TENET HEALTHCARE CORP
DFAN14A, 2000-08-23
GENERAL MEDICAL & SURGICAL HOSPITALS, NEC
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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

  Filed by the Registrant  [   ]
  Filed by a Party other than the Registrant  [X]
  Check the appropriate box:
  [   ]  Preliminary Proxy Statement       [    ]  Confidential, for Use of the Commission Only (as permitted by Rule  14a-6(e)(2))
  [   ]  Definitive Proxy Statement
  [X]  Definitive Additional Materials
  [   ]  Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12

TENET HEALTHCARE CORPORATION

(Name of Registrant as Specified in Its Charter)

TENET SHAREHOLDER COMMITTEE, L.L.C.

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
  [X]  No fee required.
  [   ]  $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
  [   ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.

      (1)  Title of each class of securities to which transaction applies:

      (2)  Aggregate number of securities to which transaction applies:

      (3)  Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

      (4)  Proposed maximum aggregate value of transaction:

      (5)  Total fee paid:

      [   ]  Fee paid previously with preliminary materials.

      [   ]  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

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Intended To Be Released To Security Holders
As of August 23, 2000

M. Lee Pearce, M.D.
1360 South Ocean Boulevard
PH 5
Pompano Beach, FL 33062
Direct: (954) 941-5570

August 22, 2000

      Dear Tenet Shareholder:

      The Tenet Shareholder Committee, L.L.C. (the “Committee”) nominated an opposition slate of candidates for election to the Board of Directors of Tenet Healthcare Corporation (the “Company”). Our reasons for doing so are described in the enclosures (Preliminary Proxy Statement, “Time For A Change,” the “Tenet Healthcare Corporation Fact Book,” and our letters to the Tenet Board).

      In short, the Committee believes that significant changes in the Board of Directors of Tenet are necessary to revitalize the Company and improve and maximize shareholder value. Our materials show:

•   The Company’s poor financial performance over the past five years.

  •   Tenet had the lowest return on assets in fiscal 1999 and is on track to repeat this feat in fiscal 2000 with its 2.2 percent return.
 
  •   EBITDA margin declined steadily since peaking in fiscal 1996. The margin reached a new low of 17.0 percent in fiscal 2000.
 
  •   Tenet has the highest debt-to-equity ratio of any of its competitors even after selling or closing 20 hospitals in fiscal 2000.
 
  •   Tenet was below average on 20 of 21 financial measures when compared to its competitors and scored the worst performance on 11 of the measures, based on the latest comparable annual data.

•   The Company’s exorbitant executive compensation and bloated management structure.

  •   CEO Barbakow received $22.5 million in compensation in fiscal 1999, according to the Los Angeles Times. Over the past seven years, Barbakow was paid over $74 million, taking into account cash compensation and the value of stock options based on a share price of $30.

•   The Company’s poor corporate governance practices.

  •   Tenet twice disregarded strong majority shareholder votes to eliminate the staggered system of electing directors.

Table of Contents

    The Committee’s candidates are committed to addressing these issues and are all well qualified to do so:

•   M. Lee Pearce, M.D. has extensive experience in the operation of hospitals and has been a director of publicly held hospital companies, including American Medical International (“AMI”) and OrNda Health Corporation, both of which Tenet acquired.
 
•   Michael E. Gallagher provides advisory services to health care businesses, has been a director of a publicly held health care business, and held several positions with AMI, including Group Vice President — Director of Corporate Development, Financial Planning and Controls.
 
•   Ambassador Joseph M. Rodgers managed a successful business specializing in hospital construction before serving as the United States Ambassador to France. He is currently chairman of an investment firm and has considerable experience as a director of public companies.
 
•   Claire S. Farley has a successful operating record in the petroleum industry and now heads a company offering medical diagnosis software and chronic condition management tools over the internet.

      The enclosed materials do not include a formal request for your proxy. On or about August 28, 2000, the Committee will send its Definitive Proxy Statement to all shareholders, and you may cast your vote for the Committee’s candidates at that time by executing the gold proxy card included in that package.

      Until then, please review the enclosed materials and consider whether Tenet’s management, as represented by its candidates for director, has met your expectations as an investor. We think the answer should be “no,” and hope to have your support for the Committee’s candidates at the Annual Meeting of Shareholders in October.

      The Committee’s candidates are not seeking to acquire control of the Board. Under the Company’s By-Laws, the Board is divided into three classes of directors, with only one class elected each year on a rotating basis. No class is large enough to constitute a majority.

  Sincerely,

/S/  M. LEE PEARCE

M. Lee Pearce, M.D., and the Tenet
Shareholder Committee, L.L.C.

Enclosures

-2-

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Tenet Shareholder Committee

Time for a Change
August 21, 2000

TABLE OF CONTENTS

Tenet Shareholder Committee
Replacement Slate Nominated
Poor Financial Performance
Executive Compensation
and
Bloated Management
You Now Know:
Change Is Needed
Competitive Point Scores
Return on Assets
Return on Capital
Return on Equity
Long Term Debt / Equity
Total Debt / Equity
Total Debt / EBITDA
EBITDA / Interest
Average Cost of Debt
EBITDA Margin
Depreciation & Amortization
EBIT Margin
Interest Expense
Pretax Margin
EBITDA / Share Growth
Cash Flow From Operations
Cash Flow After Capital Expenditures
Accounts Receivable
Change in A/R DSO
Change in DSO
Revenue Per Employee
EBITDA Per Employee
Accounts Receivable Analysis
Schedule of Non-Recurring Charges
Schedule of Non-Recurring Charges
Shareholder Votes Ignored by Board
Shareholder Votes Ignored by Board

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Replacement Slate Nominated

Tenet Shareholder Committee has nominated
4 directors to replace Tenet’s slate of
incumbent directors

•   Why?

  •   Poor Financial Performance
 
  •   Exorbitant Executive Compensation and Bloated Management
 
  •   Poor Corporate Governance Practices

2

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Poor Financial Performance

Did You Know?

Tenet has the worst ROA among its competitors in fiscal 1997, 1998 (excepting HCA, due to the Medicare fraud investigation), 1999, and is on track to repeat this feat in fiscal 2000.

                     
1995 1996 1997 1998 1999 2000
2.8% 4.3% (2.4)% 2.1% 1.9% 2.2%

    SOURCE: Form 10-K for each respective company. Dividing net income by the average of beginning and ending assets.

3

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Poor Financial Performance

Did You Know?

Tenet has the worst ROE among its competitors in both fiscal 1997 & 1999 and without HCA’s OIG payment, THC would repeat in F2000.

                     
1995 1996 1997 1998 1999 2000
10.0% 15.1% (8.3)% 7.7% 6.7% 7.6%

    SOURCE: Form 10-K for each respective company. Dividing net income by the average of beginning and ending equity.

4

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Poor Financial Performance

Did You Know?

Tenet EBITDA margins peaked in fiscal 1996 ... and have declined steadily thereafter.

                 
1996 1997 1998 1999 2000
19.8% 17.5% 18.3% 17.1% 17.0%

    SOURCE: Form 10-K for each respective company. Dividing EBITDA by net revenue.

5

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Poor Financial Performance

Did You Know?

Tenet has consistently maintained the highest leverage among its competitors. From F1995 through F2000, Tenet’s Debt/Equity is the highest.

                     
1995 1996 1997 1998 1999 2000
1.79x 1.23x 1.57x 1.64x 1.66x 1.40x

    SOURCE: Form 10-K for each respective company. Dividing short-term and long-term debt by equity.

6

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Poor Financial Performance

Did You Know?

Since fiscal 1995, Tenet has the highest level of debt to cash flow (Debt/EBITDA) among its competitors each and every year. Close to keeping record in 2000.

                     
1995 1996 1997 1998 1999 2000
5.71x 2.96x 3.31x 3.23x 3.46x 2.93x

    SOURCE: Form 10-K for each respective company. Dividing short-term and long-term debt by EBITDA.

7

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Poor Financial Performance

Did You Know?

From fiscal 1997 — 1999, Tenet’s cost of
debt capital is the highest among its
competitors.

             
1997 1998 1999 2000
10.05% 8.52% 7.90% 7.91%

    SOURCE: Form 10-K for each respective company. Dividing interest expense by the average of beginning and ending short-term and long-term debt.

8

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Poor Financial Performance

Did You Know?

Since fiscal 1994, Tenet has written off more than $2.15 billion after-tax, exceeding the total equity turned over to the management team in the beginning of fiscal 1994.

    Source: Form 10-K. Sum of all restructuring and asset impairment changes, tax adjusted with a 40% tax rate, plus all after-tax discontinued operations and extraordinary item charges.

9

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Poor Financial Performance

Did You Know?

From fiscal 1995-2000, after Capital
Expenditures, Tenet produced NO CASH.
“Tenet unfortunately, has not generated any
free cash flow over the last four years...”
(WST 7/3/2000).

                     
1995 1996 1997 1998 1999 2000
(8.2)% (3.1)% 0.0% (1.3)% (0.1)% 2.2%

    SOURCE: Form 10-K for each respective company. Dividing Cash Flow From Operations less Capital Expenditures by Net Revenue.

10

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Poor Financial Performance

Did You Know?

•   A/R Days are UP 23.6 days since F1997. This increase required $738 Million in CASH to fund, negatively impacting EPS by $0.11 annually.

                 
1996 1997 1998 1999 2000
55.0 56.5 64.3 77.8 80.1

    SOURCE: Tenet’s Form 10-K for each year. Change in DSO in labeled year from three years earlier. Multiply $738 million by average cost of debt capital, with 40% tax rate and 314.9 MM fully diluted shares.

11

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Poor Financial Performance

Did You Know?

Tenet spends over $60 million annually for its legal counsel, hiring over 700 outside law firms? (House Counsel, “Code Blue, GC Healthcare”, May/June 2000).

12

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Poor Financial Performance

Did You Know?

Tenet has admitted losing $100 million per year from its physician practices, an estimated $530 million to date. Another $500 million in write-offs makes management’s mistake a $1 Billion error.

    Source: Tenet’s investor presentation admits to $100 million operating loss. Our estimate of losses since end of fiscal 1993 is $530 million. Write-off’s include $157 million from F97-F99 and $177 million in first 9 months of fiscal 2000 to cover about 40% of physician contracts. Total write-off to date is $334 million. Our $500 million estimate assumes a further write-off of $166 million for remaining 60% of physician practices.

13

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Poor Financial Performance

Below Competitor’s Average Performance in F1999

•   Return on Assets*
 
•   Return on Capital*
 
•   Return on Equity*
 
•   LTD / Equity*
 
•   Total Debt / Equity*
 
•   Total Debt / EBITDA*
 
•   EBITDA / Interest*
 
•   Average Cost of Debt*
 
•   EBITDA Margin
 
•   EBIT Margin
 
•   Interest as % revenue*
 
•   Pretax Margin*
 
•   EBITDA / Share Growth
 
•   Cash Flow Operations / Revenue*
 
•   Cash Flow Operations — Capital Expenditures/ Revenue
 
•   Net A/R DSO
 
•   Change in A/R DSO
 
•   3 Year Change in A/R DSO
 
•   Revenue / Employee
 
•   EBITDA / Employee

* — Lowest in F1999

14

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Poor Financial Performance

Did You Know?

If we give 5 points to the best performer, and 1 point to the worst performer in each of 21 financial measurements, how do they rate?

                 
Total
Average Points
                 
  • HMA
    		•  4.24 89
  • UHS
    		•  3.57 75
  • HCA
    		•  3.29 69
  • QHGI
    		•  2.10 44
  • THC
    		•  1.81 38

    Tenet has the worst performance in 11 of 21 measurements. Next worst is Quorum & HMA, scoring lowest just 3 times.

        Source: See Tenet Fact Book for full details of each of the 21 financial measurements. All measurements for fiscal 1999 performance.

    15

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    Executive Compensation
    and
    Bloated Management

    Did You Know?

    •   According to the LA Times, CEO Barbakow was paid $22.5 million in 1999.
     
    •   At $30 per share, the company has paid Barbakow nearly $74 Million in 7 years.

        Source: Tenet proxy material of cash compensation and stock options. $74 million assumes that all options are cashed in at $30 per share. CEO has not exercised any options since assuming CEO post.

    16

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    Executive Compensation
    and
    Bloated Management

    Did You Know?

    •   Ex-COO Michael Focht retired on December 31, 1999.
     
    •   Yet Tenet still pays him $523,992 per year for “consulting” for 3 years. During this 3 years, he adds 3 years to his retirement vesting schedule and will receive annual compensation in the range of $486,000-$594,000 for a period of 10 years following his retirement.

        (Source: Fiscal 1999 and Fiscal 2000 Form 10-K, Exhibit 10-N)

    17

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    Executive Compensation
    and
    Bloated Management

    Did You Know?

    Both Tenet and HCA have 1,450 employees at their corporate / operational / regional offices. Yet HCA owns 53% more beds than Tenet. On average, THC needs 11 corporate people / hospital. HCA provides better financial results with just 7.

        Source: Tenet and HCA (Columbia/HCA)’s Form-10K for total employees and Tenet’s F1999 10-K for corporate, operational and regional employees. HCA’s corporate, operational and regional employees provided by HCA. Numbers of hospitals and licensed beds according to form 10-K’s for respective companies for fiscal 1999.

    18

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    Executive Compensation
    and
    Bloated Management

    Did You Know?

    Both THC and HCA own comparably sized hospitals (237 beds vs. 221 beds / hospital). Yet THC needs 19% more employees (968/hospital) than HCA (812/hospital) to operate the hospitals.

        Source: Tenet and HCA (Columbia/HCA)’s Fiscal 1999 Form-10K for total employees. Numbers of hospitals and licensed beds according to Fiscal 1999 Form 10-K’s for respective companies.

    19

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    Poor Corporate Governance
    Practices

    Did You Know?

    At the last 2 annual shareholder meetings, shareholders have overwhelmingly voted to recommend that the Board eliminate the staggered system of electing directors: 62% and 71% respectively.

        Source: Tenet’s Form 10-Q for November quarter of each fiscal year.

    20

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    Poor Corporate Governance
    Practices

    Did You Know?

    The Board ignored shareholders twice by maintaining staggered board elections.

    21

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    You Now Know:
    Change Is Needed

    •   Board ignores shareholders’ staggered board recommendation
     
    •   Management is bloated and overpaid
     
    •   Management after 7 years has produced the worst operating results in the industry

    22

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    You Now Know:
    Change Is Needed

    •   Senior management should be comprised of hospital operators, rather than investment bankers.
     
    •   Headquarters should be moved out of Santa Barbara to Nashville and support staff downsized.
     
    •   The corporate air force should go.

    23

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    You Now Know:
    Change Is Needed

    •   Staggered board terms should be eliminated.
     
    •   The company should be operated for the benefit of shareholders rather than for entrenched management.

    24

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    Tenet Healthcare Corporation

    Fact Book

     

    Prepared by
    Tenet Shareholder Committee, LLC.
    August 21, 2000

    Table of Contents

          All information in these slides was gathered from each company’s Form 10-K filings, 10-Q filings and/or proxy material. Information for Tenet Healthcare has been updated for the company’s fourth quarter fiscal 2000 earnings release. Estimates of earnings and cash flow for Tenet’s competitors are consistent with Wall Street’s consensus earnings estimates as reported by firms such as First Call, I/B/E/S and Zack’s Research. Estimates for all competitors have been updated for all earnings released prior to the date on the cover of this book.

    Table of Contents

    Tenet Healthcare Corporation
    Fact Book Table of Contents

                       
    Competitive Point Scores (THC vs. Competitors) 5
    Comparing Tenet with its Competitors Return on Assets 6
    Return on Capital 7
    Return on Equity 8
    Long Term Debt / Equity 9
    Total Debt / Equity 10
    Total Debt / EBITDA 11
    EBITDA / Interest 12
    Average Cost of Debt 13
    EBITDA Margin 14
    Depreciation & Amortization 15
    EBIT Margin 16
    Interest Expense 17
    Pretax Margin 18
    EBITDA / Share Growth 19
    Cash Flow From Operations 20
    Cash Flow After Capital Expenditures 21
    Accounts Receivable DSO 22
    Change in A/R DSO 23
    3 Year Change in A/R DSO 24
    Revenue Per Employee 25

    Table of Contents

    Tenet Healthcare Corporation
    Fact Book Table of Contents

               
    EBITDA Per Employee 26
    THC vs. HCA Employment Levels 27
    CEO Compensation 28
    Accounts Receivable Analysis 30
    Schedule of Non-Recurring Charges 31
    Shareholder Votes Ignored by Board 33
    Santa Barbara Headquarters 35
    Tenet Healthcare Financials 36
    HCA Financials 41
    Universal Health Financials 46
    Health Management Financials 51
    Quorum Health Group Financials 56
    Matrix of Financial Indicators 61

    Table of Contents

    Competitive Point Scores

    (5 = Best to 1 = Worst)

                                             
    THC HCA UHS HMA QHGI
    Return on Assets 1.00 3.00 4.00 5.00 2.00
    Return on Capital 1.00 3.00 4.00 5.00 2.00
    Return on Equity 1.00 3.00 4.00 5.00 2.00
    LTD : Equity 1.00 3.00 4.00 5.00 2.00
    Total Debt : Equity 1.00 3.00 4.00 5.00 2.00
    Total Debt : EBITDA 1.00 3.00 4.00 5.00 2.00
    EBITDA : Interest 1.00 3.00 4.00 5.00 2.00
    Average Cost of Debt 1.00 3.00 4.00 5.00 2.00
    EBITDA Margin 3.00 4.00 1.00 5.00 2.00
    D&A % of Revenue 4.00 1.00 3.00 5.00 2.00
    EBIT Margin 4.00 3.00 1.00 5.00 2.00
    Interest % of Revenue 1.00 3.00 4.00 5.00 2.00
    Pretax Margin 1.00 4.00 3.00 5.00 2.00
    EBITDA / Share Growth 2.00 4.00 3.00 5.00 1.00
    Cash Flow Operations : Revenue 1.00 2.00 4.00 5.00 3.00
    Cash Flow Operations — Cap Ex : Revenue 2.00 1.00 5.00 4.00 3.00
    Net A/R DSO 2.00 5.00 4.00 1.00 3.00
    Change in A/R DSO 2.00 5.00 4.00 1.00 3.00
    Three Year Change in A/R DSO 2.00 5.00 4.00 1.00 3.00
    Revenue : Employee 3.00 4.00 5.00 2.00 1.00
    EBITDA : Employee 3.00 4.00 2.00 5.00 1.00
    Total Points 38.00 69.00 75.00 89.00 44.00
    Average 1.81 3.29 3.57 4.24 2.10
    # Best — 3.00 2.00 16.00 —
    # Worst 11.00 2.00 2.00 3.00 3.00

    Page 5

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    Return on Assets

    Net Income / Assets

    Below Competitor’s Average Every Year F95 — 00E
    Lowest F95, F97, F99 & F00E

        SOURCE: Form 10-K for each respective company. Dividing net income by the average of beginning and ending assets.

    Page 6

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    Return on Capital

    Net Income / Debt + Equity

    Worst Performer F97, 99 & 00E

        SOURCE: Form 10-K for each respective company. Dividing net income by the average of beginning and ending short term debt, long term debt and equity.

    Page 7

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    Return on Equity

    Net Income / Equity

    Below Competitor’s Average Every Year F95 — 00E
    Worst Performer F97, & 99

        SOURCE: Form 10-K for each respective company. Dividing net income by the average of beginning and ending equity.

    Page 8

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    Long Term Debt / Equity

    Highest Leveraged Company Every Year

        SOURCE: Form 10-K for each respective company. Dividing long-term debt by equity.

    Page 9

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    Total Debt / Equity

    Highest Leveraged Company Every Year

        SOURCE: Form 10-K for each respective company. Dividing short-term and long-term debt by equity.

    Page 10

    Table of Contents

    Total Debt / EBITDA

    Perennial Leverage Leader
    Quorum’s awful performance wins F2000E

        SOURCE: Form 10-K for each respective company. Dividing short-term and long-term debt by EBITDA.

    Page 11

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    EBITDA / Interest

    Worst Interest Coverage Every Year

        SOURCE: Form 10-K for each respective company. Dividing EBITDA by interest expense.

    Page 12

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    Average Cost of Debt

    Highest Cost of Debt Capital F1997-1999

        SOURCE: Form 10-K for each respective company. Dividing interest expense by the average of beginning and ending short-term and long-term debt.

    Page 13

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    EBITDA Margin

    Margins Peaked in F1996
    HCA beats Tenet before & after OIG impact

        SOURCE: Form 10-K for each respective company. Dividing EBITDA by net revenue.

    Page 14

    Table of Contents

    Depreciation & Amortization

    % of Revenue

    Massive Write-Offs Dropped Expense 110 BP Since 1996
    150 BP Difference Between THC & HCA

        SOURCE: Form 10-K for each respective company. Dividing depreciation and amortization by net revenue.

    Page 15

    Table of Contents

    EBIT Margin

    HCA Beating THC Both Before & After OIG
    Investigation Impact

        SOURCE: Form 10-K for each respective company. Dividing EBIT by net revenue.

    Page 16

    Table of Contents

    Interest Expense

    % of Revenue

    Highest Interest Burden in the Industry Every Year

        SOURCE: Form 10-K for each respective company. Dividing interest expense by net revenue.

    Page 17

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    Pretax Margin

    Below Competitor’s Average Every Year F97 — 00E
    Worst Margin 1999

        SOURCE: Form 10-K for each respective company. Dividing pre-tax income by net revenue.

    Page 18

    Table of Contents

    EBITDA / Share Growth

    Outside of Merger impacts, very little growth.
    Competitors Growing 3-7x Faster

        SOURCE: Form 10-K for each respective company. Dividing EBITDA / Share in stated year by EBITDA / Share in prior year.

    Page 19

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    Cash Flow From Operations

    % of Revenue

    Worst Performer Every Year

        SOURCE: Form 10-K for each respective company. Dividing Cash Flow From Operations by Net Revenue.

    Page 20

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    Cash Flow After Capital
    Expenditures

    % of Revenue

    Using (NOT Generating) Cash from 1995 — 2000E
    No Demonstrated Ability to Amortize Debt

        SOURCE: Form 10-K for each respective company. Dividing Cash Flow From Operations less Capital Expenditures by Net Revenue.

    Page 21

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    Accounts Receivable

    Days Outstanding

    Higher Than Competitor’s Average Every Year F95 — 00E
    Worst Performance in F2000

        SOURCE: Form 10-K for each respective company. Dividing Net Accounts Receivable by Net Revenues divided by 365.

    Page 22

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    Change in A/R DSO

    Higher Than Competitor’s Average Every Year F97 — 00E

        SOURCE: Form 10-K for each respective company. Change in DSO in labeled year from the prior year.

    Page 23

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    Change in DSO

    3 Year Change

    Higher Than Competitor’s Average F97, 99 & 00E

        SOURCE: Form 10-K for each respective company. Change in DSO in labeled year from three years earlier.

    Page 24

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    Revenue Per Employee

    (in thousands)

    HCA Outperforming THC 1999. Fiscal 2000 Spike Caused by
    Sale / Closure of 20 Hospitals With Partial Year Revenue

        SOURCE: Form 10-K for each respective company. Annual net revenues divided by number of employees at year-end.

    Page 25

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    EBITDA Per Employee

    (in thousands)

    HCA Outperforming THC 1999. Fiscal 2000 Spike Caused by
    Sale / Closure of 20 Hospitals With Partial Year Revenue

        SOURCE: Form 10-K for each respective company. EBITDA divided by employees at year-end.

    Page 26

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    Tenet vs. HCA Employment Levels
    Source: THC Form 10-K, HCA Form 10-K & Management Interview

                             
    THC HCA Difference
    Hospitals at FY1999 year-end 130 207 -37 %
    Licensed beds at year-end 30,791 45,663 -33 %
    Average licensed beds / hospital 237 221 7 %
    Total Employees 125,950 168,000 -25 %
    Employees / Hospital 968.85 811.59 19 %
    Employees / Licensed Bed 4.09 3.68 11 %
    Corporate / Operational / Regional Employees  (Support Employees) 1,450 1,450 0 %
    Support Employees / Hospital 11.15 7.00 59 %
    Support Employees / Licensed Bed 0.05 0.03 48 %

    Page 27

    Table of Contents

    Tenet Healthcare Corporation
    CEO Compensation

                                                                       
    Proxy Barbakow Barbakow Barbakow Option Option Vesting Options Options
    Year Shares Options Options Price Expires
    		Exercisable Unexercisable
    		Owned Exercised Added Added
    1994 19,100 — 2,000,000 $ 9.500 6/1/03 1/3 annually — 2,098,000
    98,000 $ 11.625 12/1/03 5/31/96
    1995 19,400 — 500,000 $ 13.875 1/22/05 1/3 annually 666,666 1,931,334
    1996 19,400 — — 1,597,999 1,000,001
    1997 22,450 — 900,000 $ 21.625 5/31/06 2/3 5/31/98 2,431,333 1,066,667
    Includes 3,050 held by minor sons. 1/3 5/31/99
    1998 52,450 — — 2,598,000 900,000
    Includes 3,050 held by minor sons.
    1999 164,550 — 1,500,000 $ 30.438 6/23/08 2/3 6/24/00 3,198,000 1,800,000
    Includes 11,350 held by minor sons.
    2000 1,152,013 — — 3,498,000 1,500,000
    Includes 12,180 held by minor sons.
    Option Recap $ 26.00 $ 27.00 $ 28.00 $ 30.00 $ 32.00
    2,000,000 $ 9.50 33,000,000 35,000,000 37,000,000 41,000,000 45,000,000
    98,000 $ 11.63 1,408,750 1,506,750 1,604,750 1,800,750 1,996,750
    500,000 $ 13.88 6,062,500 6,562,500 7,062,500 8,062,500 9,062,500
    900,000 $ 21.63 3,937,500 4,837,500 5,737,500 7,537,500 9,337,500
    1,500,000 $ 30.44 2,343,000
    $ 44,408,750 $ 47,906,750 $ 51,404,750 $ 58,400,750 $ 67,739,750
    Cash Comp $ 15,556,506 $ 15,556,506 $ 15,556,506 $ 15,556,506 $ 15,556,506
    7 Yr Comp $ 59,965,256 $ 63,463,256 $ 66,961,256 $ 73,957,256 $ 83,296,256

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    Tenet Healthcare Corporation
    CEO Compensation

                                                     
    Salary Bonus Other Total All Cost
    		Cash Other for CEO
    Comp Comp Personal
    1994 $ 850,000 $ 892,500 $ 110,000 $ 1,852,500 $ 3,647 $ 43,700
    1995 $ 900,000 $ 574,560 $ 125,813 $ 1,600,373 $ 43,554 $ 36,535
    1996 $ 945,000 $ 1,165,707 $ 61,933 $ 2,172,640 $ 58,747 $ 55,710
    1997 $ 992,250 $ 1,262,947 $ 64,950 $ 2,320,147 $ 66,557 $ 57,982
    1998 $ 1,091,475 $ 1,627,190 $ 78,420 $ 2,797,085 $ 77,404 $ 42,884
    1999 $ 1,091,475 $ 671,257 $ 59,318 $ 1,822,050 $ 89,008 $ 36,421
    2000 $ 1,124,000 $ 1,802,115 $ 65,596 $ 2,991,711 $ 64,471 $ 47,290

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    Tenet Healthcare Corporation

    Accounts Receivable Analysis

                             
    Year Revenue A/R DSO
    ($ Millions) ($ Millions)
    1994 2,967 385 47.4
    1995 3,318 565 62.2
    1996 5,559 838 55.0
    1997 8,691 1,346 56.5
    1998 9,895 1,742 64.3
    1999 10,880 2,318 77.8
    2000 11,414 2,506 80.1

    Change from Base Year to Q3-F00

                             
    F2000 DSO Change
    1996 80.1 55.0 25.1
    1997 80.1 56.5 23.6
    1998 80.1 64.3 15.9
    1999 80.1 77.8 2.4

    Cash Required to Fund A/R Increase from Base Year
    Using F2000 Revenues of $11.414 Billion
    ($ in Millions)

             
    1996 $ 785.4
    1997 $ 738.2
    1998 $ 496.6
    1999 $ 74.2

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    Tenet Healthcare

    Schedule of Non-Recurring Charges

                                     
    ($ Millions) Restructuring Asset Discontinued Extraordinary
    		Charges Impairment Operations Charge
    Pre-Tax Pre-Tax After-Tax After-Tax
    Fiscal 1994
    Sell Santa Monica headquarters building (77 )
    Discontinued Psychiatric Operations (701 )
    Fiscal 1995
    Move Operational Offices to Dallas and AMI severance (37 )
    Discontinued Psychiatric Operations (9 )
    Early Retirement of Debt (20 )
    Fiscal 1996
    Impairment losses on asset values (86 )
    Discontinued Psychiatric Operations (25 )
    Early Retirement of Debt (23 )
    Fiscal 1997
    OrNda Merger Charge (188 )
    Asset impairment of THC and OrNda Hospitals (353 )
    Goodwill write-off of physician practices (60 )
    Restructuring physician practices (18 )
    Discontinued Psychiatric Operations (134 )
    Early Retirement of Debt (47 )
    Prior Period Adjustments (F94/95/96) (10 )
    Fiscal 1998
    Plan to sell or close hospitals (160 )

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    Tenet Healthcare
    Schedule of Non-Recurring Charges

                                     
    ($ Millions) Restructuring Asset Discontinued Extraordinary
    		Charges Impairment Operations Charge
    Pre-Tax Pre-Tax After-Tax After-Tax
    Write-off of goodwill for physician practice (41 )
    Impairment of hospital assets (20 )
    Early Retirement of Debt (117 )
    Fiscal 1999
    Plan to sell or close hospitals (277 )
    Impairment of physician practice assets (38 )
    Cost reduction plans (48 )
    Fiscal 2000
    Impairment of physician practice assets (177 )
    Plan to sell or close hospitals (178 )
    Discontinued Psychiatric Operations (19 )
    Fiscal 1994 - 2000 Totals (378 ) (1,390 ) (888 ) (207 )
    Taxes @ 40% 151 556
    After-Tax Charges (227 ) (834 ) (888 ) (207 )
    TOTAL After-Tax Charges / Write-Offs (2,156 )

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    Tenet Healthcare Corporation
    Shareholder Votes Ignored by Board

          Vote at the 1999 Annual Shareholder Meeting

    Declassification of the Company’s Board of Directors
    Result: Board Ignored Shareholders

                             
    Votes % Voting % Total
    For Declassification 163,346,307 62.2 % 61.9 %
    Against Declassification 99,455,258 37.8 % 37.7 %
    Abstaining 1,031,322 0.4 %
    263,832,887 100.0 % 100.0 %

    Eliminate Shareholder’s Rights Plan
    Result: Board Redeemed Rights

                             
    Votes % Voting % Total
    For Elimination 200,284,495 76.3 % 75.9 %
    Against Elimination 62,332,407 23.7 % 23.6 %
    Abstaining 1,215,985 0.5 %
    263,832,887 100.0 % 100.0 %
    Percentage of Votes AGAINST Incumbent Directors 8.78 %

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    Tenet Healthcare Corporation

    Shareholder Votes Ignored by Board

          Vote at the 1998 Annual Shareholder Meeting

    Declassification of the Company’s Board of Directors
    Result: Board Ignored Shareholders

                             
    Votes % Voting % Total
    For Declassification 187,596,345 72.9 % 71.1 %
    Against Declassification 69,771,022 27.1 % 26.4 %
    Abstaining 1,481,280 0.6 %
    258,848,647 100.0 % 98.1 %
    Percentage of Votes AGAINST Incumbent Directors 0.77 %

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    Table of Contents

    WHY SANTA BARBARA?

    Answer: CEO Barbakow Wants To Live There

    Mr. Mackey “Had To” Relocate to Santa Barbara

             
    Cost? $ 557,485

    Mr. Fetter “Had To” Relocate to Santa Barbara

             
    Cost? $ 645,110

    Mr. Brown “Had To” Relocate to Santa Barbara

             
    Cost? $ 30,289

    Mr. Mathiasen “Had To” Relocate to Santa Barbara

             
    Cost? $ 61,331

    Disconnect Between Corporate and Hospital Operations

    Encourages Corporate Air Force

    Encourages Culture of Corporate Waste; Focus on resort lifestyle rather than operating hospitals

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    Tenet Healthcare Corporation

                                                                     
    Income Statement
    Years as Originally Reported
    ($ in millions, except per share) 1993 1994 1995 1996 1997 1998 1999 2000
    Net operating revenues 3,191 2,967 3,318 5,559 8,691 9,895 10,880 11,414
    Salaries and benefits 1,367 2,194 3,595 4,052 4,412 4,508
    Supplies 432 764 1,197 1,375 1,525 1,595
    Provision for doubtful accounts 137 290 498 588 743 851
    Other operating expenses 2,680 2,415 759 1,212 1,878 2,071 2,342 2,525
    Operating Expenses 2,680 2,415 2,695 4,460 7,167 8,086 9,022 9,479
    EBITDA 511 552 623 1,099 1,524 1,809 1,858 1,935
    Depreciation 160 161 164 240 335 347 421 411
    Amortization     31 81 108 113 135 122
    EBIT 351 391 428 778 1,081 1,349 1,302 1,402
    Net Interest expense (income) 75 70 138 312 417 464 485 479
    Operating Income 276 321 290 466 664 885 817 923
    Investment earnings 21 28 27 22 26 22 27 22
    Impairment charges (77 ) (37 ) (86 ) (619 ) (221 ) (363 ) (355 )
    Gain (Loss) on Asset Sales 122 88 30 346 (18 ) (17 ) 49
    Equity in unconsolidated sub 28 20 1
    Minority interests consol sub (9 ) (22 ) (27 ) (22 ) (7 ) (21 )
    Pretax income 419 360 329 746 26 647 474 618
    Income taxes 155 144 135 348 89 269 225 278
    Net income - Continuing Operations 264 216 194 398 (63 ) 378 249 340
    Discontinued operations (net of tax) (104 ) (701 ) (9 ) (25 ) (134 ) (19 )
    Extraordinary Item (net of tax) 60 (20 ) (23 ) (47 ) (117 ) (19 )
    Net Income 160 (425 ) 165 350 (244 ) 261 249 302
    EPS Operations $ 1.01 $ 0.93 $ 1.08 $ 1.34 $ 1.43 $ 1.72 $ 1.64 $ 1.81
    Impairment & Asset Sale Impact $ 0.48 $ 0.29 $ (0.02 ) $ 0.51 $ (1.64 ) $ (0.50 ) $ (0.85 ) $ (0.84 )
    EPS, After Impairment $ 1.49 $ 1.23 $ 1.06 $ 1.86 $ (0.21 ) $ 1.21 $ 0.79 $ 0.97
    EPS, After Discontinued & Extraordinary Items $ 0.91 $ (2.54 ) $ 0.91 $ 1.63 $ (0.80 ) $ 0.84 $ 0.79 $ 0.96
    Pretax - Operations 297 349 336 486 663 885 837 924
    Taxes - Operations 119 140 138 199 272 350 322 360
    Net Income - Operations 178 209 198 287 391 535 515 564
    EPS - Fully Diluted - Operations $ 1.01 $ 1.19 $ 1.08 $ 1.34 $ 1.29 $ 1.72 $ 1.64 $ 1.79

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    1993 1994 1995 1996 1997 1998 1999 2000
    Primary Shares Outstanding 166.1 167.0 176.8 209.5 303.9 306.3 310.1 312.0
    Fully Diluted Shares Outstanding 180.5 181.1 190.1 216.7 304.2 312.1 313.4 314.9
    Expense Ratios:
    Salaries and benefits 41.2 % 39.5 % 41.4 % 40.9 % 40.6 % 39.5 %
    Supplies 13.0 % 13.7 % 13.8 % 13.9 % 14.0 % 14.0 %
    Provision for doubtful accounts 4.1 % 5.2 % 5.7 % 5.9 % 6.8 % 7.5 %
    Other operating expenses 22.9 % 21.8 % 21.6 % 20.9 % 21.5 % 22.1 %
    Operating Expenses 81.2 % 80.2 % 82.5 % 81.7 % 82.9 % 83.0 %
    EBITDA Margin 16.0 % 18.6 % 18.8 % 19.8 % 17.5 % 18.3 % 17.1 % 17.0 %
    Depreciation 5.0 % 5.4 % 4.9 % 4.3 % 3.9 % 3.5 % 3.9 % 3.6 %
    Amortization 0.9 % 1.5 % 1.2 % 1.1 % 1.2 % 1.1 %
    EBIT Margin 11.0 % 13.2 % 12.9 % 14.0 % 12.4 % 13.6 % 12.0 % 12.3 %
    Interest Expense 2.4 % 2.4 % 4.2 % 5.6 % 4.8 % 4.7 % 4.5 % 4.2 %
    Operating Margin 8.6 % 10.8 % 8.7 % 8.4 % 7.6 % 8.9 % 7.5 % 8.1 %
    Pretax Margin 13.1 % 12.1 % 9.9 % 13.4 % 0.3 % 6.5 % 4.4 % 5.4 %
    Tax Rate 37.0 % 40.0 % 41.0 % 46.6 % 342.3 % 41.6 % 47.5 % 45.0 %

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    Tenet Healthcare Corporation
    Cash Flow Statement

                                                                       
    ($ in millions, except per share) 1993 1994 1995 1996 1997 1998 1999 2000
    Cash Flow from Operations
    Net income (425 ) 165 350 (244 ) 261 249 302
    Depreciation & amortization 198 195 321 443 460 556 533
    Doubtful accounts 494 588 743 851
    Deferred taxes (253 ) 95 243 (200 ) 131 101 2
    Discontinued operations 856 (356 ) 53 955 (47 ) 288 (91 )
    Net loss (gain) on divestitures (88 ) (30 ) (346 ) 18 17 358
    Working capital (119 ) (70 ) (438 ) (1,135 ) (1,028 ) (1,372 ) (1,086 )
    Change in short/current debt
    Other (22 ) (6 ) 12 73 21 17
    Cash provided from Operations 147 (7 ) 195 404 403 582 869
    Cash Flow from Investing
    Proceeds from asset sales 569 172 548 50 170 72 764
    Hospital acquisitions (5 ) (1,429 ) (410 ) (787 ) (679 ) (646 ) (38 )
    Capital expenditures (185 ) (264 ) (370 ) (406 ) (534 ) (592 ) (619 )
    Increase in intangible assets (24 )
    Collection of notes receivable 100
    Other investing activity (69 ) 8 (36 ) 18 (40 ) 19 (143 )
    Cash provided from investing 386 (1,513 ) (268 ) (1,125 ) (1,083 ) (1,147 ) (36 )
    Cash Flow From Financing
    Bank borrowings (337 ) 1,354 (226 ) 605 587 549 (787 )
    Proceeds other borrowings
    Payment other borrowings
    Cash dividends (40 ) 30
    Equity sold 203 71 97 36 45
    Other 16 8 (23 ) (16 ) (14 ) 15
    Cash provided by financing (361 ) 1,362 7 653 668 571 (727 )
    Net Cash Flow 172 (158 ) (66 ) (68 ) (12 ) 6 106
    Beginning Cash 141 313 155 103 35 23 29
    Ending Cash 313 155 89 35 23 29 135

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    Tenet Healthcare Corporation
    Balance Sheet

                                                                       
    ($ in millions, except per share) 1993 1994 1995 1996 1997 1998 1999 2000
    Assets
    Current Assets:
    Cash 141 313 155 89 35 23 29 135
    Short-term investments 98 60 139 112 116 132 130 110
    Accounts Receivable 502 385 565 838 1,346 1,742 2,318 2,506
    Inventories of supplies 62 55 116 128 193 214 221 223
    Deferred income taxes 120 372 410 279 294 275 196 176
    Assets held for sale 56 204 184 39 655 132
    Prepaid expenses 89 55 55 60 407 504 413 312
    Total current assets 1,068 1,444 1,624 1,545 2,391 2,890 3,962 3,594
    Investments 395 382 362 518 657 515 569 344
    PP&E, net 2,492 1,764 3,319 3,648 5,459 6,014 5,839 5,894
    Intangible assets 218 107 2,613 2,621 3,099 3,414 3,401 3,329
    4,173 3,697 7,918 8,332 11,606 12,833 13,771 13,161
    Liabilities and Stockholders’ Equity
    Current Liabilities:
    Current LTD 121 545 252 60 28 10 45 9
    Short-term borrowings 163 67 35
    Accounts payable 140 176 359 380 540 657 713 671
    Accrued employee compensation 104 93 162 120 309 355 390 383
    Accrued interest payable 68 144 106 163 155
    Income taxes payable 30 58 2 33
    Other current liabilities 355 701 546 473 749 639 711 694
    Total current liabilities 913 1,640 1,356 1,134 1,770 1,767 2,022 1,912
    LTD 892 223 3,273 3,191 5,022 5,829 6,391 5,668
    Other Liabilities & minority interest 299 389 1,002 977 1,282 1,256 1,048 1,024
    Deferred income taxes 317 125 301 394 308 423 440 491
    Shareholders’ Equity 1,752 1,320 1,986 2,636 3,224 3,558 3,870 4,066
    4,173 3,697 7,918 8,332 11,606 12,833 13,771 13,161

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    1993 1994 1995 1996 1997 1998 1999 2000
    ROA —Operations 5.3 % 3.4 % 3.5 % 3.9 % 4.4 % 3.9 % 4.2 %
    ROC —Operations 10.0 % 5.8 % 5.2 % 5.6 % 6.1 % 5.2 % 5.6 %
    ROE —Operations 13.6 % 12.0 % 12.4 % 13.4 % 15.8 % 13.9 % 14.2 %
    ROA —Total -10.8 % 2.8 % 4.3 % -2.4 % 2.1 % 1.9 % 2.2 %
    ROC —Total -20.3 % 4.9 % 6.3 % -3.5 % 3.0 % 2.5 % 3.0 %
    ROE —Total -27.7 % 10.0 % 15.1 % -8.3 % 7.7 % 6.7 % 7.6 %
    LTD : Equity 0.51 0.17 1.65 1.21 1.56 1.64 1.65 1.39
    Total Debt : Equity 0.67 0.63 1.79 1.23 1.57 1.64 1.66 1.40
    Total Debt : EBITDA 2.30 1.51 5.71 2.96 3.31 3.23 3.46 2.93
    Interest Coverage 6.81 7.89 4.51 3.52 3.65 3.90 3.83 4.04
    Cost of Debt Capital 7.9 % 6.4 % 9.2 % 10.0 % 8.5 % 7.9 % 7.9 %
    EBITDA / Share $ 3.08 $ 3.30 $ 3.52 $ 5.25 $ 5.01 $ 5.91 $ 5.99 $ 6.20
    EBITDA / Share Growth 7.4 % 6.6 % 48.9 % -4.4 % 17.8 % 1.5 % 3.5 %
    EBITDA Margin 16.0 % 18.6 % 18.8 % 19.8 % 17.5 % 18.3 % 17.1 % 17.0 %
    D&A % Revenue 5.0 % 5.4 % 5.9 % 5.8 % 5.1 % 4.6 % 5.1 % 4.7 %
    EBIT Margin 11.0 % 13.2 % 12.9 % 14.0 % 12.4 % 13.6 % 12.0 % 12.3 %
    Interest % Revenue 2.4 % 2.4 % 4.2 % 5.6 % 4.8 % 4.7 % 4.5 % 4.2 %
    Pretax Margin 13.1 % 12.1 % 9.9 % 13.4 % 0.3 % 6.5 % 4.4 % 5.4 %
    Revenue Growth -7.0 % 11.8 % 67.5 % 56.3 % 13.9 % 10.0 % 4.9 %
    EBITDA Growth 8.0 % 12.9 % 76.4 % 38.6 % 18.7 % 2.7 % 4.1 %
    EPS Growth -379.0 % -135.7 % 80.0 % -149.1 % -204.2 % -5.0 % 20.7 %
    Capital Expenditures : Depreciation 1.21 1.54 1.41 1.51
    Employees 38,800 69,050 64,680 105,000 116,800 125,950 105,989
    Regional / Divisional / Home Office Empl 900 700 680 800 1,130 1,450 853
    Revenue / Employee 76 48 86 83 85 86 108
    EBITDA / Employee 14 9 17 15 15 15 18
    Cash Flow Operations / Revenues 5.0 % -0.2 % 3.5 % 4.6 % 4.1 % 5.3 % 7.6 %
    Cash Flow Operations —Cap Ex / Revenues -1.3 % -8.2 % -3.1 % 0.0 % -1.3 % -0.1 % 2.2 %
    Stock Price 5/31 9.500 16.375 16.625 21.500 27.500 35.000 24.500 25.625
    Stockholder Annual Return 72.4 % 1.5 % 29.3 % 27.9 % 27.3 % -30.0 % 4.6 %
    3 Year Return 126.3 % 67.9 % 110.5 % 14.0 % -6.8 %
    4 Year Return 189.5 % 113.7 % 47.4 % 19.2 %
    5 Year Return 268.4 % 49.6 % 54.1 %
    Net A/R DSO 57.4 47.4 62.2 55.0 56.5 64.3 77.8 80.1
    Change from Last Year (10.1 ) 14.8 (7.1 ) 1.5 7.7 13.5 2.4
    Change from 3 Years Ago (2.4 ) 9.2 2.1 22.7 23.6
    Cash Cost of 3 Year Change 678 738

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    HCA - The Healthcare Company

    Income Statement
                                                                       
    1993 1994 1995 1996 1997 1998 1999 2000
    Years as Originally Reported
    ($ in millions, except per share)
     
    Revenues 11,132 17,695 19,909 18,819 18,681 16,657 16,504
     
    Salaries wages and benefits 4,545 7,101 7,842 7,631 7,811 6,749 6,575
    Supplies 1,686 2,558 2,694 2,722 2,901 2,645 2,625
    Other operating expenses 2,059 3,418 4,025 4,263 3,771 3,196 3,067
    Provision for doubtful accounts 628 998 1,212 1,420 1,442 1,289 1,208
    Equity in earnings of affiliates (100 ) (173 ) (68 ) (112 ) (90 ) (115 )
    EBITDA 2,214 3,720 4,309 2,851 2,868 2,888 3,144
     
    Depreciation and Amortization 609 981 1,155 1,238 1,247 1,094 1,024
    EBIT 1,605 2,739 3,154 1,613 1,621 1,794 2,120
     
    Interest expense (net) 186 460 498 493 561 471 513
    Merger and facility consolidation costs 387 0 (91 ) 0
    Minority interests consol sub 29 113 141 150 70 57 95
    Non-recurring transactions 159 0 0 582 0 39 782
    Income from conl. ops. (before tax) 1,231 1,779 2,515 388 1,081 1,227 730
     
    Provision for taxes 486 715 1,010 206 549 570 344
    Income from continuing operations 745 1,064 1,505 182 532 657 386
     
    Extra. loss on debt/Discon. Oper. (115 ) 0 0 (487 ) (153 ) 0
    Net Income 630 1,064 1,505 (305 ) 379 657 386
     
    EPS Continuing Operations $ 1.43 $ 1.58 $ 2.22 $ 0.28 $ 0.82 $ 1.12 $ 0.68
    EPS, Investigation Charges $ — $ — $ — $ — $ — $ —
    Discontinued operations $ (0.22 ) $ — $ — $ (0.74 ) $ (0.23 ) $ — $ —
    EPS, Fully Diluted $ 1.21 $ 1.58 $ 2.22 $ (0.46 ) $ 0.59 $ 1.11 $ 0.68
     
    Operating Pretax 1,390 2,166 2,515 970 990 1,266 1,512
    Operating Net 834 1,300 1,509 582 594 760 907
    Operating EPS $ 1.61 $ 1.93 $ 2.23 $ 0.88 $ 0.92 $ 1.30 $ 1.61
     
    Basic Shares Outstanding 519 673 678 663 643 585 563
    Fully Diluted Shares Outstanding 525 0 0 663 648 591 567
     
    Expense Ratios:
    Salaries wages and benefits 40.8 % 40.1 % 39.4 % 40.5 % 41.8 % 40.5 % 39.8 %
    Supplies 15.1 % 14.5 % 13.5 % 14.5 % 15.5 % 15.9 % 15.9 %
    Other operating expenses 18.5 % 19.3 % 20.2 % 22.7 % 20.2 % 19.2 % 18.6 %
    Provision for doubtful accounts 5.6 % 5.6 % 6.1 % 7.5 % 7.7 % 7.6 % 7.3 %
    EBIT Margin 14.4 % 15.5 % 15.8 % 8.6 % 8.7 % 10.8 % 12.6 %

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    Depreciation and amortization %ppe 5.5% 5.5% 5.8% 6.6% 6.7% 6.6% 6.2%
    Tax Rate 39.5% 40.2% 40.2% 53.1% 50.8% 46.5% 47.2%
    EBITDA Margin excl equity earnings 19.9% 20.5% 20.8% 14.8% 14.8% 16.8% 18.4%
    EBITDA Margin 19.9% 21.0% 21.6% 15.1% 15.4% 17.3% 19.0%

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    HCA — The Healthcare Company

    Cash Flow Statement
    ($ in millions, except per share)
                                                                   
    Cash Flow From Operations: 1993 1994 1995 1996 1997 1998 1999 2000E
    Net income 630 961 1,505 (305 ) 379 657 386
    Provision for doubtful accounts 0 0 1,420 1,442 1,269 1,202
    Minority interests 29 71 0 0 0
    Depreciation & amortization 609 981 1,155 1,238 1,247 1,094 1,024
    Merger/facility consolidation costs 159 302 (66 ) 873 (49 ) (77 ) 0
    Amortization debt discount 26 0 0 0 0
    Non cash taxes (39 ) 15 0 (163 ) 351 (66 ) 163
    Extra, loss on debt refinancing 187 170 0 56 0 0
    Working capital charges (279 ) (275 ) (110 ) (1,640 ) (1,445 ) (1,692 ) (870 )
    Other (21 ) 29 137 4 (9 ) 38 13
    Cash Flow From Operations 1,301 2,254 2,621 1,483 1,916 1,223 1,823
     
    Cash Flow From Investing
     
    Proceeds from asset sales 86 334 166 212 2,060 805 38
    Hospital Acquisitions (107 ) (1,333 ) (816 ) (411 ) (215 ) 0 (18 )
    Capital expenditures (975 ) (1,527 ) (1,400 ) (1,422 ) (1,255 ) (1,287 ) (1,022 )
    Investments in/advances to affiliates (226 ) (609 ) (61 ) (29 ) 383 886 0
    Other investing activity (116 ) (283 ) (159 ) (36 ) (3 ) 521 (198 )
     
    Other (182 ) 19 (1,060 ) 0 0 0
     
    Cash Flow From Investing (1,338 ) (3,600 ) (2,251 ) (2,746 ) 970 925 (1,200 )
     
    Cash Flow From Financing
     
    Debt Paid Restructure (146 ) 0 0 0 0
    Stock Used in Acquisitions 0 0 0 0
    Equity Issued 18 42 0 8 0 0
    Issuance of LTD 2,257 459 2,384 (2,658 ) 1,037 1,200
    Payments LTD (1,969 ) (303 ) (1,572 ) (550 )
    Borrowing under revolver 1,230 (579 ) 200 (897 )
    Payment of Dividends (36 ) (50 ) (54 ) (53 ) (52 ) (44 ) (56 )
     
    Other (8 ) 0 (12 ) 11 3 8 24
     
    Purchase Treasury Stock 0 0 (1,082 ) 0 (1,884 ) (242 )
     
    Cash Flow From Financing (174 ) 1,510 (489 ) 1,260 (2,699 ) (2,255 ) (521 )
     
    Net Cash Flow (211 ) 164 (119 ) (3 ) 167 (107 ) 102
     
    Beginning Cash 224 68 232 113 110 124 292
    Ending Cash 13 232 113 110 297 190 292

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    HCA —The Healthcare Company
    Balance Sheet

                                                                       
    ($ in millions, except per share) 1993 1994 1995 1996 1997 1998 1999 2000E
    Current Assets
    Cash 13 232 113 110 297 190 292
    Accounts Receivable 1,747 2,665 3,023 2,522 2,096 1,873 1,937
    Inventories of supplies 285 406 441 452 434 383 360
    Deferred income taxes 113 0 532 149 178 180
    Other 505 784 836 807 887 973 901
    Total Current Assets 2,550 4,200 4,413 4,423 3,863 3,597 3,671
    Investments 888 2,092 2,412 2,751 2,889 2,111 2,192
    PP&E, net 6,383 9,751 10,399 10,230 9,449 8,490 8,830
    Intangible assets 2,269 3,497 3,709 3,521 2,910 2,319 2,341
    Other 249 352 339 1,077 318 368 388
    12,339 19,892 21,272 22,002 19,429 16,885 17,422
    Current Liabilities
    Current LTD 77 243 201 132 1,068 1,160 691
    Accounts payable 503 829 845 929 784 657 676
    Salaries, wages, and other compensation 277 520 453 475 425 403 360
    Other current liabilities 910 1,146 1,320 1,237 1,282 1,112 1,802
    Income taxes 0 127 0 0 0 0
    Total Current Liabilities 1,767 2,738 2,946 2,773 3,559 3,332 3,529
    LTD 3,853 7,137 6,781 9,276 5,685 5,284 5,776
    Deferred credits and other liabilities 1,439 2,166 2,100 1,867 1,839 1,889 1,667
    Deferred income taxes 258 722 836 836 765 763 739
    Minority interest 5,022 7,129 8,609 7,250 7,581 5,617 5,711
    Shareholder Equity 12,339 19,892 21,272 22,002 19,429 16,885 17,422

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    1993 1994 1995 1996 1997 1998 1999 2000E
    ROA - Operations 8.1% 7.3% 2.7% 2.9% 4.2% 5.3%
    ROC - Operations 11.2% 10.2% 3.6% 4.0% 6.3% 8.1%
    ROE - Operations 21.4% 19.2% 7.3% 8.0% 11.5% 16.0%
     
    ROA - Total 6.6% 7.3% -1.4% 1.8% 3.6% 2.3%
    ROC - Total 9.2% 10.1% -1.9% 2.5% 5.4% 3.4%
    ROE - Total 17.5% 19.1% -3.8% 5.1% 10.0% 8.8%
     
    LTD : Equity 0.77 1.00 0.79 1.28 0.75 0.94 1.01
    Total Debt : Equity 0.78 1.04 0.81 1.30 0.89 1.15 1.13
    Total Debt : EBITDA 1.78 1.98 1.62 3.30 2.35 2.23 2.06
    Interest Coverage 11.90 8.09 8.65 5.78 5.11 6.13 6.13
    Cost of Debt Capital 8.1% 6.9% 6.0% 6.9% 7.1% 7.9%
     
    EBITDA / Share $ 4.26 $ 5.53 $ 6.36 $ 4.30 $ 4.46 $ 4.93 $ 5.58
    EBITDA / Share Growth 29.6% 15.0% -32.4% 3.7% 10.7% 13.1%
    EBITDA Margin 19.9% 21.0% 21.6% 15.1% 15.4% 17.3% 19.0%
    D&A % Revenue 5.5% 5.5% 5.8% 6.6% 6.7% 6.6% 6.2%
    EBIT Margin 14.4% 15.5% 15.8% 6.6% 8.7% 10.8% 12.8%
    Interest % Revenue 1.7% 2.6% 2.5% 2.6% 3.0% 2.8% 3.1%
    Pretax Margin 11.1% 10.1% 12.6% 2.1% 5.8% 7.4% 4.4%
     
    Revenue Growth 59.0% 12.5% -5.5% -0.7% -10.8% -0.9%
    EBITDA Growth 68.0% 15.8% -33.8% 0.6% 0.7% 8.9%
    EPS Growth 10.2% 40.4% -87.4% 192.9% 36.6% -39.2%
     
    Capital Expenditures : Depreciation 1.56 1.21 1.15 1.01 1.18 1.00
    Employees 295,000 260,000 168,000 165,000
    Regional / Divisional / Home Office Empl
    Revenue / Employee 64 72 99 100
    EBITDA / Employee 10 11 17 19
     
    Cash Flow Operations / Revenues 12.7% 13.2% 7.9% 10.3% 7.3% 11.0%
    Cash Flow Operations - Cap Ex / Revenues 4.1% 6.1% 0.3% 3.5% -0.4% 4.9%
     
    Stock Price 12/31 22.083 24.333 33.833 40.750 29.625 24.750 29.312 31.750
    Stockholder Annual Return 10.2% 39.0% 20.4% -27.3% -16.5% 18.4% 8.3%
    3 Year Return 84.5% 21.7% -26.8% -28.1% 7.2%
    4 Year Return 34.2% 1.7% -13.4% -22.1%
    5 Year Return 12.1% 20.5% -6.2%
     
    Net A/R DSO 57.3 55.0 55.4 48.9 41.0 41.0 42.8
    Change from Last Year (2.3 ) 0.5 (6.5 ) (8.0 ) 0.1 1.8
    Change from 3 Years Ago (8.4 ) (14.0 ) (14.4 ) (6.1 )
    Cash Cost of 3 Year Change (656 ) (274 )

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    Universal Health Services

    Income Statement
                                                                         
    1993 1994 1995 1996 1997 1998 1999 2000E
    Years as Originally Reported
    ($ in millions, except per share)
     
    Net revenues 782 931 1,190 1,443 1,874 2,042 2,131
     
    Operating Charges:
    Operating expenses 643 771 458 575 753 829 853
    Salaries & wages 0 0 421 514 671 729 773
    Provision for doubtful accounts 0 0 97 109 140 166 172
    EBITDAR 139 161 215 244 311 319 333
    Lease and rental expense 34 36 37 38 47 49 48
    Nonrecurring charges 10 9 4 0 0 5 0
    EBITDA 96 116 173 206 265 264 284
     
    Depreciation and amortization 42 51 72 81 105 108 102
    EBITDA 53 64 101 125 159 156 183
     
    Interest expense 6 11 21 19 27 27 32
    Minority interest 0 0 0 0 9 6 12
     
    Income before income taxes 47 53 80 106 123 123 139
    Provision for income taxes 16 18 29 39 43 45 50
    Net income 29 35 51 67 80 78 89
    Net Income Excluding Extraordinary Charges 0 0 0 67 81 78 89
     
    E.P.S. — Fully Diluted $ 1.00 $ 1.26 $ 1.64 $ 2.03 $ 2.39 $ 2.43 $ 2.91
    E.P.S. — Fully Diluted excluding extraordinary charges $ — $ — $ — $ 2.03 $ 2.44 $ 2.43 $ 2.91
     
    Shares Outstanding - Primary 29 28 31 33 33 31 30
    Shares Outstanding - Fully Diluted 0 0 0 33 33 32 31
    Operating Pretax 57 62 84 106 123 128 139
    Operating Net 36 39 53 67 78 81 88
    Operating EPS $ 1.25 $ 1.40 $ 1.73 $ 2.03 $ 2.40 $ 2.59 $ 2.93
    Margin Analysis
    Operating Expenses 0.0% 0.0% 38.5% 39.9% 40.2% 40.6% 40.0%
    Salaries & wages 0.0% 0.0% 35.3% 35.7% 35.8% 35.7% 36.3%
    Provision for doubtful accounts 0.0% 0.0% 8.1% 7.5% 7.4% 8.1% 8.1%
    EBITDAR 17.8% 17.2% 18.0% 16.9% 16.6% 15.6% 15.6%
    Lease and rental expense 4.4% 3.9% 3.1% 2.7% 2.5% 2.4% 2.3%
    EBITDA 12.2% 12.4% 14.6% 14.3% 14.1% 12.9% 13.3%
    Depreciation and amortization 5.4% 5.5% 6.0% 5.6% 5.6% 5.3% 4.8%
    Tax Rate 38.8% 33.0% 36.7% 36.5% 35.3% 36.7% 35.8%
    D&A as % PPE 6.7% 6.8% 7.3% 7.1% 7.1% 7.3% 8.0%

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    Universal Health Services

    Cash Flow Statement
    ($ in thousands, except per share)
                                                                       
    1993 1994 1995 1996 1997 1998 1999 2000E
    Cash Flows from Operating Activities:
    Net income 29 35 51 67 80 78 89
    Adjustments to reconcile net income to net cash provided by operating activities:  0 0 0 0 0 0
    Depreciation & amortization 42 51 72 61 105 108 102
    Provision for self-insurance reserves 11 14 16 19 9 6 16
    Reserve for loss on disposition of businesses 0 0 0 0 0 5 0
    Other non cash charges 10 12 4 0 0 0 0
    Changes in assets & liabilities, net of effects from acquisitions and dispositions:  0 0 0 0 0 0 0
    Accounts receivable (4 ) (5 ) (0 ) (15 ) (21 ) (38 ) (32 )
    Accrued interest (1 ) 3 (1 ) (3 ) 0 (0 ) (4 )
    Accrued and deferred income taxes (10 ) (21 ) 16 7 0 (3 ) 15
    Other working capital accounts 2 11 3 34 (2 ) 32 (11 )
    Other assets and deferred charges (3 ) (4 ) (5 ) 6 1 10 4
    Other (0 ) 3 (3 ) 6 1 10 4
    Payments made in settlement of self insurance claims (15 ) (6 ) (8 ) (16 ) (14 ) (18 ) (3 )
     
    Net cash provided by operating activities 61 92 145 158 143 176 200
     
    Cash Flows from Investing Activities:
     
    Property and equipment additions (44 ) (61 ) (106 ) (144 ) (97 ) (68 ) (130 )
    Disposition of assets 1 2 2 4 11 16 3
    Acquisition of property previously leased (6 ) 0 0 0 0 0 0
    Acquisition of businesses (17 ) (166 ) (158 ) (191 ) (189 ) (32 ) (142 )
    Advances under long term notes receivable 0 0 (7 ) 0 0 0 0
    Acquisition of assets held for lease (9 ) (4 ) 0 0 0 0 0
    Disposition of businesses 4 19 0 0 0 0 0
    Other investments (1 ) 0 0 0 0 0 0
     
    Net cash used in investing activities (72 ) (230 ) (279 ) (331 ) (275 ) (83 ) (269 )
     
    Cash Flows from Financing Activities:
    Additional borrowings 45 149 42 0 0 15 0
    Reduction of long-term debt (22 ) (12 ) (8 ) 178 138 (16 ) 75
    Distribution to minority partners 0 0 0 0 0 (16 ) 0
    Issuance of common stock 1 1 100 1 1 3 0
    Repurchase of common stock (13 ) 0 0 0 (6 ) (71 ) (7 )
     
    Net cash provided by (used in) financing activities 11 138 134 180 133 (68 ) 68

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    1993 1994 1995 1996 1997 1998 1999 2000E
    Increase (Decrease) in cash and cash equivalents 0 (1 ) 0 8 1 5 (1 )
    Cash and cash equivalents, Beginning of Period 11 1 0 0 0 1 6
    Cash and cash equivalents, End of Period 11 0 0 8 1 6 6

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    Universal Health Services

    Balance Sheet
    ($ in thousands, except per share)
                                                                         
    Assets 1993 1994 1995 1996 1997 1998 1999 2000E
    Current Assets:
    Cash and cash equivalents 1 0 0 0 1 6 6
    Accounts receivable, net 85 114 145 180 256 307 338
    Supplies 16 18 22 28 39 41 43
    Deferred income taxes 13 19 12 11 11 27 0
    Other current assets 4 6 14 10 12 22 89
    Total current assets 118 157 194 230 320 403 475
     
    Property and equipment 597 618 840 992 1,205 1,215 935
    Less: accumulated depreciation (265 ) (225 ) (272 ) (329 ) (397 ) (436 ) (46 )
     
    Other assets:
    Excess of cost over fair value of net assets acquired 39 136 150 150 279 276 336
    Deferred charges 2 29 10 11 14 11 0
    Other 31 33 44 32 27 31 41
     
    Liabilities and Stockholders’ Equity 521 748 966 1,085 1,448 1,498 1,741
    Current liabilities:
    Current maturities of long term debt 7 7 7 6 4 4 1
    Accounts payable and accrued liabilities 92 126 132 153 156 214 230
    Federal and state taxes 4 2 1 2 10 0 76
    Total current liabilities 104 135 140 160 170 217 307
     
    Deferred income taxes 0 0 0 0 23 31 36
    Other noncurrent liabilities 72 78 97 126 210 189 128
    Long term debt, net of current maturities 85 237 276 272 418 419 553
     
    Common stockholders’ equity:
    Class A Common Stock, 2,057,929 shares 0 0 0 0 0 0 0
    outstanding in 1998, 2,059,929 in 1997 0 0 0 0 0 0 0
    Class B Common Stock, 29,901,218 shares 0 0 0 0 0 0 0
    outstanding in 1998, 30,122,479 in 1997 0 0 0 0 0 0 0
    Class C Common Stock, 207,230 shares 0 0 0 0 0 0 0
    outstanding in 1998, 207,230 in 1997 0 0 0 0 0 0 0
    Class D Common Stock, 28,786 shares 0 0 0 0 0 0 0
    outstanding in 1998, 32,063 shares in 1997 0 0 0 0 0 0 0
    Capital in excess of par, net of deferred compensation 0 0 0 0 0 0 0
    of $185 in 1998 and $295 in 1997 88 90 194 201 222 158 0
    Retained earnings 172 208 258 328 405 483 717
    261 298 453 527 627 642 717
    Total Liabilities & Equity 521 748 966 1,085 1,448 1,498 1,741

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    1993 1994 1995 1996 1997 1998 1999 2000E
    ROA — Operations 6.2% 6.2% 6.6% 6.2% 5.5% 5.4%
    ROC — Operations 8.9% 8.5% 8.8% 8.5% 7.7% 7.6%
    ROE — Operations 14.1% 14.2% 13.7% 13.5% 12.8% 13.0%
     
    ROA — Total 5.6% 5.9% 6.6% 6.3% 5.3% 5.5%
    ROC — Total 8.1% 8.0% 8.8% 8.6% 7.4% 7.6%
    ROE — Total 12.7% 13.5% 13.7% 13.8% 12.3% 13.1%
     
    LTD: Equity 0.33 0.80 0.61 0.52 0.67 0.65 0.77
    Total Debt: Equity 0.35 0.82 0.62 0.53 0.67 0.66 0.77
    Total Debt: EBITDA 0.97 2.11 1.63 1.35 1.60 1.60 1.95
    Interest Coverage 15.23 10.32 8.15 10.63 9.76 9.83 8.92
    Cost of Debt Capital 6.7% 8.1% 6.9% 7.7% 6.4% 6.5%
     
    EBITDA / Share $ 3.32 $ 4.10 $ 5.61 $ 6.22 $ 8.14 $ 8.41 $ 9.46
    EBITDA / Share Growth 23.6% 36.8% 10.8% 30.8% 3.3% 12.5%
    EBITDA Margin 12.2% 12.4% 14.6% 14.3% 14.1% 12.9% 13.3%
    D&A % Revenue 5.4% 5.5% 6.0% 5.6% 5.6% 5.3% 4.8%
    EBIT Margin 6.6% 6.9% 8.5% 8.7% 8.5% 7.6% 8.6%
    Interest % Revenue 0.8% 1.2% 1.8% 1.3% 1.4% 1.3% 1.5%
    Pretax Margin 6.0% 5.7% 6.7% 7.3% 6.6% 6.0% 6.5%
     
    Revenue Growth 19.0% 27.8% 21.2% 29.9% 9.0% 4.3%
    EBITDA Growth 15.1% 33.7% 13.8% 27.3% 2.4% 4.4%
    EPS Growth 26.3% 30.3% 23.7% 17.6% 1.7% 19.6%
     
    Capital Expenditures: Depreciation 1.04 1.18 1.47 1.78 0.92 0.62 1.28
    Employees 17,800 19,200 19,350 20,000
    Regional / Divisional / Home Office Employee
    Revenue / Employee 81 98 106 107
    EBITDA / Employee 12 14 14 14
     
    Cash Flow Operations / Revenues 7.8% 9.9% 12.2% 11.0% 7.6% 8.6% 9.4%
    Cash Flow Operations — Cap Ex / Revenues 2.1% 3.3% 3.3% 1.0% 2.5% 5.3% 3.3%
     
    Stock Price 12/31 10.125 12.250 22.188 28.625 50.375 51.875 36.000 67.938
    Stockholder Annual Return 21.0% 81.1% 29.0% 76.0% 3.0% -30.6% 88.7%
    3 Year Return 182.7% 311.2% 133.8% 25.8% 34.9%
    4 Year Return 397.5% 323.5% 62.3% 137.3%
    5 Year Return 412.3% 193.9% 206.2%
     
    Net A/R DSO 39.6 44.8 44.6 45.6 49.9 54.9 57.9
    Change from Last Year 5.2 (0.2 ) 1.0 4.3 5.0 2.9
    Change from 3 Years Ago 6.0 5.2 10.3 12.3
    Cash Cost of 3 Year Change 58 72

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    Health Management Associates

                                                                         
    Income Statement 1993 1994 1995 1996 1997 1998 1999 2000
    Years as Originally Reported
    ($ in millions, except per share)
     
    Net patient service revenues 438 531 714 895 1,139 1,356 1,620
     
    Costs and expenses
    Salaries and benefits 149 179 248 311 402 486 585
    Supplies and other 135 162 216 270 331 390 475
    Provision for doubtful accounts 40 48 65 77 96 130 140
    EBITDAR 114 141 185 238 307 349 420
    Rents 11 13 16 19 27 33 39
    Total operating expenses 336 403 545 677 858 1,039 1,239
    EBITDA 103 128 169 219 280 316 381
     
    Depreciation and amortization 17 21 27 37 50 61 76
    EBIT 86 108 142 182 230 255 304
     
    Interest expense 4 4 4 4 5 8 27
     
    Income before income taxes 82 104 138 178 225 247 278
    Provision for income taxes 33 41 54 70 88 97 109
    Cumulative effect of change in accounting for
    income taxes (3 ) 0 0 0 0 0 0
     
    Net income 47 63 84 108 137 150 169
     
    Net income per share: $ — $ — $ — $ — $ — $ — $ —
    Income before accounting change $ 0.21 $ 0.26 $ 0.34 $ 0.43 $ 0.54 $ 0.60 $ 0.70
    Accounting change $ (0.01 ) $ — $ — $ — $ — $ — $ —
     
    Net income per share $ 0.20 $ 0.26 $ 0.34 $ 0.43 $ 0.54 $ 0.60 $ 0.69
     
    Weighted average number of common shares
    and common equivalents shares outstanding 236 239 244 249 256 250 242
     
    Margin Analysis
    Salaries and benefits 34.1% 33.8% 34.7% 34.7% 35.3% 35.8% 36.1%
    Supplies and other 30.8% 30.5% 30.3% 30.1% 29.1% 28.8% 29.3%
    Provision for doubtful accounts 9.1% 9.1% 9.1% 8.6% 8.6% 9.6% 8.6%
    EBITDAR margin 26.0% 26.6% 25.9% 26.6% 27.0% 25.8% 25.9%
    Rents 2.6% 2.4% 2.3% 2.2% 2.4% 2.4% 2.4%
    Total operating expenses 76.5% 75.8% 76.3% 75.6% 75.4% 76.7% 76.5%
    EBITDA Margin 23.5% 24.2% 23.7% 24.4% 24.6% 23.3% 23.5%
    Depreciation 3.8% 3.9% 3.8% 4.1% 4.4% 4.5% 4.7%
    EBIT Margin 19.7% 20.3% 19.9% 20.3% 20.2% 18.8% 18.8%
    Pretax Margin 18.6% 18.6% 18.6% 18.6% 18.6% 18.6% 18.6%

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    Tax Rate 39.9 % 39.3 % 39.2 % 39.2 % 39.3 % 39.2 % 39.3 %
    Depreciation % of PP&E 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %

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    Health Management Associates
    Cash Flow Statement ($ in thousands)

                                                                         
    Cash Flows from Operating Activities: 1993 1994 1995 1996 1997 1998 1999 2000E
    Net Income 47 63 84 108 137 150 169
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation & amortization 17 21 27 37 50 61 76
    Cummulative effect of change in accounting for income taxes 3 0 0 0 0 0 0
    Loss on sale of fixed assets (0 ) 0 0 (0 ) (0 ) 0 0
    Decrease in Deferred and other income taxes (1 ) (1 ) 1 (0 ) 0 (5 ) 0
    Changes in assets & liabilities, net of effects from acquisitions and dispositions:
    Accounts receivable (21 ) (12 ) (20 ) (13 ) (50 ) (65 ) (17 )
    Increase in other current assets (1 ) (1 ) (1 ) (3 ) (28 ) (8 ) (81 )
    Deferred charges and other assets (3 ) (3 ) (7 ) (3 ) (4 ) 0 (7 )
    Accounts payable 1 6 3 2 4 23 19
    Accrued expenses and other liabilities 0 3 1 5 9 3 19
    Income taxes — currently payable and deferred 3 (3 ) 3 (1 ) 8 10 (13 )
    Other long term liabilities 3 1 3 1 0 (1 ) 0
    Net cash provided by operating activities 46 74 95 132 127 168 167
    Cash Flows from Investing Activities:
    Acquisition of facility (1 ) (74 ) (100 ) (51 ) (168 ) (184 ) (60 )
    Additions to property, plant and equipment (23 ) (23 ) (41 ) (59 ) (54 ) (159 ) (112 )
    Proceeds from sale of equipment 5 0 0 0 0 0 0
    Net cash used in investing activities (19 ) (97 ) (141 ) (110 ) (222 ) (343 ) (172 )
    Cash Flows from Financing Activities:
    Proceeds from long term borrowings 7 1 1 1 58 250 73
    Principal payments on debt (10 ) (14 ) (7 ) (21 ) (22 ) (17 ) (15 )
    Proceeds from issuance of common stock 11 2 9 34 8 (57 ) (42 )
    Decrease in funds held by trustee (0 ) (0 ) (1 ) 0 (4 ) (0 ) 1
    Net cash provided by (used in) financing activities 7 (11 ) 2 14 40 175 16
    Increase (Decrease) in cash and cash equivalents 35 (34 ) (44 ) 36 (55 ) 0 10
    Cash and cash equivalents, Beginning of Period 74 109 75 31 67 13 13
    Cash and cash equivalents, End of Period 109 75 31 67 13 13 23

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    Health Management Associates
    Balance Sheet

                                                                           
    ($ in thousands, except per share) 1993 1994 1995 1996 1997 1998 1999 2000E
    Current Assets:
    Cash and cash equivalents 109 75 31 67 13 13 23
    Accounts receivable, net 55 69 103 119 219 312 342
    Funds held by trustee 1 1 2 1 1 2 0
    Income taxes-receivable and deferred 2 7 12 13 18 31 0
    Other current assets 9 22 29 35 57 68 122
    Total current assets 178 175 178 236 309 425 488
    Property and equipment 279 365 505 473 926 1,142 1,088
    Less: accumulated depreciation (65 ) (82 ) (107 ) 0 (188 ) (230 ) (21 )
    Net property and equipment 214 283 398 473 738 912 1,068
    Other assets:
    Funds held by trustee 0 0 0 1 4 4 3
    Deferred charges and other assets 7 10 16 18 62 175 184
    Total Assets 399 468 592 728 1,112 1,517 1,742
    Liabilities and Stockholders’ Equity
    Current liabilities:
    Accounts payable 15 22 29 34 44 74 93
    Accrued expenses and other liabilities 17 23 30 37 58 72 73
    Income taxes —currently payable and deferred 0 0 4 3 10 20 0
    Current maturities of long term debt 7 7 8 8 9 9 0
    Total current liabilities 40 51 71 83 121 175 166
    Deferred income taxes 19 18 19 19 40 33 33
    Other long term liabilities 11 12 15 16 61 17 18
    Long term debt, net of current maturities 76 68 69 50 134 402 499
    Common stockholders’ equity:
    Preferred stock, $0.01 par value, 5,000,000
    Common Stock, Class A, $0.01 par value 0 1 1 0 2 3 0
    Additional paid in capital 132 134 149 0 242 295 0
    Treasury stock
    Retained earnings 120 183 267 560 513 663 1,027
    Total stockholders’ equity 253 318 418 560 757 891 1,027
    Total Assets and Shareholders Equity 399 467 592 728 1,112 1,517 1,742

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    1993 1994 1995 1996 1997 1998 1999 2000E
    ROA - Operations 14.6 % 15.9 % 16.4 % 14.9 % 11.4 % 10.3 %
    ROC - Operations 17.7 % 19.3 % 19.8 % 18.2 % 13.7 % 12.0 %
    ROE - Operations 22.2 % 22.9 % 22.2 % 20.8 % 18.2 % 17.6 %
     
    ROA - Total 14.6 % 15.9 % 16.4 % 14.9 % 11.4 % 10.3 %
    ROC - Total 17.7 % 19.3 % 19.8 % 16.2 % 13.7 % 12.0 %
    ROE - Total 22.2 % 22.9 % 22.2 % 20.8 % 18.2 % 17.6 %
     
    LTD: Equity 0.30 0.21 0.16 0.09 0.18 0.45 0.49
    Total Debt: Equity 0.33 0.23 0.18 0.10 0.19 0.46 0.49
    Total Debt: EBITDA 0.81 0.58 0.46 0.26 0.51 1.30 1.31
    Interest Coverage 23.02 35.47 46.11 58.89 58.94 37.72 14.20
    Cost of Debt Capital 4.6 % 4.6 % 5.5 % 4.7 % 3.0 % 5.9 %
     
    EBITDA / Share $ 0.44 $ 0.54 $ 0.69 $ 0.88 $ 1.10 $ 1.26 $ 1.57
    EBITDA / Share Growth 23.2 % 29.2 % 26.6 % 25.1 % 15.1 % 24.7 %
    EBITDA Margin 23.5 % 24.2 % 23.7 % 24.4 % 24.6 % 23.3 % 23.5 %
    D&A % Revenue 3.8 % 3.8 % 3.8 % 4.1 % 4.4 % 4.5 % 4.7 %
    EBIT Margin 19.7 % 20.3 % 19.9 % 20.3 % 20.2 % 18.8 % 18.8 %
    Interest % Revenue 1.0 % 0.7 % 0.5 % 0.4 % 0.4 % 0.6 % 1.7 %
    Pretax Margin 18.6 % 19.6 % 19.4 % 19.9 % 19.8 % 18.2 % 17.1 %
     
    Revenue Growth 21.2 % 34.5 % 25.4 % 27.2 % 19.0 % 19.5 %
    EBITDA Growth 24.9 % 31.7 % 29.3 % 28.3 % 12.8 % 20.4 %
    EPS Growth 34.2 % 30.3 % 26.2 % 23.1 % 11.7 % 14.8 %
     
    Capital Expenditures: Depreciation 1.36 1.12 1.52 1.62 1.07 2.60 1.47
    Employees 10,000 15,000 16,000 18,000
    Regional / Divisional / Home Office Empl 55 55 65
    Revenue / Employee 90 76 85 90
    EBITDA / Employee 22 19 20 21
     
    Cash Flow Operations / Revenues 10.5 % 14.0 % 13.2 % 14.8 % 11.2 % 12.4 % 10.3 %
    Cash Flow Operations - Cap Ex / Revenues 5.4 % 9.7 % 7.5 % 8.2 % 6.4 % 0.7 % 3.4 %
     
    Stock Price 9/30 3.480 4.863 6.344 11.109 14.055 18.250 7.750 14.500
    Stockholder Annual Return 39.7 % 30.4 % 75.1 % 26.5 % 29.8 % -57.5 % 87.1 %
    3 Year Return 219.2 % 189.0 % 167.7 % -30.2 % 3.2 %
    4 Year Return 303.8 % 275.3 % 22.2 % 30.5 %
    5 Year Return 424.4 % 59.4 % 128.6 %
     
    Net A/R DSO 46.1 47.3 52.7 48.6 70.2 84.0 77.2
    Change from Last Year 1.2 5.3 (4.0 ) 21.6 13.8 (6.8 )
    Change from 3 Years Ago 2.5 22.9 31.3 28.5
    Cash Cost of 3 Year Change 116 126

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    Quorum Health Group

    Income Statement
    Years as Originally Reported
    ($ In millions, except per share)
                                                                         
    1993 1994 1995 1996 1997 1998 1999 2000
    Net patient service revenue 520 724 963 1,274 1,428 1,505 1,614
    Hospital management 73 74 78 79 80 83 80
    Reimbursable expenses 48 52 57 61 65 65 64
    Net operating revenue 343 641 850 1,099 1,414 1,572 1,653 1,758
     
    Salaries and benefits 130 235 320 421 561 628 687 722
    Reimbursable expenses 43 48 52 57 61 65 65 64
    Supplies 41 90 122 161 198 210 231 255
    Fees 29 56 83 103 126 141 157 158
    Other operating 29 57 68 93 117 130 122 129
    Doubtful accounts 16 39 49 56 90 107 127 130
    Equity in earnings of affiliates 0 0 0 0 0 7 22 19
    EBITDAR 56 116 156 208 261 299 252 319
     
    Leases and rentals 0 0 0 0 0 0 34 37
    EBITDA 56 116 156 208 261 299 252 282
     
    Depreciation /amortization 15 28 38 56 75 87 95 108
    EBIT 41 88 119 152 186 212 157 211
     
    Interest 14 25 22 37 46 41 54 69
    Loss (gain) on sale of assets 0 0 0 (1 ) 0 0 35 0
    Minority interest 1 1 1 0 1 3 (6 ) 4
     
    Income before taxes & extraordinary 26 62 95 117 139 168 72 95
    Income taxes 10 26 40 47 55 67 33 37
    Income before extraordinary items 16 36 56 69 84 102 39 58
    Extraordinary item 0 0 0 0 (8 ) (15 ) 0 0
    Net income 0 0 0 0 76 87 39 58
     
    EPS:
    Primary (operating) $ 0.27 $ 0.64 $ 0.76 $ 0.93 $ 1.11 $ 1.36 $ 0.53 $ 0.81
    Extraordinary item $ — $ — $ — $ — $ — $ (0.20 ) $ — $ —
    Net earnings per share $ — $ — $ — $ — $ 1.00 $ 1.16 $ 0.53 $ 0.81
     
    Fully Diluted (operating) $ 0.25 $ 0.59 $ 0.76 $ 0.93 $ 1.11 $ 1.32 $ 0.52 $ 0.75
    Extraordinary item $ — $ — $ — $ — $ — $ (0.19 ) $ — $ —
    Net earnings per share $ — $ — $ — $ — $ 1.00 $ 1.12 $ 0.52 $ 0.75
     
    Average shares:
    Primary 59.4 56.7 73.7 74.6 75.9 74.7 73.5 71.5
    Fully Diluted 66.8 61.8 73.7 74.6 76.0 77.2 74.4 82.0

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    Margin Assumptions
    Salaries/Revs 37.8 % 36.7 % 37.6 % 38.3 % 39.7 % 39.9 % 41.6 % 41.1 %
    Reimb Exp/Revs 12.4 % 7.5 % 6.1 % 5.2 % 4.3 % 4.1 % 3.9 % 3.6 %
    Supplies/Revs 11.9 % 14.0 % 14.3 % 14.6 % 14.0 % 13.4 % 14.0 % 14.5 %
    Fees/Revs 8.3 % 8.7 % 9.8 % 9.3 % 8.9 % 9.0 % 9.5 % 9.0 %
    Other Operating 8.3 % 8.9 % 8.0 % 8.4 % 8.3 % 8.2 % 7.4 % 7.3 %
    Doubtful Accounts 4.8 % 6.1 % 5.7 % 5.1 % 6.4 % 6.8 % 7.7 % 7.4 %
    EBITDA Margin 16.4 % 18.1 % 18.4 % 19.0 % 18.5 % 19.0 % 15.3 % 18.2 %
    EBITDA Margin excluding reimbursement 18.7 % 19.6 % 19.6 % 20.0 % 19.3 % 19.8 % 15.9 % 18.8 %
    EBITDA Margin excluding JV equity 18.7 % 19.6 % 19.6 % 20.0 % 19.3 % 19.4 % 14.5 % 17.7 %
    Depreciation % PPE 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 0.0 %
    Tax Rate 39.6 % 41.4 % 41.4 % 40.6 % 39.7 % 39.7 % 46.3 % 39.1 %

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    Quorum Health Group
    Cash Flow Statement

                                                                         
    ($ in thousands, except per share) 1993 1994 1995 1996 1997 1998 1999 2000E
    Cash Flow From Operations
    Net income 36 56 69 76 87 39 58
    Depreciation 24 38 57 75 87 95 108
    Minority Interest 1 1 1 1 3 (16 ) 4
    Other operating 10 (7 ) (13 ) 15 (52 ) 11 (5 )
    Cash Flow From Operations 72 88 114 167 125 129 164
    Cash Flow From Investing
    Acquisition (350 ) (100 ) (205 ) (176 ) (132 ) (217 ) (20 )
    PP&E (36 ) (58 ) (62 ) (71 ) (132 ) (124 ) (104 )
    Assets held for sale (37 ) 3 0 0 0 13 7
    Assets sold 67 4 1 0 15 0 0
    Other (1 ) 0 0 2 (4 ) (1 ) 1
    Cash Flow From Investing (357 ) (151 ) (266 ) (245 ) (253 ) (329 ) (116 )
    Cash Flow From Financing
    Principal payments 0 0 0 0 0 0 0
    Proceeds from notes 0 0 0 0 0 0 0
    Proceeds from issuance of senior notes 0 0 150 0 0 0 0
    Borrowing under credit line 381 269 364 351 96 256 (189 )
    Payments under credit line (269 ) (212 ) (368 ) (179 ) 0 0 0
    Common stock 166 6 6 8 13 (39 ) (13 )
    Subordinated notes (18 ) 0 0 (100 ) 0 0 150
    Loan origination costs (1 ) (2 ) (5 ) (0 ) 0 0 0
    Other (1 ) (1 ) (2 ) (2 ) 17 (12 ) (4 )
    Cash Flow From Financing 258 60 145 77 127 205 (57 )
    Net Cash Flow (26 ) (3 ) (7 ) (1 ) (1 ) 5 (9 )
    Beginning cash 57 30 27 20 19 18 22
    Ending cash 30 27 20 19 18 22 13

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    Quorum Health Group
    Balance Sheet

                                                                         
    ($ in thousands, except per share) 1993 1994 1995 1996 1997 1998 1999 2000E
    Assets
    Current Assets
    Cash and equivalents 30 27 20 19 18 22 13
    Accounts receivable 107 145 186 249 273 332 337
    Supplies 17 21 27 32 29 39 36
    Deferred income taxes 7 7 0 0 0 0 0
    Assets for sale 6 0 0 0 0 0 0
    Other current assets 15 18 26 32 34 47 53
    Total current assets 183 218 259 331 355 440 439
    PP&E, net 314 419 551 687 679 835 851
    Goodwill 111 111 143 186 144 226 225
    Other assets 18 25 68 75 313 330 331
    626 774 1,021 1,279 1,491 1,832 1,845
    Liabilities and Shareholders’ Equity
    Current Liabilities
    Accounts payable 32 39 47 77 70 97 101
    Accrued salaries 26 36 43 62 64 73 72
    Accrued pension 6 0 0 0 0 0 0
    Accrued taxes 4 2 0 0 0 0 0
    Deferred income 6 6 5 6 0 0 0
    Other current liabilities 3 1 2 3 28 35 31
    Current LTD 5 2 2 2 1 1 1
    Current Liabilities 81 85 99 151 163 205 206
     
    LTD 225 287 431 520 617 872 832
    Reserves for liability 7 0 0 0 0 0 0
    Deferred taxes 11 24 33 38 29 33 28
    Other liabilities 4 15 20 25 31 36 43
    Minority interest 4 6 6 27 27 60 66
    Common Equity 294 356 432 518 622 625 670
    626 774 1,021 1,279 1,491 1,832 1,845

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    1993 1994 1995 1996 1997 1998 1999 2000E
    ROA - Operations 3.2% 4.1% 4.0% 2.9% 3.2% 3.8%
    ROC - Operations 3.8% 4.9% 4.8% 3.6% 3.9% 4.6%
    ROE - Operations 6.8% 9.3% 9.6% 7.1% 8.6% 10.7%
     
    ROA-Total 3.2% 4.1% 4.0% 2.9% 3.2% 3.8%
    ROC-Total 3.8% 4.9% 4.8% 3.6% 3.9% 4.6%
    ROE-Total 6.8% 9.3% 9.6% 7.1% 8.6% 10.7%
     
    LTD : Equity 0.77 0.81 1.00 1.00 0.99 1.40 1.24
    Total Debt : Equity 0.78 0.81 1.00 1.01 0.99 1.40 1.24
    Total Debt : EBITDA 1.98 1.85 2.08 2.00 2.07 3.46 2.95
    Interest Coverage 4.63 7.04 5.70 5.72 7.37 4.70 4.08
    Cost of Debt Capital 8.6% 10.1% 9.5% 7.1% 7.2% 8.1%
     
    EBITDA / Share $ 2.05 $ 2.12 $ 2.79 $ 3.44 $ 4.00 $ 3.43 $ 3.95
    EBITDA / Share Growth 3.5% 31.7% 23.1% 16.5% -14.3% 15.1%
    EBITDA Margin 18.1% 18.4% 19.0% 18.5% 19.0% 15.3% 16.1%
    D&A % Revenue 4.4% 4.4% 5.1% 5.3% 5.5% 5.8% 6.1%
    EBIT Margin 13.7% 14.0% 13.9% 13.1% 13.6% 9.5% 12.0%
    Interest % Revenue 3.9% 2.6% 3.3% 3.2% 2.6% 3.2% 3.9%
    Pretax Margin 9.6% 11.2% 10.6% 9.9% 10.7% 4.4% 5.4%
     
    Revenue Growth 86.8% 32.6% 29.2% 28.7% 11.2% 5.1% 6.4%
    EBITDA Growth 106.3% 34.7% 33.3% 25.2% 14.6% -15.7% 12.0%
    EPS Growth 137.7% 29.4% 22.2% 19.3% 18.9% -60.3% 43.9%
     
    Capital Expenditures : Depreciation 1.28 1.55 1.11 0.95 1.51 1.30 0.96
    Employees 17,935 18,890 20,900 20,900
    Regional / Divisional / Home Office Empl 118 130 150
    Revenue / Employee 79 83 79 84
    EBITDA / Employee 15 16 12 14
     
    Cash Flow Operations / Revenues 11.2% 10.4% 10.4% 11.8% 7.9% 7.8% 9.3%
    Cash Flow Operations-Cap Ex / Revenues 5.6% 3.5% 4.7% 6.8% -0.4% 0.3% 3.4%
     
    Stock Price 6/30 11.668 13.500 17.582 23.832 26.500 12.563 10.313
    Stockholder Annual Return 15.7% 30.2% 35.5% 11.2% -52.6% -17.9%
    3 Year Return 104.3% 96.3% -28.5% -56.7%
    4 Year Return 127.1% -6.9% -41.3%
    5 Year Return 7.7% -23.6%
     
    Net A/R DSO 61.1 62.2 61.7 64.2 63.5 73.4 69.9
    Change from Last Year 1.0 (0.4 ) 2.5 (0.7 ) 9.9 (3.5 )
    Change from 3 Years Ago 3.1 1.3 11.7 5.7
    Cash Cost of 3 year Change 53 28

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    Table of Contents

    Matrix of Financial Indicators

    Return on Assets

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 2.8 % 4.3 % -2.4 % 2.1 % 1.9 % 2.2 %
    HCA 6.6 % 7.3 % -1.4 % 1.8 % 3.6 % 2.3 %
    UHS 5.6 % 5.9 % 6.6 % 6.3 % 5.3 % 5.5 %
    HMA 14.6 % 15.9 % 16.4 % 14.9 % 11.4 % 10.3 %
    QHGI 3.2 % 4.1 % 4.0 % 2.9 % 3.2 % 3.8 %
    Competitor Average 7.5 % 8.3 % 6.4 % 6.5 % 5.9 % 5.5 %

    Return on Capital

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 4.9 % 6.3 % -3.5 % 3.0 % 2.5 % 3.0 %
    HCA 9.2 % 10.1 % -1.9 % 2.5 % 5.4 % 3.4 %
    UHS 8.1 % 8.0 % 8.8 % 8.6 % 7.4 % 7.6 %
    HMA 17.7 % 19.3 % 19.8 % 18.2 % 13.7 % 12.0 %
    QHGI 3.8 % 4.9 % 4.8 % 3.6 % 3.9 % 4.6 %
    Competitor Average 9.7 % 10.6 % 7.9 % 8.2 % 7.6 % 6.9 %

    Return on Equity

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 10.0 % 15.1 % -8.3 % 7.7 % 6.7 % 7.6 %
    HCA 17.5 % 19.1 % -3.8 % 5.1 % 10.0 % 6.8 %
    UHS 12.7 % 13.5 % 13.7 % 13.8 % 12.3 % 13.1 %
    HMA 22.2 % 22.9 % 22.2 % 20.8 % 18.2 % 17.6 %
    QHGI 6.8 % 9.3 % 9.6 % 7.1 % 8.6 % 10.7 %
    Competitor Average 14.8 % 16.2 % 10.4 % 11.7 % 12.3 % 12.1 %

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    Table of Contents

    Matrix of Financial Indicators

    LTD: Equity

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 1.65x 1.21x 1.56x 1.64x 1.65x 1.39x
    HCA 1.00x 0.79x 1.28x 0.75x 0.94x 1.01x
    UHS 0.80x 0.61x 0.52x 0.67x 0.65x 0.77x
    HMA 0.21x 0.16x 0.09x 0.18x 0.45x 0.49x
    QHGI 0.81x 1.00x 1.00x 0.99x 1.40x 1.24x
    Competitor Average 0.70x 0.64x 0.72x 0.65x 0.86x 0.88x

    Total Debt : Equity

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 1.79x 1.23x 1.57x 1.64x 1.66x 1.40x
    HCA 1.04x 0.81x 1.30x 0.89x 1.15x 1.13x
    UHS 0.82x 0.62x 0.53x 0.67x 0.66x 0.77x
    HMA 0.23x 0.18x 0.10x 0.19x 0.46x 0.49x
    QHGI 0.81x 1.00x 1.01x 0.99x 1.40x 1.24x
    Competitor Average 0.72x 0.66x 0.73x 0.69x 0.92x 0.91x

    Total Debt: EBITDA

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 5.71x 2.96x 3.31x 3.23x 3.464x 2.93x
    HCA 1.98x 1.62x 3.30x 2.35x 2.23x 2.06x
    UHS 2.11x 1.63x 1.35x 1.60x 1.60x 1.95x
    HMA 0.58x 0.46x 0.26x 0.51x 1.30x 1.31x
    QHGI 1.85x 2.08x 2.00x 2.07x 3.463x 2.95x
    Competitor Average 1.63x 1.45x 1.73x 1.63x 2.15x 2.07x

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    Table of Contents

    Matrix of Financial Indicators

    EBITDA: Interest

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 4.51x 3.52x 3.65x 3.90x 3.83x 4.04x
    HCA 8.09x 8.65x 5.78x 5.11x 6.13x 6.13x
    UHS 10.32x 8.15x 10.63x 9.76x 9.83x 8.92x
    HMA 35.47x 48.11x 58.89x 58.94x 37.72x 14.20x
    QHGI 7.04x 5.70x 5.72x 7.37x 4.70x 4.08x
    Competitor Average 15.23x 17.65x 20.25x 20.29x 14.60x 8.33x

    Average Cost of Debt

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 6.43 % 9.21 % 10.05 % 8.52 % 7.90 % 7.91 %
    HCA 8.13 % 6.93 % 6.02 % 6.94 % 7.14 % 7.94 %
    UHS 6.65 % 8.07 % 6.91 % 7.74 % 6.36 % 6.52 %
    HMA 4.61 % 4.64 % 5.50 % 4.74 % 3.03 % 5.90 %
    QHGI 8.55 % 10.13 % 9.55 % 7.12 % 7.20 % 8.10 %
    Competitor Average 6.99 % 7.44 % 6.99 % 6.64 % 5.93 % 7.12 %

    EBITDA Margin

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 18.8 % 19.8 % 17.5 % 18.3 % 17.1 % 17.0 %
    HCA 21.0 % 21.6 % 15.1 % 15.4 % 17.3 % 19.0 %
    UHS 12.4 % 14.6 % 14.3 % 14.1 % 12.9 % 13.3 %
    HMA 24.2 % 23.7 % 24.4 % 24.6 % 23.3 % 23.5 %
    QHGI 18.4 % 19.0 % 18.5 % 19.0 % 15.3 % 16.1 %
    Competitor Average 19.0 % 19.7 % 18.1 % 18.3 % 17.2 % 18.0 %

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    Matrix of Financial Indicators

    D&A % of Revenue

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 5.9 % 5.8 % 5.1 % 4.6 % 5.1 % 4.7 %
    HCA 5.5 % 5.8 % 6.6 % 6.7 % 6.6 % 6.2 %
    UHS 5.5 % 6.0 % 5.6 % 5.6 % 5.3 % 4.8 %
    HMA 3.9 % 3.8 % 4.1 % 4.4 % 4.5 % 4.7 %
    QHGI 4.4 % 5.1 % 5.3 % 5.5 % 5.8 % 6.1 %
    Competitor Average 4.8 % 5.2 % 5.4 % 5.6 % 5.5 % 5.5 %

    EBIT Margin

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 12.9 % 14.0 % 12.4 % 13.6 % 12.0 % 12.3 %
    HCA 15.5 % 15.8 % 8.6 % 8.7 % 10.8 % 12.8 %
    UHS 6.9 % 8.5 % 8.7 % 8.5 % 7.6 % 8.6 %
    HMA 20.3 % 19.9 % 20.3 % 20.2 % 18.8 % 18.8 %
    QHGI 14.0 % 13.9 % 13.1 % 13.5 % 9.5 % 12.0 %
    Competitor Average 14.2 % 14.5 % 12.7 % 12.7 % 11.7 % 13.1 %

    Interest % of Revenue

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 4.2 % 5.6 % 4.8 % 4.7 % 4.5 % 4.2 %
    HCA 2.6 % 2.5 % 2.6 % 3.0 % 2.8 % 3.1 %
    UHS 1.2 % 1.8 % 1.3 % 1.4 % 1.3 % 1.5 %
    HMA 0.7 % 0.5 % 0.4 % 0.4 % 0.6 % 1.7 %
    QHGI 2.6 % 3.3 % 3.2 % 2.6 % 3.2 % 3.9 %
    Competitor Average 1.8 % 2.0 % 1.9 % 1.9 % 2.0 % 2.5 %

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    Table of Contents

    Matrix of Financial Indicators

    Pretax Margin

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 9.9 % 13.4 % 0.3 % 6.5 % 4.36 % 5.4 %
    HCA 10.1 % 12.6 % 2.1 % 5.8 % 7.4 % 4.4 %
    UHS 5.7 % 6.7 % 7.3 % 6.6 % 6.0 % 6.5 %
    HMA 19.6 % 19.4 % 19.9 % 19.8 % 18.2 % 17.1 %
    QHGI 11.2 % 10.6 % 9.9 % 10.7 % 4.38 % 5.4 %
    Competitor Average 11.7 % 12.3 % 9.8 % 10.7 % 9.0 % 8.4 %

    EBITDA / Share Growth

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 6.6 % 48.9 % -4.4 % 17.8 % 1.5 % 3.5 %
    HCA 29.6 % 15.0 % -32.4 % 3.7 % 10.7 % 13.1 %
    UHS 23.6 % 36.8 % 10.8 % 30.8 % 3.3 % 12.5 %
    HMA 23.2 % 29.2 % 26.6 % 25.1 % 15.1 % 24.7 %
    QHGI 3.5 % 31.7 % 23.1 % 16.5 % -14.3 % 15.1 %
    Competitor Average 20.0 % 28.2 % 7.0 % 19.0 % 3.7 % 16.4 %

    Cash Flow Operations : Revenue

                                                     
    1995 1996 1997 1998 1999 2000E
    THC -0.2 % 3.5 % 4.6 % 4.1 % 5.3 % 7.6 %
    HCA 12.7 % 13.2 % 7.9 % 10.3 % 7.3 % 11.0 %
    UHS 9.9 % 12.2 % 11.0 % 7.6 % 8.6 % 9.4 %
    HMA 14.0 % 13.2 % 14.8 % 11.2 % 12.4 % 10.3 %
    QHGI 10.4 % 10.4 % 11.8 % 7.9 % 7.8 % 9.3 %
    Competitor Average 11.7 % 12.3 % 11.4 % 9.2 % 9.0 % 10.0 %

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    Matrix of Financial Indicators

    Cash Flow Operations —Cap Ex : Revenue

                                                     
    1995 1996 1997 1998 1999 2000E
    THC -8.2 % -3.1 % 0.0 % -1.3 % -0.1 % 2.2 %
    HCA 4.1 % 6.1 % 0.3 % 3.5 % -0.4 % 4.9 %
    UHS 3.3 % 3.3 % 1.0 % 2.5 % 5.3 % 3.3 %
    HMA 9.7 % 7.5 % 8.2 % 6.4 % 0.7 % 3.4 %
    QHGI 3.5 % 4.7 % 6.8 % -0.4 % 0.3 % 3.4 %
    Competitor Average 5.2 % 5.4 % 4.1 % 3.0 % 1.5 % 3.7 %

    Net A/R DSO

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 62.2 55.0 56.5 64.3 77.8 80.1
    HCA 55.0 55.4 48.9 41.0 41.0 42.8
    UHS 44.8 44.6 45.6 49.9 54.9 57.9
    HMA 47.3 52.7 48.6 70.2 84.0 77.2
    QHGI 62.2 61.7 64.2 63.5 73.4 69.9
    Competitor Average 52.3 53.6 51.8 56.1 63.3 61.9

    Change in A/R DSO

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 14.8 (7.1 ) 1.5 7.7 13.5 2.4
    HCA (2.3 ) 0.5 (6.5 ) (8.0 ) 0.1 1.8
    UHS 5.2 (0.2 ) 1.0 4.3 5.0 2.9
    HMA 1.2 5.3 (4.0 ) 21.6 13.8 (6.8 )
    QHGI 1.0 (0.4 ) 2.5 (0.7 ) 9.9 (3.5 )
    Competitor Average 1.3 1.3 (1.8 ) 4.3 7.2 (1.4 )

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    Matrix of Financial Indicators

    Three Year Change in A/R DSO

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 9.2 2.1 22.7 23.6
    HCA (8.4 ) (14.0 ) (14.4 ) (6.1 )
    UHS 6.0 5.2 10.3 12.3
    HMA 2.5 22.9 31.3 28.5
    QHGI 3.1 1.3 11.7 5.7
    Competitor Average 0.8 3.8 9.7 10.1

    Revenue : Employee

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 82.8 84.7 86.4 107.7
    HCA 63.8 71.9 99.1 100.0
    UHS 81.0 97.6 105.5 106.5
    HMA 89.5 75.9 84.7 90.0
    QHGI 78.8 83.2 79.1 84.1
    Competitor Average 78.3 82.2 92.1 95.2

    EBITDA : Employee

                                                     
    1995 1996 1997 1998 1999 2000E
    THC 14.5 15.5 14.8 18.3
    HCA 9.7 11.0 17.2 19.1
    UHS 11.6 13.8 13.7 14.2
    HMA 21.9 18.7 19.8 21.2
    QHGI 14.5 15.8 12.1 13.5
    Competitor Average 14.4 14.8 15.7 17.0

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    [Letterhead of M. Lee Pearce, M.D.]

    July 14, 2000

    BY OVERNIGHT COURIER

    Mr. Jeffrey C. Barbakow
    Chairman and Chief Executive Officer
    Tenet Healthcare Corporation
    3820 State Street
    Santa Barbara, CA 93105

          Re: Tenet Healthcare Corp. (the “Company”)

    Dear Mr. Barbakow:

          As the beneficial owner of 250,042 shares of Tenet Healthcare, I am very concerned about the future of the shareholders’ investment in Tenet and your role, as a Director, in protecting the investment of all Tenet shareholders. You are undoubtedly aware that, by letter dated July 5, 2000, I nominated an alternate slate of candidates for election to the Company’s Board of Directors at this year’s annual meeting of stockholders. A copy of the nomination letter is attached.

          Before we begin to communicate our views to other shareholders, and in no event later than July 24, 2000, I propose a meeting with members of the Board to discuss the possibility of instituting significant changes to improve the Company’s operations and maximize value for all shareholders.

          The initial concerns that prompted my nominations to the Board fall into three general categories:

          (1) the Company’s precarious and inadequately disclosed financial position;

          (2) Tenet’s bloated corporate staff and its exorbitant executive compensation; and

          (3) the directors’ disregard for shareholder interests.

          We believe the outcome of this year’s Board elections will turn on these issues unless the current directors and senior management take definitive steps to address them before the next shareholders meeting.

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    Appalling Financial Performance

          Our foremost concern is the Company’s precarious and inadequately disclosed economic condition. Under your stewardship, Tenet’s financial performance has been and continues to be substantially worse than its peers by almost every measure. In many respects, the Company is the industry’s worst performer and is in economic distress. In particular:

    •   Tenet had the worst return on assets in fiscal years ended May 31, 1997, 1999, and is on track to repeat this feat in fiscal 2000.
     
    •   Tenet’s 1999 return on equity was the industry’s lowest.
     
    •   Tenet’s profit margins for earnings before interest, taxes, depreciation and amortization (“EBITDA”) have declined every year since peaking at 19.8% in fiscal 1996.
     
    •   Tenet’s leverage is the highest in the industry. From fiscal 1995 through fiscal 2000 (estimated), Tenet has maintained the industry’s highest level of debt to equity. Tenet did so even though Mr. Barbakow announced plans, in 1995, to reduce the debt to equity ratio to 1 to 1 without selling assets. (WSJ, 3/1/95). In fiscal 1999 the Company reported debt of 1.66x equity, compared to 1.15x equity for the industry’s largest company, HCA.
     
    •   For the same period (1995 to 2000 (estimated)), Tenet has also had the highest level of debt to EBITDA. After reaching a low of 2.96x EBITDA in fiscal 1996, this ratio has risen steadily under Mr. Barbakow’s management to 3.46x EBITDA in fiscal 1999. We estimate the total debt/EBITDA for fiscal 2000 will once again be the industry’s highest, even after the Company sold 17 hospitals.
     
    •   As a result of Tenet’s heavy leverage, interest coverage (EBITDA/interest) is the industry’s lowest. Tenet covered interest by just 3.8x EBITDA in fiscal 1999, compared to 4.7x for Quorum, over 6x for HCA, nearly 10x for Universal Health and 43x for Health Management Associates.
     
    •   Tenet’s long-term debt is not investment grade and the average cost of its long-term debt is the industry’s highest. Since fiscal 1997, the fourth year of Mr. Barbakow’s reign, Tenet’s cost of its long term debt has been the industry’s highest. In fiscal 1999, Tenet has paid an average of 7.90% on its debt, compared to 7.14% for HCA and 6.36% for Universal Health. Tenet’s cost of debt was 0.76% higher than HCA’s. That difference cost Tenet approximately $47 million more in interest cost in 1999.
     
    •   Since fiscal 1994, Tenet has written off more than $2.04 billion after tax, an amount exceeding the total equity turned over to the current management team in 1993.
     
    •   Cash flow from operations for Tenet is the lowest in the industry as a percent of revenue. After capital expenditures, Tenet produces almost no free cash. “Tenet, unfortunately, has not generated any free cash flow over the last four years . . . .” (Wall Street

     

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        Transcript, 7/3/2000). In fiscal 1998 and 1999, the Company actually had negative cash flow after capital expenditures. Tenet produces less free cash than any of its peers.
     
    •   Part of the reason for the lack of cash generation is poor accounts receivable management. Over the past three-plus years (fiscal 1997-Q3 of 2000), Tenet has seen its accounts receivable days increase by 25.5 days. For a company with $11.4 billion in revenue, 25.5 days equate to a cash need of about $800 million. At Tenet’s average borrowing cost of 7.9%, this increase costs shareholders roughly $38 million after tax, or $0.12 per share in annual earnings.
     
    •   Given Tenet’s appalling financial performance, how will our Company deal with its contingent liabilities? We believe that the Company has significant potential legal liabilities requiring it to spend $60 million annually on 700 outside law firms in addition to some 28 internal lawyers. (House Counsel, “Code Blue, GC Christi Sulzbach Applies ER Techniques to Help Revive Tenet Healthcare,” May/June 2000).
     
    •   Among the hundreds of cases pending against the Company, is United States ex rel Scott v. Tenet, et al., in which the relator, a former federal prosecutor, is seeking $150 million for allegedly defrauding Medicare, creating false mortality studies, and falsifying death certificates.
     
    •   Tenet is the subject of other investigations. HHS/OIG investigations into compensation paid for physician practices appear to be ongoing in multiple jurisdictions. What is the status of these investigations? Is it because of the pendency of governmental investigations that Tenet has been so slow to unwind the physician contracts that are causing the company to lose approximately $100 million per year? What other material litigation and investigations threaten our company? What reserves has Tenet created to address these contingencies?

          Before taking our concerns to other shareholders, we would like to meet with the Tenet Board to set forth our concerns in greater detail and enter into a dialogue with the Board concerning the significant changes needed to address the dire economic issues facing Tenet.

     

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    Exorbitant Executive Compensation and Bloated Management

          Given the Company’s poor performance, we are greatly concerned about the exorbitant executive compensation at Tenet. Mr. Barbakow’s 1999 compensation was $22.5 million. (L.A. Times, 7/5/2000). In contrast, HCA’s CEO elected to serve for the cost of benefits only. Quorum’s and Health Management Associates’ chief executives receive just a fraction of the amount paid to Mr. Barbakow. When Aetna terminated Richard Huber, Aetna under his leadership had not performed as badly as Tenet has performed under Mr. Barbakow’s management. (WSJ, 4/6/2000).

          In considering Mr. Barbakow’s compensation, Tenet shareholders must also take into account the financial and business costs of maintaining Tenet’s headquarters in Santa Barbara, an affluent coastal enclave where Mr. Barbakow and other senior managers reside. That decision not only necessitates that Tenet maintain an expensive and otherwise unnecessary “private air force” but also isolates senior management from Tenet’s real operations and contributes to the appalling financial performance recited above.

          The Company has a bloated management structure, in part no doubt because of its absentee senior management. Tenet employs 11 management/support personnel per hospital, about 57% more than HCA which employs only 7 management/support personnel per hospital. Tenet also employs 968 people per hospital, about 19% more than the 812 persons per hospital employed by HCA. Other hospital companies have placed their headquarters in Midwestern cities where tested and experienced hospital company managers are more readily available and where hands-on oversight of hospital properties is feasible and far less expensive.

          The Board should have concrete plans for addressing these indefensibly high expenses. At our meeting, we would like to discuss an across-the-board reduction in executive compensation, financial incentives to promote better management, such as tying executive compensation to the Company’s real economic performance, relocation of the corporate headquarters, reduction of excessive corporate staff, and other cost containment initiatives.

    Disregard for Shareholder Interests

          Another critical issue is the directors’ and management’s apparent disregard for shareholder interests. At the last two annual shareholders meetings, the shareholders overwhelmingly voted to recommend that the Board eliminate the staggered system of electing directors. Yet the Board has, twice, defiantly refused to follow the shareholders’ directive to take action to declassify itself. How can the directors who own less than 0.5% of the Company’s outstanding common stock defy the wishes of the vast majority of Tenet’s shareholders? Compounding the problem is the fact that the Company is still incorporated in Nevada, where shareholder rights are minimal, and that supermajority voting requirements entrench Board incumbents and make change difficult. Research suggests that companies with good corporate governance are more attractive to investors and that companies incorporated in Delaware enjoy enhanced value. (WSJ, 2/28/2000 and 6/19/2000).

     

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          Our meeting must therefore include discussion of amending the Charter and By-Laws to eliminate the staggered Board and reincorporating the Company in Delaware, where shareholders have reasonable rights.

          Fundamental changes in the way the Company conducts business are long overdue. Tenet is the nation’s second largest acute care hospital company, with 112 hospitals and annual revenue in excess of $11 billion. Yet despite this strong market position, and the longest bull market in American history, Tenet shareholders who purchased shares in Tenet’s April 17, 1997 secondary offering at $26.50 per share have seen only a miniscule appreciation (32¢ per share as of the close on July 13, 2000) in their investment in three years.

          There is enormous hidden value in Tenet. The concerns outlined above, while of the critical importance, are by no means exhaustive. We believe that our concerns are and will be shared by most other Tenet shareholders, and we will act for their collective benefit. Under no circumstances are we interested in, nor will we accept, any compensation not offered equally to all other shareholders. We look forward to meeting with you by July 24, 2000 to discuss these shareholder issues and our proposals for addressing them. Please advise us no later than 3pm EDT on July 20 whether and where you will meet with us.

          Since I am currently traveling, please advise my counsel, Robert B. McCaw of Wilmer, Cutler & Pickering whether and when we can meet. He may be reached by telephone at (212) 230-8810 or fax at (212) 230-8888.

     
    Very truly yours,
     
    M. Lee Pearce, M.D.

    cc: All Directors

     

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    [Letterhead of M. Lee Pearce, M.D.]

    August 1, 2000

    By Facsimile and Federal Express

    Mr. Maurice J. DeWald
    Board of Directors
    Tenet Healthcare Corporation
    3820 State Street
    Santa Barbara, CA 93105

    Dear Mr. DeWald:

          Thank you for coming to Miami to meet with me, Michael Gallagher and Gary Cripe. At that meeting we set forth our view that the Board of Tenet Healthcare Corporation should immediately take the following steps:

    •   Engage in a comprehensive program to improve cash flow;
     
    •   Reduce debt and take appropriate steps to improve the Company’s debt to investment grade;
     
    •   Reorganize the Company into a flat, customer responsive, efficient structure;
     
    •   Reevaluate the Santa Barbara headquarters location and the need for a fleet of private aircraft;
     
    •   Reincorporate in Delaware;
     
    •   Eliminate the staggered system for electing directors;
     
    •   Expand the Board to 15 directors and add our slate of 4 directors to the Board;
     
    •   Appoint a non-executive chairman;
     
    •   With the exception of the CEO, remove management, past and present, from the Board; and
     
    •   Have “fraud & abuse” compliance report directly to Audit Committee.

     

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          We also renewed our request to meet with the full Tenet Board.

          We look forward to your response.

                                                                                                                                       Sincerely


                                                                                                                                       M. Lee Pearce, M.D

    cc: All Directors
         David L. Dennis
         Christi R. Sulzbach, Esq.

     

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    [Letterhead of M. Lee Pearce, M.D.]

    August 4, 2000

    VIA FEDERAL EXPRESS

    Mr. Jeffrey C. Barbakow
    Chairman and Chief Executive Officer
    Tenet Healthcare Corporation
    3820 State Street
    Santa Barbara, CA 93105

          Re: Tenet Healthcare Corporation (the “Company”)

    Dear Mr. Barbakow:

          At the July 31, 2000 meeting with Maurice DeWald, David Dennis, and Christi Sulzbach we requested an explanation as to why the Company has failed to comply with the federal securities law obligation to report separately on each segment of its business qualifying as an identifiable operating segment. We referred in particular to Tenet’s disastrous investment in physician practices. This letter explains the reasons for that request and describes why the shareholders are legally entitled to such “operating segment” disclosure of the Company’s physician practice business.

          Under Item 101(b) of Securities Act Regulation S-K and Statement of Financial Accounting Standards (“SFAS”) No. 131, public companies must disclose separate financial and descriptive information about their reportable “operating segments.” Separate disclosure is required when a component of an entity:

          (a) engages in business activities from which it may earn revenues and incur expenses;

          (b) has operating results that are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance; and

          (c) has discrete information available about it. From a quantitative standpoint, if an operating segment’s reported revenue, absolute reported profit or loss, or assets equal 10 percent or more of the combined entity, the enterprise must report the information required by SFAS No. 131 separately.

          In its filings with the SEC, Tenet has maintained that “the Company’s provision of health care through its domestic general hospitals, physician practices, and related health care facilities comprises a single reportable operating segment under [SFAS No. 131].” (Form 10-

     

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    K, filed Aug. 26, 1999.) That position, however, is contradicted by the Company’s own public filings, which reveal that the physician practice business:

          (a) engages in revenue-producing activities;

          (b) is reviewed regularly by management; and

          (c) is supported by discrete financial information —all of which indicate that Tenet’s physician practices should be reported as a separate operating segment.

          First, the Company’s filings make it unequivocally clear that management thinks of its physician practice operations as a separate business. Tenet’s filings are replete with descriptions of the physician practices as a “business.” (See, e.g., Rule 424(b)(3) Prospectus to Registration on Form S-4, filed May 4, 2000; Form 10-K, filed Aug. 26, 1999; Form 10-K, filed Apr. 28, 1999; Form S-4, filed Apr. 23, 1999.)

          Second, the Company’s 1999 annual report makes clear that the physician practice operations produce substantial revenue. From 1997 to 1999, according to the report, Tenet’s increases in “net operating revenues” from other operations were “primarily the result of new physician practices acquired as part of hospital acquisitions.” (Form 10-K, filed Aug. 26, 1999.)

          Third, the physician practice business is regularly reviewed by Tenet’s top management. The 1999 annual report gives a detailed description of management’s involvement with and plans for the physician practices:

      The Company is in the process of reevaluating its physician strategy in every one of its markets and is developing plans to allow a significant number of its existing contracts to expire. Such plans could result in a decision to exit the physician practice business during fiscal 2000. The Company would expect to incur significant charges on the disposal of this business, including estimated operating losses during the phase out period, if it decides to exit the business entirely. . . . Such charges may require significant cash expenditures as contract settlements with physicians and physician groups are made. The benefits of such a strategy, which could be significant, would not be expected to occur until fiscal 2001 and beyond.

    (Id.) Management’s belief that the Company’s physician practice business could be readily separated from its other businesses lends further support to the notion that the physician practice business should be reported as a separate operating segment.

          Fourth, the Company’s physician practice business is supported by discrete financial information. In two recent disclosures, the Company stated that the physician practice

     

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    business has “not been profitable.” (Id.; Form 10-Q, filed Apr. 13, 2000.) Although those disclosures fail to identify the extent of the losses suffered, they confirm information revealed by Tenet executives in recent investor presentations that the Company has lost $100 million per year on the physician practices —certainly a material amount.

          The impairment charges and write-offs taken by the Company since fiscal 1997 also support both the existence of discrete information and the materiality of information about the physician practice business. In particular:

    •   The Company recorded $177 million (Form 10-Q, filed Apr. 13, 2000) of “impairment and unusual charges” in fiscal 2000 relating to its decision to terminate physician employment and management agreements “as part of its strategy to reduce losses from its physician practice operations.” (Press Release, March 31, 2000.)
     
    •   Tenet took charges of $38 million (equivalent to 8% of its pre-tax income of $474 million) in fiscal 1999 for the impairment of “property, equipment and goodwill at 20 physician practices and other ancillary health care businesses.” (Form 10-K, filed Aug. 26, 1999.)
     
    •   In fiscal 1998, the Company wrote off $41 million in goodwill and other assets relating to its physician practices (equivalent to 6% of the Company’s pre-tax income of $647 million). (Id.)
     
    •   In fiscal 1997, Tenet wrote off $60 million in “goodwill and other long-lived assets of physician practices not deemed to be fully recoverable,” and $18 million for “a restructuring of physician practices, including severance for the physicians, write-offs of computer equipment and software, physician contract terminations and the costs to reorganize regional management service organizations.” (Id.) The 1997 charges totaled $78 million, an amount exceeding the Company’s pre-tax profits for that year.

          Given the magnitude of the above charges and write-offs, there is reason to question management’s position that “the net operating revenues and operating losses from [the physician practice business] activities have not been material.” (Form 10-Q, filed Apr. 14, 2000.)

          The SEC’s Division of Corporation Finance recently underscored the importance of segment reporting in its June 30, 2000 publication of “Current Accounting and Disclosure Issues,” stating, “[i]f the chief operating decision maker [of a company] receives reports of a component’s operating results on a quarterly or more frequent basis, the staff may challenge [the company’s] determination that the component is not a segment for purposes of    SFAS 131 . . . .” The purpose of segment reporting is to increase investor awareness and knowledge by giving investors access to substantially the same information used by a company’s chief operating decision makers to evaluate segment performance and resource allocation.

     

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          By failing to report on its physician practice business as a separate operating segment, Tenet’s management has frustrated that purpose and has interfered with the ability of shareholders to evaluate their exposure from that component of the Company’s operations. The Company has kept the market and shareholders in the dark about the value and wisdom of Tenet’s strategy of investing in physician practices.

          Management’s disregard of segment reporting requirements also raises concerns about regulatory liability. Under similar circumstances, the SEC sanctioned Sony for filing disclosures that improperly treated its music and motion picture businesses as a single operating segment. See In the Matter of Sony Corporation, Exchange Act Release No. 34-40305, 67 SEC Docket 1609-25 (Aug. 5, 1998). The SEC found that consolidated treatment of such distinct industry segments misleadingly obscured the nature and extent of the losses sustained by Sony’s motion picture unit, and imposed a $1 million civil penalty on Sony for violating Section 13(a) of the Exchange Act. See id.; SEC v. Sony Corp., Civ. A. No. 1:98CV1935, Settled Complaint (D.D.C. Aug. 5, 1998).

          Finally, we were troubled by the Company’s response when we inquired about segment reporting at our July 31 meeting. The response compared the physician practice business to the hospital custodians; we were told that the physician practice business was no more a separate segment than were the custodians. We believe the comment is indicative of a negative attitude toward physicians that is the cause of many of Tenet’s difficult relationships with physicians that have adversely affected the Company’s business performance and the quality of patient care.

          Tenet is scheduled to file its Form 10-K for the fiscal year ending May 31, 2000 this month. Before the directors accept personal responsibility by signing the form, we believe they should require management to provide segment reporting for all components of Tenet that satisfy SFAS No. 131. This applies in particular to the physician practice business for fiscal 2000 and earlier periods.

                                                                                                                                       Very truly yours,


                                                                                                                                       M. Lee Pearce, M.D

    cc: All Directors
          David L. Dennis
          Christi R. Sulzbach
          (all by Federal Express)

     

    

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