01—Abstract
Summary
Summary of the 10-K/A filed January 18, 1995. 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 Amendment No. 1 to its Form 10-K for the fiscal year ended May 31, 1994.
The amendment's sole purpose is to revise the Report of Independent Auditors in Exhibit 13 (the 1994 Annual Report to Shareholders), which originally failed to refer to a change in accounting policy adopted during fiscal 1994 (the adoption of SFAS No. 109 on income taxes, which produced a $60 milliona cumulative-effect gain). The annual report describes a year of major transition: the company settled its most significant legal matters, including a $362.7 million federal settlement, a $16.3 million settlement with 27 states and the District of Columbia, and insurance litigation settlements, and it has refocused on general hospitals after discontinuing its psychiatric business. Financially, fiscal 1994 net operating revenues were $2,967 million, down from $3,191 million, largely due to the sale of rehabilitation hospitals.
Income from continuing operations was $216 millionb, or $1.23 per fully diluted share, compared with $1.49 in fiscal 1993. The psychiatric discontinued operations produced a loss of $701 million, resulting in a net loss of $425 million, or $(2.54) per share. Total debt fell to $834 million from $1,177 million, and the total debt-to-equity ratio improved to 0.63:1 from 0.67:1.
Working capital was a deficit of $196 millionc, reflecting a $424 million increase in the current portion of long-term debt, most of which matures in April 1995. Investors should note that the company suspended its common dividend in October 1993, that the company reported no unused committed revolving credit availability, and that it was seeking new lines of credit to refinance the debt maturing in April 1995. Management also reported reserves of approximately $81 million for remaining legal proceedings, while acknowledging that the ultimate liability could exceed these estimates.
02—Key points
Key Highlights
- Net loss of $425 million, or $(2.54) per share, for fiscal 1994, driven by a $701 million loss from discontinued psychiatric operations
- Income from continuing operations of $216 million, or $1.23 per fully diluted share, versus $1.49 in fiscal 1993
- Net operating revenues declined to $2,967 million from $3,191 million, reflecting the sale of rehabilitation hospitals
- Total debt reduced to $834 million from $1,177 million; total debt-to-equity improved to 0.63:1 from 0.67:1
- Working capital deficit of $196 million, mainly due to a $424 million increase in the current portion of long-term debt maturing April 1995
- Federal government investigations concluded with a $362.7 million settlement; states settled for $16.3 million
- Quarterly common dividend suspended in October 1993; cash dividends were $0.12 per share in 1994 versus $0.48 in 1993
03—Questions
Frequently Asked Questions
Why did the company report a net loss in fiscal 1994 after earning a profit in fiscal 1993?
The net loss of $425 million resulted mainly from a $701 million loss from discontinued operations tied to the psychiatric hospital business, which the company decided to discontinue in November 1993. This loss included settlement costs for federal and state investigations, phase-out operating losses, and asset write-downs. Income from continuing operations remained positive at $216 million.
What was the purpose of this 10-K/A amendment?
Amendment No. 1 revises the Report of Independent Auditors contained in Exhibit 13. The original report did not refer to a change in accounting policy adopted during fiscal 1994, namely the adoption of SFAS No. 109, Accounting for Income Taxes, effective June 1, 1993. The financial statements themselves were not changed by this amendment.
What are the company's main liquidity concerns?
At May 31, 1994, the company had a working capital deficit of $196 million. Its current portion of long-term debt rose to $545 million, most of which matures in April 1995. The company had no unused revolving credit availability under its new $464.7 million agreement, and it was in discussions with several banks to establish new credit lines to repay the maturing debt. Cash and cash equivalents were $313 million at year-end.
How much did the company pay to resolve its legal problems?
The company agreed to pay a total of $362.7 million to conclude federal investigations, including $324.2 million in civil restitution and penalties and $34 million in criminal fines. It also agreed in principle to pay $16.3 million to 27 states and the District of Columbia. Insurance litigation settlements totaled $214.9 million. Management reported remaining reserves of approximately $81 million for unsettled legal proceedings, but noted the ultimate liability could exceed these estimates.
Is the company likely to resume paying common dividends?
The filing does not state a plan to resume dividends. The board suspended payment of quarterly dividends in October 1993 to conserve cash for legal settlements and to give the company flexibility to refocus on its general hospital business. Cash dividends paid were $0.12 per share in fiscal 1994, compared with $0.48 in fiscal 1993.
04—Continue