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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1995. [FEE REQUIRED]
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO . [NO FEE REQUIRED]
COMMISSION FILE NUMBER: I-7293
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TENET HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEVADA 95-2557091
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2700 COLORADO AVENUE 90404
SANTA MONICA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
AREA CODE (310) 998-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock New York Stock Exchange
Pacific Stock Exchange
9 5/8% Senior Notes due 2002 New York Stock Exchange
10 1/8% Senior Subordinated Notes due 2005 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendments to this Form 10-K. [_]
As of July 31, 1995 there were 199,997,979 shares of Common Stock
outstanding. The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant, based on the closing price of these shares
on the New York Stock Exchange, was $3,042,163,040. For the purposes of the
foregoing calculation only, all directors and executive officers of the
Registrant have been deemed affiliates.
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended May 31, 1995, have been incorporated by reference into Parts I, II
and IV of this Report. Portions of the definitive Proxy Statement for the
Registrant's 1995 Annual Meeting of the Shareholders have been incorporated by
reference into Part III of this Report.
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TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT--1995
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
PAGE
----
Part I
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 14
Item 3. Legal Proceedings..................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders................................... 17
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 18
Item 6. Selected Financial Data............................................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 18
Item 8. Financial Statements and Supplementary Data........................................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 18
Part III
Item 10. Directors and Executive Officers of the Registrant.................................... 18
Item 11. Executive Compensation................................................................ 18
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 18
Item 13. Certain Relationships and Related Transactions........................................ 18
Part IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K..................... 19
--------
Note: The responses to Items 5 through 8, Items 12 and 13 and portions of
Items 1, 3, 10, 11 and 14 are included in the Registrant's Annual Report
to Shareholders for the year ended May 31, 1995, or the definitive Proxy
Statement for the Registrant's 1995 Annual Meeting of Shareholders. The
required information is incorporated into this Report by reference to
those documents and is not repeated herein.
PART I
ITEM 1. BUSINESS
GENERAL
Tenet Healthcare Corporation (formerly known as National Medical
Enterprises, Inc.) (together with its subsidiaries, "Tenet", the "Registrant"
or the "Company") is a leading investor-owned healthcare company that operates
general hospitals and related healthcare facilities serving primarily urban
areas in 13 states and holds investments in other healthcare companies. At May
31, 1995, Tenet operated 70 domestic general hospitals, with a total of 15,451
licensed beds, located in Alabama, Arkansas, California, Florida, Georgia,
Indiana, Louisiana, Missouri, Nebraska, North Carolina, South Carolina,
Tennessee and Texas. Tenet grew from an operator of 35 general hospitals at
May 31, 1994, to an operator of 70 general hospitals and related healthcare
facilities at May 31, 1995, through its acquisition of American Medical
Holdings, Inc. ("AMH"). That acquisition was accomplished on March 1, 1995,
when a subsidiary of Tenet was merged into AMH, leaving AMH as a wholly-owned
subsidiary of Tenet (the "Merger").
In May, 1995, Tenet announced agreements to acquire a two-general-hospital
system in New Orleans, Louisiana and one general hospital in El Paso, Texas.
The New Orleans transaction closed in the first quarter of fiscal 1996, and
the El Paso transaction is expected to close in the second or third quarter of
fiscal 1996. In the first quarter of fiscal 1996, Tenet acquired a one-third
interest in a general hospital (82 beds) outside of Birmingham, Alabama,
announced a joint venture formed to develop a new general hospital in Weston,
Florida, and announced the signing of a letter of intent by another joint
venture to acquire a general hospital in Jonesboro, Arkansas. In fiscal 1995,
Tenet sold two general hospitals (202 beds) in Montclair and Ontario,
California.
At May 31, 1995, Tenet also operated six rehabilitation hospitals (the
"Campus Rehabilitation Facilities"), seven long-term care facilities (the
"Campus Long-Term Care Facilities") and five psychiatric facilities (the
"Campus Psychiatric Facilities") located on the same campus as, or nearby,
Tenet's general hospitals and various ancillary healthcare operations
discussed in more detail under Other Domestic Operations on page 5 below.
At May 31, 1995, Tenet operated 13 general hospitals in Australia,
Singapore, Spain and Malaysia, with a total of 1,693 licensed beds. Tenet has
sold its two Singapore hospitals and is in the process of selling certain of
its other international operations. These operations are discussed in more
detail under International Operations on page 5 below.
At May 31, 1995, Tenet held investments in the following other healthcare
companies: (i) The Hillhaven Corporation ("Hillhaven"), a publicly traded
company listed on the New York Stock Exchange ("NYSE"), (ii) Westminster
Health Care Holdings PLC ("Westminster"), a publicly traded company listed on
the London Stock Exchange, (iii) Total Renal Care, Inc. ("TRC"), and (iv)
Health Care Property Partners ("HCPP"), a partnership originally formed by the
Company and Health Care Property Investors, Inc. These investments, including
the anticipated acquisition of Hillhaven by Vencor, Inc. ("Vencor"), are
discussed in more detail under Investments on page 6 below.
At the beginning of fiscal 1995, Tenet continued to operate as a
discontinued business 54 freestanding psychiatric hospitals, residential
treatment centers and substance abuse recovery facilities (collectively, the
"Discontinued Facilities"). By the end of fiscal 1995, Tenet had sold or
closed all but two of those Discontinued Facilities. In fiscal 1995, Tenet
also sold its Management Services Division, which through subsidiaries managed
psychiatric, substance abuse and rehabilitation hospitals and units for third
parties and for Tenet.
Under segment reporting criteria, Tenet believes that "healthcare" is its
only material business segment. See the discussion of Tenet's revenues and
operations in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in Tenet's 1995 Annual Report to
Shareholders.
1
OPERATIONS
DOMESTIC GENERAL HOSPITALS
All of Tenet's general hospital and other healthcare operations are
conducted through NME Hospitals, Inc., AMH and various other subsidiaries and
affiliates. At May 31, 1995, Tenet's subsidiaries and affiliates operated 70
general hospitals (15,451 beds) serving primarily urban areas in 13 states. Of
those hospitals, 54 are owned (including one owned facility that is on leased
land) and 16 are owned by and leased from others (including two leased from
HCPP).
In May, 1995, Tenet announced agreements to acquire a two-general-hospital
system in New Orleans, Louisiana and one general hospital in El Paso, Texas.
The New Orleans transaction closed in the first quarter of fiscal 1996, and
the El Paso transaction is expected to close in the second or third quarter of
fiscal 1996. In the first quarter of fiscal 1996, Tenet acquired a one-third
interest in a general hospital (82 beds) outside of Birmingham, Alabama,
announced a joint venture formed to develop a new general hospital in Weston,
Florida, and announced the signing of a letter of intent by another joint
venture to acquire a general hospital in Jonesboro, Arkansas. In fiscal 1995,
Tenet sold two general hospitals (202 beds) in Montclair and Ontario,
California.
Each of Tenet's general hospitals offers acute care services and generally
offers fully equipped operating and recovery rooms, radiology services,
intensive care and coronary care nursing units, pharmacies, clinical
laboratories, respiratory therapy services, physical therapy services and
outpatient facilities. A number of the hospitals also offer tertiary care
services such as open heart surgery, neonatal intensive care, neurosciences,
orthopedics services and oncology services and two of the hospitals, USC
University Hospital and Sierra Medical Center, offer quartenary care in such
areas as heart, lung, liver and kidney transplants and gamma knife brain
surgery. With the exception of one general hospital that has not sought to be
accredited, each of the Company's facilities that is eligible for
accreditation is fully accredited by the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"), the Commission on Accreditation of
Rehabilitation Facilities (in the case of the Campus Rehabilitation Hospitals)
or another appropriate accreditation agency, which accreditation generally is
required for participation in government payment programs.
Technological developments permitting more procedures to be performed on an
outpatient basis, in conjunction with pressures to contain healthcare costs,
have led to a shift from inpatient care to ambulatory or outpatient care.
Tenet has responded to this trend by enhancing its hospitals' outpatient
service capabilities, including (i) establishing freestanding outpatient
surgery centers at or near certain of its hospital facilities, (ii)
reconfiguring certain hospitals to more effectively accommodate outpatient
treatment, by, among other things, providing more convenient registration
procedures and dedicated entrances, and (iii) restructuring existing surgical
capacity to allow a greater number and range of procedures to be performed on
an outpatient basis. Tenet's facilities will continue to emphasize those
outpatient services that can be provided on a cost-effective basis and which
the Company believes will experience increased demand.
In addition, inpatient care is continuing to move from acute care to sub-
acute care. Tenet has been proactive in the development of a variety of sub-
acute inpatient services to utilize a portion of its unused capacity, thereby
retaining a larger share of overall healthcare expenditures. By offering cost-
effective ancillary services in appropriate circumstances, Tenet is able to
provide a continuum of care where the demand for such services exists. For
example, in certain hospitals the Company has developed transitional care
units and pediatric, rehabilitation and long-term care sub-acute units. Such
units utilize less intensive staffing levels to provide the range of services
sought by payers with a lower cost structure.
2
The following table lists, by state, the general hospitals owned or (if
indicated below) leased by Tenet's subsidiaries and operated domestically as of
May 31, 1995:
OWNED OR LEASED GENERAL HOSPITALS
NUMBER OF
NAME OF FACILITY LOCATION LICENSED BEDS
---------------- -------- -------------
ALABAMA
Brookwood Medical Center Birmingham 586
ARKANSAS
Central Arkansas Hospital Searcy 169
National Park Medical Center Hot Springs 166
St. Mary's Regional Hospital Russellville 170
CALIFORNIA
Alvarado Hospital Medical Center San Diego 231
Century City Hospital(1) Los Angeles 190
Community Hospital & Rehabilitation
Center of Los Gatos(1) Los Gatos 175
Doctors Hospital of Manteca Manteca 73
Doctors Hospital of Pinole(1) Pinole 137
Doctors Medical Center of Modesto Modesto 433
Encino Hospital(2) Encino 151
Garden Grove Hospital and Medical Center Garden Grove 167
Garfield Medical Center Monterey Park 223
Irvine Medical Center(1) Irvine 176
John F. Kennedy Memorial Hospital Indio 130
Lakewood Regional Medical Center Lakewood 175
Los Alamitos Medical Center Los Alamitos 173
Medical Center of North Hollywood North Hollywood 163
Placentia Linda Community Hospital Placentia 114
Redding Medical Center Redding 185
San Dimas Community Hospital San Dimas 99
San Ramon Regional Medical Center San Ramon 123
Sierra Vista Regional Medical Center San Luis Obispo 195
South Bay Hospital(1) Redondo Beach 201
Tarzana Regional Medical Center(2) Tarzana 233
Twin Cities Community Hospital Templeton 84
USC University Hospital(3) Los Angeles 261
FLORIDA
Delray Community Hospital Delray Beach 211
Hollywood Medical Center Hollywood 334
Memorial Hospital of Tampa(4) Tampa 174
North Ridge Medical Center Ft. Lauderdale 395
Palm Beach Gardens Medical Center(1) Palm Beach Gardens 204
Palmetto General Hospital Hialeah 360
Palms of Pasadena Hospital St. Petersburg 310
Seven Rivers Community Hospital Crystal River 128
Town and Country Hospital Tampa 201
West Boca Medical Center Boca Raton 185
GEORGIA
North Fulton Regional Hospital(1) Roswell 167
Spalding Regional Hospital Griffin 160
INDIANA
Culver Union Hospital Crawfordsville 120
3
NUMBER OF
NAME OF FACILITY LOCATION LICENSED BEDS
---------------- -------- -------------
LOUISIANA
Doctors Hospital of Jefferson(1) Metairie 138
Jo Ellen Smith Medical Center New Orleans 164
Meadowcrest Hospital Gretna 200
Northshore Regional Medical Center(1) Slidell 174
St. Charles General Hospital New Orleans 173
Kenner Regional Medical Center Kenner 300
MISSOURI
Columbia Regional Hospital(5) Columbia 301
Kirksville Osteopathic Medical Center(1) Kirksville 119
Lucy Lee Hospital(1) Poplar Bluff 201
Lutheran Medical Center St. Louis 408
NEBRASKA
Saint Joseph Hospital Omaha 374
NORTH CAROLINA
Central Carolina Hospital Sanford 137
Frye Regional Medical Center(1) Hickory 355
SOUTH CAROLINA
East Cooper Community Hospital Mount Pleasant 100
Hilton Head Hospital(6) Hilton Head 68
Piedmont Medical Center Rock Hill 268
TENNESSEE
John W. Harton Regional Medical Center Tullahoma 137
Saint Francis Hospital Memphis 890
University Medical Center Lebanon 260
TEXAS
Brownsville Medical Center Brownsville 165
Doctors Hospital Dallas 268
Mid-Jefferson Hospital Nederland 138
Nacogdoches Medical Center Nacogdoches 150
Odessa Regional Hospital(7) Odessa 100
Park Place Hospital Port Arthur 223
Park Plaza Houston 468
RHD Memorial Medical Center(1) Dallas 190
Sierra Medical Center El Paso 365
Trinity Medical Center(1) Carrollton 149
Twelve Oaks Hospital Houston 336
--------
(1) Leased from a third party.
(2) Leased by a partnership in which Tenet's subsidiaries own a 75% interest.
(3) On leased land.
(4) Owned by a partnership in which Tenet's subsidiaries own a 76% interest.
(5) Excludes the 64-bed Keller Memorial Hospital in Columbia, Missouri, the
financial results of which were combined with the Columbia Regional
Hospital. The lease for Keller Memorial Hospital was terminated during the
first quarter of fiscal year 1996.
(6) Owned by a partnership in which Tenet's subsidiaries own a 70% interest.
(7) Owned by a partnership in which Tenet's subsidiaries own an 82% interest.
4
The following table shows certain information about the general hospitals
owned or leased domestically by Tenet, for the fiscal years ended May 31:
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total number of facilities............... 70 35 35 35 35
Total number of licensed beds............ 15,451 6,873 6,818 6,559 6,591
Average occupancy during the period...... 47% 47% 48% 51% 52%
The above tables do not include the Campus Rehabilitation Hospitals, the
Campus Long-Term Care Facilities or the Campus Psychiatric Facilities.
OTHER DOMESTIC OPERATIONS
At May 31, 1995, Tenet's subsidiaries operated the Campus Rehabilitation
Hospitals, which are located in California, Florida, Louisiana and Texas,
Campus Long-Term Care Facilities, which are located in California, Florida,
Louisiana and Texas (and which are managed by Hillhaven) and Campus
Psychiatric Facilities, which are located in California, Louisiana, Florida
and Nebraska. In the first quarter of fiscal 1996, the Company combined the
operations of one Campus Rehabilitation Facility with the operations of a
nearby general hospital. In addition, Tenet's subsidiaries operated various
ancillary healthcare operations, including outpatient surgery centers, home
healthcare programs, ambulatory, occupational and rural healthcare clinics, a
health maintenance organization, a preferred provider organization and a
managed care insurance company.
INTERNATIONAL OPERATIONS
At May 31, 1995, the Company's subsidiaries (i) operated two hospitals in
Singapore (650 beds), (ii) owned a 52% interest in Australian Medical
Enterprises ("AME"), a publicly traded Australian healthcare company that
operated nine hospitals (634 beds) and a pathology business, (iii) operated
the tertiary-care Centro Medico Teknon hospital (184 beds) in Barcelona,
Spain, which opened in February, 1995, (iv) managed one hospital (225 beds)
(in which it owns a 30% interest) in Kuala Lumpur, Malaysia, (v) owned a 40%
interest in a joint venture that is developing the new 554-bed tertiary-care
Bumrungrad Medical Center in Bangkok, Thailand, expected to be completed
during the first quarter of fiscal 1997, and (vi) owned a 90% interest in a
joint venture with a local community organization that is developing a 56-bed
hospital in Cham, Canton Zug, Switzerland, expected to open in the second
quarter of fiscal 1996, a project acquired in connection with the Merger. The
net operating revenues of these operations comprised approximately 5% of
Tenet's consolidated net operating revenues from all sources for both fiscal
1995 and 1994.
During fiscal 1995, Tenet's management concluded that it would be in the
best interests of Tenet's shareholders for the Company to focus on its core
business of operating domestic general hospitals rather than on its
international operations. Consequently, on June 28, 1995, Tenet sold its two
Singapore hospitals to Parkway Holdings Limited ("Parkway"), pursuant to a May
24, 1995 agreement, and on July 5, 1995, Tenet entered into a definitive
agreement with Parkway to sell Tenet's approximately 52% interest in AME. On
August 22, 1995, Health Care of Australia, an Australian company, made a bid
for all of AME's shares. Tenet expects to complete the sale of its interest in
AME to Parkway, Health Care of Australia or any other party prior to the end
of the second quarter of fiscal 1996. Tenet also expects to sell its 40%
interest in the Bumrungrad Medical Center in Thailand and to sell to its
partner its 30% interest in the Subang Jaya Medical Centre in Malaysia prior
to the end of the second quarter of fiscal 1996.
5
INVESTMENTS
The Company owns 8,878,147 shares, or an approximately 26% voting interest,
of Hillhaven, a Nevada corporation listed on the NYSE under the symbol "HIL".
In addition, at May 31, 1995, the Company held 35,000 shares of Hillhaven's
cumulative non-voting 8 1/4% Series C Preferred Stock (the "Hillhaven Series C
Preferred"), with an aggregate liquidation preference of $35.0 million, and
64,416 shares of Hillhaven's cumulative non-voting 6 1/2% payable-in-kind
Series D Preferred Stock (the "Hillhaven Series D Preferred"), with an
aggregate liquidation preference of approximately $64.4 million. On June 1,
1995, the Company received a dividend of 1,014 additional shares of Hillhaven
Series D Preferred and on September 1, 1995, the Company expects to receive a
dividend of 1,014 additional shares of Series D Preferred. At May 31, 1995,
Hillhaven operated 287 long-term care facilities, 57 pharmacies and 19
retirement housing communities in the United States.
On April 24, 1995, Vencor and Hillhaven announced that they had entered into
an agreement pursuant to which Vencor would acquire Hillhaven. Under the terms
of that agreement, Hillhaven's shareholders are to receive $32.25 in value
(subject to adjustment under certain circumstances depending upon the market
price of Vencor's stock) in Vencor common stock for each share of Hillhaven
common stock. In addition, the Company expects to receive approximately $90
million for its Hillhaven Series C Preferred and Hillhaven Series D Preferred,
which equals 90% of the aggregate of the liquidation values at the time the
transaction is expected to close. That transaction currently is pending.
The Company owns 21,499,999 shares (26,874,998 shares following
Westminster's pending 1 for 4 rights offering expected to close August 31,
1995), or approximately 42%, of the outstanding common stock of Westminster, a
United Kingdom company listed on the London Stock Exchange under the symbol
"WHC". Westminster, which operated 69 nursing homes and conducted other
healthcare operations at May 31, 1995, currently is the second largest long-
term care provider in the United Kingdom.
The Company also owns 4,500,000 shares of common stock, or an approximately
23% voting interest, of TRC, a leading dialysis services provider in the
United States. TRC operated 57 freestanding kidney dialysis units in 10 states
at May 31, 1995.
Additionally, the Company owns approximately 23% of HCPP, a partnership
originally formed by the Company and Health Care Property Investors, Inc. for
the purpose of acquiring from and leasing back to the Company 21 long-term
care facilities, two general hospitals and one psychiatric facility. Since
that time, the Company has assigned to Hillhaven and other third parties its
leasehold interests in the 21 long-term care facilities and the psychiatric
hospital, but remains contingently liable for the lease payments on those
facilities. The Company continues to lease the two general hospitals from
HCPP. HCPP does not own any properties other than those originally purchased
from the Company.
PROPERTIES
Tenet's principal executive offices are located in an approximately 310,000
square foot office building owned by Tenet and located at 2700 Colorado
Avenue, Santa Monica, California 90404. The telephone number is (310) 998-
8000. The Company has announced that it intends to sell its corporate
headquarters building in Santa Monica. Following the Merger, all of Tenet's
hospital support services were moved to leased space in its operations center
in Dallas, Texas, leaving only the corporate headquarters in Santa Monica. The
Company has announced that it has leased new space for its corporate
headquarters in Santa Barbara, California, and expects to move to that new
space during the third quarter of fiscal 1996. At May 31, 1995, Tenet and its
operating subsidiaries also were leasing other office space in Fairfax,
Virginia; Tampa, Florida; Irving, Texas; and Costa Mesa, Los Angeles, Modesto,
Santa Ana and Santa Monica, California.
As of May 31, 1995, Tenet's subsidiaries operated domestically 65 medical
office buildings, including 22 that are leased from others, most of which are
adjacent to Tenet's general hospitals. These buildings are occupied by
approximately 1,700 physicians.
6
The number of licensed beds and locations of the Company's general hospitals
are described on pages 2 through 5. As of May 31, 1995, Tenet had
approximately $104 million of outstanding loans secured by real property and
approximately $51 million of capitalized lease obligations. The Company
believes that all of these properties, as well as the administrative and
medical office buildings described above, are suitable for their intended
purposes.
MEDICAL STAFF AND EMPLOYEES
Tenet's hospitals are staffed by licensed physicians who have been admitted
to the medical staff of individual hospitals. Members of the medical staffs of
Tenet's hospitals often serve on the medical staffs of hospitals not owned by
the Company and may terminate their affiliation with the Tenet hospital or
shift their admissions to competing hospitals at any time. Although the
Company recently has begun to purchase physician practices and employ
physicians, most of the physicians who practice at the Company's hospitals are
not employees of the Company. Nurses, therapists, lab technicians, facility
maintenance staff and the administrative staff of hospitals, however, normally
are employees of the Company.
The number of Tenet employees (of which approximately 30% were part-time
employees) at May 31, 1995, was approximately as follows:
Hospital Division(1)............................................... 63,000
International Hospital Division.................................... 4,800
Other Businesses................................................... 550
Corporate Headquarters and Operations Center....................... 700
------
Total.......................................................... 69,050
======
--------
(1) Includes employees whose employment relates to the operations of the
Campus Psychiatric Facilities and the Campus Rehabilitation Hospitals.
As a result of the Merger and the relocation of substantially all of the
Company's hospital support services to the Company's Dallas, Texas, operations
center, approximately 150 positions are to be eliminated from the corporate
headquarters or the operations center prior to the end of fiscal 1996. Tenet
established a reserve at May 31, 1995, to cover the costs of the severance
packages and other costs related to the reduction in force.
Tenet is subject to the federal minimum wage and hour laws and maintains
various employee benefit plans. Labor relations at Tenet's facilities have
been satisfactory. A small percentage of Tenet's employees are represented by
labor unions. Although the Company currently is not experiencing a shortage of
nursing personnel, the availability of nursing personnel fluctuates from year
to year, and the Company cannot predict the degree to which it will be
affected by the future availability and cost of nursing personnel.
COMPETITION
Tenet's general hospitals, rehabilitation hospitals, long-term care
facilities and psychiatric facilities operate in competitive environments. A
facility's competitive position within the geographic area in which it
operates is affected by such competitive factors as the quality of care
provided, including the number, quality and specialties of the physicians,
nurses and other healthcare professionals on staff, its reputation, the number
of competitive facilities, the state of its physical plant, the quality and
the state of the art of its medical equipment, its location and its charges
for services. Tax-exempt competitors may have certain financial advantages
such as endowments, charitable contributions, tax-exempt financing and
exemption from sales, property and income taxes not available to Tenet
facilities. The length of time a facility has been a part of the community and
the availability of other healthcare alternatives also are competitive
factors.
7
An expanding factor in the competitive position of Tenet's facilities is the
ability of Tenet to obtain managed care contracts with payers that contract
with healthcare providers on a discounted or capitated basis in exchange for
sending some or all of their members/employees to those providers. Under
capitated contracts, hospitals receive specific fixed periodic payments based
on the number of members of the health maintenance organization or preferred
provider organization, regardless of the actual costs incurred and services
provided. The importance of obtaining managed care contracts has increased
over the years as employers and others attempt to control rising healthcare
costs. Tenet evaluates changing circumstances on an ongoing basis and
positions itself to compete in the managed care market. Tenet's facilities
have been actively pursuing and entering into managed care contracts.
The Company, and the healthcare industry as a whole, face the challenge of
continuing to provide quality patient care while dealing with strong
competition for patients and pressure on reimbursement rates by both private
and government payers. National and state efforts to reform the United States
healthcare system may further impact reimbursement rates. Changes in medical
technology, existing and future legislation, regulations and interpretations
and competitive contracting for provider services by payers may require
changes in the Company's facilities, equipment, personnel, rates and/or
services in the future.
The general hospital industry and the Company's general hospitals continue
to have significant unused capacity, and thus there is substantial competition
for patients. Inpatient utilization, average lengths of stay and average
occupancy continue to be negatively affected by payer-required pre-admission
authorization and utilization review and payer pressure to maximize outpatient
and alternative healthcare delivery services for less acutely ill patients.
Increased competition, admissions constraints and payer pressures are expected
to continue. There continue to be increases in inpatient acuity and intensity
of services as less intensive services shift from an inpatient to an
outpatient basis or to alternative healthcare delivery services because of
technological improvements and as cost controls by payers become greater.
Allowances and discounts are expected to continue to rise, and to cause
decreases in revenues, because of increasing cost controls by government and
private payers and because of the increasing percentage of business negotiated
with purchasers of group healthcare services. To meet these challenges, the
Company (i) has expanded many of its general hospitals' facilities to include
outpatient centers, (ii) offers discounts to private payer groups, (iii)
enters into capitation contracts in some service areas, (iv) upgrades
facilities and equipment and (v) offers new programs and services.
The Company also is responding to these changes by forming integrated
healthcare delivery systems. Components of these systems include encouraging
physicians practicing at its hospitals to form independent physician
associations ("IPAs"), having the Company join with those IPAs, physicians and
physician group practices to form physician hospital organizations ("PHOs") to
contract with managed care and other payers and forming management services
organizations ("MSOs") to (i) purchase physician practices or their assets, as
appropriate, (ii) provide management and administrative services to
physicians, physician group practices and IPAs and (iii) enter into managed
care contracts both on behalf of those groups and, in certain circumstances,
on behalf of PHOs.
In large part, hospital revenues depend on the physicians on staff who admit
or refer patients to the hospital. Physicians refer patients to hospitals on
the basis of the quality of services provided by the hospital to patients and
their physicians, the hospital's location, the quality of the medical staff
affiliated with the hospital and the quality of the hospital's facilities,
equipment and employees. The Company attracts physicians to its hospitals by
equipping its hospitals with sophisticated equipment, providing physicians
with a large degree of independence in conducting their hospital practices and
sponsoring training programs to educate physicians on advanced medical
procedures. While physicians may terminate their association with a hospital
at any time, Tenet believes that by striving to maintain and improve the level
of care at its hospitals and by maintaining high ethical and professional
standards, it will retain qualified physicians with a variety of specialties.
A hospital's revenues also may be affected by the ability of its management to
negotiate favorable group health service contracts with payers. The number of
persons and the patient mix represented by such group contracts impact the
hospital's operating results.
8
As a result, in part, of the changes in the industry, there has been
significant consolidation in the hospital industry over the past decade and
many hospitals have closed. Tenet's management believes that continuing cost-
containment pressures will lead to a continued increase in managed care and
further consolidation in the hospital industry.
MEDICARE, MEDICAID AND OTHER REVENUES
Tenet receives payments for patient care from private insurance carriers,
Federal Medicare programs for elderly and disabled patients, health
maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"),
state Medicaid programs for indigent and cash grant patients, the Civilian
Health and Medical Program of the Uniformed Services ("CHAMPUS"), employers
and patients directly. In general, Medicare payments for general hospital
outpatient services, psychiatric care and physical rehabilitation are based on
the lower of charges and allowable costs, subject to certain limits. General
hospital inpatient services are reimbursed under Medicare based on a
prospective payment system ("PPS"), discussed below. Payments from state
Medicaid programs are based on reasonable costs or are at fixed rates.
Substantially all Medicare and Medicaid payments are below retail rates for
Tenet facilities. Payments from other sources usually are based on the
hospital's established charges, a percentage discount or all-inclusive per
diem rates.
The approximate percentages of Tenet's net patient revenue by payment
sources for Tenet's general hospitals are as follows:
YEARS ENDED MAY 31,
-----------------------------------
1995 (1) 1994 1993 1992 1991
-------- ----- ----- ----- -----
Medicare............................. 38.9% 35.9% 33.9% 32.1% 31.8%
Medicaid............................. 7.2 8.5 7.5 6.4 6.0
Private and Other.................... 53.9 55.6 58.6 61.5 62.2
----- ----- ----- ----- -----
Totals........................... 100.0% 100.0% 100.0% 100.0% 100.0%
--------
(1) Fiscal year 1995 includes twelve months of results for general hospitals
owned by Tenet prior to the Merger and three months of results for the
general hospitals acquired by Tenet in connection with the Merger.
The following table presents the percentage of net patient revenues of the
general hospitals acquired by Tenet in connection with the Merger for AMH's
fiscal years 1994, 1993 and 1992 under each of the following programs:
YEARS ENDED
AUGUST 31,
-------------------
1994 1993 1992
----- ----- -----
Medicare............................................. 36.2% 32.6% 32.3%
Medicaid............................................. 7.5 6.2 4.8
Private and Other.................................... 56.3 61.2 62.9
----- ----- -----
Totals........................................... 100.0% 100.0% 100.0%
Medicare payments for general hospital inpatient care are based on a PPS
that generally has been applicable to Tenet's facilities since 1984. Under the
PPS, a general hospital receives for each Medicare patient a fixed amount for
operating costs based on each Medicare patient's assigned diagnostic related
group ("DRG"). DRG payments do not consider a specific hospital's costs, but
are adjusted for area wage differentials. DRG payments exclude the
reimbursement of (a) capital costs, including depreciation, interest relating
to capital expenditures, property tax and lease expenses and (b) outpatient
services.
9
Medicare reimburses general hospitals' capital costs separately from DRG
payments. Beginning in 1992, a prospective payment system for Medicare
reimbursement of general hospitals' inpatient capital costs ("PPS-CC"),
described in the following paragraph, generally became effective with respect
to the Company's general hospitals. The Omnibus Budget Reconciliation Act of
1990 ("OBRA '90") provides that through September 30, 1995, the total annual
estimated aggregate payment to all PPS hospitals for capital costs under the
PPS-CC is to be 10% less than the estimated aggregate amount that would be
paid if all such hospitals were to be reimbursed for 100% of their actual
capital costs. This reduction to PPS-CC is set to expire on September 30,
1995. The expiration of this section of OBRA 90 should, in theory, reset the
total capital payments to 100% of aggregate capital costs. Congress, however,
is in the process of establishing the healthcare budget for future periods,
which budget may include a reduction rather than an increase in the PPS-CC.
Until this process is completed, the final increase or decrease, if any, to
PPS-CC will not be known.
The PPS-CC applies an estimated national average of Medicare capital costs
per patient discharge (the "Federal Rate") in making payments to each
individual hospital based on its actual number of patient discharges. The
Federal Rate is based on national 1989 capital costs and patient discharges
and has been and will be updated annually to reflect estimated increases in
capital costs per patient discharges. In addition, the Federal Rate actually
applied to each hospital is adjusted based on various factors such as that
hospital's case mix and geographic location.
Rules adopted by the HCFA provide that the PPS-CC will be phased in over a
10-year transition period, during which many hospitals' actual capital costs
will be given less consideration, and the Federal Rate will be given more
consideration, each year. The Company's general hospitals will receive a major
portion of their reimbursement in the early years of the transition period
based on their own capital costs. The impact in later years will depend on the
Company's need for new capital as compared to the updated Federal Rate.
Outpatient services provided at general hospitals, physical rehabilitation
hospitals and psychiatric facilities generally are reimbursed by Medicare at
the lower of customary charges or 94.2% of actual cost. Notwithstanding the
foregoing, Congress has established additional limits on the reimbursement of
the following outpatient services: (i) clinical laboratory services, which are
reimbursed based on a fee schedule and (ii) ambulatory surgery procedures and
certain imaging and other diagnostic procedures, which are reimbursed based on
a blend of the hospital's specific cost and the rate paid by Medicare to non-
hospital providers for such services.
For several years the percentage increases to the DRG rates have been lower
than the percentage increases in the cost of goods and services purchased by
general hospitals. The index used by HCFA to adjust the DRG rates gives
consideration to the cost of goods and services purchased by hospitals as well
as non-hospitals (the "Market Basket"). The increase in the Market Basket for
the year beginning October 1, 1995, currently is projected to be 3.5%. Based
on the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93"), the DRG rates
for urban hospitals will be adjusted by the annual Market Basket percentage
change: (1) minus 2.5%, effective October 1, 1994, (2) minus 2.0%, effective
October 1, 1995, (3) minus .5%, effective October 1, 1996, and (4) without
reduction, effective October 1, 1997 and each year thereafter, unless altered
by subsequent legislation (which legislation Tenet believes has become more
likely in light of the stated desire of both the current Administration and
Congress to balance the budget). Substantially all of the Tenet hospitals are
urban hospitals for purposes of DRG rates.
Hospitals exempt from the PPS, such as qualified psychiatric facilities and
physical rehabilitation hospitals, are reimbursed by Medicare on a cost-based
system wherein target rates for each facility are used in applying various
limitations and incentives. Tenet's exempt facilities received a Market Basket
increase of 3.7% in target rates effective for cost reporting periods
commencing in Federal fiscal year 1995. Based on OBRA '93, the target rates
for Tenet's hospitals exempt from the PPS are scheduled to be adjusted in cost
reporting years 1995, 1996 and 1997 by the applicable annual Market Basket
percentage change minus 1%. Proposals have been made that would change the
method of payment for services provided at these facilities to a prospective
payment system. OBRA '90 requires the HHS to develop a proposal to modify the
current target rate system or to replace it with a prospective payment system.
It is not known if any such proposals will be implemented.
10
OBRA '93 provides for certain budget targets for the next four years which,
if not met, may result in adjustments in payment rates. Both Congress and the
current Administration have proposed healthcare budgets which reduce Federal
payments to hospitals and other providers. The Company anticipates that
payments to hospitals will be reduced as a result of future legislation but is
unable to predict what the amount of the final reduction will be.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes, administrative rulings, interpretations and
determinations, requirements for utilization review and new governmental
funding restrictions, all of which may materially increase or decrease program
payments as well as affect the cost of providing services and the timing of
payments to facilities. The final determination of amounts earned under the
programs often requires many years, because of audits by the program
representatives, providers' rights of appeal and the application of numerous
technical reimbursement provisions. Management believes that adequate
provision has been made for such adjustments. Until final adjustment, however,
significant issues remain unresolved and previously determined allowances
could become either inadequate or more than ultimately required.
HEALTHCARE REFORM, REGULATION AND LICENSING
Certain Background Information. Healthcare, as one of the largest industries
in the United States, continues to attract much legislative interest and
public attention. Medicare, Medicaid, mandatory and other public and private
hospital cost-containment programs, proposals to limit healthcare spending,
proposals to limit prices and industry competitive factors are highly
significant to the healthcare industry.
There continue to be Federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to
providers such as Tenet and proposals to increase co-payments and deductibles
from program and private patients. Tenet's facilities also are affected by
controls imposed by government and private payers designed to reduce
admissions and lengths of stay. Such controls, including what is commonly
referred to as "utilization review," have resulted in fewer of certain
treatments and procedures being performed. Utilization review entails the
review of the admission and course of treatment of a patient by a third party.
Utilization review by third-party peer review organizations ("PROs") is
required in connection with the provision of care paid for by Medicare and
Medicaid. Utilization review by third parties also is a requirement of many
managed care arrangements.
Tennessee has implemented a revision to its Medicaid program that covers its
Medicaid and uninsured population through a managed care program. California
has created a voluntary health insurance purchasing cooperative that seeks to
make healthcare coverage more affordable for businesses with five to 50
employees and, effective January 1, 1995, began changing the payment system
for participants in its Medicaid program in certain counties from fee-for-
service arrangements to managed care plans. Florida has enacted a program
creating a system of local purchasing cooperatives and has proposed other
changes that have not yet been enacted. Louisiana and Texas are considering
wider use of managed care for their Medicaid populations. These proposals also
may attempt to include coverage for some people who presently are uninsured. A
number of other states are considering the enactment of managed care
initiatives designed to provide universal low-cost coverage. Florida has
adopted, and other states are considering adopting, legislation imposing a tax
on revenues of hospitals to help finance or expand those states' Medicaid
systems.
Certificate of Need Requirements. Some states require state approval for
construction and expansion of healthcare facilities, including findings of
need for additional or expanded healthcare facilities or services.
Certificates of Need, which are issued by governmental agencies with
jurisdiction over healthcare facilities, are at times required for capital
expenditures exceeding a prescribed amount, changes in bed capacity or
services and certain other matters. Following a number of years of decline,
the number of states requiring Certificates of Need is once again on the rise
as state legislators once again are looking at the Certificate of Need process
as a way to contain rising healthcare costs. Tenet operates hospitals in eight
states that require state approval under
11
Certificate of Need Programs. Tenet is unable to predict whether it will be
able to obtain any Certificates of Need in any jurisdiction where such
Certificates of Need are required.
Antifraud and Self-Referral Regulations. The healthcare industry is subject
to extensive Federal, state and local regulation relating to licensure,
conduct of operations, ownership of facilities, addition of facilities and
services and prices for services. In particular, Medicare and Medicaid
antifraud and abuse amendments codified under Section 1128B(b) of the Social
Security Act (the "Antifraud Amendments") prohibit certain business practices
and relationships that might affect the provision and cost of healthcare
services reimbursable under Medicare and Medicaid, including the payment or
receipt of remuneration for the referral of patients whose care will be paid
for by Medicare or other government programs. Sanctions for violating the
Antifraud Amendments include criminal penalties and civil sanctions, including
fines and possible exclusion from the Medicare and Medicaid programs. Pursuant
to the Medicare and Medicaid Patient and Program Protection Act of 1987, the
Department of Health and Human Services ("HHS") has issued regulations that
describe some of the conduct and business relationships permissible under the
Antifraud Amendments ("Safe Harbors"). Tenet believes its business
arrangements comply in all material respects with applicable law and
substantially satisfy the Safe Harbors. The fact that a given business
arrangement does not fall within a Safe Harbor does not render the arrangement
per se illegal. Business arrangements of healthcare service providers that
fail to satisfy the applicable Safe Harbor criteria, however, risk increased
scrutiny by enforcement authorities. Because Tenet may be less willing than
some of its competitors to enter into business arrangements that do not
clearly satisfy the Safe Harbors, it could be at a competitive disadvantage in
entering into certain transactions and arrangements with physicians and other
healthcare providers.
In addition, Section 1877 of the Social Security Act, which restricts
referrals by physicians of Medicare and other government-program patients to
providers of a broad range of designated health services with which they have
ownership or certain other financial arrangements, was amended effective
January 1, 1995, to significantly broaden the scope of prohibited physician
referrals under the Medicare and Medicaid programs to providers with which
they have ownership or certain other financial arrangements (the "Self-
Referral Prohibitions"). Many states have adopted or are considering similar
legislative proposals, some of which extend beyond the Medicaid program to
prohibit the payment or receipt of remuneration for the referral of patients
and physician self-referrals regardless of the source of the payment for the
care. Tenet's participation in and development of joint ventures and other
financial relationships with physicians could be adversely affected by these
amendments and similar state enactments. The Company systematically reviews
all of its operations to ensure that it complies with the Social Security Act
and similar state statutes.
Tenet is unable to predict the future course of Federal, state and local
regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the financial results of Tenet's operations.
Environmental Regulations. The Company's healthcare operations generate
medical waste that must be disposed of in compliance with Federal, state and
local environmental laws, rules and regulations. The Company's operations are
also subject to compliance with various other environmental laws, rules and
regulations. Such compliance does not, and the Company anticipates that such
compliance will not, materially affect the Company's capital expenditures,
earnings or competitive position.
Healthcare Facility Licensing Requirements. Tenet's healthcare facilities
are subject to extensive Federal, state and local legislation and regulation.
In order to maintain their operating licenses, healthcare facilities must
comply with strict standards concerning medical care, equipment and hygiene.
Various licenses and permits also are required in order to dispense narcotics,
operate pharmacies, handle radioactive materials and operate certain
equipment. Tenet's healthcare facilities hold all required governmental
approvals, licenses and permits. With the exception of one general hospital
that has not sought to be accredited, each of Tenet's facilities that is
eligible for accreditation is fully accredited by the JCAHO, the Commission on
Accreditation of Rehabilitation Facilities (in the case of the Campus
Rehabilitation Hospitals) or another appropriate accreditation agency, which
accreditation generally is required for participation in government-sponsored
provider programs.
12
Tenet's healthcare facilities are subject to and comply with various forms
of utilization review. In addition, under the Medicare PPS, each state must
have a PRO to carry out a federally mandated system of review of Medicare
patient admissions, treatments and discharges in general hospitals. Medical
and surgical services and practices are extensively supervised by committees
of staff doctors at each healthcare facility, are overseen by each healthcare
facility's local governing board, comprised of healthcare professionals,
community members and hospital representatives, and are reviewed by Tenet's
quality assurance personnel. The local governing boards also help maintain
standards for quality care, develop long-range plans, establish, review and
enforce practices and procedures and approve the credentials and disciplining
of medical staff members.
COMPLIANCE PROGRAM
As previously reported in the Company's Annual Reports on Form 10-K for the
fiscal years ended May 31, 1993 and 1994, various government agencies have
conducted investigations concerning whether Tenet and certain of its
subsidiaries engaged in improper practices. As a result of negotiations
between the Company and the Civil and Criminal Divisions of the Department of
Justice ("DOJ"), and the Department of Health and Human Services ("HHS"), the
Company entered into various agreements on June 29, 1994, which brought to a
close all open investigations of the Company, its subsidiaries and its
facilities as they existed on June 29, 1994 by the federal government and its
agencies. As a result of those agreements, on July 12, 1994, the United States
District Court for the District of Columbia accepted a plea by a subsidiary
operating the Company's psychiatric hospitals, to an information charging a
six-count violation of 42 U.S.C. (S)1320-7(b)(2)(A) (paying remuneration to
induce referrals) and a one-count violation of 18 U.S.C. (S)371 (conspiracy to
make such payments). In addition, the Company agreed to pay $362,700,000 to
the federal government. The court also accepted a plea agreement pursuant to
which another subsidiary pled guilty to an information charging a one-count
violation of 18 U.S.C. (S)666 (making illegal payments concerning programs
receiving federal funds), which related to a single general hospital. The
count relates to activities that occurred while an individual convicted of
defrauding the hospital was its chief executive. On July 12, 1994, the
Company, without admitting or denying liability, consented to the entry, by
the United States District Court for the District of Columbia, of a civil
injunctive order in response to a complaint by the Securities and Exchange
Commission. The complaint alleged that the Company failed to comply with anti-
fraud and recordkeeping requirements of the federal securities laws concerning
the manner in which the Company recorded the revenues from the activities that
were the subject of the federal government settlement referred to above. In
the order, the Company is directed to comply with such requirements of the
federal securities laws. In May, 1994, the Company also agreed with 27 states
and the District of Columbia to pay an additional $16.3 million to settle
potential claims arising from matters involved in the federal investigations.
The 27 states and the District of Columbia are all of the areas in which the
Company's subsidiaries operated psychiatric facilities.
One component of the Company's settlement with Federal agencies is the
adoption of a corporate compliance program under which the Company has agreed,
among other things, to: complete the disposition of its psychiatric division
facilities (with the exception of the four campus psychiatric facilities owned
by the Company prior to the Merger), no later than November 30, 1995, not own
or operate other psychiatric facilities (defined for the purposes of the
agreement to include residential treatment centers and substance abuse
facilities) for five years from the date of completion of the disposition of
its psychiatric division facilities and divest any psychiatric facilities
acquired incidental to a corporate transaction within 180 days of such
acquisition. In addition, the Company has agreed to implement certain
oversight procedures and to continue its ethics training program and ethics
telephone hotline. Should the oversight procedures or hotline reveal, after
investigation by the Company, credible evidence of violations of criminal, or
potential material violations of civil, laws, rules or regulations governing
federally funded programs, Tenet is required to report any such violation to
the DOJ and HHS.
13
MANAGEMENT
The executive officers of the Company who also are not Directors as of
August 22, 1995 are:
NAME POSITION AGE
---- -------- ---
Maris Andersons Senior Vice President and Treasurer 58
Scott M. Brown Senior Vice President, General Counsel and Secretary 50
Raymond L.
Mathiasen Senior Vice President and Chief Financial Officer 52
Maris Andersons has served as Treasurer of Tenet since 1981, and as Senior
Vice President since 1992. He is a director of Hillhaven and TRC. Mr.
Andersons joined Tenet in 1976, prior to which he served as a Vice President
of Bank of America.
Scott M. Brown is Senior Vice President, Secretary and General Counsel of
the Company. He joined Tenet in 1981. Mr. Brown was elected Secretary in 1984
and Senior Vice President in 1990. Mr. Brown was appointed acting General
Counsel in July 1993 and General Counsel in February 1994.
Raymond L. Mathiasen is Senior Vice President and, since February 1994,
Chief Financial Officer of the Company. From September 1993 to February 1994,
Mr. Mathiasen was Senior Vice President and acting Chief Financial Officer.
Prior to joining Tenet as a Vice President in 1985, he was a partner with
Arthur Young & Company (now known as Ernst & Young). Mr. Mathiasen was elected
to the position of Senior Vice President in 1990 and Chief Operating Financial
Officer in 1991.
ITEM 2. PROPERTIES.
The response to this item is included in Item 1.
ITEM 3. LEGAL PROCEEDINGS.
The shareholder derivative actions filed in the Los Angeles Superior Court
in October and November of 1991 were consolidated into one shareholder
derivative action entitled Harry Polikoff, Harry Ackerman, and Bette Rita
Grayson, Derivatively on Behalf of Nominal Defendant National Medical
Enterprises, Inc. v. Richard K. Eamer, Leonard Cohen, John C. Bedrosian,
William S. Banowsky, Ph.D., Jeffrey C. Barbakow, Bernice B. Bratter, Maurice
J. DeWald, Peter de Wetter, Edward Egbert, M.D., Michael H. Focht, Sr.,
Raymond A. Hay, Nita P. Heckendorn, Taylor R. Jenson, Lloyd R. Johnson, James
P. Livingston, A.J. Martinson, M.D., Howard F. Nachtman, M.D., Richard S.
Schweiker, Richard L. Stever, Norman A. Zober, Maris Andersons, Scott M.
Brown, Raymond L. Mathiasen and Marcus E. Powers, Defendants. Plaintiffs' suit
was based primarily on alleged breaches of fiduciary duties and constructive
fraud on the part of the individual defendants. The plaintiffs alleged that,
among other things, the individual defendants knew or should have known of
allegedly improper marketing, billing and other practices within what formerly
was known as the Company's psychiatric division and failed to take appropriate
action as required by their fiduciary responsibilities. Based on these claims,
plaintiffs sought compensatory damages on behalf of the Company, punitive
damages, injunctive relief, attorneys' fees, interest and costs. Defendants
filed three separate demurrers that were sustained and resulted in dismissal
of the action with prejudice on May 21, 1993. The dismissal was appealed by
the plaintiffs.
The federal class action lawsuits filed in October and November of 1991 were
consolidated into one action pending in the U.S. District Court in the Central
District of California entitled In Re National Medical Enterprises, Inc.
Securities Litigation I. The defendants in this action were National Medical
Enterprises, Inc., Richard K. Eamer, Leonard Cohen, John C. Bedrosian, William
S. Banowsky, Michael H. Focht, Sr., Norman A. Zober, Marcus E. Powers and
Maris Andersons. The class action alleged violations of Section 10(b) of the
Securities Exchange Act of 1934. Specifically, plaintiffs alleged that each
defendant knew or recklessly disregarded that the public statements made by
the Company and several of its officers and directors in reports to the
Securities and Exchange Commission and others were false and misleading
because the financial data and projections were based upon a number of alleged
illegal practices at many of the Company's psychiatric facilities. Plaintiffs
sought compensatory damages, injunctive relief, attorneys' fees, interest and
costs.
14
As a result of a mediation process previously reported in the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1994, and
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1994,
the parties in the derivative and class action suits described above agreed to
a global settlement of all plaintiffs' claims. The settlement, which will
require court approval, involves a total payment of $63.75 million plus
interest by or on behalf of the defendants. Of this amount, Tenet's directors'
and officers' liability insurance ("D&O") carriers have agreed to pay a total
of $32.5 million plus interest on behalf of the individual defendants. The
Company will pay $31.25 million plus interest on its own behalf. In addition,
one of the D&O carriers has reimbursed the Company for $5.5 million in
attorneys fees expended on the litigation. The parties in the federal class
action litigation have executed a stipulation of settlement, and on July 3,
1995, the court issued an order preliminarily approving the settlement. A
hearing regarding approval of the settlement is scheduled to take place on
September 18, 1995. The parties to the derivative litigation have executed a
memorandum of understanding regarding the terms of the settlement. A
stipulation of settlement is expected and also will require court approval.
Two additional federal class actions filed in August 1993 and previously
reported in the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1994, were consolidated into one action pending in the U.S. District
Court in the Central District of California captioned In re: National Medical
Enterprises Securities Litigation II. These consolidated actions are on behalf
of a purported class of shareholders who purchased or sold stock of the
Company between January 14, 1993 and August 26, 1993, and allege that each of
the defendants violated Section 10(b) of the Securities Exchange Act of 1934.
Specifically, plaintiffs allege that each defendant knew or recklessly
disregarded that the public statements made by the Company and several of its
officers and directors in reports to the Securities and Exchange Commission,
in press releases, communications with shareholders, and communications with
the financial community were false and misleading because the financial data
and projections were based upon a number of alleged illegal practices at many
of the Company's psychiatric facilities. Plaintiffs claim that each of the
defendants was a direct participant in this wrongdoing and conspired with and
aided and abetted each of the other defendants in perpetrating the alleged
fraudulent scheme. Based on these claims, plaintiffs seek compensatory
damages, injunctive relief, attorneys' fees, interest and costs. The parties
commenced a voluntary mediation in July, 1994. The mediation efforts were
unsuccessful and in May 1995 the parties agreed to proceed with the
litigation. On June 23, 1995, the defendants filed a motion to dismiss and to
strike plaintiffs' complaint. The Company believes it has meritorious defenses
to this action and will defend this litigation vigorously.
The Company continues to experience a greater than normal level of
litigation relating to its former psychiatric operations. The majority of the
lawsuits filed contain allegations of fraud and conspiracy against the Company
and certain of its subsidiaries and former employees. The Company believes
that the increase in litigation stems, in whole or in part, from
advertisements by certain lawyers seeking former psychiatric patients in order
to ascertain whether potential claims exist against the Company. The
advertisements focus, in many instances, on the Company's settlement of past
disputes involving the operations of its psychiatric subsidiaries, including
the Company's 1994 resolution of the government's investigation and a
corresponding criminal plea agreement. Among the suits filed during fiscal
1995 were two lawsuits in Texas aggregating approximately 760 individual
plaintiffs who are purported to have been patients in certain Texas
psychiatric facilities and a number of lawsuits filed in the District of
Columbia. In addition, a purported class action was filed in Texas state court
in May, 1995, entitled Justin Love vs. National Medical Enterprises, Inc.; NME
Psychiatric Hospitals, Inc., f/k/a Psychiatric Institutes of America, Inc.;
NME Specialty Hospitals, Inc., f/k/a North Houston Healthcare Campus, Inc.,
d/b/a Laurelwood Hospital; Baywood Hospital, Inc., d/b/a Baywood Hospital;
Psychiatric Facility at Amarillo, Inc., f/k/a P.I.A. Amarillo, Inc., d/b/a
Cedar Creek Hospital; P.I.A. Denton, Inc., d/b/a Twin Lakes Hospital; P.I.A.
of Fort Worth, Inc., d/b/a Psychiatric Institute of Fort Worth; P.I.A. San
Antonio, Inc., d/b/a Colonial Hills Hospital; P.I.A. Stafford, Inc., d/b/a
Stafford Meadows Hospital; P.I.A. Waxahachie, Inc., d/b/a Willowbrook
Hospital; Psychiatric Institute of Bedford, Inc., d/b/a Bedford Meadows
Hospital; Psychiatric Institute of Sherman, Inc., d/b/a Arbor Creek
Psychiatric Hospital; Brookhaven Psychiatric Pavilion; Richard K. Eamer;
Leonard Cohen; John C. Bedrosian; Jeffrey C. Barbakow; Norman A. Zober; Ronald
Bernstein; and Peter J. Alexis. The case contains allegations of fraud and
conspiracy similar to those described above. The plaintiff purports to
represent all psychiatric patients treated during the period of January 1987
through October 1991.
15
The Company believes that the class is not capable of being certified. The
Company believes it has a number of defenses to these actions and will defend
the litigation vigorously. Until the lawsuits are resolved, however, the
Company will continue to incur substantial legal expenses. The Company expects
that additional lawsuits of this nature will be filed.
On October 5, 1993, John Bedrosian filed the lawsuit John C. Bedrosian vs.
National Medical Enterprises, Inc., Jeffrey C. Barbakow, Michael H. Focht,
Sr., Bernice B. Bratter, Maurice J. DeWald, Peter de Wetter and Lester B. Korn
in the Los Angeles Superior Court. Mr. Bedrosian, who was a director of the
Company until September 28, 1994 and served as its Senior Executive Vice
President until September 24, 1993, when his employment with the Company was
terminated without cause pursuant to the terms of his employment agreement,
alleged: breach of oral agreement; breach of implied in fact contract; breach
of the covenant of good faith and fair dealing; negligent misrepresentation of
material fact; bad faith denial of existence of a contract; breach of written
agreement; age discrimination in employment; libel; tortious interference with
contractual relations; conspiracy to interfere with contractual relations; and
intentional infliction of emotional distress. The suit seeks damages in excess
of $20,000,000, exemplary and punitive damages, declaratory relief, including
relief from six loans he obtained from the Company, attorneys fees and costs
of suit and other equitable relief. The Company filed a cross-complaint
against him for his refusal to make repayment on his six loans. The Company
also filed a motion to have the portion of Mr. Bedrosian's lawsuit that
pertains to his employment agreement with the Company referred to a Superior
Court Referee as provided in the employment agreement. The Company's motion
was granted and Mr. Bedrosian's employment claims against the Company were
referred to a Superior Court Referee for trial. The Company filed motions for
summary judgment on several of Mr. Bedrosian's claims and on its cross-
complaint against Mr. Bedrosian for his failure to repay his loans. The
Company's motions for summary judgment ultimately were granted as to several
of Mr. Bedrosian's claims against the Company, and also as to its claims
against Mr. Bedrosian on his six loans totalling approximately $4,300,000. The
trial of Mr. Bedrosian's employment-related claims took place in June and
July, 1994 before a retired California Superior Court Judge sitting as a
Referee. During that trial, the Court granted defendants' motion to have
certain other of Mr. Bedrosian's employment claims dismissed. The trial on Mr.
Bedrosian's two remaining claims was concluded on July 29, 1994. A decision on
those claims was issued by the Referee on November 4, 1994. The Referee ruled
that Mr. Bedrosian's claim of age discrimination was without merit, but that
the Company must pay to Mr. Bedrosian approximately $476,000 in addition to
amounts already paid to him under his employment contract for bonus
compensation and other benefits under his employment contract. All of Mr.
Bedrosian's other employment claims, including his claim that he was entitled
to be employed by the Company until age 65, also were dismissed. Mr. Bedrosian
filed numerous motions in the Superior Court attempting to have the decision
of the Referee vacated on various grounds. All of those motions were denied.
Mr. Bedrosian has appealed the denial of several of those motions, and those
appeals currently are pending before the California Court of Appeal.
On February 15, 1995, the Company filed a complaint seeking declaratory and
injunctive relief in the California Superior Court for the County of Los
Angeles entitled National Medical Enterprises, Inc. v. The Hillhaven
Corporation, Bruce L. Busby, Christopher J. Marker and Does 1-25. The Company
alleges, among other things, that the named defendants have breached their
fiduciary duties to the Company and its fellow shareholders in Hillhaven and
interfered with the Company's prospective economic advantage by undertaking a
series of acts designed to: (1) entrench themselves, (2) dilute the Company's
equity interest in Hillhaven, and (3) deprive all of Hillhaven's shareholders
the opportunity to consider the friendly acquisition proposal made by Horizon
Healthcare Corporation to Hillhaven. On March 7, 1995, the Services Employees
International Union, a union allegedly representing 2,000 Hillhaven employees
at approximately 40 Hillhaven nursing homes, and Joann Sforza, an individual
allegedly employed by Hillhaven moved to file a complaint in intervention in
the case. On March 23, 1995, the parties entered into a stipulation staying
all activity in the case for a 45 day period. On March 24, 1995, an order
confirming the stay was entered by the court. On May 16, 1995, the parties
agreed to stay the action in light of Vencor's April 24, 1995, announcement
that it had signed a definitive agreement to acquire Hillhaven.
16
A total of nine purported class actions (the "Class Actions") have been
filed challenging the Merger in both Delaware and California. The seven Class
Actions filed in the Delaware Court of Chancery have been consolidated under
the caption, In re: American Medical Holdings, Inc., Shareholders Litigation,
C.A. No. 13797, and discovery is continuing in this case. In addition, two
purported class actions, entitled Ruth LeWinter and Raymond Cayuso v. the AMH
Directors (with the exception of Harold S. Williams), NME and AMH, Case No.
BC-115206 and David F. and Sylvia Goldstein v. O'Leary, NME, AMH, et al., Case
No. BC-116104, have been filed in the Superior Court of the State of
California, County of Los Angeles. The California actions have been stayed
pending the resolution of the Delaware actions. Because the Merger has been
consummated, plaintiffs seek rescission or rescissory damages, an accounting
of all profits realized and to be realized by the defendants in connection
with the Merger and the imposition of a constructive trust for the benefit of
the plaintiffs and other members of the purported classes pending such an
accounting. Plaintiffs also seek monetary damages of an unspecified amount
together with prejudgment interest and attorney's and experts' fees. The
Company believes that the complaints are without merit and will defend this
litigation vigorously.
In its normal course of business the Company also is subject to claims and
lawsuits relating to injuries arising from patient treatment. The Company
believes that its liability for damages resulting from such claims and
lawsuits is adequately covered by insurance or is adequately provided for in
its financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The response to this item is included on page 47 of the Registrant's Annual
Report to Shareholders for the year ended May 31, 1995. The required
information hereby is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The response to this item is included on page 16 of the Registrant's Annual
Report to Shareholders for the year ended May 31, 1995. The required
information hereby is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The response to this item is included on pages 17 through 22 of the
Registrant's Annual Report to Shareholders for the year ended May 31, 1995.
The required information hereby is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included on pages 23 through 47 of the
Registrant's Annual Report to Shareholders for the year ended May 31, 1995.
The required information hereby is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE
COMPENSATION.
Information concerning the Directors of the Registrant, including executive
officers of the Registrant who also are Directors, and other information
required by Items 10 and 11, is included on pages 2 through 5 of the
definitive Proxy Statement for Registrant's 1995 Annual Meeting of
Shareholders and hereby is incorporated by reference. Similar information
regarding executive officers of the Registrant who, except as noted therein,
are not Directors is set forth on page 14 above. Information regarding
compensation of executive officers and Directors of the Registrant is included
on pages 8 through 16 and pages 21 through 23 of the definitive Proxy
Statement for the Registrant's 1995 Annual Meeting of Shareholders and hereby
is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to this item is included on pages 6 and 27 of the definitive
Proxy Statement for the Registrant's 1995 Annual Meeting of Shareholders. The
required information hereby is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to this item is included on pages 23 and 24 of the definitive
Proxy Statement for the Registrant's 1995 Annual Meeting of Shareholders. The
required information hereby is incorporated by reference.
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
The consolidated financial statements to be included in Part II, Item
8, are incorporated by reference to the Registrant's 1995 Annual Report
to Shareholders. (See exhibit (13)).
2. FINANCIAL STATEMENT SCHEDULES.
Schedule II Valuation and Qualifying Accounts and Reserves
(included on page F-1)
All other schedules and Condensed Financial Statements of Registrant
are omitted because they are not applicable or not required or because
the required information is included in the financial statements or
notes thereto.
3. EXHIBITS.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
(a) Agreement and Plan of Merger, dated as of October 10, 1994,
among the Company, AMH Acquisition Co. and American Medical
Holdings, Inc. (Incorporated by reference to Exhibit 2(A) to
Registrant's Quarterly Report on Form 10-Q, dated October 14,
1994)
(3) Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of Registrant, as amended
October 13, 1987 and June 22, 1995
(b) Restated Bylaws of Registrant, as amended March 1, 1995
(Incorporated by reference to Exhibit 3(b) to Registrant's
Quarterly Report on Form 10-Q dated April 14, 1995)
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Form of Indenture for the Registrant's Convertible Floating Rate
Debentures, dated as of February 1, 1992, among NME PIP Funding
I, Inc., the Registrant and Bankers Trust Company, as Trustee
(Incorporated by reference to Exhibit 4(a) to Registration
Statement on Form S-3, Registration No. 33-45689, dated February
14, 1992)
(b) Form of Convertible Floating Rate Debenture due April 3, 1996
(Incorporated by reference to Exhibit (e) to Registrant's
Registration Statement on Form S-3, Registration No. 33-45689,
dated February 14, 1992)
(c) Agreement Providing for First Amendment to Convertible Floating
Rate Debentures due April 3, 1996, dated as of December 11,
1991, between the Registrant and NME PIP Funding I, Inc.
(Incorporated by reference to Exhibit (f) to Registrant's
Registration Statement on Form S-3, Registration No. 33-45689,
dated February 14, 1992)
(d) Certificate of Designation, Preference and Rights of Series A
Junior Participating Preferred Stock (Incorporated by reference
to Exhibit 4(h) to Registrant's Annual Report on Form 10-K dated
August 30, 1993)
(e) Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock (Incorporated by reference to
Exhibit 4(d) to Registrant's Annual Report on Form 10-K dated
August 23, 1991)
(f) Form of Investment Option Agreement
(g) Indenture, dated as of March 1, 1991, between the Registrant and
The Bank of New York, as Trustee, relating to Medium Term Notes
(Incorporated by reference to Exhibit 4(a) to Registrant's
Annual Report on Form 10-K dated August 23, 1991)
19
(h) Indenture, dated as of March 1, 1995, between Tenet and The Bank
of New York, as Trustee, relating to 9 5/8% Senior Notes due
2002 (Incorporated by reference to Exhibit 4(a) to Registrant's
Quarterly Report on Form 10-Q dated April 14, 1995)
(i) Indenture, dated as of March 1, 1995, between Tenet and The Bank
of New York, as Trustee, relating to 10 1/8% Senior Subordinated
Notes due 2005 (Incorporated by reference to Exhibit 4(b) to
Registrant's Quarterly Report on Form 10-Q dated April 14, 1995)
(j) Registration Rights Agreement, dated as of February 22, 1995, by
and between the Registrant and the Selling Shareholders
(Incorporated by reference to Exhibit 4.1 to Registrants
Registration Statement on Form S-3, Registration No. 33-57801,
dated February 22, 1995)
(10) Material Contracts
(a) Guaranty Reimbursement Agreement, dated as of January 31, 1990,
by and between the Registrant and The Hillhaven Corporation
(Incorporated by reference to Exhibit 10(e) to Registrant's
Annual Report on Form 10-K dated August 21, 1992)
(b) First Amendment to Guarantee Reimbursement Agreement, dated as
of May 30, 1991, by and between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(g) to
Registrant's Annual Report on Form 10-K dated August 23, 1991)
(c) Second Amendment to Guarantee Reimbursement Agreement, dated as
of October 2, 1991, between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(w) to
Registrant's Annual Report on Form 10-K dated August 21, 1992)
(d) Third Amendment to Guarantee Reimbursement Agreement, dated as
of April 1, 1992, between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(dd) to
Registrant's Annual Report on Form 10-K dated August 21, 1992)
(e) Fourth Amendment to Guarantee Reimbursement Agreement, dated as
of November 12, 1992, between the Registrant and Hillhaven
(Incorporated by reference to Exhibit 10(pp) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(f) Fifth Amendment to Guarantee Reimbursement Agreement, dated as
of February 19, 1993, between the Registrant and Hillhaven
(Incorporated by reference to Exhibit 10(qq) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(g) Sixth Amendment to Guarantee Reimbursement Agreement, dated as
of May 28, 1993, between the Registrant and Hillhaven
(Incorporated by reference to Exhibit 10(rr) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(h) Seventh Amendment to Guarantee Reimbursement Agreement, dated as
of May 28, 1993, between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(h) the
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(i) Eighth Amendment to Guarantee Reimbursement Agreement, dated
September 2, 1993, between the Registrant and The Hillhaven
Corporation (Incorporated by reference to Exhibit 10(i) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(j) Agreement and Waiver, dated September 2, 1993, among the
Registrant, the subsidiaries of the Company signatories thereto,
The Hillhaven Corporation and First Healthcare Corporation
(Incorporated by reference to Exhibit 10(n) to Registrant's
Annual Report on Form 10-K dated August 25, 1994)
(k) Shareholding Agreement, dated 30 March 1993, among the
Registrant, Westminster Health Care Holdings PLC and P. R.
Carter and Others (Incorporated by reference to Exhibit 10(tt)
to Registrant's Annual Report on Form 10-K dated August 30,
1993)
20
(l) $2,300,000 Credit Agreement, dated as of February 28, 1995,
among the Company, the Lenders party thereto, Morgan Guaranty
Trust Company of New York, Bank of America National Trust and
Savings Association, The Bank of New York and Bankers Trust
Company, as Arranging Agents, and Morgan Guaranty Trust Company
of New York, as Administration Agent (Incorporated by reference
to Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q
dated April 14, 1995)
(m) $91,350,000 Amended and Restated Letter of Credit and
Reimbursement Agreement, dated as of February 28, 1995, among
the Company, as Account Party, and Bank of America National
Trust and Savings Association, The Bank of New York, Bankers
Trust Company and Morgan Guaranty Trust Company of New York, as
Banks, and The Bank of New York, as Issuing Bank (Incorporated
by reference to Exhibit 10(b) to Registrant's Quarterly Report
on Form 10-Q dated April 14, 1995)
(n) Agreement, dated August 22, 1995, among the Registrant, The
Hillhaven Corporation and Vencor, Inc.
(o) Asia Stock Purchase Agreement, dated as of May 24, 1995, between
the Registrant and Parkway Holdings Limited
(p) Australian Stock Purchase Agreement, dated as of July 5, 1995,
between the Registrant and Parkway Holdings Limited
(q) Amending Agreement to the Australia Stock Purchase Agreement,
dated as of August 14, 1995, between the Registrant and Parkway
Holdings Limited
(r) Letter from the Registrant to Jeffrey C. Barbakow, dated May 26,
1993 (Incorporated by reference to Exhibit 10(l) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(s) Letter from the Registrant to Jeffrey C. Barbakow, dated June 1,
1993 (Incorporated by reference to Exhibit 10(m) to Registrant's
Annual Report on Form 10-K dated August 30, 1993)
(t) Memorandum from the Registrant to Jeffrey C. Barbakow, dated
June 14, 1993 (Incorporated by reference to Exhibit 10(n) to
Registrant's Annual Report on Form 10-K dated August 30, 1993)
(u) Board of Directors Retirement Plan, effective January 1, 1985
(Incorporated by reference to Exhibit 10(n) to Registrant's
Annual Report on Form 10-K dated August 23, 1991)
(v) First Amendment to Board of Directors Retirement Plan, effective
as of August 18, 1993 (Incorporated by reference to Exhibit
10(xx) to Registrant's Annual Report on Form 10-K dated August
30, 1993)
(w) Amendment to Directors Retirement Plan, dated as of April 25,
1994 (Incorporated by reference to Exhibit 10(oo) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(x) Supplemental Executive Retirement Plan, as amended May 31, 1986
(Incorporated by reference to Exhibit 10(o) to Registrant's
Annual Report on Form 10-K dated August 21, 1992)
(y) Amendment to Supplemental Executive Retirement Plan, dated as of
April 25, 1994 (Incorporated by reference to Exhibit 10(ss) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(z) Amendment to Supplemental Executive Retirement Plan, dated as of
July 25, 1994 (Incorporated by reference to Exhibit 10(tt) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
21
(aa) 1994 NME Supplemental Executive Retirement Plan Trust Agreement,
dated as of May 25, 1994, as amended July 25, 1994, between the
Registrant, and United States Trust Company of New York
(Incorporated by reference to Exhibit 10(uu) to Registrant's
Annual Report on Form 10-K dated August 25, 1994)
(bb) Long Term Incentive Plan (Incorporated by reference to Exhibit
10(p) to Registrant's Annual Report on Form 10-K dated August
21, 1992)
(cc) 1994 Annual Incentive Plan (Incorporated by reference to Exhibit
B to the Definitive Proxy Statement for the Registrant's 1994
Annual Meeting of Shareholders)
(dd) Deferred Compensation Plan, effective March 23, 1983
(Incorporated by reference to Exhibit 10(v) to Registrant's
Annual Report on Form 10-K dated August 23, 1991)
(ee) First Amendment to Deferred Compensation Plan, dated as of
August 15, 1994 (Incorporated by reference to Exhibit 10(zz) to
Registrant's Annual Report on Form 10-K dated August 25, 1994)
(ff) 1994 NME Deferred Compensation Plan Trust Agreement, dated as of
May 25, 1994, as amended July 25, 1994, between the Registrant
and United States Trust Company of New York (Incorporated by
reference to Exhibit 10(aaa) to Registrant's Annual Report on
Form 10-K dated August 25, 1994)
(gg) Performance Investment Plan (Incorporated by reference to
Exhibit 10(d) to Registrant's Annual Report on Form 10-K dated
August 23, 1991)
(hh) Revolving Credit and Term Loan Agreement, dated as of December
11, 1991, between the Registrant and NME PIP Funding I, Inc.
(Incorporated by reference to Exhibit 10(g) to Registrant's
Registration Statement on Form S-3, Registration No. 33-45689,
dated February 14, 1992)
(ii) 1994 Directors Stock Option Plan (Incorporated by reference to
Exhibit A to the Definitive Proxy Statement for the Registrant's
1994 Annual Meeting of Shareholders)
(jj) 1991 Stock Incentive Plan (Incorporated by reference to Exhibit
B to the definitive Proxy Statement for the Registrant's 1991
Annual Meeting of Shareholders)
(kk) 1995 Stock Incentive Plan (Incorporated by reference to Exhibit
A to the definitive Proxy Statement for the Registrant's 1995
Annual Meeting of Shareholders)
(ll) 1995 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit B to the definitive Proxy Statement for the Registrant's
1995 Annual Meeting of Shareholders)
(mm) Severance Protection Agreement, dated June 28, 1994, between the
Registrant and Barry P. Schochet (Incorporated by reference to
Exhibit 10(ggg) to Registrant's Annual Report on Form 10-K dated
August 25, 1994)
(11) Statement Re: Computation of Per Share Earnings, page 23
(13) 1995 Annual Report to Shareholders of Registrant
(21) Subsidiaries of the Registrant
(23) Consent of Experts
(a)Accountants' Consent and Report on Consolidated Schedule (KPMG
Peat Marwick LLP)
(27) Financial Data Schedule (included only in the EDGAR filing)
(b) REPORTS ON FORM 8-K
Tenet filed no reports on Form 8-K during the last quarter of the 1995
fiscal year.
22
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
(1) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(EXHIBIT 11)
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR PRIMARY EARNINGS PER SHARE
Shares outstanding at
beginning of period.......... 166,081 165,898 166,963 174,765 157,782
Shares issued in connection
with merger.................. 8,358 -- -- -- --
Shares issued upon exercise of
stock options................ 311 60 27 299 722
Dilutive effect of outstanding
stock options................ 2,068 1,114 172 495 1,156
Shares issued as grants of
restricted stock, net of
cancellations................ (1) (48) (52) 75 2
Shares repurchased as treasury
stock........................ -- -- (999) (4,295) --
Shares issued upon conversion
of notes and debentures...... -- -- -- 529 348
Other......................... -- -- -- (15) --
-------- -------- -------- -------- --------
Weighted average number of
shares and share equivalents
outstanding.................. 176,817 167,024 166,111 171,853 160,010
======== ======== ======== ======== ========
Income from continuing
operations................... $194,381 $215,901 $263,644 $218,199 $145,142
======== ======== ======== ======== ========
Earnings per share from
continuing operations........ $ 1.10 $ 1.29 $ 1.59 $ 1.27 $ 0.91
======== ======== ======== ======== ========
FOR FULLY DILUTED EARNINGS PER
SHARE
Weighted average number of
shares used in primary
calculation.................. 176,817 167,024 166,111 171,853 160,010
Additional dilutive effect of
stock options................ 203 97 23 1 64
Assumed conversion of dilutive
convertible notes and
debentures................... 13,119 13,966 14,356 20,990 37,118
-------- -------- -------- -------- --------
Fully diluted weighted average
number of shares............. 190,139 181,087 180,490 192,844 197,192
======== ======== ======== ======== ========
Income from continuing
operations used in primary
calculation.................. $194,381 $215,901 $263,644 $218,199 $145,142
Adjustments for interest
expense, contractual
allowances and income taxes.. 7,547 5,981 4,628 12,207 25,991
-------- -------- -------- -------- --------
Adjusted income from
continuing operations........ $201,928 $221,882 $268,272 $230,406 $171,133
======== ======== ======== ======== ========
Earnings per share from
continuing operations........ $ 1.06 $ 1.23 $ 1.49 $ 1.19 $ 0.87
======== ======== ======== ======== ========
--------
(1) All numbers of shares in these tables are weighted on the basis of the
number of days the shares were outstanding or assumed to be outstanding
during each period.
23
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on August 25,
1995.
Tenet Healthcare Corporation
By: /s/ Raymond L. Mathiasen By: /s/ Scott M. Brown
---------------------------- ----------------------------
Raymond L. Mathiasen Scott M. Brown
Senior Vice President, Senior Vice President
Chief Financial Officer and
Chief Accounting Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON AUGUST 25, 1995, BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED:
SIGNATURE TITLE
--------- -----
/s/ Jeffrey C. Barbakow Chairman, Chief Executive Officer and
__________________________________________ Director
Jeffrey C. Barbakow (Principal Executive Officer)
/s/ Michael H. Focht, Sr. President, Chief Operating Officer and
__________________________________________ Director
Michael H. Focht, Sr.
/s/ Bernice Bratter Director
__________________________________________
Bernice Bratter
/s/ John T. Casey Director
__________________________________________
John T. Casey
/s/ Maurice J. DeWald Director
__________________________________________
Maurice J. DeWald
/s/ Peter de Wetter Director
__________________________________________
Peter de Wetter
/s/ Edward Egbert, M.D. Director
__________________________________________
Edward Egbert, M.D.
/s/ Raymond A. Hay Director
__________________________________________
Raymond A. Hay
24
SIGNATURE TITLE
--------- -----
/s/ Lester B. Korn Director
__________________________________________
Lester B. Korn
/s/ James P. Livingston Director
__________________________________________
James P. Livingston
/s/ Robert W. O'Leary Director
__________________________________________
Robert W. O'Leary
/s/ Thomas J. Pritzker Director
__________________________________________
Thomas J. Pritzker
/s/ Richard S. Schweiker Director
__________________________________________
Richard S. Schweiker
25
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MAY 31, 1993, 1994 AND 1995
(IN MILLIONS)
ADDITIONS CHARGED TO:
-----------------------
BALANCE AT CONTINUING BALANCE AT
BEGINNING OF OPERATIONS DISCONTINUED DEDUCTIONS OTHER END OF
PERIOD (1) OPERATIONS (2) ITEMS(3) PERIOD
------------ ---------- ------------ ---------- -------- ----------
Allowance for doubtful
accounts:
1993.................. $152 $122 $40 $199 $ -- $115
1994.................. $115 $111 $35 $128 $(56) $ 77
1995.................. $ 77 $140 $25 $153 $ 95 $184
--------
(1) Before considering recoveries on accounts or notes previously written off.
(2) Accounts written off.
(3) Beginning balances of purchased businesses, net of balances of businesses
sold.
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF DISCONTINUED DEDUCTIONS END OF
PERIOD OPERATIONS (1) PERIOD
------------ ------------ ---------- ----------
Reserves related to discontin-
ued operations:
1993........................ $113 $ 160 $172 $101
1994........................ $101 $1,113 $749 $465
1995........................ $465 $ 16 $404 $ 77
--------
(1) Primarily cash disbursements and, in 1994, write-down of assets to net
realizable value and reclassification to other long-term liabilities.
F-1
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ------------------------------------------------------- ------------
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
(a) Agreement and Plan of Merger, dated as of October 10,
1994, among the Company, AMH Acquisition Co. and
American Medical Holdings, Inc. (Incorporated by
reference to Exhibit 2(A) to Registrant's Quarterly
Report on Form 10-Q, dated October 14, 1994)...........
(3) Articles of Incorporation and Bylaws
(a) Restated Articles of Incorporation of Registrant, as
amended October 13, 1987 and June 22, 1995.............
(b) Restated Bylaws of Registrant, as amended March 1, 1995
(Incorporated by reference to Exhibit 3(b) to
Registrant's Quarterly Report on Form 10-Q dated April
14, 1995)..............................................
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(a) Form of Indenture for the Registrant's Convertible
Floating Rate Debentures, dated as of February 1, 1992,
among NME PIP Funding I, Inc., the Registrant and
Bankers Trust Company, as Trustee (Incorporated by
reference to Exhibit 4(a) to Registration Statement on
Form S-3, Registration No. 33-45689, dated February 14,
1992)..................................................
(b) Form of Convertible Floating Rate Debenture due April
3, 1996 (Incorporated by reference to Exhibit (e) to
Registrant's Registration Statement on Form S-3,
Registration No. 33-45689, dated February 14, 1992)....
(c) Agreement Providing for First Amendment to Convertible
Floating Rate Debentures due April 3, 1996, dated as of
December 11, 1991, between the Registrant and NME PIP
Funding I, Inc. (Incorporated by reference to Exhibit
(f) to Registrant's Registration Statement on Form S-3,
Registration No. 33-45689, dated
February 14, 1992).....................................
(d) Certificate of Designation, Preference and Rights of
Series A Junior Participating Preferred Stock
(Incorporated by reference to Exhibit 4(h) to
Registrant's Annual Report on Form 10-K dated August
30, 1993)..............................................
(e) Certificate of Designation, Preferences and Rights of
Series B Convertible Preferred Stock (Incorporated by
reference to Exhibit 4(d) to Registrant's Annual Report
on Form 10-K dated August 23, 1991)....................
(f) Form of Investment Option Agreement....................
(g) Indenture, dated as of March 1, 1991, between the
Registrant and The Bank of New York, as Trustee,
relating to Medium Term Notes (Incorporated by
reference to Exhibit 4(a) to Registrant's Annual Report
on Form 10-K dated August 23, 1991)....................
(h) Indenture, dated as of March 1, 1995, between Tenet and
The Bank of New York, as Trustee, relating to 9 5/8%
Senior Notes due 2002 (Incorporated by reference to
Exhibit 4(a) to Registrant's Quarterly Report on Form
10-Q dated
April 14, 1995)........................................
(i) Indenture, dated as of March 1, 1995, between Tenet and
The Bank of New York, as Trustee, relating to 10 1/8%
Senior Subordinated Notes due 2005 (Incorporated by
reference to Exhibit 4(b) to Registrant's Quarterly
Report on Form 10-Q dated April 14, 1995)..............
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ------------------------------------------------------- ------------
(j) Registration Rights Agreement, dated as of February 22,
1995, by and between the Registrant and the Selling
Shareholders (Incorporated by reference to Exhibit 4.1
to Registrants Registration Statement on Form S-3,
Registration No. 33-57801, dated February 22, 1995)....
(10) Material Contracts
(a) Guaranty Reimbursement Agreement, dated as of January
31, 1990, by and between the Registrant and The
Hillhaven Corporation (Incorporated by reference to
Exhibit 10(e) to Registrant's Annual Report on Form 10-
K dated August 21, 1992)...............................
(b) First Amendment to Guarantee Reimbursement Agreement,
dated as of May 30, 1991, by and between the Registrant
and The Hillhaven Corporation (Incorporated by
reference to Exhibit 10(g) to Registrant's Annual
Report on Form 10-K dated August 23, 1991).............
(c) Second Amendment to Guarantee Reimbursement Agreement,
dated as of October 2, 1991, between the Registrant and
The Hillhaven Corporation (Incorporated by reference to
Exhibit 10(w) to Registrant's Annual Report on Form 10-
K dated August 21, 1992)...............................
(d) Third Amendment to Guarantee Reimbursement Agreement,
dated as of April 1, 1992, between the Registrant and
The Hillhaven Corporation (Incorporated by reference to
Exhibit 10(dd) to Registrant's Annual Report on Form
10-K dated August 21, 1992)............................
(e) Fourth Amendment to Guarantee Reimbursement Agreement,
dated as of November 12, 1992, between the Registrant
and Hillhaven (Incorporated by reference to
Exhibit 10(pp) to Registrant's Annual Report on
Form 10-K dated August 30, 1993).......................
(f) Fifth Amendment to Guarantee Reimbursement Agreement,
dated as of February 19, 1993, between the Registrant
and Hillhaven (Incorporated by reference to
Exhibit 10(qq) to Registrant's Annual Report on
Form 10-K dated August 30, 1993).......................
(g) Sixth Amendment to Guarantee Reimbursement Agreement,
dated as of May 28, 1993, between the Registrant and
Hillhaven (Incorporated by reference to
Exhibit 10(rr) to Registrant's Annual Report on Form
10-K dated August 30, 1993)............................
(h) Seventh Amendment to Guarantee Reimbursement Agreement,
dated as of May 28, 1993, between the Registrant and
The Hillhaven Corporation (Incorporated by reference to
Exhibit 10(h) the Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
(i) Eighth Amendment to Guarantee Reimbursement Agreement,
dated September 2, 1993, between the Registrant and The
Hillhaven Corporation (Incorporated by reference to
Exhibit 10(i) to Registrant's Annual Report on Form 10-
K dated August 25, 1994)...............................
(j) Agreement and Waiver, dated September 2, 1993, among
the Registrant, the subsidiaries of the Company
signatories thereto, The Hillhaven Corporation and
First Healthcare Corporation (Incorporated by reference
to Exhibit 10(n) to Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
SEQUENTIALLY
EXHIBIT NUMBERED
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(k) Shareholding Agreement, dated 30 March 1993, among the
Registrant, Westminster Health Care Holdings PLC and P.
R. Carter and Others (Incorporated by reference to
Exhibit 10(tt) to Registrant's Annual Report on Form
10-K dated August 30, 1993)............................
(l) $2,300,000 Credit Agreement, dated as of February 28,
1995, among the Company, the Lenders party thereto,
Morgan Guaranty Trust Company of New York, Bank of
America National Trust and Savings Association, The
Bank of New York and Bankers Trust Company, as
Arranging Agents, and Morgan Guaranty Trust Company of
New York, as Administration Agent (Incorporated by
reference to Exhibit 10(a) to Registrant's Quarterly
Report on Form 10-Q dated April 14, 1995)..............
(m) $91,350,000 Amended and Restated Letter of Credit and
Reimbursement Agreement, dated as of February 28, 1995,
among the Company, as Account Party, and Bank of
America National Trust and Savings Association, The
Bank of New York, Bankers Trust Company and Morgan
Guaranty Trust Company of New York, as Banks, and The
Bank of New York, as Issuing Bank (Incorporated by
reference to Exhibit 10(b) to Registrant's Quarterly
Report on Form 10-Q dated April 14, 1995)..............
(n) Agreement, dated August 22, 1995, among the Registrant,
The Hillhaven Corporation and Vencor, Inc..............
(o) Asia Stock Purchase Agreement, dated as of May 24,
1995, between the Registrant and Parkway Holdings
Limited................................................
(p) Australian Stock Purchase Agreement, dated as of July
5, 1995, between the Registrant and Parkway Holdings
Limited................................................
(q) Amending Agreement to the Australia Stock Purchase
Agreement, dated as of August 14, 1995, between the
Registrant and Parkway Holdings Limited................
(r) Letter from the Registrant to Jeffrey C. Barbakow,
dated May 26, 1993 (Incorporated by reference to
Exhibit 10(l) to Registrant's Annual Report on Form 10-
K dated August 30, 1993)...............................
(s) Letter from the Registrant to Jeffrey C. Barbakow,
dated June 1, 1993 (Incorporated by reference to
Exhibit 10(m) to Registrant's Annual Report on Form 10-
K dated August 30, 1993)...............................
(t) Memorandum from the Registrant to Jeffrey C. Barbakow,
dated June 14, 1993 (Incorporated by reference to
Exhibit 10(n) to Registrant's Annual Report on
Form 10-K dated August 30, 1993).......................
(u) Board of Directors Retirement Plan, effective January
1, 1985 (Incorporated by reference to Exhibit 10(n) to
Registrant's Annual Report on Form 10-K dated August
23, 1991)..............................................
(v) First Amendment to Board of Directors Retirement Plan,
effective as of August 18, 1993 (Incorporated by
reference to Exhibit 10(xx) to Registrant's Annual
Report on Form 10-K dated August 30, 1993).............
(w) Amendment to Directors Retirement Plan, dated as of
April 25, 1994 (Incorporated by reference to Exhibit
10(oo) to Registrant's Annual Report on Form 10-K dated
August 25, 1994).......................................
SEQUENTIALLY
EXHIBIT NUMBERED
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(x) Supplemental Executive Retirement Plan, as amended May
31, 1986 (Incorporated by reference to Exhibit 10(o) to
Registrant's Annual Report on Form 10-K dated August
21, 1992)..............................................
(y) Amendment to Supplemental Executive Retirement Plan,
dated as of April 25, 1994 (Incorporated by reference
to Exhibit 10(ss) to Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
(z) Amendment to Supplemental Executive Retirement Plan,
dated as of July 25, 1994 (Incorporated by reference to
Exhibit 10(tt) to Registrant's Annual Report on
Form 10-K dated August 25, 1994).......................
(aa) 1994 NME Supplemental Executive Retirement Plan Trust
Agreement, dated as of May 25, 1994, as amended July
25, 1994, between the Registrant, and United States
Trust Company of New York (Incorporated by reference to
Exhibit 10(uu) to Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
(bb) Long Term Incentive Plan (Incorporated by reference to
Exhibit 10(p) to Registrant's Annual Report on Form 10-
K dated August 21, 1992)...............................
(cc) 1994 Annual Incentive Plan (Incorporated by reference
to Exhibit B to the Definitive Proxy Statement for the
Registrant's 1994 Annual Meeting of Shareholders)......
(dd) Deferred Compensation Plan, effective March 23, 1983
(Incorporated by reference to Exhibit 10(v) to
Registrant's Annual Report on Form 10-K dated August
23, 1991)..............................................
(ee) First Amendment to Deferred Compensation Plan, dated as
of August 15, 1994 (Incorporated by reference to
Exhibit 10(zz) to Registrant's Annual Report on Form
10-K dated August 25, 1994)............................
(ff) 1994 NME Deferred Compensation Plan Trust Agreement,
dated as of May 25, 1994, as amended July 25, 1994,
between the Registrant and United States Trust Company
of New York (Incorporated by reference to Exhibit
10(aaa) to Registrant's Annual Report on Form 10-K
dated August 25, 1994).................................
(gg) Performance Investment Plan (Incorporated by reference
to Exhibit 10(d) to Registrant's Annual Report on Form
10-K dated August 23, 1991)............................
(hh) Revolving Credit and Term Loan Agreement, dated as of
December 11, 1991, between the Registrant and NME PIP
Funding I, Inc. (Incorporated by reference to Exhibit
10(g) to Registrant's Registration Statement on Form S-
3, Registration No. 33-45689, dated February 14, 1992).
(ii) 1994 Directors Stock Option Plan (Incorporated by
reference to Exhibit A to the Definitive Proxy
Statement for the Registrant's 1994 Annual Meeting of
Shareholders)..........................................
(jj) 1991 Stock Incentive Plan (Incorporated by reference to
Exhibit B to the definitive Proxy Statement for the
Registrant's 1991 Annual Meeting of Shareholders)......
(kk) 1995 Stock Incentive Plan (Incorporated by reference to
Exhibit A to the definitive Proxy Statement for the
Registrant's 1995 Annual Meeting of Shareholders)......
SEQUENTIALLY
EXHIBIT NUMBERED
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(ll) 1995 Employee Stock Purchase Plan (Incorporated by
reference to Exhibit B to the definitive Proxy Statement
for the Registrant's 1995 Annual Meeting of
Shareholders)...........................................
(mm) Severance Protection Agreement, dated June 28, 1994,
between the Registrant and Barry P. Schochet
(Incorporated by reference to Exhibit 10(ggg) to
Registrant's Annual Report on Form 10-K dated August 25,
1994)...................................................
(11) Statement Re: Computation of Per Share Earnings, page 23
(13) 1995 Annual Report to Shareholders of Registrant
(21) Subsidiaries of the Registrant
(23) Consent of Experts
(a) Accountants' Consent and Report on Consolidated Schedule
(KPMG Peat Marwick LLP).................................
(27) Financial Data Schedule (included only in the EDGAR filing)
(b) REPORTS ON FORM 8-K.....................................
Tenet filed no reports on Form 8-K during the last quarter of the 1995 fiscal
year.