UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-22313
AMERIPATH, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 65-0642485
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7289 GARDEN ROAD, SUITE 200, RIVIERA BEACH, FLORIDA 33404
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 845-1850
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The registrant had 21,089,091 shares of common stock, $.01 par value,
outstanding as of May 14, 1999.
<PAGE>
AMERIPATH, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1999 (Unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERIPATH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
----------- ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,614 $ 458
Accounts receivable, net 37,763 36,090
Inventories 464 526
Other current assets 8,485 8,960
-------- --------
Total current assets 48,326 46,034
-------- --------
PROPERTY AND EQUIPMENT, NET 8,953 8,584
-------- --------
OTHER ASSETS:
Goodwill, net 117,674 112,388
Identifiable intangibles, net 191,922 193,078
Other 2,038 1,863
-------- --------
Total other assets 311,634 307,329
-------- --------
TOTAL ASSETS $368,913 $361,947
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 20,502 $ 16,127
Current portion of long-term debt 618 1,315
-------- --------
Total current liabilities 21,120 17,442
LONG-TERM LIABILITIES:
Revolving loan 120,001 121,087
Subordinated notes 1,018 1,106
Deferred tax liability 43,488 44,488
-------- --------
Total liabilities 185,627 184,123
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 211 211
Additional paid-in capital 149,138 148,943
Retained earnings 33,937 28,670
-------- --------
Total stockholders' equity 183,286 177,824
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $368,913 $361,947
======== ========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMERIPATH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
NET REVENUES $ 52,336 $ 37,991
-------- --------
OPERATING COSTS AND EXPENSES:
Cost of services 23,747 17,188
Selling, general and administrative expenses 8,785 6,190
Provision for doubtful accounts 5,963 3,932
Amortization expense 2,684 2,051
-------- --------
Total operating costs and expenses 41,179 29,361
-------- --------
INCOME FROM OPERATIONS 11,157 8,630
OTHER INCOME (EXPENSE):
Interest expense (1,922) (1,820)
Other, net 6 13
-------- --------
Total other expense (1,916) (1,807)
-------- --------
INCOME BEFORE INCOME TAXES 9,241 6,823
PROVISION FOR INCOME TAXES 3,974 3,036
-------- --------
NET INCOME $ 5,267 $ 3,787
======== ========
BASIC EARNINGS PER COMMON SHARE:
Basic earnings per common share $ 0.25 $ 0.19
======== ========
Basic weighted average shares outstanding 21,078 19,673
======== ========
DILUTED EARNINGS PER COMMON SHARE:
Diluted earnings per common share $ 0.24 $ 0.19
======== ========
Diluted weighted average shares outstanding 21,610 20,453
======== ========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AMERIPATH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,267 $ 3,787
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization 3,475 2,595
Gain on disposal of assets 7 --
Deferred income taxes (1,000) (700)
Provision for doubtful accounts 5,963 3,932
Changes in assets and liabilities (net of effects of acquisitions):
Increase in accounts receivable (7,252) (6,611)
Decrease (increase) in inventories 61 (62)
Decrease (increase) in other current assets 474 (632)
Increase in other assets (72) (238)
Increase in accounts payable and accrued expenses 4,388 2,456
-------- --------
Net cash provided by operating activities 11,311 4,527
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,021) (1,106)
Cash paid for acquisitions and acquisition costs, net of cash acquired (1,426) (10,184)
Payments of contingent notes (5,820) (2,765)
-------- --------
Net cash used in investing activities (8,267) (14,055)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options -- 30
Principal payments on long-term debt (802) (164)
Net (payments) borrowings under revolving loan (1,086) 9,393
-------- --------
Net cash (used in) provided by financing activities (1,888) 9,259
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,156 (269)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 458 397
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,614 $ 128
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, which include the
accounts of AmeriPath, Inc. and its Subsidiaries (collectively, the "Company"),
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, the financial statements do not include all of
the information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, such interim
financial statements contain all adjustments (consisting of normal recurring
items) considered necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the interim periods
presented. The results of operations and cash flows for any interim periods are
not necessarily indicative of results which may be reported for the full year.
The accompanying interim financial statements should be read in conjunction with
the audited consolidated financial statements, and the notes thereto, included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998, as filed with the Securities and Exchange Commission.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified in order to conform with the financial
statement presentation of the current period.
NOTE 2 - ACQUISITIONS
Effective on January 1, 1999, the Company acquired Harper Pathology Group, a San
Antonio, Texas based anatomic pathology hospital-based practice. Total
consideration paid by the Company in connection with this acquisition included
cash of $1.0 million. In addition, the Company issued additional purchase price
to the sellers in the form of contingent notes, aggregating $1.0 million, which
are only payable if the pathologist retains a hospital contract.
The allocation of the purchase price of some of the 1998 acquisitions and the
1999 acquisition is preliminary, while the company continues to obtain the
information necessary to determine the fair value of the assets acquired and
liabilities assumed. When the Company obtains final information, management
believes that adjustments, if any will not be material in relation to the
consolidated financial statements.
The accompanying financial statements include the results of operations of the
1999 and 1998 acquisitions from the date acquired through March 31, 1999 and
1998, respectively. The following unaudited pro forma information presents the
consolidated results of the Company's operations and the results of operations
of the acquisitions for the three months ended March 31, 1998, after giving
effect to amortization of goodwill and identifiable intangible assets, interest
expense on debt incurred in connection with these acquisitions, and the reduced
level of certain specific operating expenses (primarily compensation and related
expenses attributable to former owners) as if the acquisition had been
consummated on January 1, 1998. Such unaudited pro forma information is based on
historical financial information with respect to the acquisitions and does not
include operational or other changes which might have been effected by the
Company.
6
<PAGE>
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The unaudited pro forma information for the three months ended March 31, 1998
presented below is for illustrative information purposes only and is not
indicative of results which would have been achieved or results which may be
achieved in the future.
PRO FORMA
(UNAUDITED)
------------
THREE MONTHS
ENDED
MARCH 31,
1998
------------
Net revenues $ 49,592
==========
Net income $ 4,977
==========
Net income per share (diluted) $ 0.23
==========
NOTE 3 - INTANGIBLE ASSETS
Intangible assets and the related accumulated amortization and amortization
periods are set forth below:
MARCH 31, 1999
AMORTIZATION PERIODS
(YEARS)
--------------------
MARCH 31, DECEMBER 31, WEIGHTED
1999 1998 RANGE AVERAGE
--------- ------------ ------- ------------
Hospital contracts $ 150,658 $ 150,076 25-40 35.2
Physician client lists 50,701 50,701 17-30 21.3
Laboratory contracts 1,800 1,800 10 10.0
Management service agreement 2,474 2,481 25 25.0
--------- ---------
205,633 205,058
Accumulated amortization (13,711) (11,980)
--------- ---------
Balance, net $ 191,922 $ 193,078
========= =========
Goodwill $ 124,762 $ 118,523 15-35 33.0
Accumulated amortization (7,088) (6,135)
--------- ---------
Balance, net $ 117,674 $ 112,388
========= =========
The weighted average amortization period for identifiable intangible assets and
goodwill is 32.1 years.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
LIABILITY INSURANCE -- The Company is insured with respect to general liability
and medical malpractice risks on a claims made basis. The Company records an
estimate of its liabilities for claims incurred but not reported. Such
liabilities are not discounted.
HEALTHCARE REGULATORY ENVIRONMENT AND RELIANCE ON GOVERNMENT PROGRAMS -- The
healthcare industry in general, and the services that the Company provides are
subject to extensive federal and state laws and regulations. Additionally, a
significant portion of the Company's net revenue is from payments by
government-sponsored health care programs, principally Medicare and Medicaid,
and is subject to audit and adjustments by applicable regulatory agencies.
Failure to comply with any of these laws or regulations, the results of
increased regulatory audits and adjustments, or changes in the interpretation of
the coding of services or the amounts payable for the Company's services under
these programs could have a material adverse effect on the Company's financial
position and results of operations.
7
<PAGE>
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INTERNAL REVENUE EXAMINATIONS -- The Internal Revenue Service ("IRS") is
conducting an examination of the Company's federal income tax return for the tax
year ended December 31, 1996. The examination is in its preliminary stages and
the IRS has not issued any notice of proposed adjustments relating to the
Company, and the amount of any payments required as a result thereof cannot
presently be determined. Although the Company believes it is in compliance with
all applicable IRS rules and regulations, if the IRS should determine the
Company is not in compliance, it could have a material adverse effect on the
Company's financial position and results of operations.
MEDICARE PROGRAM SAFEGUARDS -- An inspection was conducted in April 1997 at the
Company's laboratory facility in Fort Lauderdale, Florida by representatives of
federal and state agencies (Medicare (Florida) Program Safeguards ("MPS")) under
Operation Restore Trust, regarding the Company's 1996 Medicare billing
practices. As the result of the 1997 inspection, in 1998 MPS attempted to recoup
$2.95 million in alleged Medicare overpayments for the use of an improper
procedure code. The government alleged that many of the skin biopsies performed
by the Company should have been coded as an 88304, rather than the 88305 code
used by the Company. The Company mounted a vigorous protest and defense and
argued that its coding practice and procedure codes were accurate and consistent
with accepted CPT code assignment guidelines. As support for its position, the
Company provided MPS with the reports of two reputable coding experts who
independently concluded that the Company's coding practices were in conformity
with accepted CPT assignment guidelines. After review of the Company's position
and the studies presented by the Company, MPS determined that $204.05 was due as
a result of improper documentation. MPS concluded that no fraud or intentional
abuse was demonstrated. AmeriPath promptly paid the $204.05 to resolve the
matter.
Due to the uncertain nature of coding for pathology services, the Company cannot
assure that issues such as those addressed in the 1997 Operation Restore Trust
inspection will not arise again. If negative findings are made as a result of
such an investigation, the Company could be required to change coding practices
or repay amounts paid for incorrect practices either of which could have a
materially adverse effect on the operating results and financial condition of
the Company.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information presents the non-cash impact on the
balance sheets of assets acquired and liabilities assumed in connection with the
acquisitions consummated by the Company. The non-cash effect of these investing
activities for acquisitions consummated during the three months ended March 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Assets acquired $ 1,445 $ 12,306
Liabilities assumed (200) (386)
Common stock issued (195) (2,242)
-------- --------
Cash paid 1,050 9,678
Less cash acquired (50) (265)
-------- --------
Net cash paid for acquisitions $ 1,000 $ 9,413
Costs related to completed and pending acquisitions 426 771
-------- --------
Cash paid for acquisitions and acquisition costs, net of
cash acquired $ 1,426 $ 10,184
======== ========
</TABLE>
8
<PAGE>
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6 - EARNINGS PER SHARE
Earnings per share is computed and presented in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which the
Company adopted in the fourth quarter of 1997. Basic earnings per share, which
excludes the effects of any dilutive common equivalent shares that may be
outstanding, such as stock options, is computed by dividing income attributable
to common stockholders by the weighted-average number of common shares
outstanding for the respective periods. Diluted earnings per share gives effect
to the potential dilution that could occur upon the exercise of certain stock
options that were outstanding at various times during the respective periods
presented. The dilutive effects of stock options are calculated using the
treasury stock method. All previously reported earnings per share data has been
restated in the accompanying financial statements to reflect the requirements of
SFAS No. 128.
Basic and diluted earnings per share for the respective periods are set forth in
the table below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Basic Earnings Per Common Share:
Net income $ 5,267 $ 3,787
======== ========
Basic earnings per common share $ 0.25 $ 0.19
======== ========
Basic weighted average shares outstanding 21,078 19,673
======== ========
Diluted Earnings Per Common Share:
Net income $ 5,267 $ 3,787
======== ========
Diluted earnings per common share $ 0.24 $ 0.19
======== ========
Weighted average shares outstanding 21,078 19,673
Effects of dilutive stock options 532 780
-------- --------
Diluted weighted average shares outstanding 21,610 20,453
======== ========
</TABLE>
Certain options outstanding as of March 31, 1999 were excluded from the
calculations of diluted earnings per share because their effect would have been
anti-dilutive. Such excluded options totaled 633 at a weighted-average
exercise price per share of $12.15 for the three months ended March 31, 1999,
and 48 options at a weighted-average exercise price per share of $16.75 for
the three months ended March 31, 1998.
9
<PAGE>
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7 - SUBSEQUENT EVENTS
On April 1, 1999, the Company completed the acquisition of Plaza Pathology,
P.A., a Fort Worth, Texas, anatomic pathology hospital-based practice. Total
consideration paid by the Company in connection with this acquisition included
cash of $2.4 million. In addition, the Company issued additional purchase price
to the sellers in the form of contingent notes, aggregating $1.6 million, which
are only payable if the practice retains a hospital contract.
On April 21, 1999, the Company also completed the acquisition of Edgar G. McKee,
P.A., another Fort Worth, Texas, anatomic pathology hospital-based practice.
Total consideration paid by the Company in connection with this acquisition
included cash of $700. In addition, the Company issued additional purchase price
to the seller in the form of contingent notes, aggregating $500, which are only
payable if the pathologist retains a hospital contract.
On May 12, 1999, the Company completed the acquisition of two practices, both
with common ownership. Hialeah Pathology Associates, P.A., is a Hialeah,
Florida, anatomic pathology hospital-based practice. South Florida Pathology
Associates, P.A., is an outpatient practice with a SmithKline Beecham Clinical
Laboratories, Inc. contract that covers the three South Florida counties. Total
consideration paid by the Company in connection with this acquisition included
cash of $6.3 million and additional purchase price in the form of contingent
notes aggregating $4.2 million. The contingent notes are payable upon retention
of a hospital contract and upon the achievement of stipulated levels of
cumulative operating earnings of the practice over a five year period.
Subsequent to March 31, 1999, the Company paid approximately $3.6 million on
contingent notes issued in connection with previous acquisitions.
10
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
QUALIFICATION OF FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. Statements contained in this report that are not limited to historical
information are considered forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation statements regarding the
Company's expectations, beliefs, intentions, plans or strategies regarding the
future. These forward-looking statements are based largely on the Company's
expectations which are subject to a number of known and unknown risks,
uncertainties and other factors discussed in this report and in other documents
filed by the Company with the Securities and Exchange Commission (including,
without limitation, the Company's Annual report on Form 10-K for fiscal 1998),
which may cause actual results to be materially different from those
anticipated, expressed or implied by the forward-looking statements. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements to reflect future
events or circumstances.
In addition to the risks and uncertainties identified elsewhere herein and in
other documents filed by the Company with the Securities and Exchange
Commission, the following factors should be carefully considered when evaluating
the Company's business and future prospects: general economic conditions;
competition; success of the Company's operating initiatives and growth strategy;
healthcare regulation; payment and reimbursement rates under
government-sponsored healthcare programs; changes in coding; dependence upon
certain pathologists; labor and technology costs; advertising and promotional
efforts; the availability of pathology practices in appropriate locations that
the Company is able to acquire on suitable terms or develop and the overall
success of the Company's acquisition strategy. In addition, the Company's
strategy to penetrate and develop new markets involves a number of risks and
challenges and there can be no assurance that the healthcare regulations of the
new states in which the Company enters and other factors will not have a
material adverse effect on the Company. The factors which may influence the
Company's success in each targeted market in connection with this strategy
include: the selection of appropriate qualified practices; negotiation and
execution of definitive acquisition, affiliation, management and/or employment
agreements; the economic stability of each targeted market; compliance with the
healthcare and/or other laws and regulations in each targeted market, including
the regulation of the healthcare industry in each targeted market on a national,
regional and local basis (including health, safety, waste disposal and zoning
laws); compliance with applicable licensing approval procedures; restrictions
under labor and employment laws, especially non-competition covenants; access to
affordable capital; governmental reimbursement and assistance programs, and tax
laws.
OVERVIEW
AmeriPath, Inc. and its subsidiaries ("AmeriPath" or "the Company") is the
largest integrated physician group practice focused on anatomic pathology
services, based on an analysis of geographic breadth, number of physicians,
number of hospital contracts, number of practices and net revenues. The Company
owns or is affiliated with 33 physician practices (the "Practices") located in
ten states. The 231 pathologists employed by the Company provide medical
diagnostic services in outpatient laboratories owned and operated by the
Company, in hospitals, and in outpatient ambulatory surgery centers. Of these
pathologists, 229 are board certified, and 102 are also board certified in a
subspecialty of anatomic pathology, including dermatopathology (study of
diseases of the skin), hematopathology (study of diseases of the blood) and
cytopathology (study of abnormalities of the cells).
As of March 31, 1999, 21 Practices had contracts with a total of 134 hospital
locations to manage their inpatient laboratories and provide professional
pathology services. The majority of these hospital contracts are exclusive
provider relationships of the Company. The Company has 21 outpatient
laboratories, of which 11 operate in conjunction with hospital laboratories.
11
<PAGE>
The Company manages and controls all of the non-medical functions of the
Practices, including: (i) recruiting, training, employing and managing the
technical and support staff of the Practices; (ii) developing, equipping and
staffing laboratory facilities; (iii) establishing and maintaining courier
services to transport specimens; (iv) negotiating and maintaining contracts with
hospitals, national clinical laboratories and managed care organizations and
other payors; (v) providing financial reporting and administration, clerical,
purchasing, payroll, billing and collection, information systems, sales and
marketing, risk management, employee benefits, legal, tax and accounting
services to the Practices; (vi) complying with applicable laws and regulations;
and (vii) with respect to the Company's ownership and operation of anatomic
pathology laboratories, providing slide preparation and other technical
services. The Company is not licensed to practice medicine.
The Company derives its net revenue from the net revenue of the Practices it
owns or manages. The majority of services furnished by the Company's
pathologists are diagnostic anatomic pathology services. Medicare reimbursement
for these services represented approximately 21% and 23% of the Company's cash
collections in the first quarter of 1999 and 1998, respectively. The Company
typically bills government programs (principally Medicare and Medicaid),
indemnity insurance companies, managed care organizations, national clinical
laboratories, physicians and patients. Net revenue differs from amounts billed
for services due to:
/bullet/ Medicare and Medicaid reimbursements at annually established rates;
/bullet/ payments from managed care organizations at discounted fee-for-service
rates;
/bullet/ negotiated reimbursement rates with other third party payors;
/bullet/ rates negotiated under sub-contracts with national clinical
laboratories for the provision of anatomic pathology services; and
/bullet/ discounts and other allowances, principally from private pay accounts.
In recent years, there has been a shift away from traditional indemnity
insurance plans to managed care as employers and other payors move their
participants into lower cost plans. The Company benefits more from patients
covered by Medicare and traditional indemnity insurance than managed care
organizations and national clinical laboratories, which contract directly under
capitated agreements with managed care organizations to provide clinical as well
as anatomic pathology services. The Company also contracts with national
clinical laboratories and is attempting to increase the number of such contracts
to increase test volume. Since the majority of the Company's operating costs --
principally the compensation of physicians and non-physician technical personnel
- -- are primarily fixed, increases in volume, whether from indemnity or
non-indemnity plans, enhance the Company's profitability. Historically, net
revenue from capitated contracts has represented an insignificant amount of
total net revenue.
Virtually all of the Company's net revenue is derived from the Practices'
charging for services on a fee-for-service basis. Accordingly, the Company
assumes the financial risk related to collection, including potential
uncollectability of accounts, long collection cycles for accounts receivable and
delays in reimbursement by third party payors, such as governmental programs,
private insurance plans and managed care organizations. Increases in write-offs
of doubtful accounts, delays in receiving payments or potential retroactive
adjustments and penalties resulting from audits by payors may require the
Company to borrow funds to meet its current obligations or may otherwise have a
material adverse effect on the Company's financial condition and results of
operations. In addition to services billed on a fee-for-service basis, the
hospital-based pathologists have supervision and oversight responsibility for
their roles as Medical Directors of the hospitals' clinical, microbiology and
blood banking operations. For this role, the Company bills non-Medicare patients
according to a fee schedule for what is referred to as clinical component
professional charges. For Medicare patients, the pathologist is typically paid a
Director's fee or "Part A" fee by the hospital. Reimbursement of these clinical
component billing charges and "Part A" fees is coming under increased pressure
for reduction from hospitals and third-party payors, and in the future the
Company may sustain substantial decreases in these payments.
Effective January 1, 1992, Medicare began reimbursing all physician services,
including anatomic pathology services, based on a methodology known as the
resource-based relative value system ("RBRVS"), which was to be fully phased in
by 1996. Overall, anatomic pathology reimbursement rates
12
<PAGE>
declined during the fee schedule phase-in period, despite an increase in payment
rates for certain pathology services performed by the Company.
The Medicare RBRVS payment for each service is calculated by multiplying the
total relative value units ("RVUs") established for the service by a Geographic
Practice Cost Index (GPCI). The sum of this value is multiplied by a statutory
conversion factor. The number of RVUs assigned to each service is in turn
calculated by adding three separate components: work RVU (intensity of work),
practice expense RVU (expense related to performing the service) and malpractice
RVU (malpractice costs associated with the service).
In 1996, the Health Care Financing Administration ("HCFA") completed a five-year
review of the work value component and, as a result, revised the work value
amount assigned to many physician services. In addition, based on a default
formula established by statute, the 1997 conversion factor for non-surgical
services dropped 0.8% to $33.85. As part of its five-year review of the RBRVS
system, HCFA recalculated all of the RBRVS weights. These revisions generally
resulted in a further reduction in Medicare reimbursement. HCFA also reduced the
number of physician fee schedule payment localities from 210 to 89, effective
January 1, 1997. Because of all these changes, there was an overall decrease in
reimbursement rates for pathology services of approximately 5.3% beginning
January 1, 1997.
The Balanced Budget Act of 1997 ("BBA") added coverage for an annual screening
pap smear for Medicare beneficiaries who are at high risk of developing cervical
or vaginal cancer and for beneficiaries of childbearing age effective January 1,
1998, as well as coverage for annual prostate cancer screening, including a
prostate-specific antigen blood test, for beneficiaries over age 50, effective
January 1, 2000. Although most women of childbearing age and men under age 65
are not Medicare beneficiaries, the addition of Medicare coverage for these
tests could provide additional revenues for the Company. With the BBA, Congress
merged the three existing conversion factors into one for all types of services
provided resulting in a single conversion factor for 1998 of $36.69 in 1998.
These changes effectively provided for an 8.3% increase in reimbursement in
1998.
In 1997, HCFA published regulations that recalculated a key component of the
RBRVS fee schedule. This recalculation modified the practice overhead expense
RVUs to reflect resource consumption, rather than the historical charge data
used to establish the original practice expense. The implementation of resource
based practice expense RVUs will begin in 1999, and will be phased in over the
period 1999-2002. Also, in 1999 the physician fee schedule conversion factor was
reduced by 5% from $36.69 in 1998 to $34.73 for 1999, because of a uniform
budget-neutrality adjustment which provides that the relative value units of the
Medicare physician fee schedule cannot cause expenditures to increase or
decrease by more than $20 million from the amount of expenditures that would
have been made if such adjustments had not been made. This requirement was
implemented through a reduction in the conversion factor. The conversion factor
was also affected by the elimination of the separate 0.917 budget-neutrality
adjustment to the work relative value units and the adjustments made to the
practice expense and malpractice relative value units to ensure that percentages
of fee schedule allowed charges for work, practice expense and malpractice
premiums equal the new percentages that those categories represent in the
revised Medicare Economic Index ("MEI") weights. The MEI measures the
weighted-average annual price change for various inputs needed to produce
physician's services.
HCFA also provided for a separate Pap smear interpretation be made for all
smears that require interpretation by a pathologist beginning January 1, 1999.
The amount of this reimbursement will be approximately $36.00 adjusted for the
payor locality.
The actual impact of the forgoing changes on Medicare pathology revenues will
depend on the mix of pathology services furnished by the Company's pathologists,
which we estimate will result in a reduction in Medicare reimbursement in 1999
in the range of from 1.5% to 3%. In prior years, the Company has been able to
mitigate the impact of reduced Medicare reimbursement rates for anatomic
pathology services through the achievement of economies of scale and the
introduction of alternative technologies that are not dependent upon
reimbursement through the RBRVS system. Despite these offsets, the recent
substantial modifications to the physician fee schedule, along with additional
adjustments anticipated under Medicare, will have a negative effect on the
Company's average unit reimbursement. In addition, some of the other
13
<PAGE>
payors of the Company could adjust their reimbursement based on the revised
Medicare fee schedule. Any reductions made by other payors could have a negative
impact on the average unit reimbursement.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
During the first three months of 1999, the Company acquired one anatomic
pathology practice, the operating results of which are included in the
accompanying financial statements from the effective acquisition date. Changes
in operations between the three month period ended March 31, 1999 and 1998 are
due primarily to the various acquisitions which were consummated by the Company
subsequent March 31, 1998. References to "same practice" means practices at
which the Company provided services for the entire period for which the amount
is calculated and the entire prior comparable period and acquired hospital
contracts and expanded ancillary testing services added to existing practices.
NET REVENUES
Net revenues increased by $14.3 million, or 37.7%, from $38.0 million for the
three months ended March 31, 1998, to $52.3 million for the three months ended
March 31, 1999. Same practice net revenues increased $1.8 million or 4.7% from
$38.0 million for the three months ended March 31, 1998 to $39.8 million for the
three months ended March 31, 1999. The increase in same practice net revenues
was due primarily to a $900,000 increase in outpatient net revenues and $1.1
million from inpatient revenues. This was offset by decreases in the Medicare
reimbursement rates, which amounted to approximately $200,000. The remaining
increase of $12.5 million was from the operations of practices acquired during
the first quarter of 1999 and those acquired during the year ended December 31,
1998.
During the three months ended March 31, 1999, approximately $3.8 million, or 7%,
of the Company's net revenue was from contracts with national labs including
SmithKline Beecham Clinical Laboratories, Inc. ("SmithKline"), Quest Diagnostics
(formerly known as Corning Clinical Laboratories) ("Quest"), and Laboratory
Corporation of America Holdings ("LabCorp"). In addition, approximately 13% of
the Company's net revenue came from 28 Columbia hospitals. Generally, these
contracts have remaining terms of less than five years and contain renewal
provisions. Some of the contracts contain clauses that allow for termination by
either party with relatively short notice. Columbia has been under government
investigation for some time and is evaluating its operating strategies;
including the sale, spin-off or closure of certain hospitals. Although the
Company, through its acquisitions, has had relationships with these hospitals
and national labs for extended periods of time, the termination of one or more
of these contracts could have a material adverse effect on the Company's
financial position and results of operations.
COST OF SERVICES
Cost of services consists principally of the compensation and fringe benefits of
pathologists, licensed technicians and support personnel, laboratory supplies,
shipping and distribution costs and facility costs. Cost of services increased
by $6.5 million, or 38.2%, from $17.2 million for the three months ended March
31, 1998 to $23.7 million for the same period in 1999. Of this increase, $1.4
million was attributable to same practice growth and $5.1 million from the
acquisitions which occurred during or subsequent to the three months ended March
31, 1998. The gross margin on the same practice revenue for the three months
ended March 31, 1999, was approximately 54.1% consistent with the Company's
consolidated gross margin of approximately 54.6% for the three months ended
March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The cost of corporate support, sales and marketing, and billing and collections
comprise the majority of what is classified as selling, general and
administrative expense. As a percentage of consolidated net revenues, selling,
general and administrative expenses increased to 16.8% for the three months
ended March 31, 1999 as compared to 16.3% for the same period of 1998, but was
lower than the 17.2% reported in the fourth quarter of 1998. An objective of the
Company is to decrease these costs, as a percentage of net revenues. However, in
1999 these costs as a percentage of net revenues may increase as the Company
14
<PAGE>
completes its Year 2000 remediation, starts up the Center for Advanced
Diagnostics and expands into new geographic areas such as the Northeast.
Selling, general and administrative expenses increased by $2.6 million, or
41.9%, from $6.2 million for the three months ended March 31, 1998 to $8.8
million for the comparable period of 1999. Of this increase, approximately $3.5
million was due to the expansion of the Company's administrative support
infrastructure in areas such as increased staffing levels in marketing, billing,
human resources and accounting. The remainder of the increase was attributable
to operations and expansion of the practices acquired by the Company since June
30, 1998.
PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts increased by $2.0 million, or 51.7%, from
$4.0 million for the three months ended March 31, 1998, to $6.0 million for the
same period in 1999. The dollar increase is primarily due to the increase in net
revenues from the acquisitions that occurred during the first quarter of 1999 or
subsequent to the three months ended March 31, 1998. The provision for doubtful
accounts as a percentage of net revenues was 11.4% and 10.3% for the three month
periods ended March 31, 1999 and 1998, respectively. The increase in the
percentage of net revenue was primarily attributable to an overall increase in
hospital based revenues. Net revenue from inpatient services increased as a
percentage of consolidated net revenue to 58% in the first quarter of 1999 from
53% in same period of 1998. The provision for doubtful accounts as a percentage
of net revenue is higher for inpatient (hospital) services than for outpatient
services due primarily to a larger concentration of indigent and private pay
patients, more difficulties gathering complete and accurate billing information,
and longer billing and collection cycles for inpatient services.
AMORTIZATION EXPENSE
Amortization expense increased by $600,000, or 30.9%, from $2.1 million for the
three months ended March 31, 1998, to $2.7 million for the same period of 1999.
The increase is primarily attributable to the amortization of goodwill and other
identifiable intangible assets recorded in connection with the acquisition of
the anatomic pathology practices subsequent to June 30, 1998, and payments made
on the contingent notes. Amortization expense is expected to increase in the
future as a result of additional identifiable intangible assets and goodwill
arising from future acquisitions, and any payments required to be made pursuant
to the contingent notes issued in connection with acquisitions.
The Company continually evaluates whether events or circumstances have occurred
that may warrant revisions to the carrying values of its goodwill and other
identifiable intangible assets, or to the estimated useful lives assigned to
such assets. Any significant impairment recorded on the carrying values of the
Company's goodwill or other identifiable intangible assets could have a material
adverse effect on the Company's consolidated financial position and results of
operations.
INCOME FROM OPERATIONS
Income from operations increased $2.5 million or 29.3%, from $8.6 million for
the first three months of 1998, to $11.1 million in the same period of 1999. As
a percentage of consolidated net revenues, income from operations was 21.3% and
22.7% for the three month periods ended March 31, 1999 and 1998, respectively.
INTEREST EXPENSE
Interest expense increased by $100,000, or 5.6%, from $1.8 million for the three
months ended March 31, 1998, to $1.9 million for the same period in 1999. The
majority of this increase was attributable to the higher average amount of debt
outstanding during the first three months of 1999 as compared to the first three
months of 1998 offset in part by more favorable interest rates for the 1999
period under the Company's amended $200 million credit facility. The Company's
effective annual interest rate on the credit facility was 6.25% for the three
month period ended March 31, 1999.
15
<PAGE>
PROVISION FOR INCOME TAXES
The effective income tax rate was 43.0% for the three month period ended March
31, 1999, as compared to 44.5% for the three month period ended March 31, 1998.
The decrease in the Company's effective tax rate was primarily due to the tax
deductibility of additional goodwill for certain 1998 acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had working capital of approximately $27.2
million, a decrease of $1.4 million from the working capital of $28.6 million
available at December 31, 1998. The decrease in working capital was due
primarily to an increase in accounts payable and accrued expenses of $4.4
million offset by an increase in net accounts receivable of $1.7 million and
cash and cash equivalents of $1.2 million.
For the three-month periods ended March 31, 1999 and 1998, cash flows from
operations were $11.3 million and $4.5 million, respectively. Cash flow from
operations was positively impacted by an increase in income taxes payable of
$4.1 million related primarily to tax payments that were due on April 15, 1999.
For the three months ended March 31, 1999, the cash flow from operations and
borrowings under the Company's credit facility were used primarily to: (i) fund
the $1.0 million cash portion of the acquisition completed during the period;
(ii) make contingent note payments of $5.8 million; and (iii) acquire $1.0
million of property and equipment, primarily laboratory equipment and
information systems as the Company continues to upgrade its billing and
financial reporting systems.
At March 31, 1999, the Company had $80.0 million available under its credit
facility with a syndicate of banks led by BankBoston, N.A., as agent. The
amended facility provides for borrowings of up to $200 million in the form of a
revolving loan that may be used for working capital purposes (in an amount
limited to 75% of the Company's net accounts receivable, as reflected on the
Company's quarterly consolidated balance sheet) and to fund acquisitions to the
extent not otherwise used for working capital purposes. As of March 31, 1999,
$120.0 million was outstanding under the revolving loan with an annual effective
interest rate of 6.38%. In October 1998, the Company entered into two, two year,
interest rate swap transactions which involves the exchange of floating for
fixed rate interest payments over the life of the agreement without the exchange
of the underlying principal amounts. The differential to be paid or received is
accrued and is recognized as an adjustment to interest expense. The agreements
are with notional amounts of $75 million and $30 million. Under the $75 and $30
million agreements, the Company receives interest on the notional amounts if the
30 day LIBOR exceeds 4.675% and 5.425%, respectively, and pays interest on the
notional amounts if the 30 day LIBOR is less than the foregoing rates. These
derivative financial instruments are being used by the Company to reduce
interest rate volatility and associated risks arising from the floating rate
structure of its credit facility and is not held or issued for trading purposes.
At March 31, 1999, the Company believes that it is in compliance with the
covenants of the credit facility.
The Company anticipates that its cash flows from operations, together with funds
available under the credit facility and cash on-hand, will be sufficient to meet
its working capital requirements, finance any required capital expenditures and
fund planned acquisitions for at least the next twelve months. With respect to
the deployment of its long-term growth strategy, the Company may be required to
seek additional financing through: increases in availability under the existing
credit facility; negotiation of credit facilities with other banks; or public
offerings or private placements of equity or debt securities. No assurances can
be given that the Company will be able to increase availability under its
existing credit facility, secure additional bank borrowings or complete
additional debt or equity financing on terms favorable to the Company or at all.
YEAR 2000 ISSUES
The Year 2000 issue is a result of computer programs or chipsets being written
using two digits rather than four to define the applicable year. Computer
programs that have time sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculation causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar activities.
16
<PAGE>
The Company is continually working to resolve the potential risks and concerns
of the Year 2000 issue. The Company has made progress in assessing, remediating,
testing and implementing systems to be Year 2000 ready. The Company has a
comprehensive working assessment for both information technology and
non-information technology systems covering the majority of its existing
practices. When acquiring new practices, the Company assesses the Year 2000 risk
and compliance as part of the due diligence process. The Company classifies all
systems into categories of importance: mission-critical, business critical and
non-critical. The Company plans to complete its remediation, validation and
implementation of its multi-phase plan discussed below for its mission-critical
systems by June 30, 1999.
The Company's Year 2000 phases to correct most information technology and
non-information technology systems are as follows:
Awareness: The continuous process of promoting awareness of the Year 2000
issue across the Company, including communications to the
management and Board of Directors.
Assessment: The assessment phase includes: (1) the physical inventory of
all information technology and non-information technology
hardware, software and embedded systems; (2) the determination
of whether hardware and software are Year 2000 ready or if
remediation is required; (3) the determine of risk tradeoffs
and contingencies needed; and (4) the determination of whether
our business partners, vendors, and third-party payors are
Year 2000 compliant.
Remediation: The installation of software or hardware upgrades,
replacements or renovations to be Year 2000 ready.
Validation: The generation of approved test plans, perform tests and
produce results for Year 2000 certification and signoff.
Implementation: Implementation of the Company's remediated systems prior to
2000.
The Company is also assessing the risks and contingencies for third-party
payors, strategic partners, vendors, contracted hospitals, large commercial
payors (e.g. Medicare, Blue Cross/Blue Shield and Cigna) and facility safety
systems. The Company has initiated dialogue with its key vendors and customers,
including hospitals and third-party payors, to determine the extent of any
exposure that the Company may have with respect to failure on the part of such
third parties to become Year 2000 compliant. The Company is working directly
with strategic partners and third-parties to avoid business interruptions in the
year 2000. There can be no assurance that the computer systems of such external
parties upon which the Company is dependent, including third-party payors, will
become compliant in a timely manner; or, that such lack of compliance will not
have an adverse effect on the Company's systems, results of operations or
financial position.
The majority of the Company's costs to correct the Year 2000 issue stem from
professional services and hardware and software replacements. The cost of new
hardware or software purchased in this regard is capitalized and all other costs
associated with such remedial actions are expensed as incurred. The total cost
associated with the Company's Year 2000 project is estimated between $1.0
million and $1.6 million, which will be funded by cash flow generated by
operations and the Company's credit facility. The Company does not expect these
costs to have a material adverse effect on its results of operations or
financial position. To date, the costs incurred were approximately $250,000, and
the current estimated cost to complete the remediation is estimated to be $1
million.
The Company believes that the most likely worst risk scenario relating to the
Year 2000 could impact diagnosis reporting or bill generation causing strategic
partners, payors and patients from receiving medical and billing information in
a timely matter. The worst case scenarios could result in such things as
decreased cash flows, claims rejection and untimely diagnostic reporting. The
Company has developed contingency plans (i.e. identified alternate systems and
processing capabilities) for any internal Company systems which are mission
critical or business critical systems, if Year 2000 compliance is not achieved.
The estimated Year 2000 costs include the contingency plans and workarounds.
17
<PAGE>
The costs associated with the Company's efforts to become Year 2000 compliant
and the date it expects to complete the required modifications are based on
management's current estimates. Such estimates reflect numerous assumptions as
to future events, including the continued availability of required resources,
the Year 2000 readiness of practices acquired in the future, the reliability of
the compliance plans and actions of third parties and other factors. There can
be no assurance that the final costs of the Year 2000 compliance project will
not exceed the current estimates or that all systems, including those of planned
acquisitions, will be compliant by the anticipated compliance date. Specific
factors that might cause material differences in actual results include, but are
not limited to, the availability and cost of qualified personnel and other
required resources, the ability to identify and correct all relevant computer
codes, and similar uncertainties. There can be no assurances that any failure in
the Company's systems or third parties to be Year 2000 compliant will not have a
material effect on the Company. Further, the present credit facility requires
the Company to be Year 2000 compliant by June 30, 1999; failure to be in
compliance by that date could have a material impact on the Company's liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated principally with changes in
interest rates. Interest rate exposure is principally limited to the revolving
loan of $120 million at March 31, 1999.
In October 1998, the Company entered into two, two year, interest rate swap
transactions which involved the exchange of floating for fixed rate interest
payments over the life of the agreement without the exchange of the underlying
principal amounts. The differential to be paid or received is accrued and is
recognized as an adjustment to interest expense. The agreements are with
notional amounts of $75 million and $30 million. Under the $75 and $30 million
agreements, the Company receives interest on the notional amounts if the 30 day
LIBOR exceeds 4.675% and 5.425%, respectively, and pays interest on the notional
amounts if the 30 day LIBOR is less than the foregoing rates. These derivative
financial instruments are being used by the Company to reduce interest rate
volatility and associated risks arising from the floating rate structure of its
Credit Facility and are not held or issued for trading purposes.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the ordinary course of business, the Company has become and may in the
future become subject to pending and threatened legal actions and proceedings.
The Company may have liability with respect to its employees and its
pathologists as well as with respect to hospital employees who are under the
supervision of the hospital based pathologists. The majority of the pending
legal proceedings involve claims of medical malpractice. Most of these relate to
cytology services. These claims are generally covered by insurance. Based upon
investigations conducted to date, the Company believes the outcome of such
pending legal actions and proceedings, individually or in the aggregate, will
not have a material adverse effect on the Company's financial condition, results
of operations or liquidity. If the Company is ultimately found liable under
these medical malpractice claims, there can be no assurance that the Company's
medical malpractice insurance coverage will be adequate to cover any such
liability. The Company may also, from time to time, be involved with legal
actions related to the acquisition of and affiliation with physician practices,
the prior conduct of such practices, or the employment of (and restriction on
competition of) physicians. There can be no assurance any costs or liabilities
for which the Company becomes responsible in connection with such claims or
actions will not be material or will not exceed the limitations of any
applicable indemnification provisions or the financial resources of the
indemnifying parties.
As reported in the Company's Form 10-K for the year ended December 31, 1998, in
November 1998 AmeriPath received (and publicly announced that it received) a
request for a refund of $2.95 million from the Medicare (Florida) Program
Safeguards, and the Company also announced that it was vigorously contesting the
Medicare repayment. Following that announcement, seven class action lawsuits
were filed against the Company and certain officers and directors on behalf of
AmeriPath stockholders alleging, among other things, that the Company had
violated securities laws because the Company allegedly had previously failed to
properly disclose the use of improper billing procedures. Then in December 1998,
the
18
<PAGE>
Company announced that Medicare, after further consideration of the Company's
position, agreed with the Company and was withdrawing its request for the $2.95
million refund. As a result, AmeriPath insisted that all the plaintiff's dismiss
their lawsuits against the Company without any payment from AmeriPath and that
all class action plaintiffs publish notice to the class that they sought to
represent that Medicare had withdrawn its refund claim and the plaintiffs would
no longer be pursuing their actions against AmeriPath either on their own behalf
or on behalf of any other shareholder. As of January 8, 1999, all seven of the
class action lawsuits had been dismissed and the requested notices had been
published.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities - In connection with the Company's
acquisition of Pathology Consultants of Cleveland, Inc ("PCC"), located in
Cleveland, Ohio the Company issued an additional 23,930 shares of common stock
to the sellers, as part of the purchase price, in the first quarter of 1999.
All of the foregoing shares were exempt from registration under the Securities
Act of 1933 when they were issued, pursuant to an exemption provided under
Section 4(2) of the Securities Act based upon, among other things, certain
representations made by the recipients of the stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three-month
period ended March 31, 1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIPATH, INC.
Date: May 14, 1999 By: /s/ JAMES C. NEW
-----------------
James C. New
Chairman, President and Chief Executive Officer
Date: May 14, 1999 By: /s/ ROBERT P. WYNN
-------------------
Robert P. Wynn
Executive Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,614
<SECURITIES> 0
<RECEIVABLES> 86,707
<ALLOWANCES> 48,944
<INVENTORY> 464
<CURRENT-ASSETS> 8,485
<PP&E> 18,376
<DEPRECIATION> 9,423
<TOTAL-ASSETS> 368,913
<CURRENT-LIABILITIES> 21,120
<BONDS> 121,019
0
0
<COMMON> 211
<OTHER-SE> 183,075
<TOTAL-LIABILITY-AND-EQUITY> 368,913
<SALES> 0
<TOTAL-REVENUES> 52,336
<CGS> 0
<TOTAL-COSTS> 23,747
<OTHER-EXPENSES> 11,469
<LOSS-PROVISION> 5,963
<INTEREST-EXPENSE> 1,922
<INCOME-PRETAX> 9,241
<INCOME-TAX> 3,974
<INCOME-CONTINUING> 5,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,267
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
</TABLE>
