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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended Commission File No.
December 31, 1994 33-9881
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 (No Fee Required)
For the transition period from __________ to __________
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NATIONAL HEALTHCARE L.P.
(Exact name of registrant as specified in its Partnership Agreement)
Delaware 62-1293855
(State of Formation) (I.R.S. Employer I.D. No.)
100 Vine Street
Murfreesboro, Tennessee 37130
(Address of principal executive offices)
Telephone Number: 615-890-2020
Securities registered pursuant to Section 12(b) of the Act.
Name of Each Exchange on
Title of Each Class which Registered
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Units of Limited Partnership Interest American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Same
Indicate by check mark whether the registrant (a) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market of voting units held by nonaffiliates of the
registrant was $157,215,000 as of January 31, 1995.
Number of Units outstanding as of January 31, 1995: 7,826,165
Page 1 of 65 Pages
Exhibit Index Page 43
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PART 1
ITEM 1
BUSINESS
GENERAL
National HealthCare L.P. (NHC or the Company), which was named
National HealthCorp L.P. prior to January 1, 1995, is a limited partnership
organized under the laws of the State of Delaware which principally operates
long-term health care centers and home health care programs in the southeastern
United States. The Company's health care centers provide skilled and
intermediate nursing and rehabilitative care. At December 31, 1994, the
Company operated 96 long-term health care centers with a total of 12,308
licensed beds. Additionally, one of the owned centers includes 60 assisted
living units and one leased center has 20 assisted living units. Of the 96
centers operated, nine are owned, 40 are leased from National Health Investors,
Inc. (NHI) and 47 are managed for other owners. The Company's homecare
programs provide rehabilitative care at a patient's residence. During 1994,
the Company operated 29 homecare programs and provided 674,000 homecare patient
visits. Approximately 277,000 of these 1994 visits were made from a Florida
licensed homecare company acquired on February 1, 1994. NHC also operates 387
retirement apartments located in three leased and one managed retirement
centers. Additionally, two of the retirement centers offer assisted living -
24 units in a managed center and 25 units in a leased center.
In 1994 NHC opened 441 new beds, 382 in owned/leased centers and 59 in
managed centers. Three owned centers were newly purchased or constructed and
two owned centers were expanded. One leased center was also expanded. A net
of 59 beds were added among five existing managed centers. Also during the
year construction was started on 248 beds - 60 beds in one new owned center,
111 beds in expansions to two leased centers, and 77 beds in two existing
managed centers. All of these beds should open in 1995. Finally, NHC has
obtained certificates of need for the construction of 552 beds at ten owned,
leased or managed locations, all of which are expected to start construction
during 1995.
The Company has expanded its continuum of care to the elderly by
offering a comprehensive range of services through related health care centers,
homecare programs, specialized care units, assisted living centers and
retirement centers. The Company's policy has been to affiliate each homecare
and assisted living program with a Company operated health care center;
however, the Company would like to acquire or start separate and distinct
homecare and assisted living programs not directly affiliated with a company
operated health care center. One such company with 13 Florida locations was
acquired on February 1, 1994. As of December 31, 1994, the Company operated
specialized care units such as Alzheimer's Disease care units (8), sub-acute
nursing units (7) and a number of in house pharmacies. Similar specialty units
are under development or consideration at a number of the Company's centers, as
well as free standing projects.
ADDITIONAL SERVICES. The Company plans to continue to expand its
continuum of care for the elderly by offering a comprehensive and
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increasing range of services through related or separately structured health
care centers, homecare programs, specialized care units, pharmacy operations,
and rehabilitative services. Highlights of these activities during 1994 were
as follows:
A. HOMECARE PROGRAMS. The Company's policy has been to affiliate
each of its licensed and certified homecare programs with a
company operated health care center. Although the existing 29
programs have increased their total number of visits from
94,000 in 1989 to 674,000 in 1994, NHC has applied for and
received Certificates of Need to expand the program services
in both Florida and South Carolina, as well as pursuing a
number of acquisition opportunities. Such acquired or new
programs are not presently planned to be operated out of a
health care center. Additional certificate of need
applications will be filed during 1995.
B. REHABILITATIVE SERVICES. The Company has long operated an
intensive offering of physical, speech, and occupational
therapy provided by center specific therapists. During 1994,
the Company's new rehabilitation division entitled National
Health Rehab hired 206 additional licensed therapists, and two
case managers. Additionally, the Company has redirected its
focus from center-based therapists to a wider operational
format and has created a separate home office and
accountability system for NHR. Because of the Company's
extensive network of health care centers in the Southeastern
United States, the Company is better able to attract, employ,
and retain therapists. It is also greatly expanding its
customer service base by providing contract services to health
care centers owned by third parties. Provision of these
services is not covered under the Company's contracts to
manage health care centers and must be renegotiated annually
with the managed center owner. The Company's rates for these
services are competitive with other market rates.
C. MEDICAL SPECIALTY UNITS. The Company has required all of its
centers to participate in the Medicare program since 1973, and
has continually expanded its range of offerings by the
creation of center-specific medical specialty units such as
the Company's eight Alzheimer's disease care units and seven
subacute nursing units. During 1994 the Company opened
several regional contract management offices, staffed by
experienced case managers who contract with managed care
organizations (MCO's) and insurance carriers for the provision
of subacute and other medical specialty services within a
regional cluster of centers. The Florida, Middle Tennessee,
and the South Carolina areas are currently being serviced by
NHC's case managers. Four more case management areas are
planned for 1995. The services are provided not only at each
NHC operated center, but also at existing specialized care
units.
D. PHARMACY OPERATIONS. The Company's policy has been to have an
in-house pharmacy located in each health care center in those
states where licensure permits the operation of an in-house
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pharmacy. In other states, pharmaceutical services have been
provided by third party contracts. Commencing in 1993, NHC
has created the framework for regional pharmacy operations.
These pharmacy operations will operate out of a central office
and supply (on a separate contractual basis) pharmaceutical
services and supplies which were formerly purchased by each
center from local vendors. The first pharmacy operation
opened in Central Florida in 1993 and now has almost 3,400
nursing home beds under contract by December 31, 1994.
E. ASSISTED LIVING PROJECTS. Although the Company presently
manages four assisted living projects, all four are located
within the physical structure of a long-term health care
center or retirement complex. During 1994, the Company has
identified the assisted living market as an expanding area for
the delivery of health care and hospitality services and has
embarked upon a market review in its states of operation for
the construction of free- standing assisted living centers.
Although no such construction started in 1994, it is
anticipated that the Company will start approximately 320
free-standing assisted living apartments in at least four
locations during 1995. Assisted living units provide basic
room and board functions for the elderly with the on-staff
availability to assist in minor medical needs on an as needed
basis.
In fiscal year 1994, 96% of the Company's net revenues were derived
from health care services and 4% from other sources.
LONG-TERM HEALTH CARE CENTERS
The health care centers operated by the Company provide in-patient
skilled and intermediate nursing care services and in-patient and out-patient
rehabilitation services. Skilled nursing care consists of 24-hour nursing
service by registered or licensed practical nurses and related medical services
prescribed by the patient's physician. Intermediate nursing care consists of
similar services on a less intensive basis principally provided by non-licensed
personnel. These distinctions are generally found in the long-term health care
industry although for Medicaid reimbursement purposes, some states in which the
Company operates have additional classifications, while in other states the
Medicaid rate is the same regardless of patient classification. Rehabilitative
services consist of physical, speech, and occupational therapies, which are
designed to aid the patient's recovery and enable the patient to resume normal
activities.
Each health care center has a licensed administrator responsible for
supervising daily activities, and larger centers have assistant administrators.
All have medical directors, a director of nurses and full-time registered nurse
coverage. All centers provide physical therapy and most have other
rehabilitative programs, such as occupational or speech therapy. Each facility
is located near at least one hospital and is qualified to accept patients
discharged from such hospitals. Each center has a full dining room, kitchen,
treatment and examining room, emergency lighting system, and sprinkler system
where required.
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Management believes that all centers are in compliance with the existing fire
and life safety codes.
The Company has developed a quality assurance program which it
utilizes in each of its health care centers to verify that high standards of
care are maintained. An integral part of the program is a computerized patient
assessment system which aids in placing the patient in the appropriate section
of each center (skilled or intermediate) and monitors the health care needs of
the patient, number and frequency of medications and other essential medical
information. The data derived from this system is used not only to assure that
appropriate care is given to each individual patient, but also to ascertain the
appropriate amount of staffing of each section of the center. Additionally,
the Company requires a patient care survey to be performed at least quarterly
by the regional and home office nursing support team, and a "consumer view"
survey by senior management at least twice a year. In 1993 the Company
developed a "customer satisfaction" rating system and, using that year as a
bench mark, requires significant improvement in the ratings by each center as a
condition of participation in the Company's overall "Excellence Program".
The Company's managing general partner provides centralized management
and support services to the Company's health care nursing centers. The
management and support services include operational support through the use of
regional vice presidents and regional nurses, accounting and financial
services, cash management, data processing, legal, consulting and services in
the area of rehabilitative care. All personnel are employed by the Company's
administrative general partner, which is also responsible for overall services
in the area of personnel, loss control, insurance, education and training. The
Company reimburses the administrative general partner by paying all the costs
of personnel employed for the benefit of the Company as well as a fee. All
general partners are located in Murfreesboro, Tennessee.
The Company provides the same management services to centers operated
under management contracts as it provides to centers owned by the Company. The
term of each contract and the amount of the management fee are determined on a
case-by-case basis. Typically, the Company charges a minimum of 6% of net
revenues. The term of the contracts range from five years to twenty years.
The Company maintains a right of first refusal should any owner desire to sell
a managed center and, in certain situations, special termination payments have
been negotiated should an owner sell to a third party.
All health care centers operated by the Company are licensed by the
appropriate state and local agencies. All except one are certified as
providers for Medicaid patients, and all are certified as Medicare providers.
Ten of the 27 Medicaid certified centers in Tennessee have discontinued
participation in the Medicaid program, but must allow present Medicaid patients
to continue to stay until the patients choose to leave. All of the Company's
centers are subject to state and federal licensure and certification surveys.
These surveys,from time to time, may produce statements of deficiencies. In
response to such a statement, if any, the staff at each center would file a
plan of correction after consultation with the regional vice president and any
alleged deficiencies would be corrected. Presently, none of the Company's
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operated facilities are operating under material statements of deficiencies.
The Company has a significant monetary bonus to employees attached to passing
these surveys with few or no deficiencies.
HEALTH CARE CENTERS UNDER CONSTRUCTION
The following table sets forth the long-term health care centers or
additions to existing centers currently under construction or development which
the Company owns, leases or manages:
<TABLE>
<CAPTION>
Number Owned/Leased/ Projected
Location of Beds Managed Opening Date
-------- ------- ------------ ------------
<S> <C> <C> <C>
Daytona, FL 60 O February, 1996
Hudson, FL* 60 L April, 1995
Plant City, FL* 51 L June, 1995
Winter Haven, FL* 35 M October, 1995
West Palm Beach, FL* 39 M March, 1995
--- --
Total 248 16
=== ==
</TABLE>
*Expansion of existing center
CONSTRUCTION STARTS IN 1995
The following table sets forth the new beds authorized by governmental
certificates of need which are anticipated to start construction in 1995.
<TABLE>
<CAPTION>
Number Number of Number of
of Beds New Centers Existing Centers
------- ----------- ----------------
<S> <C> <C> <C>
Owned 227 2 1
Leased 45 0 2
Managed 280 4 1
--- - -
Total 552 6 4
=== = =
</TABLE>
OCCUPANCY RATES
The following table shows certain information relating to occupancy
rates for the Company's continuing owned and leased long-term health care
centers:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Overall census 92.8% 94.0% 92.5%
Census excluding acquisitions
and new openings 94.5% 94.2% 94.1%
</TABLE>
Occupancy rates are calculated by dividing the total number of days of
patient care provided by the number of patient days available (which is
determined by multiplying the number of licensed beds by 365 or 366).
HOMECARE PROGRAMS
The Company's home health programs (called "Homecare" by the Company)
provide nursing and rehabilitative services to individuals in
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their residences and are licensed by the Tennessee and Florida state
governments and certified by the federal government for participation in the
Medicare program. Each of the Company's 29 homecare programs is managed by a
registered nurse, with speech, occupational and physical therapists either
employed by the program or on a contract basis. During 1994, homecare visits
increased from 319,000 visits to 674,000 visits.
The Company has homecare programs in both Tennessee and Florida. The
Company's Tennessee homecare programs are associated with its long-term health
care centers and, historically, are based within the health care center. The
Company's new homecare programs in Florida are separately based in an effort to
continually expand NHC's market leadership in these services. The Company's
experience in this field indicates that homecare is not a substitute for
institutional care in a hospital or health care center. Instead, the Company's
homecare programs provide an additional level of health care because its
centers can provide services to patients after they have been discharged from
the center or prior to their admission.
ASSISTED LIVING UNITS
The Company presently manages four assisted living units, all four of
which are located within the physical structure of a long-term health care
center. The Company is currently conducting a market review in its states of
operation to consider the construction of free-standing assisted living
centers. It is anticipated that the Company will start construction of 152
free- standing assisted living units in at least two locations and another 168
units as a component of and in two retirement centers during 1995. Assisted
living units provide basic room and board functions for the elderly with the
on-staff availability to assist in minor medical needs on an as needed basis.
Certificates of Need are not necessary to build these projects.
RETIREMENT CENTERS
NHC's retirement centers offer specially designed residential units
for the active and ambulatory elderly and provide various ancillary services
for their residents, including restaurants, activity rooms and social areas.
In most cases, retirement centers also include long-term health care
facilities, either in contiguous or adjacent licensed health care centers.
Charges for services are paid from private sources without assistance from
governmental programs. Retirement centers may be licensed and regulated in
some states, but do not require the issuance of a Certificate of Need such as
is required for health care centers. Although NHC has developed retirement
centers adjacent to its health care properties with an initial construction of
15 to 40 units and which are rented by the month, these centers offer only the
expansion of the Company's continuum of care, rather than a separate profit
center. The projects are designed, however, to be expandable if the demand
justifies. Thus, these retirement units offer a positive marketing aspect of
the Company's health care centers.
One retirement area which the Company is now entering is that of
"continuing care communities", where the resident pays a substantial endowment
fee and a monthly maintenance fee. The resident then receives
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a full range of services - including nursing home care - without additional
charge.
One such continuing care community, the 137 unit Richland Place
Retirement Center, was opened in January, 1993 and is fully occupied. The
Company plans to market additional continuing care retirement communities in
both Murfreesboro and Farragut, Tennessee.
SOURCES OF REVENUE
The Company's revenues are primarily derived from its health care
centers. The source and amount of the revenues are determined by (i) the
licensed bed capacity of its health care centers, (ii) the occupancy rate of
those centers, (iii) the extent to which the rehabilitative and other skilled
ancillary services provided at each center are utilized by the patients in the
centers, (iv) the mix of private pay, Medicare and Medicaid patients, and (v)
the rates paid by private paying patients and by the Medicare and Medicaid
programs.
The following table sets forth sources of patient revenues from health
care centers and homecare services for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Dec 31
-----------------------------
Source 1994 1993 1992
------ ----- ---- ----
<S> <C> <C> <C>
Private 28% 29% 30%
Medicare 35% 29% 26%
Medicaid/Skilled 11% 13% 14%
Medicaid/Intermediate 25% 28% 29%
VA and Other 1% 1% 1%
--- --- ---
Total 100% 100% 100%
</TABLE>
GOVERNMENT HEALTH CARE REIMBURSEMENT PROGRAMS
The federal health insurance program for the aged is Medicare and is
administered by the Department of Health and Human Services. State programs
for medical assistance to the indigent are known as Medicaid in states which
the Company operates. All health care centers operated by the Company are
certified to participate in Medicare and all but 11 participate in Medicaid.
Eligibility for participation in these programs depends upon a variety of
factors, including, among others, accommodations, services, equipment, patient
care, safety, physical environment and the implementation and maintenance of
cost controls and accounting procedures. In addition, some of the Company's
centers have entered into separate contracts with the United States Veterans
Administration which provides reimbursement for care to veterans transferred
from Veterans Administration hospitals.
Generally, government health care reimbursement programs make payments
under a cost based reimbursement system. Although general similarities exist
due to federal mandates, each state operates under its own specific system.
Medicare, however, is uniform nationwide and pays, as defined by the program,
the reasonable direct and indirect cost of services furnished to Medicare
patients, including depreciation, interest and overhead. Medicare payments are
limited by ceilings which, pursuant to the 1993 Tax Reform Act, are frozen at
their 1993 level for 1994 and
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1995. During 1994 the Company had 41 owned or leased centers which operated
at Medicare costs higher than the ceiling. Private paying patients, private
insurance carriers and the Veterans Administration generally pay on the basis
of the center's charges or specifically negotiated contracts. Average per
capita daily room and board revenue from private paying patients is higher
than from Medicare and Medicaid patients, while the average per capita daily
revenue from Medicare patients is higher than from Medicaid patients. The
Company attempts to attract an increased percentage of private and Medicare
patients by providing rehabilitative services and increasing its marketing of
those services through market areas and "Managed Care Offices", of which four
were open by year end. These services are designed to speed the patient's
recovery and allow the patient to return home as soon as is practical. In
addition to educating physicians and patients to the advantages of the
rehabilitative services, the Company also has implemented incentive programs
which provide for the payment of bonuses to its regional and center personnel
if they are able to obtain private and Medicare goals at their centers.
Items eligible for payment under the Medicare program consist of
nursing care, room and board, social services, physical and speech therapy,
drugs and other supplies, and other necessary services of the type provided by
skilled nursing facilities. Routine service costs for extended care facilities
are subject to certain per diem costs limits. Medicare patients are entitled
to have payment made on their behalf to a skilled nursing facility for up to
100 days during each calendar year and a prior 3-day hospital stay is required.
A patient must be certified for entitlement under the Medicare program before
the skilled nursing facility is entitled to receive Medicare payments and
patients are required to pay approximately $87.00 per day after the first 20
days of the covered stay. Under the Medicare program, the federal government
pays directly to the skilled nursing facility the reasonable direct and
indirect costs of the services furnished. The Medicare program only reimburses
for skilled nursing services, which generally afford a more intensive level of
care.
Medicaid programs provide funds for payment of medical services
obtained by "medically indigent persons". These programs are operated by state
agencies which adopt their own medical reimbursement formulas and standards,
but which are entitled to receive supplemental funds from the federal
government if their programs comply with certain federal government
regulations. In all states in which the Company operates, the Medicaid
programs authorize reimbursement at a fixed rate per day of service. The fixed
rate is established on the basis of a predetermined average cost of operating
nursing centers in the state in which the facility is located or based upon the
center's actual cost. The rate is adjusted annually based upon changes in
historical costs and/or actual costs and a projected cost of living factor.
During the fiscal year, each facility receives payments under the
applicable government reimbursement program. Medicaid payments are generally
"prospective" in that the payment is based upon the prior years actual costs.
Medicare payments are "retrospective" in that current year payments are
designed to reasonably approximate the facility's reimbursable costs during
that year. Payments under Medicare are adjusted to actual allowable costs each
year. The actual costs incurred
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and reported by the facility under the Medicare program are subject to audit
with respect to proper application of the various payment formulas. These
audits can result in retroactive adjustments of interim payments received from
the program. If, as a result of such audits, it is determined that overpayment
of benefits were made, the excess amount must be repaid to the government. If,
on the other hand, it is determined that an underpayment was made, the
government agency makes an additional payment to the operator. The Company
maintains reserves for possible adjustments at levels which it believes to be
adequate to cover any such adjustments. To date, adjustments have not had a
material adverse effect on the Company. The Company believes that its payment
formulas have been properly applied and that any future adjustments will not be
materially adverse.
REGULATION
Health care centers are subject to extensive federal, state and in
some cases, local regulatory, licensing, and inspection requirements. These
requirements relate, among other things, to the adequacy of physical buildings
and equipment, qualifications of administrative personnel and nursing staff,
quality of nursing provided and continued compliance with laws and regulations
relating to the operation of the centers. In all states in which the Company
operates, before the facility can make a capital expenditure exceeding certain
specified amounts or construct any new long-term health care beds, approval of
the state health care regulatory agency or agencies must be obtained and a
Certificate of Need issued. Tennessee and Alabama exempt from this review
process any bed additions which are less than 10% of the total existing
licensed beds or 10 beds, whichever is lesser. The appropriate state health
planning agency must determine that a need for the new beds or expenditure
exists before a Certificate of Need can be issued. A Certificate of Need is
generally issued for a specific maximum amount of expenditure and the project
must be completed within a specific time period. There is no advance assurance
that the Company will be able to obtain a certificate of need in any particular
instance. In some states, approval is also necessary in order to purchase
existing health care beds, although the purchaser is normally permitted to
avoid a full scale certificate of need application procedure by giving advance
written notice of the acquisition and giving written assurance to the state
regulatory agency that the change of ownership will not result in a change in
the number of beds or the services offered at the facility.
While there are currently no significant legislative proposals to
eliminate certificates of need pending in the states in which the Company does
business, deregulation in the certificate of need area would likely result in
increased competition among nursing home companies and could adversely affect
occupancy rates and the supply of licensed and certified personnel.
HEALTH CARE REFORM
Although many legislative proposals have been made - and dropped -
over the last two years, the current political trend toward a federal balanced
budget and allowing states greater flexibility in designing and administrating
programs may have some negative impact on current
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governmental programs. Whatever directives and statutory schemes are
ultimately adopted, however, it is the Company's belief that the provision of
quality health care services in the lowest cost environment will be rewarded by
consumers and the government.
OTHER BUSINESS AND PROPERTIES
A. NUTRITIONAL SUPPORT SERVICES. The Company owns a medical
support services business, which primarily provides
nutritional enteral, parenteral feeding materials, urological
and medical supplies to patients in the Company's facilities
as well as in other long-term care or home settings. This
company is headquartered in Knoxville, Tennessee and is known
as Nutritional Support Services (NSS). Revenues from this
subsidiary accounted for from 6% to 7% of the Company's net
revenues in 1994, 1993 and 1992.
B. REHABILITATIVE SERVICES. The Company has long operated an
intensive offering of physical, speech, and occupational
therapy provided by center specific therapists. During 1993,
the Company created a new rehabilitation division entitled
National Health Rehab (NHR) and commenced acquiring private
patient rehabilitation companies. Additionally, the Company
has redirected its focus from center-based therapists to a
wider operational format and has created a separate home
office and accountability system for NHR. Because of the
Company's extensive network of health care centers in the
Southeastern United States, the Company is better able to
attract, employ, and retain therapists. It is also greatly
expanding its customer service base by providing contract
services to health care centers owned by third parties.
Provision of these services is not covered under the Company's
contracts to manage health care centers and must be
renegotiated annually with the managed center owner. The
Company's rates for these services are competitive with other
market rates.
C. MEDICAL SPECIALTY UNITS. The Company has required all of its
centers to participate in the Medicare program since 1973, and
has continually expanded its range of offerings by the
creation of center-specific medical specialty units such as
the Company's eight Alzheimer's disease care units and seven
subacute nursing units. The Company has identified a number
of potential regional offices, which will be staffed by
experienced case managers contracting with health maintenance
organizations (HMO's) and insurance carriers for the provision
of subacute and other medical specialty services within its
regional cluster of centers. Four such offices were open by
year end 1994 and four more are planned to be open in 1995.
The services are actually provided not only at each NHC
operated center, but also at existing specialized care units.
D. PHARMACY OPERATIONS. The Company's policy has been to have an
in-house pharmacy located in each health care center in those
states where licensure permits the operation of an in-house
pharmacy. In other states, pharmaceutical services have been
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provided by third party contracts. NHC is now creating wholly
owned regional pharmacy operations. These pharmacy operations
operate out of a central office and supply (on a separate
contractual basis) pharmaceutical services and supplies which
were formally purchased by each center from local vendors.
The Florida pharmacy operation had almost 3,400 nursing home
beds under contract by December 31, 1994.
E. ADVISORY SERVICES TO NATIONAL HEALTH INVESTORS, INC. In 1991
the Company formed National Health Investors, Inc., as a
wholly-owned subsidiary. It then transferred to NHI certain
healthcare facilities then owned by NHC and then distributed
the shares of NHI to NHC's unitholders. The distribution had
the effect of separating NHC and NHI into two independent
public companies. As a result of the distribution, all of the
outstanding shares of NHI were distributed to the then NHC
unitholders.
NHI's initial assets consisted of: (i) 40 skilled nursing
centers and three retirement centers and (ii) certain
promissory notes secured by mortgages on four additional
nursing homes managed by NHC. Each of the healthcare
facilities was leased to NHC.
NHI also has entered into an Advisory, Administrative Services
and Facilities Agreement (the "Advisory Agreement") with NHC
pursuant to which NHC provides NHI, for a fee, with investment
advice, office space, personnel and other services. For its
services under the Advisory Agreement, the Advisor is entitled
to a base annual compensation of $1,625,000. Compensation
paid to executive officers of NHI are credited against this
Advisory Fee. NHC executive officers W. Andrew Adams and
Richard F. LaRoche, Jr. serve as executive officers of NHI.
For 1993 and later years in which per share Funds From
Operations of NHI exceed per share Funds From Operations
during 1992, the $1,625,000 annual compensation increased by
the same percentage that per share Funds From Operations in
such later year exceed those in 1992. NHC earned an
additional $513,000 under this provision in 1994.
The Advisory Agreement provides that the Advisor shall pay all
expenses incurred in performing its obligations thereunder,
without regard to the amount of compensation received under
the Agreement. Expenses specifically listed as expenses to be
borne by the Advisor without reimbursement include: the cost
of accounting, statistical or bookkeeping equipment necessary
for the maintenance of NHI's books and records; employment
expenses of the officers and directors and personnel of the
Advisor and all expenses.
F. PRINCIPAL OFFICE. The Company maintains its home office staff
in Murfreesboro, Tennessee in a building owned by a limited
partnership, which is 69.7% owned by NHC. The Company also
owns land adjacent to many of its health care centers for the
purpose of long-range expansion.
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COMPETITION
In most of the communities in which the Company's health care centers
are located, there are other health care centers with which the Company
competes. In competing for patients and staff with these centers, the Company
relies upon referrals from acute care hospitals, physicians, residential care
facilities, church groups and other community service organizations. The
reputation in the community and the physical appearance of the Company's health
care centers are also important in obtaining patients, since members of the
patient's family generally participate to a greater extent in selecting health
care centers than in selecting an acute care hospital. The Company believes
that by providing and emphasizing rehabilitative as well as skilled care
services at its centers, it has been able to broaden its patient base and to
differentiate its centers from competing health care centers.
The Company experiences competition in employing and retaining nurses,
technicians, aides and other high quality professional and non-professional
employees. In order to enhance its competitive position, the Company has an
educational tuition loan program, an American Dietary Association approved
internship program, a specially designed nurse's aide training class, and makes
financial scholarship aid available to physical therapy vocational programs and
The Foundation for Geriatric Education. The Company also maintains an
"Administrator in Training" course, 24 months in duration, for the professional
training of administrators. Presently, the Company has 15 full-time
individuals in this program. Four of its eight regional vice presidents and 43
of its 96 health care center administrators have graduated therefrom.
NHC's employee benefit package offers a tuition reimbursement program.
The goal of the program is to insure a well trained qualified work force to
meet future demands. While the program is offered to all disciplines, special
emphasis has been placed on supporting students in nursing and physical therapy
programs. Students are reimbursed at the end of each semester after presenting
tuition receipts and grades to management. The program has been successful in
providing a means for many bright students to pursue a formal education.
EMPLOYEES
As of December 31, 1994, the administrative general partner of the
Company and the Company's managed centers had approximately 13,091 employees,
who are called "Partners" by the Company. No employees are presently
represented by a bargaining unit. The Company believes its current relations
with its employees are good.
13
<PAGE> 14
ITEM 2
PROPERTIES
LONG-TERM HEALTH CARE CENTERS
<TABLE>
<CAPTION>
Total Beds under Development* Joined
State City Center Affiliation Beds and Special Care Units NHC
- ----- ---- ------ ----------- ----- ---------------------- ------
<S> <C> <C> <C> <C> <C> <C>
Alabama Anniston Golden Springs Health Care Center Leased 124 15 beds under development 1973
Moulton Moulton Health Care Center Leased 136 1973
Florida Brooksville Brooksville Nursing Manor Managed 180 1993
Hudson Bear Creek Nursing Center Managed 120 1993
Crystal River Cypress Cove Care Center Managed 120 1993
Trenton Medic-Ayers Nursing Center Managed 120 1993
Ft. Lauderdale NHC of Ft. Lauderdale Managed 253 1984
New Port Richey Heather Hill Nursing Home Managed 120 1993
Hudson NHC of Hudson Leased 120 60 beds under development 1986
Merritt Island NHC of Merritt Island Leased 120 22 bed Alzheimer's unit 1990
Panama City NHC of Panama City Managed 120 1986
Port Charlotte NHC of Port Charlotte Owned 180 60 bed subacute care unit
30 bed Alzheimer's unit 1994
Naples NHC of Renaissance Owned 60 1994
St. Petersburg NHC of St. Petersburg Managed 159 1984
Stuart NHC of Stuart Leased 118 24 bed Alzheimer's unit 1989
Ocoee Ocoee Health Care Center Managed 120 1990
St. Cloud Osceola Health Care Center Managed 120 1991
Palatka Palatka Health Care Center Managed 120 60 beds under development 1989
Clearwater Palm Garden of Clearwater Managed 120 1987
Gainesville Palm Garden of Gainesville Managed 120 1987
Jacksonville Palm Garden of Jacksonville Managed 120 1990
Largo Palm Garden of Largo Managed 140 1987
N. Miami Beach Palm Garden of N. Miami Beach Managed 120 1988
Ocala Palm Garden of Ocala Managed 120 1987
Orlando Palm Garden of Orlando Managed 120 60 beds under development 1987
Pensacola Palm Garden of Pensacola Managed 120 31 beds under development 1987
Lake City Palm Garden of Lake City Managed 120 60 beds under development 1992
Largo Palm Garden of Pinellas Managed 120 20 bed subacute care unit 1991
Port St. Lucie Palm Garden of Port St. Lucie Managed 120 1988
Tampa Palm Garden of Tampa Managed 120 1987
Vero Beach Palm Garden of Vero Beach Managed 173 1987
West Palm Beach Palm Garden of West Palm Beach Managed 120 39 beds under development 1988
Winter Haven Palm Garden of Winter Haven Managed 85 35 beds under development 1987
Plant City Plant City Health Care Center Leased 120 51 beds under development 1985
Dade City Royal Oak Nursing Center Managed 120 1993
Sarasota Sarasota Health Care Center Managed 120 1990
Sun City Palm Garden of Sun City Managed 120 1991
Niceville The Manor at Blue Water Bay Managed 60 1993
Georgia Fort Oglethorpe NHC of Fort Oglethorpe Owned 81 1989
Rossville Rossville Convalescent Center Leased 112 1971
</TABLE>
14
<PAGE> 15
LONG-TERM HEALTH CARE CENTERS (continued)
<TABLE>
<CAPTION>
Total Beds under Development* Joined
State City Center Affiliation Beds and Special Care Units NHC
- ----- ---- ------ ----------- ----- ---------------------- ------
<S> <C> <C> <C> <C> <C> <C>
Indiana Brownsburg Brownsburg Health Care Center Managed 178 20 bed Alzheimer's unit 1990
Castleton Castleton Health Care Center Managed 120 18 bed Alzheimer's unit 1990
Ladoga Ladoga Health Care Center Managed 95 1990
Plainfield Plainfield Health Care Center Managed 199 22 bed Alzheimer's unit 1990
Kentucky Dawson Springs Dawson Springs Health Care Center Leased 80 1973
Glasgow Homewood Health Care Center Leased 206 10 bed Alzheimer's unit 1971
Madisonville Kentucky Rest Haven Leased 94 1973
Missouri Desloge Desloge Health Care Center Leased 120 1982
Joplin Joplin Health Care Center Leased 126 1982
Kennett Kennett Health Care Center Leased 160 20 beds under development 1982
Macon Macon Health Care Center Managed 120 1982
St. Louis NHC of Maryland Heights Leased 220 1987
Osage Beach Osage Beach Health Care Center Managed 120 1982
Springfield Springfield Health Care Center Managed 120 1982
St. Charles St. Charles Health Care Center Leased 120 1982
West Plains West Plains Health Care Center Managed 120 1982
South Carolina Anderson Anderson Health Care Center Leased 290 1973
Greenwood Greenwood Health Care Center Leased 152 1973
Sumter Hopewell Health Care Center Managed 96 1985
Laurens Laurens Health Care Center Leased 176 1973
Aiken Mattie C. Hall Health Care Center Managed 176 44 bed Alzheimer's unit 1982
Clinton NHC of Clinton Owned 131 1993
Murrells Inlet NHC of Garden City Owned 88 1992
Greenville NHC of Greenville Owned 176 1992
Lexington NHC of Lexington Owned 88 12 bed subacute care unit 1994
North Augusta NHC of North Augusta Owned 132 1991
Sumter NHC of Sumter Managed 120 1985
Tennessee Athens Athens Health Care Center Leased 96 1971
Johnson City Colonial Hill Health Care Center Leased 179 18 bed Alzheimer's unit 1971
Columbia Columbia Health Care Center Leased 120 12 bed subacute care unit 1973
Cookeville Cookeville Health Care Center Managed 96 1975
Franklin Franklin Health Care Center Leased 84 1979
Dickson Green Valley Health Care Center Leased 217 20 bed assisted care unit 1971
Columbia Hillview Health Care Center Leased 98 1971
Knoxville Knoxville Convalescent Center Leased 152 1971
Knoxville Knoxville Health Care Center Owned 180 12 bed subacute unit 1977
McMinnville McMinnville Health Care Center Leased 142 1971
Lewisburg Merihil Health Care Center Leased 95 1971
Murfreesboro Murfreesboro Health Care Center Managed 190 69 bed subacute care unit 1974
Nashville Nashville Health Care Center Leased 133 1975
Hendersonville NHC of Hendersonville Leased 107 1987
Lawrenceburg NHC of Lawrenceburg Managed 97 1985
Oak Ridge Oak Ridge Health Care Center Managed 130 1977
</TABLE>
15
<PAGE> 16
LONG-TERM HEALTH CARE CENTERS (continued)
<TABLE>
<CAPTION>
Total Beds under Development* Joined
State City Center Affiliation Beds and Special Care Units NHC
- ----- ---- ------ ----------- ----- ---------------------- ------
<S> <C> <C> <C> <C> <C> <C>
Tennessee Lewisburg Oakwood Health Care Center Leased 62 1973
Chattanooga Parkwood Health Care Center Leased 212 20 bed sub-acute care 1971
Pulaski Pulaski Health Care Center Leased 95 1971
Milan Ridgewood Health Care Center Leased 129 1971
Lawrenceburg South Health Care Center Leased 62 15 bed assisted care unit 1971
Dunlap Sequatchie Health Care Center Leased 60 1976
Somerville Somerville Health Care Center Leased 84 12 bed assisted care unit 1976
Sparta Sparta Health Care Center Leased 150 1975
Springfield Springfield Health Care Center Leased 112 1973
Smithville Sunny Point Health Care Center Leased 76 1971
Nashville The Health Center of Richland Place Managed 76 8 bed assisted care unit 1993
Nashville West Meade Place Managed 120 1993
Virginia Bristol Bristol Health Care Center Leased 120 1973
</TABLE>
-Balance of this page left blank by intention-
16
<PAGE> 17
RETIREMENT APARTMENTS
<TABLE>
<CAPTION>
State City Retirement Apartments Affiliation Units Established
- ----- ---- --------------------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
Missouri St. Charles Lake St. Charles Retirement Apartments Leased 155 1984
Tennessee Johnson City Colonial Hill Retirement Apartments Leased 63 1987
Chattanooga Parkwood Retirement Apartments Leased 32 1986
Nashville Richland Place Continuing Care Community Managed 137 1993
HOMECARE PROGRAMS
State City Homecare Programs Affiliation Established
- ----- ---- ----------------- ----------- -----------
Florida Blountstown NHC HomeCare Owned 1994
Carrabelle NHC HomeCare Owned 1994
Chipley NHC HomeCare Owned 1994
Crawfordville NHC HomeCare Owned 1994
Madison NHC HomeCare Owned 1994
Marianna NHC HomeCare Owned 1994
Panama City NHC HomeCare Owned 1994
Panama City NHC Private Nursing Owned 1994
Perry NHC HomeCare Owned 1994
Port St. Joe NHC HomeCare Owned 1994
Quincy NHC HomeCare Owned 1994
Tallahassee NHC HomeCare Owned 1994
Tallahassee NHC Private Nursing Owned 1994
Tennessee Athens NHC Homecare Owned 1984
Johnson City NHC Homecare Owned 1978
Columbia NHC Homecare Owned 1977
Cookeville NHC Homecare Owned 1976
Dickson NHC Homecare Owned 1977
Lawrenceburg NHC Homecare Owned 1977
Lewisburg NHC Homecare Owned 1977
McMinnville NHC Homecare Owned 1976
Murfreesboro NHC Homecare Owned 1976
Knoxville NHC Homecare Owned 1977
Chattanooga NHC Homecare Owned 1985
Pulaski NHC Homecare Owned 1985
Milan NHC Homecare Owned 1977
Somerville NHC Homecare Owned 1983
Sparta NHC Homecare Owned 1984
Springfield NHC Homecare Owned 1984
</TABLE>
17
<PAGE> 18
ITEM 3
LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business. While there are several worker's compensation and personal liability
claims presently in the court system, management believes that the ultimate
resolution of all pending proceedings will not have any material adverse effect
on the Company or its operations.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED UNITHOLDER MATTERS
The partnership units of National HealthCare L.P. are traded on the
American Stock Exchange under the symbol NHC. The closing price for the NHC
units on Friday, December 30, 1994 was $26.00. On December 31, 1994, NHC had
approximately 3,500 unitholders, comprised of 1,600 unitholders of record and
an additional 1,900 unitholders indicated by security position listings. The
following table sets out the quarterly high and low sales prices of NHC's units
of partnership interest. The cash distributions per unit during each quarter
are also shown.
<TABLE>
<CAPTION>
Unit Prices Cash Distributions
High Low Declared Per Unit
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1992
1st Quarter $15.375 $12.375 $ .11
2nd Quarter 12.500 11.625 .11
3rd Quarter 12.750 10.375 .16
4th Quarter 16.500 15.625 .16
- --------------------------------------------------------------------------------
1993
1st Quarter $17.875 $13.500 $ .20
2nd Quarter 18.375 16.375 .20
3rd Quarter 22.000 16.875 .24
4th Quarter 26.375 21.625 1.34
- -------------------------------------------------------------------------------
1994
1st Quarter $30.000 $25.500 $ .31
2nd Quarter 29.750 24.875 .31
3rd Quarter 28.875 25.375 .31
4th Quarter 28.750 25.500 .42
===============================================================================
</TABLE>
18
<PAGE> 19
NHC paid cash distributions on its outstanding partnership units
related to reporting years as follows: 1990, $1.20 per unit; 1991, $1.20 per
unit; 1992, $.54 per unit; 1993, $.88 per unit; and 1994, $1.35 per unit.
Additionally, there were special cash distributions of $.13 per unit and $1.10
per unit paid in 1991 and 1993, respectively. The 1993 special distribution
was paid to help defray taxes on the sale of an investment. The 1991 special
distribution was paid to help defray taxes on net Section 1231 and capital
gains reported by NHC.
ITEM 6
SELECTED FINANCIAL DATA
The following table represents selected financial information with
respect to the Company for the five years ended December 31, 1994. This
financial information has been derived from financial statements included
elsewhere in this Form 10-K and should be read in conjunction with those
financial statements and accompanying footnotes.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except unit and per unit data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue $298,901 $245,085 $216,378 $184,612 $159,859
Gain on sale of
investments -- 24,773 -- -- --
Expenses 283,048 232,296 206,877 166,945 140,903
Net income 15,853 37,562 9,501 17,667 18,956
Earnings per unit:
Primary $ 2.02 $ 4.85 $ 1.28 $ 2.45 $ 2.73
Fully diluted 1.80 4.05 1.23 2.45 2.73
Balance Sheet Data:
Total assets $396,133 $344,680 $304,074 $273,015 $257,529
Long-term debt 104,243 54,625 49,299 51,947 160,853
Debt serviced by
other parties 89,764 112,116 115,031 117,960 --
Partners' capital 101,006 92,526 67,922 61,823 55,441
Cash distributions
declared per unit:
Quarterly and
year end $ 1.35 $ .88 $ .54 $ 1.20 $ 1.20
Special -- 1.10 -- .13 --
</TABLE>
19
<PAGE> 20
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview--
National HealthCare L.P. (NHC or the Company, formerly National
HealthCorp L.P.) is a leading provider of long-term care services. NHC
operates or manages 96 long-term health care centers with 12,308 beds in nine
states. The Company provides nursing care as well as ancillary therapy
services to patients in a variety of settings including long-term nursing
centers, managed care specialty units, subacute care units, Alzheimer's care
units, homecare programs, and facilities for assisted living. The Company also
operates retirement centers.
Results of Operations--
Included in NHC's net income and revenues for the prior year ended
December 31, 1993 is a $24.8 million gain ($3.20 per primary unit, $2.55 per
fully diluted unit) from the sale for $33.0 million in cash of the Company's
interest in VHA Long Term Care to ServiceMaster. VHA Long Term Care provides
management services primarily to not-for-profit long-term care facilities. For
purposes of comparison, the gain from this sale is excluded from the discussion
of results of operations below.
The following table and discussion sets forth items from the
consolidated statements of income as a percentage of net revenues for the
audited years ended December 31, 1994, 1993, and 1992.
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Revenues:
Net patient revenues 90.2% 91.0% 90.0%
Other revenues 9.8 9.0 10.0
----- ----- -----
Net revenues 100.0 100.0 100.0
----- ----- -----
Costs and expenses:
Salaries, wages and benefits 52.7 52.4 51.3
Other operating 33.0 32.8 33.6
Depreciation and amortization 4.6 4.8 4.9
Interest 4.4 4.8 5.8
----- ----- -----
Total costs and expenses 94.7 94.8 95.6
----- ----- -----
Net Income 5.3% 5.2% 4.4%
===== ===== =====
</TABLE>
The following table sets forth the (decrease) increase in certain
items from the consolidated statements of income as compared to the prior
period excluding the 1993 nonrecurring gain on sale of investment.
20
<PAGE> 21
PERIOD TO PERIOD INCREASE (DECREASE)
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
------------- -------------
(dollars in thousands) Amount Percent Amount Percent
- ---------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Revenues:
Net patient revenues $46,633 20.9 $28,259 14.5
Other revenues 7,183 32.7 448 2.1
------- ---- ------- ----
Net revenues 53,816 22.0 28,707 13.3
------- ---- ------- ----
Costs and expenses:
Salaries, wages and benefits 29,201 22.7 17,510 15.8
Other operating 18,427 22.9 7,608 10.5
Depreciation & amortization 1,703 14.3 1,285 12.1
Interest 1,421 12.2 (984) (7.8)
------- ---- ------- ----
Total costs and expenses 50,752 21.8 25,419 12.3
------- ---- ------- ----
Net income $ 3,064 24.0 $ 3,288 34.6
======= ==== ======= ====
</TABLE>
NHC's owned or leased long-term health care centers provided 76% of
net revenues in 1994, 80% in 1993, and 81% in 1992. Homecare programs provided
16% of net revenues in 1994, 13% in 1993 and 13% in 1992.
The overall census in owned or leased centers for 1994 was 92.8%
compared to 94.0% in 1993 and 92.5% in 1992. The census excluding acquisitions
and new openings was 94.5%, 94.2% and 94.1% for the same periods. The Company
opened three new owned centers in 1994 with a total of 383 beds.
Approximately 61% of NHC's net revenues are derived from Medicare,
Medicaid, and other government programs.
1994 Compared to 1993
In 1994, NHC has achieved outstanding earnings and revenues growth
while maintaining a strong financial position. Results for 1994 include a 24%
increase in net income, a 20% increase in fully diluted earnings per unit, and
a 22% increase in net revenues. These improvements have been made despite the
negative impact of regulatory changes, which took effect in the latter part of
1993 but which were fully effective for all of 1994.
The growth in revenues in 1994 occurred in long-term care, homecare,
rehabilitative care, managed care and management services.
Improved revenues in long-term care are due in part to increased
numbers of owned beds having been placed in service. In 1994, 382 beds in
three new owned long-term care centers and two existing centers were added to
operations. In an area of development which NHC will be giving greater
emphasis in 1995, 80 new owned or leased assisted living units were added and
fully occupied in two centers. Furthermore, 147 long-term care beds which had
been added in 1993 had improved occupancy rates in 1994. Also contributing to
improved revenues in long-term care were increases in private pay and third
party payor rates. Increases in third party payor rates were offset in part by
the negative impact of the 1993 Tax Reform Act, which terminated the payment of
a return on equity for
21
<PAGE> 22
Medicare certified nursing homes effective October 1, 1993 and froze routine
cost limits for such homes at 1993 levels for both 1994 and 1995. During 1994
and 1993, NHC had 41 and 37, respectively, owned or leased centers which
operated at Medicare costs higher than the ceiling.
Improved revenues in homecare are due in part to the addition of 13
homecare service locations. This expansion was accomplished through the
purchase of a Florida homecare provider in February, 1994. Homecare revenues
also improved due to increased payor rates and number of visits at NHC's 16
additional Tennessee locations. At all locations, there were 674,000 visits in
1994 compared to 319,000 in 1993.
Revenues also improved during 1994 due to increased emphasis on
rehabilitative and managed care services. To boost the ability to offer
physical, speech and occupational therapy to greater numbers of patients, the
Company increased its staff of professionally licensed therapists by 40% in
1994. The Company has also signed managed care contracts with 25 private
insurance companies to provide subacute care to their insurees, offering a less
expensive alternative to acute care and rehabilitative hospitals. NHC also now
has a network of case managers to assure appropriate placement and payment for
subacute patients in the NHC system.
Revenues from management services, which are included in the
Statements of Income in Other Revenues, increased 45% in 1994 due to the
increased number of beds being managed for others, increased management fees,
and increased interest income from higher principal amounts and interest rates
on floating rate loans to managed centers. In 1994 and late December of 1993,
a net of five long-term care centers and 839 long-term care beds came under
management contract. An additional two centers and 315 beds had been added
throughout 1993. Management fees are generally based upon a percentage of net
revenues of the managed center and therefore tend to increase as a facility
matures and as prices rise in general.
Increases in salaries, wages and benefits in 1994 are attributable to
the increase in staffing levels due to long-term care bed additions, homecare
expansions, and the increased emphasis on rehabilitative services. Also
contributing to higher costs of labor are inflationary increases for salaries
and the associated benefits. Labor costs are the most significant costs of the
Company. The rate of increase in labor costs has moderated somewhat compared to
previous years but still has increased at rates greater than the general rate
of inflation. NHC has instituted programs intended to improve employee
training and retention and programs intended to slow the rate of increase in
the cost of providing health insurance coverage to employees.
Operating costs have increased due to the increased numbers of beds in
operation, the expansion of homecare services, the expansion of rehabilitative
and managed care services, and the growth in managed services.
Depreciation and amortization increased as a result of the Company's
placing of newly constructed or purchased assets in service and due to capital
improvements at existing properties.
22
<PAGE> 23
Interest expense increased due to additional borrowing for newly
purchased or constructed long-term care beds and due to increased interest
rates on floating rate debt. Approximately 29% of the Company's long-term debt
is at floating rates.
1993 Compared to 1992
In 1993, NHC experienced a very financially successful year. Results
for the year included a 35% increase in net income and a 22% increase in fully
diluted earnings per unit. Net revenues increased 13% while total costs and
expenses increased only 12%, improving the Company's net margin.
The growth in revenues in 1993 was due to the expansion of skilled and
homecare beds and services, the maturation of recently opened centers and
improvements in both private pay and third party payor rates.
NHC's homecare programs, which provide nursing rehabilitative services
and nutritional feeding services to individuals, increased revenues by
$4,429,000 to $32,192,474 in 1993. Homecare programs include the revenues of a
wholly owned limited partnership which sells nutritional feeding products.
Revenues from managed centers, which include management fees,
guarantee fees and interest income from the managed centers, increased
$2,022,000 in 1993 to $13,236,000. At December 31, 1993, NHC managed 48
centers with 5,913 beds, of which six centers with 780 beds were added December
20, 1993.
Increases in operating expenses in 1993 are due to increased numbers
of beds in operation, increases in the range of services offered, and
increased costs of labor. Labor costs, the most significant costs of the
Company, have in recent years increased at rates greater than the general rate
of inflation. NHC is addressing the problem through programs intended to
improve employee training and retention and through programs intended to slow
the rate of increase in the cost of providing health insurance coverage to
employees. The Company attempts to recover increased costs through increased
charges to its customers.
Fluctuations in interest expense are due to the general changes in
borrowing rates over the periods covered as well as changes in amounts
borrowed. Approximately 35% of the Company's long-term debt was at variable
interest rates which averaged 4.4% at the end of 1993.
Growth and Development--
The Company plans to continue to expand its continuum of care to the
elderly by offering a comprehensive range of services through related health
care centers, homecare programs, specialized care units, assisted living
centers and retirement centers.
During 1994, NHC purchased or constructed three owned health care
centers, with 323 licensed long-term care
23
<PAGE> 24
beds and 60 assisted living beds located in Florida and South Carolina, and
added 59 long-term care beds and 80 assisted living units at four existing
owned or leased health care centers. Also, during 1994 and December of 1993
NHC commenced management of a net of five additional health care centers with
660 beds, and added 179 managed beds at five locations, all in Florida. All in
all, 1,341 newly constructed, owned, leased and managed licensed long-term care
beds were added during 1994 or in late December of 1993. These activities
increased the total owned, leased and managed centers to 96 and the total
licensed beds to 12,308.
At December 31, 1994 NHC had under construction 489 beds, at eight new
or existing owned or leased centers and 385 beds at eight managed centers. All
of those 874 beds are expected to open during 1995. The Company also has been
granted governmental certificates of need to permit construction of 552 beds,
at 10 owned, leased or managed locations expected to start construction during
1995.
Liquidity, Capital Resources and Financial Condition--
During 1994 NHC spent approximately $9,599,000 on construction and
routine capital expenditures, $17,639,000 on cash distributions to partners,
$4,360,000 as principal payments and financing costs on debt, and $31,870,000
to invest in loan participation agreements and notes receivable. These and
other cash needs were financed through cash on hand, cash flow from operations
of $31,375,000 and the issuance of $34,225,000 of debt.
NHC is committed to spend approximately $7,511,000 for ongoing
construction contracts. NHC is committed to provide an additional amount under
an unsecured line of credit agreement to NHI in the amount of $30,848,000 and
financing to managed facilities in the amount of $3,047,000 in 1995.
NHC's current cash on hand, marketable securities, short-term notes
receivable and operating cash flows are adequate to finance the company's
growth and development plans for 1995 and into 1996. If additional capital is
necessary, NHC's balance sheet ratios are at commercially reasonable levels to
obtain additional capital. The current ratio is 1.8:1 at December 31, 1994,
and working capital is $42,468,000. The ratio of long-term debt to equity as
defined in our banking relationships to include both deferred income and
subordinated convertible notes as equity, is 1.3:1 at the end of 1994.
For all financial instruments except the marketable securities, the
company believes that the financial statement carrying amounts approximate fair
value at December 31, 1994. The fair value of the marketable securities were
estimated based on quoted market prices.
Cash Distributions--
NHC management intends to distribute approximately 60% of ordinary
taxable income to unitholders during 1995. Management expects that NHC's cash
distribution will never be lower than the maximum federal tax rate to
individuals unless there is a material change in our present tax rate system.
Impact of Inflation--
24
<PAGE> 25
Reimbursement rates under the Medicare and Medicaid programs generally
reflect the underlying increases in costs and expenses resulting from
inflation. For this reason, the impact of inflation on profitability has not
been significant.
Partnership Legislation--
On December 22, 1987, legislation passed which requires that publicly
traded limited partnerships be taxed as corporations for federal income tax
purposes. A "grandfather" clause in that legislation allows NHC to avoid
corporate taxation through 1997. In the meantime, management will periodically
review the tax laws to determine what avenues will be most beneficial to
unitholders.
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following table sets forth selected quarterly financial data for
the three most recent fiscal years.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited, in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Fully
Diluted
Net Net Earnings
Revenues Income Per Unit
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1992
1st Quarter $49,718 $ 2,068 $ .27
2nd Quarter 51,482 2,090 .28
3rd Quarter 54,620 2,231 .29
4th Quarter(A) 60,558 3,112 .39
- ---------------------------------------------------------------------------
1993
1st Quarter $57,410 $ 2,527 $ .31
2nd Quarter 58,918 2,724 .33
3rd Quarter(B) 87,011 28,020 2.93
4th Quarter(A) 66,519 4,291 .48
- --------------------------------------------------------------------------
1994
1st Quarter $68,598 $ 3,226 $ .37
2nd Quarter 71,128 3,447 .40
3rd Quarter 75,564 4,064 .46
4th Quarter(A) 83,611 5,116 .57
</TABLE>
Note A: In the fourth quarters of 1992, 1993 and 1994, net revenues
and income were increased by approximately $1,000,000 ($.13 per unit, primary)
$1,450,000 ($.19 per unit, primary), and $1,200,000 ($.15 per unit, primary),
respectively, due to enhanced retroactive Medicare and Medicaid reimbursement
which, if known, would have been reported periodically throughout the year.
25
<PAGE> 26
Note B: In the third quarter of 1993 NHC sold its interest in VHA LTC
resulting in a one-time gain of approximately $24,773,000 ($3.20 per primary
unit, $2.55 per fully diluted unit).
The financial statements are included as Exhibit 13 and are
incorporated in this Item 8 by reference.
ITEM 9
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure.
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
GENERAL PARTNERS: The Company has three general partners identified
in the Amended and Restated Agreement of Limited Partnerships:
1. MANAGING GENERAL PARTNER: NHC, Inc., a Tennessee corporation.
The authorized, issued and outstanding stock of NHC, Inc. is
owned by its board of directors and senior management, a total
of 14 individuals. W. Andrew Adams, the Company's President,
owns approximately 42% of the voting securities of NHC, Inc.
No other person owns in excess of 11.5%
2. ADMINISTRATIVE GENERAL PARTNER: National HealthCare
Corporation, a Tennessee corporation ("National"). National's
Board of Directors is identical to that of NHC, Inc. All of
the authorized, issued and outstanding stock of National
HealthCare Corporation is owned by the National HealthCare
Corporation Leveraged Employee Stock Ownership Plan and Trust.
Trustees are Olin O. Williams, a director of both NHC, Inc.
and National and Richard F. LaRoche, Jr., the Company's
Senior Vice President and General Counsel.
3. INDIVIDUAL GENERAL PARTNER: W. Andrew Adams. Mr. Adams is
the Chairman of the Board and President of the Company.
Pursuant to the Amended and Restated Agreement of Limited Partnership,
the three general partners are collectively referred to as "General Partners".
The General Partners own, in aggregate, a general partnership interest in the
Company representing a 1% interest in the profits, losses and distribution of
the partnership.
DIRECTORS AND EXECUTIVE OFFICERS: As a limited partnership,
the Company is managed by the managing general partner, NHC, Inc. NHC, Inc.'s
Board of Directors is divided into three classes. The Directors hold office
until the annual meeting for the year in which their term expires and until
their successor is elected and qualified. As each of their terms expire, the
successor shall be elected to a three-year term. A director may be removed from
office for cause only. Officers serve at
26
<PAGE> 27
the pleasure of the Board of Directors for a term of one year. The following
table sets forth the directors of both the managing and administrative general
partners of the Company, as well as the executive officers and vice presidents
of the Company:
<TABLE>
<CAPTION>
Position Director of Officer of
with the Managing Managing
Company General Current General
or Managing Partner or Term as Partner or
General Company's Director Predecessor
Name Age Partner Predecessor Expires Since
- ---- --- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
W. Andrew Adams 49 Chairman of Since
the Board/ 1994(CEO) 1996 1973
President 1976(Pres.)
S.C. Garrison 75 Director 1971 1995 ---
J.K. Twilla 69 Director 1972 1995 ---
Olin O. Williams 65 Director 1971 1997 ---
Ernest G. Burgess, III 55 Director 1992 1996 1975
Robert G. Adams 48 S. Vice
President/
Director 1993 1997 1985
Richard F. LaRoche, Jr. 49 S. Vice President/
Secretary and
General Counsel -- -- 1974
Donald K. Daniel 48 Vice President/
Controller -- -- 1977
James O. Keathley 56 Vice President/
Corporate
Affairs -- -- 1977
Charlotte Swafford 46 Treasurer -- -- 1985
Julia W. Powell 45 Vice President -- -- 1985
Joanne G. Batey 50 Vice President -- -- 1989
D. Gerald Coggin 43 Vice President -- -- 1994
Kenneth D. DenBesten 42 Vice President -- -- 1992
</TABLE>
Drs. Garrison, Twilla and Williams were physicians in private practice
in Tennessee for more than 30 years each. Dr. Williams has served as Chairman
of the Board of First City BankCorp, a publicly owned banking institution
headquartered in Murfreesboro, Tennessee, and is presently a member of that
board.
Mr. W. Andrew Adams has been President since 1974 and Chairman of the
Board since 1994. He was president from 1981 until 1983 of the National
Council of Health Centers, the trade association for multi-facility long-term
health care center companies, and served as Chairman of the Multi-facility
Committee of the American Health Care Association from 1992 through 1994. He
has an M.B.A. degree from Middle Tennessee State University. Mr. Adams serves
on the Board of Trust of David Lipscomb University, Nashville, Tennessee, is
President and
27
<PAGE> 28
Chairman of the Board of Directors of National Health Investors, Inc. and
serves on the Board of Third National Bank in Nashville.
Mr. Robert Adams (Senior Vice President and Director) has served both
as Administrator and as Regional Administrator, holding the last position from
1977 to 1985. He has a B.S. degree from Middle Tennessee State University. He
serves as Chief Operations Officer for the Company. Mr. Robert Adams and Mr.
W. Andrew Adams are brothers.
Mr. Burgess (Director) served as the Company's Senior Vice President
for Operations from 1975 through 1994. He has an M.S. degree from the
University of Tennessee.
Mr. LaRoche (Senior Vice President) has been Senior Vice President
since 1985, Secretary since 1974 and General Counsel since 1971. He has a law
degree from Vanderbilt University and an A.B. degree from Dartmouth College.
His responsibilities include acquisitions and finance. Mr. LaRoche also serves
on the Board of National Health Investors, Inc.
Mr. Daniel (Vice President and Controller) joined the Company in 1977
as Controller. He received a B.A. degree from Harding University and an M.B.A.
from the University of Texas. He is a certified public accountant.
Mr. Keathley (Vice President/Corporate Affairs) holds a Masters degree
in Industrial Psychology and a B.S. degree in Education from Middle Tennessee
State University. Prior to joining the Company in 1977, he was a director of
personnel of First American National Bank, Nashville, Tennessee.
Ms. Swafford (Treasurer) has been Treasurer of the Company since 1985.
She joined the Company in 1973 and has served as Staff Accountant, Accounting
Supervisor and Assistant Treasurer. She has a B.S. degree from Tennessee
Technological University.
Ms. Powell (Vice President/Patient Services) has been with the
company since 1974. She has served as a nurse consultant and director of
patient assessment computerized services for NHC. Ms. Powell has a bachelor of
science in nursing from the University of Alabama, Birmingham, and a master's
of art in sociology with an emphasis in gerontology from Middle Tennessee State
University. She co-authored Patient Assessment Computerized in 1980 with Dr.
Carl Adams, the Company's founder.
Ms. Batey (Vice President/Homecare) has been with the company since
1976. She served as homecare coordinator for five years before being named
Vice President in 1989. Prior to that she was director of communication
disorders services. Ms. Batey received her bachelor's and master's degrees in
speech pathology from Purdue University.
Mr. Coggin (Vice President/Governmental and Rehabilitative Services)
has been employed by NHC since 1973. He has served as both Administrator and
Regional Vice President before being appointed to the present position. He
received a B.A. degree from David Lipscomb University and a M.P.H. degree from
the University of Tennessee. He is responsible for
28
<PAGE> 29
the company's rehabilitation, managed care and legislative activities.
Mr. DenBesten (Vice President/Finance) has served as Vice President of
Finance since 1992. From 1987 to 1992, he was employed by Physicians Health
Care, most recently as Chief Operating Officer. From 1984-1986, he was
employed by Health America Corporation as Treasurer, Vice President of Finance
and Chief Financial Officer. Mr. DenBesten received a B.S. in business
administration and an M.S. in Finance from the University of Arizona.
The above officers serve in identical capacities for the Company and
its two corporate general partners: NHC, Inc., and National HealthCare
Corporation.
ITEM 11
EXECUTIVE COMPENSATION
INTRODUCTION:
Pursuant to Article V of the Amended and Restated Agreement of Limited
Partnership of National HealthCare L.P., the General Partners are given the
full, exclusive and complete discretion in the management and control of the
business of the Company. Pursuant to Article 5.7 the General Partners do not
receive compensation for serving as general partners. In compliance with the
Partnership Agreement the General Partners hire and compensate all of the
officers of the Partnership and of the corporate general partners. The General
Partners' goals in executive compensation and compensation at all levels within
the Company are derived from the following priorities: First, to encourage the
achievement of the highest levels of quality in its fields of endeavor; and
second, to provide the strongest incentive possible in order to average, over a
five year period, a 20% return on partners equity. With these goals in mind,
the General Partners' executive compensation program is based on employee
performance rewarded as follows: (1) the achievement of a return on investment
for limited partners; (2) returns generated from unit performance based
incentive plans; and (3) from base salary. The following text and tables
describe the various components of this plan as were attained and applied
during 1994.
TOTAL COMPENSATION:
Table I sets forth certain information concerning the total
compensation paid by the administrative general partner and reimbursed to it by
the Company for the year ended December 31, 1994 to the four executive officers
who earned more than $100,000.
The non-employee Directors of NHC, Inc. (the Managing General Partner
of the Company) are paid $2,000 per meeting attended. There were five Board
meetings during 1994 and no Board member missed a meeting. Dr. Carl Adams,
Chairman and Director, passed away in September, 1994, and his unexpired term
was filled by W. Andrew Adams, President.
29
<PAGE> 30
OPTION PLANS:
At the 1994 Annual Meeting of the Partners, the 1994 Unit Option Plan
was adopted and approved by the unitholders. A total of 1,200,000 units were
reserved for issuance upon exercise of options to be granted by the Board of
Directors of the Managing General Partner. At December 31, 1994, options to
purchase 496,000 units at $25.12 per unit are outstanding to 158 key employees.
Table II (page 32) shows as to the four executive officers: (i) the
number of units as to which options have been granted from January 1, 1994
through December 31, 1994 under the Unit Option Plans; (ii) the percentage of
all units granted represented by these individuals (iii) the option exercise
price per unit and the expiration date; and (iv) the potential realizable value
of these options assuming both a five percent and ten percent unit price
appreciation over the next four years.
Table III (page 32) identifies for the same four person group all
options exercised during 1994 (none), the value realized upon exercise, and the
balance of options outstanding, if any.
Each non-employee Director of NHC, Inc., the Managing General Partner,
receives a Unit Option Grant of 5,000 units per year with the exercise price
and grant date being the date and closing unit price of the Annual Partnership
Meeting (in 1995, March 16).
The Company maintains several non-qualified deferred compensation
plans for its key employees, one of which provides a matching contribution
(15%) for all deferred compensation used to purchase units of limited
partnership interest held by an independent trustee. The matching contribution
is forfeited to the company unless held by the Trustee for 15 years. No
executive officer participated in this plan during 1994. Other than as
described herein or as identified in Tables I, II and III, the Company has no
other long-term incentive plans for its executive officers.
30
<PAGE> 31
<TABLE>
====================================================================================================================================
TABLE I
NATIONAL HEALTHCARE L.P.
SUMMARY COMPENSATION TABLE
1994-1992
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Long Term Compensation
Annual Compensation(1) --------------------------------------------
Awards Payouts
- ----------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other annual Restricted All Other
Name and Principal Compensation Stock Awards Options/SARs LTIP Payouts Compensation
Position Year Salary ($) Bonus ($) ($)(2) ($) (#)(3) ($) ($)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Andrew Adams 1994 132,349 537,513 78,789 -0- 28,000 -0- -0-
President & CEO 1993 134,295 476,153 9,987 -0- 40,000 -0- -0-
1992 134,248 429,153 22,742 -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
Ernest G. Burgess 1994 140,422 418,250 21,200 -0- 1,000 -0- -0-
Senior Vice 1993 140,350 168,903 6,207 -0- 25,000 -0- -0-
President 1992 140,296 305,535 22,376 -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
Robert G. Adams 1994 216,384 375,641 26,828 -0- 20,000 -0- -0-
Senior Vice 1993 215,743 251,129 5,409 -0- 25,000 -0- -0-
President 1992 207,575 235,298 21,654 -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
Richard F. LaRoche, 1994 134,150 266,877 15,637 -0- 20,000 -0- -0-
Jr. 1993 111,425 193,077 11,116 -0- 25,000 -0- -0-
Sr. VP & Secretary 1992 134,099 215,000 27,842 -0- -0- -0- -0-
----------------------------------------------------------------------------------------------------------------------------------
(1) Compensation deferred at the election of an executive has been included in salary column (d).
(2) Includes (a) life insurance benefit, (b) 401-K matching contribution, (c) nonqualified deferred compensation matching
contribution, (d) ESOP contribution.
(3) The 1994 awards are NHC Unit Options issued at $25.125 per unit. The 1993 awards are stock options issued by National
Health Investors, Inc. to NHC and assigned to these executive officers. Each option is exerciseable at $25.00 per share. NHI
closing price on the NYSE on January 31, 1995, was $24.625.
====================================================================================================================================
</TABLE>
31
<PAGE> 32
<TABLE>
====================================================================================================================================
TABLE II
NATIONAL HEALTHCARE L.P.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
December 31, 1994
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Unit Price
Appreciation for Option Term(2)
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options/SARs
Granted to Exercise or
Options/SARs Employees in Base
Executive Officers Granted (#)(1) Fiscal Year Price ($/Sh) Expiration Date 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. Andrew Adams, President &
CEO 40,000 8.1% 25.125 4/21/99 216,400 466,400
Ernest G. Burgess, Sr. VP 5,000 1.0% 25.125 4/21/99 27,050 58,300
Robert G. Adams, Sr. VP 27,500 5.5% 25.125 4/21/99 148,775 320,650
Richard F. LaRoche, Jr., Sr. VP 25,000 5.1% 25.125 4/21/99 135,250 291,500
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Each option was awarded April 22, 1994 and is exerciseable at $25.12 per share. NHC closing price on the AMEX on January
30, 1995, was $24.625
(2) Based on remaining option term (4 years) and annual compounding.
====================================================================================================================================
====================================================================================================================================
TABLE III
NATIONAL HEALTHCARE L.P.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR
AND FY-END OPTION/SAR VALUES
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) FY-End ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares acquired on Exercisable/ Exercisable/
Executive Officers Exercise (#) Value Realized ($)(1) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
W. Andrew Adams, President & CEO -0- -0- 40,000/0 $35,000/0
Ernest G. Burgess, Sr. VP -0- -0- 5,000/0 4,375/0
Robert G. Adams, Sr. VP -0- -0- 27,500/0 24,063/0
Richard F. LaRoche, Jr., Sr. VP -0- -0- 25,000/0 21,875/0
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Market value of underlying securities at exercise date, minus the exercise or base price.
====================================================================================================================================
</TABLE>
32
<PAGE> 33
EMPLOYEE STOCK OWNERSHIP PLAN:
In 1986 the Administrative General Partner adopted as its Employee
Stock Ownership Plan and Trust ("ESOP"), the ESOP previously sponsored by the
Company's corporate predecessor. The ESOP is a qualified pension plan under
Section 401(a) of the Internal Revenue Code. The Administrative General
Partner makes contributions to the ESOP for all employees and is reimbursed for
same by the Company. Employees make no contributions. All contributions are
used by the ESOP to purchase "qualifying employer securities" which is the
Common Stock of the Administrative General Partner. These securities are
allocated among participating employees of the Administrative General Partner
who participate in the ESOP in the ratio of the employee's wages to the total
wages of all participating employees during that fiscal year. Participating
employees are all employees, including officers, who have earned one year of
service by working more than 1,000 hours during the fiscal year.
On January 20, 1988, the Administrative General Partner of the
partnership formed a Leveraged Employee Stock Purchase Plan (Leveraged ESOP).
During 1988, the Leveraged ESOP borrowed, in two separate transactions, $88.5
million from four commercial banks, the proceeds of which were used to purchase
additional stock in the Administrative General Partner. The Administrative
General Partner, in turn, purchased eight (8) health care centers from the
partnership and contracted with the partnership to manage these centers for a
20-year period. The Administrative General Partner also loaned $8.5 million to
City Center, Ltd. to construct a 15-story office building in Murfreesboro,
Tennessee, approximately 60% of which is occupied by the Company. In late
1988, the Administrative General Partner entered into a Loan Agreement with the
partnership and advanced $50,000,000 to the partnership to be used by the
partnership to pay off its existing $30,000,000 revolving line of credit, with
the balance to be used for acquisition, development and general working capital
needs. In September of 1988, the original ESOP was merged into the Leveraged
ESOP so that as of December 31, 1994, the employees still participated in only
one qualified plan. On December 28, 1990, the Leveraged ESOP borrowed
$50,000,000 from three commercial lenders, the proceeds of which were used as
an equity contribution to the Administrative General Partner, which in turn
loaned said proceeds to the Company at 8.48% fixed rate of interest. The
proceeds were used for acquisition and new construction.
The Leveraged ESOP is administered by an Administrative Committee,
currently consisting of Ernest G. Burgess, III (Director), Donald K. Daniel and
Charlotte Swafford (officers of the Company), which is appointed by the Board
of Directors of the administrative general partner. The Trustees of the
Leveraged ESOP are Dr. Olin O. Williams, a director, and Richard F. LaRoche,
Jr., the Company's Senior Vice President and General Counsel.
The amounts contributed to the ESOP in 1994 and allocated to the
Company's executive officers are included in Table I, and total $61,798.58.
33
<PAGE> 34
EMPLOYEE UNIT PURCHASE PLAN:
The Company has established its Employee Unit Purchase Plan for
employees. Pursuant to the Plan, eligible employees may purchase units through
payroll deductions at the lesser of the closing asked price of the units as
reported on the American Stock Exchange on the first trading or the last
trading day of each year. At the end of each year, funds accumulated in the
employee's account will be used to purchase the maximum number of units at the
above price. The Company makes no contribution to the purchase price. 29,582
units were issued pursuant to the Plan in January, 1995, with all payroll
deductions being made in 1994.
All employees (including officers and directors) may elect to
participate in the Plan if they meet minimum employment requirements. The
maximum payroll deduction is the employee's normal monthly pay. Participating
employee's rights under the plan are nontransferable. Prior to the end of a
year, a participant may elect to withdraw from the Plan and the amount
accumulated as a result of his payroll deductions shall be returned to him
without interest. Any terminated employee immediately ceases to be a
participant and also receives his or her prior contributions.
In no event may a participant in the Plan purchase thereunder during a
calendar year, units having a fair market value more than $25,000.
The units purchased pursuant to the Plan are freely tradeable, except
for any shares held by an "affiliate" of the Company, which would be subject to
the limitations of Rule 144.
Only three of the Company's executive officers participated in this
Plan during 1994 and the positive spread between the purchase price and in the
then fair market price for that individual is included in Table I.
1975 PERFORMANCE BONUS PLAN:
In 1975 the Company implemented a Performance Bonus Plan which was
reaffirmed and readopted by the unitholders in 1994. This plan provides for
the Chairman of the Board to allocate, with the approval of the non-employee
directors, the bonus at the end of each fiscal year. The total amount
available for bonuses under the plan is 20% of the Company's net income
(without regard to NHI lease payments or Advisory fee income) after a 20%
return on partners' equity as determined at the beginning of that fiscal year.
In fiscal 1994, bonuses of $3,577,000 were paid under this plan to a total of
103 employees.
401(K) PLAN:
The Company and its affiliates offer a 401(K) Plan for all employees
who are over 18 years of age. The Board of Directors authorized a matching
contribution to be made during the first half of 1993 of 15% of any employee's
contribution. For the last half of 1993, a match was made for 50% of
contributions with contributions being matched up to 2.5% of quarterly gross
wages. No employee may contribute more than 15% to the Plan, and employees who
earn more than $66,000 were limited to a
34
<PAGE> 35
contribution averaging 2.89% of their compensation. These matching funds will
be used to purchase Units on the open market, which Units will vest in the
employees account in 5 years. Forfeited units are allocated among remaining
participants. A total of $578,000 was contributed to the Plan as matching
contributions for 1994.
EMPLOYEE LOAN PROGRAMS:
On December 31, 1986, the Company's unitholders adopted an Employee
Stock Financing Plan (the "Financing Plan"). The Plan was designed to enable
key employees of the Corporation to finance the exercise of unit options
granted to them by the Board of Directors. Under the Plan, the Company
financed the exercise of any unit options exercised by the acceptance of the
employees' full recourse promissory note bearing interest at a fixed rate equal
to 2.5% below New York prime on the date of the note, with interest payable
quarterly and principal due and payable in 60 months. The notes are secured by
Units having a fair market value equal to twice the note amount.
On October 31, 1991, the Board of Directors created the
"Collateralized Management Loan" Program (hereinafter CML), designed to provide
the Company with a short-term liquid investment source generating a return on
the Company's funds equal to the prime rate of interest. The program is
available to all officers, directors, and supervising employees, and has the
following terms and conditions:
(a) $100,000 minimum CML amount, due and payable on demand
(b) Borrower must have written evidence of a line of credit with a
financial institution with an undrawn balance at least equal
to the CML, and valid for at least 60 days.
(c) The CML must be collateralized with a pledge of National
Health Investors, Inc. common stock having a fair market value
at least equal to the CML.
The following tables shows, as to each executive officer whose
indebtedness exceeded $60,000, the largest aggregate amount of such
indebtedness since December 31, 1989 and the present outstanding balance.
<TABLE>
<CAPTION>
FINANCING PLAN CML PLAN
--------------------------------------- -------------------------------
Largest Balance out- Largest Balance out-
Aggregate standing as of Aggregate standing as of
Indebtedness 12/31/94 Indebtedness 12/31/94
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
W. Andrew Adams $2,527,590 $2,439,283 $3,212,500 $ ---
Robert G. Adams 1,120,530 1,062,856 500,000 ---
Ernest G. Burgess, III 1,224,810 1,153,616 500,000 ---
Richard F. LaRoche, Jr. 1,224,810 1,150,236 1,150,000 ---
---------- ---------- ---------- --------
All Executive Officers
as a Group (4) $6,097,740 $5,805,991 $5,012,500 $ ---
========== ========== ========== ========
</TABLE>
Obligations to repay the Financing Plan loans are an asset of the Company, but
are not reflected as increasing Partnership Equity until paid.
35
<PAGE> 36
UNITHOLDER RETURN:
Table IV is a line graph comparing the yearly percentage change in the
cumulative unitholder return on the Company's units against the cumulative
total return of the S & P composite S & P 500 and the Health Care-Miscellaneous
Index for the five-year period ended on December 31, 1994.
36
<PAGE> 37
TABLE IV
NATIONAL HEALTHCARE L.P.
Comparison of Cumulative Total Return
[GRAPH]
1989 1990 1991 1992 1993 1994
National HealthCare LP 100 85.9 76.7 107.1 176.4 176.1
S&P 500 100 96.8 126.4 136.1 149.7 151.7
S&P Health Care Divers 100 117.7 170.2 141.9 146 155.3
Assumes $100 Invested January 1, 1989 in NHC, S&P 500 and S&P Health Care
Diversified
Note: In October, 1991, NHC divested itself of 78% of its assets by creating
National Health Investors, Inc. and distributing the NHI stock to the then
current NHC unitholders. None of the gain from this divestiture is included in
this analysis.
37
<PAGE> 38
ITEM 12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number of
limited partnership units of the Company beneficially owned as of December 31,
1994 (a) by each person (including any "group" as that term is used in Section
13(d)(3) of the Exchange Act) who is known to the Company to own beneficially
5% or more of the outstanding units (7,826,165 as of December 31, 1994), (b) by
each director of the managing or administrative general partner, and (c) by all
executive officers and directors of the Company, managing general partner and
the administrative general partner as a group. Members of management of the
Company listed below are all members of management of the Managing and
Administrative General Partners, but they disclaim that they are acting as a
"group" and the table below is not reflective of them acting as a group: (*
less than 1% ownership)
<TABLE>
<CAPTION>
Names and Addresses Number of Units(1) Percentage of
of Beneficial Owner Beneficially Owned Total Units
------------------- ------------------ -------------
<S> <C> <C>
W. Andrew Adams, President and 375,571 4.8%
Individual General Partner
1927 Memorial Blvd.
Murfreesboro, TN 37129
Dr. S.C. Garrison, Director 14,460 *
1934 Old Lascassas Rd.
Murfreesboro, TN 37130
Dr. J.K. Twilla, Director 63,037 *
525 Golf Club Lane
Smithville, TN 37166
Dr. Olin O. Williams, Director 84,177 1.1%
2007 Riverview Drive
Murfreesboro, TN 37129
Robert G. Adams, Director 396,769 5.1%
2217 Tomahawk Trace
Murfreesboro, TN 37129
Ernest G. Burgess, Director 162,853 2.1%
1005 Cason Lane
Murfreesboro, TN 37130
Richard F. LaRoche, Jr., Sr. V.P. 344,952 4.4%
2103 Shannon Drive
Murfreesboro, TN 37130
National Health Corporation, 1,253,835 16.0%
Admin. G.P.
P.O. Box 1398
Murfreesboro, TN 37133
Albert O. Nicholas 400,000 5.1%
6002 North Highway 83
Hartland, WI 53029
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C>
All Executive Officers 1,441,819 18.4%
and Directors
of the Corporate General
Partners as a Group
</TABLE>
(1) Assumes exercise of unit options outstanding. See "Option Plans" on
page 30.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
PART IV
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
a) (i) Financial Statements:
The Financial Statements are included as Exhibit 13 and are filed as
part of this report.
(ii) Exhibits:
Reference is made to the Exhibit Index, which is found on pages 43 of
this Form 10-K Annual Report.
b) Reports on Form 8-K: None.
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the undersigned registrant hereby undertakes as follows, which undertaking
shall be incorporated by reference into registrant's Registration Statement on
Form S-8 File No. 33-9881 (filed December 28, 1987):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
39
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To: National HealthCare L.P.:
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in this Form 10-K of National
HealthCare L.P., and have issued our report thereon dated February 1, 1995.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in the accompanying index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and regulations under the Securities and Exchange Act of
1934 and is not otherwise a required part of the basic financial statements.
The financial statement schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements, and in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 1, 1995
40
<PAGE> 41
NATIONAL HEALTHCORP L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- ---------------------- -------- --------
Additions
----------------------
Balance- Charged to Charged Balance
Beginning Costs and to other -End of
Description of Period Expenses Accounts(1) Deductions(2) Period
- ----------- --------- --------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31,
1992 - Allowance
for doubtful
accounts . . . . . . . $3,079 $ --- $ 904 $1,180 $2,803
====== ===== ======= ====== ======
For the year ended
December 31,
1993 - Allowance
for doubtful
accounts . . . . . . . $2,803 $ --- $ 925 $1,116 $2,612
====== ===== ======= ====== ======
For the year ended
December 31,
1994 - Allowance
for doubtful
accounts . . . . . . . $2,612 $ --- $ 2,118 $1,363 $3,367
====== ===== ======= ====== ======
</TABLE>
- -----------
(1) Amounts reflected as a reduction of revenues.
(2) Amounts written off, net of recoveries.
41
<PAGE> 42
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.
NATIONAL HEALTHCARE L.P.
BY:/s/ Richard F. LaRoche, Jr.
-------------------------
Richard F. LaRoche, Jr.
Secretary
Date: March 21, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 21, 1995, by the following persons on
behalf of the registrant in the capacities indicated. Each director of the
registrant whose signature appears below hereby appoints W. Andrew Adams and
Richard F. LaRoche, Jr., and each of them severally, as his Attorney in Fact to
sign in his name on his behalf as a director of the registrant and to file with
the Commission any and all amendments of this report on Form 10-K.
/s/ W. Andrew Adams /s/ Olin O. Williams
- --------------------------------- ----------------------------------
W. Andrew Adams, President Olin O. Williams, M.D., Director
Executive and Financial NHC, Inc., and National HealthCare
Officer, and Individual Corporation, Corporate General
General Partner Partners
/s/ S. C. Garrison /s/ J. K. Twilla
- --------------------------------- ----------------------------------
S.C. Garrison, M.D., Director J.K. Twilla, M.D., Director
NHC, Inc. and National HealthCare NHC, Inc. and National HealthCare
Corporation, Corporate General Corporation, Corporate General
Partners Partners
/s/ Robert G. Adams /s/ Ernest G. Burgess
- --------------------------------- ----------------------------------
Robert G. Adams, Senior Vice Ernest G. Burgess, Director NHC, Inc.
President, Director NHC, Inc. and and National HealthCare Corporation
National HealthCare Corporation Corporate General Partners
/s/ Donald K. Daniel
- ---------------------------------
Donald K. Daniel,Vice President
and Principal Accounting Officer
NHC, Inc. and National Health
Corporation, Corporate General
Partners
42
<PAGE> 43
NATIONAL HEALTHCARE L.P. AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDING DECEMBER 31, 1994
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No. or Location
- ----------- ----------- --------------------
<S> <C>
3.1 Amended and Restated Articles of Specifically incor-
Limited Partnership Agreement porated by reference
to Exhibit A attached
to Form S-4, (Proxy
Statement-Prospectus),
amended, Registration
No.33-9881 (December 9,
1986)
3.2 By-laws (as amended) None
4.1 Form of Common Stock/Unit Certificate Incorporated byreference
from Exhibit 41 attached
to Form S-4, (Proxy
Statement-Prospectus),
as amended, Registration
No. 33-9881 (December 9,
1986)
10 Material Contracts Incorporated by reference
from Exhibits 10.1 thru
10.9 attached to Form
S-4, (Proxy Statement-
Prospectus), as amended,
Registration No. 33-9881
(December 9, 1986)
10.11 Employee Stock/Unit Purchase Plan Incorporated by reference
from Form S-8, Registra-
tion No. 33-9881
(December 28, 1987)
10.12 1994 Unit Option Plan Incorporated by reference
from 1994 Proxy Statement
filed on February 18,
1994
12 Statements Re: Computation of Ratios Page 44
13 Report of Independent Public Accountants Exhibit 13 beginning
Consolidated Statements of Income on Page 45
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Partners'
Capital
Notes to Consolidated Financial
Statements
22 Subsidiaries of Registrant Incorporated by reference
to Exhibit 22 of Form
S-4, (Proxy Statement/
Prospectus), as amended,
Registration No. 33-9881
(December 11, 1986)
23 Consent of Independent Page 65
Public Accountants
27 Financial Data Schedule (for SEC purposes only)
</TABLE>
43
<PAGE> 1
EXHIBIT 12
STATEMENT RE: COMPUTATION OF RATIOS
AS REQUIRED BY ITEM 601(b)(12) OF REGULATION S-K
NATIONAL HEALTHCARE L.P.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Current Assets $ 97,506 $109,291 $ 64,115 $ 53,320 $ 51,565
-------- -------- -------- -------- --------
Current Liabilities $ 55,038 $ 39,798 $ 26,132 $ 25,324 $ 24,990
Current Ratio 1.78 2.75 2.45 2.11 2.06
Long-Term Debt and Debt
Serviced by Other
Parties $194,007 $166,741 $164,330 $169,907 $160,853
-------- -------- -------- -------- --------
Equity $101,006 $ 92,526 $ 67,922 $ 61,824 $ 55,441
Long-Term Debt and Debt
Serviced by Other
Parties to Equity 1.92 1.80 2.42 2.75 2.90
Net Income $ 15,853 $ 37,562 $ 9,501 $ 17,667 $ 17,091
-------- -------- -------- -------- --------
Average Equity $ 96,766 $ 80,224 $ 64,873 $ 58,632 $ 49,755
Return on Average Equity 16.4% 46.8% 14.6% 30.1% 34.4%
Total Liabilities $279,847 $237,306 $221,166 $195,231 $186,634
-------- -------- -------- -------- --------
Partners' Capital and
Deferred Income $116,286 $107,374 $ 82,908 $ 76,981 $ 70,895
Total Liabilities to
Partners' Capital
and Deferred Income 2.4 2.2 2.7 2.5 2.6
</TABLE>
44
<PAGE> 1
EXHIBIT 13
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 46
Consolidated Statements of Income 47
Consolidated Balance Sheets 48
Consolidated Statements of Cash Flows 49
Consolidated Statements of Partners' Capital 50
Notes to Consolidated Financial Statements 51-64
</TABLE>
45
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of National HealthCare L.P.:
We have audited the accompanying consolidated balance sheets of
National HealthCare L.P. (a Delaware partnership and formerly National
HealthCorp L.P.) as of December 31, 1994 and 1993, and the related consolidated
statements of income, partners' capital and cash flows for each of the three
years in the period ended December 31, 1994. These consolidated financial
statements are the responsibility of National HealthCare L.P.'s management.
Our responsibility is to express an opinion on these consolidated financial
statements 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
National HealthCare L.P. as of December 31, 1994 and 1993, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 1, 1995
46
<PAGE> 3
NATIONAL HEALTHCARE L.P.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except unit amounts)
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Net patient revenues $ 269,722 $ 223,089 $ 194,830
Gain on sale of investment --- 24,773 ---
Other revenues 29,179 21,996 21,548
---------- ---------- ----------
Net revenues 298,901 269,858 216,378
---------- ---------- ----------
Costs and Expenses:
Salaries, wages and benefits 157,663 128,462 110,952
Other operating 98,753 80,326 72,718
Depreciation and amortization 13,582 11,879 10,594
Interest 13,050 11,629 12,613
---------- ---------- ----------
Total costs and expenses 283,048 232,296 206,877
---------- ---------- ----------
Net Income $ 15,853 $ 37,562 $ 9,501
========== ========== ==========
Earnings Per Unit:
Primary $ 2.02 $ 4.85 $ 1.28
Fully diluted 1.80 4.05 1.23
Weighted Average Units Outstanding:
Primary 7,834,375 7,752,622 7,405,322
Fully diluted 9,807,241 9,726,254 8,669,283
Net Income Allocable to Partners:
General Partners $ 159 $ 376 $ 95
Limited Partners 15,694 37,186 9,406
---------- ---------- ----------
$ 15,853 $ 37,562 $ 9,501
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
47
<PAGE> 4
NATIONAL HEALTHCARE L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993
- ----------- -------- --------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,442 $ 145
Cash held by trustees 1,604 1,289
Marketable securities 4,010 5,670
Accounts receivable, less allowance for
doubtful accounts of $3,367 and
$2,612, respectively 48,372 30,395
Notes receivable 4,922 4,219
Note receivable from NHI 22,847 26,700
Loan participation agreements 9,784 37,379
Inventory, at lower of cost (first-in,
first-out method) or market 2,952 2,933
Prepaid expenses and other assets 1,573 561
-------- --------
Total current assets 97,506 109,291
-------- --------
Property, Equipment and Assets Under Arrangement
With Other Parties:
Property and equipment, at cost 136,757 108,663
Accumulated depreciation and amortization (31,094) (24,216)
Assets under arrangement with other parties, net 81,746 106,488
-------- --------
Net property, equipment and assets
under arrangement with other parties 187,409 190,935
-------- --------
Other Assets:
Bond reserve funds, mortgage replacement
reserves and other deposits 1,720 1,663
Unamortized financing costs 2,811 3,085
Notes receivable 87,180 25,000
Notes receivable from National 12,296 11,861
Minority equity investments and other 7,211 2,845
-------- --------
Total other assets 111,218 44,454
-------- --------
$396,133 $344,680
======== ========
Liabilities and Partners' Capital
Current Liabilities:
Current portion of long-term debt $ 6,330 $ 3,569
-------- --------
Trade accounts payable 17,688 5,357
Accrued payroll 18,644 13,981
Accrued interest 2,223 988
Distributions payable --- 8,576
Other current liabilities 10,153 7,327
-------- --------
Total current liabilities 55,038 39,798
-------- --------
Long-term Debt, Less Current Portion 104,243 54,625
Debt Serviced by Other Parties, Less Current Portion 89,764 112,116
Minority Interests in Consolidated Subsidiaries 802 767
Commitments, Contingencies and Guarantees
Subordinated Convertible Notes 30,000 30,000
Deferred Income 15,280 14,848
Partners' Capital:
General partners 1,095 1,027
Limited partners, less notes receivable 99,911 91,499
-------- --------
Total partners' capital 101,006 92,526
-------- --------
$396,133 $344,680
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
48
<PAGE> 5
NATIONAL HEALTHCARE L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 15,853 $ 37,562 $ 9,501
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 13,147 11,651 10,368
Provision for doubtful accounts receivable 2,118 1,116 1,180
Amortization of intangibles and deferred charges 848 602 593
Amortization of deferred income (403) (239) (209)
Equity in earnings of unconsolidated investments (450) (2,740) (4,343)
Distributions from unconsolidated investments 213 2,435 2,422
(Gain) loss on sale of investment 120 (24,773) ---
Changes in assets and liabilities:
Increase in accounts receivable (20,095) (2,689) (6,212)
Increase in inventory (19) (56) (86)
(Increase) decrease in prepaid expenses and
other assets (1,012) 1,724 (1,773)
Increase (decrease) in trade accounts payable 12,331 (1,064) 1,387
Increase in accrued payroll 4,663 3,126 1,243
Increase (decrease) in accrued interest 1,235 (259) (330)
Increase in other current liabilities 2,826 3,126 1,348
-------- -------- --------
Net cash provided by operating activities 31,375 29,522 15,089
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to and acquisitions of property and
equipment, net (9,599) (30,569) (14,715)
Increase in notes receivable and loan
participation agreements, net of receipts (31,870) (45,722) (20,557)
Increase in minority equity investments
and other (3,984) (22) (149)
(Increase) decrease in debt and equity securities 2,140 3,159 (4,257)
Sale of investment 136 32,991 ---
-------- -------- --------
Net cash used in investing activities (43,177) (40,163) (39,678)
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from debt issuance 34,225 6,446 29,590
(Increase) decrease in cash held by trustees (315) (12) 13,797
Increase in minority interests in subsidiaries 35 63 77
Issuance of partnership units 773 690 470
Collection of receivables from exercise of options 437 1,040 ---
Increase in bond reserve funds, mortgage
replacement reserves and other deposits (57) (151) (159)
Payments on debt (4,360) (4,023) (8,102)
Cash distributions to partners (17,639) (6,194) (3,872)
Increase in financing costs --- (85) (98)
-------- -------- --------
Net cash provided by (used in) financing
activities 13,099 (2,226) 31,703
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,297 (12,867) 7,114
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 145 13,012 5,898
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,442 $ 145 $ 13,012
======== ======== ========
Supplemental information:
Cash payments for interest expense $ 11,815 $ 11,888 $ 12,943
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
49
<PAGE> 6
NATIONAL HEALTHCARE L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(in thousands except unit amounts)
<TABLE>
<CAPTION>
Receivables Unrealized Total
Number from Sale Gains on General Limited Partners'
of Units of Units Securities Partners Partners Capital
-------- ----------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 7,306,570 $(11,641) $--- $ 735 $ 72,729 $ 61,823
Net income --- --- --- 95 9,406 9,501
Units sold 442,022 (4,533) --- --- 5,003 470
Cash distributions
declared ($.53 per unit) --- --- --- (39) (3,833) (3,872)
--------- -------- ---- ------ -------- --------
BALANCE AT DECEMBER 31, 1992 7,748,592 (16,174) --- 791 83,305 67,922
--------- -------- ---- ------ -------- --------
Net income --- --- --- 376 37,186 37,562
Collection of receivables --- 1,040 --- --- --- 1,040
Units sold 47,841 --- --- 7 684 691
Other --- --- --- 1 80 81
Cash distributions
declared ($1.90 per unit) --- --- --- (148) (14,622) (14,770)
--------- -------- ---- ------ -------- --------
BALANCE AT DECEMBER 31, 1993 7,796,433 (15,134) --- 1,027 106,633 92,526
--------- ------- --- ----- ------- -------
Net income --- --- --- 159 15,694 15,853
Collection of receivables --- 437 --- --- --- 437
Units sold 29,732 --- --- --- 773 773
Unrealized gains on securities --- --- 480 --- --- 480
Cash distributions declared
($1.17 per unit) --- --- --- (91) (8,972) (9,063)
--------- -------- ---- ------ -------- --------
BALANCE AT DECEMBER 31, 1994 7,826,165 $(14,697) $480 $1,095 $114,128 $101,006
========= ======== ==== ====== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
50
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies:
Presentation--
The consolidated financial statements include the accounts of National
HealthCare L.P. and its subsidiaries (NHC). (Prior to January 1, 1995, the
name of NHC was National HealthCorp L.P.) Investments are accounted for on
either the cost or equity method. All material intercompany balances, profits,
and transactions have been eliminated in consolidation, and minority interests
are reflected in consolidation. Certain reclassifications have been made to
the 1992 and 1993 financial statements to conform to the 1994 presentation.
Health Care Revenues--
NHC's principal business is operating long-term health care centers.
Approximately 61% of NHC's net revenues in 1994, 1993 and 1992 are from
participation in Medicare and Medicaid programs (excluding in 1993 the
nonrecurring gain of $24,773,000). Amounts paid under these programs are
generally based on a facility's allowable costs or a fixed rate. Revenues are
recorded at standard billing rates less allowances and discounts principally
for patients covered by Medicare, Medicaid and other contractual programs.
These allowances and discounts were $82,443,000, $54,348,000 and $43,513,000
for 1994, 1993 and 1992, respectively. Amounts earned under the Medicare and
Medicaid programs are subject to review by the third party payors. In the
opinion of management, adequate provision has been made for any adjustments
that may result from such reviews. Any differences between estimated
settlements and final determinations are reflected in operations in the year
finalized.
Provision for Doubtful Accounts--
Provisions for estimated uncollectible accounts and notes receivable are
included in other operating expenses.
Property, Equipment and Assets Under Arrangement with Other Parties--
NHC uses the straight-line method of depreciation over the expected useful
lives of property and equipment estimated as follows: buildings and
improvements, 20-40 years; equipment and furniture, 3-15 years; and properties
under arrangements with other parties, 10-20 years. The provision for
depreciation includes the amortization of properties under capital leases and
properties under arrangement with National Health Investors, Inc. (See Note 3).
Expenditures for repairs and maintenance are charged against income as
incurred. Betterments are capitalized. NHC removes the costs and related
allowances from the accounts for properties sold or retired, and any resulting
gains or losses are included in income. NHC includes interest costs incurred
during construction periods in the cost of buildings ($766,000 in 1994 and
$811,000 in 1993).
51
<PAGE> 8
Investments in Marketable Securities--
NHC considers its investments in marketable securities as available for
sale securities and unrealized gains and losses are recorded in partners'
capital in accordance with Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115).
Intangible Assets--
Any excess of cost over net assets of companies purchased is amortized
generally over 40 years using the straight-line method. Deferred financing
costs are amortized principally by the interest method over the terms of the
related loans.
Income Taxes--
NHC is not a taxable entity. Accordingly, no provision for income taxes
has been made in the Consolidated Statements of Income.
The earnings of NHC are taxable to the individual partners. Partners are
required to report their distributive share of the income, gain, loss,
deductions and credits of the partnership on their individual income tax
returns.
The Revenue Act of 1987 contains provisions which cause some publicly
traded partnerships to be taxed as corporations. Because NHC was in existence
and publicly traded on December 17, 1987, it will continue to be treated as a
partnership for the 1987 through 1997 taxable years.
NHC adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," effective January 1, 1993. The Statement
generally requires NHC to record any income tax provisions or income taxes
payable based on the liability method. NHC management believes, based on
current information, that the effect of any income tax assets or liabilities
that would be recorded in 1998, the effective date that master limited
partnerships become taxable, would not be material to NHC's financial condition
or results of operations.
Concentration of Credit Risks--
NHC's credit risks primarily relate to cash and cash equivalents, cash
held by trustees, accounts receivable, marketable securities, notes receivable
and loan participation agreements. Cash and cash equivalents are primarily
held in bank accounts and overnight investments. Cash held by trustees is
primarily invested in commercial paper and certificates of deposit with
financial institutions. Accounts receivable consists primarily of amounts due
from patients (funded through Medicare, Medicaid, other contractual programs
and private payors) in the states of Alabama, Florida, Georgia, Kentucky,
Missouri, South Carolina, Tennessee, and Virginia and from other health care
companies for management services. NHC performs continual credit evaluations
of its clients and maintains allowances for doubtful accounts on these accounts
receivable. Marketable securities are held primarily in two accounts with
brokerage institutions. Notes receivable relate primarily to
52
<PAGE> 9
secured loans with health care facilities and to secured notes receivable from
officers, directors and supervisory employees as discussed in Note 14. NHC has
$31,999,000 of notes receivable from National Health Investors, Inc. (NHI) as
discussed in Note 14. NHC also has notes receivable from National HealthCare
Corporation of $12,296,000 as discussed in Note 4. NHC has loan participation
agreements with a bank as discussed in Note 14.
NHC's financial instruments, principally its notes receivable and loan
participation agreements, are subject to the possibility of loss of the
carrying values as a result of either the failure of other parties to perform
according to their contractual obligations or changes in market prices which
may make the instruments less valuable. NHC obtains various collateral and
other protective rights, and continually monitors these rights, in order to
reduce such possibilities of loss. See Note 14 for additional information on
the notes receivable and loan participation agreements.
Cash and Cash Equivalents--
Cash equivalents include highly liquid investments with a maturity of
less than three months.
NOTE 2 - ORGANIZATION OF THE PARTNERSHIP:
The general partners of NHC are as follows: (1) NHC, Inc., a Tennessee
corporation (the "Managing General Partner"), which is owned by its board of
directors and senior management of NHC; (2) National HealthCare Corporation
("National" and "Administrative General Partner" and formerly, National Health
Corporation), a Tennessee corporation which is owned by the National HealthCare
Corporation Leveraged Employee Stock Ownership Plan and Trust (the "ESOP"); and
(3) W. Andrew Adams, NHC Inc.'s President (the "Individual General Partner").
The Managing General Partner, the Administrative General Partner and the
Individual General Partner are collectively called "the General Partners". The
General Partners own a general partnership interest in NHC representing a 1%
interest in the profit, losses and distributions of NHC.
NOTE 3 - RELATIONSHIP WITH NATIONAL HEALTH INVESTORS, INC.:
Leases--
On October 17, 1991, concurrent with NHC's conveyance of real property to
NHI, NHC leased from NHI the real property of 40 long-term care centers and
three retirement centers. Each lease is for an initial term expiring December
31, 2001, with two additional five-year renewal terms at the option of NHC,
assuming no defaults. NHC accounts for the leases as operating leases.
During the initial term and first renewal term of the leases, NHC is
obligated to pay NHI annual base rent on all 43 facilities of $15,238,000. If
NHC exercises its option to extend the leases for the second renewal term, the
base rent will be the then fair rental value as negotiated by NHC and NHI.
53
<PAGE> 10
The leases also obligate NHC to pay as debt service rent all payments of
interest and principal due under each mortgage to which the conveyance of the
facilities was subject. The payments are required over the remaining life of
the mortgages as of the conveyance date, but only during the term of the lease.
Payments for debt service rent are being treated by NHC as payments of
principal and interest. See "Accounting Treatment of the Transfer" for further
discussion.
In addition to base rent and debt service rent, in each year after 1992,
NHC must pay percentage rent to NHI equal to 3% of the amount by which gross
revenues of each facility in such later year exceeds the gross revenues of such
facility in 1992. Percentage rent for 1994 and 1993 was approximately $718,000
and $358,000, respectively.
Each lease with NHI is a "triple net lease" under which NHC is responsible
for paying all taxes, utilities, insurance premium costs, repairs and other
charges relating to the ownership of the facilities. NHC is obligated at its
expense to maintain adequate insurance on the facilities' assets.
NHC has a right of first refusal with NHI to purchase any of the
properties transferred from NHC should NHI receive an offer from an unrelated
party during the term of the lease or up to 180 days after termination of the
related lease.
Base rent expense to NHI was $15,238,000 in 1994, 1993 and 1992 and is
included in other operating expenses. At December 31, 1994, the approximate
future minimum base rent commitments to be paid by NHC on non-cancelable
operating leases with NHI are as follows:
1995 $15,238,000
1996 15,238,000
1997 15,238,000
1998 15,238,000
1999 15,238,000
Thereafter 30,476,000
Advisory Agreement--
NHC has entered into an Advisory Agreement with NHI whereby services
related to investment activities and day-to-day management and operations are
provided to NHI by NHC as Advisor. The Advisor is subject to the supervision
and policies established by NHI's Board of Directors.
Either party may terminate the Advisory Agreement on 90 days notice at any
time. NHI may terminate the Advisory Agreement for cause at any time.
For its services under the Advisory Agreement, NHC received annual
compensation of $2,138,000, $1,828,000 and $1,625,000 in 1994, 1993 and 1992,
respectively. However, the payment of such annual compensation is conditional
upon NHI having sufficient funds from operations to pay annual dividends of
$2.00 per share and upon NHI paying such dividends. NHI met this condition in
1994, 1993 and 1992.
54
<PAGE> 11
Purchase of Mortgage Notes--
During 1994, NHC purchased $37,978,000 of mortgage notes receivable from
NHI in exchange for cash and the assumption of certain liabilities. All
properties secured by the mortgage notes are managed by NHC, and four of the
notes had been transferred to NHI upon its capitalization by NHC in 1991.
Accounting Treatment of the Transfer--
NHC has accounted for the conveyance of assets (and related debt) to NHI
and the subsequent leasing of the real estate assets as a "financing/leasing"
arrangement. Since NHC remains liable on the transferred debt, the debt and
applicable asset balances have been reflected on the Consolidated Balance
Sheets as "assets under arrangement with other parties" and "debt serviced by
other parties". The net book value equity of the assets transferred has been
transferred from NHC to NHI. As NHC utilizes the real estate over the lease
term, its Consolidated Statements of Income will reflect the continued
depreciation of the assets over the lease term, the continued interest expenses
on the debt balances and the additional base rent (as an operating expense)
payable to NHI each year. NHC has recovery provisions from NHI if NHC is
required to service the debt through a default by NHI.
Tax Treatment of the Transfer--
The conveyance of assets to NHI was treated as a nontaxable exchange of
assets for the stock of NHI under Section 351 of the Internal Revenue Code of
1986, as amended. For federal income tax purposes, no gain or loss was
recognized by NHC or by its unitholders upon the conveyance of assets to NHI or
upon the distribution of the stock of NHI.
NOTE 4 - RELATIONSHIP WITH NATIONAL HEALTHCARE CORPORATION:
Sale of Health Care Centers--
On January 20, 1988, NHC sold the assets (inventory, property and
equipment) of eight health care centers (1,121 licensed beds) to National, the
administrative general partner of NHC, for a total consideration of
$40,000,000. The consideration consisted of $30,000,000 in cash and a
$10,000,000 note receivable due December 31, 2007. The note receivable earns
interest at 8.5%. NHC has advanced $2,291,000 to National to fund working
capital requirements at December 31, 1994. The working capital advance earns
interest at 85% of prime. NHC has agreed to manage the centers under a 20-year
management contract for management fees comparable to those in the industry.
NHC has a receivable from National for management fees of approximately
$3,804,000 and $3,764,000 at December 31, 1994 and 1993, respectively.
NHC's basis in the assets sold was approximately $24,300,000. The
resulting profit of $15,745,000 was deferred and will be amortized into income
beginning with the collection of the note receivable (up to $12,000,000) with
the balance ($3,745,000) of the profit being amortized into income on a
straight-line basis over the management contract period.
55
<PAGE> 12
Financing Activities--
On January 20, 1988, NHC obtained long-term financing of $8,500,000 for
its new headquarters building from National through the National HealthCare
Corporation Leveraged Employee Stock Ownership Plan and Trust. The note
requires quarterly principal and interest payments with interest at 9%. At
December 31, 1994 and 1993, the outstanding balance on the note was
approximately $6,403,000 and $6,844,000, respectively. The building is owned
by a separate partnership of which NHC is the general partner and building
tenants are limited partners. NHC has guaranteed the debt service of the
building partnership.
In addition, NHC's $50,000,000 credit facility, the $20,000,000 Series A
Loan, and the $30,000,000 Series B Loan described in Note 11 were financed
through National and National's ESOP. NHC's interest costs, financing expenses
and principal payments are equal to those incurred by National. In October,
1991, NHC borrowed $10,000,000 from National. The term note payable requires
quarterly interest payments at 8.5%. The entire principal is due at maturity
in 2007.
As of December 31, 1994, National had borrowed $2,296,000 from NHC to
finance the construction of additions at two health care centers. The notes
require monthly principal and interest payments. The interest rate is equal to
the prime rate, and the notes mature in 1998.
Duties as Administrative General Partner--
The personnel conducting the business of NHC are employees of National
which provides payroll services, provides employee fringe benefits, and
maintains certain liability insurance. NHC pays to National all the costs of
personnel employed for the benefit of NHC, as well as an administrative fee
($1,388,000 in 1994) equal to 1% of payroll costs.
National maintains and makes contributions to its ESOP for the benefit of
eligible employees.
NOTE 5 - GAIN ON SALE OF INVESTMENT:
In August, 1993, NHC sold its investment in VHA Long Term Care (VHA LTC)
for approximately $32,987,000 of cash which resulted in a gain to NHC of
$24,773,000. The gain on sale of investment was approximately $3.20 per
primary unit outstanding and $2.55 per fully diluted unit outstanding. For
federal tax purposes, the sale generated a capital gain to NHC partners of
approximately $25,000,000 which equates to a capital gain per unit of
approximately $3.24. NHC's Board of Directors approved a one-time special cash
distribution of $1.10 per unit in 1993 to help defray tax liability from this
gain.
A summary of financial information of the combined affiliated companies
(VHA LTC and other unconsolidated investments) is set forth below for 1992, the
only period in which the investments are significant in amount:
56
<PAGE> 13
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31 1992
---------------------- ----
<S> <C>
Operations
Net sales $38,979
Expenses 29,817
-------
Net Income $ 9,162
=======
NHC equity in earnings of
unconsolidated investments $ 2,974
=======
Distribution to NHC from
unconsolidated investments $ 2,422
=======
Capital contributions (cumu-
lative) in unconsolidated
investments $ 2,356
=======
</TABLE>
NOTE 6 - OTHER REVENUES:
Revenues from managed centers include management fees and interest income
on notes receivable from managed centers. "Other" revenues include non-health
care related earnings.
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31 1994 1993 1992
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Revenues from managed centers $18,022 $12,446 $10,629
Guarantee fees 936 790 585
Advisory fees from NHI 2,138 1,828 1,625
Earnings (losses)on securities (47) 1,116 1,384
Equity in earnings of unconsolidated
investments 423 1,174 2,974
Interest income 4,844 3,010 3,094
Other 2,863 1,632 $1,257
------ ------ ------
$29,179 $21,996 $21,548
======= ======= =======
</TABLE>
NOTE 7 - EARNINGS PER UNIT:
Primary earnings per unit is based on the weighted average number of
common and common equivalent units outstanding. Common equivalent units result
from dilutive unit options computed using the treasury stock method.
Fully diluted earnings per unit assumes, in addition to the above, that
the 6% subordinated convertible notes were converted at the date issued with
earnings being increased for interest expense thereon.
57
<PAGE> 14
The following table summarizes the earnings and the average number of
common units and common equivalent units used in the calculation of primary and
fully diluted earnings per unit.
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Primary:
Weighted average common units 7,796,508 7,750,531 7,404,979
Stock options 37,867 2,091 343
---------- ---------- ----------
Average common units outstanding 7,834,375 7,752,622 7,405,322
========== ========== ==========
Earnings $ 15,853 $ 37,562 $ 9,501
========== ========== ==========
Fully Diluted:
Weighted average common units 7,796,508 7,750,531 7,404,979
Stock options 37,867 2,857 8,354
Convertible subordinated notes 1,972,866 1,972,866 1,255,950
---------- ---------- ----------
Assumed average common units
outstanding 9,807,241 9,726,254 8,669,283
========== ========== ==========
Earnings $ 17,653 $ 39,362 $ 10,703
========== ========== ==========
</TABLE>
NOTE 8 - PROPERTY, EQUIPMENT AND ASSETS UNDER ARRANGEMENT WITH OTHER PARTIES:
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
(in thousands)
December 31 1994 1993
- ----------- ---- ----
<S> <C> <C>
Land $ 10,463 $ 7,594
Buildings and improvements 63,172 40,512
Furniture and equipment 52,548 43,886
Capitalized equipment leases 33 88
Construction in progress 10,541 16,583
-------- --------
$136,757 $108,663
======== ========
</TABLE>
Assets under arrangement with other parties, net of accumulated
depreciation, consist of the following:
<TABLE>
<CAPTION>
December 31 1994 1993
- ----------- ------- --------
<S> <C> <C>
Land $ 5,203 $ 5,518
Buildings and improvements 70,690 75,844
Fixed equipment 4,442 5,040
Mortgage notes receivable 1,411 20,086
------- --------
$81,746 $106,488
======= ========
</TABLE>
58
<PAGE> 15
NOTE 9 - ACQUISITIONS AND DISPOSITIONS:
In February, 1994, NHC acquired Spectrum Enterprises, Inc. and Spectrum
Private Nursing Services, Inc. for a total consideration of approximately
$4,253,000. Properties acquired include thirteen homecare programs located in
Florida. Two of the homecare programs provide services to private payors
exclusively. Former shareholders have signed a covenant not to compete. NHC
is amortizing the cost of the covenant not to compete over its term.
In February, 1994, NHC purchased for approximately $6,000,000 a 120-bed
long-term health care center located in Naples, Florida.
In May, 1993, NHC purchased for total consideration of approximately
$5,067,000 a 131-bed long-term health care center located in Clinton, South
Carolina.
The purchase prices for the acquisitions above were allocated to the
underlying assets based on their relative fair market values. The Consolidated
Statements of Income for 1994 and 1993 include the results of operations from
the respective dates of acquisition.
NOTE 10 - INVESTMENT IN MARKETABLE SECURITIES:
Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115) was issued by the
Financial Accounting Standards Board effective for fiscal years beginning after
December 15, 1993. As required by SFAS 115, securities are classified as
trading, held-to-maturity or available for sale. Securities are classified as
trading securities when they are bought and held principally for the purpose
of selling them in the near term. Securities are classified as
held-to-maturity when the company has both the positive intent and ability to
hold them to maturity. All other securities are classified as available for
sale. NHC considers its investments in marketable securities as available for
sale securities and unrealized gains and losses are recorded in partners'
capital in accordance with SFAS 115.
The ending balance of partners' capital as of December 31, 1994 was
increased by approximately $480,000 to reflect the net unrealized investment
gain on marketable securities without stated maturities classified as
available for sale which were previously carried at amortized cost or lower of
cost or market. Application of SFAS 115 to prior periods is not permitted and,
accordingly, prior financial statements have not been restated to reflect the
change in accounting principle. The adoption of SFAS 115 did not have a
material effect on NHC's financial position or results of operations.
Proceeds from the sale of investments in debt and equity securities during
the year ended December 31, 1994 were $6,726,000. Gross investment gains of
$493,000 and gross investment losses of $1,055,000 were realized on these
sales. Realized gains and losses from securities sales are determined on the
specific identification of the securities.
59
<PAGE> 16
NOTE 11 - DEBT AND LEASE COMMITMENTS:
Short-Term Borrowings--
During 1994 and 1993, there were no short-term borrowings.
Long-Term Debt--
Long-term debt and debt serviced by other parties consists of the
following:
<TABLE>
<CAPTION>
Weighted Average Final Debt Serviced by Long-Term
Interest Rate Maturities Other Parties Debt
---------------- ---------- ------------------ -----------------
(in thousands)
December 31 1994 1993 1994 1993
- ----------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Bank credit facility, principal
and interest payable in variable,
quarterly installments 5.2% 2009 $26,353 $ 27,300 $ 16,148 $16,728
Senior secured notes, interest
payable semiannually,
principal payable in semi-
annual payments beginning
November, 1995 8.3 2003 20,000 20,000 --- ---
Senior secured notes, interest
payable semiannually,
principal payable in semi-
annual payments beginning
November, 1995 8.4 2005 564 19,238 29,436 10,762
First mortgage revenue bonds,
principal and interest payable
quarterly 10.0 2005 12,514 12,544 2,807 2,815
First mortgage notes payable in
periodic installments, interest
payable monthly 9.7 1996-2019 7,415 7,869 29,250 6,844
First mortgage revenue bonds,
payable in periodic installments,
interest payable monthly 9.3 2001-2011 11,404 11,919 --- ---
First mortgage revenue bonds,
payable in periodic installments, variable,
interest payable monthly 4.4 2000-2010 15,490 16,055 --- ---
Unsecured term note payable to
National. Interest payable quarterly,
principal payable at maturity 8.5 1998 --- --- 10,000 10,000
Other notes payable generally
in monthly installments 8.75 1995-1996 --- --- 18,956 8,236
------- -------- -------- -------
93,740 114,925 106,597 55,385
Less current portion (3,976) (2,809) (2,354) (760)
------- -------- -------- -------
$89,764 $112,116 $104,243 $54,625
======== ======== ======== =======
</TABLE>
The 8.3% and 8.4% secured notes due in 2003 and 2005 were borrowed
through NHC's administrative partner, National. NHC granted certain credits
and interest rate concessions related to its management fees from National in
obtaining these loans.
The 10% first mortgage bonds (Bonds) due in 2005 are redeemable at the
option of NHC, in whole or in part, at a redemption price of 105% of the
principal amount thereof, plus accrued interest, with such redemption price
declining 1% per year on or after January 15, 1993 to 100% of the principal
amount on or after January 15, 1998. The Bonds are redeemable
60
<PAGE> 17
by holders at 100% of the principal amount thereof, plus accrued interest.
The majority of the mortgage debt is cross-defaulted with other NHC
and NHI liabilities and is cross-collateralized with NHC and NHI assets to the
extent of approximately $22,287,000 of debt.
To obtain the consent of various lenders to the transfer of assets,
NHI guaranteed certain NHC debt and NHC-guaranteed debt (see Note 13) which
were not transferred to NHI. A default by NHI under its obligations would
default the debt or guarantees of NHC.
The aggregate maturities of long-term debt and capital lease obligations
for the five years subsequent to December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Long-term Debt Serviced
Debt By Others Total
--------- ------------- ----------
<S> <C> <C> <C>
1995 $2,355,000 $3,975,000 $ 6,330,000
1996 4,283,000 5,219,000 9,502,000
1997 4,423,000 5,270,000 9,693,000
1998 4,515,000 6,084,000 10,599,000
1999 4,327,000 5,345,000 9,672,000
</TABLE>
Certain property and equipment of NHC and NHI are pledged as collateral
on long-term debt or capital lease obligations. Other property and assets are
available for use as collateral as needed.
Certain loan agreements require maintenance of specified operating ratios
as well as specified levels of cash held in escrow, working capital and
partners' capital by NHC and NHI. All such covenants have been met by NHC, and
management believes that NHI is in compliance with the loan covenants.
Lease Commitments--
Operating expenses for the years ended December 31, 1994, 1993, and 1992
include expense for leased premises and equipment under operating leases of
$16,692,000, $16,223,000 and $15,783,000, respectively. See Note 3 for the
approximate future minimum base rent commitments on non-cancelable operating
leases with NHI.
Construction and Financing Commitments--
NHC is committed to spend approximately $7,511,000 for ongoing
construction contracts and to provide financing to managed facilities in the
amount of $3,047,000 in 1995. NHC is also committed to loan up to $30,848,000
to NHI under a line of credit agreement. NHC's cash on hand, marketable
securities, short-term notes receivable, loan participation agreements,
operating cash flow and, as needed, its borrowing capacity are expected to be
adequate to fund these commitments.
61
<PAGE> 18
NOTE 12 - SUBORDINATED CONVERTIBLE NOTES:
On May 12, 1992, NHC issued $30,000,000 of 6% subordinated convertible
notes ("the notes") due July 1, 2000. Interest is payable quarterly.
The notes are convertible at the option of the holder at any time into
units of NHC at a price of $15.2063 per unit, subject to adjustment for certain
changes in the number of units outstanding. The notes may be redeemed at the
option of NHC after May 12, 1996, but only if NHC has elected to be taxed as a
corporation and only if the market price of NHC's units is such as to guarantee
certain specified returns to the holder of the notes. NHC has reserved
1,972,867 units for conversion of the notes.
NOTE 13 - CONTINGENCIES AND GUARANTEES:
Litigation--
There is certain litigation incidental to NHC's business, none of
which, in management's opinion, would be material to the financial position or
results of operations of NHC.
Professional Liability and Other Insurance--
In 1994, NHC carried a professional liability insurance policy
($1,000,000 per claim and $3,000,000 in the aggregate per location per annum)
for coverage from liability claims and losses incurred in its healthcare
business. In 1995, professional liability coverage was increased to $1,000,000
per claim and in the aggregate per location with additional umbrella coverage
in the amount of $5,000,000 in the aggregate per occurrence per annum. The
policy is a fixed premium and occurrence form policy and has no provisions for
a retrospective refund or assessment due to actual loss experience. In the
opinion of management, NHC's insurance coverage is adequate to cover settlement
of outstanding claims against NHC.
NHC self-insures certain expenses related to health insurance and workers
compensation insurance claims of its employees. Provision has been made by
NHC for reported claims and estimates for incurred but unreported claims.
Guarantees and Related Events--
In order to obtain management agreements and to facilitate construction
or acquisition of certain health care centers which NHC manages for others,
NHC has guaranteed some or all of the centers' first mortgage bond debt
(principal and interest). For this service, NHC charges an annual guarantee
fee of 1% to 2% of the outstanding principal balance guaranteed, which fee is
in addition to NHC's management fee. The principal amount outstanding under
the guarantees is approximately $71,869,000 (net of available debt service
reserves) at variable and fixed interest rates with a weighted average of 5.3%
at December 31, 1994. In addition, NHC has guaranteed a letter of credit in
the amount of approximately $8,200,000 for which an annual fee of 2% is charged.
62
<PAGE> 19
In management's opinion, these guarantee fees approximate fees that NHC
would currently charge to enter into similar guarantees.
All of the guaranteed indebtedness is secured by first mortgages, pledges
of personalty, accounts receivable and, in certain instances, by the personal
guarantees of the owners of the facilities. The borrower has granted second
mortgages over the relevant properties in favor of NHC, and NHC has assigned
its rights in certain of such mortgages to NHI. Such rights may be enforced
if either NHC or NHI is required to pay under their respective guarantees.
NHC has agreed to indemnify and hold harmless NHI against any and all loss,
liability or harm incurred by NHI as a result of having to perform under its
guarantee of any or all of the guaranteed debt.
NOTE 14 - NOTES RECEIVABLE AND LOAN PARTICIPATION AGREEMENTS:
NHC has receivables from certain line of credit agreements with NHI under
which there is a balance outstanding of $31,999,000.
Other notes receivable generally consist of loans and accrued interest
to managed health care centers and retirement centers for construction costs,
development costs incurred during construction and working capital during
initial operating periods. The notes generally require monthly payments with
maturities ranging from five to twenty-five years. The majority of the notes
mature in 2004. Interest on the notes is generally at prime plus 2% or at a
fixed rate of 10.25%, payable monthly. The collateral for the notes consists
of first and second mortgages, certificates of need, personal guarantees and
stock pledges.
Under the terms of a collateralized management loan program, NHC has
loaned approximately $425,000 at December 31, 1994 to officers, directors and
supervisory employees. The notes are secured by the pledge of NHI common stock
having a fair market value equal to the amount loaned. In addition, the
borrower must provide written evidence of the existence of a financial
institution line of credit in an amount equal to the loan amount. Principal
and interest are payable on demand, but if no demand is made for interest, then
interest shall be paid quarterly.
NHC has entered into loan participation agreements with SouthTrust Bank
of Alabama acquiring an interest in two mortgage notes totaling approximately
$9,784,000. The participation interests are 75% and 100% and the interest
rates are variable. At December 31, 1994, the rates are 9.625% and 10.515%.
The mortgages mature in 2002. However, NHC has the right under the
participation agreement to exchange its investment for cash at any time.
NOTE 15 - PARTNERS' CAPITAL:
NHC has Incentive Option Plans which provide for the granting of options
to key employees and directors to purchase units at no less than market value
on the date of grant. On April 22, 1994, options to purchase 495,000 units
were granted at $25.12 per unit. On October 2, 1992, options to purchase
402,000 units (which had been granted on July 23, 1992 at $11.25 per unit) were
exercised and the units were issued. At December 31, 1994, options to purchase
5,000 units and 495,000 units at $11.25 and $25.12, respectively, remain
outstanding.
63
<PAGE> 20
Additionally, NHC has an employee unit purchase plan which allows
employees to purchase ownership units of NHC through payroll deductions. The
plan allows employees to terminate participation at any time.
In connection with the exercise of certain stock options, NHC has
received interest-bearing (ranging from 3.5% to 6.5%), full recourse notes in
the amount of $14,697,000 at December 31, 1994. The notes are secured by units
of NHC or shares of NHI having a fair market value of not less than 150% of the
amount of the note. The notes were received in accordance with the terms of
the Key Employee Stock Financing Plan as approved at NHC's Special Meeting of
the unitholders on December 31, 1986. The principal balances of the notes are
reflected as a reduction of partners' capital in the consolidated financial
statements.
NOTE 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical to
estimate that value:
Cash and cash equivalents; Cash held by trustees; Bond reserve funds, mortgage
replacement reserves and other deposits; Loan Participation Agreements; and
Accrued interest--
The carrying amount approximates fair value because of the short
maturity or the nature of these instruments.
Notes receivable--
The fair value of NHC's notes receivable is estimated based on the
current rates offered by NHC or comparable parties for the same or similar type
of notes receivable of the same or similar maturities.
Long-term debt; Debt serviced by other parties; and Subordinated convertible
notes--
The fair value is estimated based on the current rates offered to NHC
for similar debt of the same maturities.
The estimated fair values of NHC's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Carrying Amount Fair Value
--------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 1,442,000 $ 1,442,000
Cash held by trustees 1,604,000 1,604,000
Notes receivable 127,245,000 127,245,000
Loan participation agreements 9,784,000 9,784,000
Bond reserve funds,
mortgage replacement
reserves and other
deposits 1,720,000 1,720,000
Accrued interest (2,223,000) (2,223,000)
Long-term debt,
including current
portion (106,597,000) (106,597,000)
Debt serviced by other
parties, including
current portion (93,740,000) (93,740,000)
Subordinated convertible
notes (30,000,000) (30,000,000)
</TABLE>
64
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports on National HealthCare, L.P. dated
February 1, 1995, included in this Form 10-K for the year ended December 31,
1994, into the Partnership's previously filed Post-effective Amendment No. 1
to Form S-4 on Form S-8 Registration Statement No. 33-9881. It should be
noted that we have not audited any financial statements of the Company
subsequent to December 31, 1994 or performed any audit procedures subsequent
to the date of our report.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 21, 1995
65
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS OF
NATIONAL HEALTHCARE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,046,000
<SECURITIES> 4,010,000
<RECEIVABLES> 89,292,000
<ALLOWANCES> (3,367,000)
<INVENTORY> 2,952,000
<CURRENT-ASSETS> 97,506,000
<PP&E> 264,513,000
<DEPRECIATION> (77,104,000)
<TOTAL-ASSETS> 396,133,000
<CURRENT-LIABILITIES> 55,038,000
<BONDS> 224,007,000
<COMMON> 0
0
0
<OTHER-SE> 101,006,000
<TOTAL-LIABILITY-AND-EQUITY> 396,133,000
<SALES> 0
<TOTAL-REVENUES> 298,901,000
<CGS> 0
<TOTAL-COSTS> 254,298,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,118,000
<INTEREST-EXPENSE> 13,050,000
<INCOME-PRETAX> 15,853,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,853,000
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 1.80
</TABLE>
