01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Tenet Healthcare Corporation reported a net loss attributable to Tenet common shareholders of $704 milliona for 2017, compared with a net loss of $192 million in 2016, as shown in the consolidated statements of operations.
Net operating revenues before provision for doubtful accounts were $20.61 billionb in 2017 versus $21.07 billion in 2016, and operating income declined to $1.113 billion from $1.247 billion. Interest expense rose to $1.028 billion, and income tax expense was $219 million, which includes a $252 million charge from revaluing net deferred tax assets under the Tax Cuts and Jobs Act. Adjusted EBITDA was $2.444 billion compared with $2.478 billion in 2016, and the company cited a 5.86x ratio of long-term debt, net of cash, to Adjusted EBITDA at year-end 2017.
The company is pursuing portfolio changes: it completed the sale of its Philadelphia-area hospitals effective January 11, 2018 and of its Houston-area facilities in 2017, has definitive agreements for additional hospital divestitures, and is exploring a potential sale of its Conifer revenue cycle subsidiary. It also launched an enterprise-wide cost-reduction program intended to lower annual operating expenses by $250 millionc. Ambulatory Care, operated through the USPI joint venture, grew in revenue to $1.94 billion from $1.80 billion, and Tenet raised its USPI ownership to 80.0%.
Upcoming put obligations for USPI minority interests are estimated at $285 million to $295 milliond in 2018. The filing also discloses regulatory and compliance exposure, including a Non-Prosecution Agreement under which the DOJ determined in the fourth quarter of 2017 that the company breached reporting obligations, a monitor retained in February 2017, and continuing uncertainty around the Affordable Care Act. Cash flow from operations improved to $1.200 billion from $558 million, while the company had $611 million in cash and cash equivalents at year-end 2017.
02—Key points
Key Highlights
- Net loss attributable to Tenet common shareholders widened to $704 million in 2017 from $192 million in 2016.
- Net operating revenues before provision for doubtful accounts fell to $20.61 billion from $21.07 billion, and operating income fell to $1.113 billion from $1.247 billion.
- Interest expense was $1.028 billion in 2017, and the company stated it represented approximately 92% of its $1.113 billion operating income.
- Adjusted EBITDA was $2.444 billion in 2017 versus $2.478 billion in 2016; long-term debt was $14.791 billion at December 31, 2017.
- Net cash provided by operating activities rose to $1.200 billion from $558 million, driven largely by lower payments on restructuring, acquisition and litigation reserves.
- Management is exploring a potential sale of Conifer and has announced a cost-reduction program targeting $250 million in annual operating expense savings.
- A Non-Prosecution Agreement remains in effect through February 1, 2020, and the DOJ found in Q4 2017 that the company breached its reporting obligations, though the DOJ indicated it will not prosecute the underlying conduct.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $19.18B$19.62B | −2.3% |
| Operating Income | $1.11B$1.25B | −10.7% |
| Interest Expense | $1.03B$979.00M | +5.0% |
| Net Income | -$704.00M-$192.00M | −266.7% |
| EPS (Basic) | $-7.00$-1.93 | −262.7% |
| EPS (Diluted) | $-7.00$-1.93 | −262.7% |
| Shares Outstanding (Basic) | 100.59M99.32M | +1.3% |
| Shares Outstanding (Diluted) | 100.59M99.32M | +1.3% |
05—Questions
Frequently Asked Questions
Why was the 2017 net loss so much larger than in 2016?
The filing attributes the change largely to a $252 million reduction in the value of net deferred tax assets from the corporate tax rate cut under the Tax Cuts and Jobs Act, impairment and restructuring charges of $541 million (up from $202 million), and a $1.028 billion interest expense base. Litigation costs fell to $23 million from $293 million, partly offsetting these items.
What asset sales has Tenet completed or announced?
Tenet sold its Houston-area facilities effective August 1, 2017 for net proceeds of about $750 million, and its Philadelphia-area hospitals effective January 11, 2018. It has definitive agreements to sell Des Peres Hospital in St. Louis, three Chicago-area hospitals and its nine Aspen facilities in the United Kingdom, and is exploring a potential sale of Conifer.
What cash obligations are coming from the USPI joint venture?
Welsh Carson delivered a January 2018 put notice for a 7.5% stake in the USPI joint venture, and the company expects the 2018 payment to be between $285 million and $295 million, before any true-up. A further 7.5% put is available in 2019, and the company may settle these purchases in cash or in common stock.
What regulatory risks does the filing highlight?
The filing discusses the Non-Prosecution Agreement and a retained independent compliance monitor, the possibility of further changes to the Affordable Care Act, reductions in Medicare and Medicaid payments, and Medicaid DSH cuts scheduled under the Bipartisan Budget Act of 2018. It also notes ongoing qui tam litigation and FTC scrutiny of hospital transactions.
06—Continue