<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 MAY 31, 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 July 14, 1994, there were 77,427,770 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 36 acute-care and one psychiatric hospital containing a total of
9,021 licensed beds. AMI focuses 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
13 states including Texas, Florida and California.
1
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, 1994 AUGUST 31, 1993
------------------------- -------------------------
HOLDINGS AMI HOLDINGS AMI
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term cash investments $ 27,761 $ 27,761 $ 44,335 $ 44,335
Accounts receivable, net 160,052 160,052 90,596 90,596
Income taxes receivable, net (including
current portion of deferred income taxes) -- -- 24,641 24,641
Other current assets 79,849 79,849 71,133 71,133
---------- ---------- ---------- ----------
Total current assets 267,662 267,662 230,705 230,705
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT 1,940,954 1,940,954 1,799,945 1,799,945
Less -- accumulated depreciation 478,544 478,544 395,736 395,736
---------- ---------- ---------- ----------
Net property and equipment 1,462,410 1,462,410 1,404,209 1,404,209
---------- ---------- ---------- ----------
NOTES RECEIVABLE 6,957 6,957 10,791 10,791
INVESTMENTS 33,694 33,694 27,982 27,982
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 1,150,400 1,150,400 1,165,435 1,165,435
DEFERRED COSTS 37,236 37,236 29,248 29,248
---------- ---------- ---------- ----------
$2,958,359 $2,958,359 $2,868,370 $2,868,370
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES $ 501,180 $ 501,180 $ 370,655 $ 370,655
LONG-TERM DEBT 1,133,002 1,133,002 1,283,665 1,283,665
CONVERTIBLE SUBORDINATED DEBT 10,649 10,649 10,487 10,487
DEFERRED INCOME TAXES 216,807 216,807 211,451 211,451
OTHER DEFERRED CREDITS AND LIABILITIES 279,566 279,566 288,239 288,239
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO
REPURCHASE OBLIGATIONS -- -- 6,046 --
---------- ---------- ---------- ----------
SHAREHOLDERS' EQUITY
Common stock 772 725 768 725
Additional paid-in capital 605,775 590,170 596,623 587,060
Retained earnings 218,608 234,260 108,436 124,088
Adjustment for minimum pension liability (8,000) (8,000) (8,000) (8,000)
---------- ---------- ---------- ----------
Total shareholders' equity 817,155 817,155 697,827 703,873
---------- ---------- ---------- ----------
$2,958,359 $2,958,359 $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 MAY 31,
-------------------------------------------------------
1994 1993
------------------------- -------------------------
HOLDINGS AMI HOLDINGS AMI
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUES $ 601,974 $ 601,974 $ 565,475 $ 565,475
OPERATING COSTS AND EXPENSES:
Salaries and benefits 219,255 219,255 207,344 207,344
Supplies 85,269 85,269 81,512 81,512
Provision for uncollectible accounts 40,777 40,777 37,147 37,147
Depreciation and amortization 38,893 38,893 37,010 37,010
Other operating costs 128,813 128,813 117,149 117,149
---------- ---------- ---------- ----------
Total operating costs and expenses 513,007 513,007 480,162 480,162
---------- ---------- ---------- ----------
OPERATING INCOME 88,967 88,967 85,313 85,313
Gain on sale of securities 69,328 69,328 -- --
Interest expense, net (38,329) (38,329) (44,187) (44,187)
---------- ---------- ---------- ----------
INCOME BEFORE TAXES, MINORITY EQUITY
INTEREST AND EXTRAORDINARY LOSS 119,966 119,966 41,126 41,126
Provision for income taxes (47,500) (47,500) (18,300) (18,300)
---------- ---------- ---------- ----------
NET INCOME BEFORE MINORITY EQUITY INTEREST
AND EXTRAORDINARY LOSS 72,466 72,466 22,826 22,826
Minority equity interest (1,175) (1,175) (1,105) (1,105)
---------- ---------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY LOSS 71,291 71,291 21,721 21,721
Extraordinary loss on early extinguishment
of debt (1,909) (1,909) (6,594) (6,594)
---------- ---------- ---------- ----------
NET INCOME $ 69,382 $ 69,382 $ 15,127 $ 15,127
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PER SHARE DATA:
Net income before extraordinary loss $ 0.92 N/A $ 0.28 N/A
Extraordinary loss on early extinguishment
of debt (0.02) N/A (0.09) N/A
---------- ----------
Net income per common and
common equivalent share $ 0.90 N/A $ 0.19 N/A
---------- ----------
---------- ----------
Average common shares outstanding
during the period 77,160 N/A 76,785 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>
NINE MONTHS ENDED MAY 31,
-------------------------------------------------------
1994 1993
------------------------- -------------------------
HOLDINGS AMI HOLDINGS AMI
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET REVENUES $1,743,530 $1,743,530 $1,673,510 $1,673,510
OPERATING COSTS AND EXPENSES:
Salaries and benefits 635,059 635,059 615,264 615,264
Supplies 247,881 247,881 239,722 239,722
Provision for uncollectible accounts 118,094 118,094 111,045 111,045
Depreciation and amortization 115,855 115,855 109,384 109,384
Other operating costs 386,516 386,516 366,346 366,346
---------- ---------- ---------- ----------
Total operating costs and expenses 1,503,405 1,503,405 1,441,761 1,441,761
---------- ---------- ---------- ----------
OPERATING INCOME 240,125 240,125 231,749 231,749
Gain on sale of securities 69,328 69,328 -- --
Interest expense, net (115,269) (115,269) (132,754) (132,754)
---------- ---------- ---------- ----------
INCOME BEFORE TAXES, MINORITY EQUITY
INTEREST AND EXTRAORDINARY LOSS 194,184 194,184 98,995 98,995
Provision for income taxes (78,900) (78,900) (45,900) (45,900)
---------- ---------- ---------- ----------
NET INCOME BEFORE MINORITY EQUITY INTEREST
AND EXTRAORDINARY LOSS 115,284 115,284 53,095 53,095
Minority equity interest (3,203) (3,203) (2,531) (2,531)
---------- ---------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY LOSS 112,081 112,081 50,564 50,564
Extraordinary loss on early extinguishment
of debt (1,909) (1,909) (6,594) (6,594)
---------- ---------- ---------- ----------
NET INCOME $ 110,172 $ 110,172 $ 43,970 $ 43,970
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PER SHARE DATA:
Net income before extraordinary loss $ 1.45 N/A $0.66 N/A
Extraordinary loss on early extinguishment
of debt (0.02) N/A (0.09) N/A
---------- ----------
Net income per common and
common equivalent share $ 1.43 N/A $ 0.57 N/A
---------- ----------
---------- ----------
Average common shares outstanding
during the period 77,052 N/A 76,729 N/A
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-------------------------------------------------------
1994 1993
------------------------- -------------------------
HOLDINGS AMI HOLDINGS AMI
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before extraordinary loss $ 112,081 $ 112,081 $ 50,564 $ 50,564
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 115,855 115,855 109,384 109,384
Amortization of debt discount, deferred
financing costs and non-cash interest 36,793 36,793 47,716 47,716
Gain on sale of securities (69,328) (69,328) -- --
Change in working capital ( 3,611) ( 3,611) (9,842) (9,842)
Other (13,922) (13,922) (8,174) (8,174)
---------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 177,868 177,868 189,648 189,648
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt ( 58,101) (58,101) (173,972) (173,972)
Reducing revolving credit facility (14,000) (14,000) -- --
Borrowings 971 971 150,483 150,483
Other 3,110 3,110 1,235 1,235
---------- ---------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (68,020) (68,020) (22,254) (22,254)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (85,347) (85,347) (91,315) (91,315)
Acquisition (92,079) (92,079) -- --
Sale of securities 72,437 72,437 -- --
Increase in deferred costs (2,801) (2,801) (8,083) (8,083)
Additions to notes receivable and
investments (10,450) (10,450) ( 4,514) (4,514)
Decrease in notes receivable and
investments 10,619 10,619 17,468 17,468
Other (18,801) (18,801) (1,146) (1,146)
---------- ---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (126,422) (126,422) (87,590) (87,590)
---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
SHORT-TERM CASH INVESTMENTS (16,574) (16,574) 79,804 79,804
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 $ 27,761 $ 27,761 $ 150,340 $ 150,340
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES:
Income taxes paid (net of refunds) $ 45,754 $ 45,754 $ 70,673 $ 70,673
Interest paid (net of capitalized costs) $ 79,940 $ 79,940 $ 85,175 $ 85,175
</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
On May 1, 1994, the Company completed the purchase of Saint Francis
Hospital located in Memphis, Tennessee. The hospital, containing 890 beds, now
represents the largest hospital owned and operated by the Company. In
conjunction with this purchase, in June 1994, the Company completed the
acquisition of a management services organization in the Memphis area.
In July 1994, a limited partnership, of which a wholly-owned
subsidiary of AMI is general partner, executed a definitive agreement to
purchase Hilton Head Hospital located in Hilton Head, South Carolina. Thus, the
results of operations of the hospital will be consolidated with the results of
operations of Holdings and AMI subsequent to the acquisition date. The purchase
is expected to be completed during the first quarter of fiscal 1995.
(3) ACCOUNTS RECEIVABLE
As of May 31, 1994, and August 31, 1993, Holdings and AMI had reserves
for uncollectible receivables of $102.0 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 as of May 31, 1994 and
August 31, 1993, was $149.1 million and $125.2 million, respectively.
Amortization of cost in excess of net assets acquired for Holdings and AMI was
$23.9 million and $24.0 million for the nine months ended May 31, 1994 and 1993,
respectively.
(5) LONG-TERM DEBT
As of May 31, 1994, $273 million was outstanding under the Company's
$600 million revolving credit facility. The rate at which interest accrues is
5.5%. In addition, $31.3 million in letters of credit were issued thereunder.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On June 28, 1994, the Company amended its revolving credit facility
whereby the five year credit facility was extended to September 1999 and the
rate at which interest accrues was reduced. Amounts outstanding under the
revolving credit facility will accrue interest, at the option of AMI, at
(i) adjusted LIBOR plus .875% (subject to reduction upon the satisfaction of
certain conditions) or (ii) at the alternative base rate specified for the
revolving credit facility.
(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 May 31, 1994, Holdings had 200 million shares of $0.01 par value
common stock authorized. Of such shares, 77,214,000 and 76,873,000 were
outstanding as of May 31, 1994, and August 31, 1993, respectively. As of May
31, 1994, Holdings had five million shares of $0.01 par value of Preferred Stock
authorized, of which none were outstanding.
Holdings is the owner of all outstanding shares of common stock of
AMI. As of May 31, 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, there is
no amount outstanding related to common stock subject to repurchase obligations
as of May 31, 1994.
(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 nine months ended May 31, 1994 and 1993 of $551.1
million, $1,588.5 million, $500.7 million and $1,444.2 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 42% and 38% of
total net revenues for the nine months ended May 31, 1994 and 1993,
respectively. In addition, the Company has net revenues from other contracted
business which represented 25% of total net revenues for the nine months ended
May 31, 1994 and 1993.
(9) GAIN ON SALE OF SECURITIES
During the third quarter of fiscal 1994, AMI recognized a $69.3
million pre-tax gain, or $43.4 million net of tax, related to the sale of AMI's
interest in EPIC Holdings, Inc. as a result of the merger of EPIC Holding, Inc.
with HealthTrust, Inc. - the Hospital Company. In connection with the
disposition of AMI's interest in EPIC Holdings, Inc., the Company was
represented by and paid a fee of approximately $2.3 million to a major
stockholder.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(10) INTEREST EXPENSE, NET
Interest expense, net for Holdings and AMI consists of the following
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
Interest costs $ 27,840 $ 30,309
Amortization of debt discount, deferred
financing costs and non-cash interest 12,077 15,442
Interest costs capitalized (985) (318)
---------- ----------
38,932 45,433
Interest income (603) (1,246)
---------- ----------
Interest expense, net $ 38,329 $ 44,187
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Interest costs $ 82,825 $ 90,190
Amortization of debt discount, deferred
financing costs and non-cash interest 36,793 47,716
Interest costs capitalized (2,400) (919)
---------- ----------
117,218 136,987
Interest income (1,949) (4,233)
---------- ----------
Interest expense, net $ 115,269 $ 132,754
---------- ----------
---------- ----------
</TABLE>
(11) MINORITY EQUITY INTEREST
Minority equity interest expense of $1.3 million, $4.6 million, $1.8
million and $4.1 million for the three and nine months ended May 31, 1994 and
1993, respectively, is presented net of income taxes in the accompanying
condensed consolidated statements of income.
(12) EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
During the third quarter of fiscal 1994, AMI repurchased $15.4 million
principal amount of the 15% Junior Subordinated Discount Debentures, Due 2005
resulting in a pre-tax loss of $3.0 million or $1.9 million, net of tax.
8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(13) SUPPLEMENTAL CASH FLOW INFORMATION
The Company assumed net assets of approximately $95.0 million related
to the purchase of Saint Francis Hospital.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities decreased $11.8 million to
$177.9 million for the nine months ended May 31, 1994 when compared to the same
period a year ago.
In May 1994, the Company received $72.4 million related to the
disposition of AMI's interest in EPIC Holdings, Inc. as a result of the merger
of EPIC Holdings, Inc. with HealthTrust, Inc. - The Hospital Company.
The Company invested $85.3 million in capital expenditures (excluding
acquisitions) for the nine months ended May 31, 1994, and, as of the end of such
period, had approximately $20.2 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. In May 1994, the Company completed the purchase of
Saint Francis Hospital located in Memphis, Tennessee for a purchase price of
approximately $92 million. The hospital, containing 890 beds, now represents
the largest hospital owned and operated by the Company. In conjunction with
this purchase, in June 1994 the Company completed the acquisition of a
management services organization, also located in the Memphis area. The Company
intends to continue to invest in new and existing operations within the
healthcare industry.
On June 28, 1994, the Company amended its revolving credit
facility to extend the bank commitments thereunder until September 1999 and to
decrease the rate of interest applicable to amounts outstanding thereunder to,
at the option of AMI, (i) adjusted LIBOR plus .875% (subject to reduction upon
the satisfaction of certain conditions) or (ii) the alternative base rate
specified for the revolving credit facility. The Company continues to be
subject to certain capital expenditure limitations.
The Company repaid (excluding repayments on the revolving credit
facility) $58.1 million of long-term debt during the nine months ended May 31,
1994 from cash provided by operating activities, short-term cash investments and
borrowings under the revolving credit facility. 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. Additionally, during the third quarter of fiscal 1994, the Company
repurchased $15.4 million principal amount of the 15% Junior Subordinated
Discount Debentures, Due 2005, as well as repaid approximately $14.7 million of
certain other indebtedness. The amount outstanding under the revolving credit
facility decreased to $273 million as of May 31, 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. Scheduled principal
payments, excluding amounts that may become due on the revolving credit
facility, will be $1.4 million in the remainder of fiscal 1994, $156.1 million
in fiscal 1995, $57.0 million in fiscal 1996, $182.1 million in fiscal 1997,
$2.3 million in fiscal 1998, and $275.6 million in fiscal 1999.
The terms of certain indebtedness of the Company impose 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 incur capital
expenditures; 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.
10
<PAGE>
RESULTS OF OPERATIONS
GENERAL TRENDS
The Company's net revenues have continued to increase as compared with
the same period of the prior year as a result of increased volume from
outpatient and inpatient services, the expansion of patient care services and
general price increases. An increase in the number of medical procedures being
performed on an outpatient basis previously performed on an inpatient basis has
occurred as a result of (i) advanced medical technology and (ii) cost
containment pressures from payors to direct more patients from inpatient
facilities to less expensive outpatient facilities. Accordingly, several of the
Company's hospitals continue to expand or redesign their outpatient facilities
and services to accommodate the increased utilization of such facilities. 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.
To accommodate the growing demand for specialized inpatient and
outpatient care, the Company has piloted a program to implement the "hospital-
within-a-hospital" concept whereby specific programs (i.e. long-term care,
rehabilitation units, home health) are established as separate units in the
Company's existing hospitals. Regulations are currently being proposed by the
Health Care Financing Administration that, if enacted, would limit the
opportunity provided by the development of the specialized services.
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) a 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.
11
<PAGE>
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, various other third-party payor cost containment
pressures and medical technology. As these factors continue to affect
healthcare providers, along with the impending reforms proposed in the Clinton
Administration and Congress, the healthcare industry has experienced a
significant increase in the number of mergers and acquisitions occurring for
both investor-owned and non-profit hospitals.
To offset these factors which may limit net revenue growth, 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.
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 continues to expand 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 is not expected to 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 federal reform proposals
have been made by the Clinton Administration, as well as by several members of
Congress. 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. The various congressional reform proposals have differing
approaches to reform and the funding of healthcare coverage. 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.
12
<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>
NINE MONTHS ENDED MAY 31,
---------------------------------------------------------------------
(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 $ 734 42.1% $ 630 37.6% 16.5%
Contracted services 442 25.3 427 25.5 3.5
Non-contracted services 508 29.1 561 33.5 (9.4)
Other sources 60 3.5 56 3.4 7.1
------ ----- ------ -----
Total net revenues 1,744 100.0 1,674 100.0 4.2
------ ----- ------ -----
OPERATING COSTS AND EXPENSES
Salaries and benefits 635 36.4 615 36.7 3.3
Supplies 248 14.2 240 14.3 3.3
Provision for uncollectible accounts 118 6.8 111 6.7 6.3
Depreciation and amortization 116 6.7 109 6.5 6.4
Other operating costs 387 22.1 367 21.9 5.4
------ ----- ------ -----
Total operating costs and expenses 1,504 86.2 1,442 86.1 4.3
------ ----- ------ -----
OPERATING INCOME 240 13.8 232 13.9 3.4
Gain on sale of securities 69 3.9 -- -- --
Interest expense, net (115) (6.6) (133) (8.0) (13.5)
------ ----- ------ -----
INCOME BEFORE TAXES, MINORITY EQUITY
INTEREST AND EXTRAORDINARY LOSS 194 11.1 99 5.9 96.0
Provision for income taxes (79) (4.5) (46) (2.8) 71.7
------ ----- ------ -----
NET INCOME BEFORE MINORITY EQUITY INTEREST
AND EXTRAORDINARY LOSS 115 6.6 53 3.1 117.0
Minority equity interest (3) (0.2) (2) (0.1) 50.0
------ ----- ------ -----
NET INCOME BEFORE EXTRAORDINARY LOSS 112 6.4 51 3.0 119.6
Extraordinary loss on early extinguishment
of debt (2) (0.1) (7) (0.4) (71.4)
------ ----- ------ -----
NET INCOME $ 110 6.3% 44 2.6% 2.5%
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
13
<PAGE>
The following table sets forth certain operating statistics of the
Company's hospitals for the nine months ended May 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
OPERATING STATISTICS (1): ---------- ----------
<S> <C> <C>
ADMISSIONS
Medicare/Medicaid 96,920 88,104
Contracted 46,201 41,338
Non-contracted 34,381 40,732
Other 2,067 2,176
--------- ---------
Total admissions 179,569 172,350
--------- ---------
--------- ---------
EQUIVALENT ADMISSIONS (2) 245,142 231,221
OUTPATIENT VOLUME
Visits (3) 1,621,806 1,230,693
Surgeries 90,318 89,975
--------- ---------
Total outpatient volume 1,712,124 1,320,668
--------- ---------
--------- ---------
PATIENT DAYS 1,055,384 1,045,190
EQUIVALENT PATIENT DAYS (2) 1,422,267 1,384,830
LICENSED BEDS AT END OF PERIOD 9,021 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 500,193 and 180,839 for the nine months
ended May 31, 1994 and 1993, respectively.
</TABLE>
14
<PAGE>
The results of operations for the nine months ended May 31, 1994
include Saint Francis Hospital since its purchase on May 1, 1994. The impact of
the operations of Saint Francis Hospital for the nine months ended May 31, 1994
are not material for comparative purposes. For the three months ended May 31,
1994, Saint Francis Hospital contributed approximately 30% of the increase in
net revenues and operating expenses over the same period of the prior year.
Net revenues for the nine months ended May 31, 1994, increased 4.2% or
$70 million over net revenues for the nine months ended May 31, 1993 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 3.7% to $1,212 million, or 70.8% of net patient
revenues, for the nine months ended May 31, 1994 from $1,168 million or 70.9% of
net patient revenues for the nine months ended May 31, 1993. Net revenues from
outpatient services increased 4.6% to $501 million, or 29.2% of net patient
revenues, for the nine months ended May 31, 1994, from $479 million, or 29.1% of
net patient revenues for the nine months ended May 31, 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 has also resulted in an increase in the related net revenues.
Net revenues derived from Medicare/Medicaid programs for the nine
months ended May 31, 1994, increased 16.5% from $630 million to $734 million as
a greater portion of the population continues to qualify for such coverage. A
decrease in net revenues derived from non-contracted business has continued to
be experienced by the Company. An increase in the number of various third-party
payors including states, insurance companies and employers' networks are
negotiating contracted amounts paid for such services rendered; thus, accounting
for the increase in contracted business.
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 4.3% over the nine
months ended May 31, 1993. Although certain operating expenses have increased
at a rate greater than the overall 4.3%, increase as a percentage of net
revenues, such costs remained relatively stable compared to the prior year. On
a volume-adjusted, or per equivalent admission basis, operating costs declined
1.8% over the nine months ended May 31, 1993.
The gain on sale of securities for the nine months ended May 31, 1994
is the result of the disposition of AMI's interest in EPIC Holdings, Inc. as a
result of the merger of EPIC Holdings, Inc. with HealthTrust, Inc. - the
Hospital Company.
Interest expense, net decreased 13.5% or $17.5 million for the nine
months ended May 31, 1994 as a result of debt refinancings occurring during
fiscal 1993 and the use of cash from operations to reduce indebtedness.
The tax provision for the nine months ended May 31, 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.
15
<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
Not applicable.
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.
16
<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: July 13, 1994
By: ALAN J. CHAMISON
---------------------------------------
Alan J. Chamison
Executive Vice President and Chief Financial Officer
Date: July 13, 1994
By: BARY G. BAILEY
---------------------------------------
Bary G. Bailey
Vice President and Controller
AMERICAN MEDICAL INTERNATIONAL, INC.
Date: July 13, 1994
By: ALAN J. CHAMISON
---------------------------------------
Alan J. Chamison
Executive Vice President and Chief Financial Officer
Date: July 13, 1994
By: BARY G. BAILEY
---------------------------------------
Bary G. Bailey
Vice President and Controller
17
<PAGE>
EXHIBIT 11
AMERICAN MEDICAL HOLDINGS, INC.
COMPUTATIONS OF EARNINGS PER SHARE
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended May 31, Nine Months Ended May 31,
-------------------------- -------------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SIMPLE
Net income before extraordinary loss $ 71,291 $ 21,721 $112,081 $ 50,564
Extraordinary loss on early extinguishment
of debt (1,909) (6,594) (1,909) (6,594)
-------- -------- -------- --------
Net income $ 69,382 $ 15,127 $110,172 $ 43,970
-------- -------- -------- --------
-------- -------- -------- --------
Average outstanding shares 77,160 76,785 77,052 76,729
-------- -------- -------- --------
-------- -------- -------- --------
Simple net income before extraordinary loss per share $ 0.92 $ 0.28 $ 1.45 $ 0.66
-------- -------- -------- --------
-------- -------- -------- --------
Extraordinary loss on early extinguishment
of debt (0.02) (0.09) (0.02) (0.09)
-------- -------- -------- --------
Simple net income per share $ 0.90 $ 0.19 $ 1.43 $ 0.57
-------- -------- -------- --------
-------- -------- -------- --------
PRIMARY
Net income $ 69,382 $ 15,127 $110,172 $ 43,970
Adjustment for interest on debentures,
net of tax 74 72 217 209
-------- -------- -------- --------
Net income for primary $ 69,456 $ 15,199 $110,389 $ 44,179
-------- -------- -------- --------
-------- -------- -------- --------
Average outstanding shares 77,160 76,785 77,052 76,729
Common stock equivalents assuming
exercise of stock options 1,780 642 1,745 721
Common stock equivalents assuming
conversion of debentures 210 210 210 210
-------- -------- -------- --------
Shares for primary 79,150 77,637 79,007 77,660
-------- -------- -------- --------
-------- -------- -------- --------
Primary net income per share $ 0.88 (1) $ 0.19 (1) $ 1.40 (1) $ 0.57 (1)
-------- -------- -------- --------
-------- -------- -------- --------
FULLY-DILUTED
Net income for primary $ 69,456 $ 15,199 $110,389 $ 44,179
Adjustment for interest on debentures,
net of tax 65 133 330 394
-------- -------- -------- --------
Net income for fully-diluted $ 69,521 $ 15,332 $110,719 $ 44,573
-------- -------- -------- --------
-------- -------- -------- --------
Shares for primary 79,150 77,637 79,007 77,660
Common stock equivalents assuming
additional conversion of debentures
and exercise of stock options 488 415 627 361
-------- -------- -------- --------
Shares for fully-diluted 79,638 78,052 79,634 78,021
-------- -------- -------- --------
-------- -------- -------- --------
Fully-diluted net income per share $ 0.87 (1) $ 0.19 (1) $ 1.39 (1) $ 0.57 (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>
