Tenet Reports Third Quarter 2010 Results

Raises Lower End of Outlook Range for 2010 Adjusted EBITDA to New Range of $1.050 Billion to $1.100 Billion

Key Metrics

  • Net income attributable to common shareholders of $932 million compared to $3 million net loss in Q3’09
    • Earnings of $1.68 per diluted share compared to a loss of $0.01 per diluted share in Q3’09
    • Deferred tax benefit of $981 million recognized, $1.75 per diluted share
    • Early extinguishment of debt loss of $55 million, $0.06 per diluted share
  • Adjusted EBITDA of $203 million, 9.0 percent adjusted EBITDA margin
  • Outlook for normalized 2010 net income from continuing operations increased to new range of $110 million to $140 million, and 2010 EPS outlook raised to $0.22 to $0.28 per diluted share, exclusive of deferred tax benefit and debt loss

Subsequent Events in October

  • Medical office building sales proceeds of $46 million received
  • California provider fee plan receives partial CMS approval
    • $64 million in net revenue expected to be recorded in the fourth quarter
  • $800 million new bank credit line completed

DALLAS--(BUSINESS WIRE)-- Tenet Healthcare Corporation (NYSE: THC) today reported adjusted EBITDA of $203 million for the quarter ended September 30, 2010, a decrease of $37 million, or 15.4 percent, compared to $240 million for the third quarter of 2009. Net income attributable to common shareholders for the third quarter of 2010 was $932 million, or $1.68 per diluted share, compared to a net loss of $3 million, or $0.01 per diluted share, for the third quarter of 2009. Net income in the third quarter of 2010 included the recognition of $981 million, or $1.75 per diluted share, of tax benefits primarily as a result of the reversal of the previously established valuation allowance against deferred tax benefits associated with the Company’s net operating loss carryforward. The contribution from these deferred tax benefits was partially offset by a loss from early extinguishment of debt of $55 million pre-tax, $35 million after-tax, or $0.06 per diluted share.

“Recognition of the value of our deferred tax assets provided a significant boost to our net income in the third quarter and reflects the progress we have made in achieving sustained and sustainable profitability,” said Trevor Fetter, president and chief executive officer. “The soft economy, however, continued to challenge our volume growth and exerted pressure on our operating margins. We also had expected the revenues associated with the California provider fee plan to be recognized in the third quarter; it is now expected the recognition will occur in the fourth quarter pending CMS’s anticipated approval of the managed care portion of the plan before year end. I am pleased to raise the lower end of our outlook range for 2010’s adjusted EBITDA to a new range of $1.050 billion to $1.100 billion. Our 2010 outlook assumes an expected $64 million favorable impact from the California provider fee plan and the anticipated effect of our initiatives across a number of other fronts.”

“In response to the continued adverse impact of a soft economy on our volumes, we took aggressive actions on our operations. As a result of these actions, our adjusted EBITDA was essentially flat after excluding the impact of certain items. Last year’s third quarter benefited from the recognition of $20 million in favorable items, including favorable cost report adjustments, HMO distributions, and pension adjustments,” said Biggs Porter, chief financial officer. “In contrast, this year’s third quarter adjusted EBITDA was reduced by $16 million as a result of the aggregate net impact of discount rate effects on malpractice and workers’ compensation expense related to the declining interest rate environment, incremental costs related to our healthcare information technology initiative, and net of favorable, but lower, cost report adjustments.”

Discussion of Results (All percentage changes compare Q3’10 to Q3’09.)

Third quarter 2010 adjusted EBITDA performance was adversely impacted by the continuing effects of the recession, including declining commercial enrollment and the deferral of elective procedures reflecting economic uncertainty and an increase in patient copays and deductibles. Admissions and outpatient visits declined by 3.5 percent and 2.0 percent, respectively. Adjusted admissions declined by 1.8 percent.

Net operating revenues were $2.262 billion, unchanged compared to net operating revenues in the third quarter of 2009. Net of favorable prior year cost report adjustments in both quarters, net operating revenues increased by $9 million, or 0.4 percent. Commercial managed care revenues increased by $8 million, or 0.9 percent.

Total controllable operating expenses increased by $43 million, or 2.4 percent. This increase included a $14 million charge due to an 84 basis point reduction in the discount rates used to calculate malpractice and workers’ compensation expenses. Our healthcare information technology initiative expenses increased by $4 million compared to the third quarter of 2009. Total controllable costs per adjusted patient day increased by $95, or 4.9 percent. The increase in unit costs included a 4.9 percent increase in salaries, wages and benefits per adjusted patient day, primarily the result of merit increases awarded to our broad employee population on October 1, 2009, severance costs, the effect of lower volume on operating leverage, and increased physician employment.

Bad debt expense declined by $6 million, or 3.1 percent. The ratio of bad debt expense to net operating revenues declined to 8.3 percent, a decline of 20 basis points compared to 8.5 percent in the third quarter of 2009. Uninsured admissions and outpatient visits declined by 5.9 percent and 2.7 percent, respectively. However, charity admissions and outpatient visits grew by 16.0 percent and 11.5 percent, respectively, contributing to a $4 million increase in the estimated costs of providing care to charity and uninsured patients to $133 million, an increase of 3.1 percent.

Net cash provided by operating activities was $128 million in the third quarter of 2010 compared to $120 million in the third quarter of 2009. Adjusted net cash provided by operating activities from continuing operations was $160 million compared to $233 million in the third quarter of 2009, a decline of $73 million. Adjusted free cash flow from continuing operations was $53 million in the third quarter of 2010 compared to $142 million in the third quarter of 2009, a decline of $89 million, primarily the result of the $37 million decline in adjusted EBITDA, a $31 million increase in accounts payable payments, a $16 million increase in capital expenditures, and a $13 million increase in interest payments, partially offset by an improvement in our accounts receivable days outstanding. Cash and cash equivalents were $398 million at September 30, 2010, a decrease of $313 million from June 30, 2010. The decline in cash was primarily attributable to the $274 million used to repurchase debt during the quarter and the acquisition of various outpatient imaging centers for $42 million. Subsequent to the third quarter of 2010, the company received proceeds of $46 million from the sale of a portion of its medical office buildings (“MOBs”) in Florida. As previously announced, the company continues to negotiate the sale of 18 additional MOBs.

Management’s Webcast Discussion of Third Quarter Results

Tenet management will discuss third quarter 2010 results on a webcast scheduled for 10:00 AM (ET) on November 2, 2010. This webcast may be accessed through Tenet’s website at www.tenethealth.com/investors. A set of slides, to which management intends to refer on the call, will be posted to the Company’s website at approximately 7:30 AM (ET).

Additional information regarding Tenet’s quarterly results of operations, including detailed tabular operational data, is contained in its Form 10-Q report, which will be filed with the Securities and Exchange Commission and posted on the Tenet investor relations website before today’s webcast. This press release includes certain non-GAAP measures, such as Adjusted EBITDA and Adjusted Free Cash Flow. A reconciliation of these financial measures and the most directly comparable GAAP measure is included in the financial tables at the end of this release.

Tenet Healthcare Corporation is a health care services company whose subsidiaries and affiliates own and operate acute care hospitals, ambulatory surgery centers and diagnostic imaging centers. Tenet’s hospitals and related healthcare facilities are committed to providing high quality care to patients in the communities they serve. For more information, please visit www.tenethealth.com.

Some of the statements in this release may constitute forward-looking statements. Such forward-looking 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 year ended Dec. 31, 2009, 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.

Tenet uses its company web site to provide important information to investors about the company including the posting of important announcements regarding financial performance and corporate developments.

 
TENET HEALTHCARE CORPORATION
CONSOLIDATED OPERATIONS DATA
(Unaudited)
 

(Dollars in millions except per share amounts)

  Three Months Ended September 30,
2010   %   2009   %   Change
 
Net operating revenues $ 2,262 100.0 % $ 2,262 100.0 % %
Operating expenses:
Salaries, wages and benefits 977 43.2 % 954 42.2 % 2.4 %
Supplies 390 17.2 % 389 17.2 % 0.3 %
Provision for doubtful accounts 187 8.3 % 193 8.5 % (3.1 ) %
Other operating expenses, net 505 22.3 % 486 21.5 % 3.9 %
Depreciation and amortization 101 4.5 % 97 4.3 % 4.1 %
Impairment of long-lived assets and goodwill, and restructuring charges 3 0.1 % 7 0.3 %
Litigation and investigation costs   2   0.1 %   3   0.1 %
Operating income 97 4.3 % 133 5.9 %
Interest expense (107 ) (112 )
Loss from early extinguishment of debt (55 ) (16 )
Investment earnings  

3

    2  
Income (loss) from continuing operations, before income taxes (62 ) 7
Income tax benefit (expense)   1,002     (3 )
Income from continuing operations, before
discontinued operations
940 4
Discontinued operations:
Loss from operations (4 ) (2 )
Impairment of long-lived assets and goodwill, and restructuring charges, net 1 (1 )
Income tax benefit (expense)   3     (2 )
Loss from discontinued operations       (5 )
Net income (loss) 940 (1 )
Less: Preferred stock dividends 6
Less: Net income attributable to noncontrolling interests   2     2  
Net income (loss) attributable to Tenet Healthcare Corporation common shareholders $ 932   $ (3 )
 
Amounts attributable to Tenet Healthcare Corporation common shareholders
Income from continuing operations, net of tax $ 932 $ 2
Loss from discontinued operations, net of tax       (5 )
Net income (loss) attributable to Tenet Healthcare Corporation common shareholders $ 932   $ (3 )
 
Earnings (loss) per share attributable to Tenet Healthcare Corporation common shareholders
Basic
Continuing operations $ 1.92 $
Discontinued operations       (0.01 )
$ 1.92   $ (0.01 )
Diluted
Continuing operations $ 1.68 $
Discontinued operations       (0.01 )
$ 1.68   $ (0.01 )
Weighted average shares and dilutive securities
outstanding (in thousands):
Basic 485,210 481,008
Diluted 559,850 498,084
 

TENET HEALTHCARE CORPORATION

CONSOLIDATED OPERATIONS DATA
(Unaudited)
 
(Dollars in millions except per share amounts)   Nine Months Ended September 30,
2010   %   2009   %   Change
 
Net operating revenues $ 6,904 100.0 % $ 6,753 100.0 % 2.2 %
Operating expenses:
Salaries, wages and benefits 2,933 42.5 % 2,868 42.5 % 2.3 %
Supplies 1,183 17.1 % 1,175 17.4 % 0.7 %
Provision for doubtful accounts 549 8.0 % 516 7.6 % 6.4 %
Other operating expenses, net 1,470 21.3 % 1,430 21.2 % 2.8 %
Depreciation and amortization 293 4.2 % 291 4.3 % 0.7 %
Impairment of long-lived assets and goodwill, and restructuring charges 1 % 13 0.2 %
Litigation and investigation costs   6   0.1 %   13   0.2 %
Operating income 469 6.8 % 447 6.6 %
Interest expense (323 ) (342 )
Gain (loss) from early extinguishment of debt (55 ) 97
Investment earnings (loss) 5 (1 )
Net gain on sales of investments       15  
Income from continuing operations, before income taxes 96 216
Income tax benefit (expense)   979     (12 )
Income from continuing operations, before
discontinued operations
1,075 204
Discontinued operations:
Loss from operations (4 ) (14 )
Impairment of long-lived assets and goodwill, and restructuring charges, net (1 ) (16 )
Net losses on sales of facilities (2 )
Income tax expense       (4 )
Loss from discontinued operations   (5 )   (36 )
Net income 1,070 168
Less: Preferred stock dividends 18
Less: Net income attributable to noncontrolling interests   7     8  
Net income attributable to Tenet Healthcare Corporation common shareholders $ 1,045   $ 160  
 
Amounts attributable to Tenet Healthcare Corporation common shareholders
Income from continuing operations, net of tax $ 1,050 $ 197
Loss from discontinued operations, net of tax   (5 )   (37 )
Net income attributable to Tenet Healthcare Corporation common shareholders $ 1,045   $ 160  
 
Earnings (loss) per share attributable to Tenet Healthcare Corporation common shareholders
Basic
Continuing operations $ 2.17 $ 0.41
Discontinued operations   (0.01 )   (0.08 )
$ 2.16   $ 0.33  
Diluted
Continuing operations $ 1.91 $ 0.40
Discontinued operations   (0.01 )   (0.07 )
$ 1.90   $ 0.33  
Weighted average shares and dilutive securities
outstanding (in thousands):
Basic 483,912 479,942
Diluted 560,200 489,688
 
TENET HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEET DATA
(Unaudited)
 
  September 30,   December 31,
(Dollars in millions) 2010 2009
ASSETS
Current assets:
Cash and cash equivalents $ 398 $ 690
Investments in Reserve Yield Plus Fund 1 2
Investments in marketable securities 1 11
Accounts receivable, less allowance for doubtful accounts 1,129 1,158
Inventories of supplies, at cost 152 153
Income tax receivable 21 35
Current portion of deferred income taxes 307 108
Assets held for sale 20 29
Other current assets   415     286  
Total current assets 2,444 2,472
Investments and other assets 176 182
Deferred income taxes, net of current portion 636
Property and equipment, at cost, less accumulated depreciation and amortization 4,239 4,313
Goodwill 637 607
Other intangible assets, at cost, less accumulated amortization   403     379  
Total assets $ 8,535   $ 7,953  
 
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 2 $ 2
Accounts payable 601 739
Accrued compensation and benefits 385 370
Professional and general liability reserves 91 106
Accrued interest payable 110 127
Accrued legal settlement costs 8 76
Other current liabilities   499     363  
Total current liabilities 1,696 1,783
Long-term debt, net of current portion 4,057 4,272
Professional and general liability reserves 425 466
Accrued legal settlement costs 22 19
Other long-term liabilities 571 568
Deferred income taxes       148  
Total liabilities 6,771 7,256
Commitments and contingencies
Equity:
Shareholders’ equity:
Preferred stock 334 334
Common stock 27 27
Additional paid-in capital 4,461 4,461
Accumulated other comprehensive loss (30 ) (32 )
Accumulated deficit (1,602 ) (2,665 )
Less common stock in treasury, at cost   (1,479 )   (1,479 )
Total shareholders’ equity 1,711 646
Noncontrolling interests   53     51  
Total equity   1,764     697  
Total liabilities and equity $ 8,535   $ 7,953  
 

TENET HEALTHCARE CORPORATION

CONSOLIDATED CASH FLOW DATA
(Unaudited)
(Dollars in millions)   Nine Months Ended
September 30,
2010   2009
Net income $ 1,070 $ 168
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 293 291
Provision for doubtful accounts 549 516
Net gain on sales of investments (15 )
Deferred income tax (benefit) expense (984 ) 17
Stock-based compensation expense 18 18
Impairment of long-lived assets and goodwill, and restructuring charges 1 13
Fair market value adjustments related to interest rate swap and LIBOR cap agreements 3 (1 )
Proceeds from interest rate swap agreement 18
Litigation and investigation costs 6 13
Loss (gain) from early extinguishment of debt 55 (97 )
Pretax loss from discontinued operations 5 32
Other items, net 23 (2 )
Changes in cash from changes in operating assets and liabilities:
Accounts receivable (537 ) (498 )
Inventories and other current assets 2 (25 )
Income taxes 40 13
Accounts payable, accrued expenses and other current liabilities (146 ) (37 )
Other long-term liabilities (23 ) (6 )
Payments against reserves for restructuring charges and litigation costs (76 ) (165 )
Net cash provided by (used in) operating activities from discontinued operations, excluding income taxes   (2 )   31  
Net cash provided by operating activities 297 284
Cash flows from investing activities:
Purchases of property and equipment—continuing operations (254 ) (216 )
Purchases of property and equipment—discontinued operations (13 ) (1 )
Construction of new and replacement hospitals (13 ) (47 )
Purchase of businesses or joint venture interest (44 )
Proceeds from sales of facilities and other assets – discontinued operations 19 221
Proceeds from sales of marketable securities, long-term investments and other assets 31 55
Proceeds from hospital authority bonds 49
Purchase of marketable securities (17 )
Distributions received from investments in Reserve Yield Plus Fund 1 11
Other items, net   2      
Net cash provided by (used in) investing activities (271 ) 55
Cash flows from financing activities:
Repayments of borrowings (886 ) (1,285 )
Proceeds from borrowings 601 885
Deferred debt issuance costs (15 ) (47 )
Proceeds from issuance of mandatory convertible preferred stock 334
Cash dividends on preferred stock (18 )
Distributions paid to noncontrolling interests (6 ) (5 )
Other items, net   6     3  
Net cash used in financing activities   (318 )   (115 )
Net increase (decrease) in cash and cash equivalents (292 ) 224
Cash and cash equivalents at beginning of period   690     507  
Cash and cash equivalents at end of period $ 398   $ 731  
Supplemental disclosures:
Interest paid, net of capitalized interest $ (313 ) $ (340 )
Income tax refunds, net $ 34 $ 15
 

TENET HEALTHCARE CORPORATION

SELECTED STATISTICS – CONTINUING HOSPITALS
(Unaudited)
(Dollars in millions except per patient day, per  

admission and per visit amounts)

Three Months Ended September 30,   Nine Months Ended September 30,
2010   2009   Change 2010   2009   Change
 
Net inpatient revenues $ 1,430 $ 1,466 (2.5 ) % $ 4,452 $ 4,421 0.7 %
Net outpatient revenues $ 734 $ 709 3.5 % $ 2,173 $ 2,079 4.5 %
 
Number of general hospitals (at end of period) 49 49 49 49 *
Licensed beds (at end of period) 13,430 13,419 0.1 % 13,430 13,419 0.1 %
Average licensed beds 13,423 13,419 % 13,430 13,413 0.1 %
Utilization of licensed beds 48.3 % 50.4 % (2.1 ) % 50.8 % 52.6 % (1.8 ) % *
Patient days 596,810 622,427 (4.1 ) % 1,864,127 1,924,777 (3.2 ) %
Adjusted patient days 913,049 935,375 (2.4 ) % 2,800,483 2,854,688 (1.9 ) %
Net inpatient revenue per patient day $ 2,396 $ 2,355 1.7 % $ 2,388 $ 2,297 4.0 %
Admissions 125,645 130,258 (3.5 ) % 385,995 395,901 (2.5 ) %
Adjusted patient admissions 193,670 197,164 (1.8 ) % 584,407 591,223 (1.2 ) %
Net inpatient revenue per admission $ 11,381 $ 11,255 1.1 % $ 11,534 $ 11,167 3.3 %
Average length of stay (days) 4.7 4.8 (0.1 ) 4.8 4.9 (0.1 ) *
Surgeries 91,064 92,437 (1.5 ) % 270,347 274,243 (1.4 ) %
Net outpatient revenue per visit $ 752 $ 712 5.6 % $ 745 $ 702 6.1 %
Outpatient visits 976,310 995,968 (2.0 ) % 2,917,931 2,962,755 (1.5 ) %
 
Sources of net patient revenue
Medicare 23.7 % 24.4 % (0.7 ) % 24.0 % 25.1 % (1.1 ) % *
Medicaid 8.0 % 8.5 % (0.5 ) % 8.7 % 8.3 % 0.4 % *
Managed care governmental 15.2 % 14.8 % 0.4 % 15.0 % 14.8 % 0.2 % *
Managed care commercial 41.8 % 41.2 % 0.6 % 41.2 % 41.2 % % *
Indemnity, self-pay and other 11.3 % 11.1 % 0.2 % 11.1 % 10.6 % 0.5 % *
 
 
* This change is the difference between the 2010 and 2009 amounts shown
 

TENET HEALTHCARE CORPORATION

CONSOLIDATED OPERATIONS DATA
Fiscal 2010 by Calendar Quarter
(Unaudited)
      Nine Months
(Dollars in millions except per share amounts) Three Months Ended Ended
3/31/10   6/30/10 9/30/10 9/30/10
 
Net operating revenues $ 2,339 $ 2,303 $ 2,262 $ 6,904
Operating expenses:
Salaries, wages and benefits 987 969 977 2,933
Supplies 398 395 390 1,183
Provision for doubtful accounts 189 173 187 549
Other operating expenses, net 467 498 505 1,470
Depreciation and amortization 95 97 101 293
Impairment of long-lived assets and goodwill, and restructuring charges (2 ) 3 1
Litigation and investigation costs   2     2     2    

6

 
Operating income 201 171 97 469
Interest expense (109 ) (107 ) (107 ) (323 )
Loss from early extinguishment of debt (55 ) (55 )
Investment earnings   1     1     3     5  
Income (loss) from continuing operations, before income taxes 93 65 (62 ) 96
Income tax (expense) benefit   (3 )   (20 )   1,002     979  
Income from continuing operations, before discontinued operations 90 45 940 1,075
Discontinued operations:
Income (loss) from operations 5 (5 ) (4 ) (4 )
Impairment of long-lived assets and goodwill, and restructuring charges, net 1 (3 ) 1 (1 )
Income tax (expense) benefit   (1 )   (2 )   3      
Income (loss) from discontinued operations   5     (10 )       (5 )
Net income 95 35 940 1,070
Less: Preferred stock dividends 6 6 6 18
Less: Net income attributable to noncontrolling interests   1     4     2     7  
Net income attributable to Tenet Healthcare Corporation common shareholders $ 88   $ 25   $ 932   $ 1,045  
 
Earnings (loss) per share attributable to Tenet Healthcare Corporation common shareholders
Basic
Continuing operations $ 0.17 $ 0.07 $ 1.92 $ 2.17
Discontinued operations   0.01     (0.02 )       (0.01 )
$ 0.18   $ 0.05   $ 1.92   $ 2.16  
Diluted
Continuing operations $ 0.16 $ 0.07 $ 1.68 $ 1.91
Discontinued operations   0.01     (0.02 )       (0.01 )
$ 0.17   $ 0.05   $ 1.68   $ 1.90  
Weighted average shares and dilutive securities
outstanding (in thousands):
Basic 481,917 484,610 485,210 483,912
Diluted 559,228 502,549 559,850 560,200
 
TENET HEALTHCARE CORPORATION
SELECTED STATISTICS – CONTINUING HOSPITALS
Fiscal 2010 by Calendar Quarter
(Unaudited)
     
(Dollars in millions except per patient day, per Nine Months
admission and per visit amounts) Three Months Ended Ended
3/31/10   6/30/10 9/30/10 9/30/10
 
Net inpatient revenues $ 1,544 $ 1,478 $ 1,430 $ 4,452
Net outpatient revenues $ 706 $ 733 $ 734 $ 2,173
 
Number of general hospitals (at end of period) 49 49 49 49
Licensed beds (at end of period) 13,430 13,420 13,430 13,430
Average licensed beds 13,431 13,435 13,423 13,430
Utilization of licensed beds 54.0 % 50.3 % 48.3 % 50.8 %
Patient days 652,952 614,365 596,810 1,864,127
Adjusted patient days 958,248 929,186 913,049 2,800,483
Net inpatient revenue per patient day $ 2,365 $ 2,406 $ 2,396 $ 2,388
Admissions 132,599 127,751 125,645 385,995
Adjusted patient admissions 195,909 194,828 193,670 584,407
Net inpatient revenue per admission $ 11,644 $ 11,569 $ 11,381 $ 11,534
Average length of stay (days) 4.9 4.8 4.7 4.8
Surgeries 87,998 91,285 91,064 270,347
Net outpatient revenue per visit $ 741 $ 741 $ 752 $ 745
Outpatient visits 952,915 988,706 976,310 2,917,931
 
Sources of net patient revenue
Medicare 25.1 % 23.2 % 23.7 % 24.0 %
Medicaid 8.7 % 9.3 % 8.0 % 8.7 %
Managed care governmental 14.8 % 15.1 % 15.2 % 15.0 %
Managed care commercial 40.5 % 41.4 % 41.8 % 41.2 %
Indemnity, self-pay and other 10.9 % 11.0 % 11.3 % 11.1 %

(1) Reconciliation of Adjusted EBITDA

Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income (loss) attributable to Tenet Healthcare Corporation common shareholders before (1) cumulative effect of changes in accounting principle, net of tax, (2) net income attributable to noncontrolling interests, (3) preferred stock dividends, (4) income (loss) from discontinued operations, net of tax, (5) income tax (expense) benefit, (6) investment earnings (loss), (7) gain (loss) from early extinguishment of debt, (8) net gain (loss) on sales of investments, (9) interest expense, (10) litigation and investigation (costs) benefit, net of insurance recoveries, (11) hurricane insurance recoveries, net of costs, (12) impairment of long-lived assets and goodwill and restructuring charges, net of insurance recoveries, and (13) depreciation and amortization. The Company’s Adjusted EBITDA may not be comparable to EBITDA reported by other companies.

The Company provides this information as a supplement to GAAP information to assist itself and investors in understanding the impact of various items on its financial statements, some of which are recurring or involve cash payments. The Company uses this information in its analysis of the performance of its business excluding items that it does not consider as relevant in the performance of its hospitals in continuing operations. Adjusted EBITDA is not a measure of liquidity, but is a measure of operating performance that management uses in its business as an alternative to net income (loss) attributable to Tenet Healthcare Corporation common shareholders. Because Adjusted EBITDA excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating the Company’s financial performance.

The reconciliation of net income (loss) attributable to Tenet Healthcare Corporation common shareholders, the most comparable GAAP term, to Adjusted EBITDA, is set forth in the first table below for the three and nine months ended September 30, 2010 and 2009.

(2) Adjusted Free Cash Flow

Adjusted Free Cash Flow, a non-GAAP term, is defined by the Company as cash provided by (used in) operating activities less income tax refunds (payments), payments against reserves for restructuring charges and litigation costs, operating cash flows from discontinued operations, excluding income taxes, capital expenditures in continuing operations, and new hospital construction expenditures. The Company believes the use of Adjusted Free Cash Flow is meaningful as the use of this financial measure provides the Company and the users of its financial statements with supplemental information about the impact on the Company’s cash flows from the items specified above. The Company provides this information as a supplement to GAAP information to assist itself and investors in understanding the impact of various items on its cash flows, some of which are recurring. The Company uses this information in its analysis of its cash flows excluding items that it does not consider relevant to the liquidity of its hospitals in continuing operations. Adjusted Free Cash Flow is a measure of liquidity that management uses in its business as an alternative to net cash provided by (used in) operating activities. Because Adjusted Free Cash Flow excludes many items that are included in our financial statements, it does not provide a complete measure of our liquidity. Accordingly, investors are encouraged to use GAAP measures when evaluating the Company’s financial performance or liquidity. The reconciliation of net cash provided by (used in) operating activities, the most comparable GAAP term, to Adjusted Free Cash Flow is set forth in the second table below for the three and nine months ended September 30, 2010 and 2009.

 
TENET HEALTHCARE CORPORATION
Additional Supplemental Non-GAAP Disclosures
Table #1 - Reconciliation of Adjusted EBITDA to Net Income Attributable to Tenet
Healthcare Corporation Common Shareholders
(Unaudited)
 
  Three Months Ended   Nine Months Ended
(Dollars in millions) September 30, September 30,
2010   2009 2010   2009
Net income (loss) attributable to Tenet Healthcare Corporation common shareholders $ 932 $ (3 ) $ 1,045 $ 160
Less: Net income attributable to noncontrolling interests (2 ) (2 ) (7 ) (8 )
Preferred stock dividends (6 ) (18 )
Loss from discontinued operations, net of tax       (5 )   (5 )   (36 )
Income from continuing operations 940 4 1,075 204
Income tax (expense) benefit 1,002 (3 ) 979 (12 )
Investment earnings (loss) 3 2 5 (1 )
Gain (loss) from early extinguishment of debt (55 ) (16 ) (55 ) 97
Net gain on sales of investments 15
Interest expense   (107 )   (112 )   (323 )   (342 )
Operating income 97 133 469 447
Litigation and investigation costs (2 ) (3 ) (6 ) (13 )
Impairment of long-lived assets and goodwill, and restructuring charges (3 ) (7 ) (1 ) (13 )
Depreciation and amortization   (101 )   (97 )   (293 )   (291 )
Adjusted EBITDA $ 203   $ 240   $ 769   $ 764  
 
Net operating revenues $ 2,262   $ 2,262   $ 6,904   $ 6,753  
 
Adjusted EBITDA as % of net operating revenues
(Adjusted EBITDA margin)
9.0 % 10.6 % 11.1 % 11.3 %
 
 
 
 
Additional Supplemental Non-GAAP Disclosures
Table #2 Reconciliation of Adjusted Free Cash Flow
(Unaudited)
 
Three Months Ended Nine Months Ended
(Dollars in millions) September 30, September 30,
2010 2009 2010 2009
Net cash provided by operating activities $ 128 $ 120 $ 297 $ 284
Less:
Income tax refunds (payments), net (7 ) 34 15
Payments against reserves for restructuring charges and litigation costs (25 ) (109 ) (76 ) (165 )
Net cash provided by (used in ) operating activities from discontinued operations, excluding income taxes   (7 )   3     (2 )   31  
Adjusted net cash provided by operating activities – continuing operations 160 233 341 403
Purchases of property and equipment – continuing operations (106 ) (78 ) (254 ) (216 )
Construction of new and replacement hospitals   (1 )   (13 )   (13 )   (47 )
Adjusted Free Cash Flow – continuing operations $ 53   $ 142   $ 74   $ 140  
 

TENET HEALTHCARE CORPORATION

Additional Supplemental Non-GAAP Disclosures
Table #3 - Reconciliation of Outlook Adjusted EBITDA to

Outlook Net Income Attributable to Tenet Healthcare Corporation Common Shareholders

for Year Ending December 31, 2010

(Unaudited)
 
(Dollars in millions)   Low   High
 
Net income attributable to Tenet Healthcare Corporation common shareholders $ 1,075 $ 1,110
Less:
Net income attributable to noncontrolling interests (11 ) (11 )
Preferred stock dividends (24 ) (24 )
Loss from discontinued operations, net of tax   (12 )   (7 )
Income from continuing operations 1,122 1,152
Income tax benefit   947     927  
Income from continuing operations, before income taxes 175 225
Loss from early extinguishment of debt (55 ) (55 )
Interest expense, net   (425 )   (410 )
Operating income 655 690
Litigation and investigation costs (6 ) (6 )
Impairment of long-lived assets and goodwill, and restructuring charges (4 ) (4 )
Depreciation and amortization   (385 )   (400 )
Adjusted EBITDA $ 1,050   $ 1,100  
 
Net operating revenues $ 9,200 $ 9,300
Adjusted EBITDA as % of net operating revenues
(Adjusted EBITDA margin)
11.4 % 11.8 %
 
Additional Supplemental Non-GAAP Disclosures
Table #4 - Reconciliation of Outlook Adjusted EBITDA to
Outlook Normalized Net Income Attributable to Tenet Healthcare Corporation
Common Shareholders for Year Ending December 31, 2010
(Unaudited)
 
(Dollars in millions except per share amounts)   Low   High
 
Adjusted EBITDA (from Table # 3, above) $ 1,050 $ 1,100
 
Depreciation and amortization (385 ) (400 )
Interest expense, net   (425 )   (410 )
Normalized income from continuing operations before income taxes 240 290
Normalized income tax expense (a)   (95 )   (115 )
Normalized income from continuing operations 145 175
Preferred stock dividends (24 ) (24 )
Net income attributable to noncontrolling interests   (11 )   (11 )
Normalized net income attributable to Tenet Healthcare Corporation common shareholders (a) $ 110   $ 140  
 
Weighted average shares outstanding (in millions) 501 501
 
Normalized earnings per share – continuing operations (a) $ 0.22 $ 0.28
 
(a) Uses normalized tax rate of 40 percent.
 
Table #5 Reconciliation of Outlook Adjusted Free Cash Flow
for the Year Ending December 31, 2010
(Unaudited)
(Dollars in millions)  
Low   High
Net cash provided by operating activities $ 483 $ 588
Less:
Income tax refunds (payments), net (15 ) 14
Payments against reserves for restructuring charges and litigation costs (76 ) (76 )
Net cash used in operating activities from discontinued operations, excluding
income taxes
  (6 )   -  
Adjusted net cash provided by operating activities – continuing operations 580 650
Purchases of property and equipment – continuing operations (412 ) (462 )
Construction of new and replacement hospitals   (13 )   (13 )
Adjusted Free Cash Flow – continuing operations $ 155   $ 175  



CONTACT:

Tenet Healthcare Corporation
Media:
Rick Black, 469-893-2647
[email protected]
or
Investors:
Thomas Rice, 469-893-2522
[email protected]

KEYWORDS:   United States  North America  Texas

INDUSTRY KEYWORDS:   Practice Management  Health  Hospitals  Nursing  Managed Care

MEDIA:

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