How did the AMH merger change Tenet's financial profile?

The merger, completed March 1, 1995, was accounted for as a purchase for $1.5 billion in cash and 33.2 million shares valued at $488 million. Only three months of AMH results are in fiscal 1995. Total assets rose to $7.918 billion from $3.697 billion, and long-term debt rose to $3.273 billion from $223 million. The filing says the merger will add more than $250 million annually in interest expense.

What is management's plan for reducing debt?

Management said it expects to significantly reduce debt during fiscal 1996 and aims for an investment-grade rating in the near term. Planned sources include the sale of Singapore hospitals, the Malaysia, Thailand and Australia interests (about $94 million), and roughly $90 million from Hillhaven preferred stock. Debt reduction will depend in part on acquisition opportunities.

What legal risks remain from the former psychiatric business?

The company has reserves of approximately $75.7 million for unresolved matters and related legal fees, of which $59.6 million is expected to be paid within one year. The filing states there is no assurance the ultimate liability will not exceed these estimates. It also notes a greater than normal level of psychiatric malpractice litigation and a pending $63.75 million shareholder settlement, along with pending challenges to the AMH merger.

What does the company's international divestiture involve?

Tenet sold its two Singapore hospitals on June 28, 1995, for $243.3 million net of $78.3 million in debt assumed, with an estimated gain of about $150 million expected in fiscal 1996. It agreed to sell its holdings in Malaysia, Thailand and Australia for about $94 million, with closings expected by November 30, 1995. International operations were about 5% of consolidated net operating revenues.

How is Medicare and Medicaid affecting revenue?

Medicare accounted for approximately 38.9% of fiscal 1995 net patient revenue for general hospitals, up from 35.9% in 1994, while Medicaid was 7.2%, down from 8.5%. The filing states that Medicare's prospective payment rates have historically risen less than costs, and that proposed legislation could further reduce payments to hospitals.

THC 10-K FY1995 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed August 25, 1995. Cited figures are marked; the original filing is the authoritative source.

Tenet Healthcare Corporation (formerly known as National Medical Enterprises, Inc.) reported results for the fiscal year ended May 31, 1995, its first full year after the March 1, 1995 merger with American Medical Holdings, Inc. (AMH).

Net operating revenues were $3,318 million^a, up from $2,943 million in 1994, and operating income rose to $391 million from $299 million. Net income was $165 million, compared with a net loss of $425 million in fiscal 1994. Income from continuing operations was $194 million, or $1.10 per primary share.

Because the merger was accounted for as a purchase, results for prior periods reflect NME only, and only three months of AMH results are included in fiscal 1995. The merger, which cost $1.5 billion^b in cash plus 33.2 million shares, substantially increased debt: total debt rose to $3,560 million from $835 million, and total debt to equity was 1.79 to 1. The filing states that the merger will add more than $250 million annually in interest expense and that goodwill amortization is expected to be at least $62.5 million annually.

Management is pursuing a focus on domestic general hospitals. Tenet sold its two Singapore hospitals on June 28, 1995, for $243.3 million^c net of debt assumed, and has agreements to sell its holdings in Malaysia, Thailand and Australia for about $94 million. It also expects to receive about $90 million for its Hillhaven preferred stock in connection with Vencor's pending acquisition of Hillhaven.

Management says it intends to significantly reduce debt in fiscal 1996 and aims for an investment-grade rating, with debt reduction dependent on acquisition opportunities. Pending acquisitions include Mercy+Baptist Medical Center in New Orleans and Providence Memorial Hospital in El Paso, together costing about $350 million^d. The filing also describes ongoing legal exposure from the discontinued psychiatric hospital business.

Remaining reserves for unusual litigation costs and legal fees total about $75.7 million, and a global shareholder settlement totaling $63.75 million plus interest is pending court approval, with a hearing scheduled for September 18, 1995. Additional psychiatric malpractice suits and a challenge to the AMH merger remain pending. The company expects reimbursement pressure to continue from Medicare, Medicaid and managed care payers.

02—Key points

Key Highlights

Net operating revenues of $3.318 billion for fiscal 1995, up from $2.943 billion in fiscal 1994, including three months of AMH results.
Operating income of $391 million, up 30.8% from $299 million in fiscal 1994, with the operating margin rising to 11.8% from 10.2%.
Net income of $165 million, compared with a net loss of $425 million in fiscal 1994; income from continuing operations was $194 million ($1.10 per primary share).
Total debt rose to $3.560 billion from $835 million, with a total debt-to-equity ratio of 1.79 to 1 after the $1.5 billion cash and 33.2 million share AMH acquisition.
Company operates 70 domestic general hospitals with 15,451 licensed beds in 13 states, plus 13 international hospitals; international operations are being sold, including Singapore hospitals sold for $243.3 million net of debt assumed.
Remaining psychiatric-business legal reserves total about $75.7 million, and a $63.75 million shareholder settlement awaits court approval with a hearing set for September 18, 1995.
Management expects about $60 million in merger cost savings beginning in fiscal 1996 and anticipates expected sales of Hillhaven preferred stock for about $90 million.

03—Questions

Frequently Asked Questions

How did the AMH merger change Tenet's financial profile?
The merger, completed March 1, 1995, was accounted for as a purchase for $1.5 billion in cash and 33.2 million shares valued at $488 million. Only three months of AMH results are in fiscal 1995. Total assets rose to $7.918 billion from $3.697 billion, and long-term debt rose to $3.273 billion from $223 million. The filing says the merger will add more than $250 million annually in interest expense.
What is management's plan for reducing debt?
Management said it expects to significantly reduce debt during fiscal 1996 and aims for an investment-grade rating in the near term. Planned sources include the sale of Singapore hospitals, the Malaysia, Thailand and Australia interests (about $94 million), and roughly $90 million from Hillhaven preferred stock. Debt reduction will depend in part on acquisition opportunities.
What legal risks remain from the former psychiatric business?
The company has reserves of approximately $75.7 million for unresolved matters and related legal fees, of which $59.6 million is expected to be paid within one year. The filing states there is no assurance the ultimate liability will not exceed these estimates. It also notes a greater than normal level of psychiatric malpractice litigation and a pending $63.75 million shareholder settlement, along with pending challenges to the AMH merger.
What does the company's international divestiture involve?
Tenet sold its two Singapore hospitals on June 28, 1995, for $243.3 million net of $78.3 million in debt assumed, with an estimated gain of about $150 million expected in fiscal 1996. It agreed to sell its holdings in Malaysia, Thailand and Australia for about $94 million, with closings expected by November 30, 1995. International operations were about 5% of consolidated net operating revenues.
How is Medicare and Medicaid affecting revenue?
Medicare accounted for approximately 38.9% of fiscal 1995 net patient revenue for general hospitals, up from 35.9% in 1994, while Medicaid was 7.2%, down from 8.5%. The filing states that Medicare's prospective payment rates have historically risen less than costs, and that proposed legislation could further reduce payments to hospitals.

04—Continue

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