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 June 30, 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
AMEDISYS, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 11-3131700
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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)
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 June 30, 1999: 3,116,692
shares
1
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998............................................ 3
Consolidated Statements of Operations for the Three and Six Months ended June 30, 1999 and 1998.................. 4
Consolidated Statements of Cash Flows for the Six Months ended June 30, 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
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS..................................................... 12
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.............................................................. 13
ITEM 5. OTHER INFORMATION................................................................................................ 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................................. 13
2
Amedisys, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
as of June 30, 1999 and December 31, 1998
(Unaudited, in 000's)
ASSETS June 30, 1999 December 31, 1998
Current Assets:
Cash $60 $572
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $2,607,000 in June 1999 and
$3,095,000 in December 1998 20,989 7,456
Prepaid Expenses 778 604
Inventory 1,442 1,440
Other Current Assets 480 263
-------------------------- --------------------
Total Current Assets 23,749 10,335
Notes Receivable from Related Parties 0 89
Property, Plant and Equipment, Net 7,497 8,574
Other Assets, Net 25,165 25,430
-------------------------- --------------------
Total Assets $56,411 $44,428
========================== ====================
LIABILITIES
Current Liabilities:
Notes Payable $34,862 $18,979
Current Portion of Long-Term Debt 3,141 3,141
Deferred Revenue 2,119 2,119
Accounts Payable 8,088 7,295
Accrued Expenses:
Payroll and Payroll Taxes 4,118 5,257
Insurance 0 368
Other 6,105 4,456
-------------------------- --------------------
Total Current Liabilities 58,432 41,615
Long-Term Debt 5,477 5,447
Deferred Revenue 7,062 8,121
Other Long-Term Liabilities 826 826
-------------------------- --------------------
Total Liabilities 71,796 56,009
-------------------------- --------------------
Minority Interest 107 103
-------------------------- --------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock 3 3
Preferred Stock (750,000 shares) 1 1
Additional paid-in capital 12,152 12,005
Treasury Stock (4,667 shares) (25) (25)
Stock Subscriptions Receivable 0 0
Retained Earnings (Deficit) (27,623) (23,668)
-------------------------- --------------------
Total Stockholders' Equity (deficit) (15,492) (11,684)
-------------------------- --------------------
Total Liabilities and Stockholders' Equity $56,411 $44,428
========================== ====================
See accompanying notes to financial statements.
Amedisys, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and six months ended June 30, 1999 and 1998
(Unaudited, in 000's)
3 Months Ended 6 Months Ended
----------------------------------- -----------------------------------
1999 1998 1999 1998
(Restated) (Restated)
Income:
Service revenue $ 28,758 $ 7,539 $ 57,762 $ 15,681
Cost of service revenue 13,103 3,753 27,392 8,308
---------- ------------- ---------- -------------
Gross margin 15,655 3,786 30,370 7,373
General and administrative expenses:
Salaries and benefits 8,775 3,605 17,674 8,306
Other 8,163 3,388 15,682 6,516
---------- ------------- ---------- -------------
Total general and administrative expenses 16,938 6,993 33,356 14,822
---------- ------------- ---------- -------------
Operating (loss) (1,283) (3,207) (2,986) (7,449)
---------- ------------- ---------- -------------
Other income and expense:
Interest income 21 9 38 21
Interest expense (567) (214) (1,147) (415)
Other income, net 385 16 146 23
---------- ------------- ---------- -------------
Total other income and expenses (161) (189) (963) (371)
---------- ------------- ---------- -------------
(Loss) before income taxes and minority interest,
and discontinued operations (1,444) (3,396) (3,949) (7,820)
(Benefit) for estimated income taxes 0 (1,159) 0 (2,659)
---------- ------------- ---------- -------------
(Loss) before minority interest and
discontinued operations (1,444) (2,237) (3,949) (5,161)
Minority interest in consolidated subsidiary (11) 0 (4) 0
---------- ------------- ---------- -------------
(Loss) before discontinued operations (1,455) (2,237) (3,953) (5,161)
Discontinued operations:
Income from discontinued operations, net of
income tax 0 334 0 737
---------- ------------- ---------- -------------
Total discontinued operations 0 334 0 737
---------- ------------- ---------- -------------
Net (Loss) $ (1,455) $ (1,903) $ (3,953) $ (4,424)
========== ============= ========== =============
Weighted average common shares outstanding 3,117 3,064 3,075 3,057
Basic earnings (loss) per common share:
Net (loss) before discontinued operations $ (0.47) $ (0.73) $ (1.29) $ (1.69)
Income from discontinued operations, net of
income tax 0 0.11 0 0.24
---------- ------------- ---------- -------------
Net (loss) $ (0.47) $ (0.62) $ (1.29) $ (1.45)
========== ============= ========== =============
See accompanying notes to financial statements.
Amedisys, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1999 and 1998
(Unaudited, in 000s)
Six months ended
---------------------------------------------------------
June 99 June 98
Cash Flows from operating activities:
Net (Loss) ($3,953) ($4,424)
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 1,537 870
Provision for bad debts 919 415
Minority interest in affiliated company 4 0
(Gain) loss on sale of company assets (342) 4
Loss on disposal of durable medical equipment company 249 0
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (15,496) 2,919
(Increase) in prepaid expenses (180) (644)
(Increase) in other current assets (417) (3,217)
(Increase) in other assets (74) (198)
Increase in accounts payable 1,914 170
Increase (decrease) in accrued expenses (940) 485
Decrease in deferred revenue (1,059) 0
---------------------------- ------------------------
Net cash (used in) operating activities (17,838) (3,620)
---------------------------- ------------------------
Cash flow from investing activities:
Purchase of furniture, fixtures & equipment (176) (1,625)
Proceeds from sale of furniture, fixtures & equipment 24 0
Proceeds from sale of company assets 357 0
Cash paid for acquisitions 0 (2,005)
Proceeds from sale of durable medical equipment company 100 0
Decrease in notes receivable from related parties 89 28
---------------------------- ------------------------
Net cash provided by (used in) investing activities 394 (3,602)
---------------------------- ------------------------
Cash flow from financing activities:
Cash received in acquisitions 0 317
Net increase in borrowings on line of credit 17,145 284
Payments on notes payable (513) (704)
Proceeds from notes payable 300 473
Proceeds from preferred stock 0 3,253
---------------------------- ------------------------
Net cash provided by financing activities 16,932 3,623
---------------------------- ------------------------
Net (decrease) in cash and cash equivalents (513) (3,599)
Cash and cash equivalents, beginning of period 572 4,070
---------------------------- ------------------------
Cash and cash equivalents, end of period $60 $471
============================ ========================
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $259 $426
============================ ========================
Income taxes $0 $151
============================ ========================
Supplemental schedule of non-cash investing activity (See
note 9 to financial statements):
Value of stock issued in exchange $894
Value of note payable issued in exchange 1,575
Cash acquired in exchange (317)
Working capital acquired net of cash and cash equivalents 3,553
Fair value of property, plant and equipment acquired (385)
Fair value of other assets acquired (27)
Long term debt assumed 3,069
Fair value of other liabilities assumed 54
------------------------
Non cash portion of acquisitions 8,416
Cash payment for acquisitions 2,005
========================
Goodwill recorded in exchange $10,421
========================
See accompanying notes to financial statements.
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 69 offices within a network of subsidiaries in
the south and southeastern United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company experienced significant
losses from operations thus far in 1999, as well as in 1998 and 1997 and has a
deficit in stockholders' equity of $15,492,000 at June 30, 1999. In addition, at
June 30, 1999, the Company has $38,003,000 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.
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 June 30, 1999 and the result of operations for the three and six months and
cash flows for the six months ended June 30, 1999 and 1998. The results of
operations for the interim periods are not necessarily indicative of 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 period. Diluted net income (loss) per
share is not presented as stock options and convertible securities outstanding
(total 3,581,934 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, 2000 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 approximately 80% 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
6
costs, (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 is being
continuously implemented in an overall effort to reduce costs and improve
efficiencies, while maintaining the same high-quality of patient care. Since
these cost reductions are on-going, the Company expects to report improved
operating results for the remainder of the year.
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. DISPOSITION
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. ACE acquired substantially all of the assets and liabilities of
ADME. This transaction was accounted for as a sale by the Company. The sales
price was $672,385 of which $100,000 was paid at closing; $418,318 is 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 is 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. In accordance with the payment terms of both notes, the
first and second quarterly payments due to the Company as of July 15, 1999
totaled $157,000. As of August 13, 1999, these payments have not been received
by the Company. As a result, the Company has fully reserved for these past due
payments. 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 Six months ended
------------------ ----------------
June 1998 June 1998
------------------ ----------------
Service Revenue $4,226 $8,794
Income from discontinued
operations before provision
for income taxes $ 506 $1,117
Income from discontinued
operations, net of income
taxes $ 334 $ 737
7
8. INCOME TAXES
For the three and six month periods ending June 30, 1998, the Company
established a deferred tax asset by recording an estimated net income tax
benefit of $987,000 and $2,279,000, respectively. These amounts are comprised of
a $1,159,000 and a $2,659,000 income tax benefit for the three and six month
period ending June 30, 1998 which are reflected in the accompanying consolidated
statement of operations as a benefit for income taxes. These benefits are offset
by a $172,000 and a $380,000 income tax expense for the three and six month
period ending June 30, 1998 which are 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 and six month periods ending June 30, 1999, the
Company has not recorded an estimated income tax benefit for these periods.
9. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITY
The following unaudited table presents (in 000's) a summary of the
acquisitions completed during the first quarter of 1998 and a detail of the
acquisitions completed during the second quarter of 1998 as presented in the
supplemental schedule to the consolidated cash flow statement. No acquisitions
were completed during the first and second quarters of 1999.
Precision Quality Home
1/st/ Quarter Home Home Health of
1998 Health, Health, Alexandria
Total Inc. Inc. Inc. Total
------------- --------- ------- ---------- --------
Supplemental schedule of non-cash investing activity:
Value of stock issued in exchange $ 874 $ 0 $ 20 $ 0 $ 894
Value of note payable issued in exchange 375 1,200 0 0 1,575
Cash acquired in exchange (123) (0) (132) (62) (317)
Working capital deficit acquired net of cash and cash
equivalents 3,272 0 306 (25) 3,553
Fair value of property, plant and equipment acquired (279) (102) 3 1 (385)
Fair value of other assets acquired (26) (0) 1 0 (27)
Long term debt assumed 2,998 0 2 69 3,069
Fair value of other liabilities assumed 54 0 0 0 54
------ ------ ----- ---- -------
Non cash portion of acquisitions 7,146 1,098 192 (20) 8,416
Cash payment for acquisition 1,905 0 80 20 2,005
------ ------ ----- ---- -------
Goodwill recorded in exchange $9,051 $1,098 $ 272 $ 0 $10,421
------ ------ ----- ---- -------
10. NOTES PAYABLE
Notes payable consist primarily of a $25 million asset-based line of
credit, a $14 million note payable to Columbia/HCA due in December, 1999, a $6.6
million unsecured liability payable to Columbia/HCA, and borrowings under
revolving bank lines of credit of $1,500,000 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. This line
of credit expires on December 31, 2001. The $14 million note payable to
Columbia/HCA is a result of the acquisition consummated in November 1998. The
$6.6 million unsecured net liability payable to Columbia/HCA resulted from
Periodic Interim Payments ("PIP") directed to Columbia/HCA and subsequently
forwarded to the Company which have been determined by the fiscal intermediary
as funds belonging to Columbia/HCA. The revolving bank lines of credit of
$1,500,000 and $750,000 bear interest at bank prime plus 1.5% and bank prime
plus 1%, respectively. At August 13, 1999, approximately $900,000 was available
under the combined bank lines of credit (see further discussion below). 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 June 30, 1999,
8
the $1,500,000 line of credit was decreased to $900,000, with scheduled step-
downs in availability until the expiration of the line on the earlier of
December 1, 1999 or the sale of all or a portion of one of the Company's
operating units. The $750,000 line of credit has scheduled principal payments
until the expiration of the line on December 1, 1999.
The $1,500,000 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 June 30, 1999, the Company was not in
compliance with 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 the quarterly reporting period ending June 30, 1999.
11. AMOUNTS DUE TO AND DUE FROM MEDICARE
The Company is continuing to reconcile the amounts due to and due from the
Medicare program for the first and second quarters 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 being
evaluated as received. Based on the information currently available to the
Company, the Company has a total estimated aggregate payable due to Medicare of
$8 million which is netted against accounts receivable. For the cost report
years ending November 30 and December 31, 1999, the Company has estimated a net
cost report payable of $3.7 million for which twelve month repayment plans have
been negotiated with Medicare. 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 $4.3 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.
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:
home health nursing services; infusion therapy; and ambulatory surgery centers.
The Company operates 69 offices within a network of subsidiaries in the south
and southeastern United States.
9
RESULTS OF OPERATIONS
Revenues. Net revenues increased $21,219,000 or 281% and $42,081,000 or
268% for the three and six months ended June 30, 1999, respectively, as compared
to the same periods in 1998. The Home Health Care Nursing division's net
revenues increased $20,637,000 or 515% for the three month period ended June 30,
1999 and $40,620,000 or 447% for the six month period ended June 30, 1999.
This increase was attributed to the acquisition of certain Columbia/HCA home
health care agencies in the latter part of 1998. Visits for the three month
period ended June 30 increased 245,171 or 359% from 68,204 in 1998 to 313,375 in
1999. For the six month period ended June 30, visits increased 477,926 or 285%
from 167,642 in 1998 to 645,568 in 1999. Infusion therapy revenues increased
$1,364,000 or 54% for the six month period ended June 30, 1999.
Cost of Revenues. Cost of revenues increased by 249% and 230% for the three
and six months ended June 30, 1999 as compared to the same periods in 1998. This
increase is primarily attributed to the acquisition of certain Columbia/HCA home
health care agencies. As a percentage of net revenues, cost of revenues
decreased to 46% from 50% for the three months ended June 30, 1999 and 1998,
respectively, and to 47% from 53% for the six months ended June 30, 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 142% and 125% for the three and six months ended June 30,
1999 as compared to the same periods in 1998. This increase is 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 59% from 93% for the three months ended June 30, 1999 and 1998, respectively,
and to 58% from 95% for the six months ended June 30, 1999 and 1998,
respectively. 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 $1,283,000 for
the three months ended June 30, 1999 as compared to an operating loss of
$3,207,000 for the same period in 1998 and an operating loss of $2,986,000 for
the six months ended June 30, 1999 as compared to an operating loss of
$7,449,000 for the same period in 1998. The reduction in operating losses of
$1,924,000 or 60% for the three month period ended June 30, 1999 and of
$4,463,000 or 60% for the six month period ended June 30, 1999 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 and six month periods
ending June 30, 1998, the Company established a deferred tax asset by recording
an estimated net income tax benefit of $987,000 and $2,279,000, respectively.
These amounts are comprised of a $1,159,000 and a $2,659,000 income tax benefit
for the three and six month period ending June 30, 1998 which are reflected in
the accompanying consolidated statement of operations as a benefit for income
taxes. These benefits are offset by a $172,000 and a $380,000 income tax expense
for the three and six month period ending June 30, 1998 which are 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 and six month
periods ending June 30, 1999, the Company has not recorded an estimated income
tax benefit for these periods.
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 $4,226,000 and $8,794,000 for the three and six months ended June 30, 1998
and net income from discontinued operations, net of income tax of $172,000 and
$380,000, was $334,000 and $737,000 for the three and six months ended June 30,
1998, respectively.
10
Net (Loss). As a result of the reasons described above, the Company had a
net loss of $1,455,000 and $3,953,000 for the three and six months ended June
30, 1999, respectively, compared with a net loss of $1,903,000 and $4,424,000
for the three and six months ended June 30, 1998, respectively. 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 the year-ended December 31, 1998 and the three and six months
ended June 30, 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 have impacted the availability of the
Company's current financing sources and have 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 $14 million note payable to Columbia/HCA due in December 1999, a $6.6
million unsecured liability payable to Columbia/HCA, and borrowings under
revolving bank lines of credit of $1,500,000 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. This line
of credit expires on December 31, 2001. The $14 million note payable to
Columbia/HCA is a result of the acquisition consummated in November 1998.
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 $6.6 million
unsecured liability payable to Columbia/HCA resulted from Periodic Interim
Payments ("PIP") directed to Columbia/HCA and subsequently forwarded to the
Company which have been determined by the fiscal intermediary as funds belonging
to Columbia/HCA. Management of the company and representatives from Columbia/HCA
are currently in negotiations as to when this payment is due. The revolving bank
lines of credit of $1,500,000 and $750,000 bear interest at bank prime plus 1.5%
and bank prime plus 1%, respectively. At August 13, 1999, approximately $900,000
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 June 30, 1999, the $1,500,000 line of credit was
decreased to $900,000, with scheduled step-downs in availability until the
expiration of the line on the earlier of December 1, 1999 or the sale of all or
a portion of one of the Company's operating units. The $750,000 line of credit
has scheduled payments until the expiration of the line on December 1, 1999.
The $1,500,000 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 June 30, 1999, the Company was not in
compliance with 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 the quarterly reporting period ending June 30, 1999.
The Company's operating activities used $17,838,000 during the first six
months of 1999, whereas such activities used $3,620,000 in cash during the first
six 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 $394,000 for the six months ended June 30, 1999,
whereas investing activities used $3,602,000 for the six months ending June 30,
1998. Cash used in acquisitions decreased due to a decrease in purchases of
furniture, fixtures and equipment of $1,449,000 and a decrease in cash paid for
acquisitions of $2,005,000 for the six months ended June 30, 1999 as compared to
the same period in 1998. Net cash provided by financing activities increased to
$16,932,000 from $3,623,000 for the six months ending June 30, 1999 and 1998,
respectively. This increase is due to the net increase in borrowings on the
lines of credit of $16,861,000 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 June 30, 1999, the Company had negative working capital of $34,683,000
and a stockholder's equity deficit of $15,492,000.
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YEAR 2000 COMPLIANCE ISSUES
The Company continues to evaluate its entire operation in preparation for
potential problems associated with Year 2000 ("Y2K"). 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. Management believes that the 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company does not engage in derivative financial instruments, other
financial instruments, or derivative commodity instruments for speculative or
trading/non-trading purposes.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
Effective February 16, 1999, the terms of conversion of the Company's
Series A Preferred Stock were amended through Preferred Stock Conversion
Agreements. These agreements reduced the conversion rate for the Series A
Preferred Stock to $3.00 per common share. Prior to the agreements, the
conversion rate at June 30, 1999 was $4.2525 which would convert into 1,763,668
shares of common stock. Under the new agreements, the preferred shares would
convert into 2,500,000 common shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At June 30, 1999, the Company was not in compliance with the debt service
coverage ratio requirement on the $1,500,000 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 not in compliance with 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 the June 30, 1999
quarterly reporting period.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual shareholders meeting of the Company was held on June 24, 1999
with the following two items 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 with the following votes:
Director Votes in Favor Votes Against Votes Abstained
-------- -------------- ------------- ---------------
Mr. Borne 2,510,157 0 167,939
Mr. LaBorde 2,500,531 0 177,564
Mr. Netterville 2,500,532 0 177,564
Mr. Pitts 2,500,593 0 177,503
Mr. Ricchiuti 2,500,532 0 177,564
Item 2. 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 2,675,046 votes in favor, 3,050 votes against, and no votes abstained.
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.
On May 10, the Company increased the matching of employee 401(k) Plan
contributions with Company common stock to $.50 for every $1.00 of employee
contributions from $.25 for every $1.00 up to a maximum level of 6% of the
employee's total contribution for 1999.
The Company issued a total of 756,772 common stock options to directors,
officers, and key employees. The exercise prices range from $3.00 to $7.00 and
the options vest intermittently through December 10, 2000. The number of options
issued to directors and officers are as follows:
Director/Officer Number of Shares
---------------- ----------------
William F. Borne 89,530
Ronald A. LaBorde 12,305
Jake L. Netterville 12,305
David R. Pitts 12,305
David F. Ricchiuti 12,305
Larry R. Graham 75,000
Michael Lutgring 17,000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Identification of Exhibit Page Number
3.1(ii) --- Certificate of Incorporation --
3.2(ii) --- Bylaws --
4.1(iii) --- Certificate of Designation for Series A
Preferred Stock --
4.2(iii) --- Specimen of Common Stock Certificate --
4.3(iii) --- Specimen of Preferred Stock Certificate --
4.4(iii) --- Form of Placement Agent's Warrant Certificate --
27.1(i) --- Financial Data Schedule 15
(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.
(iii) Previously filed as an exhibit to the Registration Statement on
Form S-3 dated March 1, 1998 which is incorporated herein by
reference.
(b) Report on Form 8-K
No reports on Form 8-K were filed during the second quarter of 1999.
13
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: August 16, 1999
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