SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
CURRENT REPORT
on
FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: January 31, 1995
NATIONAL MEDICAL ENTERPRISES, INC.
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(Exact name of registrant as specified in charter)
NEVADA
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(State or other jurisdiction of incorporation)
1-7293 95-2557091
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(Commission File Number) (IRS Employer Identification No.)
2700 Colorado Avenue, Santa Monica, CA 90404
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(Address of principal executive offices) (Zip Code)
(310) 998-8000
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(Registrant's telephone number, including area code)
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(Former name or former address, if changed since last report)
1
ITEM 5: OTHER EVENTS
On October 10, 1994, National Medical Enterprises, Inc.("NME" or the
"Company"), AMH Acquisition Co., a Delaware corporation and a newly formed,
wholly owned subsidiary of NME ("Merger Sub"), and American Medical Holdings,
Inc. entered into an Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which Merger Sub will be merged with and into AMH and AMH will
become a wholly owned subsidiary of NME. At the time the Merger becomes
effective (the "Effective Time"), each outstanding share of common stock, par
value $0.01 per share, of AMH (the "AMH Common Stock"), other than shares held
by AMH stockholders who have elected appraisal rights and shares held by NME and
its subsidiaries, will be converted into the right to receive (i) 0.42 of a
share of common stock, par value $0.075 per share, of NME (the "NME Common
Stock") and (ii) $19.00 in cash ($19.25 in cash if the Merger is consummated
after March 31, 1995) (collectively, the "Merger Consideration").
To provide holders of AMH Common Stock with certain supplemental information
about NME after giving effect to the Divestitures (as defined herein), set forth
herein is certain unaudited adjusted operating information of NME for each of
the last three fiscal years and for the six months ended November 30, 1993 and
1994, together with a summary discussion of such adjusted operating results for
each of such periods. NME is including this information to supplement the
historical financial information publicly available because it believes that
holders of AMH Common Stock may find such information useful in evaluating NME's
historical results of operations. The adjusted results of operations of NME have
been derived from the historical financial information of NME as adjusted to
give effect to each of the Divestitures as if they had occurred at the beginning
of each of the periods presented, and to the elimination of restructuring
charges recorded by NME of $77.0 million, $51.6 million and $17.9 million in
fiscal 1994, fiscal 1993 and fiscal 1992, respectively. The adjusted results of
operations do not purport to present the results of operations of NME had the
Divestitures occurred on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future. All
of the following information is qualified in its entirety by, and should be read
in conjunction with (i) NME's Annual Report on Form 10-K for the fiscal year
ended May 31, 1994 (the "NME 10-K"), (ii) NME's Form 10K/A filed with the
Commission on January 18, 1995 which amends the aforesaid Annual Report on Form
10-K, (iii) NME's Quarterly Reports on Form 10-Q for the quarterly periods ended
August 31, 1994 and November 30, 1994 and (iv) the portions of NME's 1994 Annual
Report to Shareholders for the fiscal year ended May 31, 1994 that have been
incorporated by reference into the NME 10-K.
2
SUPPLEMENTAL DISCUSSION OF ADJUSTED RESULTS OF OPERATIONS OF NME
GENERAL
During and subsequent to the last three fiscal years, NME completed a number
of dispositions. These dispositions included: (i) the August 1994 sale of
approximately 75% of the common stock of Total Renal Care, Inc. ("TRC"); (ii)
the March 1994 sale of one inpatient rehabilitation hospital and the January
1994 sale of 28 inpatient rehabilitation hospitals and 45 related satellite
outpatient clinics; (iii) the February 1994 sale of four long-term care
facilities, the September 1993 sale of 19 long-term care facilities, the fiscal
1993 sales of 62 long-term care facilities and the fiscal 1992 sales of 20 long-
term care facilities to The Hillhaven Corporation ("Hillhaven") (all of which
properties previously had been leased to Hillhaven); and (iv) the April 1993
public offering of common stock by Westminster Healthcare Holdings, PLC
("Westminster"), which reduced NME's interest in Westminster from approximately
90% to approximately 42% (collectively, the "Divestitures").
For purposes of the presentation set forth below, the Company's adjusted net
operating revenues have been divided into three components. Adjusted net
operating revenues from the Company's domestic general hospitals include only
the revenues of the Company's domestic general hospitals. Net operating
revenues from other domestic operations include the revenues principally of the
following: (i) six rehabilitation hospitals and seven long-term care facilities
located on the same campus as, or nearby, the Company's general hospitals; (ii)
certain healthcare joint ventures operated by the Company; (iii) various
subsidiaries of the Company (collectively, "National Health Plans") that offer
health maintenance organizations ("HMOs"), preferred provider organizations
("PPOs") and indemnity products in California; and (iv) revenues earned by the
Company in consideration of the guarantee of certain indebtedness and leases of
Hillhaven and of other third parties. Net operating revenues from the Company's
international operations include the revenues of the Company's operations in
Singapore, Australia and Spain but exclude the results of Westminster and NME's
interests in Malaysia, which are accounted for using the equity method. The
operating expenses attributable to the assets and businesses disposed of
include an allocation of corporate overhead, and such allocated expenses have
been excluded from the adjusted presentation set forth below.
3
UNAUDITED ADJUSTED RESULTS OF OPERATIONS OF NME
SIX
MONTHS ENDED
YEARS ENDED MAY 31, NOVEMBER 30,
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1992 1993 1994 1993 1994
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(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net operating revenues:
Domestic general hospitals.. $1,963.2 $2,112.9 $2,133.3 $1,036.3 $1,042.4
Other domestic operations... 228.1 271.9 275.3 129.0 138.2
International operations.... 91.6 162.4 175.4 86.4 104.4
-------- -------- -------- -------- --------
Net operating revenues....... $2,282.9 $2,547.2 $2,584.0 $1,251.7 $1,285.0
Operating expenses:
Salaries and benefits....... 998.4 1,116.0 1,117.4 556.6 550.3
Supplies.................... 290.8 321.8 324.6 155.4 159.1
Provision for doubtful
accounts................... 107.0 105.4 101.8 52.9 46.4
Other operating expenses.... 500.9 565.4 552.7 268.3 287.9
Depreciation................ 97.5 117.1 130.8 65.7 66.8
Amortization................ 12.6 14.0 15.8 7.5 7.5
-------- -------- -------- -------- --------
Operating income............. $ 275.7 $ 307.5 $ 340.9 $ 145.3 $ 167.0
======== ======== ======== ======== ========
OTHER OPERATING INFORMATION:
EBITDA (1)................... $ 385.8 $ 438.6 $ 487.5 $ 218.5 $ 241.3
Capital expenditures......... 260.6 214.7 165.5 47.0 57.9
SIX
MONTHS ENDED
YEARS ENDED MAY 31, NOVEMBER 30,
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1992 1993 1994 1993 1994
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(PERCENTAGE OF NET OPERATING REVENUES)
STATEMENT OF OPERATIONS DATA:
Net operating revenues:
Domestic general hospitals.. 86.0% 82.9% 82.6% 82.8% 81.1%
Other domestic operations... 10.0 10.7 10.6 10.3 10.8
International operations.... 4.0 6.4 6.8 6.9 8.1
-------- -------- -------- -------- --------
Net operating revenues ...... 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- -------- --------
Operating expenses:
Salaries and benefits....... 43.7 43.8 43.2 44.5 42.8
Supplies.................... 12.7 12.6 12.6 12.4 12.4
Provision for doubtful
accounts................... 4.7 4.1 3.9 4.2 3.6
Other operating expenses.... 21.9 22.2 21.4 21.4 22.4
Depreciation................ 4.3 4.6 5.1 5.2 5.2
Amortization................ 0.6 0.6 0.6 0.6 0.6
-------- -------- -------- -------- --------
Operating income............. 12.1% 12.1% 13.2% 11.6% 13.0%
======== ======== ======== ======== ========
OTHER OPERATING INFORMATION:
EBITDA margin................ 16.9% 17.2% 18.9% 17.5% 18.8%
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(1) EBITDA represents operating income before depreciation and amortization.
While EBITDA should not be construed as a substitute for operating income
or a better indicator of liquidity than cash flows from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. EBITDA
is not necessarily a measure of the Company's ability to fund its cash
needs. See the Consolidated Statements of Cash Flows of NME and AMH and
the related Notes thereto included in this Prospectus. EBITDA is included
herein because management believes that certain investors find it a useful
tool for measuring the ability to service debt.
4
The patient volumes and adjusted net operating revenues of the Company's
domestic general hospitals are subject to seasonal variations caused by a
number of factors, including but not necessarily limited to, seasonal cycles
of illness, climate and weather conditions, vacation patterns of both hospital
patients and admitting physicians and other factors relating to the timing of
elective hospital procedures. Generally, the patient volumes and adjusted net
operating revenues experienced by the Company's domestic general hospitals are
lowest in the first fiscal quarter ended August 31, and increase through the
fourth fiscal quarter ended May 31.
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals. Included in these statistics are the
operations of one hospital that was sold in June 1993 and two hospitals that
were sold in July 1994. The operations of Doctors Hospital of Jefferson, which
was acquired in March 1994, have been excluded from the fiscal 1994 adjusted
results presented below.
SIX MONTHS
ENDED
YEARS ENDED MAY 31, NOVEMBER 30,
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1992 1993 1994 1993 1994
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(DOLLARS IN MILLIONS, EXCEPT PER PATIENT DAY)
DOMESTIC GENERAL HOSPITAL
OPERATING DATA:
Number of hospitals (at end
of period)................ 35 35 34 34 33
Licensed beds (at end of
period) (1)............... 6,559 6,818 6,735 6,749 6,622
Net inpatient revenues..... $ 1,445.3 $ 1,529.5 $ 1,564.3 $ 751.3 $ 740.2
Net outpatient revenues.... $ 464.6 $ 534.7 $ 555.0 $ 273.1 $ 282.5
Admissions................. 208,307 210,669 207,351 101,111 97,741
Equivalent admissions (2).. 267,083 274,216 270,332 132,845 129,662
Average length of stay (3). 5.82 5.64 5.55 5.48 5.48
Patient days............... 1,211,857 1,187,181 1,151,188 553,691 535,480
Equivalent patient days
(4)....................... 1,545,799 1,537,913 1,489,621 721,634 704,624
Net inpatient revenues per
patient day............... $ 1,193 $ 1,288 $ 1,359 $ 1,357 $ 1,382
Utilization of licensed
beds (5).................. 50.5% 47.8% 46.8% 44.9% 43.7%
Outpatient visits.......... 1,376,118 1,473,294 1,468,972 723,624 746,750
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(1) Aggregate number of beds at the end of the period operated under approval
from the appropriate state licensing agency.
(2) Equivalent admissions represents actual admissions adjusted to include
outpatient and emergency room services by multiplying actual admissions by
the sum of gross inpatient revenues and gross outpatient revenues and
dividing the result by gross inpatient revenues.
(3) Represents total patient days divided by total admissions.
(4) Equivalent patient days represents actual patient days adjusted to include
outpatient and emergency room services by multiplying actual patient days
by the sum of gross inpatient revenues and gross outpatient revenues and
dividing the result by gross inpatient revenues.
(5) Represents average daily census for the period divided by the average
number of licensed beds during the period.
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SIX MONTHS ENDED NOVEMBER 30, 1993 AND 1994
Adjusted net operating revenues increased 2.7% to $1,285.0 million for the
six months ended November 30, 1994, compared to $1,251.7 million for the prior
year period, representing an increase of $33.3 million. Domestic general
hospitals, other domestic operations and international operations all recorded
increases in adjusted net operating revenues compared to the prior year period,
as described below.
Domestic General Hospitals
Adjusted net operating revenues from the Company's domestic general hospital
operations increased 0.6% to $1,042.4 million for the six months ended November
30, 1994, compared to $1,036.3 million for the prior year period, representing
an increase of $6.1 million. On a same store basis, adjusted net operating
revenues for the Company's domestic general hospitals increased 0.8% to
$1,016.1 million for the six months ended November 30, 1994, compared to
$1,007.6 million in the prior year period. Same store operating results
represent the combined results of the 32 general hospitals operated by the
Company throughout both the six months ended November 30, 1994 and the prior
year period.
Adjusted net operating revenues for the Company's domestic general hospitals
have remained relatively unchanged as less intensive services continue to shift
from an inpatient to an outpatient basis or to alternative healthcare delivery
services because of technological improvements and continued increases in cost
containment pressures by payors. In addition, management believes that patient
volumes, cash flows and operating results at the Company's domestic general
hospitals have been adversely affected by certain legal proceedings and
investigations. Management believes that these legal proceedings adversely
affected the Company's ability to pursue its business strategy, particularly
during fiscal 1994. The most significant of these legal proceedings and
investigations now have been resolved.
On a same store basis, admissions and net inpatient revenues decreased 2.0%
and 0.9%, respectively, for the six months ended November 30, 1994, compared to
the prior year period. The shift from less intensive inpatient services to
outpatient and other treatment has reduced inpatient admissions, but has
resulted in increases in inpatient acuity and intensity of services and
consequently higher inpatient revenues per patient day. The increase in
revenues per patient day was mitigated by increases in allowances and discounts
as payors have increased cost controls and managed care utilization has
increased. On a same store basis, outpatient visits and net outpatient revenues
increased 4.6% and 2.8%, respectively, for the six months ended November 30,
1994, compared to the prior year period. This increase in outpatient visits and
net outpatient revenues primarily is due to the shift from an inpatient to an
outpatient basis for the delivery of healthcare services.
Other Domestic Operations
Adjusted net operating revenues from the Company's other domestic operations
increased 7.1% to $138.2 million for the six months ended November 30, 1994,
compared to $129.0 million for the prior year period, representing an increase
of $9.2 million. This increase primarily reflects continued growth of National
Health Plans, the Company's HMO and insurance subsidiary, to approximately
43,000 members at November 30, 1994, compared to approximately 36,000 members
at the end of the prior year period.
International Operations
Adjusted net operating revenues from the Company's international operations
increased 20.8% to $104.4 million for the six months ended November 30, 1994,
compared to $86.4 million for the prior year period, representing an increase
of $18.0 million. This increase is principally attributable to a 21.0% increase
in net operating revenues of Australian Medical Enterprises, Ltd. ("AME"), and
a 9.8% increase in the net operating revenues of the Company's two hospitals in
Singapore. In addition, Centro Medico Teknon in Barcelona, Spain was opened in
February 1994 and became a wholly owned subsidiary in June 1994, when NME
acquired its partner's 50% interest.
6
Operating Expenses
Adjusted salaries and benefits expense decreased $6.3 million to 42.8% of
adjusted net operating revenues in the six months ended November 30, 1994,
compared to 44.5% for the prior year period. This improvement is primarily
attributable to a reduction in corporate and division staffing levels. Adjusted
supplies expense remained the same at 12.4% of adjusted net operating revenues
in the six months ended November 30, 1994 and 1993. The adjusted provision for
doubtful accounts decreased $6.5 million to 3.6% of adjusted net operating
revenues for the six months ended November 30, 1994, compared to 4.2% for the
prior year period. Adjusted other operating expenses increased $19.6 million,
to 22.4% of adjusted net operating revenues in the six months ended November
30, 1994, as compared to 21.4% in the prior year period. This increase
principally was due to increased rent and lease expense resulting from the
March 31, 1994 acquisition of Doctors Hospital of Jefferson.
Adjusted EBITDA and Operating Income
Adjusted EBITDA increased 10.4% to $241.3 million for the six months ended
November 30, 1994, compared to $218.5 million for the prior year period,
representing an increase of $22.8 million. As a percentage of adjusted net
operating revenues, adjusted EBITDA increased 1.3 percentage points to 18.8%
for the six months ended November 30, 1994, compared to 17.5% for the prior
year period.
Adjusted depreciation and amortization expense increased 1.5% to $74.3
million for the six months ended November 30, 1994, compared to $73.2 million
for the prior year period.
Adjusted operating income increased 14.9% to $167.0 million for the six
months ended November 30, 1994, compared to $145.3 million for the prior year
period, representing an increase of $21.7 million. The adjusted operating
profit margin increased to 13.0% for the six months ended November 30, 1994,
compared to 11.6% for the prior year period.
FISCAL YEARS ENDED MAY 31, 1992, 1993 AND 1994
Adjusted net operating revenues increased 1.4% to $2,584.0 million in fiscal
1994, from $2,547.2 million in fiscal 1993. In fiscal 1993, adjusted net
operating revenues increased 11.6%, compared to $2,282.9 million in fiscal
1992. Domestic general hospitals, other domestic operations and international
operations all recorded increases in adjusted net operating revenues in each of
such fiscal years.
Domestic General Hospitals
Adjusted net operating revenues for the Company's domestic general hospitals
increased 1.0% to $2,133.3 million in fiscal 1994 compared to $2,112.9 million
in fiscal 1993. In fiscal 1993, adjusted net operating revenues for the
Company's domestic general hospitals increased 7.6%, from $1,963.2 million in
fiscal 1992. Adjusted net operating revenues for the Company's domestic general
hospitals were impacted in both fiscal periods by the general trends discussed
above. In addition, management believes that the fiscal 1994 results were
adversely affected by certain legal proceedings and investigations. On a same
store basis, adjusted net operating revenues for the Company's general hospitals
increased 1.7% to $2,123.5 million in fiscal 1994, compared to $2,088.9 million
in fiscal 1993. Same store adjusted net operating revenues represent the
combined results of the 34 general hospitals operated by the Company throughout
the last three fiscal years. Adjusted net operating revenues for the Company's
general hospitals increased 7.6% on a same store basis in fiscal 1993, compared
to $1,940.3 million in fiscal 1992. Same store adjusted net operating revenues
represent the combined results of the 34 domestic general hospitals operated by
the Company throughout the last three fiscal years.
On a same store basis, admissions and net inpatient revenues for the
Company's general hospitals decreased 0.6% and increased 3.1%, respectively, in
fiscal 1994 compared to fiscal 1993. Admissions and net inpatient revenues for
the Company's general hospitals increased 1.3% and 6.4%, respectively, on a same
store basis in fiscal 1993, compared to fiscal 1992. On a same store basis,
outpatient visits and net
7
outpatient revenues for the Company's general hospitals increased 1.1% and
6.8%, respectively, in fiscal 1994 compared to fiscal 1993. Outpatient visits
and net outpatient revenues for the Company's general hospitals increased 7.1%
and 15.5%, respectively, on a same store basis in fiscal 1993 compared to
fiscal 1992. This increase was due principally to the addition by one hospital
of an off-campus specialty outpatient facility in fiscal 1993.
Other Domestic Operations
Adjusted net operating revenues from other domestic operations increased 1.3%
to $275.3 million in fiscal 1994, compared to $271.9 million in fiscal 1993,
representing an increase of $3.4 million. In fiscal 1993, adjusted net
operating revenue from other domestic operations increased 19.2%, compared to
$228.1 million in fiscal 1992. This increase primarily reflects continued
growth of National Health Plans, partially offset by a decline in joint venture
revenues. At the end of fiscal 1994, National Health Plans' HMO managed the
care needs of over 40,000 members, compared to approximately 35,000 members at
the end of fiscal 1993 and approximately 32,000 members at the end of fiscal
1992. The Company has been analyzing the ownership structure of its joint
ventures in light of the changing regulatory environment applicable to its
joint ventures. As a result, the Company has determined to redeem or repurchase
certain of the limited partnership interests of its physician partners.
International Operations
Adjusted net operating revenues from the Company's international operations
increased 8.0% to $175.4 million in fiscal 1994, compared to $162.4 million in
fiscal 1993, representing an increase of $13.0 million. This increase in fiscal
1994 was attributable principally to a 13.1% increase in net operating revenues
at the Company's two hospitals in Singapore. In fiscal 1993, adjusted net
operating revenues from the international operations increased 77.3% to $162.4
million, compared to $91.6 million in fiscal 1992, representing an increase of
$70.8 million. The increase in fiscal 1993 was attributable principally to the
acquisition of a majority interest in AME in March 1992, which accounted for
$57.4 million of the increase, and a 19.7% increase in net operating revenues
at the Company's two hospitals in Singapore.
Operating Expenses
Adjusted salaries and benefits expense, adjusted supplies expense, and
adjusted other operating expenses remained relatively stable as a percentage of
adjusted net operating revenues in fiscal 1994 as compared to fiscal 1993 and
to fiscal 1992. As a percentage of adjusted net operating revenues, the
adjusted provision for doubtful accounts decreased to 3.9% in fiscal 1994 from
4.1% and 4.7% in fiscal 1993 and fiscal 1992, respectively. The reduction in the
provision for doubtful accounts over this period resulted principally from the
reduced percentage of patient revenues from private payors, continued
improvement of follow-up collection systems by NME's wholly owned debt
collection business, Syndicated Office Systems, Inc., investment in an
electronic claims processing network and from the continued consolidation of
hospital business office functions.
Adjusted EBITDA and Operating Income
Adjusted EBITDA increased 11.1% to $487.5 million in fiscal 1994 compared to
$438.6 million in fiscal 1993. In fiscal 1993, adjusted EBITDA increased 13.7%
compared to $385.8 million in fiscal 1992. As a percentage of adjusted net
operating revenue, adjusted EBITDA increased to 18.9% in fiscal 1994, compared
to 17.2% and 16.9% in fiscal 1993 and fiscal 1992, respectively.
Adjusted depreciation expense increased to 5.1% of adjusted net operating
revenues in fiscal 1994 from 4.6% and 4.3% in fiscal 1993 and 1992,
respectively, principally as a result of the substantial continuing investment
in the general hospitals operated by the Company.
Adjusted operating income increased 10.9% to $340.9 million in fiscal 1994
compared to $307.5 million in fiscal 1993. In fiscal 1993, adjusted operating
income increased 11.5% from $275.7 million in fiscal 1992. As a percentage of
adjusted net operating revenue, adjusted operating income increased to 13.2% in
fiscal 1994, compared to 12.1% in each of fiscal 1993 and fiscal 1992.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATIONAL MEDICAL ENTERPRISES, INC.
/s/ SCOTT M. BROWN
----------------------------------
Scott M. Brown
Senior Vice President
and General Counsel
9