<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
AUGUST 31, 2000.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ....... TO ....... .
COMMISSION FILE NUMBER 1-7293
--------------------------------------------------------------------------------
TENET HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------
NEVADA 95-2557091
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3820 STATE STREET
SANTA BARBARA, CA 93105
(Address of principal executive offices)
(805) 563-7000
(Registrant's telephone number, including area code)
------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO
AS OF SEPTEMBER 29, 2000 THERE WERE 317,073,037 SHARES OF $0.075 PAR VALUE
COMMON STOCK OUTSTANDING.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as of May 31, 2000 and August 31, 2000........................................ 2
Condensed Consolidated Statements of Income
for the Three Months ended August 31, 1999 and 2000........................... 3
Condensed Consolidated Statements of Comprehensive Income
for the Three Months ended August 31, 1999 and 2000........................... 4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended August 31, 1999 and 2000........................... 4
Notes to Condensed Consolidated Financial Statements............................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.............................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 17
Item 6. Exhibits and Reports on Form 8-K................................................... 17
Signature.................................................................................... 18
</TABLE>
------------------
Note: Item 3 of Part I and Items 2, 3, 4 and 5 of Part II are omitted because
they are not applicable.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 1
<PAGE>
--------------
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DOLLARS IN MILLIONS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
2000 2000
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 135 $ 83
Short-term investments in debt securities ............................ 110 106
Accounts receivable, less allowance for doubtful accounts
($358 at May 31 and $355 at August 31) ........................... 2,506 2,515
Inventories of supplies, at cost ..................................... 223 226
Deferred income taxes ................................................ 176 176
Assets held for sale, at the lower of carrying value or fair value
less estimated costs to sell ..................................... 132 133
Other current assets ................................................. 312 320
---------- ----------
Total current assets ........................................ 3,594 3,559
---------- ----------
Investments and other assets .............................................. 344 377
Property and equipment, at cost ........................................... 8,141 8,189
Less accumulated depreciation and amortization ....................... 2,247 2,347
---------- ----------
Net property and equipment ........................................... 5,894 5,842
---------- ----------
Intangible assets, at cost less accumulated amortization
($501 at May 31 and $530 at August 31) ............................... 3,329 3,313
---------- ----------
$ 13,161 $ 13,091
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................... $ 9 $ 10
Accounts payable ..................................................... 671 601
Employee compensation and benefits ................................... 383 350
Accrued interest payable ............................................. 155 74
Other current liabilities ............................................ 694 801
---------- ----------
Total current liabilities ................................... 1,912 1,836
---------- ----------
Long-term debt, net of current portion .................................... 5,668 5,424
Other long-term liabilities and minority interests ........................ 1,024 1,038
Deferred income taxes ..................................................... 491 500
Shareholders' equity:
Common stock, $0.075 par value; authorized 700,000,000 shares;
317,214,748 shares issued at May 31 and 319,682,179 shares
issued at August 31 .............................................. 24 24
Other shareholders' equity ........................................... 4,112 4,339
Less common stock in treasury, at cost, 3,754,708 shares ............. (70) (70)
Total shareholders' equity .................................. 4,066 4,293
---------- ----------
$ 13,161 $ 13,091
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
2 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<PAGE>
--------------
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED AUGUST 31, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
------------ ------------
<S> <C> <C>
Net operating revenues ......................................................... $ 2,873 $ 2,893
------------ ------------
Operating expenses:
Salaries and benefits ..................................................... 1,161 1,123
Supplies .................................................................. 407 404
Provision for doubtful accounts ........................................... 223 213
Other operating expenses .................................................. 625 636
Depreciation .............................................................. 102 107
Amortization .............................................................. 32 30
------------ ------------
Operating income ............................................................... 323 380
------------ ------------
Interest expense ............................................................... (124) (123)
Investment earnings ............................................................ 5 6
Minority interests in income of consolidated subsidiaries ...................... (5) (6)
Gain on sale of facilities ..................................................... 10 --
------------ ------------
Income before income taxes ..................................................... 209 257
Income taxes ................................................................... (81) (103)
------------ ------------
Income before cumulative effect of accounting change ........................... 128 154
Cumulative effect of accounting change, net of taxes ........................... $ (19) --
------------ ------------
Net income ..................................................................... $ 109 $ 154
============ ============
Basic earnings (loss) per share:
Income before cumulative effect of accounting change ...................... $ 0.41 $ 0.49
Cumulative effect of accounting change .................................... (0.06) --
Net income ................................................................ 0.35 0.49
Diluted earnings (loss) per share:
Income before cumulative effect of accounting change ...................... $ 0.41 $ 0.48
Cumulative effect of accounting change .................................... (0.06) --
Net income ................................................................ 0.35 0.48
Weighted average shares and dilutive securities outstanding (in thousands):
Basic ..................................................................... 311,152 314,355
Diluted ................................................................... 313,224 319,743
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 3
<PAGE>
--------------
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DOLLARS IN MILLIONS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED AUGUST 31, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
---------- ----------
<S> <C> <C>
Net income .......................................................................... $ 109 $ 154
Other comprehensive income (loss):
Foreign currency translation adjustments ....................................... 2 (1)
Unrealized net holding gains (losses) arising during period .................... (55) 31
Less: reclassification adjustment for gains included in net income ............ -- (2)
---------- ----------
Other comprehensive income (loss) before income taxes .......................... (53) 28
Income tax benefit (expense) related to items of other comprehensive income ... 20 (10)
---------- ----------
Other comprehensive income (loss) .............................................. (33) 18
---------- ----------
Comprehensive income ................................................................ $ 76 $ 172
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
DOLLARS IN MILLIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
---------- ----------
<S> <C> <C>
Net cash provided by operating activities ........................................... $ 12 $ 271
---------- ----------
Cash flows from investing activities:
Proceeds from sales of facilities, long-term investments and other assets ...... 34 23
Purchases of property and equipment ............................................ (138) (120)
Purchases of businesses, net of cash acquired .................................. -- (9)
Other items .................................................................... (44) (5)
---------- ----------
Net cash used in investing activities ...................................... (148) (111)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings ....................................................... 476 511
Payments of borrowings ......................................................... (346) (758)
Other items, primarily stock option exercises .................................. 1 35
---------- ----------
Net cash provided by (used in) financing activities ........................ 131 (212)
---------- ----------
Net decrease in cash and cash equivalents ........................................... (5) (52)
Cash and cash equivalents at beginning of period .................................... 29 135
---------- ----------
Cash and cash equivalents at end of period .......................................... $ 24 $ 83
========== ==========
Supplemental disclosures:
Interest paid .................................................................. $ 211 $ 201
Income taxes paid, net of refunds received ..................................... 4 (5)
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
4 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<PAGE>
--------------
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
--------------
NOTE 1
The financial information furnished herein is unaudited; however, in the opinion
of management, the information reflects all adjustments that are necessary to
fairly state the consolidated financial position of Tenet Healthcare Corporation
(together with its subsidiaries, "Tenet" or the "Company"), the results of its
operations and cash flows for the interim periods indicated. All the adjustments
are of a normal recurring nature.
The Company presumes that users of this interim financial information have read
or have access to the Company's audited financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
preceding fiscal year, and that the adequacy of additional disclosure needed for
a fair presentation may be determined in that context. Accordingly, footnotes
and other disclosures that would substantially duplicate the disclosures
contained in the Company's most recent annual report to security holders have
been omitted.
Patient volumes and net operating revenues of the Company's hospitals are
subject to seasonal variations caused by a number of factors, including, but not
necessarily limited to, seasonal cycles of illness, climate and weather
conditions, vacation patterns of both hospital patients and admitting physicians
and other factors relating to the timing of elective hospital procedures.
Quarterly operating results are not necessarily representative of operations for
a full year for various reasons, including levels of occupancy, interest rates,
acquisitions, disposals, revenue allowance and discount fluctuations, the timing
of price changes, unusual or non-recurring items and fluctuations in quarterly
tax rates. These same considerations apply to all year-to-year comparisons.
--------------
NOTE 2
On June 1, 1999, the Company changed its method of accounting for start-up costs
to expense such costs as incurred in accordance with Statement of Position 98-5,
published by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants. The adoption of the Statement
resulted in the write-off of previously capitalized start-up costs as of May 31,
1999 in the amount of $19 million, net of tax benefit, which amount is shown in
the accompanying consolidated statement of income as a cumulative effect of an
accounting change in the three months ended August 31, 1999.
--------------
NOTE 3
In June 2000, the Company issued $400 million of 9 1/4% Senior Notes due 2010.
The proceeds were used to retire existing bank debt under the Company's
unsecured revolving credit agreement.
--------------
NOTE 4
There have been no material changes to the description of professional and
general liability insurance set forth in Note 8A or significant legal
proceedings set forth in Note 8B of Notes to Consolidated Financial Statements
of Tenet for its fiscal year ended May 31, 2000.
--------------
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 5
<PAGE>
--------------
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5
The table below provides a reconciliation between net income and net cash
provided by operating activities for the three months ended August 31, 1999 and
2000:
<TABLE>
<CAPTION>
1999 2000
---------- ----------
(in millions)
<S> <C> <C>
Net income .................................................................................... $ 109 $ 154
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ............................................................ 134 137
Provision for doubtful accounts .......................................................... 223 213
Deferred income taxes .................................................................... 46 58
Other items .............................................................................. 15 19
Increases (decreases) in cash from changes in operating assets and liabilities,
net of effects from purchases of businesses:
Accounts receivable .................................................................. (329) (224)
Inventories and other current assets ................................................. (24) (11)
Accounts payable, accrued expenses and other current liabilities ..................... (129) (53)
Other long-term liabilities .......................................................... (15) 3
Net expenditures for discontinued operations, impairment and other unusual charges ....... (18) (25)
---------- ----------
Net cash provided by operating activities ................................................ $ 12 $ 271
---------- ----------
</TABLE>
6 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<PAGE>
--------------
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
--------------
NOTE 6
The following table presents a reconciliation of beginning and ending liability
balances in connection with impairment and other unusual charges recorded in the
prior fiscal years as of May 31, 2000 and August 31, 2000:
<TABLE>
<CAPTION>
BALANCES AT CASH BALANCES AT
RESERVES RELATED TO: MAY 31, 2000 ) PAYMENTS AUGUST 31,2000)
---------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Lease cancellations, exit costs and estimated costs to sell or
close hospitals and other facilities ............................ $ 106 $ (14) $ 92
Severance costs in connection with the implementation of
hospitcal cost-control programs, general overhead-reduction
plans, closure of home health agencies, closure of hospitals
and termination of physician contracts .......................... 17 (1) 16
Accruals for unfavorable lease commitments at six medical
offices buildings ............................................... 12 (1) 11
Termination of physician contracts ................................... 4 (2) 2
Other ................................................................ 2 (2) --
------------ ------------ ------------
Total ........................................................... $ 141 ($ 20) $ 121
------------ ------------ ------------
</TABLE>
The above liability balances are included in other current liabilities and other
long-term liabilities in the accompanying condensed consolidated balance sheets.
Cash payments to be applied against these accruals are expected to approximate
$64 million in the remainder of fiscal 2001 and $57 million thereafter. There
were no impairment or other unusual charges in the three months ended August 31,
2000.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 7
<PAGE>
--------------
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
--------------
NOTE 7
The following is a reconciliation of the numerators and the denominators of the
Company's basic and diluted earnings per share computations before the
cumulative effect of an accounting change for the three months ended August 31,
1999 and 2000. Income is expressed in millions and weighted average shares are
expressed in thousands:
<TABLE>
<CAPTION>
1999 2000
------------------------------------------ ------------------------------------------
Weighted Weighted
Average Average
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Income available to common
shareholders ...................... $ 128 311,152 $ 0.41 $ 154 314,355 $ 0.49
------------ ------------
Effect of dilutive stock options and
warrants ............................ -- 2,072 -- 5,388
------------ ------------ ------------ ------------
Diluted earnings per share:
Income available to common .......... $ 128 313,224 $ 0.41 $ 154 319,743 $ 0.48
shareholders
============ ============ ============ ============ ============ ============
</TABLE>
Outstanding options to purchase 23,121,496 and 11,496,562 shares of common stock
were not included in the computation of earnings per share for the three-month
periods ended August 31, 1999 and 2000, respectively, because the options'
exercise prices were greater than the average market price of the common stock
during the quarter.
8 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<PAGE>
--------------
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
--------------
NOTE 8
The following table sets forth the tax effects allocated to each component of
other comprehensive income for the three months ended August 31, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
---------------------------------------- ---------------------------------------
Tax Tax
Before-Tax (Expense) or Net-of-Tax Before-Tax (Expense) or Net-of-Tax
Amount Benefit Amount Amount Benefit Amount
------------- ------------ ------------ ------------ ------------ ------------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C> <C>
Foreign currency translation adjustment. $ 2 $ (1) $ 1 $ (1) $ -- $ (1)
Unrealized holding gains (losses) on
securities....................... (55) 21 (34) 31 (11) 20
Less: reclassification adjustment for ga
included in net income........... ins -- -- -- (2) 1 (1)
Other comprehensive income (loss)....... $ (53) $ 20 $ (33) $ 28 $ (10) $ 18
------------- ------------ ------------ ------------ ------------ ----------
</TABLE>
The following table sets forth the accumulated other comprehensive income
balances, by component, as of August 31, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
------------------------------------------ ------------------------------------------
Accumulated Accumulated
Foreign Unrealized Other Foreign Unrealized Other
Currency Gains (Losses) Comprehensive Currency Gains (Losses) Comprehensive
Items on Securities Income (Loss) Items on Securities Income (Loss)
---------- ------------- ---------------- ---------- ------------- ----------------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C> <C>
Beginning balance.............. ($3) $80 $77 ($3) ($67) ($70)
Current-period change.......... 1 (34) (33) (1) 19 18
---------- ------------- ---------------- ---------- ------------- ----------------
Ending balance................. ($2) $46 $44 ($4) ($48) ($52)
========== ============= ================ ========== ============= ================
</TABLE>
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 9
<PAGE>
--------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating results for the quarter ended August 31, 2000 included the following
highlights:
- Growth in patient volumes and revenues
- Improvements in operating margins
- Decrease in bad debts
- Improvements in cash flows from operations
- Reductions of debt
On a same-facility basis, admissions improved 4.3% over the prior-year quarter,
patient revenues were up 11.5% and net inpatient revenues per admission were up
6.1%. Total-company EBITDA margins (the ratio of earnings before interest,
taxes, depreciation and amortization to net operating revenues) increased from
15.9% to 17.9%. Bad debt expense as a percentage of net operating revenues
decreased by 0.4 percentage points over the prior-year quarter. Net cash
provided by operating activities increased by $259 million over the prior-year
quarter. The Company reduced its debt by $243 million.
The Company reported income before income taxes and cumulative effect of
accounting change of $209 million in the quarter ended August 31, 1999 and $257
million in the quarter ended August 31, 2000.
Results of operations for the quarter ended August 31, 2000 include the
operations of one general hospital acquired after the end of the prior-year
quarter and exclude the operations of twenty-one general hospitals sold and
certain other facilities closed since then. The following is a summary of
consolidated operations for the three months ended August 31, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000 1999 2000
------------- -------------- ------------- --------------
(Dollars in millions) (% of net operating revenues)
<S> <C> <C> <C> <C>
Net operating revenues:
Domestic general hospitals ........................... $ 2,667 $ 2,744 92.8% 94.8%
Other operations .................................... 206 149 7.2% 5.2%
------------- ----------- ------------- --------------
Net operating revenues..................................... 2,873 2,893 100.0% 100.0%
------------- ----------- ------------- --------------
Operating expenses:
Salaries and benefits................................. (1,161) (1,123) 40.4% 38.8%
Supplies.............................................. (407) (404) 14.2% 14.0%
Provision for doubtful accounts....................... (223) (213) 7.8% 7.4%
Other operating expenses.............................. (625) (636) 21.7% 22.0%
Depreciation.......................................... (102) (107) 3.6% 3.7%
Amortization.......................................... (32) (30) 1.1% 1.0%
------------- ----------- ------------- --------------
Operating income........................................... $ 323 $ 380 11.3% 13.1%
============= ============ ============= ==============
</TABLE>
10 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<PAGE>
--------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net operating revenues of domestic general hospitals in the table above include
inpatient and outpatient revenues, as well as nonpatient revenues, primarily
rental income and services such as cafeteria, gift shops, parking and other
miscellaneous revenue. Net operating revenues of other operations consist
primarily of revenues from: (i) physician practices, (ii) rehabilitation
hospitals, long-term care facilities, psychiatric and specialty hospitals that
are located on or near the same campuses as the Company's general hospitals;
(iii) the Company's hospital in Barcelona, Spain; (iv) health care joint
ventures operated by the Company; (v) subsidiaries of the Company offering
managed care and indemnity products; and (vi) equity in the earnings of
unconsolidated affiliates. The table below sets forth certain selected
historical operating statistics for the Company's domestic general hospitals:
<TABLE>
<CAPTION>
Increase
1999 2000 (Decrease)
------------- ------------- -------------
<S> <C> <C> <C>
Number of hospitals (at end of period).................................. 130 110 (20)(1)
Licensed beds (at end of period)........................................ 30,731 26,965 (12.3)%
Net inpatient revenues (in millions).................................... $1,707 $1,777 4.1 %
Net outpatient revenues (in millions)................................... $898 $912 1.6 %
Admissions.............................................................. 239,076 228,680 (4.3)%
Equivalent admissions................................................... 353,711 322,799 (8.7)%
Average length of stay (days)........................................... 5.1 5.2 0.1 (1)
Patient days............................................................ 1,223,438 1,183,421 (3.3)%
Equivalent patient days................................................. 1,787,716 1,624,041 (9.2)%
Net inpatient revenue per patient day................................... $1,395 $1,502 7.7 %
Net inpatient revenue per admission..................................... $7,140 $7,771 8.8 %
Utilization of licensed beds............................................ 43.3% 47.6% 4.3 %(1)
Outpatient visits....................................................... 2,468,827 2,276,519 (7.8)%
</TABLE>
(1) The change is the difference between 1999 and 2000 amounts shown.
The table below sets forth certain selected operating statistics for the
Company's domestic general hospitals on a same-facility basis:
<TABLE>
<CAPTION>
1999 2000 Increase
------------ ------------- -------------
<S> <C> <C> <C>
Average licensed beds................................................... 26,835 26,827 --
Patient days............................................................ 1,114,880 1,177,046 5.6%
Net inpatient revenue per patient day................................... $ 1,438 $ 1,507 4.8%
Admissions.............................................................. 217,917 227,288 4.3%
Net inpatient revenue per admission..................................... $ 7,356 $ 7,805 6.1%
Outpatient visits....................................................... 2,215,469 2,249,094 1.5%
Average length of stay (days)........................................... 5.1 5.2 0.1(1)
</TABLE>
(1) The change is the difference between 1999 and 2000 amounts shown.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 11
<PAGE>
--------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The table below sets forth the sources of net patient revenues for the Company's
domestic general hospitals for the three-month periods ended August 31, 1999 and
2000, expressed as percentages of net patient revenues from all sources:
<TABLE>
<CAPTION>
Increase
1999 2000 (Decrease) (1)
-------------------------------------------
<S> <C> <C> <C>
Medicare ............................................................... 32.6% 31.2% (1.4)%
Medicaid ............................................................... 8.1% 8.0% (0.1)%
Managed care ........................................................... 40.0% 41.1% 1.1%
Indemnity and other .................................................... 19.3% 19.7% 0.4%
</TABLE>
(1) The change is the difference between the 1999 and 2000 amounts shown.
The Company continues to experience increases in inpatient acuity and intensity
of services as less intensive services shift from an inpatient to an outpatient
basis or to alternative health care delivery services because of technological
and pharmaceutical improvements, regulatory changes and continued pressures by
payers to reduce admissions and lengths of stay. The Company experienced a 1.5 %
increase in the number of same- facility outpatient visits during the quarter
ended August 31, 2000 compared to the year-ago quarter. This is the first
increase in same-facility outpatient visits since the consolidation or closure
of the majority of the Company's home health agencies, in response to the
changes in Medicare payments to home health agencies mandated by the Balanced
Budget Act of 1997 (BBA).
Pressures to control health care costs and a shift from traditional Medicare to
Medicare managed care plans after the BBA was enacted have resulted in an
increase in the number of patients whose health care coverage is provided under
managed care plans. Medicare revenues continued to decline, driven by reductions
in Medicare payments under the BBA and by the continuing shift from traditional
Medicare to Medicare managed care plans. The Company generally receives lower
payments per patient from managed care payers than it does from traditional
indemnity insurers. The Company continues to seek improved commercial pricing
for all nongovernment business.
The pricing environment for managed care and other nongovernment payers has
improved and the Company expects continuing benefits as it renegotiates and
renews contracts with improved terms and continues to terminate capitated
arrangements with managed care payers and employers. In most of the markets
served by the Company, profitability of capitation arrangements generally has
been disappointing to both physicians and hospitals. One of the most significant
trends in recent quarters has been the improvement in net revenue per admission.
For the quarter ended August 31, 2000, on a total-facility basis, this statistic
increased 8.8% over the prior-year quarter and, on a same-facility basis, it
increased by 6.1%. Some of the improvement is attributable to benefits from
contract changes that are essentially one-time events, that effectively raise
overall pricing beyond the actual contract rate increases. Because of these
one-time events, growth in revenue per admission may moderate going forward.
12 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<PAGE>
--------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
To address all the changes impacting the health care industry, while continuing
to provide quality care to patients, the Company has implemented strategies to
reduce inefficiencies, create synergies, obtain additional business and control
costs. In the past two years, such strategies have included hospital
cost-control programs and overhead-reduction plans and the enhancement of
integrated health care delivery systems. The Company has positioned itself for
additional cost savings in the years to come, for example, by outsourcing
housekeeping and dietary services in most of its hospitals. Further
consolidations and implementation of additional cost-control programs and other
operating efficiencies may be undertaken in the future.
Salaries and benefits expense as a percentage of net operating revenues was
40.4% in the quarter ended August 31, 1999 and 38.8% in the current quarter. The
decrease is primarily the result of cost-control measures, improved labor
productivity and the outsourcing of housekeeping and dietary services in most of
the hospitals.
Supplies expense as a percentage of net operating revenues was 14.2% in the
quarter ended August 31, 1999 and 14.0% in the current quarter. The Company
controls supplies expense through improved utilization, improving the supply
chain process and by developing and expanding programs designed to improve the
purchasing of supplies through BuyPower, its group-purchasing organization.
The provision for doubtful accounts as a percentage of net operating revenues
was 7.8% in the quarter ended August 31, 1999 and 7.4% in the current quarter.
The Company continues to take actions to reduce bad debt expense, including
improving the process for collecting receivables, pursuing timely payments from
managed care payers, standardizing and improving billing systems and developing
best practices in the patient admissions and registration process.
Other operating expenses as a percentage of net operating revenues were 21.7%
for the quarter ended August 31, 1999 and 22.0% for the quarter ended August 31,
2000. The change is primarily due to increases resulting from outsourcing
certain hospital services described above, offset by continuing cost control
measures.
Interest expense, net of capitalized interest, was $124 million in the quarter
ended August 31, 1999 and $123 million in the current quarter. The decrease is
primarily due to lower borrowings, offset by the effect of interest rate
increases and the amounts of capitalized interest during the periods.
Taxes on income as a percentage of income before income taxes were 38.8% for the
three months ended August 31, 1999 and 40.1% in the current quarter, which is in
line with the Company's expectations for fiscal 2001.
Net operating revenues from the Company's other domestic operations were $206
million for the three months ended August 31, 1999, compared to $149 million for
the current quarter. The decrease is primarily the result of terminations and
contract expirations of physician practices. The Company has exited more than
50% of these contracts and plans to exit another 10 to 15% by the end of the
fiscal year.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 13
<PAGE>
--------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity for the three month periods ended August 31, 1999 and
2000 was derived primarily from net cash provided by operating activities, the
proceeds from the sale of 9 1/4% Senior Notes and borrowings under its unsecured
revolving bank credit agreement as shown in the following table:
<TABLE>
<CAPTION>
1999 2000
------------- -------------
(in millions)
<S> <C> <C>
Net cash provided by operating activities ....................................... $ 12 $ 271
Proceeds from sale of 9 1/4% Senior Notes, due 2010................................. -- 395
Other net borrowings (repayments)................................................ 130 (642)
Purchases of property and equipment ............................................. (138) (120)
Proceeds from sales of facilities, long-term investments and other assets ....... 34 23
Purchases of new businesses, net of cash acquired ............................... (24) (9)
Other net investing and financing activities .................................... (19) 30
------------- -------------
Net decrease in cash and cash equivalents ....................................... $ (5) $ (52)
============= =============
</TABLE>
Net cash provided by operating activities for the three months ended August 31,
2000 was $296 million before net expenditures of $25 million for discontinued
operations, impairment and other unusual charges. Net cash provided by operating
activities for the three months ended August 31, 1999 was $30 million before $18
million in expenditures for such charges.
Management believes that future cash provided by recurring operating activities,
the availability of credit under the credit agreement and, depending on capital
market conditions and to the extent permitted by the restrictive covenants of
the credit agreement and the indentures governing the Company's senior and
senior subordinated notes, other borrowings or the sale of equity securities
should be adequate to meet known debt service requirements and to finance
planned capital expenditures, acquisitions and other presently known operating
needs over the next three years. The Company expects to refinance the credit
agreement on or before its January 31, 2002 maturity date.
During the quarter ended August 31, 2000, the Company reduced the balance of its
bank loans under the revolving credit agreement by $627 million. During the
three months ended August 31, 1999, the Company increased its net borrowings
under the credit agreement by $135 million. Payments of other long-term debt
were $16 million in the August 31, 2000 quarter and $5 million in the August
31,1999 quarter.
Cash payments for property and equipment were $120 million in the three months
ended August 31, 2000, compared to $138 million in the corresponding prior year
three-month period. The Company expects to spend approximately $500 million in
fiscal 2001 on capital expenditures, before any significant acquisitions of
facilities and other health care operations. Such capital expenditures primarily
relate to the development of integrated health care systems in selected
geographic areas, design and construction of new buildings, expansion and
renovation of existing facilities, equipment and systems additions and
replacements, introduction of new medical technologies and various other capital
improvements.
14 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<PAGE>
--------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's strategy continues to include the prudent development of
integrated health care delivery systems, including the possible acquisition of
general hospitals and related ancillary health care businesses or joining with
others to develop integrated health care delivery networks. All or portions of
these activities may be financed by net cash provided by operating activities,
the availability of credit under the credit agreement, the sale of assets and,
depending on capital market conditions and to the extent permitted by the
restrictive covenants of the credit agreement and the indentures governing the
Company's senior and senior subordinated notes, other borrowings or the sale of
equity securities. The Company's unused borrowing capacity under the credit
agreement was $1.985 billion as of September 29, 2000.
The Company's credit agreement and the indentures governing the Company's Senior
and Senior Subordinated notes have, among other requirements, affirmative,
negative and financial covenants with which the Company must comply. These
covenants include, among other requirements, limitations on other borrowings,
liens, investments, the sale of all or substantially all assets and prepayment
of subordinated debt, a prohibition against the Company declaring or paying a
dividend or purchasing its common stock, unless its senior long-term unsecured
debt securities are rated BBB- or higher by Standard and Poors' Rating Services
and Baa3 or higher by Moody's Investors Service, Inc., and covenants regarding
maintenance of specified levels of net worth, debt ratios and fixed charge
coverages. Current debt ratings on the Company's senior debt securities are BB+
by Standard and Poors and Ba1 by Moody's. The Company is in compliance with its
loan covenants.
BUSINESS OUTLOOK
The general hospital industry in the United States and the Company's general
hospitals continue to have significant unused capacity, and thus there is
substantial competition for patients. Inpatient utilization continues to be
negatively affected by payer-required pre-admission authorization and by payer
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. Increased competition, admission constraints and
payer pressure, as well as the shift in patient mix to managed care, are
expected to continue.
The ongoing challenge facing the Company and the health care industry as a whole
is to continue to provide quality patient care in an environment of rising
costs, strong competition for patients and a general reduction of payment rates
by government and other payers. Because of national, state and private industry
efforts to reform health care delivery and payment systems, the health care
industry as a whole faces increased uncertainty. The Company is unable to
predict whether any other health care legislation at the federal and/or state
level will be passed in the future and what action it may take in response to
such legislation, but it continues to monitor all proposed legislation and
analyze its potential impact in order to formulate its future business
strategies.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 15
<PAGE>
--------------
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q, including,
without limitation, statements containing the words believes, anticipates,
expects, will, may, might, should, estimates, intends, appears and words of
similar import, and statements regarding the Company's business strategy and
plans, constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on management's current expectations and involve known and unknown risks,
uncertainties and other factors, many of which the Company is unable to predict
or control, that may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both nationally and regionally;
industry capacity; demographic changes; existing laws and government regulations
and changes in, or the failure to comply with, laws and governmental
regulations; legislative proposals for health care reform; the ability to enter
into managed care provider arrangements on acceptable terms; a shift from
fee-for-service payment to capitated and other risk-based payment systems; a
shift from traditional Medicare and Medicaid reimbursement to Medicare and
Medicaid managed care plans; changes in Medicare and Medicaid payment or
reimbursement levels; liability and other claims asserted against the Company;
competition; the loss of any significant customers; technological and
pharmaceutical improvements that increase the cost of providing, or reduce the
demand for, health care; changes in business strategy or development plans; the
ability to attract and retain qualified personnel, including physicians, nurses
and other health care professionals; the significant indebtedness of the
Company; the availability of suitable acquisition opportunities and the length
of time it takes to accomplish acquisitions; the Company's ability to integrate
new business with its existing operations; and the availability and terms of
capital to fund the expansion of the Company's business, including the
acquisition of additional facilities and other factors referenced in this
Quarterly Report on Form 10-Q. Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the results of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
16 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
<PAGE>
--------------
OTHER INFORMATION
Item 1. Legal Proceedings
Material Developments in Previously Reported Legal Proceedings:
There have been no material developments in the legal proceedings
previously described in the Company's Annual Report on Form 10-K for its
fiscal year ended May 31, 2000 and the Company's Quarterly Report on Form
10-Q for the period ended August 31, 2000.
Items 2, 3,4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
(27.1) Financial Data Schedule for the three months ended August
31, 2000 (included only in the EDGAR filing).
(b) Reports on Form 8-K
(i) None.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES 17
<PAGE>
OTHER INFORMATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENET HEALTH CARE CORPORATION
(Registrant)
Date: October 12, 2000 /s/ DAVID L. DENNIS
-----------------------------
David L. Dennis
Office of the President,
Chief Corporate Officer and
Chief Financial Officer
(Principal Financial Officer)
/s/ RAYMOND L. MATHIASEN
-----------------------------
Raymond L. Mathiasen
Executive Vice President,
Chief Accounting Officer
(Principal Accounting Officer)
18 TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
