Tenet Reports Second-Quarter EPS from Operations of $0.72; Updates FY03 Guidance to $2.40-$2.60...

Business Editors & Health/Medical Writers

SANTA BARBARA, Calif.--(BUSINESS WIRE)--Jan. 13, 2003

Tenet Healthcare Corporation (NYSE:THC) today announced results for the second quarter of fiscal 2003, ended Nov. 30, 2002. Diluted earnings per share from operations were $0.72

in the quarter. This represents 28.6 percent growth over the comparable prior-year period's $0.56 per share, after reflecting Statement of Financial Accounting Standard No. 142 as if it had been in effect in both periods and after adjusting the prior-year period to reflect the company's June 2002 3-for-2 stock split.

"The financial results in the second quarter are not indicative of what we expect beginning with the third quarter, given the new Medicare outlier policy we've volunteered to adopt as of Jan. 1," said Jeffrey C. Barbakow, Tenet chairman and chief executive officer.

"However, certain second quarter results offer important insight into the strength of our core business," he continued. "Admissions to Tenet hospitals were quite strong in the quarter, and that strength continued throughout the month of December. I believe this reflects the strength of our 114 individual hospitals' clinical programs and reputations in the respective communities they serve."

Barbakow noted that the company's hospitals had seen no meaningful losses of physicians or managed care contracts. He said that efforts to renegotiate managed care contracts continued smoothly, and that the company continued to achieve appropriate rate increases in contracts. He said that over the next several months the company would continue its effort to migrate toward a new contract structure less tied to gross charges.

Second Quarter

Admissions to Tenet hospitals rose 4.3 percent on a same-facility basis, well above the company's 10-quarter average of approximately 3 percent growth. Total-facility admissions rose 4.7 percent over the prior-year quarter. As in prior quarters, the company continues to see the fastest rate of admissions growth among the Baby Boomer age groups. Same-facility admissions rose 9.5 percent among patients aged 41-50 years and 7.2 percent among those aged 51-60 years.

Unit revenues, measured by same-facility net inpatient revenue per admission, rose 7.2 percent in the quarter compared with the prior-year quarter.

Reflecting these volume and unit revenue gains, net operating revenue rose 11.3 percent to $3.78 billion, up from $3.39 billion in the prior-year quarter.

Medicare outlier payments to Tenet hospitals totaled $213 million in the quarter, up 31.5 percent from the prior-year quarter's $162 million and down 18.1 percent sequentially from $260 million in the first quarter of fiscal 2003. The sequential decline primarily reflects the impact of a new, higher threshold for calculating Medicare outlier payments, which took effect Oct. 1, 2002. Of the $213 million total, $144 million or 68 percent, was due to the statewide average method of calculation. The company expects that the government will change the rules governing Medicare outlier payments. To that end, last week, the company announced that it would voluntarily adopt a new policy on Medicare outlier payments as of Jan. 1, 2003; the company expects the new policy will reduce outlier payments from approximately $65 million per month to approximately $8 million per month.

EBITDA (earnings before interest, taxes, impairment of long-lived assets, losses from early extinguishment of debt, depreciation and amortization) rose 14.3 percent to $775 million, up from $678 million in the prior-year quarter. EBITDA margins expanded to 20.5 percent, compared with 20.0 percent in the prior-year quarter.

Net income from operations rose 27.2 percent to $355 million or $0.72 per share, versus $279 million or $0.56 per share in the prior-year quarter, after reflecting SFAS 142 as if it were in effect in both periods and adjusting for the stock split. A reconciliation of net income from operations to net income, as determined under generally accepted accounting principles, is provided in Note 6 of the accompanying Financial Update.

In the quarter, the company decided to sell its shares in Ventas, Inc. and, because it did not expect the fair value of those shares to recover prior to the expected time of sale, recorded a $64 million impairment charge. The sale was completed on December 20, 2002, when the company sold all 8,301,067 of its shares of Ventas stock for $86 million. In the prior-year quarter, the company recorded an impairment of long-lived assets of $99 million related to the planned closure of two general hospitals and the sale of certain other health care businesses, and a $165 million loss from early extinguishment of debt.

Including these charges after taxes, net income was $315 million or $0.64 per share in the quarter, compared with $89 million or $0.18 per share in the prior-year quarter.

Cash flow from operations was $246 million, compared with $531 million in the prior-year quarter. Free cash flow, defined as cash flow from operations less capital expenditures, was $28 million in the quarter as compared with $325 million in the prior-year quarter. The significant change relates primarily to a $194 million quarter-over-quarter increase in tax payments and a $107 million quarter-over-quarter decrease in accounts payable. On a rolling 12-months basis, cash flow from operations was $2.24 billion and free cash flow was $1.35 billion, compared to $2.11 billion and $1.33 billion in the prior-year 12-month period.

During the quarter, the company repurchased 15,290,850 shares of its common stock for a total of $381 million, at an average cost of $24.94 per share. In December, the board of directors authorized the use of free cash flow (defined as cash flow from operations after Aug. 31, 2002, minus capital expenditures, plus proceeds from asset sales) to repurchase up to 30 million additional shares of the company's common stock.

Key financial ratios continued to strengthen. The company's coverage ratio, or EBITDA-to-net-interest-expense, was 11.23 times, up from 6.28 times a year ago. The company's debt-to-EBITDA ratio dropped to 1.30 times, down from 1.75 times a year ago. Its debt-to-equity ratio dropped to 0.66 times, down from 0.82 times a year ago.

Six Months

In the first six months of fiscal 2003, admissions to Tenet hospitals rose 3.0 percent on a same-facility basis and 4.4 percent overall, versus the prior-year six-month period. Unit revenues, measured by same-facility net inpatient revenue per admission, rose 8.5 percent over the prior-year period.

Net operating revenues rose 11.8 percent to $7.48 billion in the first half of fiscal 2003, versus $6.69 billion in the first half of fiscal 2002. Medicare outlier payments to Tenet hospitals totaled $473 million in the first six months of the year, of which $296 million or 63 percent was due to the statewide average method of calculation. In the prior-year six-month period, Medicare outlier payments to Tenet hospitals totaled $352 million.

EBITDA rose 17.4 percent to $1.53 billion over the prior-year period's $1.30 billion. EBITDA margins expanded to 20.5 percent, up from 19.5 percent in the prior-year period.

Net income from operations rose 32.6 percent to $696 million or $1.40 per diluted share, up from $525 million or $1.05 per diluted share in the prior-year period, after reflecting SFAS 142 as if it had been in effect in both periods and after adjusting the prior-year period to reflect the company's June 2002 3-for-2 stock split.

A reconciliation of net income from operations to net income, as determined under generally accepted accounting principles, is provided in Note 6 of the accompanying Financial Update.

In the first six months of fiscal years 2002 and 2003, net income from operations excludes the impairment items and loss referenced for the second quarter above, plus losses for the early extinguishment of debt of $4 million and $110 million recorded in the first quarters of those years, respectively. Including the after-tax effect of these items, net income was $653 million or $1.32 per share in the first half of fiscal 2003, compared with $244 million or $0.49 per share in the first half of fiscal 2002.

In the first six months of fiscal 2003, cash flow from operations was $942 million and free cash flow was $529 million, compared with $1.02 billion and $603 million in the prior-year period, respectively.

Looking Ahead

Looking ahead, the company narrowed its previous guidance for fiscal 2003 earnings expectations to reflect second quarter results, its voluntary adoption of a new outlier policy announced last week and share repurchases. The company now expects fiscal 2003 earnings from operations will be between $2.40 per share and $2.60 per share.

The company had previously estimated a range of $2.38 to $2.78, depending upon the level of outlier payments and other factors.

The company said it was not revising its fiscal 2004 guidance of $2.00 per share from operations, within an approximate range of $1.80 to $2.20. This estimate is based upon many important assumptions detailed in the company's Dec. 3 and 4, 2002 investor presentation, which is available on the investor pages of the company's website, www.tenethealth.com.

Tenet executives will discuss the company's performance and other related issues in greater detail on a live audio webcast later this morning. All interested investors are invited to access the webcast at www.tenethealth.com or www.companyboardroom.com at 11:00 a.m. EST, or on a replay basis for the next 30 days.

The company is filing its quarterly report on Form 10-Q with the Securities and Exchange Commission this morning. That document will be available today on the Tenet website at www.tenethealth.com.

Tenet Healthcare Corporation, through its subsidiaries, owns and operates 114 acute care hospitals with 27,851 beds and numerous related health care services. Tenet and its subsidiaries employ approximately 115,000 people serving communities in 16 states. Tenet's name reflects its core business philosophy: the importance of shared values among partners -- including employees, physicians, insurers and communities -- in providing a full spectrum of health care. Tenet can be found on the World Wide Web at www.tenethealth.com.

Certain statements contained in this document, including statements containing the words believe, anticipate, expect, will, may, might, should, estimate, intend, appear and words of similar import, and statements regarding our business strategy and plans, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on our current expectations and involve known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements or health care industry results to be materially different from those expressed or implied by forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and regionally; industry capacity; demographic changes; changes in, or the failure to comply with, laws and governmental regulations; the ability to enter into managed care provider arrangements on acceptable terms; changes in Medicare and Medicaid payments or reimbursement, including those resulting from changes in the method of calculating or paying Medicare outlier payments and those resulting from a shift from traditional reimbursement to managed care plans; the outcome of known and unknown litigation, government investigations, and liability and other claims asserted against us; competition, including our failure to attract patients to our hospitals; the loss of any significant customers; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care; a shortage of raw materials; a breakdown in the distribution process or other factors that may increase our costs of supplies; changes in business strategy or development plans, including our pricing strategy; the ability to attract and retain qualified management and other personnel, including physicians, nurses and other health care professionals, and the impact on our labor expenses resulting from a shortage of nurses and/or other health care professionals; fluctuations in the market value of our common stock; the amount and terms of our indebtedness; the availability of professional liability insurance coverage at current levels; the availability of suitable acquisition opportunities, the length of time it takes to accomplish acquisitions and the impact of pending and future government investigations and litigation on our ability to accomplish acquisitions; our ability to integrate new business with its existing operations; and the availability and terms of capital to fund the expansion of our business, including the acquisition of additional facilities and other factors referenced in our Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. Given these uncertainties, investors and prospective investors are cautioned not to rely on such forward-looking statements. We disclaim any obligation, and make no promise, to update any such factors or forward-looking statements or to publicly announce the results of any revisions to any such forward-looking statements, whether as a result of changes in underlying factors, to reflect new information, as a result of the occurrence of events or developments or otherwise.

Editor's Note: The accompanying tables, titled Financial Update, are intended to be an integral part of the above press release and provide additional detail regarding the company's performance.

                     TENET HEALTHCARE CORPORATION
                   CONSOLIDATED STATEMENTS OF INCOME
                              (Unaudited)


(Dollars in millions except per share amounts)

                                 Three Months Ended November 30,
                              2002      %     2001      %   Growth

Net operating revenues        3,778  100.0%   3,394  100.0%  11.3%
Operating expenses:
  Salaries and benefits      (1,447)  38.3%  (1,300)  38.3%  11.3%
  Supplies                     (536)  14.2%    (473)  13.9%  13.3%
  Provision for doubtful
   accounts                    (291)   7.7%    (258)   7.6%  12.8%
  Other operating expenses     (729)  19.3%    (685)  20.2%   6.4%

Earnings before interest,
 taxes, depreciation,
 amortization, impairment
 of long-lived assets and
 loss from early
 extinguishment of debt         775             678          14.3%
          EBITDA margin               20.5%           20.0%   0.5% (a)

Depreciation                   (122)           (118)
Amortization (2)                 (8)            (33)
Impairment of long-lived
 assets (3)                     ---             (99)
Loss from early
 extinguishment of debt (4)     ---            (165)

Operating income                645             263

Interest expense                (62)            (86)
Investment earnings               6              10
Minority interests in
 income of consolidated
 subsidiaries                    (9)            (12)
Impairment of investment
 securities (5)                 (64)            ---

Income before income taxes      516             175

Income taxes                   (201)            (86)

Net income                      315              89

Diluted earnings (loss) per
 share:
  Operations:
    Before goodwill
     amortization              0.72            0.56          28.6%
    Goodwill
     amortization (2)           ---           (0.05)
                               0.72            0.51
  Impairment of long-lived
   assets (3)                   ---           (0.13)
  Loss from early
   extinguishment of
   debt (4)                     ---           (0.20)
  Impairment of investment
   securities (5)             (0.08)            ---
  Total                        0.64            0.18

Diluted weighted average
 shares outstanding (000's) 493,011         502,796

Shares outstanding at end
 of period (000's)          473,718         489,284


(a) This change is the difference between the 2002 and 2001
    percentages shown.



                     TENET HEALTHCARE CORPORATION
                   CONSOLIDATED STATEMENTS OF INCOME
                              (Unaudited)


(Dollars in millions except per share amounts)

                                  Six Months Ended November 30,
                              2002      %     2001      %   Growth

Net operating revenues        7,481  100.0%   6,691  100.0%  11.8%
Operating expenses:
  Salaries and benefits      (2,870)  38.4%  (2,570)  38.4%  11.7%
  Supplies                   (1,065)  14.2%    (939)  14.0%  13.4%
  Provision for doubtful
   accounts                    (568)   7.6%    (504)   7.5%  12.7%
  Other operating expenses   (1,447)  19.3%  (1,374)  20.5%   5.3%

Earnings before interest,
 taxes, depreciation,
 amortization, impairment
 of long-lived assets and
 loss from early
 extinguishment of debt       1,531           1,304          17.4%
          EBITDA margin               20.5%           19.5%   1.0% (a)

Depreciation                   (242)           (233)
Amortization (2)                (16)            (67)
Impairment of long-lived
 assets (3)                     ---             (99)
Loss from early
 extinguishment of debt (4)      (4)           (275)

Operating income              1,269             630

Interest expense               (126)           (183)
Investment earnings              13              19
Minority interests in
 income of consolidated
 subsidiaries                   (20)            (19)
Impairment of investment
 securities (5)                 (64)            ---

Income before income taxes    1,072             447

Income taxes                   (419)           (203)

Net income                      653             244

Diluted earnings (loss) per
 share:
  Operations:
    Before goodwill
     amortization              1.40            1.05          33.3%
    Goodwill
     amortization (2)           ---           (0.09)
                               1.40            0.96
  Impairment of long-lived
   assets (3)                   ---           (0.13)
  Loss from early
   extinguishment of
   debt (4)                     ---           (0.34)
  Impairment of investment
   securities (5)             (0.08)            ---
  Total                        1.32            0.49

Diluted weighted average
 shares outstanding (000's) 496,562         503,091

Shares outstanding at end
 of period (000's)          473,718         489,284


(a) This change is the difference between the 2002 and 2001
    percentages shown.



                     TENET HEALTHCARE CORPORATION
                   SELECTED QUARTERLY FINANCIAL DATA
                              (Unaudited)

(Dollars in millions except per share amounts)

                                                Diluted Earnings
                                                Per Share From
                                                Operations (Before
                                                Goodwill Amortization,
                                                Loss On Early
                         Net                    Extinguishment of Debt
                      Operating                 And Impairment
                       Revenues     Net Income  Charges)

Fiscal Year 2003
1st    Qtr            $   3,703      $   338      $   0.68
2nd    Qtr                3,778          315          0.72


Fiscal Year 2002
1st    Qtr            $   3,297      $   155      $   0.49
2nd    Qtr                3,394           89          0.56
3rd    Qtr                3,484          280          0.62
4th    Qtr                3,738          261          0.68


                      SELECTED BALANCE SHEET DATA
                          Dollars in millions
                              (Unaudited)

                               November 30, 2002  August 31, 2002

Cash and cash equivalents             $   40        $   42
Net accounts receivable                2,584         2,480
Other current assets                     970           870
Current assets                         3,594         3,392
Current liabilities                   (2,316)       (2,459)
Net working capital                    1,278           933
Investments and other assets             193           307
Net property and equipment             6,679         6,564
Net intangible assets                  3,458         3,472
Long-term debt, excluding current
 portion                              (3,888)       (3,551)
Other long-term liabilities           (1,827)       (1,844)
Shareholders' equity                  (5,893)       (5,881)


                        SELECTED CASH FLOW DATA
                          Dollars in millions
                              (Unaudited)

                               Three Months Ended  Six Months Ended
                               November 30, 2002   November 30, 2002

Net cash provided by operating
 activities                          $   246       $   942
Cash flow from investing activities:
  Purchases of property and equipment   (218)         (413)
  Other items                              9            35
Cash flows from financing activities:
  Proceeds from borrowings               796         1,704
  Payment of borrowings                 (474)       (1,528)
  Repurchases of debt                    ---          (282)
  Purchases of treasury stock           (381)         (500)
  Proceeds from stock option
   exercises                              24            41
  Other items                             (4)            3

Net increase (decrease) in cash and
 cash equivalents                         (2)            2

Supplemental disclosures:
Interest paid                             44           119
Income taxes paid, net of refunds
 received                                283           306



                     TENET HEALTHCARE CORPORATION
                      DOMESTIC GENERAL HOSPITALS
                          SELECTED STATISTICS
            Quarter and Six Months Ended November 30, 2002
                              (Unaudited)

(Dollar amounts in millions except for net inpatient revenue per
 patient day and per admission)

                         Three Months                Six Months
                     2002     2001  Change      2002     2001  Change

Net inpatient
 revenues           $2,470    $2,210 11.8%     $4,894    $4,331 13.0%
Net outpatient
 revenues           $1,138    $1,014 12.2%     $2,260    $2,011 12.4%

Facilities owned
 or operated           113       114    (1)(a)    113       114 (1)(a)
Quarter-end
 licensed beds      27,748    28,262 (1.8%)    27,748    28,262 (1.8%)
Average licensed
 beds               27,741    28,138 (1.4%)    28,097    28,006  0.3%
Utilization of
 licensed beds       53.4%     50.0%  3.4%(a)   52.4%    49.9% 2.5%(a)
Patient days     1,349,050 1,281,472  5.3%  2,692,723 2,557,023  5.3%
Net inpatient
 revenue per
 patient day        $1,831    $1,725  6.1%     $1,817    $1,694  7.3%
Admissions         254,232   242,861  4.7%    506,346   485,033  4.4%
Net inpatient
 revenue per
 admission          $9,716    $9,100  6.8%     $9,665    $8,929  8.2%
Average length of
 stay (days)           5.3       5.3   ---(a)     5.3       5.3 ---(a)
Outpatient
 visits          2,343,917 2,277,623  2.9%  4,673,197 4,588,249  1.9%

Sources of net
 patient revenue

   Medicare          30.8%     30.8%            31.0%     30.9%
   Medicaid           8.0%      8.3%             8.0%      8.1%
   Managed Care      46.2%     44.5%            45.8%     43.7%
   Indemnity and
    other            15.0%     16.4%            15.2%     17.3%

Same facilities

  Average
   licensed beds    27,014    26,850  0.6%     26,881    26,746  0.5%
  Patient days   1,318,804 1,249,844  5.5%  2,595,809 2,489,889  4.3%
  Net inpatient
   revenue per
   patient day      $1,849    $1,745  6.0%     $1,836    $1,712  7.2%
  Admissions       248,958   238,723  4.3%    488,544   474,097  3.0%
  Net inpatient
   revenue per
   admission        $9,797    $9,136  7.2%     $9,758    $8,992  8.5%
  Outpatient
   visits        2,305,983 2,244,852  2.7%  4,513,923 4,483,055  0.7%
  Average length
   of stay (days)      5.3       5.2   0.1(a)     5.3       5.3 ---(a)


(a) This change is the difference between the 2002 and 2001 amounts
    shown.



                     Tenet Healthcare Corporation
                        Footnote Explanations

1.  Quarterly operating results are not necessarily indicative of
    the results that may be expected for the full fiscal year. Reasons
    for this include changes in Medicare regulations, our recently
    announced voluntary change in our Medicare outlier payments,
    interest rates, acquisitions and disposals of facilities and other
    assets, unusual and non-recurring items, fluctuations in revenue
    allowances, revenue discounts and quarterly tax rates, the timing
    of price changes and changes in occupancy levels and patient
    volumes.

    On January 6, 2003, the Company announced that it had volunteered
    to the Centers for Medicare and Medicaid Services ("CMS") to adopt
    a policy on Medicare outlier payments, retroactively to January 1,
    2003, that would reimburse our hospitals in accordance with what
    we anticipate will be future changes by CMS in current Medicare
    outlier formulas.

2.  The Company adopted Statement of Financial Accounting Standards
    No. 142 as of June 1, 2002. The new accounting standard, among
    other things, eliminates the amortization of goodwill and other
    intangible assets with indefinite useful lives for periods
    subsequent to the date of adoption. In accordance with the
    standard, we completed our initial transitional impairment
    evaluation in the quarter ended November 30, 2002. As a result of
    this evaluation, we did not need to record an impairment charge.

3.  During the quarter ended November 30, 2001 the Company recorded
    an impairment of long-lived assets of $99 million relating to the
    planned closure of two general hospitals and the sale of certain
    other health care businesses. The total charge consists of $76
    million in impairment write-downs of property, equipment and other
    assets to estimated fair values and $23 million for expected cash
    disbursements related to lease cancellation, severance and other
    exit costs.

4.  During the quarter ended August 31, 2002, the Company
    repurchased, at par, the remaining $282 million balance of its 6%
    Exchangeable Notes due 2005. In connection with the repurchase of
    this debt, the Company recorded a loss from early extinguishment
    of debt in the amount of $4 million. In accordance with Statement
    of Financial Accounting Standards No. 145 (SFAS 145), issued by
    the Financial Accounting Standards Board in April 2002 and adopted
    by the Company as of June 1, 2002, such loss has been reported
    herein as part of operating income. Prior to the adoption of this
    standard, the loss would have been reported as an extraordinary
    item, net of tax benefits, in the Company's consolidated statement
    of income.

    During the quarter ended November 30, 2001, the Company recorded
    an extraordinary charge from the early extinguishment of debt in
    the amount of $103 million. This item has been reclassified in the
    current quarter's income statement presentation in accordance with
    SFAS 145 by reducing previously reported operating income and
    income taxes for the quarter ended November 30, 2001 by $165
    million and $62 million, respectively.

    On a year to date basis, the extraordinary charge from early
    extinguishment of debt was $172 million. The reclassification on a
    year to date basis was a reduction of previously reported
    operating income and income taxes by $275 million and $103
    million, respectively.

5.  In November, the Company decided to sell its shares in Ventas,
    Inc. ("Ventas") and Ventas agreed to file a shelf registration
    statement with the Securities and Exchange Commission relating to
    the sale. Because of the Company's decision to sell its Ventas
    shares and because we did not expect the fair value of the shares
    to recover prior to the expected time of sale, the Company
    recorded a $64 million impairment charge ($40 million, net of
    taxes) in November 2002. On December 20, 2002 the Company sold all
    8,301,067 shares of Ventas stock for $86 million.



                     Tenet Healthcare Corporation
                   Footnote Explanations (continued)

6.  The following is a reconciliation of net income as determined
    in accordance with Generally Accepted Accounting Principles to
    income from operations as used herein, in millions:


                                       Three Months Ended
                              November 30, 2002    November 30, 2001

                                     Income               Income
                            Pre-tax  Taxes   Net  Pre-tax Taxes   Net

Income from operations:
  Before goodwill
   amortization                580   (225)   355    464   (185)   279
  Goodwill amortization        ---    ---    ---    (25)     4    (21)
                               580   (225)   355    439   (181)   258
Impairment of long-lived
 assets                        ---    ---    ---    (99)    33    (66)
Loss from early
 extinguishment of debt        ---    ---    ---   (165)    62   (103)
Impairment of investment
 securities                    (64)    24    (40)   ---    ---    ---

Net income                                   315                   89


                                        Six Months Ended
                              November 30, 2002    November 30, 2001

                                     Income               Income
                            Pre-tax  Taxes   Net  Pre-tax Taxes   Net

Income from operations:
  Before goodwill
   amortization              1,140   (444)   696    872   (347)   525
  Goodwill amortization        ---    ---    ---    (51)     8    (43)
                             1,140   (444)   696    821   (339)   482
Impairment of long-lived
 assets                        ---    ---    ---    (99)    33    (66)
Loss from early
 extinguishment of debt         (4)     1     (3)  (275)   103   (175)
Impairment of investment
 securities                    (64)    24    (40)   ---    ---    ---

Net income                                   653                  244