<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to_______
AMERICAN MEDICAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-10511 13-3527632
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
AMERICAN MEDICAL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-7612 95-2111054
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
14001 N. DALLAS PARKWAY, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip code)
(214) 789-2200
(Registrants' telephone number, including area code)
8201 PRESTON ROAD, DALLAS, TEXAS 75225
(Previous address of principal executive offices) (Previous zip code)
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. American Medical Holdings, Inc.
Yes X No . American Medical International, Inc. Yes X No .
--- --- --- ---
As of April 11, 1994, there were 77,164,242 shares of American Medical
Holdings, Inc. Common Stock, $.01 par value outstanding.
All shares of Common Stock, $.01 par value, of American Medical
International, Inc. are held by American Medical Holdings, Inc.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTRODUCTION
American Medical Holdings, Inc. ("Holdings") was organized in July 1989 to
acquire American Medical International, Inc. ("AMI" and, together with Holdings,
the "Company"). As a result of this acquisition, Holdings is the owner of all
of the outstanding shares of common stock of AMI. AMI's financial statements
are the same as Holdings' financial statements except for the components of
shareholders' equity.
The Company is one of the leading hospital management companies in the
United States. Founded in 1960 as the first investor-owned hospital company,
AMI operates 35 acute-care and one psychiatric hospital containing a total of
8,131 licensed beds. Throughout its history, AMI has focused on delivering
value to its patients and its communities with a full range of quality inpatient
and outpatient services including medical, surgical, obstetric, diagnostic,
specialty and home health care. The Company also operates ancillary facilities
at each of its hospitals, such as ambulatory, occupational and rural healthcare
clinics. The Company's hospitals are principally located in the suburbs of
major metropolitan areas in 12 states including Texas, Florida and California.
1
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 28, 1994 AUGUST 31, 1993
------------------------ -----------------------
HOLDINGS AMI HOLDINGS AMI
-------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term cash investments $ 28,538 $ 28,538 $ 44,335 $ 44,335
Accounts receivable, net 115,838 115,838 90,596 90,596
Income taxes receivable, net (including
current portion of deferred income taxes) 30,661 30,661 24,641 24,641
Supply inventories and prepaid expenses 72,066 72,066 71,133 71,133
---------- ---------- ---------- ----------
Total current assets 247,103 247,103 230,705 230,705
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT 1,846,256 1,846,256 1,799,945 1,799,945
Less - accumulated depreciation 449,852 449,852 395,736 395,736
---------- ---------- ---------- ----------
Net property and equipment 1,396,404 1,396,404 1,404,209 1,404,209
---------- ---------- ---------- ----------
COST IN EXCESS OF NET ASSETS ACQUIRED 1,151,893 1,151,893 1,165,435 1,165,435
INVESTMENTS AND OTHER ASSETS 67,919 67,919 68,021 68,021
---------- ---------- ---------- ----------
$2,863,319 $2,863,319 $2,868,370 $2,868,370
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 491,159 $ 491,159 $ 370,655 $ 370,655
LONG-TERM DEBT 1,119,364 1,119,364 1,283,665 1,283,665
CONVERTIBLE SUBORDINATED DEBT 10,593 10,593 10,487 10,487
DEFERRED INCOME TAXES 211,489 211,489 211,451 211,451
OTHER DEFERRED CREDITS AND LIABILITIES 284,061 284,061 288,239 288,239
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO
REPURCHASE OBLIGATIONS - - 6,046 -
---------- ---------- ---------- ----------
SHAREHOLDERS' EQUITY
Common stock 770 725 768 725
Additional paid-in capital 604,657 589,050 596,623 587,060
Retained earnings 149,226 164,878 108,436 124,088
Adjustment for minimum pension liability (8,000) (8,000) (8,000) (8,000)
---------- ---------- ---------- ----------
Total shareholders' equity 746,653 746,653 697,827 703,873
---------- ---------- ---------- ----------
$2,863,319 $2,863,319 $2,868,370 $2,868,370
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
------------------------------------------------------
1994 1993
------------------------ ------------------------
HOLDINGS AMI HOLDINGS AMI
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
NET REVENUES $ 583,339 $ 583,339 $ 566,142 $ 566,142
OPERATING COSTS AND EXPENSES:
Salaries and benefits 210,390 210,390 207,845 207,845
Supplies 83,130 83,130 80,784 80,784
Provision for uncollectible accounts 38,281 38,281 34,877 34,877
Depreciation and amortization 38,689 38,689 36,266 36,266
Other operating costs 131,049 131,049 125,793 125,793
---------- ---------- ---------- ----------
Total operating costs and expenses 501,539 501,539 485,565 485,565
---------- ---------- ---------- ----------
OPERATING INCOME 81,800 81,800 80,577 80,577
Interest expense, net (38,092) (38,092) (43,494) (43,494)
---------- ---------- ---------- ----------
INCOME BEFORE TAXES AND MINORITY
EQUITY INTEREST 43,708 43,708 37,083 37,083
Provision for income taxes (18,500) (18,500) (17,800) (17,800)
---------- ---------- ---------- ----------
INCOME BEFORE MINORITY EQUITY INTEREST 25,208 25,208 19,283 19,283
Minority equity interest (931) (931) (1,001) (1,001)
---------- ---------- ---------- ----------
NET INCOME $ 24,277 $ 24,277 $ 18,282 $ 18,282
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PER SHARE DATA:
Net income per common and
common equivalent share $ 0.32 N/A $ 0.24 N/A
---------- ----------
---------- ----------
Average common shares outstanding
during the period 77,058 N/A 76,739 N/A
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28,
------------------------------------------------------
1994 1993
------------------------ -----------------------
HOLDINGS AMI HOLDINGS AMI
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
NET REVENUES $ 1,141,556 $ 1,141,556 $1,108,035 $1,108,035
OPERATING COSTS AND EXPENSES:
Salaries and benefits 415,804 415,804 407,920 407,920
Supplies 162,612 162,612 158,210 158,210
Provision for uncollectible accounts 77,317 77,317 73,898 73,898
Depreciation and amortization 76,962 76,962 72,374 72,374
Other operating costs 257,703 257,703 249,197 249,197
----------- ----------- ---------- ----------
Total operating costs and expenses 990,398 990,398 961,599 961,599
----------- ----------- ---------- ----------
OPERATING INCOME 151,158 151,158 146,436 146,436
Interest expense, net (76,940) (76,940) (88,567) (88,567)
----------- ----------- ---------- ----------
INCOME BEFORE TAXES AND MINORITY
EQUITY INTEREST 74,218 74,218 57,869 57,869
Provision for income taxes (31,400) (31,400) (27,600) (27,600)
----------- ----------- ---------- ----------
INCOME BEFORE MINORITY EQUITY INTEREST 42,818 42,818 30,269 30,269
Minority equity interest (2,028) (2,028) (1,426) (1,426)
----------- ----------- ---------- ----------
NET INCOME $ 40,790 $ 40,790 $ 28,843 $ 28,843
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
PER SHARE DATA:
Net income per common and
common equivalent share $ 0.53 N/A $ 0.38 N/A
----------- ----------
----------- ----------
Average common shares outstanding
during the period 76,998 N/A 76,701 N/A
----------- ----------
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1994
------------------------------------------------------
1994 1993
------------------------ ------------------------
HOLDINGS AMI HOLDINGS AMI
-------- --------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income $ 40,790 $ 40,790 $ 28,843 $ 28,843
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 76,962 76,962 72,374 72,374
Amortization of debt discount, deferred
financing costs and non-cash interest 24,716 24,716 32,274 32,274
Change in working capital (33,706) (33,706) (58,106) (58,106)
Decrease in other liabilities (10,274) (10,274) ( 3,124) ( 3,124)
Other non-cash items (761) (761) 1,453 1,453
--------- --------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 97,727 97,727 73,714 73,714
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (32,509) (32,509) (42,231) (42,231)
Reducing revolving credit facility (29,000) (29,000) - -
Other 1,990 1,990 994 994
--------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (59,519) (59,519) (41,237) (41,237)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (53,707) (53,707) (53,366) (53,366)
Additions to notes receivable and
investments ( 3,339) ( 3,339) ( 3,593) ( 3,593)
Decrease in notes receivable and
investments 4,772 4,772 15,957 15,957
Other ( 1,731) ( 1,731) (350) (350)
--------- --------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (54,005) (54,005) (41,352) (41,352)
--------- --------- --------- ---------
DECREASE IN CASH AND
SHORT-TERM CASH INVESTMENTS (15,797) (15,797) ( 8,875) ( 8,875)
Cash and short-term cash investments,
beginning of period 44,335 44,335 70,536 70,536
--------- --------- --------- ---------
CASH AND SHORT-TERM CASH INVESTMENTS,
END OF PERIOD $ 28,538 $ 28,538 $ 61,661 $ 61,661
--------- --------- --------- ---------
--------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Income taxes paid (net of refunds) $ 36,149 $ 36,149 $ 57,720 $ 57,720
Interest paid (net of capitalized costs) $ 50,570 $ 50,570 $ 58,821 $ 58,821
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
American Medical Holdings, Inc. ("Holdings") was organized in July 1989 to
acquire American Medical International, Inc. ("AMI" and, together with Holdings,
the "Company"). As a result of this acquisition, Holdings is the owner of all
of the outstanding shares of common stock of AMI. AMI's financial statements
are the same as Holdings' financial statements except for the components of
shareholders' equity.
The accompanying unaudited condensed consolidated financial statements
include the accounts of Holdings, AMI and all majority owned subsidiary
companies and have been prepared in accordance with generally accepted
accounting principles for interim financial information. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation, have been included in the accompanying
interim financial statements. The condensed consolidated balance sheet as of
August 31, 1993, was derived from the audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
All significant intercompany accounts and transactions have been eliminated.
Certain reclassifications have been made to the prior period's financial
statements to be consistent with the fiscal 1994 presentation. For additional
disclosure, refer to Holdings' and AMI's Annual Report on Form 10-K for the year
ended August 31, 1993.
(2) ACQUISITIONS
In January 1994, the Company signed a letter of intent to purchase Saint
Francis Hospital located in Memphis, Tennessee containing 892 beds. The
acquisition is expected to be completed during the third quarter of fiscal 1994.
(3) ACCOUNTS RECEIVABLE
As of February 28, 1994, and August 31, 1993, Holdings and AMI had reserves
for uncollectible receivables of $97.6 million and $98.1 million, respectively.
(4) COST IN EXCESS OF NET ASSETS ACQUIRED
The cost in excess of net assets acquired is being amortized over 40 years
from the original acquisition date. Holdings' and AMI's cumulative amortization
of cost in excess of net assets acquired at February 28, 1994 and August 31,
1993, was $141.2 million and $125.2 million, respectively. Amortization of cost
in excess of net assets acquired for Holdings and AMI was $16.0 million for the
six months ended February 28, 1994 and 1993.
(5) LONG-TERM DEBT
As of February 28, 1994, $258 million was outstanding under the Company's
$600 million revolving credit facility which accrues interest at approximately
5.0%. Amounts outstanding under the revolving credit facility accrue interest,
at the option of AMI, at (i) adjusted LIBOR plus 1.5% (subject to reduction upon
the satisfaction of certain conditions) or (ii) the alternative base rate
specified in the revolving credit facility. In addition, $32.9 million in
letters of credit were issued thereunder.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(6) COMMITMENTS AND CONTINGENCIES
Holdings and AMI are subject to claims and suits arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of
all pending legal proceedings will not have a material adverse effect on the
business or financial condition of Holdings or AMI.
(7) CAPITAL STOCK
As of February 28, 1994, Holdings had 200 million shares of $0.01 par value
common stock authorized. Of such shares, 77,101,000 and 76,873,000 were
outstanding as of February 28, 1994, and August 31, 1993, respectively. As of
February 28, 1994, Holdings had five million shares of $0.01 par value
Preferred Stock authorized, of which none were outstanding.
Holdings is the owner of all outstanding shares of common stock of AMI. As
of February 28, 1994, and August 31, 1993, 72,481,000 shares of AMI common stock
were outstanding.
The Company's obligation to repurchase shares of Holdings' common stock
held by certain executive officers no longer exists. Therefore, common stock
subject to repurchase obligations is classified as shareholders' equity.
(8) NET REVENUES
Revenues are presented net of reserves to recognize the difference between
the established rates for covered services and the amount paid by third party or
private payors. Patient revenues received under government and some privately
sponsored insurance programs are based on cost as defined under the programs or
at predetermined rates based upon the diagnosis, plus capital costs, return on
equity, and other adjustments rather than customary charges. Adjustments are
recorded based on estimated amounts and contract interpretations. Such
adjustments are generally subject to final audit and settlement. Holdings' and
AMI's net revenues reflect the impact of these adjustments for the three and six
months ended February 28, 1994 and 1993 of $546.8 million, $1,037.4 million,
$498.5 million and $943.4 million, respectively. In management's opinion, the
reserves established are adequate to cover the ultimate liabilities that may
result from final settlements.
Net revenues from Medicare and Medicaid represented 41% and 37% of total
net revenues for the six months ended February 28, 1994 and 1993, respectively.
In addition, the Company has net revenues from other contracted business which
represented 25% of total net revenues for the six months ended February 28, 1994
and 1993.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(9) INTEREST EXPENSE, NET
Interest expense, net for Holdings and AMI consists of the following (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
-------------------------------
1994 1993
--------- ---------
<S> <C> <C>
Interest costs $ 27,242 $ 29,522
Amortization of debt discount, deferred
financing costs and non-cash interest 12,235 15,899
Interest costs capitalized (791) (299)
--------- ---------
38,686 45,122
Interest income (594) (1,628)
--------- ---------
Interest expense, net $ 38,092 $ 43,494
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28,
------------------------------
1994 1993
--------- ---------
<S> <C> <C>
Interest costs $ 54,985 $ 59,881
Amortization of debt discount, deferred
financing costs and non-cash interest 24,716 32,274
Interest costs capitalized (1,415) (601)
--------- ---------
78,286 91,554
Interest income (1,346) (2,987)
--------- ---------
Interest expense, net $ 76,940 $ 88,567
--------- ---------
--------- ---------
</TABLE>
(10) MINORITY EQUITY INTEREST
Minority equity interest expense of $1.5 million, $3.3 million, $1.7
million and $2.3 million for the three and six months ended February 28, 1994
and 1993, respectively, is presented net of income taxes in the accompanying
condensed consolidated statements of income.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased $24.0 million to $97.7
million for the six months ended February 28, 1994 when compared to the same
period a year ago.
The Company invested $53.7 million in capital expenditures for the six
months ended February 28, 1994, and, as of the end of such period, had
approximately $21.8 million of construction commitments outstanding. These
capital expenditures are for new construction and renovations to facilitate and
accommodate new inpatient and outpatient programs and to develop and acquire new
lines of business, including home health care, surgery centers, and physician
practices. The Company intends to continue to invest in new and existing
operations within the healthcare industry, however, the terms of the Company's
revolving credit facility, its principal bank indebtedness, limit the Company's
ability to make capital expenditures and acquisitions. Capital expenditure
limitations excluding capitalized interest, are approximately $225 million in
fiscal 1994, $225 million plus carryforwards for fiscal 1995 and $200 million
plus carryforwards thereafter. The Company is also authorized to use up to an
additional $150 million for acquisitions.
Cash provided by operating activities, short-term cash investments and
borrowings under the revolving credit facility were the primary sources used to
repay (excluding repayments on the revolving credit facility) $32.5 million of
long-term debt during the six months ended February 28, 1994. Repayments of $28
million were for the redemption of the remaining principal amount of the 6 3/4%
Swiss franc/dollar dual currency senior notes due 1997 during the first quarter
of fiscal 1994. The amount outstanding under the revolving credit facility
decreased to $258 million as of February 28, 1994, from $287 million outstanding
as of August 31, 1993.
Management believes that sufficient funds will be generated from
operations, augmented by borrowings under the revolving credit facility, to
finance operations, capital expenditures and service debt. Payments of interest
and principal on the Company's $1.29 billion of consolidated long-term debt,
including the current portion of such long-term debt, will continue to affect
funds available to the Company to finance capital expenditures and operations.
Scheduled principal payments, excluding amounts that may become due on the
revolving credit facility, will be $8.4 million in the remainder of fiscal 1994,
$155.1 million in fiscal 1995, $56.1 million in fiscal 1996, $178.3 million in
fiscal 1997, $2.1 million in fiscal 1998, and $2.2 million in fiscal 1999.
The terms of certain indebtedness of the Company impose significant
operating and financial restrictions requiring the Company to maintain certain
financial ratios and restrict the Company's ability to incur additional
indebtedness and enter into leases and guarantees of debt; to make loans and
investments; to pay dividends or repurchase shares of stock; to repurchase,
retire or refinance indebtedness prior to maturity; and to purchase or sell
assets. The Company has pledged the capital stock of certain direct (first
tier) subsidiaries as security for the Company's obligations under the revolving
credit facility and certain other senior indebtedness of the Company. In
addition, the Company has granted a security interest in its accounts receivable
as security for its obligations under the revolving credit facility. Management
believes that the Company is currently in compliance with all material covenants
and restrictions contained in all financial agreements.
9
<PAGE>
RESULTS OF OPERATIONS
GENERAL TRENDS
The Company's net revenues have increased as a result of increased
outpatient and inpatient volume from the expansion of services and general price
increases. Increased utilization of outpatient services is expected to continue
as a result of (i) medical technology improvements which allow procedures
previously performed on an inpatient basis to be available on an outpatient
basis and (ii) the pressures from payors to control costs by directing those
patients with less severe illnesses from inpatient care to outpatient care.
Accordingly, several of the Company's hospitals continue to expand or redesign
their outpatient facilities and services to accommodate the increased
utilization of such services. The growth rate of the Company's outpatient
revenue realized from the shift of inpatient care services to outpatient care
services is expected to occur at a slower pace in the future, from the rate
experienced in the past, as the use of such services mature.
Medicare and Medicaid revenues are expected to continue to increase in the
future as a larger portion of the general population qualifies for coverage as a
result of the aging of the population and expanded state Medicaid programs. This
in turn may decrease the Company's overall rate of revenue growth as a result of
(i) this corresponding change in payor mix and (ii) the disparity between the
rate of increase of the Company's customary charges and the government's
reimbursement rate. The Medicare program reimburses the Company's hospitals
primarily based on established rates by a diagnosis related group for acute care
hospitals and by a cost based formula for psychiatric hospitals. While Medicare
payment rates are indexed for inflation annually, the increases have
historically lagged behind actual inflation.
In addition to the Medicare program, states and insurance companies
continue to actively negotiate the amounts they will pay for services performed
rather than simply paying healthcare providers their customary charges. The
entrance of insurance companies into the managed care environment is
accelerating the introduction of managed care in more localities. Current
managed care conditions vary across the markets in which the Company operates.
The Company's hospitals that operate in mature managed care markets typically
have contributed smaller profit margins than some of the Company's hospitals
which operate in other markets. Management believes that through cost-
containment efforts, the Company is positioned to have a competitive edge in
pursuing market share in the managed care environment.
Competition among hospitals and other healthcare providers in the United
States has increased over the past years due to changes in government regulation
and reimbursement, other cost containment pressures and technology. As these
pressures continue along with the impending reforms proposed in the Clinton
Administration and Congress, healthcare merger and acquisition activity, for
both investor owned and non-profit hospitals, has increased significantly.
To offset these factors which may limit net revenue growth, including the
increased competition in the healthcare industry, the Company continues to look
at providing an increasing array of healthcare services by expanding the
Company's operations and by integrating broad healthcare networks. As a result,
the Company is developing physician networks and alliances with other healthcare
providers to create fully integrated healthcare delivery systems. In addition
to expanding services, management believes that its cost containment efforts
have been critical in improving and maintaining operating margins while
providing a high level of patient care.
10
<PAGE>
A significant portion of the Company's operating costs and expenses are
subject to inflationary increases. Since the healthcare industry is labor
intensive, salaries and benefits are continually affected by inflation. To
control labor costs, the Company has and will continue to monitor, at the
hospital level, the daily staff coverage. In addition, increasing supply costs
are the result of vendors passing on rising costs through price increases. To
control increases in supply costs, management continues to focus on the
development of pharmaceutical formularies to control the usage of new drugs to
only those situations which warrant their specific use and to aggressively
negotiate supply purchase contracts. In further adherence to controlling costs,
the Company is expanding its case management (review of associated costs for
patient care for specific treatment) in its hospitals. The Company's ability to
pass on a certain portion of the increased costs associated with providing
healthcare to Medicare/Medicaid patients may be limited by existing government
reimbursement programs for healthcare services unless the federal and state
governments correspondingly increase the rates of payments under these programs.
Although the Company cannot predict its ability to continue to cover future cost
increases, management believes that through the continued adherence to the cost
reduction programs, labor management and reasonable price increases, the effects
of inflation should not have a material adverse effect on operating margins.
HEALTHCARE REFORM
The healthcare industry continues to be faced with federal and state
efforts to reform the healthcare delivery system. The Clinton Administration's
proposed healthcare reform plan contains provisions which would impose among
other things, cost controls on hospitals, insurance market reforms to increase
the availability of group health insurance to small businesses, requirements
that all businesses offer health insurance coverage to their employees and the
creation of a single government health insurance plan (to reduce administrative
costs) that would cover all citizens. The healthcare reform plan also proposes
healthcare coverage for all citizens, a circumstance which may result in
additional revenues for the Company; however, this increase in revenues may be
offset by lower levels of reimbursement from various payors. In addition, some
states, including Florida, have already enacted reforms and continue to consider
additional reforms. The type and impact of such reform continues to be debated
at both the federal and state levels.
Management believes that some form of healthcare reform is imminent;
however, until such reform is finalized, management cannot predict what
proposals will be adopted, if any, and the impact of any such adopted proposals
on the Company's results of operations.
11
<PAGE>
OPERATIONS OVERVIEW
The following table summarizes certain consolidated results of the Company.
AMI's results of operations are the same as that of the Company's; therefore,
separate results of operations and a discussion and analysis for AMI are not
presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28,
-----------------------------------------------------------
(DOLLARS IN MILLIONS)
1994 1993
-------------------- -------------------- % OF DOLLAR
% OF NET % OF NET INCREASE
REVENUES REVENUES (DECREASE)
-------- -------- -----------
<S> <C> <C> <C> <C> <C>
NET REVENUES
Medicare/Medicaid $ 472.7 41.4% $ 412.1 37.2% 14.7%
Contracted services 286.5 25.1 275.6 24.9 4.0
Non-contracted services 344.7 30.2 385.7 34.8 (10.6)
Other sources 37.6 3.3 34.6 3.1 8.7
------- ------- ------- -------
Total net revenues 1,141.5 100.0 1,108.0 100.0 3.0
------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Salaries and benefits 415.8 36.4 407.9 36.8 1.9
Supplies 162.6 14.2 158.2 14.3 2.8
Provision for uncollectible accounts 77.3 6.8 73.9 6.7 4.6
Depreciation and amortization 77.0 6.7 72.4 6.5 6.3
Other operating costs 257.7 22.7 249.2 22.5 3.4
------- ------- ------- -------
Total operating costs and expenses 990.4 86.8 961.6 86.8 3.0
------- ------- ------- -------
OPERATING INCOME 151.1 13.2 146.4 13.2 3.2
Interest expense, net (76.9) (6.7) (88.6) (8.0) (13.2)
------- ------- ------- -------
INCOME BEFORE TAXES AND MINORITY
EQUITY INTEREST 74.2 6.5 57.8 5.2 28.4
Provision for income taxes (31.4) (2.7) (27.6) (2.5) 13.8
------- ------- ------- -------
INCOME BEFORE MINORITY EQUITY INTEREST 42.8 3.8 30.2 2.7 41.7
Minority equity interest (2.0) (0.2) (1.4) (0.1) 42.9
------- ------- ------- -------
NET INCOME $ 40.8 3.6% $ 28.8 2.6% 41.7%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
12
<PAGE>
The following table sets forth certain operating statistics of the
Company's hospitals for the six months ended February 28, 1994 and 1993:
<TABLE>
<CAPTION>
OPERATING STATISTICS (1): 1994 1993
------ ------
<S> <C> <C>
ADMISSIONS
Medicare/Medicaid 63,965 57,316
Contracted 30,361 27,066
Non-contracted 22,986 27,878
Other 1,416 1,403
--------- -------
Total admissions 118,728 113,663
--------- -------
--------- -------
EQUIVALENT ADMISSIONS (2) 160,926 151,777
OUTPATIENT VOLUME
Visits (3) 1,022,960 796,971
Surgeries 58,900 58,021
--------- -------
Total outpatient volume 1,081,860 854,992
--------- -------
--------- -------
PATIENT DAYS 695,102 691,399
EQUIVALENT PATIENT DAYS (2) 932,055 912,004
LICENSED BEDS OCCUPANCY RATE 47.2% 47.9%
LICENSED BEDS AT END OF PERIOD 8,131 8,003
<FN>
(1) Represents statistics for hospitals only and has not been adjusted to
include statistics for related healthcare entities.
(2) Represents actual admissions/patient days as adjusted to include outpatient
and emergency room services by adding to actual admissions/patient days an
amount derived by dividing outpatient and emergency room revenue by
inpatient revenue per admission/patient days.
(3) Includes home health visits of 294,730 and 116,251 for the six months ended
February 28, 1994 and 1993, respectively.
</TABLE>
13
<PAGE>
Net revenues for the six months ended February 28, 1994, increased 3.0% or
$33.5 million over net revenues for the six months ended February 28, 1993. Such
increase is primarily attributable to growth in both inpatient and outpatient
revenues as a result of new patient care services, higher utilization of
outpatient and ancillary services and higher third party reimbursement rates.
Net revenues from inpatient services increased 2.8% to $800 million, or 71.3% of
net patient revenues, for the six months ended February 28, 1994 from $778
million or 71.2% of net patient revenues for the six months ended February 28,
1993. Net revenues from outpatient services increased 2.5% to $322 million, or
28.7% of net patient revenues, for the six months ended February 28, 1994, from
$314 million, or 28.8% of net patient revenues for the six months ended February
28, 1993. The addition of ancillary facilities associated with several of the
Company's hospitals to accommodate the higher utilization of outpatient services
has contributed to the increase in net revenues from outpatient services. The
Company's growth of home health services resulted in an increase in the related
net revenues.
For the six months ended February 28, 1994, the Medicare/Medicaid programs
and contracted services accounted for a greater portion of the Company's
business as compared to the six months ended February 28, 1993. This shift from
non-contracted services is due in part to a greater portion of the population
qualifying for Medicare/Medicaid coverage and the increasing number of states
and insurance companies which are negotiating contracted amounts paid for
services rendered.
Expense management continues to be a significant factor in maintaining the
operating margin improvement experienced by the Company. Operating expenses
(excluding depreciation and amortization) increased only 2.7% over the six
months ended February 28, 1993. On a volume-adjusted, or per equivalent
admission basis, operating costs declined 3.1% over the six months ended
February 28, 1993.
Interest expense, net decreased 13.2% or $11.7 million for the six months
ended February 28, 1994 as a result of debt refinancings occurring in the last
six months of fiscal 1993 and the use of cash from operations to reduce
indebtedness.
The tax provision for the six months ended February 28, 1994 and 1993 is
greater than that which would occur using the Company's marginal tax rate
against its income before taxes and minority equity interest, due in large part
to the amortization of cost in excess of net assets acquired not being
deductible for tax provision purposes.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material developments in the Company's legal proceedings have
occurred since August 31, 1993.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders which was held on
January 12, 1994, stockholders elected eleven directors to the
Company's Board of Directors.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11 Computations of earnings per share.
(B) REPORTS ON FORM 8-K
None.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by undersigned
thereunto duly authorized.
AMERICAN MEDICAL HOLDINGS, INC.
Date: April 12, 1994
By: ALAN J. CHAMISON
---------------------------------
Alan J. Chamison
Executive Vice President and Chief
Financial Officer
Date: April 12, 1994
By: BARY G. BAILEY
---------------------------------
Bary G. Bailey
Vice President and Controller
AMERICAN MEDICAL INTERNATIONAL, INC.
Date: April 12, 1994
By: ALAN J. CHAMISON
---------------------------------
Alan J. Chamison
Executive Vice President and Chief
Financial Officer
Date: April 12, 1994
By: BARY G. BAILEY
---------------------------------
Bary G. Bailey
Vice President and Controller
16
<PAGE>
EXHIBIT II
AMERICAN MEDICAL HOLDINGS, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, SIX MONTHS ENDED FEBRUARY 28,
------------------------------- -----------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SIMPLE
Net income $ 24,277 $ 18,282 $ 40,790 $ 28,843
-------- -------- -------- --------
-------- -------- -------- --------
Average outstanding shares 77,058 76,739 76,998 76,701
-------- -------- -------- --------
-------- -------- -------- --------
Simple net income per share $ 0.32 $ 0.24 $ 0.53 $ 0.38
-------- -------- -------- --------
-------- -------- -------- --------
PRIMARY
Net income $ 24,277 $ 18,282 $ 40,790 $ 28,843
Adjustment for interest on debentures,
net of tax 72 74 143 137
-------- -------- -------- --------
Net income for primary $ 24,349 $ 18,356 $ 40,933 $ 28,980
-------- -------- -------- --------
-------- -------- -------- --------
Average outstanding shares 77,058 76,739 76,998 76,701
Common stock equivalents assuming
exercise of stock options 1,833 1,037 1,698 747
Common stock equivalents assuming
conversion of debentures 210 210 210 210
-------- -------- -------- --------
Shares for primary 79,101 77,986 78,906 77,658
-------- -------- -------- --------
-------- -------- -------- --------
Primary net income per share $ 0.31 (1) $ 0.24 (1) $ 0.52 (1) $ 0.37 (1)
-------- -------- -------- --------
-------- -------- -------- --------
FULLY-DILUTED
Net income for primary $ 24,349 $ 18,356 $ 40,933 $ 28,980
Adjustment for interest on debentures,
net of tax 133 137 266 260
-------- -------- -------- --------
Net income for fully-diluted $ 24,482 $ 18,493 $ 41,199 $ 29,240
-------- -------- -------- --------
-------- -------- -------- --------
Shares for primary 79,101 77,986 78,906 77,658
Common stock equivalents assuming
additional conversion of debentures
and exercise of stock options 414 361 573 484
-------- -------- -------- --------
Shares for fully-diluted 79,515 78,347 79,479 78,142
-------- -------- -------- --------
-------- -------- -------- --------
Fully-diluted net income per share $ 0.31 (1) $ 0.24 (1) $ 0.52 (1) $ 0.37 (1)
-------- -------- -------- --------
-------- -------- -------- --------
<FN>
(1) The calculations for primary net income per share and fully-diluted net
income per share are submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces either no dilutive effect or the effect on dilution is
less than 3%.
</TABLE>
