SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report June 30, 1996 Commission file number 0-2751
------------- ------
AMERICAN HOSPITAL MANAGEMENT CORPORATION
----------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1861243
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1116
Arcata, California 95521
- ------------------ ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (800) 662-2280
--------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1.00 par value
- --------------------------------------------------------------------------------
(Title of class)
$2.00 Cumulative Preferred Stock $1.00 par value
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed 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 filing
requirements for the past 90 days.
Yes No x
----- ------
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<PAGE>
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, at a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405, 17 CRF 230.405.)
There is no market for the registrant's stock.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date (232,417 at December 31, 1996).
Total number of pages, including cover - 37
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<PAGE>
PART I
Item 1. Business
- ------- --------
The primary business of the Company is the operation and ownership of
Mad River Community Hospital (the Hospital) and satellite clinics,
located in the Humboldt County area of Northern California.
Over the last several years the Company has expanded the scope of
services offered by the Hospital to include advanced ancillary service
departments used by physicians practicing in the rural service area. As
a result of the ongoing expansion of facilities and services, the
Hospital continues to recruit new physicians to provide the added care
as well as to replace physicians who are retiring from active practice,
many after twenty-eight years of medical staff membership. The
Hospital's service area on the north coast is experiencing the highest
rate of growth in the county and is especially attractive to physicians
who want to live and work in a community with high family values.
The nearest competition to the Hospital is in Eureka (approximately 12
miles south) where two acute care facilities are located. Management of
the Hospital feels that as long as it maintains a strong position in
providing a full scope of health care services, the facilities located
in Eureka will have less of a negative impact on Hospital use or
occupancy. For this reason, the Hospital organized two out-patient
clinics, one in-house clinic and one clinic in the outlying community
thereby maintaining the Hospital's presence in the service area. New
buildings are planned for those departments still housed in mobile
facilities adjacent to the Hospital. In the past year, business and
administrative departments have been moved to a new permanent location.
The area will be used for the expansion of adult day health care into a
new building. In addition, a cath-lab is in the final process of being
approved for installation in the Hospital. An MRI is on order and is
expected to be operating adjacent to the Hospital by early 1997.
Another positive factor supporting Hospital use is community
involvement. As the largest private employer in Arcata, the Hospital
provides employment to approximately 520 local residents and, through
its Home Health and Adult Day Health Care departments, is highly
visible in the community served. The Hospital continues to try to build
on this strength by maintaining a strong image through the media and a
helping hand in the community, while providing personalized quality
services. The Hospital is a strong advocate for a community health care
plan involving the medical staff, employers and the area's hospitals
and health care providers wherein they will work together to provide a
locally based alternative to out of the area managed care.
As the health care industry is dependent on government payment of care
for the elderly and indigent, the Hospital may be negatively impacted
by new Government regulations. As mentioned above, the Hospital is
working diligently to establish a community health care plan that could
compete with the various outside managed care plans planning to enter
the Humboldt County area.
-3-
<PAGE>
Item 2. Properties
- ------- ----------
The main facility operated by the Company is Mad River Community
Hospital in Arcata, California. This single-level structure is licensed
as a 78-bed acute hospital in Northern Humboldt County, California,
where it provides full hospital services to a population of
approximately 55,000. Since opening in 1972, the Hospital has
maintained a program of expansion and improvements. It is located on 12
acres (part of a 48 acre site) adjacent to an expanded medical office
complex owned by staff doctors which leaves sufficient open area for
further expansion of medical services as needed.
The Company owns 27 acres of land approximately 4 miles from the
Hospital held for future residential development. A house and barn on
the property is currently used as an office, guest quarters and storage
space for the Company. The Company owns a personal residence adjacent
to the Hospital that had been used as a physician's office. This
acquisition was made to facilitate a continued favorable occupancy by a
hospital-related specialty and is presently being leased to an
unrelated private resident, providing a child day care service to
hospital employees. The Company also owns residences and commercial
properties in Eureka and McKinleyville, California. They are currently
being leased to unrelated private parties, held for investment or can
be converted to medical offices, if needed to protect the Hospital's
market share. From time to time, the Company acquires real estate being
held for investment purposes.
As part of its outreach program, the Company owns and operates medical
office buildings under the name of Willow Creek Six Rivers Medical
Center in Willow Creek, California (38 miles east of the Hospital). The
Company also owns and operates real property in McKinleyville which
provides laboratory and radiology outpatient services. It also operates
an after-hours clinic at this location.
Adult Day Health Care of Mad River (the Company), a separate
not-for-profit organization, is operating an adult day health care
facility in a building adjacent to and owned by Mad River Community
Hospital. Michael Young, Controller of the Company, is functioning as
Adult Day Health Care's Administrator and performs minimal accounting
services for the organization. To meet the growing demands for this
service, a new building will be built adjacent to the present facility.
The Company will lease the new facility from the Hospital.
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<PAGE>
Item 3. Legal Proceedings
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None.
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<PAGE>
Item 4. Submission of Matters to Vote of Security Holders
- ------- -------------------------------------------------
There were no matters submitted to a vote by the security holders
during the fourth quarter of the fiscal year covered by this report.
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
- ------- -----------------------------------------------------------------------
Matters
-------
There is no market for the registrant's stock. There are approximately
436 shareholders. No dividends were paid on common stock during the
three years ended June 30, 1996.
-7-
<PAGE>
Item 6. Selected Financial Data
- ------- -----------------------
Year ended June 30
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total operating
revenue, net $21,421,707 $21,148,254 $20,671,387 $19,218,602 $18,592,956
Net income 223,815 593,342 502,956 387,436 624,342
Primary earnings
per share .52 2.06 1.67 1.18 2.16
Fully diluted
earnings per share .67 1.75 1.47 1.13 1.81
Cash dividends per
common share -- -- -- -- --
Total assets 20,557,286 19,800,615 18,325,512 16,995,552 15,698,301
Long-term debt 403,581 803,248 861,648 809,411 466,362
Working capital 7,851,133 7,165,927 6,010,324 6,265,004 6,348,123
Redeemable
preferred stock 50,850 51,623 51,768 51,900 51,957
Stockholders'
equity 14,633,038 14,077,102 13,040,598 12,636,033 12,347,231
-8-
<PAGE>
Item 7. Management's Discussion and Analysis of
- ------- ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
1996
----
Results of Operations
---------------------
Hospital revenues increased slightly during 1996 as the hospital
continues to expand services to encourage use. Use of outpatient
services increased, and there was a small rate increase. Patient
revenue totaled $40,617,000 in 1996 compared to $39,002,000 in 1995, a
4% increase of $615,000.
Contractual allowances totaled $13,808,000 in 1996 compared to
$13,638,000 in 1995, only a 1% increase. Government regulatory agencies
attempt to reimburse the hospital based on the cost of services
rendered. As the government continues its efforts to cut back on rising
health care cost, the actual reimbursement continues to decrease and
the Hospital is unable to even recoup costs on many Medicare patients.
Medi-Cal has also imposed certain limitations (discharge and Maximum
Inpatient Reimbursement Liability) that have adversely affected
reimbursements. As discussed in the next paragraph, the result of these
continuing cuts is to increase the provision for bad debts.
Operating costs and expenses were $27,928,000 compared to $25,749,000
in 1995, an 8.5% increase. This increase, other than the provision for
bad debts, is mainly related to increased labor costs and moderate
inflation. In 1996, the provision for bad debts increased 24% from
1995. The provision for bad debts increases as third-party payors
reduce the amount they reimburse, as discussed in prior paragraph.
Increased use of outpatient services and the change in patient mix also
affects bad debt write offs.
The result in the reduction of third-party reimbursement, causing
increased bad debt write offs, was a $769,000 decrease in income from
operations. Net income, after investment income, was $224,000 in 1996
compared to $593,000 in 1995.
Over the years, as the Company incurs more contractual allowances and
uncollectible accounts, results from operations have suffered. The
Company continues to enjoy good returns on its investments to help
maintain a net profit. For the current year, sales of investments
resulted in gains of $113,600 while total investment income was
$1,076,100. As discussed in Item 1, the Company continues to expand
operations to maintain a competitive edge in a continuing ever changing
health care environment. All construction projects, considered
necessary to maintain operations, will be completed without negative
impact on the financial statements.
The purpose of these projects is to keep the users of the Hospital in
their primary service area close to the Hospital and medical staff
members, thereby enhancing the Hospital's inpatient service occupancy.
By so doing, it is anticipated that operations will improve, even
though the continued burden of government contractual agreements to
provide health care, sometimes below cost, is being further complicated
by the introduction of managed care contracts in the Humboldt County
area.
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<PAGE>
1996 continued
----
Financial Condition
-------------------
The Company's financial condition remains very strong with substantial
investments, strong liquidity and minimal debt. The cash and liquid
investments are being maintained to subsidize Hospital operations,
finance needed construction and increased services at Mad River
Community Hospital. Currently, the Company has approximately $5,261,000
in cash and short-term investments. As previously noted, some of these
investments, as determined by management, will be used to fund needed
expansion.
Cash provided by operating and investing activities continue to fund
investing activities, the largest of which is the purchase of real
estate, property and equipment, which totaled $735,400 in 1996. As the
long-term debt relates only to the acquisition of major equipment, cash
required for financing activities remains relatively low.
As discussed in Item 1, government regulations, as well as managed care
contract agreements, may continue to negatively impact operations.
Management is unable to estimate any potential negative impact of
forthcoming laws or regulations. Management believes that long-term key
employees approve of the working conditions at the Hospital and have
proven their ability to keep the Hospital staffed under difficult
conditions.
Inflation
---------
The inflation rate affecting costs has remained relatively low,
approximately 5%, over the last three years. This moderate rate
contributes to the Hospital's success in maintaining a moderate
increase in costs from year to year.
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<PAGE>
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
1995
----
Results of Operations
---------------------
Hospital revenues increased slightly during 1995 as the hospital
continues to expand services to encourage use. Use of outpatient
services increased, and there was a small rate increase. Patient
revenues in 1995 were $39,002,000 compared to $38,120,000 for 1994, a
2% increase of $882,000.
Contractual allowances totaled $13,638,000 in 1995 compared to
$13,929,000 in 1994, a 2% decrease. Therefore, although revenue went up
slightly, contractural allowances decreased, indicating a different mix
of patients. Government regulatory agencies attempt to reimburse the
hospital based on the cost of services rendered. At times, under
current regulations, the hospital is unable to recoup costs on certain
Medicare patients. Medi-Cal has also imposed certain limitations
(discharge and Maximum Inpatient Reimbursement Liability) that have
adversely affected reimbursement.
Operating costs and expenses were $25,749,000 compared to $24,631,000
in 1994, a 5% increase. This increase, other than the provision for bad
debts, is mainly related to increased labor costs and moderate
inflation. The provision for bad debts, which increased from $3,914,601
in 1994 to $4,669,157 in 1995, increases as third-party payors reduce
their reimbursements, as discussed in previous paragraph. Increased use
of outpatient services and the change in patient mix also affects bad
debt write offs.
Net income was $593,000 in 1995, compared to $503,000 in 1994, a 18%
increase.
Over the years, as the Company incurs more contractual allowances and
uncollectible accounts, results from operations have suffered. The
Company continues to enjoy good returns on its investments to help
maintain an increase in net profit. For the current year, sales of
investments resulted in gains of $171,000. As discussed in Item 1, the
Company continues to expand operations to maintain a competitive edge
in a continuing ever changing health-care environment. All construction
projects, considered necessary to maintain operations, will be
completed without negative impact on the financial statements.
The purpose of these projects is to keep the users of the Hospital in
their primary service area close to the Hospital and medical staff
members, thereby enhancing the Hospital's inpatient service occupancy.
By so doing, it is anticipated that operations will remain profitable
even though the continued burden of government contractual agreements
to provide healthcare, sometimes below cost, is being further
complicated by the introduction of managed care contracts in the
Humboldt County. The Company continues to do what is necessary to
retain its occupancy, cut costs and provide excellent care so as to
continue profitable operations.
-11-
<PAGE>
1995 continued
----
Financial Condition
-------------------
The Company's financial condition remains very strong with profitable
hospital operations, substantial investment capital, strong liquidity
and minimal debt. The cash and liquid investments are being maintained
to finance the planned construction and increased services at Mad River
Community Hospital. As discussed above, current liquidity may be
affected by long-term plans to expand hospital operations. Currently,
the Company has approximately $4,380,582 in short-term investments.
Some of these investments, as determined by Management, will be used to
fund needed expansion.
Cash provided by operating activities continue to fund investing
activities, the largest of which is the purchase of real estate,
property and equipment which totaled $884,109 in 1995. As long-term
debt relates only to the acquisition of equipment, cash required for
financing activities remains relatively low.
As discussed in Item 1, Government regulations, as well as managed
contract agreements, may negatively impact operations. Management is
unable to estimate any potential negative impact of forth-coming laws
or regulations. Management believes that long term key employees
approve of the working conditions at the Hospital and have proven their
ability to keep the Hospital staffed under difficult conditions. The
Hospital creation of a cafeteria benefit plan and a 401-k investment
fund is appreciated by employees and is beneficial in attracting new
professionals to fill the positions created by turnover and growth in
services offered.
Inflation
---------
The inflation rate affecting costs has remained relatively low,
approximately 4%, over the last three years. This moderate rate
contributes to the Hospital's success in maintaining a moderate
increase in costs from year to year.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
FINANCIAL STATEMENTS
Page
----
Description
-----------
Independent Auditors' Report 15
Financial Statements:
Balance Sheets - June 30, 1996 and 1995 16-17
Statements of Income and Retained Earnings -
Years ended June 30, 1996, 1995, and 1994 18
Statements of Cash Flows -
Years ended June 30, 1996, 1995, and 1994 19-20
Notes to Financial Statements 21-26
Item 14. Exhibits, Financial Statement, Schedules
and Reports on Form 8-K 32
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<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Annual Report for Corporations - Form 10-K
Years ended June 30, 1996, and 1995
Financial Statements,
Supplementary Data and Auditors' Report
-14-
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
American Hospital Management Corporation
We have audited the accompanying balance sheets of American Hospital Management
Corporation as of June 30, 1996, and 1995, and the related statements of income
and retained earnings, and cash flows and the supporting financial statement
schedules as listed in the accompanying index at Item 14, for the years then
ended. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
statement schedules are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Hospital Management
Corporation at June 30, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles, and the supporting financial statement schedules as
listed in the accompanying index at Item 14, when considered in relation to the
basic financial statements taken as a whole, in our opinion, present fairly in
all material respects, the information set forth therein.
/s/ K.C. Miller, CPA
K.C. Miller, CPA
West Covina, California
December 20, 1996
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<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Balance Sheets
June 30, 1996 and 1995
Assets
------
1996 1995
---- ----
Current assets:
Cash and cash equivalents $ 925,843 $ 819,341
Investments 5,260,968 4,380,582
Receivables:
Patients, net of estimated
uncollectibles of $202,650 and
$217,709 in 1996 and 1995, respectively 6,231,306 6,178,224
Other 290,028 126,161
Supplies, at lower of cost
(first-in, first-out) or market 855,334 887,176
Prepaid expenses 84,981 65,686
----------- -----------
Total current assets 13,648,460 12,457,170
----------- -----------
Deferred income taxes 478,107 446,258
----------- -----------
Investments and other assets:
Real estate held for investment, net of
$268,071 and $228,666 accumulated
depreciation in 1996 and 1995,
respectively 1,974,803 1,887,073
Investments in partnerships 87,086 84,129
Cash surrender value of life insurance 227,270 208,649
Other 146,216 234,569
----------- -----------
2,435,375 2,414,420
----------- -----------
Property and equipment, at cost:
Land and improvements 44,500 36,000
Buildings 4,233,728 4,233,728
Equipment 5,727,870 5,158,618
Construction in progress -- 1,674
----------- -----------
10,006,098 9,430,020
Less accumulated depreciation and
amortization 6,010,754 4,947,253
----------- -----------
3,995,344 4,482,767
----------- -----------
$20,557,286 $19,800,615
=========== ===========
(continued)
See accompanying notes to financial statements
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<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Balance Sheets (concluded)
June 30, 1996 and 1995
Liabilities and Stockholders' Equity
------------------------------------
1996 1995
---- ----
Current Liabilities:
Current maturities of long-term debt $ 276,660 $ 370,978
Accounts payable and accrued expenses:
Trade 562,306 1,138,571
Accrued liabilities 1,802,106 1,620,548
Estimated third-party payor settlements 1,823,149 946,555
Income taxes:
Current -- 195,798
Deferred 1,333,106 1,018,793
----------- -----------
Total current liabilities 5,797,327 5,291,243
----------- -----------
Long-term debt, less current maturities 126,921 432,270
----------- -----------
Stockholders' equity:
$2 cumulative preferred stock, par value $1
per share; authorized 100,000 shares;
issued 65,270.82 shares; reacquired
14,421.08 shares; outstanding 50,849.74
shares; aggregate redemption and
liquidating value of $1,398,368 and
$1,419,650 at June 30, 1996, and 1995,
respectively 50,850 51,623
Common stock, par value $1.00 per share;
authorized 400,000 shares, issued
249,051 shares; reacquired 15,838 shares;
outstanding - 233,123 shares 233,213 236,479
Additional paid-in capital 296,210 340,912
Unrealized holding gains, net, for investments 1,026,809 551,933
Retained earnings 13,025,956 12,896,155
----------- -----------
Total stockholders' equity 14,633,038 14,077,102
----------- -----------
$20,557,286 $19,800,615
=========== ===========
See accompanying notes to financial statements.
-17
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Statements of Income and Retained Earnings
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net patient service revenue $ 26,809,409 $ 25,364,285 $ 24,191,063
Other revenue 417,075 453,126 394,385
------------ ------------ ------------
Total operating revenue 27,226,484 25,817,411 24,585,448
------------ ------------ ------------
Operating costs and expenses:
Professional care of patients 13,462,487 12,984,368 12,942,401
General services 2,734,438 2,426,633 2,455,063
Administrative services 2,989,859 2,759,002 2,716,641
Employee health and welfare 1,318,048 1,322,370 1,133,908
Medical malpractice insurance 406,630 430,435 509,380
Interest 76,289 97,401 84,126
Depreciation and amortization 1,135,152 1,059,902 875,702
Provision for bad debts 5,804,777 4,669,157 3,914,061
------------ ------------ ------------
Total operating costs and expenses 27,927,680 25,749,268 24,631,282
------------ ------------ ------------
Income (loss) from operations (701,196) 68,143 (45,834)
------------ ------------ ------------
Other income:
Investment income 1,076,148 944,052 733,630
Other 31,019 9,974 16,040
------------ ------------ ------------
1,107,167 954,026 749,670
------------ ------------ ------------
Income before income taxes 405,971 1,022,169 703,836
Income taxes 182,156 428,827 200,880
------------ ------------ ------------
Net income 223,815 593,342 502,956
Retained earnings, beginning of year 12,896,155 12,394,101 11,983,591
Cash dividends paid on preferred
stock ($2 per share) (94,014) (91,288) (92,446)
------------ ------------ ------------
Retained earnings, end of year $ 13,025,956 $ 12,896,155 $ 12,394,101
============ ============ ============
Primary earnings per share $ .52 $ 2.06 $ 1.67
============ ============ ============
Fully diluted earnings per share $ .67 $ 1.75 $ 1.47
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patients and third-party payors $ 22,245,219 $ 20,398,950 $ 21,214,801
Cash paid to employees and suppliers (21,312,243) (19,638,638) (19,555,423)
Investment income received 1,025,397 666,219 589,982
Interest paid (76,290) (97,401) (84,126)
Income taxes paid (412,073) (225,467) (173,485)
------------ ------------ ------------
Net cash provided by
operating activities 1,470,010 1,103,663 1,991,749
------------ ------------ ------------
Cash flows from investing activities:
Purchase of real estate held for investment, net (127,135) -- (364,333)
Distributions from partnerships -- 132,424 226,605
Purchase of property and equipment (608,324) (844,109) (1,172,796)
Proceeds from sale of short-term investments 2,381,529 1,983,228 2,180,048
Purchase of short-term investments (2,356,870) (2,119,134) (2,294,703)
Other (110,286) (20,596) 27,831
------------ ------------ ------------
Net cash used in investing activities (821,086) (868,187) (1,397,348)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 336,766 270,532
Principal reductions of long-term debt (399,667) (395,166) (218,295)
Dividends paid (94,014) (91,288) (92,655)
Payments for reacquired stock (48,741) (17,483) (5,945)
------------ ------------ ------------
Net cash used in
financing activities (542,422) (167,171) (46,363)
------------ ------------ ------------
Net increase in cash and cash equivalents 106,502 68,305 548,038
Cash and cash equivalents, beginning of year 819,341 751,036 202,998
------------ ------------ ------------
Cash and cash equivalents, end of year $ 925,843 $ 819,341 $ 751,036
============ ============ ============
Supplemental schedule of non-cash investing activities:
Increase in fair value of investments $ 791,459 $ 919,888
Increase in deferred taxes 316,583 367,955
------------ ------------
Increase in unrealized holding gains $ 474,876 $ 551,933
============ ============
See accompanying notes to financial statements
-19-
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Statements of Cash Flows (concluded)
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 223,815 $ 593,342 $ 502,956
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,169,924 1,092,844 908,644
Partnership income (2,957) (149,813) (175,068)
Gain on sale of investments (113,586) (170,936) (192,630)
Increase in cash surrender value (18,621) (21,924) (11,108)
Change in assets and liabilities:
(Increase) decrease in patient receivables, net (53,082) (385,725) 295,575
Increase (decrease) in third-party payors, net 876,594 (363,579) 422,907
(Increase) decrease in income taxes, net (229,917) 203,361 27,395
(Decrease) increase in supplies 31,842 (100,581) (125,933)
(Increase) decrease in prepaid expenses (19,295) (1,893) 21,313
(Decrease) increase in trade accounts payable (576,265) 189,208 117,822
Increase in accrued expenses, net 181,558 219,359 199,876
------------ ------------ ------------
Net cash provided by operating activities $ 1,470,010 $ 1,103,663 $ 1,991,749
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-20-
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements
June 30, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
------------------------------------------
Organization
------------
The Corporation owns and operates one acute-care hospital in the Arcata,
California area. It also operates other health-care related enterprises in
the same location. Most of the patients to whom the hospital extends
credit are residents of the area.
Net Patient Service Revenue
---------------------------
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services
rendered, including estimated retroactive adjustments under
reimbursement-party payors. Retroactive adjustments are accrued on an
estimated basis in the period the related services are rendered and
adjusted in future periods as final settlements are determined.
Statement of Revenue and Expenses
---------------------------------
Transactions deemed by management to be ongoing, major, or central to the
provision of health care services are reported as revenues and expenses.
Peripheral or incidental transactions are reported as other income, net.
Cash and Cash Equivalents
-------------------------
All cash and cash equivalents represent cash in checking and demand
savings accounts. Cash is held in several banks with no significant
concentration of risk.
Property and Equipment
----------------------
Property and equipment acquisitions are recorded at cost.
Depreciation is provided over the estimated useful life of each class of
depreciable asset and is computed on the straight-line method. Equipment
under capital leases is amortized on the straight-line method over the
shorter period of the lease term or the estimated useful life of the
equipment. Such amortization is included in depreciation and amortization
in the financial statements.
Income Taxes
------------
Deferred income taxes are provided for the estimated income tax effect of
timing differences between financial and taxable income.
Investments in Partnerships
---------------------------
Investment in a partnership is carried at the Company's equity in the
partnership's net assets. The partnership was organized in 1968 to provide
property sites for the hospital and medical centers. The two general
partners, the Company and its president, own 26% each. The limited
partners, consisting of local doctors, own the remaining 48%.
-21-
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
Self-insurance Program
----------------------
The Hospital has elected to self-insure for health care benefits to its
employees. Amounts charged to expense and transferred monthly to a trust
fund to cover such claims are estimated using rates comparable to actual
rates in the industry. Management believes that amounts provided are
sufficient to cover claims and costs incurred through June 30, 1996. The
rates used to determine the amounts charged to expense for claims and
costs are adjusted periodically, as appropriate, to reflect actual
experience. The Hospital has 100 percent insurance coverage for individual
claim expenses in excess of $45,000 and for aggregate claim expenses in
excess of $973,011.
Health care benefit expense was approximately $1,190,238, $1,189,583 and
$914,288 for the years ended June 30, 1996, 1995 and 1994, respectively.
Use of Estimates
----------------
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
year-end and the reported amounts of revenues and expenses during the
year.
Reclassifications
-----------------
Certain accounts from prior years financial statements have been
reclassified to be comparable with disclosure for the current year.
(2) Net Patient Service Revenue
---------------------------
The Hospital has agreements with third-party payors that provide for
payments to the Hospital at amounts different from its established rates.
A summary of the payment arrangements with major third-party payors
follows:
o Medicare. Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per
discharge. These rates vary according to a patient classification
system that is based on clinical, diagnostic, and other factors.
Inpatient nonacute services, certain outpatient services, and
defined capital and medical education costs related to Medicare
beneficiaries are paid based on a cost reimbursement methodology.
The Hospital is reimbursed for cost reimbursable items at a
tentative rate with final settlement determined after submission of
annual cost reports by the Hospital and audits thereof by the
Medicare fiscal intermediary. The Hospital's classification of
patients under the Medicare program and the appropriateness of their
admission are subject to an independent review by a peer review
organization under contract with the Hospital. The Hospital's
Medicare cost reports have been audited by the Medicare fiscal
intermediary through June 30, 1993.
o Medicaid. Inpatient and outpatient services rendered to Medicaid
program beneficiaries are reimbursed under a cost reimbursement
methodology. The Hospital is reimbursed at a tentative rate with
final settlement determined after submission of annual cost reports
by the Hospital and audits thereof by the Medicaid fiscal
intermediary. The Hospital's Medicaid cost reports have been audited
by the Medicaid fiscal intermediary through June 30, 1993.
o Blue Cross. Inpatient services rendered to Blue Cross subscribers
are reimbursed at prospectively determined rates per day of
hospitalization. The prospectively determined per-diem rates are not
subject to retroactive adjustment.
-22-
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
The Hospital has also entered into payment agreements with certain
commercial insurance carriers, health maintenance organizations, and
preferred provider organizations. The basis for payment to the Hospital
under these agreements includes prospectively determined rates per
discharge, discounts from established charges, and prospectively
determined daily rates.
At June 30, 1996 and 1995, accounts receivable are primarily concentrated
in federal and state governmental entities and other patients in which the
Company does not believe there is any undue credit risk.
(3) Investments
-----------
For the year ended June 30, 1995, the Company adopted Statement of
Financial Accounting Standard No. 115 (SFAS 115), Accounting for Certain
Investments in Debt and Securities. SFAS 115 requires that securities,
which are available for sale, be recorded at their fair value. Unrealized
holding gains and losses are reported in a separate component of
shareholders' equity, net of tax effect, until realized. The total amount
recorded in stockholder's equity was $1,026,809 of which $474,876 relates
to the change in unrealized gain in securities for the current year, net
of the income tax effect.
Short-term investments at June 30, 1996 consists of the following:
Fair Unrealized Unrealized
Value Gain Loss
----- ---- ----
Equity securities $5,260,968 $1,680,334 $ (82,381)
Gain or loss from sale of securities is based on specific identification
of the securities sold. For the year ended June 30, 1996, realized gains
and realized losses were $170,507 and $(56,921), respectively.
(4) Capital Lease Obligations
-------------------------
A portion of the Hospital's equipment is leased under capital leases that
expire at various dates through 1999. Property and equipment, at June 30,
1996 and 1995, respectively, includes the following amounts for property
leased under capital leases:
1996 1995
---- ----
Equipment $1,374,581 $1,347,827
Less accumulated amortization 774,850 502,610
---------- ----------
$ 599,731 $ 845,217
========== ==========
-23-
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
(4) Capital Lease Obligations (continued)
-------------------------------------
Annual future minimum lease payments under capitalized leases at June 30,
1996 are as follows:
1997 $294,008
1998 119,804
1999 25,985
-------
Total minimum lease payments 439,797
Less amount representing interest (36,216)
-------
Present value of minimum lease payments 403,581
Less current maturity 276,660
-------
$126,921
=======
(5) Net Patient Service Revenue
---------------------------
Gross patient service revenue and related provision for contractual
allowances for the years ended June 30 are summarized as follows:
1996 1995 1994
---- ---- ----
Gross patient service revenue $ 40,617,321 $ 39,002,465 $ 38,120,076
Less contractual allowances 13,807,912 13,638,180 13,929,013
------------ ------------ ------------
Net patient service revenue $ 26,809,409 $ 25,364,285 $ 24,191,063
============ ============ ============
-24-
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
(6) Income Taxes
------------
At June 30, income tax expense consisted of the following:
1996
--------------------------------------
Federal California Total
------- ---------- -----
Current $139,977 $ 54,424 $194,401
Deferred (8,447) (3,798) (12,245)
------- ------- -------
$131,530 $ 50,626 $182,156
======= ======= =======
1995
--------------------------------------
Federal California Total
------- ---------- -----
Current $141,990 $ 53,808 $195,798
Deferred 184,833 48,196 233,029
------- ------- -------
$326,823 $102,004 $428,827
======= ======= =======
1994
--------------------------------------
Federal California Total
------- ---------- -----
Current $124,720 $ 56,088 $180,808
Deferred 30,502 (10,430) 20,072
------- ------- -------
$155,222 $ 45,658 $200,880
======= ======= =======
Deferred tax expenses (credits) for 1996, 1995, and 1994 result from the
following timing differences:
1996 1995 1994
---- ---- ----
California franchise tax $ 19,494 $ 21,203 $ 32,139
Depreciation and amortization 26,532 38,112 89,605
Allowance for bad debts (229) 189,582 (43,885)
Vacation accrual (26,387) (8,464) (22,005)
Gain on sale of investments (49,099) -- --
Other 17,444 (7,404) (35,782)
------- ------- -------
$ (12,245) $233,029 $ 20,072
======= ======= =======
-25-
<PAGE>
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, concluded
Recorded income tax expense differs from that computed by applying the
statutory income tax rates for the following reasons:
1996 1995 1994
---- ---- ----
Computed tax at statutory rate $175,785 $442,600 $304,761
Increases (decreases) resulting from:
California franchise tax (13,671) (32,548) (22,063)
Domestic dividend exclusion
allowance (24,661) (25,466) (31,729)
Cash surrender value 8,063 4,620 (3,740)
Prior year under (over) accrual 36,640 39,621 (46,349)
------- ------- -------
$182,156 $428,827 $200,880
======= ======= =======
(7) Preferred Stock
---------------
The preferred stock provides for cumulative dividends of $2 per share per
year. The stock has a redemption and liquidating value of $27.50 per
share, plus dividends in arrears. Total redemption and liquidating value
of the outstanding shares at June 30, 1996 and 1995, was $1,398,368 and
$1,419,650, respectively. In the event of redemption, two shares of common
stock can be issued for each share of preferred stock redeemed (if option
is exercised by preferred stockholder). Redemption of the preferred stock,
in total only, is at the option of the Company.
(8) Income per Common Share
-----------------------
Income per common share, assuming no dilution, was computed by dividing
the net income after deduction of preferred stock dividend requirements of
$101,699, $103,247 and $103,536, by the weighted average number of common
shares outstanding (234,846, 237,529 and 238,904) for 1996, 1995, and
1994, respectively.
Income per common share, assuming full dilution, was computed by dividing
net income by the weighted average number of common shares outstanding,
after redemption of preferred stock, (334,912, 339,726, 342,115) for 1996,
1995 and 1994, respectively. (Note 7)
(9) Malpractice Insurance Arrangements
----------------------------------
The Hospital maintains medical malpractice insurance coverage through a
commercial insurance carrier on a claims-made basis. Under claims-made
policies, all accidents reported to the insurer are covered. On the basis
of the Hospital's current experience, neither an accrual for a potential
extended period reporting policy, which could be necessary if the Hospital
ceases to purchase claims-made coverage, nor an accrual for unreported
incidents has been made.
(10) 401(k) Plan
-----------
The Plan is a defined contribution plan to which employees are permitted
to make salary deferrals under the 401(k) provision. Such contributions
are credited directly to their accounts. Based on the Plan document, the
Employer can make discretionary contributions for the participants. No
contribution was made for any of the three years ended June 30, 1996.
-26-
<PAGE>
Item 9. Changes in and disagreements with accountants on
- ------- ------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
None.
-27-
<PAGE>
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
<TABLE>
<CAPTION>
Name and principal occupation
during last five years Since Age Office Occupation
- ---------------------- ----- --- ------ ----------
<S> <C> <C> <C> <C>
Lawrence V. Blashaw 1970 70 Director President of
Freight For-
warding Co.
Charles F. Forbes, Attorney 1968 66 Secretary & Attorney
Musick, Peeler & Garrett Director
Allen E. Shaw, President 1960 78 President & President of
of the Company Director Company
Douglas A. Shaw, Vice President 1981 45 Vice President Hospital
(son of president) & Director Administrator
Richard J. Stanczak 1977 70 Director Business
Business Consultant Consultant
Michael Young, Controller 1978 48 Treasurer Hospital
Administrator Controller
Scott L. Holmes, M.D. 1988 59 Director Physician
Donald J. Krpan, D.O. 1988 60 Director Dean of Students
College of Medicine
</TABLE>
-28-
<PAGE>
Item 11. Executive Compensation
- -------- ----------------------
The following table sets forth the aggregate direct remuneration paid
or accrued by the Company for services in all capacities for the fiscal
year ended June 30, 1996, to each director and officer of the Company
whose aggregate direct remuneration exceeded $100,000, and to all
directors and officers (as a group) who were such at any time during
the last fiscal year.
Cash and cash equivalent
forms of remuneration
---------------------
Name of individual Salaries, fees,
or number of Capacities in which directors' fees Insurance
persons in group remuneration was received and bonuses benefits
- ---------------- ------------------------- ----------- --------
Allen E. Shaw President and Chairman of $100,000
the Board
Douglas A. Shaw Vice President, Administrator 43,204 --
Michael Young Treasurer and Controller of 64,500 --
Mad River Community Hospital
All other directors
and officers as a
group (5 persons) 6,700
-------
(8 persons) $214,404
=======
Note: There was no contractual agreement with any directors regarding
compensation, pensions, or stock option. Directors, from time to time,
are compensated for attendance at meetings for their general
administrative duties although there is no required payment. Total
director compensation for 1996 was $6,700. There have not been any
payments made to officers or directors for severance of relationship.
-29-
<PAGE>
Item 12. Security Ownership of Certain
- -------- -----------------------------
Beneficial Owners and Management
--------------------------------
Owners of 5% or more of outstanding voting securities at June 30, 1996,
were as follows:
Amount and
nature of
Title of beneficial Percent
Name of beneficial owner class ownership of class
- ------------------------ ----- --------- --------
Allen E. Shaw Family Common 118,079 50.6%
San Clemente, California Preferred 2,327 4.6%
Arcata Hospital Corporation* Common 20,898 8.9%
Palos Verdes Estates, California Preferred 11,481 22.6%
Security ownership of management as a group
- -------------------------------------------
All directors and officers as Common 120,579 51.7%
a group
All directors and officers as Preferred 2,327 4.6%
a group
Security ownership of management is as follows:
- -----------------------------------------------
Number of shares
----------------
Name Common Preferred
---- ------ ---------
Lawrence V. Blashaw 2,500 --
Allen E. Shaw Family 118,079 2,327
------- -------
120,579 2,327
======= =======
* Arcata Hospital Corporation is 98% owned by shareholders of the Company.
-30-
<PAGE>
Item 13. Certain Relations and
- -------- ---------------------
Related Transactions
--------------------
None.
-31-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement
- -------- -----------------------------
Schedules and Reports on Form 8-K
---------------------------------
Page
- ----
(a) (1) The following financial statements are included in Part II, Item 8:
Report of Independent Auditors'
Financial Statements:
Balance Sheets
June 30, 1996 and 1995
Statements of Income and Retained Earnings Years ended June 30,
1996, 1995 and 1994
Statements of Cash Flows -
Years ended June 30, 1996, 1995, and 1994
Notes to Financial Statements
(2) The following financial schedules for the Years 1996, 1995, and 1994 are
submitted herewith:
Schedule I - Short-Term Investments
Schedule V - Property, Plant & Equipment
Schedule VI - Accumulated Depreciation and Amortization
of Property, Plant & Equipment
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or not required, or because the required information is included
in the financial statements or notes hereto.
(3) Exhibits included herein:
Exhibit 27 - Financial Data Schedule (Electronic filing only).
(b) Registrant did not file any reports on Form 8-K during the quarter ended
June 30, 1996.
-32-
<PAGE>
Schedule I
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Investments
Years ended June 30, 1996, 1995 and 1994
Amount at
Market value which
of each issue each issue
Cost of at balance is carried
Name of Issuer each issue sheet date on books
- -------------- ---------- ---------- --------
1996:
Equity securities $3,663,015 $5,260,928 $5,260,928
========== ========== ==========
1995:
Equity securities $3,460,694 $4,380,582 $4,380,582
========== ========== ==========
1994:
Money Market $ 284,454 $ 284,454 $ 284,454
Equity securities 2,869,398 3,665,885 2,869,398
---------- ---------- ----------
$3,153,852 $3,950,339 $3,153,852
========== ========== ==========
-33-
<PAGE>
Schedule V
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Property, Plant and Equipment
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Balance,
beginning Additions Other Charges, Balance,
of year at cost Retirements add (deduct) end of yr
------- ------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
1996:
Land &
Improvements $ 36,000 $ 8,500 $ 44,500
Buildings 4,233,728 4,233,728
Equipment 5,158,618 601,497 $ 32,245 5,727,870
Construction in
progress 1,674 -- 1,674 -- --
--------- -------- ------- ------- ---------
$ 9,430,020 $ 609,997 $ 33,919 -- $10,006,098
========= ======== ======= ======= =========
1995:
Land &
Improvements $ 138,121 $ 102,121 $ 36,000
Buildings 4,233,728 4,233,728
Equipment 8,066,583 830,047 3,750,400 $ 12,388 5,158,618
Construction in
progress -- 14,062 -- (12,388) 1,674
--------- -------- --------- ------- ---------
$12,438,432 $ 844,109 $3,852,521 -- $ 9,430,020
========= ======== ========= ======= =========
1994:
Land &
Improvements $ 138,121 $ 138,121
Buildings 4,198,149 $ 35,579 4,233,728
Equipment 6,902,239 $1,164,344 -- -- 8,066,583
Construction in
progress 27,176 8,403 (35,579) --
--------- -------- ------- ------- ---------
$11,265,685 $1,172,747 -- -- $12,438,432
========= ========= ======= ======= =========
</TABLE>
-34-
<PAGE>
Schedule VI
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Accumulated Depreciation and Amortization
of Property, Plant and Equipment
Years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Balance, Balance,
beginning end
of year Provision Retirements of year
------- --------- ----------- -------
<S> <C> <C> <C> <C>
1996:
Buildings $2,195,915 $ 209,321 $2,405,236
Equipment 2,751,338 886,142 $ 32,245 3,605,235
Improvements -- 283 -- 283
-------- -------- -------- --------
Total $4,947,253 $1,095,746 $ 32,245 $6,010,754
======== ======== ======== ========
1995:
Buildings $2,007,448 $ 188,467 $2,195,915
Equipment 5,669,708 832,030 $3,750,400 2,751,338
Improvements 102,121 -- 102,121 --
-------- -------- -------- --------
Total $7,779,277 $1,020,497 $3,852,521 $4,947,253
======== ======== ======== ========
1994:
Buildings $1,799,313 $ 208,135 $2,007,448
Equipment 5,032,874 636,834 -- 5,669,708
Improvements 102,121 -- 102,121
-------- -------- -------- --------
Total $6,934,308 $ 844,969 -- $7,779,277
======== ======== ======== ========
</TABLE>
-35-
<PAGE>
Schedule VII
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Valuation and Qualifying Accounts
Years ended June 30, 1996, 1995, and 1994
Balance, Charged Charged Balance,
beginning to to other end
of year income accounts Deductions of year
------- ------ -------- ---------- -------
Allowance for
doubtful receivables:
1996 $217,709 $5,804,777 $5,819,836 $202,650
1995 655,845 4,669,157 5,107,293 $217,709
1994 554,494 3,914,061 3,812,710 655,845
-36-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized:
AMERICAN HOSPITAL MANAGEMENT CORPORATION
By: /s/ Allen E. Shaw
---------------------------------------
Allen E. Shaw, President
Date: 12-27-96
-------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the principal Executive Officer, principal Financial
Officer, Secretary and majority of Board Members on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/ Allen E. Shaw President and Director 12-27-96
- -------------------------
Allen E. Shaw
/s/ Charles F. Forbes Secretary and Director 12-27-96
- --------------------------
Charles F. Forbes
Treasurer and Chief
/s/ Michael J. Young Accounting Officer 12-27-96
- --------------------------
Michael J. Young
/s/ Donald J. Krpan Director 12-27-96
- --------------------------
Donald J. Krpan
/s/ Doug Shaw Director 12-27-96
- --------------------------
Doug Shaw
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN HOSPITAL MANAGEMENT CORPORATION FOR THE TWELVE
MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 926
<SECURITIES> 5,261
<RECEIVABLES> 6,434
<ALLOWANCES> 203
<INVENTORY> 855
<CURRENT-ASSETS> 13,649
<PP&E> 10,006
<DEPRECIATION> 6,011
<TOTAL-ASSETS> 20,557
<CURRENT-LIABILITIES> 5,797
<BONDS> 0
0
51
<COMMON> 233
<OTHER-SE> 14,349
<TOTAL-LIABILITY-AND-EQUITY> 20,557
<SALES> 26,809
<TOTAL-REVENUES> 27,226
<CGS> 27,928
<TOTAL-COSTS> 27,928
<OTHER-EXPENSES> (1,107)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 406
<INCOME-TAX> 182
<INCOME-CONTINUING> 224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224
<EPS-PRIMARY> .52
<EPS-DILUTED> .67
</TABLE>
