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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 THE QUARTERLY PERIOD ENDED
NOVEMBER 30, 1995
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 I-7293
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TENET HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
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NEVADA 95-2557091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 COLORADO AVENUE
SANTA MONICA, CA 90404
(Address of principal executive offices)
(310) 998-8000
(Registrant's telephone number, including area code)
------------------------------------------
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 AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO
--- ---
AS OF JANUARY 10, 1996 THERE WERE 209,084,808 SHARES OF $0.075 PAR VALUE
COMMON STOCK OUTSTANDING.
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TENET HEALTHCARE CORPORATION
INDEX
Page
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - May 31, 1995
and November 30, 1995 . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Income - Three Months
and Six Months Ended November 30, 1994 and 1995 . . . . 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended November 30, 1994 and 1995 . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 20
Signature . . . . . . . . . . . . . . . . . . . . . . . . . 22
- ------------------
Note: Items 2, 3 and 5 of Part II are omitted because they are not applicable.
1
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, November 30,
1995 1995
----------- --------------
(In millions)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 155.0 $ 98.8
Short-term investments, at cost which approximates market . . . . . . . 138.5 135.2
Accounts and notes receivable, less allowance for doubtful
accounts ($184.0 at May 31 and $161.1 at November 30). . . . . . . . 564.5 731.2
Inventories of supplies, at cost. . . . . . . . . . . . . . . . . . . . 116.4 125.1
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 410.3 268.1
Assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . 184.1 37.7
Prepaid expenses and other current assets . . . . . . . . . . . . . . . 54.8 58.5
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 1,623.6 1,454.6
---------- ----------
Investments and other assets . . . . . . . . . . . . . . . . . . . . . . . 362.8 510.2
Property, plant and equipment, at cost . . . . . . . . . . . . . . . . . . 4,142.9 4,464.7
Less accumulated depreciation and amortization. . . . . . . . . . . . . 824.4 901.2
---------- ----------
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . 3,318.5 3,563.5
---------- ----------
Intangible assets, at cost less accumulated amortization
($58.4 at May 31 and $99.2 at November 30). . . . . . . . . . . . . . . 2,613.5 2,612.2
---------- ----------
$ 7,918.4 $ 8,140.5
---------- ----------
---------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, November 30,
1995 1995
---------- ------------
(In millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . $ 252.3 $ 273.4
Short-term borrowings and notes . . . . . . . . . . . . . . . . . . 34.9 2.1
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 358.8 268.1
Employee compensation and benefits. . . . . . . . . . . . . . . . . 162.5 160.8
Reserves related to discontinued operations . . . . . . . . . . . . 76.6 25.4
Other current liabilities . . . . . . . . . . . . . . . . . . . . . 471.4 448.9
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . 1,356.5 1,178.7
---------- ----------
Long-term debt, net of current portion . . . . . . . . . . . . . . . . 3,273.4 3,254.9
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 300.9 384.1
Other long-term liabilities and minority interests . . . . . . . . . . 1,001.5 967.8
Shareholders' equity:
Common stock, $0.075 par value; authorized 450,000,000 shares;
218,713,406 shares issued at May 31, 1995 and at
November 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . 16.4 16.4
Other shareholders' equity. . . . . . . . . . . . . . . . . . . . . 2,241.3 2,557.9
Less common stock in treasury, at cost, 18,775,274 shares at
May 31, 1995 and 15,159,055 at November 30, 1995 . . . . . . . . (271.6) (219.3)
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . . . . 1,986.1 2,355.0
---------- ----------
$ 7,918.4 $ 8,140.5
---------- ----------
---------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
3
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 1994 AND 1995
Three Months Six Months
----------------------- -----------------------
1994 1995 1994 1995
-------- -------- -------- --------
(In millions, except per share and share amounts)
Net operating revenues . . . . . . . . . . . . . . . . . . . $ 638.8 $1,370.9 $1,301.6 $2,654.8
-------- -------- -------- --------
Operating expenses:
Salaries and benefits . . . . . . . . . . . . . . . . . . 273.0 544.7 556.2 1,046.9
Supplies. . . . . . . . . . . . . . . . . . . . . . . . . 78.5 186.0 159.1 364.7
Provision for doubtful accounts . . . . . . . . . . . . . 20.7 69.7 46.8 137.0
Other operating expenses. . . . . . . . . . . . . . . . . 144.6 296.7 294.7 578.3
Depreciation . . . . . . . . . . . . . . . . . . . . . . 33.1 61.3 67.4 122.7
Amortization. . . . . . . . . . . . . . . . . . . . . . . 4.1 21.2 7.7 40.0
-------- -------- -------- --------
Operating income . . . . . . . . . . . . . . . . . . . . . . 84.8 191.3 169.7 365.2
-------- -------- -------- --------
Interest expense, net of capitalized portion . . . . . . . . (17.3) (81.3) (35.0) (158.4)
Investment earnings . . . . . . . . . . . . . . . . . . . . 4.4 5.4 10.4 12.7
Equity in earnings of unconsolidated affiliates. . . . . . . 6.1 7.1 12.4 14.0
Minority interests . . . . . . . . . . . . . . . . . . . . . (1.8) (5.0) (3.8) (10.6)
Net gain (loss) on disposals of facilities and
long-term investments . . . . . . . . . . . . . . . . . . -- 171.1 (2.5) 294.6
Gain on affiliate's sale of
common stock. . . . . . . . . . . . . . . . . . . . . . . -- 17.3 32.0 17.3
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . . . . . . . . 76.2 305.9 183.2 534.8
Taxes on income . . . . . . . . . . . . . . . . . . . . . . (30.0) (123.1) (73.0) (233.7)
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 46.2 $ 182.8 $ 110.2 $ 301.1
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.27 $ 0.90 $ 0.65 $ 1.48
Fully diluted . . . . . . . . . . . . . . . . . . . . . . $ 0.27 $ 0.85 $ 0.63 $ 1.41
Weighted average shares and share equivalents
outstanding primary (in thousands). . . . . . . . . . . . 168,319 203,845 168,390 202,865
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
4
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 1994 AND 1995
1994 1995
---------- ----------
(IN MILLIONS)
Net cash provided by (used in) operating activities, including net
expenditures for discontinued operations and restructuring
charges of $411.8 in 1994 and $73.4 in 1995 . . . . . . . . . . . . . . $ (320.5) $ 11.1
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . . . . . . . . . . . (59.6) (160.5)
Purchases of new businesses, net of cash acquired . . . . . . . . . . . (9.0) (367.3)
Proceeds from sales of facilities and other assets. . . . . . . . . . . 154.4 402.8
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.1) (9.9)
---------- ----------
Net cash provided by (used in) investing activities. . . . . . . . . 77.7 (134.9)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of 8-5/8% Senior Notes . . . . . . . . . . . . . . . - 487.4
Proceeds from other borrowings. . . . . . . . . . . . . . . . . . . . . 129.3 591.8
Payments of borrowings. . . . . . . . . . . . . . . . . . . . . . . . . (72.4) (1,065.9)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . 3.9 9.4
Proceeds from exercises of performance investment options . . . . . . . - 44.9
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 -
---------- ----------
Net cash provided by financing activities. . . . . . . . . . . . . . 61.4 67.6
---------- ----------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . (181.4) (56.2)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 313.2 155.0
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 131.8 $ 98.8
---------- ----------
---------- ----------
Supplemental disclosures:
Interest paid, net of amounts capitalized . . . . . . . . . . . . . . . $45.9 $150.4
Income taxes paid, net of refunds received . . . . . . . . . . . . . . 38.9 19.7
Major effects of acquiring new businesses:
Assets acquired, primarily property, plant and equipment . . . . . . . $59.1 $329.1
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . 34.9 31.6
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
5
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments that are necessary to fairly state the
financial position of Tenet Healthcare Corporation, its cash flows and the
results of its operations for the periods indicated. All the adjustments
affecting net income are of a normal recurring nature.
Readers of this interim financial information should refer to the Company's
audited financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the preceding fiscal year
and the adequacy of additional disclosure needed for a fair presentation
should be determined in that context. Accordingly, footnotes and other
disclosures which would substantially duplicate the disclosure contained in
the Company's most recent annual report to security holders have been
omitted. The patient volumes and net operating revenues of the Company's
hospitals are subject to seasonal variations caused by a number of factors,
including but not necessarily limited to, seasonal cycles of illness,
climate and weather conditions, vacation patterns of both hospital patients
and admitting physicians and other factors relating to the timing of
elective hospital procedures. Net income also is not necessarily
representative of operations for a full year for various reasons, including
interest rates, acquisitions and disposals of facilities and long-term
assets, revenue allowances and discount fluctuations, the timing of price
changes and fluctuations in quarterly tax rates. These same considerations
apply to all year-to-year comparisons.
2. On March 1, 1995, the Company, in a transaction accounted for as a
purchase, acquired all of the outstanding common stock of American Medical
Holdings, Inc. ("AMH") for $1.5 billion in cash and 33,156,614 shares of
the Company's common stock valued at approximately $488.0 million.
Accordingly, the results of operations of AMH and its subsidiaries are
included in the accompanying consolidated financial statements of the
Company since the date of acquisition.
The following supplemental pro forma information for the three months and
six months ended November 30, 1994 is unaudited and assumes that the merger
occurred as of the beginning of the period. The amounts reflect pro forma
adjustments for interest on new and refinanced debt, depreciation on
revalued property, plant and equipment, and the amortization of goodwill.
Three Months Six Months
------------------- --------------
(in millions, except per share amounts)
Net operating revenues $1,271.0 $2,572.0
Net income $ 50.8 $ 123.3
Fully diluted earnings per share $ 0.24 $ 0.59
The pro forma information shown above does not purport to present the
results of operations of the Company had the transactions and events
assumed therein occurred on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future.
In addition, such information does not reflect certain cost savings that
management believes may be realized following the merger.
6
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. The Company's net operating revenues consist primarily of net patient
service revenues, which are based on established billing rates less
applicable allowances and discounts. These allowances and discounts,
primarily for patients covered by Medicare, Medicaid and other contractual
programs, amounted to $661.5 million and $1,462.7 million for the three-
month periods ended November 30, 1994 and 1995, and $1,327.9 million and
$2,850.7 million for the six-month periods, respectively.
4. During the three-month and six-month periods ended November 30, 1995,
actual costs incurred and charged against the Company's reserves for
discontinued operations were approximately $44.8 million and
$55.1 million, respectively. Costs incurred and charged against the
restructuring reserves established during the last three years were
approximately $12.0 million for the three months ended November 30, 1995
and $18.4 million for the six months then ended. The restructuring
reserves are included in other current liabilities or other long-term
liabilities in the Company's balance sheets at May 31, 1995 and November
30, 1995.
5. On September 28, 1995, Vencor, Inc. ("Vencor") acquired all of the
outstanding common stock of The Hillhaven Corporation ("Hillhaven")
pursuant to a transaction approved by the shareholders of each of Vencor
and Hillhaven. As a result of the transaction, the 8,878,147 shares of
Hillhaven common stock that had been owned by the Company were exchanged
for 8,301,067 shares of Vencor common stock (at an exchange ratio of 0.935
Vencor shares for each Hillhaven share). In addition, the Company received
approximately $91.8 million for its Hillhaven Series C preferred stock and
Hillhaven Series D preferred stock. The exchange resulted in a pre-tax
gain, net of costs and expenses, of approximately $171.1 million. The
proceeds from the redemption of the Hillhaven preferred stock were applied
to repay secured bank loans under the Company's credit agreement.
The Company's investment in Hillhaven previously was accounted for under
the equity method. Following the exchange, the Company owns approximately
11.8% of Vencor's common stock and accounts for its investment in Vencor
common stock in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." The Company has classified such securities as "available for
sale" whereby their carrying value will be adjusted to market value at the
end of each accounting period through a credit or charge to shareholders'
equity.
6. In October 1995, the Company sold $500 million of new Senior Notes due
December 2003. The notes have a coupon of 8-5/8% and were priced at 99.666%
of par to yield 8.68%. In January 1996, the Company issued $320 million
of 6% Exchangeable Subordinated Notes due 2005 that will be exchangeable at
the option of the holder for shares of common stock of Vencor at any
time on or after November 6, 1997 at an exchange rate of 25.9403 shares per
$1,000 principal amount of the notes, subject to the Company's right to pay
an amount in cash equal to the market price of the shares of Vencor common
stock in lieu of delivery of such shares. The notes will be redeemable at
the option of the Company at any time on or after January 15, 1999 at the
redemption prices set forth in the indenture, plus accrued and unpaid
interest. The net proceeds from the notes were applied to repay secured
bank loans under the Company's credit agreement.
7
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is looking to the Emerging Issues Task Force of the Financial
Accounting Standards Board at its next scheduled meeting for guidance as to
the appropriate accounting for the exchangeable notes and the Company's
investment in Vencor if the fair market value of such investment ever
exceeds the carrying value of the notes. At November 30, 1995 the fair
market value of the investment was approximately $259.0 million. Management
does not believe that any adjustments, if any, to the carrying value of the
notes would have a material effect on the consolidated financial condition
of the Company.
7. In October 1995, the Company sold its interest in Australian Medical
Enterprises, Limited ("AME") for a net cash consideration of approximately
$68.3 million, and the Company sold its interest in the Subang Jaya Medical
Centre in Malaysia for net cash consideration of approximately $12.0
million. The net proceeds from these sales were used to repay secured bank
loans under the Company's credit agreement. The Company also has reached an
agreement to sell its 40% interest in the Bumrungrad Medical Center in
Thailand. The Company expects to receive net cash consideration of
approximately $20.8 million from this sale during the third quarter of
fiscal 1996.
8. In August 1995, the Company acquired for approximately $222.6 million in
cash the Mercy+Baptist Medical Center, a not-for-profit system of two
general hospitals with an aggregate of 759 licensed beds located in New
Orleans, Louisiana and a related physician practice. In September 1995, the
Company acquired the Providence Memorial Hospital, a not-for-profit general
hospital located in El Paso, Texas for approximately $80.3 million in cash.
Providence is licensed for 471 general hospital beds (34 of which may be
used as skilled nursing beds) and is licensed for 30 additional
rehabilitation and sub-acute care beds. In October 1995, the Company
entered into a long-term lease of the 49-bed Medical Center of Manchester
in central Tennessee. In November 1995, the Company acquired for
approximately $32.6 million in cash the 104-bed not-for-profit Methodist
Hospital of Jonesboro, a general hospital located in Jonesboro, Arkansas.
These acquisitions were financed by borrowings under the Company's bank
credit agreement.
9. On October 30, 1995, Total Renal Care Holdings, Inc. ("TRC"), an operator
of outpatient renal dialysis centers in which the Company owned an
approximate 23% interest at May 31, 1995, completed a public offering of
6,000,000 shares of its common stock. This transaction resulted in a
reduction of the Company's ownership interest in TRC to approximately 13.6%
and a gain to the Company of approximately $17.3 million.
Because the Company now owns less than 20% of the common shares and does
not exercise significant influence over TRC, the Company no longer accounts
for its investment in TRC by the equity method, but will account for it in
accordance with SFAS No. 115.
10. SFAS No. 121, titled "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," effective for fiscal years
8
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
beginning after December 15, 1995, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. In addition,
this statement requires that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount
or fair value less cost to sell. The Company intends to adopt this
statement in fiscal 1997 and the adoption of SFAS No. 121 is not expected
to have a material impact on the consolidated financial condition of the
Company.
11. There have been no material changes to the description of Professional
and General Liability Insurance set forth in Note 8A of the Notes to
Consolidated Financial Statements of the Company for its fiscal year
ended May 31, 1995. Except as described below, there have been no
material changes to the description of Significant Legal Proceedings -
Psychiatric Business set forth in Note 8B of the Notes to Consolidated
Financial Statements of the Company for its fiscal year ended May 31,
1995 ("Note 8B"). The settlement of the shareholder derivative action
referred to in Note 8B, received preliminary court approval in November
1995 and final approval in January 1996. The Company has reached an
agreement to settle one of the class action lawsuits referred to in Note
8B, In re National Medical Enterprises, Inc. Securities Litigation I,
which settlement was approved by the court and paid by the Company in
September 1995. The Company has continued to receive additional lawsuits
of the type referred to under Psychiatric Malpractice Cases in Note 8B,
and expects that additional lawsuits with similar allegations will be
filed from time to time. There have been no material changes to the
description of the litigation relating to the AMH Merger set forth in
Note 8C of the Notes to Consolidated Financial Statements of the Company
for its fiscal year ended May 31, 1995. Although, based upon information
currently available to it, management believes that the amount of damages
in excess of the reserves for unusual litigation costs that may be
awarded in any of the unresolved legal proceedings cannot reasonably be
estimated, management does not believe it is likely that any damages
awarded in such legal proceedings will have a material adverse effect on
the Company's results of operations, liquidity or capital resources.
12. During the quarter ended November 30, 1995, $47.3 million of the
Company's Convertible Floating Rate Debentures due in April 1996 were
converted into 2,985,679 shares of the Company's common stock through
the exercise of 449 performance investment plan options by employees and
former employees of the Company. The proceeds from these conversions
aggregated $44.9 million and were used to repay secured bank loans under
the Company's credit agreement.
From December 1, 1995 through January 10, 1996, an additional $76.2
million in debentures were converted into 4,814,331 shares of common
stock through the exercise of 724 performance investment plan options by
employees and former employees of the Company. The proceeds from these
conversions aggregated $72.4 million and were used to repay secured bank
loans under the Company's credit agreement. The remaining 857 performance
investment plan options, which expire in April 1996 are convertible into
5,698,750 shares of common stock at an exercise price equivalent to
$15.83 per share.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity for the six months ended November 30, 1995 has
been derived principally from the cash proceeds from operating activities,
disposals of assets and investments, realization of tax benefits associated
with losses from its discontinued psychiatric business and borrowings under
its bank credit agreement. During the six months ended November 30,1995, net
cash provided by operating activities was $84.5 million before expenditures
of $73.4 million related to restructuring reserves and discontinued
operations. Cash flows from operating activities in the six months ended
November 30, 1995 were adversely affected by an increase in net accounts
receivable of approximately $66.4 million related to hospitals acquired in
the six months ended November 30, 1995, primarily as a result of a temporary
increase in Medicare receivables due to changes in fiscal intermediaries at
these hospitals. For the prior year's six-month period cash provided by
operating activities was $91.3 million before expenditures of $411.8 million
for restructuring charges and discontinued operations. Management believes
that cash flows from operations in the future will continue to be positive.
The Company's cash and cash equivalents at November 30, 1995 were $98.8
million, a decrease of $56.2 million over May 31, 1995. Working capital at
November 30, 1995 was $279.9 million, compared to $267.1 million at May 31,
1995.
Management believes that this liquidity, along with the availability of
credit under the Company's bank credit agreement, will be adequate to finance
planned capital expenditures, acquisitions and other known operating needs
over the short-term (1 to 18 months) and the long-term (18 months to 3
years), including resolution of the unusual legal proceedings referred to
herein as well as to meet debt service requirements, including the increased
debt service requirements resulting from the March 1, 1995 acquisition of
American Medical Holdings, Inc. The only significant remaining obligations
related to discontinued operations are the unresolved legal proceedings
discussed in the Company's Annual Report to Shareholders on Form 10-K and
Form 10-K/A for the year ended May 31, 1995, and herein. The Company has
reserves for the remaining legal proceedings not yet settled as of November
30, 1995 and an estimate of the legal fees related to these matters to be
incurred in the future totaling approximately $39.7 million, of which $25.4
million is expected to be paid within one year. These reserves represent
management's estimate of the net costs of the ultimate disposition of these
matters. There can be no assurance, however, that the ultimate liability
will not exceed such estimates. (See Note 11.)
The Company's strategy includes the pursuit of growth through the
development of integrated healthcare systems in certain strategic markets,
including joint ventures, hospital acquisitions and physician practice
acquisitions. All or portions of this growth may be financed through
available credit under the Company's revolving credit agreement or,
depending on capital market conditions, the sale of additional debt or equity
securities or other bank borrowings. The Company's unused borrowing capacity
under its revolving credit agreement was $461.4 million as of November 30,
1995. On October 11, 1995, the Company sold $500 million of Senior Notes due
2003 and on January 5, 1996, the Company sold $320 million of Exchangeable
Subordinated Notes due 2005. The net proceeds of both offerings were used to
repay secured loans under the Company's bank credit agreement.
Proceeds from the sales of facilities and other assets were $402.8 million
in the six months ended November 30, 1995, substantially all of which was
derived from (1) the sale of the Company's two hospitals and related healthcare
businesses in Singapore; (2) the redemption of the Company's Hillhaven Series C
and Series D preferred stock; (3) the sale of the Company's interest in the
Subang Jaya Medical Centre in Malaysia; and (4) the sale of the Company's
interest in Australian Medical Enterprises, Limited. The Company used the net
proceeds from these transactions to repay secured bank loans under its credit
agreement. In addition, the Company expects to receive aggregate net cash
consideration of approximately $20.8 million from the sale of its holdings in
Thailand, which transaction is expected to close before February 29, 1996. In
addition, the Company is continuing to evaluate opportunities to monetize
certain other
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
investments and non-core assets.
In August 1995, the Company acquired two hospitals and a related
physician practice in New Orleans, Louisiana and in September 1995, acquired
a hospital in El Paso, Texas. The aggregate purchase price for both
transactions was approximately $302.9 million (including the purchase of
current assets and the assumption of current liabilities). In November 1995,
the Company acquired a 104-bed not-for-profit general hospital in Jonesboro,
Arkansas for $32.6 million. The above acquisitions were financed by
borrowings under the Company's bank credit agreement.
Cash payments for property and equipment were $160.5 million in the six
months ended November 30, 1995, compared to $59.6 million in the six months
ended November 30, 1994. Capital expenditures for the Company, before any
significant acquisitions of facilities, are expected to be approximately $385.0
million for the current fiscal year ending May 31, 1996 and approximately $400.0
million for each of the following two years. Such capital expenditures relate
to the development of healthcare services networks in selected geographic areas
and hospital facility construction projects. These expenditures will be funded
by cash flows from operations and available borrowings under the Company's
existing bank credit agreement.
Gross proceeds from borrowings amounted to $1.1 billion during the six
months ended November 30, 1995, including $487.4 million of net proceeds from
the sale of the 8-5/8% Senior Notes due 2003 and borrowings of $566.0
million under the Company's bank credit agreement. Borrowings in the prior
year six-month period amounted to $129.3 million. The increase is due
primarily to the purchases of new businesses noted above and repayments of
secured bank loans under the Company's credit agreement. Repayments of
borrowings also were significantly higher in 1995 than in 1994 due to the
application of proceeds received from sales of facilities and other assets
discussed above. Debt service requirements have increased significantly with
the addition of the financing incurred to fund the acquisition of American
Medical Holdings, Inc. on March 1, 1995. These additional interest and debt
repayment obligations are expected to be funded from operations.
In addition to proceeds from borrowings, cash flows from financing
activities were enhanced during the six-months ended November 30, 1995 by
$44.9 million in proceeds from the exercise of performance investment plan
options and the corresponding conversion of Convertible Floating Rate
Debentures due April 1996 into 2,985,679 shares of the Company's common
stock. The proceeds from these transactions were used to repay secured bank
loans under the Company's credit agreement. Continuing exercises of
performance investment plan options from December 1, 1995 through January 10,
1996 have resulted in additional cash proceeds of $72.4 million and the
issuance of an additional 4,814,331 shares of common stock. The remaining 857
options, all of which expire in April 1996, are convertible into 5,698,750
shares of common stock at an exercise price of $15.83 per share. These
options, if converted, will yield additional cash proceeds of $85.7 million
between January 10, 1996 and April 1996, which proceeds will be used to
reduce secured bank loans under the Company's credit agreement.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's bank credit agreement and debt securities have affirmative,
negative and financial covenants with which the Company must comply. These
covenants include, among other requirements, limitations on borrowings, liens,
investments, and assets sales, a prohibition on the payment of dividends, and
covenants regarding maintenance of specified levels of net worth, debt ratios
and fixed-charge ratios.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following is a summary of operations for the quarters and six months
ended November 30, 1994 and 1995:
Quarter Ended November 30
----------------------------------------------------
1994 1995 1994 1995
------------ ------------ ------------ ------------
(dollars in millions) (% of net operating revenues)
Net operating revenues:
Domestic general hospitals . . . . . $ 516.1 $ 1,264.8 80.8% 92.3%
Other domestic operations (1). . . . 69.4 89.5 10.9% 6.5%
International operations . . . . . . 53.3 16.6 8.3% 1.2%
------------ ------------ ------------ ------------
Net operating revenues . . . . . . . . 638.8 1,370.9 100.0% 100.0%
------------ ------------ ------------ ------------
Operating expenses:
Salaries and benefits . . . . . . . (273.0) (544.7) 42.7% 39.7%
Supplies . . . . . . . . . . . . . . (78.5) (186.0) 12.3% 13.6%
Provision for doubtful accounts . . (20.7) (69.7) 3.2% 5.1%
Other operating expenses . . . . . . (144.6) (296.7) 22.7% 21.6%
Depreciation . . . . . . . . . . . . (33.1) (61.3) 5.2% 4.5%
Amortization . . . . . . . . . . . . (4.1) (21.2) 0.6% 1.5%
------------ ------------ ------------ ------------
Operating income . . . . . . . . . . . $ 84.8 $ 191.3 13.3% 14.0%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Six Months Ended November 30
------------------------------------------------------
1994 1995 1994 1995
------------ ------------ ------------ ------------
(dollars in millions) (% of net operating revenues)
Net operating revenues:
Domestic general hospitals . . . . . $ 1,042.4 $ 2,440.0 80.0% 91.9%
Other domestic operations (1). . . . 138.2 164.3 10.6% 6.2%
International operations . . . . . . 104.4 50.5 8.1% 1.9%
Other (2). . . . . . . . . . . . . . 16.6 - 1.3% -
------------ ------------ ------------ ------------
Net operating revenues . . . . . . . . 1,301.6 2,654.8 100.0% 100.0%
------------ ------------ ------------ ------------
Operating expenses:
Salaries and benefits . . . . . . . (556.2) (1,046.9) 42.7% 39.4%
Supplies . . . . . . . . . . . . . . (159.1) (364.7) 12.2% 13.7%
Provision for doubtful accounts . . (46.8) (137.0) 3.6% 5.2%
Other operating expenses . . . . . . (294.7) (578.3) 22.7% 21.8%
Depreciation . . . . . . . . . . . . (67.4) (122.7) 5.2% 4.6%
Amortization . . . . . . . . . . . . (7.7) (40.0) 0.6% 1.5%
------------ ------------ ------------ ------------
Operating income . . . . . . . . . . . $ 169.7 $ 365.2 13.0% 13.8%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(1) NET OPERATING REVENUES OF OTHER DOMESTIC OPERATIONS CONSIST PRIMARILY OF
REVENUES FROM (I) THE COMPANY'S REHABILITATION HOSPITALS, LONG-TERM CARE
FACILITIES AND PSYCHIATRIC HOSPITALS THAT ARE LOCATED ON OR NEAR THE SAME
CAMPUSES AS THE COMPANY'S GENERAL HOSPITALS; (II) HEALTHCARE JOINT VENTURES
OPERATED BY THE COMPANY; (III) SUBSIDIARIES OF THE COMPANY OFFERING HEALTH
MAINTENANCE ORGANIZATIONS, PREFERRED PROVIDER ORGANIZATIONS AND INDEMNITY
PRODUCTS; AND (IV) REVENUES EARNED BY THE COMPANY IN CONSIDERATION OF THE
GUARANTEES OF CERTAIN INDEBTEDNESS AND LEASES OF HILLHAVEN AND OTHER THIRD
PARTIES.
(2) CONSISTS OF REVENUES FROM TOTAL RENAL CARE, INC., ACCOUNTED FOR AS A
CONSOLIDATED SUBSIDIARY PRIOR TO THE AUGUST 1994 SALE OF APPROXIMATELY 75%
OF THE COMPANY'S EQUITY INTEREST.
Income before income taxes was $305.9 million for the quarter ended
November 30, 1995, compared with $76.2 million for the prior year quarter.
These results include pre-tax net gains on disposals of assets of $188.4 million
(approximately $.54 per share net of taxes, on a fully diluted basis) in the
quarter ended November 30, 1995. Income before income taxes was $534.8 million
for the six months ended November 30, 1995, compared with $183.2 million for the
prior year period. These results include pre-tax net gains on disposals of
assets of $311.9 million (approximately $.82 per share net of taxes, on a fully
diluted basis) in 1995 and $29.5 million (approximately $.09 per share net of
taxes, on a fully diluted basis) in 1994.
Net operating revenues for the quarter and six months ended November 30,
1995 were $1,370.9 million and $2,654.8 million, respectively, compared with
$638.8 million and $1,301.6 million in the prior year periods. The current
quarter and six-month periods include revenues attributable to facilities
acquired in the March 1, 1995 acquisition of AMH.
Operating income increased by $106.5 million from the prior year quarter
and by $195.5 million for the six months ended November 30, 1995 from the
prior year six-month period primarily due to the acquisition of AMH referred to
above. The operating income margin for the current quarter increased to 14.0%
from 13.3% a year ago and for the current six month period it increased to 13.8%
from 13.0% a year ago. The increase in the operating margin is due primarily to
effective cost control programs in the hospitals and the benefits of overhead
reduction plans implemented during the first quarter of fiscal 1995 and
following the AMH merger.
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals.
Three Months Ended Six Months Ended
November 30, November 30,
--------------------------------------- -----------------------------------------
Increase Increase
1994 1995 (Decrease) 1994 1995 (Decrease)
---------- ---------- ---------- ---------- ---------- ----------
Number of hospitals (at end of period) . 33 75 42 33 75 42
Licensed beds (at end of period) . . . . 6,622 16,827 154.1% 6,622 16,827 154.1%
Net inpatient revenues (in millions) . . $ 366.8 $ 839.4 128.8% $ 740.2 $ 1,626.7 119.8%
Net outpatient revenues (in millions) . . $ 138.4 $ 390.0 181.8% $ 282.5 $ 755.3 167.4%
Admissions . . . . . . . . . . . . . . . 48,663 120,363 147.3% 97,741 231,866 137.2%
Equivalent admissions . . . . . . . . . . 64,496 166,564 158.3% 129,662 323,251 149.3%
Average length of stay (days) . . . . . . 5.5 5.5 - 5.5 5.5 -
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Patient days . . . . . . . . . . . . . . 266,541 661,141 148.0% 535,480 1,280,367 139.1%
Equivalent patient days . . . . . . . . . 350,812 894,989 155.1% 704,624 1,755,944 149.2%
Net inpatient revenues per patient day . $ 1,376 $ 1,270 (7.7)% $ 1,382 $ 1,270 (8.1)%
Utilization of licensed beds . . . . . . 44.2% 43.4% (0.8)% * 43.7% 43.1% (0.6)% *
Outpatient visits . . . . . . . . . . . . 369,211 1,387,899 275.9% 746,750 2,666,656 257.1%
*The % change is the difference between 1995 and 1994 percentages shown.
Net operating revenues from the Company's domestic general hospital
operations increased 145.1% to $1,264.8 million for the three months ended
November 30, 1995, compared with $516.1 million for the prior year period.
Net operating revenues for the six-month period ended November 30, 1995 and
1994 were $2,440.0 million and $1,042.4 million, respectively.
Net operating revenues on a same facility basis increased 4.4% for the
three months ended November 30, 1995, compared with the prior year quarter
and increased 2.9% for the comparable six-month period. Same facility net
inpatient revenue per patient day increased 3.8% for the three months ended
November 30, 1995, compared with the prior year quarter and increased 2.1%
for the comparable six-month period. Same facility admissions increased 3.2%
for the three months ended November 30, 1995 compared with the prior year
quarter and increased 2.2% for the comparable six-month period. The same
facilities consists of 33 facilities owned and operated by the Company on
June 1, 1994 and November 30, 1995 and 36 facilities owned by AMH on June 1,
1994 and now owned and operated by the Company. These increases have
occurred in spite of continued pressures by payors to reduce admissions and
lengths of stay and a continuing shift of less intensive services from an
inpatient to an outpatient basis or to alternative healthcare delivery
services because of technological improvements.
Medicare revenues as a percentage of total patient revenues were 38.4% for
the three months and six months ended November 30, 1995, compared with 37.3% and
36.2% for the prior year periods, respectively. Historically, rates paid under
Medicare's prospective payment system for inpatient services have increased,
but such increases have been less than cost increases. Payments for Medicare
outpatient services are presently cost reimbursed, but there are pending certain
proposed regulations that would convert Medicare reimbursement for outpatient
services to a prospective payment system. Medicaid programs in certain states
in which the Company operates also are undergoing changes that will result in
reduced payments to hospitals. The Company has implemented hospital cost
control programs and overhead reductions and is forming integrated health
delivery systems to address the reduced payments. Pressures to control
healthcare costs have resulted in an increase in the percentage of revenues
attributable to managed care payors. The Company anticipates that its managed
care business will increase in the future.
The patient volumes and net operating revenues of the Company's domestic
general hospitals are subject to seasonal variations caused by a number of
factors, including but not necessarily limited to, seasonal cycles of illness,
climate and weather conditions, vacation patterns of both hospital patients and
admitting physicians and other factors relating to the timing of elective
hospital procedures.
Net operating revenues from the Company's other domestic operations
increased 29.0% to $89.5 million for the three months ended November 30, 1995
compared to $69.4 million for the prior year period, representing an increase
of $20.1 million. Net operating revenues for the six month period increased
18.9% to $164.3 million compared with the prior year six-month period. This
increase primarily reflects continued growth of National Health Plans, the
Company's HMO and insurance subsidiary and growth of joint ventures and
physician practices.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net operating revenues from the Company's international operations
decreased 68.9% to $16.6 million for the three months ended November 30,
1995, compared to $53.3 million for the prior year period, representing a
decrease of $36.7 million. This decrease is attributable principally to the
sales of the Company's hospitals and related healthcare businesses in
Singapore and Australia. The Company expects to conclude the previously
announced sale of its 40% interest in the Bumrungrad Medical Center in
Thailand before the end of the third quarter of fiscal 1996. Net operating
revenues and operating profits of the sold international facilities for the
period from June 1, 1995 through the dates of sale (all of which occurred
prior to Novemer 30, 1995) were $50.5 million and $6.7 million,
respectively. Net operating revenues and operating profits for the prior
year six month period were $99.9 million and $20.2 million, respectively.
Operating expenses, which include salaries and benefits, supplies,
provision for doubtful accounts, depreciation and amortization, and other
operating expenses, were $1,179.6 million for the quarter ended November 30,
1995 and $554.0 million for the prior year quarter. Operating expenses for
the current year periods include operating expenses from the facilities
acquired in the March 1, 1995 AMH merger. Operating expenses for the current
and prior year six month periods were $2,289.6 million and $1,131.9 million,
respectively.
Salaries and benefits expense as a percentage of net operating revenues was
39.7% in the quarter ended November 30, 1995 and 42.7% in the prior year
quarter. Salaries and benefits expense as a percentage of net operating
revenues for the current and prior year six month periods were 39.4% and 42.7%,
respectively. The improvement is primarily attributable to a reduction in
staffing levels implemented during the first quarter of fiscal 1995 and
following the AMH merger.
Supplies expense as a percentage of net operating revenues was 13.6% in the
quarter ended November 30, 1995, and 12.3% in the prior year quarter. Supplies
expense as a percentage of net operating revenues for the current and prior year
six month periods were 13.7% and 12.2%, respectively. The increase over the
prior year periods is primarily attributable to higher supplies expense in the
facilities acquired in the AMH merger. The Company expects to reduce supplies
expense through the incorporation of the acquired facilities into the Company's
existing group purchasing program.
The provision for doubtful accounts as a percentage of net operating
revenues was 5.1% for the quarter ended November 30, 1995, and 3.2% in the prior
year quarter. The provision for doubtful accounts as a percentage of net
operating revenues for the current and prior year six month periods were 5.2%
and 3.6%, respectively. The increase over the prior year periods is primarily
attributable to higher bad debt experience at the facilities acquired in the AMH
merger. The Company has been establishing improved follow-up collection systems
through investment in its electronic claims processing network and through the
continued consolidation of hospital business office functions.
Other operating expenses as a percentage of net operating revenues improved
from 22.7% for the quarter ended November 30, 1994 to 21.6% in the quarter ended
November 30, 1995. The comparison is similar for the six-month periods. This
improvement reflects the effects of the cost control programs and
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
overhead reduction plans mentioned earlier.
Depreciation and amortization expense as a percentage of net operating
revenues were 6.0% in the quarter ended November 30, 1995, and 5.8% in the prior
year quarter. Depreciation and amortization expense as a percentage of net
operating revenues for the current and prior year six month periods were 6.1%
and 5.8%, respectively. The increase from $75.1 million in the six months
ended November 30, 1994 to $162.7 million for the six months ended November 30,
1995 is due primarily to depreciation expense at the facilities acquired in the
AMH merger and to the increase in goodwill amortization resulting from the AMH
merger and current year hospital acquisitions. Goodwill amortization associated
with the AMH merger will be approximately $62.5 million annually.
Interest expense, net of capitalized interest, was $81.3 million in the
quarter ended November 30, 1995, and $17.3 million in the prior year quarter.
Interest expense, net of capitalized interest for the current and prior year
six-month periods was $158.4 million and $35.0 million, respectively. The
increase in interest expense was due primarily to the acquisition of AMH; the
senior notes and bank loans used to finance the acquisition and to retire
debt in connection with the merger.
Taxes on income as a percentage of income before income taxes was 43.7% in
the six months ended November 30, 1995 compared with 39.8% in the prior year
period. The difference between the Company's effective income tax rate and the
statutory federal income tax rate is shown below:
November 30,
------------------------------------------------------
(in millions of dollars and
as a percent of pretax income) 1994 1995
------------------------ ------------------------
Amount Percent Amount Percent
---------- ---------- ---------- ---------
Tax provision at statutory federal rate. . . . . . $ 64.1 35.0% $ 187.2 35.0%
State income taxes, net of federal income tax
benefit . . . . . . . . . . . . . . . . . $ 8.4 4.6% $ 19.7 3.7%
Goodwill amortization. . . . . . . . . . . . . . . - - $ 10.9 2.0%
Gain on sale of foreign subsidiary's assets. . . . - - $ 16.3 3.1%
Other. . . . . . . . . . . . . . . . . . . . . . . $ 0.5 0.2% $ (0.4) (0.1)%
---------- --------- ---------- ---------
Taxes on income and effective tax rates. . . . . . $ 73.0 39.8% $ 233.7 43.7%
Amortization of the goodwill resulting from the AMH merger is a noncash
charge, but provides no income tax benefits.
BUSINESS OUTLOOK
Since the end of the Company's last fiscal year, Congress passed, and
the President vetoed, legislation which, if implemented, would have had an
adverse impact on the Company's current Medicare
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
payment rates. The President subsequently proposed alternative Medicare
legislation which also would adversely affect the Company if it becomes law.
The Company is unable to predict whether any presently proposed healthcare
legislation will be passed in the future, but it continues to monitor such
matters and analyzes their potential impacts in order to formulate its future
business strategies.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
MATERIAL DEVELOPMENTS IN PREVIOUSLY REPORTED LEGAL PROCEEDINGS:
With respect to the shareholders derivative actions filed in the Los
Angeles Superior Court in October and November of 1991 and previously
reported in the Company's Annual Report on Form 10-K and Form 10-K/A for
the fiscal year ended May 31, 1995, a stipulation of settlement was
executed by the parties as of September 8, 1995. The Court issued an order
approving the settlement in January 1996.
The Company has continued to receive additional lawsuits relating to its
former psychiatric operations of the type referred to in the fifth
paragraph under Item 3 Legal Proceedings in its Annual Report on Form 10-K
for its fiscal year ended May 31, 1995, and expects that additional
lawsuits with similar allegations will be filed from time to time.
Although, based upon information currently available to it, management
believes that the amount of damages in excess of the reserves for unusual
litigation costs recorded as of November 30, 1995 that may be awarded in
any of the unresolved legal proceedings cannot reasonably be estimated,
management does not believe it is likely that any damages awarded in such
legal proceedings will have a material adverse effect on the Company's
results of operations, liquidity or capital resources.
Items 2, 3 and 5 are not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on September 27,
1995. The shareholders elected all of the Company's nominees for director,
approved the 1995 Stock Incentive Plan, approved the 1995 Employee Stock
Purchase Plan and ratified the selection of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ended May 31, 1996. The
votes were as follows:
1. Election of Directors For Withheld
--- --------
Maurice J. DeWald 175,109,437 1,802,588
Edward Egbert, M.D. 175,076,847 1,835,178
Raymond A. Hay 175,084,594 1,827,431
Thomas J. Pritzker 172,043,408 4,868,577
2. Approval of the 1995 Stock Incentive Plan:
For: 97,500,879
Against: 64,151,923
Abstaining: 859,136
Broker Non-Votes: 14,400,087
19
PART II. OTHER INFORMATION (CONTINUED)
3. Approval of the 1995 Employee Stock Purchase Plan:
For: 152,802,648
Against: 8,932,992
Abstaining: 775,436
Broker Non-Votes: 14,400,949
4. Ratification of selection of KPMG Peat Marwick LLP:
For: 174,923,821
Against: 1,702,487
Abstaining: 285,614
On October 27, 1995, pursuant to a solicitation by the Company for
written consents from the holders (the "Holders") of its $300,000,000
principal amount of 9 5/8% Senior Notes due 2002 (the "9 5/8%
Notes"), its $900,000,000 principal amount of 10 1/8% Senior
Subordinated Notes due 2005 (the "10 1/8% Notes") and its
$500,000,000 principal amount of 8 5/8% Senior Notes due 2003
(the " 8 5/8% Notes," and together with the 9 5/8% Notes and the
10 1/8% Notes, the "Existing Notes"), a majority of the Holders of
each of the issues of Existing Notes approved an amendment to the
restricted payment covenant in the Indentures governing each of the
Existing Notes. The effect of the amendment was to permit the Company
to offer its 6% Exchangeable Subordinated Notes due 2005, which are
exchangeable for shares of the common stock of Vencor, Inc. held by
the Company, on a subordinated basis, and to permit the Company to
offer in the future additional subordinated notes exchangeable into
other equity securities the Company owned as of October 11, 1995.
The votes, based on the principal amounts of notes outstanding, were
as follows:
1. 9 5/8% Notes:
Consents: $241,537,000
Did Not Consent: $0
2. 10 1/8% Notes:
Consents: $833,936,000
Did Not Consent: $0
3. 8 5/8% Notes:
Consents: $385,715,000
Did Not Consent: $0
Item 6. Exhibits and Reports on Form 8-K
20
PART II. OTHER INFORMATION (CONTINUED)
(a) Exhibits.
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Indenture between the Company and The Bank of New York, as
Trustee, relating to 6% Exchangeable Subordinated Notes due
2005.
(b) Escrow Agreement, dated as of January 10, 1996, among Tenet
Healthcare Corporation, NME Properties, Inc., NME Property
Holding Co., Inc. and The Bank of New York, as Escrow Agent.
(10) Material Contracts
(a) Amendment No. 2 to Credit Agreement, dated as of December
20, 1995, among Tenet Healthcare Corporation, the Lenders
party thereto, Morgan Guaranty Trust Company of New York,
Bank of America National Trust and Savings Association, The
Bank of New York and Bankers Trust Company, as Arranging
Agents, and Morgan Guaranty Trust Company of New York, as
Administrative Agent.
(b) Reports on Form 8-K
(1) During the fiscal quarter ended November 30, 1995, the
Company filed with the Securities and Exchange
Commission on October 3, 1995, a Current Report on Form
8-K, dated September 29, 1995, for Item 5, Other
Events. The Form 8-K was filed to report the release
of a press release reporting the Company's earnings for
the fiscal quarter ended August 31, 1995, and the
release of a Financial Update for the fiscal quarter
ended August 31, 1995.
(11) (Page 23) Statement Re: Computation of Per Share Earnings for the
three months and six months ended November 30, 1994 and 1995.
(27) Financial Data Schedule (included only in the EDGAR filing).
21
PART II. OTHER INFORMATION (CONTINUED)
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.
TENET HEALTHCARE CORPORATION
(Registrant)
Date: January 15, 1996 /s/ RAYMOND L. MATHIASEN
--------------------------------
Raymond L. Mathiasen
Senior Vice President,
Chief Financial Officer
22