01—Abstract
Summary
Summary of the 10-K filed March 9, 2006. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation's 2005 Form 10-K reports an operating loss of $359 milliona and a net loss of $724 million for the year ended December 31, 2005, compared with restated net losses of $2.806 billion in 2004 and $1.564 billion in 2003.
Net operating revenues were $9.614 billionb, down from $9.908 billion in 2004 (restated). Results were hurt by impairment and restructuring charges of $266 million, $212 million of litigation and investigation costs, a $55 million hurricane loss, and a $218 million increase in the deferred tax asset valuation allowance. Provision for doubtful accounts fell to $698 million from $1.202 billion, largely because of the Compact with Uninsured Patients, which recorded $718 million of self-pay discounts as contractual allowances.
Shareholders' equity fell to $1.021 billionc from $1.699 billion. Cash from operations was $763 million, helped by a $537 million income tax refund, and unrestricted cash was $1.373 billion at year-end. The filing restates 2004 and 2003 results and earlier periods back to fiscal 1999 because of an audit committee investigation into managed care contractual allowances at three California hospitals.
The restatement increased the originally reported 2004 net loss by $166 milliond and the 2003 net loss by $87 million. The company remains under multiple federal and state investigations, including a criminal trial in San Diego (the Alvarado case) with jury deliberations still ongoing as of March 8, 2006, a pending SEC investigation with Wells Notices issued to former executives, and a Medicare coding lawsuit. Management has agreed to settle the securities class action for $215 million in cash, with about $75 million expected from insurance, and reached a $7 million settlement with the Florida Attorney General.
The company operates 69 continuing general hospitals in 13 states after divesting 25 of 27 targeted hospitals, and it has a $4.8 billion long-term debt load. Hurricane Katrina closed two New Orleans hospitals and left others operating at reduced levels. The company paid no cash dividends and does not intend to pay them in the foreseeable future.
02—Key points
Key Highlights
- Net loss of $724 million for 2005 and operating loss of $359 million, versus restated net losses of $2.806 billion in 2004 and $1.564 billion in 2003
- Net operating revenues of $9.614 billion in 2005, down from $9.908 billion in 2004 (restated), with $718 million in Compact self-pay discounts reducing revenue
- Provision for doubtful accounts fell to $698 million from $1.202 billion, but a $218 million valuation allowance on deferred tax assets was recorded in continuing operations, bringing the total allowance to $1.063 billion
- Restatement of 2004 and 2003 results and earlier periods back to fiscal 1999 after an audit committee investigation into managed care contractual allowances at three California hospitals
- Shareholders' equity declined to $1.021 billion from $1.699 billion, and long-term debt was $4.784 billion net of current portion
- Securities class action settlement of $215 million in cash, with about $75 million expected from D&O insurance; net cost of about $140 million was recorded in Q4 2005
- Ongoing federal and state investigations, including a San Diego criminal trial with jury deliberations still underway as of March 8, 2006, and a pending SEC investigation with Wells Notices to former executives
03—Questions
Frequently Asked Questions
Why did the company's net loss narrow so much compared with 2004?
The 2005 net loss of $724 million compares with restated losses of $2.806 billion in 2004. The 2004 figure was driven by $1.236 billion of impairment of long-lived assets and goodwill, and by a $586 million valuation allowance on deferred tax assets. In 2005, impairment charges were $255 million, and provision for doubtful accounts fell to $698 million from $1.202 billion.
What is the company's exposure to unresolved legal and government matters?
The filing states that the ultimate resolution of claims, lawsuits and investigations could have a material adverse effect on the business, financial position, results of operations or cash flows. Costs of litigation and investigations were $212 million in 2005. Accrued legal settlement costs were $313 million at year-end. The Alvarado criminal trial, the SEC investigation, a Medicare coding suit with a $34 million accrual, and a Boca Raton RICO suit with a trial set for February 2007 all remain pending.
How much cash does the company have, and how is it funded?
The company had $1.373 billion of unrestricted cash and cash equivalents at December 31, 2005. Operating cash flow was $763 million, including a $537 million income tax refund. In January 2005 it issued $800 million of 9.25% senior notes due 2015. Its letter of credit facility had $194 million outstanding, collateralized by $263 million of restricted cash, and the filing notes that the facility's termination date was extended to June 30, 2008.
What effect is Hurricane Katrina having on the company?
Hurricane Katrina damaged all five New Orleans-area hospitals and the Mississippi hospital. Lindy Boggs and Memorial remain closed. The other hospitals are operating at reduced levels. The company recorded about $52 million in hurricane costs, a $79 million impairment net of $64 million of insurance proceeds, and a $61 million impairment reflecting future results. It estimates about $141 million of lost revenue in the six months ended December 31, 2005.
Does the company pay dividends, and what is its debt load?
The company has not paid cash dividends on common stock since the first quarter of fiscal 1994 and does not intend to pay them in the foreseeable future. Long-term debt, including current portion, was $4.803 billion at December 31, 2005, and the filing describes the company as highly leveraged. Its letter of credit facility and senior note indentures restrict dividends.
04—Continue