Why did NME report a net loss in fiscal 1994?

The net loss of $425 million stems mainly from a $701 million after-tax loss from discontinued psychiatric hospital operations. That loss includes settlement costs for federal and state investigations, phase-out operating losses, and asset write-downs to net realizable value. The loss was partly offset by a $60 million cumulative effect of a change in accounting for income taxes.

What legal matters remain unresolved?

Reserves of approximately $81 million cover remaining legal proceedings not yet settled, of which $69 million is expected to be paid within one year. Two shareholder class actions are in voluntary mediation, and the Heckendorn and Bedrosian employment suits are pending. Psychiatric patient fraud and conspiracy cases continue, and additional similar suits are expected.

What is the company's strategic direction after the divestitures?

NME is focusing on its core general hospital business in the United States and overseas. It has divested most rehabilitation hospitals and is disposing of its psychiatric facilities, retaining four campus psychiatric facilities. Management is pursuing managed care contracts, physician-hospital alliances, and international expansion, including the Bumrungrad Hospital in Bangkok expected to open in June 1996.

How is the company's liquidity position?

Cash and cash equivalents rose to $313 million at May 31, 1994. The company had no unused revolving credit availability under its $464.7 million secured credit agreement, which matures April 12, 1995. Management said it was in discussions with several banks for new lines of credit to repay the current portion of long-term debt, and it believes such lines will be available if needed.

THC 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed August 26, 1994. Cited figures are marked; the original filing is the authoritative source.

National Medical Enterprises, Inc. (NME), a Nevada corporation headquartered in Santa Monica, California, filed this annual report for the fiscal year ended May 31, 1994.

The year was dominated by resolving legal and regulatory matters: NME settled federal investigations for $362.7 million^a, agreed in principle to pay $16.3 million to 27 states and the District of Columbia, and settled insurance litigation with payments of $125 million and $89.9 million. The company decided in November 1993 to discontinue its psychiatric hospital business, which produced a discontinued-operations loss of $701 million for the year. Net loss for fiscal 1994 was $425 million, compared with net income of $160 million in fiscal 1993.

Continuing operations were refocused on general hospitals. Income from continuing operations was $216 million^b, or $1.23 per fully diluted share, versus $264 million and $1.49 in fiscal 1993. Net operating revenues fell to $2.967 billion from $3.191 billion as 28 rehabilitation hospitals were sold to HEALTHSOUTH for approximately $350 million.

The company reported 33 domestic and 13 international general hospitals, and a $77 million^c restructuring reserve was recorded in the fourth quarter. Total debt was reduced to $834 million, and the debt-to-equity ratio improved to 0.63:1 from 0.67:1. Working capital was negative at ($196) million, driven by a $424 million increase in the current portion of long-term debt, most of which matures in April 1995.

Investors should weigh the remaining exposures as well as the progress. Reserves for unsettled litigation total approximately $81 million^d, shareholder class actions are in mediation, and the company suspended its common dividend in October 1993.

Its Hillhaven relationship was restructured, and its stake in Hillhaven now totals about 32.9% of common stock. A planned sale of the Santa Monica headquarters and the pending Charter Medical sales of psychiatric facilities, which face FTC review, remain open items.

02—Key points

Key Highlights

Net loss of $425 million for fiscal 1994, compared with net income of $160 million in fiscal 1993, driven mainly by a $701 million loss from discontinued psychiatric operations.
Income from continuing operations was $216 million, or $1.23 per fully diluted share, versus $264 million, or $1.49, in fiscal 1993.
Settled federal government investigations for $362.7 million and agreed in principle to pay $16.3 million to 27 states and the District of Columbia.
Net operating revenues from continuing operations declined to $2.967 billion from $3.191 billion, reflecting the sale of 28 rehabilitation hospitals to HEALTHSOUTH for approximately $350 million.
Total debt was reduced to $834 million, and the total debt-to-equity ratio improved to 0.63:1 from 0.67:1.
Working capital was ($196) million at May 31, 1994, reflecting a $424 million increase in current portion of long-term debt, most of which matures in April 1995.
Stock price rose from 9-1/2 to 16-3/8 during fiscal 1994, and the common dividend was suspended in October 1993.

03—Questions

Frequently Asked Questions

Why did NME report a net loss in fiscal 1994?
The net loss of $425 million stems mainly from a $701 million after-tax loss from discontinued psychiatric hospital operations. That loss includes settlement costs for federal and state investigations, phase-out operating losses, and asset write-downs to net realizable value. The loss was partly offset by a $60 million cumulative effect of a change in accounting for income taxes.
What legal matters remain unresolved?
Reserves of approximately $81 million cover remaining legal proceedings not yet settled, of which $69 million is expected to be paid within one year. Two shareholder class actions are in voluntary mediation, and the Heckendorn and Bedrosian employment suits are pending. Psychiatric patient fraud and conspiracy cases continue, and additional similar suits are expected.
What is the company's strategic direction after the divestitures?
NME is focusing on its core general hospital business in the United States and overseas. It has divested most rehabilitation hospitals and is disposing of its psychiatric facilities, retaining four campus psychiatric facilities. Management is pursuing managed care contracts, physician-hospital alliances, and international expansion, including the Bumrungrad Hospital in Bangkok expected to open in June 1996.
How is the company's liquidity position?
Cash and cash equivalents rose to $313 million at May 31, 1994. The company had no unused revolving credit availability under its $464.7 million secured credit agreement, which matures April 12, 1995. Management said it was in discussions with several banks for new lines of credit to repay the current portion of long-term debt, and it believes such lines will be available if needed.

04—Continue

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