- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 2000
Commission File Number 333-57191
EVEREST HEALTHCARE SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-4045521
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 North Scoville, Oak Park, Illinois 60302
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (708) 386-1000
(Additional registrants listed on Exhibit A to this cover page.)
Indicate by check mark whether the registrant (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 [_]
As of August 14, 2000 the number of shares outstanding of the Common Stock of
Everest Healthcare Services Corporation, par value $.001 per share, was
12,840,814.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT A TO COVER PAGE -- ADDITIONAL REGISTRANTS
ACUTE EXTRACORPOREAL SERVICES, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 36-4265964
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CON-MED SUPPLY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-3147024
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CONTINENTAL HEALTH CARE, LTD.
(Exact name of registrant as specified in its charter)
Illinois 36-3084746
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
DIALYSIS SPECIALISTS OF TULSA, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1508212
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
DUPAGE DIALYSIS LTD.
(Exact name of registrant as specified in its charter)
Illinois 36-3029873
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST HEALTHCARE INDIANA, INC.
(Exact name of registrant as specified in its charter)
Indiana 36-3575844
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST HEALTHCARE OHIO, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1418495
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST HEALTHCARE TEXAS HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 36-4321504
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST HEALTHCARE TEXAS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-4321507
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4338092
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST NEW YORK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
New York 36-4276708
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST ONE IPA, INC.
(Exact name of registrant as specified in its charter)
New York 13-3988854
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST THREE IPA, INC.
(Exact name of registrant as specified in its charter)
New York 36-4276711
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
EVEREST TWO IPA, INC.
(Exact name of registrant as specified in its charter)
New York 36-4276710
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HOME DIALYSIS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0711476
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
MERCY DIALYSIS CENTER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1589773
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NEW YORK DIALYSIS MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
New York 36-3702390
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NORTH BUCKNER DIALYSIS CENTER, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4206319
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
NORTHERN NEW JERSEY DIALYSIS, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 36-4291598
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
WSKC DIALYSIS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-2668594
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 North Scoville, Oak Park, Illinois 60302
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (708) 386-1000
PART I--FINANCIAL INFORMATION
Page No.
--------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
September 30, 1999 and June 30, 2000 (unaudited)................. 2
Consolidated Statements of Operations--(unaudited)
For the three months and nine months ended June 30, 1999 and
2000............................................................. 3
Consolidated Statements of Cash Flows--(unaudited)
For the nine months ended June 30, 1999 and 2000................. 4
Notes to Consolidated Financial Statements--(unaudited)............. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 14
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................. 15
Item 2. Changes in Securities and Use of Proceeds..................... 15
Item 3. Defaults Upon Senior Securities............................... 15
Item 4. Submission of Matters to a Vote of Security Holders........... 15
Item 5. Other Information............................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................. 15
1
- --------------------------------------------------------------------------------
PART I--FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
EVEREST HEALTHCARE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
September 30, June 30,
1999 2000
------------- -----------
(unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents.......................... $ 3,381 $ 3,835
Patient accounts receivable, less allowance of
$11,119 and $9,807................................ 47,411 51,638
Refundable income taxes............................ 3,008 3,603
Other receivables.................................. 3,006 2,569
Medical supplies inventories....................... 3,542 4,324
Deferred income taxes.............................. 5,150 5,150
Prepaid expenses and other......................... 311 350
-------- --------
Total current assets............................. 65,809 71,469
Property and equipment, net.......................... 31,665 36,968
Goodwill, net........................................ 73,448 77,637
Deferred financing costs, net........................ 6,563 6,014
Other intangible assets, net......................... 2,671 3,110
Investments in and advances to affiliated companies.. 8,902 6,973
Deferred income taxes................................ 5,998 5,998
Other assets......................................... 1,217 1,201
-------- --------
$196,273 $209,370
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable................................... $ 12,824 $ 17,172
Accrued liabilities................................ 17,206 16,605
Current portion of long-term debt.................. 801 1,508
Current portion of capital lease obligations....... 367 153
-------- --------
Total current liabilities........................ 31,198 35,438
Long-term debt, less current portion ................ 121,653 129,646
Capital lease obligations, less current portion...... 402 284
Minority interests................................... 1,735 2,032
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 shares
authorized; 12,840,814 shares issued and
outstanding....................................... 13 13
Additional paid-in capital......................... 55,171 54,529
Accumulated deficit................................ (13,899) (12,572)
-------- --------
Total stockholders' equity....................... 41,285 41,970
-------- --------
$196,273 $209,370
======== ========
See notes to consolidated financial statements.
2
EVEREST HEALTHCARE SERVICES CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Nine Months Ended
Ended June 30, June 30,
---------------- ------------------
1999 2000 1999 2000
------- ------- -------- --------
Net revenues............................. $49,228 $59,049 $132,852 $169,362
Operating expenses:
Patient care costs..................... 33,874 42,432 92,327 122,046
General and administrative............. 7,027 7,223 18,454 19,895
Provision for bad debts................ 1,109 1,488 3,233 4,752
Depreciation and amortization.......... 2,601 3,121 7,543 8,935
------- ------- -------- --------
Total operating expenses............. 44,611 54,264 121,557 155,628
------- ------- -------- --------
Income from operations................... 4,617 4,785 11,295 13,734
Nonoperating income (expense):
Interest expense....................... (3,564) (3,554) (9,372) (10,829)
Interest income........................ 142 309 1,018 741
Equity in earnings of affiliates....... (74) 129 590 288
Minority interests in earnings......... (137) (316) (660) (664)
------- ------- -------- --------
(3,633) (3,432) (8,424) (10,464)
------- ------- -------- --------
Income before income taxes............... 984 1,353 2,871 3,270
Income tax expense....................... 640 802 1,866 1,943
------- ------- -------- --------
Net income............................... $ 344 $ 551 $ 1,005 $ 1,327
======= ======= ======== ========
See notes to consolidated financial statements.
3
EVEREST HEALTHCARE SERVICES CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
June 30,
------------------
1999 2000
-------- --------
Operating activities
Net income................................................ $ 1,005 $ 1,327
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for bad debts................................. 3,233 4,752
Depreciation and amortization........................... 7,543 8,935
Equity in earnings of affiliates........................ (590) (288)
Minority interests in earnings.......................... 660 664
Changes in operating assets and liabilities (net of
effect of acquisitions):
Patient accounts and other receivable................. (10,509) (9,137)
Other assets.......................................... 670 402
Accounts payable, accruals, and other liabilities..... 775 3,560
-------- --------
Net cash provided by operating activities........... 2,787 10,215
Investing activities
Capital expenditures...................................... (4,540) (8,415)
Acquisition of businesses, net of cash acquired........... (24,371) (7,599)
Decrease in amounts due from affiliates................... 4,270 1,719
-------- --------
Net cash used in investing activities..................... (24,641) (14,295)
Financing activities
Proceeds from long-term debt.............................. 47,316 50,152
Payments on long-term debt................................ (34,036) (44,059)
Payments on capital lease obligations..................... (415) (391)
Deferred financing costs.................................. (903) (525)
Issuance of common stock.................................. -- 207
Repurchase of common stock................................ -- (850)
-------- --------
Net cash provided by financing activities................. 11,962 4,534
Increase (decrease) in cash and cash equivalents.......... (9,892) 454
Cash and cash equivalents, beginning of period............ 12,526 3,381
-------- --------
Cash and cash equivalents, end of period.................. $ 2,634 $ 3,835
======== ========
See notes to consolidated financial statements.
4
EVEREST HEALTHCARE SERVICES CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. Interim Consolidated Financial Statements
The financial information at June 30, 2000 and for the three months and nine
months ended June 30, 1999 and 2000 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such date and
the results of operations and cash flows for those periods. Results of
operations for the nine months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the entire year.
The unaudited interim consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and reporting
practices. Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission; however, the Company believes the
disclosures are adequate to make the information not misleading. The unaudited
interim consolidated financial statements contained herein should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Form 10-K as filed with the Securities and
Exchange Commission on December 29, 1999.
2. New Accounting Standards
Effective October 1, 1999, the Company adopted SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The
provisions of SOP 98-1 establish guidance on accounting for the costs incurred
related to internal use software. The provisions of SOP 98-1 specifically
address the accounting for the costs related to designing, developing,
obtaining and modifying and/or implementing internal use software. SOP 98-1
requires that companies capitalize qualifying costs incurred during the
application development stage. All other costs incurred in connection with an
internal use software project are to be expensed as incurred. Application of
the provisions of SOP 98-1 is required for fiscal year 2000. The adoption of
SOP 98-1 did not have a material impact on the Company's results of operations.
3. Reclassifications
Certain reclassifications have been made to the prior period's financial
statements to conform to the 2000 presentation.
5
4. Reportable Segments
The Company has two reportable segments: Dialysis Services and Contract
Services. The Company's Dialysis Services segment consists of 73 outpatient
dialysis treatment centers which primarily provide outpatient chronic dialysis
treatments and 29 contracts with hospitals providing acute dialysis services.
The Company's Contract Services segment provides perfusion, aphersis, and
autotransfusion procedures in 80 hospitals.
The Company evaluates performance and allocates resources based upon profit
or loss before income taxes and extraordinary items. The Company's reportable
segments are independent operating divisions that are managed separately. All
intercompany costs are eliminated.
Contract
Dialysis Services Total
-------- -------- --------
For the nine months ended June 30, 2000:
Revenues............................................ $152,095 $17,267 $169,362
Segment profit...................................... 15,624 298 15,922
For the nine months ended June 30, 1999:
Revenues............................................ 117,327 15,525 132,852
Segment profit...................................... 13,946 1,004 14,950
A reconciliation of the reportable segments to consolidated income before
income taxes is as follows:
1999 2000
------- -------
Profit:
Total profit for reportable segments.......................... $14,950 $15,922
Unallocated amounts:
Elimination of corporate administrative expense............... 11,509 11,891
Interest expense.............................................. (8,273) (9,876)
Depreciation and amortization................................. (1,520) (1,347)
Interest income............................................... 824 647
Corporate expenses............................................ (14,619) (13,967)
------- -------
Income before income taxes................................ $ 2,871 $ 3,270
======= =======
5. Other Financial Information
The Company is a holding company with no independent assets or operations.
Therefore, the Company relies primarily upon payment from its subsidiaries for
the funds necessary to meet its obligations, including the payment of interest.
The ability of the subsidiaries to fund the obligations is subject to
significant restrictions, will be dependent upon the earnings of the
subsidiaries, and will be subject to applicable laws and approval by the
subsidiaries. Full separate statements of the Guarantor Subsidiaries have not
been presented as the guarantors are wholly owned subsidiaries of the Company.
Management does not believe that inclusion of such financial statements would
be material to investors. The guarantees of the Guarantor Subsidiaries are
full, unconditional, and joint and several.
6
The following table sets forth the financial data at June 30, 2000 and for
the nine months then ended:
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
Balance Sheet Data:
Assets:
Cash and cash
equivalents......... $ 934 $ 648 $ 2,253 $ -- $ 3,835
Patient accounts
receivable and
other............... 12,583 37,789 7,438 -- 57,810
Other current
assets.............. 4,963 2,963 1,898 -- 9,824
Property and
equipment, net...... 5,228 29,056 2,684 -- 36,968
Goodwill, net........ 12,181 51,011 14,445 -- 77,637
Investment in and
advances to
affliated
companies........... 59,610 25,934 (312) (78,259) 6,973
Other assets......... 12,694 3,584 45 -- 16,323
-------- -------- ------- -------- --------
Total assets......... $108,193 $150,985 $28,451 $(78,259) $209,370
======== ======== ======= ======== ========
Liabilities and
Stockholders' Equity:
Current liabilities.. $ 6,138 $ 22,609 $ 6,691 $ -- $ 35,438
Long-term
liabilities......... 121,145 2,211 8,606 -- 131,962
Total stockholders'
equity (deficit).... (19,090) 126,165 13,154 (78,259) 41,970
-------- -------- ------- -------- --------
Total liabilities and
stockholders'
equity.............. $108,193 $150,985 $28,451 $(78,259) $209,370
======== ======== ======= ======== ========
Statement of Operations
Data:
Net revenue............ $ -- $138,938 $30,424 $ -- $169,362
Patient care costs..... -- 97,558 24,488 -- 122,046
General and
administrative........ 13,968 5,058 869 -- 19,895
Provision for bad
debts................. -- 4,222 530 -- 4,752
Depreciation and
amortization.......... 1,347 6,396 1,192 -- 8,935
-------- -------- ------- -------- --------
Income (loss) from
operations............ (15,315) 25,704 3,345 -- 13,734
Interest expense,
net................... (9,230) (237) (621) -- (10,088)
Equity in earnings of
affiliates............ -- 288 -- -- 288
Minority interest in
earnings.............. (51) (576) (37) -- (664)
-------- -------- ------- -------- --------
Income (loss) before
income taxes.......... (24,596) 25,179 2,687 -- 3,270
Income tax (benefit)
expense............... (13,823) 14,982 784 -- 1,943
-------- -------- ------- -------- --------
Net income (loss)...... $(10,773) $ 10,197 $ 1,903 $ -- $ 1,327
======== ======== ======= ======== ========
Statement of Cash Flows
Data:
Operating Activities:
Net income (loss)...... $(10,773) $ 10,197 $ 1,903 $ -- $ 1,327
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Provision for bad
debts............... -- 4,222 530 -- 4,752
Depreciation and
amortization........ 1,347 6,396 1,192 -- 8,935
Equity in earnings of
affiliates.......... -- (288) -- -- (288)
Minority interest in
earnings............ 51 576 37 -- 664
Net change in
operating assets and
liabilities (net of
effect of
acquisitions)....... (10,258) 5,199 (116) -- (5,175)
-------- -------- ------- -------- --------
Net cash provided by
(used in) operating
activities.......... (19,633) 26,302 3,546 -- 10,215
Investing Activities:
Capital
expenditures........ (370) (7,931) (114) -- (8,415)
Acquisition of
businesses, net of
cash acquired....... -- (7,599) -- -- (7,599)
Increase (decrease)
in amounts due from
affiliates.......... 14,093 (8,589) (3,785) -- 1,719
-------- -------- ------- -------- --------
Net cash provided by
(used in) investing
activities.......... 13,723 (24,119) (3,899) -- (14,295)
Financing Activities:
Proceeds from long-
term debt........... 50,152 -- -- -- 50,152
Payments on long-term
debt................ (43,160) (1,290) -- -- (44,450)
Other................ (94) (1,074) -- -- (1,168)
-------- -------- ------- -------- --------
Net cash provided by
(used in) financing
activities.......... 6,898 (2,364) -- -- 4,534
Increase (decrease) in
cash and cash
equivalents........... 988 (181) (353) -- 454
Cash and cash
equivalents (deficit)
at beginning of
period................ (55) 828 2,608 -- 3,381
-------- -------- ------- -------- --------
Cash and cash
equivalents at end of
period................ $ 933 $ 647 $ 2,255 $ -- $ 3,835
======== ======== ======= ======== ========
7
The following table sets forth the financial data at June 30, 1999 and for
the nine months then ended:
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
Statement of Operations
Data:
Net revenues........... $ -- $108,018 $25,264 $(430) $132,852
Patient care costs..... -- 72,157 20,170 -- 92,327
General and
administrative........ 3,389 14,961 534 (430) 18,454
Provision for bad
debts................. -- 2,741 492 -- 3,233
Depreciation and
amortization.......... 1,520 4,970 1,053 -- 7,543
-------- -------- ------- ----- --------
Income (loss) from
operations............ (4,909) 13,189 3,015 -- 11,295
Interest expense, net.. (7,448) (105) (801) -- (8,354)
Equity in earnings of
affiliates............ -- 590 -- -- 590
Minority interest in
earnings.............. -- (523) (137) -- (660)
Other.................. -- (329) 329 -- --
-------- -------- ------- ----- --------
Income (loss) before
income taxes.......... (12,357) 12,822 2,406 -- 2,871
Income tax expense..... -- 1,528 338 -- 1,866
-------- -------- ------- ----- --------
Net income (loss)...... $(12,357) $ 11,294 $ 2,068 $ -- $ 1,005
======== ======== ======= ===== ========
Statement of Cash Flows
Data:
Operating Activities:
Net income (loss)...... $(12,357) $ 11,294 $ 2,068 $ -- $ 1,005
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Provision for bad
debts................ -- 2,741 492 -- 3,233
Depreciation and
amortization......... 1,520 4,970 1,053 -- 7,543
Equity in earnings of
affiliates........... -- (590) -- -- (590)
Minority interest in
earnings............. -- 797 (137) -- 660
Net change in
operating assets and
liabilities (net of
effect of
acquisitions)........ (16,023) 9,118 (2,159) -- (9,064)
-------- -------- ------- ----- --------
Net cash provided by
(used in) operating
activities........... (26,860) 28,330 1,317 -- 2,787
Investing Activities:
Capital expenditures... (275) (4,487) 222 -- (4,540)
Acquisition of
businesses, net of
cash acquired......... -- (24,371) -- -- (24,371)
Increase (decrease) in
amounts due from
affiliates............ 1,294 3,791 (815) -- 4,270
-------- -------- ------- ----- --------
Net cash provided by
(used in) investing
activities............ 1,019 (25,067) (593) -- (24,641)
Financing Activities:
Proceeds from long-term
debt.................. 47,316 -- -- -- 47,316
Payments on long-term
debt.................. (33,550) (486) -- -- (34,036)
Other.................. -- (1,318) -- -- (1,318)
-------- -------- ------- ----- --------
Net cash provided by
(used in) financing
activities............ 13,766 (1,804) -- -- 11,962
Increase (decrease) in
cash and cash
equivalents........... (12,075) 1,459 724 -- (9,892)
Cash and cash
equivalents at
beginning of period... 10,731 240 1,555 -- 12,526
-------- -------- ------- ----- --------
Cash and cash
equivalents (deficit)
at end of period...... $ (1,344) $ 1,699 $ 2,279 $ -- $ 2,634
======== ======== ======= ===== ========
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with the more
detailed information contained in the Consolidated Financial Statements and
notes thereto appearing elsewhere in this Report and in the Company's Report on
Form 10-K for the fiscal year ended September 30, 1999.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains certain "forward-looking statements" with respect to
results of operations and businesses of the Company. All statements other than
statements of historical facts included in this Report, including those
regarding market trends, the Company's financial position, business strategy,
projected costs, and plans and objectives of management for future operations,
are forward-looking statements. In general, such statements are identified by
the use of forward-looking words or phases including, but not limited to,
"intended," "will," "should," "may," "expects," "anticipates," and
"anticipated" or the negative thereof or variations thereon or similar
terminology. These forward-looking statements are based on the Company's
current expectations. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Because forward-
looking statements involve risks and uncertainties, the Company's actual
results could differ materially. See the "Risk Factors" section of the
Company's Registration Statement on Form S-4 (File No. 333-57191) for a
discussion of certain risks applicable to the Company and its business.
Overview
Everest Healthcare Services Corporation is a leading provider of dialysis and
other blood treatment services. Founded in 1968 and principally owned by
nephrologists, the Company has a long-standing focus on developing strong
relationships with physicians to provide high-quality patient care. Everest is
the nation's sixth-largest provider of chronic dialysis outpatient services and
serves approximately 6,700 patients through 72 facilities in 11 states. In
addition to its outpatient dialysis center operations, the Company provides
acute dialysis services through contractual relationships with 28 hospitals in
four states. Everest also contracts with 80 hospitals in 12 states to provide a
broad range of other extracorporeal (outside-the-body) blood treatment
services, including perfusion, apheresis and auto-transfusion ("Contract
Services"). Pursuant to management contracts, Everest provides management
services to (i) a physician practice group comprised of 30 nephrologists,
primarily in the Chicago and northwest Indiana areas, and (ii) certain
minority-owned or unaffiliated dialysis facilities. The Company derived 88.6%
of its net revenues for the nine months ended June 30, 2000 from chronic and
acute dialysis services, 10.2% from Contract Services and 1.2% from management
services.
Sources of Revenues
The Company's net revenues from chronic dialysis services are derived from:
(i) in-center dialysis and home dialysis services including drugs and supplies;
and (ii) acute dialysis services performed in hospitals. The majority of the
Company's in-center and home dialysis services are paid for under the Medicare
End-Stage Renal Disease ("ESRD") program in accordance with rates established
by the Health Care Financing Administration ("HCFA"). Additional payments are
provided by other third party payors (particularly by employer group health
plans during the first thirty months of treatment), generally at rates higher
than those reimbursed by Medicare. Everest is currently seeking to expand the
portion of its revenues attributable to non-government payors by entering into
contracts with managed care companies and other private payors. Because
dialysis is an ongoing, life-sustaining therapy used to treat a chronic
condition, utilization of the Company's chronic dialysis services is generally
predictable and not subject to seasonal or economic fluctuations. ESRD patients
may receive up to 156 dialysis treatments per year; however, due to
hospitalization and no shows the Company's average number of treatments per
patient per year is 140. Unless the patient moves to another dialysis facility,
receives a kidney transplant or dies, the revenues generated per patient per
year can be estimated with reasonable accuracy.
9
The Company's Contract Services revenues are derived from perfusion,
apheresis and auto-transfusion services provided to hospitalized patients
pursuant to contracts with hospitals. Rates paid for such services are
negotiated with individual hospitals. Because extracorporeal blood treatment
services are required for patients undergoing major surgical procedures,
utilization of the Company's Contract Services is not subject to seasonal or
economic fluctuations.
The Company's revenues also include fees paid under management services
contracts. Management service fee revenue is recognized when earned. Management
service fees are based on contracted rates. The contracted rates are estimates
based upon the cost of services provided such as billing, accounting, technical
support, cash management and facilities management.
Acquisitions
Acquisitions of dialysis and Contract Services providers have been recorded
under purchase accounting with the purchase price being principally allocated
to fixed assets, accounts receivable and inventory based on respective
estimated fair market values at the date of acquisition. Any excess of the
purchase price over the fair value of identifiable assets (including
identifiable intangible assets) is allocated to goodwill, which is amortized
over 25 years. The results of these acquisitions have been included in the
results of operations from their respective acquisition dates. The Company
regularly evaluates the potential acquisition of, and holds discussions with,
various potential acquisition candidates; as a general rule, the Company does
not intend to publicly announce such acquisitions until a definitive agreement
has been reached.
Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net Revenues. Net revenues increased $9.8 million or 19.9% to $59.0 million
for the three months ended June 30, 2000 from $49.2 million for the three
months ended June 30, 1999. This increase resulted primarily from a 15.5%
increase in the number of treatments to 206,672 for the three months ended June
30, 2000 from 178,933 for the three months ended June 30, 1999. This growth in
treatments is the result of acquisitions and development of various dialysis
facilities and a 2.1% increase in same store treatments for the three months
ended June 30, 2000 over the three months ended June 30, 1999. The average net
revenue per treatment increased from $243 for the three months ended June 30,
1999 to $254 for the three months ended June 30, 2000. The increase in net
revenue per treatment was due to a shift in the Company's payor mix and as a
result of an increase in the dosing levels of epogen administered to patients
during dialysis treatments to achieve industry and Company goals of hematocrit
levels.
Patient Care Costs. Patient care costs consist of those directly related to
the care of patients, including direct and indirect labor, drugs and other
medical supplies and operational costs of the facilities and other indirect
costs such as bio-med and staff education. Patient care costs increased $8.5
million or 25.1% to $42.4 million for the three months ended June 30, 2000 from
$33.9 million for the three months ended June 30, 1999. This change resulted
primarily from growth in the number of treatments performed during the period
that caused a corresponding increase in the use of labor, drugs and supplies.
Supply costs increased approximately $9 per treatment, $5 of which is
attributable to an increase in the dosing levels of epogen administered to
patients during dialysis treatments to achieve industry and Company goals of
hematocrit levels and $4 of which is attributable to normal healthcare
inflation.
General and Administrative Expenses. General and administrative expenses
include corporate office costs and other administrative costs including
accounting, billing, facility costs, treasury and information systems,
excluding depreciation and amortization amounts which are separately presented.
General and administrative expenses increased approximately $200,000 or 2.9% to
$7.2 million for the three months ended June 30, 2000 from $7.0 million for the
three months ended June 30, 1999. General and administrative expenses as a
percentage of revenue decreased from 14.2% for the three months ended June 30,
1999 to 12.2% for the three
10
months ended June 30, 2000. This decrease was due to the leveraging of
infrastructure costs as well as the increase in net revenues.
Provision for Bad Debts. The Company provides for bad debts in the same
period that revenue is recognized based on management's estimate of the
collectibility of the accounts receivable considering several factors such as
payor mix and billing practices. Provision for bad debts increased
approximately $400,000 or 36.4% to $1.5 million for the three months ended June
30, 2000 from $1.1 million for the three months ended June 30, 1999.
Depreciation and amortization. Depreciation and amortization increased
approximately $500,000 or 19.2% to $3.1 million for the three months ended June
30, 2000 from $2.6 million for the three months ended June 30, 1999. This
change was due to increased depreciation expense as a result of fixed asset
purchases and de novo developments and the amortization of goodwill and other
intangible assets associated with acquisitions.
Income from Operations. Income from operations increased approximately
$200,000 or 4.3% to $4.8 million for the three months ended June 30, 2000 from
$4.6 million for the three months ended June 30, 1999. Income from operations
as a percentage of net revenues decreased to 8.1% for the three months ended
June 30, 2000 as compared to 9.3% for the three months ended June 30, 1999 due
to the factors described above.
Interest Expense, Net. Interest expense, net of interest income, decreased
approximately $200,000 or 5.9% to $3.2 million for the three months ended June
30, 2000 from $3.4 million for the three months ended June 30, 1999. The
decrease in interest expense, net of interest income, was attributable to the
interest earned on short-term investments.
Equity in Earnings of Affiliates. Equity in earnings of affiliates represents
the Company's portion of earnings in unconsolidated joint ventures. The Company
recognized approximately $129,000 from unconsolidated joint ventures for the
three months ended June 30, 2000 as compared to a loss of $74,000 for the three
months ended June 30, 1999. This change in the equity in earnings was due to
the Company's strategy of rolling-up the more profitable unconsolidated joint
ventures during fiscal 1999 and prior.
Minority Interests in Earnings. Minority interests in earnings represents the
proportionate equity interests of other partners in the Company's consolidated
entities that are not wholly owned. The minority interests in earnings
increased approximately $179,000 to $316,000 for the three months ended June
30, 2000 as compared to $137,000 for the three months ended June 30, 1999 as a
result of increased profitability in such entities.
Income Tax Expense. Income tax expense increased to approximately $800,000
for the three months ended June 30, 2000 from $640,000 for the three months
ended June 30, 1999 as a result of the factors described above.
Nine Months Ended June 30, 2000 Compared to Nine Months Ended June 30, 1999
Net Revenues. Net revenues increased $36.5 million or 27.5% to $169.4 million
for the nine months ended June 30, 2000 from $132.9 million for the nine months
ended June 30, 1999. This increase resulted primarily from a 22.7% increase in
the number of treatments to 608,090 for the nine months ended June 30, 2000
from 495,426 for the nine months ended June 30, 1999. This growth in treatments
is the result of acquisitions and development of various dialysis facilities
and a 5% increase in same store treatments for the nine months ended June 30,
2000 over the nine months ended June 30, 1999. The average net revenue per
treatment increased from $234 per treatment for the nine months ended June 30,
1999 to $248 per treatment for the nine months ended June 30, 2000. The
increase in net revenue per treatment was due to a shift in the Company's payor
mix and as a result of an increase in the dosing levels of epogen administered
to patients during dialysis treatments to achieve industry and Company goals of
hematocrit levels.
11
Patient Care Costs. Patient care costs consist of costs directly related to
the care of patients, including direct and indirect labor, drugs and other
medical supplies and operational costs of the facilities. Patient care costs
increased $29.7 million or 32.2% to $122.0 million for the nine months ended
June 30, 2000 from $92.3 million for the nine months ended June 30, 1999. This
increase resulted primarily from an increase in the number of treatments
performed during the period that caused a corresponding increase in drugs and
supplies. Supply costs increased approximately $11 per treatment, $7 of which
is attributable to an increase in the dosing levels of epogen administered to
patients during dialysis treatments and $4 of which is attributable to normal
healthcare inflation. Patient care costs as a percentage of net revenues
increased from 69.5% for the nine months ended June 30, 1999 to 72.0% for the
nine months ended June 30, 2000.
General and Administrative Expenses. General and administrative expenses
include corporate office costs and other administrative costs including
accounting, billing, quality assurance, facility costs, treasury and
information systems. General and administrative expenses increased $1.4 million
or 7.6% to $19.9 million for the nine months ended June 30, 2000 from $18.5
million for the nine months ended June 30, 1999. General and administrative
expenses as a percentage of revenue decreased from 13.9% for the nine months
ended June 30, 1999 to 11.7% for the nine months ended June 30, 2000. This
decrease was due to the leveraging of infrastructure costs as well as the
increase in net revenues.
Provision for Bad Debts. The Company provides for doubtful accounts in the
same period that revenue is recognized based on management's estimate of the
collectibility of the accounts receivable based upon several factors such as
payor mix and billing practices. Provision for bad debts increased $1.6 million
or 50.0% to $4.8 million for the nine months ended June 30, 2000 from $3.2
million for the nine months ended June 30, 1999.
Depreciation and Amortization. Depreciation and amortization increased
approximately $1.4 million or 18.7% to $8.9 million for the nine months ended
June 30, 2000 from $7.5 million for the nine months ended June 30, 1999. The
increase was due to increased depreciation expense as a result of fixed asset
purchases and the development of facilities and the amortization of goodwill
and other intangible assets associated with acquisitions.
Income from Operations. Income from operations improved to $13.7 million for
the nine months ended June 30, 2000 from $11.3 million for the nine months
ended June 30, 1999. Income from operations as a percentage of net revenues
remained constant at approximately 8.0% for the nine months ended June 30, 2000
and 1999.
Interest Expense, Net. Interest expense, net of interest income, increased
$1.7 million or 20.2% to $10.1 million for the nine months ended June 30, 2000
from $8.4 million for the nine months ended June 30, 1999. The increase in
interest expense, net of interest income, was attributable to the interest
associated with the amortization of deferred financing costs as well as
interest incurred on borrowings under Credit Facility.
Equity in Earnings of Affiliates. Equity in earnings of affiliates represents
the Company's portion of earnings in unconsolidated joint ventures. The Company
recognized equity in earnings of affiliates of approximately $288,000 for the
nine months ended June 30, 2000 as compared to $590,000 for the nine months
ended June 30, 1999. This change in the equity in earnings was due to the
Company's strategy of rolling-up the more profitable unconsolidated joint
ventures in fiscal 1999 and prior.
Minority Interests in Earnings. Minority interests in earnings represents the
proportionate equity interests of other partners in the Company's consolidated
entities that are not wholly owned. The minority interests in earnings remained
constant at approximately $660,000 for the nine months ended June 30, 2000 and
1999.
Income Taxes. Income taxes remained relatively constant at approximately $1.9
million for the nine months ended June 30, 2000 and 1999. The Company's
effective tax rate was 60% as of June 30, 2000 compared to 65% as of June 30,
1999. The decrease in the effective tax rate was due to the factors described
above.
12
Year 2000 Compliance by the Company and Others
The Company has addressed Year 2000 compliance concerns. This included its
formation of a Year 2000 Task Force to study and address Year 2000 issues, the
hiring of consultants to assist the Year 2000 Task Force in its review of
Company systems, the establishment and implementation of a Year 2000 compliance
plan, the establishment of a Year 2000 contingency plan, the upgrading of the
Company's major information technology systems into Year 2000 Compliance, and a
full review of the Company's non-information technology systems (i.e., embedded
technology such as micro-controllers). The Company incurred approximately $1.4
million related to Year 2000 and does not expect additional expenditures to
materially impact the Company's operations. For a more detailed description of
the Company's Year 2000 compliance efforts, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Compliance
by the Company and Others" in the Company's Form 10-K filed December 29, 1999.
Liquidity and Capital Resources
The Company requires capital primarily for the acquisition and development of
dialysis centers, the purchase of property and equipment for existing centers
and to finance working capital requirements. At June 30, 2000, the Company's
working capital was $36.1 million.
The Company's net cash provided by operations was $10.2 million for the nine
months ended June 30, 2000. Cash provided by operating activities consists of
net income increased by non-cash expenses such as depreciation, amortization
and the provision for bad debts and adjusted by the changes in components of
working capital, primarily receivables, payables and accrued expenses. The cash
provided by operations was mainly due to increased accounts receivable balances
as a result of increased treatment volume and increased revenue per treatment
which was offset by increased accounts payable balances due to improved vendor
terms. The Company's net cash used in investing activities was $14.3 million
for the nine months ended June 30, 2000. The Company's principal uses of cash
consist of investing activities related to purchases of new equipment and
leasehold improvements for new and existing dialysis centers and the
acquisition of dialysis centers. Net cash provided by financing activities was
approximately $4.5 million for the nine months ended June 30, 2000. The primary
sources and uses of cash from financing activities were net borrowings under
the Credit Facility.
The Company does not have any current material commitments for capital
expenditures.
A significant component of the Company's growth strategy is the acquisition
and development of dialysis centers. The Company believes that the existing
cash and funds from operations, together with funds available under the Credit
Facility, will be sufficient to meet the Company's acquisition, development,
expansion, capital expenditure and working capital needs for at least the next
twelve months. In order to finance certain strategic acquisition opportunities,
the Company may from time to time incur additional short and long-term bank
indebtedness and may issue equity or debt securities, the availability and
terms of which will depend on market and other conditions. There can be no
assurance that the Company will be successful in implementing its growth
strategy or that adequate sources of capital will be available in the future as
needed on terms acceptable to the Company.
Impact of Inflation
A substantial portion of the Company's net revenues is subject to
reimbursement rates that are regulated by the federal government and do not
automatically adjust for inflation. The Company is unable to increase the
amount it receives for the services provided by its dialysis businesses that
are reimbursed under the Medicare composite rate. Increased operating costs due
to inflation, such as labor and supply costs, without a corresponding increase
in reimbursement rates, may adversely affect the Company's earnings in the
future. However, part of the Company's growth strategy is to expands its
Contract Services business which is not directly dependent on reimbursement
from government agencies. In addition, the Company believes that the
13
effect of inflation is further mitigated by the change in governmental health
care laws that extended the coordination of benefits period for ESRD patients
who are covered by an employer group health plan from 18 to 21 months to 30 to
33 months before Medicare becomes the primary payor. In addition, the Balanced
Budget Refinement Act of 1999 updated the composite rate for payment by 1.2%
for renal dialysis services furnished in 2000 and an additional 1.2% for such
services furnished in 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in hedging or other market structure derivative
trading activities. Additionally, the Company's debt obligations are primarily
fixed-rate in nature and, as such, are not sensitive to changes in interest
rates. The Company does not believe that its market risk financial instruments
on June 30, 2000 would have a material effect on future operations or cash
flow.
14
- --------------------------------------------------------------------------------
PART II--OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business, including those arising from patient treatment. The Company believes
it will be covered by malpractice insurance with respect to these claims and
does not believe that the ultimate resolution of pending proceedings will have
a material adverse effect on the Company. However, claims against the Company,
regardless of their merit or eventual outcome, could require management to
devote time to matters unrelated to the operation of the Company's business,
and may also have a material adverse effect on the Company's ability to attract
patients or expand its business.
ITEM 2. NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Exhibit
--- ----------- -------
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for
which this form 10-Q is filed.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 14th day of
August, 2000.
Everest Healthcare Services
Corporation
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 14th day of
August, 2000.
Con-Med Supply Company, Inc.
Continental Health Care, Ltd.
Dialysis Specialists of Tulsa, Inc.
Dupage Dialysis, Ltd.
Everest Healthcare Indiana, Inc.
Everest Healthcare Ohio, Inc.
Everest Healthcare Texas Holding
Corp.
Everest Management, Inc.
Everest New York Holdings, Inc.
Everest One IPA, Inc.
Everest Three IPA, Inc.
Everest Two IPA, Inc.
Home Dialysis of America, Inc.
Mercy Dialysis Center, Inc.
New York Dialysis Management, Inc.
North Buckner Dialysis Center, Inc.
WSKC Dialysis Services, Inc.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chairman and Chief Executive
Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 14th day of
August, 2000.
Northern New Jersey Dialysis, L.L.C.
Acute Extracorporeal Services,
L.L.C.
/s/ Craig W. Moore
By: _________________________________
Craig W. Moore
Chief Executive Officer
/s/ Lawrence D. Damron
By: _________________________________
Lawrence D. Damron
Chief Financial Officer
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 14th day of
August, 2000.
Everest Healthcare Texas, L.P.
North Buckner Dialysis Center,
Inc.
By: _________________________________
General Partner
/s/ Craig W. Moore
By: _______________________________
Craig W. Moore
Chief Executive Officer
/s/ Lawrence D. Damron
By: _______________________________
Lawrence D. Damron
Chief Financial Officer
19