ALMOST FAMILY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise indicated, all dollars and share amounts are in thousands, except per share data)

1.Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements for the quarters ended September 29, 2017 and September 30, 2016, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. Accordingly, the reader of this Form 10-Q is referred to Almost Family, Inc.’s (the “Company”) Annual Report on Form 10-K for the year ended December 30, 2016 for further information. In the opinion of management of the Company, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position at September 29, 2017, and the results of operations and cash flows for the quarters ended September 29, 2017 and September 30, 2016. The results of operations for the quarter ended September 29, 2017 are not necessarily indicative of the operating results for the year.

On the first day of fiscal 2017, the Company acquired an 80% controlling interest in the entity holding the home health and hospice assets of Community Health Systems, Inc. (NYSE: CYH) (“CHS-JV”). Community Health Systems, Inc. ("CHS") is one of the largest publicly-traded hospital companies in the United States and a leading operator of general acute care hospitals in communities across the country. CHS retained the remaining 20%. The purchase price of $128.9 million was funded through borrowings on the Company's revolving credit facility, which resulted in a deposit in the December 30, 2016 balance sheet. The deposit was converted to purchase consideration at closing. The borrowing was subsequently repaid with proceeds from the Company’s stock offering on January 25, 2017. The final purchase price is subject to a working capital adjustment. CHS-JV currently operates 76 home health and 15 hospice branch locations in 22 states. With the completion of this transaction, the Company now operates 332 branches across 26 states.

Third quarter operating results for the Company’s home health, personal care, hospice and assessment business lines were adversely impacted by Hurricanes Irma and Harvey (the “Hurricanes”). Due to the early warnings and evacuations related to these storms, the period of disruption started well in advance of each storm actually striking affected areas, while recovery periods were elongated. The Hurricanes impacted the Company’s operations in Florida, Georgia and Texas, which are the source of approximately one quarter of revenue. The impact of lost admissions, visits, assessments and revenue on operating income was approximately $3.3 million in the third quarter of 2017.

Reclassification

Consistent with the terms of the Company’s revolving credit facility, the Company now classifies unused commitment (“Unused”) and Letter of Credit (“LOC”) fees as a part of interest expense. Historically, such costs were included in General and administrative – Other. Unused and LOC fees for prior periods were reclassified to interest expense for consistency. Unused and LOC fees included in Interest expense for the quarter and nine months ended September 29, 2017 were $0.4 million and $1.0 million, respectively, while comparable prior year amounts were $0.1 million and $0.3 million, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

In the first quarter of 2017, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) ASU 2016-09, Compensation – Stock Compensation (“ASU 2016-09”). Under the new guidance, the Company recognizes all excess tax benefits or losses, if applicable, related to stock-based compensation as a component of income taxes in its consolidated statement of income and as operating cash flow in its consolidated statement of cash flows (with other income tax cash flows). Previous guidance required recognition as additional paid-in capital and classified those amounts as financing activity in the statement of cash flows. As a result, net income and operating cash flows for the nine months ended September 29, 2017 include excess tax benefits of approximately $1.3 million. Prior financial statements did not require adjustment under the new guidance. The future impact of adopting this new standard on the Company’s financial statements will be dependent on the timing and intrinsic value of future share-based compensation award exercises. The adoption of this standard will increase the volatility of the income tax provision in the Company’s results of operations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-01, Business Combinations (“Topic 805”), Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 changes the definition of a business in an effort to assist entities with evaluating whether a set of transferred assets and activities is a business. The guidance will require an entity to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and thus is not a business combination. The guidance is effective for annual and interim impairment tests performed for periods beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2017-01.

In January 2017, the FASB issued ASU 2017-04, Intangible – Goodwill and Other, Simplifying the Test for Goodwill Impairment, (“ASU 2017-04”) that simplifies the measurement for goodwill impairment into a single step. The guidance eliminates Step 2 of the goodwill impairment test that required a hypothetical purchase price allocation of an implied fair value of goodwill to measure a goodwill impairment charge. Under the new guidance, entities failing Step 1 of the goodwill impairment test will always record an impairment charge based on the excess of a reporting unit’s carrying amount over it fair value. ASU 2017-04 does not change Step 1 guidance. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods in those years. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the impact of ASU 2017-04.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. It also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company is currently evaluating the impact ASU 2016-15 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term. The ASU further requires disclosures designed to give financial statement users information regarding the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. The Company is currently evaluating the impact ASU 2016-02 will have on its consolidated financial statements and associated disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). Topic 606 affects virtually all aspects of an entity’s revenue recognition, including determining the measurement of revenue and the timing of when it is recognized for the transfer of goods or services to customers. Topic 606 is effective for annual reporting periods beginning after December 15, 2017. The Company is continuing to evaluate Topic 606, but does not expect a material impact from the adoption of Topic 606 on its 2018 statement of financial position and results of operations.

Net (Income) Loss Attributable to Noncontrolling Interest

Noncontrolling interest represents the ownership interests of minority shareholders in operating results of the period. The following details the minority shareholders’ interest that is excluded from the Consolidated Statements of Income.


	Three months ended				Nine months ended
	September 29, 2017		September 30, 2016		September 29, 2017		September 30, 2016
CHS-JV	$	699	$	—	$	2,518	$	—
Imperium		(108)		1,060		(381)		724
Other		(30)		(48)		(91)		(35)
Net income attributable to noncontrolling interests	$	561	$	1,012	$	2,046	$	689