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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED AUGUST 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER)
1-10511
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AMERICAN MEDICAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3527632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Commission file number
1-7612
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AMERICAN MEDICAL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-2111054
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8201 Preston Road, Dallas, Texas 75225
(Address of principal executive (Zip Code)
offices)
(Registrants' telephone number, including area code) (214) 360-6300
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Securities registered pursuant to Section 12(b) of the Act:
American Medical Holdings, Inc.:
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
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COMMON STOCK NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
American Medical International, Inc.:
8 1/4% Convertible Subordinated Debentures due 2008
9 1/2% Convertible Subordinated Debentures due 2001
(Title of class)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. American Medical Holdings, Inc.
Yes _X_ No ____ . American Medical International, Inc.
Yes _X_ No ____ .
As of November 18, 1993 there were 76,987,204 shares of American Medical
Holdings, Inc. Common Stock, $.01 par value, outstanding. The aggregate market
value of Common Stock held by non-affiliates of the registrant, based on the
closing price of these shares at November 18, 1993, was approximately
$479,199,166. For the purposes of the foregoing calculation only, all directors
and executive officers and principal stockholders of the registrant have been
deemed affiliates.
All shares of Common Stock, $.01 par value, of American Medical
International, Inc. are held by American Medical Holdings, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
American Medical Holdings, Inc.'s definitive proxy statement for its 1994 Annual
Meeting of Stockholders....Part III
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<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<S> <C> <C>
PART I
Item 1. Business.............................................................. 1
Item 2. Properties............................................................ 12
Item 3. Legal Proceedings..................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders................... 12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters............................................................... 14
Item 6. Selected Financial Data............................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 16
Item 8. Financial Statements and Supplementary Data........................... 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 23
PART III
Item 10. Directors and Executive Officers of the Registrants................... 23
Item 11. Executive Compensation................................................ 23
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 23
Item 13. Certain Relationships and Related Transactions........................ 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 23
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
American Medical Holdings, Inc. ("Holdings") was organized in July, 1989 to
acquire American Medical International, Inc. ("AMI" and, together with Holdings,
the "Company"). As a result of this acquisition, Holdings is the owner of all of
the outstanding shares of common stock of AMI.
The Company is one of the leading hospital management companies in the
United States. Generally, the Company's hospitals provide a full range of
inpatient and outpatient services including medical/surgical, obstetric and
diagnostic services and services provided by intensive care units, emergency
rooms, laboratories and pharmacies. The Company also operates ancillary
facilities at each of its hospitals, such as ambulatory, occupational and rural
healthcare clinics. At August 31, 1993, the Company operated 35 domestic acute
care hospitals and one psychiatric hospital containing a total of 8,003 licensed
beds. The Company's hospitals are principally located in the suburbs of major
metropolitan areas in 12 states including Texas, Florida and California. Through
broad networks including health maintenance organizations, preferred provider
organizations, insurers and employers, the Company provides high quality,
affordable health services while facing the challenge of containing the
continually rising healthcare costs.
Management expects that the Company's ongoing control of costs emphasized
during fiscal 1993 will provide the Company a competitive edge to increase
market share notwithstanding the presence of a managed care environment. In
response to the ever-changing healthcare system, the shift toward outpatient
services, the need to reduce provider costs for acute-care services and the
Clinton Administration's desire to provide universal access to healthcare, the
Company is developing physician networks and alliances with other healthcare
providers to create fully integrated healthcare delivery systems.
Holdings and AMI are Delaware corporations with principal executive offices
located at 8201 Preston Road, Suite 300, P.O. Box 25651, Dallas, Texas
75225-5651. The telephone number for Holdings and AMI at such address is (214)
360-6300. AMI was incorporated in 1957.
PROPERTIES
The Company owns or leases and operates the following 35 acute care
hospitals and one psychiatric hospital.
<TABLE>
<CAPTION>
YEAR OF
CONSTRUCTION OR NUMBER OF
NAME OF FACILITY LOCATION RENOVATION (A) LICENSED BEDS
- - - - ------------------------------------------------------------ ----------------------- --------------- -------------
<S> <C> <C> <C>
TEXAS
Brownsville Medical Center Brownsville R 1984 168
Mid-Jefferson Hospital Nederland R 1981 126
Nacogdoches Medical Center Nacogdoches C 1975 150
Odessa Women's and Children's Hospital (b) Odessa C 1975 100
Park Place Hospital Port Arthur R 1992 223
Park Plaza Hospital Houston R 1992 508
Twelve Oaks Hospital Houston R 1992 336
CALIFORNIA
Encino Hospital (c) Encino C 1954 181
Garden Grove Hospital and Medical Center Garden Grove R 1983 175
Medical Center of Irvine (d) Irvine C 1990 177
Medical Center of North Hollywood North Hollywood R 1972 163
San Dimas Community Hospital San Dimas C 1972 99
</TABLE>
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<TABLE>
<CAPTION>
YEAR OF
CONSTRUCTION OR NUMBER OF
NAME OF FACILITY LOCATION RENOVATION (A) LICENSED BEDS
- - - - ------------------------------------------------------------ ----------------------- --------------- -------------
Sierra Vista Regional Medical Center San Luis Obispo C 1959 178
<S> <C> <C> <C>
South Bay Hospital (d) Redondo Beach R 1986 208
Tarzana Regional Medical Center (c)(d) Tarzana R 1992 210
FLORIDA
Memorial Hospital of Tampa (b) Tampa R 1985 174
North Ridge Medical Center Ft. Lauderdale C 1975 395
Palm Beach Gardens Medical Center (d) Palm Beach Gardens R 1988 204
Palmetto General Hospital Hialeah R 1989 360
Town and Country Hospital Tampa C 1981 201
ARKANSAS
Central Arkansas Hospital Searcy R 1983 169
National Park Medical Center Hot Springs C 1985 155
St. Mary's Regional Medical Center Russellville R 1992 144
NORTH CAROLINA
Central Carolina Hospital Sanford C 1981 137
Frye Regional Medical Center (d) Hickory R 1982 275
SOUTH CAROLINA
East Cooper Community Hospital Mount Pleasant C 1986 100
Piedmont Medical Center Rock Hill C 1983 268
MISSOURI
Columbia Regional Hospital Columbia R 1987 301
Lucy Lee Hospital (d) Poplar Bluff C 1980 201
GEORGIA
North Fulton Regional Hospital (d) Roswell R 1990 167
Spalding Regional Hospital Griffin C 1989 160
NEBRASKA
Saint Joseph Hospital Omaha R 1990 423
Saint Joseph Center for Mental Health (e) Omaha R 1992 161
OTHER
Brookwood Medical Center Birmingham, Alabama R 1991 586
St. Jude Medical Center (d) Kenner, Louisiana C 1985 300
Culver Union Hospital Crawfordsville, Indiana C 1984 120
<FN>
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(a) The Company incurs capital expenditures to renovate and/or expand the
properties to accommodate new programs and to enhance the services provided.
C=Year of Construction, R=Year of Renovation
(b) The Company owns a majority interest in these hospitals.
(c) These hospitals are operated pursuant to a joint venture organized as of
January 1, 1993 with HealthTrust Inc. -- The Hospital Company. AMI is the
managing partner for the joint venture and has a 75% ownership interest
therein.
(d) Property held under lease.
(e) Psychiatric hospital.
</TABLE>
The Company also owns or manages medical office buildings and related
healthcare facilities associated with 31 of its hospitals as well as certain
undeveloped properties.
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EMPLOYEES
As of August 31, 1993, the Company had approximately 28,200 employees, of
which approximately 66% were full time employees. Two of the Company's hospitals
had labor contracts covering approximately 5% of the Company's employees.
Management believes that its relations with its employees generally are
satisfactory.
MEDICAL STAFFS
The medical staff at each hospital generally consists of non-employee
physicians. There is a trend in the healthcare industry in some regions to
employ physicians and where appropriate, the Company's hospitals have pursued
this option. Medical staff members of the Company-owned hospitals that are not
employees usually also serve on the medical staffs of hospitals not owned by the
Company and may terminate their relationships with the Company-owned hospitals
at any time.
Rules and regulations concerning the medical aspects of each hospital's
operations are adopted and enforced by its medical staff. Such rules and
regulations provide that the members of the staff elect officers who, together
with additional physicians selected by them, supervise all medical and surgical
procedures and services. Their supervision is subject to the general oversight
of the hospital's Governing Board.
QUALITY OF SERVICES
Management believes the quality of healthcare services is critical in order
to attract and retain top physicians and increase the market share of the
Company's hospitals. One of the key mechanisms used to monitor the quality of
care at the Company's hospitals is a quality assurance program designed to
measure patient satisfaction, the Patient Satisfaction Monitoring System
("PSMS"). PSMS utilizes the results of interviews performed by an independent
research company of a statistically determined sample group of discharged
patients at each hospital to gather patient responses regarding the hospital
services provided. Management uses the results as a tool to improve the quality
of patient services and satisfaction and believes PSMS has assisted the Company
in successfully maintaining and improving the quality of healthcare as perceived
by patients and their physicians and thereby contributing to improved net
revenues. PSMS is also used by the Company as one of the bases upon which
hospital executive directors and other employees are compensated under the
Company's incentive compensation program. Management believes that the Company
was the first in the industry to directly tie compensation to the attainment of
qualitative performance targets.
The Company has recently developed a system similar to PSMS which is
designed to measure physician satisfaction, the MD Satisfaction Survey. A pilot
program for this survey has been implemented at one hospital and the Company
plans to make it available for use at each of the Company's hospitals in fiscal
1994.
COMPETITION
Generally, other investor-owned and non-profit hospitals operate in the
local markets in which the Company participates and provide services that are
similar to those offered by the Company's hospitals. Competition among hospitals
and other healthcare providers in the United States has increased in recent
years due to a decline in occupancy rates resulting from, among other things,
changes in government regulation and reimbursement, other cost containment
pressures, technology, and most recently, the healthcare reform plan proposed by
the Clinton Administration. Additionally, hospitals owned by government agencies
or other tax-exempt entities benefit from advantages such as endowments,
charitable contributions and tax-exempt financing, which advantages are not
available to the Company's hospitals.
Management believes that a hospital's competitive position within local
markets is affected by various factors including the quality of healthcare
services provided, pricing of healthcare services, the hospital's location and
the types of services offered. The Company expects to improve the performance of
its hospitals by (i) expanding physician network relationships thereby
attracting and retaining
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quality physician and medical personnel, (ii) increasing its emphasis on managed
care contracting, (iii) developing and marketing new healthcare services
targeted to the particular needs of the communities served by its hospitals, and
(iv) expanding profitable outpatient services.
The competitive position of a hospital is increasingly affected by its
ability to negotiate contracts for healthcare services with managed care
organizations, including health maintenance organizations ("HMOs"), preferred
provider organizations ("PPOs") and other purchasers of group healthcare
services. HMOs and PPOs attempt to direct and control use of hospital services
through strict utilization management programs and by negotiating provider
contracts with only one or a limited number of hospitals in each market area.
The importance of negotiating with managed care organizations varies from market
to market depending on the market strength of such organizations. In some
situations, hospitals have agreed to fixed payments based on the number of
managed care enrollees, thereby assuming hospital utilization risk (such
contracts are referred to as capitated contracts). Managed care organizations
are generally able to obtain discounts from hospital established charges.
Management believes that the Company is able to compete effectively for managed
care business in part because of its relationships with local physicians, its
hospital management teams, its attention to cost controls and quality of service
and its strategies to establish service niches in markets served by other
hospitals.
Merger and acquisition activity has significantly increased in the
healthcare industry involving both investor-owned and non-profit entities. As
healthcare reforms announced by the Clinton Administration take effect,
management believes that it will become more important for hospitals and other
healthcare providers to work together to form fully integrated healthcare
delivery systems and thereby provide the community and marketplace with high
quality, cost effective healthcare products and services. During fiscal 1993 the
Company entered into an agreement with HealthTrust, Inc.-The Hospital Company
("HealthTrust") to jointly operate AMI's Tarzana Regional Medical Center and
HealthTrust's Encino Hospital. Management is continually evaluating other
similar opportunities and acquisitions to expand the networks in which the
Company currently participates.
SOURCES OF REVENUE
The sources of the Company's hospital revenues are room and board and the
provision of ancillary medical services. Room and board represents the basic
charges for the hospital room and related services, such as general nursing care
and meals. Ancillary medical services represent the charges related to the
medical support activities performed by the hospital, such as X-rays, physical
therapy and laboratory procedures. The Company receives payments for services
rendered to patients from the federal government under Medicare and the Civilian
Health and Medical Program of Uniformed Services ("CHAMPUS") programs, state
governments under their respective Medicaid programs, managed care organizations
("contracted services"), private insurers, self-insured employers and directly
from patients. In addition to revenues received from such programs and patients,
the Company receives other non-patient revenues (e.g. cafeteria and gift shop
revenues). During fiscal 1991, the Company also recognized revenues associated
with an HMO owned by the Company and divested in fiscal 1991.
The following table presents the percentage of net revenues for the three
years ended August 31 under each of the following programs:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Medicare/Medicaid 38% 37% 32%
Contracted Services 26 24 21
Non-contracted Services 33 37 37
Other Sources 3 2 10
</TABLE>
The Company's hospital revenues received under Medicare, Medicaid, CHAMPUS,
Blue Cross and from payors of contracted services are generally less than
customary charges for the services covered. Following the initiative taken by
the federal government to control healthcare costs, other
4
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major purchasers of healthcare, including states, insurance companies and
employers, are increasingly negotiating the amounts they will pay for services
performed rather than simply paying healthcare providers their customary
charges. Managed care programs which offer prepaid and discounted medical
service packages are capturing an increasing share of the market, tending to
reduce the historical rate of growth of hospital revenues. As a result, new
kinds of healthcare strategies and provider networks (e.g. physician networks)
are continuing to emerge.
Patients are generally not responsible for any difference between customary
hospital charges and amounts reimbursed under Medicare, Medicaid, CHAMPUS and
some Blue Cross plans or by payors of contracted services for such services,
except to the extent of any exclusions, deductibles or co-insurance features of
their coverage. In recent years insurers and other payors have increased the
amount of such exclusions, deductibles and co-insurance generally increasing the
patient's financial responsibility to directly pay for some services. The
increase in the self-pay portion of a patient's financial responsibility may
also increase the Company's uncollectible accounts.
MEDICARE PROGRAM
The Medicare program is a federal healthcare program created by the Social
Security Act of 1965 (the "Social Security Act") to provide healthcare services
to the aged under a hospital insurance program ("Medicare Part A") and voluntary
supplementary medical insurance program ("Medicare Part B"). Medicare Part A
provides health insurance benefits for covered inpatient hospital and related
healthcare services to most persons who are age 65 years or more and are
entitled to monthly Social Security retirement or survivor benefits, to the
disabled, and to persons with end-stage renal disease. Medicare Part B provides
voluntary supplemental medical benefits covering primarily outpatient and
physician care costs for covered persons.
The Medicare program has changed significantly since its enactment. In 1983,
Congress adopted a prospective payment system ("PPS") for reimbursement, rather
than a cost based system, to cover the routine and ancillary operating costs of
most Medicare inpatient hospital services. Psychiatric, long-term care,
rehabilitation, pediatric and certain designated cancer research hospitals, as
well as psychiatric or rehabilitation units that are distinct parts of a
hospital, are currently exempt from PPS and continue to be reimbursed on a cost
based system, subject to certain cost caps. It is uncertain what impact, if any,
the Clinton Administration's and other legislative efforts to reform the
healthcare system will have on the current method of Medicare reimbursement.
Under PPS, fixed payment amounts per inpatient discharge were established
based on the category of the patient's treatment known as a diagnosis related
group ("DRG"). DRG's classify patients' treatments for illnesses according to
the estimated intensity of hospital resources necessary to furnish care for each
principal diagnosis. DRG rates have been established for each individual
hospital participating in the Medicare program and are based upon a
statistically normal distribution of severity. Patients falling well outside the
normal distribution are afforded additional payments and defined as "outliers".
Under PPS, since hospitals may retain payments in excess of costs but must
absorb costs in excess of such payments, the hospitals are encouraged to operate
at greater efficiency.
DRG rates are updated and recalibrated periodically and have been affected
by several recent Federal enactments. The index used by the Health Care
Financing Administration ("HCFA") to adjust the DRG rates gives consideration to
the inflation experienced by hospitals in purchasing goods and services ("market
basket"). However, for several years the percentage increases to the DRG rates
have been lower than the percentage increases in the costs of goods and services
purchased by hospitals. The market basket is adjusted each federal fiscal year
("FY") which begins on October 1. The market basket for FY 1993 was 4.1% and for
FY 1994 is at 4.3%.
The Omnibus Budget Reconciliation Act of 1990 ("OBRA-90") reduced Medicare
DRG payments to healthcare providers in FY 1991 through 1993. The Omnibus Budget
Reconciliation Act of 1993 ("OBRA-93") extended the reduction through 1997. A
substantial number of AMI's hospitals are classified as urban hospitals for
reimbursement purposes. The net updates of DRG rates for large
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urban and other urban hospitals are established as follows: FY 1993, market
basket, minus 1.55%; FY 1994 and FY 1995 market basket, minus 2.5%; FY 1996,
market basket, minus 2%; and FY 1997, market basket, minus .5%. Management
cannot predict how future adjustments by Congress and HCFA will affect the
profitability of its healthcare facilities.
In OBRA-90, Congress also required the Secretary of the Department of Health
and Human Services ("HHS") to develop a proposal for a PPS for all
hospital-based outpatient services and inpatient psychiatric care. The Secretary
of HHS' report, which was due on September 1, 1991, has not been submitted.
Until such time as the Secretary of HHS has developed a PPS for all hospital-
based outpatient services, OBRA-90 directs that payments for the reasonable cost
of outpatient hospital services (other than for capital related costs) be
reimbursed at 94.2% of such reasonable costs for cost reporting periods falling
within FY 1991 through FY 1995. OBRA-93 extended this reduction from FY 1995
through FY 1998.
MEDICARE REIMBURSEMENT FOR CAPITAL COSTS
Capital related payments for inpatient hospital services were made at the
rate of 85% of reasonable capital costs during the period January 1, 1991 to
September 30, 1991. Subsequent to September 30, 1991 through FY 1995, such
payments are made at the rate of 90% of reasonable capital costs until PPS
becomes applicable to the hospital. The PPS capital costs reimbursement applies
an estimated national average of FY 1989 Medicare capital costs per patient
discharge updated to FY 1992 by the estimated increase in Medicare capital costs
per discharge (the "Federal Rate"). PPS is applicable to cost reports beginning
on or after October 1, 1991. Under PPS reimbursement a 10 year transition period
has been established. A hospital would be paid under one of the following two
different payment methodologies during this transition period. A hospital with a
hospital-specific rate (the rate established for a hospital based on the cost
report ending on or before December 31, 1990) below the Federal rate would be
paid on a fully prospective payment methodology and hospitals with a
hospital-specific rate above the Federal rate would be paid based on a
hold-harmless payment methodology or 100 percent of the Federal rate whichever
results in higher payment. A hospital would be paid under one methodology
throughout the entire transition. After the transition period, all hospitals
would be paid the federal rate.
The impact of PPS capital reimbursement in the first two years has not been
material to Medicare capital reimbursement. The hospital-specific rates for FY
1993 increased .62% and for FY 1994 the rate decreased 2.16%. The established
Federal Rate in FY 1992 was $415.59, for FY 1993 the rate was increased by .41%
to $417.29 and for FY 1994 the rate was reduced by 9.33% to $378.34. Management
believes that the decrease in the rate of reimbursement for capital costs will
not have a material adverse effect on the Company's results of operations.
MEDICAID PROGRAM
The Medicaid program, created by the Social Security Act, is designed to
provide medical assistance to individuals unable to afford care. Medicaid is a
joint federal and state program in which states voluntarily participate.
Reimbursement rates under the Medicaid program are set by each participating
state, and rates and covered services may vary from state to state. Depending on
the average income per person in a state, at least 50% of Medicaid funding comes
from the federal government, with the balance shared by the state and local
governments. The amount of the federal share is called Federal Financial
Participation ("FFP"). Each of the Company's facilities is currently an eligible
Medicaid provider, although certain of the Company's hospitals do not currently
participate as providers of services in their respective state Medicaid
programs.
The Omnibus Reconciliation Act of 1981 permitted each state to determine new
reimbursement rates for Medicaid inpatient hospital services that are reasonable
and adequate to meet the costs which must be incurred by efficiently and
economically operated facilities and to assure access to inpatient hospital
services by Medicaid recipients. Providers must accept Medicaid payment as
payment in full for healthcare services provided to Medicaid patients. Actual
payment rates and the methodologies for determining such rates vary from state
to state. For example, in Texas, Medicaid
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inpatient services are reimbursed on a DRG based system, while in Florida,
Medicaid inpatient services are reimbursed on a per diem prospective payment
system. In many instances, Medicaid reimbursement does not cover a hospital's
costs in providing services to Medicaid recipients.
The Company operates hospitals in some states that currently levy taxes on
healthcare providers or use healthcare provider donations to meet the state's
share of medical assistance expenditures. HCFA issued a final rule on September
13, 1993 whereby funds donated from Medicaid providers and expenditures that are
attributable to provider-specific state taxes be offset from Medicaid
expenditures incurred on or after January 1, 1992, before calculating the amount
of the federal share of FFP. The Company has historically participated in such
programs and has received reimbursement to offset a portion of the cost of
services provided to indigent patients. Although management believes that as a
result of the final rule such reimbursement will be reduced, steps have been
taken to offset the anticipated reduction in reimbursement.
The Medicare and Medicaid programs have been subject to continual
modification through legislative acts and both federal and state administrative
initiatives. The federal or state governments might in the future reduce the
funds available under these programs or require more stringent utilization
review of hospital facilities. Such actions could have a material adverse impact
on the Company's financial condition and results of operations.
CHAMPUS
The Company's hospitals are reimbursed by the federal government's CHAMPUS
program for care provided to United States military retirees and dependents.
CHAMPUS pays for inpatient acute hospital care on the basis of a prospectively
determined rate applied on a per discharge basis using DRGs similar to the
Medicare system. At this time, inpatient psychiatric hospital services are
reimbursed on an individual hospital's per diem rate calculated based upon the
hospital's prior cost experience. There can be no assurance that the CHAMPUS
program will continue per diem reimbursement for psychiatric hospital services
in the future.
CONTRACTED BUSINESS
Healthcare reform has been the centerpiece of domestic policy for the
Clinton Administration. Integral to all proposals put forth by the
Administration and Congress has been the increase in the utilization of some
form of managed care. Managed care arrangements have typically reimbursed
providers based on a percent of charges or on a per diem basis with stop-loss
provisions for high severity cases. In more developed markets such as California
and Florida, the Company's hospitals are now entering into risk sharing, or
capitated, arrangements. These arrangements reimburse the hospital based on a
fixed fee per participant in a managed care plan with the hospital assuming the
cost of services provided, regardless of the level of utilization. If
utilization is higher than anticipated and/or costs are not effectively
controlled, such arrangements could produce low or negative operating margins.
COMMERCIAL INSURANCE
The Company's hospitals provide services to individuals covered by private
healthcare insurance. Private insurance carriers either reimburse their policy
holders or make direct payment to the Company's hospitals based upon the
particular hospital's established charges and the particular coverage provided
in the insurance policy. Blue Cross is a healthcare financing program that
provides its subscribers with hospital benefits through independent
organizations that vary from state to state. The Company's hospitals are paid
directly by local Blue Cross organizations on the basis agreed to by each
hospital and Blue Cross by a written contract. In some states, the local Blue
Cross affiliate is believed to be experiencing financial difficulty; however,
management does not believe that such difficulties represent a material
financial exposure to the Company.
7
<PAGE>
Recently, several commercial insurers have undertaken efforts to limit the
costs of hospital services by adopting PPS or DRG based systems. To the extent
such efforts are successful, and to the extent that the insurers' systems fail
to reimburse hospitals for the costs of providing services to their
beneficiaries, such efforts may have a negative impact on the hospitals' net
revenue.
REGULATION
LICENSURE, CERTIFICATION AND ACCREDITATION
Healthcare facility construction and operation is subject to federal, state
and local regulation relating to the adequacy of medical care, equipment,
personnel, operating policies and procedures, fire prevention, rate-setting and
compliance with building codes and environmental protection laws. Facilities are
subject to periodic inspection by governmental and other authorities to assure
continued compliance with the various standards necessary for licensing and
accreditation. Management believes that all of the Company's healthcare
facilities are properly licensed under appropriate state laws and are certified
under the Medicare program or are accredited by the Joint Commission on
Accreditation of Health Care Organizations ("Joint Commission"), the effect of
which is to permit the facilities to participate in the Medicare and Medicaid
programs. Should any facility lose its Joint Commission accreditation, or
otherwise lose its certification under the Medicare program, the facility would
be unable to receive reimbursement from the Medicare and Medicaid programs.
Management believes that the Company's facilities are substantially in
compliance with current applicable federal, state, local and independent review
body regulations and standards. The requirements for licensure, certification
and accreditation are subject to change and, in order to remain qualified, it
may be necessary for the Company to effect changes in its facilities, equipment,
personnel and services. Although the Company intends to continue its
qualification, there is no assurance that its hospitals will be able to comply
in the future.
CERTIFICATES OF NEED
The construction of new facilities, the acquisition of existing facilities,
and the addition of new beds or services may be reviewable by state regulatory
agencies under a program frequently referred to as a Certificate of Need. The
Company operates hospitals in nine states that require state approval under the
Certificate of Need program. Such laws generally require appropriate state
agency determination of public need and approval prior to beds or services being
added, or a related capital amount being spent. Failure to obtain necessary
state approval can result in the inability to complete an acquisition or change
of ownership, the imposition of civil or, in some cases, criminal sanctions, the
inability to receive Medicare or Medicaid reimbursement and/or the revocation of
a facility's license.
UTILIZATION REVIEW
In order to ensure efficient utilization of facilities and services, federal
regulations require that admissions to and the utilization of facilities by
Medicare and Medicaid patients be reviewed periodically by a federally funded
Peer Review Organization ("PRO").
Pursuant to federal law, the PRO must review the need for hospitalization
and the utilization of services, and may, where appropriate, deny payment for
services provided. Each of the Company's facilities has contracted with a PRO
and has had in effect a quality assurance program that provides for
retrospective patient care evaluation and utilization review. While no PRO has
taken adverse action against any of the Company's hospitals to date, PRO review
can result in denial of payment for services, recoupment of monies paid to the
hospital, assessment of fines or exclusion from the Medicare and Medicaid
programs.
STATE RATE-SETTING ACTIVITY
The Company currently operates five facilities in Florida wherein the state
has mandated hospital rate-setting. Under Florida law, the maximum annual
percentage any hospital may increase its revenue per admission is limited to the
hospital's prior year actual revenue per adjusted admission inflated forward by
the hospital's applicable current year's maximum allowable rate of increase
("MARI") or the Health Care Cost Containment Board-approved budgeted revenue per
adjusted
8
<PAGE>
admission. The MARI is the maximum rate at which a hospital is expected to
increase its average revenue per adjusted admission for a given period. The
Health Care Cost Containment Board, using the most recent audited actual
experience for each hospital, calculates the MARI for each hospital based on the
projected rate of increase in the market basket index, adjusted by the
hospital's percentage of Medicare, Medicaid and charity care days plus two
percentage points. As a result, in Florida, the Company's ability to increase
its rates to compensate for increased costs per admission is limited, and the
Company's operating margin at Florida facilities may be adversely affected.
There can be no assurance that other states in which the Company operates
hospitals will not enact rate-setting provisions as well.
FEDERAL LEGISLATION AND RULE-MAKING
The Medicare and Medicaid Antifraud and Abuse Amendments (the "Amendments")
are codified under Section 1128B of the Social Security Act. The Amendments
provide criminal penalties for individuals or entities that knowingly and
willfully offer, pay, solicit or receive remuneration of any kind in order to
induce referrals for goods or services reimbursed under the Medicare or state
Medicaid programs. The statute on its face is very broad with the types of
remuneration covered including kickbacks, bribes and rebates made directly or
indirectly, overtly or otherwise, in cash or in kind. In addition, prohibited
conduct includes remuneration intended to induce the purchasing, leasing,
ordering or arranging for any good, facility or service paid for by Medicare or
state Medicaid programs. In addition to felony criminal penalties (fines of up
to $25,000 and imprisonment for up to five years per referral), the Amendments
also establish civil monetary penalties and sanctions of excluding violators
from Medicare and Medicaid participation. The Office of the Inspector General
("OIG") has taken the position that where physicians hold other than bona fide
ownership interests in healthcare providers (e.g., where such ownership is
intended to encourage the physicians to utilize the services of the entity in
which they have invested) such ownership arrangements violate the Amendments.
In recent years, the courts have suggested that any direct or indirect
payment or other financial benefit conferred upon a physician or other referral
source may violate the statute if one purpose of any portion of the payment is
to induce the physician to refer patients to the entity providing the benefit.
Healthcare providers are concerned that many relatively innocuous, or even
beneficial, commercial arrangements are technically covered by the Amendments
and are, therefore, subject to potential criminal prosecution. The Medicare and
Medicaid Patient and Program Protection Act of 1987 added two new provisions
specifically addressing the anti-kickback statute. They first authorized the OIG
to exclude an individual or entity from participation in the Medicare and
Medicaid programs if it is determined through an administrative process that the
party has engaged in a prohibited remuneration scheme. In addition, Congress
directed the HHS to develop regulations specifying those payment practices that
will not be subject to criminal prosecution and not provide a basis for
exclusion from the Medicare and Medicaid programs ("safe harbors"). Final
regulations were published on July 29, 1991 in the Federal Register. Additional
safe harbors were proposed, with a 60 day public comment period, on September
21, 1993. The proposed rule offers protection for investment interests in rural
areas, ambulatory surgical centers, and group practices composed exclusively of
active investors; practitioner recruitment in rural areas; obstetrical
malpractice insurance subsidies; referral arrangements for specialty services;
and cooperative hospital service organizations.
Among the criteria contained in the final regulations are criteria for
investments, leasing, purchasing and ordering arrangements which would apply to
the Company's facilities. The additional proposed regulations will also provide
a safe harbor for physician recruitment by facilities in certain rural areas. If
adopted, such a safe harbor provision would apply to certain of the Company's
facilities. Arrangements with referring physicians involving leasing,
purchasing, ordering and recruitment would not constitute illegal remuneration
so long as all of the criteria set forth in the safe harbors are met. However,
the fact that each provision of such arrangements does not fall within one of
the applicable safe harbor criteria does not necessarily mean that the
arrangement is illegal.
9
<PAGE>
In order to prevent hospitals from entering into arrangements with
physicians that increase the physician payment from Medicare or Medicaid, in
January 1991, the OIG issued a management advisory report identifying potential
violations of the antifraud and abuse statute with respect to certain financial
arrangements between hospitals and hospital-based physicians. Specifically, the
report stated that financial agreements that require physicians to pay more than
the fair market value for services provided by the hospital or that compensate
physicians for less than the fair market value of goods and services that they
provide to hospitals create potential liability for physicians and hospitals
engaged in these actions.
In May 1992, the OIG issued a special fraud alert regarding hospital
incentives to physicians. The alert identified the following incentive
arrangements which, if present, are indications of potentially unlawful
activity: (a) payment of any sort of incentive by the hospital each time a
physician refers a patient to the hospital, (b) the use of free or significantly
discounted office space or equipment (in facilities usually located close to the
hospital), (c) provision of free or significantly discounted billing, nursing or
other staff services, (d) free training for a physician's office staff in areas
such as management techniques, CPT coding and laboratory techniques, (e)
guarantees which provide that, if the physician's income fails to reach a
predetermined level, the hospital will supplement the remainder up to a certain
amount, (f) low-interest or interest-free loans, or loans which may be
"forgiven" if a physician refers patients (or some number of patients) to the
hospital, (g) payment of the costs of a physician's travel and expenses for
conferences, (h) coverage on hospital's group health insurance plans at an
inappropriately low cost to the physician and (i) payment for services (which
may include consultations at the hospital) which require few, if any,
substantive duties by the physician, or payment for services in excess of the
fair market value of services rendered.
Certain of the Company's current financial arrangements with physicians,
including joint ventures, may not qualify for the current safe harbor exemptions
and, as a result, such arrangements risk scrutiny by the OIG and may be subject
to enforcement action. As indicated above, the failure of these arrangements to
satisfy all of the conditions of the applicable safe harbor criteria does not
mean that the arrangements are illegal. Nevertheless, certain of the Company's
current financial arrangements with physicians, including joint ventures, and
the Company's future development of joint ventures and other financial
arrangements with physicians, could be adversely affected by the failure of such
arrangements to comply with the safe harbor regulations, or the future adoption
of other legislation or regulation in these areas.
Under provisions of the OBRA-89 and OBRA-90, referrals of Medicare and
Medicaid patients to clinical laboratories with which a referring physician has
a financial relationship are prohibited effective January 1, 1991. As of January
1, 1992, any claim for payment submitted to Medicare by a provider must identify
the name and provider number of the referring physician and must indicate
whether the physician has an ownership or other financial arrangement with the
provider.
In addition, under the provisions of OBRA-93, referrals of Medicare and
Medicaid patients to certain "designated health services" with which a referring
physician has a financial relationship will be prohibited as of January 1, 1995.
These designated health services include the following: clinical laboratory;
physical and occupational therapy services; radiology or other diagnostic
services; radiation therapy services; durable medical equipment; parenteral and
enteral nutrients, equipment and supplies; prosthetics, orthotics and prosthetic
devices; home health services; outpatient prescription drugs; and inpatient and
outpatient hospital services. There are a number of exceptions that may apply to
the compensation arrangements under which the Company's facility contracts with
certain of its physicians including exceptions for bona fide employment
relationships, personal service arrangements, and physician recruitment
arrangements.
The Social Security Act also imposes criminal and civil penalties for making
false claims to Medicare and Medicaid for services not rendered or for
misrepresenting actual services rendered in
10
<PAGE>
order to obtain higher reimbursement. Like the antifraud and abuse statute, this
statute is very broad. Careful and accurate coding of claims for reimbursement
must be performed to avoid liability under the false claims statutes.
Management exercises care in an effort to structure its arrangements with
physicians to comply in all material respects with these laws, and management
believes that the Company is in compliance with the Amendments, however, there
can be no assurance that (i) government officials charged with responsibility
for enforcing the prohibitions of the Amendments will not assert that the
Company or certain transactions in which it is involved are in violation of the
Amendments; or (ii) courts will interpret the Amendments in a manner consistent
with the practices of the Company.
STATE LEGISLATION
Certain states in which the Company's facilities are located also have
enacted statutes which prohibit the payment of kickbacks, bribes and rebates for
the referral of patients. Many of these statutes have provisions that closely
follow the federal statutes described above, and there have been few actions or
interpretations made under such provisions. Management believes that the Company
is in substantial compliance with such laws; however, there can be no assurance
that government officials who have the responsibility for enforcing such laws
will not assert that the Company or certain transactions in which the Company is
involved are in violation of such laws, or that such laws will ultimately be
interpreted by the government officials in a manner consistent with the
practices of the Company.
GENERAL REGULATION
The Company is committed to providing its employees with an equal
opportunity work environment that is free from discrimination. In keeping with
this commitment, the Company ensures that all human resource programs are
administered without regard to race, religion, color, national origin, sex or
age. Furthermore, the Company embraces and complies with the American
Disabilities Act of 1990 (ADA) and the 1993 Family and Medical Leave Act. Such
human resource programs include, but are not limited to, compensation, benefits,
application of Company policies, company-sponsored training, educational, social
and recreational programs. Additionally, in accordance with the ADA, management
believes the Company's facilities are constructed to accommodate disabled
persons within the reasonableness test of the ADA.
The Company is subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the environment.
Management does not believe that the Company will be required to expend any
material amounts in order to comply with these laws and regulations or that
compliance will materially affect its capital expenditures, earnings or
competitive position.
PROFESSIONAL LIABILITY
As is typical in the healthcare industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. The Company
self-insures the professional and general liability claims for nine of its
hospitals up to $500,000 per occurrence and for 25 of its hospitals up to $3
million per occurrence. Prior to June, 1993 the self-insured retention for these
25 hospitals was $5 million per occurrence. Coverage for professional and
general liability claims for the Company's two remaining hospitals is maintained
with outside insurance carriers.
The Company owns a 35% equity interest in an insurance company which insures
the excess professional and general liability risks for those hospitals which
are self-insured. The excess coverage provided by this insurance company is
limited to $25 million per claim. The Company purchases additional excess
insurance from a commercial carrier. For the period from January 1986 to
February 1991 the Company had no excess coverage for the majority of its
hospitals. However, in March 1991 the Company purchased prior acts coverage
which substantially reduces the uninsured liability for risks during this
period.
The Company maintains an unfunded reserve for its professional liability
risks which is based, in part, on actuarial estimates calculated and evaluated
by an independent actuary. Actual hospital
11
<PAGE>
professional and general liability costs for a particular period are not
normally known for several years after the period has ended. The delay in
determining the actual cost associated with a particular period is due to the
time between the occurrence of an incident, the reporting thereof and the
settlement of related claims. Because of this delay in payment, reserves for
losses and related expenses, using expected loss reporting patterns determined
in conjunction with the actuary, are discounted using a rate of 9% to their
present value. Adjustments to the total reserves determined in conjunction with
the actuary on an annual basis are recorded by the Company as an increase or
decrease in the current year's earnings. Management considers such reserves to
be adequate for professional liability risks. Any losses incurred in excess of
the established reserve will be reflected as a charge to earnings of the
Company. Any losses incurred within the Company's self-insurance limits will be
paid out of the Company's cash from operations. While the Company's cash from
operations has been adequate to provide for alleged and unforeseen liability
claims in the past, there can be no assurance that the Company's cash flow will
continue to be adequate to cover such claims.
SEGMENT OPERATING INFORMATION
Holdings' only material business segment is "healthcare," which contributed
substantially all of its revenues and operating profits in fiscal 1993. The
Company's healthcare business is conducted in the United States.
ITEM 2. PROPERTIES
See "Item 1. Business."
ITEM 3. LEGAL PROCEEDINGS
Holdings and AMI are subject to claims and suits arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of all
pending legal proceedings will not have a material adverse effect on the
business or financial condition of Holdings or AMI.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH HOLDINGS AND AMI
- - - - ---------------------------------- --------- -----------------------------------------------------------------------
<S> <C> <C>
Robert W. O'Leary 49 Chairman and Chief Executive Officer since July 1991; President and
Chief Executive Officer of Voluntary Hospitals of America, Inc.
("VHA"), a hospital alliance representing approximately 850 domestic
hospitals from 1989 to June 1991; President and Chief Executive
Officer of St. Joseph Health System ("SJHS"), a multi-hospital,
multi-purpose health services organization from 1983 to 1989.
John T. Casey 48 President and Chief Operating Officer since November 1991; President
and Chief Executive Officer of The Samaritan Foundation ("Samaritan"),
the ninth largest private healthcare system in the United States from
March 1990 to November 1991; President and Chief Executive Officer,
Methodist Health Systems ("MHS"), a regional healthcare system from
1987 to 1990.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH HOLDINGS AND AMI
- - - - ---------------------------------- --------- -----------------------------------------------------------------------
<S> <C> <C>
Alan J. Chamison 53 Executive Vice President since September 1991 and Chief Financial
Officer since February 1992; Chief Administrative Officer of VHA from
January 1990 to September 1991 and a Director and the Interim
President and Chief Executive Officer of VHA Enterprises, Inc., an
affiliate of VHA, from September 1989 to September 1991; Senior Vice
President of SJHS from May 1983 to September 1989.
O. Edwin French 47 Senior Vice President since January 1992; Executive Vice President of
Samaritan from March 1991 to December 1991; Senior Vice President of
MHS from July 1985 to March 1991.
W. Randolph Smith 45 Executive Vice President, Operations since September 1990; Senior Vice
President, Chief Administrative Officer from February 1990 to August
1990; Senior Vice President and Acting Chief Financial Officer from
November 1989 to January 1990; Corporate Vice President and Acting
Chief Financial Officer from July 1989 to November 1989; Corporate
Vice President and Director, Operations from 1987 to 1989; Vice
President and Assistant Regional Director, Southern Region from 1986
to 1987; Vice President and Regional Director, Mid-Atlantic Region
from 1985 to 1986; Executive Director, Brookwood Medical Center from
1983 to 1985.
Lawrence N. Kugelman 51 Executive Vice President and California Regional Director since January
1993; Executive Director of Sisters of St. Joseph Foundation from July
1992 to December 1992; President and CEO of The Health Plan of America
from September 1986 to June 1992.
Terry H. Linn 45 Vice President, Development since June 1993; Partner of Ernst & Young
(previously Ernst & Ernst) a public accounting firm, from 1980 to
1993.
</TABLE>
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
Holdings' common stock is traded on the New York Stock Exchange. Holdings
owns all of AMI's issued and outstanding common stock and such shares are no
longer publicly traded. The following table indicates the quarterly high and low
sales prices of Holdings' common stock for the period from September 1, 1991
through August 31, 1993. Certain covenants in the Company's bank credit and
other financing agreements restrict the payment of cash dividends on Holdings'
common stock (See Item 14(a), Note 3 to the Financial Statements). No dividends
were paid on Holdings' common stock for the periods presented. (See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources").
<TABLE>
<CAPTION>
Sales Price
------------------
HIGH LOW
------- -------
<S> <C> <C>
1993
First Quarter............................................................. $10 7/8 $ 8
Second Quarter............................................................ 13 3/4 10 5/8
Third Quarter............................................................. 11 5/8 9 7/8
Fourth Quarter............................................................ 14 10 1/4
1992
First Quarter............................................................. $10 5/8 $ 7 1/8
Second Quarter............................................................ 11 5/8 7 3/4
Third Quarter............................................................. 10 1/2 8 5/8
Fourth Quarter............................................................ 10 3/8 7
</TABLE>
There were 13,408 holders of record of Holdings' shares as of November 18,
1993.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR FINANCIAL SUMMARY
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE TWO
FOR THE YEAR ENDED AUGUST 31, MONTHS
---------------------------------------------------------------- FOR THE TEN MONTHS ENDED
ENDED AUGUST 31, OCTOBER 31,
1993 1992 1991 1990 1989
-------------------- -------------------- -------------------- -------------------- -----------
HOLDINGS(1) AMI(2) HOLDINGS(3) AMI(4) HOLDINGS AMI HOLDINGS(5) AMI(6) AMI(7)
---------- -------- ---------- -------- ---------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Results
Net Revenues........... $ 2,238.5 $2,238.5 $ 2,237.9 $2,237.9 $ 2,545.9 $2,288.6 $ 2,052.4 $1,902.6 $ 480.9
Net Income (loss)...... $ 41.5 $ 41.5 $ 99.6 $ 99.6 $ (19.0) $ (1.8) $ (13.7 ) $ (15.3) $ (68.6)
Net Income (loss) per
share................. $ .54 N/A $ 1.30 N/A $ (.38) N/A $ (.27 ) N/A $ (.98)
Shares of stock used to
calculate earnings
(loss) per common and
common equivalent
share................. 76,760,000 N/A 76,645,000 N/A 50,698,000 N/A 50,080,000 N/A 70,153,000
Cash dividends declared
per share............. $ -- N/A $ -- N/A $ -- N/A $ -- N/A $ --
Other Data
Working Capital........ $ (140.0 ) $ (140.0) $ (222.2 ) $ (222.2) $ (263.4) $ (243.0) $ (313.4 ) $ (289.6) N/A
Net book value of
property and
equipment............. $ 1,404.2 $1,404.2 $ 1,394.3 $1,394.3 $ 1,454.6 $1,413.8 $ 1,697.0 $1,531.9 N/A
Total assets........... $ 2,868.4 $2,868.4 $ 2,963.3 $2,963.3 $ 3,153.5 $3,199.6 $ 3,595.7 $3,382.3 N/A
Long-term debt and
convertible
subordinated debt..... $ 1,294.2 $1,294.2 $ 1,343.7 $1,343.7 $ 1,613.3 $1,564.6 $ 2,246.4 $2,066.8 N/A
Common stock subject to
repurchase
obligations........... $ 6.1 $ -- $ 4.3 $ -- $ 7.4 $ -- $ 6.6 $ -- N/A
Shareholder's equity... $ 697.8 $ 703.9 $ 663.7 $ 668.0 $ 552.2 $ 551.1 $ 332.0 $ 312.0 N/A
Book value per share... $ 9.08 $ 9.71 $ 8.66 $ 9.22 $ 7.30 $ 7.60 $ 6.63 $ 4.30 N/A
<CAPTION>
FOR THE
YEAR ENDED
AUGUST 31,
1989
----------
AMI(8)
----------
<S> <C>
Operating Results
Net Revenues........... $ 2,740.4
Net Income (loss)...... $ (12.8 )
Net Income (loss) per
share................. $ (.18 )
Shares of stock used to
calculate earnings
(loss) per common and
common equivalent
share................. 70,137,000
Cash dividends declared
per share............. $ .36
Other Data
Working Capital........ $ (8.7 )
Net book value of
property and
equipment............. $ 2,133.4
Total assets........... $ 3,214.5
Long-term debt and
convertible
subordinated debt..... $ 1,552.8
Common stock subject to
repurchase
obligations........... $ --
Shareholder's equity... $ 713.2
Book value per share... $ 10.20
<FN>
- - - - ------------------------------
(1) Operating results for fiscal 1993 reflect the impact of $25.4 million or
$.33 per share for an extraordinary charge for the repurchase of debt.
(2) Operating results for fiscal 1993 reflect the impact of $25.4 million for
an extraordinary charge for the repurchase of debt.
(3) Operating results for fiscal 1992 reflect the impact of the $119.8 million
gain ($80.7 million net of tax or $1.05 per share) on the sale of certain
securities of EPIC Healthcare Group, Inc. and EPIC Holdings, Inc. In
addition, the impact of $10 million or $.13 per share for an extraordinary
charge for the repurchase of debt has been reflected in operating results
for fiscal 1992.
(4) Operating results for fiscal 1992 reflect the impact of the $119.8 million
gain ($80.7 million net of tax) on the sale of certain securities of EPIC
Healthcare Group, Inc. and EPIC Holdings, Inc. In addition, the impact of
$10 million for an extraordinary charge for the repurchase of debt has
been reflected in operating results for fiscal 1992.
(5) Operating results for Holdings for the ten months ended August 31, 1990
reflect the elimination of net revenues, loss before taxes and net loss of
$320.9 million, $35.1 million and $23.1 million, respectively, for assets
sold or under binding agreement to sell as of August 31, 1990.
(6) Operating results for AMI for the ten months ended August 31, 1990 reflect
the elimination of net revenues, loss before taxes and net loss of $257.5
million, $26.7 million, and $17.6 million, respectively, for assets sold
or under binding agreement to sell as of August 31, 1990.
(7) Operating results for the two months ended October 31, 1989 reflect the
impact of $128.2 million ($83.3 million net of tax or $1.19 per share) in
merger costs.
(8) Operating results for fiscal 1989 reflect the impact of asset writedowns
and additions to reserves of $128.5 million ($79.7 million net of tax or
$1.13 per share).
</TABLE>
See Notes to Consolidated Financial Statements
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1993, the Company invested $116.3 million in capital expenditures
and as of August 31, 1993, had approximately $22.5 million of construction
commitments outstanding. Such capital expenditures and construction commitments
are for new construction and renovations to facilitate and accommodate new
programs, including outpatient surgery centers, thereby enhancing the services
provided. The Company intends to continue to invest in new and existing
facilities within the healthcare business, however, the terms of certain
indebtedness limit the Company's ability to make capital expenditures. Fiscal
1993 capital expenditures, excluding capitalized interest, were limited to
approximately $182.1 million which included $54.0 million in available
carryforwards. Capital expenditure limitations excluding capitalized interest,
are approximately $225 million in fiscal 1994, $225 million plus carryforwards
for fiscal 1995 and $200 million plus carryforwards thereafter. Additionally,
the Company is authorized to use up to $150 million for acquisitions in fiscal
1994.
The Company's balance sheet was improved during fiscal 1993 as long-term
debt decreased. The long-term debt balance at August 31, 1993 was $1.3 billion
compared to $1.5 billion at August 31, 1992 and $1.7 billion at August 31, 1991.
The continued use of cash provided by operating activities, short-term cash
investments and refinancing of outstanding indebtedness were the primary sources
used to repay $654 million of long-term debt.
In August 1993, the Company refinanced its then existing bank credit
facilities with a reducing revolving credit facility (the "Reducing Revolving
Credit Facility") under which the Company may borrow up to, and have outstanding
thereunder, $600 million until December 1995, at which time such amount reduces
on a quarterly basis through September 1997 to $300 million with the remaining
amount outstanding thereunder becoming due and payable in September 1998.
Initial proceeds of $305 million were drawn under the Reducing Revolving Credit
Facility to repay amounts outstanding under the Company's then existing bank
credit facilities. As of August 31, 1993, $287 million was outstanding under the
Reducing Revolving Credit Facility. During fiscal 1993, the Company also issued
$150 million principal amount of 9 1/2% Senior Subordinated Notes Due 2006. The
net proceeds of the 9 1/2% Senior Subordinated Notes Due 2006 were used to
repurchase a portion of the 13 1/2% Senior Subordinated Notes Due 2001, a
portion of the 15% Junior Subordinated Discount Debentures Due 2005 and certain
other indebtedness with an aggregate principal amount of $121 million.
Additionally, the Company redeemed $49.8 million of certain other indebtedness
with cash from operations.
In August 1993, the Company called for redemption on November 18, 1993, all
of its outstanding 6 3/4% Swiss franc/dollar dual currency senior notes due
1997. The redemption price of $28 million will be financed by borrowings under
the Reducing Revolving Credit Facility.
For the year ended August 31, 1993 the Company had $257.3 million in net
cash provided by operating activities as compared to $255.4 million in the prior
year. Management believes that sufficient funds will be generated from
operations, augmented by borrowings under the Reducing Revolving Credit
Facility, to finance operations, capital expenditures and service debt. Payments
of interest and principal on the Company's $1.3 billion of consolidated
long-term debt, including the current portion of such long-term debt, will
continue to affect funds available to the Company to finance capital
expenditures and operations. Scheduled principal payments, excluding amounts
that may become due on the Reducing Revolving Credit Facility, will be $40.8
million in fiscal 1994, $155.1 million in fiscal 1995, $55.9 million in fiscal
1996, $178.3 million in fiscal 1997 and $2.1 million in fiscal 1998.
The terms of certain indebtedness of the Company impose significant
operating and financial restrictions (subject to certain exceptions) requiring
the Company to maintain certain financial ratios and restrict the Company's
ability to incur additional indebtedness and enter into leases and guarantees of
debt; to make loans and investments; to pay dividends or repurchase shares of
stock; to
16
<PAGE>
repurchase, retire or refinance indebtedness prior to maturity; and to purchase
or sell assets. The Company has pledged the capital stock of certain direct
(first tier) subsidiaries and certain patient receivables as security for the
Company's obligations under the Reducing Revolving Credit Facility and certain
other senior indebtedness of the Company. Management believes that the Company
is currently in compliance with all material covenants and restrictions
contained in all financing agreements.
RESULTS OF OPERATIONS
GENERAL TRENDS
Over the past several years the Company has sold certain of its
non-strategic hospitals. In some instances, for comparative purposes, the
Company's results of operations for fiscal 1993 and management's discussion of
results of operations for fiscal years ended 1992 and 1991 include an analysis
of the Company's performance with respect to hospitals operated by the Company
throughout each of the periods presented (such hospitals are referred to as
"Continuing Hospitals"). On a Continuing Hospital basis, the Company's net
revenues have increased over the prior periods. The increase in net revenues is
the result of higher utilization of outpatient and ancillary services, general
price increases and increased severity of illness of patients admitted. In
future periods management believes that healthcare providers' and the Company's
rate of revenue growth may be limited as a result of a greater portion of the
Company's revenues being derived from fixed payment sources (i.e. Medicare/
Medicaid programs and managed care) and the effect of moderation of the rate of
growth in the Company's revenues from outpatient services. Such trends, have and
are anticipated to continue to affect the Company's results of operations. To
offset the limiting factors in net revenue growth, the Company continues to look
at providing new areas of healthcare services through the development of the
Company's operations and through the integration of broad healthcare networks,
including hospital/physician and physician contracting entities.
Although the Company's outpatient revenue growth rate may be moderated in
the future, the trend toward increased utilization of outpatient services is
expected to continue. This trend is the result of (i) continued advances in
medical technologies, thus allowing procedures previously performed on an
inpatient basis to be available on an outpatient basis and (ii) the pressures
from payors to control costs by directing those patients with less severe
illnesses from inpatient care to outpatient care. To accommodate the increased
utilization of outpatient services, the Company has expanded or redesigned
several of its outpatient facilities and services.
Medicare and Medicaid revenues are also expected to continue to increase in
the future as a larger portion of the general population qualifies for coverage
as a result of the aging of the population and expanded state Medicaid programs.
This in turn may decrease the Company's overall rate of revenue growth as a
result of (i) the corresponding increased shift in payor mix and (ii) the amount
of disparity between the Company's customary charges and the government
reimbursement rate increases. The Medicare program reimburses the Company's
hospitals primarily based on established rates by a DRG for acute care hospitals
and by a cost based formula for psychiatric hospitals (See "Item 1. Business --
Sources of Revenue"). While Medicare fixed payment rates are indexed for
inflation annually, the increases have historically lagged behind actual
inflation.
In addition to the Medicare program, states and insurance companies continue
to actively negotiate the amounts they will pay for services performed rather
than simply paying healthcare providers their customary charges. The entrance of
insurance companies into the managed care environment is accelerating the
introduction of managed care in more localities. Current managed care conditions
vary across the markets in which the Company operates. Hospitals that operate in
mature managed care markets typically have contributed smaller profit margins
than hospitals that operate in other markets. However, management believes that
through continued cost-control efforts, the Company will have the competitive
edge in pursuing market share growth in the managed care environment at a
profitable margin.
17
<PAGE>
Payor-pressure to control healthcare costs has been further emphasized by
the various pending healthcare reform proposals. Management believes that its
cost containment efforts have been critical in maintaining and improving
operating margins while providing a high level of patient care. The following
costs are some examples of the cost reductions that have taken place during
fiscal 1993. In order to control labor costs, the most significant operating
cost in a hospital, the Company has and will continue to decrease its use of
nursing registries, modify its employee skill mix and monitor its daily hospital
staff coverage. In addition, as of January 1, 1993 the Company realigned its
employee benefits program to more clearly match that of the industry. To reduce
corporate overhead costs, the Company consolidated its Houston regional office
with its Dallas headquarters. In order to control supply cost increases as a
result of (i) increasing intensity of services due to increased patient acuity,
(ii) new technological advances and related utilization, (iii) changes in
standard of care, and vendor price increases, management continues to focus on
the development of pharmaceutical formularies to control the usage of new drugs
to only those situations that warrant their specific use. In addition, supply
purchase contracts continue to be aggressively negotiated. In further adherence
to controlling healthcare costs, the Company is expanding its case management
(review of associated costs for patient care for specific treatment) in the
hospitals.
INFLATION
A significant portion of the Company's operating costs and expenses are
subject to inflationary increases. Since the healthcare industry is very labor
intensive, salaries and benefits are continually affected by inflation. In
addition, increasing supply costs are the result of vendors passing on rising
costs through price increases. Although the Company cannot predict its ability
to continue to cover future cost increases, management believes that through the
continued adherence to the cost reduction programs, labor management and
reasonable price increases, the effects of inflation on future operating margins
should be manageable. However, the Company's ability to pass on these increased
costs associated with providing healthcare to Medicare/Medicaid patients may be
limited by government reimbursement programs for healthcare services currently
in place unless the federal and state governments correspondingly increase the
rate of payment under this program.
HEALTHCARE REFORM
Under the aforementioned healthcare reform plan, the Clinton Administration
has recently proposed, among other things, cost controls on hospitals, insurance
market reforms to increase the availability of group health insurance to small
businesses, requirements that all businesses offer health insurance coverage to
their employees and the creation of a single government health insurance plan
(to reduce administrative costs) that would cover all citizens. Although the
healthcare reform plan proposes covering all citizens, and therefore, possibly
resulting in additional revenues for the Company, this increase in revenues may
be offset by lower levels of reimbursement from various payors. In addition,
some states, including Florida, have already enacted reforms and continue to
consider additional reforms. Management believes that some form of healthcare
reform is imminent; however until such reform is finalized, management cannot
predict the impact on the Company's results of operations. The type and impact
of such reform continues to be debated at both the federal and state levels.
OPERATIONS OVERVIEW
Effective September 1, 1991 Holdings contributed all of the common stock of
New H to AMI. As a result, AMI's results of operations for periods subsequent to
September 1, 1991 are the same as Holdings'; therefore, separate results of
operations and a discussion and analysis for AMI are not presented subsequent to
the year ended August 31, 1991. The only differences between Holdings' and AMI's
results of operations for the year ended August 31, 1991 was attributable to the
results of operations for those hospital facilities owned by New H,
substantially all of which were sold, while New H was separate from AMI. As a
result, AMI's results of operations for the year ended August 31, 1991 are
substantially identical to Holdings'; and therefore, management's discussion and
analysis of AMI's results of operations is not presented.
18
<PAGE>
YEARS ENDED AUGUST 31, 1993, 1992 AND 1991
The following table summarizes certain consolidated results of the Company
for the three years ended August 31, 1993:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
----------------------------------------------------------------------
1993 1992 1991
---------------------- ---------------------- ----------------------
% OF NET % OF NET % OF NET
REVENUES REVENUES REVENUES
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues
Medicare/Medicaid............................... $857 38.3% $819 36.6% $804 31.6%
Contracted services............................. 577 25.8 533 23.8 543 21.3
Non-contracted services......................... 732 32.7 823 36.8 940 36.9
Other sources................................... 72 3.2 63 2.8 259 10.2
--------- ----- --------- ----- --------- -----
Total Net Revenues............................ 2,238 100.0 2,238 100.0 2,546 100.0
--------- ----- --------- ----- --------- -----
Operating Costs and Expenses
Salaries and benefits........................... 815 36.4 839 37.5 916 36.0
Supplies........................................ 316 14.1 317 14.2 319 12.5
Provision for uncollectible accounts............ 148 6.6 164 7.3 163 6.4
Depreciation and amortization................... 147 6.6 149 6.7 165 6.5
Other operating costs........................... 506 22.6 496 22.2 689 27.1
--------- ----- --------- ----- --------- -----
Total Operating Costs and Expenses............ 1,932 86.3 1,965 87.9 2,252 88.5
--------- ----- --------- ----- --------- -----
Operating income.................................. 306 13.7 273 12.1 294 11.5
Gains on sales of securities.................... -- -- 120 5.4 19 0.7
Interest expense, net........................... (166) (7.4) (204) (9.1) (310) (12.2)
--------- ----- --------- ----- --------- -----
Income before taxes, minority equity interest and
extraordinary loss............................... 140 6.3 189 8.4 3 --
Provision for income taxes...................... (69) (3.1) (78) (3.5) (21) (0.8)
--------- ----- --------- ----- --------- -----
Income (Loss) before minority equity interest and
extraordinary loss............................... 71 3.2 111 4.9 (18) (0.8)
Minority equity interest.......................... (4) (0.2) (1) -- (1) --
--------- ----- --------- ----- --------- -----
Income (Loss) before extraordinary loss........... 67 3.0 110 4.9 (19) (0.8)
Extraordinary loss on early extinguishment of
debt........................................... (25) (1.1) (10) (0.4) -- --
--------- ----- --------- ----- --------- -----
Net Income (Loss)................................. $42 1.9% $100 4.5% $(19) (0.8)%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
19
<PAGE>
The following table sets forth certain operating statistics of the Company's
hospitals for the years ended August 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
HISTORICAL OPERATING DATA (1): 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Number of Hospitals (at year end)......................... 36 35 39
Admissions
Medicare/Medicaid....................................... 117,570 113,070 119,401
Contracted.............................................. 56,269 52,812 60,880
Non-contracted.......................................... 52,839 63,947 80,851
Other................................................... 2,918 3,261 3,350
--------- --------- ---------
Total................................................. 229,596 233,090 264,482
--------- --------- ---------
--------- --------- ---------
Equivalent Admissions(2).................................. 309,972 308,722 342,597
Outpatient
Visits.................................................. 1,660,015 1,618,068 1,700,057
Surgeries............................................... 120,854 120,008 133,888
Patient Days.............................................. 1,372,232 1,456,542 1,664,937
Equivalent Patient Days(2)................................ 1,830,169 1,906,304 2,132,771
Licensed Beds Occupancy Rate.............................. 46.8% 47.9% 46.6%
Licensed Beds at End of Period............................ 8,003 7,822 8,708
<CAPTION>
CONTINUING HOSPITALS OPERATING DATA (1):
<S> <C> <C> <C>
Number of Hospitals (at year end)......................... 36 35 35
Admissions
Medicare/Medicaid....................................... 117,570 108,909 103,144
Contracted.............................................. 56,269 51,072 52,817
Non-contracted.......................................... 52,839 62,613 70,884
Other................................................... 2,918 3,160 2,836
--------- --------- ---------
Total................................................. 229,596 225,754 229,681
--------- --------- ---------
--------- --------- ---------
Equivalent Admissions(2).................................. 309,972 299,161 297,978
Outpatient
Visits.................................................. 1,660,015 1,556,471 1,450,519
Surgeries............................................... 120,854 116,113 115,505
Patient Days.............................................. 1,372,232 1,394,815 1,402,684
Equivalent Patient Days(2)................................ 1,830,169 1,826,477 1,801,837
Licensed Beds Occupancy Rate.............................. 46.8% 48.7% 49.1%
Licensed Beds at End of Period............................ 8,003 7,822 7,822
<FN>
- - - - ------------------------
(1) Represents statistics for hospitals only and has not been adjusted to
include statistics for related healthcare entities.
(2) Represents actual admissions/patient days as adjusted to include outpatient
and emergency room services by adding to actual admissions/patient days an
amount derived by dividing outpatient and emergency room revenue by
inpatient revenue per admission/patient days.
</TABLE>
1993 VERSUS 1992
On a historical basis, net revenues for the year ended August 31, 1993
remained flat at $2,238 million as compared to the year ended August 31, 1992.
However, net revenues for the year ended August 31,1992 included a benefit of
approximately $10 million relating to a Medicare settlement and $69 million
relating to facilities sold during fiscal year 1992. On a Continuing Hospital
basis, net revenues for the year ended August 31, 1993 increased 3.2% to $2,238
million from net revenues of $2,169 million for the year ended August 31, 1992.
20
<PAGE>
The continued industry trend, as seen by the Company on a Continuing
Hospital basis over the past few years, towards growth in outpatient services
and a shift from inpatient services remains evident as net revenues from
outpatient services for the year ended August 31, 1993 were $648 million or
29.4% of total net patient revenues compared to $586 million or 27.4% of total
net patient revenues for fiscal 1992. Outpatient volume increased 6.5% when
compared to the year ended August 31, 1992. Net revenues from inpatient services
were $1,557 million or 70.6% of total net patient revenues for the year ended
August 31, 1993 compared to $1,549 million or 72.6% of total net patient
revenues for fiscal 1992. Admissions increased 1.7% when compared to the year
ended August 31, 1992.
Healthcare services that were provided to individuals which were determined
to be services free of charge are defined as charity care. In accordance with
the AICPA Health Care Guide, these services have not been recognized as
receivables or revenues in the financial statements since they were never
expected to result in cash flows.
Management's implementation of a cost-control program has continued to
reduce operating costs and expenses as a percentage of net revenues for the
Company (86.3% for the year ended August 31, 1993 compared to 87.9% for the year
ended August 31, 1992). The decrease in total operating costs and expenses for
the year ended August 31, 1993 as compared to the year ended August 31, 1992 was
primarily due to the disposition of hospitals during the year ended August 31,
1992. On a Continuing Hospital basis, operating costs and expenses have shown a
similar decline as a percentage of net revenues for the year ended August 31,
1993 at 86.3% from 87.3% for the year ended August 31, 1992. Labor costs
decreased as a percent of net revenues as a result of labor management (hospital
staffing monitored with volume) and the decline in benefit costs as a result of
the changes put in place in the employee benefit program. For the year ended
August 31, 1992, salaries and benefits reflect an $11.0 million adjustment to
increase reserves associated with workers compensation liabilities as a result
of adverse development on claims arising from prior periods. Although supply
costs as a percent of net revenues remained stable over the past two years, the
demand for newly available higher cost drugs and medical supplies continues to
require the Company to control such costs. The provision for uncollectible
accounts for the year ended August 31, 1993 decreased from the year ended August
31, 1992; however, the provision for uncollectible accounts for the year ended
August 31, 1992 includes the impact of an adjustment for the refinement in
procedures used by the Company in estimating bad debts. Other operating costs
include a foreign currency translation loss of $7.8 million which was incurred
in fiscal 1992 while the foreign currency translation loss was immaterial in
fiscal 1993.
The operating margin of 13.7% for the year ended August 31, 1993 improved
from 12.1% for the year ended August 31, 1992. The operating margin increased
from 12.7%, on a Continuing Hospital basis for the year ended August 31, 1992 to
13.7% for the year ended August 31, 1993 as a result of the increased net
revenues and the reduced operating costs and expenses as a result of the cost
reduction program.
The gains on the sales of securities in fiscal 1992 are the result of the
sale of various securities of EPIC Holdings, Inc. and EPIC Healthcare Group,
Inc. As of August 31, 1993, the Company continues to hold 22% of the fully
diluted common stock of EPIC Holdings, Inc.
Interest expense, net decreased to 7.4% of total net revenues for fiscal
1993 compared to 9.1% of total net revenues for fiscal 1992. The decrease from
fiscal 1992 is attributable to interest savings as a result of the use of cash
from operations and the proceeds from the disposition of hospitals to reduce
indebtedness and lower effective interest rates consistent with economic trends.
In addition, in the fourth quarter of fiscal 1993 an $8.6 million refund was
received for excess interest paid to the Internal Revenue Service in prior
periods.
The tax provision for fiscal 1993 is greater than that which would occur
using the Company's marginal tax rate against its income before taxes, minority
equity interest and extraordinary loss, due in large part to the amortization of
cost in excess of net assets acquired not being deductible for tax
21
<PAGE>
provision purposes. In August 1993, the Revenue Reconciliation Act of 1993 was
enacted. As a result of the new law, the corporate income tax rate increased to
35% from 34% effective for the period beginning on or after January 1, 1993.
The extraordinary loss on early extinguishment of debt is a result of the
redemption or repurchase of debt prior to its stated maturity.
1992 VERSUS 1991
The Company's net revenues for the year ended August 31, 1992 decreased
12.1% to $2,238 million from $2,546 million for the same period in fiscal 1991.
Net revenues for the year ended August 31, 1992 included a benefit from a $10
million Medicare settlement. Net revenues from inpatient services were $1,599
million or 72.4% of total net patient revenues for the year ended August 31,
1992 compared to $1,711 million or 73.7% of total net patient revenues for
fiscal 1991. Net revenues from outpatient services were $609 million or 27.6% of
total net patient revenues for the year ended August 31, 1992 compared to $612
million or 26.3% of total net patient revenues for the comparable period in
fiscal 1991. Inpatient net revenues as a percent of total net patient revenues
continued to decline as a result of the continued advances in medical
technologies, thus allowing procedures previously performed on an inpatient
basis to be available on an outpatient basis. Accordingly, third party payors of
healthcare services have increased pressure to maximize outpatient services by
diverting those patients with less severe illnesses from inpatient care to
outpatient care. Healthcare services that were provided to individuals which
were determined to be services free of charge are defined as charity care. In
accordance with the AICPA Health Care Guide, these services have not been
recognized as receivables or revenues in the financial statements since they
were never expected to result in cash flows.
As a percentage of net revenues, operating costs and expenses decreased to
87.9% for the year ended August 31, 1992 from 88.5% for fiscal 1991. Actual
dollars spent decreased 12.7% as compared to similar costs for the comparable
period in fiscal 1991. This decrease was attributable to the operating costs and
expenses associated with the assets sold during fiscal 1992 and 1991 (which
accounted for 21.7% of the total operating costs and expenses for fiscal 1991).
Although this decrease was offset by an increase in operating costs and expenses
for the currently operated hospitals, such costs as a percentage of net revenues
decreased slightly. The decrease in other operating costs and expenses was
primarily due to the disposition of a health maintenance organization in August,
1991. As a result of such disposition, the Company no longer has group health
claims. For the year ended August 31, 1992, salaries and benefits reflected an
$11.0 million adjustment to increase reserves associated with workers
compensation liabilities as a result of adverse development on claims arising
from prior periods. The Company increased the provision for uncollectible
accounts for the year ended August 31, 1992 as a result of the refinement in
procedures used by the Company in estimating bad debts. The new approach
reflects the impact of increased net operating revenues as well as increasing
deductibles and co-payments which are usually the responsibility of individual
patients, the increasing number of uninsured or underinsured patients and
general economic conditions, in each case, on a more timely basis. In fiscal
1992, management implemented an accounts receivable action plan to reduce the
amount of time required to collect receivables and to enhance the potential
collectibility of accounts that would otherwise result in bad debts. Other
operating costs include the effect of foreign currency translations for which
the Company recorded a foreign currency translation loss of $7.8 million in
fiscal 1992 as compared to foreign currency translation income of $15.3 million
in fiscal 1991.
The gains on the sales of securities in fiscal 1992 and 1991 were the result
of the sale of various securities of EPIC Holdings, Inc. and EPIC Healthcare
Group, Inc. As of August 31, 1992, the Company held 22% of the fully diluted
common stock of EPIC Holdings, Inc.
Interest expense, net decreased to 9.1% of total net revenues for fiscal
1992 compared to 12.2% of total net revenues for fiscal 1991. The decrease from
fiscal 1991 was attributable to lower effective interest rates consistent with
economic trends and interest savings as a result of the use of proceeds
22
<PAGE>
from (i) the divestiture program, (ii) Holdings' issuance of common stock in
August 1991 for approximately $250 million, and (iii) the issuance of 13 1/2%
Senior Subordinated Notes Due 2001 to reduce debt outstanding. In addition, the
lower interest expense is due to the decrease in interest rates from the
exchange of the 15% Junior Subordinated Discount Debentures Due 2005 for a like
amount of then outstanding senior subordinated indebtedness.
The tax provision for fiscal 1992 was greater than that which would occur
using the Company's marginal tax rate against its income before taxes, minority
equity interest and extraordinary loss, due to the amortization of cost in
excess of net assets acquired not being deductible for tax provision purposes.
The extraordinary loss on early extinguishment of debt was a result of the
redemption or repurchase of debt prior to its stated maturity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is filed as part of this Annual Report
on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS AND AMI
There is hereby incorporated by reference the information to appear under
the caption "Election of Directors" in Holdings' definitive proxy statement for
its 1994 Annual Meeting of Stockholders. See also the list of Holdings' and
AMI's executive officers and related information under "Executive Officers" in
Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information to appear under
the caption "Executive Compensation" in Holdings' definitive proxy statement for
its 1994 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information to appear under
the caption "Principal Stockholders" in Holdings' definitive proxy statement for
its 1994 Annual Meeting of Stockholders. All issued and outstanding shares of
AMI Common Stock are owned by Holdings.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information to appear under
the caption "Certain Transactions" in Holdings' definitive proxy statement for
its 1994 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2 Financial Statements and Financial Statement Schedules.
The financial statements and schedules listed in the accompanying Index to
the Financial Statements and Financial Statement Schedules are filed as part of
this Annual Report on Form 10-K.
(b) Reports on Form 8-K filed in Fourth Quarter 1993.
None.
(c) List of Exhibits.
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- - - - ----------- ------------------------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger dated as of July 6, 1989, among AMI, Holdings and IMA Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Holdings ("Acquisition"), filed
as Exhibit 2(a) to Holdings' Registration Statement on Form S-4, Registration No. 33-33674,
filed on March 6, 1990 (the "1990 Form S-4") and incorporated herein by reference.
2.2 -- Amendment No. 1 to Agreement and Plan of Merger dated as of October 7, 1989, among AMI, Holdings
and Acquisition, filed as Exhibit 18 to the 1990 Form S-4 and incorporated herein by reference.
2.3 -- Amendment No. 2 to Agreement and Plan of Merger dated as of December 1, 1989, among AMI,
Holdings and Acquisition, filed as Exhibit 2(c) to the 1990 Form S-4 and incorporated herein by
reference.
2.4 -- Agreement and Plan of Merger dated as of April 23, 1990 among AMI, Holdings and Amigo Holdings
Corp. ("Amigo"), filed as Exhibit 3 to AMI's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1990 and incorporated herein by reference.
3.1 -- Restated Certificate of Incorporation of Holdings as amended to date, filed as Exhibit 3 (a) to
the 1990 Form S-4 and incorporated herein by reference.
3.2 -- Bylaws of Holdings as amended to date filed as Exhibit 3.2 to Holdings' Registration Statement
on Form S-1 filed on June 17, 1991 and incorporated herein by reference.
3.3 -- Restated Certificate of Incorporation of AMI as amended to date, filed as Exhibit 3 to AMI's
Quarterly Report on Form 10-Q for the quarter ended May 31, 1990 and incorporated herein by
reference.
3.4 -- Bylaws of AMI as amended to date, filed as Exhibit 3.2 to AMI's Registration Statement on Form
S-1 filed on August 14, 1991 (the "AMI Form S-1") and incorporated herein by reference.
4.1 -- Amended and Restated Note Purchase Agreement dated as of June 11, 1993 among AMI and the
purchasers listed therein, filed as Exhibit 4.1 to AMI's Registration Statement on Form S-4
Registration No. 33-50239 filed on September 20, 1993 (the "1993 Form S-4") and incorporated
herein by reference.
4.2 -- Indenture dated as of April 21, 1993 between AMI and NationsBank of Texas, N.A., as trustee (the
"Trustee"), filed as Exhibit 4.2 to the 1993 Form S-4 and incorporated herein by reference.
4.3 -- Supplemental Indenture dated as of October 25, 1993 between AMI and the Trustee, filed as
Exhibit 4.3 to Amendment No. 1 to the 1993 Form S-4 and incorporated herein by reference.
4.6 -- Indenture dated as of October 1, 1991 between AMI, as issuer, and The Citizens and Southern
National Bank, as trustee, relating to the 11% Senior Notes Due October 2001, filed as Exhibit
4.1 to AMI's Registration Statement on Form S-1 filed on October 8, 1991 and incorporated
herein by reference.
4.7 -- Indenture between AMI, as issuer, and The Connecticut National Bank, as trustee, relating to the
13 1/2% Senior Subordinated Notes Due August 2001 filed as Exhibit 4.1 to AMI's Registration
Statement on Form S-1, Registration No. 33-41416, filed on January 24, 1992 and incorporated
herein by reference.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- - - - ----------- ------------------------------------------------------------------------------------------------
<C> <C> <S>
4.8 -- Indenture dated as of August 1, 1991 between AMI, as issuer, and United States Trust Company of
New York, as trustee, relating to the 15% Junior Discount Debentures Due November 2005, filed
as Exhibit 4.1 to AMI's Registration Statement on Form S-2, Registration No. 33-45292, filed on
January 24, 1992 and incorporated herein by reference.
4.9 -- First Supplemental Indenture dated as of February 15, 1992 between AMI, as issuer, and United
States Trust Company of New York, as trustee, relating to AMI's 15% Junior Subordinated
Discount Debentures Due November 2005, filed as Exhibit 4.1 to Amendment No. 2 to AMI's
registration Statement, Registration No. 33-45292, on Form S-2, filed on March 4, 1992 and
incorporated herein by reference.
Instruments with respect to certain long-term debt of AMI have not been filed since the amount of securities authorized
thereunder does not exceed 10% of the total assets of AMI and its subsidiaries on a consolidated basis. AMI hereby
agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.
10.1 -- Credit and Guaranty Agreement dated as of August 18, 1993 (the "Credit Agreement") among AMI,
American Medical Holdings, Inc., a Delaware corporation, the lenders referred to therein (the
"Lenders"), Chemical Bank, as Agent (the "Agent"), The Bank of Nova Scotia, as Co-Agent, and
The Long Term Credit Bank of Japan, Ltd., Los Angeles Agency, as Co-Agent filed as Exhibit 10.1
to the 1993 Form S-4 and incorporated herein by reference.
10.2 -- Holdings Pledge Agreement dated as of August 18, 1993 between AMI and the Agent on behalf of the
Lenders filed as Exhibit 10.2 to the 1993 Form S-4 and incorporated herein by reference.
10.3 -- Collateral Trust Agreement dated as of August 18, 1993 between AMI and IBJ Schroder Bank & Trust
Company, a New York banking corporation, as trustee ("IBJ") filed as Exhibit 10.3 to the 1993
Form S-4 and incorporated herein by reference.
10.4 -- Collateral Trust Pledge Agreement dated as of August 18, 1993 between AMI and IBJ filed as
Exhibit 10.4 to the 1993 Form S-4 and incorporated herein by reference.
10.5 -- Pledge and Security Agreement dated as of August 18, 1993 between AMI and the Agent on behalf of
the Lenders filed as Exhibit 10.5 to the 1993 Form S-4 and incorporated herein by reference.
10.6 -- Guaranty and Security Agreement dated as of August 18, 1993 between American Medical Finance
Company, a Delaware corporation, and the Agent on behalf of the Lenders filed as Exhibit 10.6
to the 1993 Form S-4 and incorporated herein by reference.
10.7 -- Agreement for Purchase of Stock dated as of September 26, 1988 by and among AMI, EPIC and
various subsidiaries of AMI, filed as Exhibit 2(a) to AMI's Current Report on Form 8-K dated
October 14, 1988 and incorporated herein by reference.
10.8 -- Amended and Restated Stockholders' Agreement dated as of July 30, 1991 by and among the Fund,
GKHPL, First Plaza, MBLP, MIP and the other parties thereto, filed as Exhibit 10.39 to
Amendment No. 3 to Holdings' Registration Statement on Form S-1, Registration No. 33-41206, on
July 26, 1991 and incorporated herein by reference.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- - - - ----------- ------------------------------------------------------------------------------------------------
<C> <C> <S>
10.9 -- Amended and Restated Registration Rights Agreement dated as of July 30, 1991 by and among
Holdings, the Fund, GKHPL, MBLP, MIP, the Bank Investor and the Management Purchasers, filed as
Exhibit 10.40 to Amendment No. 3 to Holdings' Registration Statement on Form S-1, Registration
No. 33-41206, on July 26, 1991 and incorporated herein by reference.
10.10 -- American Medical Holdings, Inc. 1993 Employee Stock Purchase Plan, filed as Exhibit A to
Holdings' Proxy Statement dated January 13, 1993 (the "1993 Proxy") and incorporated herein by
reference.
10.11 -- Amendments to Each of the Nonqualified Employee Stock Option Plan and the Nonqualified
Performance Stock Option Plan for Key Employees (Exhibits 10.12 and 10.13 below) filed as
Exhibit D to AMI's 1993 Proxy and incorporated herein by reference.
10.12 -- Nonqualified Employee Stock Option Plan, filed as Exhibit A to Holdings' Proxy Statement dated
as of January 8, 1991 and incorporated herein by reference.
10.13 -- Nonqualified Performance Stock Option Plan for Key Employees, filed as Exhibit B to Holdings'
Proxy Statement dated as of January 8, 1991 and incorporated herein by reference.
10.14 -- Executive Deferred Compensation Plan filed as Exhibit 10.27 to Holdings' Registration Statement
on Form S-1 filed on June 17, 1991, Registration No. 33-41206, and incorporated herein by
reference.
10.15 -- Supplemental Executive Retirement Plan filed as Exhibit 10.27 to Holdings' Registration
Statement on Form S-1 filed on June 17, 1991, Registration No. 33-41206, and incorporated
herein by reference.
10.16 -- Senior Executive Deferred Compensation Plan filed as Exhibit 10.27 to Holdings' Registration
Statement on Form S-1 filed on June 17, 1991, Registration No. 33-41206, and incorporated
herein by reference.
10.17 -- Letter of Understanding, between Holdings and Robert W. O'Leary, filed as Exhibit 10.30 to
Amendment No. 3 to Holdings' Registration Statement on Form S-1, filed on July 26, 1991,
Registration No. 33-41206, and incorporated herein by reference.
10.18 -- Letter of Understanding dated as of August 4, 1991 between AMI and Alan J. Chamison filed as
Exhibit 10.36 to AMI's Registration Statement on Form S-1, Registration No. 33-41206, filed
September 25, 1991 and incorporated herein by reference.
10.19 -- Agreement, dated as of March 7, 1990, among American Medical International, Inc. Healthcare
Holding Company and Generale De Sante International PLC, filed as Exhibit 10.36 to Amendment
No. 3 to Holdings' Registration Statement on Form S-1, Registration No. 33-41206, filed on July
26, 1991 and incorporated herein by reference.
10.20 -- Acquisition Agreement, among AMI Information Systems Group, Inc., A.M. International and Klinik
Hirslanden AG, filed as Exhibit 10.37 to Amendment No. 3 to Holdings' Registration Statement on
Form S-1, Registration No. 33-41206, filed on July 26, 1991 and incorporated herein by
reference.
10.21 -- Asset Purchase and Sale Agreement, by and among Holdings, AMI, AMISUB (PSL), Inc., New H Acute,
Inc. New H PSL, Inc. and PSL HealthCare System, dated as of November 15, 1990, as amended,
filed as Exhibit 10.38 to Amendment No. 3 to Holdings' Registration Statement on Form S-1 filed
on July 26, 1991 and incorporated herein by reference.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- - - - ----------- ------------------------------------------------------------------------------------------------
<C> <C> <S>
10.22 -- Exchange Agreement dated as of January 27, 1992 by and among EPIC Healthcare Group, Inc., EPIC
Holdings, Inc., EPIC Transaction Co., American Medical International, Inc., American Medical
(Central), Inc., American Information Systems Group, Inc., Brookwood Health Services, Inc., and
Lifemark Hospitals, Inc. filed as Exhibit 10.1 to Form 8-K filed on March 25, 1992 and
incorporated herein by reference.
10.23 -- Letter of Understanding between the Company and AMI and John T. Casey filed as Exhibit 10.31 to
Holdings' and AMI's Annual Report on Form 10-K for the fiscal year ended August 31, 1992 (the
"Annual Report") and incorporated herein by reference.
10.24 -- Letter of Understanding between the Company and AMI and O. Edwin French filed as Exhibit 10.32
to the Annual Report and incorporated herein by reference.
10.25 -- Amendment to Letters of Understanding between the Company and AMI and each of Robert W. O'Leary,
Alan J. Chamison, John T. Casey, and O. Edwin French, filed as Exhibit 10.34 to the Annual
Report and incorporated herein by reference.
11 -- Statement re computations of per share earnings for the period ended August 31, 1993.
21.1 -- List of subsidiaries of Holdings filed as Exhibit 22 to Holdings' Registration Statement on Form
S-1 filed on June 17, 1991 and incorporated herein by reference.
21.2 -- List of subsidiaries of AMI filed as Exhibit 22 to the AMI Form S-1 and incorporated herein by
reference.
24 -- Powers of Attorney.
</TABLE>
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on the 29th day of November, 1993. The following
officers and directors have executed this report as of November 29, 1993.
AMERICAN MEDICAL HOLDINGS, INC.
AMERICAN MEDICAL INTERNATIONAL, INC.
By: _______/s/_ALAN J. CHAMISON_______
Alan J. Chamison
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below, by the following persons in the capacities
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- - - - ------------------------------------------------------ ---------------------------------------------------------------------
<S> <C>
/s/ ROBERT W. O'LEARY
------------------------------------------- Chairman and Chief Executive Officer
Robert W. O'Leary (Principal Executive Officer)
/s/ ALAN J. CHAMISON
------------------------------------------- Executive Vice President and Chief Financial Officer (Principal
Alan J. Chamison Financial Officer)
/s/ BARY G. BAILEY
------------------------------------------- Vice President, Controller
Bary G. Bailey (Principal Accounting Officer)
------------------------------------------- Director
J. Robert Buchanan, M.D.
/s/ ROBERT B. CALHOUN, JR.*
------------------------------------------- Director
Robert B. Calhoun, Jr.
/s/ JOHN T. CASEY
------------------------------------------- Director
John T. Casey
/s/ HARRY J. GRAY*
------------------------------------------- Director
Harry J. Gray
/s/ HAROLD S. HANDELSMAN*
------------------------------------------- Director
Harold S. Handelsman
/s/ SHELDON S. KING*
------------------------------------------- Director
Sheldon S. King
/s/ MELVYN N. KLEIN*
------------------------------------------- Director
Melvyn N. Klein
/s/ DAN W. LUFKIN*
------------------------------------------- Director
Dan W. Lufkin
/s/ WILLIAM E. MAYER*
------------------------------------------- Director
William E. Mayer
/s/ ROBERT W. O'LEARY
------------------------------------------- Director
Robert W. O'Leary
------------------------------------------- Director
Harold M. Williams
*By: /s/BARY G. BAILEY
Bary G. Bailey
As Attorney-in-Fact
</TABLE>
28
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENTS SCHEDULES
ITEM 14(A)
<TABLE>
<CAPTION>
PAGE
REFERENCE
-------------
<S> <C> <C>
Financial Statements:
Report of Independent Accountants...................................................................... 30
Consolidated Balance Sheets As of August 31, 1993 and 1992............................................. 32
Consolidated Statements of Income For the Years Ended August 31, 1993, 1992 and 1991...................
34
Consolidated Statements of Cash Flows For the Years Ended August 31, 1993, 1992 and 1991...............
35
Consolidated Statements of Shareholders' Equity For the Years Ended August 31, 1993, 1992 and 1991.....
36
Supplemental Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedules..................................... 55
II. Amounts Receivable from Directors, Officers and Employees..................................... 56
V. Property and Equipment........................................................................ 57
VI. Accumulated Depreciation of Property and Equipment............................................ 58
VIII. Reserves for Uncollectible Accounts........................................................... 59
X. Supplementary Income Statement Information.................................................... 60
</TABLE>
All other schedules are not submitted because they are not applicable, not
required, or the information is included in the consolidated financial
statements or notes thereto.
Separate financial statements of the parent company have been omitted since
restricted net assets of consolidated subsidiaries are less than 25% of
consolidated net assets.
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Boards of Directors and
Shareholders of American Medical Holdings, Inc.
and American Medical International, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
American Medical Holdings, Inc. and subsidiaries (Holdings) and American Medical
International, Inc. and subsidiaries (AMI) at August 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1993, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Companies' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse
Dallas, Texas
October 15, 1993
30
<PAGE>
(This page has been left blank intentionally.)
31
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
AS OF AUGUST 31,
----------------------------------------------------------
1993 1992
---------------------------- ----------------------------
HOLDINGS AMI HOLDINGS AMI
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and short-term cash investments................. $ 44,335 $ 44,335 $ 70,536 $ 70,536
Accounts receivable, less reserves for uncollectible
accounts of $98,143 in 1993 and $86,744 in 1992..... 90,596 90,596 103,041 103,041
Supply inventories................................... 59,516 59,516 57,071 57,071
Income taxes, net (including current portion of
deferred income taxes).............................. 24,641 24,641 -- --
Prepaid expenses..................................... 11,617 11,617 12,387 12,387
------------- ------------- ------------- -------------
230,705 230,705 243,035 243,035
------------- ------------- ------------- -------------
PROPERTY AND EQUIPMENT:
Land................................................. 104,723 104,723 105,241 105,241
Buildings and improvements........................... 1,151,890 1,151,890 1,111,163 1,111,163
Equipment............................................ 507,505 507,505 443,561 443,561
Construction in progress............................. 35,827 35,827 24,419 24,419
------------- ------------- ------------- -------------
1,799,945 1,799,945 1,684,384 1,684,384
Less -- Accumulated depreciation..................... 395,736 395,736 290,036 290,036
------------- ------------- ------------- -------------
1,404,209 1,404,209 1,394,348 1,394,348
------------- ------------- ------------- -------------
NOTES RECEIVABLE AND OTHER ASSETS:
Notes receivable..................................... 10,791 10,791 21,567 21,567
Investments.......................................... 27,982 27,982 72,353 72,353
Cost in excess of net assets acquired, net........... 1,165,435 1,165,435 1,191,981 1,191,981
Deferred costs....................................... 29,248 29,248 40,015 40,015
------------- ------------- ------------- -------------
1,233,456 1,233,456 1,325,916 1,325,916
------------- ------------- ------------- -------------
$ 2,868,370 $ 2,868,370 $ 2,963,299 $ 2,963,299
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AS OF AUGUST 31,
----------------------------------------------------------
1993 1992
---------------------------- ----------------------------
HOLDINGS AMI HOLDINGS AMI
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt................. $ 40,831 $ 40,831 $ 130,279 $ 130,279
Accounts payable..................................... 84,513 84,513 91,731 91,731
Accrued liabilities:
Payroll and benefits............................... 131,170 131,170 133,336 133,336
Interest........................................... 20,641 20,641 21,452 21,452
Taxes, other than income........................... 26,353 26,353 23,820 23,820
Other.............................................. 67,147 67,147 58,320 58,320
Income taxes, net (including current portion of
deferred income taxes).............................. -- -- 6,290 6,290
------------- ------------- ------------- -------------
370,655 370,655 465,228 465,228
------------- ------------- ------------- -------------
LONG-TERM DEBT....................................... 1,283,665 1,283,665 1,333,423 1,333,423
------------- ------------- ------------- -------------
CONVERTIBLE SUBORDINATED DEBT........................ 10,487 10,487 10,303 10,303
------------- ------------- ------------- -------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes................................ 211,451 211,451 219,202 219,202
Reserve for professional liability risks............. 100,496 100,496 100,211 100,211
Other deferred credits and liabilities............... 187,743 187,743 166,978 166,978
------------- ------------- ------------- -------------
499,690 499,690 486,391 486,391
------------- ------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO REPURCHASE OBLIGATIONS....... 6,046 -- 4,293 --
------------- ------------- ------------- -------------
SHAREHOLDERS' EQUITY:
AMI common stock, $0.01 par value -- 200,000 shares
authorized 72,481 shares issued and outstanding in
1993 and 1992....................................... -- 725 -- 725
Holdings preferred stock, $0.01 par value --
5,000 shares authorized
No shares outstanding.............................. -- -- -- --
Holdings common stock, $0.01 par value --
200,000 shares authorized
76,873 shares issued and outstanding in 1993 and
76,640 in 1992.................................... 768 -- 766 --
Additional paid-in capital........................... 596,623 587,060 595,997 584,679
Retained earnings.................................... 108,436 124,088 66,898 82,550
Adjustment for minimum pension liability............. (8,000) (8,000) -- --
------------- ------------- ------------- -------------
697,827 703,873 663,661 667,954
------------- ------------- ------------- -------------
$ 2,868,370 $ 2,868,370 $ 2,963,299 $ 2,963,299
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
----------------------------------------------------------------------
1993 1992 1991
---------------------- ---------------------- ----------------------
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES...................................... $2,238,525 $2,238,525 $2,237,912 $2,237,912 $2,545,900 $2,288,555
OPERATING COSTS AND EXPENSES:
Salaries and benefits........................... 815,323 815,323 838,727 838,727 916,436 806,703
Supplies........................................ 315,935 315,935 316,541 316,541 318,709 285,504
Provision for uncollectible accounts............ 148,135 148,135 163,824 163,824 162,842 145,998
Depreciation and amortization................... 147,397 147,397 149,051 149,051 165,447 154,515
Other operating costs........................... 505,614 505,614 496,180 496,180 687,701 614,655
---------- ---------- ---------- ---------- ---------- ----------
Total......................................... 1,932,404 1,932,404 1,964,323 1,964,323 2,251,135 2,007,375
OPERATING INCOME.................................. 306,121 306,121 273,589 273,589 294,765 281,180
Gains on sales of securities.................... -- -- 119,803 119,803 18,595 18,595
Interest expense -- related parties............. -- -- -- -- (100,432) (100,432)
Interest expense -- other, net.................. (166,582) (166,582) (204,556) (204,556) (209,756) (169,467)
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE TAXES, MINORITY EQUITY INTEREST AND
EXTRAORDINARY LOSS............................... 139,539 139,539 188,836 188,836 3,172 29,876
Provision for income taxes...................... (68,800) (68,800) (77,900) (77,900) (20,800) (30,300)
---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE MINORITY EQUITY INTEREST AND
EXTRAORDINARY LOSS............................... 70,739 70,739 110,936 110,936 (17,628) (424)
Minority equity interest.......................... (3,770) (3,770) (1,318) (1,318) (1,385) (1,385)
---------- ---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS........... 66,969 66,969 109,618 109,618 (19,013) (1,809)
Extraordinary loss on early extinguishment of
debt............................................. (25,431) (25,431) (9,997) (9,997) -- --
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)................................. $ 41,538 $ 41,538 $ 99,621 $ 99,621 $ (19,013) $ (1,809)
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
Income (Loss) before extraordinary loss......... $ 0.87 N/A $ 1.43 N/A $ (0.38) N/A
Extraordinary loss on early extinguishment of
debt........................................... (0.33) N/A (0.13) N/A -- N/A
---------- ---------- ----------
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT
SHARE............................................ $ 0.54 N/A $ 1.30 N/A $ (0.38) N/A
---------- ---------- ----------
---------- ---------- ----------
SHARES USED FOR COMPUTATION OF NET INCOME (LOSS)
PER SHARE........................................ 76,760 N/A 76,645 N/A 50,698 N/A
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
----------------------------------------------------------------------
1993 1992 1991
---------------------- ---------------------- ----------------------
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Income (Loss) before Extraordinary Loss......... $ 66,969 $ 66,969 $ 109,618 $ 109,618 $ (19,013) $ (1,809)
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization................. 147,397 147,397 149,051 149,051 165,447 154,515
Deferred income taxes......................... 300 300 19,600 19,600 17,200 20,300
Amortization of debt discount, deferred
financing costs and non-cash interest........ 60,617 60,617 62,396 62,396 76,038 71,387
Gains on sales of securities.................. -- -- (119,803) (119,803) (18,595) (18,595)
Financing fees paid........................... (5,515) (5,515) (3,297) (3,297) (6,300) (6,300)
Foreign exchange translation (income) loss.... (613) (613) 7,761 7,761 (15,321) (15,321)
Decrease (increase) in accounts receivable,
net.......................................... 25,512 25,512 36,859 36,859 (3,244) (15,847)
Increase in supply inventories and prepaid
expenses..................................... (515) (515) (4,980) (4,980) (9,799) (8,080)
Increase (decrease) in accounts payable and
accrued liabilities.......................... (9,671) (9,671) (54,064) (54,064) (10,298) 4,013
Decrease in accrued interest.................. (1,409) (1,409) (1,553) (1,553) (10,320) (9,963)
Income taxes, net............................. (17,983) (17,983) 81,687 81,687 (20,612) (20,174)
Decrease in other liabilities................. (6,751) (6,751) (27,527) (27,527) (1,297) (1,341)
Other non-cash items.......................... (1,058) (1,058) (301) (301) (254) (254)
---------- ---------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 257,280 257,280 255,447 255,447 143,632 152,531
---------- ---------- ---------- ---------- ---------- ----------
Cash Flows from Financing Activities:
Borrowings...................................... 152,047 152,047 185,794 185,794 318,758 318,758
Payments on debt................................ (653,884) (653,884) (506,406) (506,406) (1,024,684) (874,348)
Reducing Revolving Credit Facility.............. 287,000 287,000 -- -- -- --
Borrowing Base Facility......................... -- -- (39,495) (39,495) 39,495 39,495
Contribution to AMI by Holdings................. -- 2,381 -- 9,988 -- 240,942
Stock repurchases............................... (118) -- (3,170) -- (1,142) --
Issuance of Holdings common stock............... 2,499 -- 11,927 -- 241,214 --
---------- ---------- ---------- ---------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES............. (212,456) (212,456) (351,350) (350,119) (426,359) (275,153)
---------- ---------- ---------- ---------- ---------- ----------
Cash Flows from Investing Activities:
Property and equipment additions................ (116,322) (116,322) (96,816) (96,816) (109,977) (102,291)
Disposition of assets........................... -- -- 100,089 100,089 368,730 142,641
Decrease (increase) in deferred costs........... (3,956) (3,956) 4,107 4,107 (15,449) (14,980)
Sales of securities............................. -- -- 153,371 153,371 33,420 33,420
Additions to notes receivable and investments... (4,969) (4,969) (43,531) (43,531) (5,683) (5,683)
Decrease in notes receivable and investments.... 63,758 63,758 33,204 33,204 23,226 22,136
Advances to New H............................... -- -- -- -- -- 38,035
Settlement of cost related to acquisition of
AMI............................................ -- -- -- -- (18,648) (18,648)
Other............................................. (9,536) (9,536) (14,848) (14,848) (31,753) (9,013)
---------- ---------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES....................................... (71,025) (71,025) 135,576 135,576 243,866 85,617
---------- ---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND SHORT-TERM CASH
INVESTMENTS...................................... (26,201) (26,201) 39,673 40,904 (38,861) (37,005)
Cash and Short-Term Cash Investments, Beginning of
Period........................................... 70,536 70,536 30,863 29,632 69,724 66,637
---------- ---------- ---------- ---------- ---------- ----------
CASH AND SHORT-TERM CASH INVESTMENTS, END OF
PERIOD........................................... $ 44,335 $ 44,335 $ 70,536 $ 70,536 $ 30,863 $ 29,632
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE THREE YEARS ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
ADJUSTMENT
FOR
COMMON STOCK ADDITIONAL RETAINED MINIMUM
---------------------- PAID-IN EARNINGS PENSION
SHARES AMOUNT CAPITAL (DEFICIT) LIABILITY
--------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
AMI
Balance, August 31, 1990............................................... 72,481 $ 725 $ 326,502 $ (15,262) $ --
Contributions from Holdings.......................................... -- -- 240,942 -- --
Net Loss............................................................. -- -- -- (1,809) --
--------- ----- ----------- --------- -----------
Balance, August 31, 1991............................................... 72,481 725 567,444 (17,071) --
--------- ----- ----------- --------- -----------
Contributions from Holdings.......................................... -- -- 17,235 -- --
Net Income........................................................... -- -- -- 99,621 --
--------- ----- ----------- --------- -----------
Balance, August 31, 1992............................................... 72,481 725 584,679 82,550 --
--------- ----- ----------- --------- -----------
Contributions from Holdings.......................................... -- -- 2,381 -- --
Net Income........................................................... -- -- -- 41,538 --
Adjustment for minimum pension liability............................. -- -- -- -- (8,000)
--------- ----- ----------- --------- -----------
Balance, August 31, 1993............................................... 72,481 $ 725 $ 587,060 $ 124,088 $ (8,000)
--------- ----- ----------- --------- -----------
HOLDINGS
Balance, August 31, 1990............................................. 50,080 $ 501 $ 345,172 $ (13,710) $ --
Issuance of stock.................................................... 25,652 256 240,686 -- --
Stock options exercised.............................................. 39 1 271 -- --
Stock repurchases.................................................... (156) (2) (1,140) -- --
Common Stock Subject to Repurchase Obligations....................... -- -- (844) -- --
Net Loss............................................................. -- -- -- (19,013) --
--------- ----- ----------- --------- -----------
Balance, August 31, 1991............................................... 75,615 756 584,145 (32,723) --
--------- ----- ----------- --------- -----------
Issuance of stock.................................................... 1,200 12 11,100 -- --
Stock options exercised.............................................. 115 1 814 -- --
Stock repurchases.................................................... (290) (3) (3,167) -- --
Common Stock Subject to Repurchase Obligations....................... -- -- 3,105 -- --
Net Income........................................................... -- -- -- 99,621 --
--------- ----- ----------- --------- -----------
Balance, August 31, 1992............................................... 76,640 766 595,997 66,898 --
--------- ----- ----------- --------- -----------
Issuance of stock.................................................... 52 -- 497 -- --
Stock options exercised.............................................. 195 2 2,000 -- --
Stock repurchases.................................................... (14) -- (118) -- --
Common Stock Subject to Repurchase Obligations....................... -- -- (1,753) -- --
Net Income........................................................... -- -- -- 41,538 --
Adjustment for minimum pension liability............................. -- -- -- -- (8,000)
--------- ----- ----------- --------- -----------
Balance, August 31, 1993............................................... 76,873 $ 768 $ 596,623 $ 108,436 $ (8,000)
--------- ----- ----------- --------- -----------
--------- ----- ----------- --------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
36
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
American Medical Holdings, Inc. ("Holdings") was organized in July, 1989 to
acquire American Medical International, Inc. ("AMI" and, together with Holdings,
the "Company").
Effective September 1, 1991, Holdings contributed all of the common stock of
New H Holdings Corp., a wholly owned subsidiary of Holdings ("New H"), then the
owner of the three facilities, to AMI. As a result, AMI's financial statements
for periods subsequent to September 1, 1991 are the same as Holdings', except
for the components of shareholders' equity and the impact of Holdings' common
stock subject to repurchase obligations. In addition, the only difference
between Holdings' and AMI's Consolidated Statement of Income for the year ended
August 31, 1991, is the results of operations for New H facilities,
substantially all of which have been sold, while New H was separate from AMI.
The accompanying consolidated financial statements include the accounts of
Holdings, AMI and all majority owned subsidiary companies and have been prepared
in accordance with generally accepted accounting principles. All significant
intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to prior years' financial statements to be
consistent with the fiscal 1993 presentation.
SHORT-TERM CASH INVESTMENTS
All highly liquid debt instruments purchased with a maturity of three months
or less are considered to be short-term cash investments.
ACCOUNTS RECEIVABLE
The Company receives payment for services rendered to patients from (i) the
federal and state governments under the Medicare, Medicaid and CHAMPUS programs,
(ii) privately sponsored managed care programs for which payment is made based
on terms defined under contracts and (iii) other payors. The following table
summarizes the approximate percent of net patient accounts receivable from such
payors as of August 31, 1993 and 1992, respectively:
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Government........................................................... 30% 28%
Contracted........................................................... 35 30
Other................................................................ 35 42
</TABLE>
Receivables from government agencies represent a concentrated group of
credit for the Company however management does not believe that there are any
credit risks associated with these governmental agencies. The only other
significant credit concentration is with various Blue Cross affiliates. In some
states, the local Blue Cross affiliate is believed to be experiencing financial
difficulty; however, management does not believe that such difficulties
represent a material financial exposure to the Company. The remaining balance of
payors including entities and individuals involved in diverse activities, and
subject to differing economic conditions, do not represent any concentrated
credit risks to the Company. Furthermore, management continually monitors and
adjusts its reserves and allowances associated with these receivables.
SUPPLY INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
37
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND MAINTENANCE
Amounts capitalized as part of land, buildings and equipment, including
additions and improvements to existing facilities, are recorded at cost,
including interest capitalized during construction which is computed at the cost
of funds borrowed.
Depreciation is recorded on the straight-line method over the estimated
useful lives of the buildings and improvements and equipment. The estimated
useful lives of the buildings and improvements range from 20 to 25 years and
equipment ranges from 5 to 10 years. Upon retirement or disposal of assets, the
asset and accumulated depreciation accounts are adjusted accordingly and any
gain or loss is reflected in earnings. Maintenance costs and repairs are
expensed as incurred.
COST IN EXCESS OF NET ASSETS ACQUIRED
The cost in excess of net assets acquired is being amortized over 40 years
from the original acquisition date resulting in an annual amortization of
approximately $31.9 million. The cumulative amount of cost in excess of net
assets acquired amortized at August 31, 1993, 1992 and 1991 is $125.2 million,
$93.3 million and $60.9 million, respectively.
At August 31, 1991, Holdings had a capital loss carryover for financial
reporting and tax purposes of $67.1 million, for which a tax benefit was not
recognized in the financial statements. A portion of these capital losses were
carried back to offset tax capital gains previously recognized on assets sold
prior to Holdings' acquisition of AMI. The remaining capital loss carryovers
were utilized in fiscal 1992 to offset the tax capital gain attributable to the
sales of securities of EPIC Healthcare Group, Inc., and EPIC Holdings, Inc. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
the tax benefit of $23.9 million associated with the capital loss carryover, was
credited to cost in excess of net assets acquired.
INVESTMENTS
Investments are accounted for under either the equity method or the cost
method. Investments accounted for under the cost method are stated at the lower
of cost or market in the accompanying financial statements.
DEFERRED COSTS
Deferred financing costs are amortized by the interest method over the term
of the expected life of the debt. Costs incurred prior to the opening of new
facilities and costs incurred in the development of data processing systems are
deferred and amortized on a straight-line basis over a two to five-year period.
INCOME TAXES
Effective September 1, 1991, the Company adopted the provisions of SFAS No.
109 for accounting for income taxes. Since the Company had previously adopted
the provisions of SFAS No. 96, the implementation of SFAS No. 109 did not have a
material effect on the Company's results of operations. The implementation of
SFAS No. 109 resulted in an increase in the Company's current income tax
receivable of approximately $56.8 million as of September 1, 1991 which
correspondingly increased the deferred income tax liability.
NET REVENUES
Revenues are presented net of reserves to recognize the difference between
the established rates for covered services and the amount paid by third party or
private payors. Patient revenues received under government and privately
sponsored insurance programs are based on cost as defined under the programs or
at predetermined rates based upon the diagnosis, plus capital costs, return on
equity and
38
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
other adjustments rather than customary charges. Adjustments are recorded based
on estimated amounts and contract interpretations. Such adjustments are
generally subject to final audit and settlement. Net revenues include
adjustments for the years ended August 31, 1993, 1992 and 1991 of $1.9 billion,
$1.8 billion and $1.7 billion, respectively, for Holdings. Revenue adjustments
for AMI for the years ended August 31, 1993, 1992 and 1991 were $1.9 billion,
$1.8 billion and $1.5 billion, respectively. In management's opinion, the
reserves established are adequate to cover the ultimate liabilities that may
result from final settlements.
Healthcare services provided to individuals which were determined to be
services free of charge are defined as charity care. In accordance with the
AICPA Industry Audit Guide, these services have not been recognized as
receivables or revenues in the financial statements since they were never
expected to result in cash flows.
CONTRACTUAL PROGRAMS
Net revenues from government programs represented 38%, 37%, and 32% of total
net revenues for the years ended August 31, 1993, 1992 and 1991, respectively.
In addition the Company has net revenues from other contracted business which
represented 26%, 24% and 21% of total net revenues for the years ended August
31, 1993, 1992 and 1991, respectively.
TRANSLATION OF FOREIGN CURRENCIES
Revaluation gains or losses on assets and liabilities denominated in
currencies other than the functional currency are included in the determination
of income. Revaluation losses for debt denominated in foreign currencies for the
year ended August 31, 1992 totaled $7.8 million and revaluation gains for the
year ended August 31, 1991 totaled $15.3 million.
As of September 1, 1992, substantially all of the Company's foreign
denominated debt obligations have been redeemed or the Company has entered into
swap agreements that hedge against any future fluctuations and, therefore,
eliminated any future revaluation gains or losses associated with the applicable
debt obligations (See Note 3).
2. ACQUISITIONS AND DISPOSITIONS
1993
Effective January 1, 1993, the Company merged the operations of AMI's
Tarzana Regional Medical Center with the operations of HealthTrust, Inc. -- The
Hospital Company's ("HealthTrust") Encino Hospital. AMI owns 75% of the combined
hospital operations and therefore the results of operations for the hospitals
are fully consolidated with the results of operations of Holdings and AMI for
periods subsequent to January 1, 1993.
1992
During fiscal 1992, the Company sold four domestic acute care hospitals for
aggregate cash proceeds of approximately $100.1 million. These assets were
valued at their respective sales prices, and therefore, no gains or losses were
recognized from these sales in fiscal 1992.
In October 1991, AMI completed the sale of $89.3 million principal amount of
Zero Coupon Notes Due 2001, issued to AMI by EPIC Healthcare Group, Inc. for a
pre-tax gain of $9.1 million. This transaction completed the sale of all notes
issued by EPIC Healthcare Group, Inc. to AMI in September 1988 as partial
consideration for AMI's sale of certain hospitals. In March 1992 AMI also
completed the sale of its investment in EPIC Holdings, Inc. Class A and Class B
Preferred Stock for aggregate cash proceeds of $130 million. The sale of the
EPIC Holdings, Inc. Class A and Class B Preferred Stock resulted in a pre-tax
gain of $110.7 million. The total pre-tax gain from these
39
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
transactions was $119.8 million ($80.7 million, net of tax). Additionally, AMI
exercised warrants and exchanged its EPIC Healthcare Group, Inc. Class C
Preferred Stock to obtain 22% of the fully diluted common stock of EPIC
Holdings, Inc. (See Note 4). No gain or loss was recorded on the exchange of the
EPIC Healthcare Group, Inc. securities.
1991
During fiscal 1991, the Company sold nine domestic acute care hospitals,
three psychiatric hospitals, one hospital in Spain, its health maintenance
organization, its 50% ownership of an international acute care hospital and
certain other assets for aggregate cash proceeds of approximately $316 million.
Eight domestic acute care and all of the psychiatric hospitals sold were New H
facilities. No gain or loss was recorded on these transactions due to the book
value of these facilities being adjusted to reflect the fair market value of
these assets at October 31, 1989.
In November 1990, the Company sold improvements made by AMI or New H on
facilities owned by American Health Properties, Inc. ("AHP"), a real estate
investment trust, to AHP for aggregate consideration of $29.5 million in cash.
During April 1991, the Company completed the sale and leaseback of Irvine
Medical Center to AHP. AMI received $75 million for the real estate and
buildings and will continue to manage the hospital and own all equipment. AMI
will lease the facility for an initial term of 13 years with options to renew
for up to an additional 15 years. As a result of these sales and subsequent
leaseback, the minimum lease expense increased by approximately $13.7 million
per year.
In July 1991, the Company completed the sale of $67.9 million principal
amount of EPIC Healthcare Group, Inc. Junior Subordinated Pay-in-Kind Notes Due
2003 for a pre-tax gain of $18.6 million, $11.9 million net of tax.
40
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEBT
LONG-TERM DEBT
Long-term debt at August 31, 1993 and 1992 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992
---------------------------- ----------------------------
HOLDINGS AMI HOLDINGS AMI
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Reducing Revolving Credit Facility, 4.8% at August
31, 1993............................................ $ 287,000 $ 287,000 $ -- $ --
Senior debt, 11 1/4% to 11 3/8% at August 31,1993,
net of unamortized discount at August 31, 1993 of
$10.7 million and due from 1993 through 2015........ 125,854 125,854 257,070 257,070
11% Senior Notes, due 2000........................... 100,000 100,000 100,000 100,000
6 1/2% and 6 3/4% Swiss franc/dollar dual currency
senior notes due 1997, $111.2 million face value,
net of $22.5 million unamortized discount at August
31, 1993............................................ 88,705 88,705 87,306 87,306
11 1/4% Senior notes due 1995, L37 million face
value, net of $2.6 million unamortized discount at
August 31, 1993..................................... 60,084 60,084 58,548 58,548
5% Swiss franc bonds due 1996, SFr.78 million face
value, net of $7.9 million unamortized discount at
August 31, 1993..................................... 44,537 44,537 42,022 42,022
Zero Coupon Guaranteed Bonds due 1997 and 2002,
$179.3 million face value, net of $94.8 million
unamortized discount at August 31, 1993............. 84,577 84,577 74,375 74,375
9 1/2% Senior Subordinated Notes, due 2006........... 150,000 150,000 -- --
13 1/2% Senior Subordinated Notes, due 2001.......... 193,790 193,790 210,000 210,000
15% Junior Subordinated Discount Debentures, due
2005................................................ 104,485 104,485 172,312 172,312
Notes, and capital lease obligations (notes secured
by trust deeds on real property with an aggregate
net book value of approximately $125.4 million at
August 31, 1993) with varying maturities through
2014 with interest at an average rate of 9.7%....... 85,464 85,464 103,069 103,069
Debt to Finance Acquisition:
Senior Term Facilities............................. -- -- 274,334 274,334
Deferred Refinancing Facility...................... -- -- 84,666 84,666
------------- ------------- ------------- -------------
1,324,496 1,324,496 1,463,702 1,463,702
Less -- current maturities........................... 40,831 40,831 130,279 130,279
------------- ------------- ------------- -------------
$ 1,283,665 $ 1,283,665 $ 1,333,423 $ 1,333,423
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
In August 1993, AMI refinanced its existing bank credit facility with a $600
million reducing revolving credit facility (the "Reducing Revolving Credit
Facility"). Initial proceeds of $305 million were drawn under the Reducing
Revolving Credit Facility to repay amounts outstanding under the Senior Term
Facilities and the Deferred Refinancing Facility. AMI may borrow up to, and have
41
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEBT (CONTINUED)
outstanding thereunder, $600 million until December 1995, at which time such
amount reduces on a quarterly basis through September 1997 to $300 million, with
the remaining amounts outstanding thereunder becoming due and payable in
September 1998. In addition, $35.5 million in letters of credit were issued
thereunder. Amounts outstanding under the Reducing Revolving Credit Facility
accrue interest, at the option of AMI, at (i) adjusted LIBOR plus 1.5% (subject
to reduction upon the satisfaction of certain conditions) or (ii) at the
alternative base rate specified for the Reducing Revolving Credit Facility.
During fiscal 1993, the Company issued $150 million principal amount of
9 1/2% Senior Subordinated Notes Due 2006. The net proceeds from the issuance of
the 9 1/2% Senior Subordinated Notes Due 2006 were used to repurchase a portion
of the 13 1/2% Senior Subordinated Notes Due 2001, a portion of the 15% Junior
Subordinated Discount Debentures Due 2005 and certain other indebtedness with an
aggregate principal amount of $121 million (See Note 12). Additionally, the
Company redeemed $49.8 million of certain other indebtedness with cash from
operations.
In August 1993, the remaining principal amount of the 6 3/4% Swiss
franc/dollar dual currency senior notes due 1997 were called for redemption on
November 18, 1993. The redemption price of $28 million will be financed by
borrowings under the Reducing Revolving Credit Facility (See Note 12).
On October 17, 1991 AMI completed a public offering of $100 million
principal amount of 11% Senior Notes Due 2000 ("11% Senior Notes"). The net
proceeds from the 11% Senior Notes, along with a portion of the proceeds from
the sale of AMI's investment in EPIC Holdings, Inc. Class A and Class B
Preferred Stock (See Note 2) were used to repurchase or redeem $159.0 million of
senior indebtedness and $55.4 million of the 9 7/8% unsecured loan stock due
2011 (See Note 12).
AMI has entered into swap agreements which hedge any foreign currency gains
or losses on the L37 million senior notes, face amount $62.7 million, and the
SFr.78 million bonds, face amount $52.4 million. At August 31, 1993 no loss
would be recognized if the counter parties to these swap agreements failed to
perform their obligations.
The terms of certain of the Company's indebtedness, impose significant
operating and financial restrictions requiring the Company to maintain certain
financial ratios and restrict the Company's ability to incur additional
indebtedness and enter into leases and guarantees of debt; to make loans and
investments; to pay dividends or repurchase shares of stock; to repurchase,
retire or refinance indebtedness prior to maturity, make capital expenditures;
and to purchase or sell assets. Subject to compliance with terms of its
indebtedness, the Company may (i) incur additional indebtedness for various
purposes, including certain acquisitions and general corporate purposes, and
(ii) to make capital expenditures in specified amounts ($225 million for fiscal
1994). Additionally, the Company is authorized to use up to $150 million for
acquisitions in fiscal 1994. The Company has pledged the capital stock of
certain direct (first tier) subsidiaries and certain patient receivables as
security for the Company's obligations under the Reducing Revolving Credit
Facility and certain other senior indebtedness. Management believes that the
Company is currently in compliance with all material covenants and restrictions
contained in all financing agreements.
As of August 31, 1993 the maturities of long-term debt, including capital
lease obligations, for the five years ending August 31, 1998 will be $40.8
million in fiscal 1994, $155.1 million in fiscal 1995, $55.9 million in fiscal
1996, $178.3 million in fiscal 1997 and $2.1 million in fiscal 1998.
42
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEBT (CONTINUED)
CONVERTIBLE SUBORDINATED DEBT
Convertible subordinated debt at August 31, 1993 and 1992 is summarized as
follows:
<TABLE>
<CAPTION>
1993 1992
-------------------- --------------------
HOLDINGS AMI HOLDINGS AMI
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
9 1/2% Convertible Subordinated Debentures, Due 2001..... $ 3,280 $ 3,280 $ 3,188 $ 3,188
8 1/4% Convertible Subordinated Debentures, Due 2008..... 7,207 7,207 7,115 7,115
--------- --------- --------- ---------
$ 10,487 $ 10,487 $ 10,303 $ 10,303
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The 9 1/2% Convertible Subordinated Debentures Due 2001 are convertible at
$24.38 per share into 209,639 shares of Holdings' common stock at August 31,
1993, net of unamortized discount of $1.8 million. The 8 1/4% Convertible
Subordinated Debentures Due 2008 are convertible at $40.00 per share into
361,400 shares of Holdings' common stock at August 31, 1993 net of unamortized
discount of $7.2 million.
Convertible subordinated debentures are unsecured obligations of the Company
and are redeemable at declining premiums prior to their respective payment
dates.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in determining the fair
value of financial instruments:
CASH AND SHORT-TERM CASH INVESTMENTS
The carrying value of cash and short-term cash investments approximates fair
value due to the short-term nature of these instruments. As of August 31, 1993,
the aggregate carrying value of cash and short-term investments was $44.3
million.
INVESTMENTS
The Company holds an investment in common stock of EPIC Holdings, Inc. The
carrying value of the common stock, which is not publicly traded is $.7 million
as of August 31, 1993. It is not practicable to estimate the fair value of the
Company's investment due to the changing environment in the marketplace with
respect to the healthcare industry and the securities not being traded on a
recognized market. EPIC Holdings, Inc. had a net deficit in equity at September
30, 1992, of $58.4 million, and for the twelve months ended September 30, 1992
had a net loss before extraordinary item of $23.8 million, and a net loss
applicable to common shares of $36.2 million. As of June 30, 1993, EPIC
Holdings, Inc.'s net deficit in equity was $70.1 million. For the nine months
ended June 30, 1993 EPIC Holdings, Inc. had a net loss before extraordinary item
of $16.8 million, and a net loss applicable to common shares of $32.3 million.
The Company has various other investments for which the determination of the
fair value is not practicable. The carrying value of such investments is $27.3
million as of August 31, 1993.
LONG-TERM DEBT
Fair values of publicly traded notes have been determined using the quoted
market prices at August 31, 1993. The fair value of certain non-publicly traded
notes is based on cash flows discounted using interest rates found on comparable
traded securities. The aggregate carrying value of long-term debt at August 31,
1993, of $1.30 billion had an estimated fair value of $1.49 billion.
43
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RETIREMENT PLANS
The Company has a defined benefit pension plan covering substantially all of
the Company's employees. The benefits are based on years of service and the
employee's base compensation as defined in the plan. The Company's policy is to
fund pension costs accrued within the limits allowed under federal income tax
regulations. Contributions are intended to provide not only for benefits
attributed to credited service to date, but also for those expected to be earned
in the future.
In accordance with SFAS No. 87, the Company has recorded an adjustment, as
shown in the following tables, to recognize a minimum pension liability.
The following table sets forth the funded status of the plan and amounts
recognized in the consolidated financial statements as of August 31, 1993 and
1992 (in thousands):
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested............................................................ $ 147,600 $ 115,800
----------- -----------
Accumulated....................................................... $ 155,100 $ 122,000
----------- -----------
Projected benefit obligation...................................... $ 170,500 $ 138,300
Plan assets at fair value, primarily listed stock and corporate
bonds............................................................ (133,000) (104,800)
----------- -----------
Projected benefit obligation in excess of plan assets............. 37,500 33,500
Unrecognized net loss............................................. (25,900) (14,200)
Adjustment for minimum pension liability.......................... 10,500 --
----------- -----------
Pension liability................................................. $ 22,100 $ 19,300
----------- -----------
----------- -----------
</TABLE>
Net pension cost includes the following components (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
------------------------------------------------------------------
1993 1992 1991
---------------------- -------------------- --------------------
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI
---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during
the period.............................. $ 6,800 $ 6,800 $ 7,600 $ 7,600 $ 7,400 $ 6,700
Interest cost on projected benefit
obligation.............................. 12,200 12,200 10,000 10,000 10,800 9,800
Actual return on plan assets............. (18,500) (16,000) (4,500) (4,500) (8,000) (7,200)
Net amortization and deferral............ 7,000 4,600 (7,100) (7,100) (800) (700)
---------- ---------- --------- --------- --------- ---------
Net periodic pension cost................ $ 7,500 $ 7,600 $ 6,000 $ 6,000 $ 9,400 $ 8,600
---------- ---------- --------- --------- --------- ---------
---------- ---------- --------- --------- --------- ---------
</TABLE>
In addition, the Company has a nonfunded supplemental defined benefit
retirement plan for Company executives ("SERP").
44
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RETIREMENT PLANS (CONTINUED)
The following table sets forth the amounts recognized for the nonfunded SERP
in the consolidated financial statements as of August 31, 1993 and 1992 (in
thousands):
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested......................................................................... $ 43,000 $ 43,500
--------- ---------
--------- ---------
Accumulated.................................................................... $ 43,900 $ 43,800
--------- ---------
--------- ---------
Projected benefit obligation (unfunded)........................................ $ 49,700 $ 45,600
Unrecognized net gain (loss)................................................... (900) 600
Unrecognized transition costs.................................................. (300) (300)
Unrecognized prior service costs............................................... 200 200
Adjustment for minimum pension liability....................................... 2,900 --
--------- ---------
SERP liability................................................................. $ 51,600 $ 46,100
--------- ---------
--------- ---------
</TABLE>
Net SERP cost for the years ended August 31, 1993, 1992 and 1991 includes
the following components (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
----------------------------------------------------
1993 1992 1991
---------------- ---------------- ----------------
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during the
period............................................ $ 900 $ 900 $ 100 $ 100 $ 300 $ 300
Interest costs on projected benefit obligation..... 3,600 3,600 3,700 3,700 3,900 3,900
Net amortization and deferral...................... (300 ) (300) (100 ) (100) (100 ) (100)
-------- ------ -------- ------ -------- ------
Net periodic SERP cost............................. $ 4,200 $4,200 $ 3,700 $3,700 $ 4,100 $4,100
-------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation for the SERP and the pension plan
approximated 7.5% and 9% for the years ended August 31, 1993 and 1992,
respectively. The rate of increase in future compensation levels was 5% for the
SERP and 3.5% for the pension plan in fiscal 1993. The rate of increase in
future compensation levels was 8% for the SERP and 5% for the pension plans in
fiscal 1992 and 1991. The expected long-term rate of return on assets was 10%
and 10.5% for the years ended August 31, 1993 and 1992, respectively for the
pension plan.
The Company also has a tax deferred savings plan. Expenses relating to this
plan were $7.3 million, $5.6 million and $6.2 million for the years ended August
31, 1993, 1992 and 1991, respectively for Holdings and AMI.
In December 1990, the Financial Accounting Standards Board adopted SFAS No.
106 which establishes Employer's Accounting for Post-Retirement Benefits Other
Than Pensions. This statement requires the recognition of a liability for
post-retirement benefits on an accrual basis rather than on a cash basis. The
Company does not provide any post-retirement healthcare and life insurance
benefits to retired employees, and therefore SFAS No. 106 will have no impact on
the Company's results of operations.
6. PROFESSIONAL LIABILITY RISKS
As is typical in the healthcare industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. The Company
self-insures the professional and general
45
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROFESSIONAL LIABILITY RISKS (CONTINUED)
liability claims for nine of its hospitals up to $500,000 per occurrence and for
25 of its hospitals up to $3 million per occurrence. Prior to June, 1993 the
self-insured retention for these 25 hospitals was $5 million per occurrence.
Coverage for professional and general liability claims for the Company's two
remaining hospitals is maintained with outside insurance carriers.
The Company owns a 35% equity interest in an insurance company which insures
excess professional and general liability risks for those hospitals which are
self-insured. The excess coverage provided by this insurance company is limited
to $25 million per claim. The Company purchases additional excess insurance from
a commercial carrier. For the period from January 1986 to February 1991 the
Company had no excess coverage for the majority of its hospitals. However, in
March 1991 the Company purchased prior acts coverage which substantially reduces
the uninsured liability for this period. For the years ended August 31, 1993,
1992 and 1991 the Company paid $5.0 million, $4.6 million and $3.1 million,
respectively in premiums to this insurance company. In fiscal 1993, 1992 and
1991 the Company received distributions of prior year premiums of $2.4 million,
$3.8 million and $3.6 million, respectively from the insurance company. The
Company also received dividends of $2.7 million, $4.7 million and $3.9 million
from this insurance company in fiscal years 1993, 1992 and 1991, respectively.
The Company maintains an unfunded reserve for its professional liability
risks which is based, in part, on actuarial estimates calculated and evaluated
by an independent actuary. Actual hospital professional and general liability
costs for a particular period are not normally known for several years after the
period has ended. The delay in determining the actual cost associated with a
particular period is due to the time between the occurrence of an incident, the
reporting thereof and the settlement of related claims. Because of this delay in
payment, reserves for losses and related expenses, using expected loss reporting
patterns determined in conjunction with the actuary, are discounted using a rate
of 9% to their present value. Adjustments to the total reserves determined in
conjunction with the actuary on an annual basis are recorded by the Company as
an increase or decrease in the current year's earnings.
In connection with the sale of domestic hospitals, the Company retained all
professional and general liability exposure arising prior to the respective
dates of sale.
In addition, the Company paid $1.9 million, $2.0 million and $2.5 million to
other outside insurers for the years ended August 31, 1993, 1992 and 1991,
respectively.
For the fiscal years ended August 31, 1993, 1992 and 1991, Holdings recorded
self insurance expense of $24.7 million, $13.5 million and $28.2 million,
respectively. For the fiscal years ended August 31, 1993, 1992 and 1991, AMI
recorded self insurance expense of $24.7 million, $13.5 million and $24.5
million, respectively.
As of August 31, 1993 and 1992, the unfunded reserve for self insurance was
$117.6 million and $117.2 million, respectively, of which $17.0 million in
fiscal 1993 and 1992 is included in current liabilities. For the fiscal years
ended August 31, 1993, 1992 and 1991, payments for claims and expenses totaled
$24.3 million, $17.1 million and $25.3 million, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed long-term debt and lease obligations of
unconsolidated subsidiaries and affiliates aggregating $35.5 million at August
31, 1993.
The Company leases six acute care facilities, certain office space, office
equipment and medical equipment. The future minimum lease payments under all
operating leases for 1994, 1995, 1996,
46
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1997, 1998 and thereafter are $67.9 million, $62.5 million, $52.7 million, $48.1
million and $45.2 million, respectively. In addition, the Company incurs certain
additional rents (contingency rents) based on a percentage of the increase in
net revenues. These additional rents were $6.4 million, $5.7 million and $6.6
million for the years ended August 31, 1993, 1992 and 1991, respectively.
The Company had approximately $22.5 million of construction commitments
outstanding for renovations at August 31, 1993.
LEGAL PROCEEDINGS
Holdings and AMI are subject to claims and suits arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of all
pending legal proceedings will not have a material adverse effect on the
business or financial condition of Holdings or AMI.
8. COMMON STOCK SUBJECT TO REPURCHASE OBLIGATIONS
Certain executive officers of AMI purchased shares of Holdings' common stock
and in connection therewith were granted options to purchase additional shares
of common stock. Under certain circumstances, these purchasers have the right to
sell such shares to the Company at market value ($14.00 per share as of August
31, 1993) and therefore, such shares are classified separately from
shareholders' equity at their repurchase price. As of August 31, 1993, 1992 and
1991, 431,858, 445,976 and 768,623 shares, respectively, of common stock were
subject to repurchase obligations. These shares are subject to restrictions on
transferability and Holdings generally has the right to repurchase such shares
under certain circumstances.
9. CAPITAL STOCK
COMMON STOCK
Holdings is the owner of all the outstanding shares of common stock of AMI.
As of August 31, 1993, 72,481,000 shares of AMI common stock were outstanding.
OPTION PLANS
The Company maintains two stock option plans, the Nonqualified Employee
Stock Option Plan (the "Option Plan") and the Nonqualified Performance Stock
Option Plan for Key Employees (the "Key Employees Plan"), pursuant to which
employees and, in the case of the Key Employees Plan, key employees, of Holdings
and its subsidiaries are eligible to receive stock options to purchase shares of
common stock.
The table below summarizes the transactions in the Company's stock option
plans for the years ended August 31, 1993, 1992 and 1991 (shares of common
stock):
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Outstanding at beginning of period............................. 3,179,317 3,450,246 1,863,690
Granted........................................................ 525,696 565,000 2,149,194
Exercised ($7.03 to $9.75 per share in 1993, $7.03 per share in
1992 and 1991)................................................ (192,548) (114,849) (38,568)
Canceled or expired............................................ (169,782) (721,080) (524,070)
----------- ----------- -----------
Outstanding at end of period................................... 3,342,683 3,179,317 3,450,246
----------- ----------- -----------
----------- ----------- -----------
Exercisable at end of period................................... 1,280,513 908,999 476,782
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Key Employees Plan generally provides options that are exercisable at
prices ranging from $7.03 to $9.75 per share, vest over a period of five to ten
years based on the attainment of specified
47
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL STOCK (CONTINUED)
performance goals and expire ten years from the date of grant. The Option Plan
generally provides options that are exercisable at prices ranging from $7.03 to
$9.75 per share, vest over a period of five years and expire ten years from the
date of grant.
EMPLOYEE STOCK PURCHASE PLAN
In January 1993 the Company adopted an Employee Stock Purchase Plan (the
"Plan"). The purpose of the Plan is to provide an incentive for employees of the
Company to own Holdings' common stock. The Company has reserved 2,300,000 shares
of Holdings' common stock for the plan. The plan allows eligible employees to
contribute up to 10% of their base earnings to purchase Holdings' common stock
quarterly, through payroll deductions, at 85% of the lower of the closing price
on the first or last day of the Plan quarter.
10. INTEREST EXPENSE, NET
Interest expense, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
----------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ ------------------------
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest costs............................ $ 121,279 $ 121,279 $ 154,708 $ 154,708 $ 261,270 $ 225,477
Amortization of debt discount and deferred
financing costs and non-cash interest.... 60,617 60,617 62,396 62,396 76,038 71,387
Interest costs capitalized................ (1,418) (1,418) (2,560) (2,560) (6,928) (6,928)
----------- ----------- ----------- ----------- ----------- -----------
180,478 180,478 214,544 214,544 330,380 289,936
Interest income........................... (13,896) (13,896) (9,988) (9,988) (20,192) (20,037)
----------- ----------- ----------- ----------- ----------- -----------
Interest expense, net..................... $ 166,582 $ 166,582 $ 204,556 $ 204,556 $ 310,188 $ 269,899
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
48
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
(Provisions) benefits for income taxes, excluding the tax effect of minority
equity interest and the extraordinary item, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Holdings:
1993
Current (including current portion of deferred)........................... $ (58,600) $ (9,900) $ (68,500)
Deferred.................................................................. (400) 100 (300)
---------- --------- ----------
$ (59,000) $ (9,800) $ (68,800)
---------- --------- ----------
---------- --------- ----------
1992
Current (including current portion of deferred)........................... $ (50,100) $ (8,200) $ (58,300)
Deferred.................................................................. (18,700) (900) (19,600)
---------- --------- ----------
$ (68,800) $ (9,100) $ (77,900)
---------- --------- ----------
---------- --------- ----------
1991
Current................................................................... $ (2,300) $ (1,300) $ (3,600)
Deferred.................................................................. (13,900) (3,300) (17,200)
---------- --------- ----------
$ (16,200) $ (4,600) $ (20,800)
---------- --------- ----------
---------- --------- ----------
AMI:
1993
Current (including current portion of deferred)........................... $ (58,600) $ (9,900) $ (68,500)
Deferred.................................................................. (400) 100 (300)
---------- --------- ----------
$ (59,000) $ (9,800) $ (68,800)
---------- --------- ----------
---------- --------- ----------
1992
Current (including current portion of deferred)........................... $ (50,100) $ (8,200) $ (58,300)
Deferred.................................................................. (18,700) (900) (19,600)
---------- --------- ----------
$ (68,800) $ (9,100) $ (77,900)
---------- --------- ----------
---------- --------- ----------
1991
Current................................................................... $ (8,700) $ (1,300) $ (10,000)
Deferred.................................................................. (16,300) (4,000) (20,300)
---------- --------- ----------
$ (25,000) $ (5,300) $ (30,300)
---------- --------- ----------
---------- --------- ----------
</TABLE>
49
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
The approximate tax effect of each type of temporary difference that gives
rise to a significant portion of deferred tax liabilities and deferred tax
assets as of August 31, 1993 and 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment......................................................... $ 278,700 $ 281,700
Change in accounting method........................................................... 20,000 27,400
Debt discounts and deferred loan costs................................................ 10,400 14,100
Other, net............................................................................ 59,951 46,402
----------- -----------
Total deferred tax liabilities...................................................... 369,051 369,602
----------- -----------
Deferred tax assets:
Self-insurance reserves............................................................... 54,300 53,000
Other deferred expenses............................................................... 20,900 23,200
Deferred gains and losses............................................................. 26,400 26,700
Bad debt reserves..................................................................... 4,600 4,200
Deferred compensation................................................................. 46,800 42,300
Other, net............................................................................ 43,000 43,900
----------- -----------
Total deferred tax assets........................................................... 196,000 193,300
----------- -----------
Net deferred tax liability........................................................ $ 173,051 $ 176,302
----------- -----------
----------- -----------
</TABLE>
The net deferred tax liability recognized in the consolidated financial
statements as of August 31, 1993 and 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Current asset (included in other current assets)........................................ $ (38,400) $ (42,900)
Noncurrent liability.................................................................... 211,451 219,202
----------- -----------
Net deferred tax liability.......................................................... $ 173,051 $ 176,302
----------- -----------
----------- -----------
</TABLE>
In August, 1993, the Revenue Reconciliation Act of 1993 was enacted. Among
other tax law changes, such law increased the corporate income tax rate from 34%
to 35% effective for the period beginning on or after January 1, 1993. For the
year ended August 31, 1993, the federal statutory tax rate for the Company is
the blended tax rate of 34.67%.
50
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
The consolidated effective tax provision differed from that using the
federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ ----------------------
HOLDINGS AMI HOLDINGS AMI HOLDINGS AMI
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income before taxes, minority equity
interest and extraordinary loss.... $ 139,539 $ 139,539 $ 188,836 $ 188,836 $ 3,172 $ 29,876
----------- ----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ----------- ---------- ----------
Provision calculated using federal
statutory rate..................... $ (48,400) $ (48,400) $ (64,200) $ (64,200) $ (1,100) $ (10,200)
Amortization of goodwill............ (11,100) (11,100) (11,000) (11,000) (11,500) (11,500)
State income tax provision (net of
federal income tax benefit)........ (5,500) (5,500) (6,000) (6,000) (3,100) (3,500)
Impact on deferred taxes of federal
tax rate change.................... (4,000) (4,000) -- -- -- --
Other, net........................ 200 200 3,300 3,300 (5,100) (5,100)
----------- ----------- ----------- ----------- ---------- ----------
Provision for income taxes.......... $ (68,800) $ (68,800) $ (77,900) $ (77,900) $ (20,800) $ (30,300)
----------- ----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ----------- ---------- ----------
</TABLE>
Holdings had operating loss and capital loss carryforwards for tax purposes
of $42 million and $9 million, respectively, for which deferred tax benefits
have been recognized in the financial statements. The operating loss and capital
loss carryforwards have been utilized against net income and capital gains
arising in fiscal year 1992.
In addition, Holdings had a capital loss carryover for financial reporting
and tax purposes of $67.1 million, for which a tax benefit had not been
recognized in the financial statements. This capital loss carryover has been
fully utilized against capital gains arising in fiscal year 1992 and against
capital gains on assets sold prior to the acquisition of AMI. The tax benefit
associated with the capital loss carryover has been credited to cost in excess
of net assets acquired in accordance with SFAS No. 109.
12. EXTRAORDINARY LOSSES ON EARLY EXTINGUISHMENT OF DEBT
During fiscal 1993, AMI repurchased or redeemed $146.8 million principal
amount of outstanding indebtedness, resulting in a pre-tax loss of $41.0 million
or $25.4 million, net of tax. Of such amount, $88.8 million principal amount of
outstanding indebtedness was repurchased or redeemed during the fourth quarter
of fiscal 1993, resulting in a pre-tax loss of $30.4 million or $18.8 million,
net of tax.
During fiscal 1992, AMI repurchased or redeemed $159.0 million of senior
indebtedness and $55.4 million of the 9 7/8% unsecured loan stock due 2011,
resulting in a pre-tax loss of $15.6 million or $10.0 million, net of tax.
13. EARNINGS (LOSS) PER SHARE
Holdings' earnings (loss) per share for the years ended August 31, 1993,
1992 and 1991 is based upon the weighted average number of shares of Holdings'
common stock outstanding. In accordance with APB Opinion 15, the impact of
common stock equivalents is not considered since they either have an
anti-dilutive effect or the effect on dilution is less than three percent.
51
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUPPLEMENTAL CASH FLOW INFORMATION
Short-term cash investments at August 31, 1993 and 1992, valued at cost
(approximates market), totaled $30.2 million and $51.2 million, respectively.
Holdings and AMI paid income taxes (net of refunds) of $83.6 million and
$24.2 million for the years ended August 31, 1993 and 1991. Holdings and AMI
received income tax refunds (net of payments) of $22.5 million for the year
ended August 31, 1992. Holdings and AMI paid interest (net of capitalized costs)
for the years ended August 31, 1993, and 1992 of $120.5 million and $154.1
million, respectively. Holdings paid interest (net of capitalized cost) of
$271.6 million for the year ended August 31, 1991. AMI paid interest (net of
capitalized costs) of $235.4 million for the year ended August 31, 1991.
Non-cash transactions for the years ended August 31, 1993, 1992 and 1991
were as follows:
For the years ended August 31, 1993 and 1992 an $8.2 million and a $9.3
million loss, net of tax, respectively, was recognized as a result of the
writeoff of the discounts and deferred financing costs associated with the early
extinguishment of debt.
For the years ended August 31, 1993 and 1991 an increase of $1.8 million and
a decrease of $.8 million, respectively was recognized by Holdings for the
common stock subject to repurchase obligations due to market price changes. For
the year ended August 31,1992, there was no market price change and, therefore,
no effect on the value of the common stock subject to repurchase obligations.
During fiscal 1993, the Company assumed net assets of approximately $8.0
million as a result of the merger of AMI's Tarzana Regional Medical Center and
HealthTrust's Encino Hospital.
In fiscal 1992, the Company recognized $27.1 million of debt from the
consolidation of remaining equity joint venture interests. Additionally, in
fiscal 1992, Holdings contributed $7.2 million of New H assets to AMI.
In fiscal 1991, the Company exchanged $148.5 million 18 1/4% Variable Rate
Senior Subordinated Discount Notes for 15% Junior Subordinated Discount
Debentures, Due 2005. In addition, in fiscal 1991, the Company exchanged $606.2
million of Funding Notes.
52
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the Company for the two years ended
August 31, 1993 and 1992 is summarized below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
FISCAL 1993
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues.................................................. $ 541,893 $ 566,142 $ 565,475 $ 565,015
Operating income.............................................. 65,859 80,577 85,313 74,372
Income before taxes, minority equity interest and
extraordinary loss........................................... 20,786 37,083 41,126 40,544
Income before extraordinary loss.............................. 10,561 18,282 21,721 16,405
Extraordinary loss on early extinguishment of debt............ -- -- (6,594) (18,837)
Net income (loss)............................................. $ 10,561 $ 18,282 $ 15,127 $ (2,432)
Holdings' income (loss) per share:
Income before extraordinary loss............................ $ 0.14 $ 0.24 $ 0.28 $ 0.21
Extraordinary loss on early extinguishment of debt.......... -- -- (0.09) (0.24)
Net income (loss)........................................... $ 0.14 $ 0.24 $ 0.19 $ (0.03)
<CAPTION>
FISCAL 1992
--------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues.................................................. $ 538,599 $ 571,077 $ 565,389 $ 562,847
Operating income.............................................. 53,468 73,654 80,613 65,854
Income before taxes, minority equity interest and
extraordinary loss........................................... 8,743 21,396 141,212 17,485
Income before extraordinary loss.............................. 1,955 9,860 91,321 6,482
Extraordinary loss on early extinguishment of debt............ (1,800) -- (3,108) (5,089)
Net income.................................................... $ 155 $ 9,860 $ 88,213 $ 1,393
Holdings' income (loss) per share:
Income before extraordinary loss............................ $ 0.02 $ 0.13 $ 1.18 $ 0.08
Extraordinary loss on early extinguishment of debt.......... (0.02) -- (0.04) (0.06)
Net income.................................................. $ -- $ 0.13 $ 1.14 $ 0.02
</TABLE>
The operating income for the fourth quarter of fiscal 1993 reflects $3.5
million expense from the relocation of the Houston regional office to the Dallas
headquarters. Additional charges totaling $3.0 million were recognized in
previous quarters offset by benefits. Income before taxes, minority equity
interest and extraordinary loss includes an $8.6 million refund of interest paid
to the Internal Revenue Service in prior periods. The provision for income taxes
includes the impact of a $5.1 million increase in the provision for income taxes
due to the enactment of the Revenue Reconciliation Act of 1993 which increased
the corporate income tax rate 1% to 35% from 34%.
The operating income for the fourth quarter of fiscal 1992 reflects
increased net revenues from a $10 million Medicare settlement associated with
Columbia Regional Hospital. In addition, operating income was impacted by an
$11.0 million adjustment to increase reserves associated with workers
compensation liabilities as a result of adverse development on claims arising
from prior periods.
Holding's earnings per share for the third quarter of fiscal 1992 is based
upon the weighted average number of shares of common stock outstanding adjusted
to give effect to common stock equivalents consisting of stock options and
shares issuable in connection with convertible debentures.
53
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
Holding's earnings (loss) per share for all other periods presented is based on
the weighted average number of shares of common stock outstanding since all
common stock equivalents have either an antidilutive effect or no effect on
dilution.
16. BUSINESS SEGMENT INFORMATION
The Company's only material business segment is "healthcare" which accounted
for substantially all of its revenues and operating results for each of the
periods presented. Holdings currently has domestic operations only.
17. RELATED PARTY TRANSACTIONS
In connection with the acquisition of AMI, the Company entered into
transactions with related parties. An affiliate of a major shareholder was
engaged as a financial advisor to the Company during fiscal 1991. The Company
paid this shareholder approximately $2.4 million for advisory services for the
year ended August 31, 1991. In addition, this shareholder received approximately
$3.0 million in fiscal 1991 for assistance provided in the divestiture program.
An affiliate of a major shareholder served as the lead managing underwriter
of the public offering of 16.2 million shares of Holdings common stock, the
issuance of the 13 1/2% Senior Subordinated Notes Due 2001 and the 11% Senior
Notes Due 2000. This related party received underwriting fees of $.9 million and
$6.0 million in fiscal 1992 and 1991, respectively. In fiscal 1992 and 1991,
this same related party received advisory fees of $1.3 million and $6.0 million,
respectively, in connection with divestitures and $.4 million in fiscal 1991 for
other advisory services.
An entity associated with a general partner of a major shareholder agreed to
provide credit support to domestic hospital subsidiaries of AMI for which such
entity receives an annual fee of $750,000. The credit support commitment was
replaced with the fiscal 1993 refinancing of the bank credit facility.
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of American Medical Holdings, Inc. and
American Medical International, Inc.
Our audits of the consolidated financial statements referred to in our
report dated October 15, 1993, appearing on page 37 of this Annual Report on
Form 10-K also included an audit of the Financial Statement Schedules of
American Medical Holdings, Inc. (Holdings) and American Medical International,
Inc. (AMI) as of and for the years ended August 31, 1993, August 31, 1992 and
August 31, 1991 as listed in Item 14(a) of the form 10-K. In our opinion, these
Financial Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
Price Waterhouse
Dallas, Texas
October 15, 1993
55
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM DIRECTORS, OFFICERS AND EMPLOYEES
FOR THE THREE YEARS ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT BALANCE AT
AUGUST 31, COLLECTIONS/ AUGUST 31, COLLECTIONS/ AUGUST 31,
NAME OF DEBTOR 1990(1) ADVANCES OTHER 1991(1) ADVANCES OTHER 1992(1) ADVANCES
- - - - ------------------------- ----------- ----------- ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Jeffrey Taylor........ $ 100,000 $ -- $(100,000)(2) $ -- $ -- $ -- $ -- $ --
Charles N. Sabatino...... 138,050 -- (138,050)(2) -- -- -- -- --
Robert W. O'Leary........ -- 600,000(3) -- 600,000 -- (200,000) 400,000 --
John T. Casey............ -- -- -- -- 150,000(4) (150,000) -- 375,000(3)
Alan J. Chamison......... -- -- -- -- 375,000(3) (115,000) 260,000 --
Edwin O. French.......... -- -- -- -- 69,000(4) (69,000) -- --
Marshall I. Smith........ -- -- -- -- 150,000(5) -- 150,000 --
----------- ----------- ------------ ----------- ----------- ----------- ----------- -----------
$ 238,050 $ 600,000 $(238,050) $ 600,000 $ 744,000 $(534,000) $ 810,000 $ 375,000
----------- ----------- ------------ ----------- ----------- ----------- ----------- -----------
----------- ----------- ------------ ----------- ----------- ----------- ----------- -----------
<CAPTION>
BALANCE AT
COLLECTIONS/ AUGUST 31,
NAME OF DEBTOR OTHER 1993(1)
- - - - ------------------------- ----------- -----------
<S> <C> <C>
R. Jeffrey Taylor........ $ -- $ --
Charles N. Sabatino...... -- --
Robert W. O'Leary........ (200,000) 200,000
John T. Casey............ (15,626) 359,374
Alan J. Chamison......... (125,000) 135,000
Edwin O. French.......... -- --
Marshall I. Smith........ -- 150,000
----------- -----------
$(340,626) $ 844,374
----------- -----------
----------- -----------
<FN>
- - - - ----------------------------------
(1) The balances outstanding for each of the years presented have been
reflected as long term receivables in the consolidated financial
statements.
(2) These were loans made to the borrowers for the purchase of each of their
principal places of residence. Subsequent to August 31, 1991, these
employees were terminated and based on the terms of the loans, were no
longer obligated to repay such amounts. Such amounts were reserved for,
and therefore these loans are no longer outstanding.
(3) These interest free loans were made to the borrowers for the purchase of
common stock. These loans are due and payable 10 days after the
termination of the borrower's employment. The loans will be forgiven by
the Company in equal monthly increments for 36 months continuing from the
original date of grant until fully amortized for so long as the borrower
serves as an officer of the Company. In the event of termination prior to
36 months of service, these loans become due and payable 10 days after the
termination date.
(4) These interest free loans were made to the borrowers for the purchase of
each of their principal places of residence and are repaid upon the sale
of their previous residence.
(5) This interest free loan was made to the borrower for the purchase of his
principal place of residence and was to be repaid upon the sale of his
previous residence. As of August 31, 1993, such employee was terminated
and based on the terms of the severance agreement set therewith, the loan
will be repaid during fiscal 1994.
</TABLE>
56
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED AUGUST 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF AT COST AND SALES AND BALANCE AT
PERIOD TRANSFERS RETIREMENTS OTHER END OF PERIOD
------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Holdings and AMI:
Year Ended August 31, 1993
Land................................... $ 105,241 $ -- $ (518) $ -- $ 104,723
Buildings and improvements............. 1,111,163 39,547 -- 1,180(1) 1,151,890
Equipment.............................. 443,561 63,667 (6,464) 6,741(1) 507,505
Construction in progress............... 24,419 9,470 (162) 2,100(1) 35,827
------------- ----------- ------------ ------------- -------------
$ 1,684,384 $ 112,684 $ (7,144) $ 10,021 $ 1,799,945
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
Holdings:
Year Ended August 31, 1992
Land................................... $ 113,417 $ 490 $ (9,677) $ 1,011(2) $ 105,241
Buildings and improvements............. 1,099,312 51,546 (65,743) 26,048(2) 1,111,163
Equipment.............................. 415,747 55,251 (27,437) -- 443,561
Construction in progress............... 28,507 (3,951) (137) -- 24,419
------------- ----------- ------------ ------------- -------------
$ 1,656,983 $ 103,336 $ (102,994) $ 27,059 $ 1,684,384
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
Year Ended August 31, 1991
Land................................... $ 174,997 $ 252 $ (61,832) $ -- $ 113,417
Buildings and improvements............. 1,065,006 116,217 (81,911) -- 1,099,312
Equipment.............................. 415,978 59,627 (59,858) -- 415,747
Construction in progress............... 134,571 (42,003) (64,061) -- 28,507
------------- ----------- ------------ ------------- -------------
$ 1,790,552 $ 134,093 $ (267,662) $ -- $ 1,656,983
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
AMI:
Year Ended August 31, 1992
Land................................... $ 112,632 $ 490 $ (9,677) $ 1,796(3) $ 105,241
Buildings and improvements............. 1,064,919 51,546 (65,743) 60,441(3) 1,111,163
Equipment.............................. 402,831 55,251 (27,437) 12,916(3) 443,561
Construction in progress............... 26,607 (3,951) (137) 1,900(3) 24,419
------------- ----------- ------------ ------------- -------------
$ 1,606,989 $ 103,336 $ (102,994) $ 77,053(3) $ 1,684,384
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
Year Ended August 31, 1991
Land................................... $ 138,342 $ 682 $ (26,392) $ -- $ 112,632
Buildings and improvements............. 1,035,098 106,973 (77,152) -- 1,064,919
Equipment.............................. 362,379 63,199 (22,747) -- 402,831
Construction in progress............... 82,471 (53,867) (1,997) -- 26,607
------------- ----------- ------------ ------------- -------------
$ 1,618,290 $ 116,987 $ (128,288) $ -- $ 1,606,989
------------- ----------- ------------ ------------- -------------
------------- ----------- ------------ ------------- -------------
<FN>
- - - - ------------------------
(1) Represents the assumption of net assets as a result of (a) the merger of
AMI's Tarzana Regional Medical Center and HealthTrust's Encino Hospital
and (b) the recognition of the consolidation of investments which were
previously recorded on the equity method.
(2) Recognition of the consolidation of a joint venture previously recorded on
the equity method.
(3) Reflects the effect of Holdings' contribution of all the common stock of
New H, a wholly owned subsidiary of Holdings, to AMI as well as the
recognition of the consolidation of a joint venture previously recorded on
the equity method.
</TABLE>
57
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
FOR THE YEARS ENDED AUGUST 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF SALES AND END OF
PERIOD PROVISION RETIREMENTS OTHER PERIOD
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Holdings and AMI:
Year Ended August 31, 1993
Buildings and improvements.......................... $ 125,551 $ 50,787 $ (21) $ -- $ 176,317
Equipment........................................... 164,485 59,481 (4,547 ) -- 219,419
------------ ----------- ----------- ------------ -----------
$ 290,036 $ 110,268 $ (4,568 ) $ -- $ 395,736
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
Holdings:
Year Ended August 31, 1992
Buildings and improvements.......................... $ 85,416 $ 50,497 $ (10,362 ) $ -- $ 125,551
Equipment........................................... 116,981 59,120 (11,616 ) -- 164,485
------------ ----------- ----------- ------------ -----------
$ 202,397 $ 109,617 $ (21,978 ) $ -- $ 290,036
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
Year Ended August 31, 1991
Buildings and improvements.......................... $ 39,284 $ 48,154 $ (2,022 ) $ -- $ 85,416
Equipment........................................... 54,302 78,162 (15,483 ) -- 116,981
------------ ----------- ----------- ------------ -----------
$ 93,586 $ 126,316 $ (17,505 ) $ -- $ 202,397
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
AMI:
Year Ended August 31, 1992
Buildings and improvements.......................... $ 80,067 $ 50,497 $ (10,362 ) $ 5,349 (1) $ 125,551
Equipment........................................... 113,121 59,120 (11,616 ) 3,860 (1) 164,485
------------ ----------- ----------- ------------ -----------
$ 193,188 $ 109,617 $ (21,978 ) $ 9,209 $ 290,036
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
Year Ended August 31, 1991
Buildings and improvements.......................... $ 37,193 $ 47,547 $ (4,673 ) $ -- $ 80,067
Equipment........................................... 49,100 69,473 (5,452 ) -- 113,121
------------ ----------- ----------- ------------ -----------
$ 86,293 $ 117,020 $ (10,125 ) $ -- $ 193,188
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
<FN>
- - - - ------------------------
(1) Reflects the effect of Holdings' contribution of all the common stock of New
H, a wholly owned subsidiary of Holdings, to AMI.
</TABLE>
58
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE VIII -- RESERVES FOR UNCOLLECTIBLE ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING SALES AND END OF
OF PERIOD PROVISIONS RETIREMENTS OTHER PERIOD
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Holdings and AMI:
Year Ended August 31, 1993
Reserves for Uncollectible Accounts.............. $ 86,744 $ 148,135 $ (136,736) $ -- $ 98,143
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
Holdings:
Year Ended August 31, 1992
Reserves for Uncollectible Accounts.............. $ 68,326 $ 163,824 $ (145,406) $ -- $ 86,744
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
Year Ended August 31, 1991
Reserves for Uncollectible Accounts.............. $ 78,816 $ 162,842 $ (172,526) $ (806) $ 68,326
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
AMI:
Year Ended August 31, 1992
Reserves for Uncollectible Accounts.............. $ 62,570 $ 163,824 $ (145,406) $ 5,756(1) $ 86,744
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
Year Ended August 31, 1991
Reserves for Uncollectible Accounts.............. $ 68,722 $ 145,998 $ (152,150) $ -- $ 62,570
----------- ----------- ------------ ------------ -----------
----------- ----------- ------------ ------------ -----------
<FN>
- - - - ------------------------
(1) Reflects the effect of Holdings' contribution of all the common stock of
New H, a wholly owned subsidiary of Holdings, to AMI.
</TABLE>
59
<PAGE>
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
AMERICAN MEDICAL INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED AUGUST 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31,
1993 1992 1991
-------------- -------------- --------------
<S> <C> <C> <C>
ITEM
Holdings:
Maintenance and repairs......................................... $ 33,294 $ 30,716 $ 34,374
Depreciation and amortization of intangibles and other assets... 37,129 39,434 39,131
Taxes, other than payroll and income taxes...................... 29,677 27,370 29,420
AMI:
Maintenance and repairs......................................... $ 33,294 $ 30,716 $ 30,729
Depreciation and amortization of intangibles and other assets... 37,129 39,434 37,495
Taxes, other than payroll and income taxes...................... 29,677 27,370 26,566
</TABLE>
60
<PAGE>
EXHIBIT 11
AMERICAN MEDICAL HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------
1993 1992 1991
--------- -------- ------------
<S> <C> <C> <C>
Simple:
Net income (loss) before extraordinary loss................ $66,969 $109,618 $ (19,013)
--------- -------- ------------
--------- -------- ------------
Extraordinary loss on early extinguishment of debt......... (25,431 ) (9,997 ) --
--------- -------- ------------
Net income (loss).......................................... $41,538 $99,621 $ (19,013)
--------- -------- ------------
--------- -------- ------------
Average outstanding shares............................... 76,760 $76,645 50,698
--------- -------- ------------
--------- -------- ------------
Simple net income (loss) per share....................... $ 0.87 $ 1.43 $ (0.38)
--------- -------- ------------
--------- -------- ------------
Extraordinary loss on early extinguishment of debt......... (0.33 ) (0.13 ) --
--------- -------- ------------
Simple net income (loss) per share......................... $ 0.54 $ 1.30 $ (0.38)
--------- -------- ------------
--------- -------- ------------
Primary:
Net income (loss).......................................... $41,538 $99,621 $ (19,013)
Adjustment for interest on debentures and other
adjustments, net of tax................................... 280 254 218
--------- -------- ------------
Net income (loss) for primary.............................. $41,818 $99,875 $ (18,795)
--------- -------- ------------
--------- -------- ------------
Average outstanding shares................................. 76,760 76,645 50,698
Common stock equivalents assuming exercise of
stock options............................................. 819 564 342
Common stock equivalents assuming conversion of
debentures................................................ 210 210 210
--------- -------- ------------
Shares for primary......................................... 77,789 77,419 51,250
--------- -------- ------------
--------- -------- ------------
Primary net income (loss) per share........................ $ 0.54 (1) $ 1.29 (1) $ (0.37)(1)
--------- -------- ------------
--------- -------- ------------
Fully-Diluted:
Net income (loss) for primary.............................. $41,818 $99,875 $ (18,795)
Adjustment for interest on debentures and other
adjustments, net of tax................................... 527 494 469
--------- -------- ------------
Net income (loss) for fully-diluted........................ $42,345 $100,369 $ (18,326)
--------- -------- ------------
--------- -------- ------------
Shares for primary......................................... 76,789 77,419 51,250
Common stock equivalents assuming additional conversions of
debentures................................................ 361 361 361
Common stock equivalents assuming additional exercise of
stock options............................................. 541 8 427
--------- -------- ------------
Shares for fully-diluted................................... 77,691 77,788 52,038
--------- -------- ------------
--------- -------- ------------
Fully diluted net income (loss) per share.................. $ 0.54 (1) $ 1.29 (1) $ (0.35)(1)
--------- -------- ------------
--------- -------- ------------
<FN>
- - - - ------------------------
(1) The calculations for primary loss per share and fully-diluted losses per
share are submitted in accordance with Regulation S-K item 601(b)(11)
although it is contrary to paragraph 40 of APB Opinion No. 15 because it
produces either an anti-dilutive result or no material effect on dilution.
</TABLE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc. a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1993, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This power of
attorney shall terminate one year from the date hereof.
/s/ DAN W. LUFKIN
--------------------------------------
Dan W. Lufkin
Director
DATED: November 24, 1993
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc. a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1993, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This power of
attorney shall terminate one year from the date hereof.
/s/ ROBERT B. CALHOUN, JR.
--------------------------------------
Robert B. Calhoun, Jr.
Director
DATED: November 24, 1993
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc. a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1993, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This power of
attorney shall terminate one year from the date hereof.
/s/ HARRY J. GRAY
--------------------------------------
Harry J. Gray
Director
DATED: November 24, 1993
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc. a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1993, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This power of
attorney shall terminate one year from the date hereof.
/s/ HAROLD S. HANDELSMAN
--------------------------------------
Harold S. Handelsman
Director
DATED: November 24, 1993
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc. a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1993, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This power of
attorney shall terminate one year from the date hereof.
/s/ SHELDON S. KING
--------------------------------------
Sheldon S. King
Director
DATED: November 24, 1993
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director of
American Medical Holdings, Inc., a Delaware corporation and American Medical
International, Inc. a Delaware corporation (collectively, the "Companies"),
hereby constitutes and appoints Alan J. Chamison, Michael N. Murdock, and Bary
G. Bailey, and each of them (with full power to each of them to act alone), his
true and lawful attorneys-in-fact and agents for him and on his behalf and in
his name, place, and stead, in any and all capacities, to sign the Annual Report
on Form 10-K to be filed by the Companies with the Securities and Exchange
Commission with respect to the Companies' fiscal year ended August 31, 1993, and
any and all amendments thereto, and any other documents in connection therewith
granting authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This power of
attorney shall terminate one year from the date hereof.
/s/ MELVYN N. KLEIN
--------------------------------------
Melvyn N. Klein
Director
DATED: November 24, 1993
