UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): February 1, 2019
Commission File Number: 0-24260
AMEDISYS, INC.
(Exact Name of Registrant as specified in its Charter)
Delaware | 11-3131700 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3854 American Way, Suite A, Baton Rouge, LA 70816
(Address of principal executive offices, including zip code)
(225) 292-2031 or (800) 467-2662
(Registrants telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
SECTION 2 FINANCIAL INFORMATION
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
As reported in the Current Report on Form 8-K filed by Amedisys, Inc. (we, us, our or the Company) on February 4, 2019, the Company completed the acquisition of Compassionate Care Hospice Group, Inc. (CCH) on February 1, 2019.
This Current Report on Form 8-K/A is being filed as an amendment (Amendment No. 1) to the Current Report on Form 8-K filed by the Company on February 4, 2019. This Amendment No. 1 is being filed solely to provide the historical financial statements of CCH and unaudited pro forma information described in Item 9.01 below.
SECTION 9 FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired
The audited consolidated and combined financial statements of Compassionate Care Hospice Group, Inc. and Subsidiaries and Affiliates as of and for the years ended December 31, 2017 and 2016 and the unaudited interim condensed consolidated and combined financial statements as of September 30, 2018 and for the nine-month periods ended September 30, 2018 and 2017, are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and are included herein.
(b) Pro forma financial information
The unaudited pro forma consolidated and combined financial information as of and for the year ended December 31, 2018 is attached hereto as Exhibit 99.3.
(d) Exhibits
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
AMEDISYS, INC.
(Registrant)
By: | /s/ Scott G. Ginn | |
Scott G. Ginn | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
DATE: April 17, 2019
Exhibit 23.1
Consent of Independent Auditor
Amedisys, Inc.
Baton Rouge, LA
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-138255 and 333-145582) and Form S-8 (Nos. 333-60525, 333-51704, 333-53786, 333-143967, 333-152359, 333-182347, 333-205267 and 333-225461) of Amedisys, Inc. of our report dated April 16, 2019, relating to the consolidated and combined financial statements and supplementary information, which appear in this Form 8-K/A.
/s/ BDO USA, LLP
New York, NY
April 16, 2019
Exhibit 99.1
COMPASSIONATE CARE HOSPICE GROUP, INC.
AND SUBSIDIARIES AND AFFILIATES
Consolidated and Combined Financial Statements
and Supplementary Information
Years Ended December 31, 2017 and 2016
COMPASSIONATE CARE HOSPICE GROUP, INC.
AND SUBSIDIARIES AND AFFILIATES
Contents
Independent Auditors Report |
3-4 | |||
Consolidated and Combined Financial Statements |
||||
Balance Sheets as of December 31, 2017 and 2016 |
5 | |||
Statements of Income for the Years Ended December 31, 2017 and 2016 |
6 | |||
Statements of Stockholders Equity for the Years Ended December 31, 2017 and 2016 |
7 | |||
Statements of Cash Flows for the Years Ended December 31, 2017 and 2016 |
8 | |||
Notes to Financial Statements |
9-18 | |||
Supplementary Information |
||||
Combining Balance Sheet Schedule as of December 31, 2017 |
19 | |||
Combining Schedule of Income as of December 31, 2017 |
20 |
2
Independent Auditors Report
The Board of Directors
Compassionate Care Hospice Group, Inc.
and Subsidiaries and Affiliates
Parsippany, New Jersey
We have audited the accompanying consolidated and combined financial statements of Compassionate Care Hospice Group, Inc. and Subsidiaries and Affiliates (collectively referred to as the Company), which comprise the consolidated and combined balance sheets as of December 31, 2017 and 2016, and the related consolidated and combined statements of income, stockholders equity and cash flows for the years then ended, and the related notes to the consolidated and combined financial statements.
Managements Responsibility for the Consolidated and Combined Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated and combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated and combined financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated and combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated and combined financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and combined financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated and combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated and combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and combined financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of Compassionate Care Hospice Group, Inc. and Subsidiaries and Affiliates as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter Regarding Restatement
As discussed in Note 3, the accompanying consolidated and combined financial statements have been restated as of December 31, 2017 and 2016 and for each of the years then ended. Our opinion is not modified with respect to this matter.
Other Matter
Report on Supplementary Information
3
Our audit was conducted for the purpose of forming an opinion on the consolidated and combined financial statements as a whole. The accompanying combining balance sheet schedule and combining schedule of income for the year ended December 31, 2017 are presented for purposes of additional analysis and are not a required part of the basic consolidated and combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated and combined financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated and combined financial statements, and subjected to certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic consolidated and combined financial statements, and to the basic consolidated and combined financial statements themselves, and other additional procedures, in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the consolidated and combined financial statements as a whole.
/s/ BDO USA, LLP
August 31, 2018, except for the revisions described in the reissuance of consolidated and combined financial statement in Note 3, as to which the date is April 16, 2019
4
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
CONSOLIDATED AND COMBINED BALANCE SHEETS
December 31, |
2017 (Restated) |
2016 (Restated) |
||||||
Assets |
||||||||
Current |
||||||||
Cash and cash equivalents |
$ | 24,015,044 | $ | 6,481,124 | ||||
Patient accounts receivable, less estimated allowance for uncollectible accounts of $33,990,617 and $23,732,049, respectively |
38,016,265 | 37,154,135 | ||||||
Prepaid expenses and other current assets |
2,108,286 | 867,949 | ||||||
|
|
|
|
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Total Current Assets |
64,139,595 | 44,503,208 | ||||||
Property and Equipment, Net |
219,959 | 84,300 | ||||||
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|
|
|
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Total Assets |
$ | 64,359,554 | $ | 44,587,508 | ||||
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|
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Liabilities and Stockholders Equity |
||||||||
Liabilities |
||||||||
Accounts payable and accrued expenses |
$ | 11,740,711 | $ | 12,786,325 | ||||
Accrued salaries, benefits and other payroll liabilities |
4,500,455 | 4,462,911 | ||||||
Self-insured liability |
768,000 | 704,000 | ||||||
Deferred tax liability |
404,252 | 183,333 | ||||||
Income tax payable |
743,935 | 189,416 | ||||||
Due to third-party payors |
11,940,323 | 13,966,463 | ||||||
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|
|
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Total Liabilities |
30,097,676 | 32,292,448 | ||||||
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|
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Commitments and Contingencies (Note 8) |
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Stockholders Equity |
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Common Stock: |
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Class A, no par value; 100 shares authorized; 100 shares issued and outstanding |
100 | 100 | ||||||
Class B, no par value; 900 shares authorized; 900 shares issued and outstanding |
900 | 900 | ||||||
Retained earnings |
37,352,669 | 15,965,713 | ||||||
Noncontrolling Interest in Affiliates |
(3,091,791 | ) | (3,671,653 | ) | ||||
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|
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Total Stockholders Equity and Noncontrolling Interest |
34,261,878 | 12,295,060 | ||||||
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|
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Total Liabilities, Stockholders Equity and Noncontrolling Interest |
$ | 64,359,554 | $ | 44,587,508 | ||||
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|
|
See accompanying notes to consolidated and combined financial statements.
5
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
Year ended December 31, |
2017 (Restated) |
2016 (Restated) |
||||||
Operating Revenue |
||||||||
Net patient service revenue |
$ | 204,181,571 | $ | 186,168,825 | ||||
Less: provision for uncollectibles, net |
(2,140,452 | ) | (1,996,901 | ) | ||||
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|
|
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Total Operating Revenue |
202,041,119 | 184,171,924 | ||||||
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|
|
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Expenses |
||||||||
General and administrative |
27,681,152 | 25,679,903 | ||||||
Salaries and wages |
114,342,577 | 109,573,127 | ||||||
Supplies and other expenses |
30,650,997 | 29,824,881 | ||||||
Rent expense |
3,347,605 | 3,264,804 | ||||||
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|
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Total Expenses |
176,022,331 | 168,342,715 | ||||||
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Total Operating Income |
26,018,788 | 15,829,209 | ||||||
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Non-Operating Expenses |
||||||||
Depreciation and amortization |
(52,986 | ) | (18,147 | ) | ||||
Interest expense |
(152,781 | ) | (194,688 | ) | ||||
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|
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Total Non-Operating Expense |
(205,767 | ) | (212,835 | ) | ||||
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Income Before Taxes |
25,813,021 | 15,616,374 | ||||||
Income tax expense |
(775,438 | ) | (378,897 | ) | ||||
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|
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Net Income |
25,037,583 | 15,237,477 | ||||||
Net Income Attributable to Noncontrolling Interests |
1,725,672 | 1,059,785 | ||||||
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Net Income Attributable to Compassionate Care Hospice Group, Inc. |
$ | 23,311,911 | $ | 14,177,692 | ||||
|
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|
|
See accompanying notes to consolidated and combined financial statements.
6
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS EQUITY
Years ended December 31, 2017 and 2016 |
(Restated) | |||||||||||||||||||
Class A Common Stock |
Class B Common Stock |
Retained Earnings |
Noncontrolling Interest in Affiliates |
Total | ||||||||||||||||
Balance, January 1, 2016 |
$ | 100 | $ | 900 | $ | 3,680,262 | $ | (4,522,268 | ) | $ | (841,006 | ) | ||||||||
Net income |
| | 14,177,692 | 1,059,785 | 15,237,477 | |||||||||||||||
Capital distributions |
| | (1,892,241 | ) | (209,170 | ) | (2,101,411 | ) | ||||||||||||
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Balance, December 31, 2016 |
100 | 900 | 15,965,713 | (3,671,653 | ) | 12,295,060 | ||||||||||||||
Net income |
| | 23,311,911 | 1,725,672 | 25,037,583 | |||||||||||||||
Capital distributions |
| | (1,924,955 | ) | (1,145,810 | ) | (3,070,765 | ) | ||||||||||||
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Balance, December 31, 2017 |
$ | 100 | $ | 900 | $ | 37,352,669 | $ | (3,091,791 | ) | $ | 34,261,878 | |||||||||
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|
|
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See accompanying notes to consolidated and combined financial statements.
7
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
Year ended December 31, |
2017 (Restated) |
2016 (Restated) |
||||||
Cash Flows from Operating Activities |
||||||||
Net income |
$ | 25,037,583 | $ | 15,237,477 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for uncollectibles |
10,258,568 | 1,996,901 | ||||||
Depreciation and amortization |
52,986 | 18,147 | ||||||
Changes in operating assets and liabilities: |
||||||||
Increase in assets: |
||||||||
Patient accounts receivable |
(11,120,698 | ) | (15,458,474 | ) | ||||
Prepaid expenses and other current assets |
(1,240,337 | ) | (234,201 | ) | ||||
Increase (decrease) in liabilities: |
||||||||
Accounts payable and accrued expenses |
(1,045,614 | ) | (1,729,708 | ) | ||||
Self-insured liability |
64,000 | 704,000 | ||||||
Accrued salaries, benefits and other payroll liabilities |
37,544 | 122,491 | ||||||
Deferred tax liability |
220,919 | 216,025 | ||||||
Income tax payable |
554,519 | 189,416 | ||||||
Due to third-party payors |
(2,026,140 | ) | 223,999 | |||||
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Net cash provided by operating activities |
20,793,330 | 1,286,073 | ||||||
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Cash flows from Investing Activities |
||||||||
Purchase of property and equipment |
(188,645 | ) | (112,114 | ) | ||||
Purchase of interest in affiliate |
(1,062,500 | ) | | |||||
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Net cash used in investing activities |
(1,251,145 | ) | (112,114 | ) | ||||
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Cash Flows from Financing Activities Capital Distributions |
(2,008,265 | ) | (2,101,411 | ) | ||||
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Net increase (decrease) in cash and cash equivalents |
17,533,920 | (927,452 | ) | |||||
Cash and cash equivalents, beginning of year |
6,481,124 | 7,408,576 | ||||||
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Cash and cash equivalents, end of year |
$ | 24,015,044 | $ | 6,481,124 | ||||
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|
See accompanying notes to consolidated and combined financial statements.
8
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. Description of the Organization
Compassionate Care Hospice Group, Inc. (CCH Group) was incorporated in the State of Florida on September 21, 2015. The purpose of CCH Group is to be a holding company for its subsidiaries. CCH Group, along with its wholly owned subsidiaries and affiliates (collectively referred to as the Company), offer hospice and palliative care throughout the country. The Company is committed to providing the highest quality care to patients and their families.
CCH Groups capital structure includes two classes of Common Stock: Class A Voting Common Stock and Class B Non-Voting Common Stock.
2. Principles of Consolidation and Combination
These consolidated and combined financial statements include the accounts of CCH Group, its consolidated wholly-owned subsidiaries and affiliates combined under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810-10-55-1B, Combined Financial Statements. All significant intercompany accounts and transactions have been eliminated in the accompanying consolidated and combined financial statements.
The wholly-owned subsidiaries of CCH Group consolidated within these financial statements are as follows:
| Compassionate Care Hospice of Delaware, LLC |
| Compassionate Care Hospice of the Delmar Peninsula, LLC |
| Compassionate Care Hospice of Central Georgia, LLC |
| Compassionate Care Hospice of Northern Georgia, LLC |
| Compassionate Care Hospice of Savannah, LLC |
| Compassionate Care Hospice of Illinois, LLC |
| Compassionate Care Hospice of Kansas City, LLC |
| Compassionate Care Hospice of Central Louisiana, LLC |
| Compassionate Care Hospice of Massachusetts, LLC |
| Compassionate Care Hospice of Michigan, LLC |
| Compassionate Care Hospice of Minnesota, LLC |
| Compassionate Care Hospice of Southern Mississippi, LLC |
| Pathways to Compassion, LLC |
| Compassionate Care Hospice of New Hampshire, LLC |
| Compassionate Care Hospice of Clifton, LLC |
| Compassionate Care Hospice of Marlton, LLC |
| Compassionate Care Hospice of Northern NJ, LLC |
| Compassionate Care Hospice of Ohio, LLC |
| Compassionate Care Hospice, Inc. |
| Compassionate Care Hospice of Gwynedd, Inc. |
| Compassionate Care Hospice of Northwestern Pennsylvania, LLC |
9
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| Compassionate Care Hospice of South Carolina, LLC |
| Compassionate Care Hospice of The Midwest, LLC |
| Compassionate Care Hospice of Bryan Texas, LLC |
| Compassionate Care Hospice of Central Texas, LLC |
| Compassionate Care Hospice of Houston, LLC |
| Compassionate Care Hospice of North Texas, LLC |
| Compassionate Care Hospice of Southeastern Texas, LLC |
| Compassionate Care Hospice of The Chesapeake Bay, LLC |
| Compassionate Care Hospice of Wisconsin, LLC |
The affiliates of CCH Group combined within these financial statements are as follows:
| Pathways to Compassion of California, LLC |
| Compassionate Care Hospice of New York, LLC |
| Compassionate Care Hospice of Central Florida, Inc. |
| Compassionate Care Hospice of Miami Dade and the Florida Keys, Inc. |
| Compassionate Care Hospice of Lake and Sumter, Inc. |
3. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated and combined financial statements of the Company have been prepared on the accrual basis and conform to accounting principles generally accepted in the United States of America (U.S. GAAP). In the consolidated and combined balance sheet, assets and liabilities are presented in order of liquidity or conversion to cash and their maturity resulting in the use of cash, respectively.
Restatement
The consolidated and combined financial statements for the years ended December 31, 2017 and 2016 are being restated due to the following:
Corporate Integrity Agreement/Overpayment
In connection with a settlement agreement with the U.S. Department of Justice, on January 30, 2015, the Company entered into a corporate integrity agreement (CIA) with the Office of Inspector GeneralHealth and Human Services (OIG). The CIA requires that the Company report substantial overpayments that the Company discovers it has received from federal health care programs, as well as probable violations of federal health care laws.
In accordance with the CIA, in 2017, the Company reported to the OIG overpayments in the amount of $2,422,636. $956,373 of the revenue associated with the overpayments was recognized during the year ended December 31, 2015 and $1,466,263 was recognized during the year ended December 31, 2016. The balance due was subsequently paid during the three-month period ended March 31, 2019. The consolidated and combined financial statements for the years ended December 31, 2017 and 2016 are being restated to reflect a reduction to net patient service revenue and an increase to amounts due to third party payors.
10
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Medicare Hospice CAP
Medicare hospice is subject to an inpatient cap limit and an overall payment cap for each of their provider numbers. The Company monitors these caps and estimates amounts due back to Medicare if a cap has been exceeded. The initial calculations of the amounts due back to Medicare for caps were incomplete for the years ended December 31, 2017 and 2016. The consolidated and combined financial statements for the years ended December 31, 2017 and 2016 are being restated to reflect a reduction to net patient service revenue and an increase to amounts due to third party payors totaling $236,403 and $1,336,266, respectively.
In addition, the cap amounts previously reflected in the consolidated and combined financial statements for the years ended December 31, 2017 and 2016 were incorrectly recorded as an increase to general and administrative expenses rather than a reduction to net patient service revenue. As a result, the consolidated and combined financial statements for the years ended December 31, 2017 and 2016 are being restated to reduce net patient service revenue and to reduce general and administrative expenses by $1,612,238 and $736,207, respectively.
Hospice Room and Board
Hospice room and board expenses and the related reimbursements associated with these expenses should be recorded net within the statement of income. In the Companys historical financial records, these amounts were reported gross within net patient service revenue and supplies and other expenses. The consolidated and combined statements of income for the years ended December 31, 2017 and 2016 are being restated to reflect a reduction to both net patient service revenue and supplies and other expenses totaling $33,289,795 and $31,478,527, respectively.
Paid Time Off (PTO) Accrual
There was an error in the PTO accrual for the year ended December 31, 2017. The consolidated and combined financial statements for the year ended December 31, 2017 are being restated to reflect a reduction in salaries and wages expenses and accrued salaries, benefits and other payroll liabilities totaling $884,537.
Loss on Repurchase of Interest in Affiliate
As of December 31, 2016, Pathways to Compassion of California, LLC (PCC) had a 50% ownership interest in Compassionate Care Hospice of Los Angeles, LLC (CCHLA). The remaining 50% interest was controlled by a non-affiliated company. During 2017, PCC completed the purchase of the remaining 50% ownership interest in CCHLA. The difference between the absorbed equity balance and the purchase price was recognized as a reduction to net patient service revenue. The consolidated and combined financial statements for the year ended December 31, 2017 are being restated to reflect an increase to net patient service revenue and an adjustment to equity totaling $1,062,500.
Impact of Restatement
The following table presents the impacted line items of the Companys consolidated and combined balance sheets as previously reported, restatement adjustments and as restated as of December 31, 2017 and 2016:
December 31, | 2017 | 2016 | ||||||||||||||||||||||
As Reported | Adjustments | As Restated | As Reported | Adjustments | As Restated | |||||||||||||||||||
Accrued salaries, benefits and other payroll liabilities |
$ | 5,384,992 | $ | (884,537 | ) | $ | 4,500,455 | $ | 4,462,911 | $ | | $ | 4,462,911 | |||||||||||
Deferred tax liability |
403,448 | 804 | 404,252 | 311,824 | (128,491 | ) | 183,333 | |||||||||||||||||
Income tax payable |
892,486 | (148,551 | ) | 743,935 | 189,416 | | 189,416 | |||||||||||||||||
Due to third-party payors |
7,945,018 | 3,995,305 | 11,940,323 | 10,207,561 | 3,758,902 | 13,966,463 | ||||||||||||||||||
Retained earnings |
39,671,036 | (2,318,367 | ) | 37,352,669 | 19,413,051 | (3,447,338 | ) | 15,965,713 | ||||||||||||||||
Noncontrolling interest in affiliates |
(2,447,137 | ) | (644,654 | ) | (3,091,791 | ) | (3,488,580 | ) | (183,073 | ) | (3,671,653 | ) |
11
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table presents the impacted line items of the Companys consolidated and combined statements of income as previously reported, restatement adjustments and as restated for the years ended December 31, 2017 and 2016:
Year ended December 31, | 2017 | 2016 | ||||||||||||||||||||||
As Reported | Adjustments | As Restated | As Reported | Adjustments | As Restated | |||||||||||||||||||
Total Operating Revenue |
$ | 236,117,055 | $ | (34,075,936 | ) | $ | 202,041,119 | $ | 219,189,187 | $ | (35,017,263 | ) | $ | 184,171,924 | ||||||||||
ExpensesGeneral and administrative |
29,293,390 | (1,612,238 | ) | 27,681,152 | 26,416,110 | (736,207 | ) | 25,679,903 | ||||||||||||||||
ExpensesSalaries and wages |
115,227,114 | (884,537 | ) | 114,342,577 | 109,573,127 | | 109,573,127 | |||||||||||||||||
ExpensesSupplies and other expenses |
63,940,792 | (33,289,795 | ) | 30,650,997 | 61,303,408 | (31,478,527 | ) | 29,824,881 | ||||||||||||||||
Total Operating Income |
24,308,154 | 1,710,634 | 26,018,788 | 18,631,738 | (2,802,529 | ) | 15,829,209 | |||||||||||||||||
Income tax expense |
(794,694 | ) | 19,256 | (775,438 | ) | (474,696 | ) | 95,799 | (378,897 | ) | ||||||||||||||
Net Income |
23,307,693 | 1,729,890 | 25,037,583 | 17,944,207 | (2,706,730 | ) | 15,237,477 | |||||||||||||||||
Net Income Attributable to Noncontrolling Interests |
1,124,753 | 600,919 | 1,725,672 | 1,242,858 | (183,073 | ) | 1,059,785 | |||||||||||||||||
Net Income Attributable to Compassionate Care Hospice Group, Inc. |
22,182,940 | 1,128,971 | 23,311,911 | 16,701,349 | (2,523,657 | ) | 14,177,692 |
The following table presents the impacted line items of the Companys consolidated and combined statements of stockholders equity as previously reported, restatement adjustments and as restated for the years ended December 31, 2017 and 2016:
Year ended December 31, | 2017 | 2016 | ||||||||||||||||||||||
As Reported | Adjustments | As Restated | As Reported | Adjustments | As Restated | |||||||||||||||||||
Retained EarningsBalance January 1 |
$ | 19,413,051 | $ | (3,447,338 | ) | $ | 15,965,713 | $ | 4,603,943 | $ | (923,681 | ) | $ | 3,680,262 | ||||||||||
Retained EarningsNet income (loss) |
22,182,940 | 1,128,971 | 23,311,911 | 16,701,349 | (2,523,657 | ) | 14,177,692 | |||||||||||||||||
Noncontrolling Interest in AffiliatesNet income (loss) |
1,124,753 | 600,919 | 1,725,672 | 1,242,858 | (183,073 | ) | 1,059,785 | |||||||||||||||||
Noncontrolling Interest in AffiliatesCapital distributions |
(83,310 | ) | (1,062,500 | ) | (1,145,810 | ) | (209,170 | ) | | (209,170 | ) |
The following table presents the impacted line items of the Companys consolidated and combined statements of cash flows as previously reported, restatement adjustments and as restated for the years ended December 31, 2017 and 2016:
Year ended December 31, | 2017 | 2016 | ||||||||||||||||||||||
As Reported | Adjustments | As Restated | As Reported | Adjustments | As Restated | |||||||||||||||||||
Net income |
$ | 23,307,693 | $ | 1,729,890 | $ | 25,037,583 | $ | 17,944,207 | $ | (2,706,730 | ) | $ | 15,237,477 | |||||||||||
Loss on purchase of interest in affiliate |
1,062,500 | (1,062,500 | ) | | | | | |||||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||||||
Accrued salaries, benefits and other payroll liabilities |
922,081 | (884,537 | ) | 37,544 | 122,491 | | 122,491 | |||||||||||||||||
Deferred tax liability |
91,624 | 129,295 | 220,919 | 311,824 | (95,799 | ) | 216,025 | |||||||||||||||||
Income tax payable |
703,070 | (148,551 | ) | 554,519 | 189,416 | | 189,416 | |||||||||||||||||
Due to third-party payors |
(2,262,543 | ) | 236,403 | (2,026,140 | ) | (2,578,530 | ) | 2,802,529 | 223,999 |
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with original maturity dates of three months or less from the date purchased to be cash equivalents.
12
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Financial instruments that potentiality subject the Company to concentration of credit risk consist primarily of cash and cash equivalents in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. At various times during the year, the Company may have cash deposits at financial institutions in excess of FDIC insurance limits. These financial institutions have strong credit ratings and management believes that credit risk related to these accounts is minimal.
Use of Estimates
The preparation of consolidated and combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires disclosure of the contingent assets and liabilities at the date of the consolidated and combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates used by management in the preparation of these consolidated and combined financial statements.
Patient Accounts Receivable, Net
Patient accounts receivable, net is recorded at the reimbursed or contracted amount due from Medicare, Medicaid, other third-party payors and patients and do not bear interest. The allowance for uncollectible accounts is managements best estimate of the amount of probable credit losses in the Companys existing accounts receivable. Management determines the allowance based on historical write-off experience and reviews the adequacy of the allowance for uncollectible accounts periodically. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions, renewals and betterments are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of various asset classes are as follows:
Furniture and fixtures | 5-7 years | |
Equipment | 3-7 years | |
Software | 5 years |
Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful lives of the improvements.
Impairment of Long-Lived Assets
Management assesses whether the value of the long-lived assets may be impaired whenever events or changes in the circumstances indicate that the carrying amount of an asset may not be recoverable. The value of long-lived assets may be impaired if managements estimate of the aggregate, undiscounted future cash flows to be generated from the use or disposition of a long-lived asset are less than the carrying value of the asset. Based on managements judgment, no such indicators of impairment have occurred.
Revenue Recognition
Net patient service revenue is recognized in the period services are performed and consists primarily of net patient service revenue that is reported at estimated net realizable amounts. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered, and such amounts are adjusted in future periods as adjustments become known or as years are no longer subject to such audits, reviews, and investigations.
Charity Care
The Company provides care to patients who meet certain criteria under its charity care policy without charge or at amounts less than its established rates. Because the Company does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue.
13
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Income Taxes
CCH Group is an S corporation and all wholly owned subsidiaries are disregarded for federal income tax purposes. As a result, the income of these entities passes through to the tax returns of the respective owners for federal income tax purposes. CCH Group and all wholly owned subsidiaries are taxed at the entity level by certain state jurisdictions and the related tax is included as a component of income tax expense in the consolidated and combined statements of income.
Related affiliates Compassionate Care Hospice of Central Florida, Inc., Compassionate Care Hospice of Miami Dade and the Florida Keys, Inc., and Compassionate Care Hospice of Lake and Sumter, Inc. combined within the financial statements account for income taxes in accordance with ASC 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated and combined financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and income tax bases using presently enacted tax rates in effect. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company adopted certain provisions of ASC 740, which clarifies the accounting for uncertainty in income taxes. This pronouncement prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has not taken an unsubstantiated tax position that would require provision of a liability under ASC 740. The Companys policy is to classify all interest and penalties related to uncertain tax positions as a component of income tax expense in the consolidated and combined statements of income.
Noncontrolling Interest
In accordance with U.S. GAAP, the Company reports noncontrolling interest, sometimes referred to as minority interest, as part of stockholders equity in the consolidated and combined balance sheet. Furthermore, the Company reports the changes in the stockholders equity of both the controlling and noncontrolling interests, for all periods presented, in the consolidated and combined statements of stockholders equity.
As of December 31, 2016, Pathways to Compassion of California, LLC (PCC) had a 50% ownership interest in Compassionate Care Hospice of Los Angeles, LLC (CCHLA). The remaining 50% interest was controlled by a non-affiliated company. During 2017, PCC completed the purchase of the remaining 50% ownership interest in CCHLA. As a result, PCC eliminated the increase in investment and the increase in members equity for combination purposes. The difference between the absorbed equity balance and purchase price was recognized as an adjustment to equity.
Concentration of Credit Risk
The Company operates in over 20 states nationwide. The Company grants credit without collateral to its patients, most of whom are local residents and are insured under various third-party payor agreements.
The mix of receivables from patients and third-party payors is as follows:
December 31, |
2017 | 2016 | ||||||
Medicare |
54 | % | 59 | % | ||||
Medicaid |
34 | 29 | ||||||
Self and other third-party payors |
12 | 12 | ||||||
|
|
|
|
|||||
100 | % | 100 | % |
Accounting Pronouncements Issued but Not Yet Adopted
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), which is a comprehensive new revenue recognition standard that will supersede existing revenue recognition guidance.
14
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB issued ASU 2015-14, which deferred the effective date for the Company until annual periods beginning after December 15, 2018. Earlier adoption is permitted subject to certain limitations. The amendments in this update are required to be applied retrospectively to each prior reporting period presented or with the cumulative effect being recognized at the date of initial application. Management is currently evaluating the impact of this ASU on its consolidated and combined financial statements.
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, Accounting for Leases, which applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the consolidated and combined statement of cash flows, differs depending on the lease classification. In addition, lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The amendments are effective for fiscal years beginning after December 15, 2019. Management is currently evaluating the impact of this ASU on its consolidated and combined financial statements.
4. Net Patient Service Revenue and Third-Party Reimbursement
Hospice Medicare Revenue
Revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated reimbursement rates. The estimated reimbursement rates are daily or hourly rates for each of the four levels of care delivered by the Company: routine care, general inpatient care, continuous home care and respite care. Beginning January 1, 2016, the Center for Medicare and Medicaid Services (CMS) has provided for two separate payment rates for routine care: payments for the first 60 days of care and care beyond 60 days. In addition to the two new routine rates, beginning January 1, 2016, Medicare is also reimbursing for a service intensity add-on (SIA). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
The Company adjusts Medicare revenue for an inability to obtain appropriate billing documentation or acceptable authorizations and other reasons unrelated to credit risk. These amounts are estimated based on historical experience inclusive of the Companys historical collection rate on Medicare claims, and are recorded during the period services are rendered as an estimated revenue adjustment and as a reduction to net patient accounts receivable.
Additionally, Medicare hospice is subject to an inpatient cap limit and an overall payment cap for each of their provider numbers. The Company monitors these caps and estimates amounts due back to Medicare if in fact a cap has been exceeded. These amounts are reported as a reduction to revenue and an increase to third-party payor liabilities. As of December 31, 2017 and 2016, the Company has recorded $2,706,275 and $1,876,613, respectively, related to the Medicare cap liability.
In addition to the Medicare cap liability, amounts related to government settlements are also recorded as a reduction to revenue and an increase to amounts due to third-party payors. As of December 31, 2017 and 2016, the Company has recorded $9,234,048 and $12,089,850, respectively, related to government settlements.
Hospice Non-Medicare Revenue
The Company records revenue on an accrual basis based upon the date of service at amounts equal to our established rates or estimated per day rates, as applicable. Contractual adjustments are recorded for the difference between the Companys established rates and the amounts estimated to be realizable from patients, third parties and others for service provided and are deducted from the gross revenue to determine net patient service revenue and net patient accounts receivable.
15
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
5. Property and Equipment, Net
Property and equipment, net and accumulated depreciation are summarized as follows:
December 31, |
2017 | 2016 | ||||||
Property and equipment |
$ | 296,116 | $ | 282,831 | ||||
Less: accumulated depreciation and amortization |
(76,157 | ) | (198,531 | ) | ||||
|
|
|
|
|||||
Property and Equipment, Net |
$ | 219,959 | $ | 84,300 | ||||
|
|
|
|
During 2017 and 2016, the Company wrote off $175,360 and $0, respectively, for fully depreciated assets.
Depreciation expense was $52,986 and $18,147 for the years ended December 31, 2017 and 2016.
6. Income Taxes
The Companys income taxes expense for 2017 and 2016 consists of the following:
December 31, |
2017 | 2016 | ||||||
Current Tax Expense |
||||||||
Federal |
$ | | $ | | ||||
State |
554,518 | 189,416 | ||||||
|
|
|
|
|||||
Current Tax Expense |
554,518 | 189,416 | ||||||
|
|
|
|
|||||
Deferred Tax Expense |
||||||||
Federal |
| (131,245 | ) | |||||
State |
220,920 | 320,726 | ||||||
|
|
|
|
|||||
Deferred Tax Expense |
220,920 | 189,481 | ||||||
|
|
|
|
|||||
Total Income Tax Expense |
$ | 775,438 | $ | 378,897 | ||||
|
|
|
|
At December 31, 2017 and 2016, deferred taxes reflect the net tax effect of temporary differences between the financial reporting and tax basis of assets and liabilities and are primarily attributable to the following:
December 31, |
2017 | 2016 | ||||||
Deferred Tax Assets |
||||||||
Accounts payable |
$ | 996,562 | $ | 1,140,023 | ||||
Depreciation |
2,720 | 2,720 | ||||||
Net operating losses |
1,739,459 | 1,399,341 | ||||||
|
|
|
|
|||||
Total Deferred Tax Assets |
2,738,741 | 2,542,084 | ||||||
Less: valuation allowance |
(596,728 | ) | (817,580 | ) | ||||
|
|
|
|
|||||
Net Deferred Tax Assets |
$ | 2,142,013 | $ | 1,724,504 | ||||
|
|
|
|
|||||
Deferred Tax Liabilities |
||||||||
Accounts receivable |
$ | (2,209,147 | ) | $ | (1,880,099 | ) | ||
Prepaid expenses |
(337,118 | ) | (27,738 | ) | ||||
|
|
|
|
|||||
Total Deferred Tax Liability |
(2,546,265 | ) | (1,907,837 | ) | ||||
|
|
|
|
|||||
Net Deferred Tax Liability |
$ | (404,252 | ) | $ | (183,333 | ) | ||
|
|
|
|
The difference between the provision for income taxes and taxes computed using the statutory income tax rate results primarily from the effect of certain state taxes imposed on CCH Group and its wholly owned limited liability subsidiaries and certain federal and state taxes imposed on related affiliated corporations.
16
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The related affiliated corporations have federal and state net operating losses of $6,863,123 which begin to expire in 2036. The Company has provided for a full valuation allowance against the net deferred tax assets of the affiliated corporations, as the Company has determined it is more likely than not that they will not be realized.
As of December 31, 2017 and 2016, the Company does not believe it has any uncertain tax positions that would require either recognition or disclosure in the accompanying consolidated and combined financial statements. The Company files in federal and certain state jurisdictions of which have varying statutes of limitations subject to exam by taxing authorities. The Company does not have any open federal or state exams as of December 31, 2017 and 2016.
7. Employee Benefit Plan
The Company sponsors a contributory 401(k) plan covering substantially all employees. For the years ended December 31, 2017 and 2016, other than Internal Revenue Service contribution limitations, there were no plan-imposed limits on employee elected deferrals. The Company does not match employee contributions to the plan but may make other types of qualified non-elective contributions.
8. Commitments and Contingencies
Self-Insured
The Company self-insures a portion of certain insurable risks consisting of employee medical and prescription claims. The Company records its estimated ultimate liability for reported claims plus an estimate for claims incurred but not reported. Accruals for self-insurance claims are included in accounts payable and accrued expenses and, as of December 31, 2017 and 2016, the estimated claims incurred but not reported were $768,000 and $704,000, respectively.
Litigation
The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management and the Companys legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the Companys financial position, results of operations or liquidity.
Leases
The Company conducts its operations from facilities that are under noncancelable operating leases, which expire at varying intervals through the year 2022. The Company has also entered into certain operating leases for equipment, which are renewed annually.
The following is a schedule of future minimum rental payments under the above operating leases as of December 31, 2017:
Year ending December 31, |
||||
2018 |
$ | 2,370,544 | ||
2019 |
2,004,058 | |||
2020 |
1,410,974 | |||
2021 |
463,109 | |||
2022 |
169,371 | |||
|
|
|||
Total |
$ | 6,418,056 | ||
|
|
17
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
9. Subsequent Events
The Company has performed subsequent events procedures through August 31, 2018 which is the date the consolidated and combined financial statements were available to be issued and there were no subsequent events requiring adjustment to the consolidated and combined financial statements or disclosures as stated herein, except the following:
In February 2018, CCH Group formed a new wholly-owned subsidiary that provides palliative care in the state of Georgia, and two new wholly-owned subsidiaries that provide hospice and palliative care in the states of Maine and California.
On October 25, 2017, the Company received a letter of intent for the purchase of 100% of the equity interest in Compassionate Care Hospice Group, Inc. and its subsidiaries and affiliates.
18
Supplementary Information |
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
COMBINING BALANCE SHEET SCHEDULE
December 31, 2017 |
||||||||||||||||||||||||||||||||
CCH and Subsidiaries |
Pathways to Compassion of California, LLC |
Compassionate Care Hospice of Central Florida, Inc. |
Compassionate Care Hospice of Miami Dade and the Florida Keys, Inc. |
Compassionate Care Hospice of Lake Sumter, Inc. |
Compassionate Care Hospice of New York, LLC |
Elimination Entries |
Total | |||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||
Current |
||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 23,497,581 | $ | 517,448 | $ | | $ | | $ | 15 | $ | | $ | | $ | 24,015,044 | ||||||||||||||||
Patient accounts receivable, less estimated allowance for uncollectible accounts |
30,680,794 | 1,129,532 | 882,651 | 2,204,482 | 1,491,214 | 1,627,592 | | 38,016,265 | ||||||||||||||||||||||||
Investment in Pathways to Compassion of California, LLC |
(12,571 | ) | | | | | | 12,571 | | |||||||||||||||||||||||
Investment in Central Florida/Florida and Lake Sumter |
(196,949 | ) | | | | | | 196,949 | | |||||||||||||||||||||||
Intercompany receivables |
41,176,644 | | | | | 2,519,411 | (43,696,055 | ) | | |||||||||||||||||||||||
Prepaid expenses and other current assets |
855,238 | 7,750 | 11,658 | 1,186,955 | 16,158 | 30,527 | | 2,108,286 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Current Assets |
96,000,737 | 1,654,730 | 894,309 | 3,391,437 | 1,507,387 | 4,177,530 | (43,486,535 | ) | 64,139,595 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Property and Equipment, Net |
219,471 | 488 | | | | | | 219,959 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Assets |
96,220,208 | 1,655,218 | 894,309 | 3,391,437 | 1,507,387 | 4,177,530 | (43,486,535 | ) | 64,359,554 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||||||
Accounts payable and accrued expenses |
9,770,985 | 164,187 | 317,866 | 261,428 | 216,621 | 1,009,624 | | 11,740,711 | ||||||||||||||||||||||||
Accrued salaries, benefits and other payroll liabilities |
3,727,238 | 58,863 | 168,750 | 154,118 | 165,634 | 225,852 | | 4,500,455 | ||||||||||||||||||||||||
Self-insured liability |
768,000 | | | | | | | 768,000 | ||||||||||||||||||||||||
Deferred tax liability |
404,252 | | | | | | | 404,252 | ||||||||||||||||||||||||
Income tax payable |
743,935 | | | | | | | 743,935 | ||||||||||||||||||||||||
Due to third-party payors |
8,482,614 | 1,027,709 | | | | 2,430,000 | | 11,940,323 | ||||||||||||||||||||||||
Intercompany payables |
34,913,854 | 2,303,994 | 1,041,684 | 2,979,943 | 2,456,580 | | (43,696,055 | ) | | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Liabilities |
58,810,878 | 3,554,753 | 1,528,300 | 3,395,489 | 2,838,835 | 3,665,476 | (43,696,055 | ) | 30,097,676 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Commitments and Contingencies (Note 8) |
||||||||||||||||||||||||||||||||
Stockholders Equity |
||||||||||||||||||||||||||||||||
Common Stock: |
||||||||||||||||||||||||||||||||
Class A Common Stock, no par value; 100 shares authorized; 100 shares issued and outstanding |
100 | | | | | | | 100 | ||||||||||||||||||||||||
Class B Common Stock, no par value; 900 shares authorized; 900 shares issued and outstanding |
900 | | | | | | | 900 | ||||||||||||||||||||||||
Retained earnings (accumulated deficit) |
37,408,330 | (1,899,535 | ) | (633,991 | ) | (4,052 | ) | (1,331,448 | ) | 512,054 | 209,520 | 34,260,878 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Stockholders Equity |
37,409,330 | (1,899,535 | ) | (633,991 | ) | (4,052 | ) | (1,331,448 | ) | 512,054 | 209,520 | 34,261,878 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Liabilities and Stockholders Equity |
$ | 96,220,208 | $ | 1,655,218 | $ | 894,309 | $ | 3,391,437 | $ | 1,507,387 | $ | 4,177,530 | $ | (43,486,535 | ) | $ | 64,359,554 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
COMBINING SCHEDULE OF INCOME
December 31, 2017 |
||||||||||||||||||||||||||||||||
CCH and Subsidiaries |
Pathways to Compassion of California, LLC |
Compassionate Care Hospice of Central Florida, Inc. |
Compassionate Care Hospice of Miami Dade and the Florida Keys, Inc. |
Compassionate Care Hospice of Lake Sumter, Inc. |
Compassionate Care Hospice of New York, LLC |
Elimination Entries |
Total | |||||||||||||||||||||||||
Operating Revenue |
||||||||||||||||||||||||||||||||
Net patient service revenue |
$ | 173,154,859 | $ | 3,223,737 | $ | 4,828,758 | $ | 6,798,167 | $ | 5,493,230 | $ | 10,682,820 | $ | | $ | 204,181,571 | ||||||||||||||||
Less: Provision for uncollectibles, net |
(1,605,221 | ) | (172,306 | ) | (60,249 | ) | (94,365 | ) | (17,878 | ) | (190,433 | ) | | (2,140,452 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Operating Revenue |
171,549,638 | 3,051,431 | 4,768,509 | 6,703,802 | 5,475,352 | 10,492,387 | | 202,041,119 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Expenses |
||||||||||||||||||||||||||||||||
General and administrative |
21,509,527 | 823,728 | 547,759 | 1,218,480 | 1,753,825 | 1,827,833 | | 27,681,152 | ||||||||||||||||||||||||
Salaries and wages |
97,047,017 | 1,489,940 | 3,792,046 | 3,613,476 | 3,125,675 | 5,274,423 | | 114,342,577 | ||||||||||||||||||||||||
Supplies and other expenses |
25,785,839 | 452,516 | 795,776 | 1,310,373 | 765,987 | 1,540,506 | | 30,650,997 | ||||||||||||||||||||||||
Rent expense |
2,959,978 | 46,618 | 77,632 | 53,814 | 74,561 | 135,002 | | 3,347,605 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Expenses |
147,302,361 | 2,812,802 | 5,213,213 | 6,196,143 | 5,720,048 | 8,777,764 | | 176,022,331 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Operating Income (Loss) |
24,247,277 | 238,629 | (444,704 | ) | 507,659 | (244,696 | ) | 1,714,623 | | 26,018,788 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-Operating Income (Expense) |
||||||||||||||||||||||||||||||||
Gain (loss) from investment in affiliates |
(209,520 | ) | | | | | | 209,520 | | |||||||||||||||||||||||
Depreciation and Amortization |
(52,986 | ) | | | | | | | (52,986 | ) | ||||||||||||||||||||||
Interest expense |
(91,154 | ) | | | | | (61,627 | ) | | (152,781 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total Non-Operating Income (Expense) |
(353,660 | ) | | | | | (61,627 | ) | 209,520 | (205,767 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Income before Taxes |
23,893,617 | 238,629 | (444,704 | ) | 507,659 | (244,696 | ) | 1,652,996 | 209,520 | 25,813,021 | ||||||||||||||||||||||
Income tax expense |
(775,438 | ) | | | | | | | (775,438 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net Income (Loss) |
$ | 23,118,179 | $ | 238,629 | $ | (444,704 | ) | $ | 507,659 | $ | (244,696 | ) | $ | 1,652,996 | $ | 209,520 | $ | 25,037,583 | ||||||||||||||
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|
|
|
|
|
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|
|
20
Exhibit 99.2
COMPASSIONATE CARE HOSPICE GROUP, INC.
AND SUBSIDIARIES AND AFFILIATES
Unaudited Condensed Consolidated and Combined Financial Statements
Nine Months Ended September 30, 2018 and 2017
COMPASSIONATE CARE HOSPICE GROUP, INC.
AND SUBSIDIARIES AND AFFILIATES
Contents
Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017 |
1 | |||
Unaudited Statements of Income for the Nine-Month Periods Ended September 30, 2018 and 2017 |
2 | |||
Unaudited Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2018 and 2017 |
3 | |||
Notes to the Unaudited Financial Statements |
4-8 |
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
September 30, 2018 (unaudited) |
December 31, 2017 |
|||||||
Assets |
||||||||
Current |
||||||||
Cash and cash equivalents |
$ | 13,675,133 | $ | 24,015,044 | ||||
Patient accounts receivable, less estimated allowance for uncollectible accounts of $39,572,661 and $33,990,617, respectively |
35,650,439 | 38,016,265 | ||||||
Prepaid expenses and other current assets |
999,563 | 2,108,286 | ||||||
|
|
|
|
|||||
Total Current Assets |
50,325,135 | 64,139,595 | ||||||
Property and Equipment, Net |
224,365 | 219,959 | ||||||
Goodwill |
350,000 | | ||||||
|
|
|
|
|||||
Total Assets |
$ | 50,899,500 | $ | 64,359,554 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Liabilities |
||||||||
Accounts payable and accrued expenses |
$ | 11,953,769 | $ | 11,740,711 | ||||
Accrued salaries, benefits and other payroll liabilities |
4,390,572 | 4,500,455 | ||||||
Self-insured liability |
768,000 | 768,000 | ||||||
Deferred tax liability |
171,304 | 404,252 | ||||||
Income tax payable |
182,537 | 743,935 | ||||||
Due to third-party payors |
9,396,958 | 11,940,323 | ||||||
|
|
|
|
|||||
Total Liabilities |
26,863,140 | 30,097,676 | ||||||
|
|
|
|
|||||
Commitments and Contingencies (Note 6) |
||||||||
Stockholders Equity |
||||||||
Common Stock: |
||||||||
Class A, no par value; 100 shares authorized; 100 shares issued and outstanding |
100 | 100 | ||||||
Class B, no par value; 900 shares authorized; 900 shares issued and outstanding |
900 | 900 | ||||||
Retained earnings |
25,855,646 | 37,352,669 | ||||||
Noncontrolling Interest in Affiliates |
(1,820,286 | ) | (3,091,791 | ) | ||||
|
|
|
|
|||||
Total Stockholders Equity and Noncontrolling Interest |
24,036,360 | 34,261,878 | ||||||
|
|
|
|
|||||
Total Liabilities, Stockholders Equity and Noncontrolling Interest |
$ | 50,899,500 | $ | 64,359,554 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.
1
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Unaudited)
For the Nine-Month Periods Ended September 30, |
||||||||
2018 | 2017 | |||||||
Net patient service revenue |
$ | 157,374,796 | $ | 152,097,568 | ||||
Expenses: |
||||||||
General and administrative |
16,881,649 | 20,200,545 | ||||||
Salaries and wages |
92,590,540 | 84,960,496 | ||||||
Supplies and other expenses |
23,293,168 | 23,375,806 | ||||||
Rent expense |
2,593,130 | 2,501,361 | ||||||
|
|
|
|
|||||
Total Expenses |
135,358,487 | 131,038,208 | ||||||
|
|
|
|
|||||
Total Operating Income |
22,016,309 | 21,059,360 | ||||||
Non-Operating Expenses |
||||||||
Depreciation and amortization |
(55,350 | ) | (36,475 | ) | ||||
Interest expense |
(42,388 | ) | (72,725 | ) | ||||
|
|
|
|
|||||
Total Non-Operating Expense |
(97,738 | ) | (109,200 | ) | ||||
|
|
|
|
|||||
Income Before Taxes |
21,918,571 | 20,950,160 | ||||||
Income tax expense |
(678,414 | ) | (629,355 | ) | ||||
|
|
|
|
|||||
Net Income |
21,240,157 | 20,320,805 | ||||||
Net Income Attributable to Noncontrolling Interests |
1,271,505 | 1,763,898 | ||||||
|
|
|
|
|||||
Net Income Attributable to Compassionate Care Hospice Group, Inc. |
$ | 19,968,652 | $ | 18,556,907 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.
2
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine-Month Periods Ended September 30, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net income |
$ | 21,240,157 | $ | 20,320,805 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for uncollectibles |
5,582,044 | 9,132,278 | ||||||
Depreciation and amortization |
55,350 | 36,475 | ||||||
Changes in operating assets and liabilities: |
||||||||
(Increase) decrease in assets: |
||||||||
Patient accounts receivable |
(3,216,218 | ) | (17,032,966 | ) | ||||
Prepaid expenses and other current assets |
1,108,723 | (4,638 | ) | |||||
Increase (decrease) in liabilities: |
||||||||
Accounts payable and accrued expenses |
213,058 | (1,176,106 | ) | |||||
Self-insured liability |
| 64,000 | ||||||
Accrued salaries, benefits and other payroll liabilities |
(109,883 | ) | (99,205 | ) | ||||
Deferred tax liability |
(232,948 | ) | 179,301 | |||||
Income tax payable |
(561,398 | ) | 450,054 | |||||
Due to third-party payors |
(2,543,365 | ) | (898,755 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
21,535,520 | 10,971,243 | ||||||
|
|
|
|
|||||
Cash flows from Investing Activities: |
||||||||
Purchase of property and equipment |
(59,756 | ) | (131,623 | ) | ||||
Purchase of business |
(350,000 | ) | | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(409,756 | ) | (131,623 | ) | ||||
|
|
|
|
|||||
Cash flows from Financing Activities: |
||||||||
Capital distributions |
(31,465,675 | ) | (1,175,403 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(31,465,675 | ) | (1,175,403 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
(10,339,911 | ) | 9,664,217 | |||||
Cash and cash equivalents, beginning of period |
24,015,044 | 6,481,124 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 13,675,133 | $ | 16,145,341 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated and combined financial statements.
3
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. Description of the Organization
Compassionate Care Hospice Group, Inc. (CCH Group) was incorporated in the State of Florida on September 21, 2015. The purpose of CCH Group is to be a holding company for its subsidiaries. CCH Group, along with its wholly owned subsidiaries and affiliates (collectively referred to as the Company), offer hospice and palliative care throughout the country. The Company is committed to providing the highest quality care to patients and their families.
CCH Groups capital structure includes two classes of Common Stock: Class A Voting Common Stock and Class B Non-Voting Common Stock.
2. Principles of Consolidation and Combination
These unaudited condensed consolidated and combined financial statements include the accounts of CCH Group, its consolidated wholly-owned subsidiaries and affiliates combined under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810-10-55-1B, Combined Financial Statements. All significant intercompany accounts and transactions have been eliminated in the accompanying unaudited condensed consolidated and combined financial statements.
The wholly-owned subsidiaries of CCH Group consolidated within these financial statements are as follows:
| Compassionate Care Hospice of Delaware, LLC |
| Compassionate Care Hospice of the Delmar Peninsula, LLC |
| Compassionate Care Hospice of Central Georgia, LLC |
| Compassionate Care Hospice of Northern Georgia, LLC |
| Compassionate Care Hospice of Savannah, LLC |
| Compassionate Care Hospice of Illinois, LLC |
| Compassionate Care Hospice of Kansas City, LLC |
| Compassionate Care Hospice of Central Louisiana, LLC |
| Compassionate Care Hospice of Massachusetts, LLC |
| Compassionate Care Hospice of Michigan, LLC |
| Compassionate Care Hospice of Minnesota, LLC |
| Compassionate Care Hospice of Southern Mississippi, LLC |
| Pathways to Compassion, LLC |
| Compassionate Care Hospice of New Hampshire, LLC |
| Compassionate Care Hospice of Clifton, LLC |
| Compassionate Care Hospice of Marlton, LLC |
| Compassionate Care Hospice of Northern NJ, LLC |
| Compassionate Care Hospice of Ohio, LLC |
| Compassionate Care Hospice, Inc. |
| Compassionate Care Hospice of Gwynedd, Inc. |
| Compassionate Care Hospice of Northwestern Pennsylvania, LLC |
4
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
| Compassionate Care Hospice of South Carolina, LLC |
| Compassionate Care Hospice of The Midwest, LLC |
| Compassionate Care Hospice of Bryan Texas, LLC |
| Compassionate Care Hospice of Central Texas, LLC |
| Compassionate Care Hospice of Houston, LLC |
| Compassionate Care Hospice of North Texas, LLC |
| Compassionate Care Hospice of Southeastern Texas, LLC |
| Compassionate Care Hospice of The Chesapeake Bay, LLC |
| Compassionate Care Hospice of Wisconsin, LLC |
The affiliates of CCH Group combined within these financial statements are as follows:
| Pathways to Compassion of California, LLC |
| Compassionate Care Hospice of New York, LLC |
| Compassionate Care Hospice of Central Florida, Inc. |
| Compassionate Care Hospice of Miami Dade and the Florida Keys, Inc. |
| Compassionate Care Hospice of Lake and Sumter, Inc. |
3. Summary of Significant Accounting Policies
Basis of Presentation
In our opinion, the accompanying unaudited condensed consolidated and combined financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the Companys financial position, results of operations, and cash flows in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial reporting. The Companys results of operations for the interim periods presented are not necessarily indicative of results of operations for the entire year and have not been audited by our independent auditors.
This report should be read in conjunction with the audited financial statements and notes thereto for the periods ended December 31, 2017 and 2016.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with original maturity dates of three months or less from the date purchased to be cash equivalents.
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. At various times during the year, the Company may have cash deposits at financial institutions in excess of FDIC insurance limits. These financial institutions have strong credit ratings and management believes that credit risk related to these accounts is minimal.
Use of Estimates
The preparation of the unaudited condensed consolidated and combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated and combined financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ significantly from those estimates used by management in the preparation of these unaudited condensed consolidated and combined financial statements.
5
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
Patient Accounts Receivable, Net
Patient accounts receivable, net is recorded at the reimbursed or contracted amount due from Medicare, Medicaid, other third-party payors and patients and do not bear interest. The allowance for uncollectible accounts is managements best estimate of the amount of probable credit losses in the Companys existing accounts receivable. Management determines the allowance based on historical write-off experience and reviews the adequacy of the allowance for uncollectible accounts periodically. Past due balances are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Revenue Recognition
Net patient service revenue is recognized in the period services are performed and consists primarily of net patient service revenue that is reported at estimated net realizable amounts. Retroactive adjustments are considered in the recognition of revenue on an estimated basis in the period the related services are rendered, and such amounts are adjusted in future periods as adjustments become known or as years are no longer subject to such audits, reviews, and investigations.
Charity Care
The Company provides care to patients who meet certain criteria under its charity care policy without charge or at amounts less than its established rates. Because the Company does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue.
Noncontrolling Interest
In accordance with U.S. GAAP, the Company reports noncontrolling interest, sometimes referred to as minority interest, as part of stockholders equity in the condensed consolidated and combined balance sheet.
Concentration of Credit Risk
The Company operates in over 20 states nationwide. The Company grants credit without collateral to its patients, most of whom are local residents and are insured under various third-party payor agreements.
The mix of receivables from patients and third party payors is as follows:
September 30, 2018 | December 31, 2017 | |||||||
Medicare |
48 | % | 54 | % | ||||
Medicaid |
39 | 34 | ||||||
Self and other third-party payors |
13 | 12 | ||||||
|
|
|
|
|||||
100 | % | 100 | % |
Accounting Pronouncements Issued but Not Yet Adopted
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), which is a comprehensive new revenue recognition standard that will supersede existing revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with
6
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date for the Company until annual periods beginning after December 15, 2018. Earlier adoption is permitted subject to certain limitations. The amendments in this update are required to be applied retrospectively to each prior reporting period presented or with the cumulative effect being recognized at the date of initial application. Management is currently evaluating the impact of this ASU on its consolidated and combined financial statements.
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, Accounting for Leases, which applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the consolidated and combined statement of cash flows, differs depending on the lease classification. In addition, lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides for a prospective transition method for the recognition and disclosure requirements under the new guidance. The ASU is effective for fiscal years beginning after December 15, 2019. Management is currently evaluating the impact of this ASU on its consolidated and combined financial statements.
4. Net Patient Service Revenue and Third-Party Reimbursement
Hospice Medicare Revenue
Revenue is recorded on an accrual basis based upon the date of service at amounts equal to the estimated reimbursement rates. The estimated reimbursement rates are daily or hourly rates for each of the four levels of care delivered by the Company: routine care, general inpatient care, continuous home care and respite care. Beginning January 1, 2016, the Center for Medicare and Medicaid Services (CMS) has provided for two separate payment rates for routine care: payments for the first 60 days of care and care beyond 60 days. In addition to the two routine rates, beginning January 1, 2016, Medicare is also reimbursing for a service intensity add-on (SIA). The SIA is based on visits made in the last seven days of life by a registered nurse or medical social worker for patients in a routine level of care.
The Company adjusts Medicare revenue for an inability to obtain appropriate billing documentation or acceptable authorizations and other reasons unrelated to credit risk. These amounts are estimated based on historical experience inclusive of the Companys historical collection rate on Medicare claims, and are recorded during the period services are rendered as an estimated revenue adjustment and as a reduction to net patient accounts receivable.
Additionally, Medicare hospice is subject to an inpatient cap limit and an overall payment cap for each of their provider numbers. The Company monitors these caps and estimates amounts due back to Medicare if a cap has been exceeded. These amounts are reported as a reduction to revenue and an increase to amounts due to third-party payors. As of September 30, 2018 and December 31, 2017, the Company has recorded $2,528,029 and $2,706,275, respectively, related to the Medicare cap liability.
In addition to the Medicare cap liability, amounts related to government settlements are also recorded as a reduction to revenue and an increase to amounts due to third-party payors. As of September 30, 2018 and December 31, 2017, the Company has recorded $6,868,929 and $9,234,048, respectively, related to government settlements.
Hospice Non-Medicare Revenue
The Company records revenue on an accrual basis based upon the date of service at amounts equal to our established rates or estimated per day rates, as applicable. Contractual adjustments are recorded for the difference between the Companys established rates and the amounts estimated to be realizable from patients, third parties and others for services provided and are deducted from the gross revenue to determine net patient service revenue and net patient accounts receivable.
7
COMPASSIONATE CARE HOSPICE GROUP, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
5. Acquisitions
In June 2018, the Company acquired the assets of Peaceful Days Hospice, Inc. which services the state of California for a total purchase price of $350,000. The purchase price was paid with cash on hand on the date of the transaction. During the three-month period ended June 30, 2018, the Company recorded goodwill of $350,000 in connection with the acquisition.
6. Commitments and Contingencies
Self-Insured
The Company self-insures a portion of certain insurable risks consisting of employee medical and prescription claims. The Company records its estimated ultimate liability for reported claims plus an estimate for claims incurred but not reported. Accruals for self-insurance claims are included in accounts payable and accrued expenses; the estimated claims incurred but not reported were $768,000 as of each September 30, 2018 and December 31, 2017, respectively.
Litigation
The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management and the Companys legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the Companys financial position, results of operations or liquidity.
Corporate Integrity Agreement
In connection with a settlement agreement with the U.S. Department of Justice, on January 30, 2015, the Company entered into a corporate integrity agreement (CIA) with the Office of Inspector GeneralHealth and Human Services (OIG). The CIA requires that the Company report substantial overpayments that the Company discovers it has received from federal health care programs, as well as probable violations of federal health care laws. Upon breach of the CIA, the Company could become liable for payment of certain stipulated penalties, or could be excluded from participation in federal health care programs. The CIA has a term of five years.
In accordance with the CIA, the Company has reported overpayments to the OIG; these amounts have been recorded within due to third-party payors within the condensed consolidated and combined balance sheets as of September 30, 2018 and December 31, 2017.
8
Exhibit 99.3
AMEDISYS, INC. AND SUBSIDIARIES
Contents
Unaudited Pro Forma Consolidated and Combined Financial Statements |
1 | |||
Unaudited Pro Forma Consolidated and Combined Balance Sheet |
2 | |||
Unaudited Pro Forma Consolidated and Combined Statement of Operations |
3 | |||
Notes to the Unaudited Pro Forma Consolidated and Combined Financial Statements |
4-9 |
Unaudited Pro Forma Consolidated and Combined Financial Statements
On February 1, 2019, Amedisys, Inc. (the Company) and Amedisys Hospice, L.L.C., a wholly-owned subsidiary of the Company (Amedisys Hospice), acquired all of the issued and outstanding equity interests in Compassionate Care Hospice Group, Inc. and its subsidiaries (collectively, CCH) pursuant to a Stock Purchase Agreement (the Stock Purchase Agreement) entered into on October 9, 2018 among the Company and Amedisys Hospice and Milton Heching and the Heching 2012 Exempt Irrevocable Trust, as Sellers, (the CCH Acquisition).
The unaudited pro forma consolidated and combined balance sheet as of December 31, 2018 has been prepared as if the CCH Acquisition had occurred on such date and combines Amedisys, Inc.s audited historical balance sheet as of December 31, 2018 with CCHs unaudited consolidated and combined balance sheet as of September 30, 2018. The unaudited pro forma consolidated and combined statement of operations for the year ended December 31, 2018 has been prepared as if the CCH Acquisition had occurred on January 1, 2018 and combines Amedisys, Inc.s historical results for the year ended December 31, 2018 with CCHs historical results for the twelve-months ended September 30, 2018.
The historical consolidated financial information of Amedisys, Inc. and CCH have been adjusted in the unaudited pro forma consolidated and combined financial statements to give effect to pro forma events that are (i) directly attributable to the CCH Acquisition, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results. The unaudited pro forma consolidated and combined financial information should be read in conjunction with the accompanying notes thereto. In addition, the unaudited pro forma consolidated and combined financial information was based on and should be read in conjuntion with the following:
| The historical audited consolidated financial statements as of and for the year ended December 31, 2018 and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations of Amedisys, Inc. included in its Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2019; |
| The historical audited consolidated and combined financial statements of Compassionate Care Hospice Group, Inc. and Subsidiaries and Affiliates as of and for the years ended December 31, 2017 and 2016 included as Exhibit 99.1 to this Current Report on Form 8-K/A; and |
| The historical unaudited condensed consolidated and combined financial statements of Compassionate Care Hospice Group, Inc. and Subsidiaries and Affiliates as of September 30, 2018 and for the nine-month periods ended September 30, 2018 and 2017 included as Exhibit 99.2 to this Current Report on Form 8-K/A. |
The historical audited and unaudited financial statements included in Exhibits 99.1 and 99.2 include Compassionate Care Hospice Group, Inc., its wholly-owned subsidiaries and affiliates, which are listed in Note 2 to the historical financial statements. One of the affiliates, Compassionate Care Hospice of New York, LLC (CCH NY), was not acquired by the Company. The unaudited pro forma consolidated and combined financial statements include adjustments to remove CCH NY from the historical financial statements.
The unaudited pro forma consolidated and combined financial statements are provided for information purposes only and are not intended to represent or be indicative of what the actual combined results of operations or the combined financial position of Amedisys, Inc. would have been had the CCH Acquisition been completed as of the dates presented. In addition, the unaudited consolidated and combined financial information does not purport to project the future financial position or operating results of Amedisys, Inc. nor does it reflect any operational efficiencies that may have been achieved if the acquisition had occurred on January 1, 2018 or December 31, 2018.
The unaudited pro forma consolidated and combined financial statements have been prepared using the acquisition method of accounting which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. We believe the fair values assigned to the assets acquired and the liabilities assumed, as reflected in the pro forma financial statements, are based on reasonable assumptions; however, all components of the purchase price allocation are considered preliminary and are subject to change as the Company finalizes the valuations of the assets acquired and liabilities assumed.
1
AMEDISYS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED BALANCE SHEET
(Amounts in thousands)
As of December 31, 2018 | ||||||||||||||||||||
Amedisys, Inc. |
CCH including CCH NY (Note 2) |
CCH NY (a) | Pro Forma Adjustments |
Combined Pro Forma |
||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 20,229 | $ | 13,675 | $ | | $ | (12,176 | )(b) | $ | 21,728 | |||||||||
Patient accounts receivable |
188,972 | 35,650 | (1,300 | ) | | 223,322 | ||||||||||||||
Prepaid expenses |
7,568 | 767 | (10 | ) | | 8,325 | ||||||||||||||
Other current assets |
7,349 | 233 | (16 | ) | | 7,566 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
224,118 | 50,325 | (1,326 | ) | (12,176 | ) | 260,941 | |||||||||||||
Property and equipment, net |
29,449 | 224 | | | 29,673 | |||||||||||||||
Goodwill |
329,480 | 350 | | 302,845 | (c) | 632,675 | ||||||||||||||
Intangible assets, net |
44,132 | | | 18,785 | (d) | 62,917 | ||||||||||||||
Deferred income taxes |
35,794 | | | | 35,794 | |||||||||||||||
Other assets |
54,145 | | | | 54,145 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 717,118 | $ | 50,899 | $ | (1,326 | ) | $ | 309,454 | $ | 1,076,145 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 28,531 | $ | 10,556 | $ | (499 | ) | $ | | $ | 38,588 | |||||||||
Payroll and employee benefits |
92,858 | 5,159 | (226 | ) | 5,369 | (e) | 103,160 | |||||||||||||
Accrued expenses |
99,475 | 10,977 | (1,674 | ) | 320 | (f) | 109,098 | |||||||||||||
Current portion of long-term obligations |
1,612 | | | | 1,612 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
222,476 | 26,692 | (2,399 | ) | 5,689 | 252,458 | ||||||||||||||
Deferred income taxes |
| 171 | | (171 | )(g) | | ||||||||||||||
Long-term obligations, less current portion |
5,775 | | | 329,153 | (h) | 334,928 | ||||||||||||||
Other long-term obligations |
6,234 | | | | 6,234 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
234,485 | 26,863 | (2,399 | ) | 334,671 | 593,620 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Equity: |
||||||||||||||||||||
Preferred stock |
| | | | | |||||||||||||||
Common stock |
36 | 1 | | (1 | )(i) | 36 | ||||||||||||||
Additional paid-in capital |
603,666 | | | | 603,666 | |||||||||||||||
Treasury stock, at cost |
(241,685 | ) | | | | (241,685 | ) | |||||||||||||
Accumulated other comprehensive income |
15 | | | | 15 | |||||||||||||||
Retained earnings |
119,550 | 25,855 | 2,492 | (28,455 | )(i) | 119,442 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total Amedisys, Inc. stockholders equity |
481,582 | 25,856 | 2,492 | (28,456 | ) | 481,474 | ||||||||||||||
Noncontrolling interests |
1,051 | (1,820 | ) | (1,419 | ) | 3,239 | (i) | 1,051 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
482,633 | 24,036 | 1,073 | (25,217 | ) | 482,525 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 717,118 | $ | 50,899 | $ | (1,326 | ) | $ | 309,454 | $ | 1,076,145 | |||||||||
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited pro forma consolidated and combined financial statements.
2
AMEDISYS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
For the Year Ended December 31, 2018 | ||||||||||||||||||||
Amedisys, Inc. |
CCH including CCH NY (Note 2) |
CCH NY (a) | Pro Forma Adjustments |
Combined Pro Forma |
||||||||||||||||
Net service revenue |
$ | 1,662,578 | $ | 207,318 | $ | (9,355 | ) | $ | (8,066 | )(b) | $ | 1,852,475 | ||||||||
Cost of service, excluding depreciation and amortization |
992,863 | 117,792 | (5,218 | ) | | 1,105,437 | ||||||||||||||
General and administrative expenses: |
||||||||||||||||||||
Salaries and benefits |
316,522 | 34,781 | (1,610 | ) | | 349,693 | ||||||||||||||
Non-cash compensation |
17,887 | | | | 17,887 | |||||||||||||||
Other |
166,897 | 27,769 | (1,367 | ) | (9,002 | )(c) | 184,297 | |||||||||||||
Depreciation and amortization |
13,261 | 72 | | 5,033 | (d) | 18,366 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating expenses |
1,507,430 | 180,414 | (8,195 | ) | (3,969 | ) | 1,675,680 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income |
155,148 | 26,904 | (1,160 | ) | (4,097 | ) | 176,795 | |||||||||||||
Other income (expense): |
||||||||||||||||||||
Interest income |
278 | 69 | | | 347 | |||||||||||||||
Interest expense |
(7,370 | ) | (192 | ) | 60 | (13,369 | )(e) | (20,871 | ) | |||||||||||
Equity in earnings from equity method investments |
7,692 | | | | 7,692 | |||||||||||||||
Miscellaneous, net |
3,240 | | | | 3,240 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total other income (expense), net |
3,840 | (123 | ) | 60 | (13,369 | ) | (9,592 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
158,988 | 26,781 | (1,100 | ) | (17,466 | ) | 167,203 | |||||||||||||
Income tax expense |
(38,859 | ) | (824 | ) | | (1,312 | )(f) | (40,995 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
120,129 | 25,957 | (1,100 | ) | (18,778 | ) | 126,208 | |||||||||||||
Net income attributable to noncontrolling interests |
(783 | ) | (1,233 | ) | 1,100 | 133 | (g) | (783 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) attributable to Amedisys, Inc. |
$ | 119,346 | $ | 24,724 | $ | | $ | (18,645 | ) | $ | 125,425 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Basic earnings per common share: |
||||||||||||||||||||
Net income attributable to Amedisys, Inc. common stockholders |
$ | 3.64 | $ | 3.82 | ||||||||||||||||
Weighted average shares outstanding |
32,791 | 32,791 | ||||||||||||||||||
Diluted earnings per common share: |
||||||||||||||||||||
Net income attributable to Amedisys, Inc. common stockholders |
$ | 3.55 | $ | 3.73 | ||||||||||||||||
Weighted average shares outstanding |
33,609 | 33,609 |
See accompanying notes to the unaudited pro forma consolidated and combined financial statements.
3
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. Description of Transaction
On February 1, 2019, Amedisys, Inc. (the Company) and Amedisys Hospice, L.L.C., a wholly-owned subsidiary of the Company (Amedisys Hospice), completed the acquisition of all of the issued and outstanding equity interests in Compassionate Care Hospice Group, Inc. and its subsidiaries (collectively CCH) pursuant to a Stock Purchase Agreement (the Stock Purchase Agreement) entered into on October 9, 2018 among the Company and Amedisys Hospice and Milton Heching and the Heching 2012 Exempt Irrevocable Trust, as Sellers, for a base purchase price of $340 million (which purchase price was subject to customary purchase price adjustments based on the amount of cash of the acquired companies as of the closing as well as certain tax payments owed by CCH) (the CCH Acquisition). A portion of the purchase price was paid by the issuance of a one business day promissory note, which the Company paid off in full on February 4, 2019 pursuant to the proceeds from the Term Loan Facility advanced under the Companys Amended Credit Agreement.
2. Basis of Presentation
The unaudited pro forma consolidated and combined balance sheet as of December 31, 2018 and the unaudited pro forma consolidated and combined statement of operations for the year ended December 31, 2018 are based on the historical financial statements of the Company after giving effect to the Companys acquisition of CCH and the assumptions and adjustments described in the notes herein. The unaudited pro forma consolidated and combined balance sheet as of December 31, 2018 is presented as if the acquisition occurred on December 31, 2018 and combines Amedisys, Inc.s audited historical balance sheet as of December 31, 2018 with CCHs unaudited consolidated and combined balance sheet as of September 30, 2018. The unaudited pro forma consolidated and combined statement of operations for the year ended December 31, 2018 is presented as if the acquisition occurred on January 1, 2018 and combines Amedisys, Inc.s historical results for the year ended December 31, 2018 with CCHs historical results for the twelve-months ended September 30, 2018.
The unaudited pro forma consolidated and combined financial statements are not intended to represent or be indicative of the results of operations or financial position of the Company that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future results of operations or financial position of the Company. The unaudited pro forma consolidated and combined financial statements, including the notes thereto, do not reflect any potential operating synergies that the Company may achieve with respect to the combined companies. The unaudited pro forma consolidated and combined financial statements and notes thereto should be read in conjunction with the historical financial statements of the Company included in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (SEC) on February 28, 2019, and in conjunction with the historical financial statements of CCH as presented in Exhibits 99.1 and 99.2 of this Form 8-K/A.
The historical audited and unaudited financial statements of CCH include Compassionate Care Hospice Group, Inc., its wholly-owned subsidiaries and affiliates, which are listed in Note 2 to the historical financial statements. One of the affiliates, Compassionate Care Hospice of New York, LLC (CCH NY), was not acquired by the Company. The unaudited pro forma consolidated and combined financial statements include adjustments to remove CCH NY from the historical financial statements.
The tax rate used for the CCH pro forma financial information is the Companys statutory tax rate of 26.0%, which will likely vary from the actual effective tax rate in periods subsequent to completion of the pro forma events.
The unaudited pro forma consolidated and combined financial statements have been prepared using the acquisition method of accounting which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. We believe the fair values assigned to the assets acquired and the liabilities assumed, as reflected in the pro forma financial statements, are based on reasonable assumptions; however, all components of the purchase price allocation are considered preliminary and are subject to change as the Company finalizes the valuations of the assets acquired and liabilities assumed.
4
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
3. Accounting Policies
Based on the Companys review of CCHs significant accounting policies, the following pro forma adjustments are necessary to conform CCHs accounting policies to the Companys accounting policies.
On January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (collectively, ASC 606) on a full retrospective basis. The pro forma financial statements assume that CCH also adopted ASC 606 on January 1, 2018, on a full retrospective basis.
In addition, certain balances from CCHs historical financial statements were reclassified to conform to the Companys financial statement presentation. The reclassifications reflected within the CCH including CCH NY column of the unaudited pro forma consolidated and combined balance sheet are as follows:
| The prepaid expenses and other current assets line item in CCHs historical balance sheet was split into two separate line items, prepaid expenses and other current assets, in the unaudited pro forma consolidated and combined balance sheet. The amounts reclassified are as follows: |
Amount (in thousands) | ||||
CCH Historical Financial Statements: |
||||
Prepaid expenses and other current assets |
$ | 1,000 | ||
CCH Pro Forma Financial Statements: |
||||
Prepaid expenses |
$ | 767 | ||
Other current assets |
233 | |||
|
|
|||
Total |
$ | 1,000 | ||
|
|
| The accounts payable and accrued expenses line item in CCHs historical balance sheet was split into two separate line items, accounts payable and accrued expenses, in the unaudited pro forma consolidated and combined balance sheet. The amounts reclassified are as follows: |
Amount (in thousands) | ||||
CCH Historical Financial Statements: |
||||
Accounts payable and accrued expenses |
$ | 11,954 | ||
CCH Pro Forma Financial Statements: |
||||
Accounts payable |
$ | 10,556 | ||
Accrued expenses |
1,398 | |||
|
|
|||
Total |
$ | 11,954 | ||
|
|
| The self-insured liability and accrued salaries, benefits and other payroll liabilities line items in CCHs historical balance sheet were combined and included in the payroll and employee benefits line item in the unaudited pro forma consolidated and combined balance sheet. The amounts reclassified are as follows: |
Amount (in thousands) | ||||
CCH Historical Financial Statements: |
||||
Self-insured liability |
$ | 768 | ||
Accrued salaries, benefits and other payroll liabilities |
4,391 | |||
|
|
|||
Total |
$ | 5,159 | ||
|
|
|||
CCH Pro Forma Financial Statements: |
||||
Payroll and employee benefits |
$ | 5,159 |
5
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| The income tax payable and due to third-party payors line items in CCHs historical balance sheet were included in the accrued expenses line item in the unaudited pro forma consolidated and combined balance sheet. The amounts reclassified are as follows: |
Amount (in thousands) | ||||
CCH Historical Financial Statements: |
||||
Income tax payable |
$ | 182 | ||
Due to third-party payors |
9,397 | |||
|
|
|||
Total |
$ | 9,579 | ||
|
|
|||
CCH Pro Forma Financial Statements: |
||||
Accrued expenses |
$ | 9,579 |
The reclassifications reflected within the CCH including CCH NY column of the unaudited pro forma consolidated and combined statement of operations are as follows:
| The general and administrative line item in CCHs historical consolidated and combined statement of income includes medical insurance and workers compensation insurance expenses as well as other general and administrative expenses. |
| Expenses related to CCHs self-insured medical insurance plan as well as CCHs workers compensation insurance plan have been reclassified to either cost of service, excluding depreciation and amortization or general and administrative expenses: salaries and benefits in the unaudited pro forma consolidated and combined statement of operations based on the classification of the employee that the expenses relate to. |
| The remaining expenses have been reclassified to general and administrative expenses: other in the unaudited pro forma consolidated and combined statement of operations. |
The amounts reclassified are as follows:
Amount (in thousands) | ||||
CCH Historical Financial Statements: |
||||
General and administrative expenses |
$ | 24,362 | ||
CCH Pro Forma Financial Statements: |
||||
Cost of service, excluding depreciation and amortization |
$ | 4,720 | ||
General and administrative expenses: salaries and benefits |
1,876 | |||
General and administrative expenses: other |
17,766 | |||
|
|
|||
Total |
$ | 24,362 | ||
|
|
| The salaries and wages line item in CCHs historical consolidated and combined statement of income includes salaries and wages for all employees, as well as medical director fees. These amounts have been reclassified to either cost of service, excluding depreciation and amortization, general and administrative expenses: salaries and benefits or general and administrative expenses: other in the unaudited pro forma consolidated and combined statement of operations based on the classification of the employee that the expenses relate to. The amounts reclassified are as follows: |
Amount (in thousands) | ||||
CCH Historical Financial Statements: |
||||
Salaries and wages |
$ | 121,973 | ||
CCH Pro Forma Financial Statements: |
||||
Cost of service, excluding depreciation and amortization |
$ | 82,504 | ||
General and administrative expenses: salaries and benefits |
32,905 | |||
General and administrative expenses: other |
6,564 | |||
|
|
|||
Total |
$ | 121,973 | ||
|
|
6
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| The supplies and other expenses line item in CCHs historical consolidated and combined statement of income has been reclassified to cost of service, excluding depreciation and amortization in the unaudited pro forma consolidated and combined statement of operations. The amounts reclassified are as follows: |
Amount (in thousands) | ||||
CCH Historical Financial Statements: |
||||
Supplies and other expenses |
$ | 30,568 | ||
CCH Pro Forma Financial Statements: |
||||
Cost of service, excluding depreciation and amortization |
$ | 30,568 |
| The rent expense line item in CCHs historical consolidated and combined statement of income has been reclassified to general and administrative expenses: other in the unaudited pro forma consolidated and combined statement of operations. The amounts reclassified are as follows: |
Amount (in thousands) | ||||
CCH Historical Financial Statements: |
||||
Rent expense |
$ | 3,439 | ||
CCH Pro Forma Financial Statements: |
||||
General and administrative expenses: other |
$ | 3,439 |
At this time, the Company is not aware of any other differences that would have a material impact on the pro forma financial statements.
4. Preliminary Purchase Price Allocation
The Companys acquisition of CCH was accounted for using the acquisition method of accounting which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date. The initial purchase consideration paid to acquire CCH was $334.5 million or $327.9 million, net of cash acquired.
The Company is in the process of finalizing its valuation of the assets acquired and liabilities assumed. Based on the Companys preliminary valuation, the total estimated consideration net of cash acquired of $327.9 million has been allocated to assets acquired and liabilities assumed as of the acquisition date as follows:
Amount (in thousands) | ||||
Current assets |
$ | 35,324 | ||
Property and equipment, net |
224 | |||
Intangible assets |
18,785 | |||
|
|
|||
Total assets acquired |
54,333 | |||
|
|
|||
Current liabilities |
(29,662 | ) | ||
|
|
|||
Total liabilities assumed |
(29,662 | ) | ||
|
|
|||
Net identifiable assets acquired |
24,671 | |||
Goodwill |
303,195 | |||
|
|
|||
Total consideration transferred |
$ | 327,866 | ||
|
|
5. Pro Forma AdjustmentsBalance Sheet
The following pro forma adjustments are included in the unaudited pro forma consolidated and combined balance sheet:
(a) To eliminate assets and liabilities of CCH NY, which was not acquired in the acquisition.
7
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(b) To reflect the cash inflows and outflows as a result of the CCH Acquisition, as follows:
Amount (in thousands) | ||||
Proceeds from borrowings under Amended Credit Agreement |
$ | 330,000 | ||
Cash paid to seller/deposited into escrow account at closing |
(333,503 | ) | ||
Cash in excess of $6.7 million retained by seller |
(7,008 | ) | ||
Payment of transaction costs on behalf of seller |
(1,030 | ) | ||
Payment of financing fees |
(527 | ) | ||
Payment of Amedisys transaction costs |
(108 | ) | ||
|
|
|||
Adjustment to cash and cash equivalents |
$ | (12,176 | ) | |
|
|
(c) To reflect changes in goodwill that would have been recognized if the acquisition occurred on December 31, 2018 as follows:
Amount (in thousands) | ||||
Eliminate the historical goodwill of CCH |
$ | (350 | ) | |
Record estimated excess of purchase price over net assets acquired |
303,195 | |||
|
|
|||
Adjustment to goodwill |
$ | 302,845 | ||
|
|
(d) To record the estimated fair value of the intangible assets acquired, which include Medicare licenses, certificates of need, non-compete agreements and trade names. The non-compete agreements and trade names will be amortized over a weighted average period of 2.3 and 2.0 years, respectively.
(e) To record the accrual of retention and change-in-control bonus payments.
(f) To record the accrual of deferred financing fees that were not paid as of closing.
(g) To eliminate the historical deferred tax liability of CCH.
(h) To reflect changes in long-term obligations, less current portion, as follows:
Amount (in thousands) | ||||
Borrowings under Amended Credit Agreement to fund acquisition |
$ | 330,000 | ||
Deferred financing fees associated with additional borrowings |
(847 | ) | ||
|
|
|||
Adjustment to long-term obligations, less current portion |
$ | 329,153 | ||
|
|
(i) To eliminate the historical equity of CCH and to adjust for transaction costs totaling approximately $108,000.
6. Pro Forma AdjustmentsStatement of Operations
The following pro forma adjustments are included in the unaudited pro forma consolidated and combined statement of operations:
(a) To eliminate revenue and expenses of CCH NY, which was not acquired in the acquisition.
(b) To record changes in net service revenue as a result of changes in accounting policy due to the adoption of ASC 606 on January 1, 2018.
(c) To reflect changes in general and administrative expensesother as follows:
Amount (in thousands) | ||||
Adoption of ASC 606 on January 1, 2018 |
$ | (8,066 | ) | |
Elimination of non-recurring transaction costs related to the acquisition |
(936 | ) | ||
|
|
|||
Adjustment to general and administrative expensesother |
$ | (9,002 | ) | |
|
|
8
AMEDISYS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(d) To record estimated amortization expense associated with the acquired intangible assets.
(e) To reflect changes in interest expense as follows:
Amount (in thousands) | ||||
Estimated interest expense associated with additional Amedisys borrowings |
$ | (13,200 | ) | |
Amortization of deferred financing fees associated with additional Amedisys borrowings |
(169 | ) | ||
|
|
|||
Adjustment to interest expense |
$ | (13,369 | ) | |
|
|
Estimated interest expense associated with the additional Amedisys, Inc. borrowings was computed using an interest rate of 4.02%, which represents the interest rate in effect at December 31, 2018.
(f) To record changes in income tax expense as follows:
Amount (in thousands) | ||||
Adjustment to record the income tax effect of pro forma adjustments based on the Companys statutory rate of 26% |
$ | 4,541 | ||
Adjustment to record the income tax expense of CCH excluding NY at the Companys statutory rate of 26% |
(5,853 | ) | ||
|
|
|||
Adjustment to income tax expense |
$ | (1,312 | ) | |
|
|
(g) To eliminate the historical noncontrolling interests of CCH.
9