<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, 1997.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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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.)
3820 STATE STREET
SANTA BARBARA, CA 93105
(Address of principal executive offices)
(805) 563-7000
(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, 1997 THERE WERE 305,243,588 SHARES OF $0.075 PAR VALUE
COMMON STOCK OUTSTANDING.
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<PAGE>
TENET HEALTHCARE CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - May 31, 1997
and August 31, 1997. . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Income - Three Months
Ended August 31, 1996 and 1997 . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended August 31, 1996 and 1997 . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 14
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
- ---------------
Note: Items 2, 3, 4 and 5 of Part II are omitted because they are not
applicable.
1
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1997
---------- ----------
(DOLLAR AMOUNTS IN MILLIONS)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 35 $ 103
Short-term investments in debt securities . . . . . . . . . . . . . . 116 119
Accounts and notes receivable, less allowance for doubtful accounts
($224 at May 31 and $236 at August 31). . . . . . . . . . . . . . 1,346 1,347
Inventories of supplies, at cost. . . . . . . . . . . . . . . . . . . 193 199
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 294 245
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . 407 405
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . 2,391 2,418
---------- ----------
Investments and other assets . . . . . . . . . . . . . . . . . . . . . . 678 662
Property and equipment, at cost. . . . . . . . . . . . . . . . . . . . . 6,922 7,174
Less accumulated depreciation and amortization. . . . . . . . . . . . 1,432 1,517
---------- ----------
Net property and equipment. . . . . . . . . . . . . . . . . . . . . . 5,490 5,657
---------- ----------
Intangible assets, at cost less accumulated amortization
($226 at May 31 and $249 at August 31). . . . . . . . . . . . . . . . 3,146 3,161
---------- ----------
$ 11,705 $ 11,898
---------- ----------
---------- ----------
</TABLE>
2
<PAGE>
TENET HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1997
---------- ----------
(DOLLAR AMOUNTS IN MILLIONS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . $ 28 $ 22
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 540 514
Accrued employee compensation and benefits. . . . . . . . . . . . . . 309 319
Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . 144 126
Reserves related to discontinued operations
and other non-recurring charges . . . . . . . . . . . . . . . . . 423 183
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . 425 472
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . 1,869 1,636
---------- ----------
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . 5,022 5,293
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 308 325
Other long-term liabilities and minority interests . . . . . . . . . . . 1,282 1,263
Shareholders' equity:
Common stock, $0.075 par value; authorized 450,000,000
shares; 305,501,379 shares issued at May 31 and
308,517,211 shares issued at August 31. . . . . . . . . . . . . . 23 23
Other shareholders' equity. . . . . . . . . . . . . . . . . . . . . . 3,240 3,428
Less common stock in treasury, at cost, 2,676,091 shares at
May 31 and 3,754,891 shares at August 31. . . . . . . . . . . . . (39) (70)
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . . . . 3,224 3,381
---------- ----------
$ 11,705 $ 11,898
---------- ----------
---------- ----------
</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, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(IN MILLIONS, EXCEPT PER
SHARE AND SHARE
AMOUNTS)
<S> <C> <C>
Net operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,991 $ 2,331
---------- ----------
Operating expenses:
Salaries and benefits . . . . . . . . . . . . . . . . . . . . . . . . 817 966
Supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 321
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . 112 148
Other operating expenses. . . . . . . . . . . . . . . . . . . . . . . 422 486
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 81
Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 24
---------- ----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 305
---------- ----------
Interest expense, net of capitalized portion . . . . . . . . . . . . . . (100) (112)
Investment earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6
Minority interests in income of consolidated subsidiaries. . . . . . . . (7) (6)
---------- ----------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . 160 193
Taxes on income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64) (77)
---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96 $ 116
---------- ----------
---------- ----------
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.32 $ 0.38
Weighted average shares and share equivalents outstanding (in 000's) . . 301,015 309,679
</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, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Net cash provided by operating activities, including net expenditures
for discontinued operations and non-recurring charges ($17 in
1996, $165 in 1997) . . . . . . . . . . . . . . . . . . . . . . . . . $ 87 $ 1
---------- ----------
Cash flows from investing activities:
Proceeds from sales of facilities and other assets. . . . . . . . . . 40 38
Collection of notes receivable. . . . . . . . . . . . . . . . . . . . 68 13
Purchases of property and equipment . . . . . . . . . . . . . . . . . (82) (103)
Purchases of new businesses, net of cash acquired . . . . . . . . . . (295) (126)
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (37)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . (271) (215)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . . 433 712
Payments of borrowings. . . . . . . . . . . . . . . . . . . . . . . . (236) (452)
Other items, primarily stock option exercises . . . . . . . . . . . . 6 22
---------- ----------
Net cash provided by financing activities . . . . . . . . . . . . 203 282
---------- ----------
Net increase in cash and cash equivalents. . . . . . . . . . . . . . . . 19 68
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 107 35
Pooling adjustment to beginning balance to conform fiscal year . . . . . (4) -
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 122 $ 103
---------- ----------
Supplemental disclosures:
Interest paid, net of amounts capitalized . . . . . . . . . . . . . . 73 119
Income taxes paid, net of refunds received. . . . . . . . . . . . . . 21 7
Fair value of common stock tendered for note receivable . . . . . . . - 16
</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 (UNAUDITED)
1. The financial information furnished herein is unaudited; however, in the
opinion of management, the information reflects all adjustments that are
necessary to fairly state the financial position of Tenet Healthcare
Corporation (together with its subsidiaries, "Tenet" or the "Company"), the
results of its operations and its cash flows for the interim periods
indicated. All the adjustments 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 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 investments, revenue
allowances and discount fluctuations and the timing of price changes.
These same considerations apply to all year-to-year comparisons.
2. During the quarter ended August 31, 1997, Tenet acquired four general
hospitals and several related healthcare businesses. All 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 income and cash flows
from the dates of acquisition.
On September 5, 1997, Tenet purchased a general hospital and other related
healthcare services for approximately $263 million in cash.
3. During the three-month period ended August 31, 1997, net cash expenditures
charged against the Company's reserves for discontinued operations and
other non-recurring charges were approximately $165 million. The remaining
balances are included in the Company's balance sheets at May 31, 1997 and
August 31, 1997 as reserves related to discontinued operations and other
non-recurring charges or as other long-term liabilities.
6
<PAGE>
TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. There have been no material changes to the description of i) Professional
and General Liability Insurance set forth in Note 8A or ii) Significant
Legal Proceedings set forth in Note 8B of Notes to Consolidated Financial
Statements of Tenet for its fiscal year ended May 31, 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Income before income taxes was $160 million in the quarter ended August 31,
1996, and $193 million in the quarter ended August 31, 1997. Operating income
for the two quarters was $261 million and $305 million, respectively, as set
forth in the table below:
<TABLE>
<CAPTION>
1996 1997 1996 1997
------ ------ ------ ------
(DOLLARS IN MILLIONS) (% OF NET OPERATING
REVENUES)
<S> <C> <C> <C> <C>
Net operating revenues:
Domestic general hospitals. . . . . $1,818 $2,123 91.3% 91.1%
Other domestic operations . . . . . 173 208 8.7% 8.9%
------ ------ ------ ------
Net operating revenues . . . . . . . . . 1,991 2,331 100% 100%
------ ------ ------ ------
Operating expenses:
Salaries and benefits . . . . . . . (817) (966) 41.0% 41.4%
Supplies. . . . . . . . . . . . . . (266) (321) 13.4% 13.8%
Provision for doubtful accounts . . (112) (148) 5.6% 6.3%
Other operating expenses. . . . . . (422) (486) 21.2% 20.9%
Depreciation. . . . . . . . . . . . (86) (81) 4.3% 3.5%
Amortization. . . . . . . . . . . . (27) (24) 1.4% 1.0%
------ ------ ------ ------
Operating income . . . . . . . . . . . . $ 261 $ 305 13.1% 13.1%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Net operating revenues of other domestic operations in the table above
consist primarily of revenues from (i) physician practices, (ii)
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; (iv)
subsidiaries of the Company offering managed care and indemnity produts; (v)
revenues earned by the Company in consideration of the guarantees of certain
indebtedness and leases of third parties; and (vi) equity in the earnings of
unconsolidated affiliates.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The table below sets forth certain selected historical operating statistics
for the Company's domestic general hospitals.
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
----------------------------------------
INCREASE
1996 1997 (DECREASE)
---------- ---------- ----------
<S> <C> <C> <C>
Number of hospitals (at end of period) . . . . . . 123 130 7 *
Licensed beds (at end of period) . . . . . . . . . 25,664 28,691 11.8%
Net inpatient revenues (in millions) . . . . . . . $ 1,221 $ 1,341 9.8%
Net outpatient revenues (in millions). . . . . . . $ 568 $ 735 29.4%
Admissions . . . . . . . . . . . . . . . . . . . . 178,756 205,572 15.0%
Equivalent admissions. . . . . . . . . . . . . . . 251,258 289,833 15.4%
Average length of stay (days). . . . . . . . . . . 5.2 5.1 (0.1) *
Patient days . . . . . . . . . . . . . . . . . . . 921,933 1,054,439 14.4%
Equivalent patient days. . . . . . . . . . . . . . 1,295,861 1,486,640 14.7%
Net inpatient revenues per patient day . . . . . . $ 1,324 $ 1,272 (3.9)%
Net inpatient revenues per admission . . . . . . . $ 6,830 $ 6,522 (4.5)%
Utilization of licensed beds . . . . . . . . . . . 39.1% 41.4% 2.3% *
Outpatient visits. . . . . . . . . . . . . . . . . 2,268,848 2,652,213 16.9%
</TABLE>
*The change is the difference between 1996 and 1997 amounts shown.
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals on a same-store basis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
----------------------------------------
INCREASE
1996 1997 (DECREASE)
---------- ---------- ----------
<S> <C> <C> <C>
Average licensed beds. . . . . . . . . . . . . . . 24,345 24,249 (0.4)%
Patient days . . . . . . . . . . . . . . . . . . . 898,829 917,860 2.1%
Net inpatient revenues per patient day . . . . . . $ 1,329 $ 1,294 (2.6)%
Admissions . . . . . . . . . . . . . . . . . . . . 174,082 178,848 2.7%
Net inpatient revenues per admission . . . . . . . $ 6,860 $ 6,641 (3.2)%
Outpatient visits. . . . . . . . . . . . . . . . . 2,215,608 2,295,389 3.6%
Average length of stay (days). . . . . . . . . . . 5.2 5.1 (0.1) *
</TABLE>
*The change is the difference between 1996 and 1997 amounts shown.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 39.0% of the net patient
revenues of the Company's domestic general hospitals for the quarter ended
August 31, 1996 and 38.3% for the current year quarter. The Company believes
that changes in Medicare reimbursement mandated by the Balanced Budget Act of
1997 ("the 1997 Act") effective October 1, 1997, 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.
Pressures to control healthcare costs have resulted in an increase in the
percentage of revenues attributable to managed care payors. The percentage of
net patient revenues of the Company's domestic general hospitals attributable to
managed care increased from approximately 28% for the three months ended August
31, 1996 to approximately 32.3% for the current year quarter. The Company
anticipates that its managed care business will continue to increase in the
future. The Company 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.
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.
Net operating revenues from the Company's other domestic operations were
$173 million for the three months ended August 31, 1996, compared to $208
million for the current year period, representing an increase of $35 million.
This increase primarily relates to the growth of its physician practices. The
Company acquired physician practices with approximately 100 physicians during
the three months ended August 31, 1997 and currently owns or manages physician
practices with over 1,000 physicians.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Salaries and benefits expense as a percentage of net operating
revenues was 41.0% in the quarter ended August 31, 1996 and 41.4% in the current
year quarter. The increase is primarily due to the recent acquisitions of
several general hospitals.
Supplies expense as a percentage of net operating revenues was 13.4% in the
quarter ended August 31, 1996 and 13.8% in the current year quarter. The
increase over the prior year quarter is attributable primarily to strong volume
increases at certain of the Company's larger hospitals, which, due to their
higher acuity, are more supply-intensive. The increase is also due to recent
acquisitions. 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 5.6% in the quarter ended August 31, 1996, and 6.3% in the current
year quarter. The increase is partially attributable to a shift in revenues
from Medicare and Medicaid to managed-care and indemnity. Also, it relates to
acquisitions and to a deterioration in the aging of 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.
Other operating expenses as a percentage of net operating revenues was
21.2% for the quarter ended August 31, 1996 and 20.9% in the current year
quarter. The improvement in 1997 is the result of cost reduction programs
mentioned herein.
Depreciation and amortization expense as a percentage of net operating
revenues was 5.7% in the quarter ended August 31, 1996, and 4.5% in the current
year quarter. The decrease is primarily due to the effect of the May 1997
write-down for impairment of the carrying values of long-lived assets of general
hospitals and medical office buildings and the write-off of goodwill and other
long-lived assets related to some of the Company's physician practices.
Interest expense, net of capitalized interest, was $100 million in the
quarter ended August 31, 1996 and $112 million in the current year quarter. The
increase is primarily due to increased borrowings for acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity for the quarter ended August 31, 1997 was derived
from borrowings under the Company's unsecured bank credit agreement and the sale
of certain assets. Net cash provided by normal operating activities for the
quarter ended August 31, 1996 was $104 million before expenditures of $17
million for discontinued operations and non-recurring charges. Net cash provided
by normal operating activities in the current year quarter was $166 million
before expenditures of $165 million for discontinued operations and
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
non-recurring charges. Management believes that future cash provided by normal
operating activities, along with the availability of credit under the Company's
unsecured revolving credit agreement, should be adequate to meet debt service
requirements and to finance planned capital expenditures, acquisitions and other
known operating needs, over the short-term (up to 18 months) and the long-term
(18 months to three years).
Net proceeds from borrowings under the Company's unsecured revolving bank
credit agreement were $364 million during the quarter ended August 31, 1997.
Cash proceeds from the sale of property and equipment were $38 million,
primarily from the sale of an acute hospital. The Company's cash and cash
equivalents at August 31, 1997 were $103 million, an increase of $68 million
over May 31, 1997. Working capital at August 31, 1997 was $782 million,
compared to $522 million at May 31, 1997.
Cash payments for property and equipment were $82 million in the
quarter ended August 31, 1996, compared to $103 million in the current year
quarter. 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 $355
million in commitments to fund the construction of two new hospitals. Such
capital expenditures relate primarily to the development of healthcare
services 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.
Purchases of new businesses, net of cash acquired, were $295 million in the
quarter ended August 31, 1996 and $126 million for the quarter ended August 31,
1997. These acquisitions were financed substantially by borrowings under the
Company's credit agreement.
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, hospital acquisitions and partnerships and
physician practice acquisitions and partnerships. All or portions of this
growth may be financed through available credit under the existing credit
facility or, depending on capital market conditions, sale of additional debt or
equity securities or other bank borrowings. The Company's unused borrowing
capacity under its unsecured revolving credit agreement was $1.7 billion as of
August 31, 1997.
The Company's unsecured revolving credit agreement and the indentures
governing its senior and senior subordinated notes have, among other
requirements, affirmative, negative and financial covenants with which the
Company must comply. These covenants include, among other requirements,
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 common
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 coverages. The Company is in
compliance with its loan covenants.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
BUSINESS OUTLOOK
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 pressure are expected to continue.
The continuing challenge facing the Company and the healthcare industry
as a whole is to continue to provide quality patient care in an environment
of rising costs, strong competition for patients and a general reduction of
reimbursement rates 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. As noted above, the Company believes that 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. The Company is unable to predict whether any other 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 Quarterly Report on Form 10-Q,
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; 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.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Material Developments in Previously Reported Legal Proceedings:
There have been no material developments in the legal proceedings described
in the Company's Annual Report on Form 10-K for its fiscal year ended May
31, 1997.
Items 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(11) (Page 16) Statement Re: Computation of Per Share
Earnings for the three months ended August 31, 1996 and
1997.
(27.1) Financial Data Schedule for the quarter ended August 31,
1997 (included only in the EDGAR filing).
(27.2) Restated Financial Data Schedule for the quarter ended
August 31, 1996 (included only in the
EDGAR filing).
(b) Reports on Form 8-K
(a) During the quarter ended August 31, 1997, the Company
filed a Current Report on Form 8-K, dated August 6,
1997, for Item 5, Other Events. The Form 8-K was filed
to report the earnings for the Company for the quarter
ended May 31, 1997.
14
<PAGE>
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 14, 1997 /s/ TREVOR FETTER
-----------------------------------
Trevor Fetter
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
/s/ RAYMOND L. MATHIASEN
-----------------------------------
Raymond L. Mathiasen
Senior Vice President,
Chief Accounting Officer
(Principal Accounting Officer)
15
<PAGE>
TENET HEALTHCARE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS *
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
August 31,
------------------
1996 1997
------ ------
Weighted average number of shares of common
stock outstanding . . . . . . . . . . . . . . . . 295 305
Dilutive effect of outstanding stock equivalents
(stock options and warrants). . . . . . . . . . . 6 5
------ ------
TOTAL 301 310
------ ------
------ ------
Net income. . . . . . . . . . . . . . . . . . . . . $ 96 $ 116
------ ------
------ ------
Earnings per common and common equivalent share . . $ 0.32 $ 0.38
------ ------
------ ------
- ------------
* 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.
16
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<PERIOD-END> AUG-31-1997
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0
0
<COMMON> 23,000
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<PERIOD-END> AUG-31-1996
<CASH> 121,000
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0
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