Tenet Announces Initiatives to Sharpen Strategic Focus, Reduce Operating Expenses, Accelerate...

Business Editors/Health/Medical Writers

SANTA BARBARA, Calif.--(BUSINESS WIRE)--March 18, 2003

Tenet Healthcare Corporation (NYSE:THC):

-- 14 Non-Core Hospitals to Be Divested or Consolidated, With Proceeds Used Primarily to Buy Back Shares

-- $100 Million in

-- Expensing of Stock Options and Shift to Calendar Year to Enhance Financial Transparency and Improve Comparability

Tenet Healthcare Corporation (NYSE:THC) today announced several initiatives designed to sharpen its strategic focus, reduce operating expenses and accelerate its repurchase of shares.

The initiatives include divesting or consolidating 14 hospitals with aggregate annual revenues of approximately $933 million that no longer fit Tenet's core operating strategy and reducing non-patient care expenses by at least $100 million annually as part of its program to improve operating efficiency and profit margins. Proceeds of the planned divestitures will be used primarily to accelerate its planned share repurchases.

The company also said it would treat stock options granted to employees as an expense in order to improve financial transparency. In addition, retroactive to Dec. 31, 2002, Tenet has changed from a non-standard fiscal year ending May 31 to a calendar year ending Dec. 31. This change will immediately align Tenet's financial reporting with its new Medicare outlier policy which took effect Jan. 1, 2003, while establishing comparable financial reporting with other major companies in the hospital industry and in corporate America.

"As we move through 2003, Tenet's new management team is focused clearly on a defined set of objectives: resolving the specific challenges we face, operating the company with greater efficiency and assuring the success of our core strategy -- to build competitive networks of quality hospitals principally in major markets," said Trevor Fetter, Tenet's president. "Today's actions are important early steps toward achieving these goals."

14 Hospitals to Be Divested

The company plans to divest or consolidate 14 of its 114 hospitals as part of the new management team's efforts to concentrate its attention on core networks principally in major markets. Facilities identified for divestiture are either not part of a regional network or no longer fit the operating strategy of a major Tenet market. "Our focus in the future must clearly be on generating growth in our core markets," Fetter said.

As a group, these hospitals produced net operating revenues of approximately $933 million and EBITDA (earnings before interest, taxes, depreciation and amortization) of $141 million in the 12 months ended Nov. 30, 2002. The company expects to recognize impairment charges as a result of the divestitures, although the overall result is expected to be slightly accretive to earnings. Tenet said its expectation that net proceeds will be used to accelerate share repurchases is within the context of maintaining existing leverage guidelines of debt-to-EBITDA of less than two times.

Hospitals to be divested are:

Arkansas. Tenet plans to sell all four of its hospitals in the state: 193-bed Central Arkansas Hospital, Searcy; 166-bed National Park Medical Center, Hot Springs; 104-bed Regional Medical Center of Northeast Arkansas, Jonesboro; and 170-bed Saint Mary's Regional Medical Center, Russellville.

California. Because the facility's long-term lease expires in August 2003 and the landlord has chosen to sell the property for another use, Tenet will cease acute-care services at 69-bed Santa Ana Hospital later this year and transfer those services to several nearby Tenet hospitals in Orange County. Tenet has 39 other facilities in California that are not part of this divestiture plan.

Florida. In order to focus entirely on its market-leading position in South Florida, Tenet will sell its only hospital in the rural northern part of the state: 128-bed Seven Rivers Community Hospital, Crystal River. This will leave Tenet with 14 hospitals in heavily populated Broward, Dade and Palm Beach counties.

Missouri. In order to concentrate on its growing network in St. Louis, Tenet will sell its hospital in Poplar Bluff, which consists of 201-bed Three Rivers Healthcare North Campus and 222-bed Three Rivers Healthcare South Campus. It will also divest its 116-bed Twin Rivers Regional Medical Center in Kennett.

Nevada. Tenet will divest its only hospital in the state: 198-bed Lake Mead Hospital Medical Center, North Las Vegas.

Pennsylvania. To focus resources on its strongest facilities in the market, Tenet will sell, convert or consolidate two of its eight acute-care hospitals in the Philadelphia area: 243-bed Elkins Park Hospital and 200-bed Parkview Hospital.

Tennessee. Tenet will divest two hospitals in smaller markets: 137-bed Harton Regional Medical Center, Tullahoma; and 257-bed University Medical Center, Lebanon. The company will retain 651-bed Saint Francis Hospital in Memphis and focus on growth in the Memphis area. It recently announced plans to build a new hospital in the Memphis suburb of Bartlett.

Texas. Tenet will divest one of its 14 hospitals in the state: Twelve Oaks Medical Center, which consists of 336-bed North Campus and 190-bed South Campus, both in Houston. This will permit Tenet to focus resources on its three other Houston facilities, 140-bed Cypress Fairbanks Medical Center, 498-bed Houston Northwest Medical Center and 468-bed Park Plaza Hospital.

Initial Expense Reductions of $100 Million Annually

Tenet's management team is focused on identifying areas of cost realignment that will generate the greatest savings without disrupting patient care. The team thus far has implemented plans that, by Dec. 31, 2003, are expected to save at least $100 million annually.

The bulk of the savings will come from these areas:

-- Staff and expense reductions in corporate and hospital

departments and areas not related to patient care.

-- Leveraging Tenet's regional and corporate size and strength to

gain significant cost savings and enhanced quality and service

levels through a comprehensive nurse agency contracting

program. Tenet spent approximately $350 million on contract

labor, the majority of which was for contract nurses, in the

12 months ended Nov. 30, 2002, representing a 33 percent

increase from the prior-year period. Tenet already has

achieved substantial savings in two regions and is in the

process of implementing these techniques throughout the

company.

-- Changes in corporate travel policies to reduce air, hotel and

related expenses, including sale of two of the company's three

corporate aircraft and related expense reductions.

-- Changes in energy procurement and management that will

leverage Tenet's regional strength in contract negotiations.

The company expects to recognize restructuring charges in connection with certain of these actions.

Stock Option Expensing

Tenet will be the first company in the hospital industry to adopt FASB Statement 123 and, effective Jan. 1, 2003, begin treating stock-based compensation such as stock options granted to employees as an expense in its income statements. Tenet will use the retrospective restatement method for expensing options, as permitted under FASB Statement 148, and will restate all periods presented to reflect stock-based compensation cost under the fair value-based accounting method. All of the company's future financial reports will show prior results on a comparable basis for ease of comparison with earlier periods, beginning with its quarter ended March 31, 2003.

The expensing of all options and other stock-based compensation currently granted to employees is expected to reduce Tenet's net earnings in the calendar year ending Dec. 31, 2003, by approximately 18 cents per share. The company had previously provided pro-forma information about the impact of stock options in its quarterly and annual reports to shareholders. About 900 managers throughout Tenet are eligible to receive stock options, consistent with the company's broad-based and long-standing incentive and retention plan.

Shift to Calendar Year for Financial Reporting

Moving Tenet to a calendar year for financial reporting is designed to help investors more easily make financial comparisons with other publicly traded hospital companies. All but one of these companies report results on a calendar-year basis. In addition, given Tenet's new outlier policy that became effective Jan. 1, 2003, switching to a calendar year also aligns its financial calendar with this new policy.

As part of the transition, Tenet will report results for the quarter ended Feb. 28, 2003 -- the third fiscal quarter under the old reporting schedule -- on April 10. It will report results for the quarter ended March 31, 2003 -- the first quarter under its new calendar-year reporting schedule -- in mid-May.

Although applicable regulations would permit the company to hold its annual meeting of shareholders as late as April 2004, given the move to a calendar-year reporting period, Tenet plans to hold its annual meeting no later than the originally scheduled date of Oct. 8, 2003.

These initiatives are the latest in a series of moves by Tenet's new senior executive management team to address the company's challenges and position it for future growth. Since December, the company has, among other things, (1) adopted a new policy on Medicare outlier payments, (2) restructured its operating divisions and regions, (3) promoted its top hospital executives to the senior executive management team, (4) appointed a seasoned hospital executive who is also a medical doctor in charge of its large California market, and (5) established a groundbreaking new policy for uninsured patients that includes an offer, subject to government approval, of managed care-style pricing.

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 116,500 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 in this release may constitute forward-looking statements. They are based on management's current expectations and could be affected by numerous factors and are subject to various risks and uncertainties. Certain of those risks and uncertainties are discussed in the Company's filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K and quarterly reports on Form 10-Q. Do not rely on any forward-looking statement, as we cannot predict or control many of the factors that ultimately may affect our ability to achieve the results estimated. We make no promise to update any forward-looking statement, whether as a result of changes in underlying factors, new information, future events or otherwise.