U.S. SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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.
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(Exact Name of Registrant as Specified in Charter)
Delaware 11-3131700
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
11100 Mead Road, Suite 300, Baton Rouge, LA 70816
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(Address of principal executive offices including zip code)
(225) 292-2031
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(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Common Stock outstanding as of March 31, 2002: 7,374,711
shares
THIS FILING INCLUDES UNAUDITED FINANCIAL STATEMENTS THAT HAVE NOT BEEN REVIEWED
IN ACCORDANCE WITH RULE 10-01(D) OF REGULATION S-X PROMULGATED BY THE SECURITIES
AND EXCHANGE COMMISSION DUE TO THE DISMISSAL OF OUR AUDITORS, ARTHUR ANDERSEN.
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Information with Respect to Financial Statements ........................................... 3
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 ..................... 4
Consolidated Statements of Operations for the Three Months Ended
March 31, 2002 and 2001 .................................................................... 5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 ... 6
Notes to Consolidated Financial Statements ................................................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS ................................ 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .......................................................................... 16
ITEM 2. CHANGES IN SECURITIES ...................................................................... 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................................................ 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........................................ 16
ITEM 5. OTHER INFORMATION .......................................................................... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................................................... 16
2
ITEM 1. FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO FINANCIAL STATEMENTS
This filing includes unaudited financial statements that have not been
reviewed in accordance with Rule 10-01(d) of Regulation S-X promulgated by the
Securities and Exchange Commission due the dismissal of our auditors, Arthur
Andersen LLP. Our Board of Directors, upon the recommendation of the Audit
Committee, has dismissed Arthur Andersen LLP as the independent auditors for
Amedisys, Inc. Upon the formal appointment and acceptance by a successor
auditing firm, Amedisys, Inc. intends to have the successor firm review the
financial statements for the quarterly period ended March 31, 2002 in accordance
with Rule 10-01(d).
3
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2002 AND DECEMBER 31, 2001
(DOLLAR AMOUNTS IN 000'S)
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
(UNAUDITED) (AUDITED)
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 2,334 $ 3,515
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $3,538 IN MARCH 2002 AND $3,125 IN DECEMBER 2001 5,348 10,468
PREPAID EXPENSES 1,093 244
INVENTORY AND OTHER CURRENT ASSETS 1,215 822
------------ ------------
TOTAL CURRENT ASSETS 9,990 15,049
PROPERTY AND EQUIPMENT, NET 9,853 10,290
OTHER ASSETS, NET 22,298 22,288
NOTES RECEIVABLE FROM RELATED PARTIES 25 13
------------ ------------
TOTAL ASSETS $ 42,166 $ 47,640
============ ============
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 2,382 $ 2,440
ACCRUED EXPENSES:
PAYROLL AND PAYROLL TAXES 5,900 6,798
INSURANCE 2,110 1,881
INCOME TAXES 1,352 930
OTHER 3,572 4,309
NOTES PAYABLE 3,649 9,305
CURRENT PORTION OF LONG-TERM DEBT 5,727 5,355
CURRENT PORTION OF OBLIGATIONS UNDER CAPITAL LEASES 2,367 2,391
------------ ------------
TOTAL CURRENT LIABILITIES 27,059 33,409
LONG-TERM DEBT 4,210 5,591
LONG-TERM MEDICARE LIABILITIES 595 958
OBLIGATIONS UNDER CAPITAL LEASES 2,658 3,208
OTHER LONG-TERM LIABILITIES 1,052 1,099
------------ ------------
TOTAL LIABILITIES 35,574 44,265
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MINORITY INTEREST 66 66
------------ ------------
STOCKHOLDERS' EQUITY:
COMMON STOCK (7,374,711 SHARES IN MARCH 2002 AND
7,178,152 SHARES IN DECEMBER 2001) 7 7
ADDITIONAL PAID-IN CAPITAL 17,690 16,539
TREASURY STOCK (4,667 SHARES OF COMMON STOCK IN
MARCH 2002 AND DECEMBER 2001) (25) (25)
RETAINED EARNINGS (DEFICIT) (11,146) (13,212)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,526 3,309
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,166 $ 47,640
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED, DOLLAR AMOUNTS IN 000'S, EXCEPT PER SHARE DATA)
MARCH 31, 2002 MARCH 31, 2001
-------------- --------------
INCOME:
SERVICE REVENUE $ 31,850 $ 22,171
COST OF SERVICE REVENUE 13,869 9,766
------------ ------------
GROSS MARGIN 17,981 12,405
GENERAL AND ADMINISTRATIVE EXPENSES:
SALARIES AND BENEFITS 9,431 6,643
OTHER 5,557 5,641
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TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 14,988 12,284
OPERATING INCOME 2,993 121
OTHER INCOME AND EXPENSE:
INTEREST INCOME 18 155
INTEREST EXPENSE (578) (703)
OTHER INCOME, NET 131 18
------------ ------------
TOTAL OTHER EXPENSE, NET (429) (530)
NET INCOME (LOSS) BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS 2,564 (409)
INCOME TAX EXPENSE 498 --
------------ ------------
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS 2,066 (409)
(LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES -- (207)
------------ ------------
NET INCOME (LOSS) $ 2,066 $ (616)
============ ============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,241 5,492
BASIC INCOME PER COMMON SHARE:
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS $ 0.29 $ (0.07)
(LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES -- (0.04)
------------ ------------
NET INCOME (LOSS) $ 0.29 $ (0.11)
============ ============
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,353 5,492
DILUTED INCOME PER COMMON SHARE:
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS $ 0.25 $ (0.07)
(LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES -- (0.04)
------------ ------------
NET INCOME (LOSS) $ 0.25 $ (0.11)
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
5
AMEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED, DOLLAR AMOUNTS IN 000'S)
MARCH 31, 2002 MARCH 31, 2001
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME (LOSS) $ 2,066 $ (616)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 773 682
PROVISION FOR BAD DEBTS 679 702
COMPENSATION EXPENSE -- 70
DEFERRED REVENUE -- (530)
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) IN CASH INCLUDED IN ASSETS HELD FOR SALE -- (200)
DECREASE IN ACCOUNTS RECEIVABLE 4,441 2,821
(INCREASE) IN INVENTORY AND OTHER CURRENT ASSETS (1,242) (449)
(INCREASE) DECREASE IN OTHER ASSETS (38) 48
(DECREASE) IN ACCOUNTS PAYABLE (59) (145)
INCREASE (DECREASE) IN ACCRUED EXPENSES 123 (311)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,743 2,072
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY, PLANT AND EQUIPMENT -- --
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (308) (379)
MINORITY INTEREST INVESTMENT IN SUBSIDIARY -- 30
------------ ------------
NET CASH (USED) BY INVESTING ACTIVITIES (308) (349)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET (REPAYMENTS) BORROWINGS ON LINE OF CREDIT AGREEMENTS (5,656) 6,539
PROCEEDS FROM ISSUANCE OF NOTES PAYABLE AND CAPITAL LEASES 441 --
PAYMENTS ON NOTES PAYABLE AND CAPITAL LEASES (2,023) (218)
CASH USED IN PURCHASE ACQUISITIONS -- (440)
(INCREASE) IN NOTES RECEIVABLE - RELATED PARTIES (13) --
(DECREASE) IN LONG-TERM LIABILITIES (48) --
(DECREASE) IN LONG-TERM MEDICARE LIABILITIES (362) (2,417)
PROCEEDS FROM ISSUANCE OF STOCK 45 55
------------ ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (7,616) 3,519
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,181) 5,242
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,515 6,967
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,334 $ 12,209
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
INTEREST $ 505 $ 727
============ ============
INCOME TAXES $ 143 $ 266
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
6
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-six home care nursing offices and two corporate offices
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 March 31, 2002, the results of operations for the three
months ended March 31, 2002 and 2001, and cash flows for the three months ended
March 31, 2002 and 2001. 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. 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 as
services are provided based on the number of visits performed during the
reporting period and a historical weighted average revenue per visit. Effective
October 1, 2001, the standard episode payment was increased, through federal
legislation, to $2,274 per episode.
3. EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of
shares outstanding during the period. For the three months ended March 31, 2001,
there was no difference between basic and diluted weighted average common shares
outstanding as the effect of stock options (719,585 weighted average outstanding
for the three months ended March 31, 2001), warrants (264,000 weighted average
outstanding for the three months ended March 31, 2001) and preferred shares
(370,000 preferred shares convertible into 1,263,705 weighted average common
shares for the three months ended March 31, 2001) were anti-dilutive. The
following table sets forth the computation of basic and diluted net income
(loss) per common share for the three month periods ended March 31, 2002 and
2001 including the results of discontinued operations.
7
In 000's, except per share amounts
---------------------------------------
Three months ended Three months ended
March 31, 2002 March 31, 2001
------------------ ------------------
Basic Net Income (Loss) per Share:
Net Income (Loss) $ 2,066 $ (616)
============ ============
Weighted Average Number of
Shares Outstanding 7,241 5,492
============ ============
Net Income (Loss) per Common
Share - Basic $ 0.29 $ (0.11)
============ ============
Diluted Net Income (Loss) per Share:
Net Income (Loss) $ 2,066 $ (616)
============ ============
Weighted Average Number of
Shares Outstanding 7,241 5,492
Effect of Dilutive Securities:
Stock Options 822 --
Warrants 290 --
Convertible Preferred Shares -- --
------------ ------------
Average Shares - Diluted 8,353 5,492
============ ============
Net Income (Loss) per Common
Share - Diluted $ 0.25 $ (0.11)
============ ============
4. MEDICARE REIMBURSEMENT AND REFORM
The Company derived approximately 89% of its revenues from continuing
operations from the Medicare system for the three months ended March 31, 2002
and for the three months ended March 31, 2001.
On June 28, 2000, HCFA issued the final rules for PPS (as discussed in
Note 2), 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 was
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 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").
Effective October 1, 2001, the standard episode payment for federal
fiscal year 2002 was increased to $2,274 per episode.
Currently, there is a budgeted 15% reduction in payment limits that
will be effective October 1, 2002. Based on the complicated reimbursement
formula and taking these reductions into account, offset by an anticipated
inflationary update with the beginning of the new federal fiscal year, the
anticipated reduction to service revenues should approximate 5%. This budgeted
reduction has been delayed for the past three years and there is ongoing debate
and discussion at the congressional level concerning delaying or eliminating in
its entirety this scheduled reduction, but there can be no assurance that the
scheduled reduction will not be implemented. In addition to this scheduled
reduction that will be effective October 1, 2002,
8
the provision in BIPA whereby home health providers received a 10% increase in
reimbursement for serving patients in rural areas, which accounts for
approximately 30% of the Company's patient population, is scheduled to expire
March 31, 2003. In the event that either of these reductions takes place, the
Company would reflect a decrease to service revenues which could be material.
The Company is currently evaluating its operations to increase efficiencies and
reduce costs in an effort to mitigate these impending reductions.
5. 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.
In consideration for the acquired assets and liabilities, the Company paid
$440,000 cash, which represents a purchase price of $475,000 less the estimated
value of accrued vacation obligations. In connection with this acquisition, the
Company recorded $448,000 of goodwill.
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 from Seton Health Corporation of North Alabama associated
with their operations in Birmingham, Tuscaloosa, Anniston, Greensboro, and
Reform, Alabama. 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 value of accrued vacation obligations. In connection with this
acquisition, the Company recorded $2,235,000 of goodwill.
Effective June 11, 2001, the Company acquired from East Cooper
Community Hospital, Inc. certain assets and liabilities of HealthCalls
Professional Home Health Services. In consideration for the acquired assets and
liabilities, the Company paid $750,000 cash. In connection with this
acquisition, the Company recorded $726,000 in goodwill.
6. 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
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.
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):
March 31,
2001
------------
Outpatient Surgery Division:
Service Revenue $ 538
(Loss) from Discontinued
Operations before Provision for
Income Taxes (74)
(Loss) from Discontinued
Operations Net of Income Taxes (74)
Infusion Therapy Division:
Service Revenue $ --
(Loss) from Discontinued Operations
before Provision for Income Taxes (133)
(Loss) from Discontinued Operations
Net of Income Taxes (133)
Total Discontinued Operations:
Service Revenue $ 538
Income (Loss) from Discontinued
Operations before Provision for
Income Taxes (207)
Income (Loss) from Discontinued
Operations Net of Income Taxes (207)
7. NOTES PAYABLE
Notes payable as of March 31, 2002 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 March 31, 2002 and December 31, 2001, had
an outstanding balance of $2,894,000 and $8,593,000, respectively. There was
$4,984,000 available under this line as of March 31, 2002 and no amounts
available as of December 31, 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 10.09% and
11.00% for the three months ended March 31, 2002 and the year ended December 31,
2001, respectively. The revolving bank line of credit of $2.5 million bears
interest at the Bank One Prime Floating Rate, which was 4.75% at March 31, 2002
and December 31, 2001. At March 31, 2002, there was $754,000 drawn on the bank
line of credit with $1,746,000 available. At December 31, 2001, there was
$712,000 drawn on the line of credit with $1,788,000 available.
8. LONG-TERM DEBT
Long-term debt consists primarily of a $7.8 million note payable to NPF
Capital, a $613,000 note payable to CareSouth Home Health Services, Inc.
("CareSouth"), and a $567,000 note payable to Winter Haven Hospital.
The $7.8 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 $428,000 for the
remainder of the term. In connection with the sale of St. Luke's (see Note 6),
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 $613,000 note to CareSouth, which is due July, 2003 and monthly
principal and interest payments of $30,000 on the $567,000 note to Winter Haven
Hospital, which is due November, 2003.
9. CAPITAL LEASES
Capital leases consist primarily of a Software License Agreement with
CareSouth Home Health Services, Inc. ("CareSouth") and an equipment lease
agreement with Cisco Systems Capital Corporation ("Cisco"). The CareSouth lease
requires monthly principal and interest payments of $178,000 and had an
outstanding balance of $4,206,000 at March 31, 2002. This agreement contains a
bargain purchase option which the Company intends to exercise upon
10
expiration of the agreement in May 2004. The Cisco capital lease, secured by
equipment utilized in connection with the Company's wide-area network, requires
monthly principal and interest payments of $22,000 and had a balance of $559,000
at March 31, 2002. This lease expires July 2004.
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 March 31, 2002, the Company estimates an aggregate
payable to Medicare of $13.8 million resulting from interim cash receipts in
excess of expected reimbursement. In the accompanying Consolidated Balance Sheet
as of March 31, 2002, the amounts due to Medicare within one year of $13.2
million are netted against accounts receivable. The amount payable to Medicare
in excess of one year of $0.6 million is shown as Long-term Medicare
Liabilities. Of the $13.2 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 PIP was issued to providers. Upon filing of the fiscal year ending
December 31, 2000 cost reports due in June, 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 $13.2 million is a $3.1 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 $3.1 million currently do not have repayment plans and no
payments are currently being made.
11. 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 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 was amortized through 2001, at which time
amortization ceased and a transitional goodwill impairment test was performed.
The Company adopted SFAS 142 effective January 1, 2002. Management has evaluated
the impact of the new accounting standards on existing goodwill and other
intangible assets and has concluded that no impairment exists as of March 31,
2002. 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 March 31,
2002 2001
-------- --------
Goodwill Amortization Expense $ -- $ 342
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 does not have any asset retirement
obligations; therefore, adoption of this statement is not applicable to the
Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), 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 discontinued
operations treatment. The provisions of this statement are required to be
11
applied for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company adopted SFAS 144 effective January 1,
2002. The adoption of SFAS 144 did not have any effect on the Company's
financial statements.
12. GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with SFAS 142, the Company discontinued the amortization
of goodwill effective January 1, 2002. A reconciliation of previously reported
net income and earnings per share to the amounts adjusted for the exclusion of
goodwill amortization, net of tax, follows (in 000s, except per share data):
Three Months Ended
March 31,
----------------------------------
2002 2001
------------ ------------
Net income (loss), as reported $ 2,066 $ (616)
Add: Goodwill amortization, net of tax -- 342
------------ ------------
Adjusted net income (loss) $ 2,066 $ (274)
============ ============
Basic income (loss) per share:
Reported net income (loss) $ 0.29 $ (0.11)
Goodwill amortization -- 0.06
------------ ------------
Adjusted net income (loss) $ 0.29 $ (0.05)
============ ============
Diluted income (loss) per share:
Reported net income (loss) $ 0.25 $ (0.11)
Goodwill amortization -- 0.06
------------ ------------
Adjusted net income (loss) $ 0.25 $ (0.05)
============ ============
Changes in the carrying amount of goodwill for the quarter ended March 31, 2002
are as follows (in 000s):
Balance as of December 31, 2001 $ 21,933
Goodwill acquired in the three months ended March 31, 2002 --
------------
Balance as of March 31, 2002 $ 21,933
============
The table below presents the Company's other intangible assets at March
31, 2002 and December 31, 2001, all of which are subject to amortization (in
000s):
March 31, 2002 December 31, 2001
--------------------------------------- ------------------------------------------
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
-------- ------------ -------- -------- ------------ --------
Acquisition Costs $ 617 $ (326) $ 291 $ 581 $ (298) $ 283
Amortization expense for the three months ended March 31, 2002 was
$28,000 and is estimated to be $121,000 for the year ending December 31, 2002.
Estimated amortization expense for the five succeeding years is as follows (in
000s):
2003 $ 116
2004 $ 37
2005 $ 37
2006 $ 8
2007 $ --
13. SUBSEQUENT EVENTS.
Effective April 1, 2002, the Company, through its wholly-owned
subsidiary Amedisys Texas, Ltd., acquired certain assets and liabilities of
Christus Spohn Home Health Services from Christus Spohn Health System
Corporation associated with their operations in Corpus Christi, Texas. The
assets acquired consisted of all furniture, fixtures, equipment, leasehold
improvements and supplies; inventory; current patient lists of present and
former patients; mailing lists; business records; telephone numbers and
listings; intangibles and other rights and privileges; sublease interest;
goodwill and going concern; benefits for all amounts previously paid for
advertising, design, fees, rent services, or interest; all rights under the
specified agreements; all state home health licenses, permits, the Medicare
provider agreement, and the Medicaid provider agreement; and all trade secrets,
inventions, patents, copyrights, trade names, business names, trademarks, and
other intangible assets. The liabilities assumed consisted of the accrued, but
unused, paid time off of the employees as well as the obligations accruing after
April 1, 2002 relating to the conveyed contracts and agreements. In
consideration for the acquired assets and
12
liabilities, the Company paid $875,000 cash at closing and executed a promissory
note in the amount of $1,000,000 bearing interest at 7% annually and payable
over a three-year term in quarterly principal and interest installments of
$93,000 beginning July 1, 2002. In connection with this acquisition, the Company
will record approximately $1,837,000 of goodwill in the second quarter of 2002.
On April 26, 2002, the Company completed a private placement of
1,460,000 shares of Common Stock with private investors at a price of $6.94 per
share. This placement provided net proceeds to the Company of approximately $9.5
million. The Company intends to use the proceeds for both debt reduction and
general corporate purposes, including possible acquisitions. The Company engaged
Belle Haven Investments, L.P. ("BHI") and Sanders Morris Harris ("Sanders") as
placement agents for this transaction whereby they were entitled to receive a
cash fee as well as warrants for a successful placement. BHI received $544,300
in cash and BHI and its principals received 64,500 warrants exercisable at $8.12
per share. Sanders received $15,615 in cash and 4,500 warrants exercisable at
$8.12 per share.
On April 30, 2002, the Company dismissed Arthur Andersen LLP as the
Company's independent auditors. This decision was approved by the Company's
Board of Directors upon the recommendation of the Audit Committee. A Form 8-K
was filed with the SEC on May 3, 2002 and a Form 8-K/A was filed with the SEC on
May 13, 2002 relating to this matter.
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 2001, Notes, and the related Management's Discussion and Analysis
in Form 10-K.
RESULTS OF OPERATIONS
Service Revenues. Net revenues increased $9,679,000 or 44% for the
three months ended March 31, 2002, as compared to the same period in 2001. This
increase was attributed to an increase in patient admissions, the price increase
effective April 1, 2001 as a result of BIPA (as discussed in Note 4), and the
price increase effective October 1, 2001. Patient admissions increased 2,681 or
34% from 7,945 for the three months ended March 31, 2001 to 10,626 for the three
months ended March 31, 2002. The increase in patient admissions is attributable
to both internal growth and agencies acquired in the first six months of 2001.
Cost of Revenues. Cost of revenues increased 42% for the three months
ended March 31, 2002 as compared to the same period in 2001. These increases are
attributed to an increase in patient visits and increased salaries for the
clinical manager positions. Patient visits increased 62,571, or 30% from 208,233
for the three months ended March 31, 2001 to 270,804 for the three months ended
March 31, 2002. Salaries for the clinical manager positions increased $747,000
for the three months ended March 31, 2002 as compared to the same period in
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 $2,704,000,
or 22%, for the three months ended March 31, 2002 as compared to the same period
in 2001. As a percentage of net revenues, G&A decreased 8% from 55% for the
three months ended March 31, 2001 to 47% for the three months ended March 31,
2002. The dollar increase is primarily attributed to administrative expenses for
acquisitions of $1.2 million, increased health insurance costs of $700,000,
increased depreciation expense in connection with the installation of the
wide-area network during the latter part of 2001, and additional personnel costs
in several corporate departments including billing and information services.
Income Tax Expense. Income tax expense of $498,000 was recorded during
the three months ended March 31, 2002.
CRITICAL ACCOUNTING POLICIES
The financial statements are prepared in accordance with generally
accepted accounting principles and include amounts based on management's
judgements and estimates. These judgements and estimates are based on, among
other things, historical experience and information available from outside
sources. The critical accounting policies presented below have been discussed
with the Audit Committee as to the development and selection of the accounting
estimates used as well as the disclosures provided herein.
13
MEDICARE REVENUE RECOGNITION
The Company derived approximately 89% of net service revenue from the
Medicare system for the three months ended March 31, 2002. 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. Effective October 1, 2001, the standard episode payment was
increased, through federal legislation, to $2,274 per episode. Revenue is
recognized as services are provided based on the number of visits performed
during the reporting period and a historical weighted average revenue per visit.
Any significant change in the current case mix of patients, geographic
distribution of patients, or utilization of services could produce a variance to
service revenue that differs materially from the revenue recorded based on
historical information.
Prior to the implementation of PPS on October 1, 2000, Medicare revenue
was based on allowable costs subject to certain limits. Final reimbursement was
determined after submission of annual cost reports and audits thereof by the
fiscal intermediaries. In 1997, Congress approved the Balanced Budget Act of
1997 (the "Budget Act"). The Budget Act established an interim payment system
(the "IPS") that provided for the lowering of reimbursement limits for home
health visits until PPS was implemented. For cost reporting periods beginning on
or after October 1, 1997, Medicare-reimbursed home health agencies' cost limits
were determined as the lesser of (i) their actual costs, (ii) per visit cost
limits based on 105% of median costs of freestanding home health agencies, or
(iii) a per beneficiary limit determined for each specific agency. The IPS cost
limits applied to the Company for the cost reporting period beginning January 1,
1998 and remained in effect until October 1, 2000.
NON-MEDICARE REVENUE RECOGNITION
The Company derived approximately 11% of net service revenue from
non-Medicare payor sources for the three months ended March 31, 2002.
Non-Medicare payor sources reimburse the Company for services provided under
both fee-for-service arrangements and capitated arrangements. Under
fee-for-service arrangements, net service revenues are recorded at the expected
realizable amount in the reporting period in which the service is provided. The
expected realizable amount is determined using the contractual reimbursement
rates on a per payor, per discipline basis if available, or historical
experience. Under capitated arrangements, net service revenues are recorded at
the predetermined monthly per member per month rate irrespective of the services
performed.
COLLECTIBILITY OF ACCOUNTS RECEIVABLE
The process for estimating the ultimate collectibility of accounts
receivable involves judgement, primarily relating to non-Medicare accounts
receivable. The Company currently records an allowance for uncollectible
accounts on a percentage of revenues basis unless a specific issue is noted, at
which time an additional allowance may be recorded.
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. Beginning in the second quarter of 2001 and through this quarter ending
March 31, 2002, the Company has reported profitability and positive cash flow
due, in part, to price increases effective April 1, 2001 and October 1, 2001.
The Company anticipates positive cash flow from operations will continue.
As of March 31, 2002, the Company had a working capital deficit of
$17.1 million. Included in this deficit are short-term Medicare liabilities,
netted against accounts receivable in the accompanying Consolidated Balance
Sheets, which the Company does not expect to fully liquidate in cash during
2002. These Medicare liabilities include an overpayment of $3.1 million relating
to Alliance, a subsidiary of the Company currently in bankruptcy proceedings,
and overpayments totaling $7.4 million as a result of BIPA. The overpayment
relating to Alliance is listed as a debt to be discharged during the final
liquidation. The BIPA overpayment relates to fiscal year 2000 for which the
year-end cost report deadline is June
14
17, 2002. The Company plans to request a thirty-six (36) month repayment plan
for this overpayment upon submission of the cost reports. Repayment plans over a
similar period have been requested by the Company in previous years and approved
by CMS, although there can be no assurance that such request would be granted in
the future. If approved, the long-term portion of this debt will be reflected as
Long-Term Medicare Liabilities on the balance sheet.
Also included in the working capital deficit as of March 31, 2002 is
$2.9 million of notes payable secured by eligible receivables under the NCFE
facility described in Note 7. Under this facility, the Company makes regular
repayments as receivables are collected, and receives additional funds as
eligible receivables are generated in the normal course of business. This
facility expires in December 2003, and provided that the Company continues to
generate eligible accounts receivable in a similar manner to the twelve months
ended December 31, 2001 and the three months ended March 31, 2002, and other
conditions of the line of credit are met, this amount would not need to be
repaid in full by the Company until the expiration of the facility.
The Company also has certain contingencies recorded as current
liabilities in the accompanying Consolidated Balance Sheets (in accordance with
SFAS No. 5) that management does not believe will currently impact cash flow.
Also, as discussed in Note 7, the Company has available $6.7 million under the
NCFE and bank lines of credit which would be available to fund working capital
needs. As mentioned in Note 13, the Company completed a private placement of
Common Stock in April 2002 for net proceeds of approximately $9.5 million.
The following table summarizes the Company's current contractual
obligations (in 000's):
Payments Due by Period
---------------------------------------------------------------
Contractual
Obligations Total Less than 1 year 1-3 years 4-5 years
------------ ---------------- ------------ ------------
Long-Term Debt $ 9,937 $ 5,727 $ 4,202 $ 8
Capital Lease
Obligations 5,025 2,367 2,656 2
Notes Payable 3,649 3,649 -- --
Medicare Liabilities 13,761 13,166 595 --
------------ ------------ ------------ ------------
Total Contractual
Cash Obligations $ 32,372 $ 24,909 $ 7,453 $ 10
============ ============ ============ ============
For a description of Notes Payable and Long-term Debt, see Notes 7 and
8. For a discussion of Amounts Due Medicare, see Note 10.
The Company's operating activities provided $6,743,000 in cash during
the three months ended March 31, 2002, whereas such activities provided
$2,072,000 in cash during the three months ended March 31, 2001. Cash provided
by operating activities in 2002 is primarily attributable to net income of
$2,066,000, net non-cash items such as depreciation and amortization of
$773,000, provision for bad debts of $679,000, and changes in assets and
liabilities of $3,225,000. Investing activities used $308,000 for the three
months ended March 31, 2002, whereas such activities used $349,000 for the three
months ended March 31, 2001. Cash used by investing activities in 2002 is
attributed to the purchase of property, plant and equipment of $308,000.
Financing activities used cash during the three months ended March 31, 2002 of
$7,616,000, whereas such activities provided $3,519,000 during the same period
in 2001. Cash used by financing activities in 2002 is primarily attributed to
proceeds from the issuance of notes payable and capital leases of $441,000, and
proceeds from the issuance of stock of $45,000, offset by repayments on line of
credit agreements of $5,656,000, payments on notes payable and capital leases of
$2,023,000, increase in related party notes receivable of $13,000, decrease in
long-term liabilities of $48,000, and a decrease in long-term Medicare
liabilities of $362,000.
The Company derived approximately 89% of its service revenues from the
Medicare system for the three months ended March 31, 2002. Currently, there is a
budgeted 15% reduction in payment limits that will be effective October 1, 2002.
Based on the complicated reimbursement formula and taking these reductions into
account, offset by an anticipated inflationary update with the beginning of the
new federal fiscal year, the anticipated reduction to service revenues should
approximate 5%. This budgeted reduction has been delayed for the past three
years and there is ongoing debate and discussion at the congressional level
concerning delaying or eliminating in its entirety this scheduled reduction, but
there can be no assurance that the scheduled reduction will not be implemented.
In addition to this scheduled reduction that will be effective October 1, 2002,
the provision in BIPA whereby home health providers received a 10% increase in
15
reimbursement for serving patients in rural areas, which accounts for
approximately 30% of the Company's patient population, is scheduled to expire
March 31, 2003. In the event that either of these reductions takes place, the
Company would reflect a decrease to service revenues which could be material.
The Company is currently evaluating its operations to increase efficiencies and
reduce costs in an effort to mitigate these impending reductions
The Company does not believe that inflation has had a material effect
on its results of operations for the three month period ended March 31, 2002.
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
None.
ITEM 2. CHANGES IN SECURITIES
None.
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
3.1(4) - Certificate of Incorporation and amendments
3.2(3) - Bylaws
4.2(1) - Common Stock Specimen
16
4.7(2) - Shareholder Rights Agreement
21.1(1) - List of Subsidiaries
(1) Previously filed as an exhibit to the Registration Statement on Form
S-3 dated March 11, 1998.
(2) 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.
(3) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for
the period ended March 31, 2001.
(4) Filed herewith.
----------
(b) Report on Form 8-K
On March 6, 2002, the Company filed a Current Report on Form 8-K with
the SEC pursuant to Section 18 under the Securities Act of 1934 to furnish the
text of slides which the Company's management began using during presentations
at investor conferences.
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/ LARRY R. GRAHAM
------------------------------
Larry R. Graham
Principal Accounting and Financial Officer
DATE: May 15, 2002
INDEX TO EXHIBITS
Exhibit
No. Identification of Exhibit
------- -------------------------
3.1(4) - Certificate of Incorporation and amendments
3.2(3) - Bylaws
4.2(1) - Common Stock Specimen
4.4(1) - Form of Placement Agent's Warrant Agreement
4.7(2) - Shareholder Rights Agreement
21.1(1) - List of Subsidiaries
----------
(1) Previously filed as an exhibit to the Registration Statement on Form
S-3 dated March 11, 1998.
(2) 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.
(3) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for
the period ended March 31, 2001.
(4) Filed herewith.