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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report June 30, 1997 Commission file number 0-2751
------------- ------
AMERICAN HOSPITAL MANAGEMENT CORPORATION
----------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1861243
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1116
Arcata, California 95521
- ------------------ ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (707) 839-8474
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1.00 par value
- --------------------------------------------------------------------------------
(Title of class)
$2.00 Cumulative Preferred Stock $1.00 par value
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes______ No X
-1-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes_____________ No X
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, at a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405, 17 CRF 230.405.)
There is no market for the registrant's stock.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of share outstanding of each of the registrant's classes of
common stock as of the latest practicable date (228,057 at June 30, 1997).
Total number of pages, including cover - 35
-2-
PART 1
Item 1. Business
- ------ --------
The primary business of the Company is the operation and
ownership of Mad River Community Hospital (the Hospital) and
satellite clinics, located in the Humboldt County area of
Northern California.
Over the last several years the Company has expanded the scope
of services offered by the Hospital to include advanced
ancillary service departments used by physicians practicing in
the rural service area. As a result of the ongoing expansion
of facilities and services, the Hospital continues to recruit
new physicians to provide the added care as well as to replace
physicians who are retiring from active practice. The
Hospital's service area on the north coast is experiencing the
highest rate of growth in the county and is especially
attractive to physicians who want to live and work in a
community with high family values.
The nearest competition to the Hospital is in Eureka
(approximately 12 miles south) where two acute care facilities
are located. Management of the Hospital feels that as long as
it maintains a strong position in providing a full scope of
health care services, the facilities located in Eureka will
have less of a negative impact on Hospital use or occupancy.
For this reason, the Hospital organized two out-patient
clinics, one in-house clinic and one clinic in the outlying
community thereby maintaining the Hospital's presence in the
service area. New buildings are planned for those departments
still housed in mobile facilities adjacent to the Hospital.
The business department has been moved to a new permanent
location. The area will be used for the expansion of the adult
day health care building. In addition, a cath-lab is in the
final process of being approved for installation in the
Hospital. An MRI is on order and is expected to be operating
adjacent to the Hospital by early 1998.
Another positive factor supporting Hospital use is community
involvement. As the largest private employer in Arcata, the
Hospital provides employment to approximately 520 local
residents and, through its Home Health and Adult Day Health
Care departments, is highly visible in the community served.
The Hospital continues to try to build on this strength by
maintaining a strong image through the media and a helping
hand in the community, while providing personalized quality
services. The Hospital is a strong advocate for a community
health care plan involving the medical staff, employers and
the area's hospitals and health care providers wherein they
will work together to provide a locally based alternative to
out of the area managed care.
-3-
As the health care industry is dependent on government payment
of care for the elderly and indigent, the Hospital may be
negatively impacted by new Government regulations. As
mentioned above, the Hospital is working diligently to
establish a community health care plan that could compete with
the various outside managed care plans planning to enter the
Humboldt County area.
Item 2. Properties
- ------ ----------
The main facility operated by the Company is Mad River
Community Hospital in Arcata, California. This single-level
structure is licensed as a 78-bed acute hospital in Northern
Humboldt County, California, where it provides full hospital
services to a population of approximately 55,000. Since
opening in 1972, the Hospital has maintained a program of
expansion and improvements. It is located on 12 acres (part of
a 48 acre site) adjacent to an expanded medical office complex
owned by staff doctors which leaves sufficient open area for
further expansion of medical services as needed.
The Company owns 27 acres of land approximately 4 miles from
the Hospital held for future residential development. A house
and barn on the property is currently used as an office, guest
quarters and storage space for the Company. The Company owns a
personal residence adjacent to the Hospital that had been used
as a physician's office. This acquisition was made to
facilitate a continued favorable occupancy by a
hospital-related specialty and is presently being leased to an
unrelated private resident, providing a child day care service
to hospital employees. The Company also owns residences and
commercial properties in Eureka and McKinleyville, California.
From time to time, the Company acquires real estate being held
for investment purposes.
As part of its outreach program, the Company owns and operates
medical office buildings under the name of Willow Creek Six
Rivers Medical Center in Willow Creek, California (38 miles
east of the Hospital). The Company also owns and operates real
property in McKinleyville which provides laboratory and
radiology outpatient services. It also operates an after-hours
clinic at this location.
Adult Day Health Care of Mad River , a separate not-for-profit
organization, is operating an adult day health care facility
in a building adjacent to and owned by Mad River Community
Hospital. Michael Young, Controller of the Company, is
functioning as Adult Day Health Care's Administrator and
performs minimal accounting services for the organization. To
meet the growing demands for this service, the existing
building will be expanded. This entity will continue to lease
the facility from the Hospital.
Item 3. Legal Proceedings
- ------ -----------------
None.
-4-
Item 4. Submission of Matters to Vote of Security Holders
- ------ -------------------------------------------------
There were no matters submitted to a vote by the security
holders during the fourth quarter of the fiscal year covered
by this report.
-5-
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
- ------ --------------------------------------------------------------
Holder Matters
--------------
There is no market for the registrant's stock. There are
approximately 415 shareholders at June 30, 1997. No dividends
were paid on common stock during the three years ended June
30, 1997. The Company is current on paying all cumulative
preferred stock dividends.
-6-
Item 6. Selected Financial Data
- ------ -----------------------
Year ended June 30
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total operating
revenue, net $21,843,882 $21,421,707 $21,148,254 $20,671,387 $19,218,602
Net income 200,588 223,815 593,342 502,956 387,436
Primary earnings
per share .45 .52 2.06 1.67 1.18
Fully diluted
earnings per share .62 .67 1.75 1.47 1.13
Cash dividends per
common share -- -- -- -- --
Total assets 20,342,679 20,557,286 19,800,615 18,325,512 16,995,552
Long-term debt 206,932 403,581 803,248 861,648 809,411
Working capital 8,542,725 7,851,133 7,165,927 6,010,324 6,265,004
Redeemable
preferred stock 48,334 50,850 51,623 51,768 51,900
Stockholders'
equity 15,060,535 14,633,038 14,077,102 13,040,598 12,636,033
-7-
Item 7 Management's Discussion and Analysis of
- ------ Financial Condition and Results of Operations
---------------------------------------------
1997
----
Results of Operations
---------------------
Hospital revenues increased slightly during 1997 as the
Hospital continues to expand services to encourage use. Use of
outpatient services increased, and there was a small rate
increase. Patient revenue totaled $41,030,000 in 1997 compared
to $40,617,000 in 1996, a 1% increase of $413,000.
Contractual allowances totaled $15,147,000 in 1997 compared to
$13,808,000 in 1996, a 10% increase. Government regulatory
agencies attempt to reimburse the Hospital based on cost of
services. But, as the government continues its efforts to cut
back on rising health care payments, the actual reimbursement
to the Hospital continues to decrease as evidenced by the
large increase in contractual allowances. At times the
Hospital is unable to even recoup costs on Medicare patients
under the current methodology of reimbursement. Medi-Cal has
also imposed certain limitations that negatively impacted the
amount the Hospital is reimbursed for MediCal patients.
Operating costs and expenses were $27,145,000 compared to
$27,928,000 in 1996, a 3% decrease. Operating costs actually
increased $524,000 while the provision for bad debts decreased
by $1,309,000, resulting in the combined decrease of 3%. The
Hospital has concentrated efforts in the collection of
receivables resulting in less accounts being written off.
The continued reduction in third-party reimbursement is a
major contributing factor to the 1997 operating loss of
$805,000. Net income, after investment income was $201,000 in
1997 compared to $224,000 in 1996.
Over the years, as the Company incurs more contractual
allowances and uncollectible accounts, results from operations
have suffered. The Company continues to enjoy good returns on
its investments to help maintain a net profit. For the current
year, sales of investments resulted in gains of $125,000,
while total investment income was $990,000. As discussed in
Item 1, the Company continues to expand operations to maintain
a competitive edge in a continuing ever changing health care
environment. All construction projects, considered necessary
to maintain operations, will be completed without negative
impact on the financial statements.
The purpose of these projects is to keep the users of the
Hospital in their primary service area when health care is
required, thereby enhancing the Hospital's inpatient service
occupancy. By so doing, it is anticipated that operations will
improve, even though the continued burden of government
contractual agreements to provide health care, sometimes below
cost, is being further complicated by the introduction of
managed care contracts in the Humboldt County area.
-8-
1997 continued
--------------
Liquidity and Capital Resources
-------------------------------
The Company's financial condition remains very strong with
substantial investments, strong liquidity and minimal debt.
The cash and liquid investments are being maintained to
subsidize Hospital operations, finance needed construction and
increased services at Mad River Community Hospital. Currently,
the Company has approximately $6,438,000 in cash and
short-term investments. As previously noted, some of these
investments, as determined by management, will be used to fund
needed expansion.
Cash provided by operating and investing activities continue
to fund investing activities, the largest of which is the
purchase of real estate, property and equipment, which totaled
$706,000 in 1997. As the long-term debt relates only to the
acquisition of major equipment, cash required for financing
activities remains relatively low.
As discussed in Item I, government regulations, as well as
managed care contract agreements, may continue to negatively
impact operations. Management is unable to estimate any
potential negative impact of forthcoming laws or regulations.
Management believes that long-term key employees approve of
the working conditions at the Hospital and have proven their
ability to keep the Hospital staffed under difficult
conditions.
Inflation
---------
The inflation rate affecting costs has remained relatively
low, approximately 5%, over the last three years. This
moderate rate contributes to the Hospital's success in
maintaining a moderate increase in costs from year to year.
-9-
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
1996
----
Results of Operations
---------------------
Hospital revenues increased slightly during 1996 as the
hospital continues to expand services to encourage use. Use of
outpatient services increased, and there was a small rate
increase. Patient revenue totaled $40,617,000 in 1996 compared
to $39,002,000 in 1995, a 4% increase of $1,615,000.
Contractual allowances totaled $13,808,000 in 1996 compared to
$13,638,000 in 1995, only a 1% increase. Government regulatory
agencies attempt to reimburse the hospital based on the cost
of services rendered. As the government continues its efforts
to cut back on rising health care costs, the actual
reimbursement continues to decrease and the Hospital is unable
to even recoup costs on many Medicare patients. Medi-Cal has
also imposed certain limitations (discharge and Maximum
Inpatient Reimbursement Liability) that have adversely
affected reimbursements. As discussed in the next paragraph,
the result of these continuing cuts is to increase the
provision for bad debts.
Operating costs and expenses were $27,928,000 compared to
$25,749,000 in 1995, an 8.5% increase. This increase, other
than the provision for bad debts, is mainly related to
increased labor costs and moderate inflation. In 1996, the
provision for bad debts increased 24% from 1995. The provision
for bad debts increases as third-party payors reduce the
amount they reimburse, as discussed in prior paragraph.
Increased use of outpatient services and the change in patient
mix also affects bad debt write offs.
The result in the reduction of third-party reimbursement,
causing increased bad debt write offs, was a $769,000 decrease
in income from operations. Net income, after investment
income, was $224,000 in 1996 compared to $593,000 in 1995.
Over the years, as the Company incurs more contractual
allowances and uncollectible accounts, results from operations
have suffered. The Company continues to enjoy good returns on
its investments to help maintain a net profit. For the current
year, sales of investments resulted in gains of $113,600 while
total investment income was $1,076,100. As discussed in Item
1, the Company continues to expand operations to maintain a
competitive edge in a continuing ever changing health care
environment. All construction projects, considered necessary
to maintain operations, will be completed without negative
impact on the financial statements.
The purpose of these projects is to keep the users of the
Hospital in their primary service area close to the Hospital
and medical staff members, thereby enhancing the Hospital's
inpatient service occupancy. By so doing, it is anticipated
that operations will improve, even though the continued burden
of government contractual agreements to provide health care,
sometimes below cost, is being further complicated by the
introduction of managed care contracts in the Humboldt County
area.
-10-
1996 continued
--------------
Liquidity and Capital Resources
-------------------------------
The Company's financial condition remains very strong with
substantial investments, strong liquidity and minimal debt.
The cash and liquid investments are being maintained to
subsidize Hospital operations, finance needed construction and
increased services at Mad River Community Hospital. Currently,
the Company has approximately $6,187,000 in cash and
short-term investments. As previously noted, some of these
investments, as determined by management, will be used to fund
needed expansion.
Cash provided by operating and investing activities continue
to fund investing activities, the largest of which is the
purchase of real estate, property and equipment, which totaled
$608,400 in 1996. As the long-term debt relates only to the
acquisition of major equipment, cash required for financing
activities remains relatively low.
As discussed in Item 1, government regulations, as well as
managed care contract agreements, may continue to negatively
impact operations. Management is unable to estimate any
potential negative impact of forthcoming laws or regulations.
Management believes that long-term key employees approve of
the working conditions at the Hospital and have proven their
ability to keep the Hospital staffed under difficult
conditions.
Inflation
---------
The inflation rate affecting costs has remained relatively
low, approximately 5%, over the last three years. This
moderate rate contributes to the Hospital's success in
maintaining a moderate increase in costs from year to year.
-11-
Item 8. Financial Statements and Supplementary Data
------ -------------------------------------------
FINANCIAL STATEMENTS
--------------------
Description Page
----------- ----
Independent Auditors' Report 14
Financial Statements:
Balance Sheets - June 30, 1997 and 1996 15-16
Statements of Income -
Years ended June 30, 1997, 1996 and 1995 17
Statements of Stockholders' Equity
Years ended June 30, 1997, 1996 and 1995 18
Statements of Cash Flows -
Years ended June 30, 1997, 1996 and 1995 19-20
Notes to Financial Statements 21-27
Item 14. Exhibits, Financial Statement, Schedules
and Reports on Form 8-K 33
-12-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Annual Report for Corporations - Form 10-K
Years ended June 30, 1997 and 1996
Financial Statements,
Supplementary Data and Auditors' Report
-13-
Independent Auditors' Report
----------------------------
The Board of Directors
American Hospital Management Corporation
We have audited the accompanying balance sheets of American Hospital
Management Corporation as of June 30, 1997 and 1996, and the related
statements of income, stockholders' equity, and cash flows and the
supporting financial statement schedules as listed in the accompanying
index at Item 14, for the years ended June 30, 1997, 1996 and 1995.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
and financial statement schedules are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American
Hospital Management Corporation at June 30, 1997 and 1996, and the
results of its operations and its cash flows for the years ended June
30, 1997, 1996 and 1995 in conformity with generally accepted
accounting principles, and the supporting financial statement schedules
as listed in the accompanying index at Item 14, when considered in
relation to the basic financial statements taken as a whole, in our
opinion, present fairly in all material respects, the information set
forth therein.
K.C. Miller, CPA
West Covina, California
September 26, 1997
-14-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Balance Sheets
June 30, 1997 and 1996
Assets
1997 1996
---- ----
Current assets:
Cash and cash equivalents ($425,000 held
as security for a letter of credit in 1997) $ 505,027 $ 925,843
Investments 5,933,303 5,260,968
Receivables:
Patients, net of estimated uncollectibles
of $285,055 and $202,650, in 1997
and 1996, respectively 6,046,298 6,231,306
Other 350,429 290,028
Supplies, at lower of cost
(first-in, first-out) or market 852,654 855,334
Prepaid expenses 108,207 84,981
------------ -------------
Total current assets 13,795,918 13,648,460
------------ -------------
Deferred income taxes 432,702 478,107
------------ -------------
Investments and other assets:
Real estate held for investment, at cost, net
of $307,476 and $268,071 accumulated
depreciation in 1997 and 1996, respectively 1,935,397 1,974,803
Investments in partnerships 87,429 87,086
Cash surrender value of life insurance 287,270 227,270
Other 113,275 146,216
------------ -------------
2,423,371 2,435,375
------------ -------------
Property and equipment, at cost:
Land and improvements 44,500 44,500
Buildings 4,233,728 4,233,728
Equipment 6,314,556 5,727,870
Construction in progress 158,879 --
------------ -------------
10,751,663 10,006,098
Less accumulated depreciation and
amortization 7,060,975 6,010,754
------------ -------------
3,690,688 3,995,344
------------ -------------
$20,342,679 $20,557,286
============ =============
(continued)
The accompanying notes are an integral part of these financial statements.
-15-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Balance Sheets (concluded)
June 30, 1997 and 1996
Liabilities and Stockholders' Equity
------------------------------------
1997 1996
---- ----
Current Liabilities:
Current maturities of long-term debt $ 177,981 $ 276,660
Accounts payable and accrued expenses:
Trade 973,944 562,306
Accrued liabilities 1,764,500 1,802,106
Estimated third-party payor settlements 721,754 1,823,149
Income taxes:
Current 30,502 --
Deferred 1,584,512 1,333,106
----------- -----------
Total current liabilities 5,253,193 5,797,327
----------- -----------
Long-term debt, less current maturities 28,951 126,921
----------- -----------
Stockholders' equity:
$2 cumulative preferred stock, par value
$1 per share; authorized 100,000 shares;
issued 65,270.82 shares; reacquired
16,937.28 and 14,421.08 shares; outstanding
48,333.54 and 50,849.74 shares; aggregate
redemption and liquidating value of $1,329,172
and $1,398,368 at June 30, 1997 and 1996,
respectively 48,334 50,850
Common stock, par value $1.00 per share;
authorized 400,000 shares, issued
249,051 shares, reacquired 20,994 and
15,838 shares; outstanding - 228,057 and
233,123 shares at June 30, 1997 and 1996,
respectively 228,057 233,213
Additional paid-in capital 194,427 296,210
Unrealized holdings gains, net, for investments 1,455,544 1,026,809
Retained earnings 13,134,173 13,025,956
---------- ----------
Total stockholders' equity 15,060,535 14,633,038
---------- ----------
$20,342,679 $20,557,286
========== ==========
The accompanying notes are an integral part of these financial statements.
-16-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Statements of Income
Years ended June 30, 1997, 1996, and 1995
1997 1996 1995
---- ---- ----
Net patient service revenue $ 25,883,197 $26,809,409 $25,364,285
Other revenue 456,549 417,075 453,126
------------ ------------- -------------
Total operating revenue 26,339,746 27,226,484 25,817,411
------------ ------------- -------------
Operating costs and expenses:
Professional care of patients 13,730,083 13,462,486 12,984,368
General services 2,588,394 2,734,438 2,426,633
Administrative services 3,388,734 2,989,859 2,759,002
Employee health and welfare 1,459,831 1,318,048 1,322,370
Medical malpractice insurance 382,619 406,630 430,435
Interest 48,775 76,290 97,401
Depreciation and amortization 1,050,221 1,135,152 1,059,902
Provision for bad debts 4,495,864 5,804,777 4,669,157
------------ ------------- -------------
Total operating costs and expenses 27,144,521 27,927,680 25,749,268
------------ ------------- -------------
(Loss) income from operations (804,775) (701,196) 68,143
------------ ------------- -------------
Other income:
Investment income 990,102 1,076,148 944,052
Other 36,418 31,019 9,974
------------ ------------- -------------
1,026,520 1,107,167 954,026
------------ ------------- -------------
Income before provision for income taxes 221,745 405,971 1,022,169
Provision for income taxes 21,157 182,156 428,827
------------ ------------- -------------
Net income $ 200,588 $ 223,815 $ 593,342
============= ============= =============
Primary earnings per share $ .45 $ .52 $ 2.06
============= ============= =============
Fully diluted earnings per share $ .62 $ .67 $ 1.75
============= ============= =============
The accompanying notes are an integral part of these financial statements.
-17-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Stockholders' Equity:
Cumulative Preferred Stock
Beginning balance $ 50,850 $ 51,623 $ 51,768
Reacquired stock 2,516 773 145
-------------- -------------- ---------------
Ending balance 48,334 50,850 51,623
-------------- -------------- ---------------
Common Stock
Beginning balance 233,213 236,479 238,579
Reacquired stock 5,156 3,266 2,100
-------------- -------------- ---------------
Ending balance 228,057 233,213 236,479
-------------- -------------- ---------------
Additional paid-in-capital
Beginning balance 296,210 340,912 356,150
Reacquired stock 101,783 44,702 15,238
-------------- -------------- ---------------
Ending balance 194,427 296,210 340,912
-------------- -------------- ---------------
Unrealized holdings gains, net, for investments
Beginning balance 1,026,809 551,933 0
Increase in unrealized holdings gains 428,735 474,876 551,933
-------------- -------------- ---------------
Ending balance 1,455,544 1,026,809 551,933
-------------- -------------- ---------------
Retained Earnings
Beginning balance 13,025,956 12,896,155 12,394,101
Net income 200,588 223,815 593,342
Cash dividends paid on preferred stock (92,371) (94,014) (91,288)
-------------- -------------- ---------------
Ending balance 13,134,173 13,025,956 12,896,155
-------------- -------------- ---------------
Total Stockholders' equity $15,060,535 $14,633,038 $14,077,102
============== ============== ===============
The accompanying notes are an integral part of these financial statements.
-18-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Statements of Cash Flows
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Cash received from patients
and third-party payors $20,927,495 $22,245,219 $20,398,950
Cash paid to employees and suppliers (21,256,175) (21,312,243) (19,638,638)
Investment income received 934,579 1,025,397 666,219
Interest paid ( 48,775) (76,290) (97,401)
Income taxes, net change 20,332 (412,073) (225,467)
------------- ------------ ------------
Net cash provided by
operating activities 577,456 1,470,010 1,103,663
------------- ------------ ------------
Cash flows from investing activities:
Purchase of real estate held for investment, net - (127,135) -
Distributions from partnerships - - 132,424
Purchase of property and equipment, net (706,159) (608,324) (844,109)
Proceeds from sale of short-term investments 2,433,022 2,381,529 1,983,228
Purchase of short-term investments (2,691,259) (2,356,870) (2,119,134)
Other (60,401) (110,286) (20,596)
------------- ------------ ------------
Net cash used in investing activities (1,024,797) (821,086) (868,187)
------------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 121,216 - 336,766
Principal reductions of long-term debt (317,865) (399,667) (395,166)
Dividends paid (92,371) (94,014) (91,288)
Payments for reacquired stock (109,455) (48,741) (17,483)
------------- ------------ ------------
Net cash used by financing activities (398,475) (542,422) (167,171)
------------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (845,816) 106,502 68,305
Cash and cash equivalents, beginning of year 925,843 819,341 751,036
------------- ------------ ------------
Cash and cash equivalents, end of year, unrestricted $ 80,027 $ 925,843 $ 819,341
============= ============ ============
Supplemental schedule of non-cash investing
activities:
Increase in fair value of investments $ 714,559 $ 791,459 $ 919,888
Increase in deferred taxes (285,824) (316,583) (367,955)
------------- ------------ ------------
Increase in unrealized holding gains $ 428,735 $ 474,876 $ 551,933
============= ============ ============
The accompanying notes are an integral part of these financial statements.
-19-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Statements of Cash Flows (concluded)
Years ended June 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 200,588 $ 223,815 $ 593,342
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,083,162 1,169,924 1,092,844
Partnership income (343) (2,957) (149,813)
Gain on sale of investments (124,539) (113,586) (170,936)
Increase in cash surrender value (60,000) (18,621) (21,924)
Change in assets and liabilities:
(Decrease) increase in patient receivables, net 185,008 (53,082) (385,725)
(Decrease) increase in third-party payors, net (1,101,395) 876,594 (363,579)
(Decrease) increase in income taxes, net 41,489 (229,917) 203,361
(Decrease) increase in supplies 2,680 31,842 (100,581)
Decrease in prepaid expenses (23,226) (19,295) (1,893)
(Increase) decrease in trade accounts payable 411,638 (576,265) 189,208
(Decrease) increase in accrued expenses, net (37,606) 181,558 219,359
----------- ------------ ------------
Net cash provided by operating activities $ 577,456 $ 1,470,010 $ 1,103,663
=========== ============ ============
The accompanying notes are an integral part of these financial statements.
-20-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements
June 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
Organization
------------
The Corporation owns and operates one acute-care hospital in the
Arcata, California area. It also operates other health-care related
enterprises in the same location. Most of the patients to whom the
hospital extends credit are residents of the area.
Net Patient Service Revenue
---------------------------
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services
rendered, including estimated retroactive adjustments under
reimbursement-party payors. Retroactive adjustments are accrued on an
estimated basis in the period the related services are rendered and
adjusted in future periods as final settlements are determined.
Statement of Revenue and Expenses
---------------------------------
Transactions deemed by management to be ongoing, major or central to
the provision of health care services are reported as revenues and
expenses. Peripheral or incidental transactions are reported as other
income, net.
Cash and Cash Equivalents
-------------------------
All cash and cash equivalents represent cash in checking and demand
savings accounts. Cash is held in several banks with no significant
concentration of risk.
Property and Equipment
----------------------
Property and equipment acquisitions are recorded at cost. Depreciation
is provided over the estimated useful life of each class of depreciable
asset and is computed on the straight-line method. Equipment under
capital leases is amortized on the straight-line method over the
shorter period of the lease term or the estimated useful life of the
equipment. Such amortization is included in depreciation and
amortization in the financial statements.
Income Taxes
------------
Deferred income taxes are provided for the estimated income tax effect
of temporary differences between financial and taxable income.
Investments in Partnership
--------------------------
Investment in a partnership is carried at the Company's equity in the
partnership's net assets. The partnership was organized in 1968 to
provide property sites for the hospital and medical centers. The two
general partners, the Company and its president, own 26% each. The
limited partners, consisting of local doctors, own the remaining 48%.
-21-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
Self-insurance Program
----------------------
The Hospital has elected to self-insure for health care benefits to its
employees. Amounts charged to expense and transferred monthly to a
trust fund to cover such claims are estimated using rates comparable to
actual rates in the industry. Management believes that amounts provided
are sufficient to cover claims and costs incurred through June 30,
1997. The rates used to determine the amounts charged to expense for
claims and costs are adjusted periodically, as appropriate, to reflect
actual experience. The Hospital has 100 percent insurance coverage for
individual claim expenses in excess of $45,000 and for aggregate claim
expenses in excess of $1,459,187.
Health care benefit expense was approximately $1,459,831, $1,318,048
and $1,322,370 for the years ended June 30, 1997, 1996 and 1995,
respectively.
Use of Estimates
----------------
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at year-end and the reported amounts of revenues and expenses during
the year. Actual results could differ from those estimates.
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties,
matters of judgment and, therefore, cannot be determined with
precision. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular instrument. Changes in assumptions could
significantly affect the estimates.
Since the fair value is estimated as of June 30, 1997, the amounts that
will actually be realized or paid at settlement of the instruments
could be significantly different.
The carrying amount of cash and cash equivalents is assumed to be the
fair value because of the liquidity of these instruments. Accounts
receivable, accounts payable and accrued expenses approximate fair
value because of the short maturity of these instruments. The recorded
balance of notes payable are assumed to be the fair value since the
rates specified in the notes approximate current market rates.
Reclassifications
-----------------
Certain accounts from prior years financial statements have been
reclassified to be comparable with disclosure for the current year.
-22-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
(2) Net Patient Service Revenue
---------------------------
The Hospital has agreements with third-party payors that provide for
payments to the Hospital at amounts different from its established
rates. A summary of the payment arrangements with major third-party
payors follows:
* Medicare. Inpatient acute care services rendered to Medicare
program beneficiaries are paid at prospectively determined
rates per discharge. These rates vary according to a patient
classification system that is based on clinical, diagnostic,
and other factors. Inpatient nonacute services, certain
outpatient services, and defined capital and medical education
costs related to Medicare beneficiaries are paid based on a
cost reimbursement methodology. The Hospital is reimbursed for
cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports
by the Hospital and audits thereof by the Medicare fiscal
intermediary. The Hospital's classification of patients under
the Medicare program and the appropriateness of their
admission are subject to an independent review by a peer
review organization under contract with the Hospital. The
Hospital's Medicare cost reports have been audited by the
Medicare fiscal intermediary through June 30, 1994.
* Medicaid. Inpatient and outpatient services rendered to
Medicaid program beneficiaries are reimbursed under a cost
reimbursement methodology. The Hospital is reimbursed at a
tentative rate with final settlement determined after
submission of annual cost reports by the Hospital and audits
thereof by the Medicaid fiscal intermediary. The Hospital's
Medicaid cost reports have been audited by the Medicaid fiscal
intermediary through June 30, 1995.
* Blue Cross. Inpatient services rendered to Blue Cross
subscribers are reimbursed at prospectively determined rates
per day of hospitalization. The prospectively determined
per-diem rates are not subject to retroactive adjustment.
The Hospital has also entered into payment agreements with certain
commercial insurance carriers, health maintenance organizations and
preferred provider organizations. The basis for payment to the Hospital
under these agreements includes prospectively determined rates per
discharge, discounts from established charges and prospectively
determined daily rates.
At June 30, 1997 and 1996, accounts receivable are primarily
concentrated in federal and state governmental entities and other
patients in which the Company does not believe there is any undue
credit risk.
(3) Investments
-----------
For the year ended June 30, 1995, the Company adopted Statement of
Financial Accounting Standard No. 115(SFAS 115), Accounting for Certain
Investments in Debt and Securities, SFAS 115 requires that securities,
which are available for sale, be recorded at their fair value.
Unrealized holding gains and losses are reported in a separate
component of stockholders' equity, net of tax effect, until realized.
The total amount recorded in stockholders' equity was $1,455,544 of
which $403,400 relates to the change in unrealized gain in securities
for the current year, net of the income tax effect.
-23-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
Short term investments at June 30, 1997 and 1996 consist of the
following:
1997 1996
---- ----
Equity securities:
Fair Value $5,933,303 $5,260,968
Unrealized Gain $2,466,856 $1,680,334
Unrealized Loss $ (40,950) $ (82,381)
Gain or loss from sale of securities is based on specific
identification of the securities sold. For the year ended June 30, 1997
and 1996, realized gains and realized losses were $327,314 and
$(202,775), and $170,507 and $(56,921), respectively.
(4) Capital Lease Obligations
-------------------------
A portion of the Hospital's equipment is leased under capital leases
that expire at various dates through 1999. Property and equipment, at
June 30, 1997 and 1996, respectively, includes the following amounts
for property leased under capital leases:
1997 1996
---- ----
Equipment $ 1,495,799 $1,374,581
Less accumulated amortization 1,061,888 774,850
--------- ----------
$ 433,911 $ 599,731
========== ==========
Amortization expense on capitalized leases for the years ended June 30,
1997, 1996 and 1995 totaled $287,038, $272,240 and $235,889,
respectively.
Annual future minimum lease payments under capitalized leases at June
30, 1997 are as follows:
1998 $ 189,736
1999 23,984
2000 6,940
---------
Total minimum lease payments 220,660
Less amount representing interest (5.5% to 10.75%) (13,728)
---------
Present value of minimum lease payments 206,932
Less current maturity 177,981
---------
$ 28,951
=========
-24-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
(5) Net Patient Service Revenue
---------------------------
Gross patient service revenue and related provision for contractual
allowances for the years ended June 30, are summarized as follows:
1997 1996 1995
---- ---- ----
Gross patient service revenue $41,030,222 $ 40,617,321 $39,002,465
Less contractual allowances 15,147,025 13,807,912 13,638,180
----------- ------------ -----------
Net patient service revenue $25,883,197 $ 26,809,409 $25,364,285
=========== ============ ===========
(6) Income Taxes
At June 30, income tax expense consisted of the following:
1997
------------------------------------
Federal California Total
------- ---------- -----
Current $ 48,502 $ 33,995 $ 82,497
Deferred (38,344) (22,996) (61,340)
--------- --------- ---------
$ 10,158 $ 10,999 $ 21,157
========= ========= =========
1996
------------------------------------
Federal California Total
------- ---------- -----
Current $139,977 $ 54,424 $194,401
Deferred (8,447) (3,798) (12,245)
-------- --------- ---------
$131,530 $ 50,626 $182,156
======== ========= =========
1995
------------------------------------
Federal California Total
------- ---------- -----
Current $141,990 $ 53,808 $195,798
Deferred 184,833 48,196 233,029
-------- -------- ---------
$326,823 $102,004 $428,827
======== ======== =========
Deferred tax expenses (credits) for 1997, 1996, and 1995 result from
the following temporary differences:
1997 1996 1995
---- ---- ----
California franchise tax $ 16,095 $ 19,494 $ 21,203
Depreciation and amortization (67,878) 26,532 38,112
Allowance for bad debts (35,681) (229) 189,582
Vacation accrual 33,937 (26,387) (8,464)
Other (7,813) (31,655) (7,404)
--------- --------- ----------
$ (61,340) $ (12,245) $233,029
========= ========= ==========
-25-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, continued
In addition, deferred tax liability is recorded in the balance sheet,
resulting from the change in unrealized holdings for investments. The
increase in deferred income taxes for the years ended June 30, 1997 and
1996 was $235,471 and $270,219, respectively.
Recorded income tax expense differs from that computed by applying the
statutory income tax rates for the following reasons:
1997 1996 1995
---- ---- ----
Computed tax at statutory rate $ 95,866 $ 175,785 $ 442,600
Increases (decreases) resulting from:
California franchise tax (5,691) (13,671) (32,548)
Domestic dividend exclusion
allowance (37,056) (24,661) (25,466)
Cash surrender value (22,260) 8,063 4,620
Prior year (over) under accrual ( 9,702) 36,640 39,621
--------- ---------- ---------
$ 21,157 $ 182,156 $ 428,827
========= ========== =========
(7) Preferred Stock
---------------
The preferred stock provides for cumulative dividends of $2 per share
per year. The stock has a redemption and liquidating value of $27.50
per share, plus dividends in arrears. Total redemption and liquidating
value of the outstanding shares at June 30, 1997 and 1996, was
$1,329,172 and $1,398,368, respectively. In the event of redemption,
two shares of common stock can be issued for each share of preferred
stock redeemed (if option is exercised by preferred stockholder).
Redemption of the preferred stock, in total only, is at the option of
the Company.
(8) Income per Common Share
-----------------------
Income per common share, assuming no dilution, was computed by dividing
the net income after deduction of preferred stock dividend requirements
of $96,667, $101,699 and $103,247, by the weighted average number of
common shares outstanding (230,635, 234,846 and 237,846) for 1997, 1996
and 1995, respectively. Income per common share, assuming full
dilution, was computed by dividing net income by the weighted average
number of common shares outstanding, after redemption of preferred
stock, (324,724, 334,912, 339,726) for 1997, 1996 and 1995,
respectively. (Note 7)
-26-
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Notes to Financial Statements, concluded
(9) Malpractice Insurance Arrangements
----------------------------------
The Hospital maintains medical malpractice insurance coverage through a
commercial insurance carrier on a claims-made basis. Under claims-made
policies, all accidents reported to the insurer are covered. On the
basis of the Hospital's current experience, neither an accrual for a
potential extended period reporting policy, which could be necessary if
the Hospital ceases to purchase claims-made coverage, nor an accrual
for unreported incidents has been made.
(10) 401(k) Plan
-----------
The Plan is a defined contribution plan to which all employees are
permitted to make salary deferrals under the 401(k) provision. Such
contributions are credited directly to their accounts. Based on the
Plan document, the Employer can make discretionary contributions for
the participants. No contribution was made for any of the three years
ended June 30, 1997.
-27-
Item 9. Changes in and disagreements with accountants on
- ------ Accounting and Financial Disclosure
-----------------------------------
None.
-28-
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
Name and principal occupation
during last five years Since Age Office Occupation
- ----------------------------- ----- --- ------ ----------
Lawrence V. Blashaw 1970 71 Director President of
Freight For-
warding Co.
Charles F. Forbes, Attorney 1968 67 Secretary & Attorney
Musick, Peeler & Garrett Director
Allen E. Shaw, President 1960 79 President & President of
of the Company Director Company
Douglas A. Shaw, Vice President 1981 46 Vice President Hospital
(son of president) & Director Administrator
Richard J. Stanczak 1977 71 Director Business
Business Consultant Consultant
Michael Young, Controller 1978 49 Treasurer Hospital
Administrator Controller
Scott L. Holmes, M.D. 1988 60 Director Physician
Donald J. Krpan, D.O. 1988 61 Director Dean of
Students
College of
Medicine
-29-
Item 11. Executive Compensation
- ------- ----------------------
The following table sets forth the aggregate direct
remuneration paid or accrued by the Company for services in
all capacities for the fiscal year ended June 30, 1997, to
each director and officer of the Company whose aggregate
direct remuneration exceeded $100,000 and to all directors and
officers (as a group) who were such at any time during the
last fiscal year.
Cash and cash equivalent
forms of remuneration
------------------------
Name of individual Salaries, fees,
or number of Capacities in which directors' fees
persons in group remuneration was received and bonuses
- ------------------ ------------------------- ---------------
Allen E. Shaw President and Chairman of $100,000
the Board
Douglas A. Shaw Vice President, Administrator 52,000
Michael Young Treasurer and Controller of 65,968
Mad River Community Hospital
All other directors
and officers as a
group (5 persons) 7,100
---------
(8 persons) $225,068
=========
Note: There was no contractual agreement with any directors regarding
compensation, pensions or stock options. Directors, from time to time,
are compensated for attendance at meetings for their general
administrative duties although there is no required payment. Total
director compensation for 1997 was $7,100. There have not been any
payments made to officers or directors for severance of relationship.
-30-
Item 12. Security Ownership of Certain
- ------- Beneficial Owners and Management
--------------------------------
Owners of 5% or more of outstanding voting securities at June
30, 1997, were as follows:
Amount and
nature of
Title of beneficial Percent
Name of beneficial owner class ownership of class
- ------------------------ -------- ---------- --------
Allen E. Shaw Family Common 118,079 51.78%
San Clemente, California Preferred 1,970 4.08%
Arcata Hospital Corporation* Common 20,898 9.16%
Palos Verdes Estates, California Preferred 11,481 23.75%
Security ownership of management as a group
- -------------------------------------------
All directors and officers as Common 120,579 52.87%
a group
All directors and officers Preferred 1,970 4.08%
a group
Security ownership of management is as follows:
Number of shares
----------------
Name Common Preferred
---- ------ ---------
Lawrence V. Blashaw 2,500 --
Allen E. Shaw Family 118,079 1,970
-------- --------
120,579 1,970
======== ========
* Arcata Hospital Corporation is 98% owned by shareholders of the Company.
-31-
Item 13. Certain Relations and
- ------- Related Transactions
---------------------
None.
-32-
PART IV
Item 14. Exhibits, Financial Statement
- ------- Schedules, and Reports on Form 8-K
----------------------------------
Page
- ----
(a) (1) The following financial statements are included in
Part II, Item 8:
Report of Independent Auditors'
Financial Statements:
Balance Sheets
June 30, 1997 and 1996
Statements of Income and Retained Earnings Years
ended June 30, 1997, 1996 and 1995
Statements of Cash Flows -
Years ended June 30, 1997, 1996 and 1995
Notes to Financial Statements
(2) The following financial schedules for the Years 1997, 1996 and
1995 are submitted herewith:
Schedule II - Valuation and Qualifying Accounts
Schedule III - Real Estate and Accumulated
Depreciation
All other schedules are omitted because they are not
applicable or not required, or because the required
information is included in the financial statements
or notes hereto.
(3) Exhibits included herein:
None
(b) Registrant did not file any reports on Form 8-K during the
quarter ended June 30, 1997
-33-
Schedule II
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Valuation and Qualifying Accounts
Years ended June 30, 1997, 1996 and 1995
Balance, Charged Charged Balance,
beginning to to other end
of year income accounts Deductions of year
--------- ------- -------- ---------- --------
Allowance for
doubtful receivables:
1997 $ 202,650 $4,495,864 $4,413,459 $ 285,055
1996 217,709 5,804,777 5,819,836 202,650
1995 655,845 4,669,157 5,107,293 217,709
-34-
Schedule III
AMERICAN HOSPITAL MANAGEMENT CORPORATION
Real Estate and Accumulated Depreciation
Years ended June 30, 1997, 1996 and 1995
Related Accumulated Useful
Description debt Land Buildings Total Depreciation Life
------------------------------------------------------------------------------------------------------
Rental property None $440,554 $970,130 $1,410,684 $307,476 25
Investment None 832,189 832,189
--------------------------------------------------
$1,272,743 $970,130 $2,242,873 $307,476
==================================================
Balance at June 30, 1995 $ 2,115,739
Purchases during period 127,135
-----------
Balance at June 30, 1996 and 1997 $ 2,242,874
===========
Balance at June 30, 1995 $ 228,666
Depreciation during period 39,405
-----------
Balance at June 30, 1996 268,071
Depreciation during period 39,405
-----------
Balance at June 30, 1997 $ 307,476
===========
-35-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized:
AMERICAN HOSPITAL MANAGEMENT CORPORATION
By: /s/ Allen E. Shaw
----------------------------------------
Allen E. Shaw, President
Date: April 13, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the principal Executive Officer, principal Financial
Officer, Secretary and majority of Board Members on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/ Allen E. Shaw
- ------------------------ President and Director April 13, 1998
Allen E. Shaw
/s/ Charles F. Forbes
- ------------------------ Secretary and Director April 13, 1998
Charles F. Forbes
/s/ Michael J. Young
- ------------------------ Treasurer and Chief
Michael J. Young Accounting Officer April 13, 1998
/s/ Donald J. Krpan
- ------------------------ Director April 13, 1998
Donald J. Krpan
/s/ Doug Shaw
- ------------------------ Director April 13, 1998
Doug Shaw