<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
AUGUST 31, 1995.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM .... TO ....
COMMISSION FILE NUMBER I-7293
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TENET HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
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NEVADA 95-2557091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 COLORADO AVENUE
SANTA MONICA, CA 90404
(Address of principal executive offices)
(310) 998-8000
(Registrant's telephone number, including area code)
-------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO
--- ---
AS OF SEPTEMBER 30, 1995 THERE WERE 199,920,597 SHARES OF $0.075 PAR
VALUE COMMON STOCK OUTSTANDING.
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<PAGE>
TENET HEALTHCARE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - May 31, 1995
August 31, 1995 ......................................... 2
Condensed Consolidated Statements of Income - Three Months
Ended August 31, 1994 and 1995........................... 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended August 31, 1994 and 1995........................... 5
Notes to Condensed Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 15
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 6. Exhibits and Reports on Form 8-K............................. 15
Signatures................................................... 17
</TABLE>
- ---------------
Note: Items 2, 3 and 5 of Part II are omitted because they are not applicable.
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31
MAY 31, 1995
1995 (UNAUDITED)
-------- -------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 155.0 $ 106.4
Short-term investments, at cost which
approximates market......................... 138.5 135.6
Accounts and notes receivable, less allowance
for doubtful accounts ($184.0 at May 31
and $167.8 at August 31).................... 564.5 601.8
Inventories of supplies, at cost............... 116.4 119.9
Deferred income taxes.......................... 410.3 303.1
Assets held for sale........................... 184.1 124.5
Prepaid expenses and other current assets...... 54.8 50.4
--------- ---------
Total current assets................... 1,623.6 1,441.7
--------- ---------
Investments and other assets....................... 362.8 370.0
Property, plant and equipment, at cost............. 4,142.9 4,288.9
Less accumulated depreciation and
amortization................................ 824.4 870.9
--------- ---------
Net property, plant and equipment.............. 3,318.5 3,418.0
--------- ---------
Intangible assets, at cost less accumulated
amortization ($58.4 at May 31 and $78.1 at
August 31)..................................... 2,613.5 2,655.0
--------- ---------
$7,918.4 $7,884.7
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations.
2
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31
MAY 31, 1995
1995 (UNAUDITED)
-------- -------------
(IN MILLIONS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............. $ 252.3 $ 276.6
Short-term borrowings and notes................ 34.9 2.1
Accounts payable............................... 358.8 258.2
Employee compensation and benefits............. 162.5 161.2
Reserves related to discontinued operations.... 76.6 66.3
Income taxes payable........................... 2.0 2.1
Other current liabilities...................... 469.4 490.7
--------- ---------
Total current liabilities.............. 1,356.5 1,257.2
--------- ---------
Long-term debt, net of current portion............. 3,273.4 3,226.1
Deferred income taxes.............................. 300.9 307.0
Other long-term liabilities and minority interests. 1,001.5 988.5
Shareholders' equity:
Common stock, $0.075 par value; authorized
450,000,000 shares; 218,713,406 shares
issued at May 31, 1995 and at August 31,
1995........................................ 16.4 16.4
Other shareholders' equity..................... 2,241.3 2,359.5
Less common stock in treasury, at cost,
18,775,274 shares at May 31, 1995 and
18,660,394 at August 31, 1995............... (271.6) (270.0)
--------- ---------
Total shareholders' equity............. 1,986.1 2,105.9
--------- ---------
$7,918.4 $7,884.7
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations.
3
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED AUGUST 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(In millions, except per share and
share amounts)
<S> <C> <C>
Net operating revenues. . . . . . . . . . . . . . . . . . . . $ 662.8 $ 1,283.9
----------- -----------
Operating expenses:
Salaries and benefits. . . . . . . . . . . . . . . . . . 283.2 502.2
Supplies . . . . . . . . . . . . . . . . . . . . . . . . 80.6 178.7
Provision for doubtful accounts. . . . . . . . . . . . . 26.1 67.3
Other operating expenses . . . . . . . . . . . . . . . . 150.1 281.6
Depreciation . . . . . . . . . . . . . . . . . . . . . . 34.3 61.4
Amortization . . . . . . . . . . . . . . . . . . . . . . 3.6 18.8
----------- -----------
Operating income. . . . . . . . . . . . . . . . . . . . . . . 84.9 173.9
----------- -----------
Interest expense, net of capitalized portion. . . . . . . . . (17.7) (77.1)
Investment earnings . . . . . . . . . . . . . . . . . . . . . 6.0 7.3
Equity in earnings of unconsolidated affiliates . . . . . . . 6.3 6.9
Minority interests in income of consolidated subsidiaries . . (2.0) (5.6)
Net gain (loss) on disposals of facilities. . . . . . . . . . (2.5) 123.5
Gain on sale of subsidiary's common stock . . . . . . . . . . 32.0 --
----------- -----------
Income before income taxes. . . . . . . . . . . . . . . . . . 107.0 228.9
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . (43.0) (110.6)
----------- -----------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 64.0 $ 118.3
----------- -----------
----------- -----------
Earnings per share:
Primary. . . . . . . . . . . . . . . . . . . . . . . . . $ 0.38 $ 0.59
Fully diluted. . . . . . . . . . . . . . . . . . . . . . $ 0.36 $ 0.56
Weighted average shares and share equivalents outstanding-
primary. . . . . . . . . . . . . . . . . . . . . . . . . 168,460,943 201,890,477
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
4
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
-------- --------
(In millions)
<S> <C> <C>
Net cash provided by (used in) operating activities, including net
expenditures for discontinued operations and restructuring
charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (377.2) $ 60.8
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . (28.2) (95.1)
Purchases of new businesses, net of cash acquired. . . . . . . (9.0) (224.3)
Proceeds from sales of facilities and other assets . . . . . . 157.6 231.3
Other items. . . . . . . . . . . . . . . . . . . . . . . . . . (11.6) (8.4)
-------- --------
Net cash provided by (used in) investing activities . . . . 108.8 (96.5)
-------- --------
Cash flows from financing activities:
Net proceeds from revolving lines of credit. . . . . . . . . . 43.3 166.0
Proceeds from other borrowings . . . . . . . . . . . . . . . . 77.9 17.4
Payments of other borrowings . . . . . . . . . . . . . . . . . (57.1) (197.5)
Proceeds from stock options exercised. . . . . . . . . . . . . 3.4 1.2
-------- --------
Net cash provided by (used in) financing activities . . . . 67.5 (12.9)
-------- --------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . (200.9) (48.6)
Cash and cash equivalents at beginning of year . . . . . . . . . . 313.2 155.0
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . $ 112.3 $ 106.4
-------- --------
-------- --------
Supplemental disclosures:
Interest paid, net of amounts capitalized. . . . . . . . . . . $ 20.5 $ 41.4
Income taxes paid, net of refunds received . . . . . . . . . . 34.2 --
Major effects of acquiring new businesses:
Assets acquired, primarily accounts receivable and property,
plant and equipment . . . . . . . . . . . . . . . . . . . . $ 59.1 $ 173.0
Liabilities assumed, primarily accounts payable and long-term
debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.9 13.4
Major effects of excluding an unconsolidated affiliate from the
consolidated financial statements:
Decrease in assets, primarily accounts receivable and property,
plant and equipment . . . . . . . . . . . . . . . . . . . . $ (31.9) $ --
Decrease in liabilities, primarily long-term debt. . . . . . . (83.2) --
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
5
<PAGE>
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments that are necessary to fairly state
the financial position of Tenet Healthcare Corporation, its cash flows
and the results of its operations for the periods indicated. All the
adjustments affecting net income are of a normal recurring nature.
The Company presumes that users of this interim financial information
have read or have access to the Company's audited financial statements
and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the preceding fiscal year and that the
adequacy of additional disclosure needed for a fair presentation may be
determined in that context. Accordingly, footnotes and other disclosure
which would substantially duplicate the disclosure contained in the
Company's most recent annual report to security holders have been
omitted. The patient volumes and net operating revenues of the Company's
domestic general hospitals are subject to seasonal variations caused by
a number of factors, including but not necessarily limited to, seasonal
cycles of illness, climate and weather conditions, vacation patterns of
both hospital patients and admitting physicians and other factors
relating to the timing of elective hospital procedures. Net income also
is not necessarily representative of operations for a full year for
various reasons, including interest rates, acquisitions and disposals of
facilities and long-term assets, revenue allowances and discount
fluctuations, the timing of price changes and fluctuations in quarterly
tax rates. These same considerations apply to all year-to-year
comparisons.
2. On March 1, 1995, the Company, in a transaction accounted for a as a
purchase, acquired all of the outstanding common stock of American
Medical Holdings, Inc. ("AMH") for $1.5 billion in cash and 33,156,614
shares of the Company's common stock valued at approximately $488.0
million. Accordingly, the results of operations of AMH and its
subsidiaries are included in the accompanying consolidated financial
statements of the Company since the date of acquisition.
The following supplemental pro-forma information for the three months
ended August 31, 1994 is unaudited and assumes that the merger occurred
as of the beginning of the period. The amounts reflect pro-forma
adjustments for interest on new and refinanced debt, depreciation on
revalued property, plant and equipment, and the amortization of goodwill.
<TABLE>
<CAPTION>
(IN MILLIONS,
EXCEPT PER
SHARE AMOUNTS)
--------------
<S> <C>
Net operating revenues $1,301.0
Net income $ 72.5
Fully diluted earnings per share $ 0.35
</TABLE>
The pro-forma information shown above does not purport to present the
results of operations of the Company had the transactions and events
assumed therein occurred on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the
future. In addition, such information does not reflect certain cost
savings that management believes may be realized following the merger.
6
<PAGE>
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. The Company's net operating revenues consist primarily of net
patient service revenues, which are based on established billing rates
less applicable allowances and discounts. These allowances and
discounts, primarily for patients covered by Medicare, Medicaid and
other contractual programs, amounted to $666.4 million and $1,388.0
million for the three-month periods ended August 31, 1994 and 1995,
respectively.
4. During the three-month period ended August 31, 1995, actual costs
incurred and charged against the company's reserves for discontinued
operations were approximately $10.3 million. Costs incurred and charged
against the restructuring reserves established during the last three
years were approximately $6.4 million. These reserves are included in
other current liabilities or other long-term liabilities in the
Company's balance sheets at May 31, 1995 and August 31, 1995.
5. On August 22, 1995, the Company acquired for approximately $222.6
million in cash the Mercy+Baptist Medical Center, a not-for-profit
system of two general hospitals with an aggregate of 759 licensed beds
located in New Orleans, Louisiana and a related physician practice. On
September 29, 1995, the Company acquired the Providence Memorial
Hospital, a not-for-profit general hospital located in El Paso, Texas
for approximately $80.3 million. Providence is licensed for 471 general
hospital beds (34 of which may be used as skilled nursing beds) and is
licensed for 30 additional rehabilitation and sub-acute care beds. These
acquisitions were financed by borrowings under the Company's revolving
credit agreement.
6. On October 11, 1995, the Company sold $500 million of new Senior
Notes due December 2003. The notes have a coupon of 8 5/8% and were
priced at 99.666% of par to yield 8.68%. The Company intends to use the
net proceeds from this offering to repay bank loans under the credit
agreement.
7. On September 28, 1995, Vencor, Inc. ("Vencor") acquired the
Hillhaven Corporation ("Hillhaven") by exchanging 0.935 shares of Vencor
common stock for each share of Hillhaven common stock. The 8.878,147
shares of Hillhaven common stock owned by the Company were exchanged for
8,301,067 shares of Vencor common stock. Whereas the Company had owned
an approximately 26% voting interest in Hillhaven prior to the merger, it
now owns an approximately 13% voting interest in Vencor. In addition, Vencor
paid the Company $91.8 million for its Hillhaven Series C and Series D
Preferred Stock. The proceeds from the redemption of the preferred stock
will be applied to reduce outstanding bank debt.
With respect to its new investment in Vencor, the Company began on
October 2, 1995 to explore with Vencor possible means by which the
Company may monetize that investment, including the sale of subordinated
debt securities of the Company that would be convertible or exchangeable
into the shares of Vencor common stock owned by the Company. The
proceeds of such a transaction would be used to repay existing bank
debt. There can be no assurance, however, that such discussions with
Vencor will result in any transaction.
7
<PAGE>
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. On October 3, 1995, the Company sold its 30% interest in the Subang
Jaya Medical Centre in Malaysia to the Company's Malaysian partner for
approximately $12.0 million. The proceeds from this transaction were
applied to reduce outstanding bank debt. The transaction resulted in a
gain estimated to be approximately $2.5 million, which will be included
in the results of operations during the Company's quarter ended November
30, 1995.
9. On September 22, 1995, the minority shareholders of Australian
Medical Enterprises Limited ("AME") voted to reject a bid for the
Company's approximately 52% interest in AME which had been made by
Parkway Holdings Limited ("Parkway") pursuant to an agreement entered
into by the Company and Parkway in July 1995. Two other parties have
since announced bids for all of AME's shares, both at prices exceeding
Parkway's bid. The Company also has an agreement to sell its 40%
interest in the Bumrungrad Medical Center in Thailand. The Company
expects to receive aggregate cash consideration of approximately $82.0
from the sales of its holdings in Australia and Thailand by November 30,
1995.
10. Statement of Financial Accounting Standards ("SFAS") No. 121, titled
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," effective for fiscal years beginning after
December 15, 1995, requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. In addition, this statement
requires that long-lived assets and certain identifiable intangibles to
be disposed of be reported at the lower of carrying amount or fair value
less cost to sell. The Company intends to adopt this statement in fiscal
1996 and the adoption of SFAS No. 121 is not expected to have any
material impact on the consolidated financial statements of the Company.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is derived principally from the cash
proceeds of operating activities, anticipated disposals of assets and
investments, and realization of tax benefits associated with losses on
sales of facilities and expenditures related to discontinued operations.
This liquidity, along with the availability of credit under the new
credit facility, is believed to be adequate to meet debt service
requirements and to finance planned capital expenditures, acquisitions
and other known operating needs, including resolution of the unusual
legal proceedings referred to herein.
The Company's strategy includes the pursuit of growth through joint
ventures, including the development of integrated healthcare systems in
certain strategic markets, hospital acquisitions and physician practice
acquisitions. All or portions of this growth may be financed through
available credit under the new credit facility or, depending on capital
market conditions, sale of additional subordinated debt or equity
securities or other bank borrowings. The Company's unused borrowing
capacity under its revolving credit agreement was $189.4 million as of
August 31, 1995. On October 11, 1995, the Company sold $500 million of
new Senior Notes due 2003, the net proceeds of which were used to repay
bank loans under the credit agreement. (See Note 6.)
During the quarter ended August 31, 1995 net cash provided by
operating activities was $77.1 million before expenditures of $16.3
million related to restructuring reserves and discontinued operations.
For the prior year quarter cash provided by operating activities was
$28.2 million before expenditures of $405.4 million for restructuring
charges and discontinued operations.
Proceeds from the sales of facilities and other assets was $231.3
million in the quarter ended August 31, 1995, substantially all of which
was derived from the June 28, 1995 sale of the Company's two hospitals
and related healthcare businesses in Singapore. The Company used the net
proceeds from that sale to reduce outstanding bank loans under its
revolving credit agreement. On September 28, 1995, the Company received
$91.8 million from the redemption of its Hillhaven Series C and D
preferred stock. On October 3, 1995, the Company sold its 30% interest
in the Subang Jaya Medical Centre in Malaysia for approximately $12.0
million. In addition, the Company expects to receive aggregate cash
consideration of approximately $82.0 million from the sales of its
holdings in Australia and Thailand, which transactions are expected to
close before November 30, 1995. In addition, the Company is continuing
to evaluate other opportunities to monetize other investments and
certain other assets.
Cash payments for property and equipment were $95.1 million in the
quarter ended August 31, 1995, compared to $28.2 million in the quarter
ended August 31, 1994. Capital expenditures for the Company, before any
significant acquisitions of facilities, are expected to be approximately
$385.0 million for the current fiscal year ending May 31, 1996 and
approximately $400.0 million for each of the following two years.
In August 1995, the Company acquired two hospitals and a related
physician practice in New Orleans, Louisiana and in September 1995,
acquired a hospital in El Paso, Texas. The aggregate purchase price for
both transactions was approximately $302.9 million (including the
purchase of current assets and
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
the assumption of current liabilities) and was financed by borrowings
under the Company's revolving credit agreement.
The Company's cash and cash equivalents at August 31, 1995 were
$106.4 million, a decrease of $48.6 over May 31, 1995. Working capital at
August 31, 1995 was a $184.5 million, compared to $267.1 at May 31, 1995. The
principal reasons for the decline in working capital were the sale of the
Company's holdings in Singapore ($59.6 million in net assets which were
classified as assets held for sale in current assets at May 31, 1995), the
proceeds of which were used to retire long-term debt, and an increase in the
current portion of long-term debt due to the maturity of $24.5 million of the
Company's unsecured medium-term notes in June 1996.
Management believes that patient volumes, cash flows and operating
results at the Company's principal healthcare businesses have been adversely
affected by the legal proceedings and investigations described in the Annual
Report to Shareholders on Form 10-K for the fiscal year ended May 31, 1995,
and herein. The Company has reserves for the remaining legal proceedings not
yet settled as of August 31, 1995 and an estimate of the legal fees related
to these matters to be incurred subsequently totaling approximately $84.6
million, of which $66.3 million is expected to be paid within one year. These
reserves represent management's estimate of the net costs of the ultimate
disposition of these matters. There can be no assurance, however, that the
ultimate liability will not exceed such estimates.
The new credit facility and debt securities have affirmative, negative
and financial covenants with which the Company must comply. These covenants
include, among other requirements, limitations on borrowings, liens,
investments, dividends and assets sales, and covenants regarding maintenance
of specified levels of net worth, debt ratios and fixed-charge ratios.
RESULTS OF OPERATIONS
The following is a summary of operations for the quarter ended August 31,
1994 and 1995.
<TABLE>
<CAPTION>
1994 1995 1994 1995
------ -------- ------ ------
(dollars in millions) (% of net operating revenues)
<S> <C> <C> <C> <C>
Net operating revenues:
Domestic general hospitals . . . .$526.3 $1,175.2 79.4% 91.5%
Other domestic operations (1). . . 68.8 74.8 10.4% 5.8%
International operations . . . . . 51.1 33.9 7.7% 2.7%
Divested operations (2). . . . . . 16.6 -- 2.5% --
------ -------- ------ ------
Net operating revenues . . . . . . . 662.8 1,283.9 100.0% 100.0%
------ -------- ------ ------
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Operating expenses:
Salaries and benefits. . . . . . .(283.2) (502.2) 42.7% 39.1%
Supplies. . . . . . . . . . . . . (80.6) (178.7) 12.2% 14.0%
Provision for doubtful accounts. . (26.1) (67.3) 3.9% 5.2%
Other operating expenses . . . . .(150.1) (281.6) 22.7% 21.9%
Depreciation . . . . . . . . . . . (34.3) (61.4) 5.2% 4.8%
Amortization . . . . . . . . . . . (3.6) (18.8) 0.5% 1.5%
------ -------- ------ -----
Operating income . . . . . . . . . .$ 84.9 $ 173.9 12.8% 13.5%
------ -------- ------ -----
------ -------- ------ -----
EBITDA (3) . . . . . . . . . . . . .$122.8 $ 254.1 -- --
EBITDA margin (3). . . . . . . . . . 18.5% 19.8% -- --
Capital expenditures . . . . . . . .$ 28.2 $ 95.1 -- --
</TABLE>
(1) NET OPERATING REVENUES OF OTHER DOMESTIC OPERATIONS CONSIST PRIMARILY OF
REVENUES FROM (I) THE COMPANY'S REHABILITATION HOSPITALS, LONG-TERM CARE
FACILITIES AND PSYCHIATRIC HOSPITALS THAT ARE LOCATED ON OR NEAR THE SAME
CAMPUSES AS THE COMPANY'S GENERAL HOSPITALS; (II) HEALTHCARE JOINT VENTURES
OPERATED BY THE COMPANY; (III) SUBSIDIARIES OF THE COMPANY OFFERING HEALTH
MAINTENANCE ORGANIZATIONS, PREFERRED PROVIDER ORGANIZATIONS AND INDEMNITY
PRODUCTS; AND (IV) REVENUES EARNED BY THE COMPANY IN CONSIDERATION OF THE
GUARANTEES OF CERTAIN INDEBTEDNESS AND LEASES OF HILLHAVEN AND OTHER THIRD
PARTIES.
(2) NET OPERATING REVENUES OF DIVESTED OPERATIONS CONSIST OF REVENUES FROM
TOTAL RENAL CARE, INC., PRIOR TO THE AUGUST 1994 SALE OF THE COMPANY'S
APPROXIMATELY 75% EQUITY INTEREST.
(3) EBITDA REPRESENTS OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION.
WHILE EBITDA SHOULD NOT BE CONSTRUED AS A SUBSTITUTE OF OPERATING INCOME
OR A BETTER INDICATOR OF LIQUIDITY THAN CASH FLOWS FROM OPERATING
ACTIVITIES, WHICH ARE DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, IT IS INCLUDED HEREIN TO PROVIDE ADDITIONAL
INFORMATION WITH RESPECT TO THE ABILITY OF THE COMPANY TO MEET ITS FUTURE
DEBT SERVICE, CAPITAL EXPENDITURE AND WORKING CAPITAL REQUIREMENTS. EBITDA
IS NOT NECESSARILY A MEASURE OF THE COMPANY'S ABILITY TO FUND ITS CASH FLOW
NEEDS.
Income before income taxes was $228.9 million for the quarter ended
August 31, 1995, compared with $107.0 million for the prior year quarter.
These results include pre-tax gains on disposals of facilities and long-term
investments of $123.5 million (approximately $.28 per share net of taxes, on
a fully diluted basis) in the quarter ended August 31, 1995 and $29.5 million
(approximately $.09 per share net of taxes, on a fully diluted basis) in the
quarter ended August 31, 1994.
Net operating revenues for the quarter were $1,283.9 million compared
with $662.8 million in the prior year quarter. The current quarter includes
revenues attributable to facilities acquired in the March 1, 1995 acquisition
of AMH. Net operating revenues for the quarter ended May 31, 1995, the first
quarter of combined operations following the acquisition of AMH, were
$1,356.3 million.
Operating income increased by $89.0 million (or 104.8%) or $173.9
million for the quarter ended August 31, 1995 from $84.9 million for the
quarter ended August 31, 1994 primarily due to the acquisition of AMH
referred to above. The operating income margin for the current quarter
increased to 13.5% from 12.8% a year ago. The increase in the operating
margin is primarily due to effective cost control programs in the hospitals
and the benefits of overhead reduction plans implemented during the first
quarter of fiscal 1995 and following the AMH merger.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The table below sets forth certain selected operating statistics for
the Company's domestic general hospitals.
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
--------------------------------
INCREASE
1994 1995 (DECREASE)
-------- --------- ----------
<S> <C> <C> <C>
Number of hospitals (at end of period)....... 33 72 39
Licensed beds (at end of period)............. 6,622 16,210 144.8%
Net inpatient revenues (in thousands)........ $ 373.4 $ 787.3 110.8%
Net outpatient revenues (in thousands)....... $ 144.1 $ 365.3 153.5%
Admissions................................... 49,078 111,503 127.2%
Equivalent admissions........................ 65,166 156,687 140.4%
Average length of stay (days)................ 5.5 5.6 0.1 *
Patient days................................. 268,939 619,226 130.2%
Equivalent patient days...................... 353,812 860,955 143.3%
Net inpatient revenues per patient day....... $ 1,388 $ 1,271 (8.4)%
Utilization of licensed beds................. 43.2% 43.4% 0.2%*
Outpatient visits............................ 377,539 1,278,757 238.7%
</TABLE>
*The % change is the difference between 1995 and 1994 percentages shown.
Net operating revenues from the Company's domestic general hospital
operations increased 123.3% to $1,175.2 million for the three months ended
August 31, 1995, compared with $526.3 million for the prior year quarter.
They were $1,200.2 million for the three months ended May 31, 1995. Excluding
net operating revenues from the facilities acquired in the AMH merger, net
operating revenues for the Company's domestic general hospitals would have
remained relatively unchanged as less intensive services continue to shift
from an inpatient to an outpatient basis or to alternative healthcare
delivery services because of technological improvements and continued
pressures by payors to reduce admissions and lengths of stay.
Medicare revenues as a percentage of total patient revenues were 38.4%
for the three months ended August 31, 1995, compared with 35.1% for the prior
year quarter. Historically, rates paid under Medicare's prospective payment
system for inpatient services have increased, but such increases have been
less than cost increases. Payments for Medicare outpatient services are
presently cost reimbursed, but there are pending certain proposed regulations
that would convert reimbursement to a prospective payment system. Medicaid
programs in certain states in which the Company operates also are undergoing
changes that will result in reduced payments to hospitals. Pressures to
control healthcare costs have resulted in an increase in the percentage of
revenues attributable to managed care payors. The Company anticipates that
its managed care business will increase in the future.
The patient volumes and net operating revenues of the Company's domestic
general hospitals are
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
subject to seasonal variations caused by a number of factors, including but
not necessarily limited to, seasonal cycles of illness, climate and weather
conditions, vacation patterns of both hospital patients and admitting
physicians and other factors relating to the timing of elective hospital
procedures.
Net operating revenues from the Company's other domestic operations
increased 8.7% to $74.8 million for the three months ended August 31, 1995,
compared to $68.8 million for the prior year period, representing an increase
of $6.0 million. This increase primarily reflects continued growth of
National Health Plans, the Company's HMO and insurance subsidiary.
Net operating revenues from the Company's international operations
decreased 33.7% to $33.9 million for the three months ended August 31, 1995,
compared to $51.1 million for the prior year quarter period, representing a
decrease of $17.2 million. This decrease is principally attributable to the
June 28, 1995 sale of the Company's two hospitals and related healthcare
businesses in Singapore. On October 3, 1995, the Company sold its 30% interest
in the Subang Jaya Medical Centre in Malaysia to the Company's Malaysian
partner for approximately $12.0 million. The Company also has an agreement to
sell its 40% interest in the Bumrungrad Medical Center in Thailand and
expects to sell that interest before November 30, 1995. In addition, the
Company also expects to sell its 52% interest in Australian Medical
Enterprises Limited before November 30, 1995. The net operating revenues and
operating profits of the sold and to be sold international facilities were
$33.9 million and $5.1 million, respectively in the quarter ended August 31,
1995, as compared to $49.5 million and $8.9 million, respectively, for the
quarter ended August 31, 1994.
Operating expenses, which include salaries and benefits, supplies,
provision for doubtful accounts, depreciation and amortization, and other
operating expenses, were $1,110.0 million for the quarter ended August 31,
1995 and $577.9 million for the prior year quarter. Operating expenses for
the current quarter include operating expenses from the facilities acquired
in the March 1, 1995 AMH merger. Operating expenses for the quarter ended May
31, 1995 were $1,223.2 million, which includes $36.9 million of restructuring
charges.
Salaries and benefits expense as a percentage of net operating revenues
was 39.1% in the quarter ended August 31, 1995 and 42.7% in the prior year
quarter. The improvement is primarily attributable to a reduction in staffing
levels implemented during the first quarter of fiscal 1995 and following the
AMH merger. Salaries and benefits as a percentage of net operating revenues
were 39.5% in the quarter ended May 31, 1995.
Supplies expense as a percentage of net operating revenues was 14.0% in
the quarter ended August 31, 1995, 13.9% in the quarter ended May 31, 1995
and 12.2% in the prior year quarter. The increase over the prior year quarter
is primarily attributable to higher supplies expense in the facilities
acquired in the AMH merger. The Company expects to reduce supplies expense
through the incorporation of the acquired facilities into the Company's
existing group purchasing program.
The provision for doubtful accounts as a percentage of net operating
revenues was 5.2% for the quarter ended August 31, 1995, 5.1% in the quarter
ended May 31, 1995 and 3.9% in the prior year quarter.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase over the prior year quarter is primarily attributable to
higher bad debt experience at the facilities acquired in the AMH merger.
Excluding the net operating revenues and operating expenses of the AMH
facilities, the provision for doubtful accounts as a percentage of net
operating revenues would have been 3.8% in the current year quarter. The
Company has been establishing improved follow-up collection systems
through investment in an electronic claims processing network and
through the continued consolidation of hospital business office
functions.
Depreciation and amortization expense as a percentage of net
operating revenues were 6.3% in the quarter ended August 31, 1995, 6.1%
in the quarter ended May 31, 1995 and 5.7% in the prior year quarter.
The increase from $37.9 million in the quarter ended August 31, 1994 to
$80.2 million for the quarter ended August 31, 1995 is primarily due to
depreciation expense at the facilities acquired in the AMH merger and to
the increase in goodwill amortization expense resulting from the AMH
merger. Goodwill amortization associated with the AMH merger is expected
to be approximately $62.5 million annually.
Interest expense, net of capitalized interest, was $77.1 in the
quarter ended August 31, 1995, $85.2 million in the quarter ended May
31, 1995 and $17.7 million in the prior year quarter. The increase in
interest expense was due primarily to the acquisition of AMH and the new
notes and bank loans used to finance the acquisition and to retire debt
in connection with the merger.
Taxes on income as a percentage of income before income taxes were
48.3% in the August 31, 1995 quarter compared with 40.2% in the prior
year quarter. The difference between the Company's effective income tax
rate and the statutory federal income tax rate is shown below:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------------------------
(in millions of dollars and 1994 1995
as a percent of pretax income) -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Tax provision at statutory federal rate.......... $37.5 35.0% $80.1 35.0%
State income taxes, net of federal income tax
benefit....................................... $ 4.9 4.6% $ 9.6 4.2%
Goodwill amortization............................ -- -- $ 5.0 2.2%
Gain on sale of foreign subsidiary's assets...... -- -- $16.3 7.1%
Other............................................ $ .6 0.6% $(0.4) (0.2)%
------- ------- -------- --------
Taxes on income and effective tax rates.......... $43.0 40.2% $110.6 48.3%
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
Amortization of the goodwill resulting from the AMH merger is a noncash
charge, but provides no income tax benefits.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Material Development in Previously Reported Legal Proceedings:
With respect to the shareholders derivative actions filed in the
Los Angeles Superior Court in October and November of 1991 and
previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995, a stipulation of settlement was
executed by the parties as of September 8, 1995. Court approval is
required and a hearing before the court is expected to be scheduled
shortly. All monies relative to this settlement have been funded.
In its normal course of business the Company also 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 financial statements.
Items 2, 3 and 5 are not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
On June 22, 1995, pursuant to a solicitation by the Board of
Directors of the Company for written consents from the
shareholders, the shareholders approved an amendment to the
articles of incorporation of the Company to change its name from
National Medical Enterprises, Inc. to Tenet Healthcare Corporation.
The votes were as follows:
For: 139,306,846
Against: 566,996
Abstaining: 317,676
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(a) Form of Indenture between the Company and Bank of
New York, as Trustee, relating to 8 5/8% Senior Notes
due 2003 (Incorporated by reference to Exhibit 4.1 to
the Company's Amendment No. 1 to Registration Statement
on Form S-3, Registration No. 33-62591, dated
September 26, 1995).
(10) Material Contracts
15
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
(a) Form of Amendment No. 1 to the Credit Agreement dated
as of August 31, 1995, among the Company, Morgan Guaranty
Trust Company of New York, Bank of America N.T. & S.A.,
The Bank of New York, Bankers Trust Company and the other
lenders parties thereto (Incorporated by reference to
Exhibit 10.1 to the Company's Amendment No. 1 to
Registration Statement on Form S-3, Registration No.
33-62591, dated September 26, 1995).
(11) (Page 18) Statement Re: Computation of Per Share Earnings
for the three months ended August 31, 1994 and 1995.
(27) Financial Data Schedule (included only in the EDGAR filing).
(b) Reports on Form 8-K
(a) During the fiscal quarter ended August 31, 1995, the Company
filed a Current Report on Form 8-K, dated July 6, 1995, for
Item 5, Other Events. The Form 8-K was filed to report the
filing on June 23, 1995, with the Secretary of the State of
Nevada of a Certificate of Amendment of Restated Articles of
Incorporation pursuant to which the Company amended its
Restated Articles of Incorporation to change the name of
the Company from National Medical Enterprises, Inc. to Tenet
Healthcare Corporation.
16
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENET HEALTHCARE CORPORATION
(Registrant)
Date: October 13, 1995 /s/ RAYMOND L. MATHIASEN
-----------------------------
Raymond L. Mathiasen
Senior Vice President,
Chief Financial Officer
17
<PAGE>
EXHIBIT 11
TENET HEALTHCARE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS*
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
----------------------
1994 1995
-------- --------
<S> <C> <C>
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at beginning of period.................... 166,081 199,938
Shares issued upon exercise of stock options................. 93 54
Dilutive effect of outstanding stock options................. 2,287 1,898
-------- --------
Weighted average number of shares and share equivalents
outstanding................................................. 168,461 201,890
======== ========
Net income................................................... $ 64,028 $118,253
======== ========
Earnings per share............................................ $ 0.38 $ 0.59
======== ========
FOR FULLY DILUTED EARNINGS PER SHARE
Weighted average number of shares used in primary
calculation................................................. 168,461 201,890
Additional dilutive effect of stock options.................. 335 417
Assumed conversion of dilutive convertible debentures........ 11,357 13,530
-------- --------
Fully diluted weighted average number of shares.............. 180,153 215,837
======== ========
Net income used in primary calculation....................... $ 64,028 $118,253
Adjustments for interest expense, contractual allowances
and income taxes............................................ 1,470 1,787
-------- --------
Adjusted income used in fully diluted calculation............ $ 65,498 $120,040
======== ========
Earnings per share........................................... $ 0.36 $ 0.56
======== ========
</TABLE>
_________
* All shares in these tables are weighted on the basis of the number of days
the shares were outstanding or assumed to be outstanding during each period.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> AUG-31-1995
<CASH> 106,400
<SECURITIES> 135,600
<RECEIVABLES> 1,248,300
<ALLOWANCES> 167,800
<INVENTORY> 119,900
<CURRENT-ASSETS> 1,441,700
<PP&E> 4,288,900
<DEPRECIATION> 870,900
<TOTAL-ASSETS> 7,784,700
<CURRENT-LIABILITIES> 1,257,200
<BONDS> 3,226,100
<COMMON> 16,400
0
0
<OTHER-SE> 2,089,500
<TOTAL-LIABILITY-AND-EQUITY> 7,884,700
<SALES> 0
<TOTAL-REVENUES> 1,283,900
<CGS> 0
<TOTAL-COSTS> 1,042,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 67,300
<INTEREST-EXPENSE> 77,100
<INCOME-PRETAX> 228,900
<INCOME-TAX> 110,600
<INCOME-CONTINUING> 118,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,300
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.56
</TABLE>
