<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
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 December 31, 1999
Commission File Number 333-57191
EVEREST HEALTHCARE SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-4045521
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 North Scoville, Oak Park, Illinois 60302
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (708) 386-1000
(Additional registrants listed on Exhibit A to this cover page.)
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 [_]
As of February 7, 2000, the number of shares outstanding of the Common Stock
of Everest Healthcare Services Corporation, par value $.001 per share, was
12,819,586.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A TO COVER PAGE -- ADDITIONAL REGISTRANTS
ACUTE EXTRACORPOREAL SERVICES, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 36-4265964
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CON-MED SUPPLY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-3147024
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CONTINENTAL HEALTH CARE, LTD.
(Exact name of registrant as specified in its charter)
Illinois 36-3084746
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
DIALYSIS SPECIALISTS OF TULSA, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1508212
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
DUPAGE DIALYSIS LTD.
(Exact name of registrant as specified in its charter)
Illinois 36-3029873
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST HEALTHCARE INDIANA, INC.
(Exact name of registrant as specified in its charter)
Indiana 36-3575844
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST HEALTHCARE OHIO, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1418495
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
<PAGE>
EVEREST HEALTHCARE TEXAS HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 36-4321504
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST HEALTHCARE TEXAS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-4321507
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4338092
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST NEW YORK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
New York 36-4276708
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST ONE IPA, INC.
(Exact name of registrant as specified in its charter)
New York 13-3988854
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST THREE IPA, INC.
(Exact name of registrant as specified in its charter)
New York 36-4276711
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST TWO IPA, INC.
(Exact name of registrant as specified in its charter)
New York 36-4276710
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
<PAGE>
HOME DIALYSIS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0711476
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
MERCY DIALYSIS CENTER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1589773
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NEW YORK DIALYSIS MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
New York 36-3702390
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NORTH BUCKNER DIALYSIS CENTER, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4206319
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NORTHERN NEW JERSEY DIALYSIS, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 36-4291598
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
WSKC DIALYSIS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2668594
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 North Scoville, Oak Park, Illinois 60302
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (708) 386-1000
<PAGE>
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 1999 and December 31, 1999 (unaudited)............ 2
Consolidated Statements of Operations--(unaudited)
For the three months ended December 31, 1998 and 1999........... 3
Consolidated Statements of Cash Flows--(unaudited)
For the three months ended December 31, 1998 and 1999........... 4
Notes to Consolidated Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 14
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities and Use of Proceeds.................... 15
Item 3. Defaults Upon Senior Securities.............................. 15
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 5. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 15
</TABLE>
1
<PAGE>
- - --------------------------------------------------------------------------------
PART I--FINANCIAL INFORMATION
- - --------------------------------------------------------------------------------
EVEREST HEALTHCARE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
------------- ------------
(unaudited)
ASSETS
- - ------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 3,381 $ 1,047
Patient accounts receivable, less allowance of
$11,119 and $11,288.............................. 47,411 50,046
Refundable income taxes........................... 3,008 3,590
Other receivables................................. 3,006 3,398
Medical supplies inventories...................... 3,542 4,735
Deferred income taxes............................. 5,150 5,150
Prepaid expenses and other........................ 311 388
-------- --------
Total current assets............................ 65,809 68,354
Property and equipment, net......................... 31,665 33,620
Goodwill, net....................................... 73,448 79,164
Deferred financing costs, net....................... 6,563 6,739
Other intangible assets, net........................ 2,671 3,508
Investments in and advances to affiliated
companies.......................................... 8,902 8,758
Deferred income taxes............................... 5,998 5,998
Other assets........................................ 1,217 895
-------- --------
$196,273 $207,036
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 12,824 $ 12,194
Accrued liabilities............................... 17,206 15,445
Current portion of long-term debt................. 801 1,165
Current portion of capital lease obligations...... 367 156
-------- --------
Total current liabilities....................... 31,198 28,960
Long-term debt, less current portion ............... 121,653 135,058
Capital lease obligations, less current portion..... 402 287
Minority interests.................................. 1,735 1,818
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 shares
authorized; 12,819,586 shares issued and
outstanding...................................... 13 13
Additional paid-in capital........................ 55,171 54,321
Accumulated deficit............................... (13,899) (13,421)
-------- --------
Total stockholders' equity...................... 41,285 40,913
-------- --------
$196,273 $207,036
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
EVEREST HEALTHCARE SERVICES CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months
Ended
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Net revenues.................................................. $39,908 $53,431
Operating expenses:
Patient care costs.......................................... 27,884 38,554
General and administrative.................................. 5,190 6,239
Provision for bad debts..................................... 837 1,524
Depreciation and amortization............................... 2,356 2,759
------- -------
Total operating expenses.................................. 36,267 49,076
------- -------
Income from operations........................................ 3,641 4,355
Nonoperating income (expense):
Interest expense............................................ (2,959) (3,512)
Interest income............................................. 534 207
Equity in earnings of affiliates............................ 127 92
Minority interests in earnings.............................. (300) (125)
------- -------
(2,598) (3,338)
------- -------
Income before income taxes.................................... 1,043 1,017
Income tax expense............................................ 553 539
------- -------
Net income.................................................... $ 490 $ 478
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
EVEREST HEALTHCARE SERVICES CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Operating activities
Net income............................................... $ 490 $ 478
Adjustments to reconcile net income to net cash used in
operating activities:
Provision for bad debts................................ 837 1,524
Depreciation and amortization.......................... 2,356 2,759
Equity in earnings of affiliates....................... (127) (92)
Minority interests in earnings......................... 300 125
Changes in operating assets and liabilities (net of
effect of acquisitions):
Patient accounts and other receivable................ (1,213) (5,133)
Other assets......................................... (719) (974)
Accounts payable, accruals, and other liabilities.... (4,601) (2,610)
--------- ---------
Net cash used in operating activities.............. (2,677) (3,923)
Investing activities
Capital expenditures..................................... (1,589) (2,081)
Acquisition of businesses, net of cash acquired.......... (323) (7,268)
Decrease in amounts due from affiliates.................. 1,871 61
--------- ---------
Net cash used in investing activities.................... (41) (9,288)
Financing activities
Proceeds from long-term debt............................. 20,550 30,012
Payments on long-term debt............................... (20,699) (17,783)
Payments on capital lease obligations.................... (186) (326)
Deferred financing costs................................. 42 (176)
Repurchase of common stock............................... -- (850)
--------- ---------
Net cash provided by (used in) financing activities...... (293) 10,877
Decrease in cash and cash equivalents.................... (3,011) (2,334)
Cash and cash equivalents, beginning of period........... 12,525 3,381
--------- ---------
Cash and cash equivalents, end of period................. $ 9,514 $ 1,047
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
EVEREST HEALTHCARE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except for share and per share data)
1. Interim Consolidated Financial Statements
The financial information at December 31, 1999 and for the three months ended
December 31, 1998 and 1999 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such date and
the results of operations and cash flows for those periods. Results of
operations for the three months ended December 31, 1999 are not necessarily
indicative of the results that may be expected for the entire year.
The unaudited interim consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and reporting
practices. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission; however, the Company believes the
disclosures are adequate to make the information not misleading. The unaudited
interim consolidated financial statements contained herein should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Form 10-K as filed with the Securities and
Exchange Commission on December 29, 1999.
2. New Accounting Standards
Effective October 1, 1999, the Company adopted SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The
provisions of SOP 98-1 establish guidance on accounting for the costs incurred
related to internal use software. The provisions of SOP 98-1 specifically
address the accounting for the costs related to designing, developing,
obtaining and modifying and/or implementing internal use software. SOP 98-1
requires that companies capitalize qualifying costs incurred during the
application development stage. All other costs incurred in connection with an
internal use software project are to be expensed as incurred. Application of
the provisions of SOP 98-1 is required for fiscal year 2000. The adoption of
SOP 98-1 did not have a material impact on its results of operations.
3. Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the 1999 presentation.
4. Business Combinations
In November 1999, the Company acquired a 100.0% interest in Western New York
Artificial Kidney Center, Inc., which owns three outpatient dialysis facilities
in the Buffalo, New York area. The purchase price, including costs of the
transaction, was approximately $5,800. Goodwill recognized in the acquisition
was approximately $5,700.
In December 1999, the Company acquired a 100.0% interest in St. Clare
Dialysis Center located in Dover, New Jersey. The purchase price, including
costs of the transaction, was approximately $1,500. Goodwill recognized in the
acquisition was approximately $1,200.
These acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the allocation of the cost of the acquired assets and
liabilities has been made on the basis of the estimated fair value. The
consolidated financial statements include the operating results of each
business from the date of acquisition.
5
<PAGE>
5. Reportable Segments
The Company has two reportable segments: Dialysis Services and Contract
Services. The Company's Dialysis Services segment consists of 67 outpatient
dialysis treatment centers which primarily provide outpatient chronic dialysis
treatments and 30 hospital based treatment centers that provide acute dialysis
treatments. The Company's Contract Services segment provides perfusion,
aphersis, and autotransfusion treatments in 81 hospitals.
The Company evaluates performance and allocates resources based upon profit
or loss before income taxes and extraordinary items. The Company's reportable
segments are independent operating divisions that are managed separately. All
intercompany costs are eliminated.
<TABLE>
<CAPTION>
Contract
Dialysis Services Total
-------- -------- -------
<S> <C> <C> <C>
As of and for the three months ended December 31,
1999:
Revenues............................................ $48,055 $5,376 $53,431
Interest expense.................................... 59 152 211
Depreciation and amortization....................... 2,073 220 2,293
Equity in earnings of unconsolidated subsidiaries... 92 -- 92
Segment profit (loss)............................... 5,267 (73) 5,194
Segment assets...................................... 117,784 17,731 135,515
Investments in and advances to affiliated entities.. 6,180 1,226 7,406
Expenditures for long-lived assets.................. 1,909 20 1,929
As of and for the three months ended December 31,
1998:
Revenues............................................ 35,029 4,879 39,908
Interest expense.................................... -- 200 200
Depreciation and amortization....................... 1,576 182 1,758
Equity in earnings of unconsolidated subsidiaries... 127 -- 127
Segment profit...................................... 3,810 276 4,086
Segment assets...................................... 94,710 17,465 112,175
Investments in and advances to affiliated entities.. 5,689 1,490 7,179
Expenditures for long-lived assets.................. 692 138 830
</TABLE>
A reconciliation of the reportable segments to consolidated income (loss)
before income taxes and cumulative effect of change in accounting and
consolidated assets are as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Profit (loss):
Total profit (loss) for reportable segments................. $ 4,086 $ 5,194
Unallocated amounts:
Elimination of corporate administrative expense............. 3,539 3,964
Interest expense............................................ (2,759) (3,301)
Depreciation and amortization............................... (598) (466)
Interest income............................................. 534 188
Corporate expenses.......................................... (3,759) (4,562)
-------- --------
Income before income taxes.............................. 1,043 1,017
======== ========
Assets:
Total assets for reportable segments........................ 112,175 135,515
Elimination of intercompany accounts........................ 45,598 37,984
Unallocated assets.......................................... 38,500 33,537
-------- --------
Consolidated assets..................................... 196,273 207,036
======== ========
</TABLE>
6
<PAGE>
Other significant items as disclosed within the reportable segments are
reconciled to the consolidated totals as follows:
<TABLE>
<CAPTION>
Segment
Totals Adjustments Consolidated
------- ----------- ------------
<S> <C> <C> <C>
Other Significant Items:
For the three months ended December 31, 1999
Interest expense............................ $ 211 $3,301 $ 3,512
Depreciation and amortization............... 2,293 466 2,759
Interest income............................. 19 188 207
Investments in and advances to affiliated
entities................................... 7,406 1,352 8,758
Expenditures for long-lived assets.......... 1,929 152 2,081
For the three months ended December 31, 1998
Interest expense............................ 200 2,759 2,959
Depreciation and amortization............... 1,758 598 2,356
Interest income............................. -- 534 534
Investments in and advance to affiliated
entities................................... 7,179 9,308 16,487
Expenditures for long-lived assets.......... 830 759 1,589
</TABLE>
6. Other Financial Information
The Company is a holding company with no independent assets or operations.
Therefore, the Company relies primarily upon payment from its subsidiaries for
the funds necessary to meet its obligations, including the payment of interest.
The ability of the subsidiaries to fund the obligations is subject to
significant restrictions, will be dependent upon the earnings of the
subsidiaries, and will be subject to applicable laws and approval by the
subsidiaries. Full separate statements of the Guarantor Subsidiaries have not
been presented as the guarantors are wholly owned subsidiaries of the Company.
Management does not believe that inclusion of such financial statements would
be material to investors. The guarantees of the Guarantor Subsidiaries are
full, unconditional, and joint and several.
7
<PAGE>
The following table sets forth the financial data at December 31, 1999 and
for the three months then ended:
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Assets:
Cash and cash
equivalents.......... $ (3,253) $ 1,703 $ 2,597 $ -- $ 1,047
Patient accounts and
other receivable..... 12,207 31,129 7,119 (409) 50,046
Other current assets.. 5,793 9,706 1,762 -- 17,261
Property and
equipment, net....... 5,625 25,339 2,656 -- 33,620
Goodwill, net......... 12,457 52,112 14,595 -- 79,164
Investment in and
advances to
affiliated
companies............ 101,495 (17,298) 2,378 (77,817) 8,758
Other assets.......... 15,282 1,826 32 -- 17,140
-------- -------- ------- -------- --------
Total assets.......... $149,606 $104,517 $31,139 $(78,226) $207,036
======== ======== ======= ======== ========
Liabilities and
Stockholders' Equity:
Current liabilities... $ 7,147 $ 12,033 $10,189 $ (409) $ 28,960
Long-term
liabilities.......... 126,750 1,676 8,737 -- 137,163
Stockholders' equity.. 15,709 90,808 12,213 (77,817) 40,913
-------- -------- ------- -------- --------
Total liabilities and
stockholders'
equity............... $149,606 $104,517 $31,139 $(78,226) $207,036
======== ======== ======= ======== ========
Statement of Operations
Data:
Net revenues........... $ $ 43,866 $ 9,565 $ -- $ 53,431
Patient care costs..... -- 31,182 7,372 -- 38,554
General and
administrative........ 597 5,063 579 -- 6,239
Provision for bad
debts................. -- 1,257 267 -- 1,524
Depreciation and
amortization.......... 466 1,931 362 -- 2,759
-------- -------- ------- -------- --------
Income (loss) from
operations............ (1,063) 4,433 985 -- 4,355
Interest income
(expense), net ....... (3,113) 18 (210) -- (3,305)
Equity in earnings of
affiliate............. -- 92 -- -- 92
Minority interests in
earnings.............. (48) (78) 1 -- (125)
-------- -------- ------- -------- --------
Income (loss) before
income taxes ......... (4,224) 4,465 776 -- 1,017
Income tax (benefit)
expense............... (2,192) 2,461 270 -- 539
-------- -------- ------- -------- --------
Net income (loss)...... $ (2,032) $ 2,004 $ 506 $ -- $ 478
======== ======== ======= ======== ========
Statement of Cash Flows
Data:
Operating activities:
Net income (loss)...... $ (2,032) $ 2,004 $ 506 $ -- $ 478
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Provision for bad
debts................ -- 1,257 267 -- 1,524
Depreciation and
amortization......... 466 1,931 362 -- 2,759
Equity in earnings of
subsidiaries......... -- (92) -- -- (92)
Minority interest in
earnings............. 48 78 (1) -- 125
Net change in
operating assets and
liabilities (net of
effect of
acquisitions)........ (39,351) 25,441 5,193 -- (8,717)
-------- -------- ------- -------- --------
Net cash provided by
(used in) operating
activities........... (40,869) 30,619 6,327 -- (3,923)
Investing Activities:
Capital expenditures.. (493) (1,139) (449) -- (2,081)
Acquisition of
businesses, net of
cash acquired........ -- (7,268) -- -- (7,268)
Increase (decrease) in
amounts due from
affiliates........... 25,642 (19,692) (5,889) -- 61
-------- -------- ------- -------- --------
Net cash provided by
(used in) investing
activities........... 25,149 (28,099) (6,338) -- (9,288)
Financing Activities:
Proceeds from long-
term debt............ 30,012 -- -- -- 30,012
Payments on long-term
debt................. (17,490) (293) -- -- (17,783)
Other................. -- (1,352) -- -- (1,352)
-------- -------- ------- -------- --------
Net cash provided by
(used in) financing
activities........... 12,522 (1,645) -- -- 10,877
Increase (decrease) in
cash and cash
equivalents........... (3,198) 875 (11) -- (2,334)
Cash and cash
equivalents (deficit)
at beginning of
period................ (55) 828 2,608 -- 3,381
-------- -------- ------- -------- --------
Cash and cash
equivalents (deficit)
at end of period...... $ (3,253) $ 1,703 $ 2,597 $ -- $ 1,047
======== ======== ======= ======== ========
</TABLE>
8
<PAGE>
The following table sets forth the financial data for the three months ended
December 31, 1998:
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues........... $ -- $ 31,834 $8,074 $ -- $ 39,908
Patient care costs..... -- 22,004 5,880 -- 27,884
General and
administrative........ 3,924 682 584 -- 5,190
Provision for bad
debts................. -- 746 91 -- 837
Depreciation and
amortization.......... 458 1,575 323 -- 2,356
-------- -------- ------ ----- --------
Income (loss) from
operations............ (4,382) 6,827 1,196 -- 3,641
Interest expense, net.. (2,100) (28) (297) -- (2,425)
Equity in earnings of
affiliate............. -- 127 -- -- 127
Minority interests in
earnings.............. -- (277) (23) -- (300)
-------- -------- ------ ----- --------
Income (loss) before
income taxes.......... (6,482) 6,649 876 -- 1,043
Income tax expense..... -- 453 100 553
-------- -------- ------ ----- --------
Net income (loss)...... $ (6,482) $ 6,196 $ 776 $ -- $ 490
======== ======== ====== ===== ========
Statement of Cash Flows
Data:
Operating activities:
Net income (loss)...... $ (6,482) $ 6,196 $ 776 $ -- $ 490
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Provision for bad
debts................ -- 746 91 -- 837
Depreciation and
amortization......... 458 1,575 323 -- 2,356
Equity in earnings of
subsidiaries......... -- (127) -- -- (127)
Minority interest in
earnings............. -- 277 23 -- 300
Net change in
operating assets and
liabilities (net of
effect of
acquisitions)........ (845) (11,121) 5,433 -- (6,533)
-------- -------- ------ ----- --------
Net cash provided by
(used in) operating
activities........... (6,869) (2,454) 6,646 -- (2,677)
Investing Activities:
Capital expenditures... (275) (827) (487) -- (1,589)
Acquisition of
businesses, net of
cash acquired......... -- -- (323) -- (323)
Increase (decrease) in
amounts due from
affiliates............ (8,562) 10,769 (336) -- 1,871
-------- -------- ------ ----- --------
Net cash provided by
(used in) investing
activities............ (8,837) 9,942 (1,146) -- (41)
Financing Activities:
Proceeds from long-term
debt.................. 20,550 -- -- -- 20,550
Payments on long-term
debt.................. (20,550) (335) -- -- (20,885)
Other.................. -- 42 -- -- 42
-------- -------- ------ ----- --------
Net cash used in
financing activities.. -- (293) -- -- (293)
Increase (decrease) in
cash and cash
equivalents............ (15,706) 7,195 5,500 -- (3,011)
Cash and cash
equivalents at
beginning of period.... 816 10,385 1,324 -- 12,525
-------- -------- ------ ----- --------
Cash and cash
equivalents (deficit)
at end of period....... $(14,890) $ 17,580 $6,824 $ -- $ 9,514
======== ======== ====== ===== ========
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with the more
detailed information contained in the Consolidated Financial Statements and
notes thereto appearing elsewhere in this Report and in the Company's Report on
Form 10-K for the fiscal year ended September 30, 1999.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains certain "forward-looking statements" with respect to
results of operations and businesses of the Company. All statements other than
statements of historical facts included in this Report, including those
regarding market trends, the Company's financial position, business strategy,
projected costs, and plans and objectives of management for future operations,
are forward-looking statements. In general, such statements are identified by
the use of forward-looking words or phases including, but not limited to,
"intended," "will," "should," "may," "expects," "anticipates," and
"anticipated" or the negative thereof or variations thereon or similar
terminology. These forward-looking statements are based on the Company's
current expectations. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Because forward-
looking statements involve risks and uncertainties, the Company's actual
results could differ materially. See the "Risk Factors" section of the
Company's Registration Statement on Form S-4 (File No. 333-57191) for a
discussion of certain risks applicable to the Company and its business.
Overview
Everest Healthcare Services Corporation is a leading provider of dialysis and
other blood treatment services. Founded in 1968 and principally owned by
nephrologists, the Company has a long-standing focus on developing strong
relationships with physicians to provide high-quality patient care. Everest is
the nation's sixth-largest provider of chronic dialysis outpatient services and
serves over 6,500 patients through 67 facilities in 12 states. In addition to
its outpatient dialysis center operations, the Company provides acute dialysis
services through contractual relationships with 30 hospitals in four states.
Everest also contracts with 81 hospitals in 12 states to provide a broad range
of other extracorporeal (outside-the-body) blood treatment services, including
perfusion, apheresis and auto-transfusion ("Contract Services"). Pursuant to
management contracts, Everest provides management services to (i) a physician
practice group comprised of 30 nephrologists, primarily in the Chicago and
northwest Indiana areas, and (ii) certain minority-owned or unaffiliated
dialysis facilities. The Company derived 88.7% of its net revenues for the
three months ended December 31, 1999 from chronic and acute dialysis services,
10.1% from Contract Services and 1.2% from management services.
Sources of Revenues
The Company's net revenues from chronic dialysis services are derived from:
(i) in-center dialysis and home dialysis services including drugs and supplies;
and (ii) acute dialysis services performed in hospitals. The majority of the
Company's in-center and home dialysis services are paid for under the Medicare
End-Stage Renal Disease ("ESRD") program in accordance with rates established
by the Health Care Financing Administration ("HCFA"). Additional payments are
provided by other third party payors (particularly by employer group health
plans during the first thirty months of treatment), generally at rates higher
than those reimbursed by Medicare. Everest is currently seeking to expand the
portion of its revenues attributable to non-government payors by entering into
contracts with managed care companies and other private payors. Because
dialysis is an ongoing, life-sustaining therapy used to treat a chronic
condition, utilization of the Company's chronic dialysis services is generally
predictable and not subject to seasonal or economic fluctuations. ESRD patients
may receive up to 156 dialysis treatments per year; however, due to
hospitalization and no shows the Company's average number of treatments per
patient per year is 140. Unless the patient moves to another dialysis facility,
receives a kidney transplant or dies, the revenues generated per patient per
year can be estimated with reasonable accuracy.
10
<PAGE>
The Company's Contract Services revenues are derived from perfusion,
apheresis and auto-transfusion services provided to hospitalized patients
pursuant to contracts with hospitals. Rates paid for such services are
negotiated with individual hospitals. Because extracorporeal blood treatment
services are required for patients undergoing major surgical procedures,
utilization of the Company's Contract Services is not subject to seasonal or
economic fluctuations.
The Company's revenues also include fees paid under management services
contracts. Management service fee revenue is recognized when earned. Management
service fees are based on contracted rates. The contracted rates are estimates
based upon the cost of services provided such as billing, accounting, technical
support, cash management and facilities management.
Acquisitions
Acquisitions of dialysis and Contract Services providers have been recorded
under purchase accounting with the purchase price being principally allocated
to fixed assets, accounts receivable and inventory based on respective
estimated fair market values at the date of acquisition. Any excess of the
purchase price over the fair value of identifiable assets (including
identifiable intangible assets) is allocated to goodwill, which is amortized
over 25 years. The results of these acquisitions have been included in the
results of operations from their respective acquisition dates. The Company
regularly evaluates the potential acquisition of, and holds discussions with,
various potential acquisition candidates; as a general rule, the Company does
not intend to publicly announce such acquisitions until a definitive agreement
has been reached.
During the three months ended December 31, 1999, the Company acquired equity
in two entities in which it previously had no equity interest. In November
1999, the Company acquired a 100.0% interest in Western New York Artificial
Kidney Center, Inc., which owns three outpatient dialysis facilities in the
Buffalo, New York area. In December 1999, the Company acquired a 100.0%
interest in St. Clare Dialysis Center located in Dover, New Jersey. These
acquisitions represent 57 stations and approximately 300 patients in the
aggregate.
Results of Operations
Three Months Ended December 31, 1999 Compared to Three Months Ended December
31, 1998
Net Revenues. Net revenues increased $13.5 million or 33.8% to $53.4 million
for the three months ended December 31, 1999 from $39.9 million for the three
months ended December 31, 1998. This increase resulted primarily from a 26.4%
increase in the number of treatments to 199,000 for the three months ended
December 31, 1999 from 157,400 for the three months ended December 31, 1998.
This growth in treatments is the result of acquisitions and development of
various dialysis facilities and a 6.5% increase in same store treatments for
the three months ended December 31, 1999 over the three months ended December
31, 1998. The average net revenue per treatment increased from $220 for the
three months ended December 31, 1998 to $239 for the three months ended
December 31, 1999. The net revenue per treatment increased by approximately $19
as a result of increased contractual adjustments recognized in the first
quarter of fiscal 1999 thereby reducing net revenue per treatment for that
quarter and as a result of an increase in the dosing levels of epogen
administered to patients during dialysis treatments to achieve industry and
Company goals of hematocrit levels.
Patient Care Costs. Patient care costs consist of those directly related to
the care of patients, including direct and indirect labor, drugs and other
medical supplies and operational costs of the facilities and other indirect
costs such as bio-med and staff education. Patient care costs increased $10.7
million or 38.3% to $38.6 million for the three months ended December 31, 1999
from $27.9 million for the three months ended December 31, 1998. This change
resulted primarily from growth in the number of treatments performed during the
period that caused a corresponding increase in the use of labor, drugs and
supplies. In addition, the supply costs increased approximately $15 per
treatment, most of which is attributable to an increase in the dosing levels of
epogen administered to patients during dialysis treatments to achieve industry
and Company goals of hematocrit levels.
11
<PAGE>
General and Administrative Expenses. General and administrative expenses
include corporate office costs and other administrative costs including
accounting, billing, facility costs, treasury and information systems,
excluding depreciation and amortization amounts which are separately presented.
General and administrative expenses increased $1.0 million or 19.2% to $6.2
million for the three months ended December 31, 1999 from $5.2 million for the
three months ended December 31, 1998. This increase was principally attributed
to $1.4 million of accruals related to discretionary compensation that the
Company had reversed in the first quarter of fiscal 1999.
Provision for Bad Debts. The Company provides for bad debts in the same
period that revenue is recognized based on management's estimate of the
collectibility of the accounts receivable considering several factors such as
payor mix and billing practices. Provision for bad debts increased $687,000 or
82.1% to $1.5 million for the three months ended December 31, 1999 from
$837,000 for the three months ended December 31, 1998.
Depreciation and amortization. Depreciation and amortization increased
approximately $400,000 or 16.7% to $2.8 million for the three months ended
December 31, 1999 from $2.4 million for the three months ended December 31,
1998. This change was due to increased depreciation expense as a result of
fixed asset purchases and de novo developments.
Income from Operations. Income from operations increased approximately
$700,000 or 18.9% to $4.4 million for the three months ended December 31, 1999
from $3.7 million for the three months ended December 31, 1998. Income from
operations as a percentage of net revenues decreased to 8.2% for the three
months ended December 31, 1999 as compared to 9.1% for the three months ended
December 31, 1998.
Interest Expense, Net. Interest expense, net of interest income, increased
approximately $900,000 or 37.5% to $3.3 million for the three months ended
December 31, 1999 from $2.4 million for the three months ended December 31,
1998. The increase in interest expense, net of interest income, was
attributable to the interest associated with the amortization of deferred
financing costs as well as interest incurred on borrowings under the Credit
Facility.
Equity in Earnings of Affiliates. Equity in earnings of affiliates represents
the Company's portion of earnings in unconsolidated joint ventures. The Company
recognized approximately $92,000 from unconsolidated joint ventures for the
three months ended December 31, 1999 as compared to $127,000 for the three
months ended December 31, 1998. This change in the equity in earnings was due
to the Company's strategy of rolling-up the more profitable unconsolidated
joint ventures.
Minority Interests in Earnings. Minority interests in earnings represents the
proportionate equity interests of other partners in the Company's consolidated
entities that are not wholly owned. The minority interests in earnings
decreased approximately $175,000 to $125,000 for the three months ended
December 31, 1999 as compared to $300,000 for the three months ended December
31, 1998. This is due to a decrease in the earnings of entities in which there
are minority interests.
Income Tax Expense. Income tax expense decreased to $539,000 for the three
months ended December 31, 1999 from $553,000 for the three months ended
December 31, 1998 as a result of the factors described above. The Company's
effective tax rate remained relatively constant at 53%.
Year 2000 Compliance by the Company and Others
Year 2000 compliance concerns the ability of certain computerized information
systems to properly recognize date-sensitive information, such as invoices for
the Company's services, for a year that begins with "20" instead of "19."
Systems that do not recognize such information could generate erroneous data or
cause systems to fail. The Company is at risk both for its own Year 2000
compliance and for the Year 2000 compliance of those with whom it does
business, particularly third party payors.
12
<PAGE>
The Company has addressed Year 2000 compliance concerns. This included its
formation of a Year 2000 Task Force to study and address Year 2000 issues, the
hiring of consultants to assist the Year 2000 Task Force in its review of
Company systems, the establishment and implementation of a Year 2000 compliance
plan, the establishment of a Year 2000 contingency plan, the upgrading of the
Company's major information technology systems into Year 2000 Compliance, and a
full review of the Company's non-information technology systems (i.e., embedded
technology such as micro-controllers). For a more detailed description of the
Company's Year 2000 compliance efforts, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Compliance
by the Company and Others" in the Company's Form 10-K filed December 29, 1999.
The Company believes that all of its critical systems and processes are now
Year 2000 compliant. As of February 7, 2000, no significant problems were
encountered in any of the Company's mission critical systems. The Company also
is not aware of any significant problems being experienced by its customers,
vendors or third party payors that would have a negative impact on the
Company's operations.
The total amounts the Company has expended on Year 2000 issues are as
follows:
<TABLE>
<S> <C>
Consultants................................................... $ 900,000
Hardware...................................................... 300,000
Software...................................................... 100,000
Bio-Med Embedded Technology................................... 100,000
----------
Total..................................................... $1,400,000
==========
</TABLE>
Approximately 95% of the Year 2000 budget was spent through the first quarter
of fiscal 2000. The Company has funded Year 2000 expenditures through its
working capital.
While the Company believes that it has successfully completed its Year 2000
project, there can be no assurance that it will not incur unexpected
difficulties in Year 2000 compliance or that one or more of its customers,
vendors or third party payors will not experience unexpected difficulties that
affect their ability to be Year 2000 compliant. There can be no assurance that
any such unexpected difficulties would not have a material adverse effect on
the Company's business, results of operations and financial condition.
Liquidity and Capital Resources
The Company requires capital primarily for the acquisition and development of
dialysis centers and Contract Services businesses, the purchase of property and
equipment for existing centers and to finance working capital requirements. At
December 31, 1999, the Company's working capital was $39.4 million.
The Company's net cash used in operations was $3.9 million for the three
months ended December 31, 1999. Cash used in operating activities consists of
net income increased by non-cash expenses such as depreciation, amortization
and the provision for bad debts and adjusted by the changes in components of
working capital, primarily receivables, payables and accrued expenses. The
utilization of cash in operations was mainly due to increased patient accounts
receivable balances as a result of increased treatment volume and revenue per
treatment. The Company's net cash used in investing activities was $9.3 million
for the three months ended December 31, 1999. The Company's principal sources
and uses of cash consist of investing activities related to purchases of new
equipment and leasehold improvements for existing dialysis centers and the
acquisition of dialysis centers. Net cash provided by financing activities was
approximately $10.9 million for the three months ended December 31, 1999. The
primary sources and uses of cash from financing activities were net borrowings
under the Credit Facility.
The Company does not have any current material commitments for capital
expenditures.
13
<PAGE>
A significant component of the Company's growth strategy is the acquisition
and development of dialysis centers and the acquisition of Contract Services
businesses. The Company believes that the existing cash and funds from
operations, together with funds available under the New Credit Facility, will
be sufficient to meet the Company's acquisition, development, expansion,
capital expenditure and working capital needs for at least the next twelve
months. In order to finance certain strategic acquisition opportunities, the
Company may from time to time incur additional short and long-term bank
indebtedness and may issue equity or debt securities, the availability and
terms of which will depend on market and other conditions. There can be no
assurance that the Company will be successful in implementing its growth
strategy or that adequate sources of capital will be available in the future as
needed on terms acceptable to the Company.
Impact of Inflation
A substantial portion of the Company's net revenues is subject to
reimbursement rates that are regulated by the federal government and do not
automatically adjust for inflation. The Company is unable to increase the
amount it receives for the services provided by its dialysis businesses that
are reimbursed under the Medicare composite rate. Increased operating costs due
to inflation, such as labor and supply costs, without a corresponding increase
in reimbursement rates, may adversely affect the Company's earnings in the
future. However, part of the Company's growth strategy is to acquire additional
Contract Services businesses which are not directly dependent on reimbursement
from government agencies. In addition, the Company believes that the effect of
inflation is further mitigated by a recent change in current governmental
health care laws that extends the coordination of benefits period for ESRD
patients who are covered by an employer group health plan from 18 to 21 months
to 30 to 33 months before Medicare becomes the primary payor. In addition, the
Balanced Budget Refinement Act of 1999 updated the composite rate for payment
by 1.2% for renal dialysis services furnished in 2000 and an additional 1.2%
for such services furnished in 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in hedging or other market structure derivative
trading activities. Additionally, the Company's debt obligations are primarily
fixed-rate in nature and, as such, are not sensitive to changes in interest
rates. The Company does not believe that its market risk financial instruments
on December 31, 1999 would have a material effect on future operations or cash
flow.
14
<PAGE>
- - --------------------------------------------------------------------------------
PART II--OTHER INFORMATION
- - --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business, including those arising from patient treatment. The Company believes
it will be covered by malpractice insurance with respect to these claims and
does not believe that the ultimate resolution of pending proceedings will have
a material adverse effect on the Company. However, claims against the Company,
regardless of their merit or eventual outcome, could require management to
devote time to matters unrelated to the operation of the Company's business,
and may also have a material adverse effect on the Company's ability to attract
patients or expand its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) On May 5, 1998, the Company sold (the "Initial Offering") its
$100,000,000 9 3/4% Senior Subordinated Notes due 2008, Series A (the "Private
Notes"). On October 2, 1998, the Company delivered in exchange (the "Exchange")
for the Private Notes its $100,000,000 9 3/4% Senior Subordinated Notes due
2008, Series B (the "Notes"). The net proceeds to the Company from the Initial
Offering were $95.2 million, after deducting the initial purchaser's discount
and offering expenses. The Company used $48.4 million of the net proceeds to
repay indebtedness under the Company's prior credit facility that bore interest
at a weighted average rate of 8.99% per annum as of June 30, 1998 and was to
mature in May 2000. $7.2 million of the net proceeds were used to repay loans
made to the Company by certain of its shareholders. $5.1 million of these loans
bore interest at the prime rate plus 1% per annum and matured at various times
throughout 1998. $2.1 million of these loans bore interest at the prime rate
plus 1% per annum and matured on November 29, 2000. The Company used $19.2
million of net proceeds to acquire a management services agreement and $4.7
million to acquire land and buildings. The Company used approximately $10.0
million to acquire controlling interests in four dialysis facilities.
Additionally, the Company used the remaining $5.7 million of the net proceeds
for working capital purposes.
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit No. Exhibit
--- ----------- -------
<C> <C> <S>
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for
which this form 10-Q is filed.
</TABLE>
15
<PAGE>
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, on the 7th day of
February 2000.
Everest Healthcare Services
Corporation
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
16
<PAGE>
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, on the 7th day of
February, 2000.
Con-Med Supply Company, Inc.
Continental Health Care, Ltd.
Dialysis Specialists of Tulsa, Inc.
Dupage Dialysis, Ltd.
Everest Healthcare Indiana, Inc.
Everest Healthcare Ohio, Inc.
Everest Healthcare Texas Holding
Corp.
Everest Management, Inc.
Everest New York Holdings, Inc.
Everest One IPA, Inc.
Everest Three IPA, Inc.
Everest Two IPA, Inc.
Home Dialysis of America, Inc.
Mercy Dialysis Center, Inc.
New York Dialysis Management, Inc.
North Buckner Dialysis Center, Inc.
WSKC Dialysis Services, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
17
<PAGE>
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, on the 7th day of
February, 2000.
Acute Extracorporeal Services,
L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chief Executive Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
18
<PAGE>
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, on the 7th day of
February, 2000.
Everest Healthcare Texas, L.P.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chief Executive Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
19
<PAGE>
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, on the 7th day of
February, 2000.
Northern New Jersey Dialysis, L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chief Executive Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
----------- -------
<C> <S>
27 Financial Data Schedule.
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001058560
<NAME> EVEREST HEALTHCARE SERVICES CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,047
<SECURITIES> 0
<RECEIVABLES> 61,334
<ALLOWANCES> 11,288
<INVENTORY> 4,735
<CURRENT-ASSETS> 68,354
<PP&E> 61,197
<DEPRECIATION> 27,577
<TOTAL-ASSETS> 207,036
<CURRENT-LIABILITIES> 28,960
<BONDS> 100,000
0
0
<COMMON> 13
<OTHER-SE> 40,900
<TOTAL-LIABILITY-AND-EQUITY> 207,036
<SALES> 53,431
<TOTAL-REVENUES> 53,431
<CGS> 0
<TOTAL-COSTS> 49,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,524
<INTEREST-EXPENSE> 3,512
<INCOME-PRETAX> 1,017
<INCOME-TAX> 539
<INCOME-CONTINUING> 478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
