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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
OR
[ ] TRANSITION REPORT SUBJECT 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
1983 Marcus Avenue, Lake Success, NY 11042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 358-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
Class B Common Stock, $.01 par value
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 and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
The aggregate market value of the voting stock (Class A and Class B
Common Stock, assuming conversions of Class B Common Stock into Class A
Common Stock on a share for share basis) held by non-affiliates of the
registrant based on the closing price of such stock on May 23, 1997, was
$49,249,466.
The number of shares of Class A Common Stock and Class B Common Stock
outstanding on May 23, 1997 was 22,419,833 and 1,458,696 shares,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 10,11,12 and 13 will be included in
the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders, which will be filed pursuant to Regulation 14A within 120
days after the close of the fiscal year for which this report is filed,
and which information is incorporated herein by reference.
PART I
ITEM 1. BUSINESS
Staff Builders, Inc. is a Delaware corporation which was
incorporated in New York in 1978 and reincorporated in Delaware in
May 1983. Unless the context otherwise requires, all references to
the "Company" include the Company's predecessor and its
subsidiaries.
General
The Company is a leading national provider of home
health care services. In addition, it provides supplemental
staffing and home health care management consulting services to
health care institutions. As of February 28, 1997, the Company had
252 offices located in 37 states and the District of Columbia
through which services were provided by approximately 40,000
caregivers. Of these offices, 50 were owned and operated by the
Company and 202 were operated by 87 franchisees.
The Company's 252 field office locations included 33
locations which were added from 19 acquisitions made during the
year ended February 28, 1997 ("Fiscal 1997"). Included in these
transactions was the acquisition on September 6, 1996 of a provider
of supplemental staffing in the metropolitan New York area which
contributed $8.5 million of revenues. On October 7, 1996, the
Company acquired a home health provider consisting of three
locations in the state of Washington which contributed $3.2 millon
of revenues. On June 15, 1996, the Company acquired five home
health care locations in northern California which contributed $2.3
million in revenues. Further, in fiscal 1997, the Company acquired
certain assets, consisting primarily of licenses, permits,
Certificates of Need and provider numbers required for the
operation of each location and employee and customer lists, of 16
other service providers in 24 locations which contributed $10.6
million of revenues. During the fiscal year ended February 29,
1996 ("Fiscal 1996"), the Company acquired eleven home health care
providers which added 30 locations. During the fiscal year ended
February 28, 1995 ("Fiscal 1995"), the Company acquired 20
supplemental staffing locations in two separate transactions and 12
home health care locations in seven transactions.
Home Health Care
The Company provides a broad range of home health care
services by its licensed health care personnel including services
such as skilled nursing treatments, patient and family education,
physical therapy, occupational therapy, speech therapy and social
services. The Company also provides, unskilled care by home health
aides and other unlicensed personnel who assist patients with
activities of daily living.
Clients' requests for home health care are typically
received at a local office and all skilled home health care
services are provided pursuant to the orders of the patient's
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physician. Generally, after a referral is received, the director
of home care services will make arrangements for an assessment in
which the patient's condition is analyzed in order to identify the
patient's needs. Home care services are rendered in accordance
with the plan of care as prescribed by a physician. During the
intake process, the Company contacts third-party payors to confirm
the extent of insurance coverage.
In seven locations, the Company operates hospices in
accordance with the Federal Medicare program. Hospice services
include a full range of medical and nursing services as well as
spiritual and emotional support, specialized pain management and
bereavement counseling and support.
The Company has a home care management consulting
division which provides support services to hospital-based home
health agencies. Services provided under these management
contracts include administrative and regulatory support, clinical
and quality management support and fiscal and administrative
support services including automated billing.
Home health care services, including hospice and
management consulting services provided to hospital-based home
health agencies, accounted for approximately 89%, 90% and 91% of
revenues for fiscal 1997, 1996 and 1995, respectively. The primary
payment sources for home health care revenues are Medicare,
Medicaid, insurance and individuals, and state and local government
health programs. See "Business -- Reimbursement" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Supplemental Staffing
The Company's supplemental staffing operations provide
clients with medical technicians, registered nurses, licensed
practical nurses, and other personnel. Health care institutions use
supplemental staffing to cover permanent positions for which they
have openings, for peak periods, vacations and emergencies and to
accommodate periodic increases in the number of patients.
The Company's revenues from supplemental staffing were
$49.1 million, $38.1 million and $28.8 million in fiscal 1997, 1996
and 1995, respectively. Fiscal 1997 revenues included $8.5 million
resulting from the acquisition on September 6, 1996 of a provider
in the metropolitan New York area. The majority of the Company's
supplemental staffing revenues are provided through ATC Healthcare
Services, Inc. ("ATC"), a wholly-owned subsidiary. At the time of
the Company's acquisition of ATC in July 1994, ATC operated
thirteen offices in seven states, and in November 1994, ATC
acquired seven additional offices in five states.
Local offices are generally familiar with the
operations, procedures and policies of the institutions in their
service areas and use this knowledge in providing the training and
orientation to their personnel. Accordingly, the personnel
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provided are able to assume responsibility quickly and work
effectively with permanent staff members.
Supplemental staffing operations accounted for
approximately 11%, 10% and 9% of revenues for fiscal 1997, 1996 and
1995, respectively.
Franchisees
Of the Company's 252 field office locations, 202 were
operated by 87 franchisees pursuant to the terms of a franchise
agreement with the Company. The locations operated by franchisees
contributed approximately $398 million, $334 million and $251
million, or approximately 83%, 82% and 77% of the Company's service
revenues for fiscal 1997, 1996 and 1995, respectively.
The Company utilizes a form of franchising whereby it
licenses independent companies or contractors to represent the
Company within a designated territory using the Company's trade
names and service marks. These franchisees recruit direct service
personnel and solicit orders and assign Company personnel including
registered nurses, therapists and home health aides to service the
Company's clients. The Company pays and distributes the payroll
for the direct service personnel, administers all payroll
withholdings and payments, bills the customers and receives and
processes the accounts receivable. The franchisees are responsible
for providing an office and paying related expenses for
administration including rent, utilities and costs for
administrative personnel. The Company owns all necessary health
care related permits and licenses and, where required, certificates
of need for operation of franchise offices. The revenues and
related direct costs are included in the Company's consolidated
service revenues and operating costs.
The initial franchise term granted by the Company is
generally ten years. A franchisee has the option to extend for an
additional five-year term, subject to the franchisee adhering to
the operating procedures and quality control standards established
by the Company. The initial franchise fee is currently $29,500 for
home health care and $19,500 for the ATC supplemental staffing
operations. When converting independently owned agencies into
franchises, the Company negotiates the terms of the conversion on
a transaction-by-transaction basis depending on the size of the
agency, the nature of the agency's business and the location of the
agency.
The Company pays a distribution or commission to the
franchisees based upon a defined formula of gross profit generated.
Generally, the Company pays the franchisee 60% of the gross profit
attributable to the non-Medicare operations of the franchise. The
payment to the Company's franchisees related to Medicare operations
is adjusted for cost limitations and reimbursement of allowable
Medicare costs. For fiscal 1997, 1996 and 1995, total franchisee
distributions of approximately $89 million, $75 million and $57
million, respectively, were included in the Company's general and
administrative expenses.
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The Company has implemented its franchise program to
permit it to quickly penetrate new markets and realize economies of
scale. The program also enables the Company to maintain stable
local management by reducing personnel turnover.
Data Processing
The Company operates a distributed data processing
network (including payroll, billing and other administrative
functions) for its home health care operations which connects its
field offices with its corporate headquarters in Lake Success, New
York. The headquarters for the home care management consulting
division is in Clearwater, Florida and the ATC operations have
their corporate headquarters in Atlanta, Georgia. Generally, bills
are rendered, payroll is processed and collections are received at
the corporate headquarters or at lock-boxes which have been
established in connection with the Company's revolving line of
credit. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Recruiting and Training
The Company and its franchisees recruit personnel
principally through referrals from other personnel, newspaper
advertisements and direct mail solicitations to nursing,
paramedical and other recruiting sources. A large percentage of
these personnel are employed only when needed, and are paid for the
actual number of hours worked or visits made.
The Company has standardized procedures for recruiting,
interviewing, testing and reference checking prospective personnel.
All nurses and therapists must be licensed by the appropriate
licensing authorities. Substantially all unlicensed health care
personnel must be certified either through a state-approved
certification program or must have had previous experience in
providing direct patient care in a hospital, nursing home or in the
home. After selection, applicants receive instruction in the
Company's procedures and policies. Subsequently, they are included
on a list of personnel eligible for placement. The Company has an
in-service training program for its home health personnel which
satisfies the requirements for certification required by certain
states.
In addition to health care personnel recruited and
trained by the Company, the Company contracts with third parties to
meet its personnel requirements. These contracted personnel must
meet the same qualifications required of Company personnel.
Quality Control and Operations
As a service business, the quality and reputation of the
Company's personnel and operations is critical to the Company's
success. The Company maintains uniform quality assurance programs
for its home health care operations, including its consumer hotline
and service evaluation system in which patients are asked by the
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Company to rate the quality of care provided. These programs are
administered at the national and local levels. The Company's
clinical staff conduct periodic on-site reviews to determine
compliance with all regulations.
In addition to the on-site reviews conducted by Company
personnel, the Company seeks to maintain and improve the quality of
its home health care operations by seeking accreditation from the
Joint Commission on Accreditation of Healthcare Organizations
("JCAHO"). Currently, the Company has approximately 150 offices
which have been accredited by JCAHO.
The Company has developed the Staff Builders Clinical
Outcomes and Resource Evaluation System ("SCORES"TM). SCORES is a
clinical management system that identifies and analyzes patient
potential for variances upon admission to home care; customizes a
transdisciplinary plan of care; quantifies clinical outcomes,
resource utilization and cost of care. SCORESTM is currently being
used in fourteen locations and the Company plans to significantly
expand the number of locations using SCORESTM during the current
fiscal year.
The Company has developed a number of proprietary
disease-specific programs designed to be used in the home. These
programs include the areas of asthma, cardiac disease, diabetes,
hospice, maternity, mental health, total knee replacement and wound
care.
The Company offers its services on a national and local
basis. Each office seeks to retain strong local identification in
order to best respond to prevailing market conditions and cultivate
local referrals. Office managers and franchisees are able to offer
the most appropriate services based on market need. The Company
provides support including brochures, training seminars, and
materials to assist in developing patient care programs as needed
within each community.
Local efforts principally involve communicating with
hospital discharge planners, nursing management, physicians and
other individuals at hospitals, nursing homes and other health care
facilities to advise them of the array of services available from
the Company.
Due to changes in health care reimbursement, insurance
companies and health maintenance organizations have become more
involved in directing services for those to whom they provide
coverage. The Company has sought to adapt to the increased role of
these organizations in patient referrals through the implementation
of its Managed Care Program. Under this program, the Company
provides services to members of health maintenance organizations or
policy holders of insurance companies at a negotiated rate. The
Company believes that some of these organizations, as a result of
their strict guidelines, centralized administration and geographic
diversity, retain the Company because of its ability to
consistently offer quality services on a national basis. Moreover,
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the Company believes that its ability to offer patients a wide
variety of home health care services will provide it with a
competitive edge in obtaining additional business from these
organizations.
Competition
Although there are national home health care and
supplemental staffing companies, the industry is highly fragmented
and competitors are often localized in particular geographical
markets. In general, there has been a trend toward consolidation
in the health care industry which is expected to continue. The
Company expects that it will continue to compete with the national
organizations as well as local providers including home health care
providers owned or otherwise controlled by hospitals. Some of the
entities with which the Company competes have substantially greater
resources. In addition, the Company's operations depend, to a
significant degree, on its ability to recruit qualified health care
personnel and the Company faces competition from other companies in
recruiting. Generally, there is a shortage of qualified health
care personnel and, as a result, the Company, from time to time,
has experienced difficulties in obtaining personnel to meet demands
for services.
The Company believes that prompt service, price, quality
and range of services offered are the principal competitive factors
which enable it to compete effectively. The Company believes that
its rate structure is competitive with others in the industry.
During fiscal 1997, no single client or group contract accounted
for ten percent or more of the consolidated revenues.
Reimbursement
Revenues generated from the Company's home health care
services are paid by insurance carriers, health maintenance
organizations and individuals, Medicare, Medicaid and other state
and local government health insurance programs. During fiscal 1997
approximately 14% of the Company's total revenues represented
reimbursement from insurance carriers, health maintenance
organizations and individuals; 55% came from Medicare; and 20% came
from Medicaid and other local government health programs. Medicare
is a Federally funded program available to persons with certain
disabilities and persons of age 65 or older. Medicaid, a program
jointly funded by Federal and state governments, and other local
government health care programs is designed to pay for certain
health care and medical services provided to low income individuals
without regard to age.
The Company has 149 locations which are certified to
provide home health care services to Medicare patients. Medicare
reimburses the Company for covered items and services at the lower
of the Company's cost, as determined by Medicare, cost limits
established by the Federal government, or the amount charged by the
Company. The Company submits all Medicare claims to a single
insurance company acting as a fiscal intermediary which processes
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claims on behalf of the Federal government. As of February 28,
1997, the Company has 79 offices which participate in Medicare's
periodic interim payments ("PIP") program. Under PIP, the Company
receives regular bi-weekly payments based on past Medicare activity
of participating offices, which are adjusted at the end of each
calendar quarter for actual levels of activity. Offices which are
not participating in the PIP program receive payment for services
upon submission of individual claims.
The Company is also reimbursed for covered items by
Medicaid. Approximately 75% of the Company's home health care
offices are approved to provide services to Medicaid recipients.
Medicaid reimbursement procedures vary from state to state.
Service Marks
The Company believes that its service marks, Staff
Builders, Staffline, the stick figure logo, Tender Loving Care
and the ATC logo have significant value and are important to the
marketing of its services. These names and marks are registered as
service marks with the United States Patent and Trademark Office.
The registration of the Staff Builders service mark will remain
in effect through February 14, 1999, with respect to home care and
hospital staff relief, and through June 28, 2006 with respect to
temporary personnel for business and industry. The registration of
the Staffline service mark will remain in effect through August 1,
1999. The registration of the stick figure logo service mark will
remain in effect through August 16, 1998. The registration of the
Tender Loving Care service mark will remain in effect through
January 8, 2005. The ATC and design service mark will remain in
effect through January 9, 2000. Each of these marks is renewable
for additional ten-year periods, provided the Company continues to
use them in the ordinary course of business. The Company also owns
other federally registered marks for names used in connection with
its business.
Government Regulation
The Company's health care business is subject to
extensive and frequently changing regulation by Federal, state and
local authorities. Such regulation imposes a significant
compliance burden on the Company, including state licensing and
certificate of need requirements and Federal and state eligibility
standards for certification as a Medicare and Medicaid provider.
The imposition of more stringent regulatory requirements or the
denial or revocation of any license or permit necessary for the
Company to operate in a particular market could have a material
adverse effect on the Company's operations. In addition, the
Company will be required to comply with the licensing and/or
Certificate of Need ("CON") requirements and applicable regulations
in the jurisdictions in which it plans to provide services, except
for the states of Colorado, Massachusetts, Michigan and Ohio which
have neither CON nor licensure requirements.
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The Federal government and all states in which the
Company currently operates regulate various aspects of the
Company's business. Home health agency certification by the Health
Care Financing Administration ("HCFA") is required to receive
reimbursement for services from Medicare. The Company has 149
offices in 33 states and the District of Columbia which provide
services covered by Medicare. HCFA requires, as conditions of
participation as a home health agency in the Medicare program,
among other things, the satisfaction of certain standards with
respect to personnel, services and supervision; the preparation of
annual budgets and capital expenditure plans; and the establishment
of a professional advisory group that includes at least one
physician, one registered nurse and other representatives from
related disciplines or consumer groups.
Certain states require a provider of home health care
services to obtain a license before rendering services. Some
states, including many of the states in which the Company presently
operates, maintain CON legislation requiring an office to file an
application that must be approved by the appropriate state
authority before certain health care services can be provided in an
area. Approval is dependent upon, among other things, good
character and competence, financial capability and a demonstration
that the need exists for such services. In states having a CON
requirement, HCFA will grant Medicare certification to an office,
thereby permitting the office to provide services covered by
Medicare, only if the office has obtained a CON.
New York State requires the approval by the Public
Health Council of the New York State Department of Health ("NYPHC")
of any change in the "controlling person" of an operator of a
licensed health care services agency (an "LHCSA"). Control of an
entity is presumed to exist if any person owns, controls or holds
the power to vote 10% or more of the voting securities of such
entity. A person seeking approval as a controlling person of an
operator of a LHCSA must file an application for NYPHC approval
within 30 days of becoming a controlling person, and pending a
decision by the NYPHC, such person may not exercise control over
the LHCSA. The Company has 16 offices in New York State which are
LHCSAs. Such offices accounted for approximately 12% of the
Company's revenues in fiscal 1997. If any person should become the
owner or holder, or acquire control, of the right to vote 10% or
more of the Common Stock of the Company, such person could not
exercise control of the Company's LHCSAs until such ownership,
control or holding has been approved by the NYPHC.
The Company is subject to Federal and certain state laws
that govern the offer and sale of franchises. The Company is also
subject to a number of state laws that regulate certain substantive
aspects of the franchisor-franchisee relationship. If the Company
fails to comply with the franchise laws, rules and regulations of
a particular state relating to offers and sales of franchises, the
Company will be unable to engage in offering or selling franchises
in or from such state. To offer and sell franchises, the Company
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is required by the Federal Trade Commission to furnish to
prospective franchisees a current franchise offering disclosure
document. The Company has used a Uniform Franchise Offering
Circular to satisfy this disclosure obligation. In addition, in
certain states the Company is required to register or file with
such states and to provide prescribed disclosures. The Company is
currently permitted to offer franchises in 44 states and the
District of Columbia.
The Company is required to update its offering
disclosure document to reflect intended changes or the occurrence
of certain material events. The occurrence of any such changes or
events may from time to time require the Company to stop offering
and selling franchises until the document is so updated.
Insurance
The Company's employees make decisions which can have
significant medical consequences to the patients in their care. As
a result, the Company is exposed to substantial liability in the
event of negligence or wrongful acts of its personnel. The Company
maintains medical professional and general liability insurance
providing for coverage in a maximum amount of $26 million per
claim, subject to a limitation of $26 million for all claims in any
single year. In addition, franchisees are required to maintain
general liability insurance providing for coverage of at least $1
million.
Personnel and Employees
At February 28, 1997, the Company employed approximately
3,250 full-time administrative and management personnel.
Approximately 2,850 of these employees were located at the
Company's branch offices, 380 were located at its corporate
headquarters in Lake Success, New York, and 20 were located at its
medical staffing division headquarters in Atlanta, Georgia.
Additionally, the Company has approximately 40,000
individuals who render home health care and medical staffing
services. The company screens all applicants to ensure that they
meet all licensing requirements and the Company's eligibility
standards. This screening process includes skills testing,
reference checking, professional license verification, personal
interviews and a physical examination. In addition, new employees
receive an orientation on the Company's policies and procedures
prior to their initial assignment. The Company is not a party to
any collective bargaining agreement and considers its relationship
with its employees to be satisfactory.
ITEM 2. PROPERTIES
The Company's corporate headquarters consists of
approximately 63,000 square feet of leased office space and 5,000
square feet of storage space in Lake Success, New York. The lease
for the corporate headquarters expires on September 30, 2003 and
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provides for a current base rent of approximately $114,500 per
month, which increases annually by three percent.
The Company maintains its medical staffing division
headquarters in Atlanta, Georgia. The lease for approximately
9,500 square feet of office space expires on May 31, 2000 and
provides for a monthly base rent of approximately $10,500.
Approximately 6,000 square feet of the office is sublet to a
subtenant unaffiliated with the Company at a monthly rental of
approximately $5,600 with annual increases of 4.5 percent.
The Company believes that its headquarters office space
is sufficient for its immediate needs and that it will be able to
obtain additional space if needed in the future.
The Company leases substantially all of its branch
office locations from landlords unaffiliated with the Company or
any of its executive officers or directors. Most of these leases
are for a specified term, although several of them are month-to-
month leases. As of February 28, 1997, there were 252 offices
including 50 operated by the Company and 202 operated by
franchisees; 12 of these franchise offices sublease the office
space from the Company and the remaining franchise offices are
leased by the franchisee from third-party landlords. The Company
believes that it will be able to renew or find adequate replacement
offices for all leases which are scheduled to expire in the next
twelve months at comparable costs.
ITEM 3. LEGAL PROCEEDINGS
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 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 financial
statements.
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. In the opinion of management, the outcome
of pending litigation will not have a material adverse effect on
the Company's consolidated financial condition, liquidity or
results of operations. Accrued expenses include $175,000 at
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February 28, 1997 which represents the estimated amount of
liability claims payable. Such amount represents the deductible
amount for which the Company is liable, net of payments by the
Company's insurers which are probable of realization, estimated at
approximately $1.5 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
(A) Market Information
The Company has outstanding two classes of common equity
securities: Class A Common Stock and Class B Common Stock. These
two classes were created by a recapitalization of the Company's
Common Stock that was completed in October 1995. The Company's
Class A Common Stock is traded in the over-the-counter market and
listed on the Nasdaq National Market under the symbol "SBLI" as was
its common stock prior to the recapitalization.
High Low
Fiscal Year Ended February 29, 1996
1st Quarter $ 4.63 $ 3.25
2nd Quarter 4.50 3.31
3rd Quarter 5.63 2.56
4th Quarter 4.00 2.38
Fiscal Year Ended February 28, 1997
1st Quarter $ 3.94 $ 2.50
2nd Quarter 4.50 2.88
3rd Quarter 3.63 2.25
4th Quarter 3.13 2.19
There is no established public trading market for the
Company's Class B Common Stock, which has ten votes per share and
upon transfer is convertible automatically into one share of Class
A Common Stock, which has one vote per share.
(B) Holders
As of May 23, 1997, there were approximately 325 holders
of record of Class A Common Stock (including brokerage firms
holding stock in "street name" and other nominees) and 550 holders
of record of Class B Common Stock.
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(C) Dividends
Since its organization, the Company has not paid any
dividends on its shares of common stock. Management anticipates
that for the foreseeable future all earnings will be retained for
use in its business and, accordingly, it does not intend to pay
cash dividends. The Company's current revolving credit facility
prohibits the payment of cash dividends on the common stock.
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ITEM 6.
SELECTED FINANCIAL DATA (in thousands, except per share data)
Years Ended
February February February February February
28, 1997 29, 1996 28, 1995 28, 1994 28, 1993
CONSOLIDATED OPERATIONS DATA:
Revenues $480,355 $410,160 $325,111 $246,082 $198,627
Costs and expenses:
Operating costs 301,508 256,719 201,365 152,824 128,331
General and administrative expenses 167,550 143,704 111,462 83,682 62,075
Provision for doubtful accounts 2,740 2,678 2,431 2,400 2,352
Amortization of intangible assets 2,623 1,823 1,237 884 775
Interest expense 1,601 948 1,237 2,189 2,244
Interest income (896) (976) (796) (605) (565)
Other (income) expense, net (1,487) 1,791 (22) 36 (370)
Total costs and expenses 473,639 406,687 316,914 241,410 194,842
Income from operations
before income taxes 6,716 3,473 8,197 4,672 3,785
Provision for income taxes 2,955 1,459 3,462 1,308 1,211
Net income $ 3,761 $ 2,014 $ 4,735 $ 3,364 $ 2,574
Income applicable to
common stockholders $ 3,761 $ 2,014 $ 4,735 $ 3,954 $ 2,174
Income per common and common
equivalent share:
Primary $ .16 $ .08 $ .20 $ .20 $ .14
Fully diluted $ .16 $ .08 $ .20 $ .20 $ .13
Cash dividends per common share $ - $ - $ - $ - $ -
Weighted average number of common
and common equivalent shares
outstanding:
Primary 24,591 25,340 24,073 22,175 16,073
Fully diluted 24,648 25,532 24,376 22,175 16,488
CONSOLIDATED BALANCE SHEET DATA:
Total assets $156,172 $120,527 $103,486 $ 87,310 $ 66,983
Working capital 27,245 12,007 22,038 26,855 17,214
Current portion of long-term liabilities 5,230 2,356 1,267 827 1,797
Long-term liabilities 37,998 9,611 9,186 14,021 13,768
Total liabilities 96,706 65,217 51,135 48,035 37,708
Redeemable Class B Preferred Stock
and accrued dividends - - - - 6,034
Stockholders' equity 59,466 55,310 52,351 40,976 23,241
Certain prior period amounts have been reclassified to conform with the fiscal 1997 presentation.
-14-
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information
which the Company's 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 consolidated financial statements and notes
thereto appearing elsewhere herein. (Dollars in thousands, except
per share amounts or where otherwise indicated).
Results of Operations
Years Ended February 28, 1997 ("Fiscal 1997"), February 29, 1996
("Fiscal 1996") and February 28, 1995 ("Fiscal 1995")
Revenues. Total revenues increased by $70.2 million or
17.1% to $480.4 million in fiscal 1997 from $410.2 million in
fiscal 1996. This increase included $24.6 million of revenues from
acquisitions made in fiscal 1997. Additionally, revenues from
acquisitions made in fiscal 1996 which are included in the full
fiscal 1997 period and continued expansion of the Company's
franchise program to new locations resulted in increased revenues
of $19.0 million in fiscal 1997. Existing locations which were
included for the entire two fiscal periods generated increased
revenues of $26.6 million, or 7%, in fiscal 1997 over fiscal 1996.
Total revenues increased by $85.1 million or 26.2% to $410.2
million in fiscal 1996 from $325.1 million in fiscal 1995. This
increase included $11.2 million of revenue from acquisitions made
in fiscal 1996, including $5.6 million of revenues from a regional
home health care provider based in Raleigh-Durham, North Carolina
which was acquired in August 1995, and $5.6 million of revenues
from three other companies acquired thereafter. Further, revenues
generated by an Atlanta, Georgia based provider of medical staffing
services (ATC) acquired in July 1994, which are included for the
full fiscal 1996 period, contributed $8.6 million of increased
revenue in fiscal 1996 as compared to fiscal 1995. The introduction
and expansion of medical staffing services in some of the Company's
existing locations added $2.2 million of revenues in fiscal 1996.
Expansion of the Company's franchise program resulted in increased
health care revenues of $27 million in fiscal 1996 over fiscal 1995
from the addition of new locations in fiscal 1996 and the addition
of locations during fiscal 1995 which are included in the full
fiscal 1996 period. Additionally, the Company generated increased
revenue of $39 million, or 13%, in fiscal 1996 over fiscal 1995,
from existing locations which were included for the entire two
fiscal periods. Offsetting the foregoing increases, the Company
reduced its Medicare revenues by $3 million due to a revision in
the methodology used to allocate corporate overhead, as required by
the Medicare fiscal intermediary.
-15-
The increase in Medicare and Medicaid revenues during the
three years ended February 28, 1997 was due to an increase in the
number of locations participating in these programs. In order to
be certified by the Health Care Finance Administration as a home
health agency which may participate in the Medicare program, among
other things, a location must satisfy certain operational standards
with respect to the number and qualifications of personnel, service
levels and related supervision as well as meet certain financial
standards with respect to the preparation of annual budgets and
capital expenditure plans. The number of locations which are
eligible to provide Medicare services has increased from 105 as of
February 28, 1995, to 149 as of February 28, 1997. Additionally,
the Company has continued to respond to the related, increasing
market demand for health care services.
The Company receives payment for its health care services from
several sources. The following are the Company's service revenues
by payment source:
Years Ended
February February February
28, 1997 29, 1996 28, 1995
Medicare 55.6% 57.7% 56.5%
Medicaid and other local
government programs 19.8 19.4 20.1
Insurance and individuals 14.0 13.4 14.5
Hospitals, nursing homes and
other health care institutions 10.3 9.3 8.9
Other 0.3 0.2 -
Total 100.0% 100.0% 100.0%
The change in revenue mix and the reimbursement sources
reflect the Company's growth of its home health care operations and
the expansion of its supplemental staffing services. Supplemental
staffing revenues increased by $11 million, or 28.9%, to $49.1
million in fiscal 1997 from $38.1 million in fiscal 1996, as
compared to $28.8 million in fiscal 1995. The increase in fiscal
1997 included $8.5 million resulting from the acquisition on
September 6, 1996 of a provider of supplemental staffing services
to medical establishments in the metropolitan New York area. The
increase in fiscal 1996 included $8.6 million from the ATC
locations acquired in July 1994.
The service revenues attributable to franchise offices
increased to 83% in fiscal 1997 from 82% in fiscal 1996 and from
77% in fiscal 1995. The increase in revenues attributable to
franchise offices was due to the increase in the number of
locations operated by franchisees from 94 locations operated by 57
franchisees as of February 28, 1994 to 202 locations operated by 87
franchisees as of February 28, 1997. These increases result from
the Company's continuing efforts to expand its operations in
additional markets primarily through the recruitment of new
franchisees.
-16-
Operating Costs. Operating costs were 62.9%, 62.8% and
62.1% of service revenues in fiscal 1997, 1996 and 1995,
respectively. Operating costs represent the direct costs of
providing services to patients, including wages, payroll taxes,
travel costs, insurance costs, medical supplies and the cost of
contracted services. The increase in the percentage of operating
costs in fiscal 1996 was primarily due to the reduction in Medicare
revenues due to a revision in the methodology used to allocate
corporate overhead.
The payroll fringe costs, consisting primarily of payroll
taxes and workers compensation insurance, represents 15.9%, 14.6%
and 17.3% of direct service wages in fiscal 1997, 1996 and 1995,
respectively. The variations in payroll fringe costs as a
percentage of direct service wages were primarily due to costs for
workers compensation insurance.
The cost of contracted services represents 6.5%, 8.1% and
9.8% of service revenues in fiscal 1997, 1996 and 1995,
respectively.
The revenues, operating costs and resultant gross margins
generated by the Company's franchise and Company-owned locations
are as follows:
($ in millions)
Years Ended
February February February
28, 1997 29, 1996 28, 1995
Total revenues - Franchise $398 $334 $251
Total revenues - Company-Owned 82 76 74
Total revenues $480 $410 $325
Operating costs - Franchise $248 $207 $154
Operating costs - Company-Owned 54 50 47
Operating costs $302 $257 $201
Gross margin - Franchise $150 $127 $ 97
Gross margin - Company-Owned 28 26 27
Gross margin $178 $153 $124
The gross margin percentages generated by Company-owned
locations are lower than those for franchise locations as a result
of a proportionately higher volume of services which have lower
gross margin percentages, such as supplemental staffing and
Medicaid.
General and Administrative Expenses. General and
administrative expenses increased by $23.8 million or 16.6% in
fiscal 1997 as compared to fiscal 1996 and increased by $32.2
-17-
million or 28.9% in fiscal 1996 as compared to fiscal 1995. These
costs expressed as a percentage of service revenues were 35.0%,
35.1% and 34.4% in fiscal 1997, 1996 and 1995, respectively. The
increase in general and administrative expenses in fiscal 1997 was
due to approximately $13.2 million resulting from expansion of the
Company's franchise program for the amounts distributed to new
franchisees which were added in fiscal 1997 and the addition of new
franchise locations during fiscal 1996 which were included in the
entire fiscal 1997 period. Additionally, an increase of
approximately $3.4 million resulted from locations operated by the
Company and acquired in fiscal 1997 and locations added during
fiscal 1996 which were included in the entire fiscal 1997 period.
Further, approximately $4.3 million was incurred in fiscal 1997 to
expand the capabilities of the Company's information systems and to
develop specialized programs to augment the Company's home health
care operations. Included in the increase in fiscal 1996 is $3.2
million incurred by the Company's medical staffing division, due
primarily to the locations acquired in July 1994, which were
included in the entire 1996 fiscal year. Further, $2.1 million was
incurred by seven locations acquired in August 1995, from a
regional home health care provider. Additionally, expansion of the
Company's franchise program resulted in increased general and
administrative expense of $18.5 million in fiscal 1996 over fiscal
1995, for the amounts distributed to new franchisees which were
added in fiscal 1996 and the addition of new franchise locations
during fiscal 1995 which are included in the full fiscal 1996
period. Included in general and administrative expenses are
reserves and write-offs of notes receivable from franchisees of
$169 in fiscal 1996. There was no expense incurred in fiscal 1997
and 1995 related to reserves and write-offs of notes receivable.
Provisions for Doubtful Accounts Receivable. The
provisions represented 0.6%, 0.7% and 0.8% of service revenues in
fiscal 1997, 1996 and 1995, respectively.
Amortization of Intangible Assets. Amortization of
intangible assets was approximately $2.6 million in fiscal 1997 as
compared to $1.8 million in fiscal 1996 and $1.2 million in fiscal
1995. The increases are due to business acquisitions made in the
1997 and 1996 fiscal years.
Interest Expense. Interest expense was approximately
$1.6 million in fiscal 1997 as compared to $900 in fiscal 1996 and
$1.2 million in fiscal 1995. The increase in interest expense in
fiscal 1997 over fiscal 1996 was primarily due to an increase in
the level of borrowings under the Company's revolving line of
credit and increases in the amount of capital leases and other
interest bearing debt. The reduction in interest expense in fiscal
1996 from fiscal 1995 was due to a combination of lower interest
rates and reduced levels of borrowings required due primarily to
the reduction in the amount of time that the Company's accounts
receivable were outstanding.
-18-
Interest Income. Interest income includes interest on
franchise notes receivable of $527, $788 and $676 in fiscal 1997,
1996 and 1995, respectively. Interest earned on franchise notes
receivable is generally at the prime rate plus three percent.
Other (Income) Expense, Net. Other (income) expense, net
in fiscal 1997 includes income of approximately $1.2 million
resulting from the sale of a Company division. Fiscal 1996 expense
included $1,580 to provide for the costs to close two divisions,
$358 in costs associated with the Company's recapitalization and
$165 for settlement of litigation.
Provision for Income Taxes. The provision for income
taxes reflects an effective rate of 44%, 42% and 42% in fiscal
1997, 1996 and 1995, respectively.
Net Income. Net income for fiscal 1997 was $3.76
million, or $.16 per share, compared to $2.01 million, or $.08 per
share,in fiscal 1996 and $4.74 million, or $.20 per share,in fiscal
1995.
Liquidity and Capital Resources
In January 1997, the Company obtained a new secured
revolving credit facility with its existing bank 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 an
aggregate amount of $50 million. The Company is permitted to
borrow up to 75% of eligible receivables up to the maximum amount
of the credit facility less amounts outstanding under the
acquisition line of credit and any outstanding letters of credit.
The acquisition line of credit provides for borrowings up to $15
million without collateral to finance acquisitions, provided that
the sum of all borrowings do not exceed $50 million. Eligible
receivables are defined principally as trade accounts receivable
which have been outstanding for less than 120 days. Long-term and
short-term liquidity will be enhanced to the extent that the
accounts receivable on which the Company is not permitted to borrow
are reduced and by shortening the amount of time that its accounts
are outstanding. The average daily balance outstanding under the
credit facility was approximately $6.3 million, $1.4 million, and
$3.3 million in fiscal 1997, 1996 and 1995, respectively.
Trade accounts receivable at the end of fiscal 1997,
1996, and 1995 were outstanding for an average of approximately 57,
48 and 54 days, respectively. As of February 28, 1997, the Company
has 79 offices which participate in Medicare's periodic interim
payments ("PIP") program. Under PIP, the Company receives regular
bi-weekly payments based on past Medicare activity, which is
adjusted quarterly for actual volume.
The Company funds the operating costs for all Company
owned and franchise locations as well as all regional and corporate
general and administrative expenses. Operating costs primarily
-19-
consist of direct service salaries paid on a weekly cycle. Each
franchisee funds its own general and administrative expenses. The
Company pays a distribution to its franchisees, based upon a
percentage of gross profit generated by the franchise, within 25 to
45 days after each month-end. Some of the administrative personnel
for franchise locations are obtained contractually from the Company
for which the related cost is deducted from monthly distributions
paid.
During fiscal 1997, 1996 and 1995, the Company purchased
and retired a total of 1,518,774 shares of its common stock at a
cost of $4.3 million.
The Company has several agreements under which it leases
computer and other capital equipment through September 2002. The
net carrying value of the assets under these leases was
approximately $7.1 million and $3.8 million at February 28, 1997
and February 29, 1996, respectively.
At February 28, 1997, the Company's debt obligations due
within the next twelve months were approximately $5.2 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.
Effect of Inflation
The rate of inflation was immaterial during the 1997
fiscal year. In the past, the effects of inflation on salaries and
operating expenses have been offset by the Company's ability to
increase its charges for services rendered. The Company
anticipates that it will be able to continue to do so in the
future, subject to applicable restrictions with respect to services
provided to clients eligible for Medicare and Medicaid
reimbursement. The Company continually reviews its costs in
relation to the pricing of its services.
Recent Pronouncements of the Financial Accounting Standards Board
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.
Forward Looking Statements
Certain statements in this report on Form 10-K 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
-20-
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.
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.
-21-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STAFF BUILDERS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of February 28, 1997
and February 29, 1996 F-2
Consolidated Statements of Income
for the Years ended February 28, 1997, February
29, 1996 and February 28, 1995 F-3
Consolidated Statements of Stockholders' Equity
for the Years ended February 28, 1997, February
29, 1996 and February 28, 1995 F-4
Consolidated Statements of Cash Flows
for the Years ended February 28, 1997, February
29, 1996 and February 28, 1995 F-5
Notes to Consolidated Financial Statements F-6
FINANCIAL STATEMENT SCHEDULE FOR THE YEARS ENDED
FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
II - Valuation and Qualifying Accounts F-23
All other schedules were omitted because they are not required, not
applicable or the information is otherwise shown in the financial
statements or the notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Staff Builders, Inc.:
We have audited the accompanying consolidated balance sheets of Staff
Builders, Inc. and subsidiaries (the "Company") as of February 28, 1997 and
February 29, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended February 28, 1997. Our audits also included the financial statement
schedule listed in the table of contents. These financial statements and the
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Staff Builders, Inc. and
subsidiaries at February 28, 1997 and February 29, 1996 and the results of
their operations and their cash flows for each of the three years in the
period ended February 28, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche, LLP
Jericho, New York
April 18, 1997
F-1
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
February February
ASSETS 28, 1997 29, 1996
CURRENT ASSETS:
Cash and cash equivalents $ 2,006 $ 8,710
Accounts receivable, net of allowance
for doubtful accounts of $2,800
and $2,200, respectively 77,103 52,957
Deferred income tax benefits 1,855 2,403
Prepaid expenses and other current assets 4,989 3,543
Total current assets 85,953 67,613
FIXED ASSETS, net 12,082 7,436
INTANGIBLE ASSETS, net 51,022 41,877
OTHER ASSETS 7,115 3,601
TOTAL $156,172 $120,527
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,429 $ 9,003
Accrued expenses 17,307 16,478
Accrued payroll and payroll related expenses 21,742 27,769
Current portion of long-term liabilities 5,230 2,356
Total current liabilities 58,708 55,606
LONG-TERM LIABILITIES 37,998 9,611
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock - - -
Class A Common Stock - $.01 par value;
50,000,000 shares authorized; 22,343,970 and
22,036,313 outstanding at February 28, 1997
and February 29, 1996, respectively 223 220
Class B Common Stock - $.01 par value;
1,554,936 shares authorized; 1,462,361 and
1,501,007 outstanding at February 28, 1997
and February 29, 1996, respectively 15 15
Preferred stock, 10,000 shares authorized;
Class A - $1.00 par value; 666 2/3 shares
outstanding at February 28, 1997 and
February 29, 1996 1 1
Additional paid-in capital 73,159 72,767
Accumulated deficit (13,932) (17,693)
Total stockholders' equity 59,466 55,310
TOTAL $156,172 $120,527
See notes to consolidated financial statements
F-2
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Years Ended
February February February
28, 1997 29, 1996 28, 1995
REVENUES:
Service revenues $479,029 $408,873 $324,013
Sales of franchises and fees, net 1,326 1,287 1,098
Total revenues 480,355 410,160 325,111
COSTS AND EXPENSES:
Operating costs 301,508 256,719 201,365
General and administrative expenses 167,550 143,704 111,462
Provision for doubtful accounts 2,740 2,678 2,431
Amortization of intangible assets 2,623 1,823 1,237
Interest expense 1,601 948 1,237
Interest income (896) (976) (796)
Other (income) expense, net (1,487) 1,791 (22)
Total costs and expenses 473,639 406,687 316,914
INCOME BEFORE INCOME TAXES 6,716 3,473 8,197
PROVISION FOR INCOME TAXES 2,955 1,459 3,462
NET INCOME $ 3,761 $ 2,014 $ 4,735
EARNINGS PER COMMON SHARE:
Primary earnings per share $ .16 $ .08 $ .20
Fully diluted earnings per share $ .16 $ .08 $ .20
See notes to consolidated financial statements
F - 3
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Preferred Additional
Common Stock Stock Paid-In Accumulated
Shares Amount Class A Capital Deficit Total
Balances, March 1, 1994 20,919,219 $ 210 $ 1 $ 65,207 $(24,442) $ 40,976
Additional common stock in
connection with a 1987 acquisition 600 - -
Common stock issued -
exercise of stock options 35,450 - 95 95
Exercise of common stock warrants 250,000 2 500 502
Common stock issued-acquisitions 2,570,388 26 8,456 8,482
Common stock issued-employee
stock purchase plan 139,166 1 396 397
Purchase and retirement of common stock (977,774) (10) (2,826) (2,836)
Net Income 4,735 4,735
Balances, February 28, 1995 22,937,049 229 1 71,828 (19,707) 52,351
Additional common stock in
connection with a 1987 acquisition 1,360 - -
Common stock issued-exercise of
stock options, net of 683,054 shares
used to pay for shares and
withholding taxes, net of related
tax benefits of $772 437,681 4 405 409
Exercise of common stock warrants 398,016 4 1,126 1,130
Common stock issued-employee
stock purchase plan 149,214 2 429 431
Purchase and retirement of common stock (386,000) (4) (1,021) (1,025)
Net Income 2,014 2,014
Balances, February 29, 1996 23,537,320 235 1 72,767 (17,693) 55,310
Additional common stock in
connection with a 1987 acquisition 4,870 - - -
Common stock issued - exercise of
stock options, net of 15,232 shares
used to pay for shares 23,768 0 29 29
Exercise of common stock warrants 160,680 2 193 195
Common stock issued-employee
stock purchase plan 234,693 2 579 581
Purchase and retirement of common stock (155,000) (1) (409) (410)
Net Income 3,761 3,761
Balances, February 28, 1997 23,806,331 $ 238 $ 1 $ 73,159 $(13,932) $ 59,466
See notes to consolidated financial statements
F-4
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
February February February
28, 1997 29, 1996 28, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,761 $ 2,014 $ 4,735
Adjustments to reconcile net income to
net cash provided by (used in) operations:
Depreciation and amortization of fixed assets 2,757 2,120 1,378
Amortization of intangibles and other assets 2,623 1,823 1,237
Increase (decrease) in other long term liabilities (758) 477 296
Allowance for doubtful accounts 600 450 350
Deferred income taxes 548 (1,013) 513
Gain on sale of business division (472) - -
Change in operating assets and liabilities:
Accounts receivable (23,443) 3,993 (2,452)
Prepaid expenses and other current assets (1,193) (1,447) (212)
Accounts payable and accrued expenses (1,610) 12,750 6,576
Income taxes payable 62 (1,098) (398)
Other assets (3,654) (10) (595)
Net cash provided by (used in)
operating activities (20,779) 20,059 11,428
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (8,202) (7,981) (3,956)
Additions to fixed assets (2,334) (1,127) (2,101)
Proceeds from disposal of fixed assets - 14 3
Net cash used in investing activities (10,536) (9,094) (6,054)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Employee Stock Purchase Plan 581 431 397
Exercise of stock options 29 409 95
Exercise of warrants 195 1,130 502
Purchase and retirement of common stock (410) (1,025) (2,836)
Borrowings under revolving line of credit 21,565 (6,461) (5,094)
Proceeds from other note payable 5,727 - -
Payment of notes payable and other
long-term liabilities (3,076) (1,247) (1,260)
Net cash provided by (used in) financing
activities 24,611 (6,763) (8,196)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,704) 4,202 (2,822)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,710 4,508 7,330
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,006 $ 8,710 $ 4,508
SUPPLEMENTAL DATA:
Cash paid for:
Interest $ 1,081 $ 806 $ 962
Income taxes, net $ 1,867 $ 3,485 $ 2,846
Fixed assets purchased through
capital lease agreements $ 4,770 $ 2,425 $ 1,330
Common stock issued for business acquisitions $ - $ - $ 8,482
See notes to consolidated financial statements
F-5
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1997 ("Fiscal 1997"), FEBRUARY 29, 1996
("Fiscal 1996") AND FEBRUARY 28, 1995 ("Fiscal 1995")
(Dollars in Thousands, Except Where Indicated Otherwise and, for Per
Share Amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Staff Builders, Inc. ("Staff Builders" or the "Company") is
a national provider of home health care personnel and supplemental
staffing to health care institutions.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Staff Builders and its wholly-owned subsidiaries. The
Company maintains its records on a fiscal year ending the last day in
February. All material intercompany accounts and transactions have
been eliminated. Certain prior period amounts have been reclassified
to conform with the fiscal 1997 presentation.
A majority of the Company's service revenues are derived
under a form of franchising where the Company licenses independent
companies or contractors to represent the Company within a designated
territory using the Company's trade names and service marks. These
franchisees recruit direct service personnel and solicit orders and
assign Company personnel including registered nurses, therapists and
home health aides to service the Company's clients. The Company pays
and distributes the payroll for the direct service personnel,
administers all payroll withholdings and payments, bills the customers
and receives and processes the accounts receivable. The franchisees
are responsible for providing an office and paying related expenses
for administration including rent, utilities and costs for
administrative personnel.
The Company owns all necessary health care related permits
and licenses and, where required, certificates of need for operation
of franchise offices. The revenues generated by the franchise
operations along with the related accounts receivable belong to the
Company. The revenues and related direct costs are included in the
Company's consolidated service revenues and operating costs.
The Company pays a distribution or commission to the
franchisees based on a defined formula of gross profit generated.
Generally, the Company pays the franchisee 60% of the gross profit
attributable to the non-Medicare operations of the franchise. The
payment to the Company's franchises related to Medicare operations is
adjusted for cost limitations and reimbursement of allowable Medicare
costs.
F-6
For fiscal 1997, 1996 and 1995, total franchisee
distributions of approximately $88.6 million, $75.4 million and $56.9
million, respectively, were included in the Company's general and
administrative expenses.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, revenues and expenses as well as the disclosure of
contingent assets and liabilities in the financial statements. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include certificates of deposit
and commercial paper purchased with a maturity of less than three
months.
Fixed Assets
Fixed assets, primarily consisting of equipment, furniture
and fixtures, and leasehold improvements, are stated at cost and
depreciated over the estimated useful lives of the assets using the
straight-line method. The estimated useful lives of the related assets
are generally five to seven years.
Intangible Assets
The excess of the purchase price and related acquisition
costs over the fair market value of the net assets of the businesses
acquired is amortized on a straight-line basis over periods ranging
from fifteen to forty years. Intangible assets also include customer
lists, trademarks and noncompete agreements, which are amortized over
a four to fifteen-year period on a straight-line basis. The
accumulated amortization as of February 28, 1997 and February 29,
1996, was $9,126 and $7,282, respectively. During fiscal 1997 and
fiscal 1996, the Company wrote off $659 and $1,014 of fully amortized
intangible assets, respectively.
Impairment Accounting
In fiscal 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This Statement requires that certain assets be reviewed for impairment
and, if impaired, remeasured at fair value, whenever events or changes
in circumstances indicate that the carrying amount of the asset may
not be recoverable. The adoption of SFAS No. 121 at February 28, 1997
and its application during fiscal 1997, had no material impact on the
Company's financial position or results of operations.
F-7
Revenue Recognition
Revenues generated from the sales and licensing of
franchises and initial franchise fees are recognized when the Company
has performed substantially all of its obligations under its franchise
agreements and when collectibility of such amounts is reasonably
assured. In circumstances where a reasonable basis does not exist for
estimating collectibility of the proceeds of the sales of franchises
and initial franchise fees, such proceeds are deferred and recognized
as collections are made, utilizing the cost recovery method (see Note
2).
Medicare reimburses the Company for covered items and
services at the lower of the Company's cost, as determined by
Medicare, cost limits established by the Federal government, or the
amount charged by the Company. Revenues generated from Medicare
services 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. Management reduces revenues by its estimate of the amount
of net adjustments which should ultimately occur. Adjustments, if any,
are recorded to these estimates in the period during which they arise.
The Company reduced its Medicare revenues by $3 million in the quarter
ended November 30, 1995, for which the related amount of the third
party payor settlement liability is included in accrued expenses, due
to a revision in the methodology used to allocate corporate overhead.
Income Taxes
Deferred income taxes result from timing differences
between financial and income tax reporting which primarily include the
deductibility of certain expenses in different periods for financial
reporting and income tax purposes.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, franchise
notes receivable, obligations under capital leases and notes payable
and other liabilities related to acquisitions approximate fair value.
2. FRANCHISE OPERATIONS
Franchise notes receivable generally bear interest at the
prevailing prime lending rate plus three percent and are generally
payable over a term of ten years. The balance of these notes
receivable at February 28, 1997 and February 29, 1996 amounted to
$1,953 and $1,560, net of deferred income reflected as a valuation
reserve for financial reporting purposes of $5,600 and $5,735,
respectively. The net balances of these notes at February 28, 1997
and February 29, 1996 include $302 and $191 in Prepaid Expenses and
Other Current Assets and $1,651 and $1,369 in Other Assets,
respectively. During fiscal 1997, 1996 and 1995, $444, $526 and $381,
respectively, of notes receivable previously not recognized into
income were collected and included in revenues.
F-8
Sales of franchises and fees, net include $827, $761 and
$480 of initial franchise fees for fiscal 1997, 1996 and 1995,
respectively. The initial franchise fees received in fiscal 1997,
1996 and 1995 include $488, $507 and $452 for health care franchises
and $339, $254 and $28 for supplemental staffing franchises,
respectively. The remaining amounts represent charges to franchisees
for the use of Company assets including customer and employee lists.
The Company has performed substantially all of its obligations as
required under the terms of its franchise agreements.
General and administrative expenses include reserves and
write-offs of notes receivable from franchisees of $169 in fiscal
1996. There was no expense incurred in fiscal 1997 and 1995 related
to reserves and write-offs of notes receivable.
Interest income on franchise notes receivable is included
in other income.
On September 6, 1996, in connection with the acquisition of
a supplemental staffing business (see Note 3), a corporation acquired
the rights to operate this business as a franchise and paid a fee of
$75 to the Company. A majority of the stock of this corporation is
owned by two family members of one of the Company's executive
officers.
In April 1992, one of the franchisees was acquired by a
corporation owned by a family member of one of the Company's executive
officers. The purchase price for the franchise included the
assumption of a note payable to the Company of $845 of which $729
remains outstanding at February 28, 1997. The note bears interest at
the prevailing prime lending rate and matures in 2009.
Two of the Company's executive officers own a portion of
three franchises. One of these officers owns a portion of a franchise
for which a note payable was issued to the company of $300 of which
$244 remains outstanding at February 28, 1997. The other Company
officer owns a portion of two franchises for which liabilities to the
Company of $36 and $46, respectively, remain outstanding at February
28, 1997.
3. ACQUISITIONS
On October 7, 1996, the Company acquired the assets of
Assured Home Health and Hospice, Inc., a regional home health care
provider consisting of three locations in the state of Washington.
This transaction was accounted for as a purchase for which aggregate
consideration of approximately $500 included cash paid of
approximately $100 and net obligations assumed of approximately $400.
On September 6, 1996, the Company acquired the assets of
All Care Nursing Service, Inc., a provider of supplemental staffing
in the metropolitan New York area. The transaction was accounted for
as a purchase for aggregate consideration of approximately $2.5
million, including cash paid of $1.3 million and a note payable of
$1.2 million.
F-9
On June 15, 1996, the Company acquired the assets of
Central California Premier Health Services, Inc., a regional home
health care provider consisting of five locations in northern
California, in a transaction accounted for as a purchase. Aggregate
consideration included cash paid of $1.1 million and a note payable
of $600.
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 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.
On September 1, 1995, the Company acquired assets of
Accredicare, Inc., a health care provider consisting of four
locations, in central New Jersey, which was accounted for as a
purchase for which cash consideration of approximately $1.2 million
was paid. This health care provider currently operates these
locations as a franchise of the Company. Commencing in September
2000, the franchise has the option to require the Company to purchase
the franchise rights for an amount equal to the gross margin generated
for the prior twelve month period.
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, which subsequently operated these
locations as a franchise of the Company. This transaction was
accounted for as a purchase for aggregate cash consideration of
approximately $2.4 million.
On July 22, 1994, the Company acquired the stock of ATC
Services Incorporated ("ATC"), an Atlanta, Georgia based provider of
medical staffing services, for aggregate consideration of
approximately $8.7 million which resulted in goodwill and intangibles
of approximately $5.7 million. The consideration consisted of
approximately 2.5 million shares of the Company's common stock and
approximately $300 in related acquisition costs. In November 1994,
ATC acquired certain assets and the operations of seven additional
medical staffing locations for aggregate cash consideration of $800,
which resulted in goodwill of approximately $700. These acquisitions
were accounted for as purchase transactions.
The results of operations of the acquired companies are
included in the accompanying consolidated financial statements
subsequent to their respective dates of acquisition. Revenues, net
income and earnings per share, on an unaudited pro forma basis for the
year ended February 28, 1997, if the fiscal 1997 acquisitions had
occurred on March 1, 1996, would have approximated $493 million, $4.6
million and $.19, respectively. Revenues, net income and earnings per
share on an unaudited pro forma basis for the year ended February 29,
F-10
1996, if the fiscal 1997 and 1996 acquisitions had occurred on March
1, 1995, would have approximated $448 million, $2.6 million and $.10,
respectively. Revenues, net income and earnings per share on an
unaudited pro forma basis for the year ended February 28, 1995, if the
fiscal 1996 and 1995 acquisitions had occurred on March 1, 1994,
would have approximated $368 million, $5.4 million and $.21,
respectively.
Additionally, the Company acquired certain assets,
consisting primarily of licenses, permits, Certificates of Need and
provider numbers required for the operation of each location and
employee and customer lists, of other home health care providers in
fiscal 1997, 1996 and 1995 for aggregate consideration of
approximately $7,659, $4,693 and $3,147, respectively. The fiscal
1997 consideration included cash paid, notes payable and liabilities
assumed of $5,755, $1,313 and $591, respectively. The fiscal 1996
consideration included cash paid of $2,933 and $1,760 in notes payable
(see Note 7). The fiscal 1995 consideration was paid in cash. The
fiscal 1997, 1996 and 1995 acquisitions consisted of sixteen, eleven
and seven separate entities, respectively, and were accounted for as
purchase transactions.
In connection with the fiscal 1997 and 1996 acquisitions,
assets acquired and consideration paid was as follows:
1997 1996
Fair value of assets acquired $12,310 $15,440
Net cash paid for acquired
assets and stock (8,202) (7,981)
Liabilities assumed and notes
payable issued for acquisitions $ 4,108 $ 7,459
4. FIXED ASSETS
Fixed assets consist of the following:
February February
28, 1997 29, 1996
Equipment under capital leases
(see Note 7) $ 9,972 $ 5,341
Office equipment, furniture
and fixtures 7,053 5,988
Leasehold improvements 1,000 752
Land and buildings 181 106
Total, at cost 18,206 12,187
Less accumulated depreciation
and amortization 6,124 4,751
Fixed assets, net $12,082 $ 7,436
During fiscal 1997 and fiscal 1996, the Company wrote off fully
depreciated fixed assets of approximately $1.4 million and $1.7
million, respectively.
F-11
5. ACCRUED EXPENSES
Accrued expenses include $7,424 and $7,185 at February 28, 1997
and February 29, 1996, respectively, of accrued franchise
distributions. Also included in accrued expenses at February 28, 1997
and February 29, 1996 was $7,372 and $7,036, respectively, reflecting
the Company's third-party payor settlement liability.
6. ACCRUED PAYROLL AND PAYROLL RELATED EXPENSES
Accrued payroll and payroll related expenses consist of the
following:
February February
28, 1997 29, 1996
Accrued payroll $ 8,142 $11,781
Accrued insurance 5,447 10,569
Accrued payroll taxes 5,002 3,131
Other 3,151 2,288
Total $21,742 $27,769
7. LONG-TERM LIABILITIES
Long-term liabilities consist of the following:
February February
28, 1997 29, 1996
Borrowings under a secured revolving
line of credit(a) $21,565 $ -
Obligations under capital leases(b) 6,768 3,755
Rent escalation liability(c) 1,049 1,086
Notes payable and other liabilities
related to acquisitions(d) 7,177 5,428
Other note payable (e) 5,438 -
Other 1,231 1,698
Total 43,228 11,967
Less current portion 5,230 2,356
Long-term liabilities(f) $37,998 $ 9,611
(a) The Company has a secured credit facility which expires on July
31, 2000. The credit facility consists of a revolving line of credit,
an acquisition line of credit and a standby letter of credit facility,
under which the Company can borrow up to an aggregate amount of $50
million.
Amounts borrowed under the credit facility are collateralized by
a pledge of all the stock of the Company's subsidiaries, by all
accounts receivable and by liens on substantially all other assets of
the Company and its subsidiaries. The agreement contains certain
financial covenants which, among other things, (i) require the
maintenance of a specified minimum defined level of book net worth,
a minimum ratio of net income before depreciation and amortization to
the sum of payments made for long term debt, unfunded capital
expenditures, stock repurchases and permitted acquisitions, and a
F-12
maximum ratio of senior debt to book net worth, (ii) limit the amount
of unfunded capital expenditures, and (iii) prohibit the declaration
or payment of cash dividends.
The amounts available for borrowing based on collateral under the
credit facility were $16.4 million at February 28, 1997 and $24.8
million at February 29, 1996. The maximum amounts borrowed under the
credit facility for fiscal 1997 and 1996, were $26.4 million and $10
million and the average interest rates were 7.96% and 8.98%,
respectively.
The credit facility bears interest at the prevailing prime
lending rate and, at the Company's option, borrowings may bear
interest based upon the London Interbank Offered Rate (LIBOR) plus
1.50% to 2.25%. At February 28, 1997, $20 million of borrowings were
bearing interest at the LIBOR option, which was 7.50%, and borrowings
in excess thereof were bearing interest at the prime rate which was
8.25%. A commitment fee on the unused portion of the credit facility
is payable at the rate of .375% per annum, together with an annual
collateral management fee of $85.
The Company is permitted to borrow up to 75% of eligible accounts
receivable, up to the maximum amount of the credit facility less
amounts outstanding under the acquisition line of credit and any
outstanding letters of credit. The acquisition line of credit
provides for borrowings up to $15 million without collateral to
finance acquisitions, provided that the sum of all borrowings do not
exceed $50 million. Amounts borrowed under the acquisition line of
credit are subject to the Bank's approval and must be repaid over
twelve to forty-eight months as determined by the Bank, at .75% over
prime or, at the Company's option, at LIBOR plus 2.75%. There have
been no borrowings under the acquisition line of credit.
(b) At February 28, 1997, the Company had capital lease agreements
for computers and other equipment through September 2002. The net
carrying value of the assets under capital leases was approximately
$7.1 million and $3.8 million at February 28, 1997 and February 29,
1996, respectively, and such amounts are included in Fixed Assets.
(c) The lease on the Company's corporate headquarters requires
scheduled rent increases through September 30, 2003. A rent
escalation liability is recorded for the amounts required to record
the expense of this lease on a straight-line basis over the life of
the lease, in excess of payments made.
(d) At February 28, 1997, the Company had a balance of notes payable
and other liabilities related to acquisitions made during fiscal 1997
of $2.436 million and $155, respectively. The notes payable bear
interest at 4.0% to 8.25% and have maturity dates through April 2006.
Additionally, in connection with acquisitions made in prior fiscal
years, the Company had a balance of notes payable and other
liabilities of $4.018 million and $568, respectively. These notes
payable bear interest at 7.5% to 8.0% and mature at dates through
September 2010.
F-13
(e) The Company has a secured term loan which bears interest at 6.69%
and requires monthly payments of $176 through December 1999.
(f) Long-term liabilities maturing subsequent to February 28, 1997
are as follows:
Obligations
Under
Capital Other
Years Ending February Leases Debt Total
1998 $2,241 $ 2,989 $ 5,230
1999 2,080 2,927 5,007
2000 1,665 2,293 3,958
2001 768 22,124 22,892
2002 12 702 714
Thereafter 2 5,425 5,427
Total $6,768 $36,460 $43,228
8. INCOME TAXES
The provision for income taxes consists of the following:
Years Ended
February February February
28, 1997 29, 1996 28, 1995
Current:
Federal $ 1,709 $1,829 $2,208
State 558 643 741
Deferred 688 (1,013) 513
Total $ 2,955 $1,459 $3,462
The deferred tax assets (liabilities) at February 28, 1997
and February 29, 1996 are comprised of the following:
February February
28, 1997 29, 1996
Current:
Allowance for doubtful
accounts receivable $ 903 $ 647
Nondeductible accruals 951 1,756
Current 1,854 2,403
Non-Current:
Revenue recognition 464 407
Accelerated depreciation (516) (370)
Other assets (liabilities) (195) 65
Non-current (247) 102
Total $1,607 $2,505
The non-current deferred tax assets (liabilities) are included in
Other Assets and Long-Term Liabilities on the accompanying balance
sheets.
F-14
The following is a reconciliation of the effective income
tax rate to the Federal statutory rate:
Years Ended
February February February
28, 1997 29, 1996 28, 1995
Federal statutory rate 34.0% 34.0% 34.0%
State and local income taxes,
net of Federal income
tax benefit 7.6 8.7 6.9
Tax credits (0.4) (3.9) (0.1)
Goodwill amortization 4.6 8.9 2.9
Reversal of prior year
accrual (2.3) (7.4) -
Other 0.5 1.7 (1.5)
Effective rate 44.0% 42.0% 42.2%
9. COMMITMENTS AND CONTINGENCIES
Approximate minimum annual rental commitments for the
remaining terms of the Company's noncancellable operating leases
relating to office space and equipment rentals are as follows:
Years Ending February
1998 $ 4,150
1999 3,341
2000 2,666
2001 2,015
2002 1,444
Thereafter 2,668
Total $16,284
Certain leases require additional payments based upon property
tax and maintenance expense escalations.
Aggregate rental expense for fiscal 1997, 1996 and 1995
approximated $3,967, $3,409 and $2,850, respectively.
The Company has entered into employment or consulting
agreements with several officers and other individuals which
require minimum aggregate payments of approximately $2,575, $2,181,
$1,517, $1,306 and $1,330, over the next five fiscal years.
Agreements with two executives provide, in the event of their
death, for the continued payment of their compensation to their
beneficiaries for the duration of their agreements. Additionally,
certain officers have entered into agreements which provide that in
the event of change in control of, and the discontinuance of such
employee's employment, the Company will pay a lump sum amount of
2.99 times the average annual compensation paid to the employee
during the five-year period immediately preceding the date of the
discontinuance of employment.
F-15
The Company is a guarantor of a mortgage in the amount of $518
as of February 28, 1997 through February 2005 arising from the sale
of land and a building in June 1988.
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 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 financial
statements.
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. In management's opinion, settlement of
these actions will not have a material adverse effect on the
Company's consolidated financial position, liquidity or results of
operations. Accrued expenses include $175 at February 28, 1997
which represents the estimated amount of liability claims payable.
Such amount represents the deductible amount for which the Company
is liable, net of payments by the Company's insurers which are
probable of realization, estimated at approximately $1.5 million.
10. STOCKHOLDERS' EQUITY
Common Stock - Recapitalization and Voting Rights
During fiscal 1996 the shareholders approved a plan of
recapitalization by which the existing Common Stock, $.01 par
value, was reclassified and converted into either Class A Common
Stock, $.01 par value per share, or Class B Common Stock, $.01 par
value per share. Prior to the recapitalization, shares of common
stock that were held by the beneficial owner for at least 48
consecutive months were considered long-term shares, and, were
entitled to ten votes for each share of stock. Pursuant to the
recapitalization, long-term shares were converted into Class B
Common Stock and short-term shares (beneficially owned for less
than 48 months) were converted into Class A Common Stock. As a
result of the recapitalization, 1,554,936 shares of Class B common
stock were issued.
F-16
A holder of Class B Common Stock is entitled to ten votes for
each share and each share is convertible into one share of Class A
Common Stock (and will automatically convert into one share of
Class A Common Stock upon any transfer subject to certain limited
exceptions). Except as otherwise required by the Delaware General
Corporation Law, all shares of common stock vote as a single class
on all matters submitted to a vote by the stockholders.
The recapitalization included all outstanding options and
warrants to purchase shares of common stock which were converted
automatically into options and warrants, to purchase an equal
number of shares of Class A Common Stock.
Stock Options
The Company has adopted the disclosure provisions of the
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"). Accordingly, no compensation
expense has been recognized for the stock option plans. Had the
Company recorded compensation expense for the stock options based
on the fair value at the grant date for awards in fiscal years
ended 1997 and 1996 consistent with the provisions of SFAS 123, the
Company's net income and net income per share would have been
reduced to the following pro forma amounts:
February February
28, 1997 29, 1996
Net income-as reported $ 3,761 $ 2,014
Net income-pro forma 3,708 2,008
Primary earnings per share-as reported .16 .08
Primary earnings per share-pro forma .15 .08
Fully diluted earnings per share-as reported .16 .08
Fully diluted earnings per share-pro forma .15 .08
Because the SFAS 123 method of accounting has not been applied
to options granted prior to March 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected
in future years.
The fair value of each option grant is estimated on the date
of grant using the Black Scholes option pricing model with the
following weighted-average assumptions used for grants in fiscal
years 1997 and 1996: expected volatility of 48%; risk-free interest
rate averaging 7.1%; and expected lives of 10 years.
During the year ended February 28, 1994 ("fiscal 1994"), the
Company adopted a stock option plan (the "1993 Stock Option Plan")
under which an aggregate of one million shares of common stock are
reserved for issuance upon exercise of options thereunder. Options
granted under this plan may be incentive stock options ("ISO's") or
non-qualified options ("NQSO's"). This plan replaces the 1986 Non-
Qualified Plan ("1986 NQSO Plan") and the 1983 Incentive Stock
Option Plan ("1983 ISO Plan") which terminated in 1993 except as to
options then outstanding. Employees, officers, directors and
consultants are eligible to participate in the plan. Options are
granted at not less than the fair market value of the common stock
at the date of grant.
F-17
A total of 894,000 stock options were granted under the 1993
Stock Option Plan, at prices ranging from $2.63 to $3.87, of which
712,000 remain outstanding at February 28, 1997. A summary of
activity under the 1993 Stock Option Plan, the 1986 NQSO Plan and
the 1983 ISO Plan is as follows:
Options
for Shares Price per Share
Options outstanding at
February 28, 1994 3,613,615 $1.31 to $6.38
Granted 110,500 $2.94 to $3.75
Exercised (35,450) $1.31 to $3.00
Terminated (23,800) $2.19 to $3.69
Options outstanding at
February 28, 1995 3,664,865 $1.63 to $6.38
Granted 31,000 $2.63 to $2.94
Exercised (1,120,735) $1.75 to $3.00
Terminated (72,100) $2.19 to $4.00
Options outstanding at
February 29, 1996 2,503,030 $1.63 to $6.38
Granted 222,500 $2.50 to $3.19
Exercised (39,000) $2.27
Terminated (213,500) $2.19 to $6.38
Options outstanding at
February 28, 1997 2,473,030 $1.63 to $6.13
Included in the outstanding options are 808,633 ISO's and
1,426,857 NQSO's which were exercisable at February 28, 1997. The
remaining options to purchase 237,540 shares become exercisable at
various dates through March 2000.
The following tables summarize information about stock options
outstanding at February 28, 1997:
Options Outstanding
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Life Exercise
Prices Outstanding (In Years) Price
$1.63 to $2.50 1,414,530 3.3 $1.97
$2.51 to $3.50 617,000 3.9 $2.99
$3.51 to $6.13 441,500 6.7 $3.77
2,473,030 4.0 $2.56
F-18
Options Exercisable
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Life Exercise
Prices Exercisable (In Years) Price
$1.63 to $2.50 1,308,322 3.3 $1.94
$2.51 to $3.50 490,668 2.8 $3.00
$3.51 to $6.13 436,500 6.7 $3.77
2,235,490 3.8 $2.53
During fiscal 1995, the Company adopted a stock option plan
(the "1994 Performance-Based Stock Option Plan") which provides for
the issuance of up to 3,400,000 shares of its common stock.
Executive officers of the Company and its wholly-owned subsidiaries
are eligible for grants. Performance-based stock options are
granted for periods of up to ten years and the exercise price is
equal to the average of the closing price of the common stock for
the twenty consecutive trading days prior to the date on which the
option is granted. Vesting of performance based options is during
the first four years after the date of grant, and is dependent upon
increases in the market price of the common stock.
A total of 2,230,000 stock options were granted under the 1994
Performance-Based Stock Option Plan at an option price of $3.14.
Options for 1,115,000 are currently exercisable through 2004 and
the remaining 1,115,000 options may become exercisable prior to
October 1998 based upon the market price of the Company's common
stock.
During fiscal 1994, the Company adopted an Employee Stock
Purchase Plan which provides for the issuance of up to one million
share of its common stock. The purchase price of the shares is the
lesser of 90 percent of the fair market value at the enrollment
date, as defined, or the exercise date. Since inception of this
plan a total of 523,073 shares were issued.
Stock Warrants
In connection with a public sale of securities completed in
February 1992, the Company sold warrants to purchase its common
stock at $3.00 per share. During fiscal 1994, the Company called
for redemption of the outstanding public warrants, which resulted
in the issuance of 5.06 million shares of common stock and net
proceeds of $13.7 million. In connection with the redemption of
the warrants, the Company issued to a financial advisor, warrants
to purchase 200,000 shares of the Company's common stock at $3.20
per share. These warrants were exercised during fiscal 1996.
In connection with the February 1992 public sale of
securities, the Company sold to the underwriter and its designees,
warrants to purchase 200,000 units at an exercise price of $9.90
per unit. Each unit consisted of four shares of common stock.
During fiscal 1997, warrants to purchase 2,670 units were exercised
and the Company issued 10,680 shares and received proceeds of $26.
The remaining underwriter warrants expired January 31, 1997.
F-19
During the year ended February 29, 1992, the Company granted
warrants for the purchase of 150,000 shares of its common stock at
$1.12 per share and 250,000 shares at $2.08 per share to a
financial public relations firm. During fiscal 1997, warrants to
purchase 150,000 shares were exercised and the company received
proceeds of $168. The warrants to purchase 250,000 shares expired
February 13, 1997.
In connection with the establishment of the Company's
revolving line of credit in February 1992, the Company issued
warrants for the purchase of 250,000 shares of its common stock at
$2.00 per share to a consulting firm. These warrants were exercised
during fiscal 1995.
Preferred Stock, Class A
Each issued and outstanding share of Preferred Stock, Class A
is entitled to a noncumulative dividend of $1.00, and has a
preference on liquidation of $1.00. The holders of the Preferred
Stock, Class A do not have any voting rights except on matters
concerning the substantive rights, privileges and preferences of
the Preferred Stock, Class A and on issues related to certain
business combinations.
Common Shares Reserved
The following represents common shares reserved and available for
issuance, at February 28, 1997, for options granted and outstanding
warrants and employee stock purchases:
Available
Reserved for Issuance
1994 Performance-Based Stock
Option Plan 2,230,000 1,170,000
1993, 1986 and 1983 Stock
Option Plans 2,573,030 244,000
1993 Employee Stock Purchase Plan - 476,927
Other 45,349 -
Total 4,848,379 1,890,927
11. EARNINGS PER COMMON SHARE
Primary and fully diluted 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 which consist principally
of dilutive stock options and warrants.
The fiscal 1997 and 1995 computations include the additional
shares and the assumed savings of interest expense, net of income
taxes, that would have occurred if all outstanding options and
warrants were exercised.
F-20
The following table presents information necessary to calculate
earnings per share calculations for fiscal 1997, 1996 and 1995 (in
thousands):
Years Ended
February February February
28, 1997 29, 1996 28, 1995
Primary
Shares outstanding:
Weighted average outstanding 23,668 23,598 22,389
Share equivalents 923 1,742 1,684
Adjusted outstanding 24,591 25,340 24,073
Net income $ 3,761 $ 2,014 $ 4,735
Add interest savings, net
of tax provision 55 - -
Adjusted net income applicable
to common stockholders $ 3,816 $ 2,014 $ 4,735
Primary earnings per share $ .16 $ .08 $ .20
Fully Diluted
Shares outstanding:
Weighted average outstanding 23,668 23,598 22,389
Share equivalents 980 1,934 1,987
Adjusted outstanding 24,648 25,532 24,376
Net income $ 3,761 $ 2,014 $ 4,735
Add interest savings, net
of tax provision 64 - 25
Adjusted net income applicable
to common stockholders $ 3,825 $ 2,014 $ 4,760
Fully diluted earnings per share $ .16 $ .08 $ .20
12. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for fiscal 1997
and 1996 are as follows (in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal 1997
Revenues $113,421 $114,824 $123,307 $128,803
Gross profit $ 42,803 $ 43,705 $ 45,754 $ 46,585
Net Income $ 884 $ 979 $ 989 $ 909
Income per common share:
Primary $ .04 $ .04 $ .04 $ .04
Fully diluted $ .04 $ .04 $ .04 $ .04
Weighted average number
of common shares:
Primary 24,610 24,827 24,734 24,195
Fully diluted 24,917 24,827 24,785 24,451
F-21
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal 1996
Revenues $ 98,426 $100,369 $105,971 $105,394
Gross profit $ 37,928 $ 38,099 $ 37,272 $ 40,142
Net Income (Loss) $ 1,394 $ 1,542 $ (1,860) $ 938
Income (Loss) per common share:
Primary $ .06 $ .06 $ (.08) $ .04
Fully diluted $ .06 $ .06 $ (.08) $ .04
Weighted average number
of common shares:
Primary 25,222 25,616 23,847 24,358
Fully diluted 25,239 25,681 23,847 24,451
During the fourth quarter ended February 28, 1997, the Company
recorded a gain of approximately $834 from the sale of a closed
division.
The Company reduced its revenues by $3 million in the quarter
ended November 30, 1995 due to a change in the method of allocating
overhead to the Company's Medicare operations. The Company also
recorded charges in other (income) expense, net including $1.6
million during the quarter ended November 30, 1995 for the closure
of two divisions, $165 for settlement of litigation and $358 of
costs associated with the Company's recapitalization (see Note 10).
13. SUBSEQUENT EVENT
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.
F-22
SCHEDULE II
STAFF BUILDERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Years Ended
February February February
28, 1997 29, 1996 28, 1995
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period $ 2,200 $ 1,750 $ 1,400
Charged to costs and expenses 2,740 2,678 2,431
Deductions (2,140) (2,228) (2,081)
Balance, end of period $ 2,800 $ 2,200 $ 1,750
ACCUMULATED AMORTIZATION OF
INTANGIBLE ASSETS:
Balance, beginning of period $ 7,282 $ 6,532 $ 5,342
Charged to costs and expenses 2,503 1,764 1,190
Deductions ( 659) (1,014) -
Balance, end of period $ 9,126 $ 7,282 $ 6,532
DEFERRED INCOME (NETTED AGAINST
FRANCHISE NOTES RECEIVABLE):
Balance, beginning of period $ 5,735 $ 5,050 $ 5,761
Charged to notes receivable 341 1,315 481
Deductions ( 476) ( 630) (1,192)
Balance, end of period $ 5,600 $ 5,735 $ 5,050
F-23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no such changes or disagreements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10, 11, 12 and 13
is included in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders, which will be filed pursuant to
Regulation 14A within 120 days after the close of the fiscal year
for which this Report is filed, and which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) Financial Statements and Financial Statement Schedules
The financial statements, including the supporting schedules,
filed as part of the report, are listed in the Table of Contents
to the Consolidated Financial Statements.
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant for the
quarter ended February 28, 1997.
(C) Exhibits
-22-
EXHIBIT INDEX
Exhibit No. Description
3.1 Restated Certificate of Incorporation of the
Company, filed July 11, 1988. (A)
3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company, filed
August 22, 1991. (B)
3.3 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company, filed
September 3, 1992. (A)
3.4 Certificate of Retirement of Stock of the Company,
filed February 28, 1994. (C)
3.5 Certificate of Retirement of Stock of the Company,
filed June 3, 1994. (A)
3.6 Certificate of Designation, Rights and Preferences
of the Class A Preferred Stock of the Company,
filed June 6, 1994. (A)
3.7 Certificate of Amendment of Restated Certificate
of Incorporation of the Company, filed August 23,
1994. (A)
3.8 Certificate of Amendment of Restated Certificate
of Incorporation of the Company, filed October 26,
1995. (D)
3.9 Certificate of Amendment of Restated Certificate
of Incorporation of the Company, filed December
19, 1995. (E)
3.10 Plan Of Recapitalization dated as of May 12,
1995. (E)
3.11 Amended and Restated By-Laws of the Company. (A)
4.1 Specimen Class A Common Stock Certificate. (F)
4.2 Specimen Class B Common Stock Certificate. (G)
10.1 1983 Incentive Stock Option Plan (incorporated by
reference to Exhibit 18.1 to the Company's
Registration Statement on Form S-18, (File No.
1-83939NY), filed with the Commission on September
15, 1983).
- ---------------------
See Notes to Exhibits
Exhibit No. Description
10.2 Amendment to the 1983 Incentive Stock Option Plan
(adopted on May 15, 1986). (A)
10.3 Amendment to the 1983 Incentive Stock Option Plan,
dated January 1, 1987. (A)
10.4 Amendment to the 1983 Incentive Stock Option Plan,
dated as of December 1, 1987. (A)
10.5 Amendment to the 1983 Incentive Stock Option Plan,
dated as of August 3, 1988. (A)
10.6 Amendment to the 1983 Incentive Stock Option Plan,
dated as of August 8, 1990. (A)
10.7 Amendment to the 1983 Incentive Stock Option Plan,
dated as of October 27, 1995. (H)
10.8 1986 Non-Qualified Stock Option Plan of the
Company. (I)
10.9 First Amendment to 1986 Non-Qualified Stock Option
Plan, effective as of May 11, 1990. (A)
10.10 Amendment to the 1986 Non-Qualified Stock Option
Plan, dated as of October 27, 1995. (J)
10.11 Resolutions of the Company's Board of Directors
amending the 1983 Incentive Stock Option Plan and
the 1986 Non-Qualified Stock Option Plan, dated as
of June 3, 1991. (A)
10.12 1993 Stock Option Plan of the Company. (A)
10.13 Amended and Restated 1993 Employee Stock Purchase
Plan of the Company. (K)
10.14 Executive Deferred Compensation Plan, effective as
of March 1, 1994. (C)
10.15 Form of Split-Dollar Life Insurance Agreement. (C)
10.16 1994 Performance-Based Stock Option Plan of the
Company (incorporated by reference to Exhibit B to
the Company's Proxy Statement, dated July 18,
1994, filed with the Commission on July 27, 1994.)
- ---------------------
See Notes to Exhibits
Exhibit No. Description
10.17 Stock Option Agreement, dated May 26, 1992, under
the Company's 1983 Incentive Stock Option Plan
between the Company and Stephen Savitsky. (A)
10.18 Stock Option Agreement, dated April 22, 1993,
under the Company's 1983 Incentive Stock Option
Plan between the Company and Stephen Savitsky. (A)
10.19 Stock Option Agreement, dated as of March 28,
1990, under the Company's 1986 Non-Qualified Stock
Option Plan between the Company and Stephen
Savitsky. (A)
10.20 Stock Option Agreement, dated as of June 17, 1991,
under the Company's 1986 Non-Qualified Stock
Option Plan between the Company and Stephen
Savitsky. (A)
10.21 Stock Option Agreement, dated February 3, 1994,
under the Company's 1993 Stock Option Plan between
the Company and Stephen Savitsky. (A)
10.22 Stock Option Agreement, dated October 1, 1994,
under the Company's 1994 Performance-Based Stock
Option Plan between the Company and Stephen
Savitsky. (A)
10.23 Stock Option Agreement, dated May 26, 1992, under
the Company's 1983 Incentive Stock Option Plan
between the Company and David Savitsky. (A)
10.24 Stock Option Agreement, dated April 22, 1993,
under the Company's 1983 Incentive Stock Option
Plan between the Company and David Savitsky. (A)
10.25 Stock Option Agreement, dated as of March 28,
1990, under the Company's 1986 Non-Qualified Stock
Option Plan between the Company and David
Savitsky. (A)
10.26 Stock Option Agreement, dated as of June 17, 1991,
under the Company's 1986 Non-Qualified Stock
Option Plan between the Company and David
Savitsky. (A)
10.27 Stock Option Agreement, dated February 3, 1994,
under the Company's 1993 Stock Option Plan between
the Company and David Savitsky. (A)
- ---------------------
See Notes to Exhibits
Exhibit No. Description
10.28 Stock Option Agreement, dated October 1, 1994,
under the Company's 1994 Performance-Based Stock
Option Plan between the Company and David
Savitsky. (A)
10.29 Stock Option Agreement, dated May 26, 1992, under
the Company's 1983 Incentive Stock Option Plan
between the Company and Gary Tighe. (A)
10.30 Stock Option Agreement, dated April 22, 1993,
under the Company's 1983 Incentive Stock Option
Plan between the Company and Gary Tighe. (A)
10.31 Stock Option Agreement, dated as of April 15,
1991, under the Company's 1986 Non-Qualified Stock
Option Plan between the Company and Gary Tighe.(A)
10.32 Stock Option Agreement, dated October 1, 1994,
under the Company's 1994 Performance-Based Stock
Option Plan between the Company and Gary Tighe.(A)
10.33 Stock Option Agreement, dated June 17, 1991, under
the Company's 1983 Incentive Stock Option Plan
between the Company and Edward Teixeira. (A)
10.34 Stock Option Agreement, dated May 26, 1992, under
the Company's 1983 Incentive Stock Option Plan
between the Company and Edward Teixeira. (A)
10.35 Stock Option Agreement, dated as March 28, 1990,
under the Company's 1986 Non-Qualified Stock
Option Plan between the Company and Edward
Teixeira. (A)
10.36 Stock Option Agreement, dated as of October 1,
1994, under the Company's 1994 Performance-Based
Stock Plan between the Company and Edward
Teixiera. (A)
10.37 Stock Option Agreement, dated as of September 25,
1996, under the Company's 1993 Stock Option Plan
between the Company and Edward Teixeira.
10.38 Stock Option Agreement, dated May 26, 1992, under
the Company's 1983 Incentive Stock Option Plan
between the Company and Sharon Hamilton. (A)
- ---------------------
See Notes to Exhibits
Exhibit No. Description
10.39 Stock Option Agreement, dated April 22, 1993,
under the Company's 1983 Incentive Stock Option
Plan between the Company and Sharon Hamilton. (A)
10.40 Stock Option Agreement, dated as of November 6,
1990, under the Company's 1986 Non-Qualified Stock
Option Plan between the Company and Sharon
Hamilton. (A)
10.41 Stock Option Agreement, dated as of October 1,
1994, under the Company's 1994 Performance-Based
Stock Option Plan between the Company and Sharon
Hamilton. (A)
10.42 Stock Option Agreement, dated as of March 1, 1996,
under the Company's 1993 Stock Option Plan,
between the Company and Larry Campbell.
10.43 Employment Agreement, dated as of June 1, 1987,
between the Company and Stephen Savitsky. (A)
10.44 Amendment, dated as of October 31, 1991, to the
Employment Agreement between the Company and
Stephen Savitsky. (A)
10.45 Amendment, dated as of December 7, 1992, to the
Employment Agreement between the Company and
Stephen Savitsky. (A)
10.46 Employment Agreement, dated as of June 1, 1987,
between the Company and David Savitsky. (A)
10.47 Amendment, dated as of October 31, 1991, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.48 Amendment, dated as of January 3, 1992, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.49 Amendment, dated as of December 7, 1992, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.50 Employment Agreement, dated as of May 15, 1993,
between the Company and Gary Tighe. (L)
- ---------------------
See Notes to Exhibits
Exhibit No. Description
10.51 Employment Agreement, dated as of December 1,
1996, between Staff Builders, Inc. (NY) and Edward
Teixeira.
10.52 Employment Agreement, dated as of March 1, 1996,
between Staff Builders, Inc. (NY) and Larry
Campbell. (M)
10.53 Agreement and Release, dated as of February 28,
1997, between Staff Builders, Inc. (NY) and Larry
Campbell.
10.54 Employment Agreement, dated as of May 1, 1993,
between Staff Builders, Inc. (NY) and Sharon
Hamilton. (L)
10.55 Amended and Restated Loan and Security Agreement,
dated as of January 8, 1997, between the Company,
its subsidiaries and Mellon Bank, N.A.
10.56 Master Lease Agreement dated as of December 4,
1996, between the Company and Chase Equipment
Leasing, Inc.
10.57 Premium Finance Agreement, Disclosure Statement
and Security Agreement dated as of December 26,
1996, between the Company and A.I. Credit Corp.
10.58 Promissory Note and Mortgage, dated August 23,
1984, of U.S. Ethicare Corporation to Niasher
Realty, Inc. (I)
10.59 Agreement of Lease, dated as of October 1, 1994,
between Triad III Associates and Staff Builders,
Inc. (NY). (A)
10.60 Supplemental Agreement, dated as of January 21,
1994, between General Electric Capital
Corporation, Triad III Associates and Staff
Builders, Inc. (NY) (A)
10.61 Agreement of Lease, dated as of June 19, 1995,
between Triad III Associates and Staff Builders,
Inc. (NY). (E)
10.62 Agreement of Lease, dated as of February 12, 1996,
between Triad III Associates and Staff Builders,
Inc. (NY). (E)
- ---------------------
See Notes to Exhibits
Exhibit No. Description
10.63 License Agreement, dated as of April 23, 1996,
between Matterhorn One, Ltd. and Staff Builders,
Inc. (NY).
10.64 License Agreement, dated as of January 3, 1997,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY)
10.65 License Agreement, dated as of January 16, 1997,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY).
10.66 Lease Agreement, dated as of November 4, 1996,
between Airport Landing Center, L.L.C. and Staff
Builders Home Health Care, Inc.
10.67 Asset Purchase Agreement dated as of June 22,
1993, between Albert Gallatin Home Care, Inc and
Albert Gallatin Visiting Nurse Association, Inc.
(C)
10.68 Stock Purchase Agreement, dated as of June 22,
1993, between Staff Builders, Inc. (NY) and Albert
Gallatin Planning and Development Corporation. (C)
10.69 Stock Purchase Agreement, dated as of August 30,
1995, between Staff Builders Services, Inc.,
MedVisit, Inc. and Roger Jack Pleasant. (E)
10.70 Asset Purchase and Sale Agreement, dated as of
September 1, 1995, between Staff Builders
Services, Inc. and Accredicare, Inc. (E)
10.71 Asset Purchase and Sale Agreement, dated as of
September 29, 1995, between Staff Builders
Services, Inc. and Carestar, Inc. (E)
10.72 Management and Stock Option Agreement, dated as
of February 29, 1996, between Staff Builders, Inc.
and Time Insurance Company.
10.73 Stock Purchase Agreement and Receipt, dated as of
February 28, 1997, between the Company and Time
Insurance Company.
- ---------------------
See Notes to Exhibits
Exhibit No. Description
10.74 Asset Purchase and Sale Agreement, dated as of
September 6, 1996, by and among ATC Healthcare
Services, Inc. and Staff Builders, Inc. and
William Halperin and All Care Nursing Service,
Inc. (N)
10.75 Stock Redemption Agreement, dated as of March 18,
1997, between the Company and American HomeCare
Management Corp.
10.76 Indemnification Agreement, dated as of September
1, 1987, between the Company and Stephen
Savitsky. (A)
10.77 Indemnification Agreement, dated as of September
1, 1987, between the Company and David
Savitsky. (A)
10.78 Indemnification Agreement, dated as of September
1, 1987, between the Company and Bernard J.
Firestone. (A)
10.79 Indemnification Agreement, dated as of September
1, 1987, between the Company and Jonathan
Halpert. (A)
10.80 Indemnification Agreement, dated as of May 2,
1995, between the Company and Donald Meyers.
10.81 Indemnification Agreement, dated as of February
10, 1992, between the Company and Gary Tighe. (A)
10.82 Indemnification Agreement, dated as of February
10, 1992, between the Company and Sharon
Hamilton. (A)
10.83 Indemnification Agreement, dated as of May 2,
1995, between the Company and Edward Teixeira. (A)
10.84 Form of Home Health Care Services Franchise
Agreement. (B)
10.85 Form of Medical Staffing Services Franchise
Agreement (E)
21 Subsidiaries of the Company.
24 Powers of Attorney.
- ---------------------
See Notes to Exhibits
NOTES TO EXHIBITS
(A) Incorporated by reference to the Company's exhibit
booklet to its Form 10-K for the fiscal year ended
February 28, 1995 (File No. 0-11380), filed with the
Commission on May 5, 1995.
(B) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-43728), dated
January 29, 1992.
(C) Incorporated by reference to the Company's exhibit
booklet to its Form 10-K for the fiscal year ended
February 28, 1994, (File No. 0-11380), filed with the
Commission on May 13, 1994.
(D) Incorporated by reference to the Company's Form 8-K
filed with the Commission on October 31, 1995.
(E) Incorporated by reference to the Company's exhibit
booklet to its Form 10-K for the fiscal year ended
February 28, 1996 (File No. 0-11380), filed with the
Commission on May 13, 1995.
(F) Incorporated by reference to the Company's Form 8-A
filed with the Commission on October 24, 1995.
(G) Incorporated by reference to the Company's Form 8-A
filed with the Commission on October 24, 1995.
(H) Incorporated by reference to the Company's Registration
Statement on Form S-8 (File No. 33-63941), filed with
the Commission on November 2, 1995.
(I) Incorporated by reference to the Company's Registration
Statement on Form S-4, as amended (File No. 33-9261),
dated April 9, 1987.
(J) Incorporated by reference to the Company's Registration
Statement on Form S-8 (File No. 33-63939), filed with
the Commission on November 2, 1995.
(K) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-71974), filed with
the Commission on November 19, 1993.
(L) Incorporated by reference to the Company's Post-
Effective Amendment No. 1 to Registration Statement on
Form S-1 (File No. 33-43728), filed with the Commission
on October 15, 1993.
(M) Incorporated by reference to the Company's Form 10-Q
for the quarterly period ended May 31, 1996 (File No.
0-11380), filed with the Commission on July 15, 1996.
(N) Incorporated by reference to the Company's Form 10-Q
for the quarterly period ended November 30, 1996 (File
No. 0-11380), filed with the Commission on January 14,
1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /S/ STEPHEN SAVITSKY
Stephen Savitsky
Chairman of the Board,
President, and Chief
Executive Officer
Dated: May 27, 1997
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/S/ STEPHEN SAVITSKY Chairman of the Board, May 27, 1997
Stephen Savitsky President and Chief
Executive Officer
(Principal Executive
Officer) and Director
/S/ DAVID SAVITSKY Executive Vice President, May 27, 1997
David Savitsky Chief Operating Officer,
Secretary, Treasurer
and Director
/S/ GARY TIGHE Senior Vice President, May 27, 1997
Gary Tighe Finance and Chief
Financial Officer
(Principal Financial
and Accounting Officer)
* Director May 27, 1997
Bernard J. Firestone,
Ph.D.
* Director May 27, 1997
Jonathan Halpert,
Ph.D.
* Director May 27, 1997
Donald Meyers
* By: /S/ STEPHEN SAVITSKY
(Stephen Savitsky,
Attorney-in-Fact)
-23-