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 NOVEMBER 30, 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 Class A and Class B Common Stock
outstanding on December 31, 1995 was 22,327,183 and 1,519,427
shares, respectively.
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STAFF BUILDERS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
November 30, 1995 and February 28, 1995 2
Condensed Statements of Consolidated
Operations - Three and Nine months ended
November 30, 1995 and 1994 3
Condensed Statements of Consolidated Cash
Flows - Nine months ended November 30, 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 7-10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
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STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) NOVEMBER 30,
1995 FEBRUARY 28,
(UNAUDITED) 1995
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,973 $ 4,508
Accounts receivable, net of allowance
for doubtful accounts of $2,000 at November
30, 1995 and $1,750 at February 28, 1995 52,650 53,369
Deferred income tax benefits 1,503 1,303
Prepaid expenses and other current assets 4,544 1,954
Total current assets 62,670 61,134
Fixed Assets, net of accumulated
depreciation of $4,074 at November 30,
1995 and $4,398 at February 28, 1995 6,802 5,726
Intangible Assets, net of accumulated
amortization of $6,712 at November 30, 1995
and $6,532 at February 28, 1995 40,178 30,149
Other Assets 3,958 3,624
Total $113,608 $100,633
LIABILITIES:
Current Liabilities:
Accounts payable and accrued expenses $ 19,758 $ 17,635
Accrued payroll and related expenses 29,219 18,874
Current portion of long-term liabilities 1,534 1,267
Current income taxes payable 100 1,320
Total current liabilities 50,611 39,096
Amount Due Under Secured Revolving
Line of Credit - 6,461
Other Long-Term Liabilities 7,745 2,725
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; 23,846,610
and 22,937,049 shares issued at November
30, 1995 and February 28, 1995, respectively 239 229
Convertible preferred stock, Class A;
666 2/3 shares outstanding 1 1
Additional paid-in capital 73,643 71,828
Accumulated deficit (18,631) (19,707)
Total stockholders' equity 55,252 52,351
Total $113,608 $100,633
See notes to condensed consolidated financial statements.
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STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
1995 1994 1995 1994
Revenues:
Service revenues $105,639 $84,847 $303,792 $232,739
Sales of franchises and fees, net 332 238 974 961
Total revenues 105,971 85,085 304,766 233,700
Costs and Expenses:
Operating costs 68,699 52,760 191,467 144,516
General and administrative expenses 37,296 29,146 106,279 80,557
Provision for doubtful accounts 777 613 2,047 1,817
Amortization of intangible assets 500 337 1,226 862
Interest expense 213 239 667 940
Other (income) expense, net 1,693 (187) 1,224 (604)
Total costs and expenses 109,178 82,908 302,910 228,088
Income (Loss) Before Income Taxes (3,207) 2,177 1,856 5,612
Provision (Benefit) for Income Taxes (1,347) 914 780 2,357
Net Income (Loss) $ (1,860) $ 1,263 $ 1,076 $ 3,255
Weighted average common and
common equivalent shares:
Primary 23,847 25,042 25,668 23,946
Fully diluted 23,847 26,244 25,688 24,102
Income (Loss) per common and
common equivalent share:
Primary $ .(08) $ .05 $ .04 $ .14
Fully diluted $ .(08) $ .05 $ .04 $ .14
See notes to condensed consolidated financial statements.
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<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
November 30,
1995 1994
Cash Flows from Operating Activities:
Net income $ 1,076 $ 3,255
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 2,748 1,764
Allowance for doubtful accounts 250 (34)
Deferred tax asset (200) 165
Amortization of rent escalation liability (45) (124)
Change in operating assets and liabilities:
Accounts receivable 1,646 5,050
Prepaid expenses and other current assets (2,448) (223)
Accounts payable and accrued expenses 10,968 2,624
Income taxes payable (1,221) 248
Other assets (351) (596)
Net cash provided by operating activities 12,423 12,129
Cash Flows from Investing Activities:
Acquisition of businesses (7,151) (1,405)
Additions to fixed assets (546) (1,283)
Net cash used in investing activities (7,697) (2,688)
Cash Flows from Financing Activities:
Issuance of Common Stock for exercise of
options, warrants and employee stock purchases 1,824 423
Purchase and retirement of common stock - (2,836)
Decrease in borrowings under
revolving line of credit (6,461) (8,708)
Reduction in other long-term liabilities (624) (847)
Net cash used in financing activities (5,261) (11,968)
Decrease in Cash and Equivalents (535) (2,527)
Cash and Cash Equivalents, Beginning
of Period 4,508 7,330
Cash and Cash Equivalents, End of Period $ 3,973 $ 4,803
Supplemental Data:
Cash paid for:
Interest $ 623 $ 758
Income taxes, net $ 3,321 $ 1,934
Fixed assets acquired through
capital lease agreements $ 1,757 $ 910
Acquisition of business through
issuance of notes payable $ 2,731 $ -
Common stock issued for acquisition $ - $ 8,247
See notes to condensed consolidated financial statements.
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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
November 30, 1995 and February 28, 1995, and the results of
operations and the cash flows for the three and nine months
ended November 30, 1995 and 1994. Certain prior period
amounts have been reclassified to conform with the November
1995 presentation.
Medicare revenues are recorded when services are provided at
an estimated reimbursement rate. Certain factors used to
develop these rates are subject to review and adjustment by
the appropriate governmental authorities and may result in
additional amounts due to or due from the Company. Such
adjustments are recorded in the period during which they
arise. The Company reduced its Medicare revenues by $3.0
million in the quarter ended November 30, 1995, due to a
revision in the methodology used to allocate corporate
overhead.
The results for the three and nine months ended November 30,
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 (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE -
Earnings (Loss) 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 equivalents, principally dilutive stock
options and warrants, outstanding during the periods. For the
quarter ended November 30, 1995, primary and fully diluted
earnings per share do not include common stock equivalents
outstanding since they are anti-dilutive.
The shares used in computing primary earnings per common and
common equivalent share were 25,667,662 shares and 23,946,124
shares for the nine months ended November 30, 1995 and 1994
and 23,846,610 shares and 25,042,439 shares for the three
months ended November 30, 1995 and 1994, respectively. The
shares used in computing fully diluted earnings per share were
25,688,388 and 24,102,275 for the nine months ended November
30, 1995 and 1994 and 23,846,610 shares and 26,243,791 shares
for the three months ended November 30, 1995 and 1994,
respectively.
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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. The results of operations of
MedVisit, Inc. are included in the Company's consolidated
financial statements subsequent to August 31, 1995.
On September 1, 1995, the Company acquired assets of
Accredicare, Inc., a health care provider consisting of four
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 $2.4 million.
Revenues on a pro forma basis for the three and nine months
ended November 30, 1995, if these acquisitions had occurred on
March 1, 1995, would have approximated $ 107.6 million and
$317.3 million, respectively. The effect of these
acquisitions on net income and earnings per share on a pro
forma basis for the three and nine months ended November 30,
1995 is not material. Further, the Company acquired several
other health care operations during the period ended November
30, 1995 for aggregate consideration of approximately $ 2.2
million.
4. PROVISION (BENEFIT) FOR INCOME TAXES - The provision (benefit)
for income taxes for the three and nine months ended November
30, 1995 and 1994 is based upon the Company's estimated tax
provision required for the full year. The calculation for the
three and nine months ended November 30, 1995, considers the
reversal of prior income tax accruals not considered
necessary.
5. 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 totaling 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
-6-
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. OTHER INCOME/EXPENSE - Other Income/Expense for the quarter
ended November 30, 1995, includes a charge of $1.6 million to
cover the discontinuation of the Company's Adultcare and AMS
Divisions.
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 approximately $20.9 million or 24.5% for
the three months ended November 30, 1995, to $106.0 million from
$85.1 million for the three months ended November 30, 1994. For
the nine months ended November 30, 1995 ("the 1995 period"), total
revenues increased by $71.1 million or 30.4% to $304.8 million from
$233.7 million for the nine months ended November 30, 1994 ("the
1994 period").
The foregoing increases include revenue from 33 franchise and seven
company owned locations added since November 30, 1994, totalling
$10.0 million and $19.2 million for the three and nine months ended
November 30, 1995, respectively. Included in these increases is
$4.1 million in revenues from office locations acquired since
August 30, 1995 (see note 3). Additionally, an increase in
revenues of $1.9 million and $20.0 million for the three and nine
months ended November 30, 1995, respectively, was primarily due to
locations which were added during the 1994 period which are
included in the entire 1995 period.
Further, an increase in revenues of $9.0 million and $31.9 million
for the three and nine months ended November 30, 1995,
respectively, was generated from locations operating prior to
November 30, 1994, representing an increase of 15% in the 1995
period over the 1994 period.
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The Company receives payment for its services from several sources
as indicated in the following table.
Service Revenues
Three Months Ended Nine Months Ended
November 30, November 30,
1995 1994 1995 1994
Medicare .................. 58.1% 55.1% 59.1% 56.3%
Medicaid and other local
government programs ..... 20.0 20.0 18.7 21.0
Insurance and private
payors .................. 13.6 14.1 12.7 15.0
Staffing for hospitals,
nursing homes and other . 8.0 10.8 9.3 7.7
Other ..................... 0.3 - 0.2 -
Total ..................... 100.0% 100.0% 100.0% 100.0%
Medicare revenues are recorded when services are provided at the
estimated reimbursement rate and are subject to review and
adjustment. The Company reduced its Medicare revenues by $3.0
million in the quarter ended November 30, 1995, to record a reserve
due to a revision in the methodology used to allocate corporate
overhead, which is being required by the Medicare fiscal
intermediary.
Operating costs (the direct costs of providing services) expressed
as a percentage of service revenues, were 65.0% and 62.2% for the
three months ended November 30, 1995 and 1994, and 63.0% and 62.1%
for the nine months ended November 30, 1995 and 1994, respectively.
The increases in these percentages of operating costs for the three
and nine month periods ended November 1995 were primarily due to
the reserve established for Medicare revenues.
General and administrative expenses increased by $8.2 million, or
28.0%, for the quarter ended November 30, 1995, as compared to the
quarter ended November 30, 1994. For the 1995 period, general and
administrative expenses increased approximately $25.8 million or
31.9% to $106.3 million from $80.6 million for the nine months
ended November 30, 1994. General and administrative expenses
expressed as a percentage of service revenues were 35.3% and 35.0%
for the three and nine months ended November 30, 1995, and 34.4%
and 33.9% for the three and nine months ended November 30, 1994,
respectively. The increases in these percentages of general and
administrative expenses for the three and nine month periods ended
November 1995 were primarily due to the reserve established for
Medicare revenues.
Provision for doubtful accounts expressed as a percentage of
service revenues, was 0.7% and 0.7% for the three months ended
November 30, 1995 and 1994, respectively, and 0.7% and 0.8% for the
nine months ended November 30, 1995 and 1994, respectively.
-8-
Interest expense declined to $700 thousand for the 1995 period from
$900 thousand in the 1994 period as a result of the Company's
reduced level of borrowings under its revolving line of credit.
The average amounts outstanding under the revolving line of credit
were $1.8 million and $3.5 million for the nine months ended
November 30, 1995 and 1994, respectively. The average interest
rate was 8.99% and 7.12% for the nine months ended November 30,
1995 and 1994, respectively.
Other (Income) Expense for the quarter ended November 30, 1995,
includes a charge of $1.6 million to cover the discontinuation of
two unprofitable divisions, $165 thousand for settlement of
litigation and approximately $200 thousand in costs associated with
the Company's recapitalization.
Loss before income taxes for the three months ended November 30,
1995, was $3.2 million compared to a $2.2 million profit for the
three months ended November 30, 1994. For the nine months ended
November 30, 1995, income before income taxes was $1.9 million
compared to $5.6 million for the nine months ended November 30,
1994.
The provision (benefit) for income taxes for all periods shown is
calculated at a combined Federal and State income tax rate of
42.0%.
For the three months ended November 30, 1995, the net loss was $1.9
million compared to a $1.3 million profit for the three months
ended November 30, 1994. For the nine months ended November 30,
1995, net income of $1.1 million represented a decrease of
approximately $2.2 million from the nine months ended November 30,
1994.
Liquidity and Capital Resources
The Company has a secured revolving credit facility which consists
of a collateralized line and an acquisition line under which it can
borrow up to an aggregate amount of $25 million. The credit
facility expires on July 31, 1997. As of November 30, 1995 and
February 28, 1995, the amounts available for borrowing under the
credit facility based upon collateral were approximately $24.8
million and $13.8 million, respectively. The acquisition line
provides for borrowings up to $7.5 million without collateral to
finance acquisitions, provided that the sum of all borrowings do
not exceed $25 million.
At November 30, 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 November 30, 1995 and
February 28, 1995 were outstanding approximately 47 days and 54
days, respectively.
At November 30, 1995, the Company's debt obligations due within the
next twelve months were $1.5 million.
-9-
On December 7, 1995, the Company's Board of Directors authorized
the repurchase, from time to time, of up to 2.4 million shares of
its Class A and Class B Common Stock on the open market or in
negotiated transactions, depending upon market conditions and other
factors.
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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on October
26, 1995. At the Annual Meeting, the Stockholders of the Company
voted (i) to elect Dr. Bernard J. Firestone and Mr. Donald Meyers
as Class B Directors, each for a three-year term ending with the
1998 Annual Meeting; and (ii) to approve a plan of recapitalization
(the "Plan") by which (a) Article FOURTH of the Company's Restated
Certificate of Incorporation was amended to eliminate the Company's
previously authorized 50,000,000 shares of common stock, $.01 par
value per share (which were subject to a time phased voting rights
plan pursuant to which outstanding shares were subject to either
one vote per share, classified as "Short-Term Shares", or ten votes
per share, classified as "Long-Term Shares", depending on how long
they were owned by the same beneficial owner), and to authorize for
issuance 50,000,000 shares of Class A Common Stock, $.01 par value
per share, and 1,450,000 shares of Class B Common Stock $.01 par
value per share, subject in the case of the Class B Common Stock to
adjustment and (b) each outstanding share of common stock which was
entitled to ten votes per share as of both the record date of the
Annual Meeting and the effective date of the Plan, was
reclassified, changed and converted automatically into one share of
Class B Common Stock and each other share of outstanding common
stock was reclassified, changed and converted automatically into
one share of Class A Common Stock.
-10-
28,953,345 votes were cast in favor of Dr. Firestone's election as
a Class B Director and authority was withheld with respect to
695,505 votes on such matter. 28,932,520 votes were cast in favor
of Mr. Meyer's election as a Class B Director and authority was
withheld with respect to 716,330 votes on such matter. 11,312,651
Short-Term Shares were voted for the Plan, 3,553,355 Short-Term
Shares were voted against the Plan, and 202,476 Short-Term Shares
abstained. 864,359 Long-Term Shares were voted for the Plan,
69,390 Long-Term Shares were voted against the Plan and 49,086
Long-Term Shares abstained. There were 6,942,432 broker non-votes
with respect to the Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Forms 8-K were filed during the Quarter for which
this report is filed:
I. Form 8-K dated October 26, 1995 containing Item 5
(Other Events).
II. Form 8-K dated November 30, 1995 containing Item 5
(Other Events).
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.
Staff Builders, Inc.
Dated: January 12, 1996 By: /s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board, President
and Chief Executive Officer
Dated: January 12, 1996 By: /s/ Gary Tighe
Gary Tighe
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
-11-
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