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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended Commission File No.
December 31, 1995 33-9881
_______
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
_________________________________________________________________________
Units of Limited Partnership Interest American Stock Exchange
Senior Subordinated Convertible Debentures
Due 2000 (6%) 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 $186,616,400 as of January 31, 1996.
Number of Units outstanding as of January 31, 1996: 8,353,114
Page 1 of 68 Pages
Exhibit Index Page 46
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PART 1
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ITEM 1
BUSINESS
GENERAL
National HealthCare L.P. (NHC or the Company) 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 subacute, skilled and intermediate nursing and
rehabilitative care. At December 31, 1995, the Company operated 98
long-term health care centers with a total of 12,692 licensed beds.
Of the 98 centers operated, nine are owned, 40 are leased from
National Health Investors, Inc. (NHI) and 49 are managed for other
owners. The Company's homecare programs provide rehabilitative care
at a patient's residence. During 1995, the Company operated 29
homecare programs (28 at year end) and provided 716,542 homecare
patient visits. NHC also operates 387 retirement apartments located
in one managed and three leased retirement centers. Additionally, the
Company operates assisted living units at six owned or leased centers
and two managed centers.
In 1995 NHC opened 384 new beds, 111 in owned/leased centers and
273 in managed centers. Bed growth in owned/leased centers was due to
two expansion projects. Managed center bed growth was realized with
the addition of two new centers with a total of 199 beds and
expansions of existing operations by 74 beds. During the year,
construction started on four new owned centers totaling 340 beds and
two leased centers are being expanded by a total of 37 beds.
Regarding construction starts for managed centers, two expansion
projects, each with 60 beds were begun in 1995. Finally, NHC has
obtained certificates of need for the construction of 731 beds at 13
owned, leased or managed locations of which are expected to start
construction in 1996.
As of December 31, 1995, the Company operated specialized care
units such as Alzheimer's Disease care units (4), sub-acute nursing
units (9) 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
increasing range of services through related or separately structured
health care centers, homecare programs, specialized care units,
pharmacy operations, rehabilitative services, assisted living centers
and retirement centers. Highlights of these activities during 1995
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 (28 at year end) have
increased their total number of visits from 94,000 in 1989
to 717,000 in 1995, 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
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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 1996.
B. REHABILITATIVE SERVICES. The Company has long operated an
intensive offering of physical, speech, and occupational
therapy provided by center specific therapists. During
1995, the Company's rehabilitation division known as
National Health Rehab had a net increase of 121 for a total
of 774 licensed therapists at year end and seven case
managers. Starting in October, 1993, the Company redirected
its focus from center-based therapists to a wider
operational format and has created a separate home office
and accountability system for its National Health Rehability
(NHR) division. 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 1995 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. Florida, Middle and
East Tennessee, and South Carolina are currently being
serviced by NHC's seven case managers. At least two
additional case management areas are planned for 1996. 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 pharmacy. In other states, pharmaceutical services
have been provided by third party contracts. NHC continues
to review opportunities for regional pharmacy operations and
now operates three, one in east Tennessee and two in central
Florida. 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 regional
pharmacy operations now have 4,399 nursing home beds under
contract.
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E. ASSISTED LIVING PROJECTS. Although the Company presently
owns or manages eight assisted living projects, all eight
are located within the physical structure of a long-term
health care center or retirement complex. 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. Construction started on three free standing
assisted living projects in 1995, all of which will open in
1996. It is anticipated that the Company will start
construction on approximately four additional free-standing
assisted living apartments during 1996. 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 1995, 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. 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
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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. The Company developed and promotes a "customer
satisfaction" rating system, using 1993 as a bench mark, and 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. Nine 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 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 which
the Company owns, leases or manages:
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Number Owned/Leased/ Projected
Location of Beds Managed Opening Date
=========== ======= ============= ==============
Daytona, FL 60 O March, 1996
Anniston, AL 27* L May, 1996
Pensacola, FL 60* M August, 1996
Columbia, SC 120 O December, 1996
Hendersonville, TN 10* L December, 1996
Murfreesboro, TN 40 O December, 1996
Orlando, FL 120 O December, 1996
Palatka, FL 60 M December, 1996
Total 497
*Expansion of existing center
CONSTRUCTION STARTS IN 1996
The following table sets forth the new beds authorized by
governmental certificates of need which are anticipated to start
construction in 1996.
Number Number of Number of
of Beds New Centers Existing Centers
Owned 255 2 1
Leased 176 0 5
Managed 300 4 1
Total 731 6 7
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:
Year Ended December 31
1995 1994 1993
Overall census 93.0% 92.8% 94.0%
Census excluding acquisitions
and new openings 93.0% 94.5% 94.2%
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
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 1995, homecare visits increased from 674,000 visits to
717,000 visits.
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The Company has homecare programs in both Tennessee and Florida,
and will open at least three in South Carolina in 1996. 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 owns or manages eight assisted living
units, all eight of which are located within the physical structure of
a long-term health care center or retirement center. The Company
plans to add at least four free standing assisted living projects each
year with the first priority being to serve markets in which the
Company already operates health care centers. 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. The Company will open three and start construction on four
free standing projects in 1996, containing 556 units in the aggregate.
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 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 is currently marketing an additional continuing care
retirement community in Murfreesboro, Tennessee and has land under
contract for similar communities in Knoxville, Tennessee and Sarasota,
Florida.
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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:
Year Ended Dec 31
Source 1995 1994 1993
Private 28% 28% 29%
Medicare 38% 35% 29%
Medicaid/Skilled 9% 11% 13%
Medicaid/Intermediate 24% 25% 28%
VA and Other 1% 1% 1%
Total 100% 100% 100%
GOVERNMENT HEALTH CARE REIMBURSEMENT PROGRAMS
The federal health insurance program for the aged is Medicare,
which 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 1995. During 1995 the Company had 44
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
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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 $89.50 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 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 books
as receivables the amounts which it expects to receive under the
Medicare and Medicaid programs and
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books into profit or loss any differences in amounts actually
received. 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
Governmental Funding of Medicare and Medicaid. At the time that
this is written, the United States Congress has passed and the
President has vetoed a budget reconciliation bill. The President
then submitted his own budget bill which also proposes cuts in
Medicare and Medicaid. The President's bill involves a smaller dollar
amount of cuts or curtailments to future spending but is non-specific
as to the actual sources of those cuts or curtailments to future
spending.
As it currently stands, the Congressional Budget Reconciliation
Bill contains several important changes to the Medicare payment
system.
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(1) A change to a prospective payment system (PPS) by October
1997. A PPS could eliminate the differential between the
hospital based skilled nursing facilities (SNFs) and
freestanding SNFs. Because of inherently lower costs,
freestanding SNFs should be able to continue to attract
higher acuity patients in this environment with a potential
loss of those patients from the acute care side.
(2) Limitations on ancillary reimbursement will be facility
specific which will be based upon 1994 "reasonable" costs
standard and will be indexed by 1997. Efficient operators
that can improve outcomes for higher acuity Medicare
patients should be able to recover substantially all of
their costs.
(3) A freeze on routine cost payments and a reduction in capital
payments will place a premium on cost controls and efficient
delivery of services. For Medicare purposes, both the
President's bill and the Congressional Budget Reconciliation
Bill propose shifting the actual administration of Medicaid
and other Welfare programs from the Federal government to
the 50 states. Although both bills contain language
endeavoring to protect existing Medicaid programs, each
state government will be assessing their citizens' needs and
allocating their limited resources accordingly. Again,
efficient operators and operators with a significant market
share within states will probably be less effected with
these changes than single facility providers.
Although it is likely that there will be a substantial reduction
in the growth of governmental revenues for Medicare and Medicaid, NHC
believes that loss of governmental revenues can be offset by increased
private paying revenues and the continued expansion of its service
component income.
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 1995, 1994 and 1993.
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
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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. Seven case
managers were in place by year end 1995 and two more are
planned to be added in 1996. 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 provided by third party contracts. NHC is now
creating wholly owned regional pharmacy operations and
currently operates one in east Tennessee and two in central
Florida. 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 Regional
pharmacy operations had almost 4,400 nursing home beds under
contract by December 31, 1995.
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 the following: (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.
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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
is 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 approximately $2,827,000 in 1995.
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.
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
13
<PAGE>
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 20 full-time
individuals in this program. Four of its eight regional vice
presidents and 52 of its 98 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, 1995, the administrative general partner of
the Company and the Company's managed centers had approximately 13,500
full and part time 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.
(The Balance of This Page Intentionally Left Blank)
14
<PAGE>
<TABLE>
ITEM 2
PROPERTIES
LONG-TERM HEALTH CARE CENTERS
<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 NHC HealthCare, Anniston Leased 124 27 beds under development 1973
Moulton NHC HealthCare, Moulton 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 HealthCare, Hudson Leased 180 1986
Merritt Island NHC HealthCare Leased 120 22 bed Alzheimer's unit
60 beds under development 1990
Panama City NHC of Panama City Managed 120 1986
Port Charlotte NHC HealthCare Owned 180 60 bed subacute care unit
30 bed Alzheimer's unit 1994
Naples NHC HealthCare, Naples Owned 60 26 beds under development 1994
St. Petersburg NHC HealthCare Managed 159 1984
Stuart NHC HealthCare, 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 60 beds under development 1987
Orlando Palm Garden of Orlando Managed 120 1987
Pensacola Palm Garden of Pensacola Managed 120 60 beds under development 1987
Lake City Palm Garden of Lake City Managed 120 1992
Largo Palm Garden of Pinellas Managed 120 20 bed subacute care unit 1991
Port St. Lucie Palm Garden of Pt 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 W. Palm Beach Managed 159 3 beds under development 1988
Winter Haven Palm Garden of Winter Haven Managed 120 1987
Plant City NHC HealthCare, Plant City Leased 171 1985
Dade City Royal Oak Nursing Center Managed 120 1993
Sarasota Sarasota Health Care Center Managed 120 60 beds under development 1990
Sun City Palm Garden of Sun City Managed 120 1991
Niceville The Manor at Blue Water Bay Managed 60 1993
Madison Lake Park of Madison Managed 79 1995
Miami The Nursing Center at Mercy Managed 120 1995
15
<PAGE>
LONG-TERM HEALTH CARE CENTERS (continued)
<CAPTION>
Total Beds under Development Joined
State City Center Affiliation Beds and Special Care Units NHC
<S> <C> <C> <C> <C> <C> <C>
Georgia Ft. Oglethorpe NHC HealthCare Owned 81 54 beds under development 1989
Rossville NHC HealthCare, Rossville Leased 112 1971
Indiana Brownsburg Brownsburg Hlth Care Ctr. Managed 178 20 bed Alzheimer's unit 1990
Castleton Castleton Hlth Care Ctr. Managed 120 18 bed Alzheimer's unit 1990
Ladoga Ladoga Health Care Center Managed 95 1990
Plainfield Plainfield Hlth Care Ctr. Managed 199 22 bed Alzheimer's unit 1990
Kentucky Dawson Springs NHC HealthCare Leased 80 1973
Glasgow NHC HealthCare, Glasgow Leased 206 10 bed Alzheimer's unit 1971
Madisonville NHC HealthCare Leased 94 1973
Missouri Desloge NHC HealthCare, Desloge Leased 120 1982
Joplin NHC HealthCare, Joplin Leased 126 1982
Kennett NHC HealthCare, Kennett Leased 160 20 beds under development 1982
Macon Macon Health Care Center Managed 120 1982
St. Louis NHC HealthCare,
Maryland Heights Leased 220 1987
Osage Beach Osage Beach Hlth Care Ctr Managed 120 1982
Springfield Springfield Hlth Care Ctr Managed 120 1982
St. Charles NHC HealthCare Leased 120 1982
West Plains West Plains Hlth Care Ctr Managed 120 1982
South Anderson NHC HealthCare, Anderson Leased 290 1973
Carolina Greenwood NHC HealthCare, Greenwood Leased 152 1973
Sumter NHC HealthCare, Hopewell Managed 96 1985
Laurens NHC HealthCare, Laurens Leased 176 1973
Aiken Mattie C. Hall
Health Care Center Managed 176 44 bed Alzheimer's unit 1982
Clinton NHC HealthCare, Clinton Owned 131 1993
Murrells Inlet NHC HealthCare,
Garden City Owned 88 1992
Greenville NHC HealthCare, Greenville Owned 176 1992
Lexington NHC HealthCare, Lexington Owned 88 12 bed subacute care unit 1994
North Augusta NHC HealthCare,
North Augusta Owned 132 1991
Sumter NHC HealthCare, Sumter Managed 120 1985
Tennessee Athens NHC HealthCare, Athens Leased 96 1971
Johnson City NHC HealthCare,
Johnson City Leased 179 18 bed Alzheimer's unit 1971
Columbia NHC HealthCare, Columbia Leased 120 12 bed subacute care unit 1973
Cookeville NHC HealthCare, Cookeville Managed 96 1975
Franklin NHC HealthCare, Franklin Leased 84 1979
Dickson NHC HealthCare, Dickson Leased 217 1971
Columbia NHC HealthCare, Hillview Leased 98 1971
Knoxville NHC HealthCare, Knoxville Leased 152 1971
Knoxville NHC HealthCare,
Fort Sanders Owned 180 12 bed subacute unit 1977
McMinnville NHC HealthCare,
McMinnville Leased 142 1971
Lewisburg NHC HealthCare, Lewisburg Leased 95 1971
16
<PAGE>
LONG-TERM HEALTH CARE CENTERS (continued)
<CAPTION>
Total Beds under Development Joined
State City Center Affiliation Beds and Special Care Units NHC
<S> <C> <C> <C> <C> <C> <C>
Tennessee Murfreesboro NHC HealthCare,
Murfreesboro Managed 190 69 bed subacute care unit 1974
Nashville NHC HealthCare, Nashville Leased 133 1975
Hendersonville NHC HealthCare,
Hendersonville Leased 107 10 beds under development 1987
Lawrenceburg NHC HealthCare,
Lawrenceburg Managed 97 1985
Oak Ridge NHC HealthCare, Oak Ridge Managed 130 1977
Lewisburg NHC HealthCare, Oakwood Leased 62 1973
Chattanooga NHC HealthCare,
Chattanooga Leased 212 20 bed sub-acute care 1971
Pulaski NHC HealthCare, Pulaski Leased 95 1971
Milan NHC HealthCare, Milan Leased 129 1971
Lawrenceburg NHC HealthCare, Scott Leased 62 15 beds under development 1971
Dunlap NHC HealthCare, Sequatchie Leased 60 60 beds under development 1976
Somerville NHC HealthCare, Somerville Leased 84 1976
Sparta NHC HealthCare, Sparta Leased 150 1975
Springfield NHC HealthCare,
Springfield Leased 112 1973
Smithville NHC HealthCare,
Smithville Leased 76 1971
Nashville The Health Center of
Richland Place Managed 106 1992
Nashville West Meade Place Managed 120 1993
Virginia Bristol NHC HealthCare, Bristol Leased 120 1973
ASSISTED LIVING UNITS
<CAPTION>
State City Center Assisted Living Units
<S> <C> <C> <C>
Alabama Anniston NHC HealthCare, Anniston 20 bed assisted living unit
Florida Naples NHC HealthCare, Naples 60 bed assisted living unit
West Palm Beach Palm Garden of West Palm Beach 25 bed assisted living unit
Missouri St. Charles Lake St. Charles Retirement Center 25 bed assisted living unit
Tennessee Dickson NHC HealthCare, Dickson 20 bed assisted living unit
Johnson City NHC HealthCare, Johnson City 15 bed assisted living unit
Nashville Richland Place 32 bed assisted living unit
Somerville NHC HealthCare, Somerville 12 bed assisted living unit
17
<PAGE>
RETIREMENT APARTMENTS
<CAPTION>
State City Retirement Apartments Affiliation Units Est.
<S> <C> <C> <C> <C> <C>
Missouri St. Charles Lake St. Charles Retirement Apts. Leased 155 1984
Tennessee Johnson City Colonial Hill Retirement Apts. Leased 63 1987
Chattanooga Parkwood Retirement Apartments Leased 32 1986
Nashville Richland Place Continuing
Care Community Managed 137 1993
HOMECARE PROGRAMS
<CAPTION>
State City Homecare Programs Affiliation Est.
<S> <C> <C> <C> <C>
Florida Blountstown NHC HomeCare of Blountstown Owned 1994
Carrabelle NHC HomeCare of Carrabelle Owned 1994
Chipley NHC HomeCare of Chipley Owned 1994
Crawfordville NHC HomeCare of Crawfordville Owned 1994
Madison NHC HomeCare of Madison Owned 1994
Marianna NHC HomeCare of Marianna Owned 1994
Panama City NHC HomeCare of Panama City Owned 1994
Panama City NHC Private Nursing Owned 1994
Perry NHC HomeCare of Perry Owned 1994
Port St. Joe NHC HomeCare of Port St. Joe Owned 1994
Quincy NHC HomeCare of Quincy Owned 1994
Tallahassee NHC HomeCare of Tallahassee Owned 1994
S.Carolina Greenwood NHC HomeCare of Greenwood Owned 1995
Tennessee Athens NHC HomeCare of Athens Owned 1984
Johnson City NHC HomeCare of Johnson City Owned 1978
Columbia NHC HomeCare of Columbia Owned 1977
Cookeville NHC HomeCare of Cookeville Owned 1976
Dickson NHC HomeCare of Dickson Owned 1977
Lawrenceburg NHC HomeCare of Lawrenceburg Owned 1977
Lewisburg NHC HomeCare of Lewisburg Owned 1977
McMinnville NHC HomeCare of McMinnville Owned 1976
Murfreesboro NHC HomeCare of Murfreesboro Owned 1976
Knoxville NHC HomeCare of Knoxville Owned 1977
Chattanooga NHC HomeCare of Chattanooga Owned 1985
Pulaski NHC HomeCare of Pulaski Owned 1985
Milan NHC HomeCare of Milan Owned 1977
Somerville NHC HomeCare of Somerville Owned 1983
Sparta NHC HomeCare of Sparta Owned 1984
Springfield NHC HomeCare of Springfield Owned 1984
</TABLE> 18
<PAGE>
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 29, 1995 was $39.00.
On December 31, 1995, NHC had approximately 3,700 unitholders,
comprised of 1,826 unitholders of record and an additional 1,874
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.
Unit Prices Cash Distributions
High Low Declared Per Unit
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
1995
1st Quarter $26.000 $22.875 $ .42
2nd Quarter 28.500 24.375 .52
3rd Quarter 31.500 28.000 .52
4th Quarter 39.375 29.500 .52
NHC paid cash distributions on its outstanding partnership
units related to reporting years as follows: 1991, $1.20 per
unit; 1992, $.54 per unit; 1993, $.88 per unit; 1994, $1.35 per
unit; and 1995, $1.98 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.
19
<PAGE>
ITEM 6
SELECTED FINANCIAL DATA
The following table represents selected financial information with respect
to the Company for the five years ended December 31, 1995. 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.
Year Ended December 31,
1995 1994 1993 1992 1991
(in thousands, except unit and per unit data)
Operating Data:
Revenue $350,957 $298,901 $245,085 $216,378 $184,612
Gain on sale of
investments -- -- 24,773 -- --
Expenses 329,842 283,048 232,296 206,877 166,945
Net income 21,115 15,853 37,562 9,501 17,667
Earnings per unit:
Primary $ 2.65 $ 2.02 $ 4.85 $ 1.28 $ 2.45
Fully diluted 2.31 1.80 4.05 1.23 2.45
Balance Sheet Data:
Total assets $355,491 $396,133 $344,680 $304,074 $273,015
Long-term debt 100,871 104,243 54,625 49,299 51,947
Debt serviced by
other parties 40,771 89,764 112,116 115,031 117,960
Partners' capital 108,899 101,006 92,526 67,922 61,823
Cash distributions
declared per unit:
Quarterly and
year end $ 1.98 $ 1.35 $ .88 $ .54 $ 1.20
Special -- -- 1.10 -- .13
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview--
National HealthCare L.P. (NHC) is a leading provider of long-term
health care services. NHC operates or manages 98 long-term health care
centers with 12,692 beds in nine states. NHC 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. NHC also operates retirement centers.
Results of Operations--
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, 1995, 1994 and 1993, excluding in 1993 the
nonrecurring gain on sale of investment.
20
<PAGE>
Percentage of Net Revenues
Year Ended December 31 1995 1994 1993
Revenues:
Net patient revenues 87.8% 90.2% 91.0%
Other revenues 12.2 9.8 9.0
Net revenues 100.0 100.0 100.0
Costs and expenses:
Salaries, wages and benefits 53.8 52.7 52.4
Other operating 31.2 33.0 32.8
Depreciation and amortization 4.2 4.6 4.8
Interest 4.8 4.4 4.8
Total costs and expenses 94.0 94.7 94.8
Net Income 6.0% 5.3% 5.2%
The following table sets forth the increase in certain items from the
consolidated statements of income as compared to the prior period excluding
in 1993 the nonrecurring gain on sale of investment.
Period to Period Increase (Decrease)
1995 vs. 1994 1994 vs. 1993
(dollars in thousands) Amount Percent Amount Percent
Revenues:
Net patient revenues $38,247 14.2 $46,633 20.9
Other revenues 13,809 47.3 7,183 32.7
Net revenues 52,056 17.4 53,816 22.0
Costs and expenses:
Salaries, wages and
benefits 31,322 19.9 29,201 22.7
Other operating 10,664 10.8 18,427 22.9
Depreciation & amortization 967 7.1 1,703 14.3
Interest 3,841 29.4 1,421 12.2
Total costs and expenses 46,794 16.5 50,752 21.8
Net income $ 5,262 33.2 $ 3,064 24.0
NHC's owned or leased long-term health care centers and contract
therapy services provided 76% of net revenues in 1995, 76% in 1994, and 80%
in 1993. Homecare programs provided 15% of net revenues in 1995, 16% in
1994 and 13% in 1993.
The overall census in owned or leased centers for 1995 was 93.0%
compared to 92.8% in 1994 and 94.0% in 1993. The census excluding
acquisitions and new openings was 93.0%, 94.5% and 94.2%, respectively,
for the same periods. NHC opened 111 new owned or leased beds in 1995 and
273 beds in managed centers for a total of 384 licensed beds.
Approximately 60% of NHC's net revenues are derived from Medicare,
Medicaid, and other government programs.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
21
<PAGE>
1995 Compared to 1994
In 1995, NHC has achieved rapid annual growth in earnings, earnings
per unit, and revenues. Net income totaled $21,115,000, a 33% increase
over the comparable prior year amount. Fully diluted earnings per unit
totaled $2.31, a 28% increase. Net revenues totaled $350,957,000, a 17%
increase. NHC's net margin ratio, which is defined as net income divided
by net revenues, increased to 6.0% from 5.3% in 1994 illustrating that in
1995 NHC grew its revenues at a faster rate than its expenses.
The growth in net patient revenues in 1995 occurred in long-term care,
homecare, and rehabilitative and managed care.
Improved revenues in long-term care are due primarily to increased
types and levels of services being offered and to increases in private pay
and third party billing rates. Also, the total number of owned or leased
beds increased from 6,295 beds at the end of 1994 to 6,406 beds at the end
of 1995. During 1995 and 1994, NHC had 44 and 41, respectively, owned or
leased centers which operated at Medicare costs higher than the routine
cost limits, which were frozen at 1993 levels by the 1993 Tax Reform Act.
Homecare revenues improved due to increased payor rates and increased
numbers of visits at NHC's 28 Florida and Tennessee homecare locations.
There were 717,000 homecare visits in 1995 compared to 674,000 visits in
1994.
Revenues also improved during 1995 due to continued emphasis on
rehabilitative and managed care services. To boost the ability to offer
physical, speech and occupational therapy to greater numbers of patients,
NHC increased its staff of professionally licensed therapists by 19% in
1995 and by 40% in 1994. NHC has also determined to provide high acuity
medical services and has signed managed care contracts with 34 private
insurance companies to provide subacute care to their insurees, offering a
less expensive alternative to acute care and rehabilitative hospitals. NHC
also is expanding its network of regional contract offices which are
staffed by experienced case managers and which assure appropriate placement
and payment for subacute patients in the NHC system.
The growth in other revenues in 1995 occurred primarily in the areas
of revenues from management services, advisory fees from NHI, and interest
income. Other revenues are more fully detailed in Note 6 to the financial
statements.
Revenues from management services of $28,719,000, which are included
in the Statements of Income in Other Revenues, increased 51% in 1995 due to
the increased number of beds being managed for others, increased amounts
and types of management and other support services being offered, and
increased interest income from higher principal amounts on loans to
managed centers. In 1995, two long-term care centers and 273 long-term
care beds came under new management contracts. 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. NHC's management contracts are generally long-term (up to ten
years) and include equity participation agreements and the right of first
refusal upon the sale of the property.
Revenues from advisory fees received from NHI of $3,265,000 represent
a 52% increase over 1994 and are based upon a formula which measures the
increase in NHI's funds from operations over a base year.
22
<PAGE>
Revenues from interest income totaled $6,462,0000 and represent a 33%
increase over 1994 and are in part from NHC's investment in loan
participation agreements. Loan participation agreements may generally be
sold in the market should NHC require additional capital.
Increases in salaries, wages and benefits in 1995 are attributable to
the increase in staffing levels due to the increased emphasis on
rehabilitative services, homecare expansions and long-term care bed
additions. Also contributing to higher costs of labor are inflationary
increases for salaries and the associated benefits. Labor costs are the
most significant costs of NHC.
Operating costs have increased due to the expansion of rehabilitative
and managed care services, the expansion of homecare services, the growth
in managed services and the increased numbers of beds in operation.
Depreciation and amortization increased as a result of NHC's placing
of newly constructed or purchased assets in service and due to capital
improvements at existing properties.
Interest expense increased due to additional borrowing for newly
constructed long-term care beds and due to increased interest rates on
floating rate debt. Approximately 35% of NHC's long-term debt is at
floating rates.
1994 Compared to 1993--
Included in NHC's net income and revenues for the 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 NHC'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.
In 1994, NHC achieved outstanding earnings and revenues growth while
maintaining a strong financial position. Results for 1994 included a 24%
increase in net income, a 20% increase in fully diluted earnings per unit,
and a 22% increase in net revenues. These improvements were 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 were 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. During 1994, 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
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.23
23
<PAGE>
Improved revenues in homecare were 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,
NHC increased its staff of professionally licensed therapists by 40% in
1994. NHC 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
developed 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 were 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 were inflationary increases for
salaries and the associated benefits.
Operating costs 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 NHC's placing
of newly constructed or purchased assets in service and due to capital
improvements at existing properties.
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 NHC's long-term debt was
at floating rates at the end of 1994.
Growth and Development--
NHC plans to continue to expand its continuum of care to the elderly
by offering a comprehensive range of services through related or separately
structured health care centers, homecare programs, specialized care units,
pharmacy operations, rehabilitative services, assisted living centers and
retirement centers.
24
<PAGE>
During 1995, NHC grew its long-term health care business by
constructing additions totaling 111 licensed beds at two owned or leased
health care centers and totaling 74 licensed beds at three managed health
care centers, all located in Florida. Additionally during 1995, NHC
commenced management of two additional long-term health care centers with
199 licensed beds, also located in Florida. All in all, 384 owned, leased
or managed beds were added in 1995. These additions increased the total
number of owned, leased or managed centers to 98 and the total number of
licensed beds to 12,692.
At December 31, 1995, NHC had under construction 377 beds at six new
or existing owned or leased centers and 120 beds at two managed centers.
All of these 497 beds are expected to open during 1996. NHC also has been
granted governmental certificates of need to permit construction of 431
beds at eight owned or leased locations and 300 beds at five managed
locations which are expected to start construction during 1996.
NHC has 28 homecare programs located in Florida and Tennessee and in
1996 expects to open additional programs in South Carolina and Florida.
NHC 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 to determine favorable locations for development of
assisted living centers. Assisted living centers provide basic room and
board functions for the elderly with on-staff availability to assist in
minor medical and living needs on an as needed basis. NHC currently
operates eight assisted living projects, all eight of which are located
within the physical structure of a long-term care center or retirement
center. Construction started on three free-standing assisted living
projects in 1995, all of which are expected to open in 1996. It is
expected that NHC will start construction of four additional assisted
living projects in 1996.
Liquidity, Capital Resources and Financial Condition--
During 1995 NHC spent approximately $29,435,000 on construction and
routine capital expenditures, $14,702,000 on cash distributions to
partners, $7,169,000 as principal payments and financing costs on debt, and
$30,694,000 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 $39,858,000; the collection of long-term notes
receivable, loan participation agreements and marketable securities of
$42,313,000; the issuance of $2,368,000 of debt and the issuance of
partnership units for $820,000.
NHC is committed to spend approximately $28,359,000 for ongoing
construction contracts and to provide financing to managed facilities in
the amount of $5,316,000 in 1996. NHC has also guaranteed approximately
$81,555,000 of debt of certain health care centers which NHC manages for
others. At December 31, 1995, NHC expects to have no additional liability
as a result of its debt guarantees.
NHC's current cash on hand, marketable securities, short-term notes
receivable, operating cash flows and, as needed, its borrowing capacity are
expected to be adequate to finance NHC's operating requirements and
25
<PAGE>
growth and development plans for 1996 and into 1997. If additional capital
is necessary, NHC's balance sheet ratios are at commercially reasonable
levels to obtain additional capital. The current ratio is 1.5:1 at
December 31, 1995, and working capital is $30,393,000. 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 0.9:1
at the end of 1995.
For all financial instruments except the marketable securities and
subordinated convertible notes, NHC believes that the financial statement
carrying amounts approximate fair value at December 31, 1995. The fair
value of the marketable securities were estimated based on quoted market
prices.
During 1995, National Health Investors ("NHI") prepaid debt on which
NHC had also been obligated in the amount of $20,544,000. In addition, NHC
was released from its obligation on approximately $25,324,000 of debt which
had been transferred to NHI in 1991. Since NHC is no longer obligated on
transferred debt in the amount of $45,868,000, debt serviced by other
parties and assets under arrangement with other parties have been reduced
by $45,868,000. The leases with NHI provide that NHC shall continue to
make non-obligated debt service rent payments equal to the debt service
including principal and interest on the obligated debt which was prepaid
and from which NHC has been released.
New Accounting Pronouncements--
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of". Adoption of SFAS 121 is required for fiscal years beginning after
December 15, 1995. Although NHC did not adopt SFAS 121 in 1995, it has
determined that the adoption of the pronouncement will not have a material
impact on its financial statements in 1996. Also in 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation".
The disclosure requirements of SFAS 123 are required for fiscal years
beginning after December 15, 1995. In 1996, NHC plans to adopt only the
disclosure requirements of SFAS 123. Management believes that the
provisions of SFAS 123 will not have a material impact on NHC's financial
condition or results of operations.
Cash Distributions--
NHC management intends to distribute approximately 60% of ordinary
taxable income to unitholders during 1996. 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--
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.
26
<PAGE>
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.
Health Care Legislation--
Federal budget and reform plans are being considered by the U. S.
Congress that would, if adopted, reduce or slow the growth of payments to
facilities for services provided to patients under the Medicare and
Medicaid programs. Proposals being considered include the implementation
of a prospective payment system by October of 1997, the reduction of
payments for capital costs, the extension of the current freeze on
increases in routine cost limits, the application of new limits for non-
routine therapy services and the adoption of block grants to the states for
Medicaid expenditures. At this time, it is not possible to determine the
impact on NHC of any health care legislation which might be enacted.
However, any reductions in government spending for long-term health care
would likely have an adverse effect on the operating results and cash flows
of NHC. Should such spending reductions be enacted, NHC believes that the
loss of governmental revenues can be offset by increased revenues from
nongovernmental sources and the continued expansion of its service
component income.
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)
1st 2nd 3rd 4th
Quarter Quarter Quarter(B) Quarter(A)
1995
===============================================================
Net Revenues $83,756 $85,283 $90,542 $91,376
Net Income 4,172 4,586 5,604 6,753
Fully Diluted
Earnings Per Share .470 .510 .620 .710
1994
===============================================================
Net Revenues $68,598 $71,128 $75,564 $83,611
Net Income 3,226 3,447 4,064 5,116
Fully Diluted
Earnings Per Share .370 .400 .460 .570
1993
===============================================================
Net Revenues $57,410 $58,918 $87,011 $66,519
Net Income 2,527 2,724 28,020 4,291
Fully Diluted
Earnings Per Share .310 .330 2.930 .480
27
<PAGE>
Note A: In the fourth quarters of 1993, 1994, and 1995 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.
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 Health 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 Health
Corporation is owned by the National Health 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
28
<PAGE>
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 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:
Position Director of Officer of
with the Managing Managing
Company General Current General
or Manag. Partner or Term as Partner or
General Company's Director Predecessor
Name Age Partner Predecessor Expires Since
W. Andrew Adams 50 Chairman of Since
the Board/ 1994(CEO) 1996 1973
President 1976(Pres.)
J.K. Twilla 69 Director 1972 1998 ---
Olin O. Williams 66 Director 1971 1997 ---
Ernest G. Burgess,
III 56 Director 1992 1996 1975
Robert G. Adams 49 Sr. Vice
President/
Director 1993 1997 1985
Richard F. LaRoche,
Jr. 50 Sr. Vice President/
Secretary and
General Counsel -- -- 1974
Steven A. Strawn 38 Vice President/
Operations -- -- 1995
Donald K. Daniel 49 Vice President/
Controller -- -- 1977
James O. Keathley 57 Vice President/
Corporate
Affairs -- -- 1975
David L. Lassiter 41 Vice President/
Corporate
Affairs -- -- 1995
Charlotte Swafford 47 Treasurer -- -- 1985
Julia W. Powell 46 Vice President/
Patient Svcs. -- -- 1985
Joanne G. Batey 51 Vice President/
HomeCare -- -- 1989
D. Gerald Coggin 44 Vice President/
Government and
Rehabilitative -- -- 1994
Kenneth D. DenBesten 43 Vice President/
Finance -- -- 1992
Drs. 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.
29
<PAGE>
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 Chairman of
the Board of Directors of National Health Investors, Inc. and
serves on the Board of SunTrust Bank in Nashville, Tennessee.
Mr. Robert Adams (Senior Vice President, Chief Operating
Officer 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. Strawn (Vice President/Operation) has been with the
company since 1979. He trained in NHC's A.I.T. program and then
served both as administrator and Regional Vice President before
being appointed to the present position in 1995. He has a B.S.
degree from Middle Tennessee State University.
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. Mr. Keathley
retired effective January 1, 1996, as a full time officer.
Mr. Lassiter (Vice President/Corporate Affairs) joined the
Company in 1995. From 1988 to 1995, he was Executive Vice
President, Human Resources and Administration for Vendell
Healthcare. From 1980-1988, he was in human resources positions
with Hospital Corporation of America and HealthTrust Corporation.
Mr. Lassiter has a B.S. and an M.B.A. from the University of
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.
30
<PAGE>
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 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 Health 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 1995.
31
<PAGE>
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,
1995 to the three executive officers of the Company.
The non-employee Directors of NHC, Inc. (the Managing
General Partner of the Company) are paid $2,500 per meeting
attended. There were five Board meetings during 1995 and no
Board member missed a meeting.
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, 1995, options to purchase 5,000
units at $11.25 per unit are outstanding to two employees, an
option to purchase 5,000 units at $24.88 per unit is outstanding
to one director, options to purchase 6,500 units at $25.12 per
unit are outstanding to six employees, and options to purchase
361,000 units at $31.00 per unit are outstanding to 31 key
employees.
Table II shows as to the three executive officers: (i) the
number of units as to which options have been granted from
January 1, 1995 through December 31, 1995 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 identifies for the same three person group all
options exercised during 1995, the value realized upon exercise,
and the unrealized value of the balance of options outstanding.
(Options to purchase 498,000 units in total were exercised by all
key employees.)
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. 15,000
units were granted to the three non-employee Directors at $24.88
per unit on March 16, 1995.
The Company maintains several non-qualified deferred
compensation plans for its key employees, one of which provides a
matching contribution (15%) for all deferred compensation used to
purchase units of limited partnership interest held by an
independent trustee. The matching contribution is forfeited to
the company unless held by the Trustee for eight years. Mr. W.
Andrew Adams and Mr. LaRoche participated in this plan during
1995. Other than as described herein or as identified in Tables
I, II and III, the Company has no other long-term incentive plans
for its executive officers.
32
<PAGE>
<TABLE>
TABLE I
NATIONAL HEALTHCARE L.P.
SUMMARY COMPENSATION TABLE
1995-1993
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other annual Restricted Options/ LTIP All Other
Name and Principal Compensation Stock Awards SARs Payouts Compensation
Position Year Salary($) Bonus($)<F2> ($)<F3> ($) (#)<F4> ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
===============================================================================================================================
W. Andrew Adams 1995 129,964 179,200 121,350 -0- 40,000 -0- -0-
President & CEO 1994 132,349 359,920 78,789 -0- 40,000 -0- -0-
1993 134,295 537,513 9,987 -0- -0- -0- -0-
===============================================================================================================================
Robert G. Adams 1995 145,647 122,325 6,452 -0- 30,000 -0- -0-
Sr. Vice President 1994 216,384 383,430 26,828 -0- 25,000 -0- -0-
1993 215,743 375,641 5,409 -0- -0- -0- -0-
===============================================================================================================================
Richard F. LaRoche, 1995 142,639 112,000 8,453 -0- 30,000 -0- -0-
Jr. 1994 134,150 190,467 15,637 -0- 25,000 -0- -0-
Sr. VP & Secretary 1993 111,425 266,877 11,116 -0- -0- -0- -0-
===============================================================================================================================
<FN>
<F1>Compensation deferred at the election of an executive has been included in salary column (d).
<F2>1995 Performance Bonus has not yet been determined and is not included in this table.
<F3>Includes (a) life insurance benefit, (b) 401-K matching contribution, (c) nonqualified deferred compensation matching
contribution, (d) ESOP contribution.
<F4>The 1995 awards are NHC Unit Options issued at $31.00 per unit. These officers also received stock options from National
Health Investors, Inc. in 1993 and 1995, which are disclosed in that Company's Form 10-K.
</TABLE>
33
<PAGE>
<TABLE>
TABLE II
NATIONAL HEALTHCARE L.P.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
December 31, 1995
<CAPTION>
===============================================================================================================================
Potential Realizable
Value at Assumed
Annual Rates of Unit
Price Appreciation
Individual Grants for Option Term<F2>
===============================================================================================================================
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options/SARs
Granted to Exercise
Options/SARs Employees in or Base Expiration
Executive Officers Granted (#)<F1> Fiscal Year Price ($/Sh) Date 5%($) 10%($)
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
W. Andrew Adams, President
and CEO 40,000 11.1% 31.000 10/12/2000 342,600 757,000
Robert G. Adams, Sr. VP 30,000 8.3% 31.000 10/12/2000 257,000 568,000
Richard F. LaRoche, Jr., Sr. VP 30,000 8.3% 31.000 10/12/2000 257,000 568,000
<FN>
<F1>Each option was awarded October 13, 1995 and is exercisable at $31.00 per share. NHC retains the right to reacquire any
units exercised if the key employee terminates employment prior to 10/12/2001. NHC closing price on the AMEX on
December 29, 1995 was $39.00.
<F2>Based on remaining option term (5 years) and annual compounding.
</TABLE>
<TABLE>
TABLE III
NATIONAL HEALTHCARE L.P.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
December 31, 1995
<CAPTION>
Value of Unexer-
Number of Un- cised In-the-
exercised Options/ Money Options/
SARs at FY-End (#) SARs at FY-End ($)
==============================================================================================================================
Shares acquired Value Realized Exercisable/ Exercisable/
Executive Officers on Exercise ($)<F1> Unexercisable Unexercisable
==============================================================================================================================
<S> <C> <C> <C> <C>
W. Andrew Adams
President & CEO 40,000 320,000 40,000/0 $320,000/0
Robert G. Adams, Sr. VP 27,500 220,000 30,000/0 240,000/0
Richard F. LaRoche, Jr.
Senior Vice President 25,000 200,000 30,000/0 240,000/0
==============================================================================================================================
<F1>Market value of underlying securities at exercise date, minus the exercise or base price. NHC retains the right to
reacquire any units exercised if the key employee terminates employment prior to 4/21/2000.
</TABLE>
<PAGE>
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, 1995, 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 1995 and allocated to
the Company's executive officers are included in Table I, and
total $13,987.32.
35
<PAGE>
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. 31,575 units were issued pursuant to the
Plan in January, 1996, with all payroll deductions being made in
1995.
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 Mr. LaRoche and Mr. Robert Adams of the Company's
executive officers participated in this Plan during 1995 and the
positive spread between the purchase price and in the then fair
market price for these individuals 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. Bonuses of $3,577,000 were paid under this plan to a total
of 103 employees for fiscal year 1994. No bonus pursuant to this
plan has yet been declared or paid for fiscal year 1995.
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
has authorized a matching contribution to be 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
36
<PAGE>
more than $66,000 were limited to a contribution of no more than
$3,500. 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 $1,048,000 was contributed to the Plan
as matching contributions for 1995.
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.
Financing Plan CML Plan
Largest Balance out- Largest Balance out-
Aggregate standing as of Aggregate standing as of
Indebtedness 12/31/95 Indebtedness 12/31/95
W. Andrew Adams $3,312,824 $3,312,824 $ --- $ ---
Robert G. Adams 1,722,155 1,722,155 500,000 ---
Richard F.
LaRoche, Jr. 1,713,922 1,713,922 1,000,000 ---
All Executive Officers
as a Group (3) $6,748,901 $6,748,901 $1,500,000 $ ---
Obligations to repay the Financing Plan loans are an asset of the
Company, but are not reflected as increasing Partnership Equity
until paid.
37
<PAGE>
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, 1995.
38
<PAGE>
TABLE IV
NATIONAL HEALTHCARE L.P.
Comparison of Cumulative Total Return
[GRAPH]
1991 1992 1993 1994 1995
National HealthCare LP 100 139.8 230.4 230.2 347.9
S & P 500 100 107.7 118.5 120.1 161.1
S & P Health Care Divers 100 83.4 85.8 91.3 131.9
Assumes $100 Invested January 1, 1992 in NHC, S&P 500 and S&P
Health Care Diversified
39
<PAGE>
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, 1995 (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 (8,321,539 as of December 31, 1995), (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 and/or the Board of Directors
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:
Names and Addresses Number of Units(1) Percentage of
of Beneficial Owner Beneficially Owned Total Units
W. Andrew Adams, President and
Individual General Partner 1,059,866 12.70%
1927 Memorial Blvd.
Murfreesboro, TN 37129
Dr. J.K. Twilla, Director 68,155 .80%
525 Golf Club Lane
Smithville, TN 37166
Dr. Olin O. Williams, Director 94,340 1.10%
2007 Riverview Drive
Murfreesboro, TN 37129
Robert G. Adams, Director &
Sr. Vice President 429,606 5.20%
2217 Tomahawk Trace
Murfreesboro, TN 37129
Ernest G. Burgess, Director 168,592 2.00%
1005 Cason Lane
Murfreesboro, TN 37130
Richard F. LaRoche, Jr., Sr. V.P. 378,163 4.50%
2103 Shannon Drive
Murfreesboro, TN 37130
National Health Corporation,
Admin. General Partner 1,271,058 15.30%
P.O. Box 1398
Murfreesboro, TN 37133
NHC, Inc., Managing General
Partner 82,912 .99%
P. O. Box 1398
Murfreesboro, TN 37133
Albert O. Nicholas 428,700 5.20%
6002 North Highway 83
Hartland, WI 53029
40
<PAGE>
All Executive Officers,
Directors of the 3,552,692 42.70%
Corporate General
Partners and the
Corporate General Partners
as a Group
(1) Assumes exercise of unit options and convertible
subordinated debentures outstanding. See "Option Plans".
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
NHC has successfully developed a continuing care retirement
community in Nashville, Tennessee (Richland Place) and is
pursuing similar projects in Tennessee and Florida. Having
identified Murfreesboro, Rutherford County, Tennessee as a viable
market, the Company invited a number of potential residents to
serve as a focus group to assist in the location and design of
the project. After reviewing a number of potential locations,
management and the focus group chose a twenty-two acre tract with
extensive frontage on US Highway 231 as the optimum location.
This site was owned and occupied by Mr. and Mrs. W. Andrew Adams,
NHC's chief executive officer. After negotiations and appraisal,
the Company has acquired (by exchange of like kind property and
cash) the site from Mr. and Mrs. Adams for a total valuation of
$1,500,000, which the Company believes to be equal to or even
less than comparable property in the market. Mr. and Mrs. Adams
are currently renting the residence on the site on a quarter to
quarter basis and for a fair market value.
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
page 46 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):
41
<PAGE>
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.
42
<PAGE>
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, 1996. 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, 1996
43
<PAGE>
NATIONAL HEALTHCARE L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(in thousands)
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 Deductions(1) Period
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
For the year ended
December 31,
1995 - Allowance
for doubtful
accounts $3,367 $2,182 $ --- $1,108 $4,441
__________
(1) Amounts written off, net of recoveries.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NATIONAL HEALTHCARE L.P.
BY:s\Richard F. LaRoche, Jr.
Richard F. LaRoche, Jr.
Secretary
Date: March 4, 1996
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below on March 4, 1996, 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\Robert S. Adams s\J. K. Twilla
Robert G. Adams, Senior Vice J.K. Twilla, M.D., Director
President, Director NHC, Inc. and NHC, Inc. and National HealthCare
National HealthCare Corporation Corporation, Corporate General
Partners
s\Ernest G. Burgess s\Donald K. Daniel
Ernest G. Burgess, Director NHC, Inc. Donald K. Daniel, Vice President
and National HealthCare Corporation and Principal Accounting Officer
Corporate General Partners NHC, Inc. and National Health
Corporation, Corporate General
Partners
45
<PAGE>
NATIONAL HEALTHCARE L.P. AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDING DECEMBER 31, 1994
EXHIBIT INDEX
Exhibit No. Description Page No. or Location
3.1 Amended and Restated Articles of Specifically incorporated
Limited Partnership Agreement 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/ Incorporated by reference
Unit Certificate from Exhibit 41 attached
to Form S-4, (Proxy State-
ment-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 47
13 Report of Independent Public
Accountants Exhibit 13 beginning
Consolidated Statements of Income on Page 48
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 68
Public Accountants
27 Financial Data Schedule (for SEC purposes only)
46
<PAGE>
EXHIBIT 12
STATEMENT RE: COMPUTATION OF RATIOS
AS REQUIRED BY ITEM 601(b)(12) OF REGULATION S-K
NATIONAL HEALTHCARE L.P.
December 31
1995 1994 1993 1992 1991
Current Assets $ 89,440 $ 97,506 $109,291 $ 64,115 $ 53,320
Current Liabilities $ 59,047 $ 55,038 $ 39,798 $ 26,132 $ 25,324
Current Ratio 1.51 1.78 2.75 2.45 2.11
Long-Term Debt and Debt
Serviced by Other
Parties $141,642 $194,007 $166,741 $164,330 $169,907
Equity $108,899 $101,006 $ 92,526 $ 67,922 $ 61,824
Long-Term Debt and Debt
Serviced by Other
Parties to Equity 1.30 1.92 1.80 2.42 2.75
Net Income $ 21,115 $ 15,853 $ 37,562 $ 9,501 $ 17,667
Average Equity $104,953 $ 96,766 $ 80,224 $ 64,873 $ 58,632
Return on Average
Equity 20.1% 16.4% 46.8% 14.6% 30.1%
Total Liabilities $231,501 $279,847 $237,306 $221,166 $195,231
Partners' Capital and
Deferred Income $123,990 $116,286 $107,374 $ 82,908 $ 76,981
Total Liabilities to
Partners' Capital
and Deferred Income 1.9 2.4 2.2 2.7 2.5
47
<PAGE>
EXHIBIT 13
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants 49
Consolidated Statements of Income 50
Consolidated Balance Sheets 51
Consolidated Statements of Cash Flows 52
Consolidated Statements of Partners' Capital 53
Notes to Consolidated Financial Statements 54-67
48
<PAGE>
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.) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income,
partners' capital and cash flows for each of the three years in
the period ended December 31, 1995. 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. and subsidiaries
as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 1, 1996
49
<PAGE>
NATIONAL HEALTHCARE L.P.
Consolidated Statements of Income
(in thousands, except unit amounts)
Year Ended December 31 1995 1994 1993
Revenues:
Net patient revenues $ 307,969 $ 269,722 $ 223,089
Gain on sale of investment --- --- 24,773
Other revenues 42,988 29,179 21,996
Net revenues 350,957 298,901 269,858
Costs and Expenses:
Salaries, wages and benefits 188,985 157,663 128,462
Other operating 109,417 98,753 80,326
Depreciation and amortization 14,549 13,582 11,879
Interest 16,891 13,050 11,629
Total costs and expenses 329,842 283,048 232,296
Net Income $ 21,115 $ 15,853 $ 37,562
Earnings Per Unit:
Primary $ 2.65 $ 2.02 $ 4.85
Fully diluted 2.31 1.80 4.05
Weighted Average Units Outstanding:
Primary 7,953,651 7,834,375 7,752,622
Fully diluted 9,971,867 9,807,241 9,726,254
Net Income Allocable to Partners:
General Partners $ 211 $ 159 $ 376
Limited Partners 20,904 15,694 37,186
$ 21,115 $ 15,853 $ 37,562
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
50
<PAGE>
NATIONAL HEALTHCARE L.P.
Consolidated Balance Sheets
(in thousands)
December 31 1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 4,835 $ 1,442
Cash held by trustees 1,721 1,604
Marketable securities 1,514 4,010
Accounts receivable, less allowance for
doubtful accounts of $4,441 and
$3,367, respectively 47,285 48,372
Notes receivable 2,538 4,922
Note receivable from NHI --- 22,847
Loan participation agreements 27,579 9,784
Inventory, at lower of cost (first-in,
first-out method) or market 3,075 2,952
Prepaid expenses and other assets 893 1,573
Total current assets 89,440 97,506
Property, Equipment and Assets Under Arrangement
With Other Parties:
Property and equipment, at cost 165,265 136,757
Accumulated depreciation and amortization (38,265) (31,094)
Assets under arrangement with other parties, net 29,921 81,746
Net property, equipment and assets
under arrangement with other parties 156,921 187,409
Other Assets:
Bond reserve funds, mortgage replacement
reserves and other deposits 1,789 1,720
Unamortized financing costs 1,937 2,811
Notes receivable 86,178 87,180
Notes receivable from National 12,271 12,296
Minority equity investments and other 6,955 7,211
Total other assets 109,130 111,218
$355,491 $396,133
Liabilities and Partners' Capital
Current Liabilities:
Current portion of long-term debt $ 8,558 $ 6,330
Trade accounts payable 6,142 17,052
Accrued payroll 23,876 18,644
Amount due to third-party payors 9,800 4,396
Accrued interest 1,822 2,223
Other current liabilities 8,849 6,393
Total current liabilities 59,047 55,038
Long-term Debt, Less Current Portion 100,871 104,243
Debt Serviced by Other Parties, Less Current Portion 40,771 89,764
Minority Interests in Consolidated Subsidiaries 812 802
Commitments, Contingencies and Guarantees
Subordinated Convertible Notes 30,000 30,000
Deferred Income 15,091 15,280
Partners' Capital:
General partners 1,290 1,095
Limited partners, less notes receivable 107,609 99,911
Total partners' capital 108,899 101,006
$355,491 $396,133
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
51
<PAGE>
<TABLE>
NATIONAL HEALTHCARE L.P.
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
Year Ended December 31 1995 1994 1993
<S> <C> <C> <C>
Cash Flows Provided By (Used In)
Operating Activities:
Net income $ 21,115 $ 15,853 $ 37,562
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 14,081 13,147 11,651
Provision for doubtful accounts receivable 2,182 2,118 1,116
Amortization of intangibles and
deferred charges 1,845 848 602
Amortization of deferred income (497) (403) (239)
Equity in earnings of unconsolidated investments (347) (450) (2,740)
Distributions from unconsolidated investments 236 213 2,435
(Gain) loss on sale of investment --- 120 (24,773)
Changes in assets and liabilities:
Increase in accounts receivable (1,095) (20,095) (2,689)
Increase in inventory (123) (19) (56)
(Increase) decrease in prepaid expenses and
other assets 680 (1,012) 1,724
Increase (decrease) in trade accounts payable (10,910) 12,331 (1,064)
Increase in accrued payroll 5,232 4,663 3,126
Increase in amounts due to third-party payors 5,404 769 3,171
Increase (decrease) in accrued interest (401) 1,235 (259)
Increase (decrease) in other current
liabilities 2,456 2,057 (45)
Net cash provided by operating activities 39,858 31,375 29,522
Cash Flows Provided By (Used In) Investing Activities:
Additions to and acquisitions of property and
equipment, net (29,435) (9,599) (30,569)
Investment in notes receivable and loan
participation agreements (30,694) (112,069) (87,029)
Collection of long-term notes receivable and
loan participation agreements 39,157 80,199 41,307
Increase (decrease) in minority equity
investments and other 210 (3,984) (22)
Decrease in marketable securities, net 2,361 2,140 3,159
Sale of investments --- 136 32,991
Net cash used in investing activities (18,401) (43,177) (40,163)
Cash Flows Provided By (Used In) Financing Activities:
Proceeds from debt issuance 2,368 34,225 6,446
Increase in cash held by trustees (117) (315) (12)
Increase in minority interests in subsidiaries 10 35 63
Issuance of partnership units 820 773 690
Collection of receivables from exercise
of options 795 437 1,040
Increase in bond reserve funds, mortgage
replacement reserves and other deposits (69) (57) (151)
Payments on debt (6,767) (4,360) (4,023)
Cash distributions to partners (14,702) (17,639) (6,194)
Increase in financing costs (402) --- (85)
Net cash provided by (used in) financing
activities (18,064) 13,099 (2,226)
Net Increase (Decrease) In Cash and
Cash Equivalents 3,393 1,297 (12,867)
Cash and Cash Equivalents, Beginning of Period 1,442 145 13,012
Cash and Cash Equivalents, End of Period $ 4,835 $ 1,442 $ 145
Supplemental Information:
Cash payments for interest expense $ 17,292 $ 11,815 $ 11,888
During 1995, NHC was released from its liability on
debt serviced by others by the respective lendors.
Debt serviced by other parties $(45,868) $ --- $ ---
Assets under arrangement with other parties $ 45,868 $ --- $ ---
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
52
<PAGE>
<TABLE>
NATIONAL HEALTHCARE L.P.
Consolidated Statements of Partners' Capital
(in thousands except unit amounts)
<CAPTION>
Unrealized
Receivables Gains Total
Number from Sale (Losses) on General Limited Partners'
of Units of Units Securities Partners Partners Capital
<S> <C> <C> <C> <C> <C> <C>
Balance at 12/31/92 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 12/31/93 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 12/31/94 7,826,165 (14,697) 480 1,095 114,128 101,006
Net income --- --- --- 211 20,904 21,115
Collection of receivables --- 795 --- --- --- 795
Units sold 526,949 (12,294) --- 131 12,983 820
Unrealized losses on
securities --- --- (135) --- --- (135)
Cash distributions declared
($1.88 per unit) --- --- --- (147) (14,555) (14,702)
Balance at 12/31/95 8,353,114 $(26,196) $345 $1,290 $133,460 $108,899
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
53
<PAGE>
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). 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 1993 and 1994 financial statements to conform to the
1995 presentation.
Use of Estimates--
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Health Care Revenues--
NHC's principal business is operating and managing long-term
health care centers which generally provide routine and ancillary
services. Approximately 60% of NHC's net revenues in 1995 and
61% in 1994 and 1993 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 subject to
program cost ceilings. 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 $103,186,000, $82,443,000 and
$54,348,000 for 1995, 1994 and 1993, 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 arrangement 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).
54
<PAGE>
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 ($1,057,000 in 1995
and $766,000 in 1994).
In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets To Be Disposed Of". Adoption of SFAS 121 is
required for fiscal years beginning after December 15, 1995.
Although NHC did not adopt SFAS 121 in 1995, it has determined
that the adoption of the pronouncement will not have a material
impact on its financial statements in 1996.
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 year that master limited partnerships
become taxable, would not be material to NHC's financial
condition or results of operations.
55
<PAGE>
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 consist
primarily of amounts due from patients (funded approximately 81%
through Medicare, Medicaid, other contractual programs and
approximately 19% through 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 secured loans with health care
facilities and to secured notes receivable from officers,
directors and supervisory employees as discussed in Note 14. NHC
also has notes receivable from National Health Corporation 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 an
original 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 Health Corporation ("National" and "Administrative
General Partner"), a Tennessee corporation which is owned by the
National Health 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 profits, losses
and distributions of NHC.
56
<PAGE>
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.
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 if NHC remains obligated on the debt
("obligated debt service rent") and as operating expense payments
if NHC has been relieved of the debt obligation by the lender
("non-obligated debt service rent"). 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 1995 and 1994 was approximately $1,237,000
and $718,000, 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 1995, 1994 and
1993 and non-obligated debt service rent to NHI was zero dollars
in 1995 and is included in other operating expenses. At December
31, 1995, the approximate future minimum base rent and non-
obligated debt service rent commitments to be paid by NHC on non-
cancelable operating leases with NHI are as follows:
1996 $20,267,000
1997 20,298,000
1998 20,324,000
1999 30,351,000
2000 20,396,000
Thereafter 20,417,000
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<PAGE>
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's annual
compensation is calculated to be $2,827,000, $2,570,000 and
$1,828,000 in 1995, 1994 and 1993, 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 1995, 1994 and 1993.
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 in 1991 of assets (and
related debt) to NHI and the subsequent leasing of the real
estate assets as a "financing/leasing" arrangement. Since NHC
remains obligated on certain of the transferred debt, the
obligated 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 applicable real
estate over the lease term, its Consolidated Statements of Income
will reflect the continued depreciation of the applicable assets
over the lease term, the continued interest expenses on the
obligated debt balances and the additional base and non-obligated
debt service rents (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.
Release from Debt Serviced by Other Parties--
In December, 1995, NHI prepaid debt on which NHC had also
been obligated in the amount of $20,544,000. In addition, NHC
was released from its obligation on approximately $25,324,000 of
the transferred debt. Since NHC is no longer obligated on
transferred debt in the amount of $45,868,000, debt serviced by
other parties and assets under arrangement with other parties
have been reduced by $45,868,000. The leases with NHI provide
that NHC shall continue to make non-obligated debt service rent
payments equal to the debt service including principal and
interest on the obligated debt which was prepaid and from which
NHC has been released.
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<PAGE>
Note 4 - Relationship With National Health 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 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 $1,864,000 and $3,804,000 at
December 31, 1995 and 1994, 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.
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 Health Corporation Leveraged Employee Stock
Ownership Plan and Trust. The note requires quarterly principal
and interest payments with interest at 9%. At December 31, 1995
and 1994, the outstanding balance on the note was approximately
$5,961,000 and $6,403,000, 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, 1995, National had borrowed $2,271,000
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 ($1,683,000 in
1995) equal to 1% of payroll costs.
National maintains and makes contributions to its ESOP for
the benefit of eligible employees.
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<PAGE>
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.
Note 6 - Other Revenues:
Revenues from management services include management fees,
interest income on notes receivable, and revenues from other
services provided to managed long-term care centers. "Other"
revenues include non-health care related earnings.
(in thousands)
Year Ended December 31 1995 1994 1993
Revenues from managed services $28,719 $19,035 $12,446
Guarantee fees 814 936 790
Advisory fees from NHI 3,265 2,138 1,828
Earnings (losses)on securities 450 (47) 1,116
Equity in earnings of unconsolidated
investments 342 423 1,174
Interest income 6,462 4,844 3,010
Other 2,936 1,850 1,632
$42,988 $29,179 $21,996
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.
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.
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(dollars in thousands, except per unit amounts)
Year Ended December 31 1995 1994 1993
Primary:
Weighted average common units 7,920,795 7,796,508 7,750,531
Stock options 32,856 37,867 2,091
Average common units outstanding 7,953,651 7,834,375 7,752,622
Earnings $ 21,115 $ 15,853 $ 37,562
Earnings per unit, primary $ 2.65 $ 2.02 $ 4.85
Fully Diluted:
Weighted average common units 7,920,795 7,796,508 7,750,531
Stock options 78,206 37,867 2,857
Convertible subordinated notes 1,972,866 1,972,866 1,972,866
Assumed average common units
outstanding 9,971,867 9,807,241 9,726,254
Earnings $ 23,007 $ 17,653 $ 39,362
Earnings per unit, fully diluted $ 2.31 $ 1.80 $ 4.05
Note 8 - Property, Equipment and Assets Under Arrangement with
Other Parties:
Property and equipment, at cost, consist of the following:
(in thousands)
December 31 1995 1994
Land $ 21,117 $ 10,463
Buildings and improvements 67,576 63,172
Furniture and equipment 58,607 52,548
Capitalized equipment leases 165 33
Construction in progress 17,800 10,541
$165,265 $136,757
Assets under arrangement with other parties, net of
accumulated depreciation, consist of the following:
(in thousands)
December 31 1995 1994
Land $ 2,612 $ 5,203
Buildings and improvements 23,890 70,690
Fixed equipment 2,008 4,442
Mortgage notes receivable 1,411 1,411
$29,921 $ 81,746
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<PAGE>
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 a 120-bed long-term health
care center located in Naples, Florida for approximately
$6,000,000.
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 1995
and 1994 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.
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, 1995 and 1994 were
$2,696,000 and $6,726,000 respectively. Gross investment gains
of $335,000 were realized on these sales during the year ended
December 31, 1995. Gross investment gains of $493,000 and gross
investment losses of $1,055,000 were realized on these sales
during the year ended December 31, 1994. Realized gains and
losses from securities sales are determined on the specific
identification of the securities.
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<TABLE>
Note 11 - Debt and Lease Commitments:
Long-Term Debt--
Long-term debt and debt serviced by other parties consist of the following:
<CAPTION>
Weighted Average Final Debt Serviced by Long-Term
Interest Rate Maturities Other Parties Debt
(in thousands)
December 31 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Bank credit facility, principal
and interest payable in variable,
quarterly installments 6.4% 2009 $ --- $ 26,353 $ 15,518 $ 16,148
Senior secured notes, interest
payable semiannually,
principal payable in semi-
annual payments beginning
November, 1995 8.3 2003 18,928 20,000 --- ---
Senior secured notes, interest
payable semiannually,
principal payable in semi-
annual payments beginning
November, 1995 8.4 2005 534 564 27,860 29,436
First mortgage revenue bonds,
repaid in 1995 --- --- --- 12,514 --- 2,807
First mortgage notes payable in
periodic installments, interest
payable quarterly 7.5 1996-2019 7,062 7,415 31,371 29,250
First mortgage revenue bonds,
payable in periodic installments,
interest payable monthly 9.3 2001-2003 2,760 11,404 --- ---
First mortgage revenue bonds,
payable in periodic installments, variable,
interest payable monthly 4.7 2000-2010 14,861 15,490 --- ---
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 8.0 1996-2001 --- --- 21,306 18,956
44,145 93,740 106,055 106,597
Less current portion (3,374) (3,976) (5,184) (2,354)
$40,771 $ 89,764 $100,871 $104,243
</TABLE>
The bank credit facility and 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 debt identified above as senior secured notes is cross-defaulted
with other NHC and NHI liabilities and is cross-collateralized to the
extent of approximately $27,860,000 of other debt.
To obtain the consent of various lenders to the transfer of assets,
NHI guaranteed certain NHC debt which was 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 debt serviced by others
for the five years subsequent to December 31, 1995 are as follows:
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Long-term Debt Serviced
Debt By Others Total
1996 $5,184,000 $3,374,000 $ 8,558,000
1997 5,728,000 3,489,000 9,217,000
1998 4,748,000 3,631,000 8,379,000
1999 5,491,000 3,465,000 8,956,000
2000 35,693,000 3,733,000 39,426,000
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, 1995, 1994, and
1993 include expense for leased premises and equipment under operating
leases of $18,820,000, $16,692,000 and $16,223,000, respectively. See Note
3 for the approximate future minimum base rent and non-obligated debt
service rent commitments on non-cancelable operating leases with NHI.
Construction and Financing Commitments--
NHC is committed to spend approximately $28,359,000 for ongoing
construction contracts and to provide financing to managed facilities in
the amount of $5,316,000 for ongoing construction contracts in 1996. 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.
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.
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<PAGE>
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--
NHC carries a professional liability insurance policy ($1,000,000 per
claim with additional umbrella coverage in the amount of $5,000,000 in the
aggregate per annum) for coverage from liability claims and losses incurred
in its health care business. 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 has assumed certain risks related to health insurance and workers
compensation insurance claims of its employees. The liability for reported
claims and estimates for incurred but unreported claims is $4,433,000 and
$2,616,000 at December 31, 1995 and December 31, 1994, respectively. The
liability is included in other current liabilities in the consolidated
balance sheets.
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
$81,555,000 (net of available debt service reserves) at variable and fixed
interest rates with a weighted average of 5.4% at December 31, 1995.
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 personal property, 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. Such rights may be enforced if NHC is required to pay under its
guarantees.
NHI has guaranteed certain of the debts of NHC. 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.
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<PAGE>
NHC has entered into an interest rate cap arrangement with a managed
entity under which NHC has guaranteed that the entity's weighted average
interest rate on its first and second mortgage debt will not exceed 9.0%.
The entity's first mortgage debt is tax-exempt, floating-rate bonds and its
second mortgage debt is owed to NHC. The bond debt outstanding under the
arrangement is $16,800,000 and the weighted average rate of both debts is
7.3% at December 31, 1995. NHC is obligated under the agreement only for
the term of its management contract, as extended, and only so long as the
tax-exempt bonds are outstanding. At December 31, 1995, NHC expects to
have no additional liability as a result of this interest rate cap
arrangement.
Note 14 - Notes Receivable and Loan Participation Agreements:
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.
NHC has entered into loan participation agreements with SouthTrust
Bank of Alabama acquiring an interest in four mortgage notes totaling
approximately $27,579,000. The participation interests range from 75% to
100% and the interest rates are variable. At December 31, 1995, the rates
range from 9.625% to 10.515%. The mortgages mature on various dates
ranging from 1999 to 2002. However, NHC has the right under the
participation agreements 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. The following table summarizes option
activity:
Number of
Options Outstanding Shares Price
Outstanding December 31, 1992 5,000 $ 11.25
Options granted --- ---
Options exercised --- ---
Outstanding December 31, 1993 5,000 11.25
Options granted 485,500 25.12-25.75
Options exercised --- ---
Outstanding December 31, 1994 490,500 11.25-25.75
Options granted 376,000 24.88-31.00
Options exercised 489,000 25.12-25.75
Outstanding December 31, 1995 377,500 $11.25-31.00
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<PAGE>
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 $26,196,000 at December 31, 1995. 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 fair value approximates the carrying amount 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 and is
approximately the same as the carrying amount.
Long-term debt and Debt serviced by other parties--
The fair value is estimated based on the current rates offered to NHC
for similar debt of the same maturities and is approximately the same as
the carrying amounts.
Subordinated Convertible Notes--
The fair value is estimated based on the quoted market price and
approximates $76,942,000 as compared to a carrying value of $30,000,000 at
December 31, 1995.
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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, 1996, included in this Form 10-K for the year ended
December 31, 1995, 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, 1995 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 20, 1996
68
<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 L.P. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,556,000
<SECURITIES> 1,514,000
<RECEIVABLES> 81,843,000
<ALLOWANCES> (4,441,000)
<INVENTORY> 3,075,000
<CURRENT-ASSETS> 89,440,000
<PP&E> 218,386,000
<DEPRECIATION> (61,465,000)
<TOTAL-ASSETS> 355,491,000
<CURRENT-LIABILITIES> 59,047,000
<BONDS> 171,642,000
0
0
<COMMON> 0
<OTHER-SE> 108,899,000
<TOTAL-LIABILITY-AND-EQUITY> 355,491,000
<SALES> 0
<TOTAL-REVENUES> 350,957,000
<CGS> 0
<TOTAL-COSTS> 296,220,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,182,000
<INTEREST-EXPENSE> 16,891,000
<INCOME-PRETAX> 21,115,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,115,000
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 2.31
</TABLE>
