<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended NOVEMBER 30, 1996
Commission File Number 000-19364
---------
AMERICAN HEALTHCORP, INC.
----------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 62-1117144
- ------------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Burton Hills Boulevard, Nashville, TN 37215
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(615) 665-1122
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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 X No
------- -------
As of January 13, 1997 there were outstanding 8,009,140 shares of the
Registrant's Common Stock, par value $.001 per share.
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HEALTHCORP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,082,751 $ 13,989,848
Accounts receivable, net 10,171,395 7,922,084
Other current assets 1,945,333 1,471,797
Deferred tax asset 679,000 679,000
------------ ------------
Total current assets 24,878,479 24,062,729
------------ ------------
Long-term receivables and deposits 528,555 1,008,604
------------ ------------
Property and equipment:
Land and improvements 98,540 97,280
Buildings and improvements 6,525,993 6,247,661
Equipment 11,043,850 10,043,288
Construction in progress 864,618 591,266
------------ ------------
18,533,001 16,979,495
Less accumulated depreciation (5,047,425) (4,711,066)
------------ ------------
Net property and equipment 13,485,576 12,268,429
------------ ------------
Long-term deferred tax asset 740,000 740,000
------------ ------------
Other assets, net 865,095 929,545
------------ ------------
Excess of cost over net assets
of purchased companies, net 43,270,527 39,195,303
------------ ------------
$ 83,768,232 $ 78,204,610
============ ============
</TABLE>
2
<PAGE> 3
AMERICAN HEALTHCORP, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 30, August 31,
1996 1996
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,406,955 $ 936,775
Accrued salaries and benefits 1,667,033 2,348,406
Accrued liabilities 2,230,374 2,617,082
Income taxes payable 536,510 255,111
Current portion of other long-term
liabilities 3,413,997 2,838,381
------------ ------------
Total current liabilities 9,254,869 8,995,755
------------ ------------
Deferred income taxes 456,000 456,000
------------ ------------
Long-term debt 8,689,014 10,736,825
------------ ------------
Other long-term liabilities 2,129,185 2,608,041
------------ ------------
Minority interest 21,030,003 13,796,900
------------ ------------
Stockholders' equity
Common stock
$.001 par value, 15,000,000 shares
authorized, 8,008,140 and 7,985,884
shares outstanding 8,008 7,986
Additional paid-in capital 17,764,620 17,629,678
Retained earnings 24,436,533 23,973,425
------------ ------------
Total stockholders' equity 42,209,161 41,611,089
------------ ------------
$ 83,768,232 $ 78,204,610
============ ============
</TABLE>
3
<PAGE> 4
AMERICAN HEALTHCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
November 30,
------------ ------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 18,181,988 $ 13,904,095
------------ ------------
Expenses
Salaries and benefits 8,682,772 6,581,158
Other operating expenses 5,325,345 3,619,022
Depreciation and amortization 1,202,791 985,819
Interest 290,441 192,177
------------ ------------
Total expenses 15,501,349 11,378,176
------------ ------------
Income before income taxes and minority interests 2,680,639 2,525,919
Income tax expense 449,000 630,000
------------ ------------
Income before minority interests 2,231,639 1,895,919
AmSurg center minority partners' interest 1,607,481 1,006,942
AmSurg minority stockholders' interest 161,050 88,986
------------ ------------
Net income $ 463,108 $ 799,991
============ ============
Net income per share $ 0.06 $ 0.10
Weighted average common shares and equivalents 8,198,857 8,090,132
</TABLE>
4
<PAGE> 5
AMERICAN HEALTHCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, August 31, 1996 $ 7,986 $ 17,629,678 $ 23,973,425 $ 41,611,089
Exercise of stock
options 22 134,942 134,964
Net income - - 463,108 463,108
------- ------------ ------------ ------------
Balance, November 30, 1996 $ 8,008 $ 17,764,620 $ 24,436,533 $ 42,209,161
======= ============ ============ ============
</TABLE>
5
<PAGE> 6
AMERICAN HEALTHCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
November 30,
------------ ------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 463,108 $ 799,991
Income tax expense 449,000 630,000
AmSurg center minority partners' interest 1,607,481 1,006,942
AmSurg minority stockholders' interest 161,050 88,986
------------ ------------
Income before income taxes and minority interests 2,680,639 2,525,919
Noncash expenses, revenues, losses and gains
included in income:
Depreciation and amortization 1,202,791 985,819
Increase in working capital items (2,644,467) (1,516,428)
Other noncash transactions 41,061 180,135
------------ ------------
1,280,024 2,175,445
Increase in other assets (104,909) (73,430)
Income taxes (net paid) (148,785) (85,015)
Additions to other long-term liabilities 201,331 -
Payments on other long-term liabilities (86,620) (126,785)
------------ ------------
Net cash flows provided by operating activities 1,141,041 1,890,215
------------ ------------
Cash flows from investing activities:
Business acquisitions (3,908,346) -
Acquisition of property and equipment (1,504,231) (324,763)
Decrease in long-term receivables
and deposits 109,189 19,880
------------ ------------
Net cash flows used in investing activities (5,303,388) (304,883)
------------ ------------
Cash flows from financing activities:
Payments on long-term debt (5,278,494) (373,810)
Sale of AmSurg preferred stock (net of issuance costs) 5,010,074 -
Additions to long-term debt 3,175,700 146,333
Distributions to minority partners (1,407,679) (1,076,881)
AmSurg center minority partners capital contributions 587,715 39,350
Exercise of stock options 116,148 -
Sale of AmSurg stock (net of issuance costs) 51,786 2,752
------------ ------------
Net cash flows provided by (used in)
financing activities 2,255,250 (1,262,256)
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,907,097) 323,076
Cash and cash equivalents, beginning of period 13,989,848 13,721,650
------------ ------------
Cash and cash equivalents, end of period $ 12,082,751 $ 14,044,726
============ ============
</TABLE>
6
<PAGE> 7
AMERICAN HEALTHCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL REPORTING
The accompanying consolidated financial statements of American
Healthcorp, Inc. and its subsidiaries (the "Company") for the three month
periods ended November 30, 1996 and 1995 are unaudited. However, in the
opinion of the Company, all adjustments consisting of normal, recurring
accruals necessary for a fair presentation, have been reflected therein.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting principles,
but which is not required for interim reporting purposes, has been omitted.
The accompanying consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996.
(2) BUSINESS ACQUISITIONS
In three separate transactions during the three months ended November
30, 1996, AmSurg acquired a majority interest in three physician practice-based
surgery centers. The purchase price paid for the interests acquired was
$4,415,701 which consisted of cash of $3,764,778 and AmSurg common stock valued
at $650,923. Approximately $3,900,000 of the total purchase price for these
acquisitions was allocated to excess of cost over net assets of purchased
companies.
(3) PREFERRED STOCK
On November 20, 1996, AmSurg issued to unaffiliated institutional
investors a combination of redeemable and convertible preferred stock totaling
$5,500,000, the convertible portion of which is convertible into 6% (ratably
increasing to 8% by November 2000) of the outstanding common stock of AmSurg if
certain events of liquidity do not take place. This preferred stock is
included in minority interest in the Company's Consolidated Balance Sheet as of
November 30, 1996.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
American Healthcorp, Inc. and its subsidiaries (the "Company")
currently operate two business segments, Diabetes Treatment Centers of America,
Inc. ("DTCA") and AmSurg Corp. ("AmSurg"). DTCA, a wholly-owned subsidiary, is
the nation's leading provider of diabetes services to physicians, hospitals and
healthcare payors designed to enhance the quality and lower the cost of
treatment of patients with diabetes. AmSurg, a majority-owned (61% at November
30, 1996) subsidiary, develops, acquires and manages physician practice-based
ambulatory surgery centers and specialty physician networks in partnership with
surgical and other group practices.
Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which are based upon
current expectations and involve a number of risks and uncertainties. In order
for the Company to utilize the "safe harbor" provisions of the Private
Litigation Reform Act of 1995, investors are hereby cautioned that these
statements may be affected by the important factors, among others, set forth
below, and consequently, actual operations and results may differ materially
from those expressed in these forward-looking statements. The important
factors for DTCA include: DTCA's ability to renew contracts for hospital-based
treatment centers on terms that are acceptable to DTCA; DTCA's ability to
execute contracts for new hospital-based treatment centers; DTCA's ability to
effect estimated cost savings under certain managed care agreements or to
effect such savings within the time frames contemplated by DTCA; unusual and
unforeseen patterns of healthcare utilization by individuals with diabetes in
the HMOs with which DTCA has executed an agreement; the ability of the HMOs to
maintain the number of covered lives enrolled in the plans during the terms of
the agreements between the HMOs and DTCA; and DTCA's ability to attract and/or
retain and effectively manage the employees required to implement the
agreements. The important factors for AmSurg include: AmSurg's ability to
enter into partnership agreements for new practice-based ambulatory surgery
centers and new specialty physician networks; AmSurg's ability to develop or
acquire new centers on the schedules currently anticipated; AmSurg's ability to
contract with managed care payors for its existing centers and its centers that
are currently under development; AmSurg's ability to obtain and retain
appropriate licensing approvals for its existing centers and centers currently
under development; and AmSurg's ability to maintain favorable relations with
its physician partners.
DTCA
The principal sources of revenues for DTCA were its operating
contracts for hospital-based diabetes treatment centers. Fee structures under
the hospital contracts consist of either incentive-based fees, fixed management
fees or a combination thereof. Incentive arrangements
8
<PAGE> 9
generally provide for fee payments to DTCA based on changes in the client
hospital's market share of diabetes inpatients and the costs of providing care
to these patients. The form of these contracts includes various structures
ranging from arrangements where all costs of the DTCA program for center
professional personnel, medical director fees and community relations are the
responsibility of DTCA to structures where all DTCA program costs are the
responsibility of the client hospital.
The following table presents the number of DTCA contracts in effect
and the number of hospital sites where DTCA provided services or was in the
process of initiating operations as of November 30, 1996 and 1995. The number
of contracts and hospital sites for these periods includes two Arthritis and
Osteoporosis Care Center ("AOCC") contracts with hospitals to provide
comprehensive arthritis and osteoporosis services that are operated by DTCA.
<TABLE>
<CAPTION>
As of November 30,
-------------------------------------------
1996 1995
-------------------------------------------
Hospital Hospital
Contracts Sites Contracts Sites
--------------------- --------------------
<S> <C> <C> <C> <C>
Hospital contracts/sites 59 62 63 65
Network contracts/sites 2 11 2 7
--------------------- --------------------
Total contracts/sites 61 73 65 72
===========================================
</TABLE>
The components of changes to the total number of DTCA hospital contracts during
the quarters ended November 30, 1996 and 1995 are presented below.
<TABLE>
<CAPTION>
For the Quarters Ended November 30,
-------------------------------------------
1996 1995
-------------------------------------------
Hospital Hospital
Contracts Sites Contracts Sites
--------------------- --------------------
<S> <C> <C> <C> <C>
Total contracts/sites at
beginning of period 61 72 69 74
New contracts/sites
signed - 1 3 4
Contracts/sites
discontinued - - (6) (6)
Conversion of stand
alone hospital contract
to hospital network
contract - - (1) -
--------------------- --------------------
Total contracts/sites 61 73 65 72
===========================================
</TABLE>
9
<PAGE> 10
During the three month period ended November 30, 1996, four contracts
were renewed for DTCA hospital-based diabetes treatment centers. During the
remainder of fiscal 1997, 22 contracts will reach the end of their terms unless
renewed. The Company periodically renegotiates existing DTCA hospital
contracts and, in that connection, has historically agreed to reduce its fee
structure in certain of these contracts in order to maintain favorable
long-term client relationships with these hospitals. The Company anticipates
that it will continue to make such fee reductions or center contract
restructurings which will have a negative impact on the Company's revenues and
profitability. Eight of the contracts that will expire during the remainder of
fiscal 1997 are with hospitals owned by Columbia/HCA Healthcare Corporation.
The Company believes that general uncertainties associated with the
changes taking place in the healthcare industry and hospital pressures to
reduce operating costs as a result of increasing managed care payor influences
have adversely affected DTCA's revenues and contract retention during recent
periods and may continue to have an adverse effect on hospital contract
profitability in future periods. While the Company believes that its programs
reduce the costs of care for hospitalized diabetes patients, certain hospitals
faced with pressures to make immediate cost reductions have decided that the
short-term benefit of eliminating the costs associated with programs such as
the Company's diabetes program is justified. However, the Company also
believes that the growth in healthcare payor demand for effective chronic
disease management programs from healthcare providers such as hospitals will
eventually stabilize DTCA's hospital contract business and will provide an
opportunity for future growth in this business.
While DTCA's revenues have historically been generated primarily by
its operating contracts with hospitals, the Company believes that the
substantial portion of its future revenue growth will result from comprehensive
healthcare management contracts with managed care payors for their enrollees
with diabetes. During fiscal 1994 the Company began and is continuing to incur
substantial expenditures associated with these comprehensive diabetes disease
management efforts. These expenditures are expected to continue with an
increasingly larger portion being related to the operation of managed care
contracts and decreasingly smaller portion related to managed care product
development. In this regard, during January 1996, DTCA entered into an
agreement with Bristol-Myers Squibb Co., U.S. Pharmaceuticals ("Bristol Myers")
whereby DTCA will provide its comprehensive diabetes disease management
services to Bristol-Myers' employees, dependents and retirees located in
central and western New Jersey and eastern Pennsylvania. During the initial
two-year term of this agreement, Bristol-Myers will continue to be at risk for
all healthcare costs for this population, will reimburse DTCA for DTCA's costs
associated with implementing its comprehensive diabetes disease management
program for this group of individuals and will pay DTCA $1,000,000.
Implementation of this agreement began during the Company's third quarter of
fiscal 1996. In addition, the agreement provided Bristol-Myers an exclusive,
one-year right to negotiate a further agreement with the Company regarding
future joint business opportunities. This exclusive right expired as of
December 31, 1996.
Also as a result of its managed care payor efforts, in June 1996 DTCA
reached agreement with two HMOs, Principal Healthcare, Inc. ("Principal") and
Health Options, Inc. ("Health Options"), an HMO subsidiary of Blue Cross and
Blue Shield of Florida, to provide
10
<PAGE> 11
comprehensive healthcare management services for their enrollees with diabetes.
The Principal agreement was amended during the first quarter of fiscal 1997 to
add an additional HMO contract location. The Principal agreement now covers
seven of the largest HMO subsidiaries of Principal totaling approximately
420,000 members, including an estimated 12,000-13,000 members with diabetes.
The Health Options agreement covers enrollees in their central Florida region
in Orlando and seven surrounding counties encompassing approximately 65,000
members, including an estimated 1,800 to 2,000 members with diabetes. Both the
Principal and the Health Options contracts have an initial term of five years.
DTCA will be at risk for the costs of operating its comprehensive healthcare
management system and Principal and Health Options will continue to be at risk
for all of their members' healthcare costs. Cost savings anticipated to be
produced by the system will be shared according to formulae set forth in the
agreements.
DTCA anticipates that revenues and profits from the Principal and
Health Options agreements will be more heavily weighted toward the later years
of the agreements' initial terms and that, during the first full year of
operations at each site, revenues will be slightly less than operating costs.
Implementation of these contracts began on a market-by-market basis during July
1996, with all markets except the new Principal market added during the first
quarter of fiscal 1997 having begun implementation by the end of October 1996.
Implementation began at this new Principal market site on December 1, 1996.
Because of expected ramp-up periods at each of the agreement sites, the
significant start-up costs for the implementation program and the timing delay
in calculating DTCA's share of savings, if any, which may be produced by the
program, it is anticipated that DTCA's profitability will be negatively
affected by these agreements during fiscal 1997.
In June 1996, DTCA also reached agreement with U.S. Healthcare
("USHC") to provide outpatient services to USHC enrollees with diabetes,
including patient assessment and patient stratification based on the scope and
intensity of needed services, as well as educational, behavioral and
motivational support and outcomes tracking and reporting. Services will be
provided on a packaged fee-for-services basis and will be delivered through
DTCA centers currently operating in USHC markets. Implementation has begun at
DTCA hospital contract sites in markets which contain the greatest
concentration of USHC enrollees.
The Company's growth strategy is primarily to develop new
relationships directly with payors and others who are ultimately responsible
for the healthcare costs of individuals with diabetes and to further develop
its hospital-based diabetes treatment center business. Pursuant to the
strategy with payors, DTCA is expected to provide management services designed
to improve the quality of care for individuals with diabetes while lowering the
overall cost of care. DTCA fees under these agreements with payors may take
the form of shared savings of overall diabetes enrollee healthcare costs,
capitated payments to DTCA that cover DTCA's services to enrollees but do not
include responsibility for enrollee healthcare claims or some combination of
these arrangements.
AMSURG
Through investments made since fiscal 1993, the Company owns
approximately 61% of the outstanding common stock of AmSurg, a company that
develops, acquires and manages
11
<PAGE> 12
physician practice-based ambulatory surgery centers and specialty physician
networks through partnership or limited liability company ("LLC") interests in
these centers and networks.
The following table presents the components of changes in the number
of AmSurg surgery centers in operation for the three month periods ended
November 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three months ended
November 30,
------------------
1996 1995
------------------
<S> <C> <C>
Centers in operation at beginning of period 22 18
New center acquisitions placed in operation 3 0
New development centers placed in operation 1 0
------------------
Centers in operation at end of period 26 18
==================
</TABLE>
Beginning in fiscal 1995, AmSurg focused its center development
efforts primarily on start-up centers as opposed to center acquisitions.
Because of the additional time required in the development and construction of
these start-up centers, the number of centers placed in operation during fiscal
1996 was lower than in previous fiscal years. However, because most of these
start-up centers will begin operation during fiscal 1997 and because AmSurg has
recently resumed its acquisition efforts, it is anticipated that the number of
AmSurg centers placed in operation during fiscal 1997 will be significantly
higher than that experienced during fiscal 1996.
Of the AmSurg surgery centers in operation as of November 30, 1996, 21
perform gastrointestinal endoscopy procedures, three centers perform eye
surgery procedures, one center performs orthopaedic procedures and one center
performs ear, nose and throat procedures. As of November 30, 1996, AmSurg also
owned a majority interest in 18 partnerships or LLCs, including four projects
requiring certificate of need approval, each of which will develop, own and
operate a surgery center. As of November 30, 1995, AmSurg owned a majority
interest in eight partnerships or LLC's that were developing centers. In
addition, on February 1, 1996, AmSurg acquired an undivided 70% interest in the
assets of a gastroenterology and primary care physician practice located in
Miami, Florida and associated with a surgery center in which AmSurg already
held an ownership interest. While AmSurg generally owns 51% to 70% of these
center/practice entities, the Company's consolidated statements of operations
include 100% of the results of operations of the entities, reduced by the
minority partners' share of the net income or loss of the surgery
center/practice entities. Also, because the Company owns approximately 61% of
the common stock of AmSurg, the calculation of consolidated net income of the
Company includes a minority interest provision to reflect the AmSurg minority
stockholders' share of the net income or loss of AmSurg.
AmSurg intends to expand primarily through the development and
acquisition of additional surgery centers in targeted surgical specialties. In
addition, AmSurg's surgery centers, combined with its relationships with
specialty physician surgical practices in their
12
<PAGE> 13
markets, will provide other opportunities for AmSurg growth from surgical
specialty network acquisition and development that may include the acquisition
of specialty physician practices. By using AmSurg surgery centers as a base to
develop specialty physician networks that are designed to serve large numbers
of covered lives, the Company believes that AmSurg will strengthen its market
position in contracting with managed care organizations. In order to fund its
future growth, AmSurg expects to obtain additional equity or debt financing
from sources other than the Company. In that respect, on November 20, 1996,
AmSurg issued to unaffiliated institutional investors a combination of
redeemable and convertible preferred stock totaling $5,500,000, the convertible
portion of which is convertible into 6% (ratably increasing to 8% by November
2000) of the outstanding common stock of AmSurg if certain events of liquidity
do not take place. The Company and AmSurg also are considering certain
strategic alternatives in order to provide AmSurg with better access to the
public and private capital necessary to fund its continuing growth. Among the
alternatives available to the Company and AmSurg is the alternative of creating
a public market for AmSurg common stock either through a public offering of
authorized but unissued shares of AmSurg common stock or the spinoff of AmSurg
common stock owned by the Company. No assurance can be made that the Company
and AmSurg will effect any such strategic alternative.
RESULTS OF OPERATIONS
The Company operates two business segments, DTCA and AmSurg. Included
in DTCA results of operations are the operations of two Arthritis and
Osteoporosis Care centers and corporate costs attributable to DTCA. Included
in AmSurg expenses are charges for general management, administrative and
accounting services provided by the Company. Charges to AmSurg for such
services approximate the Company's cost.
13
<PAGE> 14
DTCA
The following table presents the operations of DTCA for the three
months ended November 30, 1996 and associated percentage changes from the
corresponding period in fiscal 1996.
<TABLE>
<CAPTION>
Three months ended
November 30, 1996
-----------------
Actual % Change
------------------------------------------------------------
<S> <C> <C>
Revenues $7,979,420 (0.5)%
----------------------
Expenses:
Salaries and benefits 5,261,024 6.4 %
Other operating expenses 2,008,719 27.8 %
Depreciation and amortization 330,522 (7.3)%
Interest 1,036 (54.0)%
----------------------
Total expenses 7,601,301 10.6 %
----------------------
Income before income taxes 378,119 (67.1)%
Income taxes 171,000 (65.7)%
======================
Net income $ 207,119 (68.2)%
======================
</TABLE>
The DTCA revenue decrease for the three month period ended November
30, 1996 from the comparable period last year resulted primarily from the
impact of contract terminations, offset somewhat by the revenues associated
with the Bristol-Myers disease management contract which was signed in January
of 1996 and by a 4% increase in same contract revenues for centers in operation
as of September 1, 1995. The increase in same contract revenues resulted
primarily from increased incentive-based fees earned under these contracts
offset somewhat by the impact of contract fee renegotiations and
restructurings. The Company believes that hospital pressures to immediately
reduce their operating costs may negatively impact same-contract revenue
comparisons and contract renewals during the remainder of fiscal 1997. While
the comprehensive healthcare management contract with Bristol-Myers for
enrollees with diabetes at select locations did generate a small amount of
revenue for DTCA during the three month period ended November 30, 1996, the
new managed care agreements signed by DTCA with Principal and Health Options
did not generate any revenues during the quarter and are not anticipated to
begin generating revenues until later in fiscal 1997, though costs associated
with such contracts are expected to initially exceed anticipated revenues.
The increase in overall DTCA salaries and benefits for the three month
period ended November 30, 1996 resulted primarily from higher staffing costs
associated with DTCA's managed care contract with Bristol-Myers, Principal and
Health Options and from normal salary and benefit increases, offset somewhat by
the impact of fewer hospital contracts in operation
14
<PAGE> 15
during the three month period ended November 30, 1996 than during the
comparable fiscal 1996 period. Salaries and benefits as a percentage of
revenues for the three month period ended November 30, 1996 was 66% as
compared with 62% for the comparable fiscal 1996 period. This increase
resulted primarily from the impact of additional salary costs associated with
the Company's managed care efforts which produced minimal revenues during the
quarter. DTCA anticipates that salaries and benefits will increase during the
remainder of fiscal 1997 as a result of the implementation and operation of the
managed care contracts with Principal and Health Options.
The increase in DTCA's other operating expenses for the three month
period ended November 30, 1996 from the comparable period last year resulted
primarily from increased costs associated with the implementation of the
Bristol-Myers, Principal and Health Options contracts causing an increase in
other operating expenses as a percentage of revenues for the three month period
ended November 30, 1996 to 25% compared with 20% for the comparable period last
year. DTCA anticipates that other operating costs will continue to increase
during fiscal 1997 as a result of the implementation and operation of the
managed care contracts with Principal and Health Options.
The decrease in DTCA's depreciation and amortization expense for the
three month period ended November 30, 1996 from the comparable period last year
resulted from reduced amortization expense at DTCA centers where the costs of
center contract development have been fully amortized, partially offset by
additional amortization expense associated with the costs of center development
at centers recently placed in operation.
The decrease in income tax expense attributable to DTCA's operations
for the three month period ended November 30, 1996 from the comparable period
last year resulted from decreased operating results for the first quarter of
fiscal 1997. DTCA's effective income tax rate for the first quarter of fiscal
1997 increased to 45% from 43% for the comparable period last year primarily
from the impact of the fixed amount of DTCA's non-deductible amortization of
excess costs over net assets of purchased companies relative to decreased
levels of income. The differences between the federal statutory income tax
rate and the Company's effective income tax rate during the periods are due
primarily to the impact of state income taxes and the amortization of certain
excess costs over net assets of purchased companies which are not deductible
for income tax purposes.
15
<PAGE> 16
AMSURG
The following table presents the operations of AmSurg for the three
months ended November 30, 1996 and associated percentage changes from the
corresponding period in fiscal 1996.
<TABLE>
<CAPTION>
Three months ended
November 30, 1996
-----------------
Actual % Change
-----------------------------------------------------------------------
<S> <C> <C>
Revenues $10,202,568 73.5%
----------------------
Expenses:
Salaries and benefits 3,421,748 109.0%
Other operating expenses 3,316,626 62.0%
Depreciation and amortization 872,269 38.6%
Interest 289,405 52.4%
----------------------
Total expenses 7,900,048 75.4%
----------------------
Income before income taxes and
minority interests 2,302,520 67.3%
Income taxes 278,000 112.2%
----------------------
Income before minority interests 2,024,520 62.6%
AmSurg minority partners' interest 1,607,481 59.6%
AmSurg minority stockholders' interest 161,050 81.0%
----------------------
Net income $ 255,989 71.4%
======================
</TABLE>
The increase in AmSurg revenues for the three month period ended
November 30, 1996 from the comparable period last year resulted primarily from
more surgery centers in operation, the acquisition of the Florida physician
practice as of February 1, 1996 and from an increase of 13% in same-center
revenues at the eighteen centers in operation since September 1, 1995. The
Company anticipates further revenue growth in 1997 resulting from additional
start-up and acquisition centers placed in operation in 1996 and 1997 and from
same-center revenue growth.
The increase in salaries and benefits expense and in other operating
expenses for the three month period ended November 30, 1996 from the comparable
period last year resulted primarily from the acquisition of the Florida
physician practice, from additional AmSurg centers in operation between the
periods and from an increase in AmSurg corporate staff primarily to support
anticipated growth in centers in operation.
AmSurg's depreciation and amortization expense increases for the three
month period ended November 30, 1996 from the comparable period last year
resulted primarily from AmSurg's acquisition of majority interests in
additional surgery centers, the acquisition of the Florida physician practice
and from new start-up surgery centers placed in operation. The
16
<PAGE> 17
increase in interest expense is primarily attributable to debt assumed or
incurred by AmSurg in connection with additional acquisitions of interests in
surgery centers and the Florida physician practice plus the interest expense
associated with newly opened start-up surgery centers financed partially with
bank debt.
The effective income tax rate for the three month period ended
November 30, 1996 for AmSurg, after reduction of taxable income for AmSurg
center minority partner's interest, was 40% compared with 36% for the
comparable period last year. The increase in the effective income tax rate
resulted from the utilization of prior period net operating loss carryforwards
during the fiscal 1996 period. The difference between the federal statutory
income tax rate and AmSurg's effective income tax rates is due primarily to the
impact of state income taxes for both the fiscal 1997 and the fiscal 1996
periods and to the utilization of prior period net operating loss carry
forwards during the fiscal 1996 period.
The AmSurg minority partners' interest in earnings for the three month
period ended November 30, 1996 increased to $1.6 million from $1.0 million for
the first quarter of fiscal 1996, primarily as a result of minority partners'
interest in earnings at AmSurg surgery centers recently added to operations and
from increased profitability at same-centers. AmSurg minority stockholders'
interest in earnings increased to $161,050 for the three month period ended
November 30, 1996 from $88,986 for the first quarter of fiscal 1996 primarily
as a result of improved AmSurg profitability.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for the first quarter of fiscal 1997 generated
$1.1 million in cash flow. Investing activities during this period used $5.3
million which consisted primarily of $3.9 million used by AmSurg to acquire
interests in additional practice-based ambulatory surgery centers and $1.5
million used for the acquisition of property and equipment for new AmSurg
start-up surgery centers and for other equipment and leasehold improvement
purchases for AmSurg and DTCA. Financing activities for the quarter ended
November 30, 1996 provided $2.3 million in cash flow. Sources of financing
during the quarter primarily included $5.0 in net proceeds, after offering
expenses, from the issuance of preferred stock as discussed further below, $3.2
million in proceeds from additional long-term debt issuances, and $639,501 in
AmSurg minority partner capital contributions to AmSurg partnerships and LLCs
and cash proceeds from the private sale of AmSurg common stock to parties other
than Company; financing uses of cash during the quarter ended November 30, 1996
included primarily the repayment of $5.3 million in long-term debt and
distributions of $1.4 million to AmSurg surgery center minority partners. Of
the $5.3 million in long-term debt repayment during the quarter, $4.5 million
was a repayment of bank debt made at AmSurg's option from a portion of the
funds available from the preferred stock financing completed in November 1996.
At November 30, 1996, the Company had no outstanding borrowings under
its $10 million bank revolving credit agreement, which expires January 29,
1998, and AmSurg had $5.2 million outstanding under its amended and restated
bank credit agreement which is repayable
17
<PAGE> 18
through June 2000. At November 30, 1996, AmSurg also had outstanding
borrowings of $2.4 million under a credit facility which provides up to $12
million through June 1998 for acquisition and development projects with
repayment of these borrowings being made through June 2002. AmSurg borrowings
under this bank credit agreement bear interest at a rate equal to the prime
rate or 1.75% above LIBOR or a combination thereof at AmSurg's option.
The Company believes that cash flow from DTCA operating activities and
the Company's available cash balances will continue to enable the Company to
fund DTCA's current working capital needs, including the implementation and
operation of the new agreements with Principal and Health Options. The Company
anticipates that AmSurg operating activities will continue to provide positive
cash flow and that this cash flow will be utilized in combination with
borrowings under AmSurg's amended and restated bank revolving credit agreement
and through additional financing sources that AmSurg is expected to require to
fund acquisition and development projects. On November 20, 1996, AmSurg issued
to unaffiliated institutional investors a combination of redeemable and
convertible preferred stock totaling $5,500,000, the convertible portion of
which is convertible into 6% (ratably increasing to 8% by November 2000) of the
outstanding common stock of AmSurg if certain events of liquidity do not take
place. The Company and AmSurg also are considering certain strategic
alternatives in order to provide AmSurg with better access to the public and
private capital necessary to fund its continuing growth. Among the
alternatives available to the Company and AmSurg is the alternative of creating
a public market for AmSurg common stock either through a public offering of
authorized but unissued shares of AmSurg common stock or the spinoff of AmSurg
common stock owned by the Company. No assurance can be made that the Company
and AmSurg will effect any such strategic alternative.
18
<PAGE> 19
PART II
ITEM 1. Legal Proceedings.
In November 1994, the Company received an administrative
subpoena for documents from a regional office of the Office of
Inspector General ("OIG") of the Department of Health and Human
Services in connection with an investigation of DTCA under certain
federal Medicare and Medicaid statutes. On February 10, 1995, the
Company learned that the federal government had declined to take over
and pursue a civil "whistle blower" action brought under seal in June
1994 on behalf of the government by a former employee dismissed by the
Company in February 1994. The Company believes that this lawsuit
triggered the OIG investigation. The civil suit was filed in June
1994 against the Company, DTCA, and certain named and unnamed medical
directors and client hospitals and was kept under seal to permit the
government to determine whether to take over the lawsuit. Following
its review, the government made the determination not to take over the
litigation, and the complaint was unsealed on February 10, 1995.
Various preliminary motions have been filed regarding jurisdictional
and pleading matters, resulting in the filing of a number of amended
complaints and the dismissal of the Company as a defendant. DTCA
continues to be a defendant. Certain of these motions are still
pending.
The Company has cooperated fully with the OIG in its
investigation, and believes that its operations have been conducted in
full compliance with applicable statutory requirements. Although
there can be no assurance that the existence of, or the results of,
the investigation would not have a material adverse effect on the
Company, the Company believes that the resolution of issues, if any,
which may be raised by the government and the resolution of the civil
litigation would not have a material adverse effect on the Company's
financial position or results of operations except to the extent that
the Company incurs material legal expenses associated with its defense
of this matter and the civil suit.
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.
19
<PAGE> 20
ITEM 5. Other Information.
Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 Article IV of the Company's Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to Registration Statement on
Form S-1 (Registration No. 33-41119))
27 Financial Data Schedule (SEC Use Only)
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter for
which this report is filed.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements 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 HEALTHCORP, INC.
-----------------------------
(Registrant)
Date January 13, 1997 By /s/ Henry D. Herr
------------------------------- -------------------------------------
HENRY D. HERR
Executive Vice President
Finance and Administration,
(Principal Financial Officer)
Date January 13, 1997 By /s/ David A. Sidlowe
------------------------------- -------------------------------------
DAVID A. SIDLOWE
Vice President and Controller
(Principal Accounting Officer)
21
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<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
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