01—Abstract
Summary
Summary of the 10-K/A filed April 28, 1999. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation (filed as Tenet Healthcare Corporation, Santa Barbara, California) filed this Form 10-K/A for the fiscal year ended May 31, 1998.
The amendment restates consolidated financial statements for fiscal years 1994 through 1997 to reclassify certain expenses tied to the OrNda Merger and facility consolidation charges, following SEC staff comments made in connection with a debt exchange offer registration statement. Fiscal 1998 net operating revenues were $9,895 milliona, up from $8,691 million in 1997, and income from continuing operations before income taxes was $647 million, compared with $26 million in 1997. Excluding merger, facility consolidation and impairment charges and certain gains and losses, pretax income would have been $885 million in 1998.
Operating income was $1,128 millionb in 1998, and net income was $261 million, after $117 million in extraordinary charges from early debt extinguishment. The balance sheet strengthened over the year. Total assets rose to $12,774 million and shareholders' equity to $3,558 million, while long-term debt, excluding the current portion, increased to $5,829 million.
Net cash provided by operating activities was $403 millionc in 1998, compared with $404 million in 1997 as reported in the cash flow statement, and cash used in investing activities totaled $1,083 million, including $679 million for purchases of new businesses. Management stated that unused borrowing capacity under the $2.8 billion 1997 Credit Agreement was $1.2 billion at May 31, 1998, and that the company was in compliance with its loan covenants. Debt ratings were BB+ from Standard and Poor's and Ba1 from Moody's.
The filing highlights reimbursement and competitive pressures. Medicare accounted for approximately 38%d of net patient revenues of domestic general hospitals in 1998, down from approximately 40% in 1996 and 1997. Managed care rose to approximately 33.7% of net patient revenues in 1998, and capitated arrangements accounted for an estimated 5.0% of revenues.
Management noted that Balanced Budget Act of 1997 Medicare payment changes will significantly reduce payments as they phase in over five years. The company also reported $221 million in 1998 facility consolidation and impairment charges and said it is unable to estimate the costs of Year 2000 remediation or whether they will be material.
02—Key points
Key Highlights
- Fiscal 1998 net operating revenues of $9,895 million, up from $8,691 million in fiscal 1997.
- Income from continuing operations before income taxes of $647 million in fiscal 1998, versus $26 million in fiscal 1997; excluding special items, the company cites $885 million.
- Net income of $261 million in fiscal 1998, after $117 million of extraordinary charges from early extinguishment of debt.
- Total assets of $12,774 million and shareholders' equity of $3,558 million at May 31, 1998; long-term debt rose to $5,829 million.
- Unused borrowing capacity of $1.2 billion under the $2.8 billion 1997 Credit Agreement at May 31, 1998; company states it is in covenant compliance.
- Medicare share of domestic general hospital net patient revenues fell to approximately 38% in 1998, while managed care rose to approximately 33.7%.
- Restated fiscal 1994 through 1997 financial statements to reclassify OrNda Merger-related expenses following SEC staff comments.
03—Questions
Frequently Asked Questions
Why did the company restate prior-year financial statements?
The company restated consolidated statements for fiscal 1994 through 1997 after SEC staff comments on a debt exchange offer registration statement. The changes reclassify $121 million of expenses originally in fiscal 1997 merger, facility consolidation and impairment charges to other operating expenses, provision for doubtful accounts and salaries and benefits, or to earlier periods, and restate a $19 million tax valuation allowance reduction from fiscal 1997 to fiscal 1995.
How did fiscal 1998 results compare with fiscal 1997?
Net operating revenues rose to $9,895 million from $8,691 million. Operating income increased to $1,128 million from $461 million, and income from continuing operations was $378 million, compared with a loss of $63 million in fiscal 1997 as restated. Merger, facility consolidation and impairment charges fell to $221 million from $619 million.
What drove the 1998 facility consolidation and impairment charges?
The $221 million in 1998 charges related primarily to the planned closure or sale of three general hospitals, two specialty hospitals and twenty-nine home health agencies, impairment of certain long-lived assets, and write-offs of goodwill and other assets tied to physician practices. Approximately $140 million was non-cash, and $81 million was accrued for future cash disbursements.
What are the main risks the company identifies for its reimbursement?
The company states that Balanced Budget Act of 1997 Medicare payment reductions will significantly reduce payments as they phase in over five years, and that proposed Medicaid changes in various states could also reduce payments. Managed care payors generally pay less per patient than traditional indemnity insurers, and the company is taking on more capitated risk, with about 5.0% of revenues from capitated arrangements in fiscal 1998.
What is the company's Year 2000 exposure?
The company says its financial and general ledger systems are substantially Year 2000 compliant, and that payroll and patient accounting system changes are expected to be complete in fall 1999. It states that costs to date have not been material, but it cannot estimate future costs or whether the issue will materially affect results, because its assessment of the scope is not complete and it cannot predict the readiness of third-party systems.
04—Continue