<PAGE>
U.S. 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, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ________________
Commission file number: 0-24260
AMEDISYS, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 11-3131700
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3029 S. Sherwood Forest Blvd., Ste. 300 Baton Rouge, LA 70816
---------------------------------------------------------------
(Address of principal executive offices including zip code)
(504) 292-2031
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (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 [_] No [X]
Number of shares of Common Stock outstanding as of March 31, 1998: 3,060,021
shares
1
<PAGE>
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997........................................ 3
Consolidated Statements of Operations for the Three Months
ended March 31, 1998 and 1997............................ 4
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1998 and 1997............................ 5
Notes to Consolidated Financial Statements................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................... 9
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................... 11
ITEM 2. CHANGES IN SECURITIES..................................... 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 11
ITEM 5. OTHER INFORMATION......................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 11
2
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AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(UNAUDITED, IN 000'S)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Current Assets:
Cash $ 1,260 $ 4,070
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $2,877 in March 1998
and in $1,617 in December 1997 6,570 9,630
Prepaid Expenses 667 247
Other Current Assets 2,238 654
-------- --------
Total Current Assets 10,735 14,601
Notes Receivable from Related Parties 230 252
Property, Plant and Equipment, Net 5,584 4,785
Other Assets, Net 9,340 3,232
-------- --------
Total Assets $ 25,889 $ 22,870
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Current Liabilities:
Notes Payable $ 2,905 $ 5,806
Current Portion of Long-Term Debt 927 927
Accounts Payable 1,963 1,338
Accrued Expenses:
Payroll and Payroll Taxes 2,932 2,025
Income Taxes 134 0
Insurance 755 521
Other 1,552 847
-------- --------
Total Current Liabilities 11,169 11,464
Long-Term Debt 3,632 3,129
Other Long-Term Liabilities 1,136 0
-------- --------
Total Liabilities 15,937 14,593
-------- --------
Minority Interest 3 3
-------- --------
STOCKHOLDERS' EQUITY
Common Stock 3 3
Preferred Stock 1 1
Additional paid-in capital 11,289 7,092
Treasury Stock (25) (25)
Retained Earnings (deficit) (1,318) 1,203
-------- --------
Total Stockholders' Equity 9,949 8,274
-------- --------
Total Liabilities and Stockholders' Equity $ 25,889 $ 22,870
======== ========
</TABLE>
See accompanying notes to financial statements.
3
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AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED, IN 000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 1998 MARCH 1997
<S> <C> <C>
Income:
Service revenue $ 12,710 $ 13,385
Cost of service revenue 7,667 7,879
-------- --------
Gross margin 5,043 5,506
-------- --------
General and administrative expenses:
Salaries and benefits 5,238 2,734
Other 3,436 2,156
-------- --------
Total general and administrative expenses 8,674 4,890
-------- --------
Operating income (loss) (3,631) 616
-------- --------
Other income and expense:
Interest income 12 2
Interest expense (203) (184)
Miscellaneous 9 18
-------- --------
Total other income and expenses (182) (164)
-------- --------
Income (loss) before income taxes and minority interest (3,813) 452
Provision (benefit) for estimated income taxes (1,292) 162
-------- --------
Income (loss) before minority interest (2,521) 290
Minority interest in consolidated subsidiary 0 12
-------- --------
Net income (loss) $ (2,521) $ 302
======== ========
Basic earnings (losses) per common share $ (0.83) $ 0.12
======== ========
Weighted average common shares outstanding 3,051 2,580
======== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Amedisys, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(Unaudited, in 000's)
<TABLE>
<CAPTION>
March 1998 March 1997
<S> <C> <C>
Cash Flows from operating activities:
Net Income (Loss) $(2,521) $301
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 410 309
Provision for bad debts 317 184
Minority interest in consolidated subsidiary 0 (12)
(Gain) loss on disposal of property and equipment 4 0
Loss on sale of marketable securities 0 1
Changes in assets and liabilties:
(Increase) decrease in accounts receivable 3,376 (856)
(Increase) in prepaid expenses (420) (124)
(Increase) in other current assets (1,539) (22)
(Increase) in other assets (152) (112)
(Decrease) in accounts payable (335) (319)
Increase in accrued expenses 510 320
------------ -----------
Net cash (used in) operating activities (350) (330)
------------ -----------
Cash flow from investing activities:
Purchase of furniture, fixtures & equipment (830) (397)
Cash paid for acquisitions (1,905) 0
(Increase) decrease in notes receivable from related parties 22 (25)
------------ -----------
Net cash (used in) investing activities (2,713) (422)
------------ -----------
Cash flow from financing activities:
Cash received in acquisitions 123 0
Net increase (decrease) in borrowings on line of credit (9,901) 675
Payments on notes payable (387) (134)
Proceeds from notes payable 165 439
Increase (decrease) in notes payable to related parties 0 (14)
Proceeds from preferred stock issuance, net 3,253 0
------------ -----------
Net cash provided by financing activities 253 966
------------ -----------
Net increase (decrease) in cash and cash equivalents (2,810) 213
Cash and cash equivalents at beginning of period 4,070 1,104
------------ -----------
Cash and cash equivalents at end of period $1,260 $1,317
============ ===========
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 225 $181
============ ===========
Income taxes $ 19 $ 15
============ ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Amedisys, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1998 and 1997
(Unaudited, in 000's)
<TABLE>
<CAPTION>
March 1998 March 1997
<S> <C> <C>
Supplemental schedule of non-cash investing activity
(See note 9 to financial statements):
Value of stock issued in exchange $ 874
Value of note payable issued in exchange 375
Cash acquired in exchange 123
Working capital acquired net of cash and cash equivalents (1,672)
Fair value of property, plant and equipment acquired 279
Fair value of other assets acquired 26
Long term debt assumed 2,998
Fair value of other liabilities assumed 54
-------
Non cash portion of acquisitions 5,546
Cash payment for acquisitions 1,905
-------
Goodwill recorded in exchange $ 7,451
=======
</TABLE>
6
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AMEDISYS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED FINANCIAL INFORMATION
The financial information as of March 31, 1998 and 1997, included herein is
unaudited; however, such information reflects, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) that are necessary to present fairly the results of operations
for such periods. Results of operations for the interim periods are not
necessarily indicative of results of operations which will be realized for
the year ending December 31, 1998. These interim consolidated financial
statements should be read in conjunction with the Company's annual
financial statements and related notes in the Company's Form 10-K.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which simplifies the computation of earnings per share (EPS). The
Company adopted SFAS No. 128 in the fourth quarter of 1997. SFAS No. 128
requires the restatement of prior years' EPS data; however, application of
the statement has no impact on the Company's prior years' EPS data.
Basic net income per share of common stock is calculated by dividing net
income applicable to common stock by the weighted-average number of common
shares outstanding during the year. Diluted net income per share is not
presented as stock options and convertible securities outstanding during
the periods presented were not dilutive.
3. ACCOUNTING FOR START-UP COSTS
During April 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position 98-5 ("SOP"), "Reporting on the Costs of
Start-Up Activities." The SOP requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998.
The Company chose to write off start-up costs in anticipation of the
issuance of the SOP in the fourth quarter of 1997.
4. MEDICARE REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING
The Company derives approximately 40% of its revenues from the Medicare
system. In 1997, Congress approved the Balanced Budget Act of 1997 (the
"Budget Act"). The Budget Act established an interim payment system (the
"IPS") that provided for the lowering of reimbursement limits for home
health visits. For cost reporting periods beginning on or after October 1,
1997, Medicare-reimbursed home health agencies will have their cost limits
determined as the lesser of (i) their actual costs, (ii) cost limits based
on 105% of median costs of freestanding home health agencies, or (iii) an
agency-specific per-patient cost limit, based on 98% of 1994 costs adjusted
for inflation. The new IPS cost limits will apply to the Company for the
cost reporting period beginning January 1, 1998. On March 31, 1998, the
government released its final determination and definitions of the new IPS
cost limits.
IPS was implemented to position the home care industry for a Prospective
Payment System (PPS) which was enacted for cost reporting periods beginning
on or after October 1, 1999. Although PPS is not defined at this time, it
will take into consideration an appropriate unit of service and number of
visits within that unit, variations in the acuity of patients and the
related costs, and a general system design that provides for continued
access to quality services.
7
<PAGE>
During the 1st quarter of 1998, the Company initiated a restructuring plan
which included cost reductions and productivity enhancements to position
the Company to be successful under the new IPS, as well as PPS. The Company
reduced operational cost, increased operational efficiencies and enhanced
marketing efforts, which resulted in annualized cost savings of
approximately $7 million. The restructuring is anticipated to be complete
by June 30, 1998.
The implementation of IPS and the strategic decisions made by management
will result in a decrease to net revenues in the first and second quarters
of 1998. The Company also expects to report losses in the second and third
quarters of 1998 due to IPS.
As the home care industry faces changes in reimbursement structure,
Amedisys is committed to improve and streamline systems and take
appropriate actions to combat these changes and create a company focused on
long-term growth.
5. ACCRUED PAYROLL AND PAYROLL TAXES
The Company currently has an Employee Stock Ownership Plan ("ESOP")
relating to a subsidiary of the Company. At March 31, 1998, the Company has
accrued contributions of $705,000. The accrued expense will be liquidated
through the issuance of stock of the subsidiary.
6. PLACEMENT OF PREFERRED STOCK
On March 3, 1998, Amedisys completed a secondary phase of its private
placement of $.001 par value convertible preferred stock pursuant to
Regulation D of the Securities Act of 1933. The Company issued an
additional 350,000 shares at $10 per share for gross proceeds of $3.5
million. The Company intends to use the proceeds of this placement to fund
synergistic acquisitions within the South East and South Central regions of
the U.S. and accelerate the growth of its fully integrated network of
outpatient health care services, including Alternate Site Infusion Therapy
divisions and Outpatient Surgery Centers. These shares are convertible
into 756,757 shares of common stock which is equivalent to $4.625 per
share.
7. ACQUISITIONS
In January 1998, the Company acquired all of the stock of Alliance Home
Health, Inc. ("Alliance"), a home health care business with locations
throughout Oklahoma, in exchange for $300,000 and 194,286 shares of common
stock. Of the 194,286 shares of Company common stock issued to the former
owners of Alliance, 122,857 shares were placed in escrow as consideration
for certain contingent liabilities which may be asserted against the former
stockholder of Alliance to the extent such claims exceed $500,000
(singularly and/or in aggregate). The contingent liabilities include any
material misstatement or omission in any representation or breach of any
warranty, covenant or agreement of Alliance or its stockholder, any
Medicare liabilities, any liability from lawsuits or arbitration, any
payment to be made by Alliance pursuant to a previous acquisition, or any
liability specifically addressed in the purchase document. The escrow
period expires December 31, 2003. The majority stockholder of Alliance
entered into a three year employment agreement and two year non-compete and
non-solicitation agreement with the Company. The employment agreement is
for the position of Vice President with duties incident to such position
with the Company. The non-compete and non-solicitation agreement is for a
period of two years after the termination of the employment agreement. The
non-compete and non-solicitation agreement provides that the employee will
not divert any business from the Company or compete in the business area
defined as the State of Oklahoma. This restricted activity is in relation
to home health agencies or infusion-related business. Additionally, the
non-compete and non-solicitation agreement provides that the employee will
not solicit employees or clients from the Company. This employee resigned
in March 1998. The Company does not expect any material ramifications as a
result of this action.
In February 1998, the Company acquired all of the stock of PRN, Inc.
("PRN"), a home infusion pharmacy business located in San Antonio, Texas,
in exchange for $430,000 and the assumption of $71,000 in debt. The Company
has agreed to pay additional consideration of up to $150,000 should PRN
have annual net revenues of $625,000 for the next two years. This
additional consideration is to be paid quarterly for a period of two years,
bearing interest at 9% from the date of the acquisition. The sellers, a key
employee and his spouse, executed a non-compete and non-solicitation
agreement at the date of closing for a period of two years within Bexar
County Texas, which includes San Antonio, and any counties continguous
thereto. The non-compete and non-solicitation agreements provide that the
sellers will not divert any business from the Company or compete with the
Company; as well as, not solicit any employees or clients of the Company.
This restricted activity is in relation to home infusion pharmacy business.
The Company has retained the right to offset certain indemnifiable
liabilities against the additional consideration.
In February 1998, the Company acquired all of the stock of Infusion Care
Solutions, Inc. ("ICS") a home health care and infusion business, based in
Baton Rouge, Louisiana, in exchange for aggregate consideration of
$500,000, of which $375,000 was payable in cash at closing and $125,000 was
payable pursuant to a two year promissory note. The note bears interest at
prime plus 1% with 24 equal monthly payments. The sole stockholder executed
a non-compete and non-solicitation agreement at closing for a period of two
years from the date of the exchange. The business area is defined as the
Parishes of East Baton Rouge, Assumption, West Baton Rouge, Livingston, and
Ascension in the State of Louisiana. The non-compete and non-solicitation
agreement provides that the sole stockholder will not divert any business
from the Company or compete with the Company, as well as, not solicit any
employees or clients of the Company. The restricted business activity is in
relation to any infusion or pharmacy business unless such business is
related to nursing home patients or assisted living patients. The Company
has retained the right to offset certain indemnifiable liabilities against
the sums payable pursuant to the promissory note.
8
<PAGE>
In February 1998, the Company acquired substantially all of the assets of
Precision Health Systems, L.L.C. ("PHS") a home health care and infusion
business, based in Baton Rouge, Louisiana, in exchange for aggregate
consideration of $1,000,000, of which $770,000 was payable in cash at
closing and $250,000 is payable pursuant to a two year promissory note. The
note bears interest at 9.5% with equal payments due monthly. The Company
has retained the right to offset certain indemnifiable liabilities against
the sums payable pursuant to the promissory note. The majority stockholder
of PHS entered into a two year non-competition and non-solicitation
agreement and a two year consulting agreement with the Company. The non-
compete and non-solicitation agreement provides that the sole stockholder
will not divert any business from the Company or compete with the Company;
as well as, not solicit any employees or clients of the Company. The
business area is defined as the Parishes of East Baton Rouge, Assumption,
West Baton Rouge, Livingston, and Ascension in the State of Louisiana. The
restricted business activity is in relation to any infusion or pharmacy
business unless such business is related to nursing home patients or
assisted living patients. The consulting agreement is in the amount of
$50,000 per year, payable in equal monthly increments. The majority
stockholder is to assist the Company in developing referral sources and
retain current referral sources.
In March 1998, the Company acquired certain assets and no liabilities,
contingent or certain, prior to the closing date, of StaffCor Staffing
Services, L.L.C. (StaffCor) in exchange for $30,000 cash and $20,000 in
additional consideration payable quarterly over two years, without
interest. This additional consideration is to be paid prorata based on net
income of StaffCor without any adverse changes due to purchaser's corporate
headquarters expense, additional capital expenditures or materially
increased operating expense. The assets acquired were a minimal amount of
furniture and fixtures, the right to the StaffCor Staffing Service name,
and contracts to provide medical staffing to hospitals and other health
care providers. The seller entered into a two year non-competition and non-
solicitation agreement with the Company. The non-compete and non-
solicitation agreement is for the business area of Oklahoma, Grady and
Logan Counties of the State of Oklahoma relative to any supplemental
staffing business. The non-compete and non-solicitation agreement provides
that the sole stockholder will not divert any business from the Company or
compete with the Company; as well as, not solicit any employees or clients
of the Company. StaffCor is a medical staffing business located in Oklahoma
City, Oklahoma.
Each of the above transactions was accounted for as a purchase.
8. INCOME TAXES
The Company recorded a tax benefit of 34% of pre-tax loss at March 31,
1998, as the Company anticipates carrying back taxable losses to previous
years in which the Company paid income taxes or generating taxable income
in future periods to offset the first quarter 1998 losses.
9. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITY
The following unaudited table presents (in 000's) the detail of the
acquisitions completed during the first quarter of 1998 presented in the
supplemental schedule to the consolidated cash flow statement.
<TABLE>
<CAPTION>
Infusion Precision
Alliance Care Health StaffCor
Home PRN, Solutions, Systems Staffing
Health, Inc. Inc. Inc. L.L.C. Services, L.L.C. TOTAL
<S> <C> <C> <C> <C> <C> <C>
Supplemental schedule of non-cash Investing activity:
Value of stock issued in exchange $ 874 $ 0 $ 0 $ 0 $ 0 $ 874
Value of note payable issued in exchange 0 0 125 250 0 375
Cash acquired in exchange 72 (2) 1 51 0 123
Working capital acquired net of cash and cash equivalents (1,788) 40 18 57 0 (1,672)
Fair value of property, plant and equipment acquired 220 28 0 12 19 279
Fair value of other assets acquired 23 2 0 0 0 26
Long term debt assumed 2,927 72 0 0 0 2,998
Fair value of other liabilities assumed 0 23 28 3 0 54
------------------------------------------------------------------
Non cash portion of acquisitions 5,273 26 134 132 (19) 5,546
Cash payment for acquisitions 300 430 375 770 30 1,905
------------------------------------------------------------------
Goodwill recorded in exchange $ 5,573 $456 $ 509 $ 902 $ 11 $ 7,451
==================================================================
</TABLE>
10. NOTES PAYABLE
Notes payable consist primarily of borrowings under revolving bank lines of
credit of $7,500,000 and $750,000, bearing interest at bank prime plus 1.5%
and bank prime plus 1%, respectively. At March 31, 1998, approximately
$5,345,000 was available under the combined lines of credit. The lines of
credit are collateralized by 80% of eligible receivables in staffing and
outpatient surgery, 75% of eligible receivables in home health care, and
80% of physician notes receivable. Eligible receivables are defined
principally as accounts that are aged less than 90 days for staffing and
outpatient surgery and 120 days for home health care. The line of credit is
subject to certain covenants, including a monthly borrowing base, a debt
service coverage ratio, and a leverage ratio. At December 31, 1997 and
March 31, 1998, the Company was in default on the debt service coverage
ratio requirement of 1.1:1.0 due to the losses incurred in these periods.
This default was waived by the bank through June 30, 1998.
11. RECENT DEVELOPMENTS
In April 1998, the Company acquired all of the stock of Home Health of
Alexandria, Inc., d/b/a Cornerstone Home Health (Cornerstone), a closely
held entity, in exchange for $20,000 cash. With this acquisition, the
Company will have home health agencies serving all the major metropolitan
areas in Louisiana. A key employee and former stockholder executed an
employment agreement with the Company for a two year period; along with a
non-compete and non-solicitation agreement. The non-compete and non-
solicitation agreement provides that the key employee will not divert any
business from the Company or compete with the Company; as well as, not
solicit any employees or clients of the Company. The business area covered
by the non-compete and non-solicitation agreement is for the Parishes of
Allen, Avoyelles, Caldwell, Catahoula, Concordia, Evangeline, Grant,
LaSalle, Natchitoches, Rapides, St. Landry, and Winn and is relative to
home health agencies. The agreement is for a two year period after the key
employee is no longer employed by the Company. Cornerstone is a state
licensed, Medicare certified, JCAHO accredited home health agency in
Alexandria, Louisiana.
In April 1998, the Company acquired all of the stock of Quality Home Health
Care, Inc. (Quality), of Stillwel, Oklahoma. In exchange, the Company paid
$80,000 and issued $20,000 worth of Company common stock. A key employee
and former stockholder executed an employment agreement for two years; in
conjunction with a non-compete and non-solicitation agreement for a period
of two years after employment with the Company is terminated. The non-
compete and non-solicitation agreement provides that the key employee will
not divert any business from the Company or compete with the Company; as
well as, not solicit any employees or clients of the Company. The business
area covered by the non-compete and non-solicitation agreement is for the
Counties of Adair, Cherokee, Delaware, Haskell, Leflore, Mayes, McIntosh,
Muskogee, Swquoyah, and Wagoner in the State of Oklahoma and is relative to
home health agencies. Quality is a state licensed, Medicare certified home
health agency with three locations serving eastern Oklahoma.
In April 1998, the Company acquired certain assets of Precision Home Health
Care, Inc., (Precision) in exchange for $1,250,000; consisting of an
$800,000 note payable at 9.5% due July 1, 1998, a $400,000 note payable at
9.5% payable monthly for a period of two years, and $50,000 in liabilities
for capital improvements. The assets acquired were furniture and fixtures,
inventory, rights to use the Precision business name, current patients, and
leasehold interests. At closing the sole stockholder (who was also the
majority stockholder in the February 1998 ICS and PHS acquisitions)
executed a non-compete and non-solicitation agreement. The sole stockholder
entered into a two year non-competition and non-solicitation agreement
which provides that the sole stockholder will not divert any business from
the Company or compete with the Company; as well as, not solicit any
employees or clients of the Company. The business area is defined as the
Parishes of East Baton Rouge, Assumption, West Baton Rouge, Livingston, and
Ascension in the State of Louisiana. The restricted business activity is in
relation to any Medicare or Medicaid home health care business unless such
business is related to nursing home patients or assisted living patients.
Additionally, the stockholder executed a consulting agreement with the
Company to provide services related to patient advocation, introduce the
Company to referral sources, and advise and assist the Company concerning
Medicare regulations. The consulting agreement is for a period of two years
in the amount of $50,000, payable monthly. Precision is a state licensed,
Medicare certified home health agency operating in the Baton Rouge,
Louisiana area.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the Consolidated Financial Statements appearing in Item 1.
GENERAL
Amedisys, Inc. (the "Company") is a leading multi-regional provider of
fully integrated alternate-site health care services. The Company's alternative-
site provider services division offers the following services: infusion therapy;
home health nursing services; and ambulatory surgery centers. Its management
services division includes staffing and professional services and provider
management services. The Company operates 46 offices within a network of
subsidiaries in the southern United States.
During the 1st quarter of 1998, the Company initiated a restructuring plan
which included cost reductions and productivity enhancements to position the
Company to be successful under the new IPS, as well as PPS. The Company reduced
operational costs, increased operational efficiencies and enhanced marketing
efforts, which resulted in annualized cost savings of approximately $5 million.
The restructuring is anticipated to be complete by June 30, 1998.
The implementation of IPS and the strategic decisions made by management
will result in a decrease to net revenues in the first and second quarters of
1998. The Company also expects to report losses in the second and third quarters
of 1998 due to IPS.
9
<PAGE>
RESULTS OF OPERATIONS
Revenues. Net revenues for the three months ended March 31, 1998 decreased
$675,000 or 5.0% to $12,710,000 from $13,385,000 for the three months ended
March 31, 1997. The Home Health Nursing division's net revenues decreased
$1,200,000 or 18.8%. This decrease was due primarily to the reductions in
Medicare reimbursement rates as a result of the IPS and a reduction in visits
from 102,233 in 1997 to 99,144 in 1998. Offsetting this decrease in net revenues
in the Home Health Nursing division was a $403,000 increase due to the
acquisition of Care Medical & Mobility, a $533,000 increase due to the startup
of the Alternative Site Infusion Therapy division, and an increase of $272,000
in the Staffing and Professional Services division.
Cost of Revenues. Cost of revenues decreased by $212,000 to $7,667,000 for
the three months ended March 31, 1998 from $7,879,000 for the three months ended
March 31, 1997. As a percentage of the net revenues, cost of revenues increased
to 60.3% from 58.9% for the three months ended March 31, 1998 and March 31,
1997, respectively. The increase is due to the cost of revenues as a percentage
of net revenues increasing from 58.2% to 67.7% in the Home Health Nursing
division as a result of the IPS. This percentage actually decreased from 59.5%
to 55.4% for the remaining divisions of the Company.
General and Administrative Expenses ("G&A"). General and administrative
expenses increased by $3,784,000 or 77.4% to $8,674,000 for the three months
ended March 31, 1998 from $4,890,000 for the three months ended March 31, 1997,
and also increased as a percentage of net revenues to 68.2% from 36.5%. An
increase of $2,230,000 is directly attributable to hiring additional personnel
and related expenses to support the startup of the Alternate Site Infusion
Therapy division as well as the Company's recent acquisitions. Additionally, G&A
expenses increased approximately $750,000 from the three months ended March 31,
1997 to 1998 due to the addition of experienced, senior management and increased
resources for marketing and managed care. These additions should enable the
Company to achieve its planned growth and position it to be a leader in the
alternate-site healthcare services market.
Provision for Estimated Income Taxes. The Company recorded a tax benefit
of 34% of pre-tax loss for the three months ended March 31, 1998.
Net Income. As a result of the reasons described above, the Company had a
net loss of $2,521,000 for the three months ended March 31, 1998 compared with
net income of $302,000 for the three months ended March 31, 1997. The company
expects the loss to be significantly reduced during the latter half of 1998
after all the cost reductions are implemented; however, there can be no
assurance the Company will be able to achieve the expected cost savings from its
restructuring efforts or will be able to reduce costs without negatively
impacting operations.
LIQUIDITY AND CAPITAL RESOURCES
Notes payable consist primarily of borrowings under revolving bank lines of
credit of $7,500,000 and $750,000, bearing interest at bank prime plus 1.5% and
bank prime plus 1%, respectively. At March 31, 1998, approximately $5,345,000
was available under the combined lines of credit. The lines of credit are
collateralized by 80% of eligible receivables in staffing and outpatient
surgery, 75% of eligible receivables in home health care, and 80% of physician
notes receivable. Eligible receivables are defined principally as accounts
that are aged less than 90 days for staffing and outpatient surgery and 120 days
for home health care. The line of credit is subject to certain covenants,
including a monthly borrowing base, a debt service coverage ratio, and a
leverage ratio. At December 31, 1997 and March 31, 1998, the Company was
in default on the debt service coverage ratio requirement of 1.1:1.0 due to the
losses incurred in these periods. This default was waived by the bank through
June 30, 1998.
The Company's operating activities used $350,000 during the first three
months of 1998, whereas such activities used $330,000 in cash during the first
three months of 1997. This increase in cash used in operating activities is
primarily attributable to net losses partially offset by a decrease in accounts
receivable. Net cash used in investing activities increased to $2,713,000 from
$422,000 for the three months ending March 31, 1998 and 1997 respectively.
Purchases of furniture, fixtures and equipment increased $433,000 in addition to
$1,905,000 used to purchase several acquisitions. Net cash provided by financing
activities decreased to $253,000 from $966,000 for the three months ending March
31, 1998 and 1997, respectively. The change is due to a decrease in the
Company's borrowing on its lines of credit offset by proceeds from a private
placement of preferred stock.
10
<PAGE>
At March 31, 1998, the Company had negative working capital of $434,000 and
stockholder's equity of $9,949,000. Included in current liabilities at March 31,
1998 is $705,000 in accrued Employee Stock Ownership Plan contributions that
will be liquidated by the issuance of capital stock from one of the Company's
subsidiaries. With the exclusion of this liability, the Company has working
capital of $271,000. The Company's ratio of total liabilities to equity at March
31, 1998 was 1.60 to 1.0. The Company's sources of external and internal
financing are limited. The Company may need to obtain additional financing in
order to meet future capital requirements. In March 1998, the Company completed
the second phase of its private placement of preferred stock, issuing 350,000
shares, for net proceeds of $3,253,000. To date, the Company has used no other
source of external financing, other than sales of equity instruments.
YEAR 2000 COMPLIANCE ISSUES
The Company is currently evaluating its information system for the Year 2000
compliance. The Company does not anticipate any material disruption in its
operations resulting from any failure by the Company to achieve compliance. At
present, the Company does not have, but expects to solicit, information
concerning the Year 2000 compliance status of its suppliers, customers, and
payors. In the event that any of the Company's significant suppliers, customers,
or payors does not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be adversely affected.
FORWARD LOOKING STATEMENTS
When included in this Quarterly Report on Form 10-Q or in documents
incorporated herein by reference, the words "expects", "intends", "anticipates",
"believes", "estimates", and analogous expressions are intended to identify
forward-looking statements. Such statements inherently are subject to a variety
of risks and uncertainties that could cause actual results to differ materially
from those projected. Such risk and uncertainties include, among others, general
economic and business conditions, current cash flow and operating deficits, debt
service needs, adverse changes in federal and state laws relating to the health
care industry, competition, regulatory initiatives and compliance with
governmental regulations, customer preferences and various other matters, many
of which are beyond the Company's control. These forward-looking statements
speak only as of the date of this Quarterly Report on Form 10-Q. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or any changes in the Company's expectations with regard thereto or any
changes in events, conditions or circumstances on which any statement is based.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 12, 1998, the Company held a Special Meeting of the
Shareholders and approved the issuance of up to ninety-three units,
each unit consisting of 10,000 shares of the Company's series A
convertible preferred stock at a purchase price of $10.00 per share,
to be offered for sale to accredited investors through a private
placement transaction in reliance upon an exemption from registration
provided under the Securities Act of 1933, as amended.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Identification of Exhibit
----------- -------------------------
27.1 --Financial Data Schedule
(b) Reports on Form 8-k
No Reports on form 8-K were filed during the first quarter of 1998.
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 hereunto duly authorized.
AMEDISYS, INC.
By://s/ MITCHEL G. MOREL
-----------------------------------------
Mitchel G. Morel, Chief Financial Officer
Principal Financial and Accounting Officer
DATE: May 20, 1998
11
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