01—Abstract
Summary
Summary of the 10-K filed February 26, 2008. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation's 10-K for fiscal 2007 reports net operating revenues of $8.85 billiona, up from $8.45 billion in 2006, and operating income of $269 million, compared with an operating loss of $732 million in 2006.
The company still posted a net loss of $89 millionb for 2007 (loss per share of $0.19), improved from a net loss of $803 million in 2006. Loss from continuing operations narrowed to $49 million, or $0.10 per share, from $815 million in 2006. Management describes the company as still executing a turnaround strategy, citing ongoing volume declines, high bad debt and labor and supply cost pressures, and states that the company has reported losses from continuing operations every year from 2003 through 2007.
The balance sheet remains highly leveraged. Long-term debt is about $4.8 billionc, shareholders' equity is $54 million (down from $264 million), and working capital fell to $512 million from $1.10 billion. Cash and cash equivalents were $572 million at year-end, and the company had $564 million of revolving credit borrowing capacity.
Net cash from operating activities was $326 milliond, compared with a $462 million use in 2006, largely because 2006 included large legal settlement payments and 2007 included net income tax refunds of $162 million. Capital expenditures were $743 million.
The company is pursuing divestitures and portfolio changes, including the pending sale of North Ridge Medical Center, the completed sales of several Philadelphia and Louisiana facilities, and the purchase of Coastal Carolina Medical Center. Significant legal and regulatory exposures remain, including wage and hour class actions in California, pending appeals in False Claims Act cases, a dispute with HCPI over hospital leases, and an open IRS dispute for tax years ending 2002 that management expects to reach a deficiency notice by June 30, 2008.
02—Key points
Key Highlights
- Net operating revenues rose to $8.85 billion in 2007 from $8.45 billion in 2006, a 4.7% increase per the filing's revenue discussion.
- Operating income was $269 million in 2007, a sharp improvement from an operating loss of $732 million in 2006, which included $766 million in litigation and investigation costs.
- Net loss narrowed to $89 million ($0.19 per share) in 2007 from $803 million ($1.71 per share) in 2006; loss from continuing operations was $49 million ($0.10 per share).
- Same-hospital net inpatient revenue per admission increased 4.1%, while same-hospital admissions declined 1.0% and outpatient visits declined 2.0%, reflecting continued volume pressure.
- Shareholders' equity fell to $54 million from $264 million, and long-term debt was about $4.8 billion, with the company describing itself as highly leveraged.
- Operating cash flow turned positive at $326 million in 2007 versus a $462 million use in 2006, helped by lower legal settlement payments and $162 million in net income tax refunds.
- Ongoing legal and tax exposures include California wage and hour class actions, pending federal appeals, a lease dispute with Health Care Property Investors, and an IRS dispute with a $207 million proposed deficiency for earlier tax years.
03—Questions
Frequently Asked Questions
Did Tenet return to profitability in 2007?
No. Tenet reported a net loss of $89 million in 2007, though this was much smaller than the $803 million net loss in 2006. Operating income of $269 million was positive, and the loss from continuing operations was $49 million, or $0.10 per share.
What drove the improvement in 2007 results?
The filing attributes much of the improvement to lower litigation and investigation costs ($13 million in 2007 versus $766 million in 2006) and lower impairment and restructuring charges ($60 million versus $338 million). Improved managed care pricing under renegotiated contracts also contributed to revenue growth.
What are the main ongoing challenges the company describes?
Management cites declining patient volumes, attributed to physician recruitment and attrition, competition, and the USC University Hospital lawsuit, along with a high level of uncollectible accounts from uninsured and underinsured patients. Labor and supply cost pressures, union activity, and the nursing shortage are also highlighted.
How leveraged is the company and what liquidity does it have?
Long-term debt was about $4.8 billion at December 31, 2007, and shareholders' equity was $54 million. Liquidity at year-end included $572 million in cash and cash equivalents and $564 million of borrowing capacity under an $800 million senior secured revolving credit facility, with $232 million of letters of credit outstanding.
What asset sales and acquisitions did the company make?
Tenet completed the sales of Roxborough Memorial and Warminster hospitals, Shelby Regional Medical Center, Graduate Hospital, and Alvarado Hospital Medical Center, and signed an agreement in February 2008 to sell North Ridge Medical Center. It purchased Coastal Carolina Medical Center in June 2007 for about $36 million.
04—Continue