Exhibit 99.1
newsrelease | 
|
| |
| Headquarters Office |
| 13737 Noel Road, Ste.100 |
| Dallas, TX 75240
tel: 469.893.2000
fax: 469.893.8600
www.tenethealth.com |
| Contacts: | |
| Media: | Steven Campanini (469) 893-6321 |
| Investors: | Thomas Rice (469) 893-2522 |
| | | |
Tenet Announces Results for Second Quarter
Ended June 30, 2006
DALLAS – August 9, 2006 – Tenet Healthcare Corporation (NYSE:THC) today reported a net loss of $398 million, or $0.85 per share, for its second quarter ended June 30, 2006. This compares to a net loss of $33 million, or $0.07 per share, in the second quarter of 2005. The net loss for the second quarter of 2006 includes a loss from continuing operations of $447 million, or $0.95 per share, compared to a loss of $9 million, or $0.02 per share, in the second quarter of 2005. The loss from continuing operations in the second quarter of 2006 included litigation and investigation costs of $0.98 per share. Income from discontinued operations in the second quarter of 2006 was $49 million, or $0.10 per share, compared to a loss of $24 million, or $0.05 per share, in the second quarter of 2005.
“Strong pricing and cost control more than offset continued weakness in admissions and increases in bad debt during the second quarter, which enabled us to exceed our expectations for the quarter,” said Trevor Fetter, Tenet’s president and chief executive officer. “We also succeeded in the second quarter in settling the most significant of the major legal issues facing the Company, and, most importantly, we continued to make progress and receive recognition for further improvements in clinical quality and service. We believe the Company is now well positioned to grow.”
“We specifically targeted enhanced clinical technology and patient care improvements with our expanded capital investment program, and the initial response from our physicians has been overwhelmingly positive,” said Reynold Jennings, chief operating officer. “These investments are tangible evidence of our commitment to our hospitals and are the things our physicians have asked for. We believe they will respond by sending us an increased share of their patients.”
“As a result of the 6.8 percent increase in net patient revenue per equivalent patient day, or 12.0
percent on a Compact-adjusted basis, and by restraining the increase in controllable operating expenses per adjusted patient day to 4.4 percent, we achieved our performance targets in continuing operations for the second quarter,” said Biggs Porter, chief financial officer. “Also, before the settlement and other payments of $489 million, continuing operations had positive adjusted free cash flow in the quarter of $86 million.” “Adjusted free cash flow” is a non-GAAP term defined by the Company as cash flow from continuing operations less capital expenditures in continuing operations and before settlement payments.
Continuing Operations
The loss from continuing operations for the second quarter of 2006 was $447 million, or $0.95 per share, including the following items:
(1) litigation and investigation costs of $728 million pre-tax, $460 million after-tax before the impact of the valuation allowance, or $0.98 per share, including a pre-tax charge of $711 million for a settlement with the Department of Justice;
(2) impairment and restructuring charges, net of insurance recoveries, of $27 million pre-tax, $27 million after-tax before the impact of the valuation allowance (no material tax benefit due primarily to the non-deductibility of goodwill), or $0.06 per share;
(3) hurricane insurance recoveries, net of costs of $13 million pre-tax, $8 million after-tax before the impact of the valuation allowance, or $0.02 per share;
(4) favorable net adjustments for prior year cost reports and prior year cost report valuation allowances, primarily related to Medicare and Medicaid, of $4 million pre-tax, $3 million after-tax before the impact of the valuation allowance, or $0.01 per share;
(5) an unfavorable, non-cash adjustment to increase the company’s total valuation allowance for deferred tax assets related to continuing operations of $2 million, or $0.00 per share; and,
(6) a favorable non-cash adjustment to reduce tax exposure reserves of $7 million, or $0.02 per share.
In addition, the Company incurred stock compensation expense, included in salaries, wages and benefits, of $11 million pre-tax, $7 million after-tax, or $0.02 per share in the second quarter of 2006 as compared to $13 million pre-tax, $8 million after-tax, or $0.02 per share in the second quarter of 2005.
Adjusted EBITDA (a non-GAAP term defined by the Company as net income (loss) before (1) interest, (2) taxes, (3) depreciation, (4) amortization, (5) impairment of long-lived assets and goodwill, and restructuring charges net of insurance recoveries, (6) hurricane insurance recoveries net of costs, (7) costs of litigation and investigations, (8) investment earnings, (9) minority interest, and (10) discontinued operations) in the second quarter of 2006 was $209 million producing a margin of 9.5 percent an increase
2
of $56 million, or 37 percent, from adjusted EBITDA of $153 million in the second quarter of 2005, and an increase of 240 basis points from the adjusted EBITDA margin of 7.1 percent in the second quarter of 2005. A reconciliation of adjusted EBITDA to net loss is set forth at the end of this release.
Admissions, Patient Days and Surgeries
| | Continuing Operations | |
Admissions, Patient Days, and Surgeries | | Q2’06 | | Q2’05 | | Change (%) | |
Admissions - Total | | 142,976 | | 146,946 | | (2.7 | ) |
Uninsured Admissions | | 5,748 | | 5,620 | | 2.3 | |
Uninsured Admissions/Total Admits (%) | | 4.0 | | 3.8 | | 0.2 | (1) |
Charity Care Admissions | | 2,801 | | 2,519 | | 11.2 | |
Charity Care Admissions as % of total | | 2.0 | | 1.7 | | 0.3 | (1) |
Commercial Managed Care Admissions | | 42,031 | | 44,725 | | (6.0 | ) |
Admissions through Emergency Dept. (ED) | | 75,579 | | 77,520 | | (2.5 | ) |
ED Admits as % of Total | | 52.9 | | 52.8 | | 0.1 | (1) |
Surgeries (inpatient and outpatient) | | 104,897 | | 108,674 | | (3.5 | ) |
Patient Days - Total | | 710,339 | | 743,889 | | (4.5 | ) |
Equivalent Admissions | | 204,640 | | 208,608 | | (1.9 | ) |
Equivalent Patient Days | | 1,008,689 | | 1,047,509 | | (3.7 | ) |
(1) This change is the difference between the 2006 and 2005 amounts shown. |
Admissions in continuing operations for the second quarter of 2006 were 142,976, a decline of 3,970 admissions, or 2.7 percent, compared to admissions of 146,946 in the second quarter of 2005. Approximately 1,000 admissions, or more than a quarter of this decline, is admissions lost as a result of the Company’s Targeted Growth Initiative (“TGI”) in which certain service lines were either de-emphasized or discontinued since June 30, 2005. In addition, approximately 350 admissions were lost due to the closing of rehabilitation units subsequent to June 30, 2005.
Commercial managed care admissions in continuing operations declined from 44,725 to 42,031, a decline of 2,694 admissions, or 6.0 percent, during the second quarter of 2006 compared to the second quarter of 2005. The closing of certain non-acute units as well as the impact of TGI contributed to this decline.
Equivalent admissions declined by 3,968, or 1.9 percent, to 204,640 in the second quarter of 2006
3
as compared to 208,608 equivalent admissions in the second quarter of 2005. The decline in equivalent admissions was also impacted by the Company’s actions to exit or de-emphasize certain service lines which resulted in a loss of approximately 1,500 equivalent admissions.
Outpatient Visits
| | Continuing Operations | |
Outpatient Visits | | Q2’06 | | Q2’05 | | Change
(%) | |
Total Visits | | 1,083,060 | | 1,152,609 | | (6.0 | ) |
Uninsured Visits | | 113,164 | | 111,951 | | 1.1 | |
Uninsured/ Total Visits (%) | | 10.4 | | 9.7 | | 0.7 | (1) |
Charity Care Visits | | 4,920 | | 5,000 | | (1.6 | ) |
Charity Care / Total Visits (%) | | 0.5 | | 0.4 | | 0.1 | |
Commercial Managed Care Outpatient Visits | | 423,785 | | 458,191 | | (7.5 | ) |
(1) This change is the difference between the 2006 and 2005 amounts shown.
Outpatient visits in the second quarter of 2006 were 1,083,060, a decline of 69,549, or 6.0 percent, as compared to 1,152,609 visits in the second quarter of 2005. Among the causes of this decline is the increasing competition the company is experiencing from physician-owned entities providing outpatient services. As part of its strategy to stem this erosion, the Company has established a separate dedicated business line to bring additional focus to its outpatient business.
4
Revenues
Revenues | | Continuing Operations | |
($ in Millions) | | Q2’06 | | Q2’05 | | Change (%) | |
Net Operating Revenues | | 2,195 | | 2,142 | | 2.5 | |
Compact discounts | | 235 | | 123 | | 91.1 | |
Compact-adjusted Net Operating Revenues (1) | | 2,430 | | 2,265 | | 7.3 | |
Charity care | | 138 | | 140 | | (1.4 | ) |
Provision for Doubtful Accounts | | 128 | | 140 | | (8.6 | ) |
Total uncompensated care (1) (2) | | 501 | | 403 | | 24.3 | |
Uncompensated care/ (Net Operating Revenues + Charity + Compact) (%) (1) (3) | | 19.5 | | 16.8 | | 2.7 | |
(1) Non-GAAP measure
(2) Defined as Compact discounts plus charity care plus provision for doubtful accounts
(3) This percentage change is the difference between the 2006 and 2005 amounts shown
Net operating revenues for continuing operations were $2.195 billion in the second quarter of 2006, an increase of $53 million, or 2.5 percent, as compared to $2.142 billion in the second quarter of 2005. Patient discounts provided under the Compact with Uninsured Patients (“Compact”) reduced net operating revenues for continuing operations in the second quarter of 2006 and 2005 by $235 million and $123 million, respectively. If the discounts under the Compact were added back to net operating revenues, it would have produced a non-GAAP measure of Compact-adjusted net operating revenues for the second quarter of 2006 of $2.430 billion, which would be an increase of $165 million, or 7.3 percent, compared to Compact-adjusted net operating revenues of $2.265 billion for the second quarter of 2005. (A reconciliation of net operating revenue to Compact-adjusted net operating revenue, how the company uses the measures, and why the Company believes these measures are useful, are provided in the tables below entitled “Additional Supplemental Non-GAAP Disclosures.” The foregoing also applies to all non-GAAP measures described below.)
Tenet initiated the implementation of the discounting provisions under the Compact in June, 2004. The Compact was fully implemented in all of the Company’s hospitals with the implementation of Compact discounts in Texas on September 1, 2005.
Under the Compact, discounts are provided to uninsured patients at managed care-style rates established by each hospital. The Compact discount offered to an uninsured patient is recognized as a contractual allowance, which reduces net operating revenues at the time the account is recorded. Prior to implementing the discounting provisions under the Compact, the vast majority of these discounts was
5
ultimately recognized to be uncollectible and, as a result, was then recorded in our provision for doubtful accounts.
Disproportionate-share payments received under various state Medicaid programs and other state-funded subsidies provided revenues of approximately $54 million and $22 million in the second quarters of 2006 and 2005, respectively. The increase in revenue is related to the increase in uncompensated care provided by the Company and reimbursed by various states in which the Company operates.
Pricing
| | Continuing Operations | |
Pricing | | Q2’06 | | Q2’05 | | Change
(%) | |
Net inpatient revenue per admission ($) | | 10,351 | | 9,582 | | 8.0 | |
Compact-adjusted net inpatient revenue per
admission (1) ($) | | 11,198 | | 9,990 | | 12.1 | |
Net inpatient revenue per patient day($) | | 2,084 | | 1,893 | | 10.1 | |
Compact-adjusted net inpatient revenue per patient
day (1) ($) | | 2,254 | | 1,973 | | 14.2 | |
Net outpatient revenue per visit ($) | | 584 | | 559 | | 4.5 | |
Compact-adjusted net outpatient revenue per visit (1) ($) | | 689 | | 614 | | 12.2 | |
Net patient revenue per equivalent patient day ($) | | 2,094 | | 1,960 | | 6.8 | |
Compact-adjusted net patient revenue per equivalent patient day (1) ($) | | 2,327 | | 2,077 | | 12.0 | |
Net patient revenue from managed care payers ($mm) | | 1,102 | | 1,022 | | 7.8 | |
Stop loss payments from managed care payers ($mm) | | 83 | | 100 | | (17.0 | ) |
Net inpatient revenue per admission for the second quarter of 2006 was $10,351 compared to $9,582 in the second quarter of 2005. However, this unit measurement has been reduced by the Compact. If the discounts under the Compact are added back to net inpatient revenue, it produces a non-GAAP measure of Compact-adjusted net inpatient revenue per admission of $11,198 for the second quarter of 2006, an increase of $1,208, or 12.1 percent, compared to $9,990 in the second quarter of 2005.
Net outpatient revenue per visit was $584 in the second quarter of 2006 compared to $559 in the second quarter of 2005. This unit measurement is also reduced by the Compact. If the discounts under the Compact are added back to net outpatient revenue, it produces a non-GAAP measure of $689 in Compact-adjusted net outpatient revenue per visit in the second quarter of 2006, an increase of $75, or 12.2 percent, compared to $614 in the second quarter of 2005.
Net patient revenue per equivalent patient day was $2,094 in the
6
second quarter of 2006 compared to $1,960 in the second quarter of 2005, an increase of $134, or 6.8 percent. On a Compact-adjusted basis, net revenue per equivalent patient day was $2,327 in the second quarter of 2006, compared to $2,077 in the second quarter of 2005, an increase of $250, or 12.0 percent.
The Company disaggregates its total managed care business into two distinct categories: commercial managed care and managed Medicare and managed Medicaid. In the second quarter of 2006, approximately 80 percent of total managed care revenues are from Tenet’s commercial managed care business and 20 percent are from managed Medicare and managed Medicaid. Managed care admissions in the second quarter of 2006 were 64 percent commercial and 36 percent managed Medicare and managed Medicaid. Managed care outpatient visits in the second quarter of 2006 were 76 percent commercial and 24 percent managed Medicare and managed Medicaid.
Inpatient managed care base rates in the second quarter of 2006 increased by 10.7 percent for our total managed care portfolio and 9.8 percent for the commercial segment of the managed care portfolio as compared to the second quarter of 2005. Net inpatient revenue per admission achieved an increase of 15.0 percent in the commercial segment of our managed care business. This percentage increase is impacted by negative adjustments to inpatient revenue in the second quarter of 2005 of approximately $25 million related to the settlement of several large disputes with managed care payors. The increase in net inpatient revenue per admission for commercial managed care is 9.4% after adding back these adjustments to the second quarter of 2005. The adjusted percentage increase in net revenue per admission, after adding back these adjustments, is less than the percentage increase in inpatient base rates due to the reduction in the stop-loss portion of our managed care reimbursement payments, as discussed below. On an aggregate portfolio yield basis, which includes managed Medicare and managed Medicaid in addition to our commercial managed care business, net inpatient revenue per admission increased by 7.7 percent as compared to the second quarter of 2005 after adding back to inpatient managed care revenue in 2005 the adjustments for disputed managed care claims. As a result of these pricing increases, total net patient revenue from managed care payers increased by 7.8 percent in the second quarter of 2006 compared to the second quarter of 2005 despite the decline in managed care patient volumes.
Stop-loss payments were $83 million in the second quarter of 2006, a decrease of $17 million, or 17 percent, from the $100 million received in the second quarter of 2005. Stop-loss payments were received on 3.7 percent of aggregate managed care admissions in the second quarter of 2006, and on 5.0 percent of commercial managed care admissions. Stop-loss payments were received on 5.0 percent of aggregate managed care admissions in the second quarter of 2005, and on 6.1 percent of commercial managed care admissions. Stop-loss payments declined by $3 million, or 3.5 percent as compared to the $86 million in stop-loss payments received in the first quarter of 2006.
7
Controllable Operating Expense
Controllable Operating Expenses | | Continuing Operations | |
($mm) | | Q2’06 | | Q2’05 | | Change (%) | |
Salaries, Wages & Benefits | | 963 | | 986 | | (2.3 | ) |
Supplies | | 398 | | 388 | | 2.6 | |
Other Operating Expenses | | 497 | | 475 | | 4.6 | |
Total Controllable Operating Expenses | | 1,858 | | 1,849 | | 0.5 | |
Controllable operating expenses (consisting of salaries, wages and benefits, supplies, and other operating expenses) were $1,858 million and $1,849 million in the second quarters of 2006 and 2005, respectively. Controllable operating expenses per equivalent patient day were $1,842 in the second quarter of 2006 compared to $1,765 in the second quarter of 2005, an increase of $77 or 4.4 percent.
Rent expense, which is included in “Other Operating Expenses,” decreased by 4.8 percent to $40 million in the second quarter of 2006, from $42 million in the second quarter of 2005. Other Operating Expenses also includes malpractice expense of $49 million and $58 million for the second quarters of 2006 and 2005, respectively.
8
Provision for Doubtful Accounts
| | Continuing Operations | |
Bad Debt | | Q2’06 | | Q2’05 | | Change (%) | |
Provision for Doubtful Accounts (“Bad Debt”) ($mm) | | 128 | | 140 | | (8.6 | ) |
Bad Debt / Net Operating Revenues (%) | | 5.8 | | 6.5 | | (0.7 | )(2) |
Compact-related reduction in bad debt ($mm) | | 216 | | 112 | | 92.9 | |
Bad Debt + Compact-related Reduction (1) ($mm) | | 344 | | 252 | | 36.5 | |
Compact Adjusted Bad Debt / (Net operating revenues + Compact
discounts) (%) (1) | | 14.2 | | 11.1 | | 3.1 | (2) |
(1) Non-GAAP measure
(2) This change is the difference between the 2006 and 2005 amounts shown
Provision for doubtful accounts, or bad debt expense, was $128 million for continuing operations in the second quarter of 2006, a decrease of $12 million, or 8.6 percent, from the provision for doubtful accounts of $140 million in the second quarter of 2005. Bad debt expense was 5.8 percent of net operating revenues in the second quarter of 2006, compared to 6.5 percent of net operating revenues in the second quarter of 2005. After adding back the Compact-related reduction to bad debt expense and Compact discounts to net operating revenues in both quarters, it produces a non-GAAP measure of 14.2 percent for Compact-adjusted bad debt expense to Compact-adjusted net operating revenue for the second quarter of 2006 as compared to 11.1 percent for the second quarter of 2005.
In the second quarter of 2005, bad debt expense was reduced by approximately $33 million related to the settlement of several large disputes with managed care payors. A related adjustment was recorded to contractual allowances, which reduced net operating revenues by $29 million. These two adjustments had a net favorable impact of $4 million.
In the second quarter of 2006, the company reclassified certain accounts previously recorded as pending charity accounts to self-pay. This had no impact on the amount of aggregate uncompensated care provided by the company, but gave rise to additional bad debt of approximately $10 million.
Accounts Receivable
Accounts receivable were $1.484 billion at June 30, 2006, and $1.584 billion at March 31, 2006. Accounts receivable days outstanding for continuing operations decreased to 54 days at June 30, 2006 from 56 days at March 31, 2006 and 58 days at December 31, 2005.
9
Cash Flow
Unrestricted cash was $568 million at June 30, 2006, down $407 million from $975 million at March 31, 2006. This decrease was primarily due to the first installment of the Department of Justice settlement payment of $470 million on June 30, 2006. Unrestricted cash at June 30, 2006, as well as at March 31, 2006, excludes $263 million of cash restricted as collateral for standby letters of credit under the letter of credit facility that we entered into in December, 2004.
Net cash used in operating activities was $320 million in the second quarter of 2006. In accordance with generally accepted accounting principles, this cash flow figure excludes capital expenditures, proceeds of asset sales, and certain other items. Excluding cash used in discontinued operations of $35 million, our cash used in operating activities would have been $285 million for the second quarter of 2006.
Capital expenditures in the second quarter of 2006 were $126 million, including $118 million related to continuing operations. Free cash flow in the second quarter was a negative $446 million which includes payments of $489 million, substantially all of which was related to the settlement of certain government litigation and investigations. “Adjusted free cash flow,” a non-GAAP term defined by the Company as cash flow from continuing operations less capital expenditures in continuing operations and before settlement payments was $86 million in the second quarter of 2006.
Liquidity
Total debt was $4.8 billion at June 30, 2006, unchanged from total debt on March 31, 2006. Net debt, a non-GAAP measure defined as total debt less cash and cash equivalents, was $4.2 billion at June 30, 2006, as compared to $3.8 billion at March 31, 2006.
Income Taxes
The income tax benefit of $252 million in the second quarter of 2006 on a pre-tax loss of $699 million from continuing operations includes $2 million of income tax expense to increase the valuation allowance for deferred tax assets associated with deferred tax assets established as a result of the tax effect of our losses that could not be recognized for financial reporting purposes. The income tax benefit of $252 million in the second quarter of 2006 also includes a positive non-cash adjustment to tax exposure reserves of $7 million.
Discontinued Operations
Income from discontinued operations for the second quarter of 2006 was $49 million after-tax, or $0.10 per share, and includes the following items:
10
(1) litigation and investigation costs of $21 million pre-tax, $17 million after-tax before the impact of valuation allowance, or $0.04 per share, to settle the Alvarado litigation;
(2) impairment and restructuring charges, net of insurance recoveries, of $101 million pre-tax, $67 million after-tax before the impact of valuation allowance, or $0.14 per share;
(3) hurricane insurance recoveries, net of costs, of $194 million pre-tax, $123 million after-tax before the impact of valuation allowance, or $0.26 per share;
(4) favorable net adjustments for prior year cost reports and prior year cost report valuation allowances, primarily related to Medicare and Medicaid, of $8 million pre-tax, $5 million after-tax before the impact of valuation allowance, or $0.01 per share;
(5) an unfavorable adjustment to physician relocation receivables of $6 million pre-tax, $4 million after-tax before the impact of valuation allowance, or $0.01 per share;
(6) a favorable, non-cash adjustment to decrease the company’s total valuation allowance for deferred tax assets related to discontinued operations of $27 million, or $0.06 per share; and,
(7) a favorable non-cash adjustment to reduce income tax exposure reserves of $2 million, or $0.00 per share.
Management’s Webcast Discussion of Second Quarter Results
Tenet management will discuss second quarter 2006 results on a webcast event scheduled to begin at 11:00 AM (ET) on August 10, 2006. This webcast may be accessed through Tenet’s website at www.tenethealth.com.
Tenet Healthcare Corporation, through its subsidiaries, owns and operates acute care hospitals and related health care services. Tenet’s hospitals aim to provide the best possible care to every patient who comes through their doors, with a clear focus on quality and service. Tenet can be found on the World Wide Web at www.tenethealth.com.
# # #
Some of the statements in this release may constitute forward-looking statements. Such statements are based on our current expectations and could be affected by numerous factors and are subject to various risks and uncertainties discussed in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended Dec. 31, 2005, our quarterly reports on Form 10-Q and periodic reports on Form 8-K. Do not rely on any forward-looking statement, as we cannot predict or control many of the factors that ultimately may affect our ability to achieve the results estimated. We make no promise to update any forward-looking statement, whether as a result of changes in underlying factors, new information, future events or otherwise.
11
