1997
A N N U A L R E P O R T
TENET
HEALTHCARE CORPORATION
[LOGO]
TENET IS 130 HOSPITALS, SPECIALTY CARE FACILITIES, OUTPATIENT CENTERS, HOME
HEALTH AGENCIES AND MANY OTHER RELATED BUSINESSES. WE HAVE 105,000 DEDICATED
PEOPLE -- INCLUDING PHYSICIANS, NURSES AND SUPPORT STAFF -- PROVIDING QUALITY,
COST-EFFECTIVE MEDICAL CARE TO THEIR COMMUNITIES.
CONTENTS
1 LETTER TO SHAREHOLDERS
7 FINANCIAL SUMMARY
8 MANAGEMENT'S DISCUSSION AND ANALYSIS
17 CONSOLIDATED STATEMENTS OF OPERATIONS
18 CONSOLIDATED BALANCE SHEETS
19 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
20 CONSOLIDATED STATEMENTS OF CASH FLOWS
22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
40 REPORT OF INDEPENDENT AUDITORS
41 DIRECTORS AND MANAGEMENT
43 SUPPLEMENTARY FINANCIAL INFORMATION
44 CORPORATE INFORMATION
LETTER TO OUR SHAREHOLDERS
JEFFREY C. BARBAKOW [PHOTO] MICHEAL H. FOCHT SR.
It's remarkable how quickly a year passes. Equally remarkable is how much
we have accomplished at Tenet during the span of only 12 months.
As the fiscal year closed on May 31, 1997, we had a great deal to
celebrate. The company completed the acquisition of OrNda HealthCorp well ahead
of schedule. We achieved another year of solid financial results that testified
to the strength of our healthcare delivery networks and the effectiveness of our
overall business strategy. Through a major refinancing, we reduced Tenet's
financing costs. During the course of the fiscal year, Tenet enhanced its
networks across the country by acquiring three nonprofit hospitals and entering
into long-term lease agreements for two more. At the same time, we were
exploring or establishing a number of innovative new partnerships with the
not-for-profit, academic and investor-owned sectors. We also began to put in
place our new Economic Value Added system, designed to better measure financial
performance throughout the company and spur our managers to add additional value
to our organization for our shareholders.
Our momentum as a company has continued into fiscal 1998 - and not just in
the area of acquisitions. Shortly after the beginning of the new fiscal year,
we launched an important initiative -- unprecedented, we believe, in this
industry -- to narrow the gap between us and our not-for-profit colleagues and
to explore ways in which we can, together, lead the healthcare industry into
the 21st century.
THE ORNDA ACQUISITION
While we have much to be proud of in fiscal 1997, the OrNda acquisition was
clearly the year's seminal event. It would be difficult to overestimate the
impact of melding the nation's second- and third-largest healthcare companies.
The numbers alone are impressive.
On January 30, 1997, more than a month ahead of the original schedule,
Tenet successfully completed its acquisition of OrNda, adding 50 OrNda acute
care hospitals to the 77 that Tenet already owned. More impressive was the fact
that 32 of the OrNda facilities complemented Tenet's existing healthcare
delivery networks. Overnight, Tenet became the largest healthcare provider in
Southern California.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
1
LETTER TO OUR SHAREHOLDERS (CONTINUED)
In South Florida, the acquisition added four acute care hospitals to Tenet South
Florida HealthSystem, our South Florida integrated network, bringing the total
count to 12. In Texas, the OrNda acquisition added eight acute care hospitals to
Tenet's 12 existing hospitals, enhancing the company's presence in important
areas like the greater Dallas and Houston areas. The OrNda acquisition also
introduced Tenet to important new markets. OrNda's five acute care hospitals in
Arizona gave Tenet a presence in one of the nation's fastest-growing regions.
The acquisition also created new opportunities for the company in other states,
including Massachusetts.
It was not only the bricks and mortar of the two companies that fit so well
together. Tenet and OrNda also shared the same commitment to delivering quality,
community--based healthcare.
An interesting thing started to happen shortly after the decision to
acquire OrNda was announced in October 1996. An increasing number of
not--for-profit hospitals and health systems began to contact us, inquiring
about possible partnerships or outright acquisitions. The acquisition of OrNda,
it seemed, had sent the message that Tenet was here to stay and that it had
become a far more powerful force in redefining healthcare delivery. Now, there
was another reason to become part of a Tenet network.
Tenet, we believe, already enjoyed the reputation for having the healthcare
industry's most comprehensive corporate integrity program. And its practice of
allowing its hospitals to carry on the missions they had pursued as
not-for-profit institutions was being appreciated by more and more
not-for-profits. The enhanced networks and additional financial strength that
came with the OrNda acquisition was yet another reason for them to reach out to
Tenet.
Following the completion of the OrNda acquisition, we realigned Tenet's
operational structure to accommodate the OrNda facilities, primarily by creating
a new "super region" in Southern California and a new Arizona Region for former
OrNda facilities in Arizona and several other Western states. We also unified
our company's quality assurance functions into a single new Quality Management
department, consolidated all acquisition and development activity into one
larger department, and expanded our compliance and audit departments. In
addition, we began moving a number of legal, reimbursement and business office
staff from our Dallas Operations Center to the regional offices to better serve
the company's facilities.
Upon completing the OrNda acquisition, Tenet put into place new short-- and
long-term financing. Although we had originally intended to issue $1.3 billion
in public debt and obtain a $2.5 billion line of credit, demand from investors
was so strong that we increased the amounts to $2 billion and $2.8 billion,
respectively, to better position ourselves for future growth. The borrowings,
portions of which were used to repurchase OrNda's public debt and to repay old
lines of credit for Tenet and OrNda, are at more favorable rates than our
previous debt.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
2
L E T T E R
TO OUR SHAREHOLDERS
FISCAL 1997 RESULTS
For the fiscal year ended May 31, 1997, Tenet reported earnings per share
from continuing operations -- excluding unusual or non-recurring items -- of
$1.46. That's compared with $1.27 in the prior year, a gain of 15 percent.
Results for both years are restated to reflect the pooling-of-interests merger
with OrNda HealthCorp on January 30, 1997.
Net operating revenues for the fiscal year were $8.7 billion, an increase
of 12.8 percent from $7.7 billion in the 1996 fiscal year. Income from
continuing operations, excluding the effect of all unusual or non-recurring
items, was $445 million in fiscal 1997, compared with $370 million in the
previous fiscal year, an increase of 20.1 percent.
The strong revenue growth in the year reflects improved patient volumes at
Tenet's hospitals. Total admissions at Tenet's acute care hospitals increased
10.2 percent for the year. Admissions increased 1.3 percent on a same-facility
basis for the year. Total outpatient visits increased 22.3 percent for the year.
On a same-facility basis, outpatient visits increased 11 percent for the year.
Providing a strong finish to what has been a very successful and eventful
year for Tenet, the company reported earnings from continuing operations, before
unusual or non-recurring items, in the fourth quarter of fiscal 1997 of 41 cents
per share, a 17 percent increase compared with 35 cents in the fourth quarter of
the prior year. Total admissions at Tenet's acute care hospitals increased 14.5
percent in the quarter -- 2.9 percent on a same-facility basis. Total outpatient
visits increased 24.8 percent in the quarter -- 11.2 percent on a same-facility
basis.
Results for the year include a number of unusual or non-recurring items
totaling $517 million after tax. For a more complete discussion of these items
and the company's financial results, turn to the Financial Statements and the
Management's Discussion and Analysis sections later in this report.
GROWING THROUGH ACQUISITIONS
In fiscal 1997, we continued to focus on expanding and strengthening
operations in our existing markets by acquiring or leasing hospitals that
enhance our integrated delivery networks. On June 1, 1996, the first day of the
fiscal year, we acquired Hialeah Hospital, a 378-bed acute care facility near
Miami. The addition of Hialeah to Tenet South Florida HealthSystem particularly
enhanced Tenet's presence in North Dade County, a highly competitive area with
heavy managed care activity. In early October 1996, Tenet acquired Lloyd Noland
Hospital & Health System, a 319-bed, acute care hospital and health system in
Birmingham, Ala., strengthening Tenet's presence in Birmingham and helping
establish the foundation for a statewide integrated delivery system. Tenet also
owns 586-bed Brookwood Medical Center in Birmingham and has a 50 percent
interest in St. Clair Regional Hospital, an 82-bed hospital located just outside
of Birmingham and managed by Tenet's 50 percent partner.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
3
In January 1997, Tenet further enhanced its South Florida network by
acquiring North Shore Medical Center, a 357-bed hospital in Miami. Also in
January, Tenet entered into a 30-year lease of Brookside Hospital in San Pablo,
Calif. Brookside, a 233-bed facility, faced potential closure until Tenet
proposed combining its operations with Doctors Hospital of Pinole, a 137-bed
facility that Tenet operates in nearby Pinole. And in May, Tenet assumed a
30-year lease of Desert Hospital, a 388-bed hospital in Palm Springs, Calif. The
transaction pairs Desert with John F. Kennedy Memorial Hospital, a Tenet-owned
130-bed acute care community hospital in nearby Indio, to form a regional
healthcare delivery system serving the entire Coachella Valley.
The pace of acquisitions continued into the new fiscal year. In July, Tenet
completed its acquisition of 1,030-bed Deaconess Incarnate Word Health System,
Inc. in St. Louis. The system, which includes three acute care hospitals and
numerous related services, will form the foundation of an integrated healthcare
delivery system for the greater St. Louis area, where Tenet already owns 408-bed
Lutheran Medical Center. Also in July, Tenet assumed the remaining four years of
a five-year lease of county-owned Sylvan Grove Hospital in Jackson, Ga. Sylvan
Grove, a 25-bed acute care hospital providing general medical services, will be
paired with Tenet's Spalding Regional Hospital, a 160-bed acute care community
hospital in nearby Griffin.
BUILDING PARTNERSHIPS
During fiscal 1997, Tenet continued to demonstrate its willingness to enter
into partnerships with other healthcare providers, not-for-profit and
investor-owned alike, that help the company expand its business. In April 1997,
for example, Tenet and MedPartners, Inc., the nation's largest manager of
physician practices, announced a letter of intent to form a partnership to
create Southern California's largest healthcare contracting network. Under the
agreement, Tenet will acquire MedPartners' 99-bed Pioneer Hospital in Artesia,
Calif. The hospital will concentrate on ambulatory services, while the 100,000
HMO members currently served by Pioneer will receive healthcare services at
other Tenet acute care hospitals under a 10-year, full-risk, capitated
arrangement. Additionally, MedPartner's 1.2 million Southern California HMO
members will have access to Tenet hospitals.
In June 1997, Tenet South Florida HealthSystem and the renowned Cleveland
Clinic received approval from the state of Florida to jointly build a 150-bed
acute care hospital in Weston, one of South Florida's fastest-growing areas.
Cleveland Clinic Florida will oversee clinical care, research and educational
programs, and Tenet will manage the operations of the Broward County hospital.
Upon completion of the jointly owned hospital, Cleveland Clinic Florida will
become part of the Tenet South Florida network.
Tenet's affiliations with prestigious academic medical centers also grew in
fiscal 1997. In July 1996, Tenet's Board of Directors and Louisiana State
University approved an affiliation agreement between LSU Medical Center and two
New Orleans-area Tenet hospitals - Kenner Regional Medical Center and Memorial
Medical Center. In addition to creating a teaching affiliation between LSU and
the two hospitals, the agreement calls for centers of excellence offering
specialized tertiary and quaternary
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
4
L E T T E R
TO OUR SHAREHOLDERS
medical services to be established at both Kenner and Memorial and for Tenet to
provide diagnostic services at the planned Stanley S. Scott Cancer Center at
LSU. Tenet's two other major academic affiliations are with Creighton University
School of Medicine in Omaha, Neb., and the University of Southern California
School of Medicine in Los Angeles.
In June 1997, shortly after the end of the fiscal year, Tenet's USC
University Hospital in Los Angeles reached an agreement with the University of
Southern California to manage the USC/Norris Cancer Hospital, a private facility
owned and operated by USC. USC/Norris Cancer Hospital is part of the USC/Norris
Comprehensive Cancer Center, one of only 26 such centers in the United States
designated by the National Cancer Institute to lead the nation in cancer
research, treatment, education and prevention.
We believe that establishing relationships with nationally known teaching
and research institutions like these enhances the quality of care we are able to
offer our patients.
ECONOMIC VALUE ADDED PERFORMANCE MEASUREMENT
At the beginning of fiscal 1998, we began implementing an Economic Value
Added (EVA) performance measurement system that eventually will be adopted
throughout the company. By tying operating performance to the cost of capital
required to generate that performance, EVA strengthens Tenet's ability to
measure real financial performance at every level of the company.
Because this capital allocation discipline takes into account all business
costs, EVA is a more complete measure of profitability than traditional measures
such as EBITDA (earnings before interest, taxes, depreciation and amortization),
EBIT (earnings before interest and taxes) or ROI (return on investment).
Moreover, we have incorporated EVA into Tenet's incentive compensation
programs, giving us a vital new dimension that will help us achieve superior
performance for shareholders.
BUILDING AN OPEN WORLD
But what about the future?
We believe a new order in healthcare is emerging, one in which consumers
are likely to insist upon a more open healthcare system that provides a greater
choice of services at reasonable costs. As this change occurs, we anticipate
many new opportunities for nontraditional growth, particularly in the provision
of new healthcare services. We want Tenet to be among the leaders in these
emerging areas.
All of this has profound implications for Tenet's strategy today. If the
healthcare industry is, in fact, headed for an open world, we must prepare for
it now. We must expand our thinking to entertain fresh, innovative partnership
models with other institutions in this industry.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
5
Nothing is more vital to the development of this open world -- and nothing
is more important to Tenet -- than bridging the gap with not-for-profit
hospitals and health systems.
They need us; we need them. They hold key links that will allow us to
complete our delivery systems, through acquisitions, partnerships or other
innovative relationships. In return, Tenet has much to offer them -- for
example, access to our well-respected accounts receivable and collections
capabilities, powerful group-purchasing programs and managed care networks.
To help bridge the gap, we have joined the American Hospital Association,
the premier not-for-profit trade organization in the hospital industry. This
puts us side-by-side with our not-for-profit colleagues.
Tenet has an historic opportunity to break down the artificial barrier that
separates us from our not-for-profit colleagues. If our efforts are successful,
they will open a vast new world of opportunity for Tenet while literally
reshaping our industry for the better.
At a time when this industry is searching for alternatives and society is
looking for more open, customer-friendly healthcare services, we believe Tenet
is better positioned than anyone to deliver.
Tenet can be a remarkable instrument of change. If we stay the course, we
can transform this industry in a profoundly positive way that will directly
benefit not just you, our shareholders, but also healthcare in the United
States.
/s/ Jeffrey Barbakow
Jeffrey C. Barbakow
Chairman and Chief Executive Officer
/s/ Michael H. Focht Sr.
Michael H. Focht Sr.
President and Chief Operating Officer
August 1, 1997
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
6
FINANCIAL SUMMARY
SELECTED FINANCIAL DATA
CONTINUING OPERATIONS(1)
Years Ended May 31,
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(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1993 1994 1995(2) 1996 1997
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OPERATING RESULTS:
Net operating revenues $4,140 $4,218 $ 5,161 $ 7,706 $ 8,691
Operating expenses:
Salaries and benefits 1,908 1,868 2,170 3,130 3,574
Supplies 462 498 668 1,056 1,197
Provision for doubtful accounts 178 193 260 431 494
Other operating expenses 899 942 1,178 1,646 1,829
Depreciation 185 199 232 319 335
Amortization 23 25 44 100 108
Merger, facility consolidation and
other non-recurring charges 52 110 37 86 740
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Operating income 433 383 572 938 414
Interest expense, net of
capitalized portion (144) (157) (251) (425) (417)
Investment earnings 24 31 32 27 26
Equity in earnings of
unconsolidated affiliates 13 27 43 25 1
Minority interests (15) (12) (10) (30) (27)
Net gain (loss) on disposals of
facilities and long-term
investments 122 42 31 346 (18)
------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes 433 314 417 881 (21)
Taxes on income (156) (145) (151) (383) (52)
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Income (loss) from continuing
operations $ 277 $ 169 $ 266 $ 498 $ (73)
------------------------------------------------------------------
------------------------------------------------------------------
Earnings (loss) per common
share from continuing
operations, fully diluted $ 1.24 $ 0.75 $ 1.08 $ 1.70 $ (0.24)
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------------------------------------------------------------------
Cash dividends per common share $ 0.48 $ 0.12 $ -- $ -- $ --
------------------------------------------------------------------
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As of May 31,
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1993 1994 1995 (2) 1996 1997
-------------------------------------------------------------------
BALANCE SHEET DATA:(1)
Working capital (deficit) $ 182 $ (190) $ 273 $ 499 $ 522
Total assets 5,379 5,543 9,787 10,768 11,705
Long-term debt, excluding
current portion 1,598 1,290 4,287 4,421 5,022
Shareholders' equity 1,964 1,648 2,379 3,277 3,224
Book value per common share $ 9.24 $ 7.33 $ 9.13 $ 11.13 $ 10.65
(1) On January 30, 1997, Tenet Healthcare Corporation (together with its
subsidiaries "Tenet" or the "Company") acquired OrNda HealthCorp (together
with its subsidiaries, "OrNda") by issuing 81,439,910 shares of its common
stock in a tax-free exchange for all of OrNda's outstanding common stock.
The transaction has been accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements and all statistical data
shown herein prior to the combination have been restated to include the
accounts and results of operations of OrNda for all periods presented.
(2) On March 1, 1995, Tenet acquired, in a transaction accounted for as a
purchase, all the outstanding common stock of American Medical Holdings,
Inc. (together with its subsidiaries, "AMH") for $1.5 billion in cash and
33.2 million shares of Tenet's common stock valued at approximately $488
million (the "AMH Merger").
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE ORNDA MERGER
On January 30, 1997, Tenet Healthcare Corporation (together with its
subsidiaries, "Tenet" or the "Company") acquired OrNda HealthCorp (together with
its subsidiaries, "OrNda"). The OrNda Merger has been accounted for as a
pooling-of-interests and, accordingly, the consolidated financial statements and
all statistical data shown herein for prior years have been restated to include
the accounts and results of operations of OrNda for all periods presented.
Tenet's subsidiaries operated 77 general hospitals and OrNda's subsidiaries
operated 50 general hospitals at January 30, 1997. Management believes that
joining together Tenet's general hospitals and related healthcare operations
with OrNda's has created a stronger, more geographically diverse company that is
better able to compete in certain key geographic areas, such as Southern
California and South Florida, and to grow through strategic acquisitions and
partnerships. The OrNda Merger also expanded Tenet's operations into several new
geographic areas, including Arizona, Iowa, Massachusetts, Mississippi, Nevada,
Oregon and Washington.
The healthcare industry has undergone, and continues to undergo, tremendous
change, including cost-containment pressures by government payors, managed care
providers and others, as well as technological advances that require increased
capital expenditures. The combined company will continue to emphasize the
creation of strong integrated healthcare delivery systems to address those
changes. The OrNda Merger is expected to enable the combined company to realize
certain cost savings before any costs related to the merger and facility
consolidations. No assurances can be made as to the amount of cost savings, if
any, that actually will be recognized. In connection with the OrNda Merger, the
Company repaid $2.3 billion in debt. The debt retirements were financed by
borrowings under the Company's new $2.8 billion revolving bank credit agreement
and the public issuance of $2.0 billion in new debt securities.
THE AMERICAN MEDICAL HOLDINGS MERGER
On March 1, 1995, in a transaction accounted for as a purchase, the Company
acquired American Medical Holdings, Inc. (together with its subsidiaries, "AMH")
for $1.5 billion in cash and 33.2 million shares of the Company's common stock
valued at $488 million (the "AMH Merger"). In connection with the acquisition,
the Company also repaid $1.8 billion of debt. Both the acquisition and debt
retirements were financed by borrowings under the Company's then-existing credit
agreement and the public issuance of $1.2 billion in new debt securities.
Prior to the AMH Merger, Tenet (excluding OrNda) operated 33 domestic general
hospitals with 6,620 licensed beds in six states and a small number of skilled
nursing facilities, rehabilitation hospitals and psychiatric hospitals located
on or near general hospital campuses. With the AMH Merger, the Company acquired
37 domestic general hospitals with 8,831 beds, bringing its domestic general
hospital complement at that time to 70 hospitals with 15,451 licensed beds in 13
states. The acquisition also included ancillary facilities at or nearby many AMH
hospitals, including outpatient surgery centers, rehabilitation units,
long-term-care facilities, a psychiatric hospital, home healthcare programs and
ambulatory, occupational and rural healthcare clinics.
Management believes that the AMH Merger strengthened the Company in its
then-existing markets and enhanced its ability to deliver quality,
cost-effective healthcare services in new markets. The consolidation of Tenet
and AMH has resulted in certain cost savings, estimated to be at least $60
million annually,
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
8
MANAGEMENT'S
DISCUSSION
beginning in the fiscal year ended May 31, 1996. These savings are before any
severance or other costs of implementing certain efficiencies and have been
realized through (i) elimination of duplicate corporate overhead expenses, (ii)
reduced supplies expense through the incorporation of the acquired facilities
into the Company's existing group-purchasing program, (iii) achievement of lower
information system costs through consolidation and outsourcing and (iv) improved
collection of the acquired AMH facilities' accounts receivable.
RESULTS OF OPERATIONS
Income from continuing operations before income taxes was $417 million in 1995
and $881 million in 1996. The Company reported a pretax loss from continuing
operations of $21 million in 1997. The most significant transactions affecting
the results of continuing operations were (i) the acquisition of AMH, (ii) the
acquisition by OrNda of Summit Health Ltd. ("Summit"), (iii) the financing of
the AMH Merger, which added more than $250 million annually in interest expense,
(iv) a series of other acquisitions and divestitures during fiscal 1995, 1996
and 1997 (see Note 3 of Notes to Consolidated Financial Statements herein), and
(v) merger, facility consolidation and other non-recurring charges recorded in
all three fiscal years (See Note 4 of Notes to Consolidated Financial Statements
herein).
Fiscal 1995 includes the sale of a 75% interest in Total Renal Care Holdings,
Inc. ("TRC"). Fiscal 1996 includes the sales of the Company's interests in its
hospitals and related healthcare businesses in Singapore, Australia, Malaysia
and Thailand, its interest in Westminster Health Care Holdings, PLC
("Westminster"), the sale of the Company's investment in preferred stock of The
Hillhaven Corporation ("Hillhaven"), and the exchange of its interest in the
common stock of Hillhaven for 8,301,067 shares of common stock of Vencor, Inc.
("Vencor"). Fiscal 1997 includes a noncash charge relating to increases in the
index value of certain of the Company's long-term debt. These transactions and
other unusual pretax items relating to the OrNda Merger, facility consolidation
and other non-recurring charges are shown below:
(in millions) 1995 1996 1997
-------------------------
Gain (loss) on sales of facilities and
long-term investments $(1) $329 $ (18)
Gains on sales of subsidiary's common stock 32 17 -
Merger, facility consolidation and other
non-recurring charges (37) (86) (740)
-------------------------
Net unusual pretax items (after tax, fully
diluted per share: ($0.02) in 1995, $0.43
in 1996 and ($1.70) in 1997) $(6) $260 $(758)
-------------------------
Excluding the unusual items in the table above, income from continuing
operations before income taxes would have been $423 million in 1995, $621
million in 1996 and $737 million in 1997 and fully diluted earnings per share
from continuing operations would have been $1.10, $1.27 and $1.46, respectively.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
9
The following is a summary of continuing operations for the past three fiscal
years:
1995 1996 1997 1995 1996 1997
---------------------------------------- ------------------------------------
(PERCENTAGE OF
(DOLLARS IN MILLIONS) NET OPERATING REVENUES)
Net Operating Revenues:
Domestic general hospitals(3) $ 4,536 $7,183 $7,932 87.9% 93.2% 91.3%
Other domestic operations (1), (3) 394 472 759 7.6% 6.1% 8.7%
International operations 214 51 - 4.2% 0.7% -
Divested operations (2) 17 - - 0.3% - -
---------------------------------------- ------------------------------------
$ 5,161 $7,706 $8,691 100.0% 100.0% 100.0%
---------------------------------------- ------------------------------------
Operating Expenses:
Salaries and benefits (2,170) (3,130) (3,574) 42.0% 40.6% 41.1%
Supplies (668) (1,056) (1,197) 13.0% 13.7% 13.8%
Provision for doubtful accounts (260) (431) (494) 5.0% 5.6% 5.7%
Other operating expenses (1,178) (1,646) (1,829) 22.8% 21.4% 21.0%
Depreciation (232) (319) (335) 4.5% 4.1% 3.9%
Amortization (44) (100) (108) 0.9% 1.3% 1.2%
---------------------------------------- ------------------------------------
Operating income before merger,
facility consolidation and other
non-recurring charges 609 1,024 1,154 11.8% 13.3% 13.3%
Merger, facility consolidation
and other non-recurring charges (37) (86) (740) 0.7% 1.1% 8.5%
---------------------------------------- ------------------------------------
Operating income $ 572 $ 938 $ 414 11.1% 12.2% 4.8%
---------------------------------------- ------------------------------------
---------------------------------------- ------------------------------------
(1) NET OPERATING REVENUES OF OTHER DOMESTIC OPERATIONS CONSIST PRIMARILY OF
REVENUES FROM (I) PHYSICIAN PRACTICES; (II) A SMALL NUMBER OF
REHABILITATION HOSPITALS, LONG-TERM-CARE FACILITIES AND PSYCHIATRIC
HOSPITALS THAT ARE LOCATED ON OR NEAR THE SAME CAMPUSES AS THE COMPANY'S
GENERAL HOSPITALS; (III) HEALTHCARE JOINT VENTURES OPERATED BY THE COMPANY;
(VI) SUBSIDIARIES OF THE COMPANY OFFERING MANAGED CARE AND INDEMNITY
PRODUCTS; AND (IV) REVENUES EARNED BY THE COMPANY IN CONSIDERATION OF THE
GUARANTEES OF CERTAIN INDEBTEDNESS AND LEASES OF VENCOR AND OTHER THIRD
PARTIES.
(2) NET OPERATING REVENUES OF DIVESTED OPERATIONS CONSIST OF REVENUES FROM (I)
TRC PRIOR TO THE AUGUST 1994 SALE OF AN APPROXIMATELY 75% EQUITY INTEREST
IN TRC.
(3) CERTAIN RECLASSIFICATIONS HAVE BEEN MADE TO THE FINANCIAL INFORMATION
PREVIOUSLY SEPARATELY REPORTED BY ORNDA TO BE CONSISTENT WITH THE COMPANY'S
MANNER OF PRESENTATION.
Net operating revenues were $5.2 billion in 1995, $7.7 billion in 1996 and $8.7
billion in 1997. Fiscal 1996 includes revenues attributable to facilities
acquired in the AMH Merger. Fiscal 1995 includes three months of revenues
attributable to the facilities acquired in the AMH Merger.
Operating income before merger, facility consolidation and other non-recurring
charges increased by 68.1% from $609 million in 1995 to $1,024 million in 1996,
and by 12.7% to $1,154 million in 1997. The operating margin on this basis
increased from 11.8% in 1995 to 13.3% in 1996 and in 1997. The table below sets
forth certain selected historical operating statistics for the Company's
domestic general hospitals:
INCREASE
(DECREASE)
1995 1996 1997 1996 to 1997
--------------------------------------------------------
Number of hospitals (at end of period) 114 122 128 6
Licensed beds (at end of period) 23,250 25,699 27,959 8.8%
Net inpatient revenues (in millions) $ 3,049 $ 4,744 $ 5,227 10.2%
Net outpatient revenues (in millions) $ 1,399 $ 2,283 $ 2,515 10.2%
Admissions 470,027 714,058 786,887 10.2%
Equivalent admissions (1) 640,931 1,017,514 1,124,397 10.5%
Average length of stay (days) 5.5 5.3 5.2 (0.1)*
Patient days 2,569,427 3,771,928 4,099,709 8.7%
Equivalent patient days (2) 3,478,485 5,432,612 5,817,251 7.1%
Net inpatient revenues per patient day $ 1,187 $ 1,258 $ 1,275 1.4%
Net inpatient revenues per admission $ 6,487 $ 6,643 $ 6,643 -
Utilization of licensed beds 42.8% 41.6% 42.5% 0.9%*
Outpatient visits 4,115,716 8,174,002 9,997,266 22.3%
* THE % CHANGE IS THE DIFFERENCE BETWEEN THE 1996 AND 1997 PERCENTAGES SHOWN.
(1) EQUIVALENT ADMISSIONS REPRESENTS ACTUAL ADMISSIONS ADJUSTED TO INCLUDE
OUTPATIENT AND EMERGENCY ROOM SERVICES BY MULTIPLYING ACTUAL ADMISSIONS BY
THE SUM OF GROSS INPATIENT REVENUE AND OUTPATIENT REVENUE AND DIVIDING THE
RESULT BY GROSS INPATIENT REVENUE.
(2) EQUIVALENT PATIENT DAYS REPRESENTS ACTUAL PATIENT DAYS ADJUSTED TO INCLUDE
OUTPATIENT AND EMERGENCY ROOM SERVICES BY MULTIPLYING ACTUAL PATIENT DAYS
BY THE SUM OF GROSS INPATIENT REVENUE AND OUTPATIENT REVENUE AND DIVIDING
THE RESULT BY GROSS INPATIENT REVENUE.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
10
MANAGEMENT'S
DISCUSSION
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals, on a same-facility basis:
Increase
1996 1997 (Decrease)
----------------------------------
Number of hospitals 107 107 -
Average licensed beds 22,248 22,327 0.4%
Patient days 3,464,652 3,483,065 0.5%
Net inpatient revenue per patient day $ 1,267 $ 1,283 1.3%
Admissions 655,248 663,890 1.3%
Net inpatient revenue per admission $ 6,699 $ 6,731 0.5%
Outpatient visits 7,535,242 8,361,152 11.0%
Average length of stay (days) 5.3 5.2 (0.1)*
*THE % CHANGE IS THE DIFFERENCE BETWEEN 1996 AND 1997 PERCENTAGES SHOWN.
The Company continues to experience increases in inpatient acuity and intensity
of services as less intensive services shift from an inpatient to an outpatient
basis or to alternative healthcare delivery services because of technological
and pharmaceutical improvements and continued pressures by payors to reduce
admissions and lengths of stay.
The Medicare program accounted for approximately 38% of the net patient revenues
of the Company's domestic general hospitals in 1995 and 40% in 1996 and 1997.
Historically, rates paid under Medicare's prospective payment system ("PPS") for
inpatient services have increased, but such increases have been less than cost
increases. Under the Balanced Budget Act of 1997 (the "1997 Act"), there will be
no increases in the rates paid to general hospitals under the PPS through
September 30, 1998. Payments for Medicare outpatient services provided at
general hospitals, home health services and all services provided at
rehabilitation hospitals historically have been reimbursed based on costs,
subject to certain limits. The 1997 Act requires that the reimbursement for
those services be converted to a PPS, which will be phased in over time.
The Company believes that the foregoing changes and other changes in
reimbursement mandated by the 1997 Act, as well as certain proposed changes to
various states' Medicaid programs, will reduce payments as the changes are
phased in. Such reduced payments, however, are not likely to have a material
adverse effect on the Company's results of operations. The 1997 Act also
contains various provisions that create new opportunities for the Company.
Certain of those provisions, such as those allowing for creation of Provider
Service Organizations, allow providers such as Tenet to contract directly with
the federal government for the provision of medical care to Medicare
beneficiaries on a fully capitated basis. Under capitation, the Company receives
a certain amount from the federal government for each Medicare beneficiary
enrolled in its plans and assumes the risks and rewards of meeting the
healthcare needs of those enrolled in its plans. The Company may purchase
insurance to cover all or a portion of the cost of meeting the healthcare needs
of those covered. The Company cannot predict at this time what the ultimate
effect of these opportunities will be.
To address the effect of reduced payments for services, while continuing to
provide quality care to patients, the Company has implemented hospital
cost-control programs and overhead reduction plans and continues to form
integrated healthcare delivery systems in an effort to reduce inefficiencies,
create synergies, obtain additional business and control costs. As a result of
these efforts, such reduced payments are not expected to have a material adverse
effect on the Company's results of operations. Pressures to control healthcare
costs have resulted in an increase in the percentage of revenues attributable to
managed care payors. The percentage of the Company's net patient revenues of the
domestic general hospitals attributable to managed care was approximately 24.6%
in 1995, 27.6% in 1996 and 29.5% in 1997. The Company anticipates that its
managed care business will continue to increase in the future. The Company
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
11
generally receives lower payments from managed care payors than it does from
traditional indemnity insurers. The Company also increasingly is assuming a
greater share of risk by entering into capitated arrangements with managed care
payors and employers.
The general hospital industry in the United States and the Company's general
hospitals continue to have significant unused capacity, and thus there is
substantial competition for patients. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative healthcare delivery services for
less acutely ill patients. Increased competition, admission constraints and
payor pressures are expected to continue.
Net operating revenues from the Company's other domestic operations were $394
million in 1995, compared with $472 million in 1996 and $759 million in 1997.
The 19.8% increase from 1995 to 1996 primarily reflects continued growth of the
Company's subsidiaries offering health insurance products and growth of its
physician practices. The 60.8% increase from 1996 to 1997 is primarily related
to the continued growth of the Company's physician practices. The Company
currently owns or manages over 900 physician practices.
The $163 million decrease in net operating revenues from the Company's
international operations in fiscal 1996 compared to fiscal 1995 is attributable
to the sales of the Company's hospitals and related healthcare businesses in
Singapore and Australia.
Operating expenses, which include salaries and benefits, supplies, provision for
doubtful accounts, depreciation and amortization, and merger, facility
consolidation and other non-recurring charges, were $4.6 billion in 1995, $6.8
billion in 1996 and $8.3 billion in 1997. Operating expenses for fiscal 1996
include 12 months of operating expenses from the facilities acquired in the AMH
Merger, while fiscal 1995 includes only three months and, to that extent, the
1995 and 1996 periods are not comparable. Fiscal 1995 also includes the
operating expenses of the international and other divested operations discussed
above.
Salaries and benefits expense as a percentage of net operating revenues was
42.0% in 1995, 40.6% in 1996 and 41.1% in 1997. The improvement in 1996 is
attributable primarily to reductions in staffing levels in the Company's
hospitals and corporate offices, implemented following the AMH Merger in 1995.
The increase in 1997 over the prior year is primarily attributable to an
increase in salaries and benefits in the same-store facilities acquired in the
OrNda Merger and to other recent acquisitions of not-for-profit hospitals.
Supplies expense as a percentage of net operating revenues was 13.0% in 1995,
13.7% in 1996 and 13.8% in 1997. The increases over the prior two years are
attributable primarily to higher supplies expense in the facilities acquired in
the AMH Merger and subsequent acquisitions. The increase is also attributable to
the sales of the Company's international operations. Supplies expense as a
percentage of net operating revenues at the international facilities was
substantially less than supplies expense as a percentage of net operating
revenues at the domestic general hospital operations. The Company expects to
continue to focus on reducing supplies expense through incorporating acquired
facilities into the Company's existing group-purchasing program and by
developing and expanding various programs designed to improve the purchasing and
utilization of supplies.
The provision for doubtful accounts as a percentage of net operating revenues
was 5.0% in 1995, 5.6% in 1996 and 5.7% in 1997. The increase in 1996 was
attributable primarily to higher bad debt experience at the facilities acquired
in the AMH Merger and subsequent acquisitions. The increase in 1997 over the
prior year is primarily related to acquisitions and an increase in days
outstanding in accounts receivable. The Company, through its collection
subsidiary, Syndicated Office Systems, has established improved follow-up
collection systems by consolidating the collection of accounts receivable in all
the Company's facilities.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
12
MANAGEMENT'S
DISCUSSION
Other operating expenses as a percentage of net operating revenues were 22.8% in
1995, 21.4% in 1996 and 21.0% in 1997. The improvements in 1996 and 1997 reflect
the effects of the cost-control programs and overhead-reduction plans mentioned
herein.
Depreciation and amortization expense was $276 million in 1995, $419 million in
1996 and $443 million in 1997. The increases in 1995 and 1996 were due primarily
to the AMH Merger, the Summit acquisition and various other acquisitions by both
Tenet and OrNda, as described in Note 3 to the Consolidated Financial
Statements. In addition, amortization of intangibles increased as a result of
acquired businesses. Goodwill amortization associated with the AMH Merger is
approximately $64 million annually.
Merger, facility consolidation and other non-recurring charges of $37 million,
$86 million and $740 million were recorded in fiscal 1995, 1996 and 1997,
respectively. The fiscal 1995 $37 million charge included severance payments and
outplacement services for involuntary terminations of former employees of the
Company and other costs related to consolidating the operations of AMH and
Tenet. Fiscal 1996 and 1997 include impairment losses of $86 million and $413
million, respectively, in which certain facilities owned by the Company in 1996
and certain facilities acquired in the OrNda Merger were written down to their
estimated fair values. The 1997 charge also included losses related to the
planned closure, sale or conversion to alternate uses of certain of the
Company's facilities and services in order to eliminate duplication of services
and excess capacity following the OrNda acquisition and the write-off of
goodwill and other assets related to certain of the Company's physician
practices. In fiscal 1997, the Company also recorded non-recurring charges in
connection with the OrNda Merger of $309 million which included: investment
banking and other professional fees, other transaction costs, severance payments
for substantially all of OrNda's corporate and regional employees, costs to
terminate or convert other employee benefit programs, closure of OrNda's
Corporate office and other regional offices, reorganization of operations,
information systems consolidation, (primarily related to the buy-out of vendor
contracts and the write-down of computer equipment and capitalized software),
estimated costs to settle a government investigation of OrNda and other OrNda
litigation, and other expenses, primarily related to conforming accounting
practices of the two companies used for estimating the allowance for doubtful
accounts and self-insurance reserves.
Interest expense, net of capitalized interest, was $251 million in 1995, $425
million in 1996 and $417 million in 1997. The increase between 1995 and 1996 was
due primarily to the acquisition of AMH and the notes and bank loans used to
finance the acquisition and to retire debt in connection with the AMH Merger.
The reduction in 1997 compared to 1996 is primarily due to the refinancing of
debt in connection with the OrNda Merger at lower interest rates.
Investment earnings were $32 million in 1995, $27 million in 1996 and $26
million in 1997 and were derived primarily from notes receivable and investments
in debt securities.
Equity in earnings of unconsolidated affiliates was $43 million in 1995, $25
million in 1996 and $1 million in 1997. Substantially all of the decrease
between 1995 and 1996 is due to the exchange of the Company's investment in
Hillhaven for common stock in Vencor and the purchase of a majority interest in
Houston Northwest Medical Center. During 1995 and 1996 (through the date of the
exchange), the Company's equity in the earnings of Hillhaven was $16 million and
$7 million, respectively. The Company's equity in the earnings of Houston
Northwest Medical Center was $14 million in 1995 and $9 million in 1996. The
Company's equity in the earnings of Westminster Health Care Holdings PLC
("Westminster") was $6 million in 1995 and $7 million in 1996. The Company sold
its investment in Westminster in May 1996.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
13
Minority interests in income of consolidated subsidiaries decreased in the
current year due to reduced operating results at consolidated but not wholly
owned facilities and increased in 1996 due to the effects of minority interests
recorded at facilities acquired in the AMH Merger and other acquisitions.
Minority interest expense was $10 million in 1995, $30 million in 1996 and $27
million in 1997.
The Company's tax provision in 1995 and 1996 includes the benefit of the
realization of certain prior-year operating losses of OrNda. The tax provision
in 1996 includes additional amortization of goodwill resulting from the AMH
Merger and gains from the sales of international operations. The amortization
expense arising from the AMH Merger is a noncash charge but provides no income
tax benefits. The tax charge in 1997 is due primarily to certain nondeductible
merger costs and impairment charges which provide no tax benefits, partially
offset by the benefit of prior years' operating losses of OrNda. The Company
expects its normal tax rate in 1998 to approximate 40%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity for the year ended May 31, 1997 was derived principally
from the cash proceeds from operating activities, the proceeds from the sale of
public debt and borrowings under the Company's secured and unsecured bank credit
agreements. Net cash provided by operating activities for the years ended May
31, 1995, 1996 and 1997 was $126 million, $349 million and $404 million,
respectively. Net expenditures for discontinued operations, merger, facility
consolidation and other non-recurring charges were $427 million in 1995, $97
million in 1996 and $108 million in 1997, and are estimated to be approximately
$366 million in 1998. Cash flows from operating activities during the year ended
May 31, 1997 also have been adversely affected due to the following principal
reasons: (i) billing delays resulting from conversions of patient accounting
systems at several hospitals; (ii) delays in cash flows at recently acquired
facilities where accounts receivable were not purchased; (iii) temporary
slowdowns in the collection of Medicare receivables due to changes in fiscal
intermediaries for recently acquired facilities; and (iv) a general slowdown of
payments from other payors. Management believes that future cash flows from
operations will continue to be positive. This liquidity, along with the
availability of credit under the Company's current unsecured credit agreement,
should be adequate to meet debt-service requirements and to finance planned
capital expenditures and other known operating needs over the short term (up to
18 months) and the long term (18 months to three years).
The Company's cash and cash equivalents at May 31, 1996 were $107 million, a
decrease of $53 million from May 31, 1995. The Company's cash and cash
equivalents at May 31, 1997 were $35 million, a decrease of $72 million from May
31, 1996. Working capital at May 31, 1995 was $273 million, compared to $499
million at May 31, 1996 and $522 million at May 31, 1997. One of the factors
increasing working capital in both years is a decrease in the current portion of
long-term debt as new credit agreements, described below, eliminated previously
required quarterly payments of debt and amounts available under the new credit
agreement were earmarked for the redemption of other currently maturing
long-term debt.
Net proceeds from the sales of facilities, investments and other assets were
$191 million in 1995, compared to $551 million during 1996 and $50 million
during 1997. In June 1996, the Company sold its former corporate headquarters
building in Santa Monica, Calif. The proceeds in 1996 were primarily from the
sales of the Company's international operations.
In January 1997, in connection with the OrNda Merger, the Company entered into a
new five-year, $2.8 billion unsecured revolving credit agreement (the "New
Credit Agreement") with Morgan Guaranty Trust Company of New York, Bank of
America NT&SA, The Bank of New York and the Bank of Nova Scotia and a syndicate
of other lenders. The New Credit Agreement replaced the Company's March 1996
five-year $1.55 billion unsecured revolving credit agreement. Borrowings under
the New Credit
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
14
MANAGEMENT'S
DISCUSSION
Agreement are unsecured and will mature on January 31, 2002. The Company
generally may repay or prepay loans made under the New Credit Agreement and may
reborrow at any time prior to the maturity date. The New Credit Agreement
provides lower interest margins and generally has less restrictive covenants
than the former agreement. The New Credit Agreement, among other requirements,
has limitations on other borrowings, liens, investments, the sale of all or
substantially all assets and prepayment of subordinated debt, a prohibition
against the Company declaring or paying a dividend or purchasing its stock
unless its senior long-term unsecured debt securities are rated BBB- or higher
by Standard and Poors' Ratings Services and Baa3 or higher by Moody's Investors
Services, Inc., and covenants regarding maintenance of net worth, debt ratios
and fixed charge coverages. Current debt ratings on the Company's senior debt
securities are BB by Standard and Poors and Ba1 by Moody's. The Company's unused
borrowing capacity under the New Credit Agreement was $2.0 billion at May
31,1997.
In connection with the OrNda Merger and related refinancing, the Company on
January 30, 1997 sold $400 million of 7 7/8% Senior Notes due January 15, 2003,
$900 million of 8% Senior Notes due January 15, 2005 and $700 million of 8 5/8%
Senior Subordinated Notes due January 15, 2007. The proceeds to the Company were
$1.95 billion, after underwriting discounts and commissions.
Proceeds from borrowings amounted to $3.5 billion in 1995, $3.3 billion in 1996
and $5.1 billion in 1997. In 1996, the proceeds consisted primarily of
borrowings of $2.1 billion under the Company's bank credit agreements and $487
million in net proceeds from the sale of public debt. In 1997 these proceeds
consisted of $3.1 billion in borrowings under the Company's bank credit
agreements, and $2.0 billion in net proceeds from the sale of public debt. Loan
repayments were $2.2 billion in 1995, $3.3 billion in 1996 and $4.5 billion
during 1997.
Cash payments for property and equipment were $336 million in fiscal 1995, $472
million in fiscal 1996 and $406 million in fiscal 1997. The Company expects to
spend approximately $400 million to $500 million annually on capital
expenditures, before any significant acquisitions of facilities and other
healthcare operations and before an estimated $275 million commitment to fund
the construction of a new replacement facility for one of its hospitals. Such
capital expenditures relate primarily to the development of healthcare service
networks in selected geographic areas, design and construction of new buildings,
expansion and renovation of existing facilities, equipment additions and
replacements, introduction of new medical technologies and various other capital
improvements.
During fiscal 1996 and 1997, the Company spent $841 million and $787 million,
respectively, for purchases of new businesses, net of cash acquired. These
include 18 general hospitals and a number of other healthcare-related
businesses. These acquisitions were financed primarily by borrowings under the
Company's credit agreements.
The Company's strategy includes the pursuit of growth through acquisitions and
partnerships, including the development of integrated healthcare systems in
certain strategic geographic areas, general hospital acquisitions and
partnerships and physician practice acquisitions and partnerships. All or
portions of this growth may be financed through available credit under the New
Credit Agreement or, depending on capital market conditions, sale of additional
debt or equity securities or other bank borrowings.
BUSINESS OUTLOOK
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
15
The challenge facing the Company and the healthcare industry is to continue to
provide quality patient care in an environment of rising costs, strong
competition for patients, and a general reduction of reimbursement by both
private and government payors. Because of national, state and private industry
efforts to reform healthcare delivery and payment systems, the healthcare
industry as a whole faces increased uncertainty. The Company is unable to
predict whether any further healthcare legislation at the federal and/or state
level will be passed in the future, but it continues to monitor all proposed
legislation and analyze its potential impact in order to formulate the Company's
future business strategies.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report, including, without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both national and in the regions in
which the Company operates; industry capacity; demographic changes; existing
laws and government regulations and changes in, or the failure to comply with
laws and governmental regulations; legislative proposals for healthcare reform;
the ability to enter into managed care provider arrangements on acceptable
terms; a shift from fee-for-service payment to capitated and other risk-based
payment systems; changes in Medicare and Medicaid reimbursement levels;
liability and other claims asserted against the Company; competition; the loss
of any significant customers; technological and pharmaceutical improvements that
increase the cost of providing, or reduce the demand for, healthcare; changes in
business strategy or development plans; the ability to attract and retain
qualified personnel, including physicians; the significant indebtedness of the
Company; the lack of assurance that the synergies expected from the OrNda Merger
will be achieved; and the availability and terms of capital to fund the
expansion of the Company's business, including the acquisition of additional
facilities. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. Tenet disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
16
CONSOLIDATED STATEMENTS
OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE Years ended May 31,
------------------------------------
AND SHARE AMOUNTS) 1995 1996 1997
------------------------------------
Net operating revenues $ 5,161 $ 7,706 $ 8,691
------------------------------------
Operating expenses:
Salaries and benefits 2,170 3,130 3,574
Supplies 668 1,056 1,197
Provision for doubtful accounts 260 431 494
Other operating expenses 1,178 1,646 1,829
Depreciation 232 319 335
Amortization 44 100 108
Merger, facility consolidation and
other non-recurring charges 37 86 740
------------------------------------
Operating income 572 938 414
------------------------------------
Interest expense, net of
capitalized portion (251) (425) (417)
Investment earnings 32 27 26
Equity in earnings of unconsolidated
affiliates 43 25 1
Minority interests in income of
consolidated subsidiaries (10) (30) (27)
Net gain (loss) on disposals of
facilities and long-term investments 31 346 (18)
------------------------------------
Income (loss) from continuing operations
before income taxes 417 881 (21)
Taxes on income (151) (383) (52)
------------------------------------
Income (loss) from continuing operations 266 498 (73)
Discontinued operations (10) (25) (134)
Extraordinary charges from early
extinguishment of debt (20) (23) (47)
------------------------------------
Net income (loss) 236 450 (254)
Preferred stock dividend requirements (2) - -
------------------------------------
Net income (loss) applicable to common
shareholders $ 234 $ 450 $ (254)
------------------------------------
------------------------------------
Earnings (loss) per common and common
equivalent share:
Primary:
Continuing operations $1.10 $1.73 $(0.24)
Discontinued operations (0.04) (0.09) (0.44)
Extraordinary charges (0.08) (0.08) (0.16)
------------------------------------
$0.98 $1.56 $(0.84)
------------------------------------
------------------------------------
Fully diluted:
Continuing operations $1.08 $1.70 $(0.24)
Discontinued operations (0.04) (0.08) (0.44)
Extraordinary charges (0.08) (0.08) (0.16)
------------------------------------
$0.96 $1.54 $(0.84)
------------------------------------
------------------------------------
Weighted average number of shares and
share equivalents outstanding (in thousands):
Primary 237,964 287,129 303,860
Fully diluted 254,105 295,062 304,153
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
17
CONSOLIDATED BALANCE SHEETS
MAY 31,
--------------------
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1996 1997
--------------------
ASSETS
Current assets:
Cash and cash equivalents $ 107 $ 35
Short-term investments in debt securities 112 116
Accounts receivable, less allowance for doubtful
accounts ($205 in 1996 and $224 in 1997) 1,040 1,346
Inventories of supplies, at cost 170 193
Deferred income taxes 312 294
Other current assets 299 407
-------------------
Total current assets 2,040 2,391
-------------------
Investments and other assets 588 678
Property and equipment, net 4,984 5,490
Costs in excess of net assets acquired, less accumulated
amortization ($116 in 1996 and $180 in 1997) 3,072 3,072
Other intangible assets, at cost, less accumulated
amortization ($43 in 1996 and $46 in 1997) 84 74
-------------------
$ 10,768 $ 11,705
-------------------
-------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 120 $ 28
Accounts payable 530 540
Employee compensation and benefits 173 309
Accrued interest payable 84 144
Reserves related to discontinued operations
and other non-recurring charges 70 423
Other current liabilities 564 425
-------------------
Total current liabilities 1,541 1,869
-------------------
Long-term debt, net of current portion 4,421 5,022
Other long-term liabilities and minority interests 1,097 1,282
Deferred income taxes 432 308
Commitments and contingencies
Shareholders' equity:
Common stock, $0.075 par value; authorized 450,000,000
shares at May 31, 1996 and 700,000,000 shares at
May 31, 1997; 297,352,251 shares issued at May 31, 1996
and 305,501,379 shares issued at May 31, 1997 22 23
Additional paid-in capital 2,171 2,311
Unrealized gains on investments in debt and equity securities 28 110
Retained earnings 1,096 819
Less common stock in treasury, at cost, 2,790,967 shares at
May 31, 1996 and 2,676,091 shares at May 31, 1997 (40) (39)
-------------------
Total shareholders' equity 3,277 3,224
-------------------
$ 10,768 $ 11,705
-------------------
-------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
18
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
CONVERTIBLE
COMMON STOCK PREFERRED STOCK
--------------------- ----------------
(DOLLAR AMOUNTS ARE ADDITIONAL
EXPRESSED IN MILLIONS, SHARE OUTSTANDING ISSUED ISSUED PAID-IN UNREALIZED RETAINED TREASURY
AMOUNTS IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT CAPITAL GAINS EARNINGS STOCK
----------------------------------------------------------------------------------------
Balances, May 31, 1994 224,739 $18 1,310 $ 20 $1,412 $ 71 $ 410 $(282)
Net income 236
Shares issued in
connection with:
AMH Merger 33,156 3 485
Other acquisitions 561 5
Paid-in-kind dividends 134 2 (2)
Conversion of convertible
preferred stock 154 (114) (2) 2
Stock options exercised 1,917 10 10
Restricted share
cancellations (4)
Decrease in unrealized
gains on investments in
debt and equity securities,
net of income taxes (19)
----------------------------------------------------------------------------------------
Balances, May 31, 1995 260,523 21 1,330 20 1,912 52 646 (272)
Net income 450
Performance investment
plan options exercised 13,499 39 196
Paid-in-kind dividends 33
Issuance of common stock 15,588 1 191
Conversion of convertible
preferred stock 1,831 (1,356) (20) 20
Redemption of preferred
stock (7)
Stock options exercised 3,120 9 36
Net change in unrealized
gains from changes in
market value of investments in
debt and equity securities, net
of income taxes (24)
----------------------------------------------------------------------------------------
Balances, May 31, 1996 294,561 22 -- -- 2,171 28 1,096 (40)
Net loss (254)
Issuance of common stock 1,171 22 1
Stock options exercised 7,093 1 118
Increase in unrealized
gains on investments in
debt and equity securities,
net of income taxes 82
Elimination of the effect of
including OrNda's results
of operations for the
three months ended
August 31, 1996 in both
years ended May 31, 1996
and 1997 (23)
----------------------------------------------------------------------------------------
Balances, May 31, 1997 302,825 $ 23 -- $ -- $2,311 $ 110 $ 819 $ (39)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31,
--------------------------
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1995 1996 1997
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 236 $ 450 $ (254)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 276 419 443
Provision for doubtful accounts 260 431 494
Deferred income taxes 83 247 (219)
Net loss (gain) on disposals of facilities and
long-term investments (31) (346) 18
Additions to reserves for discontinued
operations, merger, facility consolidation
and other non-recurring charges 51 127 955
Extraordinary charges from early
extinguishment of debt 20 23 47
Other items (17) 35 26
Increases (decreases) in cash from changes in
operating assets and liabilities, net of effects
from purchases of new businesses:
Accounts receivable (400) (709) (791)
Inventories and other current assets (36) (91) (7)
Accounts payable, income
taxes payable
and other current liabilities (10) (100) (141)
Other long-term liabilities and minority
interests 121 (40) (59)
Net expenditures for discontinued
operations, merger, facility consolidation
and other non-recurring charges (427) (97) (108)
-------------------------
Net cash provided by operating activities 126 349 404
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (336) (472) (406)
Purchases of new businesses, net of cash
acquired (1,489) (841) (787)
Proceeds from sales of facilities, long-term
investments and other assets 191 551 50
Other items 11 (38) 18
-------------------------
Net cash used in investing activities (1,623) (800) (1,125)
-------------------------
-------------------------
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
20
Consolidated Statements of Cash Flows
YEARS ENDED MAY 31,
----------------------------
(DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS) 1995 1996 1997
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 3,546 3,278 5,117
Loan payments (2,234) (3,307) (4,512)
Proceeds from exercises of performance
investment plan options -- 203 --
Proceeds from exercises of stock options 11 37 59
Proceeds from sales of common stock -- 192 12
Other items 3 (5) (23)
----------------------------
Net cash provided by financing activities 1,326 398 653
----------------------------
Net increase (decrease) in cash and
cash equivalents (171) (53) (68)
Cash and cash equivalents at beginning of year 331 160 107
Pooling adjustment to beginning of period
balance to conform fiscal years -- -- (4)
----------------------------
Cash and cash equivalents at end
of year $ 160 $ 107 $ 35
----------------------------
----------------------------
SUPPLEMENTAL DISCLOSURES:
The Company paid interest (net of amounts capitalized) of $222 million, $386
million and $273 million for the years ended May 31, 1995, 1996 and 1997,
respectively. Income taxes paid during the same years amounted to $47 million,
$57 million and $147 million, respectively. The fair value of common stock
issued for acquisitions of hospitals and other assets was $493 million in 1995
and $11 million in 1997.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The accounting and reporting policies of Tenet Healthcare Corporation (together
with its subsidiaries, "Tenet" or the "Company") conform to generally accepted
accounting principles and prevailing practices for investor-owned entities
within the healthcare industry. Certain prior-year amounts have been
reclassified to conform to current-year classifications.
On January 30, 1997, the Company acquired OrNda HealthCorp (together with its
subsidiaries, "OrNda"), a provider of healthcare services operating general
hospitals, surgery centers, outpatient and specialty clinics, a psychiatric
hospital and a managed healthcare Medicaid plan, when a subsidiary of the
Company was merged into OrNda (the "OrNda Merger"), leaving OrNda and all of its
subsidiaries as direct and indirect wholly owned subsidiaries of the Company.
The OrNda Merger was accounted for as a pooling-of-interests and, accordingly,
the consolidated financial statements and all statistical data shown herein
prior to the OrNda Merger have been restated to include the accounts and results
of operations of OrNda for all periods presented. (See Note 3 for further
details pertaining to the OrNda Merger.)
Prior to the OrNda Merger, OrNda's fiscal year ended August 31. In recording the
pooling-of-interests combination, OrNda's consolidated financial statements for
the years ended August 31, 1995 and 1996 have been combined with Tenet's
consolidated financial statements for the years ended May 31, 1995 and 1996.
OrNda's consolidated financial statements for the 12 months ended May 31, 1997
have been combined with Tenet's consolidated financial statements for the same
period and an adjustment has been made to shareholders' equity as of May 31,
1997, to eliminate the effect of including OrNda's results of operations for the
three months ended August 31, 1996 in both years ended May 31, 1997 and 1996.
OrNda's unaudited results of operations for the three months ended August 31,
1996 included net operating revenues of $552 million and net income of $23
million.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
A. THE COMPANY
Tenet is an investor-owned healthcare services company that owns or operates,
through its subsidiaries and affiliates, general hospitals and related
healthcare facilities serving urban and rural communities in 22 states and holds
investments in other healthcare companies. At May 31, 1997, the Company's
subsidiaries operated 128 domestic general hospitals, with a total of 27,959
licensed beds in 22 states. The largest concentrations of hospitals are in
California (35.2%), Texas (15.6%) and Florida (13.3%). The concentrations of
hospitals in these three states increases the risk that any adverse economic,
regulatory or other developments that may occur in such states may adversely
affect the Company's results of operations or financial condition.
The Company is subject to changes in government legislation that could impact
Medicare and Medicaid reimbursement levels and is also subject to increased
levels of managed care penetration and changes in payor patterns that may impact
the level and timing of payments for services rendered.
At May 31, 1997, the Company's subsidiaries and affiliates also owned or
operated various ancillary healthcare businesses, as well as a small number of
rehabilitation hospitals, specialty hospitals, long-term-care facilities and
psychiatric facilities located on the same campus as, or nearby, the Company's
general hospitals.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
22
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tenet and its
wholly owned and majority-owned subsidiaries. Significant investments in other
affiliated companies generally are accounted for using the equity method.
Intercompany accounts and transactions are eliminated in consolidation. The
results of operations of acquired businesses in purchase transactions are
included from their respective acquisition dates.
C. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management of the Company to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
D. NET OPERATING REVENUES
Net operating revenues consist primarily of net patient-service revenues, which
are based on the hospitals' established billing rates less allowances and
discounts principally for patients covered by Medicare, Medicaid and other
contractual programs. Payments under these programs are based on either
predetermined rates or the costs of services. Settlements for retrospectively
determined rates are estimated in the period the related services are rendered
and are adjusted in future periods as final settlements are determined.
Management believes that adequate provision has been made for adjustments that
may result from final determination of amounts earned under these programs.
These contractual allowances and discounts are deducted from accounts receivable
in the accompanying consolidated balance sheets. Approximately 43% of
consolidated net operating revenues were from participation of the Company's
hospitals in Medicare and Medicaid programs in 1995. It was approximately 45% in
each of 1996 and 1997.
The Company provides care to patients who meet certain financial or economic
criteria without charge or at amounts substantially less than its established
rates. Because the Company does not pursue collection of amounts determined to
qualify as charity care, they are not reported in net operating revenues or in
operating and administrative expenses.
E. CASH EQUIVALENTS
The Company treats highly liquid investments with an original maturity of three
months or less as cash equivalents. The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents approximate fair
value.
F. INVESTMENTS IN DEBT AND EQUITY SECURITIES
Investments in debt and equity securities are classified as available-for-sale,
held-to-maturity or as part of a trading portfolio. At May 31, 1997, the Company
had no significant investments in securities classified as either held-to-
maturity or trading. Securities classified as available-for-sale are carried at
fair value if unrestricted and their unrealized gains and losses, net of tax,
are reported as an adjustment to shareholders' equity. Realized gains or losses
are included in net income on the specific identification method, and are
immaterial for all years presented.
G. INTEREST RATE SWAP AGREEMENTS
The differentials to be paid or received under interest rate swap agreements are
accrued as the interest rates change and are recognized over the lives of the
agreements as adjustments to interest expense.
H. INDEXED DEBT INSTRUMENTS
Changes in liability resulting from increases or decreases in the index value of
the Company's indexed long-term debt instrument (its 6% Exchangeable
Subordinated Notes) are accounted for as adjustments of the carrying amount of
the related debt obligation with corresponding charges (or credits) to earnings.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
23
I. LONG-LIVED ASSETS
Property and Equipment: The Company uses the straight-line method of
depreciation for buildings, building improvements and equipment over their
estimated useful lives as follows: buildings and improvements, 25 to 40 years;
equipment, three to 15 years. Capital leases are recorded at the beginning of
the lease term as assets and liabilities at the lower of the present value of
the minimum lease payments or the fair value of the assets, and such assets,
including improvements, are amortized over the shorter of the lease term or
their useful life. The Company capitalizes interest costs related to
construction projects. Capitalized interest was $8 million in 1995. It was $12
million in 1996 and 1997.
Intangible Assets: Preopening costs are amortized over one year. Costs in excess
of the fair value of the net assets of purchased businesses (goodwill) generally
are amortized over 20 to 40 years. The straight-line method is used to amortize
most intangible assets. Deferred financing costs are amortized over the lives of
the related loans using the interest method.
Impairment of long-lived assets, including goodwill related to such assets, is
recognized whenever events or changes in circumstances indicate that the
carrying amount of the asset, or related groups of assets, may not be fully
recoverable from estimated future cash flows. The Company also assesses the
recoverability of goodwill at the enterprise level in a similar manner.
Measurement of the amount of impairment may be based on appraisal, market values
of similar assets or estimates of future discounted cash flows resulting from
use and ultimate disposition of the asset.
J. SALES OF COMMON STOCK OF SUBSIDIARIES
At the time a subsidiary or equity affiliate sells existing or newly issued
common stock to unrelated parties at a price in excess of its book value, the
Company records a gain reflecting its share of the change in the subsidiary's
shareholders' equity resulting from the sale.
K. EARNINGS PER SHARE
Primary earnings (or loss) per share of common stock is based on after-tax
income (or loss) applicable to common stock and the weighted average number of
shares of common stock and common stock equivalents outstanding during each
period as appropriate. Fully diluted earnings-per-share calculations are based
on the assumption that all dilutive convertible debentures issued by Tenet (and,
through December 8, 1995, redeemable convertible preferred shares issued by
OrNda) are converted into shares of Tenet common stock as of the beginning of
the year, or as of the issue date if later, and (i) that those shares are added
to the weighted average number of common shares and share equivalents
outstanding used in the calculation of primary earnings per share, and (ii) that
after-tax income (or loss) is adjusted accordingly.
The Financial Accounting Standards Board ("FASB") recently issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which is
required to be adopted for financial statements issued for periods ending after
December 15, 1997. This statement establishes new, simplified standards for
computing and presenting earnings per share. It replaces the traditional
presentations of primary earnings per share and fully diluted earnings per share
with presentations of basic earnings per share and diluted earnings per share,
respectively. When adopted by the Company, during the quarter ending February
28, 1998, basic earnings per share is expected to increase slightly from primary
earnings per share and diluted earnings per share is expected to approximate
fully diluted earnings per share.
L. STOCK-BASED COMPENSATION
Compensation cost for stock-based employee compensation plans is recognized
based on the difference, if any, between the quoted market price of the
Company's common stock on the option grant date and the amount the employee must
pay to acquire the stock, in accordance with Accounting Principles Board Opinion
No. 25.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 ACQUISITIONS AND DISPOSALS OF FACILITIES
MERGER WITH ORNDA:
On January 30, 1997, the Company acquired OrNda by issuing 81,439,910 shares of
its common stock in a tax-free exchange for all of OrNda's outstanding common
stock which has been accounted for as a pooling-of-interests.
The results of operations previously reported by the separate companies and the
combined amounts presented in the accompanying consolidated statements of
operations are summarized below (in millions).
Prior to Merger Subsequent to Merger
-------------------------------------- --------------------------------------
Fiscal Fiscal 06/01/96 01/30/97
Year Year to to Merger- Year
ended ended 01/29/97 05/31/97 Related ended
05/31/95 05/31/96 (unaudited) (unaudited) Expenses 05/31/97
-------------------------------------- --------------------------------------
Net operating revenues:
Tenet $ 3,318 $ 5,559 $ 3,983 $ 3,074 -- $ 7,057
OrNda 1,843 2,147 1,637 -- -- 1,637
Conforming
reclassifications -- -- (3) -- -- (3)
-------------------------------------- --------------------------------------
Combined $ 5,161 $ 7,706 $ 5,617 $ 3,074 $ -- $ 8,691
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
Extraordinary charges:
Tenet $ (20) $ (23) -- -- $ (47) $ (47)
OrNda -- -- -- -- -- --
-------------------------------------- --------------------------------------
Combined $ (20) $ (23) $ -- $ -- $ (47) $ (47)
-------------------------------------- --------------------------------------
Net income (loss):
Tenet $ 165 $ 350 $ 221 $ (339) $ (208) $ (326)
OrNda 71 100 72 -- -- 72
-------------------------------------- --------------------------------------
Combined $ 236 $ 450 $ 293 $ (339) $ (208) $ (254)
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
MERGER WITH AMH:
In March 1995, in a transaction accounted for as a purchase, Tenet acquired all
the outstanding common stock of American Medical Holdings, Inc. (together with
its subsidiaries, "AMH") for $1.5 billion in cash and 33,156,614 shares of
Tenet's common stock valued at $488 million. The total purchase price was
allocated to the assets and liabilities of AMH based on their estimated fair
values. The total purchase price exceeded the fair value of the net assets
acquired by approximately $2.5 billion.
OTHER DOMESTIC:
Tenet's subsidiaries, including OrNda, acquired seven general hospitals in
fiscal 1996 and 11 general hospitals in fiscal 1997.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
25
The Company also acquired a number of physician practices, home health agencies
and other healthcare operations during the three years ended May 31, 1997. All
of these transactions have been accounted for as purchases. The results of
operations of the acquired businesses, which are not material in the aggregate,
have been included in the Company's consolidated statements of operations,
shareholders' equity and cash flows from the dates of acquisition.
INTERNATIONAL:
In fiscal 1996, the Company sold its interests in hospitals and related
healthcare businesses in Singapore, Australia, Malaysia and Thailand for net
cash consideration of approximately $344 million. These transactions resulted in
gains of approximately $158 million. Also in fiscal 1996, the Company sold its
approximately 42% interest in Westminster Health Care Holdings PLC for a gain of
$34 million.
NOTE 4 MERGER, FACILITY CONSOLIDATION AND OTHER NON-RECURRING CHARGES
In the year ended May 31, 1995, the Company recorded restructuring charges of
approximately $37 million ($0.09 per share) associated with the relocation of
substantially all of its hospital support activities previously located in
Southern California and Florida to Dallas, Texas.
In the year ended May 31, 1996, the Company recorded an impairment loss of
approximately $86 million, before tax benefits of approximately $32 million
($0.18 per fully diluted share). The assets deemed to be impaired consisted of
three rehabilitation hospitals, four general hospitals and a parcel of
undeveloped land. In the case of the rehabilitation hospitals, the principal
facts and circumstances leading to the impairment included recent and forecast
reductions in hospital admissions and payment rates caused by payor-driven
shifts in care from traditional rehabilitation services to lower-cost skilled
nursing facilities. The impairment of the general hospitals was the result of
(i) a change in the use of one of the facilities from acute care to less intense
specialty care, (ii) lower patient volumes, and (iii) adverse changes in payor
mix.
In the year ended May 31, 1997, the Company recorded merger, facility
consolidation and other non-recurring charges totaling $740 million ($506
million after taxes or $1.66 per share). These charges consist of the following:
A. MERGER-RELATED EXPENSES
The Company recorded non-recurring charges of $309 million in connection with
the OrNda Merger. The after-tax effect of these expenses was $208 million or
$0.68 per share. These expenses included (in millions):
Investment banking, professional fees and other transaction costs $ 27
Severance for identified employees and costs to terminate or
convert employee benefit programs 83
Closure of OrNda's corporate and regional offices,
consolidation of operations 90
Information systems consolidations, primarily related to the
buy-out of vendor contracts and the write-down of computer
equipment and capitalized software 15
Estimated costs to settle a government investigation of OrNda
and other OrNda litigation 32
Other, primarily related to conforming accounting practices
used for estimating allowances for self-insurance
reserves and doubtful accounts 62
------
$ 309
------
------
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. FACILITY CONSOLIDATION AND OTHER IMPAIRMENT LOSSES
The Company recorded $413 million ($287 million after taxes or $0.94 per share)
for asset impairment losses in 1997 related to the (in millions):
Plan to close seven general hospitals and to sell eight general
hospitals and one other healthcare business, in order to
eliminate the duplication of services and excess capacity
following the OrNda Merger $219
Impairment of the carrying values of long-lived assets
of four general hospitals and nine medical office buildings
acquired from OrNda to their estimated fair values 134
Write-off of goodwill and other long-lived assets
related to some of the Company's physician practices
which are not deemed fully recoverable based on the
trend of operating results 60
----
$413
----
----
Three of the hospitals to be closed will be converted to alternate uses. The
aggregate operating results of the facilities to be closed or sold were not
significant. The Company expects to complete this consolidation plan by May 31,
1998. The asset impairments resulted primarily from declining patient volumes
and adverse changes in payor mix at the general hospitals and excess capacity in
the medical office buildings. In determining the amount of asset impairment
losses, the related assets' fair values were determined by specific market
appraisals, reference to definitive agreements or recent sales prices of
comparable facilities, either on a per-bed or earnings multiple basis, or by
discounted expected future cash flows.
C. OTHER
The Company recorded $18 million ($11 million after taxes or $0.04 per share)
for restructuring its physician practices. These non-recurring charges include
severance, write-off of computer equipment and software, physician contract
terminations, and the reorganization of regional management service
organizations.
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following:
(IN MILLIONS) 1996 1997
---------------------
Land $ 429 $ 443
Buildings and improvements 3,884 4,176
Construction in progress 149 345
Equipment 1,842 1,958
---------------------
6,304 6,922
Less accumulated depreciation and amortization 1,320 1,432
Net property and equipment $ 4,984 $ 5,490
---------------------
---------------------
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
27
NOTE 6 LONG-TERM DEBT AND LEASE OBLIGATIONS
A. LONG-TERM DEBT
Long-term debt consists of the following:
(IN MILLIONS) 1996 1997
----------------------
Loans payable to banks - unsecured $ 975 $ 779
Loans payable to banks - secured 692 --
9 5/8% Senior Notes due 2002, $300 million face value,
net of $5 million unamortized discount 294 295
8 5/8% Senior Notes due 2003, $500 million face value,
net of $11 million unamortized discount 488 489
7 7/8% Senior Notes due 2003, $400 million face value,
net of $8 million unamortized discount -- 392
8% Senior Notes due 2005, $900 million face value,
net of $23 million unamortized discount -- 877
10 1/8% Senior Subordinated Notes due 2005, $900 million
face value, net of $20 million unamortized discount 878 880
8 5/8% Senior Subordinated Notes due 2007, $700 million
face value, net of $16 million unamortized discount -- 684
11 3/8 and 12 1/4% Senior Subordinated Notes repaid in 1997 525 --
6% Exchangeable Subordinated Notes due 2005,
$320 million face value, stated at indexed value,
net of $8 million unamortized discount 311 330
Zero-coupon guaranteed bonds due 1997 and 2002, $131 million
face value, net of $19 million unamortized discount 102 110
Notes and capital lease obligations, secured by property and equipment,
weighted average interest rate of approximately 11.5% in 1996
and 11.4% in 1997, payable in installments to 2009 188 188
Other notes, primarily unsecured 88 26
----------------------
4,541 5,050
Less current portion (120) (28)
----------------------
$ 4,421 $ 5,022
----------------------
----------------------
Loans Payable to Banks - In January 1997, in connection with the OrNda Merger,
the Company entered into a new revolving credit agreement (the "New Credit
Agreement") with a syndicate of banks that allows the Company to borrow, repay
and reborrow up to $2.8 billion prior to the agreement's January 31, 2002
maturity date. This agreement replaced the Company's five-year $1.55 billion
unsecured revolving credit agreement with a syndicate of banks. As a result of
this refinancing, as well as the refinancing of OrNda's then-existing credit
facility, its 12 1/4% Senior Subordinated Notes and its 11 3/8% Senior
Subordinated Notes, the Company recorded an extraordinary charge from early
extinguishment of debt in the amount of $47 million, net of taxes of $29
million.
Loans under the New Credit Agreement are unsecured and generally bear interest
at a base rate equal to the prime rate or, if higher, the federal funds rate
plus 0.50%, or, at the option of the Company, an adjusted London interbank
offered rate ("LIBOR") for one-, two-, three- or six-month periods plus an
interest margin of from 22.50 to 68.75 basis points. The Company has agreed to
pay the lenders under the New Credit Agreement an annual facility fee on the
total loan commitment at rates ranging from 12.50 to 31.25 basis points. The
interest margins and facility fee rates are based on the ratio of the Company's
consolidated total debt to net earnings before interest, taxes, depreciation,
amortization and certain non-recurring charges. During the year ended May 31,
1997, the weighted average interest rate on the loans payable to banks was 6.1%.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SENIOR NOTES AND SENIOR SUBORDINATED NOTES - The Company sold, on March 1, 1995,
$300 million of 9 5/8% Senior Notes due September 1, 2002 and $900 million of 10
1/8% Senior Subordinated Notes due March 1, 2005. The senior notes are not
redeemable by the Company prior to maturity. Subject to certain limitations in
the New Credit Agreement, the senior subordinated notes are redeemable at the
option of the Company, in whole or from time to time in part, at any time after
March 1, 2000, at redemption prices ranging from 105.063% in 2000 to 100% in
2003 and thereafter.
In October 1995, the Company sold $500 million of Senior Notes due December
2003. The notes have a coupon of 8 5/8%. The notes are not redeemable by the
Company prior to maturity.
In connection with the OrNda Merger and related refinancing, the Company issued,
on January 30, 1997, $400 million of 7 7/8% Senior Notes due January 15, 2003,
$900 million of 8% Senior Notes due January 15, 2005 and $700 million of 8 5/8%
Senior Subordinated Notes due January 15, 2007. The proceeds to the Company were
$1.95 billion, after underwriting discounts and commissions. The senior notes
are not redeemable by the Company prior to maturity. Subject to certain
limitations in the New Credit Agreement, the senior subordinated notes are
redeemable at the option of the Company, in whole or from time to time in part,
at any time on or after January 15, 2002, at redemption prices ranging from
104.313% in 2002 to 100% in 2005 and thereafter.
The senior notes are unsecured obligations of the Company ranking senior to all
subordinated indebtedness of the Company, including the senior subordinated
notes, and equally in right of payment with all other indebtedness of the
Company, including borrowings under the New Credit Agreement described above.
The senior subordinated notes also are unsecured obligations of the Company
subordinated in right of payment to all existing and future senior debt,
including the senior notes and borrowings under the New Credit Agreement.
6% EXCHANGEABLE SUBORDINATED NOTES - 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, Inc.
("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 exchange price
equivalent to the exchange rate is $38.55 per share. Subject to certain
limitations in the New Credit Agreement, the notes are 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 notes also are
unsecured obligations of the Company subordinated in right of payment to all
existing and future senior and senior subordinated debt and borrowings under the
New Credit Agreement.
To the extent that the fair market value of the Company's investment in the
common stock of Vencor exceeds the carrying value of the notes at the end of any
accounting period, the Company adjusts the carrying value of the notes to the
fair market value of the investment through a charge or credit to earnings.
Corresponding adjustments to the carrying value of the investment in Vencor are
credited or charged directly to shareholders' equity as unrealized gains or
losses. At May 31, 1997, the market price of Vencor's common stock was $40.75
per share, or $2.20 per share over the exchange price of the stock. The Company
accordingly recognized a pretax, noncash charge to earnings in the amount of $18
million ($11 million after-tax, or $0.04 per share). This charge has been
included with the net gain (or loss) on disposals of facilities and long-term
investments in the accompanying consolidated statement of operations for the
year ended May 31, 1997.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
29
LOAN COVENANTS - The New Credit Agreement and the indentures governing the
Company's outstanding public debt have, among other requirements, limitations on
borrowings by, and liens on the assets of, the Company or its subsidiaries,
investments, the sale of all or substantially all assets and prepayment of
subordinated debt, a prohibition against the Company declaring or paying
dividends on or purchasing its stock unless its senior long-term unsecured debt
securities are rated BBB- or higher by Standard and Poors' Rating Services and
Baa3 or higher by Moody's Investors Service, Inc., and covenants regarding
maintenance of specified levels of net worth, debt ratios and fixed-charge
coverage ratios. Because of the dividend restrictions, all of the Company's
retained earnings are restricted. The Company is in compliance with its loan
covenants. There are no compensating balance requirements for any credit line or
borrowing.
B. LONG-TERM DEBT MATURITIES AND LEASE OBLIGATIONS
Future long-term debt cash maturities and minimum operating lease payments are
as follows:
1998 1999 2000 2001 2002 LATER YEARS
- ------------------------------------------------------------------------------------------------------
Long-term debt $ 28 $ 33 $ 35 $ 218 $ 672 $ 4,174
Long-term leases 201 168 120 103 84 315
Rental expense under operating leases, including short-term leases, was $170
million in 1995, $239 million in 1996 and $253 million in 1997.
NOTE 7 INCOME TAXES
Taxes on income from continuing operations consist of the following amounts:
(IN MILLIONS) 1995 1996 1997
---------------------------------
Currently payable:
Federal $ 116 $ 217 $ 131
State 23 44 27
Foreign 9 5 --
---------------------------------
148 266 158
Deferred:
Federal (4) 80 (132)
State 2 14 (6)
---------------------------------
(2) 94 (138)
---------------------------------
Other 5 23 32
---------------------------------
$ 151 $ 383 $ 52
---------------------------------
---------------------------------
A reconciliation between the amount of reported income tax expense (benefit) and
the amount computed by multiplying income (loss) before tax by the statutory
Federal income tax rate is shown below:
(IN MILLIONS OF DOLLARS) 1995 1996 1997
---------------------------------
Tax provision at statutory
federal rate of 35% $146 $308 $(7)
State income taxes, net of
federal income tax benefit 17 37 15
Goodwill amortization 8 27 26
Gain on sale of foreign operations - 30 -
Nondeductible OrNda Merger costs - - 14
Nondeductible asset impairment charges - - 29
Benefit of prior-year
net operating losses (21) (24) (19)
Other 1 5 (6)
---------------------------------
Taxes on income from
continuing operations $151 $383 $52
---------------------------------
---------------------------------
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities as of May 31, 1996 and 1997 relate to the following:
1996 1997
------------------------------------------------------------
(IN MILLIONS) ASSETS LIABILITIES ASSETS LIABILITIES
------------------------------------------------------------
Depreciation and fixed-asset basis differences $ -- $ 652 $ -- $ 661
Reserves related to discontinued operations, merger,
facility consolidation and other non-recurring charges 87 -- 203 --
Receivables-doubtful accounts and adjustments 144 -- 112 --
Cash-basis accounting change -- 9 -- --
Accruals for insurance risks 103 -- 103 --
Intangible assets 4 -- 1 --
Other long-term liabilities 86 -- 50 --
Benefit plans 78 -- 91 --
Other accrued liabilities 79 -- 40 --
Investments and other assets -- 87 -- 43
Federal and state net operating loss carryforwards 69 -- 58 --
Other items 17 -- 53 --
------------------------------------------------------------
$ 667 $ 748 $ 711 $ 704
Valuation allowance (41) -- (22) -
------------------------------------------------------------
$ 626 $ 748 $ 689 $ 704
------------------------------------------------------------
------------------------------------------------------------
The valuation allowance was reduced by $19 million in fiscal 1997 upon
consummation of the OrNda Merger to conform the accounting practices of the two
companies. Management believes that realization of the deferred tax assets in
excess of the valuation allowance recorded at May 31, 1997 is more likely than
not to occur as temporary differences reverse against future taxable income.
The following schedule summarizes approximate tax attribute carryforwards from
prior tax returns for OrNda which are available to offset future federal net
taxable income:
(IN MILLIONS) AMOUNT EXPIRATION PERIODS
----------------------------
Net operating loss $167 1999-2009
General business credits 4 1998-2001
Alternative minimum tax 5 None
Allowable federal deductions relating to net operating losses of OrNda and
certain of its subsidiaries are subject to annual limitations.These limitations
are not expected to significantly affect the ability of the Company to
ultimately recognize the benefit of these net operating loss deductions in
future years.
NOTE 8 CLAIMS AND LAWSUITS
A. PROFESSIONAL AND GENERAL LIABILITY INSURANCE
In its normal course of business, the Company is subject to claims and lawsuits
relating to injuries arising from patient treatment. The Company believes that
its liability for damages resulting from such claims and lawsuits is adequately
covered by insurance or is adequately provided for in its consolidated financial
statements.
The Company insures substantially all of its professional and comprehensive
general liability risks in excess of self-insured retentions, which vary by
hospital and by policy period from $500,000 to $3 million per occurrence,
through a majority-owned insurance subsidiary. A significant portion of these
risks is, in turn, reinsured with major independent insurance companies.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
31
Prior to fiscal 1995, the Company insured its professional and comprehensive
general liability risks related to its psychiatric and rehabilitation hospitals
through a wholly owned insurance subsidiary, which reinsured risks in excess of
$500,000 with major independent insurance companies. The Company has reached the
policy limits provided by this insurance subsidiary related to the psychiatric
hospitals in several coverage years. In addition, damages, if any, arising from
fraud and conspiracy claims in psychiatric malpractice cases may not be insured.
In addition to the reserves recorded by the above insurance subsidiaries, the
Company maintains an unfunded reserve based on actuarial estimates for the self-
insured portion of its professional liability risks. Reserves for losses and
related expenses are estimated using expected loss-reporting patterns and have
been discounted to their present value using a weighted average discount rate of
approximately 8%. Adjustments to the reserves are included in results of
operations.
B. SIGNIFICANT LEGAL PROCEEDINGS
The Company has been involved in significant legal proceedings of an unusual
nature related principally to its discontinued psychiatric business. During the
years ended May 31, 1995, 1996 and 1997, the Company recorded provisions to
estimate the cost of the ultimate disposition of all of these proceedings and to
estimate the legal fees that it expected to incur. The Company has settled the
most significant of these matters. The remaining reserves for unusual litigation
costs that relate to matters that had not been settled as of May 31, 1997 and an
estimate of the legal fees to be incurred subsequent to May 31, 1997 represent
management's estimate of the remaining net costs of the ultimate disposition of
these matters. There can be no assurance, however, that the ultimate liability
will not exceed such estimates. Although, based upon information currently
available to it, management believes that the amount of damages, if any, in
excess of its reserves for unusual litigation costs that may be awarded in any
of the following unresolved legal proceedings cannot reasonably be estimated,
management does not believe it is likely that any such damages will have a
material adverse effect on the Company's results of operations, liquidity or
capital resources. All of the costs associated with these legal proceedings are
classified in discontinued operations.
PSYCHIATRIC MALPRACTICE CASES - The Company continues to defend a greater-than-
normal level of litigation relating to certain of its subsidiaries' former
psychiatric operations. The majority of the lawsuits filed contain allegations
of medical malpractice as well as allegations of fraud and conspiracy against
the Company and certain of its subsidiaries and former employees. Also named as
defendants are numerous doctors and other healthcare professionals. The Company
believes that the increase in litigation arose primarily from advertisements by
certain lawyers seeking former psychiatric patients in order to file claims
against the Company and certain of its subsidiaries. The advertisements focused,
in many instances, on the Company's settlement of past disputes involving the
operations of its discontinued psychiatric business subsidiaries, including the
Company's 1994 resolution of the Federal government's investigation and a
corresponding criminal plea agreement involving such discontinued psychiatric
business of the Company. From June 1, 1994 to the present, approximately 1,000
cases alleging fraud and conspiracy have been filed against the Company and
certain of its subsidiaries. Most of the cases have been filed in Texas and
Washington, D.C. To date, the Company has resolved approximately 700 of these
cases.
The Company expects that additional lawsuits with similar allegations will be
filed. The Company believes it has a number of defenses to each of these actions
and will defend these and any additional lawsuits vigorously. Until the lawsuits
are resolved, however, the Company will continue to incur substantial legal
expenses.
SHAREHOLDER LAWSUITS - Two federal class actions filed in August 1993 were
consolidated into one action. This consolidated action is on behalf of a
purported class of shareholders who purchased or sold stock
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the Company between January 14, 1993 and August 26, 1993, and alleges
violations of the securities laws by the Company and certain of its executive
officers. After unsuccessful mediation, the parties agreed in May 1995 to
proceed with the litigation. In June 1995, the defendants filed a motion to
dismiss and to strike plaintiffs' complaint. Although in March 1997 the
defendants' motion was denied, the Company believes it has meritorious defenses
to this action and will continue to defend this litigation vigorously.
C. ORNDA INVESTIGATION
An agreement has been executed with the Department of Justice resolving the
investigation related to certain physician relationships at 12 of the hospitals
acquired by OrNda in its April 1994 acquisition of Summit Health Ltd. ("Summit")
and one OrNda hospital outside of the group acquired from Summit.
NOTE 9 SHAREHOLDERS' EQUITY
A. PREFERRED STOCK PURCHASE RIGHTS AND PREFERRED STOCK
In 1988, Tenet distributed Preferred Stock Purchase Rights to holders of Tenet's
common stock and authorized the issuance of additional rights for common stock
issued after that date. The rights expire in December 1998 unless previously
exercised or redeemed and do not entitle the holders thereof to vote as
shareholders or receive dividends.
The Company may redeem the rights at $.025 per right at any time up to the 10th
business day after a public announcement that a person has acquired 20% or more
of the Company's common stock in a transaction or transactions not approved by
the Board of Directors. The rights are not exercisable until after the date on
which the Company's right to redeem the rights has expired. When exercisable,
each right entitles the holder thereof to purchase from the Company one two-
thousandth of a share of Series A Junior Participating Preferred Stock ("Series
A Preferred Stock") at a price of $40.61, subject to adjustment.
Subject to the foregoing, in the event the Company is acquired in a merger or
other business combination transaction in which shares of the Company's common
stock are exchanged for shares of another company or more than 50% of the
Company's assets are sold, each holder of a right generally will be entitled
upon exercise to purchase, for the then-current exercise price of the right,
common stock of the surviving company having a market value equal to two times
the exercise price of the rights. The plan also provides that, in the event of
certain other mergers or business combinations, certain self-dealing
transactions or the acquisition by a person of stock having 30% or more of the
Company's general voting power, each holder of a right generally will be
entitled to purchase upon exercise, for the then-current exercise price of the
right, the number of shares of Series A Preferred Stock having a market value
equal to two times the exercise price of the rights.
The Series A Preferred Stock for which the Preferred Stock Purchase Rights may
be exchanged is nonredeemable and has a par value of $0.15 per share. On January
27, 1997, in connection with the OrNda Merger, the Board of Directors approved
an increase in the number of preferred shares authorized from 225,000 to
350,000. None of the 350,000 authorized shares are outstanding.
B. WARRANTS
At May 31, 1997, there were warrants outstanding to purchase 124,064 shares of
common stock at an exercise price of $13.25 per share. These warrants can be
exercised through April 30, 2000.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
33
NOTE 10 STOCK BENEFIT PLANS
The Company has four stock-based compensation plans, which are described below.
The Company applies Accounting Principles Board Opinion No.25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock options under the plans.
Under its 1991 and 1995 Stock Incentive Plans, the Company may grant fixed stock
options and performance-based incentive stock awards to key employees, advisors
and consultants for up to 23 million shares of common stock remaining available
for issuance under such plans. No new stock awards may be made under the
Company's 1983 Stock Incentive Plan. Under all three plans, the exercise price
of each option generally equals the market price of the Company's stock on the
date of grant and options are normally exercisable at the rate of one-third per
year beginning one year from the date of grant. Stock options generally expire
10 years from the date of grant. No performance-based incentive stock awards
have been made since fiscal 1994.
The Company has a Directors Stock Option Plan which makes available for issuance
to nonemployee directors options to purchase 500,000 shares of common stock.
This plan, adopted in September 1994, replaced the Company's 1991 Director
Restricted Share Plan which in turn had replaced the Company's 1985 Director
Stock Option Plan. Awards made under the 1985 and 1991 plans remain outstanding,
but new awards are made only under the 1994 plan. Under this plan each
nonemployee director receives a stock option for 5,000 common shares upon
initially being elected to the Board of Directors and on each January
thereafter. Awards have an exercise price equal to the fair market value of the
Company's shares on the date of grant, vest one year after the date of grant and
expire 10 years after the date of grant. In March 1997, the Board of Directors
approved an amendment to the Directors Stock Option Plan increasing the initial
and annual grant of options under the plan to 7,500 options. The amendment will
become effective if approved by the shareholders at the Annual Meeting of
Shareholders scheduled for October 1, 1997.
All awards granted under the foregoing plans will vest under circumstances
defined in the plans or under certain employment arrangements, including, with
the consent of the Compensation and Stock Option Committee of the Board of
Directors, upon a change in control of the Company.
The following table summarizes certain information about the Company's stock
options outstanding at May 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ---------------------------------------------------------------------------------------------------------
$ 3.56 to $ 9.50 2,856,938 5.7 years $ 9.18 2,856,938 $ 9.18
$ 9.63 to $ 14.88 9,702,535 7.2 $ 12.97 7,998,426 $ 12.77
$15.88 to $ 21.50 4,465,342 8.2 $ 20.26 2,167,881 $ 19.85
$21.63 to $ 26.38 7,825,975 8.6 $ 23.80 1,427,425 $ 22.44
---------- ----------
$ 3.56 to $ 26.38 24,850,790 7.6 $ 17.25 14,450,670 $ 14.08
---------- ----------
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
34
A summary of the status of the Company's stock incentive plans as of May 31,
1995, 1996 and 1997, and changes during the years ending on those dates, is
presented below:
1995 1996 1997
-----------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-----------------------------------------------------------------------------------------
Outstanding at
beginning of year 23,087,133 $ 14.56 25,742,932 $ 14.22 26,299,166 $ 15.05
Granted 6,527,950 $ 13.88 5,782,921 $ 19.23 6,436,800 $ 24.07
Exercised (1,917,773) $ 5.47 (3,120,462) $ 11.69 (7,093,224) $ 13.85
Forfeited (1,954,378) $ 17.11 (2,106,225) $ 20.05 (791,952) $ 19.92
----------- ---------- -----------
Outstanding at
end of year 25,742,932 $ 13.17 26,299,166 $ 14.20 24,850,790 $ 17.25
----------- ---------- -----------
Options exercisable
at year-end 12,612,236 $ 16.11 13,403,495 $ 14.12 14,450,670 $ 14.08
----------- ---------- -----------
Weighted average
fair value of options
granted during
the past two years $ 10.12 $ 11.62
------- -------
The fair values of the option grants in the table above, and for purposes of the
pro forma disclosures in the table below, have been estimated as of the date of
each grant using a Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 1996 and 1997,
respectively: expected volatility of 39% and 40%, risk-free interest rates of
5.7% and 6.5%, expected lives of 6.2 and 5.8 years, and dividend yield of 0% for
both years.
Had compensation cost for the Company's stock options been determined based on
these fair values for awards granted during the past two years, the Company's
net income (loss) and earnings (loss) per share would have been reduced
(increased) to the pro forma amounts indicated below:
(IN MILLIONS) 1996 1997
-----------------------
Net income (loss):
As reported $ 450 $ (254)
Pro forma $ 447 $ (260)
Primary earnings (loss) per share:
As reported $ 1.56 $ (0.84)
Pro forma $ 1.56 $ (0.86)
Fully diluted earnings (loss) per share:
As reported $ 1.54 $ (0.84)
Pro forma $ 1.53 $ (0.86)
These pro forma disclosures are not likely to be representative of the pro forma
results for future years, because the options vest over three years and
additional awards are generally made each year.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
35
NOTE 11 EMPLOYEE STOCK PURCHASE PLAN
On September 27, 1995, the Company's shareholders approved its 1995 Employee
Stock Purchase Plan under which the Company is authorized to issue up to
2,000,000 shares of common stock to eligible employees of the Company or its
designated subsidiaries who customarily work at least 20 hours per week and six
months per year. Under the terms of the plan, employees can elect to have
between 1% and 10% of their base earnings withheld each calendar quarter to
purchase, on the last day of the quarter, shares of the Company's common stock
at a purchase price equal to 85% of the lower of the closing price on the first
day of the quarter or its closing price on the last day of the quarter. The plan
commenced on April 1, 1996. OrNda had a similar plan between March 1, 1996 and
January 21, 1997. It was terminated as a result of the OrNda Merger.
Approximately 6,200 employees have participated in both plans since their
respective inceptions. Under the plans, the Company sold 727,954 shares to
employees in the year ended May 31, 1997 at a weighted average price of $17.64
per share. In July 1997, the Board of Directors approved an amendment to the
Employee Stock Purchase Plan increasing the number of shares available for
purchase under the Employee Stock Purchase Plan from 2,000,000 to 5,000,000. The
amendment will become effective if approved by the shareholders at the Annual
Meeting of Shareholders scheduled for October 1, 1997.
NOTE 12 EMPLOYEE RETIREMENT PLANS
Substantially all domestic employees who are employed by the Company or its
subsidiaries, upon qualification, are eligible to participate in defined
contribution 401(k) plans. Employees who elect to participate generally make
mandatory contributions from 1% to 16% of their eligible compensation, and the
Company matches such contributions up to a maximum percentage. Company
contributions to the plan were approximately $22 million for 1995, and $32
million for fiscal 1996 and 1997.
NOTE 13 INVESTMENTS
In fiscal 1996, Vencor Inc. ("Vencor") acquired all of the outstanding common
stock of The Hillhaven Corporation ("Hillhaven"). As a result of the
transaction, the shares of Hillhaven common stock that had been owned by the
Company were exchanged for 8,301,067 shares of Vencor common stock. In addition,
the Company received approximately $92 million in cash for its Hillhaven Series
C and Series D preferred stock. The exchange and sale of preferred stock
resulted in a gain of approximately $176 million. The Company classifies its
investment in Vencor as "available for sale" whereby the carrying value of the
unrestricted Vencor shares is adjusted to market value at the end of each
accounting period through a credit or charge, net of income taxes, to
shareholders' equity. At May 31, 1996 and 1997, the market value of the
investment was approximately $263 million and $338 million, respectively. (See
Note 6.)
The Company is contingently liable under various guarantees for $113 million of
Vencor's obligations to third parties, including $107 million of lease
obligations and $6 million of long-term debt obligations. The Company also is
contingently liable for approximately $55 million in lease obligations relating
to certain rehabilitation facilities sold in 1994.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
36
In fiscal 1995, the Company completed the sale of a controlling interest in
Total Renal Care Holdings, Inc. ("TRC"), an operator of outpatient renal
dialysis centers. This transaction resulted in a $32 million gain to the
Company. As part of the transaction, the Company also received a $75 million
cash distribution from TRC prior to the sale and retained 3 million shares of
TRC common stock (after a 2-for-3 reverse stock split). In October 1995, TRC
completed an initial public offering of 6,000,000 shares of its common stock,
which resulted in an additional gain to the Company of approximately $17
million.
The Company also classifies its investment in TRC as "available for sale."
At May 31, 1996, the Company's aggregate carrying value in its investment in
TRC was $49 million and the aggregate fair market value of the investment was
$124 million. At May 31, 1997, both the carrying value and fair market value
of the investment were approximately $108 million.
NOTE 14 DISCONTINUED OPERATIONS -
PSYCHIATRIC HOSPITAL BUSINESS
In November 1993, the Company decided to discontinue its psychiatric hospital
business and adopted a plan to dispose of its psychiatric hospitals and
substance abuse recovery facilities. All operating results and gains or
losses on disposals of facilities for the discontinued business for periods
subsequent to November 30, 1993 have been charged to the reserve for
estimated losses during the phase-out period. In addition, the Company has
incurred the following additional charges related to the psychiatric
hospitals: (1) in the fourth quarter of fiscal 1995, the Company recorded $16
million of estimated litigation costs (less income tax benefits of $7
million), (ii) in the fourth quarter of fiscal 1996, the Company recorded $16
million (less income tax benefits of $6 million) for additional estimated
legal costs and $25 million (less tax benefits of $10 million) to increase
the reserves of the Company's wholly owned insurance subsidiary for
professional liability claims, all of which related to the former psychiatric
hospitals, and (iii) in the fourth quarter of fiscal 1997, the Company
recorded $215 million (less income tax benefits of $81 million) to reflect
the recent settlements of patient and other litigation and to record the
estimated future costs to settle the remaining liigation related to certain
of its former psychiatric hospitals and to increase the reserves of its
wholly owned insurance subsidiary by an additional $42 million.
NOTE 15 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, short-
term borrowings and notes, current portion of long-term debt, accounts payable
and interest payable approximate fair value because of the short maturity of
these instruments. The carrying values of investments, both short-term and long-
term (excluding investments accounted for by the equity method), long-term
receivables and long-term debt are not materially different from the estimated
fair values of these instruments.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
37
NOTE 16 DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. These derivatives are nonleveraged
and involve little complexity. They are used to manage well-defined interest
rate risks. The notional amounts of derivatives in the tables below do not
represent amounts exchanged by the parties and, thus, are not a measure of the
exposure of the Company through its use of derivatives. There are no cash or
collateral requirements in connection with these agreements.
INTEREST RATE SWAPS - These derivative financial instruments allow the Company
to make long-term borrowings at floating rates and then swap them into fixed
rates that are lower than those available to the Company if fixed-rate
borrowings were made directly. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference between
fixed-rate and floating-rate interest amounts calculated by reference to an
agreed notional principal amount. Cross-currency interest rate swaps allow
borrowings to be made in foreign currencies, gaining access to additional
sources of financing while limiting foreign exchange risk. The Company's
exposure to credit loss under these agreements is limited to the interest rate
spread in the event of nonperformance by the other parties. Because the other
parties are creditworthy financial institutions, generally commercial banks, the
Company does not expect nonperformance. The Company terminated its two cross-
currency swaps in November 1996. The original maturity dates for these contracts
were in October 1998. Proceeds to the Company as a result of the terminations
were $742 thousand.
The following table shows the Company's interest rate swaps and their weighted
average interest rates as of the end of the most recent two fiscal years.
Variable interest rates may change significantly, affecting future cash flows.
(IN MILLIONS) 1996 1997
----------------------------------
Notional amount for agreements under which the Company
receives fixed rates $ 29 $ 29
Average receive rate 7.0% 7.0%
Average pay rate 6.0% 5.6%
Contract duration 1 year matured
Notional amount for agreements under which the Company
pays fixed rates $ 69 $ 69
Average pay rate 8.7% 8.7%
Average receive rate 5.8% 5.5%
Contract duration 3-4 years 2-3 years
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
38
NOTE 17 RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new Statements
of Financial Accounting Standards ("SFAS") which are effective for financial
statements for periods beginning after December 15, 1997 and which will apply to
the Company beginning with its fiscal year ending May 31, 1999:
SFAS No.130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Comprehensive income includes net
income and is defined as the change in net assets of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a period except those
from investments by owners and distributions to owners. Examples of
comprehensive income, other than net income, include unrealized gains and losses
on certain investments in debt and equity securities and foreign currency items.
SFAS No.131, "Disclosures About Segments of an Enterprise and Related
Information," establishes standards for the way that public enterprises report
information about operating segments in annual financial statements. It also
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. Under existing
accounting standards, the Company has reported its operations as one line of
business since fiscal 1993 because substantially all of its revenues and
operating profits from continuing operations since then have been derived from
its general hospitals and closely related ancillary services. The Company is
presently evaluating the new standard in order to determine its effect, if any,
on the way the Company might report its operations in the future.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
39
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
TENET HEALTHCARE CORPORATION:
We have audited the accompanying consolidated balance sheets of Tenet Healthcare
Corporation and subsidiaries as of May 31, 1996 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended May 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tenet Healthcare
Corporation and subsidiaries as of May 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended May 31, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARRICK LLP
Los Angeles, California
July 25, 1997
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
40
DIRECTORS AND MANAGEMENT
BOARD OF DIRECTORS
JEFFREY C. BARBAKOW 1,4
CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
TENET HEALTHCARE CORPORATION
MICHAEL H. FOCHT SR. 1,5
PRESIDENT AND CHIEF OPERATING OFFICER,
TENET HEALTHCARE CORPORATION
BERNICE B. BRATTER 1,3,4
PRESIDENT,
LOS ANGELES WOMEN'S FOUNDATION
MAURICE J. DEWALD 1,2,3
CHAIRMAN, VERITY FINANCIAL GROUP, INC.
PETER DE WETTER 1,6*
RETIRED EXECUTIVE VICE PRESIDENT,
TENET HEALTHCARE CORPORATION
EDWARD EGBERT, M.D. 4,5,6
RETIRED PHYSICIAN
RAYMOND A. HAY 2,4,5
CHAIRMAN, ABERDEEN ASSOCIATES
LESTER B. KORN 1,3,6
CHAIRMAN, KORN TUTTLE CAPITAL GROUP
RICHARD S. SCHWEIKER 2,5
RETIRED PRESIDENT,
AMERICAN COUNCIL OF LIFE INSURANCE
BOARD COMMITTEES
1. EXECUTIVE COMMITTEE
2. AUDIT COMMITTEE
3. COMPENSATION AND STOCK OPTION COMMITTEE
4. NOMINATING COMMITTEE
5. ETHICS AND QUALITY ASSURANCE COMMITTEE
6. PENSION COMMITTEE
PRINCIPAL MANAGEMENT
JEFFREY C. BARBAKOW
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MICHAEL H. FOCHT SR.
PRESIDENT AND CHIEF OPERATING OFFICER
TREVOR FETTER
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
THOMAS B. MACKEY
EXECUTIVE VICE PRESIDENT,
WESTERN OPERATIONS
DAVID R. MAYEUX
EXECUTIVE VICE PRESIDENT,
ACQUISITION & DEVELOPMENT
BARRY P. SCHOCHET
EXECUTIVE VICE PRESIDENT, OPERATIONS
W. RANDOLPH SMITH
EXECUTIVE VICE PRESIDENT,
EASTERN OPERATIONS
NORMAN S. BOBES, M.D.
CHIEF MEDICAL OFFICER
SCOTT M. BROWN
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE SECRETARY
STEPHEN F. BROWN
SENIOR VICE PRESIDENT AND
CHIEF INFORMATION OFFICER
ALAN R. EWALT
SENIOR VICE PRESIDENT, HUMAN RESOURCES
T. DENNIS JORGENSEN
SENIOR VICE PRESIDENT, ADMINISTRATION
RAYMOND L. MATHIASEN
SENIOR VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
CHRISTI R. SULZBACH
SENIOR VICE PRESIDENT, PUBLIC AFFAIRS, AND
ASSOCIATE GENERAL COUNSEL
SENIOR VICE PRESIDENTS, OPERATIONS
JIM BILTZ
TEXAS REGION
WILLIAM L. BRADLEY
CENTRAL STATES REGION
DENNIS M. BROWN
NORTHERN REGION
MICHAEL W. GALLO
FINANCE, WESTERN DIVISION
REYNOLD J. JENNINGS
GULF STATES REGION
BEN F. KING
FINANCE, EASTERN DIVISION
WILLIAM M. MURRAY
ARIZONA REGION
NEIL M. SORRENTINO
CHIEF EXECUTIVE OFFICER,
SOUTHERN CALIFORNIA REGION
DON S. STEIGMAN
FLORIDA REGION
EDWARD TUDANGER
SOUTHEAST REGION
VICE PRESIDENTS
WILLIAM A. BARRETT
ASSISTANT GENERAL COUNSEL
JOEL M. BERGENFELD
OPERATIONS,
WEST LOS ANGELES,
SOUTHERN CALIFORNIA REGION
STEVEN R. BLAKE
FINANCE, NORTHERN REGION
SANFORD M. BRAGMAN
RISK MANAGEMENT
* RETIRING FROM THE BOARD OCT. 1, 1997
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
41
MARK H. BRYAN
FINANCE, FLORIDA REGION
ROGER L. BURKE
MANAGED CARE BUSINESS DEVELOPMENT
THOMAS E. CASADAY
OPERATIONS, TEXAS REGION
ALAN N. CRANFORD
INFORMATION SYSTEMS
DAVID S. DEARMAN
FINANCE, TEXAS REGION
LEE DOMANICO
OPERATIONS, EAST LOS ANGELES,
SOUTHERN CALIFORNIA REGION
STEVE DOMINGUEZ
GOVERNMENT PROGRAMS
WILLIAM R. DURHAM
FINANCE, GULF STATES REGION
EDWARD A. ELLIOTT
FINANCIAL PROJECTS
DEBORAH J. ETTINGER
BUSINESS DEVELOPMENT, WESTERN DIVISION
STEPHEN D. FARBER
FINANCE
MICHAEL J. FIRNENO
ALTERNATIVE DELIVERY SYSTEMS
RICHARD W. FISKE
ACQUISITION & DEVELOPMENT
RICHARD S. FREEMAN
OPERATIONS, GULF STATES REGION
MICHAEL FRENCH
OPERATIONS, SOUTHEAST REGION
DOUGLAS FRITSCHE
FINANCE, ARIZONA REGION
NEIL B. HADLEY
ETHICS & BUSINESS CONDUCT
LYNN S. HART
GOVERNMENT RELATIONS
JEFF HEINEMANN
PHYSICIAN SERVICES
LAWRENCE G. HIXON
CORPORATE REPORTING
MICHAEL S. HONGOLA
INFORMATION SYSTEMS
JOSEPH L. JACKSON
HUMAN RESOURCES
BRUCE L. JOHNSON
INTERNAL AUDIT
DAVID W. LAYNE
ASSOCIATE GENERAL COUNSEL
WILLIAM W. LEYHE
INTEGRATED DELIVERY SYSTEMS,
WESTERN DIVISION
WILLIAM LOORZ
CONSTRUCTION AND DESIGN
KENNETH B. LOVE, JR.
FINANCE, SOUTHERN CALIFORNIA REGION
JOHN A. LYNN
COMPENSATION
DEBORAH A. MAICACH
INFORMATION SYSTEMS
DAVID S. MCADAM
COMMUNICATIONS
TERENCE P. MCMULLEN
TREASURER
JUDITH G. NOVAK
OPERATIONS, TEXAS REGION
PAUL O'NEILL
ACQUISITION & DEVELOPMENT
MARTIN J. PARIS, M.D., M.P.H.
MEDICAL AFFAIRS
KAREN S. POOLE
OPERATIONS, ARIZONA REGION
TIMOTHY L. PULLEN
CONTROLLER
DOUGLAS E. RABE
TAXATION
JAMES S. RICHARDSON
FINANCE, EASTERN DIVISION
DAVID C. RICKER
MATERIAL RESOURCE MANAGEMENT
JACQUELINE D. RISSOTTO
EMPLOYEE BENEFITS
LEONARD H. ROSENFELD
QUALITY MANAGEMENT
PAUL J. RUSSELL
INVESTOR RELATIONS
RICHARD B. SILVER
ASSOCIATE GENERAL COUNSEL
CHARLES R. SLATON
OPERATIONS, CENTRAL STATES REGION
DONALD W. THAYER
ACQUISITION & DEVELOPMENT
JACINTA E. TITIALII
ACQUISITION & DEVELOPMENT
MICHAEL E. TYSON
FINANCE, CENTRAL STATES REGION
DAVIS L. WATTS
BUSINESS OFFICE SERVICES
KENNETH K. WESTBROOK
OPERATIONS, CENTRAL ORANGE COUNTY,
SOUTHERN CALIFORNIA REGION
ANTHONY P. WHITEHEAD
FINANCE, SOUTHEAST REGION
WILLIAM R. WILSON
FINANCE, WESTERN DIVISION
BARRY A. WOLFMAN
OPERATIONS,
SOUTH LOS ANGELES/NORTH ORANGE COUNTY,
SOUTHERN CALIFORNIA REGION
SUBSIDIARY MANAGEMENT
ARNOLD M. ROBIN
PRESIDENT, SYNDICATED OFFICE SYSTEMS
G. MICHAEL SHELEY
CHIEF EXECUTIVE OFFICER,
NATIONAL HEALTH PLANS
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
42
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In millions, except Fiscal 1996 Quarters Fiscal 1997 Quarters
------------------------------------------------- ---------------------------------------------
per share amounts) First Second Third Fourth First Second Third Fourth
------------------------------------------------- ---------------------------------------------
Net operating
revenues $1,767 $ 1,863 $ 1,973 $ 2,028 $ 1,991 $ 2,112 $ 2,237 $ 2,351
Income (loss) from
continuing
operations $ 134 $ 203 $ 98 $ 56 $ 96 $ 103 $ (66) $ (206)
Net income (loss) $ 134 $ 203 $ 98 $ 8 $ 96 $ 103 $ (113) $ (340)
------------------------------------------------- ---------------------------------------------
------------------------------------------------- ---------------------------------------------
Earnings (loss)
per share from
continuing
operations:
Primary $ 0.51 $ 0.75 $ 0.33 $ 0.19 $ 0.32 $ 0.34 $(0.21) $(0.67)
Fully diluted $ 0.49 $ 0.72 $ 0.33 $ 0.19 $ 0.32 $ 0.34 $(0.21) $(0.67)
------------------------------------------------- --------------------------------------------
------------------------------------------------- ---------------------------------------------
The quarterly financial information in the table above, for periods prior to the
OrNda Merger, combines the three-month periods in Tenet's fiscal years with
OrNda's corresponding three-month periods, respectively. Quarterly operating
results are not necessarily representative of operations for a full year. For
example, unusual items in fiscal 1996 include a $124 million gain on asset
disposals in the first quarter, a $171 million gain on asset disposals in the
second quarter, a $17 million gain from the sale of a subsidiary's common stock
in the second quarter, impairment losses of $86 million and asset disposal gains
of $34 million in the fourth quarter, as well as a $25 million net charge to
discontinued operations and a $23 million extraordinary charge from early
extinguishment of debt in the fourth quarter. Fiscal 1997 includes non-recurring
expenses of $272 million recorded in the third quarter and $37 million recorded
in the fourth quarter in connection with the OrNda Merger, and restructuring
charges of $18 million, impairment losses of $413 million and $18 million for
the additional liability related to the Company's indexed debt instruments,
recorded in the fourth quarter, as well as a $47 million extraordinary charge
from early extinguishment of debt in the third quarter and a $134 million net
charge to discontinued operations in the fourth quarter.
COMMON STOCK INFORMATION (UNAUDITED)
Fiscal 1996 Quarters Fiscal 1997 Quarters
----------------------------------- ------------------------------------
First Second Third Fourth First Second Third Fourth
------------------------------------- ------------------------------------
Price range:
High 17 18 1/2 22 1/2 22 1/2 22 5/8 23 1/4 28 7/8 29 5/8
Low 13 3/8 15 5/8 17 7/8 18 1/8 18 1/2 20 3/8 21 3/8 23 1/4
At May 31, 1997, there were approximately 15,700 holders of record of the
Company's common stock. The Company's common stock is listed and traded on the
New York and Pacific stock exchanges. The stock prices above are the high and
low sales prices as reported in the NYSE Composite Tape for the last two fiscal
years. The Company's credit facility currently prohibits the payment of
dividends.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
43
CORPORATE INFORMATION
COMMON STOCK TRANSFER AGENT
AND REGISTRAR
For information on stock certificates or for change of address, please contact:
The Bank of New York
101 Barclay Street
New York, NY 10286
(800) 524-4458
National Medical Enterprises, Inc. (NME) stock certificates remain valid and do
not need to be exchanged for Tenet certificates. Former shareholders of American
Medical Holdings, Inc. (AMI) and OrNda HealthCorp who have not yet redeemed
their AMI or OrNda stock for cash and Tenet stock should contact The Bank of New
York at (800) 507-9357.
For all other shareholder inquiries, contact Paul J. Russell, Vice President,
Investor Relations, at (805) 563-7188.
Headquarters Office
Tenet Healthcare Corporation
3820 State Street
Santa Barbara, CA 93105
(805) 563-7000
COMMON STOCK LISTING
The Company's common stock is listed under the symbol THC on the New York and
Pacific stock exchanges
Debt securities listed on the New York Stock Exchange:
7 7/8% SENIOR NOTES DUE 2003
9 5/8% SENIOR NOTES DUE 2002
8 5/8% SENIOR NOTES DUE 2003
8% SENIOR NOTES DUE 2005
10 1/8% SENIOR SUBORDINATED NOTES DUE 2005
8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
6% EXCHANGEABLE SUBORDINATED NOTES DUE 2005
7 3/8% MEDIUM TERM NOTES DUE 1997
TRUSTEE/REGISTRAR
The Bank of New York
101 Barclay Street
New York, NY 10286
(800) 524-4458
ANNUAL MEETING
The annual meeting of the shareholders of Tenet Healthcare Corp. will be held at
10 a.m. Oct. 1, 1997, at the Regent Beverly Wilshire Hotel, 9500 Wilshire
Boulevard, Beverly Hills, Calif.
FORM 10-K
The company reports annually to the Securities and Exchange Commission on Form
10-K.
You may obtain a copy at no charge by writing to Tenet Investor Relations or by
telephoning
(805) 563-6868.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
44
[Logo]
TENET HEALTHCARE CORPORATION
3820 STATE STREET, SANTA BARBARA, CALIFORNIA 93105