SANTA BARBARA, Calif. – Oct 2, 2002 – Tenet Healthcare Corporation (NYSE: THC) today announced results for the first quarter of fiscal 2003, ended Aug. 31, 2002. As the company expected when it pre-announced preliminary results last week, diluted earnings per share from operations were $0.68 per share. This represents 39 percent growth over the comparable prior-year period, after reflecting Statement of Financial Accounting Standard 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.
Tenet’s performance continues to be driven by the same factors that have propelled the company to report 11 consecutive quarters of earnings growth above 20 percent. These factors include continued growth in admissions, a continued shift in the company’s business mix to higher acuity services, continued strong reimbursement trends, continued margin expansion and continued strong cash flow trends.
Given the continuation of these factors, the company raised its previous guidance and now expects diluted earnings per share from operations to grow at least 25 percent in fiscal 2003.
“In recent years, we have significantly increased our investment in our hospitals, expanding and enhancing the facilities and the services they offer,” said Jeffrey C. Barbakow, Tenet chairman and chief executive officer. “This year, we expect to reinvest $1 billion into our hospitals – that’s up 66 percent from two years ago. We are very proud of what we’ve been able to contribute to our communities and what we’ve been able to achieve for our shareholders. These investments have created tremendous growth, and will create additional future growth.”
First Quarter
Admissions to Tenet hospitals rose 4.1 percent overall and 1.8 percent on a same-facility basis. Once again, admissions growth was highest among the Baby Boomer age groups. On a same-facility basis, admissions rose 7.7 percent among those aged 41-50 years and 5.3 percent among those aged 51-60 years.
Growth also remained highest in the highest acuity services. Changes in same-facility patient days at either end of the acuity scale best illustrate the shift in the company’s business mix. During the quarter, same-facility patient days for sub-acute services – at the low end of the acuity scale – declined 4.2 percent. At the same time, same-facility patient days for definitive observation units and for intensive care – at the highest end of the acuity scale – rose 9.4 percent and 6.3 percent, respectively.
“Quarter after quarter, we’ve experienced the highest rates of growth in our highest acuity services,” said Barbakow. “This shift to higher acuity business also generates higher revenues, and we believe it accounts for as much as one-half of our unit revenue growth. This has been a deliberate part of our strategy: focusing our capital investment and physician recruitment on those high acuity services, like cardiology, orthopedics and neurology, that the aging Baby Boomers will need in ever greater numbers.”
Reflecting the growth of higher acuity services and on-going strong reimbursement trends, same-facility net inpatient revenue per admission rose 9.9 percent in the quarter.
The growth in admissions, high acuity services and reimbursement trends, combined with acquisitions, drove net operating revenues up 12.3 percent to $3.70 billion, compared with $3.30 billion in the year-ago quarter.
Combined with good cost controls, this strong top-line growth spurred continued margin expansion. EBITDA (earnings before interest, taxes, depreciation and amortization) margins rose 1.4 percentage points to 20.4 percent compared with 19.0 percent in the prior-year quarter. The company expects continued margin expansion in the future. EBITDA rose 20.8 percent to $756 million, up from $626 million in the year-ago quarter.
Income from operations rose 38.6 percent to $341 million, compared to $246 million in the year-ago quarter. A reconciliation of net income from operations to net income, as determined under generally accepted accounting principles, is provided in Note 4 of the accompanying Financial Update.
Net income rose to $338 million in the quarter, up from $155 million in the prior-year quarter. Net income from both periods reflects losses from the early extinguishment of debt, amounting to $3 million net of taxes in the current quarter and $69 million net of taxes in the prior-year quarter.
Cash flow from operations rose 43 percent to $696 million over the prior-year quarter’s $487 million. On a rolling 12-months basis, cash flow from operations was $2.52 billion and free cash flow, defined as cash flow from operations less capital expenditures, reached $1.65 billion – both new record highs.
Total debt dropped to $3.59 billion in the quarter, down $423 million from the fourth quarter and down $797 million from the fiscal 2002 first quarter.
Return on assets jumped to 9.3 percent, up from 6.9 percent in the year-ago quarter and more than doubling over three years. Return on equity climbed to 23 percent, up from 18.5 percent a year ago and 15.2 percent three years ago, despite significant de-leveraging during this period.
During the quarter, the company repurchased 2,791,500 of its outstanding shares. As of the end of the quarter, the company had repurchased a total of 20,972,250 shares of the 50 million authorized by the board of directors.
Looking Forward
Based upon strong business trends and the continuing success of the company’s strategies, Tenet now expects fiscal 2003 diluted earnings per share from operations to grow at least 25 percent. Tenet had previously said that it expected earnings per share from operations to grow at a rate exceeding high-teens in fiscal 2003.
The company’s guidance assumes growth over the prior year on a comparable basis. Specifically, the company expects at least 25 percent growth over $2.34, which is the appropriate comparison after adding $0.17 to eliminate goodwill amortization as if SFAS 142 had been in effect in the prior year. The company’s guidance does not assume the acquisition of any new hospitals.
Tenet continues to expect an extended period of outstanding growth, driven by continued strong admissions trends, continued shift in the company’s business mix to higher acuity services, continued strong reimbursement trends, further EBITDA margin expansion and continued strong cash flow trends.
Conference Call
Tenet executives will discuss the company’s performance and future expectations in greater detail on a live audio webcast later this morning. All interested investors are invited to access the webcast at the company’s website www.tenethealth.com or via StreetEvents at www.companyboardroom.com, either live at 11:00 a.m. (EDT) or on a replay basis for the next 90 days.
Tenet Healthcare Corporation, through its subsidiaries, owns and operates 114 acute care hospitals with 28,134 beds and numerous related health care services. Tenet and its subsidiaries employ approximately 113,920 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.
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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.