UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-11591
OrNda HealthCorp
(Exact name of registrant as specified in its charter)
DELAWARE 75-1776092
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3401 West End Avenue, Suite 700
Nashville, Tennessee
(Address of principal executive offices)
37203-1042
(Zip Code)
Registrant's telephone number, including area code: 615-383-8599
------------
Former name, former address and former fiscal year, if changed since last
report: None
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[x] No[ ]
Number of shares of common stock ($.01 par value) outstanding as of
December 31, 1996: 60,147,865
<PAGE>
ORNDA HEALTHCORP
FORM 10-Q
November 30, 1996
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the Three
Months Ended November 30, 1995 and 1996.......................3
Consolidated Balance Sheets as of August 31, 1996
and November 30, 1996.........................................4
Consolidated Statements of Cash Flows for the Three
Months Ended November 30, 1995 and 1996.......................5
Notes to Consolidated Financial Statements....................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................16
Item 6. Exhibits and Reports on Form 8-K....................................17
SIGNATURE....................................................................18
EXHIBIT 10(a)
EXHIBIT 11
EXHIBIT 27
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
<TABLE>
Three Months Ended November 30,
-------------------------------
1995 1996
--------------- --------------
<S> <C> <C> <C>
Total Revenue $ 493,565 $ 637,091
Costs and Expenses:
Salaries and benefits 210,365 291,799
Supplies 64,890 87,884
Purchased services 52,219 56,971
Provision for doubtful accounts 33,207 32,711
Other operating expenses 59,953 66,552
Depreciation and amortization 23,461 31,704
Interest expense 27,186 30,558
Interest income (1,154) (1,179)
Minority interest 1,353 2,335
---------------- ----------------
22,085 37,756
Income from investments in Houston
Northwest Medical Center 3,784 --
---------------- ----------------
Income before income tax expense 25,869 37,756
Income tax expense 5,950 11,327
---------------- ----------------
Net income 19,919 26,429
Preferred stock dividend requirements (332) --
---------------- ----------------
Net income applicable to common shares $ 19,587 $ 26,429
================ ================
Net income per common and common
equivalent share $ 0.40 $ 0.44
================ ================
Net income per common share
assuming full dilution $ 0.39 $ 0.44
================ ================
Weighted average common and dilutive
common equivalent shares outstanding 49,519 60,509
================ ================
Weighted average common shares outstanding
assuming full dilution 50,763 60,617
================ ================
</TABLE>
3
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<TABLE>
August 31, November 30,
---------- ------------
1996 1996
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 17,435 $ 10,506
Patient accounts receivable, net of allowance
for uncollectible accounts of $78,447 at August 31,
1996 and $77,747 at November 30, 1996 379,874 415,640
Supplies, at cost 42,168 44,982
Other 86,338 88,102
---------- ----------
Total Current Assets 525,815 559,230
Property, Plant and Equipment, at cost:
Land 152,449 153,422
Buildings and improvements 1,062,953 1,110,272
Equipment and fixtures 490,498 510,402
---------- ----------
1,705,900 1,774,096
Less accumulated depreciation and amortization 370,707 394,857
---------- ----------
1,335,193 1,379,239
Excess of Purchase Price Over Net Assets Acquired,
net of accumulated amortization 497,806 501,716
Other Assets 107,714 172,057
---------- ----------
$2,466,528 $2,612,242
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 68,403 $ 155,688
Accrued expenses and other liabilities 209,525 228,562
Current maturities of long-term debt 59,750 36,864
---------- ----------
Total Current Liabilities 437,678 421,114
Long-term Debt 1,229,930 1,334,861
Other Liabilities 158,503 182,038
Shareholders' Equity:
Common stock, $.01 par value
authorized 200,000,000 shares, issued and
outstanding 58,250,996 shares at August 31, 1996
and 58,432,525 shares at November 30, 1996 583 584
Additional paid-in capital 633,983 641,365
Retained earnings 5,851 32,280
------------ ----------
640,417 674,229
------------ ----------
$ 2,466,528 $2,612,242
============ ==========
</TABLE>
4
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
Three Months Ended November 30,
-------------------------------
1995 1996
------ ------
<S> <C> <C>
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 19,919 $ 26,429
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash portion of income from investments in
Houston Northwest Medical Center (3,160) --
Depreciation and amortization 23,461 31,704
Provision for doubtful accounts 33,207 32,711
Changes in assets and liabilities net of effects from
acquisitions and dispositions of hospitals:
Patient accounts receivable (45,946) (46,908)
Other current assets (10,040) 9,404
Other assets 457 376
Accounts payable, accrued expenses
and other current liabilities (53,739) (22,758)
Other liabilities 11,702 1,342
Proceeds from sales of trading investment security 19,115 --
---------- ----------
Net cash provided by (used in) operating activities (5,024) 32,300
---------- ----------
CASH FLOW USED IN INVESTING ACTIVITIES:
Acquisitions of hospitals and related assets (29,825) (81,973)
Capital expenditures (14,096) (26,147)
Issuance of notes receivable (7,606) (1,578)
Payments received on long-term notes and other receivables 3,297 1,123
Other investing activities 1,545 (2,269)
---------- ----------
Net cash used in investing activities (46,685) (110,844)
---------- ----------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of common stock 193,011 3,046
Principal payments on long-term debt borrowings (37,636) (72,706)
Proceeds received on long-term debt borrowings 15,003 145,000
Financing costs incurred in connection with long-term borrowings (3,744) (2,045)
Other (72) (1,680)
---------- ----------
Net cash provided by financing activities 166,562 71,615
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 114,853 (6,929)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,963 17,435
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 119,816 $ 10,506
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 36,362 $ 38,694
Income taxes 21,793 11,922
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Preferred stock dividends 332 --
Capital lease obligations incurred -- 69
Exchange of minority ownership in hospitals for minority
interest ownership in physician practices 9,400 --
</TABLE>
5
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 1996
NOTE 1 - REPORTING ENTITY
OrNda HealthCorp ("Company"), which is incorporated in the State
of Delaware, is a provider of health care services through the operation of
general acute care hospitals located primarily in the southern and western
United States. Of the 49 general acute care hospitals and one psychiatric
hospital operated by the Company at November 30, 1996, 19 hospitals are located
in California of which 16 hospitals are located in the southern California area.
In addition, 4 hospitals are located in southern Florida and 6 hospitals are
located in Arizona. The concentration of hospitals in California, southern
Florida and Arizona increases the risk that any adverse economic, regulatory or
other developments that may occur in such areas may adversely affect the
Company's operations or financial condition.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying unaudited consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for fair presentation have been included.
Certain prior year amounts have been reclassified to conform to the current year
presentation. Operating results for the three months ended November 30, 1996,
are not necessarily indicative of the results that may be expected for the
entire year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended August 31, 1996.
Earnings Per Share. Earnings per common and common equivalent share is
based on the Company's weighted average number of shares of common stock
outstanding during the period adjusted to give effect to dilutive stock options
and warrants using the treasury stock method. The dilutive effect of stock
options and warrants was 1.4 million and 2.1 million equivalent shares for the
three months ended November 30, 1995 and 1996, respectively. Earnings per common
share assuming full dilution for the three months ended November 30, 1995,
assumes the conversion of the Company's redeemable convertible preferred stock
into common shares.
Accounting for the Impairment of Long Lived Assets and for Long-Lived
Assets to Be Disposed Of. Effective September 1, 1996, the Company adopted
Financial Accounting Standards No. 121 " Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", (SFAS No. 121).
The effect of adoption was not material to the Company's operations or financial
condition.
NOTE 3 - LONG-TERM DEBT
On November 26, 1996, the Company executed an amendment to its credit
agreement (the "Credit Facility") which increased the borrowing capacity under
the revolving commitment from $440.0 million to $773.8 million bringing the
total credit facility to $1.2 billion. As of November 30, 1996, $767.3 million
was outstanding under the Credit Facility, and commitment availability had been
reduced by $25.3 million as a result of issued letters of credit. The amendment
also postponed the next three quarterly principal payments of the term loan
facility. The Credit Facility still matures on October 30, 2001.
6
<PAGE>
Loans under the Credit Facility bear interest, at the option of the
Company, at a rate equal to either (i) the "alternate base rate" or (ii) LIBOR
plus 1.0%, in each case subject to potential decreases or increases dependent on
the Company's leverage ratio. Interest is payable quarterly if a rate based on
the alternate base rate is elected or at the end of the LIBOR period (but in any
event not to exceed 90 days) if a rate based on LIBOR is elected. The weighted
average interest rate on the Company's borrowings under the Senior Credit
Facilities at November 30, 1996, was 6.4%.
In certain circumstances, the Company is required to make principal
prepayments on the Credit Facility, including the receipt of proceeds from the
issuance of additional subordinated indebtedness, certain asset sale proceeds
not used to acquire additional assets within a specified period, and 50% of the
proceeds in excess of $50 million from the issuance of additional equity not
used to acquire additional assets, fund capital expenditures or repay
subordinated debt within one year. The Company may prepay at any time all or
part of the outstanding Credit Facility without penalty.
The Credit Facility limits, under certain circumstances, the Company's
ability to incur additional indebtedness, sell material assets, acquire the
capital stock or assets of another business, or pay dividends. The Credit
Facility also requires the Company to maintain a specified net worth and meet or
exceed certain coverage, leverage, and indebtedness ratios. Indebtedness under
the Credit Facility is secured by a perfected, first priority security interest
in the stock of all existing and future subsidiaries of the Company,
intercompany notes of indebtedness, majority-owned partnerships and certain
specified investments.
NOTE 4 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). Under SFAS No. 109, an asset and liability approach for financial
accounting and reporting for income taxes is required.
The 1994 merger with AHM caused an "ownership change" within the meaning
of Section 382(g) of the Internal Revenue Code for both OrNda and AHM.
Consequently, allowable federal deductions relating to NOL's of OrNda and AHM
arising in periods prior to the AHM Merger are thereafter subject to annual
limitations of approximately $19 million and $16 million for OrNda and AHM,
respectively. In addition, approximately $55 million of the NOL's are subject to
an annual limitation of approximately $3 million due to prior "ownership
changes" of OrNda. The annual limitations may be increased in order to offset
certain built-in gains which are recognized during the five year period
following an ownership change. In addition, the NOL's from pre-merger tax years
of AHM may only be applied against the prospective taxable income of the AHM
entities. The limitations described above are not currently expected to
significantly affect the ability of the Company to ultimately recognize the
benefit of these NOL's in future years.
The Company's federal income tax returns are not presently under audit by
the Internal Revenue Service (the "IRS"), except in respect to Summit as
disclosed below. Furthermore, the Company's federal income tax returns for
taxable years through August 31, 1991 are no longer subject to IRS audit, except
for net operating loss and credit carry forwards for income tax purposes from
prior years which may be subject to IRS audit as net operating loss and credit
carry forwards are utilized in subsequent tax years. Also, Summit Health has
extended the statute of limitations for fiscal years 1987 to 1992 through March
31, 1997.
In recent years the IRS was examining the federal income tax returns for
fiscal years 1984, 1985 and 1986 of Summit Health, which became a wholly-owned
subsidiary of the Company in April 1994 and merged into the Company in September
1994. Summit Health received a revenue agent's report from the IRS with proposed
adjustments for the years 1984 through 1986 aggregating as of August 31, 1996
approximately $16.6 million of income tax, $66.4 million of interest on the tax,
$43.9 million of penalties and $25.6 million of interest on the penalties. After
receiving the revenue agent's report, Summit Health filed a protest contesting
the proposed adjustments. On October 28, 1996, the Company entered into a
Closing Agreement on Final Determination with the IRS for the above audit
period, by agreeing and paying additional tax of $647,000 and interest of
$888,000 to close the audit of Summit Health for the fiscal years 1984 through
1986.
7
<PAGE>
NOTE 5 - ACQUISITIONS
Effective September 1, 1996, the Company completed the acquisition of The
Fallon Healthcare System's Saint Vincent Healthcare System, located in
Worcester, Massachusetts ("St. Vincent's"), consisting of a 432-bed acute care
teaching hospital, three skilled nursing facilities and other health related
companies, and a minority interest in the 280- member multi-specialty group
physician practice, The Fallon Clinic. The Company has committed to fund the
construction, estimated at $225.0 million, of a new replacement hospital, known
as Medical City.
On December 23, 1996, the Company completed its acquisition of
substantially all of the assets of United Western Medical Centers, a
not-for-profit corporation headquartered in Santa Ana, California ("UWMC"),
which consists primarily of Western Medical Center, a 288-bed acute care
hospital in Santa Ana, California; Western Medical Center-Anaheim, a 193-bed
acute care hospital in Anaheim, California; and Western Medical Center-Bartlett,
a 202-bed skilled nursing facility in Santa Ana, California. UWMC has
approximately $185 million in annual net revenues in its most recent fiscal
year.
The following proforma information reflects the fiscal 1996 acquisitions,
the St. Vincent's and UWMC acquisitions and the November 1995 offering of common
stock as if they occurred on September 1, 1995 and 1996 (in thousands, except
per share data):
<TABLE>
1995 1996
----------- -----------
<S> <C> <C>
Total revenue $ 677,766 $ 683,165
Net income 21,106 26,460
Net income applicable to
common shares 20,774 26,460
Net income per common share $ 0.36 $ 0.44
</TABLE>
NOTE 6 - PROPOSED MERGER WITH TENET
On October 16, 1996, the Company entered into a definitive agreement to
merge with Tenet Healthcare Corporation ("Tenet"). Under the terms of the
definitive agreement, which was unanimously approved by the Board of Directors
of both companies, shareholders of OrNda common stock would receive 1.35 shares
of Tenet common stock and the associated preferred stock purchase rights for
each share of OrNda common stock. The merger transaction will be tax-free and
accounted for as a pooling of interests and is expected to close in January 1997
pending receipt of shareholder and government approvals. Both OrNda and Tenet
have announced special shareholder meetings for January 28, 1997, for
shareholder approval of the proposed merger.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company continually evaluates contingencies based upon the best
available information. Final determination of amounts earned from certain
third-party payors is subject to review by appropriate governmental authorities
or their agents. In the opinion of management, adequate provision has been made
for any adjustments that may result from such reviews.
Broad provisions in the Medicare and Medicaid laws deal with fraud and
abuse, false claims and physician self- referrals as well as similar provisions
in many state laws. In recent years, government investigations of alleged
violations of these laws have become common place in the health care industry.
In February 1996, the Company's Midway Hospital Medical Center ("Midway")
in Los Angeles, California, which was acquired when the Company acquired
Summit Health Ltd. ("Summit Health") in April 1994, received an
8
<PAGE>
investigative subpoena from the Office of the Inspector General of the United
States Department of Health and Human Services (the "OIG"). The subpoena states
that it was issued in connection with an investigation being conducted by the
OIG concerning possible violations of Medicare rules and regulations (the "OIG
Investigation"). The Company believes that the basis for the investigative
subpoena from the OIG that was served on Midway was a civil qui tam action that
had been filed in July 1995 against Midway Hospital Medical Center, Inc. (a
subsidiary of the Company which owns Midway), Summit Health and the Company in
the United States District Court for the Central District of California (the
"California Action"). The California Action originally was filed under a
court-ordered seal that prohibited the Company from disclosing the action prior
to this time.
The California Action alleges, among other things, that there were
violations of the federal False Claims Act and the federal fraud and abuse and
anti-kickback provisions of the Medicare and Medicaid laws in connection with
certain of Midway's compensation arrangements with its physicians. The
California Action alleges that as a result of this allegedly wrongful conduct,
the United States is entitled to monetary damages and penalties. The California
Action also alleges in a second cause of action violations of the fraud and
abuse, medical staff and wrongful discharge laws of the State of California and
claims as a result of such wrongful conduct compensatory as well as punitive
damages.
The OIG has expanded the California Action, which initially related to
only one of the Company's hospitals (Midway, which was acquired by the Company
from Summit Health), and the OIG Investigation to 11 other former Summit Health
hospitals owned by the Company. In an apparently unrelated matter, the
government has requested and the Company has provided records from a single
hospital outside the group acquired from Summit Health. The Company is fully
cooperating with the OIG. The Company and its outside counsel have held numerous
meetings with government attorneys with respect to this matter and, as a result,
the Company believes that the OIG Investigation continues to be a civil
investigation focused primarily on arrangements between physicians and the
hospitals that may violate Medicare rules and regulations and not on the
hospitals' Medicare or Medicaid billing practices. If the outcome of the
California Action or OIG Investigation were unfavorable, the Company could be
subject to fines, penalties and damages ("Monetary Payments") and also could be
excluded from Medicare and other government reimbursement programs, which
Monetary Payments or exclusion could have a material adverse effect on the
Company's financial condition or results of operations. The result of the
California Action, the OIG Investigation and their impact, if any, cannot be
predicted or estimated at this time. Based on information currently available to
the Company, however, management of the Company believes that if the California
Action and the OIG Investigation remain primarily limited to physician
arrangements, remain civil in nature and, with the exception of only one of the
hospitals, relate only to the practices of the former Summit Health hospitals,
the final outcome of the California Action and the OIG Investigation will not
have a material adverse effect on the Company's financial condition or results
of operations.
The Company is not aware of any additional litigation or investigations
concerning the matters described in the three paragraphs immediately above.
There can be no assurance, however, that in the event any such additional
litigation or investigation is instituted and there is an unfavorable outcome,
such result would not have a material adverse effect on the Company's financial
condition or results of operations.
The Company is subject to various legal proceedings and claims which
arise in the ordinary course of business. In the opinion of management, the
ultimate resolution of such pending legal proceedings will not have a material
effect on the Company's financial condition or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Proposed Tenet Merger. On October 16, 1996, the Company entered into a
definitive agreement to merge with Tenet Healthcare Corporation ("Tenet"). Under
the terms of the definitive agreement, which was approved by the Board of
Directors of both companies, stockholders owning OrNda common stock would
receive 1.35 shares of Tenet common stock and the associated preferred stock
purchase rights for each share of OrNda common stock and the Company will become
a wholly-owned subsidiary of Tenet. The merger transaction will be tax-free and
accounted for as a pooling of interests and is expected to close in January
1997. Consummation of the merger is subject to a number of conditions, including
stockholder approval of both companies and certain regulatory approvals.
9
<PAGE>
Other Mergers and Acquisitions. The Company's recent operating results
were significantly affected by the January 1996 acquisition of Houston Northwest
Medical Center ("HNW"), the July 1996 acquisition of Cypress Fairbanks Medical
Center in Houston, Texas ("Cypress Fairbanks"), the August 1996 acquisition of
Centinela Medical Center in Inglewood, California ("Centinela") and the
September 1996 acquisition of St. Vincent's Healthcare System in Worcester,
Massachusetts ("St. Vincent's").
Geographic Market Concentration. The Company's hospitals in greater
southern California, South Florida, Arizona and Texas which generated the
following percentages of the Company's total revenue for the three months ended
November 30, 1995 and 1996, respectively:
<TABLE>
Number Percentage of Number Percentage of
of 1995 of 1996
Hospitals Total Revenue Hospitals Total Revenue
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Southern California 15 33.6% 16 29.0%
South Florida 5 17.2% 4 14.2%
Arizona 6 10.7% 6 7.6%
Texas 6 10.5% 8 17.8%
</TABLE>
To the extent favorable or unfavorable changes in regulations or market
conditions occur in these markets, such changes would likely have a
corresponding impact on the Company's results of operations.
RESULTS OF OPERATIONS
General Trends. During the periods discussed below, the Company's results
of operations were affected by certain industry trends, changing components of
total revenue, and changes in the Company's debt structure. The Company's
results of operations have also been impacted by the acquisitions discussed
above.
Industry Trends. Outpatient services accounted for 32.9% and 30.7% of
actual gross patient revenue for the three months ended November 30, 1996 and
1995, respectively, reflecting the industry trend towards greater use of
outpatient services and the expansion of the Company's outpatient services. The
Company expects the industry trend towards outpatient services to continue as
procedures currently being performed on an inpatient basis become available on
an outpatient basis through technological and pharmaceutical advances. The
Company plans to provide quality health care services as an extension of its
hospitals through a variety of outpatient activities including surgery,
diagnostics, physician clinics and home health.
As discussed below, excluding the effect of the acquisitions noted above
("same hospitals basis"), total revenues have increased, reflecting higher
utilization of outpatient and ancillary services, increased acuity of patients
admitted, and an increase in admissions for inpatient procedures. The impact on
revenue of increased patient acuity and general price increases has been
partially offset by the increasing proportion of revenues derived from Medicare,
Medicaid and managed care providers. These major payors substantially pay on a
fixed payment rate on a per patient or a per diem basis instead of a cost or
charge reimbursement methodology. Fixed payments limit the ability of the
Company to increase revenues through price increases. While these fixed payment
rates have increased annually, the increases have historically been at a rate
less than the Company's increases in costs, and have been inadequate to reflect
increases in costs associated with improved medical technologies. The Company
has been able to mitigate such inflationary pressures through cost control
programs, as well as utilization management programs which reduce the number of
days that patients stay in the hospital and the amount of hospital services
provided to the patient.
10
<PAGE>
Three Months Ended November 30, 1996 Compared With
The Three Months Ended November 30, 1995
Total revenue for the three months ended November 30, 1996, increased
over the same period in the prior year by $143.5 million or 29.1% to $637.1
million. The 29.1% increase is a result of the acquisitions discussed above as
well as an increase in same hospitals revenue as discussed below. The increase
in total revenue attributable to acquisitions was $140.6 million. Net income
applicable to common shares for the quarter ended November 30, 1996, was $26.4
million, or $0.44 per share, compared to $19.6 million, or $0.40 per share, in
the same period last year.
Operating expenses in the quarter ended November 30, 1996, increased
27.4% ($115.3 million) compared to the same period in the prior year primarily
as a result of the acquisitions discussed above and the increase in same
hospital revenues and volumes discussed below.
On a same hospitals basis, total revenue increased 0.6%($2.9 million)
primarily as a result of a 0.1% increase in admissions and a 1.5% increase in
gross outpatient revenue. On a same hospitals basis, salaries and benefits
increased as a percent of total revenue from 42.7% in 1995 to 43.8% in 1996
primarily as a result of performing certain patient services internally versus
contracting with third parties. Supplies expense decreased 0.5% ($0.3 million)
and as a percentage of total revenue decreased from 13.4% in 1995 to 13.2% in
1996. Purchased services decreased 5.2% ($2.6 million) and as a percentage of
total revenue decreased from 10.2% in 1995 to 9.6% in 1996 due to the
elimination of contracting with third parties as noted above. The provision for
doubtful accounts decreased 28.0% ($9.3 million) and decreased from 6.9% of
total revenue for 1995 to 4.9% for 1996 primarily due to collections of patient
accounts receivable that were reserved in prior periods during system
conversions. Other operating expenses increased 1.9% ($1.1 million) and as a
percentage of total revenue was 11.8% in 1995 and 11.9% in 1996.
The effect of price increases implemented by the Company's hospitals was
nominal as gross revenue from fixed reimbursement third party payors represented
approximately 82.4% of the Company's total gross revenue in the quarter ended
November 30, 1996. Over the last several years, the portion of the Company's
total revenue derived from fixed reimbursement third party payors has increased
while rates of increases from these payors have generally been less than
medical-related inflation, resulting in increased efforts by the Company to
implement cost containment initiatives and re-evaluate hospital programs for
adequacy of profitability. Since these trends are likely to continue, the
Company's ability to improve operating results at its existing hospitals is
dependent on its continues effectiveness in reducing its costs of services. The
Company's operations may also be enhanced through strategic acquisitions. The
Company intends to pursue strategic acquisitions of health care providers in
geographic areas and with service capabilities that will facilitate the
development of integrated networks.
Depreciation and amortization for the quarter ended November 30, 1996,
increased 35.1% ($8.2 million) over the prior period primarily as a result of
the acquisitions of HNW, Cypress Fairbanks, Centinela, and St. Vincent's. The
increase in depreciation and amortization attributable to acquisitions was $5.9
million. In addition, amortization on intangibles increased $2.0 million as a
result of new business units.
Interest expense for the three months ended November 30, 1996, as
compared to the same period last year, increased 12.4% ($3.4 million) primarily
as a result of an increase in debt to fund recent acquisitions. This increase
was partially offset by improved pricing under the Credit Facility. Of the
Company's total indebtedness of $ 1.4 billion at November 30, 1996,
approximately $767.3 million bears interest at rates that fluctuate with market
rates, such as the Prime Rate or LIBOR. Increases in market interest rates will
adversely affect the Company's net income.
Minority interest, which represents the amounts paid or payable to
physicians pursuant to the Company's joint venture arrangements, increased $1.0
million in 1996 as compared to 1995, primarily as a result of a $9.4 million
exchange of minority interest ownership in two hospitals for minority interest
investment in two group physician practices in the first quarter of fiscal 1996
and the acquisition of HNW which has several specialty joint ventures.
The Company recorded income of $3.8 million in the quarter ended
November 30, 1995 related to its investments in HNW, which primarily represented
non-cash income related to the Company's investment in HNW
11
<PAGE>
redeemable preferred stock. Effective January 1, 1996, the Company acquired HNW
from the hospital's ESOP. Following the transaction, HNW became a wholly owned
subsidiary of the Company.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). The majority of the Company's deferred tax assets related to approximately
$187.0 million of tax loss and credit carryforwards at November 30, 1996, which
the Company has available to offset future taxable income. The AHM Merger caused
an "ownership change" within the meaning of Section 382(g) of the Internal
Revenue Code (the "IRC") for both OrNda and AHM. Consequently, allowable federal
deductions relating to tax attribute carryforwards of OrNda and AHM arising in
periods prior to the AHM Merger are thereafter subject to annual limitations
(OrNda - $19.0 million; AHM - $16.0 million). For AHM, such tax attribute
carryforwards can only be applied against the prospective taxable income of the
entities that previously comprised AHM. These limitations may be increased for
"built-in-gains", as defined under the IRC, recognized during a five-year period
following the date of the merger. Management assesses the realizability of the
deferred tax assets on at least a quarterly basis and currently is satisfied,
despite the annual limitations, that it is more likely than not that the
deferred tax assets recorded at November 30, 1996, net of the valuation
allowance, will be realized through reversal of deferred tax liabilities.
For the quarter ended November 30, 1996, the Company recorded income tax
expense of $11.3 million on pre-tax income of $37.8 million, an amount less than
the statutory rate, primarily due to the availability of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1996, the Company had working capital of $138.1 million,
of which $10.5 million was cash, compared with $88.1 million of working capital
at August 31, 1996. The Company's cash portion of working capital
is primarily managed through a revolving credit arrangement, whereby excess cash
generated through operations or otherwise is generally used to reduce the
outstanding revolving credit facility. When cash requirements arise, the
revolving credit facility is drawn upon as needed. On November 26, 1996, the
Company executed an amendment to its credit agreement (the "Credit Facility")
which increased the borrowing capacity under the revolving commitment from
$440.0 million to $773.8 million. As of November 30, 1996, $767.3 million was
outstanding under the Credit Facility and commitment availability had been
reduced by $25.3 million as a result of issued letters of credit. The Credit
Facility still matures on October 30, 2001.
The Company's operating activities provided cash of $32.3 million for the
quarter ended November 30, 1996. Cash from operations was used for the $14.2
million increase in patient accounts receivable, net of the provision for
doubtful accounts. The increase in patient accounts receivable resulted
primarily from delays in payment from certain state Medicaid/Medicare programs
and due to the acquisition and start up of new business units. Cash from
operations includes $19.5 million received as a refund of funds remitted in
fiscal 1996 to defease indebtedness of Centinela in connection with the
acquisition of Centinela. Cash from operations was used for income tax payments
of $11.9 million and interest payments of $38.7 million.
Net cash used in investing activities of $110.8 million during the three
months ended November 30, 1996, consisted primarily of capital expenditures of
$26.1 million and $82.0 million for the acquisitions of hospitals and related
assets, primarily St. Vincent's hospital. The Company's management currently
expects to incur approximately $125.0 million of capital expenditures in fiscal
1997 for replacement equipment and construction at existing facilities.
Net cash provided by financing activities for the quarter ended November
30, 1996, of $71.6 million resulted primarily from the $72.3 million excess of
long term debt borrowings over principal payments on long term debt.
The Company believes that the cash flows generated by operations
together with availability of credit under the Company's Credit Facility will be
sufficient to meet the Company's short and long-term cash needs. However, the
Company's net debt-to-total-capitalization ratio at November 30, 1996 is 66.9%.
Such leverage may limit the amount of additional indebtedness available to the
Company for acquisitions requiring capital in excess of amounts currently
available under the Credit Facility.
12
<PAGE>
As of November 30, 1996, the Company had approximately $767.3 million of
debt outstanding under the Credit Facility with an interest rate of LIBOR plus
1.0%. Interest rates in the future may be subject to upward and downward
adjustments based on the Company's leverage ratio. To the extent that interest
rates increase in the future, the Company may experience higher interest rates
on such debt. A 1% increase in the prime rate or LIBOR would result in
approximately a $7.7 million increase in annual interest expense based upon the
Company's credit facility indebtedness outstanding at November 30, 1996.
The ratio of earnings to fixed charges and preferred stock dividends was
1.72 and 1.99 for the three months ended November 30, 1995 and 1996,
respectively. The ratio of earnings to fixed charges and preferred stock
dividends is calculated by dividing earnings before income taxes plus fixed
charges by the sum of fixed charges which consists of interest expense,
amortization of financing costs, preferred stock dividends, and the portion of
rental expense which is deemed to be representative of the interest component of
rental expense. The ratio of earnings to fixed charges and preferred stock
dividends is an indication of the Company's ability to pay interest expense and
other fixed charges.
In recent years the IRS was examining the federal income tax returns for
fiscal 1984, 1985 and 1986 of Summit Health, which became a wholly-owned
subsidiary of the Company in April 1994 and merged into the Company in September
1994. Summit Health received a revenue agent's report from the IRS with proposed
adjustments for the years 1984 through 1986 aggregating as of August 31, 1996
approximately $16.6 million of income tax, $66.4 million of interest on the tax,
$43.9 million of penalties and $25.6 million of interest on the penalties. After
receiving the revenue agent's report, Summit Health filed a protest contesting
the proposed adjustments. On October 28, 1996, the Company entered into a
Closing Agreement on Final Determination with the IRS for the above audit
period, by agreeing and paying additional tax of $647,000 and interest of
$888,000 to close the audit of Summit Health for the fiscal years 1984 through
1986.
Inflation. A significant portion of the Company's operating expenses are
subject to inflationary increases, the impact of which the Company has
historically been able to substantially offset through charge increases,
expanding services and increased operating efficiencies. To the extent that
inflation occurs in the future, the Company may not be able to pass on the
increased costs associated with providing health care services to patients with
government or managed care payors, unless such payors correspondingly increase
reimbursement rates.
GENERAL
Revenue Trends. Future trends for revenue and profitability are difficult
to predict; however, the Company believes there will be continuing pressure to
reduce costs and develop integrated delivery systems with geographically
concentrated service capabilities. Accomplishment of these objectives can be
achieved through the continuation of strategic acquisitions and affiliations
with other health care providers. Such acquisitions and affiliations enhance the
Company's ability to: 1) negotiate with managed care providers in each area of
geographic concentration; 2) negotiate reduced costs with vendors; 3) acquire or
create physician groups; and 4) reduce duplication of services in local
communities. The Company believes acquisitions and affiliations are still highly
probable as the investor-owned hospitals represent only approximately 15% of the
hospital industry as of November 30, 1996.
Health Care Reform. The Company derives a substantial portion of its
revenue from third party payors, including the Medicare and Medicaid programs.
During the three months ended November 30, 1995 and 1996, the Company derived an
aggregate of 57.7% and 51.0%, respectively, of its gross revenue from the
Medicare and Medicaid programs.
Changes in existing governmental reimbursement programs in recent years
have resulted in reduced levels of reimbursement for health care services, and
additional changes are anticipated. Such changes are likely to result in further
reductions in the rate of increase in reimbursement levels. In addition, private
payors, including managed care payors, increasingly are demanding discounted fee
structures or the assumption by health care providers of all or a portion of the
financial risk through prepaid capitation arrangements. Inpatient utilization,
average lengths of stay and occupancy rates continue to be negatively affected
by payor-required pre-admission authorization and utilization review and by
payor pressure to maximize outpatient and alternative health care delivery
services for less acutely ill patients. In addition, efforts to impose reduced
allowances, greater discounts and more stringent cost controls by government and
13ringent cost controls by government and
13
<PAGE>
other payors are expected to continue.
Significant limits on reimbursement rates could adversely affect the
Company's results of operations. The Company is unable to predict the effect
these changes will have on its operations. No assurance can be given that such
reforms will not have a material adverse effect on the Company.
Technological Changes. The rapid technological changes in health care
services will continue to require significant expenditures for new equipment and
updating of physical facilities. The Company believes that the cash flows
generated by the Company's operations together with availability of credit under
the Company's Credit Facility will be sufficient to meet the Company's short and
long-term cash needs for capital expenditures and operations.
Excess Capacity. Excess capacity in medical/surgical hospitals will
require the Company to continue to shift resources from traditional inpatient
care to various outpatient activities. The Company's ability to effectively
shift those resources and maintain market share will have a direct impact on the
continued profitability of the Company.
Marketing Expense. Marketing expense is expected to increase in the
future as the Company increases efforts to gain market share in its areas of
geographic concentration. Additional marketing will be necessary to increase
awareness of the services provided by the Company's facilities in the local
market place and distinguish its facilities from their competitors.
Tax Rate. The Company expects its effective tax rate to increase to
approximately 30% for fiscal 1997 due to recent acquisitions. This estimated
rate does not reflect the effect of any pending acquisitions which may cause the
rate to increase. Additionally, the Company expects its effective tax rate to
approximate 38% by fiscal 1998.
Stock. The Company's stock price is subject to significant volatility. If
revenues or earnings fail to meet expectations of the investment community or if
the regulators allege that the Company is materially in violation of the fraud
and abuse or physician self-referral laws, there could be an immediate and
significant impact on the trading price for the Company's stock. Because of
stock market forces beyond the Company's control and the nature of its business,
such shortfalls can be sudden. The Tenet merger noted above could have an impact
on the price of the Company's stock.
Forward-Looking Statements. Certain statements contained in this Report,
including without limitation statements containing the words "believes",
"anticipates", "intends", "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, both
nationally and in the regions in which the Company operates; industry capacity;
demographic changes; existing government regulations and changes in, or the
failure to comply with, governmental regulations; legislative proposals for
health care reform; the ability to enter into managed care provider arrangements
on acceptable terms; changes in Medicare and Medicaid reimbursement levels;
liability and other claims asserted against the Company; competition; the loss
of any significant customers; changes in business strategy or development plans;
the ability to attract and retain qualified personnel, including physicians; the
availability and terms of capital to fund the expansion of the Company's
business, including the acquisition of additional facilities; and other factors
referenced in this Report. Certain of these factors are discussed in more detail
in the Company's annual report on Form 10-K for the year ended August 31, 1996,
including without limitation under
14
<PAGE>
"Business Strategy", "Risks Associated with Acquisition Strategy", "Limits on
Reimbursement", "Competition" and "Governmental Regulation". Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect events or
developments.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In respect of the disclosure under the caption "Summit Health OIG
Investigation" found on page 25 of the Company's Annual Report on Form 10-K(the
"Form 10-K") for the fiscal year ended August 31, 1996 (the "OIG
Investigation"), the Company has recently become aware that in July 1995 a civil
qui tam action was filed against Midway Hospital Medical Center, Inc. (a
subsidiary of the Company which owns Midway Hospital Medical Center, Los
Angeles, California ("Midway Hospital")), Summit Health Ltd. (a hospital
management company acquired by the Company in April 1994 ("Summit Health")) and
the Company in the United States District Court for the Central District of
California (the "California Action"). The California Action originally was filed
under a court-ordered seal that prohibited the Company from disclosing the
action prior to this time. The Company believes that the California Action
provided the basis for the investigative subpoena from the Office of the
Inspector General of the United States Department of Health and Human Services
(the "OIG") that was served on the Company in February 1996 in respect of the
OIG Investigation.
The California Action alleges, among other things, that there were
violations of the federal False Claims Act and the federal fraud and abuse and
anti-kickback provisions of the Medicare and Medicaid laws in connection with
certain of Midway Hospital's compensation arrangements with its physicians. The
California Action alleges that as a result of this allegedly wrongful conduct,
the United States is entitled to monetary damages and penalties. The California
Action also alleges in a second cause of action violations of the fraud and
abuse, medical staff and wrongful discharge laws of the State of California and
claims as a result of such wrongful conduct compensatory as well as punitive
damages.
As disclosed in the Company's Form 10-K, the OIG has expanded the
California Action, which initially related to only one of the Company's
hospitals (Midway Hospital, which was acquired from Summit Health), and the OIG
Investigation to 11 other former Summit Health hospitals owned by the Company.
In an apparently unrelated matter, the government has requested and the Company
has provided records from a single hospital outside the group acquired from
Summit Health. The Company is fully cooperating with the OIG. The Company and
its outside counsel have held numerous meetings with government attorneys with
respect to this matter and, as a result, the Company believes that the OIG
Investigation continues to be a civil investigation focused primarily on
arrangements between physicians and the hospitals that may violate Medicare
rules and regulations and not on the hospitals' Medicare or Medicaid billing
practices. If the outcome of the California Action or OIG Investigation were
unfavorable, the Company could be subject to fines, penalties and damages
("Monetary Payments") and also could be excluded from Medicare and other
government reimbursement programs, which Monetary Payments or exclusion could
have a material adverse affect on the Company's financial condition or results
of operations. The result of the California Action, the OIG Investigation and
their impact, if any, cannot be predicted or estimated at this time. Based on
information currently available to it, however, management believes that if the
California Action and the OIG Investigation remain primarily limited to
physician arrangements, remain civil in nature and, with the exception of only
one of the hospitals, relate only to the practices of the former Summit Health
hospitals, the final outcome of the California Action and the OIG Investigation
will not have a material adverse effect on the Company's financial condition or
results of operations.
The Company is not aware of any additional litigation or investigations
concerning the matters described above. There can be no assurance, however, that
in the event any such additional litigation or investigation is instituted and
there is an unfavorable outcome, such result would not have a material adverse
effect on the Company's financial condition or results of operations.
16
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT INDEX
NO. SUBJECT MATTER
2................. Amendment No. 1 to Plan of Merger dated as of November 22,
1996 (incorporated by reference to Annex E to the
definitive Joint Proxy Statement dated December 18, 1996
for the Company's Special Meeting of Stockholders to be
held on January 28, 1997, filed by the Company with the
Securities and Exchange Commission on December 18, 1996
pursuant to Rule 14-a-6(j) promulgated under the Securities
Exchange Act of 1934, such filing being part of the
Registration Statement on Form S-4 (Registration No.
333-18185) filed by Tenet Healthcare Corporation on December
18, 1996, under the Securities Act of 1933, as amended).
10(a)............. Amendment No. 1 to Employment Agreement dated as of December
1, 1996 between the Company and William L. Hough
11................ Computation of per share earnings
27................ Financial Data Schedule (included only in filings under the
Electronic Data Gathering Analysis and Retrieval System)
(b) Reports on Form 8-K. Three reports on Form 8-K were filed by the Company
during the fiscal quarter ended November 30, 1996, as follows:
Date of Current Report Item(s) Reported Any Financial Statements Filed
October 16, 1996 Item 1-Changes in Control No
of Registrant
Item 7(c)-Exhibits
October 29, 1996 Item 5-Other Events No
Item 7(c)-Exhibits
November 27, 1996 Item 5-Other Events No
Item 7(c)-Exhibits
17
<PAGE>
ORNDA HEALTHCORP AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements 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.
OrNda HealthCorp
(Registrant)
January 10, 1997 BY: /S/ PHILLIP W. ROE
PHILLIP W. ROE
Senior Vice President and Controller
(Principal accounting officer
and authorized signatory)
18
EXHIBIT 10(a)
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT (this "Amendment")
dated as of December 1, 1996, by and between OrNda HealthCorp, a Delaware
corporation (the "Company"), and William L. Hough (the "Executive").
WHEREAS, the Company and the Executive executed a certain Employment
Agreement (the "Employment Agreement") dated as of May 1, 1996, relating to
Executive's employment with the Company;
WHEREAS, pursuant to the Employment Agreement the Executive currently
serves as Executive Vice President and Chief Operating Officer of the Company
and has served in such capacity since August, 1995;
WHEREAS, the Company has entered into that certain Agreement and Plan of
Merger (the "Merger Agreement"), dated as of October 16, 1996, pursuant to which
a wholly owned subsidiary of Tenet Healthcare Corporation ("Tenet") will be
merged with and into the Company, at which time the Company will become a wholly
owned subsidiary of Tenet (the "Merger") and the approval of the Merger by the
Company's stockholders will constitute a "Change of Control" under and as
defined in the Employment Agreement;
WHEREAS, to induce the Executive to remain in the employment of the
Company at least during the transition period beginning October 16, 1996 and
ending with the effective time of the Merger , the Company wishes to amend the
Employment Agreement in order to prepay prior to December 31, 1996 to Executive
a portion of the severance compensation that would be later due to Executive
under the Employment Agreement following Executive's qualifying termination from
employment with the Company after a "Change of Control," as such term is defined
in the Employment Agreement.
WHEREAS, the Compensation Committee (the "Compensation Committee") of
the Company's Board of Directors (the "Board") has approved and authorized the
Company's entry in this Amendment with the Executive.
NOW, THEREFORE, the parties agree as follows:
I.
The following new Section 26 is added to the Employment Agreement:
"26. The Advance. On or prior to December 31, 1996, the
Company will make a lump sum cash payment to Executive (the
"Advance") in an amount equal to $2,130,000 (the "Advance"), as an
advance payment of a portion of the benefits that are payable to
Executive under Section ll(d)(ii) of this Agreement in the event of a
Change in Control of Company and the
<PAGE>
subsequent termination of Executive's employment under the
circumstances described in Section 11(d). In the event of the
termination of Executive's employment under the circumstances
described in Section 11(d) of this Agreement, the lump sum cash payment
to which Executive will then be entitled under Section 11(d)(ii) of
this Agreement in connection with such termination will be reduced by
an amount equal to the Advance and will otherwise be paid to Executive
in accordance with Section 11(d)(iv) of this Agreement. In the event
that (x) the merger of a wholly-owned subsidiary of Tenet
Healthcare Corporation ("Tenet") into the Company (the "Merger") is not
consummated on or prior to August 1, 1997 (the "Expiration Date") or (y)
Executive's employment is not terminated under the circumstances
described in Section 11(d) of this Agreement prior to the first
anniversary of the effective time of the Merger (the "First
Anniversary"), Executive's base salary, annual and long-term incentive
compensation bonuses, stock option compensation, severance payments and
other compensation will be reduced by an aggregate amount equal to the
Advance in such manner and in such increments as Company or the
surviving corporation in the Merger (the "Surviving Corporation"), as
the case may be, deems appropriate; provided, however, that in the event
Executive's employment is terminated by Executive without Good Reason or
by Tenet, Company or the Surviving Corporation for "cause" (as defined
in this Agreement), Executive shall repay to Company within ten (10)
business days following the date of such termination of employment an
amount equal to the excess, if any, of (a) the amount of the Advance
over (b) the aggregate amount by which the Executive's base salary,
annual and long-term incentive compensation bonuses, stock option
compensation, severance payments and other compensation have been
reduced as provided above. In addition, the Company agrees to take such
reasonable actions as may be necessary to preserve the deductibility
under section 162(m) of the Internal Revenue Code of the Advance,
including (without limitation) by terminating Executive's employment
with or position as an executive officer of Company prior to the
effective time of the Merger (Executive hereby agreeing to approve and
cooperate with any such requested termination), provided that no such
action will be taken that would adversely affect Executive's entitlement
to the severance benefits provided under Section 11(d)(ii) of this
Agreement or preclude the acceleration of the exercisability of
Executive's employee stock options pursuant to the terms of Company's
1994 Management Equity Plan.
II.
In all other respects the Employment Agreement is hereby ratified and
confirmed.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
December 16, 1996, but effective as of the date first above written.
ORNDA HEALTHCORP
BY: /s/ Ronald P. Soltman
Ronald P. Soltman
Senior Vice President
THE EXECUTIVE
/s/ William L. Hough
William L. Hough
3
ORNDA HEALTHCORP AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts)
<TABLE>
Three Months Ended November 30,
---------------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Primary
- -------
Average shares outstanding............. . . . . . . . 48,130 58,364
Net effect of dilutive common
stock equivalents:
Stock options and warrants-
treasury stock method.................. . . 1,389 2,145
------------- -------------
TOTAL ............................................ 49,519 60,509
============= =============
Net income as adjusted for
preferred stock dividends......................... $ 19,587 $ 26,429
============= =============
Per share amount...................................... $ 0.40 $ 0.44
============= =============
Fully Diluted
Average shares outstanding............................ 48,130 58,364
Net effect of dilutive common stock
equivalents:
Stock options and warrants-
treasury stock method................. 1,385 2,253
Assumed conversion of redeemable
preferred stock........................ 1,248 --
------------- -------------
TOTAL ............................................ 50,763 60,617
============= =============
Net income............................................ $ 19,919 $ 26,429
Preferred stock dividend requirements................. -- --
------------- -------------
Net income as adjusted for preferred
stock dividends................................... $ 19,919 $ 26,429
============= =============
Per share amount...................................... $ 0.39 $ 0.44
============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Financial Data Schedule contains summary financial information extracted
from the Company's balance sheet and statement of income and is qualified in its
entirety by reference to such financial statments.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 10,506
<SECURITIES> 0
<RECEIVABLES> 493,387
<ALLOWANCES> 77,747
<INVENTORY> 44,982
<CURRENT-ASSETS> 559,230
<PP&E> 1,774,096
<DEPRECIATION> 394,857
<TOTAL-ASSETS> 2,612,242
<CURRENT-LIABILITIES> 421,114
<BONDS> 1,334,861
0
0
<COMMON> 584
<OTHER-SE> 673,645
<TOTAL-LIABILITY-AND-EQUITY> 2,612,242
<SALES> 0
<TOTAL-REVENUES> 637,091
<CGS> 0
<TOTAL-COSTS> 537,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32,711
<INTEREST-EXPENSE> 30,558
<INCOME-PRETAX> 37,756
<INCOME-TAX> 11,327
<INCOME-CONTINUING> 26,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,429
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
