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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
______________________________________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number: 0-24260
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AMEDISYS, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 11-3131700
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3029 S. Sherwood Forest Blvd., Ste. 300 Baton Rouge, LA 70816
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(Address of principal executive offices including zip code)
(225) 292-2031
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(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Number of shares of Common Stock outstanding as of September 30, 1998: 3,064,918
shares
1
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PART I.
FINANCIAL INFORMATION
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<TABLE>
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<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997........................ 3
Consolidated Statements of Operations for the Three and Nine Months
ended September 30, 1998 and 1997........................................................... 4
Consolidated Statements of Cash Flows for the Nine Months ended September 30, 1998
and 1997.................................................................................... 5
Notes to Consolidated Financial Statements........................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 9
PART II.
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS................................................................................. 12
ITEM 2. CHANGES IN SECURITIES............................................................................. 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................... 12
ITEM 5. OTHER INFORMATION................................................................................. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................................. 13
</TABLE>
2
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AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED, IN 000'S)
ASSETS SEPTEMBER 30, 1998 DECEMBER 31, 1997
CURRENT ASSETS:
CASH $ 0 $ 4,070
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $3,060 IN SEPTEMBER 1998
AND IN $1,617 IN DECEMBER 1997 1,243 9,630
PREPAID EXPENSES 933 247
OTHER CURRENT ASSETS 4,378 654
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TOTAL CURRENT ASSETS 6,555 14,601
NOTES RECEIVABLE FROM RELATED PARTIES 198 252
PROPERTY, PLANT AND EQUIPMENT, NET 6,533 4,785
OTHER ASSETS, NET 10,122 3,232
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TOTAL ASSETS $23,408 $22,870
======= =======
LIABILITIES
CURRENT LIABILITIES:
OUTSTANDING CHECKS IN EXCESS OF BANK BALANCE $ 3,056 $ 0
NOTES PAYABLE 2,457 5,806
CURRENT PORTION OF LONG-TERM DEBT 927 927
ACCOUNTS PAYABLE 2,406 1,338
ACCRUED EXPENSES:
PAYROLL AND PAYROLL TAXES 1,529 2,025
INSURANCE 793 521
OTHER 1,406 847
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TOTAL CURRENT LIABILITIES 12,575 11,464
LONG-TERM DEBT 4,977 3,129
OTHER LONG-TERM LIABILITIES 1,136 0
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TOTAL LIABILITIES 18,688 14,593
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MINORITY INTEREST 3 3
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STOCKHOLDERS' EQUITY
COMMON STOCK 3 3
PREFERRED STOCK 1 1
ADDITIONAL PAID-IN CAPITAL 12,006 7,092
TREASURY STOCK (25) (25)
STOCK SUBSCRIPTIONS RECEIVABLE (1) 0
RETAINED EARNINGS (DEFICIT) (7,267) 1,203
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TOTAL STOCKHOLDERS' EQUITY 4,717 8,274
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,408 $22,870
======= =======
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
(UNAUDITED, IN 000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 98 SEPTEMBER 97 SEPTEMBER 98 SEPTEMBER 97
INCOME:
<S> <C> <C> <C> <C>
SERVICE REVENUE $ 6,216 $ 9,709 $ 21,896 $ 28,249
COST OF SERVICE REVENUE 4,382 4,646 12,729 14,750
-------- -------- -------- --------
GROSS MARGIN 1,834 5,063 9,167 13,499
-------- -------- -------- --------
GENERAL AND ADMINISTRATIVE EXPENSES:
SALARIES AND BENEFITS 4,159 2,916 12,524 7,801
OTHER (NOTE 5) 7,460 2,404 13,810 6,383
-------- -------- -------- --------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 11,619 5,320 26,333 14,184
-------- -------- -------- --------
OPERATING INCOME (LOSS) (9,785) (257) (17,166) (685)
-------- -------- -------- --------
OTHER INCOME AND EXPENSE:
INTEREST INCOME 16 10 37 27
INTEREST EXPENSE (343) (224) (760) (615)
MISCELLANEOUS 91 1 115 74
-------- -------- -------- --------
TOTAL OTHER INCOME AND EXPENSES (236) (213) (608) (514)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST, AND
DISCONTINUED OPERATIONS (10,021) (470) (17,774) (1,199)
PROVISION (BENEFIT) FOR ESTIMATED INCOME TAXES (2,173) (183) (4,809) (443)
INCOME (LOSS) BEFORE MINORITY INTEREST AND -------- -------- -------- --------
DISCONTINUED OPERATIONS (7,848) (287) (12,965) (756)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 0 12 0 2
-------- -------- -------- --------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (7,848) (275) (12,965) (754)
DISCONTINUED OPERATIONS (NOTE 8):
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX 475 500 1,168 1,652
GAIN ON DISPOSITION, NET OF INCOME TAX 3,327 --- 3,327 ---
-------- -------- -------- --------
TOTAL DISCONTINUED OPERATIONS 3,802 500 4,495 1,652
-------- -------- -------- --------
NET INCOME (LOSS) $ (4,045) $ 225 $ (8,470) $ 898
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,065 2,811 3,060 2,697
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE BEFORE DISCONTINUED
OPERATIONS $ (2.56) $ (0.10) $ (4.24) $ (0.28)
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX 0.16 0.18 0.38 0.61
GAIN ON DISPOSITION, NET OF INCOME TAX 1.09 --- 1.09 ---
-------- -------- -------- --------
NET INCOME (LOSS) PER COMMON SHARE $ (1.32) $ 0.08 $ (2.77) $ (0.33)
======== ======== ======== ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</TABLE>
4
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AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED, IN 000'S)
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SEPTEMBER 1998 SEPTEMBER 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $(8,470) $ 898
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 4,806 866
PROVISION FOR BAD DEBTS 660 695
MINORITY INTEREST IN AFFILIATED COMPANY 0 (2)
(GAIN) LOSS ON DISPOSAL OF PROPERTY AND EQUIPMENT 2 (24)
(GAIN) ON SALE OF STAFFING DIVISION (5,041) 0
LOSS ON SALE OF MARKETABLE SECURITIES 0 3
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ACCOUNTS RECEIVABLE 3,494 (1,312)
(INCREASE) IN PREPAID EXPENSES (707) (226)
(INCREASE) IN OTHER CURRENT ASSETS (3,600) (80)
(INCREASE) IN OTHER ASSETS (804) (481)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE 185 (395)
INCREASE IN ACCRUED EXPENSES 343 1,154
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (9,133) 1,096
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CASH FLOW FROM INVESTING ACTIVITIES:
PURCHASE OF FURNITURE, FIXTURES & EQUIPMENT (2,549) (958)
PROCEEDS FROM SALE OF FURNITURE, FIXTURES & EQUIPMENT 0 194
CASH PAID FOR ACQUISITIONS (2,005) (465)
(INCREASE) DECREASE IN NOTES RECEIVABLE FROM RELATED PARTIES 54 (55)
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NET CASH (USED IN) INVESTING ACTIVITIES (4,500) (1,284)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
PROCEEDS FROM SALE OF STAFFING DIVISION 6,480 0
PURCHASE OF TREASURY STOCK 0 (25)
CASH RECEIVED IN ACQUISITIONS 317 0
NET INCREASE (DECREASE) IN BORROWINGS ON LINE OF CREDIT (3,349) 913
PAYMENTS ON NOTES PAYABLE (1,837) (733)
PROCEEDS FROM NOTES PAYABLE 1,643 1,742
INCREASE (DECREASE) IN NOTES PAYABLE TO RELATED PARTIES 0 (988)
INCREASE IN OUTSTANDING CHECKS IN EXCESS OF BANK BALANCE 3,056 0
PROCEEDS FROM COMMON STOCK 0 831
DECREASE IN STOCK SUBSCRIPTIONS 0 1
PROCEEDS FROM PREFERRED STOCK 3,253 0
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NET CASH PROVIDED BY FINANCING ACTIVITIES 9,563 1,741
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,070) 1,553
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,070 1,104
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 0 $ 2,657
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAYMENTS FOR:
INTEREST $ 772 $ 551
======= =======
INCOME TAXES $ 160 $ 22
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITY (SEE NOTE 10 TO FINANCIAL STATEMENTS):
VALUE OF STOCK ISSUED IN EXCHANGE $ 894 $ 600
VALUE OF NOTE PAYABLE ISSUED IN EXCHANGE 1,575 100
CASH ACQUIRED IN EXCHANGE (317) 0
WORKING CAPITAL DEFICIT (SURPLUS) ACQUIRED NET OF CASH AND CASH EQUIVALENTS 3,553 (313)
FAIR VALUE OF PROPERTY, PLANT AND EQUIPMENT ACQUIRED (385) 0
FAIR VALUE OF OTHER ASSETS ACQUIRED (27) 0
LONG TERM DEBT ASSUMED 3,069 0
FAIR VALUE OF OTHER LIABILITIES ASSUMED 54 0
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NON CASH PORTION OF ACQUISITIONS 8,416 387
CASH PAYMENT FOR ACQUISITIONS 2,005 465
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GOODWILL RECORDED IN EXCHANGE $10,421 $ 852
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
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AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Amedisys, Inc. (the "Company") is a leading multi-regional provider of home
health nursing services, alternate-site infusion therapy, and ambulatory
surgery centers. The Company operates 37 offices within a network of
subsidiaries in the southern United States.
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the financial position at
September 30, 1998 and the results of operations for the three and nine months
and cash flows for the nine months ended September 30, 1998 and 1997. The
results of operations for the interim periods are not necessarily indicative of
operating results for the entire year end. These interim consolidated financial
statements should be read in conjunction with the Company's annual financial
statements and related notes in the Company's Form 10-K.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which simplifies the computation of earnings per share (EPS). The
Company adopted SFAS No. 128 in the fourth quarter of 1997. SFAS No. 128
requires the restatement of prior years' EPS data; however, application of the
statement has no impact on the Company's prior years' EPS data.
Basic net income per share of common stock is calculated by dividing net
income applicable to common stock by the weighted-average number of common
shares outstanding during the year. Diluted net income per share is not
presented as stock options and convertible securities outstanding during the
periods presented were not dilutive.
3. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Start-up Costs. During April 1998, the Accounting Standards
Executive Committee of the AICPA issued Statement of Position 98-5 ("SOP"),
"Reporting on the Costs of Start-Up Activities." The SOP requires costs of
start-up activities and organization costs to be expensed as incurred. The SOP
is effective for financial statements for fiscal years beginning after December
15, 1998. The Company elected to write off start-up costs in the fourth quarter
of 1997 in anticipation of the issuance of the SOP.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133 is
effective for fiscal years beginning after June 15, 1999 and must be applied to
instruments issued, acquired, or substantively modified after December 31, 1997.
The Company does not expect the adoption of the accounting pronouncement to have
a material effect on its financial position or results of operations.
6
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4. RESTRUCTURING
The Company's business is significantly impacted by political, economic and
regulatory changes. During fiscal 1998, extensive changes to the Medicare
system of reimbursement were enacted in connection with the Balanced Budget Act
of 1997 (the "Budget Act"). The Budget Act calls for the implementation on
October 1, 2000, of a new Prospective Payment System (PPS) for Medicare payments
for home health services. Until PPS is implemented, the Balanced Budget Act
established an Interim Payment System (IPS), effective October 1, 1997, that
reimburses home health agencies the lesser of: (1) actual, reasonable costs, (2)
per-visit cost limits, or (3) newly implemented per-beneficiary cost limits.
The IPS program was announced April 1, 1998, but given effect retroactively to
October 1, 1997. The implementation of IPS for the Company's Medicare cost-
reimbursed nursing agencies has had and is expected to continue to have a
significant impact on the Company's current and future home health nursing
operations. IPS has also caused many home care agencies to go out of business or
has hindered their ability to afford external consulting services which has
greatly diminished the sales in our Home Health Care Management division.
In response to IPS, the company initiated a restructuring plan which
included implementing cost reduction programs and care delivery process
improvements, and identifying non-core business operations for sale. The cost
reduction plan included employee cutbacks and salary adjustments as well as
office consolidation initiatives. The Company has closed 4 home health care
nursing offices, 3 infusion therapy locations, and has consolidated 3 sites in
multi-site markets as part of its efforts. Additionally, the Company sold its
Staffing division in the third quarter (see note 8).
5. WRITEDOWN OF GOODWILL
Due to the estimated impact of IPS and with the Company's decision during
the third quarter of 1998 to close certain home health nursing offices of
Alliance, a subsidiary of the Company, the Company determined that an impairment
existed at September 30, 1998 with respect to the recorded goodwill amounts
associated with these offices. Accordingly, the Company recorded a charge of
$3.4 million during the third quarter to reduce the goodwill associated with
this acquisition. This charge is recorded in other general and administrative
expense in the accompanying unaudited consolidated statement of operations.
6. ACCRUED PAYROLL AND PAYROLL TAXES
The Company currently has an Employee Stock Ownership Plan ("ESOP")
relating to a subsidiary of the Company. At December 31, 1997, the Company had
accrued contributions of $705,000. These contributions were funded during the
second quarter of 1998 through the issuance of stock of the subsidiary.
7. PLACEMENT OF PREFERRED STOCK
In March, 1998, Amedisys completed a secondary phase of its private
placement of $.001 par value convertible preferred stock pursuant to Regulation
D of the Securities Act of 1933. The Company issued an additional 350,000
shares at $10 per share for gross proceeds of $3.5 million. The Company has
used the proceeds of this placement to fund synergistic acquisitions within the
South East and South Central regions of the U.S. in order to accelerate the
growth of its fully integrated network of outpatient health care services
including the Alternate Site Infusion Therapy division. These shares are
convertible into 774,356 shares of common stock which is equivalent to $4.625
per share.
8. DISCONTINUED OPERATIONS
Effective September 21, 1998, the Company sold certain assets, subject to
the assumption of certain liabilities, of its staffing division (consisting of
its wholly-owned subsidiaries of Amedisys Staffing Services, Inc., Amedisys
Nursing Services, Inc., and Amedisys Home Health, Inc.) to Nursefinders, Inc.
The purchase price of $7,200,000 consisted of $6,480,000 payable immediately
upon closing with the balance of $720,000 placed in an escrow account. The
assets being sold consist primarily of all accounts and notes receivable;
prepaid expenses;
7
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advances and deposits; on-site hardware and software; furniture, fixtures, and
leasehold improvements; office supplies; records and files; transferable
governmental licenses, permits, and authorizations; and rights in, to and under
specified licenses, contracts, leases, and agreements. The liabilities being
assumed are the trade accounts payable, accrued expenses, and other liabilities
as of the closing date. Amedisys has agreed to a five-year non-competition
covenant. The sale of the Staffing division resulted in a pre-tax gain of
$5,041,000. The Company filed a Current Report on Form 8-K with the SEC relating
to this disposition on October 5, 1998.
The Company has reflected the discontinued operations in the consolidated
statement of operations. Summarized financial information for the discontinued
operation is as follows (in 000's):
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------- -------------------------------
September 1998 September 1997 September 1998 September 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Service Revenue $ 3,812 $ 4,409 $ 12,607 $ 13,134
Income from discontinued operation before
provision for income taxes $ 720 $ 833 $ 1,770 $ 2,623
Income from discontinued operations, net
of income taxes $ 475 $ 500 $ 1,168 $ 1,652
</TABLE>
9. INCOME TAXES
The Company recorded a tax benefit of $2,173,000 and $4,809,000 for the
three and nine months ended September 30, 1998, as the Company anticipates
carrying back taxable losses to previous years in which the Company paid income
taxes or generating taxable income in future periods to offset the 1998 losses.
The Company recorded a tax benefit of 34% for the first two quarters of 1998.
The write down of goodwill recorded in the third quarter (Note 5), however, is
not deductible for tax purposes, resulting in a lower quarterly tax benefit.
Included in Other Current Assets at September 30, 1998 is a deferred tax asset
of $2,493,000 resulting from the year-to-date losses. The Company anticipates
carrying back taxable losses to previous years in which the Company paid income
taxes and generating taxable income in future periods to offset the year-to-date
losses.
10. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITY
The following unaudited table presents (in 000's) a summary of the
acquisitions completed during each quarter of 1998 as presented in the
supplemental schedule to the consolidated cash flow statement.
<TABLE>
<CAPTION>
1/st/ Qtr 2/nd/ Qtr 3/rd/ Qtr
1998 1998 1998
Total Total Total Total
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<S> <C> <C> <C> <C>
Supplemental schedule of non-cash investing activity:
Value of stock issued in exchange $ 874 $ 20 $ 0 $ 894
Value of note payable issued in exchange 375 1,200 0 1,575
Cash acquired in exchange (123) (194) 0 (317)
Working capital deficit acquired net of cash and cash equivalents 3,272 281 0 3,553
Fair value of property, plant and equipment acquired (279) (98) 0 (385)
Fair value of other assets acquired (26) 1 0 (27)
Long term debt assumed 2,998 71 0 3,069
Fair value of other liabilities assumed 54 0 0 54
------- ------- ---- --------
Non cash portion of acquisitions 7,146 1,270 0 8,416
Cash payment for acquisition 1,905 100 0 2,005
------- ------- ---- --------
Goodwill recorded in exchange $ 9,051 $ 272 $ 0 $ 10,421
------- ------- ---- --------
</TABLE>
11. NOTES PAYABLE
Notes payable consist primarily of borrowings under revolving bank lines of
credit of $7,500,000 and $750,000, bearing interest at bank prime plus 1.5% and
bank prime plus 1%, respectively. The lines of credit are collateralized by 80%
of eligible receivables in outpatient surgery and infusion, 75% of eligible
receivables in home health care, and 80% of physician notes receivable. Eligible
receivables are defined principally as accounts that are aged less than 90 days
for outpatient surgery and infusion and 120 days for home health care. At
September 30, 1998, approximately $3.2 million was available based on eligible
receivables under the combined lines of credit. The line of credit is subject to
certain covenants, including a monthly borrowing base, a debt service coverage
ratio, and a leverage ratio. At December 31, 1997, March 31, 1998, June 30,
1998, and September 30, 1998, the Company was in default on the debt service
coverage ratio requirement of 1.1 : 1.0 due to the losses incurred in these
periods. This default was waived by the bank through December 27, 1998.
8
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12. AMOUNTS DUE MEDICARE
As of September 30, 1998, the Company estimated cost report payables due on
demand to Medicare of approximately $5 million which are netted in
Accounts Receivable. The Company is in the process of confirming the liability
and will be negotiating with Medicare for extended repayment. Although
management expects Medicare to agree to a revised payment plan, there is no
assurance at this time that the proposed terms will be accepted by Medicare.
13. RECENT DEVELOPMENTS
On November 2, 1998, Amedisys, Inc. signed a definitive agreement to
purchase certain assets, subject to the assumption of certain liabilities, of 83
home care offices including 35 provider numbers of Columbia/HCA Healthcare
Corporation located in Alabama, Georgia, Louisiana, North Carolina, Oklahoma and
Tennessee. The purchase price was $24,000,000 with a portion of the
consideration, $10,000,000, less certain liabilities, payable November 3, 1998
with the balance of $14,000,000 payable pursuant to a one-year promissory note
at the prime rate of Union Planter's Bank of Louisiana plus 0.75%. The assets
being purchased consist primarily of furniture, fixtures, and equipment; prepaid
expenses; advances and deposits; inventory; office supplies; records and files;
transferable governmental licenses and permits authorizations; and rights in, to
and under specified licenses, contracts, leases, and agreements. The
liabilities being assumed are the paid-time-off balances of the Columbia/HCA
employees and obligations arising on or subsequent to the closing dates under
the assumed contracts. The closing of the transaction will occur in two stages.
Assets located in Louisiana and Oklahoma were acquired November 16, 1998, and
the remaining assets will be acquired December 1, 1998. Columbia/HCA has agreed
that for a period of two years from the date of closing it will not compete with
the Company in the business of providing skilled intermittent home care services
in the counties/parishes currently served by the acquired offices. Such covenant
does not apply to a home health agency that is acquired as part of an
acquisition of a general acute care hospital, skilled nursing facility,
ambulatory surgical facility, physician practice management company or assisted
living facility.
On November 3, 1998, Amedisys, Inc. (the "Company") and CPII Acquisition
Corp. ("CPII") entered into an Asset Purchase Agreement whereby the Company sold
certain of the assets, subject to the assumption of certain liabilities, of its
proprietary software system (Analytical Medical Systems) and home health care
management division (Amedisys Resource Management) to CPII in exchange for
$11,000,000 cash consideration. The assets sold consisted primarily of deposits,
prepayments or prepaid expenses relating to the business; contracts; fixtures
and equipment; books and records; proprietary rights with respect to the home
health information system developed and used by the Company and its
subsidiaries; rights under warranties; and claims, causes of action, chooses in
action, rights of recovery and rights to set-off. The liabilities assumed were
those associated with the assumed contracts. The Company has also agreed to
provide limited support services to CPII for the period of one year from the
date of the agreement.
The Company filed a Current Report on Form 8-K with the SEC for the above
transactions on November 10, 1998.
14. LIQUIDITY
The Company's principal capital requirements are for additional working
capital to fund growth of the Company. The Company recorded a net loss for the
nine months ended September 30, 1998 and had negative cash flow from operations.
The Company expects to have additional losses and negative cash flow amounts for
the remainder of 1998. This has negatively impacted the availability of the
Company's current financing sources and is expected to decrease the Company's
overall liquidity position. Management believes that with continued access to a
secured working capital finance relationship, the sale of non-core operations,
and persistent efforts to reduce future losses from home health care nursing
operations, the Company will have sufficient liquidity to meet its capital
requirements through December 31, 1998. There is no assurance that the Company
will be successful in accomplishing these goals and maintaining adequate
liquidity through 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the Consolidated Financial Statements appearing in Item 1.
RESULTS OF OPERATIONS
Revenues. Net revenues decreased $3,493,000 or 36% and $6,353,000 or 22%
for the three and nine months ended September 30, 1998 as compared to the same
periods in 1997. Home Health Nursing division's net revenues decreased
$4,468,000 or 68% for the three months ended September 30, 1998 and $7,708,000
or 41% for the nine months ended September 30, 1998, as compared to the same
periods in 1997. This decrease was due to the reductions
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in Medicare reimbursement rates as a result of IPS and a reduction in visits. As
a result of the per-beneficiary limit, the Home Health Nursing division has
recorded additional charges to revenue throughout 1998. Visits for the three
month period ended September 30 decreased approximately 25% from 1997 to 1998.
For the nine month period ended September 30, visits decreased approximately 20%
from 1997 to 1998. In addition, revenues in the Home Health Care Management
division decreased $896,000 or 85% and $1,056,000 or 56% for the three and nine
months ended September 30, 1998. The reimbursement changes implemented as a
result of IPS have caused many home care agencies to go out of business or have
hindered their ability to afford external consulting services. Offsetting these
comparative decreases in net revenues were increases in revenues relating to the
acquisition of Care Medical & Mobility, a durable medical equipment company, in
August 1997 and the startup and acquisitions in the Alternative Site Infusion
Therapy division. Care Medical & Mobility recorded net revenues of $719,000 and
$1,852,000 for the three and nine month periods ending September 30, 1998 as
compared to $132,000 in the three and nine month periods ended September 30,
1997. Alternate Site Infusion Therapy recorded net revenues of $1,571,000 and
$2,981,000 for the three and nine month periods ending September 30, 1998. This
division began incurring start-up expenses in the 4th quarter of 1997.
Cost of Revenues. Although cost of revenues decreased by 6% and 14% for the
three and nine months ended September 30, 1998 as compared to the same periods
in 1997, cost of revenues as a percentage of net revenues increased for both
periods. Cost of revenues as a percentage of net revenues increased to 71% from
48% for the three month period ending September 30, 1998 as compared to the same
period in 1997 and 58% from 52% for the nine month period ended September 30,
1998 as compared to the same period in 1997. These increases in cost of revenue
are primarily attributed to the reduction in Medicare reimbursement,
specifically the per-beneficiary charges described above. Exclusive of these
charges, cost of revenue as a percentage of net revenues would have been 51% and
50% for the three and nine month periods ended September 30, 1998. These
percentages are comparable to the same periods in 1997.
General and Administrative Expenses ("G&A"). General and administrative
expenses increased by $6,299,000 or 118% and $12,149,000 or 86% for the three
and nine months ended September 30, 1998 as compared to the same periods in
1997. Included in G&A expenses for the three months ended September 30, 1998 is
a charge of $3.4 million to record an impairment in the recorded value of
goodwill relating to a home health care acquisition. An increase of $2,499,000
and $7,615,000 for the three and nine months ended September 30, 1998 is
directly attributable to additional personnel and related expenses to support
the startup of the Alternate Site Infusion Therapy division as well as the
Company's recent acquisitions and developments. Furthermore, G&A expenses
increased approximately $510,000 and $1,698,000 from the three and nine months
ended September 30, 1997 to 1998 due to expanded resources for marketing and
managed care as well as the additional of experienced, senior management.
Other Income and Expense. Other income and expense increased $23,000 and
$94,000 for the three and nine months ended September 30, 1998 from the same
periods in 1997 primarily due to additional interest expense incurred in 1998 as
compared to 1997.
Provision for Estimated Income Taxes. The Company recorded a tax benefit
related to continuing operations of $2,173,000 and $4,809,000 for the three and
nine months ended September 30, 1998.
Discontinued Operations. The Company disposed of its staffing division in
the third quarter of 1998. This disposition has been deemed a discontinued
operation. Income from discontinued operations, net of income tax, decreased
$25,000 or 5% for the three months ended September 30, 1998 from the same period
in 1997, and $484,000 or 29% for the nine months ended September 30, 1998 as
compared to the same period in 1997. On disposal, the Company recorded a gain
of $3,327,000 after income taxes.
Net Income (Loss). As a result of the reasons described above, the Company
had a net loss of ($4,045,000) for the three months ended September 30, 1998
compared with net income of $225,000 for the same period in 1997. For the nine
month period ending September 30, 1998, the Company recorded a net loss of
($8,470,000) as compared to net income of $898,000 for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for additional working
capital to fund growth of the Company. The Company recorded a net loss for the
nine months ended September 30, 1998 and had negative cash flow from operations.
The Company expects to have additional losses and negative cash flow amounts for
the remainder of 1998. This has negatively impacted the availability of the
Company's current financing sources and is expected to decrease the Company's
overall liquidity position. Management believes that with continued access to a
secured working capital finance relationship, the sale of non-core operations,
and persistent efforts to reduce future losses from home health care nursing
operations, the Company will have sufficient liquidity to meet its capital
10
<PAGE>
requirements through December 31, 1998. There is no assurance that the Company
will be successful in accomplishing these goals and maintaining adequate
liquidity through 1998.
At September 30, 1998, the Company had current assets of $6,555,000 and
current liabilities of $12,575,000 resulting in a working capital deficit of
($6,020,000) as compared to working capital of $3,137,000 as of December 31,
1997. Working capital decreased by $9,157,000 primarily as a result of the net
losses for nine months ended September 30, 1998.
The Company's operating activities used $9,133,000 during the first nine
months of 1998, whereas such activities provided $1,096,000 in cash during the
first nine months of 1997. This increase in cash used in operating activities
is primarily attributable to net losses partially offset by a decrease in
accounts receivable. Net cash used in investing activities increased to
$4,500,000 from $1,284,000 for the nine months ending September 30, 1998 and
1997 respectively. Purchases of furniture, fixtures and equipment increased
$1,591,000 in addition to $2,005,000 used to purchase several acquisitions. Net
cash provided by financing activities increased to $9,563,000 from $1,741,000
for the nine months ending September 30, 1998 and 1997, respectively. This
change is due to the sale of the Staffing division in the third quarter of 1998
and proceeds from a private placement of preferred stock. The monies received
from this sale were used to fund operating losses.
Notes payable consist primarily of borrowing under revolving bank lines of
credit of $7,500,000 and $750,000, bearing interest at bank prime plus 1.5% and
bank prime plus 1%, respectively. The lines of credit are collateralized by 80%
of eligible receivables in outpatient surgery and infusion, 75% of eligible
receivables in home health care, and 80% of physician notes receivable.
Eligible receivables are defined principally as accounts that are aged less than
90 days for outpatient surgery and infusion and 120 days for home health care.
At September 30, 1998, approximately $3.2 million was available based on
eligible receivables under the combined lines of credit. The line of credit is
subject to certain covenants, including a monthly borrowing base, a debt service
coverage ratio, and a leverage ratio. At December 31, 1997, March 31, 1998,
June 30, 1998, and September 30, 1998, the Company was in default on the debt
service coverage ratio requirement of 1.1 : 1.0 due to the losses incurred in
these periods. This default was waived by the bank through December 27, 1998.
As of September 30, 1998, the Company estimated cost report payables due
on demand to Medicare of approximately $5 million which are netted in
Accounts Receivable. The Company is in the process of confirming the liability
and will be negotiating with Medicare for extended repayment. Although
management expects Medicare to agree to a revised payment plan, there is no
assurance at this time that the proposed term will be accepted by Medicare.
As described in Note 13 to the consolidated financial statements, the
Company acquired 83 homecare offices of Columbia/HCA Healthcare Corporation in
November 1998. The Company will need additional financing to fund the working
capital needs of this acquisition.
YEAR 2000 COMPLIANCE ISSUES
The Company is currently evaluating its entire operation as a result of
potential problems associated with Year 2000. A task force has been established
within the Company to evaluate all areas for compliance issues and develop
correction plans if necessary. Some internal areas and processes being evaluated
include initial charge entry through billing and collections; accounts payable
invoice receipt through processing and payment; bank processing of receipts and
disbursements; computer hardware and software functionality; and time and/or
date-sensitive office and medical equipment functionality. At present, the
Company does not anticipate any material disruption in its operations or
significant costs to be incurred to attain compliance. There can be no
assurance, however, that the Company will identify or adequately assess all
aspects of the business that may be affected. Due to this uncertainly, a
contingency plan will be developed as each area is evaluated to minimize any
negative impact to the Company. The Company is in the process of soliciting
information concerning the Year 2000 compliance status of its payors (including
the Medicare and Medicaid governmental programs), suppliers, and customers. In
the event that any of the Company's significant payors, suppliers, or customers
does not successfully and timely achieve Year 2000 compliance, the Company's
business and/or operations could be adversely affected.
11
<PAGE>
CORPORATE COMPLIANCE PROGRAM
The Company has recently begun to formalize a Corporate Compliance Program.
The increasing complexity of the health care industry has driven the Company to
adopt a program to assure that adequate systems are in place to facilitate
ethical and legal conduct. The laws and regulations affecting the industry and
reimbursement policies vary among each individual payer. In addition to these
regulations, the Company must adhere to the guidelines established by the Office
of Inspector General. Being accustomed to operating in a highly regulated
environment, the Company has a large number of policies, procedures, and
practices designed to ensure that the activities of the employees and the
Company as a whole are in full compliance with relevant laws, standards, and
federal reimbursement guidelines.
FORWARD LOOKING STATEMENTS
When included in the Quarterly Report on Form 10-Q or in documents
incorporated herein by reference, the words "expects", "intends", "anticipates",
"believes", "estimates", and analogous expressions are intended to identify
forward-looking statements. Such statements inherently are subject to a variety
of risks and uncertainties that could cause actual results to differ materially
from those projected. Such risk and uncertainties include, among others,
general economic and business conditions, current cash flows and operating
deficits, debt services needs, adverse changes in federal and state laws
relating to the health care industry, competition, regulatory initiatives and
compliance with governmental regulations, customer preferences and various other
matters, many of which are beyond the Company's control. Theses forward-looking
statements speak only as of the date of the Quarterly Report on Form 10-Q. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or any changes in the Company's expectations with regard thereto or
any changes in events, conditions or circumstances on which any statement is
based.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
Effective with the close of business on September 28, 1998, the Company's
common stock began trading on the OTC Bulletin Board under the ticker symbol
"AMED". This development resulted from non-compliance with the Nasdaq National
Market's net tangible asset requirement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At September 30, 1998, the Company was in default on the $7,500,000
revolving bank line of credit. The line of credit is collateralized by accounts
receivable and is subject to certain covenants, including a monthly borrowing
base, a debt service coverage ratio, and a leverage ratio. The Company was in
default on the debt service coverage ratio requirement of 1.1 : 1.0 due to the
losses incurred. This default was waived by the bank through December 27, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 12, 1998, the annual shareholders meeting of the Company was held
with the following seven items of business to be voted on:
Item 1. Election of five directors to serve until the next annual
meeting of the shareholders of the Company. The nominated individuals were
William F. Borne, CEO of Amedisys, Inc.; Ronald A. LaBorde, President and
CEO of Piccadilly Cafeterias; Jake L. Netterville, managing director of
Postlethwaite and Netterville, a public accounting firm; David R. Pitts,
President and CEO of Pitts Management Associates, Inc.; and David F.
Ricchiuti, Assistant Dean and Director of Research at Tulane University's
A.B. Freeman School of Business. These individuals were approved as a group
by shareholders, receiving 2,441,390 votes in favor, 52,225 votes against
and 4,300 votes abstained.
12
<PAGE>
Item 2. Proposed amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of common stock
from 10,000,000 to 30,000,000. This amendment was approved by the
shareholders, receiving 2,405,985 votes in favor, 87,510 votes against and
4,420 votes abstained.
Item 3. Proposed amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of preferred stock
from 2,500,000 to 5,000,000. This amendment was approved by the
shareholders, receiving 2,400,985 votes in favor, 92,980 votes against and
3,950 votes abstained.
Item 4. Proposed 1998 Employee Stock Option Plan. This plan was
approved by the shareholders, receiving 2,433,652 votes in favor, 57,613
votes against and 6,650 votes abstained.
Item 5. Proposed 1998 Directors Stock Option Plan. This plan was
approved by the shareholders, receiving 2,434,625 votes in favor, 58,640
votes against and 4,650 votes abstained.
Item 6. Proposed 1998 Employee Stock Option Plan. This plan was
approved by the shareholders, receiving 2,441,432 votes in favor, 51,833
votes against and 4,650 votes abstained.
Item 7. Reappointment of the Company's independent public accounting
firms of Arthur Andersen LLP and Hannis T. Bourgeois & Co., LLP. The
reappointment of the independent public accounting firms was approved by
the shareholders, receiving 2,491,390 votes in favor, 4,825 votes against
and 1,700 votes abstained.
ITEM 5. OTHER INFORMATION
In July 1998, the Company announced that 500,000 shares of its common stock
would be purchased by certain of its officers and directors. To date, this
transaction has not been consummated.
On August 8, 1998, the Company filed a Form S-8 Registration Statement with
the SEC in connection with an Employee Stock Purchase Plan which provides for
the issuance of up to 1,000,000 shares of its common stock, par value $.001 per
share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Identification of Exhibit
- -------- -------------------------
10.1(1) --- Master Corporate Guaranty of Service Agreements between Care
South Home Health Services, Inc. and Amedisys, Inc. dated
November 2, 1998
27.1(2) --- Financial Data Schedule
(1) A written request has been made to the Securities and Exchange Commission to
classify this document as confidential.
(2) Filed herewith.
(b) Report on Form 8-K
The Company filed a Current Report on Form 8-K with the SEC on July 23,
1998 in connection with the acquisition of Alliance Home Health, Inc. on January
1, 1998. Included in the filing were audited financial statements of Alliance
Home Health, Inc. for the years ended September 30, 1997 and 1996 in an audit
report dated June 17, 1998. The audited financial statements were comprised of
balance sheets, statements of operations and retained earnings, and statements
of cash flows. Pro forma financial information, required pursuant to Article 11
of Regulation S-X, was also included in the filing. The pro forma financial
information was comprised of a pro forma consolidated balance sheet as of
December 31, 1997, a pro forma consolidated statement of operations for the year
ended December 31, 1997, and explanatory notes.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMEDISYS, INC.
By: /s/ MITCHEL G. MOREL
-----------------------------------
Mitchel G. Morel
Chief Financial Officer, Principal Financial and
Accounting Officer
DATE: November 19, 1998
14
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