01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation (NYSE: THC) operates 49 general hospitals with 13,428 licensed beds in 11 states, plus 81 outpatient diagnostic imaging and ambulatory surgery centers and the Conifer revenue cycle services business serving about 30 non-Tenet hospitals.
Net operating revenues rose to $9.205 billiona in 2010 from $9.014 billion in 2009, and operating income increased to $634 million from $538 million. Net income attributable to Tenet common shareholders was $1.119 billion in 2010, driven largely by an income tax benefit of $977 million from a reduction in the deferred tax asset valuation allowance. Excluding that benefit and other items, diluted earnings per share from continuing operations were stated at $2.01 including above items, versus $0.43 in 2009.
Cash flow and leverage remained a focus. Net cash provided by operating activities was $472 millionb in 2010 versus $425 million in 2009, and Adjusted Free Cash Flow from continuing operations was $92 million versus $122 million. Long-term debt, net of current portion, was $3.997 billion at year-end 2010, and management stated a ratio of total long-term debt net of cash to Adjusted EBITDA of 3.5x.
Adjusted EBITDA was $1.050 billionc in 2010 versus $982 million in 2009. The company issued $600 million of 8% senior notes due 2020 and repurchased about $782 million of 7 3/8% senior notes due 2013. The filing highlights significant risks: Community Health Systems made an unsolicited $6.00 per share cash-and-stock proposal in November 2010, which the board rejected, and Community began a proxy contest in January 2011 nominating 10 director candidates.
Six shareholder class actions have been filed. Pressures on volumes, bad debt, and government reimbursement under the Affordable Care Act persist. Medicare and Medicaid accounted for about 32.6%d of 2010 revenues, and the company is subject to ongoing government reviews and Katrina-related class actions.
02—Key points
Key Highlights
- Net operating revenues of $9.205 billion in 2010, up from $9.014 billion in 2009; operating income of $634 million versus $538 million.
- Net income attributable to Tenet common shareholders of $1.119 billion in 2010, including a $977 million income tax benefit from a reduced deferred tax asset valuation allowance.
- Adjusted EBITDA of $1.050 billion in 2010 (11.4% of net operating revenues) versus $982 million (10.9%) in 2009.
- Total admissions declined 2.4% in 2010, and patient days fell 3.1%, while net inpatient revenue per admission rose 2.9%.
- Operating cash flow of $472 million and Adjusted Free Cash Flow from continuing operations of $92 million in 2010, versus $425 million and $122 million in 2009.
- Long-term debt of $3.997 billion (net of current portion) at year-end 2010; ratio of debt net of cash to Adjusted EBITDA of 3.5x; $600 million of 8% senior notes due 2020 issued in August 2010.
- Community Health Systems' unsolicited $6.00 per share proposal (November 2010) was rejected by the board, followed by a January 2011 proxy contest nominating 10 director candidates.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Operating Income | $634.00M$538.00M | +17.8% |
| Interest Expense | $424.00M$445.00M | −4.7% |
| Net Income | $1.15B$181.00M | +536.5% |
| EPS (Basic) | $9.24$0.38 | +2331.6% |
| EPS (Diluted) | $8.16$0.37 | +2105.4% |
| Shares Outstanding (Basic) | 121.08M480.24M | −74.8% |
| Shares Outstanding (Diluted) | 140.16M507.28M | −72.4% |
05—Questions
Frequently Asked Questions
Why did Tenet report such a large net income in 2010?
Net income attributable to Tenet common shareholders was $1.119 billion, but the filing attributes most of the improvement to a $977 million income tax benefit. This benefit primarily reflects a decrease in the valuation allowance on deferred tax assets, based on the company's conclusion that positive evidence such as cumulative profits and projected 2011 profits outweighed negative evidence. Income from continuing operations before income taxes was only $158 million.
What is the status of the Community Health Systems takeover proposal?
Community Health Systems proposed on November 12, 2010 to acquire all Tenet shares for $6.00 per share in cash and stock. Tenet's board unanimously determined the proposal was not in the best interests of the company or its shareholders. Community nominated 10 candidates for the board in January 2011, and six purported shareholder class actions have been filed against the company and its directors. The company intends to vigorously defend these actions.
How dependent is Tenet on government and managed care payers?
In 2010, Medicare accounted for about 23.9% of net patient revenues and Medicaid for about 8.7%, and the filing states that Medicare and Medicaid together represented about 32.6% of 2010 revenues. Managed care net patient revenues were $5.0 billion, about 56% of net patient revenues, and about 57% of net accounts receivable were due from managed care payers at year-end 2010.
What are the main operational challenges cited for volumes?
Total admissions fell 2.4% and surgeries declined 1.2% in 2010, which management attributes to economic conditions reducing elective procedures, competition, managed care utilization pressure, and the Targeted Growth Initiative eliminating some service lines. The self-pay collection rate declined to 28.3% from 30.1%, and the provision for doubtful accounts rose to $740 million, or 8.0% of net operating revenues.
What is the expected impact of the Affordable Care Act?
The company expects the law to extend coverage to a broader population, which could benefit it over time, with reimbursement for uninsured patients possibly beginning as early as 2014. However, the law also reduces Medicare and Medicaid spending, including market basket adjustments and disproportionate share hospital payment reductions beginning in 2013. Management states it cannot predict the net effect with certainty.
06—Continue