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 MAY 31, 1997, 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 July 8, 1997 was 22,431,709 and 1,446,226
shares, respectively.
STAFF BUILDERS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Factors Affecting the Company's Future
Performance 2-3
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
May 31, 1997 and February 28, 1997 4
Condensed Statements of Consolidated
Income - Three months ended
May 31, 1997 and 1996 5
Condensed Statements of Consolidated Cash
Flows - Three months ended May 31, 1997
and 1996 6
Notes to Condensed Consolidated Financial
Statements 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-10
PART II. OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K 10
-1-<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements in this report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
typically identified by their inclusion of phrases such as "the
Company anticipates", "the Company believes" and other phrases of
similar meaning. Such forward-looking 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.
GOVERNMENT REGULATION. As a home health care provider, the Company
is subject to extensive and changing state and Federal regulations
relating to the licensing and certification of its offices and the
sale and delivery of its products and services. The Federal
government and Medicare fiscal intermediaries have become more
vigilant in their review of Medicare reimbursements to home health
care providers generally, and are becoming more restrictive in
their interpretation of those costs for which reimbursement will be
allowed to such providers. Changes in the law and regulations as
well as new interpretations enforced by the relevant regulatory
agencies could have an adverse effect on the Company's operations
and the cost of doing business.
THIRD-PARTY REIMBURSEMENT AND MANAGED CARE. Because the Company is
reimbursed primarily for its services by the Medicare/Medicaid
programs, insurance companies, managed care companies and other
third-party payors, the implementation of alternative payment
methodologies for any of these payors could have an impact on
revenues and profit margins. Generally, managed care companies
have sought to contain costs by reducing payments to providers.
Continued cost reduction efforts by managed care companies could
adversely affect the Company's results of operations.
HEALTH CARE REFORM. As Congress and state reimbursement entities
assess alternative health care delivery systems and payment
methodologies, the Company cannot predict which reforms may be
adopted or what impact they may have on the Company. Additionally,
uncertainties relating to the nature and outcomes of health care
reforms have also generated numerous realignments, combinations and
consolidations in the health care industry which may also have an
adverse impact on the Company's business strategy and results of
operations.
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BUSINESS CONDITIONS. The Company must continue to establish and
maintain close working relationships with physicians and physician
groups, managed care organizations, hospitals, clinics, nursing
homes, social service agencies and other health care providers.
There can be no assurance that the Company will continue to
establish or maintain such relationships. The Company expects
additional competition will develop given the increasing level of
demand for the type of services offered.
ATTRACTION AND RETENTION OF FRANCHISEES AND EMPLOYEES. Maintaining
quality franchisees, managers and branch administrators will play
a significant part in the future success of the Company. The
Company's professional nurses and other health care personnel are
also key to the continued provision of quality care to the
Company's patients . The possible inability to attract and retain
qualified franchisees, skilled management and sufficient numbers of
credentialed health care professionals and para-professionals could
adversely affect the Company's operations and quality of service.
-3-
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) MAY 31,
1997 FEBRUARY 28,
(UNAUDITED) 1997
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,109 $ 2,006
Accounts receivable, net of allowance
for doubtful accounts of $2,900 and
$2,800, respectively 80,473 77,103
Deferred income tax benefits 1,893 1,855
Prepaid expenses and other current assets 4,701 4,989
Total current assets 90,176 85,953
Fixed Assets, net of accumulated
depreciation of $6,793 and
$6,124, respectively 12,207 12,082
Intangible Assets, net of accumulated
amortization of $9,721 and
$9,126, respectively 49,305 51,022
Other Assets 9,179 7,115
Total $160,867 $156,172
LIABILITIES:
Current Liabilities:
Accounts payable and accrued expenses $ 31,426 $ 31,736
Accrued payroll and payroll related expenses 24,126 21,742
Current portion of long-term liabilities 5,495 5,230
Total current liabilities 61,047 58,708
Amount Due Under Secured Revolving
Line of Credit 23,487 21,565
Other Long-Term Liabilities 15,867 16,433
STOCKHOLDERS' EQUITY:
Class A Common Stock - $.01 par value;
50,000,000 shares authorized; 22,420,350
and 22,343,970 outstanding at May 31, 1997
and February 28, 1997, respectively 224 223
Class B Common Stock - $.01 par value;
1,554,936 shares authorized; 1,457,496 and
1,462,361 outstanding at May 31, 1997 and
February 28, 1997, respectively 15 15
Convertible preferred stock, Class A;
666 2/3 shares outstanding 1 1
Additional paid-in capital 73,309 73,159
Accumulated deficit (13,083) (13,932)
Total stockholders' equity 60,466 59,466
Total $160,867 $156,172
See notes to condensed consolidated financial statements.
-4-
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(In thousands, except per share data)
Three Months Ended
May 31,
1997 1996
Revenues:
Service revenues $130,362 $112,880
Sales of franchises and fees, net 139 541
Total revenues 130,501 113,421
Costs and Expenses:
Operating costs 83,976 70,618
General and administrative expenses 43,327 39,982
Provision for doubtful accounts 675 700
Amortization of intangible assets 712 578
Interest expense 869 274
Interest (income) (310) (207)
Other (income) expense, net (291) (103)
Total costs and expenses 128,958 111,842
Income Before Income Taxes 1,543 1,579
Provision for Income Taxes 694 695
Net Income $ 849 $ 884
Weighted average number of common and
common equivalent shares:
Primary 24,080 24,610
Fully diluted 24,080 24,917
Income per common and
common equivalent share:
Primary $.04 $.04
Fully diluted $.04 $.04
See notes to condensed consolidated financial statements.
-5-
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
May 31,
1997 1996
Cash Flows from Operating Activities:
Net Income $ 849 $ 884
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization 1,620 1,186
Allowance for doubtful accounts 100 100
Deferred income taxes (38) (72)
Write-off of goodwill 157 -
Increase (decrease) in other
long-term liabilities 40 (15)
Change in operating assets and liabilities:
Accounts receivable (3,931) (3,907)
Prepaid expenses and other current assets 2,020 359
Accounts payable and accrued expenses 2,050 (944)
Income taxes payable 57 -
Other assets (2,101) (762)
Net cash provided by (used in) operating
activities 823 (3,171)
Cash Flows from Investing Activities:
Acquisition of businesses (338) (3,590)
Disposition of business (70) -
Additions to fixed assets (210) (565)
Net cash used in investing activities (618) (4,155)
Cash Flows from Financing Activities:
Proceeds from Employee Stock Purchase Plan 151 139
Exercise of options - 30
Purchase and retirement of common stock - (67)
Increase in borrowings under
revolving line of credit 1,922 2,126
Reduction in other long-term liabilities (1,175) (396)
Net cash provided by financing activities 898 1,832
Net Increase (Decrease) in Cash
and Cash Equivalents 1,103 (5,494)
Cash and Cash Equivalents, Beginning
of Period 2,006 8,710
Cash and Cash Equivalents, End of Period $3,109 $3,216
Supplemental Data:
Cash paid for:
Interest $ 750 $ 166
Income taxes, net $ 465 $ 161
Acquisition of business through issuance of
note payable $ - $ 500
Fixed assets purchased through capital lease
agreements $ 867 $1,028
See notes to condensed consolidated financial statements.
-6-
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
May 31, 1997 and February 28, 1997 and the results of
operations and the cash flows for the three months ended May
31, 1997 and 1996. Certain prior period amounts have been
reclassified to conform with the May 1997 presentation.
The results for the three months ended May 31, 1997 and 1996
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, 1997 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 24,080,168 and 24,610,305 shares
for the three months ended May 31, 1997 and 1996,
respectively. The shares used in computing fully diluted
earnings per share were 24,080,168 and 24,916,780 for the
three months ended May 31, 1997 and 1996, respectively.
In February 1997, the FASB issued SFAS No. 128 "Earnings per
Share" which is effective for the Company in financial
statements issued after December 15, 1997. SFAS 128
supersedes APB 15 and replaces the presentations of primary
EPS with a presentation of Basic EPS. It also requires
presentation of Basic and Diluted EPS on the income statement
for all entities with complex capital structures. The Company
does not expect the adoption of SFAS 128 to have a material
effect on earnings per share.
3. PROVISION FOR INCOME TAXES - The provision for income taxes
for the three months ended May 31, 1997 and 1996 is based upon
the Company's estimated tax provision required for the full
year. These calculations consider the reversal of prior
income tax accruals not considered necessary.
4. 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
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
-7-
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.
5. SALE OF BUSINESS - On March 18, 1997, the Company sold its
stock in American HomeCare Management Corp., which represented
90% of the issued and outstanding capital stock. Total
consideration consisted of approximately $2.1 million
including cash received of $100 and a promissory note of
approximately $2 million, which approximated the Company's
carrying value of its investment.
-8-
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 $17.1 million or 15.1% for the three
months ended May 31, 1997 ("the 1997 period") to $130.5 million
from $113.4 million for the three months ended May 31, 1996 ("the
1996 period"). This increase included approximately $12.1 million
of revenue in 23 locations added from acquisitions made since May
31, 1996. Additionally, an increase in revenue of $5.0 million was
generated from locations operating prior to May 31, 1996,
representing an increase of 5% in the 1997 period over the 1996
period.
The Company receives payment for its services from several sources.
The following are the Company's service revenues by payment source:
Three Months Ended
May 31,
1997 1996
Medicare 54.3% 56.8%
Medicaid and other local government
programs 19.4 20.4
Insurance and private payors 13.1 14.2
Hospitals, nursing homes and
other health care institutions 12.7 8.5
Other 0.5 0.1
Total 100.0% 100.0%
Operating costs were 64.4% and 62.6% of service revenues for the
1997 and 1996 periods, respectively. The increase in operating
costs as a percentage of service revenues was primarily due to a
change in revenue mix toward non-Medicare services which have lower
gross margins.
General and administrative expenses increased by $3.3 million, or
8.4%, to $43.3 million for the 1997 period from $40.0 million for
the 1996 period. Included in this increase is approximately $2.5
million incurred during the 1997 period in operating those
locations added since May 31, 1996. These costs, expressed as a
percentage of service revenues, were 33.2% and 35.4% for the 1997
and 1996 periods, respectively.
Provision for doubtful accounts was approximately $700 thousand
for each of the 1997 and 1996 periods. The provisions represented
0.5% and 0.6% of service revenues in the 1997 and 1996 periods,
respectively.
-9-
Interest expense was approximately $900 thousand in the 1997 period
versus $300 thousand in the 1996 period. The increase in interest
expense was primarily due to an increase in the level of borrowings
under the Company's revolving line of credit.
The provision for income taxes was approximately $700 thousand for
the 1997 and 1996 periods. The Company's effective income tax rate
was 45% in the 1997 period and 44% in the 1996 period.
Liquidity and Capital Resources
In January 1997, the Company obtained a new secured revolving
credit facility which consists of a revolving line of credit, an
acquisition line of credit and a standby letter of credit facility
under which it can borrow up to an aggregate amount of $50 million.
As of May 31, 1997 and February 28, 1997, the amounts available for
borrowing under the credit facility were approximately $15.2
million and $16.4 million, respectively. The acquisition line of
credit provides for borrowings up to $15 million without collateral
to finance acquisitions made by the Company, provided that the sum
of all borrowings does not exceed $50 million.
At May 31, 1997 and February 28, 1997, the Company borrowed $23.5
million and $21.6 million, respectively, under this facility. Trade
accounts receivable at May 31, 1997 and February 28, 1997 were
outstanding approximately 59 days and 57 days, respectively.
At May 31, 1997, the Company's debt obligations due within the next
twelve months were $5.5 million.
The Company expects that its existing working capital, cash from
operations and its credit facilities will be sufficient to meet its
needs for at least the next twelve months.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits - none
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant for the quarter
ended May 31, 1997.
-10-
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: July 11, 1997 By: /s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board, President
and Chief Executive Officer
Dated: July 11, 1997 By: /s/ Gary Tighe
Gary Tighe
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
-11-
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