01—Abstract
Summary
Summary of the 10-K filed February 27, 2007. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation's 2006 Form 10-K reports a net loss of $803 milliona for 2006 (loss per share of $1.71), compared with a net loss of $724 million in 2005 and $2.806 billion in 2004.
Loss from continuing operations was $871 millionb, or $1.85 per diluted share, driven mainly by $766 million in costs of litigation and investigations (including a $711 million June 2006 global civil settlement with the federal government) and $376 million of impairment of long-lived assets and goodwill, net of insurance recoveries. Net operating revenues were $8.701 billion, up from $8.614 billion, while patient volumes declined: admissions were down 2.5%, patient days down 4.5%, and outpatient visits down 5.2%. Shareholders' equity fell to $264 million from $1.021 billion, and long-term debt was $4.760 billion.
Tenet is pursuing a turnaround strategy centered on divesting 10 general hospitals announced in June 2006 (six sold as of year-end 2006), focusing on 57 remaining general hospitals, and building outpatient services. Management cites Compact with Uninsured Patients discounts ($930 millionc in 2006 contractual allowances) as a major revenue factor, and the company continues to face unresolved matters including an SEC investigation, the Brockovich and Boca Raton RICO suits, a $207 million IRS Revenue Agent's Report, and wage-and-hour class actions in California. Liquidity at year-end included $784 million of cash and cash equivalents and $596 million of revolver borrowing capacity, with an $800 million senior secured revolving credit facility entered into in November 2006.
The company reported that it has not paid cash dividends since fiscal 1994 and does not intend to pay them in the foreseeable future. Management concluded that internal control over financial reporting was effective as of December 31, 2006, and KPMG LLP audited both the financial statements and internal controls.
02—Key points
Key Highlights
- Net loss of $803 million in 2006 (-$1.71 per share), compared with a net loss of $724 million in 2005 and $2.806 billion in 2004.
- Costs of litigation and investigations rose to $766 million in 2006 from $212 million in 2005, mainly from the June 2006 global civil settlement with the federal government ($711 million).
- Impairment of long-lived assets and goodwill, net of insurance recoveries, was $376 million in 2006, including a $152 million goodwill charge for the Central-Northeast region.
- Net operating revenues were $8.701 billion, up slightly from $8.614 billion, while admissions fell 2.5%, patient days fell 4.5% and outpatient visits fell 5.2%.
- Shareholders' equity declined to $264 million from $1.021 billion, and long-term debt, net of current portion, was $4.760 billion.
- Strategic plan to divest 10 general hospitals announced in June 2006; six had been sold as of December 31, 2006, leaving 57 general hospitals in the continuing portfolio.
- Liquidity at year-end included $784 million of cash and cash equivalents and $596 million of borrowing capacity under a new $800 million senior secured revolving credit facility.
03—Questions
Frequently Asked Questions
Why did Tenet report a larger loss in 2006 than in 2005?
The filing attributes the 2006 loss from continuing operations of $1.85 per diluted share, compared with $0.65 in 2005, primarily to the current year's litigation settlements and impairments. Costs of litigation and investigations were $766 million and impairment charges were $376 million, versus $212 million and $36 million in 2005.
How are patient volumes and revenue trending?
Net operating revenues rose about $87 million, or 1.0%, to $8.701 billion in 2006. However, admissions fell 2.5%, patient days fell 4.5% and outpatient visits fell 5.2%. Management cites loss of patients to competitors, physician recruitment and attrition, strategic reductions under its Targeted Growth Initiative, and unfavorable publicity from legacy lawsuits. Net inpatient revenue per admission rose 4.6%, helped by improved managed care pricing.
What is the Compact with Uninsured Patients and how does it affect results?
The Compact offers managed care-style discounts to most uninsured patients. Discounts recorded as contractual allowances reduced net operating revenues by $930 million in 2006, compared with $631 million in 2005. Management says the Compact is not expected to have a material effect on the net economic impact of treating self-pay patients, and the self-pay collection rate was approximately 32%.
What major legal and regulatory matters remain open?
The filing lists a pending SEC formal investigation with Wells Notices issued to former executives, a Brockovich lawsuit on appeal, the Boca Raton RICO suit with a summary judgment motion pending, qui tam actions in Texas and South Carolina, and California wage-and-hour class actions. On the tax side, the IRS issued a Revenue Agent's Report proposing an aggregate deficiency of $207 million, of which about $85 million was paid as undisputed in December 2006, and the company is appealing the disputed portion.
Does Tenet pay dividends, and how is it financed?
Tenet has not paid cash dividends on its common stock since the first quarter of fiscal 1994 and does not intend to pay them in the foreseeable future. Its senior secured revolving credit agreement also limits or prohibits cash dividends. At December 31, 2006, there were no borrowings under the revolver, and the company had $190 million of letters of credit outstanding under it. Long-term debt maturities are concentrated after 2011.
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