01—Abstract
Summary
Summary of the 10-K filed February 23, 2015. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation (THC) reported in its 10-K for the year ended December 31, 2014 that it is a national, diversified healthcare services company operating 80 hospitals, 210 outpatient centers, six health plans and Conifer Health Solutions, LLC, a business process services unit.
Net operating revenues rose to $16.615 billiona in 2014 from $11.102 billion in 2013, driven largely by the October 2013 Vanguard Health Systems acquisition, while operating income increased to $925 million from $663 million. Net income attributable to Tenet common shareholders was $12 million, compared with a loss of $134 million in 2013, and diluted EPS from continuing operations was $0.34. Adjusted EBITDA was $1.952 billion, versus $1.342 billion in 2013.
Balance sheet leverage is high. Long-term debt, net of current portion, was $11.695 billionb at year-end 2014, and total equity was $785 million. Management reports that the ratio of total long-term debt, net of cash, to Adjusted EBITDA was 5.95x.
Interest expense rose to $754 millionc from $474 million. Cash flow from operations was $687 million, and capital expenditures were $933 million. Cash and cash equivalents were $193 million at year-end.
Key risks cited include the Affordable Care Act's ongoing effects on reimbursement and uninsured volumes, reliance on Medicare and Medicaid (about 22% and 9% of general hospital net patient revenues, respectively), managed care payer concentration, labor costs and union activity, and several pending government investigations. Management also disclosed a settlement that gave Tenet full ownership of the Valley Baptist hospitals for about $254 milliond in cash in February 2015, and a January 2015 extension of the Conifer agreement with Catholic Health Initiatives.
02—Key points
Key Highlights
- Net operating revenues were $16.615 billion in 2014, up from $11.102 billion in 2013, and operating income was $925 million versus $663 million.
- Net income attributable to Tenet common shareholders was $12 million in 2014, compared with a net loss of $134 million in 2013.
- Adjusted EBITDA was $1.952 billion in 2014 (11.7% of net operating revenues), up from $1.342 billion (12.1% of net operating revenues) in 2013.
- Long-term debt, net of current portion, reached $11.695 billion; the ratio of long-term debt, net of cash, to Adjusted EBITDA was 5.95x.
- Interest expense rose to $754 million from $474 million, driven by acquisition-related borrowings in 2013 and 2014.
- The company operated 80 hospitals with 20,814 licensed beds across 14 states and 210 outpatient centers at December 31, 2014.
- In February 2015 Tenet acquired the remaining 49% interest in Valley Baptist for about $254 million in cash, and in January 2015 Conifer extended and expanded its CHI agreement to 92 hospitals through 2032.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 23, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Operating Income | $925.00M$663.00M | +39.5% |
| Interest Expense | $754.00M$474.00M | +59.1% |
| Net Income | $12.00M-$134.00M | +109.0% |
| EPS (Basic) | $0.12$-1.32 | +109.1% |
| EPS (Diluted) | $0.12$-1.32 | +109.1% |
| Shares Outstanding (Basic) | 97.80M101.65M | −3.8% |
| Shares Outstanding (Diluted) | 100.29M101.65M | −1.3% |
05—Questions
Frequently Asked Questions
How did Tenet's revenue and profitability change in 2014?
Net operating revenues increased $5.513 billion, or 49.7%, to $16.615 billion. The filing attributes approximately $4.501 billion of the increase to hospital acquisitions. Operating income rose to $925 million from $663 million, and net income attributable to common shareholders was $12 million, compared with a loss of $134 million in 2013. Loss from early extinguishment of debt fell to $24 million from $348 million, which helped the bottom line.
How heavily indebted is Tenet, and what does that mean for investors?
Long-term debt, net of current portion, was $11.695 billion at December 31, 2014, and total equity was $785 million. Interest expense was $754 million in 2014. Management reports a ratio of total long-term debt, net of cash, to Adjusted EBITDA of 5.95x. Debt covenants restrict dividends, and the company has not paid common cash dividends since fiscal 1994, so investors should expect cash flow to go mainly toward debt service and capital spending.
What are the main regulatory and payer risks identified in the filing?
The filing highlights uncertainty around the Affordable Care Act, including the Supreme Court review of subsidies for federal-exchange enrollees and the Medicaid expansion decisions of states. Medicare represented about 22% and Medicaid about 9% of general hospital net patient revenues before doubtful accounts. Managed care payers accounted for about 59% of net patient revenues, and reductions in Medicare payment rates, the Medicare physician fee schedule SGR formula and the two-midnight rule are also cited as risks.
Are there significant pending legal or government matters?
Yes. The filing describes a qui tam action and related government investigations concerning arrangements with Hispanic Medical Management, an investigation of implantable cardioverter defibrillator procedures at 56 hospitals, and a CFPB investigation of Conifer's debt collection subsidiary. Management has established reserves of approximately $38 million in aggregate for these matters, but it states that the final amounts could differ materially from the recorded reserves.
06—Continue