Amount

 

% Rev

 

Amount

 

%

 

Net service revenues

 

$

97,835

 

100.0

%

$

67,455

 

100.0

%

$

30,380

 

45.0

%

Cost of service revenues

 

48,627

 

49.7

%

32,967

 

48.9

%

15,660

 

47.5

%

Gross margin

 

49,208

 

50.3

%

34,488

 

51.1

%

14,720

 

42.7

%

General and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

26,995

 

27.6

%

20,324

 

30.1

%

6,671

 

32.8

%

Other

 

9,669

 

9.9

%

6,775

 

10.0

%

2,894

 

42.7

%

Total general and administrative expenses

 

36,664

 

37.5

%

27,099

 

40.2

%

9,565

 

35.3

%

Operating income before corporate expenses

 

$

12,544

 

12.8

%

$

7,389

 

11.0

%

$

5,155

 

69.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of locations

 

159

 

 

 

109

 

 

 

50

 

45.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All payors:

 

 

 

 

 

 

 

 

 

 

 

 

 

Patient months

 

81,893

 

 

 

53,883

 

 

 

28,010

 

52.0

%

Admissions

 

24,480

 

 

 

15,299

 

 

 

9,181

 

60.0

%

Billable visits

 

675,787

 

 

 

481,965

 

 

 

193,822

 

40.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicare:

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions (1)

 

21,531

 

88

%

14,015

 

92

%

7,516

 

53.6

%

Revenue (in thousands)

 

$

88,639

 

91

%

$

62,399

 

93

%

$

26,240

 

42.1

%

Revenue per admission

 

$

4,117

 

 

 

$

4,452

 

 

 

$

(335

)

-7.5

%

Billable visits (1)

 

564,614

 

84

%

412,637

 

86

%

151,977

 

36.8

%

Recertifications

 

11,907

 

 

 

8,380

 

 

 

3,527

 

42.1

%

Payor mix % of Admissions

 

 

 

 

 

 

 

 

 

 

 

 

 

Traditional Medicare Episodic

 

84.0

%

 

 

92.6

%

 

 

-8.6

%

 

 

Replacement Plans Paid Episodically

 

3.8

%

 

 

2.2

%

 

 

1.6

%

 

 

Replacement Plans Paid Per Visit

 

12.2

%

 

 

5.2

%

 

 

7.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Medicare:

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions (1)

 

2,949

 

12

%

1,284

 

8

%

1,665

 

129.7

%

Revenue (in thousands)

 

$

9,196

 

9

%

$

5,056

 

7

%

$

4,140

 

81.9

%

Revenue per admission

 

$

3,118

 

 

 

$

3,938

 

 

 

$

(819

)

-20.8

%

Billable visits (1)

 

111,173

 

16

%

69,328

 

14

%

41,845

 

60.4

%

Recertifications

 

1,467

 

 

 

1,311

 

 

 

156

 

11.9

%

Payor mix % of Admissions

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicaid & other governmental

 

26.9

%

 

 

38.9

%

 

 

-12.0

%

 

 

Private payors

 

73.1

%

 

 

62.1

%

 

 

11.0

%

 

 

 


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

 

Visiting Nurse segment net service revenues increased primarily due to the SunCrest acquisition which increased net service revenues by $29.5 million and operating income before corporate expenses by $4.8 million.

 

18



Table of Contents

 

Substantially all of the changes in cost of service revenues and general and administrative expenses were due to the SunCrest acquisition.

 

Excluding the effects of the SunCrest acquisition, operating income before corporate expenses improved $0.4 million as volume growth and cost improvements more than offset the impact of Medicare rate cuts which reduced revenue and operating income by $0.8 million.

 

Salaries and wages for the quarter ended September 30, 2014 included approximately $0.4 million of costs associated with employee pay increases in effect for two months of the quarter.

 

Personal Care Segment

 

 

 

Three Months Ended September 30,

 

 

 

2014

 

2013

 

Change

 

(In thousands, except for statistics)

 

Amount

 

% Rev

 

Amount

 

% Rev

 

Amount

 

%

 

Net service revenues

 

$

25,907

 

100.0

%

$

21,016

 

100.0

%

$

4,891

 

23.3

%

Cost of service revenues

 

17,859

 

68.9

%

14,408

 

68.6

%

3,451

 

24.0

%

Gross margin

 

8,048

 

31.1

%

6,608

 

31.4

%

1,440

 

21.8

%

General and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

3,027

 

11.7

%

2,642

 

12.6

%

385

 

14.6

%

Other

 

2,148

 

8.3

%

1,400

 

6.7

%

748

 

53.4

%

Total general and administrative expenses

 

5,175

 

20.0

%

4,042

 

19.2

%

1,133

 

28.0

%

Operating income before corporate expenses

 

$

2,873

 

11.1

%

$

2,566

 

12.2

%

$

307

 

12.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of locations

 

61

 

 

 

60

 

 

 

1

 

1.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

1,558

 

 

 

1,018

 

 

 

540

 

53.0

%

Patient months of care

 

20,368

 

 

 

17,590

 

 

 

2,778

 

15.8

%

Billable hours

 

1,331,501

 

 

 

1,176,802

 

 

 

154,699

 

13.1

%

Revenue per billable hour

 

$

19.46

 

 

 

$

17.86

 

 

 

$

1.60

 

9.0

%

 

Net service revenues increased $4.9 million, or 23.3%, to $25.9 million in 2014 from $21.0 million in 2013, primarily due to the SunCrest acquisition which increased revenues by $4.5 million, with the remainder due to organic volume growth.  Cost of service revenues as a percentage of net service revenues increased slightly to 68.9% in 2014 from 68.6% in 2013, primarily due to changes in business mix partially due to the SunCrest acquisition.

 

Total general and administrative expenses as a percent of net service revenue increased to 20.0% in 2014 from 19.2% in 2013, primarily due to SunCrest acquisition related changes and a $0.2 million increase in bad debt provision in our legacy operations in the quarter.

 

As a result, PC segment operating income before corporate expenses increased to $2.9 million from $2.6 million in 2013, while operating income before corporate expenses as percentage of revenue decreased 1.1%.

 

19



Table of Contents

 

RESULTS OF OPERATIONS

NINE MONTHS

 

Consolidated

 

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

Change

 

 

 

Amount

 

% Rev

 

Amount

 

% Rev

 

Amount

 

%

 

Net service revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Visiting Nurse

 

$

293,029

 

79.5

%

$

200,007

 

76.8

%

$

93,022

 

46.5

%

Personal Care

 

75,682

 

20.5

%

60,318

 

23.2

%

15,364

 

25.5

%

 

 

368,711

 

100.0

%

260,325

 

100.0

%

108,386

 

41.6

%

Operating income before corporate expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Visiting Nurse

 

35,487

 

12.1

%

22,562

 

11.3

%

12,925

 

57.3

%

Personal Care

 

8,733

 

11.5

%

7,739

 

12.8

%

994

 

12.8

%

 

 

 44,220

 

12.0

%

30,301

 

11.6

%

13,919

 

45.9

%

Corporate expenses

 

21,517

 

5.8

%

15,804

 

6.1

%

5,713

 

36.1

%

Deal and transition costs

 

6,012

 

1.6

%

987

 

0.4

%

5,025

 

NM

 

Operating income

 

16,691

 

4.5

%

13,510

 

5.2

%

3,181

 

23.5

%

Interest expense, net

 

(1,073

)

-0.3

%

(40

)

0.0

%

(1,033

)

NM

 

Income tax expense

 

(6,245

)

-1.7

%

(5,264

)

-2.0

%

(981

)

18.6

%

Net income from continuing operations

 

$

9,373

 

2.5

%

$

8,206

 

3.2

%

$

1,167

 

14.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA from continuing operations (1)

 

$

27,205

 

7.4

%

$

17,540

 

6.7

%

$

9,665

 

55.1

%

 


(1)          See Page 24 for discussion of EBITDA.

 

Approximately $107.9 million of our $108.4 million year over year increase in revenue was a result of our acquisitions of SunCrest and IHCN.  The balance was generated from organic growth, partially offset by Medicare rate cuts in the VN segment.  Refer to segment discussions for further operating performance details.

 

Corporate expenses increased by $5.7 million to $21.5 million from $15.8 million in the prior year.  The 2014 period includes $3.3 million of incremental home office costs associated with our 2013 acquisitions.  Imperium earned its first Medicare Shared Savings Program (MSSP) payment during the third quarter of $1.6 million and incurred operating costs of $1.2 million.  Both the MSSP related revenue and operating costs of Imperium are included in corporate expenses.  Additionally, 2014 included $3.2 million of costs for performance incentive programs while the prior year had no such provision.

 

Deal and transition costs increased $5.0 million primarily related to the SunCrest acquisition on December 6, 2013.  During the third quarter, we consolidated several overlapping-territory Florida branches related to the SunCrest acquisition and closed SunCrest’s Nashville based home office completing the last substantial steps of our integration plan.  As a result, deal and transition costs include certain one-time lease and related abandonment charges.

 

Interest expense increased $1.0 million due to borrowings on our line of credit in conjunction with the SunCrest acquisition.

 

Our effective tax rate for the nine month period of 2014 was 40.5% compared to 39.2% for the nine month period of 2013.  The lower income tax rate in the 2013 occurred primarily due to the WOTC not being extended for 2012 until 2013 which resulted in our 2013 effective tax rate including the WOTC benefit for 2 years (2013 and 2012).  The WOTC has not yet been extended for 2014.

 

20



Table of Contents

 

Visiting Nurse Segment

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

Change

 

(In thousands, except for statistics)

 

Amount

 

% Rev

 

Amount

 

% Rev

 

Amount

 

%

 

Net service revenues

 

$

293,029

 

100.0

%

$

200,007

 

100.0

%

$

93,022

 

46.5

%

Cost of service revenues

 

144,855

 

49.4

%

97,908

 

49.0

%

46,947

 

48.0

%

Gross margin

 

148,174

 

50.6

%

102,099

 

51.0

%

46,075

 

45.1

%

General and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

82,057

 

28.0

%

59,549

 

29.8

%

22,508

 

37.8

%

Other

 

30,630

 

10.5

%

19,988

 

10.0

%

10,642

 

53.2

%

Total general and administrative expenses

 

112,687

 

38.5

%

79,537

 

39.8

%

33,150

 

41.7

%

Operating income before corporate expenses

 

$

35,487

 

12.1

%

$

22,562

 

11.3

%

$

12,925

 

57.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of locations

 

169

 

 

 

105

 

 

 

64

 

61.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All payors:

 

 

 

 

 

 

 

 

 

 

 

 

 

Patient months

 

246,053

 

 

 

162,442

 

 

 

83,611

 

51.5

%

Admissions

 

74,334

 

 

 

47,074

 

 

 

27,260

 

57.9

%

Billable visits

 

2,018,034

 

 

 

1,429,766

 

 

 

588,268

 

41.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicare:

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions (1)

 

65,868

 

89

%

43,149

 

92

%

22,719

 

52.7

%

Revenue (in thousands)

 

$

266,698

 

91

%

$

185,337

 

93

%

$

81,361

 

43.

%

Revenue per admission

 

$

4,049

 

 

 

$

4,295

 

 

 

$

(246

)

-5.7

%

Billable visits (1)

 

1,693,016

 

84

%

1,221,728

 

85

%

471,288

 

38.6

%

Recertifications

 

35,962

 

 

 

24,339

 

 

 

11,623

 

47.8

%

Payor mix % of Admissions

 

 

 

 

 

 

 

 

 

 

 

 

 

Traditional Medicare Episodic

 

83.9

%

 

 

91.8

%

 

 

-7.9

%

 

 

Replacement Plans Paid Episodically

 

3.4

%

 

 

2.5

%

 

 

0.9

%

 

 

Replacement Plans Paid Per Visit

 

12.7

%

 

 

5.7

%

 

 

7.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Medicare:

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions (1)

 

8,466

 

11

%

3,925

 

8

%

4,541

 

115.7

%

Revenue (in thousands)

 

$

30,166

 

10

%

$

14,670

 

7

%

$

15,496

 

105.6

%

Revenue per admission

 

$

3,563

 

 

 

$

3,738

 

 

 

$

(174

)

-4.7

%

Billable visits (1)

 

325,018

 

16

%

208,038

 

15

%

116,980

 

56.2

%

Recertifications

 

4,446

 

 

 

4,030

 

 

 

416

 

10.3

%

Payor mix % of Admissions

 

 

 

 

 

 

 

 

 

 

 

 

 

Medicaid & other governmental

 

25.3

%

 

 

32.6

%

 

 

-7.3

%

 

 

Private payors

 

74.7

%

 

 

67.4

%

 

 

7.3

%

 

 

 


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

 

Visiting Nurse segment net service revenues increased primarily due to the SunCrest acquisition (December 6, 2013), which combined with the IHCN acquisition (July 13, 2013) to increase net service revenues by $95.3 million and operating income before corporate expenses by $12.7 million.

 

Excluding acquisitions, revenues decreased by $2.3 million, due to Medicare rate cuts of $3.4 million which were partially offset by higher volumes.  Medicare rate cuts were comprised of a 1.15% 2014 rate cut on episodes ending after December 31, 2013 and a 2.0% Medicare sequestration cut effective for episodes ended after March 2013.

 

21



Table of Contents

 

Substantially all of the changes in cost of service revenues and general and administrative expenses were due to the SunCrest and IHCN acquisitions.

 

Personal Care Segment

 

 

 

Nine Months Ended September 30,

 

 

 

2014

 

2013

 

Change

 

(In thousands, except for statistics)

 

Amount

 

% Rev

 

Amount

 

% Rev

 

Amount

 

%

 

Net service revenues

 

$

75,682

 

100.0

%

$

60,318

 

100.0

%

$

15,364

 

25.5

%

Cost of service revenues

 

52,592

 

69.5

%

41,059

 

68.1

%

11,533

 

28.1

%

Gross margin

 

23,090

 

30.5

%

19,259

 

31.9

%

3,831

 

19.9

%

General and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

9,000

 

11.9

%

7,555

 

12.5

%

1,445

 

19.1

%

Other

 

5,357

 

7.1

%

3,965

 

6.6

%

1,392

 

35.1

%

Total general and administrative expenses

 

14,357

 

19.0

%

11,520

 

19.1

%

2,837

 

24.6

%

Operating income before corporate expenses

 

$

8,733

 

11.5

%

$

7,739

 

12.8

%

$

994

 

12.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of locations

 

61

 

 

 

60

 

 

 

1

 

1.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Admissions

 

4,527

 

 

 

3,261

 

 

 

1,266

 

38.8

%

Patient months of care

 

60,167

 

 

 

52,494

 

 

 

7,673

 

14.6

%

Billable hours

 

3,925,653

 

 

 

3,393,413

 

 

 

532,240

 

15.7

%

Revenue per billable hour

 

$

19.28

 

 

 

$

17.78

 

 

 

$

1.50

 

8.5

%

 

Net service revenues increased $15.4 million, or 25.5%, to $75.7 million in 2014 from $60.3 million in 2013, primarily due to the SunCrest acquisition which increased revenues by $12.6 million, with the remainder due primarily to organic volume growth.  Cost of service revenues as a percentage of net service revenues increased slightly to 69.5% in 2014 from 68.1% in 2013, primarily due to changes in business mix partially due to the SunCrest acquisition.

 

Total general and administrative expenses as a percent of net service revenue decreased slightly to 19.0% in 2014 from 19.1% in 2013, primarily due to SunCrest acquisition related changes which were offset by increases in the provision for workers compensation.

 

As a result, PC segment operating income before corporate expenses increased to $8.7 million from $7.7 million in 2013, while operating income before corporate expenses as percentage of revenue decreased 1.3%.

 

22



Table of Contents

 

Liquidity and Capital Resources

 

Revolving Credit Facility

 

We have a $125 million senior secured revolving credit facility with JP Morgan Chase Bank, NA, as Administrative Agent, Bank of America, as Syndication Agent and certain other lenders (the “Facility”).  The Facility consists of a $125 million credit line with a maturity date of December 2, 2015 and an “accordion” feature providing for potential future expansion of the Facility to $175 million.  Borrowings (other than letters of credit) under the credit facility are made at either: a) the bank’s prime rate plus a margin (ranging from 1.25% to 2.25%, 1.75% at September 30, 2014) or b) LIBOR plus a margin (ranging from 2.25% to 3.25%, 2.50% at September 30, 2014).  The margin for prime rate or LIBOR borrowings is determined by our leverage.  Borrowings under the Facility are secured by a first priority perfected security interest in all our tangible and intangible assets, and all our existing and future direct and indirect subsidiaries, as guarantors.

 

The weighted average prime rate-based interest rates were 4.83% and 4.50% for the three months ended September 30, 2014 and 2013, respectively.  The weighted average LIBOR rates were 2.90% and 2.51% for the three months ended September 30, 2014 and 2013, respectively.  We pay a quarterly commitment fee of 0.30% to 0.50% on the average daily unused facility balance based on leverage. Borrowings are subject to various covenants including a multiple of 3.0 times earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA may include “Acquired EBITDA” from proforma acquisitions pursuant to a calculation rider, up to 50% of “Adjusted EBITDA,” as defined. Borrowings under the Facility may be used for general corporate purposes, including acquisitions. As of September 30, 2014, the formula permitted $44.4 million to be used against which we had irrevocable letters of credit totaling $7.5 million outstanding in connection with our self-insurance programs. As a result a total of $36.9 million was available for borrowing at September 30, 2014. As of September 30, 2014, we were in compliance with the Facility’s various financial covenants. Under the most restrictive of its covenants, we were required to maintain minimum net worth of at least $161.2 million at September 30, 2014.  At such date, our net worth was approximately $224.5 million.

 

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

 

Cash Flows

 

Key elements to the Consolidated Statements of Cash Flows for the three months ended September 30, 2014 and 2013 were:

 

Net Change in Cash and Cash Equivalents (in thousands)

 

2014

 

2013

 

(Used in) provided by:

 

 

 

 

 

Operating activities

 

$

(874

)

$

14,389

 

Investing activities

 

(1,839

)

(13,631

)

Financing activities

 

(4,217

)

(589

)

Discontinued operations activities

 

42

 

1,807

 

Net change in cash and cash equivalents

 

$

(6,888

)

$

1,976

 

 

2014

 

Net cash used in operating activities resulted primarily from current period net income of $9.2 million plus certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses.  The decrease from 2013 is due to increased accounts receivable days outstanding which was 54 at September 30, 2014 and 46 at December 31, 2013 along with a decrease in accounts payable and accrued expenses acquired in the SunCrest acquisition.  The increase in accounts receivable is due to an increase in the backlog of claims in our VN segment, the conversion to managed care payers with longer payment cycles in certain PC segment markets and settlement of cost reports during the quarter.

 

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The cash used in investing activities was primarily due to an April 2014 acquisition and capital expenditures.

The cash used in financing activities was primarily related to a $3.5 million payment on the line of credit drawn in connection with the SunCrest acquisition.

 

2013

 

Net cash provided by operating activities resulted primarily from current period net income of $7.9 million plus certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses.  Accounts receivable days revenues outstanding was 50 at September 30, 2013 and 53 at December 31, 2012 due to processing delays as well as prepayment Additional Data Requests (ADR) from Palmetto Government Benefits Administration in our VN segment, which did not repeat in 2013.

 

The cash used in investing activities was primarily due to the Indiana Home Care acquisition completed in the third quarter of 2013, with the remainder due to capital expenditures.

 

Net cash provided by discontinued operations was due to the $3.0 million in proceeds from sale of the Alabama agencies, which was offset by cash used in operating activities for the discontinued operations.

 

Impact of Inflation

 

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

 

Non-GAAP Financial Measure

 

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

 

Adjusted EBITDA

 

Adjusted 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 Adjusted EBITDA are significant components in understanding and evaluating financial performance and liquidity. Management routinely calculates and communicates Adjusted 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. Adjusted EBITDA is also used in certain covenants contained in our credit agreement.

 

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

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

(in thousands)

 

2014

 

2013

 

2014

 

2013

 

Net income from continuing operations

 

$

4,158

 

$

2,315

 

$

9,373

 

$

8,206

 

Add back:

 

 

 

 

 

 

 

 

 

Interest expense

 

396

 

11

 

1,073

 

40

 

Income tax expense

 

2,810

 

1,462

 

6,245

 

5,264

 

Depreciation and amortization

 

1,012

 

707

 

3,165

 

2,004

 

Amortization of stock-based compensation

 

465

 

385

 

1,337

 

1,039

 

Deal and transition costs

 

1,655

 

848

 

6,012

 

987

 

Earnings before interest, income taxes, depreciation and amortization, amortization of stock-based compensation and deal and transition costs (Adjusted EBITDA) from continuing operations

 

$

10,496

 

$

5,728

 

$

27,205

 

$

17,540

 

 

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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 September 30, 2014, a hypothetical 100 basis point increase in short-term interest rates would result in a reduction of approximately $525,200 in our quarter pre-tax earnings.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures — As of September 30, 2014, the Company’s management, with participation of the Company’s Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e).  Based on that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2014.

 

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

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we are subject to various legal actions arising in the ordinary course of our business, including claims for damages for personal injuries.  In our opinion, after discussion with legal counsel, the ultimate resolution of any of these pending ordinary course claims and legal proceedings will not have a material effect on our financial position or results of operations.

 

As previously disclosed, four derivative complaints were filed in Jefferson Circuit Court, Kentucky, against the members of the Company’s board of directors, president and chief executive officer, and chief financial officer.  All four lawsuits named the Company as a nominal defendant and were consolidated into a single action.  All of the complaints and the resulting consolidated complaint refer to an April 27, 2010 The Wall Street Journal article and the subsequent governmental investigations.  On October 2, 2012, the Court entered an order granting the independent directors’ motion to dismiss and dismissing the complaint with prejudice, of which order two plaintiffs filed an appeal with the Kentucky Court of Appeals.  After briefing was complete, the Board received a demand letter dated July 17, 2013, from counsel for one of the derivative plaintiff shareholders.  The Board appointed a Special Litigation Committee to respond to the shareholder demand.  The Special Litigation Committee completed its investigation and presented its findings to the Board on June 25, 2014.  The Special Litigation Committee concluded that it would not be in the best interest of the Company or its shareholders to pursue the claims raised in the shareholder demand.  In accordance with the instruction from the Kentucky Court of Appeals to file a motion to redocket the appeal once the Special Litigation Committee responded to the shareholder demand, the Company moved to redocket the case and dismiss the appeal.  On September 15, 2014, the Kentucky Court of Appeals granted a joint motion to dismiss the appeal. Accordingly, the Kentucky state court proceedings stand dismissed with prejudice.

 

As previously disclosed, a fifth derivative complaint involving Richard W. Carey was filed in U.S. District Court for the Western District of Kentucky.  The lawsuit names the Company as a nominal defendant and is substantially duplicative of the derivative complaint filed in the Jefferson Circuit Court described in the preceding paragraph.  The U.S. District Court granted the defendants’ motion to stay the lawsuit pending

 

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further order of the Court.  On October 31, 2014, the parties filed a joint Stipulation and Agreed Order for Dismissal with the Court.  The Court entered the Order on November 5, 2014, effectively concluding all litigation in regard to these matters.

 

ITEM 1A. RISK FACTORS

 

Information regarding risk factors appears in our Form 10-K/A for the year ending December 31, 2013, under the heading “Special Caution Regarding Forward — Looking Statements” and in the Form 10-K/A Part I, Item 1A. Risk Factors.  There have been no material changes from the risk factors disclosed in our Form 10-K/A.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5. OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

31.1

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

 

31.2

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

 

32.1

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

 

32.2

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

 

101

Financial statements from the quarterly report on Form 10-Q of Almost Family, Inc. for the quarter ended September 30, 2014, filed on November 7, 2014, formatted in XBRL:  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements.

 

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SIGNATURES

 

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

 

 

 

ALMOST FAMILY, INC.

 

 

Date  November 7, 2014

By:

/s/ William B. Yarmuth

 

 

William B. Yarmuth

 

 

Chairman of the Board and

 

 

Chief Executive Officer

 

 

 

 

 

 

 

By:

/s/ C. Steven Guenthner

 

 

C. Steven Guenthner

 

 

President and

 

 

Principal Financial Officer

 

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