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 May 31, 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
(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
June 30, 1996: 58,173,233
ORNDA HEALTHCORP
FORM 10-Q
May 31, 1996
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the Three
Months Ended May 31, 1995 and 1996..................................3
Consolidated Statements of Income for the Nine Months
Ended May 31, 1995 and 1996.........................................4
Consolidated Balance Sheets as of August 31, 1995
and May 31, 1996....................................................5
Consolidated Statements of Cash Flows for the Nine
Months Ended May 31, 1995 and 1996 .................................6
Notes to Consolidated Financial Statements..........................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................12
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................22
SIGNATURE....................................................................23
EXHIBIT 10(a)
EXHIBIT 10(b)
EXHIBIT 11
EXHIBIT 27
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MAY 31, 1995 AND 1996
(Unaudited)
(in thousands, except per share data)
Three Months Ended May 31,
--------------------------
1995 1996
---- ----
Total Revenue $ 497,890 $ 557,866
Costs and Expenses:
Salaries and benefits 217,384 243,515
Supplies 66,774 77,012
Purchased services 51,851 46,515
Provision for doubtful accounts 29,910 35,308
Other operating expenses 60,357 62,615
Depreciation and amortization 21,579 25,749
Interest expense 26,928 26,386
Interest income (1,387) (1,135)
Gain on asset sales (973) --
Minority interest 161 1,778
---------- ----------
25,306 40,123
Income from investments in Houston
Northwest Medical Center 3,531 --
---------- ----------
Income before income tax expense 28,837 40,123
Income tax expense 6,746 10,833
---------- ----------
Net income 22,091 29,290
Preferred stock dividend requirements (487) --
---------- ----------
Net income applicable to common shares $ 21,604 $ 29,290
========== ==========
Net income per common and common
equivalent share $ 0.47 $ 0.49
========== ==========
Net income per common share
assuming full dilution $ 0.47 $ 0.49
========== ==========
Weighted average common and dilutive
common equivalent shares outstanding 45,601 60,371
========== ==========
Weighted average common shares outstanding
assuming full dilution 46,995 60,371
========== ==========
3
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED MAY 31, 1995 AND 1996
(Unaudited)
(in thousands, except per share data)
Nine Months Ended May 31,
-------------------------
1995 1996
---- ----
Total Revenue $1,358,636 $ 1,594,319
Costs and Expenses:
Salaries and benefits 597,109 687,391
Supplies 173,635 215,223
Purchased services 149,417 150,476
Provision for doubtful accounts 89,054 103,610
Other operating expenses 152,796 184,021
Depreciation and amortization 61,988 73,801
Interest expense 81,910 79,850
Interest income (3,593) (3,423)
Gain on asset sales (973) --
Minority interest 260 4,724
---------- ----------
57,033 98,646
Income from investments in Houston
Northwest Medical Center 10,479 5,128
---------- ----------
Income before income tax expense 67,512 103,774
Income tax expense 12,152 27,110
---------- ----------
Net income 55,360 76,664
Preferred stock dividend requirements (1,490) (332)
---------- ----------
Net income applicable to common shares $ 53,870 $ 76,332
========== ==========
Net income per common and common
equivalent share $ 1.20 $ 1.35
========== ==========
Net income per common share
assuming full dilution $ 1.20 $ 1.34
========== ==========
Weighted average common and dilutive
common equivalent shares outstanding 45,028 56,633
========== ==========
Weighted average common shares outstanding
assuming full dilution 45,050 57,255
========== ==========
4
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
August 31, May 31,
-------------------------
1995 1996
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 4,963 $ 13,826
Patient accounts receivable, net of allowance for
uncollectibles of $58,632 at August 31, 1995
and $69,272 at May 31, 1996 307,601 362,436
Supplies, at cost 34,097 39,275
Other 57,052 51,485
---------- ----------
Total Current Assets 403,713 467,022
Property, Plant and Equipment, at cost:
Land 126,436 138,211
Buildings and improvements 870,352 976,547
Equipment and fixtures 359,979 414,875
---------- ----------
1,356,767 1,529,633
Less accumulated depreciation and amortization 288,410 346,189
---------- ----------
1,068,357 1,183,444
Investments in Houston Northwest Medical Center 73,755 --
Excess of Purchase Price Over Net Assets Acquired,
net of accumulated amortization 318,029 419,471
Other Assets 82,550 116,161
---------- ----------
$1,946,404 $2,186,098
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 117,258 $ 134,190
Accrued expenses and other liabilities 220,851 198,363
Current maturities of long-term debt 60,182 57,561
---------- ----------
Total Current Liabilities 398,291 390,114
Long-term Debt 1,013,423 1,008,303
Other Liabilities 141,552 171,995
Shareholders' Equity:
Convertible preferred stock,
$.01 par value, 10,000,000 authorized shares,
issued 1,329,701 shares at August 31, 1995 20,112 --
Common stock, $.01 par value,
authorized 200,000,000 shares, issued and
outstanding 44,877,804 shares at August 31, 1995
and 58,173,233 shares at May 31, 1996 449 582
Additional paid-in capital 414,805 632,460
Retained earnings (deficit) (94,020) (17,356)
Unrealized gains on available-for-sale
securities, net of tax 51,792 --
---------- ----------
393,138 615,686
---------- ----------
$1,946,404 $2,186,098
========== ==========
5
ORNDA HEALTHCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended May 31,
-------------------------
1995 1996
---- ----
CASH FLOW PROVIDED BY OPERATING ACTIVITIES:
Net income $ 55,360 $ 76,664
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash portion of income from investments in
Houston Northwest Medical Center (7,908) (4,213)
Depreciation and amortization 61,988 73,801
Provision for doubtful accounts 89,054 103,610
Gain on asset sales (973) --
Changes in assets and liabilities net of effects from
acquisitions and dispositions of hospitals:
Patient accounts receivable (96,808) (129,715)
Other current assets (10,105) (9,950)
Other assets (940) 202
Accounts payable, accrued
expenses and other current liabilities 6,061 (35,951)
Other liabilities (6,350) 11,875
Proceeds from sales of trading investment security --- 20,625
---------- ----------
Net cash provided by operating activities 89,379 106,948
---------- ----------
CASH FLOW USED IN INVESTING ACTIVITIES:
Acquisitions of hospitals and related assets (51,615) (214,952)
Capital expenditures (44,101) (64,373)
Proceeds on disposals of hospitals and sales of investments 18,110 2,967
Increase in notes receivable (2,344) (4,213)
Payments received on long-term notes and other receivables 4,228 4,871
Other investing activities (2,438) (2,124)
---------- ----------
Net cash used in investing activities (78,160) (277,824)
---------- ----------
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 5,664 197,788
Principal payments on long-term debt borrowings (114,842) (106,581)
Proceeds received on long-term debt borrowings 99,840 95,000
Financing costs incurred in connection with
long-term borrowings (637) (3,797)
Other ( 984) (2,671)
---------- ----------
Net cash provided by (used in) financing activities ( 10,959) 179,739
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 260 8,863
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,374 4,963
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,634 $ 13,826
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 90,926 $ 88,588
Income taxes 1,608 28,606
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Preferred stock dividends 1,490 332
Conversion of preferred stock to common stock -- 20,333
Capital lease obligations incurred 2,602 196
Stock issued for acquisitions of health care facilities 3,563 --
Exchange of minority ownership in hospitals for minority
interest ownership in physician practices -- 9,400
6
ORNDA HEALTHCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
May 31, 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
medical/surgical hospitals located primarily in the southern and western United
States. On April 19, 1994, the Company exchanged shares of its common stock for
all the outstanding common stock of American Healthcare Management, Inc.
("AHM"), and merged AHM with and into the Company (the "AHM Merger"). The AHM
Merger was accounted for as a pooling-of-interests. Where such reference is
necessary to enhance the understanding of the information presented, OrNda
HealthCorp, excluding the accounts of AHM, is hereafter referred to as "OrNda."
Also on April 19, 1994, OrNda purchased all the outstanding common stock of
Summit Health Ltd. ("Summit") pursuant to a merger of SHL Acquisition Co., a
wholly owned subsidiary of the Company, with and into Summit (the "Summit
Merger"). The Summit Merger was accounted for as a purchase.
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 nine months ended May 31, 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, 1995.
Earnings Per Share. Earnings per common and common equivalent share is
based on the Company's weighted average number of outstanding shares adjusted
for the dilutive effect of common stock equivalents outstanding during the
period. Dilutive common stock equivalents consist of stock options and warrants
representing 1.1 million and 2.2 million equivalent shares for the three months
ended May 31, 1995 and 1996, respectively, and 1.0 million and 1.8 million
shares for the nine months ended May 31, 1995 and 1996, respectively. Earnings
per common share assuming full dilution for the three months ended May 31, 1995
and nine months ended May 31, 1996 assumes the conversion of the Company's
redeemable convertible preferred stock into common shares.
Recently Issued Accounting Standard. In March 1995, the FASB issued
Statement No 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS No. 121"), which requires impairment
7
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt SFAS No. 121 in the first quarter of fiscal 1997 and,
based on current circumstances, does not believe the effect of adoption will be
material.
NOTE 3 - LONG-TERM DEBT
On October 27, 1995, the Company executed an amended and restated credit
agreement (the "Restated Credit Facility") which increased the Company's
borrowing capacity under its credit facility from approximately $660.0 million
to $900.0 million, of which $477.5 million was outstanding on May 31, 1996 and
of which commitment availability had been reduced by issued letters of credit of
$27.4 million and scheduled principal payments of $22.5 million. The Restated
Credit Facility, which amends the Company's previous credit agreement dated
April 19, 1994, will mature on October 30, 2001 and consists of the following
facilities (the "Senior Credit Facilities"): (i) a revolving commitment of $440
million to refinance the debt under the previous credit agreement, for general
corporate purposes, to issue up to $50 million of letters of credit, and for
strategic acquisitions; and (ii) a $460 million term loan to refinance debt
under the previous credit agreement payable in incremental quarterly
installments.
Loans under the Restated Credit Facility bear interest, at the option of
the Company, at a rate equal to either (i) the "alternate base rate" plus 0.25%
or (ii) LIBOR plus 1.25%, 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 May 31, 1996 was 6.7%.
In certain circumstances, the Company is required to make principal
prepayments on the Senior Credit Facilities, 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 Senior Credit Facilities without penalty.
The Restated 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
Restated 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 Restated 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.
8
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 AHM Merger 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 net operating losses ("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 which incurred the losses in prior years. 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 of Summit as
disclosed below. Furthermore, the Company's federal income tax returns for
taxable years through August 31, 1992 are no longer subject to IRS audit, with
certain limited exceptions and except in respect of NOL's for prior years which
may be subject to IRS audit as they are utilized in subsequent tax years.
The IRS is currently engaged in an examination of the federal income tax
returns for fiscal years 1984, 1985 and 1986 of Summit, which subsequent to the
Company's acquisition thereof in April 1994 merged into the Company. Summit has
received a revenue agent's report with proposed adjustments for the years 1984
through 1986 and Summit has filed a protest opposing the proposed adjustments.
The IRS has challenged, among other things, the propriety of certain accounting
methods utilized by Summit for tax purposes, including the use of the cash
method of accounting by certain of Summit's subsidiaries (the "Summit
Subsidiaries") prior to fiscal year 1988. The cash method was then prevalent
within the hospital industry and the Summit Subsidiaries applied the method in
accordance with prior agreements reached with the IRS. The IRS now asserts that
an accrual method of accounting should have been used. The Tax Reform Act of
1986 (the "1986 Act") requires most large corporate taxpayers (including Summit)
to use an accrual method of accounting beginning in 1987. Consequently, the
Summit Subsidiaries changed to the accrual method beginning July 1, 1987. In
accordance with the provisions of the 1986 Act, income that was deferred by use
of the cash method through June 30, 1987 is being recognized as taxable income
by the Summit Subsidiaries in equal installments over ten years beginning on
July 1, 1987. The Company believes that Summit properly reported its income and
paid its taxes in accordance with applicable laws and in accordance with
previous agreements established with the IRS. The Company believes that the
final outcome of the IRS's examinations of Summit's prior years' income taxes
will not have a material adverse effect on the results of operations or
financial position of the Company.
9
NOTE 5 - HOUSTON NORTHWEST MEDICAL CENTER
Houston Northwest Medical Center ("HNW"), in which the Company held only
certain non-controlling investments until January, 1996, is a 498-bed acute care
facility located in Houston, Texas. Effective January 1, 1996, the Company
acquired the controlling equity interests in HNW for a total cash purchase price
of $153.9 million and commenced operation of the facility.
Prior to January 1996, the Company's investments in HNW consisted of (i)
two classes of mandatorily redeemable preferred stock with a redemption value of
$62.5 million; and, (ii) a mortgage note receivable with a balance of $7.4
million at December 31, 1995.
The Company continued to apply the income recognition method described
in Note 3 to the consolidated financial statements included in the Company's
Form 10-K for the year ended August 31, 1995, for the Company's investment in
HNW's mandatorily redeemable preferred stock until January 1996, at which time
the Company began consolidating the operations of HNW. Income from investments
in Houston Northwest Medical Center consists of the following (in thousands):
Three Months Ended May 31 Nine Months Ended May 31
------------------------- ------------------------
1995 1996 1995 1996
----------- ----------- ----------- ----------
Accretion of discount on mandatorily
redeemable preferred stock $ 522 $ -- $ 1,565 $ 757
Dividend income on mandatorily
redeemable preferred stock 2,814 -- 8,443 4,123
Interest income on mortgage note
receivable 195 -- 471 248
----------- ----------- ----------- ----------
$ 3,531 $ -- $ 10,479 $ 5,128
=========== =========== =========== ==========
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). The Company adopted SFAS No. 115
on September 1, 1993, which resulted in an $85.5 million increase in
shareholders' equity on the date of adoption (which primarily related to the HNW
mandatorily redeemable preferred stock classified as "available-for-sale") with
no impact on net income. There was no income tax effect because of the
availability of book tax attribute carryforwards to offset the excess book basis
over the tax basis of the investments. The unrealized gain on available for sale
HNW securities was $45.8 million at December 31, 1995. The reduction from the
original amount is due primarily to an increase in the book value of the
investment and changes in long-term interest rates used to discount future cash
flows.
If the acquisition of HNW and the February 1995 acquisition of St. Luke's
Health System occurred on September 1, of the respective fiscal years, pro forma
results of operations for the nine months ended May 31, 1995 and 1996, would
have been as reflected below (in thousands, except per share data):
1995 1996
-------------- --------------
Total revenue $ 1,534,760 $ 1,647,316
Net income 52,732 73,201
Net income applicable to common shares 51,242 72,869
Net income per common share 1.14 1.29
Net income per common share
assuming full dilution $ 1.14 $ 1.28
10
NOTE 6 - SHAREHOLDERS' EQUITY
On November 6, 1995, the Company completed the sale of 10,000,000 shares
of its Common Stock at a $17.625 per share public offering price. On November 9,
1995, the underwriters exercised an option to purchase an additional 1,500,000
shares to cover over-allotments. The net proceeds of approximately $192.3
million, after deducting offering expenses and underwriting discounts, were used
to reduce all of the indebtedness under the revolving portion of the Restated
Credit Facility in the amount of $27.2 million. The remaining proceeds were used
for general corporate purposes. Assuming the HNW acquisition and the offering
were completed on September 1, 1995, and the net proceeds were used to reduce
indebtedness under the Restated Credit Facility, the Company's earnings per
common and common equivalent share would have been $1.23 and earnings per share
assuming full dilution would have been $1.22 for the nine months ended May 31,
1996.
On November 7, 1995, the Company issued a notice of redemption to the
holders of its Payable in Kind Cumulative Redeemable Convertible Preferred Stock
(the "PIK Preferred") for $15 per share with a redemption date of December 8,
1995. In the fiscal quarter ended November 30, 1995, 1,355,519 shares of PIK
Preferred were converted into 1,355,519 shares of the Company's Common Stock. On
December 8, 1995, the remaining 7,416 shares of PIK Preferred were redeemed for
$15 per share plus dividends of $0.16 per share accrued through the redemption
date.
On November 29, 1995, nonqualified options to purchase 790,500 shares of
Common Stock at an exercise price of $18.75 per share were granted to officers
and key employees of the Company under the 1994 Management Equity Plan. On April
25, 1996, nonqualified options to purchase 729,000 shares of Common Stock at an
exercise price of $27.125 per share were granted to officers and key employees
of the Company under the 1994 Management Equity Plan.
NOTE 7 - 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.
As with all health care providers participating to any significant extent in the
Medicare and Medicaid programs, the Company could be materially adversely
affected if it were to be found in violation of the fraud and abuse, false
claims or physician self-referral laws as a result of its current or past
business 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
11
the Company's financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company's operating results for the three and nine months ended May
31, 1996, as compared to the same periods of the prior year, were impacted by
the January 1996 acquisition of Houston Northwest Medical Center ("HNW"). The
Company's operating results for the nine months ended May 31, 1996, as compared
to the same period in the prior year, were also impacted by the February 1995
acquisition of three hospitals and related businesses that comprise the St.
Luke's Health System ("St. Luke's") in Arizona.
Geographic Market Concentration. The Company's hospitals in greater Los
Angeles, South Florida and Arizona generated the following percentages of the
Company's total revenue for the nine months ended May 31, 1995 and 1996,
respectively;
Number Percentage of Number Percentage of
of 5/31/95 of 5/31/96
Hospitals Total Revenue Hospitals Total Revenue
Greater Los Angeles 15 35.1% 15 32.1%
South Florida 4 18.0% 5 17.0%
Arizona 6 8.9% 6 10.2%
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 and equity structure. The
Company's results of operations have also been impacted by the acquisitions of
St. Luke's and HNW discussed above.
Industry Trends. Outpatient services accounted for 31.7% and 30.6% of
actual gross patient revenue for the three and nine months ended May 31, 1996,
respectively, compared to 28.8% and 28.0% in the same periods in the prior year
reflecting the industry trend towards greater use of outpatient services and the
expansion of the Company's outpatient services primarily achieved through
activities including surgery, diagnostics, physician clinics and home health.
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 St. Luke's and HNW
12
acquisitions noted above ("same hospitals basis"), total revenues have
increased, reflecting higher utilization of outpatient and ancillary services
and increased acuity of patients admitted in the quarter and year to date
periods and an increase in admissions for inpatient procedures in the nine
months ended May 31, 1996. 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. The
Company's gross revenue from fixed reimbursement third party payors represented
approximately 88.4% of the Company's total gross revenue for the first nine
months of fiscal 1996. 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. The Company also has programs designed to improve the margins
associated with the revenues derived from government payors and managed care
providers as well as programs designed to enhance overall hospital margins. 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.
Three Months Ended May 31, 1996 Compared
With The Three Months Ended May 31, 1995
Total revenue for the quarter ended May 31, 1996, increased over the same
period in the prior year by $60.0 million or 12.0% to $557.9 million. The 12.0%
increase is primarily a result of the HNW acquisition discussed above as well as
an increase in same hospitals revenue as discussed below. The increase in total
revenue attributable to acquisitions, net of divestitures, was $50.3 million.
Operating expenses in the quarter ended May 31, 1996, increased 9.1% ($38.7
million) compared to the same period in prior year primarily as a result of the
HNW acquisition. Net income applicable to common shares for the quarter ended
May 31, 1996, was $29.3 million, or $0.49 per share, compared to $21.6 million,
or $ 0.47 per share, in the same period last year.
On a same hospitals basis, total revenue increased 1.9%($9.7 million)
primarily as a result of a 10.8% increase in gross outpatient revenue. On a same
hospitals basis, salaries and benefits increased as a percent of total revenue
from 43.7% in the third quarter of fiscal 1995 to 44.4% in the third quarter of
fiscal 1996 primarily due to one-time severance payments related to labor force
reductions at several of the hospitals in the third quarter. As reflected in the
year to date discussion, salaries and benefits as a percent of revenue have
decreased for the nine month period. Supplies expense as a percentage of total
revenue remained flat at 13.4% in the third quarter of fiscal 1995 and 1996
primarily as a result of savings from major supply contracts offset by the
fiscal 1996 reclassification of the supply component of major contracts from
purchased services to supplies expense. Purchased services decreased 17.0% ($8.8
million)
13
and as a percentage of total revenue decreased from 10.4% in the third quarter
of fiscal 1995 to 8.5% in the third quarter of fiscal 1996 primarily due to a
reclassification in fiscal 1996 of the supply component of major contracts from
purchased services to supplies expense. The provision for doubtful accounts
increased 6.3% ($1.9 million) and increased from 6.0% of total revenue for the
quarter ended May 31, 1995 to 6.3% for the quarter ended May 31, 1996 due to
delays in payment from certain third party payors resulting in an increase in
the allowance for doubtful accounts. Other operating expenses decreased 2.6%
($1.5 million) and as a percentage of total revenue decreased from 12.1% in
fiscal 1995 to 11.6% in fiscal 1996.
Depreciation and amortization for the quarter ended May 31, 1996,
increased 19.3% ($4.2 million) over the prior year primarily as a result of the
acquisition of HNW. The increase in depreciation and amortization attributable
to acquisitions, net of divestitures, was $2.0 million. In addition,
amortization on intangibles increased as a result of new business units.
Interest expense for the third quarter of fiscal 1996 as compared to the
same period last year decreased 2.0% ($0.5 million) primarily as a result of a
decline in the average debt balance outstanding and improved pricing under the
Restated Credit Facility in the first quarter of fiscal 1996. Such decrease was
partially offset by a $2.2 million reduction in interest expense in the third
quarter of fiscal 1995 related to the termination of an interest rate swap
agreement. Of the Company's total indebtedness of $1.1 billion at May 31, 1996,
approximately $477.5 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 $1.6
million in the third quarter of fiscal 1996 as compared to the same period in
fiscal 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 had existing joint ventures.
In the third quarter of fiscal 1995, the Company recorded income of $3.5
million related to its investments in HNW which primarily represented non-cash
income related to the Company's investment in HNW redeemable preferred stock.
Effective January 1, 1996, the Company acquired HNW from the hospital's Employee
Stock Ownership Plan ("ESOP"). Following the transaction, HNW became a wholly
owned subsidiary of the Company. See Note 5 to the accompanying consolidated
financial statements for further discussion of the Company's investments in HNW
as well as the acquisition of HNW.
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 $174.4 million of tax loss and credit carryforwards at May 31,
1996, which the Company has available to offset future taxable income. The AHM
Merger (see Note 1 to the consolidated financial statements) 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
14
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 May 31, 1996, net of the valuation allowance, will be realized
through reversal of deferred tax liabilities.
For the quarter ended May 31, 1996, the Company recorded income tax
expense of $10.8 million on pre-tax income of $40.1 million, an amount less than
the statutory rate, primarily due to the availability of net operating loss
carryforwards.
Nine Months Ended May 31, 1996 Compared
With The Nine Months Ended May 31, 1995
Total revenue for the nine months ended May 31, 1996, increased over the
same period in the prior year by $235.7 million or 17.3% to $1.6 billion. The
17.3% increase is primarily a result of the acquisitions of HNW and St Luke's as
well as an increase in same hospitals revenue as discussed below. The increase
in total revenue attributable to acquisitions, net of divestitures, was $145.7
million. Net income applicable to common shares for the nine months ended May
31, 1996 was $76.3 million, or $1.35 per share, compared to $53.9 million, or
$1.20 per share, in the same period last year.
Operating expenses in the nine months ended May 31, 1996, increased 15.4%
($178.7 million) compared to the same period in the prior year primarily as a
result of acquisitions and the increase in same hospital revenues and volumes
discussed below. Actual salaries and benefits as a percentage of total revenue
decreased from 43.9% in the first nine months of fiscal 1995 to 43.1% in the
first nine months of fiscal 1996 mainly as a result of labor efficiencies
achieved at certain facilities.
Actual other operating expenses increased 20.4% ($31.2 million). This
category of expense increased at a rate greater than other categories due to
acquisitions of physician practice groups which include the majority of the non-
salary expenses in other operating expense. In addition, the St. Luke's
acquisition in fiscal 1995 also included a Medicaid HMO. Operating expenses for
the nine months ended May 31, 1996, increased approximately $12.4 million for
claims payments made by the Medicaid HMO to third party providers. In addition,
other operating expenses increased $3.1 million for rent expense related to
acquisitions financed through leasing agreements with third parties.
On a same hospitals basis, total revenue increased 7.2% ($90.0 million)
primarily as a result of a 2.7% increase in admissions and a 15.5% increase in
gross outpatient revenue. On a same hospitals basis, salaries and benefits
decreased as a percent of total revenue from 45.2% in the first nine months of
fiscal 1995 to 44.9% in the same period of fiscal 1996 due to labor efficiencies
achieved at certain hospitals partially offset by one-time severance payments
related to labor reductions. Supplies expense increased 10.0% ($16.1 million)
15
and as a percentage of total revenue increased from 12.9% in the first nine
months of fiscal 1995 to 13.2% in the first nine months of fiscal 1996.
Purchased services decreased 3.3% ($4.6 million) and as a percentage of total
revenue decreased from 11.2% in the first nine months of fiscal 1995 to 10.1% in
the same period of fiscal 1996 primarily due to a reclassification in fiscal
1996 of the supply component of major contracts from purchased services to
supplies expense. The provision for doubtful accounts increased 3.0% ($2.6
million) but decreased from 6.9% of total revenue for the nine months ended May
31, 1995 to 6.6% for the nine months ended May 31, 1996. Other operating
expenses increased 10.5% ($11.6 million) and as a percentage of total revenue
increased from 8.9% in fiscal 1995 to 9.1% in fiscal 1996, primarily as a result
of increases in marketing and rent expenses.
Depreciation and amortization for the nine months ended May 31, 1996,
increased 19.1% ($11.8 million) over the prior year primarily as a result of the
acquisitions of St. Luke's and HNW. The increase in depreciation and
amortization attributable to acquisitions, net of divestitures, was $6.7
million. In addition, amortization on intangibles increased as a result of new
business units.
Interest expense for the first nine months of fiscal 1996 as compared to
the same period last year decreased 2.5% ($2.1 million) primarily as a result of
a decline in the average debt balance outstanding and improved pricing under the
Restated Credit Facility. Such decrease was partially offset by a $2.2 million
reduction in interest expense in the third quarter of fiscal 1995 related to the
termination of an interest rate swap agreement. Of the Company's total
indebtedness of $1.1 billion at May 31, 1996, approximately $477.5 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 $4.5
million in the first nine months of fiscal 1996 as compared to fiscal 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
had existing joint ventures.
In the first nine months of fiscal 1996, the Company recorded income of
$5.1 million, compared to $10.5 million in fiscal 1995, related to its
investments in HNW which primarily represented non-cash income related to the
Company's investment in HNW 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. See Note 5 to
the accompanying consolidated financial statements for further discussion of the
Company's investments in HNW as well as the acquisition of HNW.
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 $174.4 million of tax loss and credit carryforwards at May 31,
16
1996, which the Company has available to offset future taxable income. The AHM
Merger (see Note 1 to the consolidated financial statements) 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 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 May 31, 1996, net of the valuation allowance, will be realized
through reversal of deferred tax liabilities.
For the nine months ended May 31, 1996, the Company recorded income tax
expense of $27.1 million on pre-tax income of $103.8 million, an amount less
than the statutory rate, primarily due to the availability of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company had working capital of $76.9 million, of
which $13.8 million was cash, compared with $5.4 million at August 31, 1995. 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. The revolving credit facility matures on October 30, 2001 and is
classified as long-term debt on the Company's balance sheet. At May 31, 1996,
the Company had $372.6 million of borrowing capacity available for general
corporate purposes and acquisitions under its Restated Credit Facility.
In the nine months ended May 31, 1996, the Company's operating activities
provided cash of $106.9 million. Cash from operations was used for the $26.1
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 during the first
nine months of fiscal 1996. In addition, cash from operations was used for
income tax payments of $28.6 million and interest payments of $88.6 million.
Such uses were partially offset by $20.6 million of proceeds from sales of an
investment security classified as trading.
Net cash used in investing activities of $277.8 million during the nine
months ended May 31, 1996, consisted primarily of capital expenditures of $64.4
million and $215.0 million for the acquisitions of hospitals and related assets,
including $153.9 million for the acquisition of HNW. The Company's Restated
Credit Facility has a covenant limiting the Company's annual capital
expenditures to $100.0 million, plus carry-overs of certain unused amounts as
specified in the Restated Credit Facility. The Company's management currently
expects to incur
17
approximately $100.0 million of capital expenditures in fiscal 1996. Net cash
provided by financing activities for the nine months ended May 31, 1996 of
$179.7 million resulted primarily from $197.8 million sale of common stock and
exercise of stock options.
On October 27, 1995, the Company executed the Restated Credit Facility to
increase the borrowing capacity of the Company from $660.0 million to $900.0
million. Under the terms of the Restated Credit Facility, as of May 31, 1996,
the Company had $372.6 million of borrowing capacity available for general
corporate purposes and acquisitions. See Note 3 to the accompanying consolidated
financial statements for further discussion of the Restated Credit Facility.
On November 6, 1995, the Company completed the sale of 10,000,000 shares
of its Common Stock at a $17.625 per share public offering price. On November 9,
1995, the underwriters exercised an option to purchase an additional 1,500,000
shares to cover over-allotments. The net proceeds of approximately $192.3
million, after deducting offering expenses and underwriting discounts, was used
to reduce the indebtedness under the revolving portion of the Restated Credit
Facility in the amount of $27.2 million and for general corporate purposes.
On November 7, 1995, the Company issued a notice of redemption to the
holders of its Payable in Kind Cumulative Redeemable Convertible Preferred Stock
(the "PIK Preferred") for $15 per share with a redemption date of December 8,
1995. In the quarter ended November 30, 1995, 1,355,519 shares of PIK Preferred
were converted into 1,355,519 shares of the Company's Common Stock and 7,416
shares of the PIK Preferred remained outstanding. On December 8, 1995, the
remaining 7,416 shares of PIK Preferred were redeemed for $15 per share plus
dividends of $0.16 per share accrued through the redemption date.
The Company believes that its cash flows generated by operations together
with availability of credit under the Restated 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 May 31, 1996 is 63.1%. 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 Restated Credit Facility. Alternative financing may be
available under other arrangements, such as off-balance-sheet financing
arrangements or additional equity offerings.
Earnings before interest, taxes, depreciation, amortization and income
from investments in Houston Northwest Medical Center ("Adjusted EBITDA") for the
nine months ended May 31, 1996 increased 26.7% from the same period last year to
$248.9 million. While Adjusted EBITDA should not be construed as a substitute
for net income or a better indicator of liquidity than cash flow from operating,
investing or financing activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet its
future debt service, capital expenditure and working capital requirements. The
calculations of Adjusted EBITDA are as follows:
18
Three Months Ended May 31 Nine Months Ended May 31
------------------------- ------------------------
1995 1996 1995 1996
----------- ----------- ----------- ----------
Total Revenue $ 497,890 $ 557,866 $ 1,358,636 $1,594,319
Less: Salaries and benefits 217,384 243,515 597,109 687,391
Supplies 66,774 77,012 173,635 215,223
Purchased services 51,851 46,515 149,417 150,476
Provision for doubtful accounts 29,910 35,308 89,054 103,610
Other operating expenses 60,357 62,615 152,796 184,021
Minority interest 161 1,778 260 4,724
----------- ----------- ----------- ----------
Adjusted EBITDA $ 71,453 $ 91,123 $ 196,365 $ 248,874
=========== =========== =========== =========
The ratio of earnings to fixed charges and preferred stock dividends was
1.83 and 2.17 for the three months ended May 31, 1995 and 1996, respectively,
and 1.63 and 1.99 for the nine months ended May 31, 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. 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.
As discussed in more detail in Note 4 to the accompanying consolidated
financial statements, the IRS is currently engaged in an examination of the
federal income tax returns for fiscal years 1984, 1985 and 1986 of Summit, which
subsequent to the Company's acquisition thereof in April 1994 merged into the
Company. Summit has received a revenue agent's report with proposed adjustments
for the years 1984 through 1986 aggregating as of May 31, 1996 approximately
$16.6 million of income tax, $64.2 million of interest on the tax, $43.9 million
of penalties and $23.8 million of interest on the penalties. Summit has filed a
protest opposing the proposed adjustments. The Company believes that Summit
properly reported its income and paid its taxes in accordance with applicable
laws and in accordance with previous agreements established with the IRS. The
Company believes that the final outcome of the IRS's examinations of Summit's
prior years' income taxes will not have a material adverse effect on the results
of operations or financial position of the Company.
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.
As of May 31, 1996, the Company had approximately $477.5 million of debt
outstanding under the Restated Credit Facility with an interest rate of LIBOR
plus 1.50%. 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
19
on such debt. A 1% increase in the prime rate or LIBOR would result in
approximately a $4.8 million increase in annual interest expense based upon the
Company's credit facility indebtedness outstanding at May 31, 1996.
OUTLOOK
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 investor-owned hospitals represent less than 25.0% of the hospital
industry as of May 31, 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 nine months ended May 31, 1995 and 1996, the Company derived an
aggregate of 59.1% and 57.0%, 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
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 its operations together with availability of credit under the
Restated 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
20
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 27% for fiscal 1996 due to the January 1996 acquisition of HNW.
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 the statutory tax rate 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, false claims 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 Company believes it has the asset portfolio, financial resources and
compliance procedures necessary for continued success, but revenue and
profitability trends cannot be precisely determined at this time.
21
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT INDEX
NO. SUBJECT MATTER
10(a)............. Form of Stock Option Agreement between the Company and its
executive officer stock option grantees for its April 1996
stock option grants
10(b)............. Employment Agreement dated as of May 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. One report on Form 8-K was filed by the
Company during the fiscal quarter ended May 31, 1996, as follows:
Date of Current Report Item(s) Reported Any Financial Statements Filed
March 26, 1996 Item 5-Other Events No
Item 7(c)-Exhibits
22
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)
July 12, 1996 BY: /S/ PHILLIP W. ROE
PHILLIP W. ROE
Vice President and Controller
(Principal accounting officer
and authorized signatory)
23