UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended MarchDecember 31, 2018
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
Commission File Number1-12607
SUNLINK HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Ohio | 31-0621189 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
900 Circle 75 Parkway, Suite 1120, Atlanta, Georgia 30339
(Address of principal executive offices)
(Zip Code)
(770)933-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapterchapter) during the preceding 12 months (of for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
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 7(a)(2)(B)13(a) of the SecuritiesExchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
The number of Common Shares, without par value, outstanding as of May 11, 2018February 13, 2019 was 7,416,814.6,986,855 .
Page | ||||
2 | ||||
Item 1. | 2 | |||
2 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Earnings (Loss) | 3 | |||
4 | ||||
5 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
Item 3. | 22 | |||
Item 4. | 22 | |||
23 | ||||
Item 1A. | 23 | |||
Item 6. | 23 | |||
24 |
PART I. FINANCIALFINANCIAL INFORMATION
SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
|
| December 31, |
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|
|
| |||||||||
| 2018 |
|
| June 30, |
| |||||||||||
March 31, 2018 (unaudited) | June 30, 2017 |
| (unaudited) |
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| 2018 |
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ASSETS |
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Current Assets: |
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|
|
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|
|
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Cash and cash equivalents | $ | 3,541 | $ | 10,494 |
| $ | 3,326 |
|
| $ | 3,456 |
| ||||
Restricted cash | 0 | 1,000 | ||||||||||||||
Receivables – net | 5,884 | 5,906 | ||||||||||||||
Receivables - net |
|
| 5,508 |
|
|
| 4,823 |
| ||||||||
Inventory | 1,974 | 2,159 |
|
| 1,953 |
|
|
| 1,894 |
| ||||||
Prepaid expense and other assets | 3,083 | 3,062 |
|
| 2,407 |
|
|
| 2,937 |
| ||||||
|
| |||||||||||||||
Total current assets | 14,482 | 22,621 |
|
| 13,194 |
|
|
| 13,110 |
| ||||||
Property, plant and equipment, at cost | 30,103 | 28,609 |
|
| 30,110 |
|
|
| 29,995 |
| ||||||
Less accumulated depreciation | 19,559 | 18,319 |
|
| 20,107 |
|
|
| 19,589 |
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| |||||||||||||||
Property, plant and equipment – net | 10,544 | 10,290 | ||||||||||||||
Property, plant and equipment - net |
|
| 10,003 |
|
|
| 10,406 |
| ||||||||
Noncurrent Assets: |
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Intangible assets – net | 1,500 | 1,587 | ||||||||||||||
Intangible assets - net |
|
| 1,412 |
|
|
| 1,470 |
| ||||||||
Income tax receivable | 296 | 0 |
|
| 305 |
|
|
| 305 |
| ||||||
Other noncurrent assets | 969 | 838 |
|
| 812 |
|
|
| 885 |
| ||||||
|
| |||||||||||||||
Total noncurrent assets | 2,765 | 2,425 |
|
| 2,529 |
|
|
| 2,660 |
| ||||||
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| |||||||||||||||
TOTAL ASSETS | $ | 27,791 | $ | 35,336 |
| $ | 25,726 |
|
| $ | 26,176 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable | $ | 1,254 | $ | 1,571 |
| $ | 1,526 |
|
| $ | 1,239 |
| ||||
Current maturities of long-term debt, net of debt issuance costs | 258 | 6,710 |
|
| 292 |
|
|
| 255 |
| ||||||
Accrued payroll and related taxes | 2,381 | 2,098 |
|
| 1,914 |
|
|
| 1,959 |
| ||||||
Due to third party payors | 293 | 658 |
|
| 642 |
|
|
| 290 |
| ||||||
Other accrued expenses | 1,099 | 1,277 |
|
| 1,304 |
|
|
| 1,108 |
| ||||||
|
| |||||||||||||||
Total current liabilities | 5,285 | 12,314 |
|
| 5,678 |
|
|
| 4,851 |
| ||||||
Long-Term Liabilities |
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Long-term debt, net of debt issuance costs | 2,863 | 0 |
|
| 2,815 |
|
|
| 2,803 |
| ||||||
Noncurrent liability for professional liability risks | 752 | 1,040 |
|
| 779 |
|
|
| 996 |
| ||||||
Other noncurrent liabilities | 304 | 289 |
|
| 221 |
|
|
| 340 |
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| |||||||||||||||
Total long-term liabilities | 3,919 | 1,329 |
|
| 3,815 |
|
|
| 4,139 |
| ||||||
Commitment and Contingencies |
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Shareholders’ Equity |
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Preferred Shares, authorized and unissued, 2,000 shares | 0 | 0 |
|
| 0 |
|
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| 0 |
| ||||||
Common Shares, without par value: |
|
|
|
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|
|
|
| ||||||||
Issued and outstanding, 7,417 shares at March 31, 2018 and 9,163 at June 30, 2017 | 3,708 | 4,581 | ||||||||||||||
Issued and outstanding, 6,987 shares at December 31, 2018 and 7,347 shares at June 30, 2018 |
|
| 3,493 |
|
|
| 3,673 |
| ||||||||
Additionalpaid-in capital | 11,009 | 13,103 |
|
| 10,749 |
|
|
| 10,947 |
| ||||||
Retained earnings | 4,197 | 4,336 |
|
| 2,168 |
|
|
| 2,743 |
| ||||||
Accumulated other comprehensive loss | (327 | ) | (327 | ) |
|
| (177 | ) |
|
| (177 | ) | ||||
|
| |||||||||||||||
Total Shareholders’ Equity | 18,587 | 21,693 |
|
| 16,233 |
|
|
| 17,186 |
| ||||||
|
| |||||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 27,791 | $ | 35,336 |
| $ | 25,726 |
|
| $ | 26,176 |
| ||||
|
|
See notes to condensed consolidated financial statements.
2
SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE EARNINGS (LOSS)
(In thousands, except per share amounts)
(unaudited)(Unaudited)
| Three Months Ended |
|
| Six Months Ended |
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Three Months Ended March 31, | Nine Months Ended March 31, |
| December 31, |
|
| December 31, |
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2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||
Operating revenues (net of contractual allowances) | $ | 13,550 | $ | 13,883 | $ | 41,021 | $ | 41,321 | ||||||||||||||||||||||||
Less provision for bad debts of Healthcare Facilities segment | 133 | 184 | 363 | 321 | ||||||||||||||||||||||||||||
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| 2018 |
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| 2017 |
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| 2018 |
|
| 2017 |
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Net revenues | 13,417 | 13,699 | 40,658 | 41,000 |
| $ | 14,223 |
|
|
| 13,790 |
|
|
| 26,275 |
|
|
| 27,033 |
| ||||||||||||
Costs and Expenses |
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Cost of goods sold | 5,073 | 5,523 | 14,623 | 15,592 |
|
| 5,255 |
|
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| 5,092 |
|
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| 9,172 |
|
|
| 9,550 |
| ||||||||||||
Salaries, wages and benefits | 6,045 | 5,872 | 17,697 | 17,476 |
|
| 5,985 |
|
|
| 5,888 |
|
|
| 11,932 |
|
|
| 11,652 |
| ||||||||||||
Provision for bad debts of Pharmacy segment | 237 | 126 | 445 | 342 | ||||||||||||||||||||||||||||
Supplies | 448 | 455 | 1,361 | 1,373 |
|
| 459 |
|
|
| 488 |
|
|
| 869 |
|
|
| 913 |
| ||||||||||||
Purchased services | 672 | 692 | 2,021 | 2,113 |
|
| 722 |
|
|
| 662 |
|
|
| 1,429 |
|
|
| 1,349 |
| ||||||||||||
Other operating expenses | 1,052 | 1,194 | 3,639 | 4,015 |
|
| 1,239 |
|
|
| 1,145 |
|
|
| 2,513 |
|
|
| 2,587 |
| ||||||||||||
Rent and lease expense | 157 | 142 | 471 | 409 |
|
| 169 |
|
|
| 160 |
|
|
| 306 |
|
|
| 314 |
| ||||||||||||
EHR incentive payments | 0 | 0 | (21 | ) | 0 |
|
| 0 |
|
|
| (4 | ) |
|
| 0 |
|
|
| (21 | ) | |||||||||||
Depreciation and amortization | 464 | 466 | 1,332 | 1,376 |
|
| 431 |
|
|
| 439 |
|
|
| 849 |
|
|
| 868 |
| ||||||||||||
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Operating Loss | (731 | ) | (771 | ) | (910 | ) | (1,696 | ) |
|
| (37 | ) |
|
| (80 | ) |
|
| (795 | ) |
|
| (179 | ) | ||||||||
Other Income (Expense): |
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Gain on sale of assets | 183 | 2 | 181 | 3,019 | ||||||||||||||||||||||||||||
Gains (Losses) on sale of assets |
|
| 452 |
|
|
| (4 | ) |
|
| 454 |
|
|
| (2 | ) | ||||||||||||||||
Gain on economic damages claim, net | 0 | 0 | 944 | 0 |
|
| 0 |
|
|
| 944 |
|
|
| 0 |
|
|
| 944 |
| ||||||||||||
Loss on extinguishment of debt | 0 | 0 | (238 | ) | (243 | ) |
|
| 0 |
|
|
| (238 | ) |
|
| 0 |
|
|
| (238 | ) | ||||||||||
Interest expense, net | (56 | ) | (129 | ) | (302 | ) | (507 | ) |
|
| (61 | ) |
|
| (119 | ) |
|
| (122 | ) |
|
| (246 | ) | ||||||||
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| |||||||||||||||||||||||||||||
Earnings (Loss) from Continuing Operations before income taxes | (604 | ) | (898 | ) | (325 | ) | 573 |
|
| 354 |
|
|
| 503 |
|
|
| (463 | ) |
|
| 279 |
| |||||||||
Income Tax Benefit | 0 | (8 | ) | (296 | ) | (236 | ) |
|
| 0 |
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| (296 | ) |
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| 0 |
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| (296 | ) | |||||||||
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| |||||||||||||||||||||||||||||
Earnings (Loss) from Continuing Operations | (604 | ) | (890 | ) | (29 | ) | 809 |
|
| 354 |
|
|
| 799 |
|
|
| (463 | ) |
|
| 575 |
| |||||||||
Earnings (Loss) from Discontinued Operations, net of tax | 16 | (135 | ) | (110 | ) | 4,287 | ||||||||||||||||||||||||||
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Loss from Discontinued Operations, net of tax |
|
| (49 | ) |
|
| (73 | ) |
|
| (112 | ) |
|
| (126 | ) | ||||||||||||||||
Net Earnings (Loss) | (588 | ) | (1,025 | ) | (139 | ) | 5,096 |
|
| 305 |
|
|
| 726 |
|
|
| (575 | ) |
|
| 449 |
| |||||||||
Other comprehensive income | 0 | 0 | 0 | 0 |
|
| 0 |
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| 0 |
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| 0 |
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| 0 |
| ||||||||||||
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Comprehensive Earnings (Loss) | $ | (588 | ) | $ | (1,025 | ) | $ | (139 | ) | $ | 5,096 |
| $ | 305 |
|
| $ | 726 |
|
| $ | (575 | ) |
| $ | 449 |
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Earnings (Loss) Per Share: |
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Continuing Operations: |
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Basic | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.00 | ) | $ | 0.09 |
| $ | 0.05 |
|
| $ | 0.09 |
|
| $ | (0.06 | ) |
| $ | 0.06 |
| |||||
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Diluted | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.00 | ) | $ | 0.09 |
| $ | 0.05 |
|
| $ | 0.09 |
|
| $ | (0.06 | ) |
| $ | 0.06 |
| |||||
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Discontinued Operations: |
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| ||||||||||||||||
Basic | $ | 0.00 | $ | (0.01 | ) | $ | (0.01 | ) | $ | 0.46 |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
| $ | (0.01 | ) | ||||||
|
|
|
| |||||||||||||||||||||||||||||
Diluted | $ | 0.00 | $ | (0.01 | ) | $ | (0.01 | ) | $ | 0.45 |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
| $ | (0.01 | ) | ||||||
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| |||||||||||||||||||||||||||||
Net Earnings (Loss): |
|
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| ||||||||||||||||
Basic | $ | (0.08 | ) | $ | (0.11 | ) | $ | (0.02 | ) | $ | 0.54 |
| $ | 0.04 |
|
| $ | 0.08 |
|
| $ | (0.08 | ) |
| $ | 0.05 |
| |||||
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|
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| |||||||||||||||||||||||||||||
Diluted | $ | (0.08 | ) | $ | (0.11 | ) | $ | (0.02 | ) | $ | 0.54 |
| $ | 0.04 |
|
| $ | 0.08 |
|
| $ | (0.08 | ) |
| $ | 0.05 |
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Weighted-Average Common Shares Outstanding: |
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Basic | 7,417 | 9,334 | 8,564 | 9,408 |
|
| 7,271 |
|
|
| 8,688 |
|
|
| 7,309 |
|
|
| 9,125 |
| ||||||||||||
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| |||||||||||||||||||||||||||||
Diluted | 7,417 | 9,334 | 8,564 | 9,429 |
|
| 7,278 |
|
|
| 8,758 |
|
|
| 7,309 |
|
|
| 9,196 |
| ||||||||||||
|
|
|
|
See notes to condensed consolidated financial statements.
3
SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended |
| ||||||||||||||
Nine Months Ended March 31, |
| December 31, |
| |||||||||||||
2018 | 2017 |
| 2018 |
|
| 2017 |
| |||||||||
Net Cash Used in Operating Activities | $ | (33 | ) | $ | (4,999 | ) | ||||||||||
Net Cash Provided by Operating Activities |
| $ | 144 |
|
| $ | 265 |
| ||||||||
Cash Flows Provided by (Used in) Investing Activities: |
|
|
|
|
|
|
|
| ||||||||
Expenditures for property, plant and equipment – continuing operations | (1,502 | ) | (1,097 | ) | ||||||||||||
Expenditures for property, plant and equipment - continuing operations |
|
| (694 | ) |
|
| (1,072 | ) | ||||||||
Proceeds from sale of other assets | 412 | 4,942 |
|
| 937 |
|
|
| 2 |
| ||||||
Proceeds from sale of hospital | 0 | 14,620 | ||||||||||||||
|
| |||||||||||||||
Net Cash Provided by (Used in) Investing Activities | (1,090 | ) | 18,465 | |||||||||||||
Net Cash Provided by (Used) in Investing Activities |
|
| 243 |
|
|
| (1,070 | ) | ||||||||
Cash Flows Used in Financing Activities: |
|
|
|
|
|
|
|
| ||||||||
Payments on long-term debt |
|
| (138 | ) |
|
| (3,784 | ) | ||||||||
Repurchase of common shares | (2,974 | ) | (640 | ) |
|
| (379 | ) |
|
| (2,946 | ) | ||||
Payments on long-term debt – continuing operations | (3,856 | ) | (3,850 | ) | ||||||||||||
Receipt (Deposit) of restricted cash | 1,000 | (1,000 | ) | |||||||||||||
|
| |||||||||||||||
Net Cash Used in Financing Activities | (5,830 | ) | (5,490 | ) |
|
| (517 | ) |
|
| (6,730 | ) | ||||
|
| |||||||||||||||
Net increase (decrease) in Cash and Cash Equivalents | (6,953 | ) | 7,976 | |||||||||||||
Net Decrease in Cash and Cash Equivalents |
|
| (130 | ) |
|
| (7,535 | ) | ||||||||
Cash and Cash Equivalents Beginning of Period | 10,494 | 3,261 |
|
| 3,456 |
|
|
| 10,494 |
| ||||||
|
| |||||||||||||||
Cash and Cash Equivalents End of Period | $ | 3,541 | $ | 11,237 |
| $ | 3,326 |
|
| $ | 2,959 |
| ||||
|
| |||||||||||||||
Supplemental Disclosure of Cash Flow Information: |
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Cash Paid for: |
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|
|
|
|
|
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| ||||||||
Interest | $ | 269 | $ | 458 |
| $ | 109 |
|
| $ | 218 |
| ||||
|
| |||||||||||||||
Income taxes | $ | 0 | $ | 141 |
| $ | 0 |
|
| $ | 0 |
| ||||
|
| |||||||||||||||
Non-cash investing and financing activities: |
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|
|
|
|
|
|
| ||||||||
Assets acquired under capital lease obligations |
| $ | 176 |
|
| $ | 0 |
|
See notes to condensed consolidated financial statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINESIX MONTHS ENDED MARCHDECEMBER 31, 2018
(all dollar amounts in thousands except per share amounts)
(unaudited)(Unaudited)
Note 1. – –Basis of Presentation and Adoption of Recently Issued Accounting Standards
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements as of MarchDecember 31, 2018 and for the three and ninesix month periods ended MarchDecember 31, 2018 and 2017 have been prepared in accordance with Rule10-01 of RegulationS-X of the Securities and Exchange Commission (“SEC”) and, as such, do not include all information required by accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated June 30, 20172018 balance sheet included in this interim filing has been derived from the audited financial statements at that date but does not include all of the information and related notes required by GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements included in the SunLink Health Systems, Inc. (“SunLink”, “we”, “our”, “ours”, “us” or the “Company”) Annual Report on Form10-K for the fiscal year ended June 30, 2017,2018, filed with the SEC on September 28, 2017.25, 2018. In the opinion of management, the Condensed Consolidated Financial Statements, which are unaudited, include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the periods indicated. The results of operations for the three and ninesix month periods ended MarchDecember 31, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.
Adoption of Recently Issued Accounting Standards
ASC 606, “Revenue from Contracts with Customers”
Effective July 1, 2018, the Company adopted the provisions of Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” (“ASC 606”), which supersedes most existing revenue recognition guidance, including industry-specific healthcare guidance, by applying the full retrospective method for all periods presented. ASC 606 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The adoption of the provisions of ASC 606 had no material impact on the Company’s current or historical financial position, results of operations or cash flows. Additionally, management does not anticipate that the provisions of ASC 606 will have a material impact on the amount or timing of when the Company recognizes revenue prospectively. However, in accordance with ASC 606, the Company now recognizes the majority of its previously reported provision for doubtful accounts, primarily related to its self-pay patient population, as a direct reduction to revenues as an implicit pricing concession, instead of separately as a discrete deduction to arrive at revenue, and the related presentation of the allowance for doubtful accounts has been eliminated for all periods presented. The Company’s revenue recognition and accounts receivable policies are more fully described in Note 5.
Note 2. – Business Operations
Business Operations
SunLink Health Systems, Inc., through subsidiaries, owns businesses which provide healthcare products and services in certain markets in the southeastern United States. Unless the context indicates otherwise, all references to “SunLink,” “we,” “our,” “ours,” “us” and the “Company” refer to SunLink Health Systems, Inc. and our consolidated subsidiaries. References to our specific operations refer to operations conducted through our subsidiaries and references to “we,” “our,” “ours,” and “us” in such context refer to the operations of our subsidiaries. Our business is composed of two business segments, the Healthcare Services segment and the Pharmacy segment. Our Healthcare Services segment subsidiaries own and operate an84-bed 84- bed community hospital and a66-bed 66- bed nursing home in Mississippi, a100-bed 100- bed nursing home in Georgia, an IT service company based in Georgia, and healthcare facilities, which are leased to third parties. Our Pharmacy segment subsidiary operates a pharmacy business in Louisiana with four service lines.
The business strategy of SunLink is to focus its efforts on improving the operations and expanding the services and improving the operations and profitability of its existing Healthcare Services and Pharmacy businesses. The Company is investing in upgrades and improvements to certain of its Healthcare Services and Pharmacy businesses while seeking to sell certain of its subsidiaries’ underperforming assets. The Company is also investing in certain upgrades and improvements to certain of its Healthcare Services and Pharmacy businesses.
5
The Company has used a portion of the cash proceeds from recent dispositions of assets to pay down debt and certain other liabilities, and to repurchase common shares, including in tender offers completed in February and December 2017.2017, and open market repurchases of its common shares, and to make improvements to its Healthcare Services businesses. The Company may also use existing cash, as well as any net proceeds from future dispositions, if any, to improve its existing businesses, make acquisitions of Healthcare Services and Pharmacy businesses, prepay debts, return capital to shareholders including through potential public or private purchases of shares, improve its existing businesses, make selective acquisitions of Healthcare Services and Pharmacy businesses and for other general corporate purposes. There is no assurance that any further dispositions will be authorized by the Company’s Board of Directors or, if authorized, that any such transactions will be completed or, if completed, will result in net cash proceeds to the Company on a before or after tax basis.
The Company considers the disposition of business segments, facilities and operations based on a variety of factors in addition to under-performance, including asset values, return on investments, competition from existing and potential competitors, capital improvement needs, the prevailing reimbursement environment under various Federal and state programs (e.g., Medicare and Medicaid) and private payors, and other corporate objectives. The Company believes certain facilities in its Healthcare Services segment as well as its Pharmacy segment continue to under-perform, and the Company has engaged advisors to assist it in evaluating the possible sale of its Pharmacy business lines.
On January 11,The Company has repurchased 359,959 common shares pursuant to a stock repurchase program announced on November 29, 2018, Carmichael’s Cashway Pharmacy, Inc.,which authorizes the repurchase of a wholly ownedtotal of 750,000 common shares.
A subsidiary of the Company soldhas received an indication of interest to purchase one of the assets of a retail pharmacy operationCompany’s nursing homes for approximately $410. Apre-tax gain$7,300 and, on August 29, 2018, entered into a non-binding letter of $183intent (“LOI”) and exclusivity agreement with a potential buyer. The non-binding LOI provides that any transaction will be subject to various terms and conditions (which are currently being negotiated), including reaching final agreement on a contract, satisfactory due diligence and other matters. The Company believes it more likely than not given the salepresent state of these assets is includednegotiations that the transaction will be consummated in the results forthird fiscal quarter at or about the three months ended March 31, 2018.
5
Throughout these notes$7,300 offered price but a number of issues remain to the consolidated financial statements, all references to “SunLink,” “we,” “our,” “ours,” “us” and the “Company” refer to SunLink Health Systems, Inc. and our consolidated subsidiaries. References to ourbe resolved. Accordingly, there can be no assurance that a transaction will in fact be completed on any terms or at any specific operations refer to operations conducted through our subsidiaries and references to “we,” “our,” “ours,” and “us” in such context refer to the operations.price.
Note 3. – Discontinued Operations
All of the businesses discussed in the note below are reported as discontinued operations and the condensed consolidated financial statements for all prior periods have been adjusted to reflect this presentation.
Results for all of the businesses included in discontinued operations are presented in the following table:
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Revenues: | ||||||||||||||||
Chestatee Hospital | $ | 0 | $ | 0 | $ | 0 | $ | 2,369 | ||||||||
Other Sold Hospitals | 77 | (68 | ) | 71 | (288 | ) | ||||||||||
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$ | 77 | $ | (68 | ) | $ | 71 | $ | 2,081 | ||||||||
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| |||||||||
Earnings (Loss) before income taxes: | ||||||||||||||||
Chestatee Hospital | $ | 0 | $ | (104 | ) | $ | (38 | ) | $ | 83 | ||||||
Other Sold Hospitals | 61 | (69 | ) | 45 | (304 | ) | ||||||||||
Life sciences and engineering | (36 | ) | (37 | ) | (108 | ) | (112 | ) | ||||||||
Gain (Loss) on sale of Chestatee Hospital | (9 | ) | 0 | (9 | ) | 7,270 | ||||||||||
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| |||||||||
Earnings (Loss) before income taxes | 16 | (210 | ) | (110 | ) | 6,937 | ||||||||||
Income tax expense | 0 | (75 | ) | 0 | 2,650 | |||||||||||
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Earnings (Loss) from discontinued operations | $ | 16 | $ | (135 | ) | $ | (110 | ) | $ | 4,287 | ||||||
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| Three Months Ended |
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| Six Months Ended |
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| December 31, |
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| December 31, |
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| 2018 |
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| 2017 |
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| 2018 |
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| 2017 |
| ||||
Net Revenues: |
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|
|
Sold Hospitals |
| $ | 7 |
|
| $ | 6 |
|
| $ | 13 |
|
| $ | (6 | ) |
|
| $ | 7 |
|
| $ | 6 |
|
| $ | 13 |
|
| $ | (6 | ) |
Loss before income taxes: |
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|
Sold Hospitals |
| $ | (25 | ) |
| $ | (37 | ) |
| $ | (63 | ) |
| $ | (54 | ) |
Life sciences and engineering |
|
| (24 | ) |
|
| (36 | ) |
|
| (49 | ) |
|
| (72 | ) |
Loss before income taxes |
|
| (49 | ) |
|
| (73 | ) |
|
| (112 | ) |
|
| (126 | ) |
Income tax expense |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Loss from discontinued operations |
| $ | (49 | ) |
| $ | (73 | ) |
| $ | (112 | ) |
| $ | (126 | ) |
Chestatee Hospital
Sold Hospitals – On August 19, 2016, Southern Health Corporation of Dahlonega, Inc., (“Chestatee”), a wholly owned subsidiary of the Company, sold substantially all of the assets and certain liabilities of Chestatee Regional Hospital in Dahlonega, Georgia through an asset purchase agreement for $15,000 subject to adjustment for the book value of certain assets and certain liabilities assumed at the sale date. Thepre-tax gain on sale of $7,270 is subject to adjustment for various purchase price adjustments. A purchase price adjustment of $328 is due to the Company from the hospital buyer as a post-closing adjustment to the purchase price as confirmed by a binding decision of an independent accountant rendered pursuant to the purchase agreement. Chestatee retained certain liabilities, including certain employee related liabilities and certain Medicare and Medicaid liabilities, relating to the period it owned and operated the hospital. A portion of the net proceeds was used for the repayment of debt.
Other Sold Hospitals– Subsidiaries of the Company sold substantially all of the assets of three hospitals (“Other Sold Hospitals”) during the period July 2, 2012 to December 31, 2014. The earnings (loss)loss before income taxes of the Other Sold Hospitals results primarily from prior year Medicare and Medicaid cost report settlements.retained professional liability claims expenses.
Life Sciences and Engineering Segment – SunLink —SunLink retained a defined benefit retirement plan which covered substantially all of the employees of this segment when the segment was sold in fiscal 1998. Effective February 28, 1997, the plan was amended to freeze participant benefits and close the plan to new participants. Pension expense and related tax benefit or expense is reflected in the results of operations for this segment for the three and ninesix months ended MarchDecember 31, 2018 and 2017.2017, respectively.
6
The components of pension expense for the three and ninesix months ended MarchDecember 31, 2018 and 2017, respectively, were as follows:
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||||
Three Months Ended March 31, | Nine Months Ended March 31, |
| December 31, |
|
| December 31, |
| |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||||
Interest Cost | $ | 14 | $ | 13 | $ | 42 | $ | 39 |
| $ | 14 |
|
| $ | 14 |
|
| $ | 28 |
|
| $ | 28 |
| ||||||||
Expected return on assets | (9 | ) | (8 | ) | (27 | ) | (24 | ) |
|
| (9 | ) |
|
| (9 | ) |
|
| (18 | ) |
|
| (18 | ) | ||||||||
Amortization of prior service cost | 31 | 32 | 93 | 97 |
|
| 19 |
|
|
| 31 |
|
|
| 39 |
|
|
| 62 |
| ||||||||||||
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Net pension expense | $ | 36 | $ | 37 | $ | 108 | $ | 112 |
| $ | 24 |
|
| $ | 36 |
|
| $ | 49 |
|
| $ | 72 |
| ||||||||
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|
SunLink contributed $105$53 to the plan in the ninesix months ended MarchDecember 31, 2018 and expects to contribute an additional $35$55 during the last two fiscal quarterquarters of the fiscal year ending June 30, 2018.2019.
Note 4. – Economic Damages Claim
The Pharmacy Segment subsidiary asserted claims for economic damages in connection with the Deepwater Horizon Settlement Program related to the event which occurred in 2010. In January 2018, these claims were settled and payments of approximately $944 (net of costs and attorneys’ fees) were received. The net settlements are recognized as a gain in the Condensed Consolidated Statements of Operations and Comprehensive Earnings (Loss) for the nine months ended March 31, 2018.
Note 5. – Restricted Cash
Under the Fourth Amendment to the Trace RDA Loan dated January 7, 2017 (see Note 9. Long-Term Debt), a deposit of $1,000 in a blocked interest bearing account was held by the lender. Under the Fifth Amendment to the Trace RDA Loan dated December 26, 2017, the blocked account was eliminated and a prepayment was made on the Trace RDA loan.
Note 6. – Shareholders’ Equity
Common Share Purchase Tender OfferRepurchase Program –On November 21, 2017, SunLink commenced29, 2018, the Company announced a tender offer forshare repurchase program (“Program”) approved by its Board of Directors, which authorized the Company to purchase of a portionup to 300,000 shares of its common shares at a price of $1.60 per share (the “Offer”). The offer expired onshares. On December 21, 2017 with 3,725,656 common shares tendered. In accordance with the terms and conditions of the Offer,13, 2018, the Company accepted for paymentannounced it had purchased the 300,000 shares authorized under the program, and that its Board of Directors had authorized an additional 450,000 shares to be purchased under the Program. As of December 31, 2018, a total of approximately 1,745,751359,959 shares had been repurchased at a price of $1.60 per share for a total cost of approximately $2,794,$372, excluding fees and expensesexpensing relating to the Offer.offer. Additional shares of 390,041 remain authorized to be repurchased. The chart below shows by month the total share repurchased and average price per share paid for the Program as of December 31, 2018.
| Total Shares |
| Average Price |
| ||
| Purchased |
| Per Share Paid |
| ||
November 2018 |
| 1,235 |
| $ | 1.14 |
|
December 2018 |
| 358,724 |
|
| 1.03 |
|
Total |
| 359,959 |
| $ | 1.03 |
|
Stock-Based Compensation–For the three months ended MarchDecember 31, 2018 and 2017, the Company recognized $1$0 and $5,$1, respectively, in stock based compensation for options issued to employees and directors of the Company. For the ninesix months ended MarchDecember 31, 2018 and 2017, the Company recognized $7$1 and $59,$6, respectively, in stock based compensation for options issued to employees and directors of the Company. The fair value of the share options granted was estimated using the Black-Scholes option pricing model. There were 0 and 72,000no share options granted under the 2011 Director Stock Option Plan during the ninethree and six months ended MarchDecember 31, 2018 and 2017, respectively.respectively, and the Company does not have any option plans with authorized shares available for grants.
Note 7.5. – Revenue Recognition and Accounts Receivables
The Company’s subsidiaries recognize revenuesRevenue Recognition
Effective July 1, 2018, the Company adopted the provisions of Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers” which supersedes most existing revenue recognition guidance, including industry-specific healthcare guidance, by applying the full retrospective method for all periods presented. ASC 606 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries through the application of the following five-step process:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the periodcontract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in which services are provided. Accounts receivable primarily consistthe contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The adoption of amounts due from third-party payors and patients. Thethe provisions of ASC 606 had no material impact on the Company’s subsidiaries’ ability to collect outstanding receivables is critical to theircurrent or historical financial position, results of operations andor cash flows. AmountsAdditionally, management does not anticipate that the Company’s subsidiaries receiveprovisions of ASC 606 will have a material impact on the amount or timing of when the Company recognizes revenue prospectively. However, in accordance with ASC 606 the Company now recognizes the majority of its previously reported provision for treatmentdoubtful accounts, primarily related to its self-pay patient population, as a direct reduction to revenues as an implicit pricing concession, instead of patients covered by governmental programs suchseparately as Medicarea discrete deduction to arrive at revenue, and Medicaid and other third-party payors such as health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”) and other private insurers are generally less than the Company’s subsidiaries’ established billing rates. Additionally, to provide for accounts receivable that could become uncollectible inrelated presentation of the future an allowance for doubtful accounts has been eliminated for all periods presented.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with its patients by reportable operating segments and payors. The Company determines that disaggregating revenue into these categories achieves the disclosure objectives to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. A reconciliation of disaggregated revenue to segment revenue is establisheddisclosed in Note 13, Financial Information by Segment.
The Company’s service specific revenue recognition policies are as follows:
Healthcare Services
The Company’s revenue is derived primarily from providing healthcare services to reducepatients and is recognized on the carrying valuedate services are provided at amounts billable to individual patients, adjusted for estimates for variable consideration. For patients under reimbursement
7
arrangements with third-party payors, including Medicaid, Medicare and private insurers, revenue is recorded based on contractually agreed-upon amounts or rates, adjusted for estimates for variable consideration, on a per patient, daily basis or as services are performed.
Pharmacy
The Company’s revenue is derived primarily from providing pharmacy services to patients and is recognized on the date services are provided at amounts billable to individual patients, adjusted for estimates for variable consideration. Revenue is recognized when control of suchthe promised goods or services are transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Each prescription claim represents a separate performance obligation of the Company, separate and distinct from other prescription claims under customer arrangements. Significant portions of the revenue from sales of pharmaceutical and medical products are reimbursed by the federal Medicare Part D program and, to a lesser extent, state Medicaid programs. The Company monitors its revenues and receivables from these reimbursement sources, as well as other third-party insurance payors, and reduces revenue at the revenue recognition date, to their estimated net realizable value.properly account for the variable consideration due to anticipated differences between billed and reimbursed amounts. Accordingly, the total net revenues and accounts receivablereceivables reported in the accompanying unaudited condensed consolidatedCompany’s financial statements are recorded at the net amount expected to be received.ultimately received from these payors.
Medicare Revenue
Net healthcare services revenue is recorded under the Medicare prospective payment system based on an episode payment rate that is subject to adjustment based on certain variables including, but not limited to: (a) an outlier payment if patient care was unusually costly; (b) a low utilization payment adjustment if the number of visits was fewer than five; (c) a partial payment if the patient transferred to another provider or the Company received a patient from another provider before completing the episode; (d) a payment adjustment based upon the level of therapy services required; (e) the number of episodes of care provided to a patient, regardless of whether the same provider provided care for the entire series of episodes; (f) changes in the base episode payments established by the Medicare program; (g) adjustments to the base episode payments for case mix and geographic wages; and (h) recoveries of overpayments.
The Company makes adjustments to Medicare revenue on completed episodes to reflect differences between estimated and actual payment amounts, an inability to obtain appropriate billing documentation or authorizations acceptable to the payor and other reasons unrelated to credit risk. Revenue is also adjusted for estimates for variable consideration. Therefore, the Company believes that its reported net service revenue and patient accounts receivable will be the net amounts to be realized from Medicare for services rendered.
In addition to revenue recognized on completed services, the Company also recognizes a portion of revenue associated with services in progress. Services in progress are days of care that begin during the reporting period but were not completed as of the end of the period. As such, the Company estimates revenue and recognizes it on a daily basis. The primary factors underlying this estimate are the number of services in progress at the end of the reporting period, expected Medicare revenue per episode and its estimate of the average percentage complete based on services performed.
Non-Medicare Revenue
The Company recognizes revenue in a similar manner as it recognizes Medicare revenue for service-based rates that are paid by other insurance carriers, including Medicare Advantage programs; however, these rates can vary based upon the negotiated terms.
Revenue is recorded on an accrual basis based upon the date of service at amounts equal to its established or estimated per-visit rates, and adjusted for estimates for variable consideration, as applicable.
Impact of New Revenue Guidance on Financial Statement Line Items
The following tables summarize the impacts of adopting ASC 606 on the Company’s condensed consolidated statements of operations and comprehensive earnings (loss). There was no impact to the condensed consolidated balance sheet as of June 30, 2018 or condensed consolidated statements of cash flows for the year ended June 30, 2018 and for the year ended June 30, 2017, respectively. The majority of which was previously presented as bad debt expense of the Pharmacy Segment under operating expenses has been incorporated as an implicit price concession factored into the calculation of net revenues. Subsequent material events that alter the payor’s ability to pay are recorded as bad debt expense.
There is no material change, related to the adoption of ASC 606, for the presentation of the Company’s Fiscal 2018 revenues or prior years. Historically, the Company only presented total revenue for all revenue services in “Operating Revenues”. What was previously presented as provision for bad debts of Pharmacy segment under operating expenses has been incorporated as an implicit price concession factored into the calculation of net revenues, as shown in the “Adjustments” line in the table below. The Condensed Consolidated Statement of Operations and Comprehensive Earnings (Loss) for the three and six months ended December 31, 2017 has been restated to reflect the adoption of ASC 606. Subsequent material events that alter the payor’s ability to pay are recorded as bad debt expense.
8
Prior period results reflect reclassifications, for comparative purposes, related to the adoption of ASC 606, for the presentation of the Company’s revenues. Historically, the Company only presented total revenue for all revenue services. This reclassification had no effect on the reported results of operations.
Revenues for the six months ended December 31, 2017 and the fiscal years ended June 30, 2018 and June 30, 2017 are summarized in the following tables:
|
| Six Months Ended |
|
| Fiscal Years Ended June 30, |
| ||||||
|
| December 31, 2017 |
|
| 2018 |
|
| 2017 |
| |||
Total Net Revenues |
| $ | 27,241 |
|
| $ | 52,872 |
|
| $ | 53,288 |
|
Adjustment for bad debts of Pharmacy segment |
|
| (208 | ) |
|
| (703 | ) |
|
| (438 | ) |
Net Revenues |
| $ | 27,033 |
|
| $ | 52,169 |
|
| $ | 52,850 |
|
Total Cost of goods sold |
| $ | 9,550 |
|
| $ | 18,529 |
|
| $ | 19,917 |
|
Adjustment for bad debts of Pharmacy segment |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Cost of goods sold |
| $ | 9,550 |
|
| $ | 18,529 |
|
| $ | 19,917 |
|
Total Expenses |
| $ | 27,420 |
|
| $ | 54,866 |
|
| $ | 57,798 |
|
Adjustment for bad debts of Pharmacy segment |
|
| (208 | ) |
|
| (703 | ) |
|
| (438 | ) |
Total Expenses |
| $ | 27,212 |
|
| $ | 54,163 |
|
| $ | 57,360 |
|
7
The Company’s contracts with its patients have an original duration of one year or less, therefore, the Company uses the practical expedient applicable to its contracts and does not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize this revenue. In addition, the Company has applied the practical expedient provided by ASC 340, Other Assets and Deferred Costs, and all incremental customer contract acquisition costs are expensed as they are incurred because the amortization period would have been one year or less.
Revenues by payor were as follows for the three and ninesix months ended MarchDecember 31, 2018 and 2017:
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||||
Three Months Ended March 31, | Nine Months Ended March 31, |
| December 31, |
|
| December 31, |
| |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||||
Healthcare Facilities Segment: | ||||||||||||||||||||||||||||||||
Medicare | $ | 2,485 | $ | 2,079 | $ | 7,167 | $ | 6,447 |
| $ | 3,886 |
|
| $ | 5,237 |
|
|
| 8,406 |
|
|
| 10,586 |
| ||||||||
Medicaid | 2,091 | 2,285 | 6,328 | 7,185 |
|
| 6,335 |
|
|
| 4,242 |
|
|
| 10,609 |
|
|
| 8,036 |
| ||||||||||||
Retail and Institutional Pharmacy |
|
| 1,642 |
|
|
| 1,757 |
|
|
| 3,275 |
|
|
| 3,443 |
| ||||||||||||||||
Managed Care & Other Insurance |
|
| 1,749 |
|
|
| 2,074 |
|
|
| 2,871 |
|
|
| 3,965 |
| ||||||||||||||||
Self-pay | 91 | 86 | 532 | 356 |
|
| 319 |
|
|
| 108 |
|
|
| 548 |
|
|
| 211 |
| ||||||||||||
Managed Care & Other Insurance | 793 | 871 | 2,278 | 2,248 | ||||||||||||||||||||||||||||
Rent |
|
| 92 |
|
|
| 88 |
|
|
| 180 |
|
|
| 176 |
| ||||||||||||||||
Other | 330 | 364 | 1,091 | 1,139 |
|
| 200 |
|
|
| 284 |
|
|
| 386 |
|
|
| 616 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Revenues before provision for doubtful accounts | 5,790 | 5,685 | 17,396 | 17,375 | ||||||||||||||||||||||||||||
Provision for doubtful accounts | (133 | ) | (184 | ) | (363 | ) | (321 | ) | ||||||||||||||||||||||||
|
|
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| |||||||||||||||||||||||||||||
Healthcare Facilities Segment Net Revenues | 5,657 | 5,501 | 17,033 | 17,054 | ||||||||||||||||||||||||||||
Pharmacy Segment Net Revenues | 7,760 | 8,198 | 23,625 | 23,946 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total Net Revenues | $ | 13,417 | $ | 13,699 | $ | 40,658 | $ | 41,000 |
| $ | 14,223 |
|
| $ | 13,790 |
|
| $ | 26,275 |
|
| $ | 27,033 |
| ||||||||
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|
The net revenues of the Pharmacy Segment are presented net of contractual adjustments. The provision for bad debts of the Pharmacy Segment is presented as a component of operating expenses in the Condensed Consolidated Statements of Operations and Comprehensive Earnings (Loss).
Summary information for accounts receivable is as follows:
March 31, 2018 | June 30, 2017 | |||||||
Accounts receivable (net of contractual allowances) | $ | 6,453 | $ | 6,458 | ||||
Less allowance for doubtful accounts | (569 | ) | (552 | ) | ||||
|
|
|
| |||||
Patient accounts receivable – net | $ | 5,884 | $ | 5,906 | ||||
|
|
|
|
|
| December 31, 2018 |
|
| June 30, 2018 |
| ||
Accounts receivable (net of contractual allowances) |
| $ | 5,967 |
|
| $ | 5,352 |
|
Less allowance for concession adjustments |
|
| (459 | ) |
|
| (529 | ) |
Patient accounts receivable - net |
| $ | 5,508 |
|
| $ | 4,823 |
|
89
The following is a summary of the activity in the allowance for doubtful accountsconcession adjustments for the Healthcare Services Segment and the Pharmacy Segment for the three and ninesix months ended MarchDecember 31, 2018 and 2017:
Healthcare Services | Pharmacy | Total | ||||||||||||||||||||||
Three Months Ended March 31, 2018 | ||||||||||||||||||||||||
Balance at January 1, 2018 | $ | 326 | $ | 219 | $ | 545 | ||||||||||||||||||
Three Months Ended December 31, 2018 |
| Healthcare Services |
|
| Pharmacy |
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| Total |
| |||||||||||||||
Balance at October 1, 2018 |
| $ | 185 |
|
| $ | 266 |
|
| $ | 451 |
| ||||||||||||
Additions recognized as a reduction to revenues: |
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|
| ||||||||||||
Continuing Operations | 133 | 237 | 370 |
|
| 118 |
|
|
| 96 |
|
|
| 214 |
| |||||||||
Discontinued Operations | (4 | ) | 0 | (4 | ) |
|
| (7 | ) |
|
| 0 |
|
|
| (7 | ) | |||||||
Accounts written off, net of recoveries | (82 | ) | (260 | ) | (342 | ) |
|
| (65 | ) |
|
| (134 | ) |
|
| (199 | ) | ||||||
|
|
| ||||||||||||||||||||||
Balance at March 31, 2018 | $ | 373 | $ | 196 | $ | 569 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Healthcare Services | Pharmacy | Total | ||||||||||||||||||||||
Nine Months Ended March 31, 2018 | ||||||||||||||||||||||||
Balance at July 1, 2017 | $ | 328 | $ | 224 | $ | 552 | ||||||||||||||||||
Additions recognized as a reduction to revenues: | ||||||||||||||||||||||||
Continuing Operations | 363 | 445 | 808 | |||||||||||||||||||||
Discontinued Operations | 2 | 0 | 2 | |||||||||||||||||||||
Accounts written off, net of recoveries | (320 | ) | (473 | ) | (793 | ) | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Balance at March 31, 2018 | $ | 373 | $ | 196 | $ | 569 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Healthcare Services | Pharmacy | Total | ||||||||||||||||||||||
Three Months Ended March 31, 2017 | ||||||||||||||||||||||||
Balance at January 1, 2017 | $ | 332 | $ | 400 | $ | 732 | ||||||||||||||||||
Additions recognized as a reduction to revenues: | ||||||||||||||||||||||||
Continuing Operations | 184 | 126 | 310 | |||||||||||||||||||||
Discontinued Operations | (14 | ) | 0 | (14 | ) | |||||||||||||||||||
Accounts written off, net of recoveries | (180 | ) | (138 | ) | (318 | ) | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Balance at March 31, 2017 | $ | 322 | $ | 388 | $ | 710 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Healthcare Services | Pharmacy | Total | ||||||||||||||||||||||
Nine Months Ended March 31, 2017 | ||||||||||||||||||||||||
Balance at July 1, 2016 | $ | 624 | $ | 367 | $ | 991 | ||||||||||||||||||
Additions recognized as a reduction to revenues: | ||||||||||||||||||||||||
Continuing Operations | 321 | 342 | 663 | |||||||||||||||||||||
Discontinued Operations | 378 | 0 | 378 | |||||||||||||||||||||
Accounts written off, net of recoveries | (1,001 | ) | (321 | ) | (1,322 | ) | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Balance at March 31, 2017 | $ | 322 | $ | 388 | $ | 710 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Balance at December 31, 2018 |
| $ | 231 |
|
| $ | 228 |
|
| $ | 459 |
|
New Accounting Pronouncement for Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB��) issued Accounting Standards Update (“ASU”) 2014-09, which outlines a single comprehensive model for recognizing revenue and supersedes most existing revenue recognition guidance, including guidance specific to the healthcare industry. This ASU provides companies the option of applying a full or modified retrospective approach upon adoption. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. The Company expects to adopt this ASU on July 1, 2018 and is currently implementing its plan for adoption and evaluating the impact on its revenue recognition policies, procedures and control framework and the resulting impact on its consolidated financial position, results of operations and cash flows. A significant element of executing this plan is the process of reviewing sources of revenue and evaluating the patient account population to determine the appropriate distribution of patient accounts into portfolios with similar collection experience that, when evaluated for collectability, will result in a materially consistent revenue amount for such portfolios as if each patient account was evaluated on a contract-by-contract basis. The Company is currently evaluating the appropriate portfolios to apply in its collectability analysis and is considering the impact of applying the new standard when its patient accounts are evaluated in those portfolios. The Company expects this process will be completed later in 2018.
Additionally, the adoption of the new accounting standard will impact the presentation on the Company’s statement of operations for a significant component of its provision for bad debts. After adoption of the new standard, the majority of what is currently classified as the provision for bad debts will be reflected as an implicit price concession as defined in the standard and therefore an adjustment to net patient revenue. The Company will continue to evaluate certain changes in collectability on its self-pay patient accounts receivable resulting from certain credit and collection issues not assessed at the date of service, including bankruptcy, and recognize such amounts in the provision for bad debts included in operating expenses on the statement of operations. The Company cannot reasonably estimate at this time the quantitative impact that the adoption of this accounting standard will have on the financial statements of the Company.
9
Six Months Ended December 31, 2018 |
| Healthcare Services |
|
| Pharmacy |
|
| Total |
| |||
Balance at July 1, 2018 |
| $ | 253 |
|
| $ | 276 |
|
| $ | 529 |
|
Additions recognized as a reduction to revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
| 152 |
|
|
| 199 |
|
|
| 351 |
|
Discontinued Operations |
|
| (13 | ) |
|
| 0 |
|
|
| (13 | ) |
Accounts written off, net of recoveries |
|
| (161 | ) |
|
| (247 | ) |
|
| (408 | ) |
Balance at December 31, 2018 |
| $ | 231 |
|
| $ | 228 |
|
| $ | 459 |
|
Three Months Ended December 31, 2017 |
| Healthcare Services |
|
| Pharmacy |
|
| Total |
| |||
Balance at October 31, 2017 |
| $ | 308 |
|
| $ | 192 |
|
| $ | 500 |
|
Additions recognized as a reduction to revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
| 160 |
|
|
| 88 |
|
|
| 248 |
|
Discontinued Operations |
|
| (6 | ) |
|
| 0 |
|
|
| (6 | ) |
Accounts written off, net of recoveries |
|
| (136 | ) |
|
| (61 | ) |
|
| (197 | ) |
Balance at December 31, 2017 |
| $ | 326 |
|
| $ | 219 |
|
| $ | 545 |
|
Six Months Ended December 31, 2017 |
| Healthcare Services |
|
| Pharmacy |
|
| Total |
| |||
Balance at July 1, 2017 |
| $ | 328 |
|
| $ | 224 |
|
| $ | 552 |
|
Additions recognized as a reduction to revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
| 230 |
|
|
| 208 |
|
|
| 438 |
|
Discontinued Operations |
|
| 6 |
|
|
| 0 |
|
|
| 6 |
|
Accounts written off, net of recoveries |
|
| (238 | ) |
|
| (213 | ) |
|
| (451 | ) |
Balance at December 31, 2017 |
| $ | 326 |
|
| $ | 219 |
|
| $ | 545 |
|
Intangibles consist of the following, net of amortization:
March 31, 2018 | June 30, 2017 |
| December 31, 2018 |
|
| June 30, 2018 |
| |||||||||
Pharmacy Segment Intangibles |
|
|
|
|
|
|
|
| ||||||||
Trade Name(non-amortizing) | 1,180 | 1,180 |
| $ | 1,180 |
|
| $ | 1,180 |
| ||||||
Customer Relationships | 1,089 | 1,089 |
|
| 1,089 |
|
|
| 1,089 |
| ||||||
Medicare License | 623 | 623 |
|
| 623 |
|
|
| 623 |
| ||||||
|
|
|
| 2,892 |
|
|
| 2,892 |
| |||||||
2,892 | 2,892 | |||||||||||||||
Accumulated Amortization | (1,392 | ) | (1,305 | ) |
|
| (1,480 | ) |
|
| (1,422 | ) | ||||
|
| |||||||||||||||
Net Intangibles | $ | 1,500 | $ | 1,587 |
| $ | 1,412 |
|
| $ | 1,470 |
| ||||
|
|
Amortization expense was $29 and $35$29 for the three months ended MarchDecember 31, 2018 and 2017, respectively. Amortization expense was $87$58 and $106$58 for the ninesix months ended MarchDecember 31, 2018 and 2017, respectively.respectively
10
Note 9. – Long-Term7. –Long-Term Debt
Long-term debt consisted of the following:
March 31, 2018 | June 30, 2017 |
| December 31, 2018 |
|
| June 30, 2018 |
| |||||||||
Trace RDA Loan | $ | 3,347 | $ | 7,191 |
| $ | 3,141 |
|
| $ | 3,277 |
| ||||
Capital lease obligations and other | 0 | 12 | ||||||||||||||
|
| |||||||||||||||
Total | 3,347 | 7,203 | ||||||||||||||
Capital Lease |
|
| 174 |
|
|
| 0 |
| ||||||||
Less unamortized debt issuance costs | (226 | ) | (493 | ) |
|
| (208 | ) |
|
| (219 | ) | ||||
Less current maturities | (258 | ) | (6,710 | ) |
|
| (292 | ) |
|
| (255 | ) | ||||
|
| |||||||||||||||
Long-term Debt | $ | 2,863 | $ | 0 |
| $ | 2,815 |
|
| $ | 2,803 |
| ||||
|
|
Trace RDA Loan –Loan—Southern Health Corporation of Houston, Inc. (“Trace”) a wholly owned subsidiary of the Company, closed on a $9,975 Mortgage Loan Agreement (“Trace RDA Loan”) with a bank, dated as of July 5, 2012. The Trace RDA Loan has a term of 15 years with level monthly payments of principal and interest until repaid. On December 26, 2017, the Fifth Amendment to Loan Agreement, Modification of Note and Waiver (“Modification”) was entered into by Trace and the bank. Under the Modification, Trace made a $3,548 prepayment on the Trace RDA Loan. The monthly principal and interest payments on the RDA Loan were reduced, to $39 per month, the interest rate was reduced to the prime rate (as published in the Wall Street Journal) plus 1% with a floor of 5.5%, (5.75%(6.5% at MarchDecember 31, 2018) and certain loan covenants were modified. The Modification also included a waiverManagement was not aware of covenantany violations for the quarters ended June 30 and September 30, 2017. Trace was in compliance with the amended financial covenants at MarchDecember 31, 2018. In connection with the modification and prepayment, an existing deposit of $1,000 in a blocked, interest bearing account with the lender was released. The Trace RDA Loan is collateralized by real estate and equipment of Trace in Houston, MS, and is partially guaranteed under the U.S. Department of Agriculture, Rural Development Business and Industry Program.
The Trace RDA Loan contains various terms and conditions, including financial restrictions and limitations, and affirmative and negative covenants. The covenants include financial covenants measured on a quarterly basis whichthat require Trace to comply with a ratio of current assets to current liabilities, debt service coverage, fixed charge ratio, and funded debt to EBITDA, all as defined in the Trace RDA Loan. The ability of Trace to continue to make the required debt service payments under the Trace RDA Loan depends on, among other things, its ability to generate sufficient cash, including from operating activities and asset sales. If Trace is unable to generate sufficient cash to meet debt service payments on the Trace RDA Loan, including in the event the lender were to declare an event of default and accelerate the maturity of the indebtedness, such failure could have material adverse effects on the Company. The Trace RDA Loan is guaranteed by the Company and one subsidiary.
10
Note 10.8. – Income Taxes
Income tax benefitexpense of $0 ($0 federal taxexpense and $0 state tax expense) and income tax benefit of $8$296 ($32296 federal tax benefit and $24$0 state tax expense) was recorded for continuing operations for the three months ended MarchDecember 31, 2018 and 2017, respectively. Income tax expense of $0 ($0 federal expense and state tax expense) and income tax benefit of $296 ($296 federal tax benefit and $0 state tax expense) and income tax benefit of $236 ($221 federal tax benefit and $15 state tax benefit) was recorded for continuing operations for the ninesix months ended MarchDecember 31, 2018 and 2017, respectively.
In accordance with the Financial Accounting Standards Board Accounting Standards Codification (‘(“ASC”) 740, we evaluate our deferred taxes quarterly to determine if adjustments to our valuation allowance are required based on the consideration of available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future results of operations, the duration of applicable statuary carryforward periods and conditions of the healthcare industry. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related temporary differences in the financial basis and the tax basis of the assets become deductible. The value of our deferred tax assets will depend on applicable income tax rates.
The Tax CutCuts and Jobs Act (“TCJA”) was enacted on December 22, 2017. Under ASC 740, the impact of changes in tax law must be recorded in the financial statements in the reporting period that included the date of enactment. However,In addition, in conjunction with the TCJA, on December 22, 2017, the SEC and the FASB both recognize that the magnitude of this law change will require extensive analysis and calculations to conform to the new provisions. The SECstaff issued Staff Accounting Bulletin (‘SAB”)No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which provides guidance on December 22, 2017.accounting for the tax effects of the TCJA. SAB 118 provides registrants with guidance on when and how to report the impactallows for recording certain effects of the law change when not all necessary information is available.TCJA as “provisional” during a one-year measurement period, which for the Company ending in the second quarter of fiscal 2019.
At MarchDecember 31, 2018, consistent with the above processes,process, we evaluated the need for a valuation allowance against our deferred tax assets and determined that it was more likely than not that onlynone of our federal alternative minimumdeferred tax (“AMT”) tax credits of $296assets would be realized. The AMT credit representsAs a provisional amount that will be finalized upon the filing of the Company’s federal income tax return for the year ended June 30, 2017. The filing of this return will occur prior to the Company’s fiscal year end which is within the measurement period. Under TCJA, AMT tax credits will now become refundable in conjunction with the repeal of the corporate AMT. For tax years beginning after December 31, 2017 and before January 1, 2022, the AMT credit is refundable in an amount equal to 50% (100% for the 2021 tax year) of the excess of the credit for the tax year over the amount of the credit allowable for the year against regular tax liability. This results in the Company receiving its entire AMT credit of $296 as a refund no later than fiscal 2022 and as such a valuation allowance is no longer needed for the AMT credit carryforward. However,result, in accordance with ASC 740, we recognized a valuation allowance of $8,071$8,513 against all other netthe deferred tax asset itemsso that there is no net long-term deferred income tax asset or liability at MarchDecember 31, 2018. We conducted our evaluation by considering available positive and negative evidence to determine our ability to realize our deferred tax assets. In our evaluation, we gave more significant weight to evidence that was objective in nature as compared to subjective evidence. Also, more significant weight was given to evidence that directly related to our current financial performance as compared to less current evidence and future plans.
The principal negative evidence that led us to determine at MarchDecember 31, 2018 that $8,071 ofall the net deferred tax assets resulting fromnon-AMT credit carryforwards should have full valuation allowances was the three-year cumulativepre-tax loss from continuing operations as well as the underlying negative business conditions for rural healthcare businesses in which our Healthcare Services Segment businesses operate.
11
For Federal income tax purposes, at MarchDecember 31 2018, the Company had approximately $13,400$16,300 of estimated net operating loss carry-forwards available for use in future years subject to the limitations of the provisions of Internal Revenue Code Section 382. These net operating loss carryforwards expire primarily in 2025. Withfiscal 2023 through fiscal 2038; however, with the enactment of the TCJA Federalon December 22, 2017, federal net operating loss carryforwards generated in taxable years endingbeginning after December 31, 2017 now have no expiration date.
We recorded a discrete net tax benefit of $0 during the twelve months ended June 30, 2018 related to provisional amounts under SAB 118 for the remeasurement of U.S. deferred tax assets and liabilities due to the Federal tax rate reduction to 21%. No net tax benefit was recorded due to the Company’s full valuation allowance position. The $296 of tax benefit recorded for the three months ended December 31, 2017 was due to the release of the valuation allowance on the Company’s Alternative Minimum Tax (“AMT”) Credit, which became refundable under the TCJA. No changes were recorded to this provisional estimate during the six months ended December 31, 2018. Pursuant to the requirements of SAB 118 as discussed above the Company has completed its accounting for the TCJA for the second quarter ended fiscal 2019. While the final amount of tax benefit related to the AMT Credit valuation allowance removal may be adjusted due to the final June 30, 2018 tax return filing, the final impact is not expected to be material.
11
Note 11.9. – Commitments and Contingencies
Contractual obligations, commitments and contingencies related to outstanding debt,non-cancelable operating leases and interest on outstanding debt from continuing operations at MarchDecember 31, 2018 were as follows:
Payments due in: | Long-Term Debt | Operating Leases | Interest on Outstanding Debt |
|
|
| Long-Term Debt |
|
| Operating Leases |
|
| Interest on Outstanding Debt |
| ||||||||||||
1 year | $ | 258 | $ | 574 | $ | 172 |
|
|
| $ | 292 |
|
| $ | 558 |
|
| $ | 193 |
| ||||||
2 years | 296 | 423 | 173 |
|
|
|
| 335 |
|
|
| 383 |
|
|
| 190 |
| |||||||||
3 years | 315 | 340 | 155 |
|
|
|
| 359 |
|
|
| 197 |
|
|
| 167 |
| |||||||||
4 years | 333 | 132 | 136 |
|
|
|
| 383 |
|
|
| 27 |
|
|
| 142 |
| |||||||||
5+ years | 2,145 | 4 | 355 |
|
|
|
| 1,946 |
|
|
| 3 |
|
|
| 309 |
| |||||||||
|
|
|
|
|
| $ | 3,315 |
|
| $ | 1,168 |
|
| $ | 1,001 |
| ||||||||||
$ | 3,347 | $ | 1,473 | $ | 991 | |||||||||||||||||||||
|
|
|
On September 8, 2017, the Georgia Survey agency of the Georgia Department of Community Health (“DCH“) conducted a Complaint Investigation survey to determine whether our nursing home in Ellijay, Georgia was in compliance with federal program requirements for nursing homes participating in Medicare and/or Medicaid programs. As a result of this survey, the nursing home received from the DCH a notice of deficiencies which were identified as posing an immediate jeopardy to resident health and safety and which had to be corrected immediately. DCH also notified the nursing home of its intent to recommend civil monetary penalties. In response to the survey findings, the nursing home adopted a succession of plans to remedy the matters identified. On November 6, 2017, DCH advised the nursing home that its latest plan of correction was accepted and on November 20, 2017, DCH advised the nursing home that it was in substantial compliance with its long-term care requirements; however the nursing home anticipates further surveys to evaluate its implementation of the plans of correction. A Civil Money Penalty (“CMP”) was imposed by the Department of Health & Human Services Centers for Medicare and Medicaid Services on January 4, 2018 which resulted in $170 expensed in the nine months ended March 31, 2018. The CMP was paid January 18, 2018.
Note 12.10. – Related Party Transactions
A director of the Company is a member of a law firm which provides services to SunLink. The Company expensed an aggregate of $25$59 and $109$125 for legal services to this law firm in the three months ended MarchDecember 31, 2018 and 2017, respectively. The Company expensed an aggregate of $215$135 and $481$190 for legal services to this law firm in the ninesix months ended MarchDecember 31, 2018 and 2017, respectively. Included in the Company’s condensed consolidated balance sheets at MarchDecember 31, 2018 and June 30, 20172018 is $12$21 and $38,$10, respectively, of amounts payable to this law firm.
Note 13.11. – Asset Sale of Assets
On JanuaryOctober 11, 2018, Carmichael’s Cashway Pharmacy, Inc., a wholly owned subsidiary of the Company sold a vacant medical office building and approximately two adjacent acres of undeveloped land. After expenses, the assetsCompany received net proceeds from the sale of a retail pharmacy operation it operates$935, which was retained for approximately $410. Aworking capital and general corporate purposes. The pre-tax gain on the sale of the assetsproperty of approximately $183$452 is included in the resultsCompany’s fiscal quarter ended December 31, 2018.
Note 12. – Economic Damages Claim
The Pharmacy Segment subsidiary asserted claims for economic damages in connection with the Deepwater Horizon Settlement Program related to the event which occurred in 2010. In January 2018, these claims were settled and payments of approximately $944 (net of costs and attorneys’ fees) were received. The net settlements are recognized as a gain in the Condensed Consolidated Statements of Operations and Comprehensive Earnings (Loss) for the three and six months ended MarchDecember 31, 2018.2017.
Note 14.13. – Financial Information by Segment
Under ASC Topic No. 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-making group is composed of SunLink’s chief executive officer and other members of SunLink’s senior management. Our two reportable operating segments are Healthcare Services and Pharmacy.
12
We evaluate performance of our operating segments based on revenue and operating profit (loss). At the beginning of the current fiscal year, the Company modified the approach to certain assets, and expense allocations to calculate segment assets, operating profit and
12
depreciation and amortization. All prior year amounts have been changed to consistently apply the changed allocation method used in the current year. Segment information as of MarchDecember 31, 2018 and 2017 and for the three and ninesix months then ended is as follows:
| Healthcare Services |
|
| Pharmacy |
|
| Corporate and Other |
|
| Total |
| |||||||||||||||||||||
Healthcare Facilities | Pharmacy | Corporate and Other | Total | |||||||||||||||||||||||||||||
As of and for the three months ended March 31, 2018 | ||||||||||||||||||||||||||||||||
As of and for the three months ended December 31, 2018, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net revenues from external customers | $ | 5,657 | $ | 7,760 | $ | 0 | $ | 13,417 |
| $ | 6,153 |
|
| $ | 8,070 |
|
| $ | 0 |
|
| $ | 14,223 |
| ||||||||
Operating profit (loss) | 114 | (367 | ) | (478 | ) | (731 | ) |
|
| 421 |
|
|
| 61 |
|
|
| (519 | ) |
|
| (37 | ) | |||||||||
Depreciation and amortization | 167 | 297 | 0 | 464 |
|
| 164 |
|
|
| 266 |
|
|
| 1 |
|
|
| 431 |
| ||||||||||||
Assets | 14,394 | 9,104 | 4,293 | 27,791 |
|
| 13,069 |
|
|
| 8,605 |
|
|
| 4,052 |
|
|
| 25,726 |
| ||||||||||||
Expenditures for property, plant and equipment | 167 | 263 | 0 | 430 |
|
| 65 |
|
|
| 173 |
|
|
| 0 |
|
|
| 238 |
| ||||||||||||
As of and for the three months ended March 31, 2017 | ||||||||||||||||||||||||||||||||
As of and for the three months ended December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net revenues from external customers | $ | 5,501 | $ | 8,198 | $ | 0 | $ | 13,699 |
| $ | 5,722 |
|
| $ | 8,068 |
|
| $ | 0 |
|
| $ | 13,790 |
| ||||||||
Operating profit (loss) | (146 | ) | (324 | ) | (301 | ) | (771 | ) |
|
| 61 |
|
|
| 229 |
|
|
| (370 | ) |
|
| (80 | ) | ||||||||
Depreciation and amortization | 176 | 289 | 1 | 466 |
|
| 160 |
|
|
| 278 |
|
|
| 1 |
|
|
| 439 |
| ||||||||||||
Assets | 13,936 | 11,519 | 12,678 | 38,133 |
|
| 14,348 |
|
|
| 10,752 |
|
|
| 3,558 |
|
|
| 28,658 |
| ||||||||||||
Expenditures for property, plant and equipment | 25 | 264 | 0 | 289 |
|
| 337 |
|
|
| 51 |
|
|
| 0 |
|
|
| 388 |
| ||||||||||||
As of and for the nine months ended March 31, 2018 | ||||||||||||||||||||||||||||||||
As of and for the six months ended December 31, 2018, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net revenues from external customers | $ | 17,033 | $ | 23,625 | $ | 0 | $ | 40,658 |
| $ | 11,689 |
|
| $ | 14,586 |
|
| $ | 0 |
|
| $ | 26,275 |
| ||||||||
Operating profit (loss) | 118 | 285 | (1,313 | ) | (910 | ) |
|
| 174 |
|
|
| 4 |
|
|
| (973 | ) |
|
| (795 | ) | ||||||||||
Depreciation and amortization | 485 | 845 | 2 | 1,332 |
|
| 326 |
|
|
| 522 |
|
|
| 1 |
|
|
| 849 |
| ||||||||||||
Assets | 14,394 | 9,104 | 4,293 | 27,791 |
|
| 13,069 |
|
|
| 8,605 |
|
|
| 4,052 |
|
|
| 25,726 |
| ||||||||||||
Expenditures for property, plant and equipment | 980 | 522 | 0 | 1,502 |
|
| 252 |
|
|
| 442 |
|
|
| 0 |
|
|
| 694 |
| ||||||||||||
As of and for the nine months ended March 31, 2017 | ||||||||||||||||||||||||||||||||
As of and for the six months ended December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net revenues from external customers | $ | 17,054 | $ | 23,946 | $ | 0 | $ | 41,000 |
| $ | 11,376 |
|
| $ | 15,657 |
|
| $ | 0 |
|
| $ | 27,033 |
| ||||||||
Operating profit (loss) | 146 | (511 | ) | (1,331 | ) | (1,696 | ) |
|
| 4 |
|
|
| 652 |
|
|
| (835 | ) |
|
| (179 | ) | |||||||||
Depreciation and amortization | 563 | 810 | 3 | 1,376 |
|
| 318 |
|
|
| 548 |
|
|
| 2 |
|
|
| 868 |
| ||||||||||||
Assets | 13,936 | 11,519 | 12,678 | 38,133 |
|
| 14,348 |
|
|
| 10,752 |
|
|
| 3,558 |
|
|
| 28,658 |
| ||||||||||||
Expenditures for property, plant and equipment | 358 | 739 | 0 | 1,097 |
|
| 813 |
|
|
| 259 |
|
|
| 0 |
|
|
| 1,072 |
|
13
ITEM 2. MANAGEMENT’S DISCUSSIONDISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share and admissions data)
Forward-Looking Statements
This Quarterly Report and the documents that are incorporated by reference in this Quarterly Report contain certain forward-looking statements within the meaning of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and may be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan” or “continue.” Throughout item 2, SunLink Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as “SunLink”, “we”, “our”, “ours”, “us” or the “Company.” This drafting style is not meant to indicate that SunLink Health Systems, Inc. or any particular subsidiary of SunLink Health Systems, Inc. owns or operates any asset, business, or property. Healthcare services, pharmacy operations and other businesses described in this filing are owned and operated by distinct and indirect subsidiaries of SunLink Health System, Inc. These forward-looking statements are based on current plans and expectations and are subject to a number of risks, uncertainties and other factors which could significantly affect current plans and expectations and our future financial condition and results. These factors, which could cause actual results, performance and achievements to differ materially from those anticipated, include, but are not limited to:
General Business Conditions
general economic and business conditions in the U.S., both nationwide and in the states in which we operate;
Operational Factors
the ability or inability to operate profitably in one or more segments of the healthcare business;
14
14
• | the availability of and competition from alternative drugs or treatments to those provided by our Pharmacy segment; and |
Liabilities, Claims, Obligations and Other Matters
claims under leases, guarantees, disposition agreements, and other obligations relating to asset sales or discontinued operations, including claims from sold or leased Facilities,facilities and services, retained liabilities or retained subsidiaries;
Regulation and Governmental Activity
existing and proposed governmental budgetary constraints;
15
Dispositions, Acquisition and Renovation Related Matters
the ability to dispose of underperforming Facilitiesfacilities and business segments;
The foregoing are significant factors we think could cause our actual results to differ materially from expected results. However, there could be additional factors besides those listed herein that also could affect SunLink in an adverse manner.
You should read this Quarterly Report completely and with the understanding that actual future results may be materially different from what we expect. You are cautioned not to unduly rely on forward-looking statements when evaluating the information presented in this Quarterly Report or our other disclosures because current plans, anticipated actions, and future financial conditions and results may differ from those expressed in any forward-looking statements made by or on behalf of SunLink.
We have not undertaken any obligation to publicly update or revise any forward-looking statements. All of our forward-looking statements speak only as of the date of the document in which they are made or, if a date is specified, as of such date. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any changes in events, conditions, circumstances or information on which the forward-looking statement is based, except as required by applicable law. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing factors and the other risk factors set forth elsewhere in this report and in our Annual Report on Form10-K.
15
Business Strategy: Operations, Dispositions and Acquisitions
The business strategy of SunLink is to focus its efforts on improving the operations and expanding the services and improving the operations and profitability of its existing Healthcare Services and Pharmacy businesses. TheWhile seeking to sell certain of its subsidiaries, the Company is also investing in certain upgrades and improvements to certain of its Healthcare Services and Pharmacy businesses, while seeking to sell certain of its subsidiaries’ underperforming assets.businesses.
The Company has used a portion of the cash proceeds from recent dispositions of assets to pay down debt and certain other liabilities, and to repurchase common shares, including in tender offers completed in February and December 2017.2017 and open market repurchases of its common shares, and to make improvements to its Healthcare Services businesses. The Company may also use existing cash, as well as any net proceeds from future dispositions, if any, to improve its existing businesses, make acquisitions of Healthcare Services and Pharmacy businesses, prepay debts, return capital to shareholders including through potential public or private purchases of shares, improve its existing businesses, make selective acquisitions of Healthcare Services and Pharmacy businesses and for other general corporate purposes. There is no assurance that any further dispositions will be authorized by the Company’s Board of Directors or, if authorized, that any such transactions will be completed or, if completed, will result in net cash proceeds to the Company on a before or after tax basis.
The Company considers the disposition of business segments, facilities and operations based on a variety of factors in addition to under-performance, including asset values, return on investments, competition from existing and potential competitors, capital improvement needs, the prevailing reimbursement environment under various Federal and state programs (e.g., Medicare and Medicaid) and private payors, and other corporate objectives. The Company believes certain facilities in its Healthcare Services segment as well as its Pharmacy segment continue to under-perform, and the Company has engaged advisors to assist it in evaluating the possible sale of its Pharmacy business lines.
16
On January 11, 2018, Carmichael’s Cashway Pharmacy, Inc., a wholly owned subsidiary of the Company, sold the assets of a retail pharmacy operation it operates for $410. Apre-tax gain on the sale of the assets of $183 iswas included in the results for the three monthsfiscal year ended MarchJune 30, 2018. On October 11, 2018, the Company sold a vacant medical office building and approximately two adjacent acres of undeveloped land. After expenses, the Company received net proceeds from the sale of $935, which was retained for working capital and general corporate purposes. The pre-tax gain on the sale of property was $452 and is included in the Company’s fiscal quarter ended December 31, 2018.
A subsidiary of the Company has received an indication of interest to purchase one of the Company’s nursing homes for approximately $7,300 and, on August 29, 2018, entered into a non-binding letter of intent (“LOI”) and exclusivity agreement with a potential buyer. The non-binding LOI provides that any transaction will be subject to various terms and conditions (which are currently being negotiated), including reaching final agreement on a contract, satisfactory due diligence and other matters. The Company believes it more likely than not given the present state of negotiations that the transaction will be consummated in the third fiscal quarter at or about the $7,300 offered price but a number of issues remain to be resolved. Accordingly, there can be no assurance that a transaction will in fact be completed on any terms or at any specific price.
Critical Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:
Our critical accounting estimates are more fully described in our 20172018 Annual Report on Form10-K and continue to include the following areas:
16
The results of continuing operations shown in the financial summary below are for our two business segments, Healthcare Services and Pharmacy.
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||||||||||
2018 | 2017 | % Change | 2018 | 2017 | % Change | |||||||||||||||||||
Net Revenues – Healthcare Services | $ | 5,657 | $ | 5,501 | 2.8 | % | $ | 17,033 | $ | 17,054 | -0.1 | % | ||||||||||||
Net Revenues – Pharmacy | 7,760 | 8,198 | -5.3 | % | 23,625 | 23,946 | -1.3 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Net Revenues | 13,417 | 13,699 | -2.1 | % | 40,658 | 41,000 | -0.8 | % | ||||||||||||||||
Costs and expenses | (14,148 | ) | (14,470 | ) | -2.2 | % | (41,568 | ) | (42,696 | ) | -2.6 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Operating profit (loss) | (731 | ) | (771 | ) | -5.2 | % | (910 | ) | (1,696 | ) | -46.3 | % | ||||||||||||
Interest expense – net | (56 | ) | (129 | ) | -56.6 | % | (302 | ) | (507 | ) | -40.4 | % | ||||||||||||
Loss on extinguishment of debt | 0 | 0 | NA | (238 | ) | (243 | ) | -2.1 | % | |||||||||||||||
Gain on economic damages claim, net | 0 | 0 | NA | 944 | 0 | NA | ||||||||||||||||||
Gain (Loss) on sale of assets | 183 | 2 | NA | 181 | 3,019 | -94.0 | % | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Earnings (Loss) from continuing operations before income taxes | $ | (604 | ) | $ | (898 | ) | -32.7 | % | $ | (325 | ) | $ | 573 | -156.7 | % | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Healthcare Facilities Segment: | ||||||||||||||||||||||||
Hospital and Nursing Home Admissions | 196 | 154 | 27.3 | % | 518 | 399 | 29.8 | % | ||||||||||||||||
Hospital and Nursing Patient Days | 13,876 | 14,561 | -4.7 | % | 42,749 | 45,268 | -5.6 | % |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| % Change |
|
| 2018 |
|
| 2017 |
|
| % Change |
| ||||||
Net Revenues - Healthcare Services |
| $ | 6,153 |
|
| $ | 5,722 |
|
|
| 7.5 | % |
| $ | 11,689 |
|
| $ | 11,376 |
|
|
| 2.8 | % |
Net Revenues - Pharmacy |
|
| 8,070 |
|
|
| 8,068 |
|
|
| 0.0 | % |
|
| 14,586 |
|
|
| 15,657 |
|
|
| (6.8 | )% |
Total Net Revenues |
|
| 14,223 |
|
|
| 13,790 |
|
|
| 3.1 | % |
|
| 26,275 |
|
|
| 27,033 |
|
|
| (2.8 | )% |
Costs and expenses |
|
| (14,260 | ) |
|
| (13,870 | ) |
|
| 2.8 | % |
|
| (27,070 | ) |
|
| (27,212 | ) |
|
| (0.5 | )% |
Operating loss |
|
| (37 | ) |
|
| (80 | ) |
|
| (53.8 | )% |
|
| (795 | ) |
|
| (179 | ) |
|
| 344.1 | % |
Interest expense - net |
|
| (61 | ) |
|
| (119 | ) |
|
| (48.7 | )% |
|
| (122 | ) |
|
| (246 | ) |
|
| (50.4 | )% |
Gain on economic damages claim, net |
|
| 0 |
|
|
| 944 |
|
| NA |
|
|
| 0 |
|
|
| 944 |
|
| NA |
| ||
Loss on extinguishment of debt |
|
| 0 |
|
|
| (238 | ) |
| NA |
|
|
| 0 |
|
|
| (238 | ) |
| NA |
| ||
Gain (Loss) on sale of assets |
|
| 452 |
|
|
| (4 | ) |
| NA |
|
|
| 454 |
|
|
| (2 | ) |
| NA |
| ||
Earnings (Loss) from continuing operations before income taxes |
| $ | 354 |
|
| $ | 503 |
|
|
| (29.6 | )% |
| $ | (463 | ) |
| $ | 279 |
|
|
| (265.9 | )% |
Healthcare Facilities Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital and Nursing Home Admissions |
|
| 160 |
|
|
| 156 |
|
|
| 2.6 | % |
|
| 311 |
|
|
| 322 |
|
|
| (3.4 | )% |
Hospital and Nursing Patient Days |
|
| 15,679 |
|
|
| 14,128 |
|
|
| 11.0 | % |
|
| 30,517 |
|
|
| 28,873 |
|
|
| 5.7 | % |
17
Results of Operations
Healthcare Services Segment Net Revenues
The following table sets forth the percentage of net patient revenues from major payors for the Healthcare Services segment for the periods indicated:
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||||
Three Months Ended March 31, | Nine Months Ended March 31, |
| December 31, |
|
| December 31, |
| |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||||
Source: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Medicare | 42.9 | % | 36.6 | % | 41.2 | % | 37.1 | % |
|
| 44.0 | % |
|
| 40.6 | % |
|
| 40.8 | % |
|
| 40.3 | % | ||||||||
Medicaid | 36.1 | % | 40.2 | % | 36.4 | % | 41.4 | % |
|
| 40.3 | % |
|
| 35.7 | % |
|
| 43.9 | % |
|
| 36.5 | % | ||||||||
Managed Care Insurance & Other | 19.4 | % | 21.7 | % | 19.4 | % | 19.4 | % |
|
| 10.3 | % |
|
| 19.1 | % |
|
| 10.4 | % |
|
| 19.4 | % | ||||||||
Self-pay | 1.6 | % | 1.5 | % | 3.0 | % | 2.1 | % |
|
| 5.4 | % |
|
| 4.6 | % |
|
| 4.9 | % |
|
| 3.8 | % | ||||||||
|
|
|
|
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % | |||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||||||||
|
|
|
|
The Healthcare Services segment in the current year is composed of two nursing homes, one hospital, a subsidiary which provides information technology (“IT”) services to outside customers and SunLink subsidiaries, two leased medical office buildings, and unimproved land at three locations.land. Healthcare Services net revenues increased $156,$431, or 3%8%, for the three months ended MarchDecember 31, 2018 compared to the prior year period. IncreasedThe increase in net revenues for the second fiscal quarter this year resulted from increased hospital and nursing home Medicaidnet revenues andwhich were only partially offset by decreased provision for bad debts resulted in the increasedIT services net revenues. Hospital patient days increased 14 % while nursing home resident days increased 11% this year’s second fiscal quarter compared to the prior year. There were negative $40 prior years’ Medicare and Medicaid cost report settlements for the three months ended December 31, 2018 compared to positive $264 prior years’ Medicare and Medicaid cost report settlements for the three months ended December 31, 2017.
Healthcare Services net revenues decreased $21,increased $313, or less than 1%3%, for the ninesix months ended MarchDecember 31, 2018 compared to the prior year period. DecreasedThe increase in net revenues for the six months ended December 31, 2018 resulted from increased nursing home Medicaidnet revenues, which were only partially offset by decreased hospital and IT services net revenues. Hospital patient days increased physician clinic and2 % while nursing home Medicare revenues, resulted in the decreased net revenues. The net revenuesresident days increased 6% this year’s first six months of the Healthcare Services Segment included increases of $35 and $299 resulting fromcurrent fiscal year compared to the same period last fiscal year. There were negative $40 prior years’ Medicare positiveand Medicaid cost report settlements for the three and ninesix months ended MarchDecember 31, 2018 and $38 and $385 resulting fromcompared to positive $264 prior years’ Medicare positiveand Medicaid cost report settlements for the three and ninesix months ended MarchDecember 31, 2017.
Pharmacy Segment Net Revenues
Pharmacy segment net revenues for the three months ended MarchDecember 31, 2018 decreased $438, or 5%,increased $2 from the three months ended MarchDecember 31, 2017.2018. The decrease wasrelatively unchanged net revenues included a result of6% increase in Institutional Pharmacy offset by a 13%10% decrease in Retail Pharmacy net revenues a 3% decrease in Institutional Pharmacy net revenues and a 4%1% decrease in Durable Medical Equipment (“DME”) net revenues. The decrease in Retail Pharmacy net revenues is primarily due to the sale of a retail pharmacy operation in early January 2018. On a same store comparison, Retail Pharmacy net revenues increased 9%. The Institutional Pharmacy increase was due primarily to a 12% increase in scripts filled this year.
17
Pharmacy segment net revenues for the ninesix months ended MarchDecember 31, 2018 decreased $321, or 1%,$1,071 from the ninesix months ended MarchDecember 31, 2017. The decrease wasin net revenues included a result of3% decrease in Institutional Pharmacy, a 5%12% decrease in Retail Pharmacy net revenues and a 3%an 8% decrease in InstitutionalDurable Medical Equipment (“DME”) net revenues. The decrease in Retail Pharmacy net revenues partially offset byis primarily due to the sale of a 3% increaseretail pharmacy operation in DMEearly January 2018. On a same store comparison, Retail Pharmacy net revenues.revenues increased 5%. The Institutional Pharmacy decrease was due primarily to the loss of one large institutional customer and a significant reduction of products sold to another institutional customer due to the change in a federally funded reimbursement program. DME net revenues for the nine months ended March 31, 2018 increased primarily due to increased Medicare reimbursement realized from the implementation of the provisions of the 21st Century Cures Act.The Company expects that the increased revenues from the 21st Century Cures Act will not continue in material amountsdecreased this fiscal year. Scripts fulfilled volume has decreased for all Pharmacy Segment product areas for both the three and nine months ended March 31, 2018year compared to the prior year periods.due to $391of DME revenues last year from the 21st Century Cures Act which did not recur in the current quarter and due to the elimination of certain unprofitable DME products this year.
Healthcare Services Segment Cost and Expenses
Costs and expenses for our Healthcare Services Segment, including depreciation and amortization, were $5,543$5,724 and $5,647$5,661 for the three months ended MarchDecember 31, 2018 and 2017, respectively. Costsrespectively and expenses for our Healthcare Services segment, including depreciation$11,507 and amortization, were $16,915 and $16,908$11,372 for the ninesix months ended MarchDecember 31, 2018 and 2017, respectively.
|
| Cost and Expenses as a % of Net Revenues |
| |||||||||||||
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Salaries, wages and benefits |
|
| 64.3 | % |
|
| 68.5 | % |
|
| 68.1 | % |
|
| 68.0 | % |
Supplies |
|
| 7.0 | % |
|
| 8.0 | % |
|
| 6.9 | % |
|
| 7.5 | % |
Purchased services |
|
| 7.0 | % |
|
| 6.7 | % |
|
| 7.4 | % |
|
| 6.7 | % |
Other operating expenses |
|
| 11.2 | % |
|
| 11.9 | % |
|
| 12.3 | % |
|
| 14.1 | % |
Rent and lease expense |
|
| 0.9 | % |
|
| 1.0 | % |
|
| 0.9 | % |
|
| 1.0 | % |
Depreciation and amortization expense |
|
| 2.7 | % |
|
| 2.8 | % |
|
| 2.8 | % |
|
| 2.8 | % |
18
Cost and Expenses | ||||||||||||||||
as a % of Net Revenues | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Salaries, wages and benefits | 66.8 | % | 69.0 | % | 67.7 | % | 65.6 | % | ||||||||
Supplies | 7.4 | % | 7.6 | % | 7.5 | % | 7.5 | % | ||||||||
Purchased services | 7.0 | % | 7.0 | % | 6.8 | % | 7.0 | % | ||||||||
EHR incentive payments | 0.0 | % | 0.0 | % | -0.1 | % | 0.0 | % | ||||||||
Other operating expenses | 12.9 | % | 14.9 | % | 13.7 | % | 15.0 | % | ||||||||
Rent and lease expense | 0.9 | % | 0.9 | % | 1.0 | % | 0.7 | % | ||||||||
Depreciation and amortization expense | 3.0 | % | 3.2 | % | 2.8 | % | 3.3 | % |
Salaries, wages and benefits increased as a percent of net revenue for the nine months ended March 31, 2018 due to increased employee medical claims when compared to same period last year, but decreased as a percent of net revenue for the three months ended MarchDecember 31, 2018 due to better labor management in the nursing homes this year. Supplies and Other operating expenses decreased this year because last year’s expenses included expenses related to a hospital that ceased operations in June 2016. Depreciation and amortization expense decreased $78 for the nine months ended March 31, 2018, as compared to the same period last fiscal year due to decreased workers compensation claims expense. Purchased services increased this year primarily due to the addition of a contracted new service line at a hospital. All other expense categories decreased as a percentage of net revenues due to the higher net revenues this year.
For the six months ended December 31, 2018, purchased services expenses increased this year as a resultpercent of net revenue primarily due to the saleaddition of a medical office buildingcontracted new service line at a hospital. Salaries, wage and benefits expense increased in the six months ended December 31, 2018 compared to last year.year’s six month period due to increased contract labor and average salaries due to local labor shortages and related local labor market competition.
Pharmacy Segment Cost and Expenses
Cost and expenses for our Pharmacy segment, including depreciation and amortization, were $8,127$8,013 and $8,522$7,839 for the three months ended MarchDecember 31, 2018 and 2017, respectively. Cost and expenses for our Pharmacy segment, including depreciation and amortization, were $23,340$14,586 and $24,457$15,005 for the ninesix months ended MarchDecember 31, 2018 and 2017, respectively.
Cost and Expenses | ||||||||||||||||||||||||||||||||
as a % of Net Revenues |
| Cost and Expenses as a % of Net Revenues |
| |||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||
March 31, | March 31, |
| December 31, |
|
| December 31, |
| |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||||
Cost of goods sold | 65.4 | % | 67.4 | % | 61.9 | % | 65.1 | % |
|
| 65.2 | % |
|
| 63.1 | % |
|
| 62.9 | % |
|
| 61.0 | % | ||||||||
Salaries, wages and benefits | 23.7 | % | 22.8 | % | 22.6 | % | 23.4 | % |
|
| 22.9 | % |
|
| 22.1 | % |
|
| 24.6 | % |
|
| 22.4 | % | ||||||||
Provision for bad debts | 3.0 | % | 1.5 | % | 1.9 | % | 1.4 | % | ||||||||||||||||||||||||
Supplies | 0.4 | % | 0.4 | % | 0.3 | % | 0.4 | % |
|
| 0.4 | % |
|
| 0.4 | % |
|
| 0.4 | % |
|
| 0.4 | % | ||||||||
Purchased services | 3.4 | % | 3.5 | % | 3.5 | % | 3.7 | % |
|
| 3.4 | % |
|
| 3.3 | % |
|
| 3.6 | % |
|
| 3.6 | % | ||||||||
Other operating expenses | 3.9 | % | 3.9 | % | 3.9 | % | 3.7 | % |
|
| 4.0 | % |
|
| 3.7 | % |
|
| 4.3 | % |
|
| 3.9 | % | ||||||||
Rent and lease expense | 1.1 | % | 1.0 | % | 1.1 | % | 1.0 | % |
|
| 1.0 | % |
|
| 1.1 | % |
|
| 1.1 | % |
|
| 1.1 | % | ||||||||
Depreciation and amortization expense | 3.8 | % | 3.5 | % | 3.6 | % | 3.4 | % |
|
| 3.3 | % |
|
| 3.5 | % |
|
| 3.6 | % |
|
| 3.5 | % |
Cost of goods sold as a percent of net revenues decreasedincreased in the three and ninesix month periodperiods ended MarchDecember 31, 2018 as compared to the comparable periodperiods of the prior year due to changes in sales product mix primarily decreased Institutional Pharmacy revenues, and increased discounts from their venders. Salaries, wages and benefits as a percentincreases in the cost of certain drugs. The 7% decrease in net revenues infor the three monthsix months period ended MarchDecember 31, 2018 as compared to the comparablesame period of the prior year resulted in the increased due to the lower sales incost as a percentage of net revenue this year’s third fiscal quarter. Provision for bad debts increased for the three months ended March 31, 2018 as compared to last year due to lower than anticipated collections from private payors.year.
18
The Company reported an operating loss of $731$37 for the three months ended MarchDecember 31, 2018 compared to an operating loss of $771$80 for the three months ended MarchDecember 31, 2017. The reduced operating loss for the three months ended MarchDecember 31, 2018 compared to the operating loss for the prior year’s three month period improved aswas a result of increased operating profit of the Healthcare Facilities segment. Services segment which resulted from their increase in net revenues this year.
The Company reported an operating loss of $910$795 for the ninesix months ended MarchDecember 31, 2018 compared to an operating loss of $1,696$179 for the ninesix months ended MarchDecember 31, 2017. The higher operating loss lastfor the six month period this year includedcompared to the same period for the prior year was a result of decreased operating profit for both the Healthcare Services and Pharmacy segments.
Asset Sales
On October 11, 2018, the Company sold a vacant medical office building and approximately two adjacent acres of undeveloped land. After expenses, related to a hospital that ceased operations in June 2016.
19Economic Damages Claim
Gain on economic damages claim
The Pharmacy Segment subsidiary asserted claims for economic damages in connection with the Deepwater Horizon Settlement Program related to the event which occurred in 2010. In January 2018, these claims were settled and payments of approximately $944 (net of costs and attorneys’ fees) were received. The net settlements are recognized as a gain in the Condensed Consolidated Statements of Operations and Comprehensive Earnings (Loss) for the ninethree and six months ended MarchDecember 31, 2018.2017.
Interest Expense
Interest expense was $56$61 and $129$119 for the three months ended MarchDecember 31, 2018 and 2017, and $302$122 and $507$246 for the ninesix months ended MarchDecember 31, 2018, and 2017, respectively. The decrease in interest expense resulted from lower debt outstanding in the current fiscal year, primarily because debt was reduced $3,856 in the nine months ended March 31, 2018 and $3,985$3,926 last fiscal year with no additional debt undertaken.year.
Income Taxes
Income tax benefitexpense of $0 ($0 federal taxexpense and $0 state tax expense) and income tax benefit of $8$296 ($32296 federal tax benefit and $24$0 state tax expense) was recorded for continuing operations for the three months ended MarchDecember 31, 2018 and 2017, respectively. Income tax expense of $0 ($0 federal expense and state tax expense) and income tax benefit of $296 ($296 federal tax benefit and $0 state tax expense) and income tax benefit of $236 ($221 federal tax benefit and $15 state tax benefit) was recorded for continuing operations for the ninesix months ended MarchDecember 31, 2018 and 2017, respectively.
In accordance with the Financial Accounting Standards Board Accounting Standards Codification (‘(“ASC”) 740, we evaluate our deferred taxes quarterly to determine if adjustments to our valuation allowance are required based on the consideration of available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future results of operations, the duration of applicable statuary carryforward periods and conditions of the healthcare industry. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related temporary differences in the financial basis and the tax basis of the assets become deductible. The value of our deferred tax assets will depend on applicable income tax rates.
The Tax CutCuts and Jobs Act (“TCJA”) was enacted on December 22, 2017. Under ASC 740, the impact of changes in tax law must be recorded in the financial statements in the reporting period that included the date of enactment. However,In addition, in conjunction with the TCJA, on December 22, 2017, the SEC and the FASB both recognize that the magnitude of this law change will require extensive analysis and calculations to conform to the new provisions. The SECstaff issued Staff Accounting Bulletin (‘SAB”No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which provides guidance on December 22, 2017.accounting for the tax effects of the TCJA. SAB 118 provides registrants with guidance on when and how to report the impactallows for recording certain effects of the law change when not all necessary information is available.TCJA as “provisional” during a one-year measurement period, which for the Company ending in the second quarter of fiscal 2019.
At MarchDecember 31, 2018, consistent with the above processes,process, we evaluated the need for a valuation allowance against our deferred tax assets and determined that it was more likely than not that onlynone of our federal alternative minimumdeferred tax (“AMT”) tax credits of $296assets would be realized. The AMT credit representsAs a provisional amount that will be finalized upon the filing of the Company’s federal income tax return for the year ended June 30, 2017. The filing of this return will occur prior to the Company’s fiscal year end which is within the measurement period. Under TCJA, AMT tax credits will now become refundable in conjunction with the repeal of the corporate AMT. For tax years beginning after December 31, 2017 and before January 1, 2022, the AMT credit is refundable in an amount equal to 50% (100% for the 2021 tax year) of the excess of the credit for the tax year over the amount of the credit allowable for the year against regular tax liability. This results in the Company receiving its entire AMT credit of $296 as a refund no later than fiscal 2022 and as such a valuation allowance is no longer needed for the AMT credit carryforward. However,result, in accordance with ASC 740, we recognized a valuation allowance of $8,071$8,513 against all other netthe deferred tax asset itemsso that there is no net long-term deferred income tax asset or liability at MarchDecember 31, 2018. We conducted our evaluation by considering available positive and negative evidence to determine our ability to realize our deferred tax assets. In our evaluation, we gave more significant weight to evidence that was objective in nature as compared to subjective evidence. Also, more significant weight was given to evidence that directly related to our current financial performance as compared to less current evidence and future plans.
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The principal negative evidence that led us to determine at MarchDecember 31, 2018 that $8,071 ofall the net deferred tax assets resulting fromnon-AMT credit carryforwards should have full valuation allowances was the three-year cumulativepre-tax loss from continuing operations as well as the underlying negative business conditions for rural healthcare businesses in which our Healthcare Services Segment businesses operate.
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For Federal income tax purposes, at MarchDecember 31 2018, the Company had approximately $13,400$16,300 of estimated net operating loss carry-forwards available for use in future years subject to the limitations of the provisions of Internal Revenue Code Section 382. These net operating loss carryforwards expire primarily in 2025. Withfiscal 2023 through fiscal 2038; however with the enactment of the TCJA Federalon December 22, 2017, federal net operating loss carryforwards generated in taxable years endingbeginning after December 31, 2017 now have no expiration date.
Gain on SaleWe recorded a discrete net tax benefit of Assets
On January 11,$0 during the twelve months ended June 30, 2018 Carmichael’s Cashway Pharmacy, Inc., a wholly owned subsidiaryrelated to provisional amounts under SAB 118 for the remeasurement of U.S. deferred tax assets and liabilities due to the Company, soldFederal tax rate reduction to 21%. No net tax benefit was recorded due to the assetsCompany’s full valuation allowance position. The $296 of a retail pharmacy operation it operates for approximately $410. Apre-tax gain on the sale of the assets of $183 is included in the resultstax benefit recorded for the three and nine months ended MarchDecember 31, 2018.
In December 2016, a subsidiary sold a medical office building complex, comprised2017 was due to the release of land and three buildings in Ellijay, GA (“Ellijay MOB”) for $4,900. A gain of $2,819 was reportedthe valuation allowance on the sale.Company’s Alternative Minimum Tax (“AMT”) Credit, which became refundable under the TCJA. No changes were recorded to this provisional estimate during the six months ended December 31, 2018. Pursuant to the requirements of SAB 118 as discussed above the Company has completed its accounting for the TCJA for the second quarter ended fiscal 2019. While the final amount of tax benefit related to the AMT Credit valuation allowance removal may be adjusted due to the final June 30, 2018 tax return filing, the final impact is not expected to be material.
Earnings (Loss) from Continuing Operations beforeafter Income TaxTaxes
LossEarnings from continuing operations beforeafter income tax was $604$354 for the three months ended MarchDecember 31, 2018 as compared to a lossearnings from continuing operations beforeafter income tax of $898$799 for the three months ended MarchDecember 31, 2017. Loss from continuing operations beforeafter income tax was $325$463 for the ninesix months ended MarchDecember 31, 2018 as compared to earnings from continuing operations beforeafter income tax of $573$575 for the ninesix months ended MarchDecember 31, 2017. The lossdecreased earnings from continuing operations for the nine months periodthree and six month periods ended MarchDecember 31, 2018 as compared theto earnings from continuing operationoperations for the nine month periodsame periods last year resultsresulted from a significantthe non-reoccurrence of the gain on the sale of assets lasteconomic damages claim this year.
Net Earnings (Loss) After Taxes
Loss from continuing operations were $604 (or a lossNet earnings for the three months ended December 31, 2018 was $305 ($0.05 per fully diluted share) as compared to net earnings of $0.08$726 ($0.08 per fully diluted share) for the three months ended MarchDecember 31, 2017. The net loss for the six months ended December 31, 2018 was $575 (a loss of $0.08 per fully diluted share) as compared to a loss from continuing operationsnet earnings of $890 (or a loss of $0.10$449 ($0.05 per fully diluted share) for the threesix months ended MarchDecember 31, 2017. The reduced loss in the three months ended March 31, 2018 compared to the same period last year resulted from the gain on the sale of certain retail pharmacy assets in January 2018. Loss from continuing operations were $29 (or a loss $0.00 per fully diluted share) for the nine months ended March 31, 2018 compared to earnings from continuing operations of $809 (or $0.09 per fully diluted share) for the nine months ended March 31, 2017. The loss for the nine months period ended March 31, 2018 as compared the earnings for the nine month period last year results from a significant gain on the sale of assets last year.
Net loss for the three months ended March 31, 2018 was $588 (or a loss of $0.08 fully diluted share) compared to a net loss of $1,025 (or a loss of $0.11 earnings per fully diluted share) for the three months ended March 31, 2017. Net loss for the nine months ended March 31, 2018 was $139 (or a loss of $0.02 fully diluted share) compared to net earnings of $5,096 ($0.54 earnings per fully diluted share) for the nine months ended March 31, 2017. Net earnings last year included $4,287 of earnings from discontinued operations which primarily resulted from the gain on the sale of a hospital in August 2016.
Adjusted earnings before income taxes, interest, depreciation and amortization
Earnings before income taxes, interest, depreciation and amortization (“EBITDA”) represent the sum of income before income taxes, interest, depreciation and amortization. We understand that certain industry analysts and investors generally consider EBITDA to be one measure of the liquidity of a company, and it is presented to assist analysts and investors in analyzing the ability of a company to generate cash, service debt and meet capital requirements. We believe increased EBITDA is an indicator of improved ability to service debt and to satisfy capital requirements. EBITDA, however, is not a measure of financial performance under accounting principles generally
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accepted in the United States of America and should not be considered an alternative to net income as a measure of operating performance or to cash liquidity. Because EBITDA is not a measure determined in accordance with accounting principles generally accepted in the United States of America and is thus susceptible to varying calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other corporations. Where we adjust EBITDA fornon-cash charges, we refer to such measurement as “Adjusted EBITDA”, which we report on a Company wide basis.Non-cash adjustments in Adjusted EBITDA are not intended to be identified or characterized in any respect, as“non-recurring, “non-recurring, infrequent or unusual,” if we believe such charge is reasonably likely to recur within two years, or if there was a similar charge (or gain) within the prior two years. Where we report Adjusted EBITDA, we typically also report Healthcare Services segment Adjusted EBITDA and Pharmacy segment Adjusted EBITDA which is the EBITDA for the applicable segments without any allocation of corporate overhead, which we report as a separate line item, without gains on sales of businesses and without any allocation of thenon-cash adjustments, which we also report as a separate line item in Adjusted EBITDA. Net cash used inprovided by (used in) operations for the three and ninesix months ended MarchDecember 31, 2018 and 2017, respectively, is shown below.
Three Months Ended | Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||
March 31, | March 31, |
| December 31, |
|
| December 31, |
| |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||||
Healthcare Services Adjusted EBITDA | $ | 281 | $ | 30 | $ | 603 | $ | 709 |
| $ | 585 |
|
| $ | 221 |
|
| $ | 500 |
|
| $ | 322 |
| ||||||||
Pharmacy Adjusted EBITDA | (70 | ) | (35 | ) | 1,130 | 299 |
|
| 327 |
|
|
| 507 |
|
|
| 526 |
|
|
| 1,200 |
| ||||||||||
Corporate overhead costs | (478 | ) | (300 | ) | (1,311 | ) | (1,328 | ) |
|
| (518 | ) |
|
| (369 | ) |
|
| (972 | ) |
|
| (833 | ) | ||||||||
Taxes and interest expense | (56 | ) | (121 | ) | (6 | ) | (271 | ) |
|
| (61 | ) |
|
| (61 | ) |
|
| (122 | ) |
|
| (188 | ) | ||||||||
Othernon-cash expenses and net change in operating assets and liabilities | 25 | (659 | ) | (449 | ) | (4,408 | ) |
|
| (647 | ) |
|
| (266 | ) |
|
| 212 |
|
|
| (236 | ) | |||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net cash used in operations | $ | (298 | ) | $ | (1,085 | ) | $ | (33 | ) | $ | (4,999 | ) | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net cash provided by (used in) operations |
| $ | (314 | ) |
| $ | 32 |
|
| $ | 144 |
|
| $ | 265 |
|
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Liquidity and Capital Resources
Overview
Our primary source of liquidity is unrestricted cash on hand of $3,541$3,326 at MarchDecember 31, 2018. Currently, the Company’s ability to raise capital (debt or equity) in the public or private markets on what it considers acceptable terms is uncertain. We nevertheless periodically seek options to obtain financing for the liquidity needs of the Company or individual subsidiaries. The Company and its subsidiaries currently are funding working capital needs primarily from cash on hand and from the sale of assets. See “Subsidiary Loans” below.
Subject to the risks and uncertainties discussed herein, we believe we have adequate financing and liquidity to support our current level of operations through the next twelve months.
Subsidiary Loans
Trace RDA Loan –Loan— Southern Health Corporation of Houston, Inc. (“Trace”) a wholly owned subsidiary of the Company, closed on a $9,975 Mortgage Loan Agreement (“Trace RDA Loan”) with a bank, dated as of July 5, 2012. The Trace RDA Loan has a term of 15 years with level monthly payments of principal and interest until repaid. On December 26, 2017, the Fifth Amendment to Loan Agreement, Modification of Note and Waiver (“Modification”) was entered into by Trace and the bank. Under the Modification, Trace made a $3,548 prepayment on the Trace RDA Loan. The monthly principal and interest payments on the RDA Loan were reduced, to $39 per month, the interest rate was reduced to the prime rate (as published in the Wall Street Journal) plus 1% with a floor of 5.5%, (5.75%(6.5% at MarchDecember 31, 2018) and certain loan covenants were modified. The Modification also included a waiverManagement was not aware of covenantany violations for the quarters ended June 30 and September 30, 2017. Trace was in compliance with the amended financial covenants at MarchDecember 31, 2018. In connection with the modification and prepayment, an existing deposit of $1,000 in a blocked, interest bearing account with the lender was released. The Trace RDA Loan is collateralized by real estate and equipment of Trace in Houston, MS, and is partially guaranteed under the U.S. Department of Agriculture, Rural Development Business and Industry Program.
The Trace RDA Loan contains various terms and conditions, including financial restrictions and limitations, and affirmative and negative covenants. The covenants include financial covenants measured on a quarterly basis whichthat require Trace to comply with a ratio of current assets to current liabilities, debt service coverage, fixed charge ratio, and funded debt to EBITDA, all as defined in the Trace RDA Loan. The ability of Trace to continue to make
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the required debt service payments under the Trace RDA Loan depends on, among other things, its ability to generate sufficient cash, including from operating activities and asset sales. If Trace is unable to generate sufficient cash to meet debt service payments on the Trace RDA Loan, including in the event the lender were to declare an event of default and accelerate the maturity of the indebtedness, such failure could have material adverse effects on the Company. The Trace RDA Loan is guaranteed by the Company and one subsidiary.
Contractual Obligations, Commitments and Contingencies
Contractual obligations, commitments and contingencies related to outstanding debt,non-cancelable operating leases and interest on outstanding debt from continuing operations at MarchDecember 31, 2018 were as follows:
Payments due in: | Long-Term Debt | Operating Leases | Interest on Outstanding Debt |
|
|
| Long-Term Debt |
|
| Operating Leases |
|
| Interest on Outstanding Debt |
| ||||||||||||
1 year | $ | 258 | $ | 574 | $ | 172 |
|
|
| $ | 292 |
|
| $ | 558 |
|
| $ | 193 |
| ||||||
2 years | 296 | 423 | 173 |
|
|
|
| 335 |
|
|
| 383 |
|
|
| 190 |
| |||||||||
3 years | 315 | 340 | 155 |
|
|
|
| 359 |
|
|
| 197 |
|
|
| 167 |
| |||||||||
4 years | 333 | 132 | 136 |
|
|
|
| 383 |
|
|
| 27 |
|
|
| 142 |
| |||||||||
5+ years | 2,145 | 4 | 355 |
|
|
|
| 1,946 |
|
|
| 3 |
|
|
| 309 |
| |||||||||
|
|
|
|
|
| $ | 3,315 |
|
| $ | 1,168 |
|
| $ | 1,001 |
| ||||||||||
$ | 3,347 | $ | 1,473 | $ | 991 | |||||||||||||||||||||
|
|
|
At MarchDecember 31, 2018, we had outstanding long-term debt of $3,347$3,315 consisting of $3,141 under the Trace RDA Loan.Loan and $174 of capital lease debt.
On September 8, 2017, the Georgia Survey agency of the Georgia Department of Community Health (“DCH“) conducted a Complaint Investigation survey to determine whether our nursing home in Ellijay, Georgia was in compliance with federal program requirements for nursing homes participating in Medicare and/or Medicaid programs. As a result of this survey, the nursing home received from the DCH a notice of deficiencies which were identified as posing an immediate jeopardy to resident health and safety and which had to be corrected immediately. DCH also notified the nursing home of its intent to recommend civil monetary penalties. In response to the survey findings, the nursing home adopted a succession of plans to remedy the matters identified. On November 6, 2017, DCH advised the nursing home that its latest plan of correction was accepted and on November 20, 2017, DCH advised the nursing home that it was in substantial compliance with its long-term care requirements. The nursing home will be subject to future DCH surveys from time to time to evaluate compliance with federal program requirements for nursing homes participating in Medicare and/or Medicaid programs including its continued implementation of the plans of correction. A Civil Money Penalty (“CMP”) was imposed by the Department of Health & Human Services Centers for Medicare and Medicaid Services on January 4, 2018 which resulted in $170 expensed in the nine months ended March 31, 2018. The CMP was paid January 18, 2018.
Discontinued Operations
Chestatee Hospital – On August 19, 2016, Southern Health Corporation of Dahlonega, Inc., (“Chestatee”), a wholly owned subsidiary of the Company, sold substantially all of the assets and certain liabilities of Chestatee Regional Hospital in Dahlonega, Georgia through an asset purchase agreement for $15,000 subject to adjustment for the book value of certain assets and certain liabilities assumed at the sale date. Thepre-tax gain on sale of $7,270 is subject to adjustment for various purchase price adjustments. A purchase price adjustment of $328 is due to the Company from the hospital buyer as a post-closing adjustments to the purchase price as confirmed by a binding decision of an independent accountant rendered pursuant to the purchase agreement. Chestatee retained certain liabilities, including certain employee related liabilities and certain Medicare and Medicaid liabilities, relating to the period it owned and operated the hospital. A portion of the net proceeds was used for the repayment of debt.
Other Sold Hospitals– Subsidiaries of the Company sold substantially all of the assets of threefour hospitals (“Other Sold Hospitals”) during the period July 2, 2012 to DecemberAugust 31, 2014.2016. The earnings (loss)loss before income taxes of the Other Sold Hospitals resultsresult primarily from prior year Medicare and Medicaid cost report settlements.retained professional liability claims expenses.
Life Sciences and Engineering Segment – SunLink —SunLink retained a defined benefit retirement plan which covered substantially all of the employees of this segment when the segment was sold in fiscal 1998. Effective February 28, 1997, the plan was amended to freeze participant benefits and close the plan to new participants.
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A director of the Company is a member of a law firm which provides services to SunLink. The Company expensed an aggregate of $25$59 and $109$125 for legal services to this law firm in the three months ended MarchDecember 31, 2018 and 2017, respectively. The Company expensed an aggregate of $215$135 and $481$190 for legal services to this law firm in the ninesix months ended MarchDecember 31, 2018 and 2017, respectively. Included in the Company’s condensed consolidated balance sheets at MarchDecember 31, 2018 and June 30, 20172018 is $12$21 and $38,$10, respectively, of amounts payable to this law firm.
We have not entered into any transactions using derivative financial instruments or derivative commodity instruments and believe that our exposure to market risk associated with other financial instruments (such as investments and borrowings) and interest rate risk is not material.
Evaluation of Disclosure Controls and Procedures
As required by Rule13a-15 and Rule15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) ”), as of the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our Company’s disclosure controls and procedures (as such term is defined in Rules13a-15(e) and15d-15(e) under the Exchange Act) and the changes in our disclosure controls and procedures during the quarter. Under the direction of our principalchief executive officer and principalchief financial officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that our disclosure controls and procedures were effective as of MarchDecember 31, 2018.
Disclosure controls and procedures and other procedures are designed to ensure that information required to be disclosed in our reports or submitted under the Exchange Act, such as this Quarterly Report on Form10-Q, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on an evaluation of the effectiveness of disclosure controls and procedures performed in connection with the preparation of this Form10-Q, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of MarchDecember 31, 2018.
Changes in Internal Control Over Financial Reporting
There were no changes during the quarter ended MarchDecember 31, 2018 in our internal control over financial reporting that materially affected, or is likely to materially affect, our internal controls over financial reporting.
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PART II. OTHEROTHER INFORMATION
Items required under Part II not specifically shown below are not applicable.
On September 8, 2017, the Georgia Survey agency of the Georgia Department of Community Health (“DCH“) conducted a Complaint Investigation survey to determine whether our nursing home in Ellijay, Georgia was in compliance with federal program requirements for nursing homes participating in Medicare and/or Medicaid programs. As a result of this survey, the nursing home received from the DCH a notice of deficiencies which were identified as posing an immediate jeopardy to resident health and safety and which had to be corrected immediately. DCH also notified the nursing home of its intent to recommend civil monetary penalties. In response to the survey findings, the nursing home adopted a succession of plans to remedy the matters identified. On November 6, 2017, DCH advised the nursing home that its latest plan of correction was accepted and on November 20, 2017, DCH advised the nursing home that it was in substantial compliance with its long-term care requirements. The nursing home will be subject to future DCH surveys from time to time to evaluate compliance with federal and state program requirements for nursing homes participating in Medicare and/or Medicaid programs including its continued implementation of the plans of correction. A Civil Money Penalty (“CMP”) was imposed by the Department of Health & Human Services Centers for Medicare and Medicaid Services on January 4, 2018 which resulted in $170 expensed in the nine months ended March 31, 2018. The CMP was paid January 18, 2018.
Risk Factors Relating to an Investment in SunLink
Information regarding risk factors appears in “MD&A – Forward-Looking Statements,” in Part I – Item 2 of this Form10-Q and in “MD&A -Risks Factors Relating to an Investment in SunLink” in Part I – Item 1A of the Company’s Annual Report on Form10-K for the year ended June 30, 2017.2018. While we believe there have been no material changes from the risk factors previously disclosed in such Annual Report except as set forth herein, you should carefully consider, in addition to the other information set forth in this report, the risk factors discussed in our Annual Report which could materially affect our business, financial condition or future results. Such risk factors are expressly incorporated herein by reference. The risks described in our Annual Report are not the only risks facing our Company. In addition to risks and uncertainties inherent in forward-looking statements contained in this Report on Form10-Q, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Whenever we refer to “SunLink,” “Company”, “we,” “our,” or “us” in this Item 1A, we mean SunLink Health Systems, Inc. and its subsidiaries, unless the context suggests otherwise.
Exhibits:
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | The following materials from the Company’s quarterly report on Form10-Q for the three months ended |
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Pursuant to the requirements of the Securities Exchange Act of 1934, SunLink Health Systems, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SunLink Health Systems, Inc. | ||
By: | /s/ Mark J. Stockslager | |
Mark J. Stockslager | ||
Chief Financial Officer |
Dated: May 11, 2018February 14, 2019
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