-----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, MKhn6EmkIKojGpR3GBFRIcpHeaoPeXkT36REFevZl+UR3cSiqsCJpW+67XxsyTDW Cbmi0rsaAyFFe49dTI4rtg== 0000950134-02-002418.txt : 20020415 0000950134-02-002418.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950134-02-002418 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020321 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24260 FILM NUMBER: 02581506 BUSINESS ADDRESS: STREET 1: 11100 MEAD ROAD STE 300 CITY: BATON ROUGE STATE: LA ZIP: 70816 BUSINESS PHONE: 2252922031 MAIL ADDRESS: STREET 1: 11100 MEAD ROAD STE 300 CITY: BATON ROUGE STATE: LA ZIP: 70816 FORMER COMPANY: FORMER CONFORMED NAME: M&N CAPITAL CORP DATE OF NAME CHANGE: 19930125 FORMER COMPANY: FORMER CONFORMED NAME: ANALYTICAL NURSING MANAGEMENT CORP DATE OF NAME CHANGE: 19940819 10-K 1 d95025e10-k.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [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, 2001 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.)
11100 MEAD ROAD, SUITE 300 BATON ROUGE, LOUISIANA 70816 (Address of principal executive offices, including zip code) (225) 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 Regulation 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. [ ] 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 OTC Bulletin Board on March 18, 2002 was $55,487,000. As of March 18, 2002, registrant has 7,364,711 shares of Common Stock outstanding. Documents incorporated by reference: Registrant's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders to be filed pursuant to the Securities Exchange Act of 1934 is incorporated herein by reference into Part III hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I.................................................................. 1 ITEM 1. BUSINESS.................................................... 1 ITEM 2. PROPERTIES.................................................. 12 ITEM 3. LEGAL PROCEEDINGS........................................... 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 13 PART II................................................................. 14 ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS..................................................... 14 ITEM 6. SELECTED FINANCIAL DATA..................................... 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 17 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS....................................................... 21 ITEM 8. FINANCIAL STATEMENTS........................................ 21 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................... 21 PART III................................................................ 22 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 22 ITEM 11. EXECUTIVE COMPENSATION...................................... 24 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................. 25 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 25 PART IV................................................................. 26 ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K............................ 26 SIGNATURES.............................................................. 28 FINANCIAL STATEMENTS.................................................... 29
PART I FORWARD LOOKING STATEMENTS When included in the Annual Report on Form 10-K or in documents incorporated herein by reference, the words "expects", "intends", "anticipates", "believes", "estimates", and analogous expressions are intended to identify forward-looking statements. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, among others, general economic and business conditions, current cash flows and operating deficits, debt service needs, adverse changes in federal and state laws relating to the health care industry, competition, regulatory initiatives and compliance with governmental regulations, customer preferences and various other matters, many of which are beyond the Company's control. These forward-looking statements speak only as of the date of the Annual Report on Form 10-K. The Company expressly disclaims any obligation or undertaking to release publicly any updates or any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any statement is based. ITEM 1. BUSINESS GENERAL Amedisys, Inc., a Delaware corporation ("Amedisys" or "the Company"), is a leading multi-regional provider of home health care nursing services. The Company operates fifty-six home care nursing offices and two corporate offices in the southern and southeastern United States. During 1999, the Company changed its strategy from providing a variety of alternate site provider health care services to becoming a leader in home health care nursing services. The Company's change of focus was largely attributed to its significant investment in this segment as a result of its acquisition of 83 home care offices from Columbia/HCA Healthcare Corporation a/k/a The Healthcare Company ("Columbia/HCA") in late 1998. A second major factor was the governmental reimbursement changes in the Medicare system that would allow home care providers the opportunity to be profitable under the Prospective Payment System ("PPS") which was implemented in October 2000. A third significant factor was the Company's established reputation and expertise in the field. Amedisys has over a decade of experience in home care nursing and was an early innovator in bringing technology, previously used only in acute care settings, to the home, as well as providing traditional home care services. Pursuant to this strategy, the Company launched a restructuring plan to divest its non-home health care nursing divisions. During the period from September 1999 through September 2001, the Company sold or closed its six surgery centers and four infusion locations. The Company plans to achieve market dominance in the southern and southeastern United States by expanding its referral base by utilizing a highly trained sales force, offering specialized programs such as wound care, and completing selective acquisitions. The Company's business model has been developed to be successful under PPS. The Company has implemented disease state management programs and clinical protocols as well as supporting technology to monitor and report outcome data, to standardize care, and to ensure quality outcomes. Using clinical managers to assess and track patient progress and highly skilled nurses to deliver care are also important components of the overall plan. DEVELOPMENTS Acquisitions Effective October 1, 2000, the Company acquired, through its wholly-owned subsidiary Amedisys Northwest Home Health, Inc., certain assets and liabilities of Northwest Home Health Agency, Inc. and Georgia Mountains Homecare Services, Inc. The purchase price amounted to the assumption of certain liabilities. In connection with this acquisition, the Company recorded $1,148,000 of goodwill. 1 Effective November 17, 2000, the Company acquired, through its wholly-owned subsidiary Amedisys Home Health, Inc. of Florida, certain assets and liabilities of Mid-Florida Home Health Services from Winter Haven Hospital, Inc. In consideration for the acquired assets and liabilities, the Company paid $975,000 cash (less the value of paid time off) at the time of closing and executed a promissory note in the amount of $975,000 bearing an annual interest rate of 7% and payable in 36 monthly principal and interest installments of $30,105. In connection with this acquisition, the Company recorded $1,554,000 of goodwill. Effective March 1, 2001, the Company acquired, through its wholly owned subsidiary Amedisys Home Health, Inc. of Alabama, certain assets and liabilities of Seton Home Health Services, Inc. ("Seton") from Seton Health Corporation of North Alabama associated with their operations in Mobile and Fairhope, Alabama. In consideration for the acquired assets and liabilities, the Company paid $440,000 cash, which represents a purchase price of $475,000 less the estimated value of accrued vacation obligations. In connection with this acquisition, the Company recorded $448,000 of goodwill. Effective April 6, 2001, the Company acquired, through its wholly-owned subsidiary Amedisys Home Health, Inc. of Alabama, certain additional assets and liabilities of Seton from Seton Health Corporation of North Alabama associated with their operations in Birmingham, Tuscaloosa, Anniston, Greensboro, and Reform, Alabama. In consideration for the acquired assets and liabilities, the Company paid $2,216,000 cash, which represents a purchase price of $2,325,000 less the value of accrued vacation obligations. In connection with this acquisition, the Company recorded $2,235,000 of goodwill. Effective June 11, 2001, the Company acquired from East Cooper Community Hospital, Inc. certain assets and liabilities of HealthCalls Professional Home Health Services. In consideration for the acquired assets and liabilities, the Company paid $750,000 cash. In connection with this acquisition, the Company recorded $726,000 in goodwill. Dispositions and Discontinued Operations In the accompanying Statements of Operations for each of the three years ended December 31, 2001, the Company has reflected its staffing, management services, outpatient surgery, and infusion therapy divisions as discontinued operations. In August 1999, the Company adopted a formal plan to sell all of its interests in its ambulatory surgery and infusion therapy divisions. The Company's strategic plan was to become a focused home health nursing company. As of December 31, 2001, the Company has completed the divestiture of both its infusion therapy division and ambulatory surgery division. A discussion of the sales that have occurred since the adoption of the plan is as follows. Effective September 1, 1999, by an Asset Purchase Agreement, the Company sold certain assets, subject to the assumption of certain liabilities, of its wholly-owned subsidiary, Amedisys Surgery Centers, L.C. ("ASC"), to United Surgical Partners International, Inc. The assets and liabilities sold related to two free-standing outpatient surgery centers operated by ASC, Amedisys Surgery Center of Pasadena and Amedisys Surgery Center of South Houston. The Company recorded a pre-tax gain of $9,417,000 as a result of this transaction. The Company filed a Current Report on Form 8-K with the SEC on September 15, 1999 with regard to this transaction. Effective December 1, 1999, ASC, by a Membership Interest Purchase Agreement, sold all of its 67% membership interest in West Texas Ambulatory Surgery Center, L.L.C. to U.S. Orthopedics Texas, L.L.C. ASC also assigned all of its rights under a certain management agreement to U.S. Orthopedics, Inc. At closing, ASC received $783,333 representing the purchase price for the membership interest and ASC's share of the assignment of the management agreement. ASC has agreed to a five-year non-compete covenant. The Company recorded a pre-tax gain of $324,000 as a result of this transaction. On April 28, 2000, the Company, Park Place Surgery Center, LLC ("Park Place"), and the remaining Members of Park Place Surgery Center ("Physician Members") entered into an agreement for the purchase and sale of the Company's 20% membership interest in Park Place, an outpatient surgery center in Lafayette, Louisiana, to the Physician Members. The purchase price of $3,200,000 cash was paid to the Company at 2 closing. The Company received a final partnership distribution of $165,000 in May 2000. The Company recorded a pre-tax gain of $2,665,000 as a result of this transaction in the quarter ended June 30, 2000. The Company filed a Current Report on Form 8-K with the SEC on May 11, 2000 with regard to this transaction. In May 2000, the Company decided, after a thorough evaluation of historical financial results and available divestiture opportunities, to close one infusion therapy location. In connection with this closure, the Company recorded a goodwill impairment of $1,252,000 in the quarter ended June 30, 2000. Concurrently, the Company re-evaluated the goodwill recorded for the remaining infusion therapy locations, resulting in an additional goodwill impairment of $519,000. On August 9, 2000, the Company, through its wholly-owned subsidiaries, Amedisys Alternate-Site Infusion Therapy Services, Inc. ("AASI") and PRN, Inc. ("PRN"), sold, by a Bill of Sale and Asset Purchase Agreement, certain assets, subject to the assumption of certain liabilities, of AASI and PRN, to Park Infusion Services, LP. The transaction had an effective date of August 1, 2000. Subject to certain post-closing adjustments, the Company received $1,750,000, paid immediately to the Company at closing. The Company recorded a pre-tax gain of $1,114,000 as a result of this transaction in the quarter ended September 30, 2000. The Company filed a Current Report on Form 8-K with the SEC on August 23, 2000 with regard to this transaction. On December 1, 2000, the Company's wholly-owned subsidiary, ASC, East Houston Physician Surgical Services, Ltd. ("Surgical Services"), and East Houston Surgery Center, Ltd. ("East Houston") entered into an agreement for the purchase and sale of the Company's 22.98% membership interest in East Houston, an outpatient surgery center in Houston, Texas, to Surgical Services. The purchase price of $1,650,000 cash was paid to the Company at closing. The Company recorded a pre-tax gain of $1,307,000 as a result of this transaction in the quarter ended December 31, 2000. Effective September 7, 2001, the Company, its wholly-owned subsidiary ASC, its 56% owned subsidiary Hammond Surgical Care Center, L.C. d/b/a St. Luke's SurgiCenter ("St. Luke's"), and Surgery Center of Hammond, L.L.C. ("Surgery Center") entered into an agreement for the purchase and sale of the operations and assets of St. Luke's, an outpatient surgery center located in Hammond, Louisiana, to Surgery Center. The sales price of $2,850,000 was paid at closing and distributed in the following manner: $1,066,000 paid directly to debtors of St. Luke's relating to existing debt obligations, $1,684,000 paid to St. Luke's, and $100,000 in cash to be released upon the determination of the value of working capital transferred. Subsequent to the sale, St. Luke's made partnership distributions of $1,693,000 of which the Company received $948,000 and the physician investors received $745,000. The agreement stipulated a required level of working capital, defined as patient accounts receivable less trade accounts payable, of $430,000 to be conveyed at closing. Any amount in excess of $430,000 will be returned to St. Luke's, and any amount less than $430,000 will be payable by St. Luke's to Surgery Center. In the accompanying Consolidated Statements of Operations, the Company recorded a pre-tax gain of $1,738,000, offset by minority interest expense of $672,000, resulting in a net pre-tax gain of $1,066,000 in the quarter ended September 30, 2001. 3 Summarized financial information for the discontinued operations is as follows (in 000's):
2001 2000 1999 1998 1997 ------ ------- ------- ------- ------- Staffing Division: Service Revenue..................... $ -- $ -- $ -- $12,607 $17,292 Income from Discontinued Operations before Provision for Income Taxes............................ $ -- $ -- $ -- $ 1,723 $ 4,139 Income from Discontinued Operations Net of Income Taxes.............. $ -- $ -- $ -- $ 1,137 $ 2,732 Gain on Sale of Discontinued Operations before Provision for Income Taxes..................... $ -- $ -- $ -- $ 5,041 $ -- Gain on Sale of Discontinued Operations Net of Income Taxes... $ -- $ -- $ -- $ 3,177 $ -- DME/Management Services Division: Service Revenue..................... $ -- $ -- $ -- $ 1,203 $ 5,100 Income (Loss) from Discontinued Operations before Provision for Income Taxes..................... $ -- $ -- $ (633) $ (616) $ 1,428 Income (Loss) from Discontinued Operations Net of Income Taxes... $ -- $ -- $ (612) $ (407) $ 943 Outpatient Surgery Division: Service Revenue..................... $1,938 $ 3,030 $ 7,075 $ 6,224 $ 6,287 Income (Loss) from Discontinued Operations before Provision for Income Taxes..................... $ (516) $ 754 $ 1,311 $ 330 $(1,757) Income (Loss) from Discontinued Operations Net of Income Taxes... $ (516) $ 754 $ 865 $ 218 $(1,160) Gain on Sale of Discontinued Operations before Provision for Income Taxes..................... $1,066 $ 3,972 $ 9,341 $ -- $ -- Gain on Sale of Discontinued Operations Net of Income Taxes... $ 876 $ 3,570 $ 6,165 $ -- $ -- Infusion Therapy Division: Service Revenue..................... $ -- $ 4,580 $ 7,616 $ 5,193 $ 7 Income (Loss) from Discontinued Operations before Provision for Income Taxes..................... $ (50) $(4,035) $(1,572) $(3,464) $ (307) Income (Loss) from Discontinued Operations Net of Income Taxes... $ (50) $(4,035) $(1,037) $(2,286) $ (203) Gain on Sale of Discontinued Operations before Provision for Income Taxes..................... $ -- $ 1,114 $ -- $ -- $ -- Gain on Sale of Discontinued Operations Net of Income Taxes... $ -- $ 1,114 $ -- $ -- $ -- Total Discontinued Operations: Service Revenue..................... $1,938 $ 7,610 $14,691 $25,227 $28,686 Income (Loss) from Discontinued Operations before Provision for Income Taxes..................... $ (566) $(3,281) $ (894) $(2,027) $ 3,503 Income (Loss) from Discontinued Operations Net of Income Taxes... $ (566) $(3,281) $ (784) $(1,338) $ 2,312 Gain on Sale of Discontinued Operations before Provision for Income Taxes..................... $1,066 $ 5,086 $ 9,341 $ 5,041 $ -- Gain on Sale of Discontinued Operations Net of Income Taxes... $ 876 $ 4,684 $ 6,165 $ 3,177 $ --
4 During 2001, the Company completed its strategy to divest of all non-core business assets. Included in the accompanying Consolidated Balance Sheet as of December 31, 2000 are the following assets and liabilities Held for Sale (in 000's):
DECEMBER 31, 2000 ----------------- Cash........................................................ $ 20 Accounts Receivable......................................... 510 Prepaid Expenses............................................ 13 Inventory and Other Current Assets.......................... 172 ---- Current Assets Held for Sale................................ $715 ==== Property.................................................... $681 Other Assets................................................ 8 Investments................................................. -- ---- Long-term Assets Held for Sale.............................. $689 ==== Accounts Payable............................................ $190 Accrued Payroll............................................. 50 Accrued Other............................................... 34 Notes Payable............................................... -- Current Portion of Long-term Debt........................... 192 Current Portion of Obligations Under Capital Leases......... 14 ---- Current Liabilities Held for Sale........................... $480 ==== Long-term Debt.............................................. $966 Obligations under Capital Leases............................ -- ---- Long-term Liabilities Held for Sale......................... $966 ====
Remodification of Loan On December 28, 2000, the Company entered into a loan agreement with NPF Capital, Inc. ("NPF") for a principal sum of up to $11,725,000. At execution, NPF paid $9,000,000 directly to Columbia/HCA for the benefit of the Company. The note with Columbia/HCA ("HCA Note") was a result of the acquisition of home health agencies consummated in November 1998. The Company also financed $725,000 of debt issue costs under this agreement, with the remaining unfunded portion of $2,000,000 available for future acquisitions. Simultaneously, Amedisys entered into a Termination Agreement with Columbia/HCA relating to the note payable (HCA Note). The Termination Agreement with Columbia/HCA was effective October 1, 2000. The Termination Agreement related to that certain Credit Agreement dated November 16, 1998 and that certain promissory note dated December 1, 1998 as modified by that certain Loan Modification Agreement dated September 30, 1999. As part of this agreement, the HCA Note, which carried a balance (including accrued interest) of $16,600,000 at September 30, 2000, was terminated effective October 1, 2000 for a cash payment of $9,000,000 and the execution of a warrant agreement that allows Columbia/HCA to purchase up to 200,000 shares of Amedisys' Common Stock, subject to certain conditions. These warrants have an estimated value of $344,000. As of result of these transactions, the Company recorded an extraordinary gain of $5,100,000, net of taxes, in the fourth quarter of 2000. The loan agreement with NPF Capital, Inc. ("NPF Note"), an affiliate of National Century Financial Enterprises, Inc., is for a principal sum not to exceed $11,725,000 at an annual interest rate of 10.5%. At loan execution, the Company borrowed an amount ("Initial Loan Amount") equal to $9,000,000 which was paid directly to Columbia/HCA. The Initial Loan Amount is payable over a three year term with interest only payments for the first six months and monthly payments of principal and interest for the remainder of the term. The Company had available an amount not to exceed $2,000,000 ("Supplemental Loan Amount") for the acquisition of businesses, companies and/or their assets of which $2,000,000 was drawn in 2001. The fees charged by NPF relating to the NPF Note totaled $725,000 and are payable in accordance with the payment 5 terms of the Initial Loan Amount. The security for this note consists of all credits, deposits, accounts, securities or moneys, and all other property rights belonging to or in which the Company has any interest, now or hereafter, as well as every other liability now or hereafter existing of the Company, absolute or contingent, due or to become due. Segment Information The Company's principal source of revenue is derived from home health care services. The Company's Statements of Operations for the Years Ended December 31, 2001, 2000, and 1999, attached hereto and referenced in Item 8 herein and the "Dispositions and Discontinued Operations" section above, contain financial information on this segment. The financial information for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 have been reflected as continuing and discontinued operations as a result of the Company's decision to reflect its staffing, management services, outpatient surgery, and infusion therapy divisions as discontinued operations. Financial information on the segments is treated as discontinued operations as stated above. INDUSTRY OVERVIEW As national health care spending continues to outpace the rate of inflation and the population of older Americans increases at a faster rate, alternatives to costly hospital stays will be in even greater demand. Managed care, Medicare, Medicaid and other payor pressures continue to drive patients through the continuum of care until they reach a setting where the appropriate level of care can be provided most cost effectively. Over the past several years, home health care has evolved as an acceptable and often preferred alternative in this continuum. In addition to patient comfort and convenience, substantial cost savings can usually be realized through treatment at home as an alternative to traditional institutional settings. The continuing economic pressures within the health care industry and the reimbursement changes dictated by the Balanced Budget Act of 1997 ("BBA"), have forced providers of home health care services to closely examine and often modify the manner in which they provide patient care and services. To survive under the Interim Payment System ("IPS"), companies were challenged with streamlining operations and modifying staffing models to manage costs and operate successfully. As the Company has now moved into PPS, which was effective October 1, 2000, those pressures continue to exist. However, those companies who successfully operate with effective business models can provide quality patient care and manage costs under this reimbursement system. Traditionally, the home health care industry has been highly fragmented, comprised primarily of "mom and pop" local home health agencies offering limited services. These local providers often do not have the necessary capital to expand their operations or services and are often not able to achieve the efficiencies to compete effectively. With the implementation of IPS and other provisions of the BBA, the home health care industry experienced major consolidation for the first time in its history. Further, with PPS recently implemented, we continue to experience closures/consolidations in the home nursing sector. STRATEGY The Company's business objective is to enhance its position in its geographic market areas as a leading provider of high quality, low cost home health nursing services. To accomplish this, it will do the following: Internal Growth Strategy Focus on Its Employees. Because the Company is engaged in a service business, the essence of the Company is its people. The Company's emphasis on communication, education, empowerment, and competitive benefits allows it to attract and retain highly skilled and experienced people in its markets. Expand Its Service Base. The Company has targeted selected markets in the southern and southeastern United States. Through the expansion of its services and development of niche programs, it plans to dominate these markets, to increase utilization of its services by payors and referral sources, and to enhance its overall market position. 6 Expand Its Referral Base. It is anticipated that revenue growth will be spurred by the Company's strategy to employ sales account executives whose sole focus will be to expand its referral base, so the Company is not dependent on relatively few physician groups in any given market. Capitalize on the Closure of Competitive Agencies. Keeping a pulse on agency closures (as a result of BBA) and understanding referral patterns in each of its markets allows the Company the opportunity to gain market share with no acquisition costs. Manage Costs Through Disease State Management. Payors are focusing on the management of patients who suffer from chronic diseases which correlate with substantial long-term costs. In 1999, the Company introduced Disease State Management programs for wound care, cardiac, and diabetics. In 2000, the Company introduced other Disease State Management programs, such as ortho/rehab, pain management, pulmonary/respiratory, pneumonia, cardio vascular accident, and cancer. The Company's Disease State Management programs include patient and family education and empowerment, frequent monitoring and coordinated care with other medical professionals involved in the care of the patient. Manage Costs Through Technology. The Company utilizes a software system that was developed internally which reduces its cost to operate its business and integrates a number of financial and operating functions into a single entry system. The software system was sold to CPII Acquisition Corp., an affiliate of CareSouth Home Health Services, Inc. ("CareSouth") in 1998. The Company is currently utilizing the software pursuant to a licensing agreement with CareSouth which expires in 2004. The agreement contains a bargain purchase option which the Company intends to exercise upon expiration of the agreement. By enhancing its operations through the use of information technology and expanded computer applications, the Company is positioned to not only operate more efficiently, but to compete in an environment increasingly influenced by cost containment. External Growth Strategy The Company's external growth strategy is to continue expansion through selected acquisitions. The Company believes that home health nursing companies are currently undervalued and provide excellent opportunities to gain additional market share. The Company's acquisition strategy is to: Focus on Large Hospital Systems with Internal Home Health Agencies. PPS, which was implemented in October 2000, eliminates the opportunities for cost-shifting by hospitals. Many hospitals are no longer interested in participating in the home health business. As a result, many have made the decision, or are in the process of deciding, to sell their agencies or partner with a reputable company to provide these services. This not only provides the Company with the opportunity to acquire quality agencies, but to acquire agencies with strong physician referral bases. Target Large, Multi-Site Agencies. By acquiring multi-site agencies and eliminating their corporate structure, the Company hopes to rapidly dominate a market by either layering the new business into their current agencies, enhancing current market share or expanding its coverage to contiguous markets. Concentrate on Metropolitan Areas. Metropolitan-based agencies are principal targets due to the synergies created by large patient populations located close together. HOME HEALTH CARE SERVICES 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. According to statistics released by HCFA Online, total spending for home care was $33.1 billion in 1999 and is projected to be $46.6 billion in 2002, an overall increase of 41%. The Company operates in the category of nursing and allied services which represents the largest sector, or 70%, of all home health care spending. The Company currently operates 56 home health care nursing offices consisting of 35 parent offices with Medicare provider numbers, and 21 branch offices. 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 7 comprehensive, cost-effective and accessible 24 hours a day, seven days a week, the Company's home health care nursing services are attractive to payors and physicians. All of its offices are accredited or in the process of seeking accreditation by the Joint Commission on Accreditation of Health Care Organizations ("JCAHO"), with the exception of one office which is accredited by the Community Health Accreditation Program. 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, restore range of motion and help patients perform the activities of daily living. Speech pathologists/therapists who work to restore communication and oral skills. Social workers who help families address the problems associated with acute and chronic illnesses. Home health aides who perform personal care such as bathing or assistance in walking. Private duty services such as continuous hourly nursing care and sitter services. BILLING AND REIMBURSEMENT Revenues generated from the Company's home health care services are paid by Medicare, Medicaid, private insurance carriers, managed care organizations, individuals, 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, state, and 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. The Company has several contracts for negotiated fees with insurers and managed care organizations. The Company submits all home health Medicare claims to a single insurance company acting as a fiscal intermediary for the federal government. MEDICARE REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING The Company derived approximately 88% of its revenues from continuing operations from the Medicare system for the year ended December 31, 2001. In 1997, Congress approved BBA, which established IPS that provided for the lowering of reimbursement limits for home health visits until PPS was implemented on October 1, 2000. For cost reporting periods beginning on or after October 1, 1997, Medicare-reimbursed home health agencies' cost limits were determined as the lesser of (i) their actual costs, (ii) per visit cost limits based on 105% of national median costs of freestanding home health agencies, or (iii) a per beneficiary limit determined for each specific agency based on whether the agency was an "old" or "new" provider. The IPS cost limits applied to the Company for the cost reporting periods beginning January 1, 1998 until the implementation of PPS on October 1, 2000. In October 1999, Centers for Medicare & Medicaid Services ("CMS"), formerly known as Health Care Financing Administration, issued proposed regulations for PPS. On June 28, 2000, CMS issued the final rules for PPS which were effective for all Medicare-certified home health agencies on October 1, 2000. The final regulations establish payments based on episodes of care. An episode is defined as a length of care up to sixty days with multiple continuous episodes allowed under the rule. The services covered by the episode payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit. At the onset of PPS, the standard episode payment was established at $2,115 per episode for federal fiscal year 2001, to be adjusted by a case mix adjuster consisting of eighty (80) home health resource groups ("HHRG") and the applicable geographic wage index. Effective October 1, 2001, the standard episode payment was increased to $2,274. The standard episode payment may be subject to further individual adjustments due to low utilization, intervening events and other factors. Providers are allowed to make a request for anticipated payment at the start of care equal to 60% of the expected payment for the initial 8 episode and 50% for each subsequent episode. The remaining balance due to the provider is paid following the submission of the final claim at the end of the episode. In contrast to the cost-based reimbursement system whereby providers' reimbursement was limited, among other things, to their actual costs, episode payments are to be made to providers regardless of the cost to provide care, except with regard to certain outlier provisions. In December 2000, Congress passed the Benefits Improvement and Protection Act ("BIPA"), which provides additional funding to healthcare providers. BIPA provided for the following: (i) a one-year delay in applying the budgeted 15% reduction on payment limits, (ii) the restoration of a full home health market basket update for episodes ending on or after April 1, 2001, and before October 1, 2001 resulting in an increase to revenues of 2.2%, and (iii) a 10% increase, beginning April 1, 2001 and extending for a period of twenty four months, for home health services provided in a rural area. Currently, the delay in the budgeted 15% reduction in payment limits resulting from BIPA will expire September 30, 2002. There is ongoing debate and discussion at the congressional level concerning the scheduled payment reduction which was further intensified with the recommendation by the Medicare Payment Advisory Committee to eliminate the budgeted 15% payment reduction. DATA PROCESSING In connection with the acquisition of the home health care agencies from Columbia/HCA in November 1998, the Company decided to outsource its home health care billing and payroll processing functions to create greater operating and financial efficiencies. On November 2, 1998, the Company and CareSouth entered into a Master Corporate Guaranty of Service Agreement whereby the Company agreed to act as guarantor for each Agency Service Agreement, which was amended and restated as of September 1, 1999, between CareSouth and all home health agencies which are owned or managed by the Company. Under the Agency Service Agreements, CareSouth agreed to provide payroll processing, billing services, and collection services for the home health agencies. Effective October 1, 2001, the Company terminated the management agreement. In connection with this termination, the Company entered into a Software License Agreement ("License Agreement") with CareSouth for the use of a home health care billing and collections software system. This License Agreement expires May 1, 2004 at which time the Company intends to purchase the software in accordance with the terms of the License Agreement. 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 management and improvement programs, a corporate compliance program, and policies and procedures at both the corporate and field levels. The Company strives to meet regulations set forth by state licensure, federal guidelines for Medicare and Medicaid, and JCAHO standards. The Company has an active quality management team that makes periodic on-site inspections of field offices to review systems, operations, and clinical procedures. An educational division is also part of this quality management team which is responsible for conducting educational and training sessions at the field offices, as well as disseminating continuing education materials to the Company's employees. Additionally, the quality management team works in conjunction with the Company's corporate compliance officer to perform audits and conduct education to enhance the knowledge of the field staff and to ensure compliance with state and federal laws and regulations. RECRUITING AND TRAINING The Company's Human Resources Department coordinates recruiting efforts for corporate and field personnel. Employees are recruited through newspaper advertising, professional recruiters, the Company's web page, networking, participation in job fairs, 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 Purchase Plan, a 401(k) plan with company matching contributions, and a cafeteria plan. 9 Uniform procedures for screening, testing, and verifying references, including criminal background checks where appropriate, have been established. All employees receive a formalized orientation program, including familiarization with the Company's policies and procedures. The Company believes that it is in compliance with all material Department of Labor regulations. 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. The Company's home health care subsidiaries are certified by CMS and are therefore eligible to receive reimbursement for services through the Medicare system. As a provider under the Medicare and Medicaid systems, 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 items or services covered by any 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 from 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 exception 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 but not limited to 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 will be prohibited from seeking reimbursement for designated health 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. The Health Insurance Portability and Accountability Act ("HIPAA") was enacted August 21, 1996 to assure health insurance portability, reduce healthcare fraud and abuse, guarantee security and privacy of health information and enforce standards for health information. Organizations are required to be in compliance with certain HIPAA provisions beginning October 2002. Provisions not yet finalized are required to be implemented two years after the effective date of the regulation. Organizations are subject to significant fines and penalties if found not to be compliant with the provisions outlined in the regulations. Management is in the process of evaluating the impact of this legislation on its operations including future financial commitments and operational enhancements that will be required to comply with the legislation. 10 Home health care offices have licenses granted by the health authorities of their respective states. Additionally, some state health authorities require a Certificate of Need ("CON"). Tennessee, Georgia, Alabama, and North Carolina do require a CON to establish and operate a home health care agency, while Louisiana, Oklahoma, Virginia, South Carolina and Florida currently do not. In every state, each location license and/or CON issued by the state health authority determines the service areas for the home health care agency. Currently, JCAHO accreditation of home health care agencies is voluntary. However, Managed Care Organizations ("MCOs") use JCAHO accreditation as a minimum standard for regional and state contracts. 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 and fulfill its business objective will depend on the Company's ability to comply with all applicable healthcare regulations. COMPETITION The services provided by the Company are also provided by competitors at the local, regional and national levels. Home health care providers compete for referrals based primarily on scope and quality of services, geographic coverage, pricing, and outcomes data. The impact of competitors is best determined on a market-by-market basis. The Company believes its favorable competitive position is attributable to its reputation for over a decade of consistent, high quality care; its comprehensive range of services; its state-of-the-art information management systems; and its widespread service network. SEASONALITY The demand for the Company's home health care nursing is not typically influenced by seasonal factors. EMPLOYEES As of December 31, 2001, the Company had 1,521 full-time employees, excluding part-time field nurses and other professionals in the field. The Company currently employs the following classifications of personnel: administrative level employees which consist of a senior management team (CEO, COO, Chief Development Officer, General Counsel, senior vice presidents and vice presidents); office administrators; nursing directors; accountants; sales executives; licensed and certified professional staff (RNs, LPNs, therapists and therapy assistants); and non-licensed care givers (aides). The Company complies with the Fair Labor Standards Act in establishing compensation methods for its employees. Select positions within the Company are eligible for bonuses 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 a re-insurance policy in place to limit the liability for the Company. In addition, the Company provides a group term life insurance policy and a long term disability policy for eligible employees. The Company also offers a 401(k) retirement plan, a Cafeteria 125 plan, an Employee Stock Purchase Plan, supplemental benefit programs, and paid time-off benefits for eligible employees. The Company believes its employee relations are good. It successfully recruits employees and most 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, fiduciary liability, and directors and officers. The insurance program is reviewed periodically throughout the year and thoroughly on an annual basis to insure adequate coverage is in place. For the years ended December 31, 1995 through December 31, 1998, the Company was approved through the State of Louisiana to self-insure its workers' compensation program. All other states were covered on a fully insured basis through "A+" rated insurers. In January 1999, the Company 11 changed from the self-insured workers' compensation plan to a fully-insured, guaranteed cost plan. All of the Company's employees are bonded. The Company is self-insured for its employee health benefits. ITEM 2. PROPERTIES The Company operates fifty-six home care nursing offices and two corporate offices in the southern and southeastern United States. The Company presently leases approximately 22,337 square feet located at 11100 Mead Road, Baton Rouge, Louisiana, and 7,797 square feet located at 3029 South Sherwood Forest Boulevard, Baton Rouge, Louisiana, representing the corporate offices. The Mead Road lease provides for a basic annual rental rate of approximately $14.60 per square foot through the expiration date on December 31, 2003. The South Sherwood Forest lease provides for a basic annual rental rate of approximately $13.75 per square foot through the expiration date on December 31, 2003. The Company has an aggregate of 294,081 square feet of leased space for regional offices pursuant to leases which expire between March, 2002 and October, 2006. Rental rates for these regional offices range from $2.28 per square foot to $26.01 per square foot with an average of $11.23 per square foot. During 1999 and 2000, the Company consolidated offices that covered the same patient service area in an overall effort to decrease costs and gain operating efficiencies, while still providing quality and accessible home health services. The following is a list of the Company's offices. Unless otherwise indicated, the Company has one office in each city. Georgia (21) Louisiana (7) North Carolina (1) Atlanta Alexandria Chapel Hill Blue Ridge Baton Rouge (3) Cartersville Lafayette Oklahoma (4) Cedartown Metairie Claremore Clayton Monroe Gore College Park Stilwell Covington Tennessee (11) Tulsa Dalton Athens Decatur Bristol Alabama (10) Douglasville Chattanooga Anniston Fayetteville Gordonsville Birmingham Ft. Oglethorpe Johnson City Demopolis Gainesville Kingsport Fairhope Jasper Livingston Huntsville Kennesaw McMinnville Mobile Lavonia Nashville Montgomery Lawrenceville Pikeville Reform Macon Winchester Selma Rome Tuscaloosa Summerville Virginia (1) Toccoa Weber City Florida (2) Lakeland South Carolina (1) Winter Haven Charleston
ITEM 3. LEGAL PROCEEDINGS From time to time, the Company and its subsidiaries are defendants in 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. 12 The Company filed a lawsuit against Mr. James P. Cefaratti, the Company's former President and Chief Operations Officer, alleging various negligent actions which constituted breaches of fiduciary duty owed to the Company and its stockholders. The lawsuit was initially filed in the 19th Judicial District Court of the Parish of East Baton Rouge, State of Louisiana on November 24, 1998. The lawsuit was then removed to the United States District Court for the Middle District of Louisiana. The Company was seeking unspecified damages incurred as a result of the alleged negligent actions and all other appropriate relief. On December 7, 1998, Mr. Cefaratti filed a lawsuit naming the Company as a defendant and claimed that he was terminated in violation of an alleged employment contract. On December 11, 1998, Ms. Judi McQueary, the former President of the Company's managed care division, and Mr. William G. Hardee, the former Vice President of the Company's southeaster alternate site infusion division, filed lawsuits claiming breaches of alleged employment contracts. All of the above mentioned lawsuits filed by the ex-employees of the Company were initially filed in the United States District Court for the Eastern District of Louisiana and were consolidated together as one lawsuit. All the said lawsuits were then transferred to the United States District Court for the Middle District of Louisiana and severed to be tried separately. The Chief Executive Officer of the Company, and its directors and officers liability insurer were subsequently named as defendants in all the above mentioned lawsuits. The relief sought in all these cases was contract damages, penalty wages, costs, and attorney fees. All of the above mentioned lawsuits have been settled out of court and are no longer pending against the Company. Alliance Home Health, Inc. ("Alliance"), a wholly-owned subsidiary of the Company (which was acquired in 1998 and ceased operations in 1999), filed for Chapter 7 Federal bankruptcy protection with the United States Bankruptcy Court in the Northern District of Oklahoma on September 29, 2000. A trustee was appointed for Alliance in 2001. Until the contingencies associated with the liabilities are resolved, the accompanying consolidated financial statements continue to consolidate Alliance, which has net liabilities of $4.2 million. On August 23 and October 4, 2001, two suits were filed against the Company and three of its executive officers in the United States District Court for the Middle District of Louisiana by individuals purportedly as class actions on behalf of all purchasers of Amedisys stock between November 15, 2000 and June 13, 2001. The suits, which have now been consolidated, seek damages based on the decline in Amedisys' stock price following an announced restatement of earnings for the fourth quarter of 2000 and first quarter of 2001, claiming that the defendants knew or were reckless in not knowing the facts giving rise to the restatement. The Company intends to vigorously defend them. 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 2001. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS From August 1997, through September 1998, the Company's common stock traded on the Nasdaq National Market. Since September 1998, the Company has been trading on the Over the Counter ("OTC") Bulletin Board. As of March 18, 2002, there were approximately 163 holders of record of the Company's Common Stock and the Company believes there are approximately 2,435 beneficial holders. The Company has not paid any dividends on its Common Stock since inception and expects to retain any future earnings for use in its business development for the foreseeable future. In 2001, holders of 390,000 shares of preferred stock converted the shares into 1,300,000 shares of common stock pursuant to conversion rights in the terms of the preferred stock. Exemption is claimed for the issuance of the common stock under Section 3(a)(9) of the Securities Act of 1933. The following table provides the high and low prices of the Company's Common Stock during 2000, 2001, and the first quarter of 2002 through March 18 as quoted by the OTC Bulletin Board.
HIGH LOW ------ ----- 1st Quarter 2000............................................ $ 3.13 $1.31 2nd Quarter 2000............................................ 3.06 1.06 3rd Quarter 2000............................................ 5.16 2.75 4th Quarter 2000............................................ 4.88 3.13 1st Quarter 2001............................................ $ 6.97 $3.94 2nd Quarter 2001............................................ 10.75 3.35 3rd Quarter 2001............................................ 6.15 3.55 4th Quarter 2001............................................ 7.17 5.60 1st Quarter 2002 (through March 18)......................... $ 8.45 $6.06
14 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data presented below are derived from audited financial statements for each of the years ended December 31, 1997 through December 31, 2001. Selected financial data for the years ended December 31, 1997 through December 31, 1998 have been restated to reflect discontinued operations (see "Dispositions and Discontinued Operations" section discussed in Item 1). The financial data for the years ended December 31, 2001 and 2000 should be read in conjunction with the consolidated financial statements and related notes attached hereto, the information set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations", and other financial information included herein. SELECTED HISTORICAL STATEMENT OF INCOME DATA
2001 2000 1999 1998(1) 1997(1) -------- ------- ------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net Service Revenue........................ $110,174 $88,155 $97,411 $ 25,466 $25,810 Cost of Service Revenue.................... 49,046 41,468 46,890 17,569 14,567 Operating Revenues............... 61,128 46,687 50,521 7,897 11,243 General/Administrative Expenses............ 53,665 49,251 53,146 33,510 15,125 Operating Income (Loss).......... 7,463 (2,564) (2,625) (25,613) (3,882) Other Income and Expense................... (2,167) (1,769) (4,719) (1,196) (720) Income Tax (Expense) Benefit............... (220) 1,647 3,263 (99) (1,148) Income (Loss) before Discontinued Operations, Extraordinary Item and Cumulative Effect of Change in Accounting Principle................................ 5,076 (2,686) (4,081) (26,710) (3,454) Discontinued Operations: Income (Loss) from Discontinued Operations, Net of Income Tax......... (566) (3,281) (784) (1,338) 2,312 Gain on Dispositions, Net of Income Tax................................... 876 4,684 6,165 3,177 -- Extraordinary Item, Net of Income Tax.... -- 5,053 -- -- -- Cumulative Effect of Change in Accounting Principle............................. -- -- -- -- (52) Net Income (Loss)........................ $ 5,386 $ 3,770 $ 1,300 $(24,871) $(1,194) Weighted Avg. Common Shares Outstanding -- Basic.................. 5,941 4,336 3,093 3,061 2,735 Weighted Avg. Common Shares Outstanding -- Diluted................ 7,980 4,336 3,093 3,061 2,735 Basic Earnings (Loss) per Common Share Outstanding Net (Loss) before Discontinued Operations............................ $ 0.85 $ (0.62) $ (1.32) $ (8.72) $ (1.26) Income (Loss) from Discontinued Operations, Net of Income Tax......... (0.10) (0.76) (0.25) (0.44) 0.85 Gain on Dispositions, Net of Income Tax................................... 0.15 1.08 1.99 1.04 -- Extraordinary Item, Net of Income Tax.... -- 1.17 -- -- -- Cumulative Effect of Change in Accounting Principle............................. -- -- -- -- (0.02) Net Income (Loss)........................ 0.90 0.87 0.42 (8.12) (0.43)
15
2001 2000 1999 1998(1) 1997(1) -------- ------- ------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Diluted Earnings per Common Share Outstanding.............................. Net (Loss) before Discontinued Operations............................ $ 0.64 $ (0.62) $ (1.32) $ (8.72) $ (1.26) Income (Loss) from Discontinued Operations, Net of Income Tax......... (0.07) (0.76) (0.25) (0.44) 0.85 Gain on Dispositions, Net of Income Tax................................... 0.11 1.08 1.99 1.04 -- Extraordinary Item, Net of Income Tax.... -- 1.17 -- -- -- Cumulative Effect of Change in Accounting Principle............................. -- -- -- -- (0.02) Net Income (Loss)........................ 0.68 0.87 0.42 (8.12) (0.43) Balance Sheet Data: Total Assets............................. $ 47,640 $38,970 $44,602 $ 44,428 $22,870 Total Long-term Obligations.............. $ 10,856 $21,102 $13,039 $ 14,394 $ 3,129 Total Convertible Preferred Stock........ $ -- $ 1 $ 1 $ 1 $ 1
- --------------- (1) Selected Financial Data for the years ended December 31, 1997 through December 31, 1998 reflect discontinued operations. See "Dispositions and Discontinued Operations" section discussed in Item 1. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto referenced in Item 8. 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, ------------------------ 2001 2000 1999 ------ ------ ------ Net services revenues...................................... 100.00% 100.00% 100.00% Cost of service revenues................................... 44.52 47.04 48.14 ------ ------ ------ Gross Margin............................................... 55.48 52.96 51.86 General and administrative expenses: Salaries and benefits.................................... 27.68 32.94 30.89 Other.................................................... 21.03 22.93 23.67 ------ ------ ------ Total general and administrative expenses................ 48.71 55.87 54.56 ------ ------ ------ Operating income (loss).................................... 6.77 (2.91) (2.70) Other income (expense)..................................... (1.97) (2.01) (4.84) ------ ------ ------ Net income (loss) before taxes, discontinued operations and extraordinary item....................................... 4.80 (4.92) (7.54) Income tax expense (benefit)............................... 0.20 (1.87) (3.35) ------ ------ ------ Net income (loss) before discontinued operations and extraordinary item....................................... 4.61 (3.05) (4.19) Discontinued operations: (Loss) from discontinued operations, net of income tax... (.51) (3.72) (0.80) Gain on dispositions, net of income tax.................. 0.80 5.31 6.33 Extraordinary item, net of income tax...................... -- 5.73 -- ------ ------ ------ Net income................................................. 4.89% 4.27% 1.33% ====== ====== ======
YEARS ENDED DECEMBER 31, 2001 AND 2000 NET SERVICE REVENUES For the year ended December 31, 2001 as compared to the year ended December 31, 2000, net revenues increased $22,019,000 or 25%. This increase was attributed to the implementation of PPS in October 2000 as well as an increase in patient admissions of 11,203, or 44%, from 25,431 for 2000 to 36,634 for 2001 from both internal growth and acquisitions completed during the latter part of 2000 and 2001. COST OF SERVICE REVENUES Cost of revenues increased by 18% in 2001 as compared to 2000. This increase is primarily attributed to increased salaries for the clinical manager positions from 2000 to 2001 of $3,898,000. The clinical manager position was implemented company-wide in the latter part of 2000 to provide a greater level of patient care oversight and coordination. As a percentage of net revenues, cost of revenues decreased to 45% in 2001 from 47% in 2000. 17 GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased by 8% in 2001 as compared to 2000. This increase is primarily attributed to the general and administrative expenses at the agency location relating to acquisitions completed in the latter part of 2000 and the early part of 2001 of $6,316,000. As a percentage of net revenues, general and administrative expenses decreased to 49% in 2001 from 56% in 2000. OPERATING INCOME (LOSS) The Company had operating income of $7,463,000 in 2001 as compared to an operating loss of $2,564,000 in 2000. The improvement in operating results of $10,027,000 is attributed to increased patient admissions and improvement in operating results as a percentage of revenue. OTHER INCOME (EXPENSE) Other income and expenses increased $398,000 primarily due to an increase in interest expense of $626,000 due to higher net borrowings, offset by $228,000 of miscellaneous income items. INCOME TAX (EXPENSE) BENEFIT For the year ended December 31, 2001 as compared to December 31, 2000, income tax expense increased from a benefit of $1,647,000 in 2000 to an expense of $220,000 in 2001 (see Note 8 in the Notes to the Consolidated Financial Statements). Total income tax expense for 2001 of $410,000 is comprised of income tax expense from continuing operations of $220,000 and discontinued operations of $190,000. For 2000, total income tax expense of $200,000 is comprised of income tax benefit from continuing operations of $1,647,000, offset by income tax expense from discontinued operations of $402,000 and income tax expense related to an extraordinary item of $1,445,000. DISCONTINUED OPERATIONS Losses from discontinued operations, net of income taxes, amounted to $566,000 for 2001 as compared to losses of $3,281,000 for 2000 primarily due to a write-off of goodwill in 2000 related to the infusion division of approximately $1,770,000. The gain on disposition of $876,000, net of taxes of $190,000, for 2001 is attributed to the sale of one surgery center, while the gain on disposition of $4,684,000, net of taxes, for 2000 is attributed to the sale of two surgery centers and the Company's Infusion Division. NET INCOME The Company recorded net income of $5,386,000, or $0.68 per diluted common share, for 2001 compared with net income of $3,770,000, or $0.87 per common share, for 2000. Common stock equivalents were anti-dilutive at December 31, 2000. YEARS ENDED DECEMBER 31, 2000 AND 1999 NET SERVICE REVENUES For the year ended December 31, 2000 as compared to the year ended December 31, 1999, net revenues decreased $9,256,000 or 10%. This decrease was attributed to a decrease in visits of 249,708 from 1,283,738 to 1,034,030 which is primarily attributable to the implementation of Disease State Management Programs which are diagnosis-specific treatment protocols implemented by each agency. These protocols implement standardized treatment plans for patients to reach a quality outcome in the most efficient manner possible. COST OF SERVICE REVENUES Cost of revenues decreased by 12% in 2000 as compared to 1999. This decrease is primarily attributed to a reduction in visit volume as noted above. As a percentage of net revenues, cost of revenues decreased to 47% 18 in 2000 from 48% in 1999. This decrease is attributed to cost reduction efforts implemented during 1999 and 2000 for all operating locations in preparation for PPS. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses decreased by 7% in 2000 as compared to 1999. This decrease is primarily attributed to the restructuring efforts during 1999 and 2000 following the acquisition of certain Columbia/HCA home health care agencies in the latter part of 1998 in preparation for PPS. As a percentage of net revenues, general and administrative expenses increased to 56% in 2000 from 55% in 1999. OPERATING LOSS The Company had an operating loss of $2,564,000 in 2000 as compared to an operating loss of $2,625,000 in 1999. The reduction in operating losses of $61,000 or 2% is attributed to the restructuring efforts implemented during 2000 and the implementation of PPS on October 1, 2000. OTHER INCOME (EXPENSE) Other income and expenses decreased by $2,950,000 primarily due to a write-off of goodwill in 1999 of approximately $1.8 million related to the sale of certain home health care agencies previously acquired from Columbia/HCA in the latter part of 1998 and a decrease in interest expense of $1.5 million due to lower net borrowings on line of credit agreements. INCOME TAX BENEFIT For the year ended December 31, 2000 as compared to December 31, 1999, income tax expense decreased from $383,000 in 1999 to $200,000 in 2000 (see Note 8 in the Notes to the Consolidated Financial Statements). Total income tax expense for 2000 of $200,000 is comprised of income tax benefit from continuing operations of $659,000, offset by income tax expense from discontinued operations of $172,000 and income tax expense related to an extraordinary item of $687,000. For 1999, total income tax expense of $383,000 is comprised of income tax benefit from continuing operations of $3,263,000, offset by income tax expense from discontinued operations of $3,646,000. DISCONTINUED OPERATIONS Losses from discontinued operations, net of income taxes, amounted to $3,281,000 for 2000 as compared to losses of $784,000 for 1999 primarily due to a write-off of goodwill related to the infusion division of approximately $1,770 000. The gain on disposition of $4,684,000, net of taxes of $402,000, for 2000 is attributed to the sale of two surgery centers and the Company's Infusion Division, while the gain on disposition of $6,165,000, net of taxes, for 1999 is attributed to the sale of three surgery centers. NET INCOME The Company recorded net income of $3,770,000, or $0.87 per common share, for 2000 compared with net income of $1,300,000, or $0.42 per common share, for 1999. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2001, the Company was indebted under various promissory notes for $10.9 million, including amounts due to NPF of $8.9 million, to CareSouth of $0.9 million, to Winter Haven Hospital of $0.6 million and various other notes. The Company's principal and interest requirements due under all promissory notes is approximately $6.2 million in 2002 and $6.0 million in 2003. At December 31, 2001 the Company had obligations under capital leases of $5.6 million, including amounts due to CareSouth under the License Agreement of $4.7 million, to Cisco Systems Capital Corporation of $0.6 million for expenditures related to the wide area network ("WAN"), and various other capital leases. The Company's principal and 19 interest requirements due under all capital leases are approximately $2.7 million in 2002 and $2.6 million in 2003. The fair value of long-term debt as of December 31, 2001 and 2000, estimated based on the Company's current borrowing rate of 11.0% and 15.3%, at December 31, 2001 and 2000, respectively, was approximately $10.7 million and $12.9 million, respectively. Notes payable as of December 31, 2001 consists primarily of an asset-based line of credit with availability, depending on collateral, of up to $25 million with NCFE and borrowings under a revolving bank line of credit of up to $2,500,000. The NCFE $25 million asset-based line of credit, which expires December, 2003, is collateralized by eligible accounts receivable of the home health care nursing division. Eligible receivables are defined as receivables, exclusive of workers' compensation and self-pay, that are aged less than 181 days. The effective interest rate on this line of credit which had outstanding balances at December 31, 2001 and 2000 of $8,593,000 and $2,952,000, respectively, was 11.00% and 15.29% for the years ended December 31, 2001 and 2000, respectively. There were no amounts available under this line as of December 31, 2001. The revolving bank line of credit of $2,500,000 bears interest at the Bank One Prime Floating Rate, which was 4.75% and 9.5% at December 31, 2001 and 2000, respectively. The bank line of credit expires September 21, 2002 and is collateralized by $2.5 million cash. At December 31, 2001 there was a balance outstanding of $712,000 with $1,788,000 available. At December 31, 2000, there were no amounts drawn on the line of credit. Notes payable as of December 31, 2001 are reflected as current liabilities in the accompanying Consolidated Balance Sheets due to the revolving nature of the agreements and/or the nature of the collateral. The Company expects to produce sufficient collateral from ongoing operations to allow those facilities to be maintained through their respective expiration dates. Prior to the implementation of PPS on October 1, 2000, the Company recorded Medicare revenues at the lower of actual costs, the per visit cost limit, or a per beneficiary cost limit on a individual provider basis. Under the previous Medicare cost-based reimbursement system, ultimate reimbursement under the Medicare program was determined upon review of the annual cost reports. As of December 31, 2001, the Company estimates an aggregate payable to Medicare of $14.2 million, of which $13.2 is netted against accounts receivable and $1.0 is reflected in the accompanying balance sheet as a long-term Medicare liability. For the cost report year ended December 31, 2000, the Company has aggregate overpayments of $8.1 million offset by aggregate underpayments of $1.7 million. The aggregate overpayments of $8.1 million are primarily attributed to a provision in BIPA whereby the Company was eligible to receive a one-time payment equal to two months of periodic interim payments equaling $7.4 million. For the cost report years ended 1999 and prior, the Company has an estimated payable of $7.8 million. Of the $7.8 million, $3.1 million is related to the bankrupt subsidiary Alliance, $3.7 million is due within one year, and $1.0 million is due in excess of one year. The Company derived 88%, 90%, and 90% of its revenues from continuing operations from the Medicare system for the years ended December 31, 2001, 2000, and 1999, respectively. The following table summarizes the Company's current contractual obligations: PAYMENTS DUE BY PERIOD
CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS - ----------------------- ------ ---------------- --------- --------- Long-Term Debt............................. 10,946 5,355 5,558 33 Capital Lease Obligations.................. 5,599 2,391 3,204 4 Notes Payable.............................. 9,305 9,305 -- -- Medicare Liabilities....................... 14,171 13,213 958 -- ------ ------ ----- -- Total Contractual Cash Obligations......... 40,021 30,264 9,720 37 ====== ====== ===== ==
The Company's operating activities provided $7.7 million in cash during the year ended December 31, 2001 whereas such activities provided $6.9 million in cash during the year ended December 31, 2000. Cash provided by operating activities in 2001 is primarily attributable to net income of $5.4 million, non-cash items such as depreciation and amortization of $3.4 million, offset by gains on the sale of discontinued operations of 20 $1.7 million. Investing activities used $15.8 million for the year ended December 31, 2001, whereas such activities provided $6.0 million for the year ended December 31, 2000. Cash used in investing activities in 2001 is primarily attributed to purchases of property and equipment and cash used in acquisitions, offset by proceeds from the sale of discontinued operations of $1.6 million. Financing activities provided cash during 2001 of $4.7 million, whereas such activities used $7.4 million during 2000. Cash provided by financing activities in 2001 is primarily attributed to borrowings on line of credit agreements of $6.3 million and proceeds from issuance of notes payable and capital leases of $8.1 million offset by payments on notes payable and capital leases of $5.4 million and a decrease in long-term Medicare liabilities of $5.1 million. As of December 31, 2001, the Company had a working capital deficit of $18.4 million. Included in this deficit are short-term Medicare liabilities, netted against accounts receivable in the accompanying Consolidated Balance Sheets which the Company does not expect to fully liquidate in cash during 2002. These Medicare liabilities include an overpayment of $3.1 million relating to Alliance, a subsidiary of the Company currently in bankruptcy proceedings, and overpayments totaling $7.4 million as a result of BIPA. The overpayment relating to Alliance is listed as a debt to be discharged during the final liquidation. The BIPA overpayment relates to fiscal year 2000 for which the year-end cost report deadline is currently June 17, 2002. The Company plans to request a thirty-six (36) month repayment plan for this overpayment upon submission of the cost reports. If approved, the long-term portion of this debt will be reflected as Long-Term Medicare Liabilities on the balance sheet. The Company also has certain contingencies recorded as current liabilities in the accompanying Consolidated Balance Sheets (in accordance with SFAS No. 5) that management does not believe will currently impact cash flow. Also, as discussed above, the Company has available $1.8 million under the bank line of credit which would be available to fund working capital needs. The Company has completed the installation of a company-wide computer network infrastructure to connect all of its regional offices. This WAN will allow more immediate access to information by all company personnel including senior management, which will increase operational efficiencies. This project was completed in the fourth quarter of 2001 at an approximate cost of $2.3 million. Effective October 1, 2001, the Company, in connection with the termination of its management services agreement, entered into a Software License Agreement that has been accounted for as a capital lease in the accompanying consolidated balance sheets as of December 31, 2001. The capitalized value of this software lease was $8.9 million, which was offset by the unamortized gain as of September 30, 2001 of $4.4 million. 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, 2001. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company does not engage in derivative financial instruments, other financial instruments, or derivative commodity instruments for speculative or trading/non-trading purposes. ITEM 8. FINANCIAL STATEMENTS See Consolidated Financial Statements on Page 29. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 PART III Certain information required by Part III is omitted from this Report in that the Registrant will file its definitive Proxy Statement for its 2002 Annual Meeting of Shareholders to be held June 13, 2002 pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy Statement") no later than 120 days after the end of the fiscal year covered by this Report, and certain information included in the Proxy Statement is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Directors -- Certain information about the current directors is set forth below:
SERVED AS NAME OF NOMINEE AGE DIRECTOR SINCE - --------------- --- -------------- William F. Borne............................................ 44 1982 Ronald A. LaBorde........................................... 45 1997 Jake L. Netterville......................................... 64 1997 David R. Pitts.............................................. 62 1997 Peter F. Ricchiuti.......................................... 45 1997
William F. Borne. 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., a wholly-owned subsidiary of the Company engaged in the provision of home health care services, until June 1993. Ronald A. LaBorde. Since 1995, Mr. LaBorde has served as the President, Chief Executive Officer, and Chairman of the Board of Piccadilly Cafeterias, Inc. ("Piccadilly"), a publicly held retail restaurant business. 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. Jake L. Netterville. Mr. Netterville was the Managing Director of Postlethwaite & Netterville, A Professional Accounting Corporation from 1977 to 1998 and is now Chairman of the Board of Directors. Mr. Netterville is a certified public accountant and has served as Chairman of the Board of the American Institute of Certified Public Accountants, Inc. ("AICPA") and is a permanent member of the AICPA's Governing Council. David R. Pitts. Mr. Pitts is the President and Chief Executive Officer of Pitts Management Associates, Inc., a national hospital and healthcare consulting firm. Mr. Pitts has over forty 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. Peter F. Ricchiuti. Mr. Ricchiuti has been Assistant Dean and Director of Research of BURKENROAD REPORTS at Tulane University's A. B. Freeman School of Business since 1993, and an Adjunct Professor of Finance at Tulane since 1986. Mr. Ricchiuti is a member of the Board of Trustees for WYES-TV, the public broadcasting station in New Orleans, Louisiana. 22 (b) Executive Officers -- The executive officers of the Company are as follows:
PERIOD OF SERVICE IN NAME AGE CAPACITY SUCH CAPACITY SINCE - ---- --- -------- -------------------- William F. Borne(1)........... 44 Chief Executive Officer December 1982 Larry R. Graham............... 36 Chief Operating Officer, January 1999 Interim Senior Vice President of Finance January 2002 John H. Linden................ 58 Chief Information Officer September 2000 John R. Nugent................ 37 Chief Development Officer October 2001 Jeffrey D. Jeter.............. 30 Vice President of Compliance April 2001 Michael D. Lutgring........... 32 General Counsel and Secretary November 1997
- --------------- (1) Biographical information with respect to this officer was previously provided above. --------------------- Larry R. Graham became Chief Operating Officer in January 1999 and was appointed as interim Senior Vice President of Finance in January 2002. He joined the Company in April 1996 as Vice President of Finance and in January 1998 he was promoted to Senior Vice President of Operations. From 1993 to 1996, he was Director of Financial Services at General Health Systems, a regional multi-faceted health care system in Baton Rouge. From 1989 to 1993, he was a Senior Accountant for Arthur Andersen LLP. John H. Linden became Chief Information Officer in September 2000 after consulting with the Company on various projects. Prior to his appointment, Mr. Linden was President of Impact Solutions, Inc., a consulting firm specializing in project management and automation solutions. John R. Nugent joined the Company in October 2001 as Chief Development Officer. From 1999 to 2001, he was Vice President of Business Development with AON Corporation's Health Care Practice. Prior to 1999, Mr. Nugent held several executive positions including President/CEO of Associated Health Services, Inc., a regional home health provider, and President/CEO of LAMMICO Practice Management, a state wide physician practice management and managed care organization. Jeffrey D. Jeter joined the Company in April 2001 as Vice President of Compliance. Prior to joining the Company he served as an Assistant Attorney General for the Louisiana Department of Justice, where he prosecuted health care fraud and nursing home abuse. Michael D. Lutgring was named General Counsel and Secretary in 1997. Previously, after his graduation from law school in 1996, he was in the private practice of law. (c) Section 16(a) Beneficial Ownership Reporting Compliance -- Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission ("SEC"). Copies of all filed reports are required to be furnished to the Company. Based solely on the reports received by the Company, the Company believes all such persons complied with all applicable filing requirements during 2001. 23 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation earned by the chief executive officer and for all other executive officers whose total annual salary and bonus exceeded $100,000 during 2001. SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION
LONG-TERM COMPENSATION ANNUAL COMPENSATION ------------ ----------------------------------------- SECURITIES OTHER ANNUAL UNDERLYING YEAR SALARY BONUS COMPENSATION OPTIONS ---- -------- -------- ------------ ------------ William F. Borne........................ 2001 $303,338 $ -- $ -- 32,680 Chief Executive Officer 2000 276,355 235,000 -- 38,000 and President 1999 240,915 250,000 -- 107,225 Larry R. Graham......................... 2001 $195,445 $ -- $ -- 16,340 Chief Operating Officer 2000 179,509 90,000 -- -- 1999 138,024 75,000 -- 75,000 John M. Joffrion(1)..................... 2001 $162,375 $ -- $ -- 16,340 Senior Vice President 2000 137,898 60,000 -- 50,000 of Finance 1999 115,925 60,000 -- 20,000 John H. Linden.......................... 2001 $115,400 $ -- $ -- 10,000 Chief Information Officer 2000 47,835 10,000 -- -- Michael D. Lutgring..................... 2001 $108,208 $ -- $ -- 10,000 General Counsel 2000 93,418 20,000 -- --
- --------------- (1) Mr. Joffrion passed away January 1, 2002. 2001 STOCK OPTION GRANTS
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PERCENT OF PRICE APPRECIATION FOR OPTIONS TOTAL OPTIONS OPTION TERM GRANTED GRANTED TO EXERCISE PRICE ---------------------- NAME (SHARES) EMPLOYEES (PER SHARE)(1) EXPIRATION DATE 5% 10% - ---- -------- ------------- -------------- ------------------ --------- ---------- William F. Borne..... 32,680 16.43% $4.34 December 31, 2010 $78,196 $192,599 Larry R. Graham...... 16,340 8.21% $4.25 February 1, 2011 $43,674 $110,677 John M. Joffrion..... 16,340 8.21% $4.25 February 1, 2011 $43,674 $110,677 John H. Linden....... 10,000 5.03% $6.75 March 4, 2011 $42,450 $107,578 John R. Nugent....... 25,000 12.57% $5.90 September 30, 2011 $92,762 $235,077 Jeffrey D. Jeter..... 5,000 2.51% $7.20 April 30, 2011 $22,640 $ 57,375 Michael D. 10,000 5.03% $6.75 March 4, 2011 $42,450 $107,578 Lutgring...........
- --------------- (1) Represents the fair market value on the date of the grant. 24 AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED SHARES OPTIONS IN-THE-MONEY OPTIONS(*) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- -------- ----------- ------------- ----------- ------------- William F. Borne.......... -- -- 188,895 18,340 $487,989 $47,149 Larry R. Graham........... -- -- 90,186 8,170 $328,080 $22,468 John M. Joffrion.......... -- -- 65,670 20,670 $233,718 $66,218 John H. Linden............ -- -- 5,000 5,000 $ 1,250 $ 1,250 John R. Nugent............ -- -- -- 25,000 $ -- $27,500 Jeffrey D. Jeter.......... -- -- 2,500 2,500 $ -- $ -- Michael D. Lutgring....... -- -- 22,000 5,000 $ 69,250 $ 1,250
- --------------- (*) Computed based on the differences between the fair market value at fiscal year end and aggregate exercise prices. --------------------- DIRECTORS' COMPENSATION Each director is paid a retainer fee of $1,000 per month and, in addition, is also eligible to receive stock options. During 2001, each director was granted stock options for 10,000 shares of Common Stock at an exercise price of $6.00 per share (fair market value at the date of grant). All directors are entitled to reimbursement for reasonable travel and lodging expenses incurred in attending meetings. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION There have been no Compensation Committee interlocks or insider participation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the sections entitled "Record Date and Principal Ownership" and "Security Ownership of Management" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Notes receivable from related parties at December 31, 2001 of $13,000 consists of payments made to John Nugent in accordance with a loan agreement. The loan agreement, which bears interest at 6% annually, provides for monthly payments beginning October 1, 2001 and ending July 1, 2003 for a cumulative principal sum not to exceed $102,000. The Company paid consulting fees to Matt Hession, an Amedisys stockholder, of $75,000, $63,000, and $125,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The company paid The Printing Department, owned by Cecil Williams, father-in-law of Michael Lutgring, $465,000, $278,000, and $277,000 for the years ended December 31, 2001, 2000 and 1999 respectively. The Printing Department prints forms and other materials used in daily operations. The Company paid Alphagraphics, owned by Carole Nugent, wife of John Nugent, $115,000 for the year ended December 31, 2001. Alphagraphics provides printing and recruitment mail-out services. The Company believes the fees paid for these goods and services approximated fair market value. 25 PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K Documents to be filed with Form 10-K: - Report of Independent Public Accountants - Consolidated Balance Sheets as of December 31, 2001 and 2000 - Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000, and 1999 - Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000, and 1999 - Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000, and 1999 - Notes to Financial Statements as of December 31, 2001, 2000, and 1999 (a) Exhibits.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT ------- ------------------------- 3.1(i)(4) -- Certificate of Incorporation 3.1(ii)(4) -- Certificate of Designation for the Series A Preferred Stock 3.1(iii)(14) -- Certificate of Amendment of Certificate of Designation Specimen 3.4(iv)(14) -- Series A Preferred Stock Conversion Agreement Specimen 3.2(4) -- Bylaws 4.2(7) -- Common Stock Specimen 4.3(7) -- Preferred Stock Specimen 4.4(7) -- Form of Placement Agent's Warrant Agreement 4.5(14) -- Certificate of Amendment of Certificate of Designation Specimen 4.6(14) -- Series A Preferred Stock Conversion Agreement Specimen 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 10.6(11) -- Master Corporate Guaranty of Service Agreements between CareSouth Home Health Services, Inc. and Amedisys, Inc. dated November 2, 1998 10.7(16) -- Loan Modification Agreement by and between Amedisys, Inc. and Columbia/HCA Healthcare Corporation 10.8(20) -- Employment Agreement between Amedisys, Inc. and William F. Borne 10.9(20) -- Employment Agreement between Amedisys, Inc. and Larry Graham 10.10(20) -- Amendment to Employment Agreement by and between Amedisys, Inc. and Larry Graham 10.11(20) -- Employment Agreement between Amedisys, Inc. and John Joffrion 10.12(23) -- Employment Agreement between Amedisys, Inc. and John Nugent 10.13(23) -- Loan Agreement by and among Amedisys, Inc. and John Nugent 10.14(21) -- Director's Stock Option Plan 10.15(22) -- Modification Agreement by and between CareSouth Home Health Services, Inc. and Amedisys, Inc. 10.16(22) -- Software License Agreement by and between CareSouth Home Health Services, Inc. and Amedisys, Inc.
26
EXHIBIT NO. IDENTIFICATION OF EXHIBIT ------- ------------------------- 18.1(12) -- Letter regarding Change in Accounting Principles 21.1(7) -- List of Subsidiaries 99(23) -- Letter of Andersen Representation
- --------------- (1) Previously filed as an exhibit to the Current Report on Form 8-K dated December 20, 1993. (2) Previously filed as an exhibit to the Current Report on Form 8-K dated February 14, 1994. (3) Previously filed as an exhibit to the Current Report on Form 8-K dated August 11, 1994. (4) Previously filed as an exhibit to the Annual Report on Form 10-KSB for the year ended December 31, 1994. (5) Previously filed as an exhibit to the Current Report on Form 8-K dated June 30, 1995. (6) Previously filed as an exhibit to the Registration Statement on Form S-1 (333-8329) dated July 18, 1996. (7) Previously filed as an exhibit to the Registration Statement on Form S-3 dated March 11, 1998. (8) Previously filed as an exhibit to the Quarterly Report on Form 10-Q dated August 14, 1998. (9) Previously filed as an exhibit to the Current Report on Form 8-K dated October 5, 1998. (10) Previously filed as an exhibit to the Current Report on Form 8-K dated November 10, 1998. (11) Previously filed as an exhibit to the Quarterly Report on Form 10-Q dated December 30, 1998. (12) Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1997. (13) Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1998. (14) Previously filed as an exhibit to the Quarterly Report on Form 10-Q/A for the period ended June 30, 1999. (15) Previously filed as an exhibit to the Current Report on Form 8-K dated September 15, 1999. (16) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended September 30, 1999. (17) Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1999. (18) Previously filed as an exhibit to the Current Report on Form 8-K dated May 11, 2000. (19) Previously filed as an exhibit to the Current Report on Form 8-K dated August 23, 2000. (20) Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2000. (21) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended March 31, 2001. (22) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended September 30, 2001. (23) Filed herewith. (b) Report on Form 8-K. On November 1, 2001, the Company filed a current Report on Form 8-K with the SEC attaching a press release announcing that it will release third quarter operating results on November 5, 2001 and will host a conference call on that same day. On November 5, 2001, the Company filed a current Report on Form 8-K with the SEC attaching a press release announcing third quarter 2001 operating results. 27 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 21st day of March, 2002. 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 Officer and March 21, 2002 - ----------------------------------------------------- Chairman of the Board William F. Borne /s/ LARRY R. GRAHAM Principal Financial and Accounting March 21, 2002 - ----------------------------------------------------- Officer Larry R. Graham /s/ JAKE L. NETTERVILLE Director March 21, 2002 - ----------------------------------------------------- Jake L. Netterville /s/ DAVID R. PITTS Director March 21, 2002 - ----------------------------------------------------- David R. Pitts Director March 21, 2002 - ----------------------------------------------------- Peter F. Ricchiuti Director March 21, 2002 - ----------------------------------------------------- Ronald A. Laborde
28 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND 2000 TOGETHER WITH AUDITORS' REPORT 29 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, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP New Orleans, Louisiana February 28, 2002 30 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2001 AND 2000 (IN 000'S EXCEPT SHARE DATA)
2001 2000 -------- -------- CURRENT ASSETS: Cash and cash equivalents................................. $ 3,515 $ 6,967 Accounts receivable, net of allowance for doubtful accounts of $3,125 in 2001 and $1,385 in 2000........... 10,468 6,628 Prepaid expenses.......................................... 244 196 Inventory and other current assets........................ 822 414 Current assets held for sale.............................. -- 715 -------- -------- Total current assets............................... 15,049 14,920 PROPERTY AND EQUIPMENT, NET (Notes 3 and 7)................. 10,290 2,935 OTHER ASSETS, NET (Note 4).................................. 22,288 20,426 NOTES RECEIVABLE FROM RELATED PARTIES (Note 9).............. 13 -- LONG-TERM ASSETS HELD FOR SALE (Notes 2, 3 and 4)........... -- 689 -------- -------- Total assets....................................... $ 47,640 $ 38,970 ======== ======== CURRENT LIABILITIES: Accounts payable.......................................... $ 2,440 $ 1,590 Accrued expenses -- Payroll and payroll taxes............................... 6,798 6,203 Insurance (Note 11)..................................... 1,881 708 Income taxes............................................ 930 638 Legal settlements....................................... 1,227 1,469 Other................................................... 3,082 2,456 Notes payable (Note 5).................................... 9,305 2,952 Notes payable to related parties (Note 9)................. -- 10 Current portion of long-term debt (Note 6)................ 5,355 3,379 Current portion of obligations under capital leases (Note 7)...................................................... 2,391 385 Deferred revenue, current portion......................... -- 2,119 Current liabilities held for sale......................... -- 480 -------- -------- Total current liabilities.......................... 33,409 22,389 LONG-TERM DEBT (Note 6)..................................... 5,591 9,343 LONG-TERM MEDICARE LIABILITIES (Note 13).................... 958 6,053 DEFERRED REVENUE............................................ -- 3,884 OBLIGATIONS UNDER CAPITAL LEASES (Note 7)................... 3,208 30 OTHER LONG-TERM LIABILITIES................................. 1,099 826 LONG-TERM LIABILITIES HELD FOR SALE (Notes 2 and 6)......... -- 966 -------- -------- Total liabilities.................................. 44,265 43,491 -------- -------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES.............. 66 -- -------- -------- STOCKHOLDERS' EQUITY (DEFICIT) (Note 10): Preferred stock -- $.001 par value; 5,000,000 shares authorized; 0 and 390,000 shares outstanding in 2001 and 2000, respectively...................................... -- 1 Common stock -- $.001 par value; 30,000,000 shares authorized; 7,178,152 and 5,326,126 shares outstanding in 2001 and 2000, respectively.......................... 7 5 Additional paid-in capital................................ 16,539 14,096 Treasury stock- 4,167 shares at $6.00 per share........... (25) (25) Retained deficit.......................................... (13,212) (18,598) -------- -------- Total stockholders' equity (deficit)............... 3,309 (4,521) -------- -------- Total liabilities and stockholders' equity (deficit)......................................... $ 47,640 $ 38,970 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 31 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN 000'S EXCEPT SHARE DATA)
2001 2000 1999 ---------- --------- --------- INCOME: Net service revenues...................................... $ 110,174 $ 88,155 $ 97,411 Cost of service revenues.................................. 49,046 41,468 46,890 ---------- --------- --------- Gross margin...................................... 61,128 46,687 50,521 ---------- --------- --------- GENERAL AND ADMINISTRATIVE EXPENSES: Salaries and benefits..................................... 30,495 29,038 30,089 Other..................................................... 23,170 20,213 23,057 ---------- --------- --------- Total general and administrative expenses......... 53,665 49,251 53,146 ---------- --------- --------- Operating income (loss)........................... 7,463 (2,564) (2,625) ---------- --------- --------- OTHER INCOME (EXPENSE): Interest expense.......................................... (2,785) (2,159) (3,625) Interest income........................................... 328 249 66 Miscellaneous............................................. 290 141 (1,160) ---------- --------- --------- Total other expense............................... (2,167) (1,769) (4,719) ---------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES, DISCONTINUED OPERATIONS, AND EXTRAORDINARY ITEM.................................... 5,296 (4,333) (7,344) INCOME TAX (EXPENSE) BENEFIT (Note 8)....................... (220) 1,647 3,263 ---------- --------- --------- Income (loss) before discontinued operations and extraordinary item..................................... 5,076 (2,686) (4,081) DISCONTINUED OPERATIONS: Loss from discontinued operations, net of income tax...... (566) (3,281) (784) Gain on dispositions, net of income tax................... 876 4,684 6,165 EXTRAORDINARY ITEM, NET OF INCOME TAX....................... -- 5,053 -- ---------- --------- --------- Net income........................................ $ 5,386 $ 3,770 $ 1,300 ========== ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -- BASIC (Note 1)........................................................ 5,941,000 4,336,000 3,093,000 ---------- --------- --------- BASIC EARNINGS PER COMMON SHARE (Note 1): Income (loss) before discontinued operations and extraordinary item..................................... $ 0.85 $ (0.62) $ (1.32) Loss from discontinued operations, net of income tax...... (0.10) (0.76) (0.25) Gain on dispositions of discontinued operations, net of income tax............................................. 0.15 1.08 1.99 Extraordinary item, net of income tax..................... -- 1.17 -- ---------- --------- --------- Net income........................................ $ 0.90 $ 0.87 $ 0.42 ========== ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -- DILUTED (Note 1)........................................................ 7,980,000 4,336,000 3,093,000 ---------- --------- --------- DILUTED EARNINGS PER COMMON SHARE (Note 1): Income (loss) before discontinued operations and extraordinary item..................................... $ 0.64 $ (0.62) $ (1.32) Loss from discontinued operations, net of income tax...... (0.07) (0.76) (0.25) Gain on dispositions of discontinued operations, net of income tax............................................. 0.11 1.08 1.99 Extraordinary item, net of income tax..................... -- 1.17 -- ---------- --------- --------- Net income........................................ $ 0.68 $ 0.87 $ 0.42 ========== ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 32 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN 000'S, EXCEPT SHARE DATA)
TOTAL COMMON STOCK PREFERRED STOCK ADDITIONAL RETAINED STOCKHOLDERS' ------------------ ----------------- PAID-IN TREASURY EARNINGS EQUITY SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK (DEFICIT) (DEFICIT) --------- ------ -------- ------ ---------- -------- --------- ------------- BALANCE, December 31, 1998....... 3,064,918 $3 750,000 $ 1 $12,005 $(25) $(23,668) $(11,684) Issuance of stock for Employee Stock Purchase plan (Note 10).......................... 37,701 -- -- -- 69 -- -- 69 Issuance of stock in connection with 401(k) plan (Note 12)... 44,895 -- -- -- 129 -- -- 129 Net income..................... -- -- -- -- -- -- 1,300 1,300 --------- -- -------- --- ------- ---- -------- -------- BALANCE, December 31, 1999....... 3,147,514 $3 750,000 $ 1 $12,203 $(25) $(22,368) $(10,186) Issuance of stock for Employee Stock Purchase plan (Note 10).......................... 317,494 -- -- -- 625 -- -- 625 Issuance of stock in connection with 401(k) plan (Note 12)... 448,830 1 -- -- 617 -- -- 618 Issuance of stock for bonuses...................... 212,288 -- -- -- 306 -- -- 306 Preferred stock conversion..... 1,200,000 1 (360,000) -- 1 -- -- 2 Issuance of warrants........... -- -- -- -- 344 -- -- 344 Net income..................... -- -- -- -- -- -- 3,770 3,770 --------- -- -------- --- ------- ---- -------- -------- BALANCE, December 31, 2000....... 5,326,126 $5 390,000 $ 1 $14,096 $(25) $(18,598) $ (4,521) Issuance of stock for Employee Stock Purchase plan (Note 10).......................... 156,663 -- -- -- 675 -- -- 675 Issuance of stock in connection with 401(k) plan (Note 12)... 262,280 1 -- -- 1,257 -- -- 1,258 Issuance of stock and stock options...................... 470 -- -- -- 74 -- -- 74 Exercise of stock options...... 127,612 -- -- -- 418 -- -- 418 Preferred stock conversion..... 1,300,001 1 (390,000) (1) (1) -- -- (1) Exercise of warrants........... 5,000 -- -- -- 20 -- -- 20 Net income..................... -- -- -- -- -- -- 5,386 5,386 --------- -- -------- --- ------- ---- -------- -------- BALANCE, December 31, 2001....... 7,178,152 $7 -- $-- $16,539 $(25) $(13,212) $ 3,309 ========= == ======== === ======= ==== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 33 AMEDISYS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN 000'S)
2001 2000 1999 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 5,386 $ 3,770 $ 1,300 Adjustments to reconcile net income to net cash provided (used) by operating activities -- Depreciation and amortization........................... 3,439 2,872 3,068 Provision for bad debts................................. 2,248 2,361 1,827 Deferred revenue........................................ (1,589) (2,119) (2,119) Compensation expense due to issuance of stock and stock options.............................................. 74 -- -- Gain on disposal of assets.............................. -- -- (4) Gain on sale of discontinued operations................. (1,738) (5,086) (7,764) Impairment of goodwill (Note 2)......................... -- 1,771 -- Minority interest....................................... 710 (339) 3 Changes in assets and liabilities -- Increase (decrease) in cash included in assets held for sale........................................... 20 201 (36) (Increase) decrease in accounts receivable........... (6,078) 5,092 (9,981) (Increase) decrease in inventory and other current assets............................................. (266) 235 546 Decrease (increase) in other assets.................. 56 545 (422) Increase (decrease) in accounts payable.............. 687 (3,148) (981) Increase in accrued expenses......................... 4,713 759 2,341 -------- -------- -------- Net cash provided (used) by operating activities... 7,662 6,914 (12,222) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property, equipment................. 17 290 118 Purchase of property and equipment........................ (13,424) (338) (947) Cash used in purchase acquisitions........................ (3,406) (787) -- Proceeds from sale of discontinued operations............. 1,684 6,599 12,223 Partnership distributions................................. (745) -- -- Minority interest investment in subsidiary................ 101 259 81 -------- -------- -------- Net cash (used) provided by investing activities... (15,773) 6,023 11,475 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) on line of credit agreements.... 6,353 (2,418) 231 Proceeds from issuance of notes payable and capital leases.................................................. 8,147 10,725 1,152 Payments on notes payable and capital leases.............. (5,434) (20,687) (2,732) Increase (decrease) in long-term Medicare liabilities..... (5,095) 3,535 1,689 Capitalized interest expense.............................. -- 1,106 1,356 Increase in long-term liabilities......................... 273 -- -- Proceeds from issuance of stock........................... 438 -- -- Issuance of warrants for extinguishment of debt........... -- 344 -- Decrease in notes payable -- related parties.............. (10) -- -- (Increase) decrease in notes receivable -- related parties................................................. (13) -- 89 -------- -------- -------- Net cash provided (used) by financing activities... 4,659 (7,395) 1,785 -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (3,452) 5,542 1,038 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 6,967 1,425 387 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 3,515 $ 6,967 $ 1,425 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for -- Interest................................................ $ 2,843 $ 1,194 $ 2,573 ======== ======== ======== Income taxes............................................ $ 378 $ 44 $ -- ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 34 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Organization and Operations Amedisys, Inc. and Subsidiaries (the Company) is incorporated in the state of Delaware and operates in nine states including Louisiana, Tennessee, North Carolina, Georgia, Oklahoma, Alabama, Florida, Virginia, and South Carolina. The Company provides home health care nursing services. From 1999 to 2001, the Company disposed of its ambulatory surgery division and its infusion therapy division (see Note 2). Use of Estimates The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States. 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 and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in these consolidated financial statements. Business combinations accounted for as purchases are included in the consolidated financial statements from the respective dates of acquisition. Revenue Recognition The Company has agreements with third party payors that provide for payments to the Company at amounts different from its established rates. 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 reimbursement rates, as applicable. Allowances and contractual adjustments are recorded for the difference between the established rates and the amounts estimated to be payable by third parties and are deducted from gross revenues to determine net service revenues. Net service revenues are the estimated net amounts realizable from patients, third party payors and others for services rendered, including estimated retroactive adjustments under reimbursement agreements. Prior to the implementation of the Medicare Prospective Payment System ("PPS") on October 1, 2000, reimbursement for home health care services to patients covered by the Medicare program was based on reimbursement of allowable costs subject to certain limits. Final reimbursement was determined after submission of annual cost reports and audits thereof by the fiscal intermediaries. Retroactive adjustments have been accrued on an estimated basis in the period the related services were rendered and will be adjusted in future periods as final settlements are determined. Settlements for cost report years ended 1999 and subsequent years, which are still subject to audit by the intermediary and the Department of Health and Human Services, are recorded in accounts receivable and long-term Medicare liabilities. Under the new PPS rules, annual cost reports are still required as a condition of participation in the Medicare program. However, there are no final settlements or retroactive adjustments. Under PPS, the Company is reimbursed from Medicare based on episodes of care. An episode of care is defined as a length of care up to sixty days with multiple continuous episodes allowed. At the onset of PPS, the standard episode payment was established at $2,115 per episode, to be adjusted by a case mix adjuster consisting of eighty (80) home health resource groups ("HHRG") and the applicable geographic wage index. Effective October 1, 2001, the standard episode payment was increased to $2,274. The services covered by the episode payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit. The standard episode payment may be subject to further individual adjustments due to low or 35 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) high utilization, intervening events and other factors. Providers are allowed to make a request for anticipated payment at the start of care equal to 60% of the expected payment for the initial episode and 50% for each subsequent episode. The remaining balance due to the provider is paid following the submission of the final claim at the end of the episode. Revenue is recognized when services are provided based on the number of visits performed during the episode using a weighted average revenue per visit. Costs are recognized as services are rendered. 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. Inventory Inventory consists of medical supplies that are utilized in the treatment and care of home health patients. Inventory is stated at the lower of cost (first-in, first-out method) or market. Property and Equipment Property and equipment is generally carried at cost. 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. Capital leases, primarily consisting of computer equipment and phone systems, are included in property and equipment. Capital leases are recorded at the present value of the future rentals at lease inception and are generally 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 and equipment including those subject to capital leases ($1,948,000 in 2001, $1,569,000 in 2000, and $1,718,000 in 1999) 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
Goodwill Goodwill reflects the excess of cost over the estimated fair value of the net assets acquired. Goodwill is being amortized on a straight-line basis over its estimated useful life of twenty years. Realization of goodwill is periodically assessed by management based on the expected future profitability and undiscounted future cash flows of acquired entities and their contribution to the overall operations of the Company. In July 2001, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Statement No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. The purchase method of accounting is required to be used for all business combinations initiated after June 30, 2001. SFAS 141 also requires separate recognition of intangible assets acquired in business combinations that meet certain criteria. 36 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In July 2001, the FASB issued Financial Accounting Standards Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") which is effective January 1, 2002. Under SFAS 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed for impairment annually, or more frequently if circumstances indicate potential impairment. Separable intangible assets that are not deemed to have an indefinite life continue to be amortized over their useful lives. For goodwill and indefinite-lived intangible assets acquired prior to July 1, 2001, goodwill will continue to be amortized through the remainder of 2001 at which time amortization will cease and a transitional goodwill impairment test will be performed. Any impairment charges resulting from the initial application of the new rules would be classified as a cumulative change in accounting principle. The Company is in the process of completing its evaluation of any goodwill impairment that is required with the adoption of the SFAS No. 142. The Company, however, does not believe that its existing goodwill balances are impaired under the new standards. Included in general and administrative expenses in the accompanying consolidated statements of operations is goodwill amortization expense as follows (in 000's):
2001 2000 1999 ------ ------ ------ Goodwill amortization expense.............................. $1,234 $1,003 $1,036
Deferred Revenue On November 3, 1998, the Company and CPII Acquisition Corp. ("CPII") entered into an Asset Purchase Agreement whereby the Company sold certain of the assets, subject to the assumption of certain liabilities, of its proprietary software system and home health care management division to CPII in exchange for $11,000,000 cash. An affiliate of CPII utilized the assets to provide certain management services to the Company's home health agencies. Due to the Company's continuing involvement with the assets sold, the gain on the sale of the software system totaling $10,593,000 was deferred and was being amortized over the five-year term of the management services agreement. The unamortized gain at December 31, 2000 and 1999 was reflected as deferred revenue in the accompanying consolidated balance sheets. Effective October 1, 2001, the Company terminated its management services agreement and entered into a Software License Agreement that has been accounted for as a capital lease in the accompanying consolidated balance sheets as of December 31, 2001. The unamortized gain as of September 30, 2001 of $4,414,000 has been offset against the capitalized value of the software lease and is included in Property and Equipment, net in the accompanying consolidated balance sheets. Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of Whenever recognized events or changes in circumstances indicate the carrying amount of an asset, including intangible assets, may not be recoverable, management reviews the asset for possible impairment. In accordance with Statement of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the Impairment of Long-lived Assets to be Disposed", 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. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS 144 also supersedes certain aspects of APB 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", with regard to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be reported in discontinued operations in the period incurred rather than as of the measurement date as presently required by APB 30. Additionally, certain dispositions may now qualify for discontinued operations treatment. 37 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provisions of SFAS 144 are required to be applied for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The adoption of this statement is not expected to have any effect on the Company's financial statements upon adoption. Accounting for Derivative Instruments and Hedging Activities In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", which was amended by Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB 133". The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the consolidated balance sheet as either an asset or liability measured at its fair value. The adoption of this accounting pronouncement did not have a material effect on the Company's financial position or results of operations at December 31, 2001 and 2000 as the Company does not engage in derivative financial instruments. Accounting for Asset Retirement Obligations In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which requires recording the fair value of a liability for an asset retirement obligation in the period incurred. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with earlier application permitted. Upon adoption of SFAS 143, the Company would be required to use a cumulative effect approach to recognize transition amounts for any existing retirement obligation liabilities, asset retirement costs and accumulated depreciation. The Company does not have any asset retirement obligations; therefore, adoption of this statement is not applicable to the Company. Extraordinary Gain On December 28, 2000, the Company entered into a loan agreement with NPF Capital, Inc. ("NPF") for a principal sum of up to $11,725,000. At execution, NPF paid $9,000,000 directly to Columbia/HCA for the benefit of the Company. The Company also financed $725,000 of debt issue costs under this agreement, with the remaining unfunded portion of $2,000,000 available for future acquisitions. Simultaneously, Amedisys entered into a Termination Agreement with Columbia/HCA relating to the note payable ("HCA Note"). The Termination Agreement with Columbia/HCA was effective October 1, 2000. The Termination Agreement related to that certain Credit Agreement dated November 16, 1998 and that certain promissory note dated December 1, 1998 as modified by that certain Loan Modification Agreement dated September 30, 1999. As part of this agreement, the HCA Note, which carried a balance (including accrued interest) of $16.6 million at September 30, 2000, was terminated effective October 1, 2000 for a cash payment of $9,000,000 and the execution of a warrant agreement that allows Columbia/HCA to purchase up to 200,000 shares of Amedisys' Common Stock, subject to certain conditions. These warrants have an estimated value of $344,000. As a result of these transactions, the Company recorded an extraordinary gain of $5.1 million, net of taxes, in the fourth quarter of 2000. Net Income Per Common Share Earnings per common share are based on the weighted average number of shares outstanding during the period. There was no difference between basic and diluted weighted average common shares outstanding for the years ended December 31, 2000 and 1999. The effect of stock options (732,521 and 468,521 common shares for the years ended December 31, 2000 and 1999, respectively) and preferred shares (390,000 preferred shares convertible into 1.3 million common shares and 750,000 preferred shares convertible into 2.5 million common shares for the years ended December 31, 2000 and 1999, respectively) were anti-dilutive (see 38 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 10). The following table sets forth the computation of basic and diluted net income per common share for the years ended December 31, 2001, 2000, and 1999 including the results of discontinued operations (in 000's except per share data).
2001 2000 1999 ------ ------ ------ Basic Net Income per Share: Net Income........................................... $5,386 $3,770 $1,300 ====== ====== ====== Weighted Average Number of Shares Outstanding........ 5,941 4,336 3,093 ------ ------ ------ Net Income per Common Share -- Basic................. $ 0.90 $ 0.87 $ 0.42 ====== ====== ====== Diluted Net Income per Share: Net Income........................................... $5,386 $3,770 $1,300 ====== ====== ====== Weighted Average Number of Shares Outstanding........ 5,941 4,336 3,093 Effect of Dilutive Securities: Stock Options..................................... 737 -- -- Warrants.......................................... 263 -- -- Convertible Preferred Shares...................... 1,039 -- -- ------ ------ ------ Average Shares -- Diluted............................ 7,980 4,336 3,093 ------ ------ ------ Net Income per Common Share -- Diluted............... $ 0.68 $ 0.87 $ 0.42 ====== ====== ======
2. ACQUISITIONS AND DISPOSITIONS: Acquisitions: NORTHWEST HOME HEALTH, INC. Effective October 1, 2000, the Company acquired through its wholly-owned subsidiary Amedisys Northwest Home Health, Inc. certain assets and liabilities of Northwest Home Health Agency, Inc. and Georgia Mountains Homecare Services, Inc. (collectively, "Northwest"). The purchase price amounted to the assumption of certain liabilities. In connection with this acquisition, the Company recorded $1,148,000 of goodwill. MID-FLORIDA HOME HEALTH SERVICES Effective November 17, 2000, the Company acquired through its wholly-owned subsidiary Amedisys Home Health Inc. of Florida certain assets and liabilities of Mid-Florida Home Health Services from Winter Haven Hospital, Inc. In consideration for the acquired assets and liabilities, the Company paid $975,000 cash (less the value of paid time off) at the time of closing and executed a promissory note in the amount of $975,000 bearing interest of 7%, payable in 36 monthly principal and interest installments. In connection with this acquisition, the Company recorded $1,554,000 of goodwill. SETON HOME HEALTH SERVICES, INC. Effective March 1, 2001, the Company acquired, through its wholly-owned subsidiary Amedisys Home Health, Inc. of Alabama, certain assets and liabilities of Seton Home Health Services, Inc. ("Seton") from Seton Health Corporation of North Alabama associated with their operations in Mobile and Fairhope, Alabama. In consideration for the acquired assets and liabilities, the Company paid $440,000 cash, which represents a purchase price of $475,000 less the value of accrued vacation obligations. In connection with this acquisition, the Company recorded $448,000 of goodwill. 39 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Effective April 6, 2001, the Company acquired, through its wholly-owned subsidiary Amedisys Home Health, Inc. of Alabama, certain additional assets and liabilities of Seton from Seton Health Corporation of North Alabama associated with their operations in Birmingham, Tuscaloosa, Anniston, Greensboro, and Reform, Alabama. In consideration for the acquired assets and liabilities, the Company paid $2,216,000 cash, which represents a purchase price of $2,325,000 less the value of accrued vacation obligations. In connection with this acquisition, the Company recorded $2,235,000 of goodwill. HEALTHCALLS PROFESSIONAL HOME HEALTH SERVICES Effective June 11, 2001, the Company acquired from East Cooper Community Hospital, Inc. certain assets and liabilities of HealthCalls Professional Home Health Services. In consideration for the acquired assets and liabilities, the Company paid $750,000 cash. In connection with this acquisition, the Company recorded $726,000 of goodwill. Each of the above acquisitions was accounted for as a purchase. Dispositions: In August 1999, the Company adopted a formal plan to divest of all of its interests in its outpatient surgery and infusion therapy divisions. The Company's strategic plan was to become a focused home health nursing company. As of December 31, 2001, the Company has completed the divestiture of both its infusion therapy division and ambulatory surgery division. A discussion of the sales that have occurred since the adoption of the plan is as follows. AMEDISYS SURGERY CENTERS, LC Effective September 1, 1999, by an Asset Purchase Agreement, the Company sold certain assets, subject to the assumption of certain liabilities, of its wholly-owned subsidiary, Amedisys Surgery Centers, LC ("ASC"), to United Surgical Partners International, Inc. ("USP"). The assets and liabilities sold related to two free-standing outpatient surgery centers operated by ASC, Amedisys Surgery Center of Pasadena and Amedisys Surgery Center of South Houston (the "Surgery Centers"). In consideration for the assets of the Surgery Centers, ASC received $11,000,000. The Company recorded a pre-tax gain of $9,417,000 in 1999 as a result of this transaction. WEST TEXAS AMBULATORY SURGERY CENTER, LLC Effective December 1, 1999, ASC, by a Membership Interest Purchase Agreement, sold all of its 67% membership interest in West Texas Ambulatory Surgery Center, LLC to U.S. Orthopedics Texas, LLC. ASC also assigned all of its rights under a certain management agreement to U.S. Orthopedics, Inc. At closing, ASC received $783,333 in cash representing the purchase price for the membership interest and ASC's share of the assignment of the management agreement. ASC has agreed to a five-year non-compete covenant. The Company recorded a pre-tax gain of $324,000 in 1999 as a result of this transaction. PARK PLACE SURGERY CENTER, LLC On April 28, 2000, the Company, Park Place Surgery Center, LLC ("Park Place"), and the remaining Members of Park Place Surgery Center ("Physician Members") entered into an agreement for the purchase and sale of the Company's 20% membership interest in Park Place, an outpatient surgery center in Lafayette, Louisiana, to the Physician Members. The purchase price of $3,200,000 cash was paid to the Company at closing. The Company received a final partnership distribution of $165,000 in May 2000. The Company recorded a pre-tax gain of $2,665,000 as a result of this transaction in the quarter ended June 30, 2000. 40 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INFUSION THERAPY DIVISION In May 2000, the Company decided, after a thorough evaluation of historical financial results and available divestiture opportunities, to close one infusion therapy location. In connection with this closure, the Company recorded a goodwill impairment of $1,252,000 in the quarter ended June 30, 2000. Concurrently, the Company re-evaluated the goodwill recorded for the remaining infusion therapy locations, resulting in an additional goodwill impairment of $519,000. On August 9, 2000, the Company through its wholly-owned subsidiaries, Amedisys Alternate-Site Infusion Therapy Services, Inc. ("AASI") and PRN, Inc. ("PRN"), sold, by a Bill of Sale and Asset Purchase Agreement, certain assets, subject to the assumption of certain liabilities, of AASI and PRN, to Park Infusion Services, LP. The transaction had an effective date of August 1, 2000. Subject to certain post-closing adjustments, the Company received $1,750,000, calculated using a multiple of EBITDA. The Company recorded a pre-tax gain of $1,114,000 as a result of this transaction in the quarter ended September 30, 2000. EAST HOUSTON SURGERY CENTER, LLC On December 1, 2000, the Company's wholly-owned subsidiary, ASC, East Houston Physician Surgical Services, Ltd. ("Surgical Services"), and East Houston Surgery Center, Ltd. ("East Houston") entered into an agreement for the purchase and sale of the Company's 22.98% membership interest in East Houston, an outpatient surgery center in Houston, Texas, to Surgical Services. The purchase price of $1,650,000 cash was paid to the Company at closing. The Company recorded a pre-tax gain of $1,307,000 as a result of this transaction in the quarter ended December 31, 2000. HAMMOND SURGICAL CARE CENTER, LC Effective September 7, 2001, the Company, its wholly-owned subsidiary ASC, its 56% owned subsidiary Hammond Surgical Care Center, LC d/b/a St. Luke's SurgiCenter ("St. Luke's"), and Surgery Center of Hammond, LLC ("Surgery Center") entered into an agreement for the purchase and sale of the operations and assets of St. Luke's, an outpatient surgery center located in Hammond, Louisiana, to Surgery Center. The sales price of $2,850,000 was paid at closing and distributed in the following manner: $1,066,000 paid directly to debtors of St. Luke's relating to existing debt obligations, $1,684,000 paid to St. Luke's, and $100,000 in cash to be released upon the determination of the value of working capital transferred. Subsequent to the sale, St. Luke's made partnership distributions of $1,693,000 of which the Company received $948,000 and the physician investors received $745,000. The agreement stipulated a required level of working capital, defined as patient accounts receivable less trade accounts payable, of $430,000 to be conveyed at closing. Any amount in excess of $430,000 will be returned to St. Luke's, and any amount less than $430,000 will be payable by St. Luke's to Surgery Center. The Company and its affiliates had no material relationship with Surgery Center prior to this transaction. In the accompanying Consolidated Statements of Operations, the Company recorded a pre-tax gain of $1,738,000, offset by minority interest expense of $672,000, resulting in a net pre-tax gain of $1,066,000 in the quarter ended September 30, 2001. 41 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following as of December 31, 2001 and 2000 (in 000's):
2001 2000 ------- ------- Land........................................................ $ 58 $ 58 Buildings and leasehold improvements........................ 214 195 Equipment, furniture and vehicles........................... 10,390 7,840 Computer software........................................... 4,693 205 ------- ------- 15,355 8,298 Less: Accumulated depreciation.............................. (5,065) (4,682) ------- ------- 10,290 3,616 Net Property and equipment included in Long-term Assets Held for Sale.................................................. -- (681) ------- ------- Total property and equipment................................ $10,290 $ 2,935 ======= =======
4. OTHER ASSETS: Other assets include the following as of December 31, 2001 and 2000 (in 000's):
2001 2000 ------- ------- Notes Receivable............................................ $ -- $ 221 Goodwill, net of accumulated amortization of $4,314 and $3,080.................................................... 22,216 20,159 Deposits and Other.......................................... 72 155 ------- ------- 22,288 20,535 Included in Long-term Assets Held for Sale.................. -- (109) ------- ------- Total Other Assets.......................................... $22,288 $20,426 ======= =======
5. NOTES PAYABLE: Notes payable as of December 31, 2001 consists primarily of an asset-based line of credit with availability, depending on collateral, of up to $25 million with National Century Financial Enterprises, Inc. ("NCFE") and borrowings under a revolving bank line of credit of up to $2,500,000. The NCFE $25 million asset-based line of credit, which expires December, 2003, is collateralized by eligible accounts receivable of the home health care nursing division. Eligible receivables are defined as receivables, exclusive of workers' compensation and self-pay, that are aged less than 181 days. The effective interest rate on this line of credit which had outstanding balances at December 31, 2001 and 2000 of $8,593,000 and $2,952,000, respectively, was 11.00% and 15.29% for the years ended December 31, 2001 and 2000, respectively. The revolving bank line of credit of $2,500,000 bears interest at the Bank One Prime Floating Rate, which was 4.75% and 9.5% at December 31, 2001 and 2000, respectively. The bank line of credit expires September 21, 2002 and is collateralized by $2.5 million cash. At December 31, 2001 and 2000, there was a balance outstanding of $712,000 and $0, respectively. 42 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. LONG-TERM DEBT: Long-term debt consists primarily of notes payable to banks and other financial institutions that are due in monthly installments through 2005. Long-term debt includes the following as of December 31, 2001 and 2000 (in 000's):
LENDER: 2001 2000 - ------- ------- ------- Notes payable to finance and equipment companies -- interest ranging from 5.50-10.50%.................................. $10,946 $13,880 Less current portion: Current portion of long-term debt......................... (5,355) (3,379) Included in current liabilities held for sale............. -- (192) Included in long-term liabilities held for sale........... -- (966) ------- ------- Long-term debt.............................................. $ 5,591 $ 9,343 ======= =======
These borrowings are secured by furniture, fixtures, and computer equipment. Maturities of debt as of December 31, 2001 are as follows (in 000's):
YEAR ENDED - ---------- December 31, 2002........................................... $5,355 December 31, 2003........................................... 5,273 December 31, 2004........................................... 285 December 31, 2005........................................... 33 Thereafter.................................................. --
The fair value of long-term debt as of December 31, 2001 and 2000, estimated based on the Company's current borrowing rate of 11.0% and 15.3%, at December 31, 2001 and 2000, respectively, was approximately $10,719,000 and $12,875,000, respectively. 7. CAPITAL LEASES: The Company acquired certain equipment under capital leases for which the 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 (in 000's):
YEAR ENDED - ---------- December 31, 2002........................................... $2,558 December 31, 2003........................................... 2,446 Thereafter.................................................. 901 ------ Total future minimum lease payments......................... 5,905 Amount representing interest................................ (306) ------ Present value of future minimum lease payments............ 5,599 ------ Current portion: Included in current portion of obligations under Capital leases................................................. (2,391) ------ Obligations under capital leases............................ $3,208 ======
43 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. INCOME TAXES: The Company files a consolidated federal income tax return which includes all subsidiaries that are more than 80% owned. 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 Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. 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 for income taxes consists of the following for the years ended December 31, 2001, 2000 and 1999 (in 000's):
2001 2000 1999 ---- ---- ---- Current portion............................................. $410 $200 $383 Deferred portion............................................ -- -- -- ---- ---- ---- $410 $200 $383 ==== ==== ====
Total income tax expense (benefit) is included in the following financial statement captions for the years ended December 31, 2001, 2000 and 1999 (in 000's):
2001 2000 1999 ---- ------- ------- Continuing operations...................................... $220 $(1,647) $(3,263) Discontinued operations: Loss from discontinued operations........................ -- -- 88 Gain on disposition of discontinued operations........... 190 402 3,558 Extraordinary item......................................... -- 1,445 -- ---- ------- ------- $410 $ 200 $ 383 ==== ======= =======
Net deferred tax assets consist of the following components as of December 31, 2001 and 2000 (in 000's):
2001 2000 ------- ------- Deferred tax assets: NOL carryforward.......................................... $ 1,066 $ 1,561 Allowance for doubtful accounts........................... 847 538 Property and equipment.................................... 371 -- Self-insurance reserves................................... 618 618 Deferred revenue.......................................... -- 2,281 Losses of consolidated subsidiaries not consolidated for tax purposes, expiring beginning in 2010............... 144 208 Expenses not currently deductible for tax purposes........ 606 746 Other..................................................... 100 65 Deferred tax liabilities: Amortization of intangible assets......................... (1,165) (1,005) Property and equipment.................................... -- (999) Net liability for cash basis partnership for tax reporting purposes............................................... -- (249) Less: Valuation allowance................................... (2,587) (3,764) ------- ------- $ -- $ -- ======= =======
44 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The valuation allowance was recorded against net deferred tax assets due to the significant operating losses incurred by the Company during 2000 and 1999. The NOL carryforward expires in 2020. 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 2001, 2000 and 1999:
2001 2000 1999 ---- ---- ---- Income taxes computed on federal statutory rate............. 35% 38% 35% State income taxes and other................................ 8 3 23 Valuation allowance......................................... (36) (39) (40) Nondeductible expenses and other............................ -- 1 5 --- --- --- Total.................................................. 7% 3% 23% === === ===
9. RELATED PARTY TRANSACTIONS: Notes Receivable Notes receivable from related parties at December 31, 2001 of $13,000 consists of payments made to an executive officer in accordance with a loan agreement. The loan agreement, which bears interest at 6% annually, provides for monthly payments beginning October 1, 2001 and ending July 1, 2003 for a cumulative principal sum not to exceed $102,000. Notes Payable Notes payable to related parties at December 31, 2000 consists of unsecured notes to certain stockholders of the Company amounting to $10,000 that were due on demand and bear interest at rates from 0%-12%. Other The Company paid consulting fees to stockholders of $75,000, $63,000, and $125,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The Company paid vendors related to executive officers $580,000, $278,000, and $277,000 for the years ended December 31, 2001, 2000, and 1999, respectively, for goods and services. The Company believes the fees paid for these goods and services approximated fair market value. 10. CAPITAL STOCK: Preferred Stock In December 1997, the Company 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 used the proceeds of this placement to fund acquisitions and accelerate the growth of its network of outpatient health care services, including home health care offices, infusion therapy sites and outpatient surgery centers. Under the original placement agreement, these shares were initially convertible into 864,865 shares of common stock which is equivalent to $4.625 per share. On March 3, 1998, the Company completed a secondary phase of its private placement of preferred stock and issued an additional 350,000 shares for gross proceeds of $3.5 million. These shares were initially convertible into 756,757 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 113,514 shares of common stock, were issued to the placement agent, Hudson Capital Partners, L.P., in connection with the offering. Effective February 16, 1999, the Company amended the conversion terms through Preferred Stock Conversion Agreements. The conversion rate was reduced to $3.00 per common share in exchange for an agreement by these shareholders not to 45 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) sell, transfer or otherwise dispose of any Company securities until December 31, 1999. Under this conversion agreement, the 750,000 preferred shares are convertible into 2,500,000 common shares. During 2000, eight preferred shareholders converted a total of 360,000 preferred shares into 1,200,000 common shares. During 2001, the remaining preferred shareholders converted 390,000 preferred shares into 1,300,000 common shares. As of December 31, 2001, the Company has no outstanding preferred stock. Stock Options and Warrants The Company's Statutory Stock Option Plan ("the Plan") provides incentive stock options to key employees. The Plan is administered by a Compensation Committee (appointed by the Board of Directors) which determines, 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 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, 1,425,000 shares of common stock at an option price per share of no less than the greater of (a) 100% of the fair market value of a share of common stock on the date the option is granted or (b) the aggregate par value of the shares 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 ten 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 Compensation Committee in any calendar year shall not exceed $100,000. The Company's Directors' Stock Option Plan ("the Directors' Plan") provides stock options to directors. The Directors' Plan is administered by the Board of Directors in accordance with the provisions of the Directors' Plan. Each option granted under the Directors' Plan is to be convertible into one share of common stock, unless adjusted in accordance with the provisions of the Directors' Plan. Options may be granted for a number of shares not to exceed, in the aggregate, 250,000 shares of common stock. The option price is to be the fair market value, which is the closing price of a share of common stock on the last preceding business day prior to the date as to which fair market value is being determined, or on the next preceding business day on which such common stock is traded, if no shares of common stock were traded on such date. Each option vests ratably over a two to three year period and may be exercised during a period not to exceed ten years from the date such option is granted. 46 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the Company's stock options as of December 31, 2001, 2000 and 1999 and changes during each of the years then ended is as follows:
2001 2000 1999 ----------------------- ----------------------- ----------------------- WGTD. AVG. WGTD. AVG. WGTD. AVG. SHARES EXER. PRICE SHARES EXER. PRICE SHARES EXER. PRICE -------- ----------- -------- ----------- -------- ----------- Outstanding at beginning of year............... 846,271 $3.72 897,771 $3.84 462,051 $6.11 Granted................. 238,960 5.68 105,000 4.05 866,772 3.43 Exercised............... (127,612) 3.28 -- -- -- -- Cancelled, forfeited or expired............... (38,586) 3.86 (156,500) 4.09 (431,052) 5.50 -------- ----- -------- ----- -------- ----- Outstanding at end of year.................. 919,033 $4.25 846,271 $3.72 897,771 $3.84 ======== ===== ======== ===== ======== ===== Exercisable at end of year.................. 756,353 $3.96 732,521 $3.68 468,521 $4.34 ======== ===== ======== ===== ======== ===== Weighted average fair value of options granted during the year.................. $5.66 $3.74 $1.34 ===== ===== =====
Of the 162,680 options outstanding but not exercisable at December 31, 2001, 146,430 become exercisable in 2002 and 16,250 in 2003. The following table summarizes information about stock options outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- ------------------------- NUMBER NUMBER OUTSTANDING WGTD. AVG. WGTD. AVG. EXERCISABLE WGTD. AVG. AT REMAINING EXERCISE AT EXERCISE RANGE OF EXERCISE PRICES 12/31/01 CONTRACTUAL LIFE PRICE 12/31/01 PRICE - ------------------------ ----------- ---------------- ---------- ----------- ---------- $3.00 -- $6.75............... 919,033 6.42 $4.25 756,353 $3.96
The Company applies Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock option plans. Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, was issued in 1995 and changes the methods for recognition of cost on plans similar to those of the Company. Pro forma disclosures, as if the Company had adopted the cost recognition requirements under SFAS 123 are presented below. At December 31, 2001, the Company had the following warrants outstanding:
WARRANTS OUTSTANDING PRICE - -------------------- ----- 175,000...................................................... $3.00 30,000...................................................... 4.00 50,000...................................................... 5.00 4,000...................................................... 6.25 30,720...................................................... 6.93 ------- 289,720 =======
The fair value of each option and warrant 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 of a range of 112.23% to 117.30% for options issued in 2001, a range of 112.62% to 47 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 130.87% for options issued in 2000, and a range of 99.8% to 114.4% for options issued in 1999, (iii) risk-free interest rate of a range of 4.68% to 5.49% in 2001, a range of 5.31% to 7.03% in 2000, and a range of 5.80% to 6.21% in 1999, and (iv) expected life of 3 to 9 years. Had compensation cost for the Company's options awarded in 1995 or later been determined consistent with SFAS 123, the Company's net income, net income applicable to common stockholders and net income per common share for 2001, 2000 and 1999 would approximate the pro forma amounts below (in 000's, except per share amounts):
2001 2000 1999 -------------------- -------------------- -------------------- AS AS AS REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA -------- --------- -------- --------- -------- --------- Net income................. $5,386 $4,612 $3,770 $3,014 $1,300 $ 882 ====== ====== ====== ====== ====== ===== Basic earnings per common share.................... $ 0.90 $ 0.78 $ 0.87 $ 0.70 $ 0.42 $0.29 ====== ====== ====== ====== ====== ===== Diluted earnings per common share.................... $ 0.68 $ 0.58 $ 0.87 $ 0.70 $ 0.42 $0.29 ====== ====== ====== ====== ====== =====
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards made prior to 1995. Additional awards in future years are anticipated. Amedisys Specialized Medical Services, Inc. (ASM) Employee Stock Ownership Plan ASM, a wholly owned subsidiary, 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. No contributions were made for the years ended December 31, 2001, 2000, and 1999. Employee Stock Purchase Plan The Company has a plan whereby eligible employees may purchase the Company's common stock at 85% of the lower of the market price at the time of grant or the time of purchase. There are 1,000,000 shares reserved for this plan. At December 31, 2001, there were 454,915 shares available for future offerings. A summary of the shares issued since the inception of the plan is as follows:
EMPLOYEE STOCK PURCHASE PLAN PERIOD SHARES ISSUED PRICE - ----------------------------------- ------------- ----- August 1, 1998 to December 31, 1998......................... 4,489 $2.44 January 1, 1999 to June 30, 1999............................ 30,822 1.70 July 1, 1999 to December 31, 1999........................... 53,524 1.69 January 1, 2000 to June 30, 2000............................ 70,899 1.17 July 1, 2000 to September 30, 2000.......................... 192,671 2.50 October 1, 2000 to December 31, 2000........................ 43,198 3.61 January 1, 2001 to March 31, 2001........................... 41,024 3.69 April 1, 2001 to June 30, 2001.............................. 31,394 5.10 July 1, 2001 to September 30, 2001.......................... 41,047 5.10 October 1, 2001 to December 1, 2001......................... 36,017 5.02 ------- 545,085 =======
48 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. COMMITMENTS AND CONTINGENCIES: Legal Proceedings From time to time, the Company and its subsidiaries are defendants in 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. The Company filed a lawsuit against Mr. James P. Cefaratti, the Company's former President and Chief Operations Officer, alleging various negligent actions which constituted breaches of fiduciary duty owed to the Company and its stockholders. The Company was seeking unspecified damages incurred as a result of the alleged negligent actions and all other appropriate relief. On December 7, 1998, Mr. Cefaratti filed a lawsuit naming the Company as a defendant and claimed that he was terminated in violation of an alleged employment contract. The lawsuit with Mr. Cefaratti was settled out of court during 2001 for a confidential amount and is no longer pending. Other ex-employees of the Company filed lawsuits against the Company claiming breaches of alleged employment contracts including Ms. Judi M. McQueary, the former President of the Company's managed care division, and Mr. William G. Hardee, the former Vice President of the Company's southeastern alternate site infusion division (both filed on December 11, 1998). These lawsuits were settled out of court and are no longer pending. Alliance Home Health, Inc. ("Alliance"), a wholly-owned subsidiary of the Company (which was acquired in 1998 and ceased operations in 1999), filed for Chapter 7 Federal bankruptcy protection with the United States Bankruptcy Court in the Northern District of Oklahoma on September 29, 2000. A trustee was appointed for Alliance in 2001. The accompanying consolidated financial statements continue to include the net liabilities of Alliance of $4.2 million until the contingencies associated with the liabilities are resolved. On August 23 and October 4, 2001, two suits were filed against the Company and three of its executive officers in the United States District Court for the Middle District of Louisiana by individuals purportedly as class actions on behalf of all purchasers of Amedisys stock between November 15, 2000 and June 13, 2001. The suits, which have now been consolidated, seek damages based on the decline in Amedisys' stock price following an announced restatement of earnings for the fourth quarter of 2000 and first quarter of 2001, claiming that the defendants knew or were reckless in not knowing the facts giving rise to the restatement. The Company intends to seek dismissal of these claims and, if they are not dismissed, to vigorously defend them. Medicare Reimbursement Reductions With the introduction of PPS, the method of reimbursement under the Medicare program was changed from a cost-based reimbursement system to a prospective payment system based on episodes of care. An episode of care is defined as a length of care up to sixty days with multiple continuous episodes allowed. At the beginning of PPS on October 1, 2000, the standard episode payment was established at $2,115 per episode, to be adjusted by certain factors and intervening events. In December 2000, Congress passed the Benefits Improvement Protection Act ("BIPA"), which provided additional funding to healthcare providers. BIPA provided for the following: (i) a one-year delay in applying the budgeted 15% reduction on payment limits, (ii) the restoration of a full home health market basket update for episodes ending on or after April 1, 2001 and before October 1, 2001 resulting in an increase to revenues of 2.2%, and (iii) a 10% increase, beginning April 1, 2001 and extending for a period of twenty four months, for home health services provided in a rural area. Effective October 1, 2001 with the beginning of federal fiscal year 2002, the standard episode payment was increased to $2,274. Currently, the delay in the budgeted 15% reduction in payment limits resulting from BIPA will expire September 30, 2002. There is ongoing debate and discussion at the congressional level 49 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) concerning the scheduled payment reduction which was further intensified with the recommendation by the Medicare Payment Advisory Committee to eliminate the budgeted 15% payment reduction. Legislation The healthcare industry is subject to numerous laws and regulations of Federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with all state and Federal legal provisions concerning fraud and abuse as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time. The Health Insurance Portability and Accountability Act ("HIPAA") was enacted August 21, 1996 to assure health insurance portability, reduce healthcare fraud and abuse, guarantee security and privacy of health information and enforce standards for health information. Organizations are required to be in compliance with certain HIPAA provisions beginning October 2002. Provisions not yet finalized are required to be implemented two years after the effective date of the regulation. Organizations are subject to significant fines and penalties if found not to be compliant with the provisions outlined in the regulations. Management is in the process of evaluating the impact of this legislation on its operations including future financial commitments and operational enhancements that will be required to comply with the legislation. Leases The Company and its subsidiaries have leased office space at various locations under non-cancelable agreements which expire between March 21, 2002 and October 31, 2006, and require various minimum annual rentals. Total minimum rental commitments at December 31, 2001 are due as follows (in 000's): 2002........................................................ $3,266 2003........................................................ 2,278 2004........................................................ 885 2005........................................................ 507 2006........................................................ 92 Thereafter.................................................. --
Rent expense for all non-cancelable operating leases was $3,729,000, $4,040,000, and $4,860,000 for the years ended December 31, 2001, 2000, and 1999, respectively. Management and License Agreement On November 2, 1998, the Company and CareSouth Home Health Services, Inc. ("CareSouth"), an affiliate of CPII Acquisition Corp., entered into agreements under which CareSouth agreed to provide payroll processing, billing services, collection services, cost reporting services and software maintenance and support for the Company's home health agencies with a consolidated fee structure. Under the consolidated fee structure, fees are collected for services provided on a per visit basis, which may be adjusted depending on the cumulative number of annual visits. Effective September 1, 1999, the management agreement was amended to exclude cost reporting services and software maintenance and support for a corresponding decrease in 50 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) professional fees. The Company paid CareSouth $475,000 per month through September, 2001 under this amended agreement. Effective October 1, 2001, the Company terminated the management agreement. In connection with this termination, the Company entered into a Software License Agreement ("License Agreement") with CareSouth for the use of a home health care billing and collections software system. The License Agreement, which expires May 1, 2004, provided for a $2,000,000 cash payment at signing, monthly payments beginning October 1, 2001 of $178,226 through May, 2004, and a $1,000,000 cash payment, included in Other Accrued Expenses in the accompanying consolidated balance sheets, due on or before February 28, 2002. At the expiration of the License Agreement, the Company has the option to acquire the software system for $1.00, and consequently, the Company has accounted for this lease as a capital lease obligation. 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 were insured by third party reinsurers. In connection with the self- insurance plan 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, 1998, and was renewed to February, 2003. In January 1999, the Company changed from a self-insured workers' compensation plan to a fully insured, guaranteed cost plan. The Company currently has a letter of credit with Bank One for $825,000 secured in full by cash relating to its workers' compensation plan for the plan year December 31, 2000 through December 31, 2001 which expires January 3, 2003. The Company is self-insured for health claims up to certain policy limits. Claims in excess of $100,000 per incident are insured by third party reinsurers. The Company has accrued a liability of approximately $905,000 and $708,000 at December 31, 2001 and 2000, respectively, for both outstanding and incurred but not reported claims based on historical experience. Employment Contracts The Company has commitments related to employment contracts with a number of its senior executives. Such contracts generally commit the Company to pay bonuses upon the attainment of certain operating goals and severance benefits under certain circumstances. Other The Company is subject to various other types of claims and disputes arising in the course of its business. 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. 12. 401(k) 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 90 days 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 deductions. A matching contribution of $617,000 was made for 1999 in 2000, and a matching contribution of $891,000 was made in 2001 for 2000. Such contributions were made in the form of common stock of the Company, valued based upon the fair market value of the stock as of December 31 of the applicable year. During 2001, the 51 AMEDISYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company accelerated the matching frequency from an annual basis to a quarterly basis. During 2001, the Company contributed approximately $305,000 for 2001 and plans to contribute approximately $925,000 for 2001 matching contributions during 2002. 13. AMOUNTS DUE TO AND DUE FROM MEDICARE: Prior to the implementation of PPS on October 1, 2000, the Company recorded Medicare revenues at the lower of actual costs, the per visit cost limit, or a per beneficiary cost limit on a individual provider basis. Under the previous Medicare cost-based reimbursement system, ultimate reimbursement under the Medicare program was determined upon review of the annual cost reports. As of December 31, 2001, the Company estimates an aggregate payable to Medicare of $14.2 million, of which $13.2 is netted against accounts receivable and $1.0 is reflected in the accompanying balance sheet as a long-term Medicare liability. For the cost report year ended December 31, 2000, the Company has aggregate overpayments of $8.1 million offset by aggregate underpayments of $1.7 million. The aggregate overpayments of $8.1 million are primarily attributed to a provision in BIPA whereby the Company was eligible to receive a one-time payment equal to two months of periodic interim payments equaling $7.4 million. For the cost report years ended 1999 and prior, the Company has an estimated payable of $7.8 million. Of the $7.8 million, $3.1 is related to a bankrupt subsidiary, $3.7 million is due within one year, and $1.0 million is due in excess of one year. The Company derived 88%, 90%, and 90% of its revenues from continuing operations from the Medicare system for the years ended December 31, 2001, 2000, and 1999, respectively. 14. UNAUDITED SUMMARIZED QUARTERLY FINANCIAL INFORMATION:
INCOME (LOSS) BEFORE DISCONTINUED NET INCOME OPERATIONS AND (LOSS) PER SHARE EXTRAORDINARY NET INCOME ----------------- REVENUES ITEM (LOSS) BASIC DILUTED -------- -------------- ---------- ------ -------- 2001: 1st Quarter............................... $ 22,171 $ (409) $ (616) (0.11) (0.11) 2nd Quarter............................... 27,198 1,180 1,258 0.22 0.16 3rd Quarter............................... 29,672 1,979 2,579 0.44 0.33 4th Quarter............................... 31,133 2,326 2,165 0.33 0.26 -------- ------- ------- 110,174 5,076 5,386 0.90 0.68 ======== ======= ======= 2000: 1st Quarter............................... 23,418 (1,362) (1,292) (0.40) (0.40) 2nd Quarter............................... 23,270 (1,372) (1,334) (0.35) (0.35) 3rd Quarter............................... 22,091 (1,469) (760) (0.15) (0.15) 4th Quarter............................... 19,376 1,517 7,156 1.35 1.35 -------- ------- ------- 88,155 (2,686) 3,770 0.87 0.87 ======== ======= ======= 1999: 1st Quarter............................... 25,057 (1,621) (2,498) (0.81) (0.81) 2nd Quarter............................... 24,642 (1,444) (1,455) (0.47) (0.47) 3rd Quarter............................... 24,170 58 6,168 1.98 1.98 4th Quarter............................... 23,542 (1,074) (915) (0.29) (0.29) -------- ------- ------- 97,411 (4,081) 1,300 0.42 0.42 ======== ======= =======
52 EXHIBIT INDEX
EXHIBIT NO. IDENTIFICATION OF EXHIBIT ------- ------------------------- 3.1(i)(4) -- Certificate of Incorporation 3.1(ii)(4) -- Certificate of Designation for the Series A Preferred Stock 3.1(iii)(14) -- Certificate of Amendment of Certificate of Designation Specimen 3.4(iv)(14) -- Series A Preferred Stock Conversion Agreement Specimen 3.2(4) -- Bylaws 4.2(7) -- Common Stock Specimen 4.3(7) -- Preferred Stock Specimen 4.4(7) -- Form of Placement Agent's Warrant Agreement 4.5(14) -- Certificate of Amendment of Certificate of Designation Specimen 4.6(14) -- Series A Preferred Stock Conversion Agreement Specimen 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 10.6(11) -- Master Corporate Guaranty of Service Agreements between CareSouth Home Health Services, Inc. and Amedisys, Inc. dated November 2, 1998 10.7(16) -- Loan Modification Agreement by and between Amedisys, Inc. and Columbia/HCA Healthcare Corporation 10.8(20) -- Employment Agreement between Amedisys, Inc. and William F. Borne 10.9(20) -- Employment Agreement between Amedisys, Inc. and Larry Graham 10.10(20) -- Amendment to Employment Agreement by and between Amedisys, Inc. and Larry Graham 10.11(20) -- Employment Agreement between Amedisys, Inc. and John Joffrion 10.12(23) -- Employment Agreement between Amedisys, Inc. and John Nugent 10.13(23) -- Loan Agreement by and among Amedisys, Inc. and John Nugent 10.14(21) -- Director's Stock Option Plan 10.15(22) -- Modification Agreement by and between CareSouth Home Health Services, Inc. and Amedisys, Inc. 10.16(22) -- Software License Agreement by and between CareSouth Home Health Services, Inc. and Amedisys, Inc. 18.1(12) -- Letter regarding Change in Accounting Principles 21.1(7) -- List of Subsidiaries 99(23) -- Letter of Andersen Representation
- --------------- (1) Previously filed as an exhibit to the Current Report on Form 8-K dated December 20, 1993. (2) Previously filed as an exhibit to the Current Report on Form 8-K dated February 14, 1994. (3) Previously filed as an exhibit to the Current Report on Form 8-K dated August 11, 1994. (4) Previously filed as an exhibit to the Annual Report on Form 10-KSB for the year ended December 31, 1994. (5) Previously filed as an exhibit to the Current Report on Form 8-K dated June 30, 1995. (6) Previously filed as an exhibit to the Registration Statement on Form S-1 (333-8329) dated July 18, 1996. (7) Previously filed as an exhibit to the Registration Statement on Form S-3 dated March 11, 1998. (8) Previously filed as an exhibit to the Quarterly Report on Form 10-Q dated August 14, 1998. (9) Previously filed as an exhibit to the Current Report on Form 8-K dated October 5, 1998. (10) Previously filed as an exhibit to the Current Report on Form 8-K dated November 10, 1998. (11) Previously filed as an exhibit to the Quarterly Report on Form 10-Q dated December 30, 1998. (12) Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1997. (13) Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1998. (14) Previously filed as an exhibit to the Quarterly Report on Form 10-Q/A for the period ended June 30, 1999. (15) Previously filed as an exhibit to the Current Report on Form 8-K dated September 15, 1999. (16) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended September 30, 1999. (17) Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 1999. (18) Previously filed as an exhibit to the Current Report on Form 8-K dated May 11, 2000. (19) Previously filed as an exhibit to the Current Report on Form 8-K dated August 23, 2000. (20) Previously filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2000. (21) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended March 31, 2001. (22) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the period ended September 30, 2001. (23) Filed herewith. EX-10.12 3 d95025ex10-12.txt EMPLOYMENT AGREEMENT WITH JOHN NUGENT EXHIBIT 10.12 EMPLOYMENT AGREEMENT BETWEEN AMEDISYS, INC. AND JOHN NUGENT October 1, 2001 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") entered into as of the 1st day of October, 2001, and continuing for an indefinite duration, by and between AMEDISYS, INC., a Delaware corporation (the "Company") and JOHN NUGENT ("NUGENT"). RECITALS: A. The Company owns, manages and/or operates agencies and facilities for the provision of home health care services (the "Business"). B. NUGENT is employed by the Company as the Chief Development Officer; NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties agree as follows: 1. RECITATIONS. The above recitations are incorporated herein by this reference. 2. PERFORMANCE OF DUTIES. NUGENT shall perform such duties as are usually performed by the Chief Development Officer of health care companies of a business similar in size and scope as the Company and such other reasonable additional duties as may be prescribed from time to time by the Company's Chief Executive Officer which are reasonable and consistent with the expectations of the Company and the Company's operations, taking into account NUGENT's expertise and job responsibilities, including but not limited to, adherence to internal compliance and governmental and regulatory rules, regulations and applicable laws. NUGENT shall report directly to the Chief Executive Officer of the Company or his designee. 2.1 Devotion of Time. NUGENT agrees to devote full time and attention to the business and affairs of the Company to the extent necessary to discharge the responsibilities assigned to NUGENT and to use reasonable best efforts to perform faithfully and efficiently such responsibilities. 3. TERMINATION OF EMPLOYMENT. 3.1 Termination of Employment by the Company for Cause. The Company may terminate NUGENT's employment for Cause, as defined herein, without any obligation of severance payments to NUGENT. Cause shall be defined as follows: (a) a material default or breach by NUGENT of any of the provisions of this Agreement materially detrimental to the Company which is not cured within thirty (30) days following written notice thereof; (b) actions by NUGENT constituting fraud, embezzlement or dishonesty which result in a conviction of a criminal offense not overturned on appeal; (c) intentionally furnishing materially false, misleading, or omissive information to the Company's Chief Executive Officer, Board of Directors or any committee of the Board of Directors, that is materially detrimental to the Company; (d) actions constituting a breach of the confidentiality of the Business and/or trade secrets of the Company which is materially detrimental to the Company; and -2- (e) willful failure to follow reasonable and lawful directives of the Company's Chief Executive Officer or Board of Directors, which are consistent with NUGENT's job responsibilities and performance which is not cured within thirty (30) days following written notice thereof. 3.2 Termination Without Cause. The Company shall have the right to terminate NUGENT' employment without Cause, at any time and subject to the sole discretion of the Company. In such event, NUGENT will cease to have any power of his position as of the effective date of the termination. 3.3 Termination by NUGENT. NUGENT may terminate his employment upon thirty (30) days written notice to the Company. Such notice shall set forth in sufficient detail for the Company to understand the nature of the facts underlying said termination. 3.4 Change of Control. Upon the occurrence of a "Change of Control," if such occurs prior to NUGENT's receiving a notice of termination by the Company for Cause, NUGENT shall be entitled to the Severance described herein. "Change of Control" is defined as the following: (a) The acquisition by any person, entity or "group" within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty-one (51%) percent or more of either the then outstanding shares of the Company's common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; provided however, purchase by underwriters in a firm commitment public offering of the Company's securities or any securities purchased for investment only by professional investors shall not constitute a Change of Control; and (b) The individuals who serve on the Company's Board of Directors as of the effective date of this Agreement (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, any person who becomes a director subsequent to the effective date of this Agreement, whose election or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then compiling the Incumbent Board, shall for purposes of this Agreement be considered as if such person was a member of the Incumbent Board. 4. COMPENSATION. 4.1 Salary. Company shall pay to NUGENT a base salary at the annual rate of $175,000 (the "Base Salary"). Notwithstanding anything herein to the contrary, the Company shall have the sole discretion at any time and from time to time to increase the Base Salary. Base Salary shall be payable in installments consistent with the Company's normal payroll schedule, in effect from time to time, subject to applicable withholding and other taxes. 4.2 Base Salary Increases. Commencing October 1, 2002, NUGENT's Base Salary shall be automatically increased on February 1 of each year during the term hereof by the greater of (i) six (6%) percent, or (ii) $12,000.00. Notwithstanding anything herein to the contrary, the Chief Executive Officer may grant a Base Salary Increase in excess of the amount stipulated to within this Section 4.2. 4.3 Bonus. At the end of each fiscal year of employment, the Company shall pay NUGENT a bonus up to $87,500, payable in terms which shall be at the Company's discretion, and only if the Company attains or exceeds the operating income (loss) as presented in the budget approved by the Company's Board of Directors for that fiscal year, and if certain performance based criteria which shall, from time to time, be determined by the Company and made known to NUGENT are met. Notwithstanding anything herein to the contrary, the Chief Executive Officer may pay a bonus in excess of the amount earned -3- pursuant to this Section 4.3. Any bonus payments due hereunder are subject to set-off pursuant to that certain Loan Agreement by and between the Company and Nugent of even date herewith. 4.4 Stock Options. Upon execution of this Agreement, Nugent shall be granted options to purchase 25,000 shares of the Company's common stock, said grant date to be October 1, 2001. On October 1, 2003, and on October 1 of each following year during the term hereof, the Company shall cause to be granted to NUGENT, pursuant to a stock option plan duly adopted by the Company or otherwise, options to purchase such number of shares of the Company's common stock equal to the greater of (i) seventy five one-hundredths (.75%) percent of the number of shares of Company common stock issued by the Company during the preceding fiscal year; or (ii) 12,500 shares. Notwithstanding anything herein to the contrary, NUGENT shall not be entitled to the grant of options during any time in which NUGENT is receiving severance payments from the Company, as outlined below. Notwithstanding anything herein to the contrary, the Chief Executive Officer may recommend that the Board of Directors of the Company grant options in excess of the amount stipulated to in this Section 4.4. 4.5 Severance Compensation. Should NUGENT be terminated without Cause, as defined herein, or should a Change of Control, as defined herein, occur during NUGENT's employment with Company, NUGENT shall be entitled to severance compensation in an amount equal to eighteen (18) months of NUGENT's Base Salary at the time of such termination without cause or Change of Control, payable at the discretion of the Company, but at a minimum, payable by the Company via regularly scheduled payroll distributions until the entire severance amount due NUGENT is paid in full. Severance compensation is subject to set-off pursuant to that certain Loan Agreement by and between the Company and Nugent of even date herewith. 4.6 Additional Benefits. (a) Vacation. NUGENT shall be entitled to the maximum amount of paid time off for Company employees stipulated by the Company PTO policy during each calender year of his employment with the Company. In addition, NUGENT shall be entitled to paid time off for the same holidays as other employees of the Company as established by the Company's Board of Directors. (b) Reimbursement of Expenses. NUGENT is authorized to incur reasonable traveling and other expenses in connection with the Business and in performance of his duties under this Agreement. NUGENT shall be reimbursed by the Company for all Business expenses which are reasonably incurred by NUGENT. All reimbursable travel expenses shall be in accordance with mutually agreeable and reasonable policy. (c) Participation in Employee Benefit Plans. NUGENT shall be entitled to participate, subject to eligibility and other terms generally established by the Company's Board of Directors, in any employee benefit plan (including but not limited to life insurance plans, long-and short-term disability, stock option plans, group hospitalization, health, dental care plans, (which health insurance plans shall also cover NUGENT's dependents) profit sharing and pension, and other benefit plans), as may be adopted or amended by the Company from time to time. 5. REPRESENTATION BY NUGENT. NUGENT hereby represents to the Company that he is physically and mentally capable of performing his duties hereunder and he has no knowledge of present or past physical or mental conditions which would cause him not to be able to perform his duties hereunder. -4- 6. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION. 6.1 Confidentiality. NUGENT shall not, during his employment with the Company or any time thereafter, divulge, furnish or make accessible to anyone, without the Company's prior written consent, any knowledge or information with respect to any confidential or secret aspect of the Business which if disclosed could reasonably be expected to have a material adverse effect on the Business ("Confidential Information"). 6.2 Ownership of Information. NUGENT recognizes that all Confidential Information and copies or reproductions thereof, relating to the Company's operations and activities made or received by NUGENT in the course of his employment are the exclusive property of the Company, as the case may be, and NUGENT holds and uses same as trustee for the Company and subject to the Company's sole control and will deliver same to the Company at the termination of his employment, or earlier if so requested by the Company in writing. All of such Confidential Information, which if lost or used by NUGENT outside the scope of his employment, could cause irreparable and continuing injury to the Company's Business for which there may not be an adequate remedy at law. NUGENT acknowledges that compliance with the provisions of this Section 6 is necessary to protect the goodwill and other proprietary interests of the Company and is a material condition of employment. 7. RESTRICTIVE COVENANT. As an inducement to cause the Company to enter into this Agreement, and in consideration of the Severance obligation of Company herein, NUGENT covenants and agrees that during his employment and, for a period of eighteen (18) months after he ceases to be employed by Company, regardless of the manner or cause of termination: 7.1 Solicitation of Business. He will not initiate any contact with, call upon, solicit Business from, sell or render services to any client or patient of the Company or any Company affiliate, within any area which the Company conducts business, a list of which is included in Schedule 7.1, which is attached hereto and incorporated herein ("Restricted Area"), for or on behalf of himself or any business, firm, proprietorship, corporation, partnership, association, entity or venture primarily engaged in the business of providing home health, alternate site infusion therapy or ambulatory surgery services, which is a similar business as the Business ("Competing Business"), and NUGENT shall not directly or indirectly aid or assist any other person, firm or corporation to do any of the aforesaid acts. 7.2 Solicitation of Employees. He will not directly or indirectly, as principal, agent, owner, partner, stockholder, officer, director, employee, independent contractor or consultant of any competing Business, or in any individual or representative capacity hire, solicit, directly or indirectly cause others to hire, or solicit the employment of, any officer, sales person, agent, or other employee of the Company or any Company affiliate, for the purpose of causing said officer, sales person, agent or other person to terminate employment with the Company or any Company affiliate and be employed by such competing Business. 7.3 Employment. He will not accept or engage employment with, or consult, contract or otherwise provide services to, any Competing Business operating within the Restricted Area. 7.4 Material Violation. A proven material violation of this Section 7 shall constitute a material and substantial breach of this Agreement and shall result in the imposition of the Company's remedies contained in Section 8 herein. NUGENT acknowledges and agrees that proof of such personal solicitation by NUGENT of an employee shall constitute absolute and conclusive evidence that NUGENT has substantially and materially breached the provisions of this Agreement. 7.5 Other Employment. It is understood by and between the parties that the foregoing covenants set forth in Sections 6 and 7 are essential elements of this Agreement, and that but for -5- the Agreement of NUGENT to comply with such covenants, the Company would not have entered into this Agreement. Such covenants by NUGENT shall be construed as agreements independent of any other provision of this Agreement and the existence of any claim or cause of action NUGENT may have against the Company whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of these covenants. 7.6 Defaults and Deferred Compensation. (a) NUGENT Breach. If NUGENT breaches any requirement of Section 7 herein, in addition to any other remedy to which the Company may be entitled, NUGENT shall return to the Company any Severance already paid to NUGENT at the time of said breach, and all of NUGENT's rights to receive any portion of his Severance not already paid to him shall terminate. The right to receive unpaid Severance will not be reinstated notwithstanding any cessation by NUGENT of his breach of Section 7. 7.7 Discontinued Operations. Notwithstanding anything in this Section 7 to the contrary, this Section 7 shall not apply to any of the Company's product or service divisions which at the time of NUGENT's employment termination was considered by the Company to be a discontinued operation. 8. REMEDIES. NUGENT hereby acknowledges, covenants and agrees that in the event of a material default or breach under this Agreement, in addition to any other remedy set forth herein: 8.1 Company may suffer irreparable and continuing damages as a result of such breach and its remedy at law will be inadequate. NUGENT agrees that in the event of a violation or breach of this Agreement, in addition to any other remedies available to it, Company shall be entitled to an injunction restraining any such default or any other appropriate decree of specific performance, with the requirement to prove actual damages or to post any bond or any other security and to any other equitable relief the court deems proper; and 8.2 Any and all of Company's remedies described in this Agreement shall not be exclusive and shall be in addition to any other remedies which Company may have at law or in equity including, but not limited to, the right to monetary damages. 9. SEVERABILITY. The invalidity of any one or more of the words, phrases, sentences, clauses, sections, subdivisions, or subparagraphs contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being legally valid. 10. SUCCESSORS AND ASSIGNS. 10.1 Successors. This Agreement shall be binding upon the parties hereto and their successors and assigns. For purposes of this Agreement, the term "successor" of Company shall include any person or entity, whether direct or indirect, whether by purchase, merger, consolidation, operation of law, assignment, or otherwise acquires or controls: (i) all or substantially all of the assets of Company (ii) fifty- one percent (51%) or more of the total voting capital stock, and was not affiliated with or in common control of Company as of the date of this Agreement; or (iii) any other Business combination with or without the consent of Company's shareholders. 10.2 Assignment. This Agreement shall be non-assignable by either Company or NUGENT without the written consent of the other party, it being understood that the obligations and performance of this Agreement are personal in nature. -6- 11. MISCELLANEOUS. 11.1 Amendment. No amendment, waiver or modification of this Agreement or any provisions of this Agreement shall be valid unless in writing and duly executed by both parties. 11.2 Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors and assigns. 11.3 Waiver. Any waiver by any party of any breach of any provision of this Agreement shall not be considered as or constitute a continuing waiver or waiver of any other breach of any provision of this Agreement. 11.4 Captions. Captions contained in this Agreement are inserted only as a matter of convenience or for reference and in no way define, limit, extend, or describe the scope of this Agreement or the intent of any provisions of this Agreement. 11.5 Attorneys' Fees. In the event of any litigation arising out of this Agreement the prevailing party shall be entitled to recover from the other party its attorneys' fees and costs, including attorneys' fees and costs incurred on appeal. 11.6 Prior Agreements. This Agreement supersedes and replaces all prior agreements between the parties hereto dealing with the subject matter hereof. 11.7 Governing Law. This Agreement shall be governed by the laws of Louisiana. 11.8 Execution. It is the intention of the parties hereto that this Agreement will not be valid and binding upon the parties hereto until such time as this Agreement is executed by both parties in accordance herewith. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. AMEDISYS, INC. By: --------------------------------- WILLIAM F. BORNE, CEO ------------------------------------ JOHN NUGENT -7- EX-10.13 4 d95025ex10-13.txt LOAN AGREEMENT WITH JOHN NUGENT EXHIBIT 10.13 LOAN AGREEMENT This Loan Agreement ("Loan Agreement") is made and entered into as of this 1st day of October, 2001, by and among AMEDISYS, INC., a Delaware corporation (the "Lender") and JOHN NUGENT, an individual of the full age of majority (referred to herein as the "Borrower"). WITNESSETH WHEREAS, the Borrower and the Lender have entered into that certain Promissory Note dated as of even date herewith whereby the Lender agreed to loan to the Borrower and the Borrower agreed to pay the Lender the principal sum not to exceed ONE HUNDRED TWO THOUSAND AND 00/100 DOLLARS ($102,000.00) pursuant to the terms and provisions specified herein (the "Note"); WHEREAS, in order to induce the Lender to enter into this Loan Agreement and as security for the performance of the Borrower's obligations under the Note, the Borrower has agreed to grant to Lender a security interest in certain Collateral (as defined below). NOW, THEREFORE, in order to secure performance of the Borrower's obligations under the Note, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: 1. RECITALS. The recitals set forth above are hereby incorporated as terms and provisions hereof. 2. LOAN. The Lender hereby agrees to loan to the Borrower the principal amount not to exceed ONE HUNDRED TWO THOUSAND AND 00/100 DOLLARS ($102,000.00), payable as follows: a) $4,200.00 per month commencing October 1, 2001 and continuing payments on the 1st day of each month through July 1, 2002; and b) $5,000.00 per month commencing August 1, 2002 and continuing payments on the 1st day of each month through July 1, 2003. 3. INTEREST. The interest rate for outstanding loan balances shall be SIX PERCENT (6%) per annum. Interest on the Note shall be computed on the basis of a 360-day year and actual days elapsed. 4. INSTALLMENTS. Interest and principal payments shall be made pursuant to the terms of the Note. 5. PAYMENT. Borrower shall pay Lender, in lawful money of the United States of America to such account as may be specified by Lender from time to time. 6. PREPAYMENT. The Borrower shall have the right to prepay the principal balance outstanding in whole or in part. 7. GRANT OF A SECURITY INTEREST. The Borrower hereby grants a security interest to the Lender, and its successors and assigns, in, to and under the following, which shall sometimes be collectively referred to herein as the "Collateral"; (a) all monies due borrower as bonus payments pursuant to that certain Employment Agreement by and between Borrower and Purchaser of even date herewith. (b) all monies due borrower as severance payments pursuant to that certain Employment Agreement by and between Borrower and Purchaser of even date herewith. It is the intention of the parties hereto that this Loan Agreement shall constitute a security agreement under the Uniform Commercial Code and any other applicable law and the Lender shall have the rights and remedies of a secured party thereunder. The Borrower further agrees to deliver any financing statement or additional document the Lender may reasonably request to perfect or evidence the Lender's security interest granted herein. 13. FURTHER ASSURANCES. Borrower covenants to execute such other assignments, security agreements, financing statements, and other documents that Lender may deem necessary to further evidence the obligations provided for herein or to perfect, extend, or clarify Lender's rights in the Collateral. 14. LEGAL AND BINDING AGREEMENT. Borrower warrants that the execution and performance of this Loan Agreement will not violate any judicial or administrative order or governmental law or regulation, and that this Loan Agreement is valid, binding and enforceable against the Borrower in every respect according to its terms. 15. DEFAULT DEFINED. The occurrence of any one or more of the following events shall constitute a default under this Loan Agreement if not cured within ten (10) business days following receipt of written notice thereof: a. Monetary Default. The failure of the Borrower to timely pay to the Lender any amount due hereunder following any applicable notice to Borrower as set forth in the Note. b. Breach of Warranty/Covenant. The failure of the Borrower to materially perform or observe any obligation, covenant, agreement, representation or warranty contained herein. c. Dissolution/Cessation of Business. The cessation of the Borrower's employment with Lender, Borrower's liquidation or the taking of any action by Borrower to further a liquidation, including the filing by the Borrower of a Chapter 7 or Chapter 13 petition under the Bankruptcy Code. Except as set forth herein, the Borrower waives presentment, demand and protest and the right to assert any statute of limitations. 16. REMEDIES UPON DEFAULT. Upon default hereunder, Lender shall give written notice thereof to the Borrower and, if such default is not cured within ten (10) business days of such notice, Lender may pursue any or all of the following remedies, without any further notice to Borrower, except as required below: a. Acceleration. Lender may declare the entire amount of the Loan then outstanding due and payable at once. b. Recovery of Proceeds of the Collateral. Lender may recover any or all proceeds of the Collateral from any bank, court or other custodian who may have possession thereof. Borrower hereby authorizes and directs all custodians of Borrower's assets to comply with any demand for payment made by Lender pursuant to this Loan agreement, without the need of prior approval or confirmation from Borrower and without making any inquiry as to the existence of a default hereunder or any other matter. Lender may engage a collection agent to collect the proceeds of the Collateral for a reasonable percentage commission or on any other reasonable compensation arrangement. c. Enforcement of Rights of Collection. Lender may, but shall not be obligated to, take such measures as Lender may deem necessary in order to collect or otherwise liquidate the Collateral. Without limiting the foregoing, Lender may institute or continue any administrative or judicial action that it may deem necessary in the course of collecting and enforcing any or all of the Lender's rights in or under the Collateral. Any administrative or judicial action or other action taken by Lender in the course of collecting the proceeds of the Collateral may be taken by Lender in its own name or in Borrower's name. Lender may compromise or settle any disputed claims, which compromises or settlements shall be binding upon Borrower. Lender shall have no duty to pursue collection of the proceeds of the Collateral, and may abandon efforts to collect the proceeds of the Collateral after such efforts are initiated. d. Other Remedies. Lender may exercise any right that it may have under any other document evidencing, securing or guaranteeing the Loan or otherwise available to Lender at law or equity. e. Attorney-in-Fact. Borrower hereby irrevocably appoints Lender as Borrower's attorney-in-fact to (i) execute appropriate Form(s) UCC-1 in connection herewith and (ii) attach appropriate Exhibit(s) to the Form(s) UCC-1 executed in connection herewith or any other UCC forms executed in connection with the transactions contemplated herein. This power shall be deemed to be a power coupled with an interest and is irrevocable. f. Application of Proceeds. All amounts received by Lender for Borrower's account by exercise of its remedies hereunder shall be applied as follows: First, to the payment of all expenses incurred by Lender in exercising its rights hereunder, including attorney's fees, and any other expenses due Lender from Borrower; Second, to the payment of all interest, if any, in such order as Lender may elect; Third, to the payment of all principal, in such order as Lender may elect; and, Fourth, any excess to Borrower or any other party entitled thereto. 17. NO THIRD PARTY BENEFICIARIES. This Loan Agreement has been executed for the sole benefit of Lender and its assignees, and no other third party is authorized to rely upon Lender's rights hereunder or to rely upon an assumption that Lender has or will exercise its rights under this Loan Agreement or under any document referred to herein. 19. NOTICES. Any communication concerning this Agreement shall be addressed as follows: As To Lender: Amedisys, Inc. 11100 Mead Road Suite 300 Baton Rouge, LA 70816 Attention: John Joffrion As To Borrower: John Nugent 3846 S. Lakeshore Dr. Baton Rouge, LA 70808 20. INDULGENCE NOT WAIVER. Lender's indulgence in the existence of a default hereunder or any other departure from the terms of this Loan Agreement shall not prejudice Lender's rights to declare a default or otherwise demand strict compliance with this Loan Agreement. 21. CUMULATIVE REMEDIES. The remedies provided Lender in this Loan Agreement are not exclusive of any other remedies that may be available to Lender under any other document or at law or equity. 22. TERM; REINSTATEMENT. The security interest granted herein shall continue until all amounts due and owing hereunder and all amounts included in the secured indebtedness and secured hereby have been irrevocably paid in full. If, after receipt of payment of all or any part of the Loan, Lender is for any reason required to surrender such payment to any person because such payment is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference or diversion of trust funds, or for any other reason, then the Loan or part thereof intended to be satisfied shall be revived and this Loan Agreement and the security interest shall continue in full force as if such payment had not been made, and Borrower shall be liable to Lender, and hereby indemnifies Lender against and hold Lender harmless from, the amount of such surrendered payment. These provisions shall remain effective notwithstanding any contrary action taken by Lender in reliance on such payment which such action shall be deemed to have been conditioned on such payment having become final an irrevocable. The provisions of this Loan Agreement are irrevocable. Upon final and irrevocable payment of the Loan and all amounts included in the secured indebtedness and performance of all of Borrower's obligations hereunder, all filings under the Uniform Commercial Code will be terminated within a reasonable time and the provisions of this Loan Agreement shall terminate. 23. AMENDMENT AND WAIVER IN WRITING. No provision of this Loan Agreement can be amended or waived, except by a statement in writing signed by all parties hereto. 24. HEADINGS. The headings and captions herein are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Loan Agreement or the intent of any provision thereof. 25. COUNTERPARTS. This Loan Agreement may be executed in one or more counterparts all of which together shall constitute a binding and enforceable agreement with respect to each party. Signatures received via facsimile shall be binding on the parties hereto. 26. BINDING EFFECT; ASSIGNABILITY. This Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The Borrower may not assign any of his rights and obligations hereunder or any interest herein without the prior written consent of the Lender. The Lender may, at any time, without the consent of the Borrower, assign any of its rights and obligations hereunder or interests herein to any affiliate of the Lender. 27. SEVERABILITY. The invalidity of any provision or provisions of this Loan Agreement shall not affect the other provisions, and this Loan Agreement shall be construed in all respects as if any invalid provisions were omitted. 28. GOVERNING LAW. This Agreement shall governed by and construed in accordance with the laws of the State of Louisiana. IN WITNESS HEREOF, this Loan Agreement has been duly executed as of the date first above written. AMEDISYS, INC. By: ------------------------------- ------------------------------- William F. Borne, CEO JOHN NUGENT, BORROWER EX-99 5 d95025ex99.txt LETTER OF ARTHUR ANDERSEN REPRESENTATION EXHIBIT 99 LETTER OF ARTHUR ANDERSEN REPRESENTATION To the Securities and Exchange Commission: The Company has received a letter from Arthur Andersen, dated March 21, 2002, representing that the audit was subject to their quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, that there was appropriate continuity of Arthur Andersen personnel working on the audit and availability of national office consultation. The letter also noted that availability of personnel at foreign affiliates of Arthur Andersen was not relevant to the Company's audit. By: /s/ William F. Borne ----------------------------- William F. Borne Chief Executive Officer and Chairman of the Board Baton Rouge, Louisiana March 21, 2002 -----END PRIVACY-ENHANCED MESSAGE-----