OrNda Healthcorp last week adjusted downward more than four years of financial results, but it prepared Wall Street so well for the complex announcement that its stock went up in response.
OrNda is merging with two other hospital chains, but its registration statement had been held up amid snowstorms in Washington and while the Securities and Exchange Commission reviewed its financial reports.
Now, the merger of OrNda, American Healthcare Management and Summit Health seems to be on the Financefast track, also having garnered antitrust clearance from the Federal Trade Commission this month. OrNda is merging with King of Prussia, Pa.-based American Healthcare and Burbank, Calif.-based Summit to become the nation's fifth-largest hospital company, with 46 hospitals in 17 states.
The stock of Nashville, Tenn.-based OrNda, which is traded on NASDAQ, rose $1 to $18.75 per share after the announcement was made on March 7.
As a result of the SEC review, the company had to change the way it reported its interest and financial results from Houston Northwest, a 494-bed hospital primarily owned by an employee stock ownership plan.
The ESOP bought Houston Northwest in 1989 for $212.5 million-$150 million in cash and $62.5 million in preferred stock. The value of that stock has since accrued to about $82 million.
However, the SEC said that OrNda should account for its interest in Houston Northwest as an investor, rather than part owner.
Because of that change, the company had to reduce its earnings by $48.3 million for the 1990 through 1993 fiscal years and for the first quarter of fiscal 1994.
However, because the hospital now is treated as an investment, OrNda re-corded an $81.7 million increase in assets and shareholders' equity. In the future, OrNda will record the income from its Houston Northwest preferred stock rather than losses from its operations.
"The effect of the accounting change will have no impact on cash flow," said Keith Pitts, OrNda's chief financial officer.