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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X]Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1999
or
[_]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission file number: 0-24260
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AMEDISYS, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 11-3131700
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3029 S. Sherwood Forest Blvd., Ste. 300 Baton Rouge, LA 70816
(Address of principal executive offices including zip code)
(225) 292-2031
(Registrant's telephone number, including area code)
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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 March 31, 1999: 3,071,797
shares
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PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998.. 3
Consolidated Statements of Operations for the Three Months ended March
31, 1999 and 1998...................................................... 4
Consolidated Statements of Cash Flows for the Three Months ended March
31, 1999 and 1998...................................................... 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................................................. 12
Item 6. Exhibits and Reports on Form 8-K.................................. 13
2
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
March 31, December 31,
1999 1998
--------- ------------
(Unaudited, in 000s)
ASSETS
------
Current Assets:
Cash.................................................. $ 2,768 $ 572
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $2,397 in March 1999 and $3,095 in
December 1998........................................ 12,173 7,456
Prepaid Expenses...................................... 771 604
Inventory............................................. 1,304 1,440
Other Current Assets.................................. 170 263
------- -------
Total Current Assets.............................. 17,186 10,335
Notes Receivable from Related Parties................... 0 89
Property, Plant and Equipment, Net...................... 7,916 8,574
Other Assets, Net....................................... 25,528 25,430
------- -------
Total Assets...................................... $50,630 $44,428
======= =======
LIABILITIES
-----------
Current Liabilities:
Notes Payable......................................... $27,673 $18,979
Current Portion of Long-Term Debt..................... 3,141 3,141
Deferred Revenue...................................... 2,119 2,119
Accounts Payable...................................... 6,062 7,295
Accrued Expenses:
Payroll and Payroll Taxes........................... 5,090 5,257
Income Taxes........................................ 0 0
Insurance........................................... 255 368
Other............................................... 6,058 4,456
------- -------
Total Current Liabilities......................... 50,398 41,615
Long-Term Debt.......................................... 5,756 5,447
Deferred Revenue........................................ 7,591 8,121
Other Long-Term Liabilities............................. 826 826
------- -------
Total Liabilities................................. 64,571 56,009
------- -------
Minority interest....................................... 96 103
------- -------
STOCKHOLDERS' EQUITY
Common Stock.......................................... 3 3
Preferred Stock....................................... 1 1
Additional paid-in capital............................ 12,152 12,005
Treasury Stock........................................ (25) (25)
Stock Subscriptions Receivable........................ 0 0
Retained Earnings..................................... (26,168) (23,668)
------- -------
Total Stockholders' Equity (deficit).............. (14,037) (11,684)
------- -------
Total Liabilities and Stockholders' Equity...... $50,630 $44,428
======= =======
See accompanying notes to financial statements.
3
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Three Months Ended
-------------------
1999 1998
------- ----------
(Restated)
(Unaudited, in
000s)
Income:
Service revenue.......................................... $29,005 $ 8,142
Cost of service revenue.................................. 14,289 4,554
------- -------
Gross margin........................................... 14,716 3,588
General and administrative expenses:
Salaries and benefits.................................... 8,900 4,693
Other.................................................... 7,522 3,123
------- -------
Total general and administrative expenses.............. 16,422 7,816
------- -------
Operating (loss)....................................... (1,706) (4,228)
------- -------
Other income and expense:
Interest income.......................................... 17 12
Interest expense......................................... (580) (202)
Miscellaneous............................................ (236) 8
------- -------
Total other income and expenses........................ (799) (182)
------- -------
(Loss) before income taxes and minority interest, and
discontinued operations................................. (2,505) (4,410)
(Benefit) for estimated income taxes..................... 0 (1,495)
------- -------
(Loss) before minority interest and discontinued opera-
tions................................................... (2,505) (2,915)
Minority interest in consolidated subsidiary............. 7 0
------- -------
(Loss) before discontinued operations.................... (2,498) (2,915)
Discontinued operations:
Income from discontinued operations, net of income tax... 0 394
------- -------
Total discontinued operations.......................... 0 394
------- -------
Net (Loss)............................................... $(2,498) $(2,521)
======= =======
Weighted average common shares outstanding............... 3,086 3,051
Net (loss) per common share before discontinued opera-
tions................................................... $ (0.81) $ (0.96)
Income from discontinued operations, net of income tax... 0.00 0.13
------- -------
Net (loss) per common share.............................. $ (0.81) $ (0.83)
======= =======
See accompanying notes to financial statements.
4
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Three months ended
---------------------
March 1999 March 1998
---------- ----------
(Unaudited, in 000s)
Cash Flows from operating activities:
Net (Loss).............................................. $(2,498) $(2,521)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 814 410
Provision for bad debts................................. 527 317
Minority interest in affiliated company................. (7) 0
(Gain) on sale of company assets........................ (100) 0
(Gain) on disposal of durable medical equipment
company................................................ (35) 0
Loss on disposal of property and equipment.............. 0 4
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............. (6,289) 3,376
(Increase) in prepaid expenses......................... (173) (420)
(Increase) decrease in other current assets............ 32 (1,539)
(Increase) decrease in other assets.................... 119 (152)
(Decrease) in accounts payable......................... (20) (335)
Increase in accrued expenses........................... 259 510
(Decrease) in deferred revenue......................... (530) 0
------- -------
Net cash provided by (used in) operating activities... (7,901) (350)
------- -------
Cash flow from investing activities:
Purchase of furniture, fixtures & equipment............. (115) (830)
Cash paid for acquisitions.............................. 0 (1,905)
Proceeds from sale of durable medical equipment
company................................................ 100 0
Decrease in notes receivable from related parties....... 89 22
------- -------
Net cash provided by (used in) investing activities... 74 (2,713)
------- -------
Cash flow from financing activities:
Cash received in acquisitions........................... 0 123
Net increase (decrease) in borrowings on line of
credit................................................. 9,957 (2,901)
Payments on notes payable............................... (234) (387)
Proceeds from note payables............................. 300 165
Proceeds from preferred stock........................... 0 3,253
------- -------
Net cash provided by financing activities............. 10,023 253
------- -------
Net increase in cash and cash equivalents................ 2,196 (2,810)
Cash and cash equivalents at December 31, 1998 and 1997.. 572 4,070
------- -------
Cash and cash equivalents at March 31, 1999 and 1998..... $ 2,768 $ 1,260
======= =======
Supplemental disclosures of cash flow information:
Cash payments for:
Interest................................................ $ 112 $ 225
======= =======
Income taxes............................................ $ 0 $ 19
======= =======
Supplemental schedule of non-cash investing activity (See
note 9 to financial statements):
Value of stock issued in exchange....................... $ 874
Value of note payable issued in exchange................ 375
Cash acquired in exchange............................... 123
Working capital acquired net of cash and cash
equivalents............................................ (3,272)
Fair value of property, plant and equipment acquired.... 279
Fair value of other assets acquired..................... 26
Long term debt assumed.................................. 2,998
Fair value of other liabilities assumed................. 54
-------
Non cash portion of acquisitions........................ 7,146
Cash payment for acquisitions........................... 1,905
-------
Goodwill recorded in exchange........................... $ 9,051
=======
See accompanying notes to financial statements.
5
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 71 offices within a network of
subsidiaries in the south and southeastern United States.
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the financial
position at March 31, 1999 and the result of operations and cash flows for the
three months ended March 31, 1999 and 1998. The results of operations for the
interim periods are not necessarily indicative of operating results of
operations for the entire year. 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. Reclassifications
Certain amounts previously reported in the 1998 interim unaudited financial
statements have been reclassified due to the sale of the Staffing division in
September, 1998 which qualified as a discontinued operation.
3. Earnings Per Share
Basic net income (loss) per share of common stock is calculated by dividing
net income (loss) applicable to common stock by the weighted-average number of
common shares outstanding during the year. Diluted net income (loss) per share
is not presented as stock options and convertible securities outstanding (total
2,742,233 shares) during the periods presented were not dilutive.
4. Recent Accounting Pronouncements
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.
5. Medicare Reimbursement Reductions and Related Restructuring
The Company derives 73% 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 until the
Prospective Payment System ("PPS") is implemented. For cost reporting periods
beginning on or after October 1, 1997, Medicare-reimbursed home health
agencies' cost limits were determined as the lesser of (i) their actual costs,
6
(ii) per visit cost limits based on 105% of median costs of freestanding home
health agencies, or (iii) a per beneficiary limit determined for each specific
agency based on whether the agency was an "old" or "new" provider. An old
provider was defined as an agency which filed a twelve month cost report in
Federal FY 1994 and a new agency as one that did not. An old provider per
beneficiary limit was based on 75% of 98% of the 1994 agency cost adjusted for
inflation, plus 25% of a regional average as determined by Health Care
Financing Administration ("HCFA"). A new provider per beneficiary limit was
based on a national average, as determined by HCFA, adjusted for regional labor
costs. The schedule of per visit limits for cost reporting periods ending on or
after October 1, 1997 was published by HCFA in January, 1998 and the schedule
of per-beneficiary limits for cost reporting periods beginning on or after
October 1, 1997 was published in March, 1998, by HCFA. The new IPS cost limits
apply to the Company for the cost reporting period beginning January 1, 1998
and will remain in effect until the implementation of PPS, which is currently
anticipated to be October, 2000.
As a result of these reimbursement changes, a significant restructuring
effort by the Company was completed during 1998, resulting in office
reorganizations, consolidations, and closures as it transitioned to IPS. After
the acquisition of certain home health care agencies from Columbia/HCA in
November and December, 1998, a similar restructuring effort was implemented and
completed during the 1st quarter of 1999 in an overall effort to reduce costs
and improve efficiencies, while maintaining the same high-quality of patient
care. Since the impact of these cost reductions was not fully-realized in the
1st quarter of 1999, the Company expects to report improved operating results
for the 2nd quarter of 1999.
As the home care industry faces continued changes in reimbursement
structure, Amedisys is committed to improve and streamline systems and take
appropriate actions to offset these changes, creating a company focused on
long-term growth.
6. Dispositions
On January 1, 1999, the Company sold all of the issued and outstanding stock
of Amedisys Durable Medical Equipment, Inc. d/b/a Care Medical and Mobility
("ADME") to Ace Drug Medical Equipment, Inc. ("ACE"), a Texas Corporation. The
sales price was $672,385 of which $100,000 was paid at closing; $418,318 was
payable pursuant to a two year note in eight equal quarterly payments of
principal and interest at prime plus 2%, adjusted annually; and $154,067 was
payable pursuant to a one year note, payable in four quarterly payments of
principal plus accrued interest at prime plus 2%. Each note is solitarily
guaranteed by Terry Huckabee, a principal of ACE. ACE acquired substantially
all of the assets and liabilities of ADME. This transaction was accounted for
as a sale by the Company. The Company expects that this disposition will not
have a material effect on net revenues or income of the Company.
7. Discontinued Operations
In September, 1998, the Company sold certain assets, subject to the
assumption of certain liabilities, of its Staffing division. This sale
qualified as a discontinued operation, and has been reflected as such in the
consolidated statements of operations. Summarized financial information for the
discontinued operation is as follows (in 000's):
Three months
ended
March 1998
------------
Service Revenue............................................ $4,568
Income from discontinued operation before provision for
income taxes.............................................. $ 597
Income from discontinued operations, net of income taxes... $ 394
8. Income Taxes
For the three month period ending March 31, 1998, the Company established a
deferred tax asset by recording an estimated net income tax benefit of
$1,292,000. This figure is comprised of a $1,495,000 income
7
tax benefit reflected in the accompanying consolidated statement of operations
as a benefit for income taxes, offset by a $203,000 income tax expense
reflected in the accompanying consolidated statements of operations as a
component of income from discontinued operations. In December, 1998, a
valuation allowance was recorded against this deferred tax asset, effectively
writing-off the deferred tax asset due to the significant losses incurred by
the Company for the year ended December 31, 1998. Due to the continued losses
for the three month period ending March 31, 1999, the Company has not recorded
an estimated income tax benefit.
9. Supplemental Schedule of Non-Cash Investing Activity
The following unaudited table presents (in 000's) the detail of the
acquisitions completed during the first quarter of 1998 presented in the
supplemental schedule to the consolidated cash flow statement. No acquisitions
were completed during the first quarter of 1999.
Alliance Infusion Precision StaffCor
Home Care Health Staffing
Health, PRN, Solutions, Systems, Services,
Inc. Inc. Inc. L.L.C. L.L.C. Total
-------- ---- ---------- --------- --------- -------
Supplemental schedule of
non-cash investing
activity:
Value of stock issued
in exchange.......... $ 874 $ 0 $ 0 $ 0 $ 0 $ 874
Value of note payable
issued in exchange... 0 0 125 250 0 375
Cash acquired in
exchange............. 72 (2) 1 51 0 123
Working capital
acquired net of cash
and cash
equivalents.......... (3,388) 40 18 57 0 (3,272)
Fair value of
property, plant and
equipment acquired... 220 28 0 12 19 279
Fair value of other
assets acquired...... 23 2 0 0 0 26
Long term debt
assumed.............. 2,927 72 0 0 0 2,998
Fair value of other
liabilities assumed.. 0 23 28 3 0 54
------- ---- ---- ---- ---- -------
Non cash portion of
acquisitions......... 6,873 26 134 132 (19) 7,146
Cash payment for
acquisition.......... 300 430 375 770 30 1,905
------- ---- ---- ---- ---- -------
Goodwill recorded in
exchange............. $ 7,173 $456 $509 $902 $ 11 $ 9,051
------- ---- ---- ---- ---- -------
10. Notes Payable
Notes payable consist primarily of a $25 million asset-based line of credit,
a one-year $14 million note payable to Columbia/HCA, and borrowings under
revolving bank lines of credit of $2,500,000 and $750,000. The $25 million
asset-based line of credit is collateralized by eligible accounts receivable of
the home health care nursing division. Eligible receivables are defined as
receivables, exclusive of workers' compensation and self-pay, that are aged
less than 181 days. The ongoing fees associated with this line of credit equate
to 1% of eligible billed receivables generated during each billing period. The
$14 million note payable to Columbia/HCA is a result of the acquisition
consummated in November, 1998. The revolving bank lines of credit of $2,500,000
and $750,000 bear interest at bank prime plus 1.5% and bank prime plus 1%,
respectively. At March 31, 1999, approximately $656,000 was available under the
combined bank lines of credit. These 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. Subsequent to March 31, 1999, the $2,500,000 line of credit was decreased
to $2,000,000, with scheduled step-downs in availability until the expiration
of the line on July 31, 1999.
The $2,500,000 bank 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, 1998 and March 31, 1999, 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
March 31, 1999.
8
11. Amounts Due To and Due From Medicare
The Company is currently working to determine the tentative amounts due to
and due from the Medicare program for the first quarter of 1999. The
integration and change of ownership process of the acquired home health
agencies of Columbia/HCA have delayed the rate review process with Medicare.
Rate reviews and reconciliations have been forwarded to Medicare and responses
are expected to be received by the Company by the end of the second quarter of
1999. Based on the information currently available to the Company, the Company
has estimated any amounts due to Medicare or other parties as of March 31, 1999
and such amounts are netted against accounts receivable. For the cost report
year ending December 31, 1998, year-end cost reports have been compiled with an
estimated aggregate payable due to Medicare of $4.4 million which the Company
is in the process of 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.
12. Liquidity
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company experienced significant
losses from operations in 1998 and 1997 and has a deficit in stockholders'
equity of $14,037,000 at March 31, 1999. In addition, at March 31, 1999, the
Company has $30,814,000 in debt repayment obligations coming due within one
year and Management's current projections indicate that operations will not
produce sufficient cash flow to fund those obligations. These matters, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The Company has undertaken a significant restructuring effort to
reduce operating costs by closing unprofitable locations and reducing
components of overhead expenses to minimize this deficit. The Company is
negotiating the restructuring of certain debt obligations and is considering
the possible sale of certain operating assets to generate cash to fund
remaining obligations. Management believes that the strategies it has
undertaken will enable the Company to satisfy its obligations as they become
due; however, there can be no assurance that these strategies will succeed. The
financial statements do not include any adjustments relating to the
recoverability or classification of asset carrying amount or the amount and
classification of liabilities that might result should the company be unable to
continue as a going concern.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
results of operations and financial condition. This discussion should be read
in conjunction with the Consolidated Financial Statements appearing in Item 1.
GENERAL
Amedisys, Inc. is a leading multi-regional provider of fully integrated
alternate-site health care services. The Company offers the following services:
infusion therapy; home health nursing services; and ambulatory surgery centers.
The Company operates 71 offices within a network of subsidiaries in the south
and southeastern United States.
RESULTS OF OPERATIONS
Revenues. Net revenues for the three months ended March 31, 1999 increased
$20,863,000 or 256% to $29,005,000 from $8,142,000 for the three months ended
March 31, 1998. The Home Health Care Nursing division's net revenues increased
$19,983,000 or 394%. This increase was attributed to the acquisition of certain
Columbia/HCA home health care agencies in the latter part of 1998. Visits for
the comparative three month periods increased 229,916, or 232% from 99,144 in
1998 to 329,060 in 1999. Infusion therapy revenues increased $840,000, or 61%,
from $1,371,000 for the three months ended March 31, 1998 to $2,211,000 for the
same period in 1999. The infusion therapy division, which began operations in
the fourth quarter of 1997, has demonstrated continued revenue growth through
the opening of additional locations and expanding services and patient base for
existing locations.
9
Cost of Revenues. Cost of revenues increased by $9,734,000 to $14,289,000
for the three months ended March 31, 1999 from $4,555,000 for the three months
ended March 31, 1998 primarily attributed to the acquisition of certain
Columbia/HCA home health care agencies. As a percentage of the net revenues,
cost of revenues decreased to 49% from 56% for the three months ended March 31,
1999 and 1998, respectively. This decrease is attributed to cost reduction
efforts implemented during 1998 in all operating divisions. For the home health
care nursing division, all nursing employees were converted to a per-visit
payment basis, thereby increasing overall productivity.
General and Administrative Expenses ("G&A"). General and administrative
expenses increased by $8,606,000 or 110% to $16,422,000 for the three months
ended March 31, 1999 from $7,816,000 for the three months ended March 31, 1998,
primarily attributed to the acquisition of certain Columbia/HCA home health
care agencies. As a percentage of net revenues, general and administrative
expenses decreased to 57% from 96%. This decrease is attributed to the cost
reduction efforts implemented for all operating divisions and corporate
departments in addition to improvements in operating efficiencies. The
operating efficiencies that were gained through these efforts helped to offset
the additional resources needed following the Columbia/HCA acquisition,
resulting in a minimal increase in administrative personnel and resources to
appropriately manage and support the new home health care agencies.
Operating (Loss). The Company had an operating loss of $1,707,000 for the
three months ended March 31, 1999 as compared to an operating loss of
$4,228,000 for the same period in 1998. The reduction in operating losses of
$2,521,000, or 60%, is mainly attributed to the restructuring efforts
implemented during 1998 and the economies of scale achieved with the
acquisition of certain Columbia/HCA home health care agencies.
(Benefit) for Estimated Income Taxes. For the three month period ending
March 31, 1998, the Company established a deferred tax asset by recording an
estimated net income tax benefit of $1,292,000. This figure is comprised of a
$1,495,000 income tax benefit reflected in the accompanying consolidated
statement of operations as a benefit for income taxes, offset by a $203,000
income tax expense reflected in the accompanying consolidated statements of
operations as a component of income from discontinued operations. In December,
1998, a valuation allowance was recorded against this deferred tax asset,
effectively writing-off the deferred tax asset due to the significant losses
incurred by the Company for the year ended December 31, 1998. Due to the
continued losses for the three month period ending March 31, 1999, the Company
has not recorded an estimated income tax benefit.
Discontinued Operations. In September, 1998, the Company sold its Staffing
division and reflected this sale as a discontinued operation in the
accompanying consolidated statements of operations. Net revenues for the
Staffing division were $4,568,000 for the three months ended March 31, 1998 and
net income from discontinued operations, net of income tax of $203,000, was
$394,000 for the three months ended March 31, 1998.
Net (Loss). As a result of the reasons described above, the Company had a
net loss of $2,498,000 for the three months ended March 31, 1999 compared with
a net loss of $2,521,000 for the three months ended March 31, 1998. The company
expects the quarterly losses to decrease throughout 1999 as the full benefit of
the restructuring efforts are realized.
FINANCIAL CONDITION
The Company's principal capital requirements are for additional working
capital to fund current cash requirements of the Company. The Company recorded
a net loss for both the year-ended December 31, 1998 and the three months ended
March 31, 1999 and had negative cash flow from operations. The negative cash
flow from operations is largely attributable to the changes in Medicare
reimbursement which were effective January 1, 1998 for the Company. The Company
has undertaken a significant restructuring effort to reduce operating costs but
expects to record losses for the remainder of 1999. The operating losses and
negative cash flow from operations has impacted the availability of the
Company's current financing sources and has
10
decreased the Company's overall liquidity position. The Company expects the
negative cash flow from operations to continue on a short-term basis and is
currently evaluating alternative strategies to secure the needed capital until
such time that a positive cash flow from operations is generated.
Notes payable consist primarily of a $25 million asset-based line of credit,
a one-year $14 million note payable to Columbia/HCA, and borrowings under
revolving bank lines of credit of $2,500,000 and $750,000. The $25 million
asset-based line of credit is collateralized by eligible accounts receivable of
the Home Health Care Nursing division. Eligible receivables are defined as
receivables, exclusive of workers' compensation and self-pay, that are aged
less than 181 days. The ongoing fees associated with this line of credit equate
to 1% of eligible billed receivables generated during each billing period. The
$14 million note payable to Columbia/HCA is a result of the acquisition
consummated in November 1998 and is payable in December, 1999. Management of
the Company and representatives from Columbia/HCA are currently in negotiations
to restructure the repayment terms of this note payable. In the event that an
agreement can not be reached, the Company does not expect to have the cash flow
to fund the obligation when due, which raises substantial doubt about the
Company's ability to continue as a going concern. The revolving bank lines of
credit of $2,500,000 and $750,000 bear interest at bank prime plus 1.5% and
bank prime plus 1%, respectively. At March 31, 1999, approximately $656,000 was
available under the combined bank lines of credit. These 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. Subsequent to March 31, 1999, the $2,500,000 line of credit
was decreased to $2,000,000, with scheduled step-downs in availability until
the expiration on July 31, 1999.
The $2,500,000 bank 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, 1998 and March 31, 1999, 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
March 31, 1999.
The Company's operating activities used $7,901,000 during the first three
months of 1999, whereas such activities used $350,000 in cash during the first
three months of 1998. This increase in cash used in operating activities is
primarily attributable to an increase in accounts receivable as a result of the
acquisition of certain home health agencies of Columbia/HCA. The Company's
investing activities provided $74,000 for the three months ended March 31,
1999, whereas investing activities used $2,713,000 for the three months ending
March 31, 1998. Cash used in acquisitions decreased $1,905,000 in addition to a
decrease in purchases of furniture, fixtures and equipment of $716,000 for the
three months ended March 31, 1999 as compared to the same period in 1998. Net
cash provided by financing activities increased to $10,023,000 from $253,000
for the three months ending March 31, 1999 and 1998, respectively. This
increase is due to the net increase in borrowings on the lines of credit of
$12,858,000 resulting from increased expenditures related to the acquired home
health care agencies of Columbia/HCA, offset by a decrease in proceeds from
preferred stock of $3,253,000.
At March 31, 1999, the Company had negative working capital of $33,212,000
and a stockholder's equity deficit of $14,037,000.
YEAR 2000 COMPLIANCE ISSUES
The Company continues to evaluate its entire operation in preparation for
potential problems associated with Year 2000 (Y2K). A task force was
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. In preparation for Y2K, the Company has replaced, or is in the
process of replacing, all of its mission critical computer systems that are not
Y2K compliant. The general accounting system was replaced and has been in use
since October, 1998. The
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Company's home health care nursing, outpatient surgery center, and infusion
division software systems are Y2K compliant. 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 is being developed as
each area is evaluated to minimize any negative impact to the Company. In the
event that any of the Company's significant payors, suppliers, or customers do
not successfully and in a timely manner achieve Year 2000 compliance, the
Company's business and/or operations could be adversely affected.
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 risks 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. These 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
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
At March 31, 1999, the Company was in default on the $2,500,000 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 in these periods. This default was waived by the bank through
March 31, 1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
On April 1, 1999, Mitchel G. Morel resigned from the Company. Mr. Morel
served as Chief Financial Officer of the Company from June, 1994 to March,
1999.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Page
No. Identification of Exhibit Number
------- ------------------------- ------
3.1(ii) --Certificate of Incorporation --
3.2(ii) --Bylaws --
10.1(i) --Stock Purchase Agreement by and among Ace Drug Medical
Corporation and Amedisys Durable Medical Equipment, Inc.
d/b/a Care Medical and Mobility and Amedisys, Inc. 15
27.1(i) --Financial Data Schedule 36
- --------
(i) Filed herewith.
(ii) Previously filed as an exhibit to the Annual Report on Form 10-KSB for the
year ended December 31, 1994 which is incorporated herein by reference.
(b) Report on Form 8-K
No reports on Form 8-K were filed during the first quarter of 1999.
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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.
/s/ Larry R. Graham
By: _________________________________
Larry R. Graham
Principal Financial and Accounting
Officer
and duly authorized officer
DATE: May 17, 1999
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