-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WR+t5H8t3ZNNhXEav7VyLs1KsnCMgcColgxhXgz3UDnf4+4PkJukTLQoazTTC2hn nflezoxVNAbb99l1zVT3+w== 0000899243-98-001906.txt : 19981026 0000899243-98-001906.hdr.sgml : 19981026 ACCESSION NUMBER: 0000899243-98-001906 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19981023 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMEDISYS INC CENTRAL INDEX KEY: 0000896262 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 113131700 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-24260 FILM NUMBER: 98730215 BUSINESS ADDRESS: STREET 1: 3029 S SHERWOOD FOREST BLVD STE 300 CITY: BATON ROUGE STATE: LA ZIP: 70816 BUSINESS PHONE: 5042922031 MAIL ADDRESS: STREET 1: 3029 SOUTH SHERWOOD FOREST BLVD STREET 2: SUITE 300 CITY: BATON ROUGE STATE: LA ZIP: 70816 FORMER COMPANY: FORMER CONFORMED NAME: ANALYTICAL NURSING MANAGEMENT CORP DATE OF NAME CHANGE: 19940819 FORMER COMPANY: FORMER CONFORMED NAME: M&N CAPITAL CORP DATE OF NAME CHANGE: 19930125 10-K405/A 1 AMENDMENT NO. 2 TO FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-K/A ---------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Fiscal Year Ended: December 31, 1997 Commission File Number: 0-24260 AMEDISYS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3131700 (STATE OR OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3029 S. SHERWOOD FOREST BOULEVARD, SUITE 300 BATON ROUGE, LOUISIANA 70816 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (504) 292-2031 OR (800) 467-2662 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $.001 per share Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes [X] No [_] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulations S-K in this form, and if no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Issuer's revenues for the year ended December 31, 1997 were $ 54,496,096. The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the last sale price as quoted by the Nasdaq National Market on March 31, 1998 was $9,158,742. As of March 31, 1998 registrant has 3,060,021 shares of Common Stock outstanding. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I................................................................... 3 ITEM 1. BUSINESS.................................................... 3 ITEM 2. PROPERTIES.................................................. 14 ITEM 3. LEGAL PROCEEDINGS........................................... 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15 PART II.................................................................. 16 ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS..................................................... 16 ITEM 6. SELECTED FINANCIAL DATA..................................... 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.................. 22 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................... 22 PART III................................................................. 23 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 23 ITEM 11. EXECUTIVE COMPENSATION...................................... 26 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................. 26 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 27 PART IV.................................................................. 29 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......................................................... 29 SIGNATURES............................................................... 30 FINANCIAL STATEMENTS..................................................... F-1
2 PART I ITEM 1. BUSINESS GENERAL Amedisys, Inc. a Delaware corporation (the "Company"), is a leading multi- regional provider of fully integrated alternate-site health care services. The Company's alternate-site provider services division offers the following services: infusion therapy, ambulatory surgery centers and home health nursing services. Its management services division includes: staffing and professional services, and provider management services. The Company operates 46 offices within a network of wholly owned subsidiaries in the southern United States. Amedisys was incorporated in Louisiana in 1982. The Company consolidated the holdings of its subsidiaries through stock transfers pursuant to Section 351 of the Internal Revenue Code causing these subsidiaries to be 100% owned by Amedisys, Inc. in 1992 and became public in 1993 through a merger with M & N Capital, a New York corporation. In 1994, the Company moved its state of incorporation from New York to Delaware. Amedisys currently trades on the Nasdaq National Market under the symbol "AMED." The Company seeks to differentiate itself from its competitors by providing a continuum of services through its divisions and its community networks. Its growth objective is to enhance its position as a leader in the provision of alternate site health care services by offering patients, physicians and payors quality services in a cost effective manner, which can be delivered outside an institutional setting. The Company's strategy of focusing operations in a well defined target market area allows it to gain a considerable presence in each market and hold a dominant position. The Company's areas of operation offer the distinct advantage of having some of the lowest penetration of managed health care in the nation. However, as the nationwide trend toward managed care continues, the Company believes it is well positioned to adapt to the demands of managed care. Amedisys will continue its aggressive expansion through internal growth, start-ups and acquisitions. From 1994 to 1997, the Company increased revenues by 100%, primarily through increased market share in existing business lines and developing new, synergistic services. RECENT DEVELOPMENTS Recent Acquisitions In August 1997, the Company acquired substantially all of the assets of Allgood Medical Services, Inc. d/b/a Care Medical and Mobility Equipment Company, a home medical equipment company, for $1,165,000. The purchase price consisted of $465,000 in cash, a $100,000 note, and 115,518 shares of Company common stock having a value of $600,000. This transaction has been accounted for as a purchase and the excess of the total acquisition cost over the fair value of net assets acquired (goodwill) of $852,000 was being amortized over 20 years using the straight-line method. Subsequent to this purchase, certain reimbursement reductions were announced to implement the Balance Budget Act of 1997. Based on management's estimate of the expected impact of these changes in reimbursement on future cash flows, this goodwill was fully written off as other general and administrative expenses at December 31, 1997 as required under SFAS No. 121. In January 1998, the Company acquired all of the issued and outstanding stock of Alliance Home Health, Inc. ("Alliance"), a home health care business with locations throughout Oklahoma, in exchange for 194,286 shares of common stock valued at $7.00 per share in an arms length transaction between the Company and the stockholder of Alliance. Of the 194,286 shares of Company common stock issued to the former owners of Alliance, 122,857 shares were placed in escrow as consideration for certain contingent liabilities which may be asserted against the former stockholder of Alliance to the extent such claims exceed $500,000 (singularly and/or in aggregate). The contingent liabilities include any material misstatement or omission in any representation or breach of any warranty, covenant or agreement of Alliance or its stockholder, any medicare liabilities, any 3 liability from lawsuits or arbitration, any payment to be made by Alliance pursuant to a previous acquisition, or any liability resulting from the focus medical review and any other services rendered by Alliance through December 31, 1997. The escrow period expires December 31, 2003. The Company performed management services for Alliance during 1997 and received revenues totaling approximately $1.2 million of which $695,000 is included in accounts receivable at December 31, 1997. In addition, the Company has advanced $1,465,000 to Alliance for cash flow purposes which is included in other assets at December 31, 1997. The majority stockholder of Alliance entered into a three year employment agreement and two year non-compete and non- solicitation agreement with the Company. The assets (unaudited) of Alliance at fiscal year end 1997, September 30, 1997, were $1,993,790. Unaudited net revenue for the 1997 fiscal year was $9,577,558 with pre-tax loss of $523,295. The acquisition of Alliance has been deemed "significant," accordingly, an audit is currently being conducted, and separate historical and pro forma financial statements will be filed on Form 8-K. In February 1998, the Company acquired all of the issued and outstanding capital stock of PRN, Inc. ("PRN"), a home infusion pharmacy business located in San Antonio, Texas, in exchange for $430,000 and assumption of $71,000 debt. The Company has agreed to pay additional consideration of up to $150,000 upon PRN reaching certain revenue goals ("Additional Consideration"). This additional consideration is to be paid quarterly, bearing interest at 9% in proportion to target net revenue of $625,000 annually. The assets of PRN at fiscal year end, June 30, 1997, were $219,526. Net revenues for the same period were$560,695 with pre-tax income of $15,783. The Company has retained the right to offset certain indemnifiable liabilities against the additional consideration. The two majority stockholders of PRN entered into two year non- competition and non-solicitation agreements with the Company. The acquisition of PRN was not deemed to be "significant," accordingly the financial statements of PRN will be consolidated with the Company's financial statements and separate financial statements in a Current Report on Form 8-K will not be filed with the SEC. In February 1998, the Company acquired all of the issued and outstanding capital stock of Infusion Care Solutions, Inc. ("ICS") a home health care and infusion business, based in Baton Rouge, Louisiana, in exchange for aggregate consideration of $500,000, of which $375,000 was payable in cash at closing and $125,000 was payable pursuant to a two year promissory note. ICS had assets of $251,996 at fiscal year end, December 31, 1997. Net revenues were $352,788 and pre-tax income was $13,848 for the same period. The Company has retained the right to offset certain indemnifiable liabilities against the sums payable pursuant to the promissory note. The majority stockholder of ICS entered into a two year non-competition and non-solicitation agreement with the Company. The acquisition of ICS was not deemed to be "significant," accordingly the financial statements of ICS will be consolidated with the Company's financial statements and separate financial statements in a Current Report on Form 8-K will not be filed with the SEC. In February 1998, the Company acquired substantially all of the assets of Precision Health Systems, L.L.C. ("PHS") a home health care and infusion business, based in Baton Rouge, Louisiana, in exchange for aggregate consideration of $1,000,000, of which $750,000 was payable in cash at closing and $250,000 is payable pursuant to a two year promissory note. The Company has retained the right to offset certain indemnifiable liabilities against the sums payable pursuant to the promissory note. The majority stockholder of PHS entered into a two year non-competition and non-solicitation agreement and a two year consulting agreement with the Company. The consulting agreement is in the amount of $50,000 per year, payable in monthly increments. The majority stockholder is to assist the Company in developing referral sources and retain current referral sources. At fiscal year end, December 31, 1997, assets were $383,340, net revenues were $1,120,839, and pretax income was $121,249. The acquisition of PHS was not deemed to be "significant," accordingly the financial statements of PHS will be consolidated with the Company's financial statements and separate financial statements in a Current Report on Form 8-K will not be filed with the SEC. Each of the above transactions was accounted for as a purchase. Recent Financing In March 1998, the Company completed a private placement of 750,000 shares of Series A Preferred Stock to accredited investors at a purchase price of $10.00 per share ("Private Placement") in reliance upon an 4 exemption from registration under the Securities Act of 1933 (the "Act"). In December 1997, the Board of Directors established a series of shares setting forth the preferences, rights, and limitations and authorizing the issuance of up to 1,000,000 shares of Series A Preferred Stock. The face value of the Series A Preferred Stock is $10 per share (the "Face Value"). The Series A Preferred Stock is convertible, at any time at the holder's option, initially into a number of shares of Common Stock equal to the Face Value divided by $4.625 (the "Conversion Rate"). In the event that the shares of Series A Preferred Stock are not registered pursuant to an effective registration statement by May 27, 1998, the Conversion Rate shall decrease by .5% on the first day of each month that any of the Shares continue not to be publicly tradeable pursuant to an effective registration statement under the Act. The Series A Preferred Stock will automatically convert to shares of Common Stock if the average sales price for the Common Stock exceeds $7.09 for fifteen consecutive trading days. The Series A Preferred Stock is not redeemable by the Company. The holders of the Series A Preferred Stock will be entitled to receive dividends, if and when they are declared by the Board of Directors. The liquidation preference of the Series A Preferred Stock is the Face Value, subject to adjustment. The Series A Preferred Stock is senior to all outstanding classes and series of the Company's capital stock. Each holder of shares of Series A Preferred Stock is entitled to one vote for each share of Common Stock underlying the Series A Preferred Stock. INDUSTRY OVERVIEW The health care industry continues to undergo changes. The focus is on managing cost and utilization, as opposed to the hospital/physician centered focus that dominated healthcare since the early 1950's. Since the mid-1980's, health care shifted from providing care at any cost to learning to manage costs. It is predicted the next shift will require health care providers to truly learn to manage care. In an effort to manage health care expenditures, a strong focus has been placed on moving the primary source of health care from the traditional institutional settings (hospitals), causing home health care to play a more dynamic role. As a result, the number of services that are provided safely and effectively in alternate sites has dramatically increased. Managed care, Medicare/Medicaid and payor reimbursement pressures continue to drive patients through the continuum of care until they reach the setting where the appropriate high quality care can be provided cost effectively. Over the past several years, home care has evolved as a feasible (often preferred) alternative in the continuum. In addition to patient comfort, substantial cost savings can be realized through treatment at home as an alternative to institutional settings. To compete in this new environment, it is critical that providers not only provide high quality, cost effective care, but implement clinically-based management information systems to reduce costs, improve productivity, produce and analyze clinical outcomes data, and position themselves as partners in risk sharing. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company operates principally in two business segments: Provider Services (consisting of home health care and outpatient surgery) and Management Services (consisting of staffing/professional services and physician support and home health care management). See Note 14 of the attached audited financial statements for segment information. STRATEGY The Company's business objective is to enhance its position in its market areas as a leading provider of fully integrated alternate site health care services. The Company views its delivery system as a "hospital without walls" and its strategy to accomplish this is as follows: Offer Patients, Physicians, Hospitals and Payors a Continuum of Fully Integrated Care. A consistent quality of care at a reasonable cost will most successfully occur when the care comes from one provider. 5 The Company's strategy to employ this concept in each of its service areas appeals to referral sources and payors, who prefer coordinating care through a single source. Focus on selective Geographic Markets. The Company is targeting selected markets in the south and southeastern United States. Through start-ups, acquisitions and expansion of existing services, the Company plans to dominate these markets, to increase utilization of its services by payors and referral sources and to enhance its overall market position. The majority of states in the south and southeast have a low penetration of managed care. As the presence of managed care increases in its service area, the Company believes it is well positioned to provide the broad geographic and service coverage required to contract with these payors. In addition, since many of the areas in which the Company operates are rural, home health care is an ideal delivery system. Technology and Innovation Reduce Costs and Expand Business Lines. The development of proprietary software systems not only reduces the Company's costs to operate its business, but provides an additional business line for the Company. Management believes Amedisys will be the first company of its kind to operate with a virtually paperless system, expected to be in use company-wide by the end of 1999. Care givers will be equipped with hand held computers which will not only create greater efficiencies, but will tie information into one centralized source. By enhancing its operations through the use of information technology, the Company is positioned to not only operate more efficiently and deliver care in a more cost-efficient manner, but to compete in an environment increasingly influenced by managed care and subject to changes in reimbursement and government regulation. Manage Costs Through Disease State Management. Payors are focusing on the management of patients who suffer from chronic disease states which represent substantial costs. Some of these major disease states include: asthma, cancer, diabetes, HIV, and congestive heart failure. The Company's disease state management program includes: patient education, frequent monitoring and coordinated care from specialists. This approach has been proven to enhance quality of life and reduce the overall cost of care. Develop Effective Synergies. Access to qualified nurses is a key factor for success in the home care industry. An important synergy the Company appreciates is access to highly qualified nurses for its infusion and surgery center divisions, by tapping into its resources in its home health care nursing and staffing divisions. In addition, many patients require multiple services provided by the company, thereby allowing cross referrals between Amedisys divisions. This not only benefits patients, but referral sources and payors as well, by allowing them to utilize one company whom they know and trust. Finally, through the synergistic operation of its divisions, the Company can realize cost savings with sales personnel who are educated to cross-sell product lines and by sharing office overhead between a number of division. BUSINESS DEVELOPMENT The Company is committed to growth in each of its ongoing service lines, as well as developing new services such as alternate site infusion therapy. It has an active team of professionals who support business development of ongoing and developing service areas. The team provides support services including market analysis; planning; research; and community, public and media relations which impact Company wide and region specific budget goals. Professionals on the team also provide advertising and educational campaigns. Acquisition efforts are supported by business development professionals. A specialized acquisition group works with the presidents of the Company's service lines to select and secure the best companies to meet the Company's strategic goals. Members of the acquisition team include operational, financial, legal, and marketing specialists. After an acquisition is completed, the team interfaces with other specialists from human resources and management information systems to begin the integration process. At the regional levels of the Company, community relations and sales professionals work with administrators and branch managers to capture additional market share and enhance growth in each region and service sector. 6 PROVIDER SERVICES Alternate-Site Infusion Therapy Infusion therapy is the intravenous, intramuscular or subcutaneous administration of medications and nutrition. These procedures were once confined to hospital environments, however, with the portability of technology and the expanded training and certification standards for registered nurses, infusion procedures can be safely performed in the home setting, physician office and ambulatory infusion suites. New therapies such as pain management and first doses are often administered in ambulatory infusion suites to address possible complications and adverse drug reactions. According to Alex Brown in their Home Care Industry Perspective report, the total home infusion therapy market is approximately $5 billion or 13% of the total home health care expenditures, representing the second largest growing segment of the home care industry. Beginning as a cottage industry in the 1970's, the home infusion business experienced explosive growth in the mid- 1980's. The industry became saturated in the 1990's. At that time, managed care, which now represents approximately 2/3 of revenues in this segment, began to negotiate lower pricing. This caused many companies to be driven out of business or acquired by the large national providers. As a result of questionable success in the integration of these combined companies, it appears that regional and local providers have benefitted as the larger, most visible companies continue to lose revenues and market share. Among the therapies offered by the Company are: Antibiotic therapy which is the infusion of antibiotic medications to treat various infections and diseases. Total parenteral nutrition which is providing nutrients through catheters for patients who cannot absorb nutrients through the digestive tract due to chronic gastrointestinal conditions. This is typically a long term therapy. Enteral nutrition which is the infusion of nutrients through a feeding tube directly into the digestive tract. This can be a long term therapy for patients who cannot eat or drink normally. Pain management which is the administration of infusion of drugs to relieve chronic pain. Chemotherapy which is the infusion of drugs used to treat various forms of cancer. Hydration therapy which is the infusion of fluids to patients who have disease states which deplete their normal balance of fluids. In addition, the Company offers high tech respiratory therapy and home medical equipment. The Company opened its first infusion office in the 4th quarter of 1997. Ambulatory Surgery Centers Ambulatory Surgery Centers ("Centers") offer an alternative to hospital surgical suites. The number of procedures offered in these Centers has increased due to advances in technology, including the use of endoscopic procedures and laser equipment. These techniques are less invasive and require shorter recovery periods than traditional hospital services. The Centers offer a high quality, cost effective benefit for insurers, as well as patients who are responsible for co-payments for their procedures. Facility fees are lower than similar hospital procedures and the atmosphere is less institutional. Physicians who operate at the Centers can participate in ownership, and enjoy block scheduling and faster turnaround times, allowing them more time with their patients. The Centers offer a variety of surgical services utilizing state-of-the-art technology and equipment. All are accredited by the Accreditation Association for Ambulatory Care. 7 According to a report by SMG Marketing Group in 1997, the market share for freestanding surgery centers has increased in comparison to the outpatient surgical hospital market. Of the 32.1 million total surgical procedures performed in the nation last year, hospitals performed an estimated 24.1 million, of which 14.1 million or 58% occurred on an outpatient basis. It is projected that hospitals will perform 64% of all outpatient surgical procedures for the nation this year, a significant decrease from the 76% performed in 1990. Meanwhile, the shift in total outpatient surgical volume has increased 50% from 14.5 million cases in 1990 to 22.1 million cases in 1996. The shift is due, in large part, to technological advances which allow more procedures to be done in outpatient settings and payors seeking cost effective services for their health plans. The Company operates three Centers, with a fourth expected to open in May, 1998. Two of the Centers were acquired in 1995 and are solely owned by the Company. The third Center is a partnership with physicians who utilize the facility. Home Health Care Nursing In 1996, home health care services was a $40 billion industry, growing 9-11% annually, according to Alex Brown Research and the National Association of Home Care. This total does not include an additional $9-10 billion of low acuity or companion care. Services provided in home health care include four broad categories; (1) nursing and allied health services, (2) infusion therapy, (3) respiratory therapy and, (4) home medical equipment. Accounting for $28 billion in expenditures in 1997, nursing and allied services represent the largest sector or 70% of all home health care services. Medicare reimbursements account for approximately 65.2% of home care nursing. The Balanced Budget Act of 1997 established a new reimbursement system for Medicare home care nursing services for cost reporting periods beginning on or after October 1, 1997. This change will have a significant effect on the home care nursing industry since Medicare is its largest payor source (see Billing and Reimbursement). The Company operates 15 home care nursing offices consisting of 10 Medicare provider offices, 4 branch offices, and one office with state licensure. Serving this market for the past 10 years, the Company has built an excellent reputation, based on quality care and specialty nursing services. Because its services are comprehensive, cost-effective and can be accessed 24 hours a day, seven days a week, the Company's home care nursing services are attractive to payors and physicians. Each of its offices are accredited by the Joint Commission on Accreditation of Health Care Organizations ("JCAHO"). The Company provides a wide variety of home health care services including: Registered nurses who provide specialty services such as infusion therapy, skilled monitoring, assessments, and patient education. Many of the Company's nurses have advanced certifications. Licensed practical (vocational) nurses who perform technical procedures, administer medications and change surgical and medical dressings. Physical and occupational therapists who work to strengthen muscles and restore range of motion and help patients to perform the activities of daily living. Speech pathologists/therapists who work to restore communication and oral skills such as swallowing. Social workers who help families work through the problems associated with acute and chronic illnesses. Home health aides who provide personal care such as bathing or assistance in walking. MANAGEMENT SERVICES Staffing/Professional Services Temporary staffing allows medical facilities and businesses to manage fixed personnel costs by providing qualified professionals on a temporary basis. In the post consolidation period of hospitals, the number of 8 budgeted personnel have been significantly reduced, yet hospitals are required to maintain adequate staffing ratios to safely care for patients, while not jeopardizing their accreditation certification or licenses. According to Staffing Industry Report, the 1996 forecasted revenue for the staffing industry was $72.6 billion. The Bureau for Labor Statistics predicts temporary staffing will be the seventh fastest growing category in the U.S. in the 1995-2005 period, increasing at a rate almost five times that of the general labor force. Estimates by Robert W. Baird & Co. and the National Association of Temporary Staffing services indicate the industry can continue to grow at a pace well above the GDP with traditional office clerical and light industrial growing in the 8-12% range and specialty areas with 20% or better growth. The Company supplies professional nurses, therapists and other health care professionals on a temporary, contract and permanent basis. In addition, it provides professional and clerical placements on a temporary and permanent basis. A major differentiating feature propelling the Company's growth is its 24 hour a day accessibility and its proprietary software system. Having established a strong reputation for excellence in this industry over the past 15 years, the Company operates 12 staffing offices in its service area. Home Health Care Management Amedisys Resource Management provides a full menu of management and consulting services particularly designed to meet the needs of home health care agencies. Changing government regulations will force home health care agencies to become more efficient and information oriented. It will be critical to measure costs more accurately and operate below current cost structures. This new environment will accelerate the need for management and consulting services and information systems. The Company's services include: financial reporting systems, general agency management, quality improvement programs, receivables financing, and business development. In addition, a complete management information system is available on a leased basis. This system is proprietary to Amedisys and gives the agency a single entry system which integrates payroll and general ledger with the general accounting system, reports clinical data and meets Medicare guidelines for reporting, billing and collections. This division also offers consulting services and educational seminars which provide continuing educational units for medical personnel. There are approximately 5,841 home health agencies in the Company's service area. The Company currently provides home health care management services to 62 home health care agencies in 84 locations. Physician Support Services Physicians are poised to bolster the growth of management services in their industry. There are approximately 600,000 physicians in the U.S. and most still practice medicine as a cottage industry. According to the American Medical Association there are 16,000 group practices in the United States, with the average size of nine physicians. This accounts for 24% of practicing physicians. Approximately 6% of all group practices have been acquired by or are associated with investor owned physician practice management companies. Physician fears, generated by the highly publicized problems of the physician practice management industry, have caused them to prefer having their practices managed by an outside group or a management group holding minority interest, rather than being acquired. Amedisys manages physician practices and forms independent practice associations ("IPA's"). The Company's services include: (1) comprehensive management information systems that collect and assimilate data necessary for monitoring and managing health care costs; (2) claims administration; (3) utilization management; (4) care coordination and case management; (5) monitoring of quality standards; (6) credentialing and recruiting of physicians; and (7) financial systems which record billing, manage the collections process, provide accounts payable information, and track such data through the business cycle. 9 BILLING AND REIMBURSEMENT Revenues generated from the Company's home health care services are paid by private insurance carriers, managed care organizations, individuals, Medicare, Medicaid and other local health insurance programs. Medicare is a federally funded program available to persons with certain disabilities and persons aged 65 or older. Medicaid, a program jointly funded by federal and state governments, and other local governmental health care programs, is designed to pay for certain health care and medical services provided to low income individuals without regard to age. Home health care management services are paid through a contractual agreement between the Company and the client home health care agency. The Company has several statewide contracts for negotiated fees with insurers and managed care organizations. The Company submits all Medicare claims to a single insurance company acting as a fiscal intermediary for the federal government. The Medicaid system in Texas follows similar reimbursement guidelines. The state of Louisiana adopted a fee-for-service payment method in 1995. Supplemental staffing services are billed directly to health care facilities. Physician management fees are collected directly from managed practices and networks. Outpatient surgery fees are collected from commercial insurance systems, managed care organizations, Medicare and Medicaid programs and individuals. MEDICARE REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING The Company derives 42% of its revenues from the Medicare system. In 1997, Congress approved the Balanced Budget Act of 1997 (the "Budget Act"). The Budget Act established an interim payment system (the "IPS") that provided for the lowering of reimbursement limits for home health visits. For cost reporting periods beginning on or after October 1, 1997, Medicare-reimbursed home health agencies will have their cost limits determined as the lesser of (i) their actual costs, (ii) cost limits based on 105% of median costs of freestanding home health agencies, or (iii) an agency-specific per-patient cost limit, based on 98% of 1994 costs adjusted for inflation. The new IPS cost limits will apply to the Company for the cost reporting period beginning January 1, 1998. During the three months ended December 31, 1997, various regulations and interpretations of the Budget Act were published which enabled the Company to calculate the potential impact on reimbursement of the new IPS cost limits. Additionally, March 31, 1998, the government released its final determination and definitions of the new IPS cost limits. Management's analysis, without giving effect for any cost reductions, estimated the aggregate reduction in reimbursement in 1998 to exceed $8.0 million for certain of the Company's Medicare-certified nursing agencies. Management is reviewing potential cost reductions to decrease the estimated impact of the IPS. The Budget Act also provided for a 25% reduction in home oxygen reimbursement from the 1997 fee schedule effective January 1, 1998 and a further reduction of 5% effective January 1, 1999. Compounding these reductions was a freeze on consumer price index increases in oxygen reimbursement rates until the year 2003. Additionally, due to the above reimbursement changes affecting home health agencies, the Company's main referral sources for its durable medical equipment business have decreased, as well as the referrals the Company anticipated capturing from its existing agencies. These changes may result in a significant impact on the profitability of these services. Based upon management's determination of the expected impact of these changes in reimbursement on future cash flows, goodwill was written down by $1,028,000 during the three months ended December 31, 1997, as required under Statement of Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting for the Impairment of long-lived Assets and for long-lived Assets to Be Disposed of". This write-down was comprised of $835,000 related to the Company's home medical equipment company and $193,000 related to certain Medicare-certified nursing agencies. This write-down is reflected in the accompanying consolidated statements of operations. 10 DATA PROCESSING The Company maintains central computerized management information systems including payroll, billing and other administrative functions at its corporate headquarters. The information systems department has devised programs for computerized scheduling, as well as a personnel system which monitors personnel recruitment, evaluations and benefits. The information system also monitors client utilization data. The Company has a proprietary home health care software program which features a single entry system that allows data to flow through accounting, general ledger, payroll and billing and meet the extensive cost reporting requirements for Medicare reimbursement of home health care services. It also provides clinical documentation for prospective pay and tracking of clinical outcome results. Each regional office site is linked electronically to the corporate accounting and information systems. This feature allows management to monitor daily business activities and produce management reports. The system promotes accuracy in payroll and business systems and controls the daily pay system for field nurses in staffing. QUALITY CONTROL AND IMPROVEMENT As a medical service business, the quality and reputation of the Company's personnel and operations are critical to its success. The Company has implemented quality assurance programs as well as policies and procedures in its divisions at both the corporate and regional levels. The Company strives to meet guidelines set forth by the Joint Commission on Accreditation of Health Care Organizations, as well as state and federal guidelines for Medicare and Medicaid licensure. The Company maintains an active quality improvement team who make periodic on-site inspections of regional offices to review systems and operations. An educational division is also part of quality assurance operations and conducts educational and training sessions at regional sites, as well as disseminating continuing education materials to regional offices. RECRUITING AND TRAINING The Company's Human Resource Department coordinates recruiting efforts for corporate and field personnel. Employees are recruited through newspaper advertising, professional recruiters, the Company's web page, networking and word-of-mouth referrals. The Company believes it is competitive in the industry and offers its employees upward mobility, health insurance, an Employee Stock Option program, a 401K plan, and a cafeteria plan. Uniform procedures for screening, testing and verifying references, including criminal checks where appropriate, have been established. All employees receive a formalized orientation program, including familiarization with the Company's policies and procedures. Continuing professional education and training programs are offered through the Amedisys Institute, and advanced professional certifications are encouraged and often underwritten by the Company. GOVERNMENT REGULATION The Company's home health care business is highly regulated by federal, state and local authorities. Regulations and policies frequently change and the Company monitors changes through trade and governmental publications and associations. Managers participate on various licensing and association boards. As a provider of services under the Medicare and Medicaid programs, the Company is subject to the various "anti-fraud and abuse" laws, including the federal health care programs anti-kickback statute. This law prohibits any offer, payment, solicitation or receipt of any form of remuneration to induce the referral of business reimbursable under a federal health care program or in return for the purchase, lease, order, arranging for, or recommendation of 11 items or services covered by any such program. Federal health care programs or any health care plans or programs that are funded by the United States (other than certain federal employee health insurance benefits) and certain state health care programs that receive federal funds under various programs, such as Medicaid. A related law forbids the offer or transfer of any item or service for less than fair market value, or certain waivers of copayment obligations, to a beneficiary of Medicare or a state health care program that is likely to influence the beneficiary's selection of health care providers. Violations of the anti-fraud and abuse laws can result in the imposition of substantial civil and criminal penalties and, potentially, exclusion from furnishing services under any federal health care programs. In addition, the states in which the Company operates generally have laws that prohibit certain direct or indirect payments or fee-splitting arrangements between health care providers where they are designed to obtain the referral of patients to a particular provider. Congress adopted legislation in 1989, known as the "Stark" Law, that generally prohibits a physician ordering clinical laboratory services for a Medicare beneficiary where the entity providing that service has a financial relationship (including direct or indirect ownership or compensation relationships) with the physician (or a member of his immediate family), and prohibits such entity from billing for or receiving reimbursement for such services, unless a specified exemption is available. Additional legislation became effective as of January 1, 1993 known as "Stark II," that extends the Stark Law prohibitions to services under state Medicaid programs, and beyond clinical laboratory services to all "designated health services," including home health services, durable medical equipment and supplies, and parenteral and enteral nutrients, equipment, and supplies. Violations of the Stark Law may also trigger civil monetary penalties and program exclusion. Pursuant to Stark II, physicians who are compensated by the Company are prohibited from making referrals to the Company, and the Company will be prohibited from seeking reimbursement for services rendered to such patients unless an exception applies. Several of the states in which the Company conducts business have also enacted statutes similar in scope and purpose to the federal fraud and abuse laws and the Stark Laws. Various federal and state laws impose criminal and civil penalties for making false claims for Medicare, Medicaid or other health care reimbursements. The Company believes that it bills for its services under such programs accurately. However, the rules governing coverage of, and reimbursements for, the Company's services are complex. There can be no assurance that these rules will be interpreted in a manner consistent with the Company's billing practices. In May 1995, the federal government instituted Operation Restore Trust, a health care fraud and abuse initiative focusing on nursing homes, home health care agencies and durable medical equipment companies located in New York, Florida, Illinois, Texas and California, the five states with the largest Medicare populations. The purpose of this initiative is to identify fraudulent and abusive practices such as billing for services not provided, providing unnecessary services and making prohibited referral payments to health care professionals. Operation Restore Trust has been responsible for significant fines, penalties and settlements. Operation Restore Trust was recently expanded to cover twelve additional states for the next two years. The program was also expanded to include reviews of psychiatric hospitals, certain independent laboratories and partial hospitalization benefits. Further, there are plans eventually to apply the program's investigation techniques in all fifty states and throughout the Medicare and Medicaid programs. One of the results of the program has been increased auditing and inspection of the records governing reimbursement and other issues. Specifically, the government plans to double the number of comprehensive home health agency audits it performs each year (from 900 to 1800) and also to increase the number of claims reviewed by 25.0% (from 200,000 to 250,000). In general, the application of these anti-fraud and abuse laws is evolving. During 1997, the home health care industry experienced several significant regulatory and reimbursement changes. In February 1997, the Health Care Finance Administration ("HCFA") announced that it intended to implement mileage limitations restricting the distance between a nursing agency's principal office and its branches. During 1998, as a result of a moratorium on new Medicare provider numbers announced by President Clinton, HCFA imposed a delay in permitting branch office transfers. Congress has also recently adopted a per-beneficiary limit on reimbursement for nursing services based upon historical cost, and on March 31, 1998, published regulations which set forth the national and regional 12 medians on which such limits will be based, but has not published regulations determining the provider specific per-beneficiary limits. The Company believes that the per-beneficiary limits will have an adverse effect on the Company's Medicare nursing operations. Other regulatory changes have reduced the level of reimbursement available to the Company. On January 2, 1998, HCFA published final Medicare nursing per- visit cost limitation guidelines which reduce per-visit cost limitations for the Company by approximately 18%-20% for 1998. Also, regulations effective February 1, 1998, eliminate venipuncture as a covered service Medicare nursing visits, which will materially reduce the Company's Medicare nursing revenues. Recent other amendments affecting Medicare also require: (i) the imposition of more stringent limits on reimbursable home health care costs; (ii) the establishment of a prospective payment system for home health care services to be implemented in late 1999; (iii) the separation of home health care services into two distinct benefits under Medicare Part A and Medicare Part B; (iv) requiring billing by location of service rather than by location of the home health care agency's headquarters; and (v) the establishment of guidelines for the frequency and duration of reimbursable home health visits. Such provisions may adversely affect reimbursement for Medicare home health services over the next several years. Recent Department of Health and Human Services ("DHHS") rule making proposals affecting the home health care industry include: (i) a rule which would revise Medicare's Conditions of Participation that home health agencies must meet in order to participate in the Medicare program, and require that all home health care agencies conduct background investigation of their employees; (ii) a rule that would require home health care agencies to use standard measurements of the quality and outcomes of patient care; and (iii) regulations that require home health agencies to obtain surety bonds in order to continue to participate in the Medicare nursing program. DHHS is expected to publish final rules in these areas. The Company believes that is has the capacity to comply with changes in such rules. The Company's home health care subsidiaries are certified by HCFA and are therefore eligible to receive reimbursement for services through the Medicare system. Home health care offices have licenses granted by the health authorities of respective states. Texas and Louisiana do not currently require a Certificate of Need which some states require to establish a home health care agency. Texas requires licensure and currently new licenses are being issued. In both states, each location must be licensed and service areas are determined by the state legislatures. Currently JCAHO accreditation of home health care agencies is voluntary. However, Managed Care Organizations ("MCO's"), use JCAHO accreditation as a minimum standard for regional and state contracts. The Company's regional offices work with client hospitals to follow their protocol for supplemental staffing to meet the standards for JCAHO, which includes verification of licensure and/or certification. Ambulatory surgery centers require a Certificate of Need in some states and are regulated by state and federal guidelines, as well as Medicare standards. While accreditation is not mandatory, the majority of managed care companies will only contract with accredited centers. All of the Company's ambulatory surgery centers have been accredited by the Accreditation Association for Ambulatory Health Care ("AAAHC"). The Company strives to comply with all federal, state and local regulations and has satisfactorily passed all federal and state inspections and surveys. The ability of the Company to operate properly will depend on the Company's ability to comply with all applicable healthcare regulations. COMPETITION The Company's services are provided by a number of local, regional and national companies and are highly competitive. Unlike the Company, many of these competitors do not offer the continuum of care and/or do not have the geographical coverage to secure contracts with many of the payors. Home health care providers compete for referrals based primarily on scope and quality of services, geographic coverage, pricing, and outcomes data. 13 The Company believes its favorable competitive position is attributable to its reputation for nearly two decades of consistent, high quality care; its broad menu of services; its state-of-the-art information management systems; and its widespread service network. SEASONALITY The demand for the Company's home health, physician management services and outpatient surgery are not typically influenced by seasonal factors. However, the demand for supplemental staffing services typically decreases in the last quarter of the fiscal year due to the year-end cost reduction strategies utilized by many hospitals and a decreased patient census. The demand for supplemental staffing services typically increases during the first and second quarter of the year. EMPLOYEES As of December 31, 1997, the Company had 665 full-time employees, excluding part time field nurses and other professionals in the field. Full time employees include 15 Administrative Group Members consisting of product line presidents and operational support personnel. The balance of the full time employees include regional administrators, branch managers, general branch managers, business development personnel, clerical support staff, clinical field staff (including RN's, LPN's/LVN's, home health aides and other allied health professionals), information systems personnel, and accounting personnel. All management and business development personnel are salaried. The Company complies with the Fair Labor Standards Act in establishing compensation methods for its employees. Select positions within the Company are deemed to be bonus eligible based on the achievement of pre-determined budget criteria. The Company sponsors and contributes toward the cost of a group health insurance program for its eligible employees and their dependents. The group health insurance program is self-funded by the Company; however, there is an aggregate stop loss policy in place to limit the liability for the Company. The Company also provides a group term life insurance policy and a long term disability policy for eligible employees. In addition, the Company offers a 401K retirement plan and encourages all of its eligible employees to participate. The Company has a Cafeteria 125 plan in place as well. The Company believes its employee relations are good. It successfully recruits employees and many of its employees are shareholders. INSURANCE The Company maintains casualty coverages for all of its operations, including professional and general liability, workers' compensation, automobile, property, and fiduciary liability. The insurance program is reviewed periodically throughout the year and thoroughly on an annual basis to insure adequate coverage is in place. The Company is approved through the State of Louisiana to self-insure its workers' compensation program. All other states are covered on a fully insured basis through "A+" rated insurers. All of the Company's employees are bonded. The Company is self-insured for its employee health benefits. ITEM 2. PROPERTIES The Company presently leases approximately 23,850 square feet for its corporate office located at 3029 South Sherwood Forest Boulevard, Baton Rouge, Louisiana. The lease provides for a basic monthly rental rate of approximately $10 per square foot through 1997 and increases to $11 through the expiration date on September 30, 2002. The Company has an aggregate of 51,638 square feet of leased space for regional offices pursuant to leases which expire between March, 1996 and September, 2006. Rental rates for these regional offices range from $9 per square foot to $22 per square foot with an average of $13 per square foot, which terms and rates the Company believes to reflect market values. Some lease rates include utilities. The Company believes its facilities to be adequate for its current needs. 14 The Company presently operates three ambulatory surgery centers, two located in Texas and one in Louisiana. These centers occupy an aggregate of 33,504 square feet. Of the total square footage occupied by ambulatory surgery centers, 21,504 square feet are leased, and the balance is owned. The Company believes the terms and lease rates reflect current market values. Space in the ambulatory surgery centers encompasses eleven surgical suites, pre-op and post-op areas, business offices, consultation, and waiting areas. The ambulatory surgery centers are equipped with modern technology and equipment to perform surgery, laboratory studies and limited diagnostic testing. Construction is 90% complete on a fourth surgery center located in Texas, with a projected opening of May, 1998. Preliminary plans are under way for an additional location in Lafayette, LA. The following is a list of the Company's offices. Unless otherwise indicated, the Company has one office in each city. Louisiana (19) Texas (10) Tennessee (1) Baton Rouge (3) Dallas (2) Memphis Covington Houston (3) Hammond (3) Longview North Carolina (1) Harahan Nederland (2) Winston-Salem Lafayette (2) Pasadena Lake Charles (2) San Antonio Kansas (1) LaPlace Overland Park Metairie (2) Mississippi (1) Monroe Jackson Minnesota (1) Prairieville Bloomington Shreveport (2) ITEM 3. LEGAL PROCEEDINGS From time to time, the Company and its subsidiaries are defendants to lawsuits arising in the ordinary course of the Company's business. While the outcome of these lawsuits cannot be predicted with certainty, management believes that the resolution of these matters will not have a material adverse effect on the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 1997. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS From August 1994, through August 1997, the Company's common stock traded on the Nasdaq Small Cap Market and since August 1997, the Company has been trading on the Nasdaq National Market. As of March 25, 1998, there were approximately 147 holders of record of the Company's Common Stock and the Company believes there are approximately 980 beneficial holders. The Company has not paid any dividends on its Common Stock and expects to retain any future earnings for use in its business development. The following table provides the high and low prices of the Company's Common Stock during 1996 and 1997 as quoted by Nasdaq. Such quotations reflect inter- dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
HIGH LOW ---- --- 1st Quarter 1996.......... $9 5/8 $7 1/2 2nd Quarter 1996.......... 9 1/4 6 3/4 3rd Quarter 1996.......... 8 5 3/4 4th Quarter 1996.......... 8 1/2 4 1/2 1st Quarter 1997.......... $7 7/8 $4 3/8 2nd Quarter 1997.......... 7 1/4 4 5/8 3rd Quarter 1997.......... 7 1/4 4 5/16 4th Quarter 1997.......... 7 4 5/16
16 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth certain historical data relating to the Company. For the years of 1994, 1995, 1996, and 1997, the data was derived from audited consolidated financial statements. Data for the year of 1993 is unaudited, but in the opinion of management, presents fairly the financial condition and results of operations for this period.
SELECTED HISTORICAL 1997 1996 1995(1) 1994(1) 1993(1) STATEMENT OF INCOME DATA ---------- ---------- ---------- ---------- ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net Service Revenue..... $ 54,496 $ 46,060 $ 37,589 $ 28,902 $ 22,445 Cost of Service Revenue. 30,641 26,405 22,424 16,996 14,674 ---------- ---------- ---------- ---------- ---------- Gross Margin.......... 23,855 19,655 15,165 11,906 7,771 General/Administrative Expenses............... 24,443 18,511 13,785 9,740 7,204 ---------- ---------- ---------- ---------- ---------- Operating Income (Loss)............... (588) 1,144 1,380 2,166 567 Other Income and Expense................ (753) (1,124) (238) (248) (33) Income Tax Expense (Benefit).............. (382) 2 200 13 39 ---------- ---------- ---------- ---------- ---------- Income (Loss) before Cumulative Effect of Change in Account Principle.............. (959) 18 942 1,905 495 Cumulative Effect of Change in Accounting Principle.............. (235) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)....... $ (1,194) $ 18 $ 942 $ 1,905 $ 495 ========== ========== ========== ========== ========== EARNINGS (LOSS) PER COMMON SHARE........... $ (0.43) $ 0.01 $ 0.37 $ 0.75 $ 0.22 ========== ========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING..... 2,735,000 2,575,000 2,570,000 2,525,000 2,285,000 ========== ========== ========== ========== ========== PROFORMA INFORMATION (UNAUDITED)(1) Net Income (Loss) (Historical)........... $ (1,194) $ 18 $ 942 $ 1,905 $ 495 Proforma Adjustments: Income Taxes on SCC Results................ -- -- 191 646 155 ---------- ---------- ---------- ---------- ---------- Proforma Net Income (Loss)................. $ (1,194) $ 18 $ 751 $ 1,259 $ 340 ========== ========== ========== ========== ========== Proforma Earnings (Loss)/Common Share.. $ (0.43) $ 0.01 $ 0.29 $ 0.50 $ 0.15 ========== ========== ========== ========== ========== BALANCE SHEET DATA Total Assets............ $ 22,870 $ 16,858 $ 11,537 $ 9,160 $ 7,190 Total Long-term Obligations............ $ 3,129 $ 3,223 $ 1,490 $ 1,537 $ 642 Total Convertible Preferred Stock........ $ 1 $ -- $ -- $ -- $ --
- -------- (1) Surgical Care Centers of Texas, LC ("SCC"), acquired on June 30, 1995, was a limited liability company. Prior to the transaction with Amedisys, the individual owners were responsible for all income taxes and no income tax expense was recorded on SCC through June, 30, 1995. 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein. GENERAL The Company is a fully integrated provider of outpatient health services and operates in two basic industry segments: alternate-site provider services and management services operations. The Company's alternate-site provider segment includes the following services: alternate-site infusion therapy, ambulatory surgery centers and home health care nursing. Its management services operations encompass: home health care management, software systems, staffing services, and physician support services. Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to the Company's established rates or estimated cost reimbursement rates, as applicable. Allowances and contractual adjustments representing the difference between the established rates and the amounts estimated to be payable by third parties are also recorded on an accrual basis and deducted from gross revenue to determine net service revenues. Reimbursement for home health care nursing services to patients covered by the Medicare program is based on cost reimbursement rates. Final reimbursement is determined after submission of annual cost reports and audits thereof by the fiscal intermediaries. Effective October 1, 1997, home health cost limits were reduced and per beneficiary limits were established which may serve to reduce payments to home health care nursing providers in the future. Additional proposed regulations are expected to change the payment methodology for home health care nursing providers to Medicare patients from a cost based reimbursement system to a prospective payment system in the future. Based upon management's determination of the expected impact of these changes in reimbursement on future cash flows, goodwill was written down by $835,000 during the three months ended December 31, 1997, as required under Statement of Financial Accounting Standard No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of." This write-down is reflected in the accompanying consolidated statements of operations. During the fourth quarter of 1997, the Company also changed its accounting policy relating to start-up costs. Prior to this change, costs incurred to establish regional offices prior to beginning services were capitalized as Other Assets and amortized over a five-year period based on accepted industry practice and applicable Medicare regulations. Provisions of a proposed Statement of Position ("SOP") expected to be issued by the American Institute of Certified Public Accountants ("AICPA") in the second quarter of 1998 will require the write-off of any start-up costs remaining on the balance sheet and expensing of all start-up costs incurred in the future. The Company chose to expense such costs in 1997 to more properly reflect these costs as ongoing costs of expanding the Company's services. 18 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items included in the Company's consolidated statements of operations as a percentage of net revenues:
YEARS ENDED DECEMBER 31, ---------------------- 1997 1996 1995 ------ ------ ------ Net services revenues.................................. 100.00% 100.00% 100.00% Costs of service revenues.............................. 56.23 57.33 59.66 ------ ------ ------ Gross margin........................................... 43.77 42.67 40.34 General and administrative expenses: Salaries and benefits................................ 23.21 22.42 17.91 Other................................................ 21.64 17.77 18.76 ------ ------ ------ Total general and administrative expenses............ 44.85 40.19 36.67 Operating Income (Loss)................................ (1.08) 2.48 3.67 Other Income and expense............................... (1.38) (2.43) (0.63) ------ ------ ------ Net income (loss) before taxes and cumulative effect of change in accounting principle........................ (2.46) 0.05 3.04 Income tax expense (benefit)........................... (0.70) 0.01 0.53 ------ ------ ------ Net income (loss) before cumulative effect of change in accounting principle.................................. (1.76) 0.04 2.51 Cumulative effect of change in accounting principle.... (0.43) -- -- ------ ------ ------
YEARS ENDED DECEMBER 31, 1997 AND 1996 Net Service Revenues For the year ended December 31, 1997 and the year ended December 31, 1996, the Company's revenues increased to $54,496,000 from $46,060,000, an 18% increase. This change is primarily attributable to increased revenues in the management services line. Provider services net revenues increased to $32,104,000 in 1997 from $30,126,000 in 1996, an increase of 7%. The increase is primarily attributed to continued growth in home health care nursing as well as a full year of operations for St. Luke's SurgiCenter. Home medical equipment was added as a product line in August 1997 with revenues of $465,000. Management services net revenues increased to $22,392,000 in 1997 from $15,934,000 in 1996, an increase of 41%. This increase is primarily attributed to growth in staffing/professional services and home health care management. Staffing/professional services revenues increased by 38% to $17,292,000 in 1997 from $12,538,000 in 1996. The increase in staffing services is attributed to placement of private duty nursing, as well as the stabilization of hospital consolidations in the markets the Company services. Home health care management revenues increased due to agencies seeking solutions to the expected changes in Medicare reimbursement. Cost of Service Revenues Cost of service revenues include all costs directly associated with the generation of net revenues, including salaries and employee benefits and medical supply costs. In 1997, cost of service revenues increased 16% to $30,641,000 from $26,405,000 in 1996. As a percentage of net service revenues, cost of service revenues decreased from 57% in 1996 to 56% in 1997. This decrease is primarily a result of increased revenues in the home care management and outpatient surgery divisions, which have lower direct costs. 19 General and Administrative Expenses General and administrative expenses increased to $24,443,000 or 45% of revenue in 1997 compared to $18,511,000 or 40% of revenue in 1996. This increase is attributed to writeoff of previously recorded goodwill, increased expenses resulting from the, growth in the Outpatient Surgery Division as well as increased overhead expenses resulting from the development of the infusion therapy division. Start-up costs related to the development of this new division of $299,000 were expensed as incurred. The Company also developed an Employee Stock Ownership Plan (ESOP) for the home health care division with accrued contributions of $721,000 for 1997. Other Income/Expense Other income/expense decreased from ($1,178,000) in 1996 to ($962,000) in 1997. This decrease is primarily attributed to a one-time charge to earnings in 1996 of $623,000 related to merger discussions with Complete Management, Inc. ("CMI"), offset by additional interest expense incurred in 1997. Net Income (Loss) Net income for 1997 was $1,194,000 or $0.43 per share as compared to net income of $18,000 or $.01 per share for 1996. YEARS ENDED DECEMBER 31, 1996 AND 1995 Net Service Revenues For the year ended December 31, 1996 and the year ended December 31, 1995, the Company's revenues increased to $46,060,000 from $37,589,000, a 23% increase. This change is primarily attributable to increased revenues in the provider services line. Provider services net revenues increased to $30,126,000 in 1996 from $21,232,000 in 1995, an increase of 42%. This increase is primarily attributed to continued expansion of home health care nursing and growth in outpatient surgery. Home health care nursing increased 46% from $17,892,000 in 1995 to $26,057,000 in 1996. This increase resulted from expanding market share in existing offices, opening branch offices, and increasing the scope of services and the physician referral base. Management services net revenues decreased to $15,934,000 in 1996 from $16,357,000 in 1995, a decrease of 3%. This decrease is mainly attributable to changes in the staffing/professional services division where revenues were $12,538,000 in 1996 compared to $13,774,000 in 1995, a 9% decrease. The majority of this decrease is the result of hospitals utilizing internal staffing pools. Cost of Service Revenues Cost of Service Revenues increased 18% to $26,405,000 in 1996 from $22,424,000 in 1995. As a percentage of net revenues, cost of service revenues decreased from 60% in 1995 to 57% in 1996. This decrease is primarily attributed to significant growth in the home health care nursing and outpatient surgery divisions, which have lower direct costs. General and Administrative Expenses General and administrative expenses increased to $18,511,000 or 40% of revenue in 1996 compared to $13,785,000 or 37% of revenue in 1995. The increase is attributable to the expansion of the outpatient surgery division and increased revenues in the home health care nursing division. As revenues increased in the home health care nursing division, expenses also increased due to the cost reimbursement method of home health care 20 payments from the Medicare system. General and administrative expenses also increased due to the addition of three senior managers and additional personnel to enhance the information system. Other Income/Expense Other income/expense increased to ($1,178,000) in 1996 from ($250,000) in 1995, a 371% increase. This increase is mainly attributable to a one-time charge to earnings of $623,000. The charge was taken as a result of merger discussions with CMI, a New York based provider of physician practice management services. During discussions with the management of CMI, Company management decided to write off certain investments. These investments consisted primarily of advances made to develop a proposed managed care organization and certain non-operating equipment believed to have no realizable value to future operations. The discussions with CMI began with a signed letter of intent in October 1996 and were terminated in March 1997 because the companies could not agree on terms. Net Income Net income decreased to $18,000 or $.01 per share for 1996 from $942,000 or $.37 per share in 1995 mainly attributable to the one-time charge to earnings of $623,000. LIQUIDITY AND CAPITAL RESOURCES The Company's current capital resources are sufficient to fund current operations for the foreseeable future. However, the Company's business strategy is to pursue the acquisition of complimentary business and expand current operations which would increase its capital requirements. The timing, size and success of the Company's acquisition and expansion efforts and the associated capital commitments cannot be readily predicted. The Company currently intends to finance future acquisitions by using shares of its common stock for a portion of the consideration to be paid. In the event that the common stock does not maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept common stock as part of the consideration for the sale of their businesses, the Company may be required to utilize more of its cash resources. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional equity or debt financing. Except for current lines of credit, the Company has no firm commitment for additional financings or borrowings. At December 31, 1997, the Company had revolving bank lines of credit of $5,500,000 and $750,000 bearing interest at bank prime plus 1.5% and bank prime plus 1%, respectively. Subsequent to year end, the $5,500,000 line of credit was increased to $7,500,000 for 120 days. At December 31, 1997, approximately $440,000 was unused under these lines of credit. These lines of credit are collateralized by 80% of eligible receivables in the staffing and outpatient surgery divisions and 75% in the home health care nursing division. Eligible receivables are defined principally as trade accounts that are aged less than 90 days for the staffing and outpatient surgery divisions and 120 days for the home health care nursing division. The line of credit is subject to certain covenants, including a monthly borrowing base, a debt service coverage ratio, and a leverage ratio. The Company was not in compliance with the debt service coverage ratio requirement at December 31, 1997, which default was waived by the bank through June 30, 1998. The Company was not in compliance with the leverage ratio covenant at December 31, 1996, which default was waived by the bank. The loan agreement was subsequently amended to increase the leverage ratio requirement from 2.5 to 1 to 3.0 to 1, which the Company complied with as of December 31, 1996. Net cash used by operating activities decreased from ($1,937,000) in the year ended December 31,1996 to ($141,000) in the year ended December 31,1997. The change was due to certain cash amounts related to the statutory requirements of FutureCare being restricted at December 31, 1996 and unrestricted at December 31, 1997 when petition for dissolution had been filed. Net cash used in investing activities decreased from ($2,713,000) in the year ended December 31, 1996 to ($1,241,000) in the year ended December 31, 1997. This decrease is attributed to a decrease in the fixed asset acquisitions in the current period. 21 Net cash provided by financing activities increased from $3,883,000 in the year ended December 31, 1996 to $5,349,000 in the year ended December 31, 1997. This increase is primarily attributed to a private placement of 400,000 shares of $.001 par value convertible preferred stock pursuant to Regulation D of the Securities Act of 1933 at $10 per share for gross proceeds of $4 million. At December 31, 1997, the Company had working capital of $3,137,000 and stockholders equity of $8,274,000. The Company's ratio of total liabilities to equity at December 31, 1997 was 1.8 to 1.0. INFLATION The Company does not believe that inflation has had a material effect on its results of operations for the twelve months ended December 31, 1997. The Company expects that any increase in costs attributable to inflation in the future would be offset by an increase in fees charged for services. YEAR 2000 COMPLIANCE ISSUES The Company is currently evaluating its entire operation as a result of potential problems associated with Year 2000. A task force has been established within the Company to evaluate all areas for compliance issues and develop correction plans if necessary. Some internal areas and processes being evaluated include initial charge entry through billing and collections; accounts payable invoice receipt through processing and payment; bank processing of receipts and disbursements; computer hardware and software functionality; and time and/or date-sensitive office and medical equipment functionality. At present, the Company does not anticipate any material disruption in its operations or significant costs to be incurred to attain compliance. There can be no assurance, however, that the Company will identify or adequately assess all aspects of the business that may be affected. Due to this uncertainty, a contingency plan will be developed as each area is evaluated to minimize any negative impact to the Company. The Company is in the process of soliciting information concerning the Year 2000 compliance status of its payors (including the Medicare and Medicaid governmental programs), suppliers, and customers. In the event that any of the Company's significant payors, suppliers, or customers does not successfully and timely achieve Year 2000 compliance, the Company's business and/or operations could be adversely affected. RECENT ACCOUNTING PRONOUNCEMENTS In 1997, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board ("FASB") reached a consensus on Issue 97-2, "Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements." The guidance in Issue 97-2 applies to contractual management relationships between physician practices in which the management entity does not own a majority of the outstanding voting equity instruments of the physician practice. The guidance in the issue is effective for the year ended December 31, 1998 for arrangements existing at November 20, 1997 and immediately for transactions occurring after November 20, 1997, and is not expected to have any material impact on the Company's financial statements. ITEM 8. FINANCIAL STATEMENTS See Index to Financial Statements on Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 22 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
NAME AGE POSITION ---- --- -------- William F. Borne...................... 40 Chief Executive Officer and Direc- tor James P. Cefaratti.................... 55 President and Chief Operating Of- ficer Mitchel G. Morel...................... 37 Chief Financial Officer Lynne S. Bernhard..................... 41 President, AMEDISYS Resource Man- agement Charles M. McCall..................... 45 President, Nursing Services Steven L. Taglianetti................. 48 President, Alternate-Site Infusion Therapy Services William M. Hession.................... 46 Director Dr. Karl A. LeBlanc................... 44 Director Dr. Alan J. Ostrowe................... 51 Director Jake Netterville...................... 63 Director Peter F. Ricchiuti.................... 40 Director S.F. Hartley, D.P.M................... 54 Director Ronald L. Laborde..................... 42 Director
William F. Borne (age 40). Mr. Borne founded the Company in 1982 and has served as chief executive officer and a director since that time. In 1988, Mr. Borne also founded and served as president and chief executive officer of Amedisys Specialized Medical Services, Inc. until June 1993. Mr. Borne also founded and served as chief executive officer of Amedisys Staffing Services, Inc. and Amedisys Nursing Services, Inc. James P. Cefaratti has served as president and chief operating officer of the Company since August, 1997. Mr. Cefaratti was president and chief executive officer of Global Vision, Inc. from April 1995 to July 1997. From August 1993 until April 1995, Mr. Cefaratti was a private investor involved in the purchase and sale of small health care companies. In 1989, Mr. Cefaratti joined Home Intensive Care, Inc. as president and chief executive officer, until it was sold to W.R. Grace & Co. in June 1993. Mitchel G. Morel was named chief financial officer of the Company in June 1994 and also served as vice president of finance from February 1991. Mr. Morel is responsible for directing financial activities and financial reporting systems of the organization. From October 1989 to January 1991, Mr. Morel served as comptroller of AMEDISYS Staffing Services, Inc., a subsidiary of the Company. From March 1988 to October 1989, Mr. Morel was senior accountant at the certified public accounting firm of Ellis-Apple and Company. Mr. Morel was senior accountant with the certified public accounting firm of Barrett and Company from December 1984 to March 1988 and supervisor of cost accounting at AMI, Inc. in Baton Rouge, Louisiana from October 1983 to November 1984. Mr. Morel has a Bachelor of Science degree in business administration with a major in accounting from Louisiana State University and is licensed as a Certified Public Accountant in the state of Louisiana. Mr. Morel is a member of various national and state accounting associations. Lynne S. Bernhard has served as president of AMEDISYS Resource Management since April 1996. In that position, Ms. Bernhard is responsible for the operations of the management services organization which specializes in home health care management and consulting. Ms. Bernhard served as president of Nursing Services from January 1995 to March 1996; and from March 1993 to February 1996, as president of AMEDISYS Specialized Medical Services, Inc., the Company's home health care subsidiary. Ms. Bernhard served as executive director of clinical operations and the administrator of home health services from October 1988 to March 1993. Prior to her affiliation with the Company, Ms. Bernhard was director of home health care services for Medical Personnel Pool in Baton Rouge from 1985 to 1988. Ms. Bernhard has an Associate's degree in nursing from Southern Arkansas University and she attended the College of St. Frances in Tollier, Illinois. Ms. Bernhard is a member of various professional associations including the American Nurses Association. 23 Charles M. McCall has served as president of Staffing and Patient Care Services since February 1997. In that position, Mr. McCall is responsible for all operations of the Company's temporary staffing and home health care businesses. From November 1995 to January 1997, Mr. McCall served as vice president of operations of that division and as vice president of operations of AMEDISYS Staffing Services, Inc. and AMEDISYS Nursing Services, Inc. from 1994 to 1995. From 1991 to 1994, Mr. McCall was regional vice president of ATC Nursing Services, Inc. and from 1990 to 1991, president of AMERINURSE, a wholly owned subsidiary of AMEDISYS, Inc. which has since been incorporated into AMEDISYS Nursing Services, Inc. Stephen L. Taglianetti was named president of Alternate-Site Infusion Therapy Services in 1997. From July 1993 until August 1997, Mr. Taglianetti served as president and chief operating officer of Alga Plastics, Inc. From January 1991 until June 1993, Mr. Taglianetti was employed as senior vice president of Home Intensive Care, Inc. William M. Hession, Jr. has been a director of the Company since July 1983. Mr. Hession has served as the president of Key Nursing Corporation in Thibodaux, Louisiana since 1982 and as president of Key Medical Supply, Inc. since 1992. Mr. Hession received a nursing degree from Nicholls State University. Mr. Hession served on the Audit Committee from 1995 through 1997. Karl A. LeBlanc, M.D. has served as a director of the Company since June 1993. Dr. LeBlanc has been a practicing physician of general surgery in Baton Rouge, Louisiana since 1983. Dr. LeBlanc is on the medical staffs of Our Lady of the Lake Regional Medical Center, Baton Rouge General Medical Center, and the Woman's Hospital of Baton Rouge. Dr. LeBlanc received his medical degree from Louisiana State University Medical Center in 1978, and a Bachelor of Science degree from the University of Southwestern Louisiana. Dr. LeBlanc received an Masters in Business Administration from Louisiana State University in 1992. Dr. LeBlanc served on the Audit Committee and Compensation Committee from 1995 through 1997. Alan J. Ostrowe, M.D. has served as a director of the Company since July 1994. Dr. Ostrowe previously served as president of General Anesthesia Services, Inc., an affiliated company. Dr. Ostrowe is a practicing Baton Rouge physician specializing in anesthesiology since 1971 and pain management since 1991. Dr. Ostrowe received his medical degree from New York Medical College in 1966. Dr. Ostrowe is a Fellow of the American College of Anesthesiologists, a Diplomat of the American Board of Anesthesiology and a Diplomat of the American Academy of Pain Management. Dr. Ostrowe is on the medical staffs of Our Lady of the Lake Regional Medical Center, Baton Rouge General Medical Center, Medical Center of Baton Rouge, and the Woman's Hospital of Baton Rouge. Dr. Ostrowe is on the board of directors of GulfWest Oil Company and is the medical director of one of the Company's subsidiaries. Dr. Ostrowe served on the Audit Committee and Compensation Committee from 1995 through 1997. Jake L. Netterville has been a director of the Company since 1997. Mr. Netterville is the managing director of Postlethwaite & Netterville, A Professional Accounting Corporation, one of the largest privately held accounting firms in Louisiana. Mr. Netterville has held that position since 1977. Mr. Netterville is a certified public accountant and has served on the board of the American Institute of CPAs ("AICPA"), the highest national office in the accounting profession. Mr. Netterville has served as chairman of the AICPA's National Management of Accounting Practice Committee and is a permanent member of the AICPA's Governing Council. Mr. Netterville serves as a member of the board of directors of the Wall Street Deli, a Nasdaq listed company, and Catalyst Vidalia Corporation. Mr. Netterville holds a Bachelor of Science in accounting from Louisiana State University. David R. Pitts has been a director of the Company since 1997. Mr. Pitts is the president and chief executive officer of Pitts Management Associates, Inc. ("P.A., Inc."), a national hospital and healthcare consulting firm. Mr. Pitts has over thirty-five years' experience in hospital operations, healthcare planning and multi-institutional organization, and has served in executive capacities in a number of hospitals, multi-hospital systems, and medical schools. Since 1984, Mr. Pitts has served as president and chief executive officer of HSLI, Inc., a company managing self-insured trusts and providing insurance consulting services to corporations. Mr. Pitts serves as a 24 director of Union Planters Bank of Louisiana. Mr. Pitts holds a Bachelor of Science degree in management and economics at Ohio State University and Masters degrees in both hospital administration and public administration at the University of Minnesota. Peter F. Ricchiuti has been a director of the Company since 1997. Mr. Ricchiuti has been assistant dean and director of research at Tulane University's A.B. Freeman School of Business since 1993, and an adjunct professor of finance at Tulane since 1986. From 1993 to 1996, Mr. Ricchiuti was the assistant dean and director of career development and placement at the A.B. Freeman School of Business at Tulane. From 1988 to 1993 Mr. Ricchiuti was assistant state treasurer and chief investment officer for the Department of the Treasury, State of Louisiana. Mr. Ricchiuti is a member of the board of trustees for WYES-TV, the public broadcasting station in New Orleans, Louisiana. Mr. Ricchiuti holds a Bachelor of Science degree from Babson College and a Masters in Business Administration from the University of New Orleans. S.F. Hartley, D.P.M. has served as a director of the Company since 1997. Dr. Hartley is a podiatrist in private practice in Houston, Texas since 1979. Dr. Hartley holds board certification from the American Board of Podiatric Surgery and a D.P.M. degree from the Illinois College of Podiatric Medicine. Dr. Hartley has a Bachelor of Science degree in Biology from the University of Houston. Dr. Hartley is currently a member and a delegate to the House of Delegates of the American Podiatry Medical Association. Dr. Hartley is also a member of the Academy of Podiatric Sports Medicine. Ronald A. LaBorde has been a director of the Company since 1997. Since 1995, Mr. LaBorde has served as the president and chief executive officer of Piccadilly Cafeterias, Inc. ("Piccadilly"). Mr. LaBorde has been a member of the Piccadilly board of directors since 1992. Prior to 1995, Mr. LaBorde held various executive positions with Piccadilly including executive vice president and chief financial officer from 1992 to 1995, executive vice president, corporate secretary and controller, from 1986 to 1992 and vice president and assistant controller from 1982 to 1986. Mr. LaBorde is a certified public accountant. Directors serve until the expiration of their term at the annual meeting of stockholders. All officers serve at the discretion of the Board of Directors. 25 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation paid by the Company to the chief executive officer and for all other executive officers whose total annual salary and bonus exceeded $100,000 during 1997. The Company maintains a disability insurance policy and life insurance policy on Mr. Borne under which the Company is a beneficiary. These policies are pledged as collateral for a bank loan of the Company. The named executive officers received perquisites and other personal benefits in amounts less than 10% of their total annual salary and bonus. SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION
LONG-TERM ANNUAL COMPENSATION COMPENSATION ----------------------------- ------------ OTHER ANNUAL ALL OTHER YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION ---- ------ ------- ------------ ------------ ------------ William F. Borne........ 1997 $190,000 $20,000 1,987 34,525 -- Chief Executive Officer 1996 153,771 20,000 -- 35,000 -- 1995 133,519 -- -- 3,250 -- Lynne S. Bernhard....... 1997 $100,000 $43,649 3,450 14,644 -- President, Amedisys 1996 90,645 17,500 -- 18,500 -- Resource Management 1995 78,958 -- -- 3,250 -- Mitchel G. Morel........ 1997 $100,000 $12,500 1,000 24,128 -- Chief Financial Officer 1996 87,698 17,500 -- 18,500 -- 1995 84,297 -- -- 3,250 -- Charles M. McCall....... 1997 $ 82,812 $33,203 4,501 13,612 -- President, Staffing and 1996 75,071 5,525 -- 9,500 -- Patient Care Services 1995 -- -- -- -- --
STOCK OPTIONS The Company's Amended Stock Option Plan provides for the issuance of an aggregate of 1,000,000 shares of Common Stock upon exercise of options granted pursuant to such Amended Stock Option Plan. As of December 31, 1997, options to purchase an aggregate of 957,065 shares were outstanding under the Amended Stock Option Plan. 1997 STOCK OPTION GRANTS
POTENTIAL REALIZABLE VALUE AT ASSURED ANNUAL RATES OF STOCK PRICE PERCENT APPRECIATION OF FOR OPTIONS TOTAL EXERCISE OPTION TERM GRANTED OPTIONS PRICE EXPIRATION --------------- NAME (SHARES) GRANTED (PER SHARE) DATE 5% 10% ---- ------- ------- ---------- ---------- -- ------- William F. Borne........ 34,525 3.6% $6.20 Feb 2007 $30,835 $43,071 Lynne Shackelford- Bernhard............... 14,644 1.5% $6.20 Feb 2007 $13,079 $17,269 Mitchel G. Morel........ 24,128 2.5% $6.20 Feb 2007 $21,549 $30,099 Charles M. McCall....... 13,612 1.4% $6.20 Feb 2007 $12,158 $16,982
26 AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN- ACQUIRED OPTIONS THE-MONEY OPTIONS(*) ON VALUE ------------------------- ------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- -------- ----------- ------------- ----------- ------------- William F. Borne........ -- -- 26,425 46,330 $ 0 $ 0 Lynne Shackelford- Bernhard............... -- -- 14,298 22,096 $ 0 $ 0 Mitchel G. Morel........ -- -- 17,459 28,419 $ 0 $ 0 Charles M. McCall....... -- -- 7,904 15,408 $ 0 $ 0
- -------- (*) Computed based on the differences between the fair market value and aggregate exercise prices. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of April 29, 1998, certain information with respect to the beneficial ownership of the Company's Common Stock by (i) each person known to the Company who beneficially owns more than 5% of the Company's outstanding Common Stock, (ii) each director, (iii) all named executive officers, and (iv) all directors and officers as a group:
SHARES OF PERCENT OF COMMON VOTING NAME AND ADDRESS(1) STOCK POWER(2) ------------------- ------- ---------- Terra Healthy Living, Ltd............................................. 861,622(3) 18.4% William F. Borne...................................................... 432,359(4) 9.2% William M. Hession, Jr................................................ 90,692(5)(6) 1.9% Lynne S. Bernhard..................................................... 56,606(7) 1.2% Alan J. Ostrowe, M.D.................................................. 48,536(6) 1.0% Mitchel G. Morel...................................................... 39,155(8) * Charles M. McCall..................................................... 36,404(9) * Karl A. LeBlanc, M.D., M.B.A.......................................... 8,730(6) * S.F. Hartley, D.P.M................................................... 20,000 * David Pitts........................................................... 5,000 * Peter F. Ricchiuti.................................................... 2,000 * Ronald A. LaBorde..................................................... 2,000 * Jake Netterville...................................................... 2,000 * All officers and directors as a group (11 persons).................... 491,329(10) 10.4%
- -------- (*) Less than one percent. (1) Each address is the Company, except for (i) Terra Healthy Living, Ltd., at Bahnofplatz 9, 8001 Zurich, Switzerland, (ii) William M. Hession, Jr., at 627 Fairway Drive, Thibodaux, LA 70301, (iii) Karl A. LeBlanc, M.D., M.B.A., at 7777 Hennessy Boulevard, Suite 612, Baton Rouge, LA 70808, (iv) S. F. Hartley, D.P.M., at 112 S. Pasadena Boulevard, Deer Park, TX 77536, (v) David Pitts, at 7946 Goodwood Boulevard, Baton Rouge, LA 70806, and (vi) Peter F. Ricchiuti, Associate Dean, Director of Research, A.B. Freeman School of Business, Tulane University, New Orleans, LA 70118. (2) Includes Common Stock and Common Stock Equivalents. (3) Includes 861,622 shares of Company Common Stock underlying 380,000 shares Series A Preferred Stock. (4) Includes options to purchase 26,425 shares of Common Stock. (5) Includes 82,847 shares held by Key Nursing Corporation, an affiliate of Mr. Hession. (6) Includes options to purchase 6,110 shares of Common Stock. 27 (7) Includes options to purchase 14,298 shares of Common Stock. (8) Includes options to purchase 17,459 shares of Common Stock. (9) Includes options to purchase 7,904 shares of Common Stock. (10) Includes options to purchase 51,906 shares of Common Stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In connection with the Private Placement, Terra Healthy Living, Ltd. purchased 380,000 shares of Series A Preferred Stock, which is currently convertible into 861,622 shares of Common stock. Terra Healthy Living, Ltd. is only affiliated to the Company through its stock ownership. Notes receivable from related parties consist of unsecured and non-interest bearing notes from the chief executive officer totaling approximately $64,000 at December 31, 1997 and $65,000 at March 31, 1998. The maturity dates for the notes receivable from the chief executive officer are as follows: (i) $8,000 payable in December 1998, (ii) $ 18,000 payable in December 1999, and (iii) $38,000 payable in December 2000. Additional notes receivable from related parties consist of receivables from the Internal Medicine Clinic of Tangipahoa, Inc. ("IMC") which owns 40% of Amedisys Physician Services, Inc. totaling approximately $150,000 at December 31, 1997. The fair value of the notes receivable from related parties is equal to the recorded value due to the short term nature of the notes. In March, 1994, the Company entered into agreements with IMC to form Rural Health Provider Network, Inc. ("RHPN") of which the Company owns 60% (the "Agreements"). The name of RHPN has subsequently been changed to Amedisys Physician Services, Inc. ("APS"). APS operated a lab, walk-in-clinic in Hammond, Louisiana, and managed the physician practice of IMC. APS also invested in an ophthalmology clinic in Hammond, Louisiana. Pursuant to the Agreements, the Company loaned APS $312,000. This amount was comprised of $112,000 for the purchase of the fixed assets of IMC and a working capital loan of $200,000, collateralized by IMC's accounts receivable. The Company was responsible for funding the operations of APS, including loaning additional funds to APS if APS did not have adequate cashflow to meet its current obligations. The balance owed to the Company by IMC for working capital requirements at December 31, 1995 was $256,000. Two notes were issued on January 1, 1996 to the Company by IMC in the combined amount of $256,000. These notes bear interest at 9%, require monthly principal and interest payments of $4,706 with the balance due on maturity of January 1, 1999 and are secured by the accounts receivable of IMC. During 1996, the Company collected approximately $6,000 from IMC on the outstanding notes. Because of a dispute between the owners of IMC and the Company over the amounts outstanding, the Company determined that the probability of collecting $100,000 of the payable was uncertain and therefore, elected to expense that amount in December 1996, resulting in a remaining balance owed at December 31, 1996 of $150,000. The current amount outstanding on the notes payable due from IMC is $143,723, and management believes these notes are collectible. In addition to the outstanding notes payable due from IMC, APS recorded management fees of $28,097 in 1996 and $541,441 in 1995 from IMC. As of December 31, 1996, management fees of $28,097 were still outstanding. From January through August 1997, IMC made payments of varying amounts on the unpaid balance of management fees. At August 1997, the entire balance of $28,097 was paid. The Company and IMC terminated their management relationship in August 1996, and have no other arrangements with respect to management of physician practices or independent practice associations. In accordance with the terms of the Agreements, IMC has the right and option to sell its shares of APS back to APS at a price equal to 3.5 times the earnings per share of APS attributable to each share of APS stock, to be calculated based on the largest annual earnings per share amount during the three-year period prior to the time such repurchase is requested by IMC. This option became exercisable in March 1997, and does not have an expiration date. In the Agreements, the Company agreed to loan the funds to repurchase the stock to APS, if necessary. In addition, the Agreements provide that in the event the management agreement between IMC and APS is terminated, IMC shall be required to repurchase all of the assets of IMC acquired by APS at fair market value within 45 days of such termination. At this time, the option has not been exercised by IMC. The Company 28 has been reformulating its business to emphasize three divisions: infusion therapy services, ambulatory surgery centers and home health nursing services. In light of these changes, APS has become a diminished portion of the Company's business and constitutes less than 5% of the Company's operations. Accordingly, the exercise of the Company's repurchase right has not been a top priority of management. The Company intends to exercise its right to have IMC repurchase the assets acquired by APS, and is currently in negotiations with IMC to determine the fair market value of the assets. Management believes the fair market value of the assets will be no more than $50,000. Notes payable to related parties in 1996 consisted primarily of a note issued in 1994 in the original amount of $1,080,000, bearing interest at 9% with a fifteen year amortization, to Vista Maple, Ltd. During 1994, prior to its acquisition by the Company, Amedisys Surgery Centers, L.C. ("ASC") purchased a building and land from Vista Maple, Ltd., a real estate partnership, whose owners were also owners of ASC, and are now stockholders of the Company. The Company currently has a 15% interest in Vista Maple, Ltd. The note was refinanced under a five year installment note in June 1997 with a financial institution in the amount of $973,000. The remaining balance of notes payable to related parties ($45,000) consists of unsecured notes to certain Stockholders of the Company that are due on demand and bear interest at rates from 0%-12%. The fair value of these notes approximates the recorded balance due to the short-term nature of the notes. 29 PART IV. ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT ------- ----------------------------------------------------------------- 2.1(1) -- Acquisition Agreement dated December 20, 1993 between the Company and M & N Capital Corp. 2.2(3) -- Plan of Merger dated August 3, 1994 between M & N Capital Corp. and the Company 2.3(4) -- Certificate of Merger dated August 3, 1994 between M & N Capital Corp. and the Company 2.4(7) -- Acquisition Agreement dated August 1,1997 between the Company and Allgood Medical Services, Inc. 2.5(7) -- Exchange Agreement dated January 1, 1998 between the Company and Alliance Home Health, Inc. and University Capital Corp. dated December 10, 1997. 2.6(7) -- Stock Purchase Agreement by and among Amedisys, Alternate-Site Infusion Therapy Services, Inc., PRN, Inc. d/b/a Home IV Therapy, Joseph W. Stephens, and Terry I. Stevens dated February 23, 1998. 2.7(7) -- Agreement to Purchase by and between Amedisys, Alternate-Site Infusion Therapy Services, Inc. and Precision Health Systems, L.L.C. dated February 27, 1998. 2.8(7) -- Promissory note in the amount of $250,000 to Precision Health Solutions, L.L.C. in connection with the purchase of the company. 2.9(7) -- Stock Purchase Agreement by and among Amedisys Alternate-Site Infusion Therapy Services, Inc., Infusioncare Solutions, Inc. and Daniel D. Brown dated February 27, 1998. 2.10(7) -- Promissory note in the amount of $125,000 to Daniel D. Brown in connection with the purchase of the company. 3.1(4) -- Certificate of Incorporation 3.2(4) -- Bylaws 3.3(7) -- Certificate of Designation for the Series A Preferred Stock 4.1(4) -- Common Stock Specimen 4.2(7) -- Preferred Stock Specimen 4.3(7) -- Form of Placement Agent's Warrant Agreement 5.1(7) -- Opinion regarding Legality 10.1(4) -- Master Note with Union Planter's Bank of Louisiana 10.2(4) -- Merrill Lynch Term Working Capital Management Account 10.3(5) -- Promissory Note with Deposit Guaranty National Bank 10.4(7) -- Amended and Restated Stock Option Plan 10.5(7) -- Registration Rights Agreement 18.1(8) -- Letter regarding Change in Accounting Principles 21.1(7) -- List of Subsidiaries 23.1(7) -- Consent of Counsel (contained in Exhibit 5.1) 23.2(7) -- Consents of Arthur Andersen, LLP and Hannis T. Bourgeois & Co., L.L.P., independent public accountants 27.1(8) -- Financial Data Schedule
- -------- (1) Previously filed as an exhibit to the Current Report on Form 8-K dated December 20, 1993, and incorporated herein by reference. (2) Previously filed as an exhibit to the Current Report on Form 8-K dated February 14, 1994, and incorporated herein by reference. (3) Previously filed as an exhibit to the Current Report on Form 8-K dated August 11, 1994, and incorporated herein by reference. (4) Previously filed as an exhibit to the Annual Report on Form 10-KSB for the year ended December 31, 1994, and incorporated herein by reference. (5) Previously filed as an exhibit to the Current Report on Form 8-K dated June 30, 1995, and incorporated herein by reference. (6) Previously filed as an exhibit to the Registration Statement on Form S-1 (333-8329) dated July 18, 1996, and incorporated herein by reference. (7) Previously filed as an exhibit to the Registration Statement on Form S-3 dated March 11, 1998, and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1997 filed October 5, 1998, and incorporated herein by reference. (b) Reports on Form 8-K No Reports on Form 8-K were filed during the fourth quarter of 1997. 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized, on the 23rd day of October, 1998. AMEDISYS, INC. By: /s/ William F. Borne ---------------------------------- William F. Borne Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE /s/ William F. Borne Chief Executive October 23, 1998 - ----------------------------------- Officer and William F. Borne Chairman of the Board /s/ James P. Cefaratti President and Chief October 23, 1998 - ----------------------------------- Operating Officer James P. Cefaratti /s/ Mitchel G. Morel Chief Financial October 23, 1998 - ----------------------------------- Officer (Principal Mitchel G. Morel Financial and Accounting Officer) /s/ Ronald A. Laborde Director October 23, 1998 - ----------------------------------- Ronald A. Laborde /s/ Jake L. Netterville Director October 23, 1998 - ----------------------------------- Jake L. Netterville 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Amedisys, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Amedisys, Inc. (a Delaware Corporation) and Subsidiaries (the Company) as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amedisys, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. As explained in Note 5 to the financial statements, effective January 1, 1997, the Company changed its method of accounting for start-up costs. ARTHUR ANDERSEN LLP HANNIS T. BOURGEOIS & CO., LLP New Orleans, Louisiana Baton Rouge, Louisiana April 15, 1998 F-1 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 (IN 000'S EXCEPT SHARE DATA)
1997 1996 ------- ------- CURRENT ASSETS: Cash and cash equivalents.................................. $ 4,070 $ 103 Accounts receivable, net of allowance for doubtful accounts of $1,617 in 1997 and $732 in 1996........................ 9,630 8,271 Prepaid expenses........................................... 247 264 Income tax receivable (Note 9)............................. 118 74 Inventory and other current assets......................... 536 442 ------- ------- Total current assets................................... 14,601 9,154 NOTES RECEIVABLE FROM RELATED PARTIES (Note 10).............. 252 190 OTHER INVESTMENTS (Note 4)................................... 399 456 PROPERTY, PLANT AND EQUIPMENT, NET (Notes 3 and 8)........... 4,785 4,610 DEFERRED TAX ASSET (Note 9).................................. 926 447 OTHER ASSETS, NET (Note 5)................................... 1,907 2,001 ------- ------- Total assets........................................... $22,870 $16,858 ======= ======= CURRENT LIABILITIES: Accounts payable........................................... $ 1,338 $ 1,416 Accrued expenses-- Payroll and payroll taxes................................ 2,025 1,033 Insurance (Note 12)...................................... 521 643 Other.................................................... 847 883 Notes payable (Note 6)..................................... 5,806 4,379 Current portion of notes payable to related parties (Note 10)....................................................... 45 90 Current portion of long-term debt (Note 7)................. 690 458 Current portion of obligations under capital leases (Note 8)........................................................ 192 231 ------- ------- Total current liabilities.............................. 11,464 9,133 LONG-TERM DEBT (Note 7)...................................... 2,995 1,937 NOTES PAYABLE TO RELATED PARTIES (Note 10)................... -- 943 OBLIGATIONS UNDER CAPITAL LEASES (Note 8).................... 134 343 ------- ------- Total liabilities...................................... 14,593 12,356 ------- ------- COMMITMENTS AND CONTINGENCIES (Notes 8, 12 and 15) -- -- ------- ------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES............... 3 188 ------- ------- STOCKHOLDERS' EQUITY (Note 11): Common stock--$.001 par value; 10,000,000 shares authorized; 2,850,067 and 2,576,191 shares outstanding in 1997 and 1996, respectively............................... 3 2 Preferred stock--$.001 par value; 2,500,000 shares authorized and 400,000 shares outstanding in 1997......... 1 -- Additional paid-in capital................................. 7,092 1,916 Treasury stock--4,167 shares at $6.00 per share............ (25) -- Retained earnings.......................................... 1,203 2,397 Stock subscriptions receivable............................. -- (1) ------- ------- Total stockholders' equity............................. 8,274 4,314 ------- ------- Total liabilities and stockholders' equity............. $22,870 $16,858 ======= =======
The accompanying notes are an integral part of these statements. F-2 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S EXCEPT SHARE DATA)
1997 1996 1995 ---------- ---------- ---------- INCOME: Net service revenues..................... $ 54,496 $ 46,060 $ 37,589 Cost of service revenues................. 30,641 26,405 22,424 ---------- ---------- ---------- Operating revenues..................... 23,855 19,655 15,165 ---------- ---------- ---------- GENERAL AND ADMINISTRATIVE EXPENSES: Salaries and benefits.................... 12,651 10,327 6,732 Other (Notes 2 and 5).................... 11,792 8,184 7,053 ---------- ---------- ---------- Total general and administrative expenses.............................. 24,443 18,511 13,785 ---------- ---------- ---------- Operating income....................... (588) 1,144 1,380 ---------- ---------- ---------- OTHER INCOME (EXPENSE): Interest expense......................... (870) (579) (410) Interest income.......................... 31 43 72 Write-off of investments (Note 4)........ -- (623) -- Miscellaneous............................ (123) (19) 88 ---------- ---------- ---------- Total other expense.................... (962) (1,178) (250) ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE................... (1,550) (34) 1,130 INCOME TAX EXPENSE (BENEFIT) (Note 9)...... (382) 3 200 ---------- ---------- ---------- Income (loss)before minority interest in net income of consolidated subsidiaries and cumulative effect of a change in accounting principle...................... (1,168) (37) 930 MINORITY INTEREST IN (INCOME) LOSS OF CONSOLIDATED SUBSIDIARIES................. 209 55 12 ---------- ---------- ---------- Net income (loss) before cumulative effect of change in accounting principle............................. (959) 18 942 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (Note 5)........................ (235) -- -- ---------- ---------- ---------- Net income (loss)...................... $ (1,194) $ 18 $ 942 ---------- ---------- ---------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING. 2,735,000 2,575,000 2,570,000 ---------- ---------- ---------- EARNINGS (LOSS) PER COMMON SHARE (Notes 1 and 2): Income (loss) before cumulative effect of change in accounting principle.......... $ (0.35) $ 0.01 $ 0.37 Cumulative effect of change in accounting principle............................... (0.08) -- -- ---------- ---------- ---------- Net income (loss)...................... $ (0.43) $ 0.01 $ 0.37 ========== ========== ========== PRO FORMA INFORMATION (UNAUDITED): (Note 2) Historical net income (loss)............. $ (1,194) $ 18 $ 942 Pro forma adjustments--Income taxes on Surgicare results....................... -- -- 191 ---------- ---------- ---------- Pro forma net income (loss).............. $ (1,194) $ 18 $ 751 ========== ========== ========== PRO FORMA EARNINGS (LOSS) PER COMMON SHARE. $ (0.43) $ 0.01 $ 0.29 ========== ========== ==========
The accompanying notes are an integral part of these statements. F-3 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S, EXCEPT SHARE DATA)
PREFERRED COMMON STOCK STOCK ADDITIONAL STOCK TOTAL ----------------- -------------- PAID-IN RETAINED SUBSCRIPTIONS TREASURY STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE STOCK EQUITY --------- ------ ------- ------ ---------- -------- ------------- -------- ------------- BALANCE, December 31, 1994................... 2,546,721 $ 2 -- -- $1,653 $2,494 $(107) $ -- $ 4,042 Issuance of stock for acquisitions (Note 2). 37,143 1 -- -- 324 -- -- -- 325 Pooled acquisition-- distributions to owners (Note 2)....... -- -- -- -- -- (1,057) -- -- (1,057) Payments received on stock subscriptions... -- -- -- -- -- -- 23 -- 23 Net income............. -- -- -- -- -- 942 -- -- 942 --------- --- ------- --- ------ ------ ----- ---- ------- BALANCE, December 31, 1995................... 2,583,864 3 -- -- 1,977 2,379 (84) -- 4,275 Issuance of stock in connection with warrants (Note 11).... 1,190 -- -- -- 9 -- -- -- 9 Payments received on and write-off of stock subscriptions......... (8,863) (1) -- -- (70) -- 83 -- 12 Net income............. -- -- -- -- -- 18 -- -- 18 --------- --- ------- --- ------ ------ ----- ---- ------- BALANCE, December 31, 1996................... 2,576,191 2 -- -- 1,916 2,397 (1) -- 4,314 Payments received on stock subscriptions... -- -- -- -- -- -- 1 -- 1 Issuance of stock in connection with private placement stock, offering acquisition, and 401K plan (Notes 2 and 11). 273,876 1 -- -- 1,596 -- -- -- 1,597 Cost of private placement............. -- -- -- -- (110) -- -- -- (110) Purchase of treasury stock................. -- -- -- -- -- -- -- (25) (25) Issuance of preferred stock (Note 11)....... -- -- 400,000 1 3,999 -- -- -- 4,000 Costs of preferred stock issuance (Note 11)................... -- -- -- -- (309) -- -- -- (309) Net loss............... -- -- -- -- -- (1,194) -- -- (1,194) --------- --- ------- --- ------ ------ ----- ---- ------- BALANCE, December 31, 1997................... 2,850,067 $ 3 400,000 $ 1 $7,092 $1,203 $ -- $(25) $ 8,274 ========= === ======= === ====== ====== ===== ==== =======
The accompanying notes are an integral part of these statements. F-4 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
1997 1996 1995 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).................................. $(1,194) $ 18 $ 942 Adjustments to reconcile net income to net cash (used) provided by operating activities-- Depreciation and amortization..................... 1,240 945 647 Provision for bad debts........................... 1,427 878 483 Write-off of goodwill (Note 2).................... 1,028 -- -- (Gain) loss on disposal of property and equipment. (12) 8 7 Other, net........................................ 37 -- -- Deferred income tax benefit....................... (566) (240) (162) Minority interest................................. (209) (55) (12) Cumulative effect of change in accounting principle........................................ 326 -- -- Changes in assets and liabilities-- Increase in accounts receivable.................. (2,549) (3,025) (1,012) (Increase) decrease in inventory and other current assets.................................. 46 (54) (330) Increase in other assets......................... (406) (1,734) (114) Increase (decrease) in accounts payable.......... (143) 1,014 (188) Increase in accrued expenses..................... 834 308 1,292 ------- ------- ------- Net cash (used) provided by operating activities..................................... (141) (1,937) 1,553 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in notes receivable....................... -- -- 10 Proceeds from sale of property, plant and equipment......................................... 191 12 42 Purchase of property, plant and equipment.......... (1,456) (2,965) (446) Minority interest investment in subsidiary......... 24 240 -- ------- ------- ------- Net cash used by investing activities........... (1,241) (2,713) (394) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash received in purchase acquisitions............. -- -- 11 Cash used in purchase acquisitions................. (465) -- -- Net borrowings on line of credit agreement......... 1,428 1,922 783 Proceeds from issuance of notes payable and capital leases............................................ 992 2,596 661 Payments on notes payable and capital leases....... (1,037) (699) (574) Decrease in notes payable--related parties......... (1) (44) (236) (Increase) decrease in notes receivable--related parties........................................... (62) 85 (40) Proceeds from issuance of stock.................... 4,518 9 -- Payments received on stock subscriptions receivable........................................ 1 14 23 Distributions to members (Note 2).................. -- -- (1,058) Purchase of treasury stock......................... (25) -- -- ------- ------- ------- Net cash provided (used) by financing activities..................................... 5,349 3,883 (430) ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................ 3,967 (767) 729 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...... 103 870 141 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR............ $ 4,070 $ 103 $ 870 ======= ======= =======
F-5 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN 000'S)
1997 1996 1995 ----- ---- ----- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for-- Interest................................................. $ 846 $495 $ 366 ===== ==== ===== Income taxes............................................. $ -- $586 $ 36 ===== ==== ===== SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquisition of Health Care 24 Inc.-- Value of stock issued in exchange........................ $ -- $ -- $ 50 Value of note payable issued in exchange................. -- -- 50 Fair value of property and equipment acquired............ -- -- (15) ----- ---- ----- Client lists acquired.................................... $ -- $ -- $ 85 ===== ==== ===== Acquisition of Home Care Plus, Inc.-- Value of stock issued in exchange........................ $ -- $ -- $ 274 Cash acquired in exchange................................ -- -- (11) Working capital acquired net of cash and cash equivalents............................................. -- -- (151) Fair value of property and equipment acquired............ -- -- (30) Long-term debt assumed................................... -- -- 230 ----- ---- ----- Goodwill recorded in exchange............................ $ -- $ -- $ 312 ===== ==== ===== Related party note payable refinanced with financing company.................................................. $ 988 $ -- $ -- ===== ==== ===== Issuance of stock to 401(k) plan.......................... $ 59 $ -- $ -- ===== ==== ===== Acquisition of Allgood Medical Services, Inc.-- Cash paid in exchange.................................... $ 465 $ -- $ -- Value of stock issued in exchange........................ 600 -- -- Value of note payable issued in exchange................. 100 -- -- Working capital acquired net of cash and cash equivalents............................................. (313) -- -- ----- ---- ----- Goodwill recorded in exchange (Note 2)................... $ 852 $ -- $ -- ===== ==== =====
The accompanying notes are an integral part of these statements. F-6 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Organization Amedisys, Inc. (the Company) is incorporated in the state of Delaware and operates in eight states including Louisiana, Texas, Tennessee, Missouri, Kansas, Mississippi, North Carolina and Minnesota with a concentration of business in Louisiana and Texas. During 1997, the Company purchased a durable medical equipment supplier in Louisiana and Mississippi and launched an infusion therapy division; in 1996, the Company opened a new ambulatory surgery center in Louisiana in which it has a 56% ownership interest; in 1995, the Company acquired an outpatient surgery center company in Texas and two home care companies (see Note 2) in Louisiana. The Company provides a variety of supplemental staffing, home health care, home care management, outpatient surgery, infusion therapy, home medical equipment and primary care clinical services. The Company's home care division serves all major metropolitan areas in the state of Louisiana as well as the areas of Houston, Dallas and Beaumont in Texas. The outpatient surgery centers are located in Houston, Texas, and Hammond, Louisiana. Nature of Operations The Company provides services through a network of subsidiaries that include: AMEDISYS Staffing Services, Inc. (ASS) supplies highly trained critical care registered nurses and licensed practical nurses to all types of health care facilities. Independent contract nurses are utilized to meet the staffing needs of client health care facilities. AMEDISYS Nursing Services, Inc. (ANS) is an employee-based staffing agency that provides a variety of relief personnel such as registered and licensed practical nurses, and certified nurses' aides for staff relief in all types of health care facilities. Amerinurse, Inc. provides highly trained nurses who travel to client heath care facilities and work on a contract basis. Effective January 1, 1996, Amerinurse, Inc. was merged into ANS. AMEDISYS Specialized Medical Services, Inc. (ASM), Amedisys Home Health, Inc. and Amedisys Home Health, Inc. of Texas provide skilled nursing care, home health aid, physical therapy, occupational therapy, speech therapy and medical social workers to homebound patients. AMEDISYS Surgery Centers, L. C. (ASC) operates two outpatient surgery centers in Houston, Texas, and one surgery center in Hammond, Louisiana, which commenced operation in November, 1996. AMEDISYS Physician Services, Inc. (APS) provides management of physician practices and networks including Independent Practice Associations. APS also operates a laboratory. AMEDISYS Resource Management (ARM) and Physician Practice Management provides management services to home health agencies and physician practices. AMEDISYS Durable Medical Equipment, Inc. (DME) provides durable medical equipment to patients in home health care settings, medical facilities and health maintenance organizations in southern Louisiana and Mississippi. DME has a comprehensive spectrum of products, including specialized equipment such as customized wheelchairs. AMEDISYS Alternate Site Infusion Therapy, Inc. (AASI) provides patients an opportunity to have intravenous drug therapy provided at home or at walk-in centers. F-7 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 Use of Estimates The accounting and reporting policies of the Company and its subsidiaries conform with generally accepted accounting principles. In preparing the consolidated financial statements, the Company is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries as well as its 60%-owned subsidiary (APS) and their wholly-owned and partially-owned subsidiaries; Amedisys Home Health, Inc. and Amedisys Home Health, Inc. of Texas, both wholly-owned subsidiaries of ASM; Jackson Rural Health Clinic, Inc. (clinic closed February, 1996), Kentwood Rural Health Clinic, Inc. (clinic closed August, 1995), and Bastrop Rural Health Clinic, Inc. (clinic sold in September, 1996), all 60%-owned subsidiaries of ASM and Hammond Surgical Care Center, LLC, a 56% owned subsidiary of ASC. All material intercompany accounts and transactions have been eliminated in these financial statements. The 1995 financial statements have been restated to include the accounts of a business combination accounted for as a pooling-of-interests (See Note 2). Business combinations accounted for as purchases are included from the respective dates of acquisition. Revenue Recognition Policy Gross revenue is recorded on an accrual basis based upon the date of service at amounts equal to the Company's established rates or estimated cost reimbursement rates, as applicable. Allowances and contractual adjustments representing the difference between the established rates and the amounts estimated to be payable by third parties are also recorded on an accrual basis and deducted from gross revenue to determine net service revenues. Reimbursement for home health care services to patients covered by the Medicare program is based on cost reimbursement rates. Final reimbursement is determined after submission of annual cost reports and audits thereof by the fiscal intermediaries. Effective January 1, 1998, home health cost limits were reduced and per beneficiary limits were established which will reduce payments to Home Health Service providers in the future. Additional proposed regulations are expected to change the payment methodology for home health care services to Medicare patients from a cost based reimbursement system to a prospective payment system in the future. Cash and Cash Equivalents For purposes of reporting cash flows, cash includes certificates of deposit and all highly liquid debt instruments with maturities of three months or less when purchased. The carrying amount approximates fair value because of the short maturity of those instruments. Inventory Inventories consist of medical supplies that are utilized in the treatment and care of home health and outpatient surgery patients. Inventories are stated at the lower of cost (first-in, first-out method) or market. F-8 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 Property and Equipment Property and equipment is generally carried at cost except for certain property purchased from related parties prior to 1995. Additions and improvements are capitalized, but ordinary maintenance and repair expenses are charged to income as incurred. The cost of property sold or otherwise disposed of and the accumulated depreciation thereon are eliminated from the property and related accumulated depreciation accounts, and any gain or loss is credited or charged to income. Capitalized leases, primarily of computer equipment, phone systems, and vans used by the home care divisions, are included in property and equipment. Capital leases are recorded at the present value of the future rentals at lease inception and are amortized over the lesser of the applicable lease term or the useful life of the equipment. For financial reporting purposes, depreciation and amortization of property including those subject to capital leases ($1,101,000 in 1997, $788,000 in 1996 and $468,000 in 1995) is included in other general and administrative expenses and is provided utilizing the straight-line method based upon the following estimated useful service lives: Buildings....................................................... 40 years Leasehold Improvements.......................................... 5 years Equipment and furniture......................................... 5-7 years Vehicles........................................................ 5 years Computer software............................................... 5 years
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of Whenever there are recognized events or changes in circumstances that indicate the carrying amount of an asset may not be recoverable, management reviews the asset for possible impairment. In accordance with SFAS No. 121, management uses undiscounted estimated expected future cash flows to assess the recoverability of the asset. If the expected future net cash flows are less than the carrying amount of the asset, an impairment loss, measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset, would be recognized. Earnings Per Share In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which simplifies the computation of earnings per share (EPS). The Company adopted SFAS No. 128 in the fourth quarter of 1997. SFAS No. 128 requires the restatement of prior years' EPS data; however, application of the statement has no impact on the Company's prior years' EPS data. Basic net income per share of common stock is calculated by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the year. Diluted net income per share is not presented as stock options and convertible securities outstanding during the periods presented were not dilutive. Reclassifications Certain amounts previously reported in the 1996 and 1995 financial statements have been reclassified to conform to the 1997 presentation. F-9 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 2. ACQUISITIONS: On August 1, 1997, the Company acquired substantially all of the assets of Allgood Medical Services, Inc. d/b/a Care Medical and Mobility Equipment Company for $1,165,000. The purchase price consisted of $465,000 in cash, $100,000 note payable, and $600,000 in common stock which represented 115,518 common shares. This transaction has been accounted for as a purchase and the excess of the total acquisition cost over the fair value of net assets acquired (goodwill) of $852,000 was being amortized over twenty years using the straight-line method. Subsequent to this purchase, certain reimbursement reductions were announced to implement the Balanced Budget Act of 1997. Based on management's estimate of the expected impact of these changes in reimbursement on future cash flows, this goodwill was fully written off as Other General and Administrative Expense at December 31, 1997 as required under Statement of Financial Accounting Standard No. 121. The following unaudited pro forma information has been prepared as if the acquisition had occurred at the beginning of each of the periods ended December 31, 1997 and 1996. This pro forma information has been prepared for comparative purposes only and is not necessarily indicative of what would have occurred had the acquisition taken place on the dates indicated, nor does it purport to be indicative of the future operating results of the Company (000's, except share amounts):
(UNAUDITED) 1997 1996 ------- ------- Revenues................................................ $55,147 $47,270 Net income (loss)....................................... (1,356) 130 Net income (loss) per common share...................... (0.50) 0.05
On June 30, 1995, the Company acquired all issued and outstanding membership interests in ASC in exchange for 1,000,000 shares of Company common stock. ASC's assets on June 30, 1995 were approximately $3,000,000. Upon closing of the transaction, the former members of ASC owned approximately 40% of the issued and outstanding stock of the Company. This transaction was accounted for as a pooling of interests. ASC was a limited liability company and, accordingly, had no income tax liabilities. The effect of providing for income taxes on results of ASC operations prior to the 1995 acquisition is shown under "Pro forma Information" in the accompanying statement of operations. On May 31, 1995, the Company acquired all of the outstanding stock of Home Care Plus, Inc. in exchange for 30,000 shares of its common stock valued at $274,000. The $312,000 excess of the total acquisition cost over the fair value of the liabilities assumed was recorded as goodwill and was being amortized over seven years using the straight-line method. This operation was closed in the second quarter of 1997 and the remaining $193,000 unamortized balance of goodwill was written off in the fourth quarter of 1997. See Note 15 for restated operating results for the quarter ended June 30, 1997. On March 19, 1995, the Company acquired all of the outstanding stock of Health Care Services 24, Inc. in exchange for 7,143 shares of its common stock valued at $50,000 and notes payable in the amount of $50,000, payable in monthly installments through March, 1996. The Company acquired client lists (See Note 5) and property and equipment with a fair value of $85,000 and $15,000, respectively. The acquisitions of Home Care Plus, Inc. and Health Care Services 24, Inc. were accounted for as purchases and as a result, operations of these entities subsequent to the date of acquisition have been included in the consolidated financial statements. Unaudited pro forma consolidated results of operations for the year ended December 31, 1995 as though these companies had been acquired as of January 1, 1995 are as follows:
1995 ----------- Net service revenues......................................... $38,108,293 Net income................................................... $ 850,874 Earnings per common share.................................... $ 0.33
F-10 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 The above amounts reflect adjustments for amortization of goodwill. See Note 16 for additional acquisitions which occurred subsequent to December 31, 1997. 3. PROPERTY AND EQUIPMENT: Property and equipment consists of (000's):
1997 1996 ------- ------- Land.................................................... $ 220 $ 220 Building and leasehold improvements..................... 717 607 Equipment, furniture and vehicles....................... 6,721 5,585 Computer software....................................... 114 95 ------- ------- Total................................................. 7,772 6,507 Accumulated depreciation................................ (2,987) (1,897) ------- ------- Net................................................... $ 4,785 $ 4,610 ======= =======
4. OTHER INVESTMENTS: The Company had made advances totaling $366,000 at December 31, 1997 in connection with the acquisition of a 42% interest in a surgery center being developed in Houston, Texas. The surgery center is expected to open in April 1998 and is to be managed by the Company under a long-term management contract. The Company accounts for this investment using the equity method. On June 30, 1995, the Company acquired an investment in a real estate partnership in connection with the purchase of ASC (see Note 2), which has certain partners who are also owners of the Company. This investment is accounted for under the equity method. Management concluded in December, 1996, that the realization of certain previously recorded assets might not be assured and, accordingly, wrote off the portion of these investments (approximately $623,000) believed to be unrealizable through future operations. These investments were primarily comprised of advances made to develop FutureCare, Inc., a proposed managed care organization, of $391,000, certain non-operating equipment of $132,000 believed to be unrealizable through future operations, and $100,000 in notes receivable due from a related party. The $391,000 advance to FutureCare, Inc. was to be reimbursed upon completion of a securities offering of its stock. Due to the uncertainty of a successful offering, the Company chose to expense these amounts. The $132,000 was comprised of opthamology and processing kitchen equipment that the Company was attempting to sell. None of these assets were producing, or expected to produce, a benefit in current or future years. The $100,000 was written off because of a dispute between the Company and Internal Medicine Clinic of Tangipahoa, Inc. ("IMC"). 5. OTHER ASSETS: Other assets include the following for the years ended December 31, 1997 and 1996 (000's):
1997 1996 ------ ------ NOTES RECEIVABLE........................................... $1,530 $ 119 RESTRICTED CASH............................................ -- 1,001 GOODWILL, net of accumulated amortization of $70 and $124.. 71 329 START-UP COSTS, net of accumulated amortization of $173 in 1996...................................................... -- 326 CLIENT LISTS, net of accumulated amortization of $158 in 1996...................................................... -- 10 OTHER...................................................... 306 216 ------ ------ $1,907 $2,001 ====== ======
F-11 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 Notes receivable at December 31, 1997, consist primarily of advances of $1,465,000 due from Alliance Home Health, Inc. which was acquired on January 1, 1998 (see Note 16). Restricted cash at December 31, 1996, represents a minimum cash reserve required by and pledged to the Louisiana Department of Insurance to guarantee group member benefits associated with a proposed Health Maintenance Organization project. In late 1996, the Company discontinued its efforts related to this project and subsequently notified the Department of Insurance of its intention to withdraw the minimum cash reserve balance. Costs incurred to establish regional offices of ASM and ASC prior to beginning services were capitalized as Other Assets and amortized over a five- year period based on accepted industry practice and consistent with the treatment required under Medicare regulations. Start-up costs consist primarily of incremental salaries and wages directly related to the new operation, consulting fees and financing and legal fees. Provisions of a proposed Statement of Position (SOP) expected to be issued by the American Institute of Certified Public Accountants (AICPA) in the second quarter of 1998 will require the write-off of any start-up costs remaining on the balance sheet and expensing of all start-up costs incurred in the future. During the fourth quarter of 1997, the Company changed its accounting policy to expense such costs to more properly reflect these costs as ongoing costs of expanding the Company's services. The Company has reflected this adjustment as a change in accounting principle from one acceptable method to another acceptable method. The cumulative effect of this change in accounting principle, as if the change were made effective January 1, 1997, of $235,000 (net of a $91,000 tax benefit), is shown on the 1997 statement of operations. Start-up costs of $299,000 incurred during 1997 were expensed as incurred in general and administrative expense. See Note 15 for the restatement of the Company's quarterly results of operations for 1997 giving effect to the change in accounting principle as of January 1, 1997. The following reflects pro-forma net income for 1996 and 1995, net of the related tax effects, as if the Company expensed start-up costs as incurred in those years.
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 --------------- -------------- AS PRO AS PRO REPORTED FORMA REPORTED FORMA -------- ------ -------- ----- Net income (loss)......................... $ 18 $ (202) $ 942 $ 845 Net income (loss) per common share........ $0.01 $(0.08) $0.37 $0.33
"Other" consists primarily of deposits on leased properties and advances made in connection with various other business development projects. 6. NOTES PAYABLE: Notes payable consist primarily of borrowings under $5,500,000 and $750,000 lines of credit that bear interest at bank prime plus 1.5% (10.0% at December 31, 1997) and bank prime plus 1% (9.5% at December 31, 1997), respectively. Both lines are secured by accounts receivable, life insurance on the major stockholder and personal guarantees of several stockholders. Subsequent to year-end, the $5,500,000 line of credit was increased to $7,500,000 for 120 days bearing interest at bank prime plus 1.5%. As of December 31, 1997, approximately $444,000 was unused under these lines of credit. The weighted average monthly interest on short-term borrowings was 9.79% and 9.78% in 1997 and 1996, respectively. The revolving line of credit is subject to certain covenants, including a monthly borrowing base or margin requirement calculation, a debt service coverage ratio and a leverage ratio. The Company was not in compliance F-12 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 with the debt service ratio requirement at December 31, 1997, which default was waived by the bank through June 30, 1998. The Company was not in compliance with the leverage ratio covenant at December 31, 1996, which default was waived by the bank. The loan agreement was subsequently amended to increase the leverage ratio requirement from 2.5 to 1 to 3.0 to 1, which the Company complied with as of December 31, 1996. 7. LONG-TERM DEBT: Long-term debt consists of notes payable to banks and other financial institutions that are due in monthly installments through 2003 (000's):
PAYEE 1997 1996 ----- ------ ------ Notes payable to finance and equipment companies that accrue interest at 8.00-11.25%............................ $3,154 $1,502 Notes payable to banks that accrue interest at 8.00-14.39%. 531 893 ------ ------ Total.................................................... 3,685 2,395 Current portion............................................ 690 458 ------ ------ Long-Term.................................................. $2,995 $1,937 ====== ======
The fair value of long-term debt as of December 31, 1997, estimated based on the Company's current borrowing rate of 10%, is approximately $3,582,000. These borrowings are secured by equipment, vehicles and the personal guarantee of a stockholder. Maturities of debt as of December 31, 1997, are as follows (000's): December 31 ,1998.................................................. $ 690 December 31, 1999.................................................. 484 December 31, 2000.................................................. 417 December 31, 2001.................................................. 277 December 31, 2002.................................................. 1,688 Thereafter......................................................... 129 ------ $3,685 ======
8. CAPITAL LEASES: The Company acquired certain equipment under capital leases for which related liabilities have been recorded at the present value of future minimum lease payments due under the leases. The present minimum lease payments under the capital leases and the net present value of future minimum lease payments are as follows (000's): December 31, 1998................................................... $220 December 31, 1999................................................... 110 December 31, 2000................................................... 45 ---- Total future minimum payments....................................... 375 Amount representing interest........................................ (49) ---- Present value of future minimum lease payments.................... 326 Current portion..................................................... 192 ---- Long-term portion................................................... $134 ====
F-13 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 9. INCOME TAXES: The Company files a consolidated federal income tax returns, including all subsidiaries that are owned more than 80%. State income tax returns are filed individually by the subsidiaries in accordance with state statutes. The Company utilizes the liability approach to measuring deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates in accordance with SFAS No. 109. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The total provision (benefit) for income taxes consists of the following (including $91,000 of tax benefit related to the cumulative effect of change in accounting principle (see Note 5) ) (000's):
1997 1996 1995 ----- ----- ----- Current portion...................................... $ 93 $ 242 $ 361 Deferred portion..................................... (566) (239) (161) ----- ----- ----- $(473) $ 3 $ 200 ===== ===== =====
Net deferred tax assets consist of the following components (000's):
1997 1996 ----- ----- Deferred tax assets: Receivable allowance...................................... $ 523 $ 285 Self-insurance reserves................................... 161 202 Losses of consolidated subsidiaries (not consolidated for tax purposes)............................................ 57 42 Start-up costs and other.................................. 453 47 Deferred tax liabilities: Property and equipment.................................... (268) (129) ----- ----- $ 926 $ 447 ===== =====
Total tax expense (benefit) on income before taxes resulted in effective tax rates that differed from the federal statutory income tax rate. A reconciliation of these rates is as follows for 1997, 1996 and 1995:
1997 1996 1995 ------ ------ ------ Income taxes computed on federal statutory rate. (34.00)% (34.00)% 34.00% State income taxes.............................. 5.00 1.00 2.00 ASC income prior to merger (Note 2)............. -- -- (16.88) Losses of unconsolidated subsidiaries........... -- -- 8.33 Write-off of notes receivable from unconsolidated subsidiaries.................... -- -- (14.39) Net operating losses utilized -- -- -- Nondeductible expenses and other................ 4.00 40.00 4.60 ------ ------ ------ Total......................................... (25.00)% 7.00% 17.66% ====== ====== ======
The Company has $147,000 of operating loss carryforwards related to losses from unconsolidated subsidiaries for tax return purposes which expire beginning in 2010. F-14 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 10. RELATED PARTY TRANSACTIONS: Notes Receivable Notes receivable from related parties consist of unsecured and non-interest bearing notes from the chief executive officer and certain stockholders of the Company totaling approximately $102,000 and $40,000 at December 31, 1997 and 1996, and receivables from an internal medicine clinic totaling approximately $150,000 at December 31, 1997 and 1996. The fair value of the notes receivable from related parties is equal to the recorded value due to the short-term nature of the notes. Notes Payable Notes payable to related parties in 1996 consisted primarily of a note issued in 1994 in the original amount of $1,080,000, bearing interest at 9%. The note was secured by all real estate and personal property of one of the surgical care centers. The note was refinanced in 1997 with a financial institution (See Note 7). The remaining balance of notes payable to related parties at December 31, 1997 ($45,000) consists of unsecured notes to certain stockholders of the Company that are due on demand and bear interest at rates from 0%-12%. The fair value of these notes approximates the recorded balance due to the short- term nature of the notes. Other The Companies paid medical directors fees to stockholders of $156,400 and $116,000 in 1997 and 1996, respectively. ASC paid fees associated with a medical foundation to a stockholder of $12,000 and $3,000 in 1997 and 1996, respectively. In 1997, ASC paid $10,800 for equipment rental to a stockholder of the Company. 11. CAPITAL STOCK: Common Stock On April 17, 1997, the Company completed, in two phases, a placement of common stock with Plymouth Partners, LP under which the Company issued 37,500 shares of Common Stock to Plymouth Partners, LP, pursuant to a shelf registration statement for gross proceeds of $262,500 and also issued 112,500 shares of Common Stock to Plymouth Partners, LP, pursuant to a shelf registration statement for gross proceeds of $675,000. The net proceeds from both of these offerings was $831,000. Preferred Stock In December, 1997, Amedisys completed a private placement of 400,000 shares of $.001 par value convertible preferred stock pursuant to Regulation D of the Securities Act of 1933 at $10 per share for gross proceeds of $4 million. The Company intends to use the proceeds of this placement to fund synergistic acquisitions within the South East and South Central regions of the U.S. and accelerate the growth of its fully integrated network of outpatient health care services, including alternate site infusion therapy divisions and outpatient surgery centers. These shares are convertible into 864,865 shares of common stock which is equivalent to $4.625 per share. Warrants to purchase 52,500 shares of preferred stock at $10 per share, convertible into F-15 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 113,514 shares of common stock, were issued to the placement agent, Hudson Capital Partners, L.P. in connection with the offering. Stock Options The Company's Statutory Stock Option Plan provides incentive stock options to key employees. The Plan is administered by a Compensation Committee (appointed by the Board) which is to determine, within the provisions of the Plan, those eligible employees to whom, and the times at which, options shall be granted. Each option granted under the Plan is to be convertible into one (1) share of common stock, unless adjusted in accordance with the provisions of the Plan. Options may be granted for a number of shares not to exceed, in the aggregate 1,000,000 shares of common stock at an option price per share of no less than 85% of the fair market value of a share of common stock on the date the option is granted. If the option is granted to any owner of 10% or more of the total combined voting power of the Company and its subsidiaries, the option price is to be at least 110% of the fair market value of a share of common stock on the date the option is granted. Each option vests ratably over a two-to-three year period and may be exercised during a period as determined by the Compensation Committee, not to exceed 10 years from the date such option is granted. The aggregate fair market value of common stock subject to an option granted to a participant by the Committee in any calendar year shall not exceed $100,000. A summary of the Company's stock options as of December 31, 1997, 1996 and 1995, and changes during the year ended on those dates follows:
1997 1996 1995 -------------------- ------------------ ----------------- WGTD. AVG. WGTD. AVG. WGTD. AVG. EXER. EXER. EXER. SHARES PRICE SHARES PRICE SHARES PRICE -------- ---------- ------- ---------- ------ ---------- Outstanding at beginning of year....................... 288,723 $6.66 27,650 $7.00 -- $ -- Granted..................... 794,422 6.01 261,073 6.62 27,650 7.00 Exercised................... -- -- -- -- -- -- Cancelled/forfeited/expired. (126,080) (6.48) -- -- -- -- -------- ----- ------- ----- ------ ----- Outstanding at end of year.. 957,065 $6.14 288,723 $6.66 27,650 $7.00 ======== ===== ======= ===== ====== ===== Exercisable at end of year.. 205,446 $6.49 88,741 $6.65 -- $7.00 ======== ===== ======= ===== ====== ===== Weighted average fair value of options granted during the year................... $ 1.99 $ 3.11 $ 2.56 ======== ======= ======
Of the 957,065 options outstanding at December 31, 1997, 403,604 become exercisable in 1998, 341,348 in 1999, and 6,667 in 2000. The following table summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------- -------------------- WGTD. AVG. WGTD. WGTD. NUMBER REMAINING AVG. NUMBER AVG. OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE RANGE OF EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE ------------------------ ----------- ----------- -------- ----------- -------- $5.38-$7.00............. 957,065 8 years $6.14 205,446 $6.49
The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") was issued by F-16 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 the FASB in 1995 and changes the methods for recognition of cost on plans similar to those of the Company. Adoption of SFAS 123 is optional; however, pro forma disclosures, as if the Company had adopted the cost recognition requirements under SFAS 123 in 1997 and 1996, are presented below. The fair value of each option granted during the periods presented is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: (i) dividend yield of 0%, (ii) expected volatility ranging from 51.23%-53.69% for the options issued in 1997, 40.02% and 45.44% for options issued in 1996, and 27.63% for options issued in 1995, (iii) risk-free interest rate ranging from 5.70%-6.22% in 1997, 6.22% in 1996 and 5.23% in 1995, respectively, and (iv) expected life of 3 to 5 years. Had compensation cost for the Company's 1997, 1996 and 1995 options been determined consistent with SFAS 123, the Company's net income (loss), net income (loss) applicable to common stockholders' and net income (loss) per common share for 1997 and 1996 would approximate the pro forma amounts below (000's, except share amounts):
1997 1996 1995 ----------------- --------------- -------------- AS PRO AS PRO AS PRO REPORTED FORMA REPORTED FORMA REPORTED FORMA -------- ------- -------- ------ -------- ----- Net income (loss)............ $(1,194) $(1,813) $ 18 $ (59) $ 942 $ 933 ======= ======= ===== ====== ===== ===== Net income (loss) applicable to common stockholders...... $(1,194) $(1,813) $ 18 $ (59) $ 942 $ 933 ======= ======= ===== ====== ===== ===== Net income (loss) per common share....................... $ (0.43) $ (0.66) $0.01 $(0.02) $0.37 $0.36 ======= ======= ===== ====== ===== =====
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards prior to 1995, and additional awards in future years are anticipated. Subsequent to year end the Board of Directors authorized, subject to shareholder approval, issuing 500,000 options under the Stock Option Plan with up to 50% issued at $6.25 to existing employees. ASM Employee Stock Ownership Plan ASM developed an Employee Stock Ownership Plan (ESOP) effective January 1, 1997 to enable participating employees of ASM to share in the ownership of ASM. Under the ESOP, the Company may make annual contributions to a trust for the benefit of eligible employees, in the form of either cash or common stock of ASM. The amount of the annual contribution is discretionary. The Company's contribution for the year ended December 31, 1997 was $721,000 which was accrued, but unfunded as of December 31, 1997. Other A predecessor entity to the Company, M & N, completed its initial public offering of 250,000 common shares for gross proceeds of $1,500,000 on August 26, 1993. In connection with the offering, M & N issued 25,000 warrants to the Underwriter (the Underwriter's Warrants), which are exercisable at $7.20 per common share for a period of four years commencing April 28, 1994. F-17 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 12. COMMITMENTS AND CONTINGENCIES: Leases The Company and its subsidiaries have leased office space at various locations under noncancelable agreements which expire between January 1, 1998, and August 31, 2005, and require various minimum annual rentals. Total minimum rental commitments at December 31, 1997, are due as follows (000's): 1998............................................................... $1,821 1999............................................................... 1,619 2000............................................................... 1,240 2001............................................................... 918 2002............................................................... 803 Due thereafter..................................................... 511 ------ $6,912 ======
Rent expense for all non-cancelable operating leases was $1,706,000, $1,351,000 and $1,084,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The Company has arranged a $500,000 line of credit with a financing company to lease equipment; $80,000 of this line was used at December 31, 1997 leaving available $420,000 for use on future equipment leases. Self-Funded Insurance Plans During 1995, the Company became self-insured for workers' compensation claims in the State of Louisiana up to certain policy limits. Claims in excess of $200,000 per incident and $1,300,000 in the aggregate over a two-year policy period are insured by third party reinsurers. The Company has accrued a liability for outstanding and incurred, but not reported claims based on historical experience totaling approximately $509,000 and $519,000 at December 31, 1997 and 1996, respectively. In connection with the self-insurance and as required by the State of Louisiana, the Company issued a $175,000 letter of credit in favor of the Louisiana Department of Labor, which expired February 17, 1998, and was renewed to February, 1999. During 1997, the Company became self-insured for health claims up to certain policy limits. Claims in excess of $35,000 per incident and approximately $64,000 aggregate per month are insured by third party reinsurers. The Company has accrued a liability of approximately $78,000 at December 31, 1997 for outstanding and incurred, but not reported claims based on historical experience. Planned Surgical Care Center and Other Projects The Company is pursuing a number of planned surgical center and other projects to be developed or purchased in the future. While negotiations are being conducted in connection with a number of possible projects, the Company has made no formal commitments in this area beyond the investments discussed below and in Note 16. The Company plans to proceed to develop a $3.6 million surgery center in Lafayette, Louisiana. The Company plans to hold a 21% interest in this development with a group of physician investors and to manage the development under a management contract for a fee based on 4% of revenue. F-18 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 Employment Contracts The Company has commitments related to employment contracts with a number of its top executives and executives involved in the management of businesses acquired (see Note 16 also) by the Company. Such contracts generally commit the Company to pay bonuses on the attainment of certain operating goals and severance benefits under certain circumstances. Other The Company is subject to various types of claims and disputes arising in the course of its businesses. While the resolution of such issues is not presently determinable with certainty, management believes that the ultimate resolution of such matters will not have a significant effect on the Company's financial position or results of operations. In 1997, the Company's Board of Directors approved the purchase of a point of service device at an estimated cost of $1.5 million which will allow home care providers to input patient information directly and electronically into the Company's home care information system. 13. BENEFIT PLAN: The Company adopted a plan qualified under Section 401(k) of the Internal Revenue Code for all employees who are 21 years of age and have at least one year of service. Under the plan, eligible employees may elect to defer a portion of their compensation, subject to internal revenue service limits. The Company may make matching contributions equal to a discretionary percentage of the employee's salary reductions. No matching contribution was made for the year ended December 31, 1995. A matching contribution of $59,000 for the year ended December 31, 1996 was made in 1997 and a matching contribution of $71,000 will be made for 1997 in 1998. 14. SEGMENT INFORMATION: The Company operates principally in two business segments: Provider Services (consisting of home health care and outpatient surgery) and Management Services (consisting of staffing/professional services and physician support and home health care management). The following shows industry segment information for the fiscal years ended December 31, 1997, 1996 and 1995 (in 000's):
1997 1996 1995 ------- ------- ------- Net Service Revenues: Provider Services Home health care...................................... $25,817 $25,500 $17,631 Outpatient surgery.................................... 6,287 4,626 3,601 Management Services Staffing/professional services........................ 17,292 12,538 13,774 Physician support and home health care management..... 5,100 3,396 2,583 Corporate support..................................... -- -- -- ------- ------- ------- Total............................................... $54,496 $46,060 $37,589 ======= ======= =======
F-19 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------- ------- ------- Operating Income (Loss): Provider Services Home health care.................................. $ 831 $ 2,038 $ 901 Outpatient surgery................................ (960) 1,175 1,152 Management Services Staffing/professional services.................... 3,643 1,785 2,076 Physician support and home health care management. 1,494 347 193 Corporate support................................. (5,596) (4,201) (2,942) ------- ------- ------- Total........................................... (588) 1,144 1,380 Other expenses..................................... (962) (1,178) (250) ------- ------- ------- Income before income taxes, minority interest, and cumulative effect of change in accounting principle.......................................... $(1,550) $ (34) $ 1,130 ======= ======= ======= CAPITAL EXPENDITURES ------------------------- 1997 1996 1995 ------- ------- ------- Provider services Home health care.................................. $ 348 $ 135 $ 96 Outpatient surgery................................ 631 2,233 284 Management services Staffing/professional services.................... 21 7 12 Physician support and home health care management. 18 89 2 Corporate support................................. 438 501 52 ------- ------- ------- Total........................................... $ 1,456 $ 2,965 $ 446 ======= ======= ======= DEPRECIATION AND AMORTIZATION ------------------------- 1997 1996 1995 ------- ------- ------- Provider services Home health care.................................. $ 344 $ 319 $ 246 Outpatient surgery................................ 609 271 148 Management services Staffing/professional services.................... 16 60 77 Physician support and home health care management. 129 201 122 Corporate support................................. 142 94 54 ------- ------- ------- Total........................................... $ 1,240 $ 945 $ 647 ======= ======= ======= IDENTIFIABLE ASSETS ------------------------- 1997 1996 1995 ------- ------- ------- Provider services Home health care.................................. $ 5,243 $ 4,906 $ 4,537 Outpatient surgery................................ 6,180 6,541 3,341 Management services Staffing/professional services.................... 1,924 1,820 1,745 Physician support and home health care management. 2,290 1,200 1,175 Corporate support................................. 7,233 2,391 739 ------- ------- ------- Total........................................... $22,870 $16,858 $11,537 ======= ======= =======
F-20 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 15. UNAUDITED QUARTERLY FINANCIAL INFORMATION: The following table reflects the restatement of the Company's quarterly results of operations for 1997, giving effect to the change in accounting principle as of January 1, 1997 (see Note 5) and the write-off of goodwill associated with the Home Care Plus, Inc. acquisition in the second quarter (see Note 2) (000's):
QUARTER ENDED (UNAUDITED) ------------------------------------------------------------------ SEPTEMBER 30, MARCH 31, 1997 JUNE 30, 1997 1997 ----------------- ----------------- ----------------- AS AS AS AS AS AS DECEMBER 31, REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED 1997 -------- -------- -------- -------- -------- -------- ------------ Income (loss) from continuing operations.. $ 451 $ 473 $ 610 $ 415 $ 363 $ 344 $(2,782) Net income (loss)....... $ 301 $ 116 $ 373 $ 179 $ 224 $ 214 $(1,703) Net income (loss) per common share........... $0.12 $0.04 $0.14 $0.06 $0.08 $0.08 $ (0.60)
16. SUBSEQUENT EVENTS: On January 1, 1998, the Company acquired all of the issued and outstanding stock of Alliance Home Health, Inc. (Alliance), a home health business with locations throughout Oklahoma, in exchange for $300,000 and 194,286 shares of common stock. Of the 194,286 shares of Company common stock issued to the former owners of Alliance, 122,857 shares were placed in escrow as consideration for certain contingent liabilities which may be asserted against the former stockholder of Alliance to the extent such claims exceed $500,000 (singularly and/or in aggregate). The escrow period expires December 31, 2003. The Company performed management services for Alliance during 1997 and received revenues totaling approximately $1.3 million of which $695,000 is included in accounts receivable at December 31, 1997. In addition, the Company had advanced $1,465,000 to Alliance for cash flow purposes which is included in other assets at December 31, 1997. On February 23, 1998, the Company acquired all of the issued and outstanding capital stock of PRN, Inc. (PRN), a home infusion pharmacy business, in exchange for $430,000 and assumption of $71,000 debt. The Company has agreed to pay additional consideration of up to $150,000 upon PRN reaching certain revenue goals ("Additional Consideration"). The Company has retained the right to offset certain indemnifiable liabilities against the Additional Consideration. On February 27, 1998, the Company acquired all of the issued and outstanding capital stock of Infusioncare Solutions, Inc. ("ICS") a home health care and infusion business, based in Baton Rouge, Louisiana, in exchange for aggregate consideration of $500,000, of which $375,000 was payable in cash at closing and $125,000 was payable pursuant to a two year promissory note. The Company has retained the right to offset certain indemnifiable liabilities against the sums payable pursuant to the promissory note. On February 27, 1998, the Company acquired substantially all of the assets of Precision Health Solutions, L.L.C. ("PHS") a home health care and infusion business, based in Baton Rouge, Louisiana, in exchange for aggregate consideration of $1,000,000, of which $750,000 was payable in cash at closing and $250,000 was payable pursuant to a two year promissory note. The Company has retained the right to offset certain indemnifiable liabilities against the sums payable pursuant to the promissory note. F-21 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 Each of the above transactions was accounted for as a purchase. On March 3, 1998, the Company completed a secondary phase of its private placement of preferred stock (see Note 11) and issued an additional 350,000 shares for gross proceeds of $3.5 million. These shares are convertible into 756,757 shares of common stock which is equivalent to $4.625 per share. F-22 -----END PRIVACY-ENHANCED MESSAGE-----