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, 1996, 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 Common Stock and Class B Common
Stock outstanding on October 8, 1996 was 22,299,215 and 1,490,807
shares, respectively.
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
August 31, 1996 and February 29, 1996 2
Condensed Statements of Consolidated
Income - Three and Six months ended
August 31, 1996 and 1995 3
Condensed Statements of Consolidated Cash
Flows - Six months ended August 31, 1996
and 1995 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 9
-1-
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) AUGUST 31,
1996 FEBRUARY 29,
(UNAUDITED) 1996
ASSETS:
Current Assets:
Cash and cash equivalents $ 4,056 $ 8,710
Accounts receivable, net of allowance
for doubtful accounts of $2,500 at August
31, 1996 and $2,200 at February 29, 1996 51,746 52,957
Deferred income tax benefits 2,368 2,403
Prepaid expenses and other current assets 3,463 3,543
Total current assets 61,633 67,613
Fixed Assets, net of accumulated
depreciation of $4,927 at August 31,
1996 and $4,751 at February 29, 1996 9,209 7,436
Intangible Assets, net of accumulated
amortization of $8,409 at August 31, 1996
and $7,282 at February 29, 1996 47,283 41,877
Other Assets 4,458 3,601
Total $122,583 $120,527
LIABILITIES:
Current Liabilities:
Accounts payable and accrued expenses $ 29,591 $ 25,481
Accrued payroll and related expenses 22,160 27,769
Current portion of long-term liabilities 2,775 2,356
Total current liabilities 54,526 55,606
Long-Term Liabilities 10,646 9,611
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common stock - $.01 par value;
50,000,000 shares authorized; 22,148,185 and
22,036,313 shares issued at August 31, 1996
and February 29, 1996, respectively 221 220
Class B Common stock - $.01 par value;
1,554,936 shares authorized; 1,491,837 and
1,491,007 outstanding at August 31, 1996
and February 29, 1996, respectively 15 15
Convertible preferred stock, Class A;
666 2/3 shares outstanding 1 1
Additional paid-in capital 73,004 72,767
Accumulated deficit (15,830) (17,693)
Total stockholders' equity 57,411 55,310
Total $122,583 $120,527
See notes to condensed consolidated financial statements.
-2-
<TABLE>
<CAPTION>
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,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Service revenues $114,432 $100,102 $227,312 $198,153
Sales of franchises and fees, net 392 267 933 642
Total revenues 114,824 100,369 228,245 198,795
Costs and Expenses:
Operating costs 71,119 62,270 141,737 122,768
General and administrative expenses 40,832 34,639 80,814 68,983
Provision for doubtful accounts 690 650 1,390 1,270
Amortization of intangible assets 577 329 1,155 726
Interest expense 211 178 485 454
Other (income) expense, net (352) (271) (662) (469)
Total costs and expenses 113,077 97,795 224,919 193,732
Income Before Income Taxes 1,747 2,574 3,326 5,063
Provision for Income Taxes 768 1,032 1,463 2,127
Net Income $ 979 $ 1,542 $ 1,863 $ 2,936
Weighted average number of common and
common equivalent shares:
Primary 24,827 25,616 24,672 25,447
Fully diluted 24,827 25,681 24,761 25,488
Income per common and
common equivalent share:
Primary $ .04 $ .06 $ .08 $ .12
Fully diluted $ .04 $ .06 $ .08 $ .12
<FN>
<F1>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
-3-
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
August 31,
1996 1995
Cash Flows from Operating Activities:
Net income $ 1,863 $ 2,936
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization of fixed assets 1,295 965
Amortization of intangibles and other assets 1,155 726
Allowance for doubtful accounts 300 50
Deferred income taxes 35 (22)
Amortization of rent escalation liability (30) (35)
Change in operating assets and liabilities:
Accounts receivable 1,373 6,488
Prepaid expenses and other current assets 373 (302)
Accounts payable and accrued expenses (2,359) 2,147
Income taxes payable - (985)
Other assets (884) (722)
Net cash provided by operating activities 3,121 11,246
Cash Flows from Investing Activities:
Acquisition of businesses (5,735) (3,104)
Additions to fixed assets, net (1,001) (457)
Net cash used in investing activities (6,736) (3,561)
Cash Flows from Financing Activities:
Exercise of stock options and warrants 238 1,432
Decrease in borrowings under
revolving line of credit - (6,461)
Reduction in other long-term liabilities (1,277) (318)
Net cash used in financing activities (1,039) (5,347)
Net Increase (Decrease) in Cash and
Cash Equivalents (4,654) 2,338
Cash and Cash Equivalents, Beginning
of Period 8,710 4,508
Cash and Cash Equivalents, End of Period $ 4,056 $ 6,846
Supplemental Data:
Cash paid for:
Interest $ 453 $ 449
Income taxes, net $ 598 $ 2,631
Fixed assets acquired through
capital lease agreements $ 2,066 $ 748
Acquisition of businesses through
issuance of notes payable $ 1,100 $ 2,731
Common stock issued for acquisition $ - $ -
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, 1996 and February 29, 1996 and the results of
operations and the cash flows for the three and six months
ended August 31, 1996 and 1995. Certain prior period amounts
have been reclassified to conform with the August 1996
presentation.
The results for the three and six months ended August 31, 1996
and 1995 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 29,
1996 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 24,672,167 shares and 25,446,780
shares for the six months ended August 31, 1996 and 1995 and
24,826,534 shares and 25,615,848 shares for the three months
ended August 31, 1996 and 1995, respectively. The shares used
in computing fully diluted earnings per share were 24,760,934
and 25,487,788 for the six months ended August 31, 1996 and
1995 and 24,826,534 and 25,681,002 shares for the three months
ended August 31, 1996 and 1995, respectively.
3. ACQUISITIONS - During the six months ended August 31, 1996,
the Company completed acquisitions which added 32 locations
for total consideration of approximately $6.9 million.
Included in these acquisitions was the purchase of assets in
June 1996 of a regional home health care provider consisting
of five locations in northern California, for aggregate
consideration of $1.7 million, including cash paid of $1.1
million and a note payable of $600 thousand. Also included in
these transactions, on May 31, 1996, the Company acquired the
assets of a regional home health care provider consisting of
eight locations in Missouri for which aggregate consideration
of approximately $1.6 million was paid. These acquisitions
were accounted for as purchase transactions for which the
results of operations are included in the Company's financial
statements subsequent to their respective dates of
acquisition. Additionally, on September 6, 1996, the Company
-5-
acquired assets of a provider of temporary staffing services
to medical establishments in the metropolitan New York area,
for aggregate consideration of approximately $2.5 million.
Revenues on a pro forma basis for the three and six months
ended August 31, 1996, if these acquisitions had occurred on
March 1, 1996, would have approximated $119 million and $240
million, respectively. The effect of these acquisitions on net
income and earnings per share on a pro forma basis for the
three and six months ended August 31, 1996 is not material.
4. PROVISION FOR INCOME TAXES - The provision for income taxes
for the three and six months ended August 31, 1996 and 1995 is
based upon the Company's estimated tax provision required for
the full year.
5. CONTINGENCIES - On September 20, 1995, the United States
Attorney for the Eastern District of Pennsylvania alleged that
(i) between 1987 and 1989, a corporation, substantially all of
the 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, and made a pre-complaint
civil settlement demand of approximately $4.5 million. 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, but is unable to predict the ultimate
costs, if any, that may be incurred by the Company. As such,
no provision has been made in the accompanying condensed
consolidated financial statements.
-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 $14.4 million or 14.4% for the three
months ended August 31, 1996 to $114.8 million from $100.4 million
for the three months ended August 31, 1995. For the six months
ended August 31, 1996 ("the 1996 period"), total revenues increased
by $29.4 million or 14.8% to $228.2 million from $198.8 million for
the six months ended August 31, 1995 ("the 1995 period"). The
foregoing increases include service revenues from 52 health care
locations added from acquisitions made since August 1995
aggregating $18.7 million in the 1996 period, including $5.1
million of revenue from a regional home health care provider based
in Raleigh-Durham, North Carolina. Additionally, the Company
generated increased revenue of $10.5 million, or 6%, in the 1996
period over the 1995 period, from existing locations which were
included for the entire two fiscal periods.
The Company receives payment for its services from several sources
as indicated in the following table.
<TABLE>
<CAPTION>
Service Revenues
Three Months Ended Six Months Ended
August 31, August 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Medicare ............... 55.8% 60.7% 56.8% 59.6%
Medicaid and other local
government programs .. 20.5 18.0 20.0 18.0
Insurance and private
payors ............... 14.8 11.6 14.5 12.2
Staffing for hospitals,
nursing homes and other 8.8 9.5 8.6 10.1
Other .................. 0.1 0.2 0.1 0.1
Total .................. 100.0% 100.0% 100.0% 100.0%
</TABLE>
Operating costs (the direct costs of providing services) were 62.1%
and 62.2% of service revenues for the three months ended August 31,
1996 and 1995, and 62.4% and 62.0% for the six months ended August
31, 1996 and 1995, respectively. Payroll fringe costs, consisting
primarily of payroll taxes and workers compensation insurance, were
13.5% of direct service wages in the three months ended August 31,
1996 as compared to 15% for the entire six month period ended
August 31, 1996. Such decrease was primarily due to reduced
premiums for workers compensation insurance.
-7-
General and administrative expenses increased by $6.2 million, or
17.9%, to $40.8 million for the three months ended August 31, 1996
from $34.6 million for the three months ended August 31, 1995. For
the six months ended August 31, 1996, general and administrative
expenses increased by $11.8 million, or 17.2%, to $80.8 million
from $69.0 million for the six months ended August 31, 1995. These
costs, expressed as a percentage of service revenues, were 35.6%
and 34.8% for the six months ended August 31, 1996 and 1995,
respectively. The increase in these expenses is due, in part, to
approximately $5.3 million incurred in local general and
administrative expenses during the six months ended August 31, 1996
in those locations added since August 1995. Additionally, an
increase of approximately $1.8 million was incurred in the
Company's corporate expenses to expand and strengthen its
information systems capabilities and to develop several new
programs to augment the Company's home health care services. Such
programs include ancillary products and services such as
intravenous therapies, durable medical equipment and respiratory
and home prescription services. Further, systems are being
developed to quantitatively measure patient outcomes and the
effectiveness of our comprehensive home care services in meeting
patient needs.
Provision for doubtful accounts was $1.4 million and $1.3 million
for the 1996 and 1995 periods, respectively. The provisions
represented 0.6% of service revenues in each of the 1996 and 1995
periods.
Interest expense was approximately $500 thousand in each of the
1996 and 1995 periods. The Company has a revolving line of credit
under which the average amount borrowed was approximately $400
thousand and $2.7 million for the 1996 and 1995 periods,
respectively. The resultant decrease in interest expense under the
revolving line of credit for the 1996 period was offset by an
increase in interest expense incurred on additional capital leases
and on notes payable in connection with acquisitions made since
August 1995. The average interest rate relating to borrowings
under the line of credit was 8.25% and 8.99% for the 1996 and 1995
periods, respectively.
The provision for income taxes decreased approximately $700
thousand to $1.5 million for the six months ended August 31, 1996
as compared to the same period in the prior year primarily due to
the decrease in income before taxes. The Company's effective income
tax rate was 44% for the six months ended August 31, 1996 as
compared to 42% in the prior year.
Net income for the three months ended August 31, 1996 was $1.0
million compared to $1.5 million for the three months ended August
31, 1995. For the six months ended August 31, 1996, net income of
$1.9 million represented a decrease of approximately $1.0 million
from the six months ended August 31, 1995.
-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. The amount available
for borrowing under the credit facility based upon collateral was
approximately $24.8 million at August 31 and February 29, 1996.
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 does not exceed
$25 million.
There were no amounts borrowed under this facility at August 31 and
February 29, 1996.
Trade accounts receivable at August 31, 1996 and February 29, 1996
were outstanding approximately 45 days and 54 days, respectively.
At August 31, 1996, the Company's debt obligations due within the
next twelve months were $2.8 million.
The Company expects that its existing working capital, cash from
operations and its banking facilities will be sufficient to meet
its needs for at least the next twelve months and expects that it
will be able to extend or replace its revolving credit agreement on
comparable terms prior to its expiration on July 31, 1997.
Part II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on August 15,
1996. At the Annual Meeting, the Stockholders of the Company voted
to elect Stephen Savitsky as the Class C Director of the Company
for a three-year term ending with the 1999 Annual Meeting.
28,497,601 votes were cast in favor of Mr. Savitsky's election as
a Class C Director and authority was withheld with respect to
665,284 votes on such matter.
-9-<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 thereunto duly authorized.
Staff Builders, Inc.
Dated: October 15, 1996 By: /s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board, President
and Chief Executive Officer
Dated: October 15, 1996 By: /s/ Gary Tighe
Gary Tighe
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 4056
<SECURITIES> 0
<RECEIVABLES> 54246
<ALLOWANCES> 2500
<INVENTORY> 0
<CURRENT-ASSETS> 61633
<PP&E> 14136
<DEPRECIATION> 4927
<TOTAL-ASSETS> 122583
<CURRENT-LIABILITIES> 54526
<BONDS> 0
0
1
<COMMON> 236
<OTHER-SE> 57174
<TOTAL-LIABILITY-AND-EQUITY> 122583
<SALES> 0
<TOTAL-REVENUES> 228245
<CGS> 0
<TOTAL-COSTS> 141737
<OTHER-EXPENSES> 493
<LOSS-PROVISION> 1390
<INTEREST-EXPENSE> 485
<INCOME-PRETAX> 3326
<INCOME-TAX> 1463
<INCOME-CONTINUING> 1863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1863
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
