U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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 Identification No.)
Incorporation or Organization)
11100 Mead Road, Suite 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 September 30, 2001:
5,911,620 shares
1
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000....................... 3
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2001 and 2000...................................................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000...... 5
Notes to Consolidated Financial Statements....................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS...................................... 14
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................................ 14
ITEM 2. CHANGES IN SECURITIES............................................................................ 14
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
2
Amedisys, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
as of September 30, 2001 and December 31, 2000
(Dollar Amounts in 000's)
(Unaudited)
September 30, 2001 December 31, 2000
------------------ -----------------
CURRENT ASSETS:
Cash and Cash Equivalents $ 3,345 $ 6,967
Accounts Receivable, Net of Allowance for Doubtful Accounts
of $2,391 in September 2001 and $1,385 in December 2000 10,518 6,628
Prepaid Expenses 415 196
Inventory and Other Current Assets 929 414
Current Assets Held for Sale -- 715
----------------- -----------------
Total Current Assets 15,207 14,920
Property and Equipment, net 5,334 2,935
Other Assets, net 22,769 20,426
Long-term Assets Held for Sale -- 689
----------------- -----------------
Total Assets $ 43,310 $ 38,970
================= =================
CURRENT LIABILITIES:
Accounts Payable $ 1,997 $ 1,590
Accrued Expenses:
Payroll and Payroll Taxes 6,047 6,203
Insurance 1,487 708
Income Taxes 492 638
Other 5,327 3,925
Notes Payable 9,455 2,952
Notes Payable to Related Parties 10 10
Current Portion of Long-term Debt 4,702 3,379
Current Portion of Obligations under Capital Leases 521 385
Deferred Revenue 2,119 2,119
Current Liabilities Held for Sale -- 480
----------------- -----------------
Total Current Liabilities 32,157 22,389
Long-term Debt 5,002 9,343
Long-term Medicare Liabilities 1,775 6,053
Deferred Revenue 2,295 3,884
Obligations under Capital Leases 448 30
Other Long-term Liabilities 826 826
Long-term Liabilities Held for Sale -- 966
----------------- -----------------
Total Liabilities 42,503 43,491
----------------- -----------------
Minority Interest 78 --
----------------- -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock (5,911,620 Shares in September 2001 and 5,326,126
Shares in December 2000) 6 5
Preferred Stock (350,000 Shares in September 2001 and 390,000
Shares in December 2000) -- 1
Additional Paid-in Capital 16,126 14,096
Treasury Stock (4,667 Shares of Common Stock in
September 2001 and December 2000) (25) (25)
Retained Earnings (Deficit) (15,378) (18,598)
----------------- -----------------
Total Stockholders' Equity (Deficit) 729 (4,521)
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 43,310 $ 38,970
================= =================
The accompanying notes are an integral part of these consolidated statements.
3
Amedisys, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended September 30, 2001 and 2000
(Unaudited, In 000's, except per share data)
Three months ended Nine months ended
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
------------------ ------------------ ------------------ ------------------
Income:
Service revenue $ 29,672 $ 22,091 $ 79,042 $ 68,779
Cost of service revenue 13,053 10,366 34,977 32,580
----------------- ----------------- ----------------- -----------------
Gross margin 16,619 11,725 44,065 36,199
General and administrative expenses:
Salaries and benefits 7,749 7,462 21,951 23,288
Other 6,308 5,122 17,621 15,407
----------------- ----------------- ----------------- -----------------
Total general and administrative expenses 14,057 12,584 39,572 38,695
Operating income (loss) 2,562 (859) 4,493 (2,496)
Other income and expense:
Interest income 49 88 303 175
Interest expense (704) (690) (2,214) (1,957)
Other income, net 71 (8) 167 75
----------------- ----------------- ----------------- -----------------
Total other expense, net (584) (610) (1,744) (1,707)
Income (loss) before income taxes and
discontinued operations 1,978 (1,469) 2,749 (4,203)
Income tax expense 0 0 0 0
----------------- ----------------- ----------------- -----------------
Income (loss) before discontinued operations 1,978 (1,469) 2,749 (4,203)
(Loss) from discontinued operations,
net of income taxes (456) (407) (585) (2,806)
Gain on sale of discontinued operations
net of income taxes 1,056 1,114 1,056 3,623
----------------- ----------------- ----------------- -----------------
Total discontinued operations 600 707 471 817
Net income (loss) $ 2,578 $ (762) $ 3,220 $ (3,386)
================= ================= ================= =================
Basic weighted average common shares outstanding 5,873 4,955 5,716 4,006
Basic income (loss) per common share:
Income (loss) before discontinued operations $ 0.34 $ (0.29) $ 0.47 $ (1.05)
(Loss) from discontinued
operations, net of income taxes (0.08) (0.08) (0.10) (0.69)
Gain on sale of discontinued
operations, net of income taxes 0.18 0.22 0.19 0.90
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 0.44 $ (0.15) $ 0.56 $ (0.84)
================= ================= ================= =================
Diluted weighted average common shares outstanding 7,934 4,955 7,812 4,006
Diluted income (loss) per common share:
Income (loss) before discontinued operations $ 0.25 $ (0.29) $ 0.35 $ (1.05)
(Loss) from discontinued
operations, net of income taxes (0.06) (0.08) (0.07) (0.69)
Gain on sale of discontinued
operations, net of income taxes 0.13 0.22 0.14 0.90
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 0.32 $ (0.15) $ 0.42 $ (0.84)
================= ================= ================= =================
The accompanying notes are an integral part of these consolidated statements.
4
Amedisys, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 2001 and 2000
(Unaudited, Dollar Amounts in 000's)
For the nine months ended
September 30, 2001 September 30, 2000
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,220 $ (3,386)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
by operating activities:
Depreciation and amortization 2,220 2,101
Provision for bad debts 1,584 1,622
Compensation expense 70 --
(Gain) on sale of discontinued operations (1,738) (3,779)
Impairment of goodwill -- 1,771
Minority interest 722 --
Deferred revenue (1,589) (1,589)
Changes in assets and liabilities:
Decrease in cash included in assets held for sale 20 261
(Increase) decrease in accounts receivable (5,464) 468
(Increase) decrease in inventory and other current assets (510) 331
(Increase) decrease in other assets (49) 96
Increase (decrease) in accounts payable 244 (727)
Increase in accrued expenses 3,312 1,479
------------------ ------------------
Net cash provided by (used in) operating activities 2,042 (1,352)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 12 114
Purchase of property, plant and equipment (3,202) (244)
Proceeds from sale of Company operations 1,684 4,949
Cash used in purchase acquisitions (3,406) --
Minority interest investment in subsidiary 101 214
Partnership distributions (745) --
------------------ ------------------
Net cash provided by (used in) investing activities (5,556) 5,033
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit agreements 6,503 (3,856)
Proceeds from issuance of notes payable and capital leases 624 1,000
Payments on notes payable and capital leases (3,196) (3,623)
Increase (decrease) in long-term Medicare liabilities (4,278) 4,895
Capitalized interest expense -- 1,106
Proceeds from issuance of stock 239 --
------------------ ------------------
Net cash (used in) financing activities (108) (478)
------------------ ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,622) 3,203
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,967 1,425
------------------ ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,345 $ 4,628
================== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 2,273 $ 971
================== ==================
Income taxes $ 321 $ 56
================== ==================
The accompanying notes are an integral part of these consolidated statements.
5
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Amedisys, Inc., a Delaware corporation ("Amedisys" or "the Company"),
is a leading multi-state provider of home health care nursing services. The
Company operates fifty-five home care nursing offices and one corporate office
in the southern and southeastern United States.
In the opinion of management of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the Company's
financial position at September 30, 2001, the results of operations for the
three and nine months ended September 30, 2001 and 2000, and cash flows for the
nine months ended September 30, 2001 and 2000. 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. RESTATEMENT
The Company has restated the Consolidated Financial Statements for the
year ended December 31, 2000 and the quarter ended March 31, 2001 due to a net
revenue overstatement for the fourth quarter of 2000 and the first quarter of
2001. The Medicare reimbursement changes effective October 1, 2000 required
substantial changes to the Company's software applications, both from an
operational and an accounting perspective, including the recording of revenue
related to patients receiving therapy services. Under the changed reimbursement
system, if a patient, upon initial assessment by the nurse, is expected to
require ten or more therapy visits in an episode, the expected reimbursement for
that episode is increased ("therapy add-on"). If, upon completion of the
episode, the expected therapy utilization of ten or more visits was not met, the
provider is not entitled to the therapy add-on. The Company's software did not
detect differences between the initial nurse's assessment that called for ten or
more visits and the therapist's subsequent evaluation which indicated that fewer
than ten visits were necessary. The Company has modified its software and has
changed certain processes to detect any discrepancies in assessed therapy need
and to more closely monitor the patient's progress as it relates to scheduled
therapy services.
3. REVENUE RECOGNITION
Prior to the implementation of the Medicare Prospective Payment System
("PPS") on October 1, 2000, reimbursement for home health care services to
patients covered by the Medicare program was based on reimbursement of allowable
costs subject to certain limits. Final reimbursement was determined after
submission of annual cost reports and audits thereof by the fiscal
intermediaries.
Under PPS, the Company is paid by Medicare based on episodes of care.
An episode of care is defined as a length of care up to sixty days with multiple
continuous episodes allowed. The standard episode payment beginning October 1,
2000 was established by the Medicare Program at $2,115 per episode, to be
adjusted by a case mix adjuster consisting of eighty (80) home health resource
groups ("HHRG") and the applicable geographic wage index. The standard episode
payment may be subject to further individual adjustments due to low utilization,
intervening events and other factors. The episode payment will be made to
providers regardless of the cost to provide care. The services covered by the
episode payment include all disciplines of care, in addition to medical
supplies, within the scope of the home health benefit. Revenue is recognized for
visits during the earnings period at the expected payment amount. Effective
October 1, 2001, the standard episode payment was increased, through federal
legislation, to $2,274 per episode.
6
4. EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of
shares outstanding during the period. For the three and nine months ended
September 30, 2000, there was no difference between basic and diluted weighted
average common shares outstanding as the effect of stock options (605,086 and
580,108 weighted average outstanding for the three and nine months ended
September 30, 2000, respectively), warrants (210,000 and 199,325 weighted
average outstanding for the three and nine months ended September 30, 2000,
respectively) and preferred shares (390,000 preferred shares convertible into
1,473,913 and 2,040,024 weighted average common shares for the three and nine
months ended September 30, 2000, respectively) were anti-dilutive. The following
table sets forth the computation of basic and diluted net income (loss) per
common share for the three and nine month periods ended September 30, 2001 and
2000 including the results of discontinued operations.
In 000's, except per share data
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
----------------- ----------------- ----------------- -----------------
Basic Net Income (Loss) per Share:
Net Income (Loss) $ 2,578 $ (762) $ 3,220 $ (3,386)
================= ================= ================= =================
Weighted Average Number of
Shares Outstanding 5,873 4,955 5,716 4,006
================= ================= ================= =================
Net Income (Loss) per Common
Share - Basic $ 0.44 $ (0.15) $ 0.56 $ (0.84)
================= ================= ================= =================
Diluted Net Income (Loss) per Share:
Net Income (Loss) $ 2,578 $ (762) $ 3,220 $ (3,386)
================= ================= ================= =================
Weighted Average Number of
Shares Outstanding 5,873 4,955 5,716 4,006
Effect of Dilutive Securities:
Stock Options 635 -- 645 --
Warrants 260 -- 250 --
Convertible Preferred Shares
(350,000 convertible into
1,166,666 Common Shares at
September 30, 2001) 1,166 -- 1,201 --
----------------- ----------------- ----------------- -----------------
Average Shares - Diluted 7,934 4,955 7,812 4,006
================= ================= ================= =================
Net Income (Loss) per Common
Share - Diluted $ 0.32 $ (0.15) $ 0.42 $ (0.84)
================= ================= ================= =================
5. MEDICARE REIMBURSEMENT AND REFORM
The Company derived approximately 88% of its revenues from continuing
operations from the Medicare system for the nine months ended September 30, 2001
and approximately 91% for the nine months ended September 30, 2000.
On June 28, 2000, HCFA issued the final rules for PPS (as discussed in
Note 3), which were effective for all Medicare-certified home health agencies on
October 1, 2000. The final regulations establish payments based on episodes of
care. An episode is defined as a length of care up to sixty days with multiple
continuous episodes allowed under the rule. A standard episode payment has been
established at $2,115 per episode for federal fiscal year 2001, to be adjusted
by a case mix adjuster consisting of eighty (80) home health resource groups
("HHRG") and the applicable geographic wage index. The standard episode payment
may be subject to further individual adjustments due to low utilization,
intervening events and other factors. Providers are allowed to make a request
for anticipated payment at the start of care equal to 60% of the expected
payment for the initial episode and 50% for each subsequent episode. The
remaining balance due to the provider is paid following the submission of the
final claim at the end of the episode. In contrast to
7
the cost-based reimbursement system whereby providers' reimbursement was
limited, among other things, to their actual costs, episode payments are made to
providers regardless of the cost to provide care, except with regard to certain
outlier provisions. As a result, home health agencies have the opportunity to be
profitable under this system.
In December 2000, Congress passed the Benefits Improvement and
Protection Act ("BIPA"), which provides additional funding to health care
providers. BIPA provided for the following: (i) a one-year delay in applying the
budgeted 15% reduction on payment limits, (ii) the restoration of a full home
health market basket update for episodes ended on or after April 1, 2001, and
before October 1, 2001 resulting in an expected increase in revenues of 2.2%,
(iii) a 10% increase, effective April 1, 2001 and extending for a period of
twenty four months, for home health services provided in a rural area, and (iv)
a one-time payment equal to two-months of periodic interim payments ("PIP")
(See Note 10).
Effective October 1, 2001, the standard episode payment for federal
fiscal year 2002 has been increased to $2,274 per episode.
6. ACQUISITIONS
Effective March 1, 2001, the Company acquired, through its wholly-owned
subsidiary Amedisys Home Health, Inc. of Alabama, certain assets and liabilities
of Seton Home Health Services, Inc. ("Seton") from Seton Health Corporation of
North Alabama associated with their operations in Mobile and Fairhope, Alabama.
The assets acquired consisted primarily of all furniture, fixtures, equipment
(except computer equipment and printers) and leasehold improvements; supplies;
inventory; lists of present and former patients and mailing lists; vendor lists;
employee records; telephone numbers and listings; intangibles and other rights
and privileges; leasehold interest in the locations; goodwill and going concern;
rights under certain agreements; rights under all contracts including capital
leases and non-competition agreements; licenses and permits relating to
ownership, development and operations; and rights under Medicare Provider
Agreements. The liabilities assumed consisted of accrued but unused vacation and
obligations under capital and operating leases. In consideration for the
acquired assets and liabilities, the Company paid $440,000 cash, which
represents a purchase price of $475,000 less the value of accrued vacation
obligations. In connection with this acquisition, the Company recorded $448,000
in goodwill (See Note 12).
Effective April 6, 2001, the Company acquired, through its wholly-owned
subsidiary Amedisys Home Health, Inc. of Alabama, certain additional assets and
liabilities of Seton Home Health Services, Inc. ("Seton") from Seton Health
Corporation of North Alabama associated with their operations in Birmingham,
Tuscaloosa, Anniston, Greensboro, and Reform, Alabama. The assets acquired
consisted primarily of all furniture, fixtures, equipment (except computer
equipment and printers) and leasehold improvements; supplies; inventory; lists
of present and former patients and mailing lists; vendor lists; employee
records; telephone numbers and listings; intangibles and other rights and
privileges; leasehold interest in four of the five locations; goodwill and going
concern; rights under certain agreements; rights under all contracts including
capital leases and non-competition agreements; licenses and permits relating to
ownership, development and operations; and rights under Medicare Provider
Agreements. The liabilities assumed consisted of estimated accrued but unused
vacation and obligations under capital and operating leases. In consideration
for the acquired assets and liabilities, the Company paid $2,216,000 cash, which
represents a purchase price of $2,325,000 less the estimated value of accrued
vacation obligations. In connection with this acquisition, the Company recorded
$2,235,000 in goodwill (See Note 12).
Effective June 11, 2001, the Company acquired from East Cooper
Community Hospital, Inc. ("East Cooper") certain assets and liabilities of
HealthCalls Professional Home Health Services. The assets consisted primarily of
all furniture, fixtures, equipment, leasehold improvements and supplies;
inventory; current patient lists of present or former patients, mailing lists,
telephone numbers and intangibles and other rights and privileges; leasehold
interest in the premises located at the business address; goodwill and going
concern; benefits of all amounts previously paid by East Cooper for advertising,
design fees, rent services, or interest relating to the business or assets to
the extent they are to be performed after the closing; rights under certain
agreements; licenses and permits relating to ownership, development and
operations of the business, including the Medicare Provider Number, rights under
the Medicare Provider Agreement, the Medicaid Provider Number and rights under
the Medicaid Provider Agreement; technical outlines and records, and any and all
know-how and software and other technology, including all contracts, licenses,
authorizations and permits; trade secrets, inventions, patents, copyrights,
trade names, business names, trademarks, and other intangible assets; copies of
medical records of patients who received services from East Cooper to the extent
reasonably necessary to transfer the care of such patients; and copies of
business records related to the operation of the business. The liabilities
assumed consisted of liabilities related to the operation of the business for
services provided post-closing. In consideration for
8
the acquired assets and liabilities, the Company paid $750,000 cash. In
connection with this acquisition, the Company recorded $726,000 in goodwill (See
Note 12).
7. DISCONTINUED OPERATIONS
During 1999, the Company changed its strategy from providing a variety
of alternate site provider health care services to becoming a leader in home
health care nursing services. Pursuant to this strategy, the Company launched a
restructuring plan to divest its non-home health care nursing divisions. The
Company sold its six surgery centers and sold or closed its four infusion
locations with the final sale taking place (as described below) in September,
2001.
Effective September 7, 2001, the Company, its wholly-owned subsidiary
Amedisys Surgery Centers, L.C., its 56% owned subsidiary Hammond Surgical Care
Center, L.C. d/b/a St. Luke's SurgiCenter ("St. Luke's"), and Surgery Center of
Hammond, L.L.C. ("Surgery Center") entered into an agreement for the purchase
and sale of the operations and assets of St. Luke's, an outpatient surgery
center located in Hammond, Louisiana, to Surgery Center. The sales price of
$2,850,000 was paid at closing and distributed in the following manner:
$1,066,000 paid directly to debtors of St. Luke's relating to existing debt
obligations, $1,684,000 paid to St. Luke's, and $100,000 in cash to be released
upon the determination of the value of working capital transferred. Subsequent
to the sale, St. Luke's made partnership distributions of $1,693,000 of which
the Company received $948,000 and the physician investors received $745,000. The
assets sold consisted primarily of patient accounts receivable; contracts,
including the Medicare and Medicaid provider agreements; all machinery,
equipment, fixtures, computers, computer hardware and software, tools, supplies,
furniture, and other tangible personal property; leases; operating data and
records including client lists; licenses and permits to the extent transferable;
all rights and interest to the name "St. Luke's SurgiCenter"; telephone numbers;
supplies, prepaid expenses, and inventory; and other assets. The liabilities
assumed include trade accounts payable as of the closing and all obligations
relating to the assumed assets arising on or after the effective date. The
agreement stipulated a required level of working capital, defined as patient
accounts receivable less trade accounts payable, of $430,000 to be conveyed at
closing. Any amount in excess of $430,000 will be returned to St. Luke's, and
any amount less than $430,000 will be payable by St. Luke's to Surgery Center.
The Company and its affiliates had no material relationship with Surgery Center
prior to this transaction. In the accompanying Consolidated Statements of
Operations, the Company recorded a pre-tax gain of $1,738,000, offset by
minority interest expense of $672,000, resulting in a net pre-tax gain of
$1,066,000 in the quarter ended September 30, 2001.
9
Summarized financial information for the discontinued operations is as
follows (in 000's):
For the three months For the nine months
Ended September 30 ended September 30
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Outpatient Surgery Division:
Service Revenue $ 564 $ 815 $ 1,846 $ 2,396
(Loss) from Discontinued
Operations before Provision for
Income Taxes (456) (4) (535) 371
(Loss) from Discontinued
Operations Net of Income Taxes (456) (4) (535) 371
Gain on Sale of Discontinued Operations
Before Provision for Income Taxes 1,066 -- 1,066 2,675
Gain on Sale of Discontinued Operations
Net of Income Taxes 1,056 -- 1,056 2,509
Infusion Therapy Division:
Service Revenue $ -- $ 478 $ -- $ 4,485
(Loss) from Discontinued Operations
before Provision for Income Taxes -- (404) (50) (3,178)
(Loss) from Discontinued Operations
Net of Income Taxes -- (404) (50) (3,178)
Gain on Sale of Discontinued Operations
Before Provision for Income Taxes -- 1,114 -- 1,114
Gain on Sale of Discontinued Operations
Net of Income Taxes -- 1,114 -- 1,114
DME / Management Services Divisions:
Service Revenue $ -- $ -- $ $ --
Income from Discontinued
Operations before Provision for
Income Taxes -- 1 -- 1
Income from Discontinued
Operations Net of Income Taxes -- 1 -- 1
Total Discontinued Operations:
Service Revenue $ 564 $ 1,293 $ 1,846 $ 6,881
Income (Loss) from Discontinued
Operations before Provision for
Income Taxes (456) (407) (585) (2,806)
Income (Loss) from Discontinued
Operations Net of Income Taxes (456) (407) (585) (2,806)
Gain on Sale of Discontinued Operations
Before Provision for Income Taxes 1,066 1,114 1,066 3,789
Gain on Sale of Discontinued Operations
Net of Income Taxes 1,056 1,114 1,056 3,623
Included in the accompanying Consolidated Balance Sheet as of December
31, 2000 are the following assets and liabilities relating to the discontinued
operations (in 000's):
December 31, 2000
-----------------
Cash $ 20
Accounts Receivable 510
Prepaid Expenses 13
Inventory and Other Current Assets 172
----------------
Current Assets Held for Sale $ 715
================
Property $ 681
Other Assets 8
----------------
Long-term Assets Held for Sale $ 689
================
Accounts Payable $ 190
Accrued Payroll 50
Accrued Other 34
Current Portion of Long-term Debt 192
Current Portion of Obligations under
Capital Leases 14
----------------
Current Liabilities Held for Sale $ 480
================
Long-term Debt $ 966
----------------
Long-term Liabilities Held for Sale $ 966
================
10
8. NOTES PAYABLE
Notes payable as of September 30, 2001 consists primarily of an
asset-based line of credit with availability, depending on collateral, of up to
$25 million with National Century Financial Enterprises, Inc. ("NCFE") and
borrowings under a revolving bank line of credit of up to $2.5 million. The $25
million asset-based line of credit, which expires December, 2003, is
collateralized by eligible accounts receivable and as of September 30, 2001 and
December 31, 2000, had an outstanding balance of $9,280,000 and $2,952,000,
respectively. There were no amounts available under this line as of September
30, 2001. Eligible receivables are defined as receivables, exclusive of workers'
compensation and self-pay, that are aged less than 181 days. The effective
interest rate on this line of credit was 11.91% and 15.29% for the nine months
ended September 30, 2001 and the year ended December 31, 2000, respectively. The
revolving bank line of credit of $2.5 million bears interest at the Bank One
Prime Floating Rate, which was 6.0% and 9.5% at September 30, 2001 and December
31, 2000, respectively. At September 30, 2001, there was $175,000 drawn on the
line of credit with $2,325,000 available. At December 31, 2000, there were no
amounts drawn on the line of credit.
9. LONG-TERM DEBT
Long-term debt consists primarily of a $7.9 million note payable to NPF
Capital, a $744,000 note payable to CareSouth Home Health Services, Inc.
("CareSouth"), and a $724,000 note payable to Winter Haven Hospital.
The $7.9 million note to NPF Capital is payable over a three year term,
due in December, 2003, with interest only payments for a six month period ended
June, 2001 and monthly payments of principal and interest of $387,000 for the
remainder of the term. In connection with the sale of St. Luke's, the Company
made a mandatory accelerated payment of $1 million on the NPF Capital note. The
Company makes monthly principal and interest payments of $25,000 on the $744,000
note to CareSouth, which is due July, 2003 and monthly principal and interest
payments of $30,000 on the $724,000 note to Winter Haven Hospital, which is due
November, 2003.
10. AMOUNTS DUE TO AND DUE FROM MEDICARE
Prior to the implementation of PPS, the Company recorded Medicare
revenues at the lower of actual costs, the per visit cost limit, or a per
beneficiary cost limit on an individual provider basis in accordance with
established guidelines. As of September 30, 2001, the Company estimates an
aggregate payable to Medicare of $16.5 million resulting from interim cash
receipts in excess of expected reimbursement. In the accompanying Consolidated
Balance Sheet as of September 30, 2001, the amounts due to Medicare within one
year of $14.7 million are netted against accounts receivable. The amount payable
to Medicare in excess of one year of $1.8 million is shown as Long-term Medicare
Liabilities. Of the $14.7 million netted against accounts receivable, $7.4
million is attributed to a provision in BIPA whereby a lump-sum payment equal to
two months of Periodic Interim Payments ("PIP") was issued to providers. Upon
completion of the annual cost reports in March, 2002, the Company will request
extended repayment plans for these payments. There can be no assurances,
however, that the extended repayment plans will be accepted. Also included in
the $14.7 million is a $3.2 million overpayment relating to Alliance Home
Health, a wholly-owned subsidiary of the Company which filed for bankruptcy
protection on September 29, 2000. The BIPA overpayment of $7.4 million and the
Alliance debt of $3.2 million currently do not have repayment plans and no
payments are currently being made.
11. CAPITAL STOCK
In accordance with the terms of conversion of the Company's Series A
Preferred Stock as stated in the Series A Preferred Stock Conversion Agreement,
eight preferred shareholders converted a total of 360,000 preferred shares into
1,200,000 common shares during 2000. During the first quarter of 2001, two
additional preferred shareholders converted a total of 20,000 preferred shares
into 66,667 common shares and during the second quarter of 2001, one additional
preferred shareholder converted 20,000 preferred shares into 66,667 common
shares. The conversion rate for the preferred shares was $3.33.
12. EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards Statement No. 141, Business Combinations ("SFAS
141") and Financial Accounting Standards Statement No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). SFAS 141 eliminates the pooling-of-interests
method of
11
accounting for business combinations except for qualifying business combinations
that were initiated prior to July 1, 2001. The purchase method of accounting is
required to be used for all business combinations initiated after June 30, 2001.
SFAS 141 also requires separate recognition of intangible assets that meet
certain criteria.
Under SFAS 142, goodwill and indefinite-lived intangible assets are no
longer amortized but are reviewed for impairment annually, or more frequently if
circumstances indicate potential impairment. Separable intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives. For goodwill and indefinite-lived intangible assets acquired
prior to July 1, 2001, goodwill will continue to be amortized through the
remainder of 2001 at which time amortization will cease and a transitional
goodwill impairment test will be performed. Any impairment charges resulting
from the initial application of the new rules will be classified as a cumulative
effect of change in accounting principle. The Company will adopt SFAS 142
effective January 1, 2002. Management is currently evaluating the impact of the
new accounting standards on existing goodwill and other intangible assets.
Included in general and administrative expenses in the accompanying Consolidated
Statements of Operations is goodwill amortization expense as follows (in 000's):
3 months ended 9 months ended
September 30, September 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Goodwill Amortization Expense $ 320 $ 244 $ 914 $ 732
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires recording the fair value of a liability
for an asset retirement obligation in the period incurred. The standard is
effective for fiscal years beginning after June 15, 2002, with earlier
application permitted. Upon adoption of the standard, the Company will be
required to use a cumulative effect approach to recognize transition amounts for
any existing retirement obligation liabilities, asset retirement costs and
accumulated depreciation. The Company has not determined the transition amounts.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This new statement also supersedes certain aspects of
APB 30, "Reporting the Results of Operations-Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", with regard to reporting the effects of a
disposal of a segment of a business and will require expected future operating
losses from discontinued operations to be reported in discontinued operations in
the period incurred rather than as of the measurement date as presently required
by APB 40. Additionally, certain dispositions may now qualify for discounted
operations treatment. The provisions of this statement are required to be
applied for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company has not yet determined what effect this
statement will have on its financial statements.
13. SUBSEQUENT EVENT
Effective October 1, 2001, the Company terminated its management
agreement with CareSouth Home Health Services, Inc. ("CareSouth"). This
management agreement, which the Company entered into on November 2, 1998 and
amended on September 1, 1999, was for the provision of payroll processing,
billing services, and collection services. In connection with this termination,
the Company entered into a Software License Agreement ("License Agreement") with
CareSouth for the use of a home health care billing and collections software
system. The License Agreement, which expires May 1, 2004, provided for a
$2,000,000 cash payment at signing, monthly payments beginning October 1, 2000
of $178,226 through May, 2004, and a $1,000,000 cash payment due on or before
February 28, 2002. At the expiration of the License Agreement, the Company has
the option to acquire the software system for $1.00, and consequently, the
Company intends to account for this lease as a capital lease obligation.
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 and Notes
thereto (the "Notes") appearing in Item 1 and the Consolidated Financial
Statements for 2000, Notes, and the related Management's Discussion and Analysis
as amended and restated in Form 10-K/A.
GENERAL
Amedisys is a leading multi-regional provider of home health care
nursing services. The Company operates fifty-five home care nursing offices and
one corporate office in the southern and southeastern United States.
During 1999, the Company changed its strategy from providing a variety
of alternate site provider health care services to becoming a leader in home
health care nursing services. Pursuant to this strategy, the Company launched a
restructuring plan to divest its non-home health care nursing divisions. The
Company subsequently sold its six surgery centers and sold or closed its four
infusion locations.
The Company has systematically reduced its operating costs since 1998 in
preparation for PPS. Significant cost reduction measures undertaken by the
Company included the consolidation/closure of offices which overlapped service
areas, converting its method of nurse pay to a variable or per visit rate rather
than a fixed or salary system, utilizing economies of scale, and reducing
corporate overhead when possible. Business functions that are not considered
part of the core business have been outsourced and management levels have been
streamlined.
The Company has positioned its operations to be successful under PPS.
The Company has implemented Disease
12
State Management programs and clinical protocols as well as supporting
technology to monitor and report outcome data, to standardize care, and to
ensure quality outcomes. Using clinical managers to assess and track patient
progress and highly skilled nurses to deliver care are also important components
of the overall strategy.
RESULTS OF OPERATIONS
The Company has restated the Consolidated Financial Statements for the
three months ended March 31, 2001 due to a net revenue overstatement for the
first quarter of 2001 as discussed in Note 2 of the Consolidated Financial
Statements. The results of operations for the nine months ended September 30,
2001 include the effect of the restatement as discussed in Note 2.
Service Revenues. Net revenues increased $7,581,000 or 34% and
$10,263,000 or 15% for the three and nine months ended September 30, 2001,
respectively, as compared to the same periods in 2000. This increase was
attributed to an increase in patient admissions, the change in the Medicare
reimbursement effective October 1, 2000, the price increase effective April 1,
2001 as a result of BIPA (as discussed in Note 5), and the price increase for
patients on service at the end of the third quarter effective October 1, 2001.
Patient admissions increased 3,230 or 52% from 6,230 for the three months ended
September 30, 2000 to 9,460 for the three months ended September 30, 2001 and
increased 7,747 or 40% from 19,233 for the nine months ended September 30, 2000
to 26,980 for the nine months ended September 30, 2001. The increase in patient
admissions is attributable to both internal growth and agencies acquired in the
fourth quarter of 2000 and the first six months of 2001.
Cost of Revenues. Cost of revenues increased 26% for the three months
ended September 30, 2001 and 7% for the nine months ended September 30, 2001 as
compared to the same periods in 2000. These increases are attributed to
increased salaries for the clinical manager positions of $1,253,000 and
$4,785,000 for the three and nine months ended September 30, 2001. The clinical
manager position was implemented company-wide in the latter part of 2000 to
provide a greater level of patient care oversight and coordination.
General and Administrative Expenses ("G&A"). G&A increased $1,473,000,
or 12%, for the three months ended September 30, 2001 and $877,000, or 2%,
for the nine months ended September 30, 2001 as compared to the same periods in
2000. The increase is primarily attributed to an increased bad debt provision of
$433,000 for the three months ended September 30, 2001 and $862,000 for the nine
months ended September 30, 2001 as compared to the prior year amounts.
FINANCIAL CONDITION
The Company recorded operating losses and had negative cash flow for
the year ended December 31, 1999 and the first three quarters of 2000, during
which time its operations were primarily funded by the divestiture of certain
non-core assets. The significant losses and negative cash flow from operations
were largely attributable to the prior Medicare reimbursement system which was
effective January 1, 1998 for the Company. In the fourth quarter of 2000 and the
first quarter of 2001, the Company reported positive cash flow and a decrease in
operating losses primarily as a result of the implementation of PPS on October
1, 2000. In the second and third quarters of 2001, the Company reported
profitability and positive cash flow due, in part, to a price increase effective
April 1, 2001 as a result of BIPA. The Company expects positive cash flow from
operations will continue and the Company will be able to fund operations
primarily from this source.
As of September 30, 2001, the Company had a working capital deficit of
$17.0 million. Included in the components of this deficit are the following
significant items that do not currently impact cash flow:
September 30, 2001
------------------
Short-term Medicare Liabilities (See Note 10) $ 10,600,000
Deferred Revenue (Current portion) 2,119,000
------------
Total $ 12,719,000
============
The short-term Medicare liability amount presented above, which is netted
against accounts receivable in the accompanying Consolidated Balance Sheet,
consists of two components. The first is an overpayment as a result of BIPA of
approximately $7.4 million, and the second is a $3.2 million liability for a
bankrupt subsidiary. The $7.4 million overpayment relates to fiscal year 2000,
prior to the implementation of PPS. Cost reports for this period are due March
10, 2002; therefore, no payments are expected until that time. The Company plans
to request a 36 month payment plan for this overpayment. If approved, the
long-term portion of this debt will be reflected as Long-Term Medicare
Liabilities on the balance sheet. The $3.2 million overpayment relates to fiscal
year 1998 and is listed as a debt to be discharged during the final liquidation
of the bankrupt subsidiary. The deferred revenue of $2.1 million is the current
portion of the deferred gain resulting from the sale of the Company's software
system in 1998. Due to the Company's continuing involvement with the software
system, the gain on the sale of the system was deferred and is being amortized
over a five-year period.
The Company also has certain contingencies recorded as current
liabilities in the accompanying Consolidated Balance Sheet (in accordance with
SFAS No. 5) that management does not believe will currently impact cash flow.
Also, as discussed in Note 8, the Company has available $2.3 million under the
bank line of credit which would be available to fund working capital needs.
For a description of Notes Payable and Long-term Debt, see Notes 8 and
9. For a discussion of Amounts Due Medicare, see Note 10.
The Company's operating activities provided $2.0 million in cash during
the nine months ended September 30, 2001, whereas such activities used $1.4
million in cash during the nine months ended September 30, 2000. Cash provided
by operating activities in 2001 is primarily attributable to net income of $3.2
million and net non-cash items
13
such as depreciation and amortization of $2.2 million offset by changes in
assets and liabilities of $2.5 million. Investing activities used $5.6 million
for the nine months ended September 30, 2001, whereas such activities provided
$5.0 million for the nine months ended September 30, 2000. Cash used by
investing activities in 2001 is primarily attributed to the purchase of
property, plant and equipment of $3.2 million, cash used for acquisitions of
$3.4 million, and partnership distributions of $745,000, offset by proceeds from
the sale of Company operations of $1.7 million. Financing activities used cash
during the nine months ended September 30, 2001 of $108,000, whereas such
activities used $478,000 during the same period in 2000. Cash used by financing
activities in 2001 is primarily attributed to borrowings on line of credit
agreements of $6.5 million, proceeds from the issuance of notes payable and
capital leases of $624,000, and proceeds from the issuance of stock of $239,000,
offset by payments on notes payable and capital leases of $3.2 million and a
decrease in long-term Medicare liabilities of $4.3 million.
As discussed in the Company's Annual Report of Form 10-K, the Company
began, in the first quarter of 2001, the installation of a company-wide computer
network infrastructure to connect all of its regional offices. This wide area
network ("WAN") will allow more immediate access to information by all company
personnel including senior management, which will increase operational
efficiencies. The original expected project cost was $1.5 million, however, the
commitment has subsequently been revised to approximately $2.5 million due to
the incremental cost for acquired agencies and requested design enhancements.
Capital expenditures through September 30, 2001 relating to this project
approximated $1.8 million and are included in purchase of property, plant, and
equipment in the Consolidated Statements of Cash Flows.
The Company does not believe that inflation has had a material effect
on its results of operations for the three and nine month periods ended
September 30, 2001.
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 service 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
On August 23 and October 4, 2001, two suits were filed against the
Company and three of its executive officers in the United States District Court
for the Middle District of Louisiana by two individuals purportedly as class
actions on behalf of all purchasers of Amedisys stock between March 1, 2001 and
June 13, 2001. The suits seek damages based on the decline in Amedisys' stock
price following an announced restatement of earnings for the fourth quarter of
2000 and first quarter of 2001, claiming that the defendants knew or were
reckless in not knowing the facts giving rise to the restatement. The Company
intends to seek dismissal of both claims.
ITEM 2. CHANGES IN SECURITIES
In accordance with the terms of conversion of the Company's Series A
Preferred Stock as stated in the Series A Preferred Stock Conversion Agreement,
during the first quarter of 2001, two preferred shareholders converted a total
of 20,000 preferred shares into 66,667 common shares. During the second quarter
of 2001, one preferred shareholder converted 20,000 preferred shares into 66,667
common shares. The conversion was exempt under Section 3(a)(9) of the Securities
Act of 1933.
14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Identification of Exhibit
------- -------------------------
2.1(6) - Asset Purchase Agreement by and between Surgery Center of
Hammond, L.L.C. and Hammond Surgical Care Center, L.C. and
Amedisys, Inc. and Amedisys Surgery Centers, L.C.
3.1(1) - Certificate of Incorporation
3.2(5) - Bylaws
4.1(1) - Certificate of Designation for the Series A Preferred Stock
4.2(2) - Common Stock Specimen
4.3(2) - Preferred Stock Specimen
4.4(2) - Form of Placement Agent's Warrant Agreement
4.5(3) - Series A Preferred Stock Conversion Agreement Specimen
4.6(3) - Certificate of Amendment of Certificate of Designation
Specimen
4.7(4) - Shareholder Rights Agreement
10.1(6) - Modification Agreement by and between CareSouth Home Health
Services, Inc. and Amedisys, Inc.
10.2(6) - Software License Agreement by and between CareSouth Home
Health Services, Inc. and Amedisys, Inc.
21.1(2) - List of Subsidiaries
----------
(1) Previously filed as an exhibit to the Annual Report on Form 10-KSB for
the year ended December 31, 1994.
(2) Previously filed as an exhibit to the Registration Statement on Form
S-3 dated March 11, 1998.
(3) Previously filed as an exhibit to the Quarterly Report on Form 10-Q/A
for the period ended June 30, 1999.
(4) Previously filed as an exhibit to the Current Report on Form 8-K dated
June 16, 2000 and the Registration Statement on Form 8-A dated June 16,
2000.
(5) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for
the period ended March 31, 2001.
(6) Filed herewith.
----------
(b) Report on Form 8-K
On July 17, 2001, the Company filed a Current Report on Form 8-K with
the SEC attaching a press release quantifying a net revenue overstatement
previously announced.
On July 19, 2001, the Company filed a Current Report on Form 8-K with
the SEC attaching a press release announcing expected second quarter earnings.
On August 21, 2001, the Company filed a Current Report on Form 8-K with
the SEC attaching a press release announcing quarter ended June 30, 2001
operating results and that the Company would host a conference call at 4:15 EDT
that same day.
On September 18, 2001, the Company filed a Current Report on Form 8-K
with the SEC attaching a press release that announced that it had sold its last
remaining outpatient surgery center, Hammond Surgical Care Center, L.C.,
15
d/b/a St. Luke's SurgiCenter, to Surgery Center of Hammond, L.L.C., an affiliate
of Universal Health Services, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMEDISYS, INC.
By: /s/ John M. Joffrion
---------------------------------------
John M. Joffrion
Senior Vice President of Finance
Principal Accounting and Financial Officer
DATE: November 13, 2001
16