01—Abstract
Summary
Summary of the 10-K filed February 24, 2014. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation's 2013 results were shaped by its acquisition of Vanguard Health Systems, Inc., completed October 1, 2013 for approximately $4.3 billiona (including assumption of $2.5 billion of net Vanguard debt).
As of December 31, 2013, Tenet primarily operated 77 hospitals with 20,293 licensed beds, 183 outpatient centers, six health plans, six accountable care networks, and Conifer Health Solutions, which serves more than 700 hospital and other clients. Net operating revenues rose to $11.102 billionb in 2013 from $9.119 billion in 2012, while operating income fell to $663 million from $749 million, and the company reported a net loss attributable to common shareholders of $134 million, compared with net income of $141 million in 2012. The loss was driven largely by a $348 million loss from early extinguishment of debt, tied to the refinancing of senior secured notes, along with $103 million of impairment, restructuring and acquisition-related costs and $31 million of litigation and investigation costs.
Interest expense increased to $474 millionc from $412 million. Long-term debt, net of current portion, rose to $10.69 billion from $5.16 billion, and total assets grew to $16.13 billion from $9.04 billion. Net cash provided by operating activities was $589 million, versus $593 million in 2012, and Tenet repurchased $400 million of common stock during 2013.
The filing highlights ongoing headwinds: Medicare and Medicaid reimbursement pressure, uncertainty around Affordable Care Act implementation, a high volume of uninsured and underinsured patients, and labor cost pressures. Management also flagged several pending government reviews, including kyphoplasty and implantable cardioverter defibrillator investigations and a qui tam matter involving Clinica de la Mama, with reserves of approximately $27 milliond recorded for 23 hospitals under review. Adjusted EBITDA was $1.342 billion, or 12.1% of net operating revenues, compared with $1.203 billion (13.2%) in 2012.
02—Key points
Key Highlights
- Net operating revenues increased to $11.102 billion in 2013 from $9.119 billion in 2012, reflecting the Vanguard acquisition completed October 1, 2013.
- Net loss attributable to Tenet common shareholders was $134 million in 2013, versus net income of $141 million in 2012, driven by a $348 million loss from early extinguishment of debt.
- Operating income declined to $663 million from $749 million; impairment, restructuring and acquisition-related costs rose to $103 million.
- Long-term debt, net of current portion, increased to $10.69 billion from $5.16 billion, and total debt-to-Adjusted EBITDA was 6.0x at year-end 2013.
- Adjusted EBITDA was $1.342 billion (12.1% margin) versus $1.203 billion (13.2% margin) in 2012.
- Net cash provided by operating activities was $589 million, roughly flat with $593 million in 2012; the company repurchased $400 million of common stock in 2013.
- Management cites ongoing reimbursement pressure from Medicare and Medicaid, Affordable Care Act uncertainty, and high levels of uninsured patients as key risks.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 24, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Operating Income | $663.00M$749.00M | −11.5% |
| Interest Expense | $474.00M$412.00M | +15.0% |
| Net Income | -$134.00M$141.00M | −195.0% |
| EPS (Basic) | $-1.32$1.35 | −197.8% |
| EPS (Diluted) | $-1.32$1.30 | −201.5% |
| Shares Outstanding (Basic) | 101.65M104.20M | −2.4% |
| Shares Outstanding (Diluted) | 101.65M108.93M | −6.7% |
05—Questions
Frequently Asked Questions
What drove the change from net income in 2012 to a net loss in 2013?
The main driver was a $348 million loss from early extinguishment of debt in 2013, primarily from purchasing and calling senior secured notes at prices above par, compared with a $4 million loss in 2012. Impairment, restructuring and acquisition-related costs of $103 million and litigation and investigation costs of $31 million also weighed on results, along with higher interest expense of $474 million versus $412 million.
How did the Vanguard acquisition change Tenet's scale?
Tenet acquired Vanguard Health Systems on October 1, 2013 for approximately $4.3 billion, adding 28 hospitals (plus one under construction), 39 outpatient centers and five health plans with about 140,000 members. Total licensed beds rose to 20,293 from 13,216 a year earlier, and total assets rose to $16.13 billion from $9.04 billion.
What regulatory and reimbursement risks does the filing highlight?
The filing notes that Medicare and Medicaid payment reductions under the Affordable Care Act, including market basket adjustments and reductions to disproportionate share hospital payments, could adversely affect revenues. It also cites uncertainty over state Medicaid expansion, the two-midnight inpatient admission rule, and pending government reviews such as the kyphoplasty and implantable cardioverter defibrillator investigations, for which reserves of approximately $27 million were recorded across 23 hospitals.
How leveraged is Tenet after the acquisition?
At December 31, 2013, total long-term debt was approximately $10.8 billion, and the company reported a ratio of total long-term debt, net of cash, to Adjusted EBITDA of 6.0x. The company issued $2.8 billion of 8 1/8% senior notes due 2022 and $1.8 billion of 6% senior secured notes due 2020 to finance the Vanguard acquisition.
06—Continue