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 AUGUST 31, 1995, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission file number 0-11380
STAFF BUILDERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2650500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1983 Marcus Avenue, Lake Success, New York 11042
(Address of principal executive offices) (Zip Code)
(516) 358-1000
(Registrant's telephone number, including area code)
(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
The number of shares of Common Stock outstanding on October 10,
1995 was 23,686,837 shares.
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
August 31, 1995 and February 28, 1995 2
Condensed Statements of Consolidated
Income - Three and Six months ended
August 31, 1995 and 1994 3
Condensed Statements of Consolidated Cash
Flows - Six months ended August 31, 1995
and 1994 4
Notes to Condensed Consolidated Financial
Statements 5-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
-1-
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) AUGUST 31,
1995 FEBRUARY 28,
(UNAUDITED) 1995
ASSETS:
Current Assets:
Cash and cash equivalents $ 6,846 $ 4,508
Accounts receivable, net of allowance
for doubtful accounts of $1,800 at August
31, 1995 and $1,750 at February 28, 1995 48,009 53,369
Deferred income tax benefits 1,325 1,303
Prepaid expenses and other current assets 2,398 1,954
Total current assets 58,578 61,134
Fixed Assets, net of accumulated
depreciation of $3,518 at August 31,
1995 and $4,398 at February 28, 1995 6,257 5,726
Intangible Assets, net of accumulated
amortization of $6,218 at August 31, 1995
and $6,532 at February 28, 1995 36,619 30,149
Other Assets 4,342 3,624
Total $105,796 $100,633
LIABILITIES:
Current Liabilities:
Accounts payable and accrued expenses $ 15,356 $ 17,757
Accrued payroll and related expenses 25,856 18,874
Current portion of long-term liabilities 1,515 1,267
Current income taxes payable 335 1,320
Total current liabilities 43,062 39,218
Amount Due Under Secured Revolving
Line of Credit - 6,461
Other Long-Term Liabilities 6,015 2,603
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; 50,000,000
shares authorized; 23,666,837 and 22,937,049
shares issued at August 31, 1995 and February
28, 1995, respectively 237 229
Convertible preferred stock, Class A;
666 2/3 shares outstanding 1 1
Additional paid-in capital 73,252 71,828
Accumulated deficit (16,771) (19,707)
Total stockholders' equity 56,719 52,351
Total $105,796 $100,633
See notes to condensed consolidated financial statements.
-2-
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Six Months Ended
August 31, August 31,
1995 1994 1995 1994
Revenues:
Service revenues $100,102 $75,726 $198,153 $147,892
Sales of franchises and fees, net 267 312 642 723
Total revenues 100,369 76,038 198,795 148,615
Costs and Expenses:
Operating costs 62,270 45,904 122,768 91,756
General and administrative expenses 34,639 27,138 68,983 51,411
Provision for doubtful accounts 650 604 1,270 1,204
Amortization of intangible assets 329 262 726 525
Interest expense 178 281 454 701
Other (income) expense, net (271) (183) (469) (417)
Total costs and expenses 97,795 74,006 193,732 145,180
Income Before Income Taxes 2,574 2,032 5,063 3,435
Provision for Income Taxes 1,032 854 2,127 1,443
Net Income $ 1,542 $ 1,178 $ 2,936 $ 1,992
Income Applicable to
Common Stockholders $ 1,542 $ 1,178 $ 2,936 $ 1,992
Weighted average common and
common equivalent shares:
Primary 25,616 23,708 25,447 23,405
Fully diluted 25,681 23,804 25,488 23,434
Income per common and
common equivalent share:
Primary $ .06 $ .05 $ .12 $ .09
Fully diluted $ .06 $ .05 $ .12 $ .09
See notes to condensed consolidated financial statements.
-3-
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
August 31,
1995 1994
Cash Flows from Operating Activities:
Net income $ 2,936 $ 1,992
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 1,691 1,103
Allowance for doubtful accounts 50 104
Deferred tax asset (22) 165
Amortization of rent escalation liability (35) (91)
Change in operating assets and liabilities:
Accounts receivable 6,488 7,773
Prepaid expenses and other current assets (302) (125)
Accounts payable and accrued expenses 2,147 (578)
Income taxes payable (985) (72)
Other assets (722) (128)
Net cash provided by operating activities 11,246 10,143
Cash Flows from Investing Activities:
Acquisition of businesses (3,104) (557)
Additions to fixed assets (457) (751)
Net cash used in investing activities (3,561) (1,308)
Cash Flows from Financing Activities:
Exercise of stock options and warrants 1,432 140
Decrease in borrowings under
revolving line of credit (6,461) (8,336)
Reduction in other long-term liabilities (318) (593)
Net cash used in financing activities (5,347) (8,789)
Net Increase in Cash and Cash Equivalents 2,338 46
Cash and Cash Equivalents, Beginning
of Period 4,508 7,330
Cash and Cash Equivalents, End of Period $ 6,846 $ 7,376
Supplemental Data:
Cash paid for:
Interest $ 449 $ 585
Income taxes, net $ 2,631 $ 1,431
Fixed assets acquired through
capital lease agreements $ 748 $ 255
Acquisition of business through
issuance of notes payable $ 2,731 $ -
Common stock issued for acquisition $ - $ 8,247
See notes to condensed consolidated financial statements.
-4-
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS - In the opinion of the Company, the
accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal
and recurring accruals) necessary to present fairly the
financial position of the Company and its subsidiaries as of
August 31, 1995 and February 28, 1995 and the results of
operations and the cash flows for the three and six months
ended August 31, 1995 and 1994. Certain prior period amounts
have been reclassified to conform with the August 1995
presentation.
The results for the three and six months ended August 31, 1995
and 1994 are not necessarily indicative of the results for an
entire year. It is suggested that these condensed
consolidated financial statements be read in conjunction with
the Company's audited financial statements as of February 28,
1995 and for the year then ended.
2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - Earnings per
common and common equivalent share were computed by dividing
the earnings applicable to common stockholders by the weighted
average number of shares of common stock and common stock
equivalents, principally dilutive stock options and warrants,
outstanding during the period.
The shares used in computing primary earnings per common and
common equivalent share were 25,446,780 shares and 23,405,353
shares for the six months ended August 31, 1995 and 1994 and
25,615,848 shares and 23,707,743 shares for the three months
ended August 31, 1995 and 1994, respectively. The shares used
in computing fully diluted earnings per share were 25,487,788
and 23,433,828 for the six months ended August 31, 1995 and
1994 and 25,681,002 and 23,804,240 shares for the three months
ended August 31, 1995 and 1994, respectively.
3. ACQUISITIONS - On August 30, 1995, the Company acquired the
stock of MedVisit, Inc., a regional health care provider
consisting of seven locations in the Raleigh-Durham, North
Carolina area. The transaction was accounted for as a
purchase for which aggregate consideration of approximately
$5.0 million included cash paid of $1.2 million, the present
value of notes payable of $2.7 million and net obligations
assumed of $1.1 million.
-5-
The purchase price has been allocated to the tangible assets
of MedVisit, Inc. based upon preliminary estimates of fair
values and the remaining excess of the purchase price over the
fair value of net tangible assets acquired will be amortized
on a straight-line basis over 40 years. The Company expects
to refine these preliminary estimates of fair value of certain
of the acquired assets and liabilities and will revise the
accounting allocations, if required, upon completion of that
process. The results of operations of MedVisit, Inc. will be
included in the Company's consolidated financial statements
subsequent to August 31, 1995. The results of operations of
MedVisit, Inc. from its effective date of acquisition for the
one day ended August 31, 1995, is deemed immaterial for
inclusion in the three and six months ended August 31, 1995.
Revenues on a pro forma basis for the three and six months
ended August 31, 1995, if the acquisition of MedVisit, Inc.
had occurred on March 1, 1995 would have approximated $103.3
million and $204.6 million, respectively. The effect of this
acquisition on net income and earnings per share on a pro
forma basis for the three and six months ended August 31, 1995
is not material. Further, the Company acquired several other
health care operations during the period ended August 31, 1995
for aggregate consideration of approximately $1.8 million.
4. PROVISION FOR INCOME TAXES - The provision for income taxes
for the three and six months ended August 31, 1995 and 1994 is
based upon the Company's estimated tax provision required for
the full year. The calculation for the three and six months
ended August 31, 1995 considers the reversal of prior income
tax accruals not considered necessary.
5. SUBSEQUENT EVENTS - On September 1, 1995, the Company acquired
assets of Accredicare, Inc., a health care provider consisting
of five locations in central New Jersey, for which
consideration of approximately $1.2 million was paid.
On September 29, 1995, the Company acquired assets of Care
Star, Inc., a health care provider consisting of nine
locations in Virginia, Indiana and Central Ohio, for aggregate
consideration of approximately $2.7 million.
6. CONTINGENCIES - On September 20, 1995, the Company received a
letter from the United States Attorney for the Eastern
District of Pennsylvania alleging that (i) between 1987 and
1989, a corporation, substantially all assets and liabilities
of which were acquired by a subsidiary of the Company in 1993,
submitted false claims to Medicare totalling approximately
$1.5 million and (ii) officers and employees of that
corporation submitted false statements in support of such
claims. The alleged false claims and false statements were
made before the Company acquired that corporation in 1993.
Based on its preliminary investigation, the Company believes
that the amount of improper claims, if any, submitted by that
corporation to Medicare between 1987 and 1989, were
significantly below $1.5 million. The Company is in
negotiations with the office of the United States Attorney to
resolve this matter. No provision has been made for the
ultimate cost, if any, which may result from this matter.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition.
This discussion should be read in conjunction with the Condensed
Consolidated Financial Statements appearing in Item 1.
Results of Operations
Total revenues increased by $24.4 million or 32.0% for the three
months ended August 31, 1995 to $100.4 million from $76.0 million
for the three months ended August 31, 1994. For the six months
ended August 31, 1995 ("the 1995 period"), total revenues increased
by $50.2 million or 33.8% to $198.8 million from $148.6 million for
the six months ended August 31, 1994 ("the 1994 period"). The
foregoing increases include revenues from 18 franchise locations
added since August 31, 1994 and increased revenues from eleven
franchise locations added during the 1994 period which are included
in the entire 1995 period, totalling $8.1 million and $16.7 million
for the three and six months ended August 31, 1995, respectively.
Additionally, revenues from locations acquired in a purchase
transaction in July 1994 which are included in the entire 1995
period, contributed increased revenues of $3.8 million and $10.9
million for the three and six months ended August 31, 1995,
respectively. Further, an increase in revenues of $12.5 million
and $22.6 million for the three and six months ended August 31,
1995, respectively, was generated from locations operating prior to
August 31, 1994, representing an increase of approximately 15% in
the 1995 period over the 1994 period.
The Company receives payment for its services from several sources
as indicated in the following table.
Service Revenues
Three Months Ended Six Months Ended
August 31, August 31,
1995 1994 1995 1994
Medicare ............... 60.7% 55.7% 59.6% 56.9%
Medicaid and other local
government programs .. 18.0 20.8 18.0 21.5
Insurance and private
payors ............... 11.6 15.6 12.2 15.5
Staffing for hospitals,
nursing homes and other 9.5 7.9 10.1 6.0
Other .................. 0.2 - 0.1 0.1
Total .................. 100.0% 100.0% 100.0% 100.0%
Operating costs were 62.2% and 60.6% of service revenues for the
three months ended August 31, 1995 and 1994, respectively, and
62.0% for each of the six month periods ended August 31, 1995 and
1994.
-7-
General and administrative expenses increased by $7.5 million, or
27.6%, to $34.6 million for the three months ended August 31, 1995
from $27.1 million for the three months ended August 31, 1994.
For the six months ended August 31, 1995, general and
administrative expenses increased by $17.6 million or 34.2% to
$69.0 million from $51.4 million for the six months ended August
31, 1994. This increase is primarily due to the increases in the
Company's Medicare services, which require higher administrative
costs than non-Medicare services. Included in the increase for the
six months ended August 31, 1995 is $3.0 million incurred for the
locations acquired in a purchase transaction in July 1994 which are
included in the entire 1995 period. These costs, expressed as a
percentage of service revenues, were 34.8% for each of the six
month periods ended August 31, 1995 and 1994.
Provision for doubtful accounts was $1.3 million and $1.2 million
for the six months ended August 31, 1995 and 1994, respectively.
These costs, expressed as a percentage of service revenues,
declined from 0.8% to 0.6% for the six months ended August 31, 1994
and 1995, respectively.
Interest expense declined to $454 thousand for the six months ended
August 31, 1995 from $701 thousand in the six months ended August
31, 1994 primarily as a result of the Company's reduced level of
borrowings in the 1995 period. The Company has a revolving line of
credit under which the average amount borrowed was $2.7 million and
$5.2 million for the six months ended August 31, 1995 and 1994,
respectively. The average interest rate relating to these
borrowings was 8.99% and 7.15% for the six months ended August 31,
1995 and 1994, respectively. Borrowings in the 1995 period were at
the prevailing prime lending rate, such prime rate being 8.75% at
August 31, 1995. During the 1994 period, daily amounts borrowed up
to $7.0 million were at the prime rate and borrowings over $7.0
million were at prime plus 2.25%. The maximum amounts borrowed
under the credit facility for the 1995 period and the 1994 period
were $10.0 million and $16.9 million, respectively.
Income before income taxes for the three months ended August 31,
1995 increased to $2.6 million compared to $2.0 million for the
three months ended August 31, 1994. For the six months ended
August 31, 1995, income before income taxes was $5.1 million as
compared to $3.4 million for the six months ended August 31, 1994.
The calculation for the three and six months ended August 31, 1995
considers the reversal of prior income tax accruals not considered
necessary.
The provision for income taxes increased approximately $700
thousand to $2.1 million for the six months ended August 31, 1995
as compared to $1.4 million for the six months ended August 31,
1994 primarily due to the increase in income before taxes.
Net income for the three months ended August 31, 1995 was $1.5
million compared to $1.2 million for the three months ended August
31, 1994. For the six months ended August 31, 1995, net income of
$2.9 million represented an improvement of approximately $900
thousand over the six months ended August 31, 1994.
-8-
Liquidity and Capital Resources
The Company has a secured revolving credit facility which consists
of a revolving line of credit and an acquisition line of credit,
under which it can borrow up to an aggregate amount of $25 million.
The credit facility expires on July 31, 1997. As of August 31,
1995 and February 28, 1995, the amounts available for borrowing
under the credit facility based upon collateral were approximately
$23.9 million and $13.8 million, respectively. The acquisition
line of credit provides for borrowings up to $7.5 million without
collateral to finance acquisitions made by the Company, provided
that the sum of all borrowings do not exceed $25 million.
At August 31, 1995, there were no amounts borrowed under this
facility as compared to $6.5 million borrowed at February 28, 1995.
The decrease in borrowings is primarily due to the reduction in the
amount of time that the Company's accounts receivable are
outstanding. Trade accounts receivable at August 31, 1995 and
February 28, 1995 were outstanding approximately 46 days and 54
days, respectively.
At August 31, 1995, the Company's debt obligations due within the
next twelve months were $1.5 million.
The Company expects that its existing cash, cash provided from
operations and its banking facilities will be sufficient to meet
its needs for at least the next twelve months.
-9-
<PAGE>
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 20, 1995, the Company received a letter from
the United States Attorney for the Eastern District of
Pennsylvania alleging that (i) between 1987 and 1989, a
corporation, substantially all assets and liabilities of
which were acquired by a subsidiary of the Company in
1993, submitted false claims to Medicare totalling
approximately $1.5 million and (ii) officers and
employees of that corporation submitted false statements
in support of such claims. The alleged false claims and
false statements were made before the Company acquired
that corporation in 1993.
Based on its preliminary investigation, the Company
believes that the amount of improper claims, if any,
submitted by that corporation to Medicare between 1987
and 1989, were significantly below $1.5 million. The
Company is in negotiations with the office of the United
States Attorney to resolve this matter.
-10-
<PAGE>
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 thereunder duly authorized.
Staff Builders, Inc.
Dated: October 12, 1995 By: /s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board, President
and Chief Executive Officer
Dated: October 12, 1995 By: /s/ Gary Tighe
Gary Tighe
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
-11-
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