Company Quick10K Filing
Quick10K
Sunlink Health Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$1.58 7 $11
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-03-19 Other Events, Exhibits
8-K 2018-12-13 Other Events, Exhibits
8-K 2018-11-29 Other Events, Exhibits
8-K 2018-11-12 Shareholder Vote
8-K 2018-10-11 M&A, Exhibits
WSO Watsco 5,940
WWW Wolverine World Wide 2,860
PBFX PBF Logistics 1,280
APOG Apogee Enterprises 1,050
MSBI Midland States Bancorp 626
SPTN Spartannash 577
EVER Everquote 105
CETC Cyber Apps World 0
PTIE Pain Therapeutics 0
AHFC American Honda Finance 0
SSY 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Note 1. -Basis of Presentation and Adoption of Recently Issued Accounting Standards
Note 2. - Business Operations
Note 4. - Shareholders' Equity
Note 5. - Revenue Recognition and Accounts Receivables
Note 6. - Intangible Assets
Note 7. -Long-Term Debt
Note 8. - Income Taxes
Note 9. - Commitments and Contingencies
Note 10. - Related Party Transactions
Note 11. - Asset Sale
Note 12. - Economic Damages Claim
Note 13. - Financial Information By Segment
Item 2. Management's Discussion and Analysis of Financial
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 ssy-ex311_6.htm
EX-31.2 ssy-ex312_9.htm
EX-32.1 ssy-ex321_8.htm
EX-32.2 ssy-ex322_7.htm

Sunlink Health Systems Earnings 2019-03-31

SSY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ssy-10q_20190331.htm SUNLINK FORM 10-Q 3.31.19 ssy-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-12607

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (of for such shorter period that the registrant was required to submit 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 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered Symbol(s)

  Common     SSYNYSE American

The number of Common Shares, without par value, outstanding as of May 13, 2019 was 6,986,855 .

 

 

 


TABLE OF CONTENTS

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

March 31,

 

 

 

 

 

 

 

2019

 

 

June 30,

 

 

 

(unaudited)

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,160

 

 

$

3,456

 

Receivables - net

 

 

5,251

 

 

 

4,823

 

Inventory

 

 

2,003

 

 

 

1,854

 

Current assets held for sale

 

 

0

 

 

 

40

 

Prepaid expense and other assets

 

 

2,664

 

 

 

2,937

 

Total current assets

 

 

19,078

 

 

 

13,110

 

Property, plant and equipment, at cost

 

 

20,154

 

 

 

19,867

 

Less accumulated depreciation

 

 

14,666

 

 

 

13,971

 

Property, plant and equipment - net

 

 

5,488

 

 

 

5,896

 

Noncurrent Assets:

 

 

 

 

 

 

 

 

Intangible assets - net

 

 

1,383

 

 

 

1,470

 

Income tax receivable

 

 

305

 

 

 

305

 

Noncurrent assets held for sale

 

 

0

 

 

 

4,510

 

Other noncurrent assets

 

 

806

 

 

 

885

 

Total noncurrent assets

 

 

2,494

 

 

 

7,170

 

TOTAL ASSETS

 

$

27,060

 

 

$

26,176

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,527

 

 

$

1,239

 

Current maturities of long-term debt, net of debt issuance costs

 

 

319

 

 

 

255

 

Accrued payroll and related taxes

 

 

2,148

 

 

 

1,959

 

Due to third party payors

 

 

275

 

 

 

290

 

Other accrued expenses

 

 

1,771

 

 

 

1,108

 

Total current liabilities

 

 

6,040

 

 

 

4,851

 

Long-Term Liabilities

 

 

 

 

 

 

 

 

Long-term debt, net of debt issuance costs

 

 

2,739

 

 

 

2,803

 

Noncurrent liability for professional liability risks

 

 

774

 

 

 

996

 

Other noncurrent liabilities

 

 

236

 

 

 

340

 

Total long-term liabilities

 

 

3,749

 

 

 

4,139

 

Commitment and Contingencies

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

Preferred Shares, authorized and unissued, 2,000 shares

 

 

0

 

 

 

0

 

Common Shares, without par value:

 

 

 

 

 

 

 

 

Issued and outstanding, 6,987 shares at March 31, 2019 and 7,347 shares at June 30, 2018

 

 

3,493

 

 

 

3,673

 

Additional paid-in capital

 

 

10,745

 

 

 

10,947

 

Retained earnings

 

 

3,210

 

 

 

2,743

 

Accumulated other comprehensive loss

 

 

(177

)

 

 

(177

)

Total Shareholders’ Equity

 

 

17,271

 

 

 

17,186

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

27,060

 

 

$

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)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenues

 

$

12,361

 

 

 

11,333

 

 

 

34,719

 

 

 

34,990

 

Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

5,539

 

 

 

5,073

 

 

 

14,711

 

 

 

14,623

 

Salaries, wages and benefits

 

 

4,931

 

 

 

4,806

 

 

 

14,225

 

 

 

14,068

 

Supplies

 

 

329

 

 

 

327

 

 

 

942

 

 

 

958

 

Purchased services

 

 

663

 

 

 

532

 

 

 

1,817

 

 

 

1,599

 

Other operating expenses

 

 

865

 

 

 

778

 

 

 

2,858

 

 

 

2,702

 

Rent and lease expense

 

 

155

 

 

 

154

 

 

 

458

 

 

 

463

 

EHR incentive payments

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(21

)

Depreciation and amortization

 

 

367

 

 

 

383

 

 

 

1,056

 

 

 

1,096

 

Operating Loss

 

 

(488

)

 

 

(720

)

 

 

(1,348

)

 

 

(498

)

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains on sale of assets

 

 

0

 

 

 

183

 

 

 

454

 

 

 

181

 

Gain on economic damages claim, net

 

 

0

 

 

 

0

 

 

 

0

 

 

 

944

 

Loss on extinguishment of debt

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(238

)

Interest expense, net

 

 

(63

)

 

 

(56

)

 

 

(185

)

 

 

(302

)

Earnings (Loss) from Continuing Operations before income taxes

 

 

(551

)

 

 

(593

)

 

 

(1,079

)

 

 

87

 

Income Tax Benefit

 

 

(226

)

 

 

0

 

 

 

(226

)

 

 

(296

)

Earnings (Loss) from Continuing Operations

 

 

(325

)

 

 

(593

)

 

 

(853

)

 

 

383

 

Earnings (Loss) from Discontinued Operations, net of tax

 

 

1,367

 

 

 

5

 

 

 

1,320

 

 

 

(522

)

Net Earnings (Loss)

 

 

1,042

 

 

 

(588

)

 

 

467

 

 

 

(139

)

Other comprehensive income

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Comprehensive Earnings (Loss)

 

$

1,042

 

 

$

(588

)

 

$

467

 

 

$

(139

)

Earnings (Loss) Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.05

)

 

$

(0.08

)

 

$

(0.12

)

 

$

0.04

 

Diluted

 

$

(0.05

)

 

$

(0.08

)

 

$

(0.12

)

 

$

0.04

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.20

 

 

$

0.00

 

 

$

0.18

 

 

$

(0.06

)

Diluted

 

$

0.20

 

 

$

0.00

 

 

$

0.18

 

 

$

(0.06

)

Net Earnings (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

(0.08

)

 

$

0.06

 

 

$

(0.02

)

Diluted

 

$

0.15

 

 

$

(0.08

)

 

$

0.06

 

 

$

(0.02

)

Weighted-Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

6,987

 

 

 

7,417

 

 

 

7,203

 

 

 

8,564

 

Diluted

 

 

6,987

 

 

 

7,417

 

 

 

7,203

 

 

 

8,632

 

 

See notes to condensed consolidated financial statements.

 

3


SUNLINK HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Net Cash Used in Operating Activities

 

$

(517

)

 

$

(33

)

Cash Flows Provided by (Used in) Investing Activities:

 

 

 

 

 

 

 

 

Expenditures for property, plant and equipment - continuing

   operations

 

 

(867

)

 

 

(813

)

Expenditures for property, plant and equipment - discontinued

   operations

 

 

(172

)

 

 

(689

)

      Proceeds from sale of Parkside

 

 

6,899

 

 

0

 

Proceeds from sale of other assets

 

 

937

 

 

 

412

 

Net Cash Provided by (Used) in Investing Activities

 

 

6,797

 

 

 

(1,090

)

Cash Flows Provided by (Used in) Financing Activities:

 

 

 

 

 

 

 

 

Payments on long-term debt

 

 

(193

)

 

 

(3,856

)

Repurchase of common shares

 

 

(383

)

 

 

(2,974

)

Restricted cash deposit released

 

 

0

 

 

 

1,000

 

Net Cash Used in Financing Activities

 

 

(576

)

 

 

(5,830

)

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

5,704

 

 

 

(6,953

)

Cash and Cash Equivalents Beginning of Period

 

 

3,456

 

 

 

10,494

 

Cash and Cash Equivalents End of Period

 

$

9,160

 

 

$

3,541

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash Paid for:

 

 

 

 

 

 

 

 

Interest

 

$

168

 

 

$

269

 

Income taxes

 

$

0

 

 

$

0

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

     Assets acquired under capital lease obligations

 

$

176

 

 

$

0

 

 

See notes to condensed consolidated financial statements.

4


SUNLINK HEALTH SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED MARCH 31, 2019

(all dollar amounts in thousands except per share amounts)

(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 March 31, 2019 and for the three and nine month periods ended March 31, 2019 and 2018 have been prepared in accordance with Rule 10-01 of Regulation S-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, 2018 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 Form 10-K for the fiscal year ended June 30, 2018, filed with the SEC on September 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 nine month periods ended March 31, 2019 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.

5


Note 2. – Business Operations

Business Operations

SunLink Health Systems, Inc., through subsidiaries, owns businesses that 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 an 84- bed community hospital and a 66- bed nursing home in Mississippi, 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, services and profitability of its existing Healthcare Services and Pharmacy businesses while seeking to sell certain of its underperforming subsidiaries’ assets.

On March 17, 2019, a subsidiary of the Company completed the sale of a nursing home and related real estate for $7,300 subject to adjustment for the book value of certain assets and liabilities on the sale date. The pre-tax gain on the sale was $2,136, which is also subject to adjustment for the book value of certain assets and liabilities on the sale date.

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, and open market repurchases of its common shares in December 2018, 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, among other things,  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.

The Company has repurchased 359,959  common shares pursuant to a stock repurchase program announced on November 29, 2018, which authorizes the repurchase of a total of 750,000 common shares.

 

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.

6


Results for all of the businesses included in discontinued operations are presented in the following table:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Parkside

 

$

1,723

 

 

$

1,846

 

 

$

5,640

 

 

$

5,223

 

Sold Hospitals

 

 

3

 

 

 

77

 

 

 

15

 

 

 

71

 

 

 

$

1,726

 

 

$

1,923

 

 

$

5,655

 

 

$

5,294

 

Loss before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Parkside

 

$

(185

)

 

$

(10

)

 

$

(121

)

 

$

(411

)

Sold Hospitals

 

 

(126

)

 

 

54

 

 

 

(188

)

 

 

6

 

Life sciences and engineering

 

 

(25

)

 

 

(36

)

 

 

(74

)

 

 

(108

)

Earnings (Loss) from operations before income taxes

 

 

(336

)

 

 

8

 

 

 

(383

)

 

 

(513

)

      Gain (Loss) on sale of businesses

 

 

2,136

 

 

 

(3

)

 

 

2,136

 

 

 

(9

)

Income tax expense

 

 

433

 

 

 

0

 

 

 

433

 

 

 

0

 

Earnings (Loss) from discontinued operations

 

$

1,367

 

 

$

5

 

 

$

1,320

 

 

$

(522

)

 

Parkside Nursing Home — On March 17, 2019, a subsidiary of the Company sold its Parkside Ellijay Nursing Home (“Parkside”) and related real estate for $7,300 subject to adjustment for the book value of certain assets and liabilities on the sale date. The pre-tax gain on the sale is $2,136, which is also subject to adjustment for the book value of certain assets and liabilities on the sale date. The net proceeds of the sale were retained for working capital and general corporate purposes.

 

Sold Hospitals – The loss before income taxes of the Sold Hospitals results primarily from retained professional liability claims expenses.

Life Sciences and Engineering Segment —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 nine months ended March 31, 2019 and 2018, respectively.

The components of pension expense for the three and nine months ended March 31, 2019 and 2018, respectively, were as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Interest Cost

 

$

14

 

 

$

14

 

 

$

42

 

 

$

42

 

Expected return on assets

 

 

(9

)

 

 

(9

)

 

 

(27

)

 

 

(27

)

Amortization of prior service cost

 

 

20

 

 

 

31

 

 

 

59

 

 

 

93

 

Net pension expense

 

$

25

 

 

$

36

 

 

$

74

 

 

$

108

 

 

SunLink contributed $80 to the plan in the nine months ended March 31, 2019 and expects to contribute an additional $28 during the last fiscal quarter of the fiscal year ending June 30, 2019.

Note 4. – Shareholders’ Equity

Common Share Repurchase Program – On November 29, 2018, the Company announced a share repurchase program (“Program”) approved by its Board of Directors, which authorized the Company to purchase up to 300,000 shares of its common shares.  On December 13, 2018, the Company announced it had purchased the 300,000 shares

7


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 March 31, 2019, a total of 359,959 shares had been repurchased at a cost of $372, excluding fees and expensing relating to the 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 March 31, 2019.

  

 

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 March 31, 2019 and 2018, the Company recognized $0 and $1, respectively, in stock based compensation for options issued to employees and directors of the Company. For the nine months ended March 31, 2019 and 2018, the Company recognized $1 and $7, 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 no share options granted under the 2011 Director Stock Option Plan during the three and nine months ended March 31, 2019 and 2018, respectively, and the Company has 50,000 shares available for grants under the 2011 Director Stock Option Plan.

Note 5. – Revenue Recognition and Accounts Receivables

Revenue 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 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.

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 disclosed in Note 13, Financial Information by Segment.

The Company’s service specific revenue recognition policies are as follows:

8


Healthcare Services

The Company’s revenue is derived primarily from providing healthcare services to patients and is recognized on the date services are provided at amounts billable to individual patients, adjusted for estimates for variable consideration. For patients under reimbursement 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 the 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 properly account for the variable consideration due to anticipated differences between billed and reimbursed amounts. Accordingly, the total net revenues and receivables reported in the Company’s financial statements are recorded at the amount expected to be 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.

9


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 nine months ended March 31, 2017 have 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.

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 nine months ended March 31, 2018 and the fiscal year ended June 30, 2018 are summarized in the following tables:

 

 

Nine Months Ended

 

 

Fiscal Years Ended June 30,

 

 

 

March 31, 2018

 

 

2018

 

Total Net Revenues

 

$

35,435

 

 

$

45,912

 

Adjustment for bad debts of Pharmacy segment

 

 

(445

)

 

 

(703

)

Net Revenues

 

$

34,990

 

 

$

45,209

 

Total Cost of goods sold

 

$

14,623

 

 

$

18,529

 

Adjustment for bad debts of Pharmacy segment

 

 

0

 

 

 

0

 

Cost of goods sold

 

$

14,623

 

 

$

18,529

 

Total Expenses

 

$

35,933

 

 

$

45,492

 

Adjustment for bad debts of Pharmacy segment

 

 

(445

)

 

 

(703

)

Total Expenses

 

$

35,488

 

 

$

44,789

 

 

Practical Expedients and Exemptions

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.

10


Revenues by payor were as follows for the three and nine months ended March 31, 2019 and 2018:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Medicare

 

$

5,934

 

 

$

4,337

 

 

 

13,517

 

 

 

14,139

 

Medicaid

 

 

2,743

 

 

 

3,539

 

 

 

10,890

 

 

 

9,744

 

Retail and Institutional Pharmacy

 

 

1,698

 

 

 

1,609

 

 

 

4,973

 

 

 

5,052

 

Managed Care & Other Insurance

 

 

1,871

 

 

 

1,707

 

 

 

4,743

 

 

 

5,394

 

Self-pay

 

 

65

 

 

 

104

 

 

 

449

 

 

 

526

 

Rent

 

 

22

 

 

 

21

 

 

 

52

 

 

 

48

 

Other

 

 

28

 

 

 

16

 

 

 

95

 

 

 

87

 

Total Net Revenues

 

$

12,361

 

 

$

11,333

 

 

$

34,719

 

 

$

34,990

 

 

Summary information for accounts receivable is as follows:

 

 

 

March 31,

2019

 

 

June 30,

2018

 

Accounts receivable (net of contractual allowances)

 

$

5,717

 

 

$

5,352

 

Less allowance for concession adjustments

 

 

(466

)

 

 

(529

)

Patient accounts receivable - net

 

$

5,251

 

 

$

4,823

 

 

The following is a summary of the activity in the allowance for concession adjustments for the Healthcare Services Segment and the Pharmacy Segment for the three and nine months ended March 31, 2019 and 2018:

 

Three Months Ended March 31, 2019

 

Healthcare

Services

 

 

Pharmacy

 

 

Total

 

Balance at January 1, 2019

 

$

231

 

 

$

228

 

 

$

459

 

Additions recognized as a reduction to revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

 

106

 

 

 

140

 

 

 

246

 

Discontinued Operations

 

 

15

 

 

 

0

 

 

 

15

 

Accounts written off, net of recoveries

 

 

(87

)

 

 

(167

)

 

 

(254

)

Balance at March 31, 2019

 

$

265

 

 

$

201

 

 

$

466

 

 

Nine Months Ended March 31, 2019

 

Healthcare

Services

 

 

Pharmacy

 

 

Total

 

Balance at July 1, 2018

 

$

253

 

 

$

276

 

 

$

529

 

Additions recognized as a reduction to revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

 

236

 

 

 

339

 

 

 

575

 

Discontinued Operations

 

 

23

 

 

 

0

 

 

 

23

 

Accounts written off, net of recoveries

 

 

(247

)

 

 

(414

)

 

 

(661

)

Balance at March 31, 2019

 

$

265

 

 

$

201

 

 

$

466

 

 

Three Months Ended March 31, 2018

 

Healthcare

Services

 

 

Pharmacy

 

 

Total

 

Balance at January 1, 2018

 

$

326

 

 

$

219

 

 

$

545

 

Additions recognized as a reduction to revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

 

117

 

 

 

237

 

 

 

354

 

Discontinued Operations

 

 

12

 

 

 

0

 

 

 

12

 

Accounts written off, net of recoveries

 

 

(82

)

 

 

(260

)

 

 

(342

)

Balance at March 31, 2018

 

$

373

 

 

$

196

 

 

$

569

 

 

11


Nine months Ended March 31, 2018

 

Healthcare

Services

 

 

Pharmacy

 

 

Total

 

Balance at July 1, 2017

 

$

328

 

 

$

224

 

 

$

552

 

Additions recognized as a reduction to revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

 

371

 

 

 

445

 

 

 

816

 

Discontinued Operations

 

 

(6

)

 

 

0

 

 

 

(6

)

Accounts written off, net of recoveries

 

 

(320

)

 

 

(473

)

 

 

(793

)

Balance at March 31, 2018

 

$

373

 

 

$

196

 

 

$

569

 

 

Note 6. – Intangible Assets

Intangibles consist of the following, net of amortization:

 

 

 

March 31,

2019

 

 

June 30, 2018

 

Pharmacy Segment Intangibles

 

 

 

 

 

 

 

 

Trade Name (non-amortizing)

 

$

1,180

 

 

$

1,180

 

Customer Relationships

 

 

1,089

 

 

 

1,089

 

Medicare License

 

 

623

 

 

 

623

 

 

 

 

2,892

 

 

 

2,892

 

Accumulated Amortization