<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
NOVEMBER 30, 1997.
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.)
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 DECEMBER 31, 1997 THERE WERE 306,194,567 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 November 30, 1997...................................... 2
Condensed Consolidated Statements of Income - Three Months and
Six Months Ended November 30, 1996 and 1997................ 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended November 30, 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..................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 14
Item 4. Submissions of Matters to a Vote of Security Holders.......... 14
Item 6. Exhibits and Reports on Form 8-K.............................. 15
Signature..................................................... 16
________________________
Note: Item 3 of Part I and Items 2, 3 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, NOVEMBER 30,
1997 1997
------- ------------
(DOLLAR AMOUNTS IN MILLIONS)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents................................................................. $ 35 $ 14
Short-term investments in debt securities................................................. 116 125
Accounts receivable, less allowance for doubtful accounts ($224 at May 31 and $215 at
November 30)......................................................................... 1,346 1,559
Inventories of supplies, at cost.......................................................... 193 204
Deferred income taxes..................................................................... 294 213
Other current assets...................................................................... 407 508
------ ------
Total current assets............................................................ 2,391 2,623
------ ------
Investments and other assets................................................................... 678 565
Property and equipment, at cost................................................................ 6,922 7,269
Less accumulated depreciation and amortization............................................ 1,432 1,592
------ ------
Net property and equipment................................................................ 5,490 5,677
------ ------
Intangible assets, at cost less accumulated amortization
($226 at May 31 and $282 at November 30).................................................. 3,146 3,318
------ ------
$11,705 $12,183
------- -------
------- -------
</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>
MAY 31, NOVEMBER 30,
1997 1997
---- ----
(DOLLAR AMOUNTS IN MILLIONS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt......................................................... $ 28 $ 16
Accounts payable.......................................................................... 540 476
Accrued employee compensation and benefits................................................ 309 329
Accrued interest payable.................................................................. 144 157
Reserves related to discontinued operations and
other non-recurring charges........................................................ 423 199
Other current liabilities................................................................. 425 457
------- -------
Total current liabilities....................................................... 1,869 1,634
------- -------
Long-term debt, net of current portion......................................................... 5,022 5,520
Deferred income taxes.......................................................................... 308 309
Other long-term liabilities and minority interests............................................. 1,282 1,260
Shareholders' equity:
Common stock, $0.075 par value; authorized 450,000,000 shares; 305,501,379 shares
issued at May 31 and 309,730,094 shares issued at November 30 ....................... 23 23
Other shareholders' equity................................................................ 3,240 3,507
Less common stock in treasury, at cost, 2,676,091 shares at May 31 and 3,754,891
shares at November 30................................................................ (39) (70)
------- -------
Total shareholders' equity...................................................... 3,224 3,460
------- -------
$11,705 $12,183
------- -------
------- -------
</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 AND SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
---------------------- ----------------------
1996 1997 1996 1997
---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net operating revenues................................................ $2,111 $2,429 $4,102 $4,760
------ ------ ------ ------
Operating expenses:
Salaries and benefits............................................ 873 1,007 1,690 1,973
Supplies......................................................... 290 330 556 651
Provision for doubtful accounts.................................. 111 136 223 284
Other operating expenses......................................... 445 512 867 998
Depreciation..................................................... 88 87 174 168
Amortization..................................................... 27 27 54 51
------ ------ ------ ------
Operating income...................................................... 277 330 538 635
------ ------ ------ ------
Interest expense, net of capitalized portion.......................... (102) (118) (202) (230)
Investment earnings................................................... 8 6 14 12
Minority interests in income of consolidated subsidiaries............. (9) (7) (16) (13)
Gain from change in value of indexed long-term debt................... - 18 - 18
------ ------ ------ ------
Income before income taxes............................................ 174 229 334 422
Taxes on income....................................................... (71) (91) (135) (168)
------ ------ ------ ------
Net income............................................................ $ 103 $ 138 $ 199 $ 254
------ ------ ------ ------
------ ------ ------ ------
Primary and fully diluted earnings per share.......................... $ 0.34 $ 0.44 $ 0.66 $ 0.82
Weighted average shares and share equivalents outstanding--
fully diluted (in thousands)..................................... 302,502 311,345 301,700 310,509
</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
SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1997
1996 1997
---- ----
(IN MILLIONS)
Cash flows from operating activities:
Recurring operations.............................. $106 $244
Net expenditures for discontinued operations
and non-recurring charges...................... (40) (232)
----- -----
Net cash provided by operating activities 66 12
Cash flows from investing activities:
Proceeds from sales of facilities and other
assets.......................................... 40 57
Collection of notes receivable.................... 69 20
Purchases of property and equipment............... (160) (215)
Purchases of new businesses, net of cash
acquired........................................ (458) (381)
Other items....................................... (6) (43)
----- -----
Net cash used in investing activities........ (515) (562)
----- -----
Cash flows from financing activities:
Proceeds from borrowings.......................... 1,120 1,386
Payments of borrowings............................ (723) (889)
Other items, primarily stock option exercises..... 16 32
----- -----
Net cash provided by financing activities.... 413 529
----- -----
Net decrease in cash and cash equivalents.............. (36) (21)
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............. $ 67 $ 14
----- -----
----- -----
Supplemental disclosures:
Interest paid, net of amounts capitalized......... $ 93 $201
Income taxes paid, net of refunds received........ 32 12
Fair value of common stock issued for purchase
of new business................................. - 9
Fair value of common stock tendered for note
receivable...................................... - 16
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. Quarterly operating results are not necessarily
representative of operations for a full year for various reasons, including
levels of occupancy, interest rates, acquisitions, disposals, revenue
allowance and discount fluctuations, the timing of price changes, unusual
or non-recurring items and fluctuations in quarterly tax rates. These same
considerations apply to all year-to-year comparisons.
2. During the six months ended November 30, 1997, Tenet acquired five 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.
3. During the three-month and six-month periods ended November 30, 1997, net
cash expenditures charged against the Company's reserves for discontinued
operations and other non-recurring charges were approximately $67 million
and $232 million, respectively. The remaining reserve balances are
included in the Company's balance sheets at May 31, 1997 and November 30,
1997 as reserves related to discontinued operations and other non-recurring
charges or as other long-term liabilities.
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.
5. The gain from changes in the value of indexed long-term debt resulted from
a decrease in the fair market value of the Company's investment in common
stock of Vencor, Inc., into which certain of the Company's notes are
exchangeable.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Income before income taxes was $174 million in the quarter ended November
30, 1996, and $229 million in the quarter ended November 30, 1997. For the
six-month periods ended November 30 1996 and 1997, income before income taxes
was $334 million and $422 million, respectively. The following is a summary of
operations for the three months and six months ended November 30, 1996 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------------------------------------------
1996 1997 1996 1997
------ ------ ------ ------
(DOLLARS IN MILLIONS) (% OF NET OPERATING REVENUES)
<S> <C> <C> <C> <C>
Net operating revenues:
Domestic general hospitals....................... $1,944 $2,198 92.1% 90.5%
Other domestic operations........................ 167 231 7.9% 9.5%
------ ------ ----- ------
Net operating revenues................................ 2,111 2,429 100.0% 100.0%
------ ------ ----- ------
Operating expenses:
Salaries and benefits............................ (873) (1,007) 41.4% 41.5%
Supplies......................................... (290) (330) 13.7% 13.6%
Provision for doubtful accounts.................. (111) (136) 5.3% 5.6%
Other operating expenses......................... (445) (512) 21.0% 21.0%
Depreciation..................................... (88) (87) 4.2% 3.6%
Amortization..................................... (27) (27) 1.3% 1.1%
------ ------ ----- ------
Operating income...................................... $ 277 $ 330 13.1% 13.6%
------ ------ ----- ------
------ ------ ----- ------
SIX MONTHS ENDED NOVEMBER 30,
-------------------------------------------------------------------
1996 1997 1996 1997
------ ------ ------ ------
(DOLLARS IN MILLIONS) (% OF NET OPERATING REVENUES)
Net operating revenues:
Domestic general hospitals....................... $3,762 $4,321 91.7% 90.8%
Other domestic operations........................ 340 439 8.3% 9.2%
------ ------ ----- ------
Net operating revenues................................ 4,102 4,760 100.0% 100.0%
------ ------ ----- ------
Operating expenses:
Salaries and benefits............................ (1,690) (1,973) 41.2% 41.5%
Supplies......................................... (556) (651) 13.6% 13.7%
Provision for doubtful accounts.................. (223) (284) 5.4% 6.0%
Other operating expenses......................... (867) (998) 21.2% 20.9%
Depreciation..................................... (174) (168) 4.2% 3.5%
Amortization..................................... (54) (51) 1.3% 1.1%
------ ------ ----- ------
Operating income...................................... $ 538 $ 635 13.0% 13.3%
------ ------ ----- ------
------ ------ ----- ------
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 products; (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.
The table below sets forth certain selected historical operating statistics
for the Company's domestic general hospitals.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
----------------------------------- --------------------------------
INCREASE INCREASE
1996 1997 (DECREASE) 1996 1997 (DECREASE)
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of hospitals (at end of period)... 125 129 4 * 125 129 4 *
Licensed beds (at end of period)......... 26,959 28,715 6.5% 26,959 28,715 6.5%
Net inpatient revenues (in millions)..... $1,243 $1,390 11.8% $2,464 $2,731 10.8%
Net outpatient revenues (in millions).... $657 $759 15.5% $1,225 $1,494 22.0%
Admissions............................... 184,312 213,270 15.7% 363,068 418,842 15.4%
Equivalent admissions.................... 283,096 327,578 15.7% 534,354 617,411 15.5%
Average length of stay (days)............ 5.2 5.2 - * 5.2 5.1 (0.1) *
Patient days............................. 955,500 1,099,812 15.1% 1,877,433 2,154,251 14.7%
Equivalent patient days.................. 1,435,893 1,661,469 15.7% 2,731,754 3,148,109 15.2%
Net inpatient revenue per patient day.... $1,301 $1,264 (2.8)% $1,312 $1,268 (3.4)%
Net inpatient revenue per admission...... $6,744 $6,518 (3.4)% $6,787 $6,520 (3.9)%
Utilization of licensed beds............. 40.1% 42.5% 2.4% * 39.6% 41.6% 2.0% *
Outpatient visits........................ 2,417,281 2,642,883 9.3% 4,686,129 5,295,096 13.0%
* 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:
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
----------------------------------- --------------------------------
INCREASE INCREASE
1996 1997 (DECREASE) 1996 1997 (DECREASE)
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average licensed beds.................... 24,419 24,385 (0.1)% 24,382 24,317 (0.3)%
Patient days............................. 912,439 939,750 3.0% 1,811,268 1,857,610 2.6%
Net inpatient revenue per patient day.... $1,291 $1,282 (0.7)% $1,310 $1,288 (1.7)%
Admissions............................... 176,406 183,028 3.8% 350,488 361,876 3.2%
Net inpatient revenue per admission...... $6,679 $6,582 (1.5)% $6,769 $6,611 (2.3)%
Outpatient visits........................ 2,296,066 2,255,755 (1.8)% 4,511,674 4,551,144 0.9%
Average length of stay (days)............ 5.2 5.1 (0.1) * 5.2 5.1 (0.1) *
</TABLE>
* The change is the difference between 1996 and 1997 amounts shown.
8
<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 41.1% of the net patient
revenues of the Company's domestic general hospitals for the quarter ended
November 30, 1996 and 37.8% for the current-year quarter. The percentages for
the six-month periods ended November 30, 1996 and 1997 were 40.1% and 38.0%,
respectively. The Company believes that changes in Medicare reimbursement
mandated by the Balanced Budget Act of 1997 ("the 1997 Act") which became
effective October 1, 1997, as well as certain proposed changes to various
states' Medicaid programs, will reduce payments as the changes are phased in
over the next three years. 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 28.1% for
the three months ended November 30, 1996 to approximately 32.8% for the
current-year quarter. The percentages for the six-month periods ended
November 30, 1996 and 1997 were 28.1% and 32.5%, respectively. 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
$167 million for the three months ended November 30, 1996, compared to $231
million for the current-year period, representing an increase of $64 million.
For the six-month periods ended November 30, 1996 and 1997, net operating
revenues from other domestic operations were $340 million and $439 million,
respectively. These increases primarily relates to the growth of its physician
practices. The Company acquired physician practices with
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
approximately 100 physicians during the six months ended November 30, 1997 and
currently owns or manages physician practices with approximately 950
physicians.
Salaries and benefits expense as a percentage of net operating
revenues was 41.4% in the quarter ended November 30, 1996 and 41.5% in the
current-year quarter. Salaries and benefits expense as a percentage of net
operating revenues for the prior and current six-month periods were 41.2% and
41.5%, respectively. The increases, though slight, are due primarily to the
acquisitions of several general hospitals.
Supplies expense as a percentage of net operating revenues was 13.7% in the
quarter ended November 30, 1996 and 13.6% in the current-year quarter. Supplies
expense as a percentage of net operating revenues for the prior and current
six-month periods were 13.6% and 13.7%, respectively. 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 5.3% in the quarter ended November 30, 1996, and 5.6% in the
current-year quarter. The provision for doubtful accounts as a percentage of net
operating revenues for the prior and current six-month periods were 5.4% and
6.0%, respectively. The increases are partially attributable to a shift in
revenues from Medicare and Medicaid to managed-care. Also, they relate to
recent acquisitions and to an increase 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.
Other operating expenses as a percentage of net operating revenues was
21.0% for the prior and current-year quarters ended November 30, 1996 and 1997,
respectively. Other operating expenses as a percentage of net operating
revenues for the prior and current six-month periods were 21.2% and 20.9%,
respectively. The improvement in the current quarter is the result of cost
reduction programs.
Depreciation and amortization expense as a percentage of net operating
revenues was 5.5% in the quarter ended November 30, 1996, and 4.7% in the
current-year quarter. Depreciation and amortization expense as a percentage of
net operating revenues for the prior and current six-month periods were 5.5% and
4.6%, respectively. 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 certain
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 $102 million in the
quarter ended November 30, 1996 and $118 million in the current-year quarter.
Interest expense, net of capitalized interest for the prior and current
six-month periods was $202 million and $230 million, respectively. The increase
is primarily due to increased borrowings for acquisitions.
The $18 million gain during the quarter ended November 30, 1997 from
changes in the value of the Company's indexed long-term debt instruments (its 6%
Subordinated Exchangeable Notes) resulted from a reduction in the carrying
value of the exchangeable notes due to a decline in the fair market value of the
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Company's investment in the common stock of Vencor, Inc. ("Vencor") to a price
below the $38.55 per share exchange price. The investment in Vencor stock is
treated as available for sale with changes in value recorded in shareholders'
equity. At November 30, 1997 the market price of Vencor's common stock was
$24.25 per share. At the end of the fourth quarter of fiscal 1997, the Company
had recorded a pretax, noncash charge to earnings amounting to $18 million
because and to the extent that the fair market value of its investment in Vencor
stock exceeded the carrying value of the exchangeable notes at the end of that
accounting period. The gain recorded in the current quarter reverses that
charge.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity for the six months ended November 30, 1997 was
derived primarily from borrowings under the Company's unsecured bank credit
agreement and the sale of certain assets. Net cash provided by recurring
operating activities for the six months ended November 30, 1996 was $106 million
before expenditures of $40 million for discontinued operations and
non-recurring charges. Net cash provided by recurring operating activities for
the six months ended November 30, 1997 was $244 million before expenditures of
$232 million for discontinued operations and non-recurring charges. Management
believes that future cash provided by recurring 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 $618 million during the six months ended November 30,
1997. Cash proceeds from the sale of property and equipment were $57 million,
primarily from the sale of an acute hospital. The Company's cash and cash
equivalents at November 30, 1997 were $14 million, a decrease of $21 million
over May 31, 1997. Working capital at November 30, 1997 was $989 million,
compared to $522 million at May 31, 1997.
Cash payments for property and equipment were $160 million in the six
months ended November 30, 1996, compared to $215 million in the current-year
period. 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 over the next three
years. 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 $458 million in the
six months ended November 30, 1996 and $381 million for the six months ended
November 30, 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
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 $1.4 billion as of November
30, 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.
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.
THE YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results
by or at the Year 2000. In connection with this problem ("the Year 2000
Issue"), Tenet has initiated a comprehensive assessment of its computer
systems and applications, including the embedded systems which control
certain medical equipment and other equipment. The Company's financial and
general ledger systems are substantially compliant already. Modifications to
payroll and patient accounting systems are underway and are expected to be
completed by early 1999. The Company expects that costs to upgrade these
systems will not be material. It has not yet completed an estimate of the costs
of bringing its other applications, including embedded systems, into
compliance. Furthermore, the Company presently has no assurance that the
systems of the Federal and State governments, other payors or other companies
with which the Company's systems interface or on which they rely, will be
upgraded on a timely basis. The Company, therefore, is not able to determine
whether the Year 2000 Issue will materially affect future financial results
or future financial conditions. Generally accepted accounting principles
require that the costs of modifying computer software for the Year 2000 Issue
be charged to expense as they are incurred.
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-
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 and 5 are not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on October 1, 1997.
The shareholders elected all of the Company's nominees for director and
approved the First Amendment to the 1994 Directors Stock Option Plan, the
1997 Annual Incentive Plan and the First Amendment to the 1995 Employee
Stock Purchase Plan and ratified the selection of KPMG Peat Marwick LLP as
the Company's independent auditors for the fiscal year ended May 31, 1998.
The votes were as follows:
1. Election of Directors For Withheld
--- --------
Jeffrey C. Barbakow 262,036,028 2,044,747
Richard S. Schweiker 262,211,115 1,869,660
2. Proposal to approve the First Amendment to the 1994 Directors Stock Option
Plan:
For: 235,706,983
Against: 26,834,036
Abstaining: 691,968
3. Proposal to approve the 1997 Annual Incentive Plan:
For: 255,154,443
Against: 7,323,993
Abstaining: 754,551
4. Proposal to approve the First Amendment to the 1995 Employee Stock
Purchase Plan:
For: 257,513,784
Against: 5,073,747
Abstaining: 645,456
14
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
5. Ratification of selection of KPMG Peat Marwick LLP:
For: 263,593,629
Against: 160,371
Abstaining: 326,775
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(3) Restated By-Laws of Tenet Healthcare Corporation, as
amended October 1, 1997.
(11) (Page 17) Statement Re: Computation of Per Share
Earnings for the three months and six months ended
November 30, 1996 and 1997.
(27.1) Financial Data Schedule for the quarter ended November
30, 1997 (included only in the EDGAR filing).
(27.2) Restated Financial Data Schedule for the quarter ended
November 30, 1996 (included only in the EDGAR filing).
(b) Reports on Form 8-K
(a) None.
15
<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: January 14, 1998 /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)
16
<PAGE>
RESTATED BY-LAWS OF
TENET HEALTHCARE CORPORATION
A NEVADA CORPORATION
AS AMENDED OCTOBER 1, 1997
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1.1 PLACE OF MEETINGS.
All meetings of the shareholders shall be held at the principal office
of the Corporation in the State of California, or at any other place within
or without the State of Nevada as may be designated for that purpose from
time to time by the Board of Directors.
SECTION 1.2 ANNUAL MEETINGS.
The Annual meeting of the shareholders shall be held not later than 210
days after the close of the fiscal year, on the date and at the time set by
the Board of Directors, at which time the shareholders shall elect by
plurality vote an annual Class of the Board of Directors, consider reports of
the affairs of the Corporation, and transact such other business as may
properly be brought before the meeting.
SECTION 1.3 SPECIAL MEETINGS.
Special meetings of the shareholders, for any purpose or purposes
whatsoever, may be called at any time by the Chief Executive Officer or by
the Board of Directors.
SECTION 1.4 NOTICE OF MEETINGS.
1.4.1. Notice of each meeting of shareholders, whether annual or
special, shall be given at least 10 and not more than 60 days prior to the day
thereof by the Secretary or any Assistant Secretary causing to be delivered to
each shareholder of record entitled to vote at such meeting a written notice
stating the time and place of the meeting and the purpose or purposes for which
the meeting is called. Such notice shall be signed by the Chief Executive
Officer, the President, the Secretary or any Assistant Secretary and shall be
mailed postage prepaid to each shareholder at his address as it appears on the
stock books of the Corporation. If any shareholder has failed to supply an
address, notice shall be deemed to have been given if mailed to the address of
the principal office of the Corporation, or published at least once in a
newspaper having general circulation in the county in which the principal office
is located.
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1.4.2. It shall not be necessary to give any notice of the
adjournment of or the business to be transacted at an adjourned meeting other
than by announcement at the meeting at which such adjournment is taken;
provided that when a meeting is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting.
SECTION 1.5 CONSENT BY SHAREHOLDERS.
Any action which may be taken at a regular meeting of the shareholders,
except election of directors, may be taken without a meeting, if authorized
by a writing signed by holders of the number of shares required under the law
to give their approval for such purpose.
SECTION 1.6 QUORUM.
1.6.1. The presence in person or by proxy of the persons
entitled to vote a majority of the voting shares at any meeting constitutes a
quorum for the transaction of business. Shares shall not be counted in
determining the number of shares represented or required for a quorum or in
any vote at a meeting, if voting of them at the meeting has been enjoined or
for any reason they cannot be lawfully voted at the meeting.
1.6.2. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave
less than a quorum.
1.6.3. In the absence of a quorum, a majority of the shares
present in person or by proxy and entitled to vote may adjourn any meeting
from time to time, but not for a period of more than 30 days at any one time,
until a quorum shall attend.
SECTION 1.7 VOTING RIGHTS.
1.7.1. Every shareholder of record of the Corporation shall
be entitled at each meeting of the shareholders to one vote for each share of
stock standing in his name on the books of the Corporation. Except as
otherwise provided by law, or by the Articles of Incorporation or any
amendment thereto, or by the By-Laws, if a quorum is present, the majority of
votes cast in person or by proxy shall be binding upon all shareholders of
the Corporation.
1.7.2. The Board of Directors shall designate a day not more
than 60 days prior to any meeting of the shareholders as the day as of which
shareholders entitled to notice of and to vote at such meetings shall be
determined.
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SECTION 1.8 PROXIES.
Every shareholder entitled to vote or to execute consents may do so
either in person or by written proxy executed in accordance with the
provisions of Section 78.355 of the Nevada Revised Statutes and filed with
the Secretary of the Corporation.
SECTION 1.9 MANNER OF CONDUCTING MEETINGS.
To the extent not in conflict with the provisions of the law relating
thereto, the Articles of Incorporation, or express provisions of these
By-Laws, meetings shall be conducted pursuant to such rules as may be adopted
by the chairman presiding at, or a majority of the shares represented at, the
meeting.
ARTICLE II
DIRECTORS - MANAGEMENT
SECTION 2.1 POWERS.
Subject to the limitation of the Articles of Incorporation, of the
By-Laws, and of the laws of the State of Nevada as to action to be authorized
or approved by the shareholders, all corporate powers shall be exercised by
or under authority of, and the business and affairs of this Corporation shall
be controlled by, a Board of Directors.
SECTION 2.2 NUMBER AND QUALIFICATION.
The authorized number of directors of this Corporation shall be not less
than eight nor more than 15, with the exact number to be established from
time to time by resolution of the Board of Directors of this Corporation.
All directors of this Corporation shall be at least 21 years of age and at
least a majority shall be citizens of the United States.
SECTION 2.3 CLASSIFICATION AND ELECTION.
The Board of Directors shall be classified into three annual Classes,
with four directors in Class 1, four directors in Class 2, and five directors
in Class 3. Each Class of directors shall be elected for terms of three
years. Each term shall continue for the number of years stated and until
their successors are elected and have qualified. Their term of office shall
begin immediately after election. These By-Laws are being adopted subsequent
to the initial classification of directors in 1975. The directors in office
as of the date of adoption hereof shall continue to serve the terms for which
they have been previously elected.
<PAGE>
-4-
SECTION 2.4 INCREASE IN THE NUMBER OF DIRECTORS.
The Board of Directors may change the number of directors from time to
time; provided, however, neither the Board of Directors nor the shareholders
may ever increase the number of directorships by more than one during any
twelve-month period, except upon the affirmative vote of two-thirds of the
directors of each Class, or the affirmative vote of the holders of two-thirds
of all outstanding shares voting together and not by class. This provision
may not be amended except by a like vote.
SECTION 2.5 VACANCIES.
2.5.1. Any vacancies in the Board of Directors, except
vacancies first filled by the shareholders, may be filled by the affirmative
vote of two-thirds of the remaining directors of each Class, though less than
a quorum, or by a sole remaining director. Each director so elected shall
hold office for the balance of the term of the resigning director and until
his successor is elected. The power to fill vacancies shall in no event be
delegated to any committee appointed in accordance with these By-Laws.
2.5.2. The shareholders may at any time elect a director to
fill any vacancy not filled by the directors, and may elect the additional
directors at the meeting at which an amendment of the By-Laws is voted
authorizing an increase in the number of directors.
2.5.3. A vacancy or vacancies shall be deemed to exist in
case of the death, resignation, or removal of any director, or if the
directors or shareholders shall increase the authorized number of directors
but shall fail at a meeting at which such increase is authorized or at an
adjournment thereof to elect the additional director so provided for, or in
case the shareholders fail at any time to elect the full number of authorized
directors.
2.5.4. If the Board of Directors accepts the resignation of a
director tendered to take effect at a future time, the Board or the
shareholders shall have power to immediately elect a successor who shall take
office when the resignation shall become effective.
2.5.5. No reduction of the number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
SECTION 2.6 REMOVAL OF DIRECTORS.
The entire Board of Directors or any individual director may be removed
from office, with or without cause, by the vote or written consent of
shareholders representing two-thirds of the issued and outstanding capital
stock entitled to vote.
<PAGE>
-5-
SECTION 2.7 RESIGNATIONS.
Any director of the Corporation may resign at any time either by oral
tender of resignation at any meeting of the Board or by giving written notice
thereof to the Secretary, the Chief Executive Officer or the President. Such
resignation shall take effect at the time it specifies, and the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 2.8 PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at the principal office
of the Corporation in the State of California, or at such other place within
or without the State of Nevada as may be designated for that purpose by the
Board of Directors. Any meeting shall be valid, wherever held, if held by the
written consent of all members of the Board of Directors, given before or
after the meeting and filed with the Secretary of the Corporation.
SECTION 2.9 MEETINGS AFTER ANNUAL SHAREHOLDERS' MEETING.
The first meeting of the Board of Directors held after the annual
shareholders' meeting shall be held at such time and place within or without
the State of Nevada as shall be fixed by announcement of the Chief Executive
Officer or the President given at the annual shareholders' meeting, and no
other notice of such meeting shall be necessary, provided a majority of the
whole Board shall be present. Alternatively, such meeting may be held at
such time and place as shall be fixed pursuant to notice given under other
provisions of these By-Laws.
SECTION 2.10 OTHER REGULAR MEETINGS.
2.10.1. Regular meetings of the Board of Directors shall be
held at such time and place within or without the State of Nevada as may be
agreed upon from time to time by the Board.
2.10.2. No notice need be given of regular meetings, except
that a written notice shall be given to each director of the resolution
establishing specific meeting dates or a regular meeting date, which notice
shall set forth the date of the month, the time, and the place of the
meetings.
SECTION 2.11 SPECIAL MEETINGS.
Special meetings of the Board of Directors shall be held whenever called
by the Chief Executive Officer or the President or by two-thirds of the
directors of each Class. Notice of any such meeting shall be mailed to each
director not later than three days before the day on which the meeting is to
be held, or shall be sent to him by telegraph, or delivered personally or by
telephone, not later than midnight of the day before the day of the meeting.
Any meeting of the
<PAGE>
-6-
Board of Directors shall be a legal meeting without any notice thereof having
been given, if each director consents to the holding thereof or waives notice
by a writing filed with the Secretary, or is present thereat and their oral
consents are entered on the minutes, or they take part in the deliberations
thereat without objection. Except as otherwise provided in the By-Laws or as
may be indicated in the notice thereof, any and all business may be
transacted at any special meeting.
SECTION 2.12 WAIVER OF NOTICE.
Anything herein to the contrary notwithstanding, notice of any meeting
of directors shall not be required as to any director who shall waive notice
in writing (including telex, facsimile telephonic transmission, telegram,
cablegram or radiogram) before or after such meeting.
SECTION 2.13 NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place is fixed at the meeting
adjourned.
SECTION 2.14 QUORUM.
A majority of the number of directors as fixed by the Articles of
Incorporation or By-Laws shall be necessary to constitute a quorum for the
transaction of business, and the action of a majority of the directors
present at any meeting at which there is a quorum, when duly assembled, is
valid as a corporate act; provided, that a minority of the directors, in the
absence of a quorum, may adjourn from time to time or fill vacant
directorships in accordance with Section 2.5 but may not transact any
business.
SECTION 2.15 ACTION BY UNANIMOUS WRITTEN CONSENT.
Any action required or permitted to be taken at any meeting of the Board
of Directors may be taken without a meeting, if all members of the Board
shall individually or collectively consent in writing thereto. Such written
consent shall be filed with the minutes of the proceedings of the Board and
shall have the same force and effect as a unanimous vote of such directors.
SECTION 2.16 COMPENSATION.
The directors may be paid their expenses of attendance at each meeting
of the Board of Directors. Additionally, the Board of Directors may from
time to time, in its discretion, pay to directors either or both a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary
for services as a director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special
<PAGE>
-7-
or standing committees may be allowed like reimbursement and compensation for
attending committee meetings.
SECTION 2.17 TRANSACTIONS INVOLVING INTERESTS OF DIRECTORS.
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated by the fact that any of the
directors of the Corporation are in any way interested in, or connected with,
any other party to, such contract or transaction or are themselves parties to
such contract or transaction, provided that such transaction satisfies
Section 78.140 of the Nevada Revised Statutes; and each and every person who
may become a director of the Corporation is hereby relieved, to the extent
permitted by law, from any liability that might otherwise exist from
contracting in good faith with the Corporation for the benefit of himself or
any person in which he may be in any way interested or with which he may be
in any way connected. Any director of the Corporation may vote and act upon
any matter, contract or transaction between the Corporation and any other
person without regard to the fact that he is also a stockholder, director or
officer of, or has any interest in, such other person.
SECTION 2.18 EMERITUS POSITIONS.
The Board of Directors may authorize parties to serve in an emeritus
position with respect to the Board of Directors, included by way of example
but not by way of limitation, as an Emeritus Director, as a Chairman Emeritus
of the Board of Directors or as a Vice-Chairman Emeritus of the Board of
Directors. These positions shall be honorary positions and parties elected to
those positions may be asked to attend meetings of the board of directors and
meeting of the shareholders from time to time. A party holding an emeritus
position shall not be an officer or director of the Company, shall have no
vote at a director's meeting, shall receive no fees for service in that
position and shall not be given access to material, non-published information
pertaining, to the Company. A party filling an emeritus position shall be
requested to do so because of his or her experience with and contributions to
the Company.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a Chairman, a Vice
Chairman, a Chief Executive Officer, a President, one or more Senior
Executive Vice Presidents, one or more Executive Vice Presidents, one or more
Group Presidents and Chief Executive Officers, one or more Senior Vice
Presidents, one or more Vice Presidents, a Secretary, and a Treasurer. Any
person may hold two or more offices. The executive officers of the
Corporation shall be elected
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annually by the Board of Directors and shall hold office for one year or
until their respective successors shall be elected and shall qualify.
SECTION 3.2 APPOINTED OFFICERS: TITLES.
3.2.1. The Chief Executive Officer or the Secretary in the
case of Assistant Secretaries or the Treasurer in the case of Assistant
Treasurers may appoint one or more Assistant Secretaries or one or more
Assistant Treasurers, each of whom shall hold such title at the pleasure of
the appointing officer, have such authority and perform such duties as are
provided in the By-Laws, or as the Chief Executive Officer or the appointing
officer may determine from time to time. Any person appointed under this
Section 3.2.1 to serve in any of the foregoing positions shall be deemed by
reason of such appointment or service in such capacity to be an "officer" of
the corporation.
3.2.2. The Chief Executive Officer or a person designated by
the Chief Executive Officer may also appoint a president, one or more
executive vice presidents, one or more senior vice presidents, one or more
vice presidents and one or more assistant vice presidents for each operating
group and division of the Corporation and one or more senior vice presidents,
one or more vice presidents and one or more assistant vice presidents for
each corporate staff function and a corporate controller and one or more
assistant controllers. Each of such persons will hold such title at the
pleasure of the Chief Executive Officer and have authority to act for and
shall perform duties with respect to only the group, division or corporate
staff function for which the person is appointed. Any person appointed under
this Section 3.2.2 to serve in any of the foregoing positions shall not be
deemed by reason of such appointment or service in such capacity to be an
"officer" of the Corporation.
SECTION 3.3 REMOVAL AND RESIGNATION.
3.3.1. Any officer may be removed, either with or without
cause, by a majority of the directors at the time in office, at any regular
or special meeting of the Board. Any appointed person may be removed from
such position at any time by the person making such appointment or his
successor.
3.3.2. Any officer may resign at any time, by giving written
notice to the Board of Directors, the Chief Executive Officer, the President
or the Secretary of the Corporation. Any such resignation shall take effect
at the date of the receipt of such notice, or at any later time specified
therein; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
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SECTION 3.4 VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in the By-Laws for regular appointments to such office.
SECTION 3.5 CHAIRMAN AND VICE CHAIRMAN.
The Chairman shall preside at all meetings of the Board of Directors and
shall exercise and perform such other powers and duties as may be from time
to time assigned to him by the Board of Directors. The Vice Chairman shall,
in the absence of the Chairman, preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors.
SECTION 3.6 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall, subject to the control of the Board
of Directors, have general supervision, direction, and control of the
business and affairs of the Corporation. He shall preside at all meetings of
the shareholders and, in the absence of the Chairman of the Board and the
Vice Chairman of the Board, at all meetings of the Board of Directors. He
shall be ex officio a member of the Executive Committee and shall have the
general powers and duties of management usually vested in the office of chief
executive officer of a corporation and such other powers and duties as may be
prescribed by the Board of Directors.
SECTION 3.7 PRESIDENT.
In the absence or disability of the Chief Executive Officer, the
President shall perform all of the duties of the Chief Executive Officer and
when so acting shall have all the powers and be subject to all the
restrictions upon the Chief Executive Officer, including the power to sign
all instruments and to take all actions which the Chief Executive Officer is
authorized to perform by the Board of Directors or the By-Laws. The
President shall have the general powers and duties usually vested in the
office of president of a corporation and such other powers and duties as may
be prescribed by the Chief Executive Officer or the Board of Directors.
SECTION 3.8 SENIOR EXECUTIVE VICE PRESIDENT, EXECUTIVE VICE PRESIDENT, SENIOR
VICE PRESIDENT AND VICE PRESIDENT.
In the absence or disability of the Chief Executive Officer and the
President, a Senior Executive Vice President, an Executive Vice President or
a Group President and Chief Executive Officer, in the order of his rank and
seniority shall perform all of the duties of the Chief Executive Officer, and
when so acting shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer, including the power to sign
all instruments and to
<PAGE>
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take all actions which the Chief Executive Officer is authorized to perform
by the Board of Directors or the By-Laws. The Senior Executive Vice
Presidents, Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents shall have the general powers and duties usually vested in the
office of a vice president of a corporation; the Group Presidents and Chief
Executive Officers shall have the general powers and duties of a principal
executive officer of an operating group of a corporation; and each of them
shall have such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the Board of Directors, the
Executive Committee of the Board of Directors, the Chief Executive Officer or
the By-Laws.
SECTION 3.9 SECRETARY AND ASSISTANT SECRETARIES.
3.9.1. The Secretary shall (1) attend all sessions of the
Board and all meetings of the shareholders; and (2) record and keep, or cause
to be kept, all votes and the minutes of all proceedings in a book to be kept
for that purpose at the principal office of the Corporation, or at such other
place as the Board of Directors may from time to time determine, specifying
therein (i) the time and place of holding, (ii) whether regular or special,
and if special, how authorized, (iii) the notice thereof given, (iv) the
names of those present at directors' meetings, (v) the number of shares
present or represented at shareholders' meetings, and (vi) the proceedings
thereof; and (3) perform like duties for the Executive and other standing
committees, when required. In addition, he shall keep or cause to be kept,
at the principal office of the Corporation in the State of Nevada, those
documents required to be kept thereat by Section 5.2 of the By-Laws and
Section 78.105 of the Nevada Revised Statutes.
3.9.2. The Secretary shall give, or cause to be given, notice
of meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or the Chief Executive Officer, under whose supervision he
shall be. He shall keep in safe custody the seal of the Corporation, and,
when authorized by the Board, affix the same to any instrument requiring it,
and when so affixed, it shall be attested by his signature or by the
signature of the Treasurer or an Assistant Secretary. The Secretary is
hereby authorized to issue certificates, to which the corporate seal may be
affixed, attesting to the incumbency of officers of this Corporation or to
actions duly taken by the Board of Directors or the shareholders.
3.9.3. The Assistant Secretaries, in the order of their
seniority, shall in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary, and shall perform such other
duties as the Chief Executive Officer or the Secretary shall prescribe.
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SECTION 3.10 TREASURER AND ASSISTANT TREASURERS.
3.10.1. The Treasurer shall deposit all moneys and other
valuables in the name, and to the credit, of the Corporation, with such
depositories as may be ordered by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors,
shall render to the Chief Executive Officer and directors, whenever they
request it, an account of all his transactions as Treasurer, and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or
the By-Laws.
3.10.2. The Assistant Treasurers, in the order of their
seniority, shall in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer, and shall perform such other
duties as the Chief Executive Officer or the Treasurer shall prescribe.
SECTION 3.11 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS.
In addition to the foregoing powers and duties specifically prescribed
for the respective officers, the Board of Directors may from time to time by
resolution (i) impose or confer upon any of the officers such additional
duties and powers as the Board of Directors may see fit, (ii) determine the
order of seniority among the officers, and/or (iii) except as otherwise
provided above, provide that in the absence of any officer or officers, any
other officer or officers shall substitute for and assume the duties, powers
and authority of the absent officer or officers. Any such resolution may be
final, subject only to further action by the Board of Directors, or the
resolution may grant such discretion, as the Board of Directors deems
appropriate, to the Chairman, the Vice Chairman, the Chief Executive Officer,
the President (or in his absence the Senior Executive Vice President or the
Executive Vice President serving in his place) to impose or confer additional
duties and powers, to determine the order of seniority among officers, and/or
to provide for substitution of officers as above described.
SECTION 3.12 COMPENSATION.
The officers of the Corporation shall receive such compensation as shall
be fixed from time to time by the Board of Directors. No officer shall be
prohibited from receiving such salary by reason of the fact that he is also a
director of the Corporation.
SECTION 3.13 TRANSACTION INVOLVING INTEREST OF OFFICER.
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated by the fact that any of the
officers of the Corporation are in any way interested in, or connected with,
any other party to such contract or transaction, or are themselves parties to
such contract or transaction, provided that such transaction complies with
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Section 78.140 of the Nevada Revised Statutes; and each and every person who
is or may become an officer of the Corporation is hereby relieved, to the
extent permitted by law, when acting in good faith, from any liability that
might otherwise exist from contracting with the Corporation for the benefit
of himself or any person in which he may be in any way interested or with
which he may be in any way connected.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 4.1 STANDING COMMITTEES.
The Board of Directors shall appoint an Executive Committee, an Audit
Committee and a Compensation and Stock Option Committee, consisting of such
number of its members as it may designate, consistent with the Articles of
Incorporation, the By-Laws and the laws of the State of Nevada.
4.1.1. The Executive Committee shall have and may exercise,
when the Board is not in session, all of the powers of the Board of Directors
in the management of the business and affairs of the Corporation, but the
Executive Committee shall not have the power to fill vacancies on the Board,
or to change the membership of or to fill vacancies in the Executive
Committee or any other Committee of the Board, or to adopt, amend or repeal
the By-Laws, or to declare dividends.
4.1.2. The Audit Committee shall select and engage on behalf
of the Corporation, subject to the consent of the shareholders, and fix the
compensation of, a firm of certified public accountants whose duty it shall
be to audit the books and accounts of the Corporation and its subsidiaries
for the fiscal year in which they are appointed, and who shall report to such
Committee. The Audit Committee shall confer with the auditors and shall
determine, and from time to time shall report to the Board of Directors upon,
the scope of the auditing of the books and accounts of the Corporation and
its subsidiaries. The Audit Committee shall also be responsible for
determining that the business practices and conduct of employees and other
representatives of the Corporation and its subsidiaries comply with the
policies and procedures of the Corporation. None of the members of the Audit
Committee shall be officers or employees of the Corporation.
4.1.3. The Compensation and Stock Option Committee shall
establish a general compensation policy for the Corporation and shall have
responsibility for the approval of increases in directors' fees and in
salaries paid to officers and senior employees earning in excess of an annual
salary to be determined by the Committee. The Compensation and Stock Option
Committee shall have all of the powers of administration under all of the
Corporation's employee
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benefit plans, including any stock option plans, long-term incentive plans,
bonus plans, retirement plans, stock purchase plans and medical, dental and
insurance plans. In connection therewith, the Compensation and Stock Option
Committee shall determine, subject to the provisions of the Corporation's
plans, the directors, officers and employees of the Corporation eligible to
participate in any of the plans, the extent of such participation and the
terms and conditions under which benefits may be vested, received or
exercised. None of the members of the Compensation and Stock Option
Committee shall be officers or employees of the Corporation.
SECTION 4.2 OTHER COMMITTEES.
Subject to the limitations of the Articles of Incorporation, the By-Laws
and the laws of the State of Nevada as to action to be authorized or approved
by the shareholders, or duties not delegable by the Board of Directors, any
or all of the corporate powers may be exercised by or under authority of, and
the business and affairs of this Corporation may be controlled by, such other
committee or committees as may be appointed by the Board of Directors. The
powers to be exercised by any such committee shall be designated by the Board
of Directors.
SECTION 4.3 PROCEDURES.
Subject to the limitations of the Articles of Incorporation, the By-Laws
and the laws of the State of Nevada regarding the conduct of business by the
Board of Directors and its appointed committees, any committee created under
this Article may use any procedures for conducting its business and
exercising its powers, including but not limited to actions by the unanimous
written consent of its members in the manner set forth in Section 2.15. A
majority (but not less than two members) shall constitute a quorum. Notices
of meetings may be in any reasonable manner and may be waived as for meetings
of directors.
ARTICLE V
CORPORATE RECORDS AND REPORTS - INSPECTION
SECTION 5.1 RECORDS.
The Corporation shall maintain adequate and correct accounts, books and
records of its business and properties. All of such books, records and
accounts shall be kept at its principal place of business in the State of
California, as fixed by the Board of Directors from time to time.
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SECTION 5.2 ARTICLES, BY-LAWS AND STOCK LEDGER.
The Corporation shall maintain and keep the following documents at its
principal place of business in the State of Nevada: (i) a certified copy of
the Articles of Incorporation and all amendments thereto; (ii) a certified
copy of the By-Laws and all amendments thereto; and (iii) a statement setting
forth the following: "The Secretary of the Corporation, whose address is
2700 Colorado Avenue, Santa Monica California 90404, is the custodian of the
duplicate stock ledger of the Corporation."
SECTION 5.3 INSPECTION.
Any person who has been a shareholder of record for at least six months
immediately preceding his demand, or any person holding, or thereunto
authorized in writing by the holders of, at least five percent of all of the
Corporation's outstanding shares, upon at least five days' written demand, or
any judgment creditor without prior demand, shall have the right to inspect
in person or by agent or attorney, during usual business hours, the duplicate
stock ledger of the Corporation and to make extracts therefrom; provided,
however, that such inspection may be denied to any shareholder or other
person upon his refusal to furnish to the Corporation an affidavit that such
inspection is not desired for a purpose which is in the interest of a
business or object other than the business of the Corporation and that he has
not at any time sold or offered for sale any list of shareholders of any
corporation or aided or abetted any person in procuring any such record of
shareholders for any such purpose.
SECTION 5.4 CHECKS, DRAFTS, ETC.
All checks, drafts, or other orders for payment of money, notes, or
other evidences of indebtedness, issued in the name of, or payable to, the
Corporation, shall be signed or endorsed by such person or persons, and in
such manner as shall be determined from time to time by resolution of the
Board of Directors.
ARTICLE VI
OTHER AUTHORIZATIONS
SECTION 6.1 EXECUTION OF CONTRACTS.
The Board of Directors, except as the By-Laws otherwise provide, may
authorize any officer or officers or agent or agents to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation. Such authority may be general, or confined to specific
instances. Unless so authorized by the Board of Directors, no officer, agent
or employee shall have any power or authority, except in the ordinary course
of business, to bind the Corporation
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by any contract or engagement or to pledge its credit, or to render it liable
for any purpose or in any amount.
SECTION 6.2 REPRESENTATION OF OTHER CORPORATIONS.
All shares of any other corporation, standing in the name of the
Corporation, shall be voted, represented, and all rights incidental thereto
exercised as directed by written consent or resolution of the Board of
Directors expressly referring thereto. In general, such rights shall be
delegated by the Board of Directors under express instructions from time to
time as to each exercise thereof to the Chief Executive Officer, the
President, any Senior Executive Vice President, any Executive Vice
President, any Senior Vice President, any Vice President, the Treasurer or
the Secretary of this Corporation, or any other person expressly appointed by
the Board of Directors. Such authority may be exercised by the designated
officers in person, or by any other person authorized so to do by proxy, or
power of attorney, duly executed by such officers.
SECTION 6.3 DIVIDENDS.
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and on
the terms and conditions provided by the laws of the State of Nevada, and the
Articles of Incorporation, subject to any contractual restrictions to which
the Corporation is then subject.
ARTICLE VII
CERTIFICATES FOR AND TRANSFER OF SHARES
SECTION 7.1 CERTIFICATES FOR SHARES.
7.1.1. Certificates for shares shall be of such form and
device as the Board of Directors may designate and shall be numbered and
registered as they are issued. Each shall state the name of the record
holder of the shares represented thereby; its number and date of issuance;
the number of shares for which it is issued; the par value; a statement of
the rights, privileges, preferences and restrictions, if any; a statement as
to rights of redemption or conversion, if any; and a statement of liens or
restrictions upon transfer or voting, if any, or, alternatively, a statement
that certificates specifying such matters may be obtained from the Secretary
of the Corporation.
7.1.2. Every certificate for shares must be signed by the
Chief Executive Officer or the President and the Secretary or an Assistant
Secretary, or must be authenticated by facsimiles of the signatures of the
Chief Executive Officer or the President and the Secretary or
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an Assistant Secretary. Before it becomes effective, every certificate for
shares authenticated by a facsimile or a signature must be countersigned by a
transfer agent or transfer clerk, and must be registered by an incorporated
bank or trust company, either domestic or foreign, as registrar of transfers.
7.1.3. Even though an officer who signed, or whose facsimile
signature has been written, printed, or stamped on a certificate for shares
ceases, by death, resignation, or otherwise, to be an officer of the
Corporation before the certificate is delivered by the Corporation, the
certificate shall be as valid as though signed by a duly elected, qualified
and authorized officer, if it is countersigned by the signature or facsimile
signature of a transfer clerk or transfer agent and registered by an
incorporated bank or trust company, as registrar of transfers.
7.1.4. Even though a person whose facsimile signature as, or
on behalf of, the transfer agent or transfer clerk has been written, printed
or stamped on a certificate for shares ceases, by death, resignation, or
otherwise, to be a person authorized to so sign such certificate before the
certificate is delivered by the Corporation, the certificate shall be deemed
countersigned by the facsimile signature of a transfer agent or transfer
clerk for purposes of meeting the requirements of this section.
SECTION 7.2 TRANSFER ON THE BOOKS.
Upon surrender to the Secretary or transfer agent of the Corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 7.3 LOST OR DESTROYED CERTIFICATES.
The Board of Directors may direct, or may authorize the Secretary to
direct, a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate for shares so lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors or Secretary may, in its or his discretion, and as a condition
precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
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SECTION 7.4 TRANSFER AGENTS AND REGISTRARS.
The Board of Directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, who may be the same person, and
may be the Secretary of the Corporation, or an incorporated bank or trust
company, either domestic or foreign, who shall be appointed at such times and
places as the requirements of the Corporation may necessitate and the Board
of Directors may designate.
SECTION 7.5 FIXING RECORD DATE FOR DIVIDENDS, ETC.
The Board of Directors may fix a time, not exceeding 50 days preceding
the date fixed for the payment of any dividend or distribution, or for the
allotment of rights, or when any change or conversion or exchange of shares
shall go into effect, as a record date for the determination of the
shareholders entitled to receive any such dividend or distribution, or any
such allotment of rights, or to exercise the rights in respect to any such
change, conversion, or exchange of shares, and, in such case, only
shareholders of record on the date so fixed shall be entitled to receive such
dividend, distribution, or allotment of rights, or to exercise such rights,
as the case may be, notwithstanding any transfer of any shares on the books
of the Corporation after any record date fixed as aforesaid.
SECTION 7.6 RECORD OWNERSHIP.
The Corporation shall be entitled to recognize the exclusive right of a
person registered as such on the books of the Corporation as the owner of
shares of the Corporation's stock to receive dividends, and to vote as such
owner, and shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not the
Corporation shall have express or other notice thereof, except as otherwise
provided by law.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
SECTION 8.1 BY SHAREHOLDERS.
New or restated by-laws may be adopted, or these By-Laws may be repealed
or amended, at the annual shareholders' meeting or at any other meeting of
the shareholders called for that purpose, by a vote of shareholders entitled
to exercise a majority of the voting power of the Corporation.
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SECTION 8.2 BY DIRECTORS.
Subject to the right of the shareholders to adopt, amend, or repeal
by-laws, as provided in Section 8.1, the Board of Directors may adopt, amend,
or repeal any of these By-Laws by the affirmative vote of two-thirds of the
directors of each Class except as otherwise provided in Section 2.4. This
power may not be delegated to any committee appointed in accordance with
these By-Laws.
SECTION 8.3 RECORD OF AMENDMENTS.
Whenever an amendment or a new By-Law is adopted, it shall be copied in
the book of minutes with the original By-Laws, in the appropriate place. If
any By-Law is repealed, the fact of repeal, with the date of the meeting at
which the repeal was enacted, or written assent was filed, shall be stated in
said book.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 9.1 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
THOSE BY OR IN THE RIGHT OF THE CORPORATION.
Subject to Section 9.3 of this Article IX, each person who was or is a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding") (other than an action by or in the right of the
Corporation), by reason of the fact that he, or a person of whom he is the
legal representative, is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee, fiduciary or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action or inaction in an official capacity or in any other capacity while
serving as a director, officer, employee, fiduciary or agent shall be
indemnified and held harmless by the Corporation to the fullest extent
permitted by the laws of Nevada, as the same exist or may hereafter be
amended, against all costs, charges, expenses, liabilities and losses
(including attorneys' fees, judgments, fines, employee benefit plan exercise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection with such proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which he reasonably
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believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
SECTION 9.2 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION.
Subject to Section 9.3 of this Article IX, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he, or a person of whom he is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee, fiduciary or agent of
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action or inaction in an official
capacity or in any other capacity while serving as a director, officer,
employee, fiduciary or agent, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
SECTION 9.3 AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Article IX (unless ordered by a court or
advanced pursuant to Section 9.6 hereof) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section
9.1 or Section 9.2 of this Article IX, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (ii) if a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion, or (iii) if such a quorum is not
obtainable, by independent legal counsel in a written opinion, or (iv) by the
shareholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the specific case.
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SECTION 9.4 GOOD FAITH DEFINED.
For purposes of any determination under Section 9.3 of this Article IX,
a person shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe his conduct was unlawful, if his action is
based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser
or other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 9.4 shall
mean any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which such person is or was serving at
the request of the Corporation as a director, officer, employee or agent.
The provisions of this Section 9.4 shall not be deemed to be exclusive or to
limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Sections 9.1 or 9.2 of
this Article IX, as the case may be.
SECTION 9.5 INDEMNIFICATION BY A COURT.
If a claim under Sections 9.1 or 9.2 is not paid in full by the
Corporation within thirty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending
any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has failed to meet a standard of conduct which makes it
permissible under Nevada law for the Corporation to indemnify the claimant
for the amount claimed. Neither the failure of the Corporation (including
the Board, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is permissible in the circumstances because he has met such
standard of conduct, nor an actual determination by the Corporation
(including the Board, independent legal counsel, or its shareholders) that
the claimant has not met such standard of conduct, shall be a defense to the
action or create a presumption that the claimant has failed to meet such
standard of conduct.
SECTION 9.6 EXPENSES PAYABLE IN ADVANCE.
The right to indemnification conferred in this Article IX shall include
the right to be paid by the Corporation the expenses incurred in defending
any such proceeding in advance of its
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final disposition; provided, however, that, if the Nevada General Corporation
Law required, the payment of such expenses incurred by a director or officer
in his capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to any employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
director of officer, to repay all amounts so advanced if it shall ultimately
be determined that such director or officer is not entitled to be indemnified
under this Section 9.6 or otherwise.
SECTION 9.7 NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article IX shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Articles of
Incorporation, By-Law, agreement, vote of shareholders or disinterested
directors or otherwise.
SECTION 9.8 INSURANCE.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, fiduciary or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under Nevada law.
SECTION 9.9 CERTAIN DEFINITIONS.
For purposes of this Article IX, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers, so that
any person who is or was a director or officer of such constituent
corporation, or is or was a director or officer of such constituent
corporation serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand
in the same position under the provisions of this Article IX with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For
purposes of this Article IX, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a
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manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Article IX.
SECTION 9.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by or granted
pursuant to, this Article IX shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director,
officer, employee, fiduciary or agent and shall inure to the benefit of his
heirs, executors and administrators.
SECTION 9.11 LIMITATION ON INDEMNIFICATION.
Notwithstanding anything contained in this Article IX to the contrary,
except as provided in Section 9.3, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof)
was authorized or consented to by the Board.
SECTION 9.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS.
The Corporation may, by action of the Board, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
SECTION 9.13 INDEMNIFICATION OF WITNESSES.
To the extent that any director, officer, employee, fiduciary or agent
of the Corporation is by reason of such position, or a position with another
entity at the request of the Corporation, a witness in any action, suit or
proceeding, he shall be indemnified against all costs and expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
SECTION 9.14 INDEMNIFICATION AGREEMENTS.
The Corporation may enter into agreements with any director, officer,
employee, fiduciary or agent of the Corporation providing for indemnification
to the full extent permitted by Nevada law.
SECTION 9.15 DEFINITION OF BOARD.
For purposes of this Article IX, the term "Board" shall mean the Board
of Directors of the Corporation or, to the extent permitted by the laws of
Nevada, as the same exist or may
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hereafter be amended, its Executive Committee. On vote of the Board, the
Corporation may assent to the adoption of this Article IX by any subsidiary,
whether or not wholly owned.
SECTION 9.16 ACTIONS PRIOR TO ADOPTION OF ARTICLE IX.
The rights provided by this Article IX shall be available whether or not
the claim asserted against the director, officer, employee, fiduciary or
agent is based on matters which antedate the adoption of this Article IX.
SECTION 9.17 SEVERABILITY.
If any provision of this Article IX shall for any reason be determined
to be invalid, the remaining provisions hereof shall not be affected thereby
but shall remain in full force and effect.
SECTION 9.18 APPLICABILITY TO FEDERAL ELECTION CAMPAIGN ACT OF 1971, AS
AMENDED.
The rights provided by this Article IX shall be applicable to the
officers (including without limitation the Chairman, Vice Chairman, treasurer
and assistant treasurer) appointed from time to time by the Chief Executive
Officer of the Corporation or his designee to serve in the administration and
management of any separate, segregated fund established for purposes of
collecting and distributing voluntary employee political contributions to
federal election campaigns pursuant to the Federal Election Campaign Act of
1971, as amended.
ARTICLE X
CORPORATE SEAL
The corporate seal shall be circular in form and shall have inscribed
thereon the name of the Corporation, and the date of its incorporation, and
the word "Nevada".
ARTICLE XI
INTERPRETATION
Reference in these By-Laws to any provision of the Nevada Revised
Statutes shall be deemed to include all amendments thereto and the effect of
the construction and determination of validity thereof by the Nevada Supreme
Court.
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ARTICLE XII
APPLICABILITY OF CONTROL SHARE ACT
The provisions of Nevada Revised Statutes Sections 78.378 to 78.3792,
inclusive, shall not apply to any acquisition of a controlling interest by
OrNda Healthcorp in the Corporation pursuant to the terms of that certain
Stock Option Agreement between the Corporation and OrNda Healthcorp, as the
same may be amended, modified, supplemented or otherwise changed.
<PAGE>
EXHIBIT 11
TENET HEALTHCARE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS *
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
------------- ----------------
1996 1997 1996 1997
------------- ----------------
Weighted average number of shares of common
stock outstanding........................ 297 305 296 304
Dilutive effect of outstanding stock
equivalents (stock options and
warrants)................................ 6 6 6 7
----- ----- ----- -----
TOTAL 303 311 302 311
----- ----- ----- -----
----- ----- ----- -----
Net income.................................... $ 103 $ 138 $ 199 $ 254
----- ----- ----- -----
----- ----- ----- -----
Primary and fully diluted earnings per
common and common equivalent share....... $0.34 $0.44 $0.66 $0.82
----- ----- ----- -----
----- ----- ----- -----
- --------
* 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.
17
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 14,000
<SECURITIES> 125,000
<RECEIVABLES> 1,774,000
<ALLOWANCES> 215,000
<INVENTORY> 204,000
<CURRENT-ASSETS> 2,623,000
<PP&E> 7,269,000
<DEPRECIATION> 1,592,000
<TOTAL-ASSETS> 12,183,000
<CURRENT-LIABILITIES> 1,634,000
<BONDS> 5,520,000
0
0
<COMMON> 23,000
<OTHER-SE> 3,437,000
<TOTAL-LIABILITY-AND-EQUITY> 12,183,000
<SALES> 0
<TOTAL-REVENUES> 4,760,000
<CGS> 0
<TOTAL-COSTS> 3,841,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 284,000
<INTEREST-EXPENSE> 230,000
<INCOME-PRETAX> 422,000
<INCOME-TAX> 168,000
<INCOME-CONTINUING> 254,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254,000
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 67,000
<SECURITIES> 103,000
<RECEIVABLES> 1,432,000
<ALLOWANCES> 215,000
<INVENTORY> 180,000
<CURRENT-ASSETS> 2,152,000
<PP&E> 6,564,000
<DEPRECIATION> 1,447,000
<TOTAL-ASSETS> 11,142,000
<CURRENT-LIABILITIES> 1,323,000
<BONDS> 4,667,000
0
0
<COMMON> 17,000
<OTHER-SE> 3,503,000
<TOTAL-LIABILITY-AND-EQUITY> 11,142,000
<SALES> 0
<TOTAL-REVENUES> 4,102,000
<CGS> 0
<TOTAL-COSTS> 3,341,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 223,000
<INTEREST-EXPENSE> 202,000
<INCOME-PRETAX> 334,000
<INCOME-TAX> 135,000
<INCOME-CONTINUING> 199,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,000
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
</TABLE>
