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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, 2000, 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) 750-1600
(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 January 12, 2000 were 23,346,182 and 285,615 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, 2000 (unaudited) and February 29, 2000 2
Condensed Statements of Consolidated
Operations (unaudited)- Three and nine months ended
November 30, 2000 and 1999 3
Condensed Statements of Consolidated Cash
Flows (unaudited) - Nine months ended November 30,
2000 and 1999 4
Notes to Condensed Consolidated Financial
Statements (unaudited) 5-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8
Factors Affecting the Company's Future
Performance 8
ITEM 3. Quantitative and Qualitative Description about
Market Risk
PART II. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
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PART I. FINANCIAL INFORMATION
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
NOVEMBER 30,
2000 FEBRUARY 29,
(UNAUDITED) 2000
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 23 $ 394
Accounts receivable, net of allowance
for doubtful accounts of $1,650 and
$2,528, respectively 25,150 25,653
Prepaid expenses and other current assets 351 194
------- -------
Total current assets 25,524 26,241
FIXED ASSETS, NET OF ACCUMULATED
depreciation of $2,183 and
$1,309, respectively 4,486 4,892
INTANGIBLE ASSETS, NET OF ACCUMULATED
amortization of $2,420 and
$2,025, respectively 7,851 8,246
OTHER ASSETS 576 228
------- -------
TOTAL $38,437 $39,607
======= =======
LIABILITIES:
CURRENT LIABILITIES:
Accounts payable $ 956 $ 2,201
Accrued expenses 3,803 7,374
Accrued payroll and payroll related expenses 3,915 3,341
Current portion of long-term debt 469 232
------- -------
Total current liabilities 9,143 13,148
LONG-TERM DEBT 561 592
DUE UNDER SECURED CREDIT FACILITY 19,149 15,149
OTHER LIABILITIES 89 25
------- -------
TOTAL LIABILITIES 28,942 28,914
------- -------
STOCKHOLDERS' EQUITY:
Class A Common Stock - $.01 par value;
50,000,000 shares authorized; 23,346,022
and 23,331,252 outstanding at November 30,
2000 and February 29, 2000, respectively 233 233
Class B Common Stock - $.01 par value;
1,554,936 shares authorized; 285,775 and
300,545 outstanding at November 30, 2000 and
February 29, 2000, respectively 3 3
Additional paid-in capital 13,522 13,522
Accumulated deficit (4,263) (3,065)
------- -------
Total stockholders' equity 9,495 10,693
------- -------
TOTAL $38,437 $39,607
======= =======
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
2000 1999 2000 1999
------- ------ ------ -------
<S> <C> <C> <C> <C>
CONTINUING OPERATIONS:
REVENUES:
Service revenues $30,232 $27,878 $87,812 $86,416
------- ------- ------- -------
COSTS AND EXPENSES:
Service costs 23,315 22,124 68,200 67,178
General and administrative expenses 5,962 7,322 18,293 18,204
Relocation expenses 2 250 2 250
------- ------- ------- -------
Total operating expenses 29,279 29,696 86,495 85,632
------- ------- ------- -------
INCOME (LOSS) BEFORE INTEREST, DEPRECIATION,
AMORTIZATION AND INCOME TAXES 953 (1,818) 1,317 784
INTEREST AND OTHER EXPENSES:
Interest expense, (net) 552 446 1,645 810
Depreciation and amortization 371 147 1,269 539
Other (income) expense, net (5) 837 (399) 844
Non-recurring spin-off and financing costs -- 1,071 -- 1,071
------- ------- ------- -------
Total interest and other expenses 918 2,501 2,515 3,264
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 35 (4,319) (1,198) (2,480)
PROVISION FOR INCOME TAXES -- 98 -- 98
------- ------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS 35 (4,417) (1,198) (2,578)
INCOME FROM DISCONTINUED OPERATIONS
(NET OF INCOME TAX) -- 462 -- 580
LOSS ON SALE OF DISCONTINUED OPERATIONS -- (1,137) -- (1,137)
------- ------- ------- -------
NET INCOME (LOSS) $ 35 $(5,092) $(1,198) $(3,135)
======= ======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE - BASIC:
(Loss) Income from continuing operations $ .00 $ (.19) $ (.05) $ (.11)
Income from discontinued operations - (.03) - (.02)
------- ------- ------- -------
Net (loss) income $ .00 $ (.22) $ (.05) $ (.13)
======= ======= ======= =======
NET INCOME (LOSS) PER COMMON SHARE - DILUTED:
(Loss) income from continuing operations $ .00 $ (.19) $ (.05) $ (.11)
Income from discontinued operations - (.03) - (.02)
------- ------- ------- -------
Net (loss) income $ .00 $ (.22) $ (.05) $ (.13)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER COMMON SHARES
Basic 23,632 23,632 23,632 23,632
======= ======= ======= =======
Diluted 23,632 23,632 23,632 23,632
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
2000 1999
---- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,198) $(3,135)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations:
Depreciation and amortization 1,269 539
Provision for doubtful accounts (878) 525
Change in operating assets and liabilities:
Accounts receivable 1,381 637
Prepaid expenses and other current assets (157) (45)
Accounts payable and accrued expenses (4,242) 4,752
Other assets (348) 32
Other liabilities 64 --
------ -------
Net cash provided by (used in)
operating activities (4,109) 3,305
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net short term assets of discontinued operations - (5,497)
Net long term assets of discontinued operations - 13,184
Purchases of fixed assets (468) (2,029)
------ -------
Net cash provided by (used in)
investing activities (468) 5,658
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings(payments)in capital leases,(net) 206 --
Reduction in bank debt -- (43)
Increase (decrease) in borrowings under
secured credit facility 4,000 (8,681)
------ -------
Net cash provided by (used in)
financing activities 4,206 (8,724)
------ -------
NET INCREASE (DECREASE) IN CASH AND CASH
CASH EQUIVALENTS (371) 239
CASH AND CASH EQUIVILENTS, BEGINNING
OF PERIOD 394 197
------ -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23 $ 436
====== =======
SUPPLEMENTAL DATA:
Cash paid for:
Interest $1,770 $ 1,079
====== =======
</TABLE>
See notes to condensed consolidated financial statements.
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STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in Thousands, Except Where Indicated Otherwise and for
Per Share Amounts)
1. FINANCIAL STATEMENTS - In the opinion of Staff Builders, Inc. (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, 2000 and February 29, 2000, the results of
operations for the three and nine months ended November 30, 2000 and 1999, and
the cash flows for the nine months ended November 30, 2000 and 1999. Certain
prior period amounts have been reclassified to conform with the November 2000
presentation.
The results for the nine months ended November 30, 2000 and 1999 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, 2000 and for the
year then ended.
2. SPIN-OFF TRANSACTION - On March 22, 1999, the Company's Board of Directors
approved a plan to separate its home health care business from its supplemental
staffing business and to create a separate, publicly-traded company engaged
exclusively in providing home health care services. To accomplish this
separation of its businesses, the Company's Board of Directors established a
new, wholly-owned subsidiary, Tender Loving Care Health Care Services,
Inc.("TLCS"), which acquired 100% of the outstanding capital stock of the
Company's subsidiaries engaged in the home health care business. The spin-off
was effected on October 20, 1999 through a pro rata distribution to the
Company's stockholders of all the shares of common stock of TLCS owned by the
Company (the "Distribution"). The Distribution was made by issuing one share of
TLCS common stock for every two shares of the Company's common stock outstanding
on October 12, 1999 ("the Record Date"). Based upon the 23,619,388 shares of the
Company's common stock outstanding on the Record Date, 11,809,694 shares of TLCS
common stock were distributed to holders of the Company's Class A and Class B
common stock after the spin-off. The Company's supplemental staffing business
remained with the Company.
The Board of Directors believes that the spin-off was in the best interests of
the Company and its stockholders. One of the principal benefits of the spin-off
was the creation of a separate and distinct identity for the supplemental
staffing business of the Company. This separation should allow financial
analysts and institutional investors to better understand that business. It also
enhanced the Company's ability to obtain financing outside an environment of
tighter government regulation of the home health care industry and reduced
government reimbursement for the provision of home health care services.
3. DISCONTINUED OPERATIONS - Discontinued operations represent Chelsea Computer
Consultants, Inc.("Chelsea"), an information technology staffing company, which
was originally purchased by the Company on October 30, 1997 and was sold on
September 17, 1999. Substantially all of the revenues and expenses related to
the discontinued operations have been historically segregated on a specifically
identified basis.
4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - The calculation of basic
and fully diluted earnings (loss) per share was calculated for all periods in
accordance with the requirements of Statement of Financial Accounting Standards
No. 128, "Earnings per Share."
The shares used in computing basic earnings (loss) per share and diluted
earnings per share (loss) were 23,632,000 for the three and nine months ended
November 30, 2000 and 1999.
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5. CONTINGENCIES
a. Contingent obligations
Roger Jackson Pleasant v. Staff Builders Services, Inc. and Staff Builders, Inc.
The Company is contingently liable for a confession of judgement being paid by
TLCS in favor of Roger Jackson Pleasant in the principal amount of approximately
$2.6 million outstanding as of November, 2000. The next installment on the
obligation is due September 1, 2001 for $305. The Company is indemnified by TLCS
pursuant to agreement for any liability arising out of this settlement. TLCS is
current with its payments to Roger Jackson Pleasant.
BancOne Leasing Corporation
Pursuant to the terms of a Stipulation of Settlement dated January 14, 2000, the
Company is contingently liable on equipment leases that total $1,200 over a
two-year period. Because the equipment is used in TLCS offices primarily, TLCS
has entered into an Assumption Agreement whereby it agreed to assume
responsibility jointly and severally with the original parties to the leases,
which include the Company. TLCS is current with their payments to BancOne.
Chase Equipment Leasing, Inc.
The Company is a signatory on a Forbearance and Acknowledgement Agreement along
with TLCS and all of its subsidiaries, pursuant to which TLCS will pay a total
of $385 pursuant to monthly installments of $75 for equipment used by TLCS. TLCS
and its subsidiaries are also guarantors under the Forbearance and
Acknowledgement Agreement. TLCS is current with their payments with Chase.
Albert Gallatin
On September 20, 1995, the United States Attorney for the Eastern District of
Pennsylvania alleged that between 1987 and 1989, a corporation, substantially
all assets and liabilities of which were acquired by a subsidiary of TLCS in
1993, submitted false claims to Medicare. The alleged false claims were made
before TLCS acquired that corporation in 1993. A settlement has been reached
where TLCS is obligated to pay a total of $609 payable in monthly installments
of $50 which began in November 2000. Pursuant to an agreement between the
Company and TLCS, the Company will be indemnified by TLCS for any obligations
arising out of this matter. TLCS is current with its payments to Albert
Gallatin.
b. Litigation:
The Company is a defendant in several civil actions which are routine and
incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent. Although the Company
cannot estimate the ultimate cost of its open legal matters with precision, in
the opinion of management, the outcome of pending litigation will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands, Except Where Indicated Otherwise and, for
Per Share Amounts)
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 $2,354 or 8.4% for the three months ended November
30, 2000 to $30.2 million from $27.9 million for the three months ended November
30, 1999. For the nine months ended November 30, 2000, total revenues increased
by $1,396 or 1.6% to $87.8 million from $86.4 million for the nine months ended
November 30, 1999. The increases in revenues for the three month and nine month
periods was primarily due to increased organic growth.
Service costs were 77.1% and 79.4% of total revenues for three months ended
November 30, 2000 and 1999, respectively, and 77.7% for both of the nine months
ended November 30, 2000 and 1999. The decrease in service costs as a percentage
of total revenues for the three months ended November 30, 2000 as compared to
the same period in the prior year is primarily due to better cost controls
related to our health care professionals. Service costs increased $1,191 or 5.4%
for the three months ended November 30, 2000 to $23.3 million from $22.1
million, while increasing $1,022 for the nine months ended November 30, 2000 to
$68.2 million from $67.2 million for the nine months ended November 30, 1999.
These increases are directly related to the increase in total revenues and
business volume for the comparable periods.
General and administrative expenses were $6.0 million or 19.7% of total revenues
for the three months ended November 30, 2000 and $7.3 million or 26.3% of total
revenues for the three months ended November 30, 1999. This represents a
decrease of $1,360 or 18.6% for the three month period. The decrease is
primarily due to $1,000 of bad debt expenses taken in the three month period
ended November 30, 1999. Other decreases include Temporary Help ($149),
Insurance ($100), and Supplies ($59). For the nine months ended November 30,
2000, general and administrative expenses were $18.3 million or 20.8% of total
revenues and $18.2 million or 21.1% of total revenues for the nine months ended
November 30, 1999. Costs for these periods were fairly constant. The $1,000 of
bad debt expense taken in the nine months ended November 30, 1999 was replaced
by costs associated with the expansion of the Company's infrastructure
(primarily personnel)during the nine months ended November 30, 2000 to permit
the Company to accommodate future increases in business volume. Professional
fees associated with the initial development and implementation of the expanded
infrastructure are also included in these replacement costs. These costs are not
expected to be incurred in the future.
Interest expense,(net) was $552 and $446 for the three months ended November 30,
2000 and 1999, respectively, and $1.6 million and $810 for the nine months ended
November 30, 2000 and 1999, respectively. The increase in total interest expense
for the three and nine months ended November 30, 2000 as compared to the same
periods in the prior year is primarily due to a larger balance under the
Company's secured revolving line of credit due to increased business volume and
higher borrowing rates.
Other income (net) totaled $399 for the nine months ended November 30, 2000.
Other income was comprised mainly of the following: gain on the sale of a
subsidiary($150), New York State Economic Development grant($50),the recognition
of additional funds from the sale of discontinued operations($165) and a
reduction of a reserve ($80) of a contingent liability that the Company does not
consider outstanding.
LIQUIDITY AND CAPITAL RESOURCES
On March 29, 2000, the Company secured a new financing facility ("New Facility")
for a $20 million revolving loan. A portion of the proceeds from the New
Facility were used to repay a loan agreement provided to the Company on February
29, 2000. The term of the New Facility is for three years, with annual interest
bearing a rate of prime plus 2%. The New Facility
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is collateralized by a first priority lien on all of the Company's assets. The
New Facility has certain covenants which include tangible net worth and debt
coverage ratios.
On July 31, 2000 the New Facility was amended to increase the annual interest
rate from prime plus 2% to prime plus 3% beginning June 1, 2000 and amend the
required covenants. The Company is in compliance with these covenants.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity. The Company's primary market risk exposure is
interest rate risk. The Company's exposure to market risk for changes in
interest rates relates to its debt obligations under its New Facility described
above. The interest rate on drawings is the prime rate plus 3%. As at November
30, 2000, drawings on the New Facility were $19,149. Assuming variable rate debt
as at November 30, 2000, a one point change in interest rates would impact
annual net interest payments by $191.5. The Company does not use derivative
financial instruments to manage interest rate risk.
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 the inclusion of phrases
such as "the Company anticipates", "the Company believes" and other phrases of
similar meaning. These forward-looking statements are based on the Company's
current expectations. 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. The potential risks and uncertainties which could
cause actual results to differ materially from the Company's expectations
include the following:
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 in future periods given the increasing
market demand for the type of services offered.
ATTRACTION AND RETENTION OF LICENSEES AND EMPLOYEES - Maintaining quality
licensees, 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
licensees, skilled management and sufficient numbers of credentialed health care
professionals and para-professionals and information technology personnel could
adversely affect the Company's operations and quality of service. Also, because
the travel nurse program is dependent upon the attraction of skilled nurses from
overseas, such program could be adversely affected by immigration restrictions
limiting the number of such skilled personnel who may enter and remain in the
United States.
SATISFACTORY FINANCING - The Company entered into the New Facility on March 29,
2000, which was amended on July 31, 2000 to increase the interest rate payable
on borrowings. Management cannot provide assurance that the Company will remain
in compliance with the covenants of the New Facility. If the Company does not
remain in compliance with the covenants, the bank could immediately call the
amounts due under the New Facility immediately due and payable. If this were to
happen, the Company would have to seek alternative financing, which may not be
available on acceptable terms to the Company. The line of credit available under
the New Facility to the Company is $20 million. Management cannot provide
assurance that the available line of credit will be sufficient on a going
forward basis to provide sufficient funds to operate the business.
YEAR 2000 - The Company has made upgrades to substantially all of its computer
systems and equipment. The installation of these upgrades was completed in all
material respects as of December 1999. Such upgrades served to satisfy the
anticipated impacts of the so-called Year 2000 issue on our information
technology systems. As of November 30, 2000, the Company has not experienced any
materially important business disruptions or system failures as a result of Year
2000 issues, nor is it aware of any Year 2000 issues that have impacted its
payor sources, suppliers or other significant third parties to an extent
significant to the Company. However, Year 2000 compliance has many elements and
potential consequences, some
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of which may not be foreseeable or may be realized in future periods.
Consequently, there can be no assurance that unforeseen circumstances may not
arise, or that the Company will not in the future identify equipment or systems
which are not Year 2000 compliant.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - See Note 5 in PART I. - ITEM 1.
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 during the quarter ended
November 30, 2000.
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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.
Dated: January 16, 2001
STAFF BUILDERS, INC.
By: /s/ Stephen Savitsky
------------------------------
Stephen Savitsky
Chairman of the Board
and Chief Executive Officer
Dated: January 16, 2001
By: /s/ Alan Levy
-------------------------------
Alan Levy
Senior -Vice President, Finance
Chief Financial Officer and
Treasure (Principal Financial and
Accounting Officer)
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