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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended: December 31, 1997
Commission File Number: 0-24260
AMEDISYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3131700
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3029 S. SHERWOOD FOREST BOULEVARD, SUITE 300
BATON ROUGE, LOUISIANA 70816
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(504) 292-2031 OR (800) 467-2662
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulations S-K in this form, and if no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Issuer's revenues for the year ended December 31, 1997 were $54,496,096.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the last sale price as quoted by the Nasdaq National
Market on March 31, 1998 was $9,158,742. As of March 31, 1998 registrant has
3,060,021 shares of Common Stock outstanding.
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TABLE OF CONTENTS
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PART I................................................................... 3
ITEM 1. BUSINESS.................................................... 3
ITEM 2. PROPERTIES.................................................. 12
ITEM 3. LEGAL PROCEEDINGS........................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 13
PART II.................................................................. 13
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS..................................................... 13
ITEM 6. SELECTED FINANCIAL DATA..................................... 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.................. 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 19
PART III................................................................. 19
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 19
ITEM 11. EXECUTIVE COMPENSATION...................................... 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 19
PART IV.................................................................. 20
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K......................................................... 20
SIGNATURES............................................................... 21
FINANCIAL STATEMENTS..................................................... F-1
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PART I
ITEM 1. BUSINESS
GENERAL
Amedisys, Inc. (the "Company") is a leading multi-regional provider of fully
integrated alternate site health care services. It offers a portfolio of
services including infusion therapy; ambulatory infusion centers; home care
nursing; and ambulatory surgery centers. In addition, it provides physician
support services; temporary and permanent staffing; management services; and
specialized management information software and services. The Company operates
34 offices in 7 states and generated $54 million in revenues in 1997.
Amedisys was incorporated in Louisiana in 1982. The Company consolidated the
holdings of its subsidiaries through stock transfers pursuant to Section 351
of the Internal Revenue Code causing these subsidiaries to be 100% owned by
Amedisys, Inc. in 1992 and became public in 1993 through a merger with M & N
Capital, a New York corporation. In 1994, the Company moved its state of
incorporation from New York to Delaware. Amedisys currently trades on the
Nasdaq National Market under the symbol "AMED".
The Company seeks to differentiate itself from its competitors by providing
a continuum of services through its divisions and its community networks. Its
growth objective is to enhance its position as a leader in the provision of
alternate site health care services by offering patients, physicians and
payors quality services in a cost effective manner, which can be delivered
outside an institutional setting.
The Company's strategy of focusing operations in a well defined target
market area allows it to gain a considerable presence in each market and hold
a dominant position. The Company's areas of operation offer the distinct
advantage of having some of the lowest penetration of managed health care in
the nation. However, as the nationwide trend toward managed care continues,
the Company believes it is well positioned to adapt to the demands of managed
care. Amedisys will continue its aggressive expansion through internal growth,
start-ups and acquisitions. From 1994 to 1997, the Company increased revenues
by 100%, primarily through increased market share in existing business lines
and developing new, synergistic services.
RECENT DEVELOPMENTS
Recent Acquisitions
In August 1997, the Company acquired substantially all of the assets of
Allgood Medical Services, Inc. d/b/a Care Medical and Mobility Equipment
Company, a home medical equipment company, for $1,165,000. The purchase price
consisted of $465,000 in cash, a $100,000 note, and $600,000 in common stock
which represented 115,518 common shares. This transaction has been accounted
for as a purchase and the excess of the total acquisition cost over the fair
value of net assets acquired (goodwill) of $852,000 was being amortized over
20 years using the straight-line method. Subsequent to this purchase, certain
reimbursement reductions were announced to implement the Balanced Budget Act
of 1997. Based on management's estimate of the expected impact of these
changes in reimbursement on future cash flows, this goodwill was fully written
off as other general and administrative expenses at December 31, 1997 as
required under SFAS No. 121.
In January 1998, the Company acquired all of the issued and outstanding
stock of Alliance Home Health, Inc. ("Alliance"), a home health care business
with locations throughout Oklahoma, in exchange for 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 escrow period expires December 31, 2003. The Company
performed management services for Alliance during 1997 and received revenues
totaling approximately $1.2 million of which $695,000 is included in accounts
receivable at December 31, 1997. In addition, the Company had advanced
$1,465,000 to Alliance for cash flow purposes which is included in other
assets at December 31, 1997.
In February 1998, the Company acquired all of the issued and outstanding
capital stock of PRN, Inc. ("PRN"), a home infusion pharmacy business located
in San Antonio, Texas, in exchange for $430,000 and assumption of $71,000
debt. The Company has agreed to pay additional consideration of up to $150,000
upon
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PRN reaching certain revenue goals. The Company has retained the right to
offset certain indemnifiable liabilities against the additional consideration.
In February 1998, the Company acquired all of the issued and outstanding
capital stock of Infusioncare 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 Company
has retained the right to offset certain indemnifiable liabilities against the
sums payable pursuant to the promissory note.
In February 1998, the Company acquired substantially all of the assets of
Precision Health Solutions, 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 $750,000 was payable in cash at closing
and $250,000 is payable pursuant to a two year promissory note. The Company
has retained the right to offset certain indemnifiable liabilities against the
sums payable pursuant to the promissory note.
Each of the above transactions was accounted for as a purchase.
Recent Financing
In December 1997, Amedisys completed the first phase of a private placement
of 400,000 shares of convertible preferred stock at $10 per share for gross
proceeds of $4 million. These shares are convertible into 864,865 shares of
common stock which is equivalent to $4.625 per share (see Note 11 of attached
audited financial statements). In the first quarter of 1998, the Company
completed its private placement of preferred stock and issued an additional
350,000 shares for gross proceeds of $3.5 million. These shares are
convertible into 756,757 shares of common stock which is equivalent to $4.625
per share. Warrants to purchase 52,500 shares of preferred stock at $10 per
share, convertible into 113,514 shares of common stock, were issued to the
placement agent, Hudson Capital Partners, L.P. in connection with the
offering.
INDUSTRY OVERVIEW
The health care industry continues to undergo changes. The focus is on
managing cost and utilization, as opposed to the hospital/physician centered
focus that dominated healthcare since the early 1950's. Since the mid- 1980's,
health care shifted from providing care at any cost to learning to manage
costs. It is predicted the next shift will require health care providers to
truly learn to manage care.
In an effort to manage health care expenditures, a strong focus has been
placed on moving the primary source of health care from the traditional
institutional settings (hospitals), causing home health care to play a more
dynamic role. As a result, the number of services that are provided safely and
effectively in alternate sites has dramatically increased.
Managed care, Medicare/Medicaid and payor reimbursement pressures continue
to drive patients through the continuum of care until they reach the setting
where the appropriate high quality care can be provided cost effectively. Over
the past several years, home care has evolved as a feasible (often preferred)
alternative in the continuum. In addition to patient comfort, substantial cost
savings can be realized through treatment at home as an alternative to
institutional settings.
To compete in this new environment, it is critical that providers not only
provide high quality, cost effective care, but implement clinically-based
management information systems to reduce costs, improve productivity, produce
and analyze clinical outcomes data, and position themselves as partners in
risk sharing.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates principally in two business segments: Provider Services
(consisting of home health care and outpatient surgery) and Management
Services (consisting of staffing/professional services and physician support
and home health care management). See Note 14 of the attached audited
financial statements for segment information.
STRATEGY
The Company's business objective is to enhance its position in its market
areas as a leading provider of fully integrated alternate site health care
services. The Company views its delivery system as a "hospital without walls"
and its strategy to accomplish this is as follows:
Offer Patients, Physicians, Hospitals and Payors a Continuum of Fully
Integrated Care. A consistent quality of care at a reasonable cost will
most successfully occur when the care comes from one provider. The
Company's strategy to employ this concept in each of its service areas
appeals to referral sources and payors, who prefer coordinating care
through a single source.
Focus on selective Geographic Markets. The Company is targeting selected
markets in the south and southeastern United States. Through start-ups,
acquisitions and expansion of existing services, the Company plans to
dominate these markets, to increase utilization of its services by payors
and referral sources and to enhance its overall market position. The
majority of states in the south and southeast have a low penetration of
managed care. As the presence of managed care increases in its service
area, the Company believes it is well positioned to provide the broad
geographic and service coverage required to contract with these payors. In
addition, since many of the areas in which the Company operates are rural,
home health care is an ideal delivery system.
Technology and Innovation Reduce Costs and Expand Business Lines. The
development of proprietary software systems not only reduces the Company's
costs to operate its business, but provides an additional business line for
the Company. Management believes Amedisys will be the first company of its
kind to operate with a virtually paperless system, expected to be in use
company-wide by the end of 1999. Care givers will be equipped with hand
held computers which will not only create greater efficiencies, but will
tie information into one centralized source. By enhancing its operations
through the use of information technology, the Company is positioned to not
only operate more efficiently and deliver care in a more cost-efficient
manner, but to compete in an environment increasingly influenced by managed
care and subject to changes in reimbursement and government regulation.
Manage Costs Through Disease State Management. Payors are focusing on the
management of patients who suffer from chronic disease states which
represent substantial costs. Some of these major disease states include:
asthma, cancer, diabetes, HIV, and congestive heart failure. The Company's
disease state management program includes: patient education, frequent
monitoring and coordinated care from specialists. This approach has been
proven to enhance quality of life and reduce the overall cost of care.
Develop Effective Synergies. Access to qualified nurses is a key factor
for success in the home care industry. An important synergy the Company
appreciates is access to highly qualified nurses for its infusion and
surgery center divisions, by tapping into its resources in its home health
care nursing and staffing divisions. In addition, many patients require
multiple services provided by the company, thereby allowing cross referrals
between Amedisys divisions. This not only benefits patients, but referral
sources and payors as well, by allowing them to utilize one company whom
they know and trust. Finally, through the synergistic operation of its
divisions, the Company can realize cost savings with sales personnel who
are educated to cross-sell product lines and by sharing office overhead
between a number of division.
BUSINESS DEVELOPMENT
The Company is committed to growth in each of its ongoing service lines, as
well as developing new services such as alternate site infusion therapy. It
has an active team of professionals who support business
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development of ongoing and developing service areas. The team provides support
services including market analysis; planning; research; and community, public
and media relations which impact Company wide and region specific budget
goals. Professionals on the team also provide advertising and educational
campaigns.
Acquisition efforts are supported by business development professionals. A
specialized acquisition group works with the presidents of the Company's
service lines to select and secure the best companies to meet the Company's
strategic goals. Members of the acquisition team include operational,
financial, legal, and marketing specialists. After an acquisition is
completed, the team interfaces with other specialists from human resources and
management information systems to begin the integration process.
At the regional levels of the Company, community relations and sales
professionals work with administrators and branch managers to capture
additional market share and enhance growth in each region and service sector.
PROVIDER SERVICES
Alternate-Site Infusion Therapy
Infusion therapy is the intravenous, intramuscular or subcutaneous
administration of medications and nutrition. These procedures were once
confined to hospital environments, however, with the portability of technology
and the expanded training and certification standards for registered nurses,
infusion procedures can be safely performed in the home setting, physician
office and ambulatory infusion suites. New therapies such as pain management
and first doses are often administered in ambulatory infusion suites to
address possible complications and adverse drug reactions.
According to Alex Brown in their Home Care Industry Perspective report, the
total home infusion therapy market is approximately $5 billion or 13% of the
total home health care expenditures, representing the second largest growing
segment of the home care industry. Beginning as a cottage industry in the
1970's, the home infusion business experienced explosive growth in the mid-
1980's. The industry became saturated in the 1990's. At that time, managed
care, which now represents approximately 2/3 of revenues in this segment,
began to negotiate lower pricing. This caused many companies to be driven out
of business or acquired by the large national providers. As a result of
questionable success in the integration of these combined companies, it
appears that regional and local providers have benefitted as the larger, most
visible companies continue to lose revenues and market share.
Among the therapies offered by the Company are:
Antibiotic therapy which is the infusion of antibiotic medications to
treat various infections and diseases.
Total parenteral nutrition which is providing nutrients through catheters
for patients who cannot absorb nutrients through the digestive tract due to
chronic gastrointestinal conditions. This is typically a long term therapy.
Enteral nutrition which is the infusion of nutrients through a feeding
tube directly into the digestive tract. This can be a long term therapy for
patients who cannot eat or drink normally.
Pain management which is the administration of infusion of drugs to
relieve chronic pain.
Chemotherapy which is the infusion of drugs used to treat various forms
of cancer.
Hydration therapy which is the infusion of fluids to patients who have
disease states which deplete their normal balance of fluids.
In addition, the Company offers high tech respiratory therapy and home
medical equipment.
The Company opened its first infusion office in the 4th quarter of 1997.
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Ambulatory Surgery Centers
Ambulatory Surgery Centers ("Centers") offer an alternative to hospital
surgical suites. The number of procedures offered in these Centers has
increased due to advances in technology, including the use of endoscopic
procedures and laser equipment. These techniques are less invasive and require
shorter recovery periods than traditional hospital services. The Centers offer
a high quality, cost effective benefit for insurers, as well as patients who
are responsible for co-payments for their procedures. Facility fees are lower
than similar hospital procedures and the atmosphere is less institutional.
Physicians who operate at the Centers can participate in ownership, and enjoy
block scheduling and faster turnaround times, allowing them more time with
their patients. The Centers offer a variety of surgical services utilizing
state-of-the-art technology and equipment. All are accredited by the
Accreditation Association for Ambulatory Care.
According to a report by SMG Marketing Group in 1997, the market share for
freestanding surgery centers has increased in comparison to the outpatient
surgical hospital market. Of the 32.1 million total surgical procedures
performed in the nation last year, hospitals performed an estimated 24.1
million, of which 14.1 million or 58% occurred on an outpatient basis. It is
projected that hospitals will perform 64% of all outpatient surgical
procedures for the nation this year, a significant decrease from the 76%
performed in 1990. Meanwhile, the shift in total outpatient surgical volume
has increased 50% from 14.5 million cases in 1990 to 22.1 million cases in
1996. The shift is due, in large part, to technological advances which allow
more procedures to be done in outpatient settings and payors seeking cost
effective services for their health plans.
The Company operates three Centers, with a fourth expected to open in May,
1998. Two of the Centers were acquired in 1995 and are solely owned by the
Company. The third Center is a partnership with physicians who utilize the
facility.
Home Health Care Nursing
In 1996, home health care services was a $40 billion industry, growing 9-11%
annually, according to Alex Brown Research and the National Association of
Home Care. This total does not include an additional $9-10 billion of low
acuity or companion care. Services provided in home health care include four
broad categories; (1) nursing and allied health services, (2) infusion
therapy, (3) respiratory therapy and, (4) home medical equipment. Accounting
for $28 billion in expenditures in 1997, nursing and allied services represent
the largest sector or 70% of all home health care services. Medicare
reimbursements account for approximately 65.2% of home care nursing. The
Balanced Budget Act of 1997 established a new reimbursement system for
Medicare home care nursing services for cost reporting periods beginning on or
after October 1, 1997. This change will have a significant effect on the home
care nursing industry since Medicare is its largest payor source (see Billing
and Reimbursement).
The Company operates 15 home care nursing offices consisting of 10 Medicare
provider offices, 4 branch offices, and one office with state licensure.
Serving this market for the past 10 years, the Company has built an excellent
reputation, based on quality care and specialty nursing services. Because its
services are comprehensive, cost-effective and can be accessed 24 hours a day,
seven days a week, the Company's home care nursing services are attractive to
payors and physicians. Each of its offices are accredited by the Joint
Commission on Accreditation of Health Care Organizations (JCAHO).
The Company provides a wide variety of home health care services including:
Registered nurses who provide specialty services such as infusion
therapy, skilled monitoring, assessments, and patient education. Many of
the Company's nurses have advanced certifications.
Licensed practical (vocational) nurses who perform technical procedures,
administer medications and change surgical and medical dressings.
Physical and occupational therapists who work to strengthen muscles and
restore range of motion and help patients to perform the activities of
daily living.
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Speech pathologists/therapists who work to restore communication and oral
skills such as swallowing.
Social workers who help families work through the problems associated
with acute and chronic illnesses.
Home health aides who provide personal care such as bathing or assistance
in walking.
MANAGEMENT SERVICES
Staffing/Professional Services
Temporary staffing allows medical facilities and businesses to manage fixed
personnel costs by providing qualified professionals on a temporary basis. In
the post consolidation period of hospitals, the number of budgeted personnel
have been significantly reduced, yet hospitals are required to maintain
adequate staffing ratios to safely care for patients, while not jeopardizing
their accreditation certification or licenses.
According to Staffing Industry Report, the 1996 forecasted revenue for the
staffing industry was $72.6 billion. The Bureau for Labor Statistics predicts
temporary staffing will be the seventh fastest growing category in the U.S. in
the 1995-2005 period, increasing at a rate almost five times that of the
general labor force. Estimates by Robert W. Baird & Co. and the National
Association of Temporary Staffing services indicate the industry can continue
to grow at a pace well above the GDP with traditional office clerical and
light industrial growing in the 8-12% range and specialty areas with 20% or
better growth.
The Company supplies professional nurses, therapists and other health care
professionals on a temporary, contract and permanent basis. In addition, it
provides professional and clerical placements on a temporary and permanent
basis. A major differentiating feature propelling the Company's growth is its
24 hour a day accessibility and its proprietary software system. Having
established a strong reputation for excellence in this industry over the past
15 years, the Company operates 12 staffing offices in its service area.
Home Health Care Management
Amedisys Resource Management provides a full menu of management and
consulting services particularly designed to meet the needs of home health
care agencies. Changing government regulations will force home health care
agencies to become more efficient and information oriented. It will be
critical to measure costs more accurately and operate below current cost
structures. This new environment will accelerate the need for management and
consulting services and information systems.
The Company's services include: financial reporting systems, general agency
management, quality improvement programs, receivables financing, and business
development. In addition, a complete management information system is
available on a leased basis. This system is proprietary to Amedisys and gives
the agency a single entry system which integrates payroll and general ledger
with the general accounting system, reports clinical data and meets Medicare
guidelines for reporting, billing and collections. This division also offers
consulting services and educational seminars which provide continuing
educational units for medical personnel. There are approximately 5,841 home
health agencies in the Company's service area.
Physician Support Services
Physicians are poised to bolster the growth of management services in their
industry. There are approximately 600,000 physicians in the U.S. and most
still practice medicine as a cottage industry. According to the American
Medical Association there are 16,000 group practices in the United States,
with the average size of nine physicians. This accounts for 24% of practicing
physicians.
Approximately 6% of all group practices have been acquired by or are
associated with investor owned physician practice management companies.
Physician fears, generated by the highly publicized problems of the
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physician practice management industry, have caused them to prefer having
their practices managed by an outside group or a management group holding
minority interest, rather than being acquired.
Amedisys manages physician practices and forms independent practice
associations ("IPA's"). The Company's services include: (1) comprehensive
management information systems that collect and assimilate data necessary for
monitoring and managing health care costs; (2) claims administration; (3)
utilization management; (4) care coordination and case management; (5)
monitoring of quality standards; (6) credentialing and recruiting of
physicians; and (7) financial systems which record billing, manage the
collections process, provide accounts payable information, and track such data
through the business cycle.
FUTURECARE
In February 1996, the Company formed FutureCare, Inc., a Nevada corporation,
to organize and operate a preferred provider network and to form a health
maintenance organization called FutureCare Health Plans of Louisiana, Inc., a
licensed HMO in Louisiana. This was to be a joint venture with physicians.
When FutureCare was developed physician sponsored networks needed an HMO
license to offer its services to employer groups and purchasers of health
plans. However, recent legislation allowed Physician Provider Networks to
offer their services without becoming a licensed HMO. In view of this change,
the Company discontinued its efforts to open FutureCare in late 1996.
BILLING AND REIMBURSEMENT
Revenues generated from the Company's home health care services are paid by
private insurance carriers, managed care organizations, individuals, Medicare,
Medicaid and other local health insurance programs. Medicare is a federally
funded program available to persons with certain disabilities and persons aged
65 or older. Medicaid, a program jointly funded by federal and state
governments, and other local governmental health care programs, is designed to
pay for certain health care and medical services provided to low income
individuals without regard to age. Home health care management services are
paid through a contractual agreement between the Company and the client home
health care agency. The Company has several statewide contracts for negotiated
fees with insurers and managed care organizations.
The Company submits all Medicare claims to a single insurance company acting
as a fiscal intermediary for the federal government. The Medicaid system in
Texas follows similar reimbursement guidelines. The state of Louisiana adopted
a fee-for-service payment method in 1995. Supplemental staffing services are
billed directly to health care facilities. Physician management fees are
collected directly from managed practices and networks. Outpatient surgery
fees are collected from commercial insurance systems, managed care
organizations, Medicare and Medicaid programs and individuals.
MEDICARE REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING
The Company derives 42% 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 costs 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. During the three months ended December 31, 1997, various
regulations and interpretations of the Budget Act were published which enabled
the Company to calculate the potential impact on reimbursement of the new IPS
cost limits. Additionally, on March 31, 1998, the government released its
final determination and definitions of the new IPS cost limits. Management's
analysis, without giving effect for any cost reductions, estimated the
aggregate reduction in reimbursement in 1998 to exceed $8.0 million for
certain of the Company's Medicare-certified nursing agencies. Management is
reviewing potential cost reductions to decrease the estimated impact of the
IPS.
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The Budget Act also provided for a 25% reduction in home oxygen
reimbursement from the 1997 fee schedule effective January 1, 1998 and a
further reduction of 5% effective January 1, 1999. Compounding these
reductions was a freeze on consumer price index increases in oxygen
reimbursement rates until the year 2003. Additionally, due to the above
reimbursement changes affecting home health agencies, the Company's main
referral sources for its durable medical equipment business have decreased, as
well as the referrals the Company anticipated capturing from its existing
agencies. These changes may result in a significant impact on the
profitability of these services.
Based upon management's determination of the expected impact of these
changes in reimbursement on future cash flows, goodwill was written down by
$835,000 during the three months ended December 31, 1997, as required under
Statement of Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting
for the Impairment of long-lived Assets and for long-lived Assets to Be
Disposed of". This write-down is reflected in the accompanying consolidated
statements of operations.
DATA PROCESSING
The Company maintains central computerized management information systems
including payroll, billing and other administrative functions at its corporate
headquarters. The information systems department has devised programs for
computerized scheduling, as well as a personnel system which monitors
personnel recruitment, evaluations and benefits. The information system also
monitors client utilization data.
The Company has a proprietary home health care software program which
features a single entry system that allows data to flow through accounting,
general ledger, payroll and billing and meet the extensive cost reporting
requirements for Medicare reimbursement of home health care services. It also
provides clinical documentation for prospective pay and tracking of clinical
outcome results.
Each regional office site is linked electronically to the corporate
accounting and information systems. This feature allows management to monitor
daily business activities and produce management reports. The system promotes
accuracy in payroll and business systems and controls the daily pay system for
field nurses in staffing.
QUALITY CONTROL AND IMPROVEMENT
As a medical service business, the quality and reputation of the Company's
personnel and operations are critical to its success. The Company has
implemented quality assurance programs as well as policies and procedures in
its divisions at both the corporate and regional levels. The Company strives
to meet guidelines set forth by the Joint Commission on Accreditation of
Health Care Organizations, as well as state and federal guidelines for
Medicare and Medicaid licensure.
The Company maintains an active quality improvement team who make periodic
on-site inspections of regional offices to review systems and operations. An
educational division is also part of quality assurance operations and conducts
educational and training sessions at regional sites, as well as disseminating
continuing education materials to regional offices.
RECRUITING AND TRAINING
The Company's Human Resource Department coordinates recruiting efforts for
corporate and field personnel. Employees are recruited through newspaper
advertising, professional recruiters, the Company's web page, networking and
word-of-mouth referrals. The Company believes it is competitive in the
industry and offers its employees upward mobility, health insurance, an
Employee Stock Option program, a 401K plan, and a cafeteria plan.
Uniform procedures for screening, testing and verifying references,
including criminal checks where appropriate, have been established. All
employees receive a formalized orientation program, including familiarization
with the Company's policies and procedures.
10
<PAGE>
Continuing professional education and training programs are offered through
the Amedisys Institute, and advanced professional certifications are
encouraged and often underwritten by the Company.
GOVERNMENT REGULATION
The Company's home health care business is highly regulated by federal,
state and local authorities. Regulations and policies frequently change and
the Company monitors changes through trade and governmental publications and
associations. Managers participate on various licensing and association
boards. The Company's home health care subsidiaries are certified by the
Health Care Financing Administration ("HCFA") and are therefore eligible to
receive reimbursement for services through the Medicare system.
Home health care offices have licenses granted by the health authorities of
respective states. Texas and Louisiana do not currently require a Certificate
of Need which some states require to establish a home health care agency.
Texas requires licensure and currently new licenses are being issued. In both
states, each location must be licensed and service areas are determined by the
state legislatures. Currently JCAHO accreditation of home health care agencies
is voluntary. However, Managed Care Organizations ("MCO's"), use JCAHO
accreditation as a minimum standard for regional and state contracts.
The Company's regional offices work with client hospitals to follow their
protocol for supplemental staffing to meet the standards for JCAHO, which
includes verification of licensure and/or certification.
Ambulatory surgery centers require a Certificate of Need in some states and
are regulated by state and federal guidelines, as well as Medicare standards.
While accreditation is not mandatory, the majority of managed care companies
will only contract with accredited centers. All of the Company's ambulatory
surgery centers have been accredited by the Accreditation Association for
Ambulatory Health Care (AAAHC).
The Company strives to comply with all federal, state and local regulations
and has satisfactorily passed all federal and state inspections and surveys.
The ability of the Company to operate properly will depend on the Company's
ability to comply with all applicable healthcare regulations.
COMPETITION
The Company's services are provided by a number of local, regional and
national companies and are highly competitive. Unlike the Company, many of
these competitors do not offer the continuum of care and/or do not have the
geographical coverage to secure contracts with many of the payors. Home health
care providers compete for referrals based primarily on scope and quality of
services, geographic coverage, pricing, and outcomes data. The Company
believes its favorable competitive position is attributable to its reputation
for nearly two decades of consistent, high quality care; its broad menu of
services; its state-of-the-art information management systems; and its
widespread service network.
SEASONALITY
The demand for the Company's home health, physician management services and
outpatient surgery are not typically influenced by seasonal factors. However,
the demand for supplemental staffing services typically decreases in the last
quarter of the fiscal year due to the year-end cost reduction strategies
utilized by many hospitals and a decreased patient census. The demand for
supplemental staffing services typically increases during the first and second
quarter of the year.
EMPLOYEES
As of December 31, 1997, the Company had 665 full-time employees, excluding
part time field nurses and other professionals in the field. Full time
employees include 15 Administrative Group Members consisting of product line
presidents and operational support personnel. The balance of the full time
employees include regional administrators, branch managers, general branch
managers, business development personnel, clerical support staff, clinical
field staff (including RN's, LPN's/LVN's, home health aides and other allied
health professionals), information systems personnel, and accounting
personnel.
11
<PAGE>
All management and business development personnel are salaried. The Company
complies with the Fair Labor Standards Act in establishing compensation
methods for its employees. Select positions within the Company are deemed to
be bonus eligible based on the achievement of pre-determined budget criteria.
The Company sponsors and contributes toward the cost of a group health
insurance program for its eligible employees and their dependents. The group
health insurance program is self-funded by the Company; however, there is an
aggregate stop loss policy in place to limit the liability for the Company.
The Company also provides a group term life insurance policy and a long term
disability policy for eligible employees. In addition, the Company offers a
401K retirement plan and encourages all of its eligible employees to
participate. The Company has a Cafeteria 125 plan in place as well.
The Company believes its employee relations are good. It successfully
recruits employees and many of its employees are shareholders.
INSURANCE
The Company maintains casualty coverages for all of its operations,
including professional and general liability, workers' compensation,
automobile, property, and fiduciary liability. The insurance program is
reviewed periodically throughout the year and thoroughly on an annual basis to
insure adequate coverage is in place. The Company is approved through the
State of Louisiana to self-insure its workers' compensation program. All other
states are covered on a fully insured basis through "A+" rated insurers. All
of the Company's employees are bonded. The Company is self-insured for its
employee health benefits.
ITEM 2. PROPERTIES
The Company presently leases approximately 23,850 square feet for its
corporate office located at 3029 South Sherwood Forest Boulevard, Baton Rouge,
Louisiana. The lease provides for a basic monthly rental rate of approximately
$10 per square foot through 1997 and increases to $11 through the expiration
date on September 30, 2002. The Company has an aggregate of 51,638 square feet
of leased space for regional offices pursuant to leases which expire between
March, 1996 and September, 2006. Rental rates for these regional offices range
from $9 per square foot to $22 per square foot with an average of $13 per
square foot, which terms and rates the Company believes to reflect market
values. Some lease rates include utilities. The Company believes its
facilities to be adequate for its current needs.
The Company presently operates three ambulatory surgery centers, two located
in Texas and one in Louisiana. These centers occupy an aggregate of 33,504
square feet. Of the total square footage occupied by ambulatory surgery
centers, 21,504 square feet are leased, and the balance is owned. The Company
believes the terms and lease rates reflect current market values. Space in the
ambulatory surgery centers encompasses eleven surgical suites, pre-op and
post-op areas, business offices, consultation, and waiting areas. The
ambulatory surgery centers are equipped with modern technology and equipment
to perform surgery, laboratory studies and limited diagnostic testing.
Construction is 90% complete on a fourth surgery center located in Texas, with
a projected opening of May, 1998. Preliminary plans are under way for an
additional location in Lafayette, LA.
The following is a list of the Company's offices. Unless otherwise
indicated, the Company has one office in each city.
Louisiana (19) Texas (10) Tennessee (1)
Baton Rouge (3) Dallas (2) Memphis
Covington Houston (3)
Hammond (3) Longview North Carolina (1)
Harahan Nederland (2) Winston-Salem
Lafayette (2) Pasadena
Lake Charles (2) San Antonio Kansas (1)
LaPlace Overland Park
Metairie (2) Mississippi (1)
Monroe Jackson Minnesota (1)
Prairieville Bloomington
Shreveport (2)
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are defendants to
lawsuits arising in the ordinary course of the Company's business. While the
outcome of these lawsuits cannot be predicted with certainty, management
believes that the resolution of these matters will not have a material adverse
effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
From August 1994, through August 1997, the Company's common stock traded on
the Nasdaq Small Cap Market and since August 1997, the Company has been
trading on the Nasdaq National Market. As of March 25, 1998, there were
approximately 147 holders of record of the Company's Common Stock and the
Company believes there are approximately 980 beneficial holders. The Company
has not paid any dividends on its Common Stock and expects to retain any
future earnings for use in its business development. The following table
provides the high and low prices of the Company's Common Stock during 1996 and
1997 as quoted by Nasdaq. Such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1st Quarter 1996.......... $9 5/8 $7 1/2
2nd Quarter 1996.......... 9 1/4 6 3/4
3rd Quarter 1996.......... 8 5 3/4
4th Quarter 1996.......... 8 1/2 4 1/2
1st Quarter 1997.......... $7 7/8 $4 3/8
2nd Quarter 1997.......... 7 1/4 4 5/8
3rd Quarter 1997.......... 7 1/4 4 5/16
4th Quarter 1997.......... 7 4 5/16
</TABLE>
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical data relating to the
Company. For the years of 1994, 1995, 1996, and 1997, the data was derived
from audited consolidated financial statements. Data for the year of 1993 is
unaudited, but in the opinion of management, presents fairly the financial
condition and results of operations for this period.
<TABLE>
<CAPTION>
SELECTED HISTORICAL 1997 1996 1995(1) 1994(1) 1993(1)
STATEMENT OF INCOME DATA ---------- ---------- ---------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net Service Revenue..... $ 54,496 $ 46,060 $ 37,589 $ 28,902 $ 22,445
Cost of Service Revenue. 30,641 26,405 22,424 16,996 14,674
---------- ---------- ---------- ---------- ----------
Gross Margin.......... 23,855 19,655 15,165 11,906 7,771
General/Administrative
Expenses............... 24,443 18,511 13,785 9,740 7,204
---------- ---------- ---------- ---------- ----------
Operating Income
(Loss)............... (588) 1,144 1,380 2,166 567
Other Income and
Expense................ (753) (1,124) (238) (248) (33)
Income Tax Expense
(Benefit).............. (382) 2 200 13 39
---------- ---------- ---------- ---------- ----------
Income (Loss) before
Cumulative Effect of
Change in Account
Principle.............. (959) 18 942 1,905 495
Cumulative Effect of
Change in Accounting
Principle.............. (235) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net Income (Loss)....... $ (1,194) $ 18 $ 942 $ 1,905 $ 495
========== ========== ========== ========== ==========
EARNINGS (LOSS) PER
COMMON SHARE........... $ (0.43) $ 0.01 $ 0.37 $ 0.75 $ 0.22
========== ========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING..... 2,735,000 2,575,000 2,570,000 2,525,000 2,285,000
========== ========== ========== ========== ==========
PROFORMA INFORMATION
(UNAUDITED)(1)
Net Income (Loss)
(Historical)........... $ (1,194) $ 18 $ 942 $ 1,905 $ 495
Proforma Adjustments:
Income Taxes on SCC
Results................ -- -- 191 646 155
---------- ---------- ---------- ---------- ----------
Proforma Net Income
(Loss)................. $ (1,194) $ 18 $ 751 $ 1,259 $ 340
========== ========== ========== ========== ==========
Proforma Earnings
(Loss)/Common Share.. $ (0.43) $ 0.01 $ 0.29 $ 0.50 $ 0.15
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Total Assets............ $ 22,870 $ 16,858 $ 11,537 $ 9,160 $ 7,190
Total Long-term
Obligations............ $ 3,129 $ 3,223 $ 1,490 $ 1,537 $ 642
Total Convertible
Preferred Stock........ $ 1 $ -- $ -- $ -- $ --
</TABLE>
- --------
(1) Surgical Care Centers of Texas, LC ("SCC"), acquired on June 30, 1995,
was a limited liability company. Prior to the transaction with Amedisys,
the individual owners were responsible for all income taxes and no income
tax expense was recorded on SCC through June, 30, 1995.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere herein.
GENERAL
The Company is a fully integrated provider of outpatient health services and
operates in two basic industry segments: alternate-site provider services and
management services operations. The Company's alternate-site provider segment
includes the following services: alternate-site infusion therapy, ambulatory
surgery centers and home health care nursing. Its management services
operations encompass: home health care management, software systems, staffing
services, and physician support services.
Gross revenue is recorded on an accrual basis based upon the date of service
at amounts equal to the Company's established rates or estimated cost
reimbursement rates, as applicable. Allowances and contractual adjustments
representing the difference between the established rates and the amounts
estimated to be payable by third parties are also recorded on an accrual basis
and deducted from gross revenue to determine net service revenues.
Reimbursement for home health care nursing services to patients covered by
the Medicare program is based on cost reimbursement rates. Final reimbursement
is determined after submission of annual cost reports and audits thereof by
the fiscal intermediaries. Effective October 1, 1997, home health cost limits
were reduced and per beneficiary limits were established which may serve to
reduce payments to home health care nursing providers in the future.
Additional proposed regulations are expected to change the payment methodology
for home health care nursing providers to Medicare patients from a cost based
reimbursement system to a prospective payment system in the future. Based upon
management's determination of the expected impact of these changes in
reimbursement on future cash flows, goodwill was written down by $835,000
during the three months ended December 31, 1997, as required under Statement
of Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting for the
Impairment of long-lived Assets and for long-lived Assets to Be Disposed of".
This write-down is reflected in the accompanying consolidated statements of
operations.
During the fourth quarter of 1997, the Company also changed its accounting
policy relating to start-up costs. Prior to this change, costs incurred to
establish regional offices prior to beginning services were capitalized as
Other Assets and amortized over a five-year period based on accepted industry
practice and applicable Medicare regulations. Provisions of a proposed
Statement of Position (SOP) expected to be issued by the American Institute of
Certified Public Accountants (AICPA) in the second quarter of 1998 will
require the write-off of any start-up costs remaining on the balance sheet and
expensing of all start-up costs incurred in the future. The Company chose to
expense such costs in 1997 to more properly reflect these costs as ongoing
costs of expanding the Company's services.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
included in the Company's consolidated statements of operations as a
percentage of net revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net services revenues................................. 100.00% 100.00% 100.00%
Costs of service revenues............................. 56.23 57.33 59.66
------ ------ ------
Gross margin.......................................... 43.77 42.67 40.34
General and administrative expenses:
Salaries and benefits............................... 23.21 22.42 17.91
Other............................................... 21.64 17.77 18.76
------ ------ ------
Total general and administrative expenses........... 44.85 40.19 36.67
Operating Income (Loss)............................... (1.08) 2.48 3.67
Other Income and expense.............................. (1.38) (2.43) (0.63)
------ ------ ------
Net income (loss) before taxes and cumulative effect
of change in accounting principle.................... (2.46) 0.05 3.04
Income tax expense (benefit).......................... (0.70) 0.01 0.53
------ ------ ------
Net income (loss) before cumulative effect of change
in accounting principle.............................. (1.76) 0.04 2.51
Cumulative effect of change in accounting principle... (0.43) -- --
------ ------ ------
Net Income (Loss)..................................... (2.19)% 0.04% 2.51%
====== ====== ======
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Service Revenues
For the year ended December 31, 1997 and the year ended December 31, 1996,
the Company's revenues increased to $54,496,000 from $46,060,000, an 18%
increase. This change is primarily attributable to increased revenues in the
management services line.
Provider services net revenues increased to $32,104,000 in 1997 from
$30,126,000 in 1996, an increase of 7%. The increase is primarily attributed
to continued growth in home health care nursing as well as a full year of
operations for St. Luke's SurgiCenter. Home medical equipment was added as a
product line in August 1997 with revenues of $465,000.
Management services net revenues increased to $22,392,000 in 1997 from
$15,934,000 in 1996, an increase of 41%. This increase is primarily attributed
to growth in staffing/professional services and home health care management.
Staffing/professional services revenues increased by 38% to $17,292,000 in
1997 from $12,538,000 in 1996. The increase in staffing services is attributed
to placement of private duty nursing, as well as the stabilization of hospital
consolidations in the markets the Company services. Home health care
management revenues increased due to agencies seeking solutions to the
expected changes in Medicare reimbursement.
Cost of Service Revenues
Cost of service revenues include all costs directly associated with the
generation of net revenues, including salaries and employee benefits and
medical supply costs. In 1997, cost of service revenues increased 16% to
$30,641,000 from $26,405,000 in 1996. As a percentage of net service revenues,
cost of service revenues decreased from 57% in 1996 to 56% in 1997. This
decrease is primarily a result of increased revenues in the home care
management and outpatient surgery divisions, which have lower direct costs.
General and Administrative Expenses
General and administrative expenses increased to $24,443,000 or 45% of
revenue in 1997 compared to $18,511,000 or 40% of revenue in 1996. This
increase is attributed to the writeoff of previously recorded
16
<PAGE>
goodwill, increased expenses resulting from growth in the outpatient surgery
division, as well as increased overhead expenses resulting from the
development of the infusion therapy division. Start-up costs related to the
development of this new division of $299,000 were expensed as incurred. The
Company also developed an Employee Stock Ownership Plan (ESOP) for the home
health care division with accrued contributions of $721,000 for 1997.
Other Income/Expense
Other income/expense decreased from ($1,178,000) in 1996 to ($962,000) in
1997. This decrease is primarily attributed to a one-time charge to earnings
in 1996 of $623,000 related to merger discussions with Complete Management,
Inc. ("CMI"), offset by additional interest expense incurred in 1997.
Net Income (Loss)
Net loss for 1997 was $1,194,000 or $0.43 per share as compared to net
income of $18,000 or $.01 per share for 1996.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Service Revenues
For the year ended December 31, 1996 and the year ended December 31, 1995,
the Company's revenues increased to $46,060,000 from $37,589,000, a 23%
increase. This change is primarily attributable to increased revenues in the
provider services line.
Provider services net revenues increased to $30,126,000 in 1996 from
$21,232,000 in 1995, an increase of 42%. This increase is primarily attributed
to continued expansion of home health care nursing and growth in outpatient
surgery. Home health care nursing increased 46% from $17,892,000 in 1995 to
$26,057,000 in 1996. This increase resulted from expanding market share in
existing offices, opening branch offices, and increasing the scope of services
and the physician referral base.
Management services net revenues decreased to $15,934,000 in 1996 from
$16,357,000 in 1995, a decrease of 3%. This decrease is mainly attributable to
changes in the staffing/professional services division where revenues were
$12,538,000 in 1996 compared to $13,774,000 in 1995, a 9% decrease. The
majority of this decrease is the result of hospitals utilizing internal
staffing pools.
Cost of Service Revenues
Cost of Service Revenues increased 18% to $26,405,000 in 1996 from
$22,424,000 in 1995. As a percentage of net revenues, cost of service revenues
decreased from 60% in 1995 to 57% in 1996. This decrease is primarily
attributed to significant growth in the home health care nursing and
outpatient surgery divisions, which have lower direct costs.
General and Administrative Expenses
General and administrative expenses increased to $18,511,000 or 40% of
revenue in 1996 compared to $13,785,000 or 37% of revenue in 1995. The
increase is attributable to the expansion of the outpatient surgery division
and increased revenues in the home health care nursing division. As revenues
increased in the home health care nursing division, expenses also increased
due to the cost reimbursement method of home health care payments from the
Medicare system. General and administrative expenses also increased due to the
addition of three senior managers and additional personnel to enhance the
information system.
Other Income/Expense
Other income/expense increased to ($1,178,000) in 1996 from ($250,000) in
1995, a 371% increase. This increase is mainly attributable to a one-time
charge to earnings of $623,000. The charge was taken as a result of
17
<PAGE>
merger discussions with Complete Management, Inc. ("CMI"), a New York based
provider of physician practice management services. During discussions with
the management of CMI, Company management decided to write off certain
investments. These investments consisted primarily of advances made to develop
a proposed managed care organization and certain non-operating equipment
believed to have no realizable value to future operations. The discussions
with CMI began with a signed letter of intent in October 1996 and were
terminated in March 1997 because the companies could not agree on terms.
Net Income
Net income decreased to $18,000 or $.01 per share for 1996 from $942,000 or
$.37 per share in 1995 mainly attributable to the one-time charge to earnings
of $623,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current capital resources are sufficient to fund current
operations for the foreseeable future. However, the Company's business
strategy is to pursue the acquisition of complimentary business and expand
current operations which would increase its capital requirements. The timing,
size and success of the Company's acquisition and expansion efforts and the
associated capital commitments cannot be readily predicted. The Company
currently intends to finance future acquisitions by using shares of its common
stock for a portion of the consideration to be paid. In the event that the
common stock does not maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept common stock as part
of the consideration for the sale of their businesses, the Company may be
required to utilize more of its cash resources. If the Company does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain additional equity or debt financing. Except for current lines of
credit, the Company has no firm commitment for additional financings or
borrowings.
At December 31, 1997, the Company had revolving bank lines of credit of
$5,500,000 and $750,000 bearing interest at bank prime plus 1.5% and bank
prime plus 1%, respectively. Subsequent to year end, the $5,500,000 line of
credit was increased to $7,500,000 for 120 days. At December 31, 1997,
approximately $440,000 was unused under these lines of credit. These lines of
credit are collateralized by 80% of eligible receivables in the staffing and
outpatient surgery divisions and 75% in the home health care nursing division.
Eligible receivables are defined principally as trade accounts that are aged
less than 90 days for the staffing and outpatient surgery divisions and 120
days for the home health care nursing division.
Net cash used by operating activities increased from ($936,000) in the year
ended December 31,1996 to ($1,142,000) in the year ended December 31,1997. The
change was due to increased accounts receivable which is a direct result of
increased revenues. Net cash used in investing activities decreased from
($2,713,000) in the year ended December 31, 1996 to ($1,241,000) in the year
ended December 31, 1997. This decrease is attributed to a decrease in the
fixed asset acquisitions in the current period.
Net cash provided by financing activities increased from $3,883,000 in the
year ended December 31, 1996 to $5,349,000 in the year ended December 31,
1997. This increase is primarily attributed to a private placement of 400,000
shares of $.001 par value convertible preferred stock pursuant to Regulation D
of the Securities Act of 1933 at $10 per share for gross proceeds of $4
million.
At December 31, 1997, the Company had working capital of $3,137,000 and
stockholders equity of $8,274,000. The company's ratio of total liabilities to
equity at December 31, 1997 was 1.8 to 1.0.
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations for the twelve months ended December 31, 1997. The
Company expects that any increase in costs attributable to inflation in the
future would be offset by an increase in fees charged for services.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
See Index to Financial Statements on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file its definitive Proxy Statement for its Annual Meeting
of Shareholders to be held June 12, 1998 pursuant to Regulation 14A of the
Securities Exchange Act of 1934 (the "Proxy Statement") no later than 120 days
after the end of the fiscal year covered by this Report, and certain
information included in the Proxy Statement is incorporated herein by
reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a) Executive Officers--See section entitled "Executive Officers" in Part I
hereof.
(b) Directors--The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
section "Compensation of Executive Officers" and "Compensation of Directors"
in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
sections entitled "Record Date and Principle Ownership" and "Security
Ownership of Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.
19
<PAGE>
PART IV.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. IDENTIFICATION OF EXHIBIT
------- -----------------------------------------------------------------
<C> <C> <S>
2.1(1) -- Acquisition Agreement dated December 20, 1993 between the Company
and M & N Capital Corp.
2.2(3) -- Plan of Merger dated August 3, 1994 between M & N Capital Corp.
and the Company
2.3(4) -- Certificate of Merger dated August 3, 1994 between M & N Capital
Corp. and the Company
2.4(7) -- Acquisition Agreement dated August 1,1997 between the Company and
Allgood Medical Services, Inc.
2.5(7) -- Exchange Agreement dated January 1, 1998 between the Company and
Alliance Home Health, Inc. and University Capital Corp. dated
December 10, 1997.
2.6(7) -- Stock Purchase Agreement by and among Amedisys, Alternate-Site
Infusion Therapy Services, Inc., PRN, Inc. d/b/a Home IV Therapy,
Joseph W. Stephens, and Terry I. Stevens dated February 23, 1998.
2.7(7) -- Agreement to Purchase by and between Amedisys, Alternate-Site
Infusion Therapy Services, Inc. and Precision Health Systems,
L.L.C. dated February 27, 1998.
2.8(7) -- Promissory note in the amount of $250,000 to Precision Health
Solutions, L.L.C. in connection with the purchase of the company.
2.9(7) -- Stock Purchase Agreement by and among Amedisys Alternate-Site
Infusion Therapy Services, Inc., Infusioncare Solutions, Inc. and
Daniel D. Brown dated February 27, 1998.
2.10(7) -- Promissory note in the amount of $125,000 to Daniel D. Brown in
connection with the purchase of the company.
3.1(4) -- Certificate of Incorporation
3.2(4) -- Bylaws
3.3(7) -- Certificate of Designation for the Series A Preferred Stock
4.1(4) -- Common Stock Specimen
4.2(7) -- Preferred Stock Specimen
4.3(7) -- Form of Placement Agent's Warrant Agreement
5.1(7) -- Opinion regarding Legality
10.1(4) -- Master Note with Union Planter's Bank of Louisiana
10.2(4) -- Merrill Lynch Term Working Capital Management Account
10.3(5) -- Promissory Note with Deposit Guaranty National Bank
10.4(7) -- Amended and Restated Stock Option Plan
10.5(7) -- Registration Rights Agreement
18.1(8) -- Letter regarding Change in Accounting Principles
21.1(7) -- List of Subsidiaries
23.1(7) -- Consent of Counsel (contained in Exhibit 5.1)
23.2(7) -- Consents of Arthur Andersen, LLP and Hannis T. Bourgeois & Co.,
L.L.P., independent public accountants
27.1(8) -- Financial Data Schedule
</TABLE>
- --------
(1) Previously filed as an exhibit to the Current Report on Form 8-K dated
December 20, 1993.
(2) Previously filed as an exhibit to the Current Report on Form 8-K dated
February 14, 1994.
(3) Previously filed as an exhibit to the Current Report on Form 8-K dated
August 11, 1994.
(4) Previously filed as an exhibit to the Annual Report on Form 10-KSB for the
year ended December 31, 1994.
(5) Previously filed as an exhibit to the Current Report on Form 8-K dated
June 30, 1995.
(6) Previously filed as an exhibit to the Registration Statement on Form S-1
(333-8329) dated July 18, 1996.
(7) Previously filed as an exhibit to the Registration Statement on Form S-3
dated March 11, 1998.
(8) Filed herewith.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the fourth quarter of 1997.
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Amedisys, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Amedisys,
Inc. (a Delaware Corporation) and Subsidiaries (the Company) as of December
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Amedisys,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As explained in Note 5 to the financial statements, effective January 1,
1997, the Company changed its method of accounting for start-up costs.
ARTHUR ANDERSEN LLP HANNIS T. BOURGEOIS & CO., LLP
April 15, 1998
F-1
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN 000'S EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 4,070 $ 1,104
Accounts receivable, net of allowance for doubtful accounts
of $1,617 in 1997 and $732 in 1996........................ 9,630 8,271
Prepaid expenses........................................... 247 264
Income tax receivable (Note 9)............................. 118 74
Inventory and other current assets......................... 536 442
------- -------
Total current assets................................... 14,601 10,155
NOTES RECEIVABLE FROM RELATED PARTIES (Note 10).............. 252 190
OTHER INVESTMENTS (Note 4)................................... 399 456
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 3 and 8)........... 4,785 4,610
DEFERRED TAX ASSET (Note 9).................................. 926 447
OTHER ASSETS, NET (Note 5)................................... 1,907 1,000
------- -------
Total assets........................................... $22,870 $16,858
======= =======
CURRENT LIABILITIES:
Accounts payable........................................... $ 1,338 $ 1,416
Accrued expenses--
Payroll and payroll taxes................................ 2,025 1,033
Insurance (Note 12)...................................... 521 643
Other.................................................... 847 883
Notes payable (Note 6)..................................... 5,806 4,379
Current portion of notes payable to related parties (Note
10)....................................................... 45 90
Current portion of long-term debt (Note 7)................. 690 458
Current portion of obligations under capital leases (Note
8)........................................................ 192 231
------- -------
Total current liabilities.............................. 11,464 9,133
LONG-TERM DEBT (Note 7)...................................... 2,995 1,937
NOTES PAYABLE TO RELATED PARTIES (Note 10)................... -- 943
OBLIGATIONS UNDER CAPITAL LEASES (Note 8).................... 134 343
------- -------
Total liabilities...................................... 14,593 12,356
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 8, 12 and 15) -- --
------- -------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES............... 3 188
------- -------
STOCKHOLDERS' EQUITY (Note 11):
Common stock--$.001 par value; 10,000,000 shares
authorized; 2,850,067 and 2,576,191 shares outstanding in
1997 and 1996, respectively............................... 3 2
Preferred stock--$.001 par value; 2,500,000 shares
authorized and 400,000 shares outstanding in 1997......... 1 --
Additional paid-in capital................................. 7,092 1,916
Treasury stock--4,167 shares at $6.00 per share............ (25) --
Retained earnings.......................................... 1,203 2,397
Stock subscriptions receivable............................. -- (1)
------- -------
Total stockholders' equity............................. 8,274 4,314
------- -------
Total liabilities and stockholders' equity............. $22,870 $16,858
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN 000'S EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INCOME:
Net service revenues..................... $ 54,496 $ 46,060 $ 37,589
Cost of service revenues................. 30,641 26,405 22,424
---------- ---------- ----------
Operating revenues..................... 23,855 19,655 15,165
---------- ---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and benefits.................... 12,651 10,327 6,732
Other (Notes 2 and 5).................... 11,792 8,184 7,053
---------- ---------- ----------
Total general and administrative
expenses.............................. 24,443 18,511 13,785
---------- ---------- ----------
Operating income....................... (588) 1,144 1,380
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense......................... (870) (579) (410)
Interest income.......................... 31 43 72
Write-off of investments (Note 4)........ -- (623) --
Miscellaneous............................ (123) (19) 88
---------- ---------- ----------
Total other expense.................... (962) (1,178) (250)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE................... (1,550) (34) 1,130
INCOME TAX EXPENSE (BENEFIT) (Note 9)...... (382) 3 200
---------- ---------- ----------
Income (loss)before minority interest in
net income of consolidated subsidiaries
and cumulative effect of a change in
accounting principle...................... (1,168) (37) 930
MINORITY INTEREST IN (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARIES................. 209 55 12
---------- ---------- ----------
Net income (loss) before cumulative
effect of change in accounting
principle............................. (959) 18 942
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note 5)........................ (235) -- --
---------- ---------- ----------
Net income (loss)...................... $ (1,194) $ 18 $ 942
---------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING. 2,735,000 2,575,000 2,570,000
---------- ---------- ----------
EARNINGS (LOSS) PER COMMON SHARE (Notes 1
and 2):
Income (loss) before cumulative effect of
change in accounting principle.......... $ (0.35) $ 0.01 $ 0.37
Cumulative effect of change in accounting
principle............................... (0.08) -- --
---------- ---------- ----------
Net income (loss)...................... $ (0.43) $ 0.01 $ 0.37
========== ========== ==========
PRO FORMA INFORMATION (UNAUDITED): (Note 2)
Historical net income (loss)............. $ (1,194) $ 18 $ 942
Pro forma adjustments--Income taxes on
Surgicare results....................... -- -- 191
---------- ---------- ----------
Pro forma net income (loss).............. $ (1,194) $ 18 $ 751
========== ========== ==========
PRO FORMA EARNINGS (LOSS) PER COMMON SHARE. $ (0.43) $ 0.01 $ 0.29
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN 000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED
COMMON STOCK STOCK ADDITIONAL STOCK TOTAL
----------------- -------------- PAID-IN RETAINED SUBSCRIPTIONS TREASURY STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE STOCK EQUITY
--------- ------ ------- ------ ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... 2,546,721 $ 2 -- -- $1,653 $2,494 $(107) $ -- $ 4,042
Issuance of stock for
acquisitions (Note 2). 37,143 1 -- -- 324 -- -- -- 325
Pooled acquisition--
distributions to
owners (Note 2)....... -- -- -- -- -- (1,057) -- -- (1,057)
Payments received on
stock subscriptions... -- -- -- -- -- -- 23 -- 23
Net income............. -- -- -- -- -- 942 -- -- 942
--------- --- ------- --- ------ ------ ----- ---- -------
BALANCE, December 31,
1995................... 2,583,864 3 -- -- 1,977 2,379 (84) -- 4,275
Issuance of stock in
connection with
warrants (Note 11).... 1,190 -- -- -- 9 -- -- -- 9
Payments received on
and write-off of stock
subscriptions......... (8,863) (1) -- -- (70) -- 83 -- 12
Net income............. -- -- -- -- -- 18 -- -- 18
--------- --- ------- --- ------ ------ ----- ---- -------
BALANCE, December 31,
1996................... 2,576,191 2 -- -- 1,916 2,397 (1) -- 4,314
Payments received on
stock subscriptions... -- -- -- -- -- -- 1 -- 1
Issuance of stock in
connection with
private placement
stock, offering
acquisition, and 401K
plan (Notes 2 and 11). 273,876 1 -- -- 1,596 -- -- -- 1,597
Cost of private
placement............. -- -- -- -- (110) -- -- -- (110)
Purchase of treasury
stock................. -- -- -- -- -- -- -- (25) (25)
Issuance of preferred
stock (Note 11)....... -- -- 400,000 1 3,999 -- -- -- 4,000
Costs of preferred
stock issuance (Note
11)................... -- -- -- -- (309) -- -- -- (309)
Net loss............... -- -- -- -- -- (1,194) -- -- (1,194)
--------- --- ------- --- ------ ------ ----- ---- -------
BALANCE, December 31,
1997................... 2,850,067 $ 3 400,000 $ 1 $7,092 $1,203 $ -- $(25) $ 8,274
========= === ======= === ====== ====== ===== ==== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in 000's)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $(1,194) $ 18 $ 942
Adjustments to reconcile net income to net cash
(used) provided by operating activities--
Depreciation and amortization..................... 1,240 945 647
Provision for bad debts........................... 1,427 878 483
Write-off of goodwill (Note 2).................... 1,028 -- --
(Gain) loss on disposal of property and equipment. (12) 8 7
Other, net........................................ 37 -- --
Deferred income tax benefit....................... (566) (240) (162)
Minority interest................................. (209) (55) (12)
Cumulative effect of change in accounting
principle........................................ 326 -- --
Changes in assets and liabilities--
Increase in accounts receivable.................. (2,549) (3,025) (1,012)
(Increase) decrease in inventory and other
current assets.................................. 46 (54) (330)
Increase in other assets......................... (1,407) (733) (114)
Increase (decrease) in accounts payable.......... (143) 1,014 (188)
Increase in accrued expenses..................... 834 308 1,292
------- ------- -------
Net cash (used) provided by operating
activities..................................... (1,142) (936) 1,553
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in notes receivable....................... -- -- 10
Proceeds from sale of property, plant and
equipment......................................... 191 12 42
Purchase of property, plant and equipment.......... (1,456) (2,965) (446)
Minority interest investment in subsidiary......... 24 240 --
------- ------- -------
Net cash used by investing activities........... (1,241) (2,713) (394)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received in purchase acquisitions............. -- -- 11
Cash used in purchase acquisitions................. (465) -- --
Net borrowings on line of credit agreement......... 1,428 1,922 783
Proceeds from issuance of notes payable and capital
leases............................................ 992 2,596 661
Payments on notes payable and capital leases....... (1,037) (699) (574)
Decrease in notes payable--related parties......... (1) (44) (236)
(Increase) decrease in notes receivable--related
parties........................................... (62) 85 (40)
Proceeds from issuance of stock.................... 4,518 9 --
Payments received on stock subscriptions
receivable........................................ 1 14 23
Distributions to members (Note 2).................. -- -- (1,058)
Purchase of treasury stock......................... (25) -- --
------- ------- -------
Net cash provided (used) by financing
activities..................................... 5,349 3,883 (430)
------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS........... 2,966 234 729
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...... 1,104 870 141
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR............ $ 4,070 $ 1,104 $ 870
======= ======= =======
</TABLE>
F-5
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in 000's)
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- -----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for--
Interest................................................. $ 846 $495 $ 366
===== ==== =====
Income taxes............................................. $ -- $586 $ 36
===== ==== =====
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Acquisition of Health Care 24 Inc.--
Value of stock issued in exchange........................ $ -- $ -- $ 50
Value of note payable issued in exchange................. -- -- 50
Fair value of property and equipment acquired............ -- -- (15)
----- ---- -----
Client lists acquired.................................... $ -- $ -- $ 85
===== ==== =====
Acquisition of Home Care Plus, Inc.--
Value of stock issued in exchange........................ $ -- $ -- $ 274
Cash acquired in exchange................................ -- -- (11)
Working capital acquired net of cash and cash
equivalents............................................. -- -- (151)
Fair value of property and equipment acquired............ -- -- (30)
Long-term debt assumed................................... -- -- 230
----- ---- -----
Goodwill recorded in exchange............................ $ -- $ -- $ 312
===== ==== =====
Related party note payable refinanced with financing
company.................................................. $ 988 $ -- $ --
===== ==== =====
Issuance of stock to 401(k) plan.......................... $ 59 $ -- $ --
===== ==== =====
Acquisition of Allgood Medical Services, Inc.--
Cash paid in exchange.................................... $ 465 $ -- $ --
Value of stock issued in exchange........................ 600 -- --
Value of note payable issued in exchange................. 100 -- --
Working capital acquired net of cash and cash
equivalents............................................. (313) -- --
----- ---- -----
Goodwill recorded in exchange (Note 2)................... $ 852 $ -- $ --
===== ==== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Organization
Amedisys, Inc. (the Company) is incorporated in the state of Delaware and
operates in eight states including Louisiana, Texas, Tennessee, Missouri,
Kansas, Mississippi, North Carolina and Minnesota with a concentration of
business in Louisiana and Texas. During 1997, the Company purchased a durable
medical equipment supplier in Louisiana and Mississippi and launched an
infusion therapy division; in 1996, the Company opened a new ambulatory
surgery center in Louisiana in which it has a 56% ownership interest; in 1995,
the Company acquired an outpatient surgery center company in Texas and two
home care companies (see Note 2) in Louisiana. The Company provides a variety
of supplemental staffing, home health care, home care management, outpatient
surgery, infusion therapy, home medical equipment and primary care clinical
services. The Company's home care division serves all major metropolitan areas
in the state of Louisiana as well as the areas of Houston, Dallas and Beaumont
in Texas. The outpatient surgery centers are located in Houston, Texas, and
Hammond, Louisiana.
Nature of Operations
The Company provides services through a network of subsidiaries that
include:
AMEDISYS Staffing Services, Inc. (ASS) supplies highly trained critical care
registered nurses and licensed practical nurses to all types of health care
facilities. Independent contract nurses are utilized to meet the staffing
needs of client health care facilities.
AMEDISYS Nursing Services, Inc. (ANS) is an employee-based staffing agency
that provides a variety of relief personnel such as registered and licensed
practical nurses, and certified nurses' aides for staff relief in all types of
health care facilities.
Amerinurse, Inc. provides highly trained nurses who travel to client heath
care facilities and work on a contract basis. Effective January 1, 1996,
Amerinurse, Inc. was merged into ANS.
AMEDISYS Specialized Medical Services, Inc. (ASM), Amedisys Home Health,
Inc. and Amedisys Home Health, Inc. of Texas provide skilled nursing care,
home health aid, physical therapy, occupational therapy, speech therapy and
medical social workers to homebound patients.
AMEDISYS Surgery Centers, L. C. (ASC) operates two outpatient surgery
centers in Houston, Texas, and one surgery center in Hammond, Louisiana, which
commenced operation in November, 1996.
AMEDISYS Physician Services, Inc. (APS) provides management of physician
practices and networks including Independent Practice Associations. APS also
operates a laboratory.
AMEDISYS Resource Management (ARM) and Physician Practice Management
provides management services to home health agencies and physician practices.
AMEDISYS Durable Medical Equipment, Inc. (DME) provides durable medical
equipment to patients in home health care settings, medical facilities and
health maintenance organizations in southern Louisiana and Mississippi. DME
has a comprehensive spectrum of products, including specialized equipment such
as customized wheelchairs.
AMEDISYS Alternate Site Infusion Therapy, Inc. (AASI) provides patients an
opportunity to have intravenous drug therapy provided at home or at walk-in
centers.
F-7
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Use of Estimates
The accounting and reporting policies of the Company and its subsidiaries
conform with generally accepted accounting principles. In preparing the
consolidated financial statements, the Company is required to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
and its wholly-owned subsidiaries as well as its 60%-owned subsidiary (APS)
and their wholly-owned and partially-owned subsidiaries; Amedisys Home Health,
Inc. and Amedisys Home Health, Inc. of Texas, both wholly-owned subsidiaries
of ASM; Jackson Rural Health Clinic, Inc. (clinic closed February, 1996),
Kentwood Rural Health Clinic, Inc. (clinic closed August, 1995), and Bastrop
Rural Health Clinic, Inc. (clinic sold in September, 1996), all 60%-owned
subsidiaries of ASM and Hammond Surgical Care Center, LLC, a 56% owned
subsidiary of ASC. All material intercompany accounts and transactions have
been eliminated in these financial statements.
The 1995 financial statements have been restated to include the accounts of
a business combination accounted for as a pooling-of-interests (See Note 2).
Business combinations accounted for as purchases are included from the
respective dates of acquisition.
Revenue Recognition Policy
Gross revenue is recorded on an accrual basis based upon the date of service
at amounts equal to the Company's established rates or estimated cost
reimbursement rates, as applicable. Allowances and contractual adjustments
representing the difference between the established rates and the amounts
estimated to be payable by third parties are also recorded on an accrual basis
and deducted from gross revenue to determine net service revenues.
Reimbursement for home health care services to patients covered by the
Medicare program is based on cost reimbursement rates. Final reimbursement is
determined after submission of annual cost reports and audits thereof by the
fiscal intermediaries. Effective January 1, 1998, home health cost limits were
reduced and per beneficiary limits were established which will reduce payments
to Home Health Service providers in the future. Additional proposed
regulations are expected to change the payment methodology for home health
care services to Medicare patients from a cost based reimbursement system to a
prospective payment system in the future.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash includes certificates of deposit
and all highly liquid debt instruments with maturities of three months or less
when purchased. The carrying amount approximates fair value because of the
short maturity of those instruments.
Inventory
Inventories consist of medical supplies that are utilized in the treatment
and care of home health and outpatient surgery patients. Inventories are
stated at the lower of cost (first-in, first-out method) or market.
F-8
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Property and Equipment
Property and equipment is generally carried at cost except for certain
property purchased from related parties prior to 1995. Additions and
improvements are capitalized, but ordinary maintenance and repair expenses are
charged to income as incurred. The cost of property sold or otherwise disposed
of and the accumulated depreciation thereon are eliminated from the property
and related accumulated depreciation accounts, and any gain or loss is
credited or charged to income.
Capitalized leases, primarily of computer equipment, phone systems, and vans
used by the home care divisions, are included in property and equipment.
Capital leases are recorded at the present value of the future rentals at
lease inception and are amortized over the lesser of the applicable lease term
or the useful life of the equipment.
For financial reporting purposes, depreciation and amortization of property
including those subject to capital leases ($1,101,000 in 1997, $788,000 in
1996 and $468,000 in 1995) is included in other general and administrative
expenses and is provided utilizing the straight-line method based upon the
following estimated useful service lives:
<TABLE>
<S> <C>
Buildings....................................................... 40 years
Leasehold Improvements.......................................... 5 years
Equipment and furniture......................................... 5-7 years
Vehicles........................................................ 5 years
Computer software............................................... 5 years
</TABLE>
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.
Reclassifications
Certain amounts previously reported in the 1996 and 1995 financial
statements have been reclassified to conform to the 1997 presentation.
F-9
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
2. ACQUISITIONS:
On August 1, 1997, the Company acquired substantially all of the assets of
Allgood Medical Services, Inc. d/b/a Care Medical and Mobility Equipment
Company for $1,165,000. The purchase price consisted of $465,000 in cash,
$100,000 note payable, and $600,000 in common stock which represented 115,518
common shares. This transaction has been accounted for as a purchase and the
excess of the total acquisition cost over the fair value of net assets
acquired (goodwill) of $852,000 was being amortized over twenty years using
the straight-line method. Subsequent to this purchase, certain reimbursement
reductions were announced to implement the Balanced Budget Act of 1997. Based
on management's estimate of the expected impact of these changes in
reimbursement on future cash flows, this goodwill was fully written off as
Other General and Administrative Expense at December 31, 1997 as required
under Statement of Financial Accounting Standard No. 121.
The following unaudited pro forma information has been prepared as if the
acquisition had occurred at the beginning of each of the periods ended
December 31, 1997 and 1996. This pro forma information has been prepared for
comparative purposes only and is not necessarily indicative of what would have
occurred had the acquisition taken place on the dates indicated, nor does it
purport to be indicative of the future operating results of the Company
(000's, except share amounts):
<TABLE>
<CAPTION>
(UNAUDITED)
1997 1996
------- -------
<S> <C> <C>
Revenues................................................ $55,147 $47,270
Net income (loss)....................................... (1,356) 130
Net income (loss) per common share...................... (0.50) 0.05
</TABLE>
On June 30, 1995, the Company acquired all issued and outstanding membership
interests in ASC in exchange for 1,000,000 shares of Company common stock.
ASC's assets on June 30, 1995 were approximately $3,000,000. Upon closing of
the transaction, the former members of ASC owned approximately 40% of the
issued and outstanding stock of the Company. This transaction was accounted
for as a pooling of interests. ASC was a limited liability company and,
accordingly, had no income tax liabilities. The effect of providing for income
taxes on results of ASC operations prior to the 1995 acquisition is shown
under "Pro forma Information" in the accompanying statement of operations.
On May 31, 1995, the Company acquired all of the outstanding stock of Home
Care Plus, Inc. in exchange for 30,000 shares of its common stock valued at
$274,000. The excess of the total acquisition cost over the fair value of the
net assets acquired of $312,000 was being amortized over seven years using the
straight-line method. This operation was closed in the second quarter of 1997
and the remaining $193,000 unamortized balance of goodwill was written off in
the fourth quarter of 1997. See Note 15 for restated operating results for the
quarter ended June 30, 1997.
On March 19, 1995, the Company acquired all of the outstanding stock of
Health Care Services 24, Inc. in exchange for 7,143 shares of its common stock
valued at $50,000 and notes payable in the amount of $50,000, payable in
monthly installments through March, 1996. The Company acquired client lists
(See Note 5) and property and equipment with a fair value of $85,000 and
$15,000, respectively.
The acquisitions of Home Care Plus, Inc. and Health Care Services 24, Inc.
were accounted for as purchases and as a result, operations of these entities
subsequent to the date of acquisition have been included in the consolidated
financial statements. Unaudited pro forma consolidated results of operations
for the year ended December 31, 1995 as though these companies had been
acquired as of January 1, 1995 are as follows:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Net service revenues......................................... $38,108,293
Net income................................................... $ 850,874
Earnings per common share.................................... $ 0.33
</TABLE>
F-10
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
The above amounts reflect adjustments for amortization of goodwill.
See Note 16 for additional acquisitions which occurred subsequent to
December 31, 1997.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of (000's):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land.................................................... $ 220 $ 220
Building and leasehold improvements..................... 717 607
Equipment, furniture and vehicles....................... 6,721 5,585
Computer software....................................... 114 95
------- -------
Total................................................. 7,772 6,507
Accumulated depreciation................................ (2,987) (1,897)
------- -------
Net................................................... $ 4,785 $ 4,610
======= =======
</TABLE>
4. OTHER INVESTMENTS:
The Company had made advances totaling $366,000 at December 31, 1997 in
connection with the acquisition of a 42% interest in a surgery center being
developed in Houston, Texas. The surgery center is expected to open in April
1998 and is to be managed by the Company under a long-term management
contract. The Company accounts for this investment using the equity method.
On June 30, 1995, the Company acquired an investment in a real estate
partnership in connection with the purchase of ASC (see Note 2), which has
certain partners who are also owners of the Company. This investment is
accounted for under the equity method.
Management concluded in December, 1996, that the realization of certain
previously recorded assets might not be assured and, accordingly, wrote off
the portion of these investments (approximately $623,000 consisting primarily
of advances made to develop a proposed managed care organization and certain
nonoperating equipment) believed to be unrealizable through future operations.
5. OTHER ASSETS:
Other assets include the following for the years ended December 31, 1997 and
1996 (000's):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
NOTES RECEIVABLE........................................... $1,530 $ 119
GOODWILL, net of accumulated amortization of $70 and $124.. 71 329
START-UP COSTS, net of accumulated amortization of $173 in
1996...................................................... -- 326
CLIENT LISTS, net of accumulated amortization of $158 in
1996...................................................... -- 10
OTHER...................................................... 306 216
------ ------
$1,907 $1,000
====== ======
</TABLE>
Notes receivable at December 31, 1997, consist primarily of advances of
$1,465,000 due from Alliance Home Health, Inc. which was acquired on January
1, 1998 (see Note 16).
Costs incurred to establish regional offices of ASM and ASC prior to
beginning services were capitalized as Other Assets and amortized over a five-
year period based on accepted industry practice and consistent with the
F-11
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
treatment required under Medicare regulations. Provisions of a proposed
Statement of Position (SOP) expected to be issued by the American Institute of
Certified Public Accountants (AICPA) in the second quarter of 1998 will
require the write-off of any start-up costs remaining on the balance sheet and
expensing of all start-up costs incurred in the future. During the fourth
quarter of 1997, the Company changed its accounting policy to expense such
costs to more properly reflect these costs as ongoing costs of expanding the
Company's services. The Company has reflected this adjustment as a change in
accounting principle from one acceptable method to another acceptable method.
The cumulative effect of this change in accounting principle, as if the change
were made effective January 1, 1997, of $235,000 (net of a $91,000 tax
benefit), is shown on the 1997 statement of operations. Start-up costs of
$299,000 incurred during 1997 were expensed as incurred in general and
administrative expense.
See Note 15 for the restatement of the Company's quarterly results of
operations for 1997 giving effect to the change in accounting principle as of
January 1, 1997.
The following reflects pro-forma net income for 1996 and 1995, net of the
related tax effects, as if the Company expensed start-up costs as incurred in
those years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995
--------------- --------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ------ -------- -----
<S> <C> <C> <C> <C>
Net income (loss)......................... $ 18 $ (202) $ 942 $ 845
Net income (loss) per common share........ $0.01 $(0.08) $0.37 $0.33
</TABLE>
Other assets also include deferred organizational costs, which are being
amortized over a five-year period, deposits on leased properties and advances
made in connection with various other business development projects.
6. NOTES PAYABLE:
Notes payable consist primarily of borrowings under $5,500,000 and $750,000
lines of credit that bear interest at bank prime plus 1.5% (10.0% at December
31, 1997) and bank prime plus 1% (9.5% at December 31, 1997), respectively.
Both lines are secured by accounts receivable, life insurance on the major
stockholder and personal guarantees of several stockholders. Subsequent to
year-end, the $5,500,000 line of credit was increased to $7,500,000 for 120
days bearing interest at bank prime plus 1.5%. As of December 31, 1997,
approximately $444,000 was unused under these lines of credit. The weighted
average monthly interest on short-term borrowings was 9.79% and 9.78% in 1997
and 1996, respectively.
The revolving line of credit is subject to certain covenants, including a
monthly borrowing base or margin requirement calculation, a debt service
coverage ratio and a leverage ratio. No events of default existed at December
31, 1997. The Company was in default on one of the covenants at December 31,
1996, which default was waived by the bank.
F-12
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
7. LONG-TERM DEBT:
Long-term debt consists of notes payable to banks and other financial
institutions that are due in monthly installments through 2003 (000's):
<TABLE>
<CAPTION>
PAYEE 1997 1996
----- ------ ------
<S> <C> <C>
Notes payable to finance and equipment companies that
accrue interest at 8.00-11.25%............................ $3,154 $1,502
Notes payable to banks that accrue interest at 8.00-14.39%. 531 893
------ ------
Total.................................................... 3,685 2,395
Current portion............................................ 690 458
------ ------
Long-Term.................................................. $2,995 $1,937
====== ======
</TABLE>
The fair value of long-term debt as of December 31, 1997, estimated based on
the Company's current borrowing rate of 10%, is approximately $3,582,000.
These borrowings are secured by equipment, vehicles and the personal
guarantee of a stockholder. Maturities of debt as of December 31, 1997, are as
follows (000's):
<TABLE>
<S> <C>
December 31 ,1998.................................................. $ 690
December 31, 1999.................................................. 484
December 31, 2000.................................................. 417
December 31, 2001.................................................. 277
December 31, 2002.................................................. 1,688
Thereafter......................................................... 129
------
$3,685
======
</TABLE>
8. CAPITAL LEASES:
The Company acquired certain equipment under capital leases for which
related liabilities have been recorded at the present value of future minimum
lease payments due under the leases. The present minimum lease payments under
the capital leases and the net present value of future minimum lease payments
are as follows (000's):
<TABLE>
<S> <C>
December 31, 1998................................................... $220
December 31, 1999................................................... 110
December 31, 2000................................................... 45
----
Total future minimum payments....................................... 375
Amount representing interest........................................ (49)
----
Present value of future minimum lease payments.................... 326
Current portion..................................................... 192
----
Long-term portion................................................... $134
====
</TABLE>
F-13
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
9. INCOME TAXES:
The Company files a consolidated federal income tax returns, including all
subsidiaries that are owned more than 80%. State income tax returns are filed
individually by the subsidiaries in accordance with state statutes.
The Company utilizes the liability approach to measuring deferred tax assets
and liabilities based on temporary differences existing at each balance sheet
date using currently enacted tax rates in accordance with SFAS No. 109.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
The total provision (benefit) for income taxes consists of the following
(including $91,000 of tax benefit related to the cumulative effect of change
in accounting principle (see Note 5) ) (000's):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Current portion...................................... $ 93 $ 242 $ 361
Deferred portion..................................... (566) (239) (161)
----- ----- -----
$(473) $ 3 $ 200
===== ===== =====
</TABLE>
Net deferred tax assets consist of the following components (000's):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Deferred tax assets:
Receivable allowance...................................... $ 523 $ 285
Self-insurance reserves................................... 161 202
Losses of consolidated subsidiaries (not consolidated for
tax purposes)............................................ 57 42
Start-up costs and other.................................. 453 47
Deferred tax liabilities:
Property and equipment.................................... (268) (129)
----- -----
$ 926 $ 447
===== =====
</TABLE>
Total tax expense (benefit) on income before taxes resulted in effective tax
rates that differed from the federal statutory income tax rate. A
reconciliation of these rates is as follows for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income taxes computed on federal statutory rate. (34.00)% (34.00%) 34.00%
State income taxes.............................. 5.00 1.00 2.00
ASC income prior to merger (Note 2)............. -- -- (16.88)
Losses of unconsolidated subsidiaries........... -- -- 8.33
Write-off of notes receivable from
unconsolidated subsidiaries.................... -- -- (14.39)
Net operating losses utilized -- -- --
Nondeductible expenses and other................ 4.00 40.00 4.60
------ ------ ------
Total......................................... (25.00)% 7.00% 17.66%
====== ====== ======
</TABLE>
The Company has $147,000 of operating loss carryforwards related to losses
from unconsolidated subsidiaries for tax return purposes which expire
beginning in 2010.
F-14
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
10. RELATED PARTY TRANSACTIONS:
Notes Receivable
Notes receivable from related parties consist of unsecured and non-interest
bearing notes from the chief executive officer and certain stockholders of the
Company totaling approximately $102,000 and $40,000 at December 31, 1997 and
1996, and receivables from an internal medicine clinic totaling approximately
$150,000 at December 31, 1997 and 1996. The fair value of the notes receivable
from related parties is equal to the recorded value due to the short-term
nature of the notes.
Notes Payable
Notes payable to related parties in 1996 consisted primarily of a note
issued in 1994 in the original amount of $1,080,000, bearing interest at 9%.
The note was secured by all real estate and personal property of one of the
surgical care centers. The note was refinanced in 1997 with a financial
institution (See Note 7).
The remaining balance of notes payable to related parties at December 31,
1997 ($45,000) consists of unsecured notes to certain stockholders of the
Company that are due on demand and bear interest at rates from 0%-12%. The
fair value of these notes approximates the recorded balance due to the short-
term nature of the notes.
Other
The Companies paid medical directors fees to stockholders of $156,400 and
$116,000 in 1997 and 1996, respectively.
ASC paid fees associated with a medical foundation to a stockholder of
$12,000 and $3,000 in 1997 and 1996, respectively.
In 1997, ASC paid $10,800 for equipment rental to a stockholder of the
Company.
11. CAPITAL STOCK:
Common Stock
On April 17, 1997, the Company completed, in two phases, a placement of
common stock with Plymouth Partners, LP under which the Company issued 37,500
shares of Common Stock to Plymouth Partners, LP, pursuant to a shelf
registration statement for gross proceeds of $262,500 and also issued 112,500
shares of Common Stock to Plymouth Partners, LP, pursuant to a shelf
registration statement for gross proceeds of $675,000. The net proceeds from
both of these offerings was $831,000.
Preferred Stock
In December, 1997, Amedisys completed a private placement of 400,000 shares
of $.001 par value convertible preferred stock pursuant to Regulation D of the
Securities Act of 1933 at $10 per share for gross proceeds of $4 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 864,865 shares
of common stock which is equivalent to $4.625 per share. Warrants to purchase
52,500 shares of preferred stock at $10 per share, convertible into
F-15
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
113,514 shares of common stock, were issued to the placement agent, Hudson
Capital Partners, L.P. in connection with the offering.
Stock Options
The Company's Statutory Stock Option Plan provides incentive stock options
to key employees. The Plan is administered by a Compensation Committee
(appointed by the Board) which is to determine, within the provisions of the
Plan, those eligible employees to whom, and the times at which, options shall
be granted. Each option granted under the Plan is to be convertible into one
(1) share of common stock, unless adjusted in accordance with the provisions
of the Plan. Options may be granted for a number of shares not to exceed, in
the aggregate 1,000,000 shares of common stock at an option price per share of
no less than 85% of the fair market value of a share of common stock on the
date the option is granted. If the option is granted to any owner of 10% or
more of the total combined voting power of the Company and its subsidiaries,
the option price is to be at least 110% of the fair market value of a share of
common stock on the date the option is granted. Each option vests ratably over
a two-to-three year period and may be exercised during a period as determined
by the Compensation Committee, not to exceed 10 years from the date such
option is granted. The aggregate fair market value of common stock subject to
an option granted to a participant by the Committee in any calendar year shall
not exceed $100,000.
A summary of the Company's stock options as of December 31, 1997, 1996 and
1995, and changes during the year ended on those dates follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------ -----------------
WGTD. AVG. WGTD. AVG. WGTD. AVG.
EXER. EXER. EXER.
SHARES PRICE SHARES PRICE SHARES PRICE
-------- ---------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 288,723 $6.66 27,650 $7.00 -- $ --
Granted..................... 794,422 6.01 261,073 6.62 27,650 7.00
Exercised................... -- -- -- -- -- --
Cancelled/forfeited/expired. (126,080) (6.48) -- -- -- --
-------- ----- ------- ----- ------ -----
Outstanding at end of year.. 957,065 $6.14 288,723 $6.66 27,650 $7.00
======== ===== ======= ===== ====== =====
Exercisable at end of year.. 205,446 $6.49 88,741 $6.65 -- $7.00
======== ===== ======= ===== ====== =====
Weighted average fair value
of options granted during
the year................... $ 1.99 $ 3.11 $ 2.56
======== ======= ======
</TABLE>
Of the 957,065 options outstanding at December 31, 1997, 403,604 become
exercisable in 1998, 341,348 in 1999, and 6,667 in 2000.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WGTD. AVG. WGTD. WGTD.
NUMBER REMAINING AVG. NUMBER AVG.
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.38-$7.00............. 957,065 8 years $6.14 205,446 $6.49
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued by
F-16
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
the FASB in 1995 and changes the methods for recognition of cost on plans
similar to those of the Company. Adoption of SFAS 123 is optional; however,
pro forma disclosures, as if the Company had adopted the cost recognition
requirements under SFAS 123 in 1997 and 1996, are presented below.
The fair value of each option granted during the periods presented is
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions: (i) dividend yield of 0%, (ii) expected
volatility ranging from 51.23%-53.69% for the options issued in 1997, 40.02%
and 45.44% for options issued in 1996, and 27.63% for options issued in 1995,
(iii) risk-free interest rate ranging from 5.70%-6.22% in 1997, 6.22% in 1996
and 5.23% in 1995, respectively, and (iv) expected life of 3 to 5 years.
Had compensation cost for the Company's 1997, 1996 and 1995 options been
determined consistent with SFAS 123, the Company's net income (loss), net
income (loss) applicable to common stockholders' and net income (loss) per
common share for 1997 and 1996 would approximate the pro forma amounts below
(000's, except share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- --------------- --------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ------- -------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)............ $(1,194) $(1,813) $ 18 $ (59) $ 942 $ 933
======= ======= ===== ====== ===== =====
Net income (loss) applicable
to common stockholders...... $(1,194) $(1,813) $ 18 $ (59) $ 942 $ 933
======= ======= ===== ====== ===== =====
Net income (loss) per common
share....................... $ (0.43) $ (0.66) $0.01 $(0.02) $0.37 $0.36
======= ======= ===== ====== ===== =====
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
Subsequent to year end the Board of Directors authorized, subject to
shareholder approval, issuing 500,000 options under the Stock Option Plan with
up to 50% issued at $6.25 to existing employees.
ASM Employee Stock Ownership Plan
ASM developed an Employee Stock Ownership Plan (ESOP) effective January 1,
1997 to enable participating employees of ASM to share in the ownership of
ASM. Under the ESOP, the Company may make annual contributions to a trust for
the benefit of eligible employees, in the form of either cash or common stock
of ASM. The amount of the annual contribution is discretionary. The Company's
contribution for the year ended December 31, 1997 was $721,000 which was
accrued, but unfunded as of December 31, 1997.
Other
A predecessor entity to the Company, M & N, completed its initial public
offering of 250,000 common shares for gross proceeds of $1,500,000 on August
26, 1993. In connection with the offering, M & N issued 25,000 warrants to the
Underwriter (the Underwriter's Warrants), which are exercisable at $7.20 per
common share for a period of four years commencing April 28, 1994.
F-17
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
12. COMMITMENTS AND CONTINGENCIES:
Leases
The Company and its subsidiaries have leased office space at various
locations under noncancelable agreements which expire between January 1, 1998,
and August 31, 2005, and require various minimum annual rentals. Total minimum
rental commitments at December 31, 1997, are due as follows (000's):
<TABLE>
<S> <C>
1998............................................................... $1,821
1999............................................................... 1,619
2000............................................................... 1,240
2001............................................................... 918
2002............................................................... 803
Due thereafter..................................................... 511
------
$6,912
======
</TABLE>
Rent expense for all non-cancelable operating leases was $1,706,000,
$1,351,000 and $1,084,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
The Company has arranged a $500,000 line of credit with a financing company
to lease equipment; $80,000 of this line was used at December 31, 1997 leaving
available $420,000 for use on future equipment leases.
Self-Funded Insurance Plans
During 1995, the Company became self-insured for workers' compensation
claims in the State of Louisiana up to certain policy limits. Claims in excess
of $200,000 per incident and $1,300,000 in the aggregate over a two-year
policy period are insured by third party reinsurers. The Company has accrued a
liability for outstanding and incurred, but not reported claims based on
historical experience totaling approximately $509,000 and $519,000 at December
31, 1997 and 1996, respectively. In connection with the self-insurance and as
required by the State of Louisiana, the Company issued a $175,000 letter of
credit in favor of the Louisiana Department of Labor, which expired February
17, 1998, and was renewed to February, 1999.
During 1997, the Company became self-insured for health claims up to certain
policy limits. Claims in excess of $35,000 per incident and approximately
$64,000 aggregate per month are insured by third party reinsurers. The Company
has accrued a liability of approximately $78,000 at December 31, 1997 for
outstanding and incurred, but not reported claims based on historical
experience.
Planned Surgical Care Center and Other Projects
The Company is pursuing a number of planned surgical center and other
projects to be developed or purchased in the future. While negotiations are
being conducted in connection with a number of possible projects, the Company
has made no formal commitments in this area beyond the investments discussed
below and in Note 16.
The Company plans to proceed to develop a $3.6million surgery center in
Lafayette, Louisiana. The Company plans to hold a 21% interest in this
development with a group of physician investors and to manage the development
under a management contract for a fee based on 4% of revenue.
F-18
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Employment Contracts
The Company has commitments related to employment contracts with a number of
its top executives and executives involved in the management of businesses
acquired (see Note 16 also) by the Company. Such contracts generally commit
the Company to pay bonuses on the attainment of certain operating goals and
severance benefits under certain circumstances.
Other
The Company is subject to various types of claims and disputes arising in
the course of its businesses. While the resolution of such issues is not
presently determinable with certainty, management believes that the ultimate
resolution of such matters will not have a significant effect on the Company's
financial position or results of operations.
In 1997, the Company's Board of Directors approved the purchase of a point
of service device at an estimated cost of $1.5 million which will allow home
care providers to input patient information directly and electronically into
the Company's home care information system.
13. BENEFIT PLAN:
The Company adopted a plan qualified under Section 401(k) of the Internal
Revenue Code for all employees who are 21 years of age and have at least one
year of service. Under the plan, eligible employees may elect to defer a
portion of their compensation, subject to internal revenue service limits. The
Company may make matching contributions equal to a discretionary percentage of
the employee's salary reductions. No matching contribution was made for the
year ended December 31, 1995. A matching contribution of $59,000 for the year
ended December 31, 1996 was made in 1997 and a matching contribution of
$71,000 will be made for 1997 in 1998.
14. SEGMENT INFORMATION:
The Company operates principally in two business segments: Provider Services
(consisting of home health care and outpatient surgery) and Management
Services (consisting of staffing/professional services and physician support
and home health care management). The following shows industry segment
information for the fiscal years ended December 31, 1997, 1996 and 1995 (in
000's):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net Service Revenues:
Provider Services
Home health care...................................... $25,817 $25,500 $17,631
Outpatient surgery.................................... 6,287 4,626 3,601
Management Services
Staffing/professional services........................ 17,292 12,538 13,774
Physician support and home health care management..... 5,100 3,396 2,583
Corporate support..................................... -- -- --
------- ------- -------
Total............................................... $54,496 $46,060 $37,589
======= ======= =======
</TABLE>
F-19
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Operating Income (Loss):
Provider Services
Home health care.................................. $ 831 $ 2,038 $ 901
Outpatient surgery................................ (960) 1,175 1,152
Management Services
Staffing/professional services.................... 3,643 1,785 2,076
Physician support and home health care management. 1,494 347 193
Corporate support................................. (5,596) (4,201) (2,942)
------- ------- -------
Total........................................... (588) 1,144 1,380
Other expenses..................................... (962) (1,178) (250)
------- ------- -------
Income before income taxes, minority interest, and
cumulative effect of change in accounting
principle.......................................... $(1,550) $ (34) $ 1,130
======= ======= =======
<CAPTION>
CAPITAL EXPENDITURES
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Provider services
Home health care.................................. $ 348 $ 135 $ 96
Outpatient surgery................................ 631 2,233 284
Management services
Staffing/professional services.................... 21 7 12
Physician support and home health care management. 18 89 2
Corporate support................................. 438 501 52
------- ------- -------
Total........................................... $ 1,456 $ 2,965 $ 446
======= ======= =======
<CAPTION>
DEPRECIATION AND
AMORTIZATION
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Provider services
Home health care.................................. $ 344 $ 319 $ 246
Outpatient surgery................................ 609 271 148
Management services
Staffing/professional services.................... 16 60 77
Physician support and home health care management. 129 201 122
Corporate support................................. 142 94 95
------- ------- -------
Total........................................... $ 1,240 $ 945 $ 647
======= ======= =======
<CAPTION>
IDENTIFIABLE ASSETS
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Provider services
Home health care.................................. $ 5,243 $ 4,906 $ 4,537
Outpatient surgery................................ 6,180 6,541 3,341
Management services
Staffing/professional services.................... 1,924 1,820 1,745
Physician support and home health care management. 2,290 1,200 1,175
Corporate support................................. 7,233 2,391 739
------- ------- -------
Total........................................... $22,870 $16,858 $11,537
======= ======= =======
</TABLE>
F-20
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
15. UNAUDITED QUARTERLY FINANCIAL INFORMATION:
The following table reflects the restatement of the Company's quarterly
results of operations for 1997, giving effect to the change in accounting
principle as of January 1, 1997 (see Note 5) and the write-off of goodwill
associated with the Home Care Plus, Inc. acquisition in the second quarter
(see Note 2) (000's):
<TABLE>
<CAPTION>
QUARTER ENDED (UNAUDITED)
------------------------------------------------------------------
SEPTEMBER 30,
MARCH 31, 1997 JUNE 30, 1997 1997
----------------- ----------------- -----------------
AS AS AS AS AS AS DECEMBER 31,
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED 1997
-------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss)
fromcontinuing
operations............. $ 451 $ 473 $ 610 $ 415 $ 363 $ 344 $(2,782)
Net income (loss)....... $ 301 $ 116 $ 373 $ 179 $ 224 $ 214 $(1,703)
Net income (loss) per
common share........... $0.12 $0.04 $0.14 $0.06 $0.08 $0.08 $ (0.60)
</TABLE>
16. SUBSEQUENT EVENTS:
On January 1, 1998, the Company acquired all of the issued and outstanding
stock of Alliance Home Health, Inc. (Alliance), a home health business with
locations throughout Oklahoma, in exchange for 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 escrow period expires December 31, 2003. The Company performed
management services for Alliance during 1997 and received revenues totaling
approximately $1.3 million of which $695,000 is included in accounts
receivable at December 31, 1997. In addition, the Company had advanced
$1,465,000 to Alliance for cash flow purposes which is included in other
assets at December 31, 1997.
On February 23, 1998, the Company acquired all of the issued and outstanding
capital stock of PRN, Inc. (PRN), a home infusion pharmacy business, in
exchange for $430,000 and assumption of $71,000 debt. The Company has agreed
to pay additional consideration of up to $150,000 upon PRN reaching certain
revenue goals ("Additional Consideration"). The Company has retained the right
to offset certain indemnifiable liabilities against the Additional
Consideration.
On February 27, 1998, the Company acquired all of the issued and outstanding
capital stock of Infusioncare 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 Company
has retained the right to offset certain indemnifiable liabilities against the
sums payable pursuant to the promissory note.
On February 27, 1998, the Company acquired substantially all of the assets
of Precision Health Solutions, 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 $750,000 was payable in cash at closing
and $250,000 was payable pursuant to a two year promissory note. The Company
has retained the right to offset certain indemnifiable liabilities against the
sums payable pursuant to the promissory note.
F-21
<PAGE>
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
Each of the above transactions was accounted for as a purchase.
On March 3, 1998, the Company completed a secondary phase of its private
placement of preferred stock (see Note 11) and issued an additional 350,000
shares for gross proceeds of $3.5 million. These shares are convertible into
756,757 shares of common stock which is equivalent to $4.625 per share.
F-22
<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, there unto duly authorized, on the 16th day
of April, 1998.
AMEDISYS, INC.
/s/ William F. Borne
By:__________________________________
William F. Borne
Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
<TABLE>
<S> <C>
</TABLE>
SIGNATURE TITLE DATE
/s/ William F. Borne Chief Executive April 16, 1998
- ----------------------------------- Officer and
William F. Borne Chairman of the
Board
/s/ James P. Cefaratti President and Chief April 16, 1998
- ----------------------------------- Operating Officer
James P. Cefaratti
/s/ Mitchel G. Morel Chief Financial April 16, 1998
- ----------------------------------- Officer (Principal
Mitchel G. Morel Financial and
Accounting Officer)
/s/ William M. Hession, Jr. Director April 16, 1998
- -----------------------------------
William M. Hession, Jr.
/s/ Karl A. LeBlanc Director April 16, 1998
- -----------------------------------
Karl A. LeBlanc, M.D.
/s/ Alan J. Ostrowe Director April 16, 1998
- -----------------------------------
Alan J. Ostrowe, M.D.
/s/ S. F. Hartley, D.P.M. Director April 16, 1998
- -----------------------------------
S. F. Hartley, D.P.M.
/s/ Ronald A. Laborde Director April 16, 1998
- -----------------------------------
Ronald A. Laborde
/s/ Jake L. Netterville Director April 16, 1998
- -----------------------------------
Jake L. Netterville
/s/ David R. Pitts Director April 16, 1998
- -----------------------------------
David R. Pitts
/s/ Peter F. Ricchiuti Director April 16, 1998
- -----------------------------------
Peter F. Ricchiuti
21
<PAGE>
EXHIBIT 18.1
March 30, 1998
Amedisys, Inc.
3029 S. Sherwood Forest Blvd.
Suite 300
Baton Rouge, LA 70816
Re: Annual Report on Form 10-K for the year ended December 31, 1997
This letter is written to meet the requirements of Regulation S-K calling
for a letter from a registrant's independent accountants whenever there has
been a change in accounting principle or practice.
Amedisys, Inc. (the "Company"), in the normal course of business, incurs
costs for one-time activities related to opening a new facility, introducing a
new product or service or conducting business in a new territory. Such
activities relate to the periods before the Company commences operations and
include learning costs and operating losses incurred prior to the point at
which a project reaches operating capacity. Such costs have historically been
capitalized and classified as start-up costs. Prior to January 1, 1997, the
Company amortized start-up costs over the period expected to be benefitted
(generally five years) or expensed such amounts previously capitalized when
circumstances indicated an impairment had occurred. We have been informed that
in December, 1997, the Company decided to adopt the policy, effective January
1, 1997, of expensing start-up costs as incurred. According to the management
of the Company, this change was made to recognize these costs when incurred as
recurring costs of expanding the Company's services. This change is also
consistent with guidance expected to be issued in early 1998 by the American
Institute of Certified Public Accountants.
A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among acceptable
alternative principles has not been established by the accounting profession.
Thus, we cannot make an objective determination of whether the change in
accounting described in the preceding paragraph is to a preferable method.
However, we have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective basis, and our
opinion stated below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is
to an acceptable alternative method of accounting, which, based upon the
reasons stated for the change and our discussions with you, is also preferable
under the circumstances in this particular case. In arriving at this opinion,
we have relied on the business judgment and business planning of your
management.
Very truly yours,
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,070,000
<SECURITIES> 0
<RECEIVABLES> 11,247,000
<ALLOWANCES> 1,617,000
<INVENTORY> 536,000
<CURRENT-ASSETS> 14,601,000
<PP&E> 7,772,000
<DEPRECIATION> 2,987,000
<TOTAL-ASSETS> 22,870,000
<CURRENT-LIABILITIES> 11,464,000
<BONDS> 3,129,000
0
1,000
<COMMON> 3,000
<OTHER-SE> 8,270,000
<TOTAL-LIABILITY-AND-EQUITY> 22,870,000
<SALES> 54,496,000
<TOTAL-REVENUES> 54,496,000
<CGS> 30,641,000
<TOTAL-COSTS> 23,016,000
<OTHER-EXPENSES> 117,000
<LOSS-PROVISION> 1,427,000
<INTEREST-EXPENSE> 870,000
<INCOME-PRETAX> (1,341,000)
<INCOME-TAX> (382,000)
<INCOME-CONTINUING> (959,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (235,000)
<NET-INCOME> (1,194,000)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
