Tenet Healthcare Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

thc-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2020


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to

Commission File Number 1-7293

_________________________________________

TENET HEALTHCARE CORPORATION

(Exact name of Registrant as specified in its charter)

_________________________________________


Nevada			95-2557091
(State of Incorporation)			(IRS Employer Identification No.)

14201 Dallas Parkway

Dallas, TX 75254

(Address of principal executive offices, including zip code)

(469) 893-2200

(Registrant’s telephone number, including area code)

_________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock,

$0.05 par value

THC

New York Stock Exchange

6.875% Senior Notes due 2031

THC31

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (each as defined in Exchange Act Rule 12b-2).

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No x

At October 28, 2020, there were 105,517,046 shares of the Registrant’s common stock outstanding.

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TENET HEALTHCARE CORPORATION

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in Millions

(Unaudited)


	September 30,		December 31,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	3,300	$	262
Accounts receivable	2,479		2,743
Inventories of supplies, at cost	349		310
Income tax receivable	2		10
Assets held for sale	386		387
Other current assets	1,292		1,369
Total current assets	7,808		5,081
Investments and other assets	2,445		2,369
Deferred income taxes	436		183
Property and equipment, at cost, less accumulated depreciation and amortization ($5,906 at September 30, 2020 and $5,498 at December 31, 2019)	6,618		6,878
Goodwill	7,302		7,252
Other intangible assets, at cost, less accumulated amortization ($1,207 at September 30, 2020 and $1,092 at December 31, 2019)	1,578		1,602
Total assets	$	26,187	$	23,365
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	155	$	171
Accounts payable	1,025		1,204
Accrued compensation and benefits	834		877
Professional and general liability reserves	285		330
Accrued interest payable	218		245
Liabilities held for sale	91		44
Contract liabilities	1,500		61
Other current liabilities	1,735		1,273
Total current liabilities	5,843		4,205
Long-term debt, net of current portion	15,561		14,580
Professional and general liability reserves	666		635
Defined benefit plan obligations	525		560
Deferred income taxes	27		27
Other long-term liabilities	1,564		1,415
Total liabilities	24,186		21,422
Commitments and contingencies
Redeemable noncontrolling interests in equity of consolidated subsidiaries	1,479		1,506
Equity:
Shareholders’ equity:
Common stock, $0.05 par value; authorized 262,500,000 shares; 153,745,411 shares issued at September 30, 2020 and 152,540,815 shares issued at December 31, 2019	7		7
Additional paid-in capital	4,826		4,760
Accumulated other comprehensive loss	(251)		(257)
Accumulated deficit	(2,542)		(2,513)
Common stock in treasury, at cost, 48,337,999 shares at September 30, 2020 and 48,344,195 shares at December 31, 2019	(2,414)		(2,414)
Total shareholders’ deficit	(374)		(417)
Noncontrolling interests	896		854
Total equity	522		437
Total liabilities and equity	$	26,187	$	23,365

See accompanying Notes to Condensed Consolidated Financial Statements.

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TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Dollars in Millions, Except Per-Share Amounts

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net operating revenues	$	4,557	$	4,568	$	12,725	$	13,673
Grant income	(66)		—		445		—
Equity in earnings of unconsolidated affiliates	44		38		103		114
Operating expenses:
Salaries, wages and benefits	2,142		2,172		6,193		6,468
Supplies	784		760		2,158		2,254
Other operating expenses, net	1,058		1,036		3,054		3,136
Depreciation and amortization	215		205		624		627
Impairment and restructuring charges, and acquisition-related costs	57		46		166		101
Litigation and investigation costs	9		84		13		115
Net losses (gains) on sales, consolidation and deconsolidation of facilities	(1)		1		(4)		3
Operating income	271		302		1,069		1,083
Interest expense	(263)		(244)		(761)		(742)
Other non-operating income (expense), net	—		(3)		3		(3)
Loss from early extinguishment of debt	(312)		(180)		(316)		(227)
Income (loss) from continuing operations, before income taxes	(304)		(125)		(5)		111
Income tax benefit (expense)	197		(22)		227		(75)
Income (loss) from continuing operations, before discontinued operations	(107)		(147)		222		36
Discontinued operations:
Income from operations	1		1		—		13
Income tax expense	—		—		—		(2)
Income from discontinued operations	1		1		—		11
Net income (loss)	(106)		(146)		222		47
Less: Net income available to noncontrolling interests	90		80		237		259
Net loss attributable to Tenet Healthcare Corporation common shareholders	$	(196)	$	(226)	$	(15)	$	(212)
Amounts available (attributable) to Tenet Healthcare Corporation common shareholders
Loss from continuing operations, net of tax	$	(197)	$	(227)	$	(15)	$	(223)
Income from discontinued operations, net of tax	1		1		—		11
Net loss attributable to Tenet Healthcare Corporation common shareholders	$	(196)	$	(226)	$	(15)	$	(212)
Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common shareholders:
Basic
Continuing operations	$	(1.87)	$	(2.19)	$	(0.14)	$	(2.16)
Discontinued operations	0.01		0.01		—		0.11
	$	(1.86)	$	(2.18)	$	(0.14)	$	(2.05)
Diluted
Continuing operations	$	(1.87)	$	(2.19)	$	(0.14)	$	(2.16)
Discontinued operations	0.01		0.01		—		0.11
	$	(1.86)	$	(2.18)	$	(0.14)	$	(2.05)
Weighted average shares and dilutive securities outstanding (in thousands):
Basic	105,263		103,558		104,803		103,181
Diluted	105,263		103,558		104,803		103,181

See accompanying Notes to Condensed Consolidated Financial Statements.

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TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

Dollars in Millions

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss)	$	(106)	$	(146)	$	222	$	47
Other comprehensive income:
Amortization of net actuarial loss included in other non-operating expense, net	2		3		6		9
Unrealized gains on debt securities held as available-for-sale	—		—		1		—


Other comprehensive income before income taxes	2		3		7		9
Income tax benefit (expense) related to items of other comprehensive income	2		—		(1)		(2)
Total other comprehensive income, net of tax	4		3		6		7
Comprehensive net income (loss)	(102)		(143)		228		54
Less: Comprehensive income attributable to noncontrolling interests	90		80		237		259
Comprehensive loss attributable to Tenet Healthcare Corporation common shareholders	$	(192)	$	(223)	$	(9)	$	(205)

See accompanying Notes to Condensed Consolidated Financial Statements.

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TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in Millions

(Unaudited)


	Nine Months Ended September 30,
	2020		2019
Net income	$	222	$	47
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	624		627
Deferred income tax (benefit) expense	(246)		65
Stock-based compensation expense	38		34
Impairment and restructuring charges, and acquisition-related costs	166		101
Litigation and investigation costs	13		115
Net losses (gains) on sales, consolidation and deconsolidation of facilities	(4)		3
Loss from early extinguishment of debt	316		227
Equity in earnings of unconsolidated affiliates, net of distributions received	(11)		(6)
Amortization of debt discount and debt issuance costs	30		25
Pre-tax income from discontinued operations	—		(13)
Other items, net	(4)		(14)
Changes in cash from operating assets and liabilities:
Accounts receivable	280		(174)
Inventories and other current assets	30		(98)
Income taxes	9		(4)
Accounts payable, accrued expenses and other current liabilities	1,546		(67)
Other long-term liabilities	205		(15)
Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements	(252)		(136)
Net cash used in operating activities from discontinued operations, excluding income taxes	(1)		(4)
Net cash provided by operating activities	2,961		713
Cash flows from investing activities:
Purchases of property and equipment — continuing operations	(374)		(492)
Purchases of businesses or joint venture interests, net of cash acquired	(61)		(23)
Proceeds from sales of facilities and other assets — continuing operations	13		44
Proceeds from sales of facilities and other assets — discontinued operations	—		17
Proceeds from sales of marketable securities, long-term investments and other assets	44		52
Purchases of marketable securities and equity investments	(41)		(25)
Other long-term assets	(4)		1
Other items, net	17		—
Net cash used in investing activities	(406)		(426)
Cash flows from financing activities:
Repayments of borrowings under credit facility	(740)		(1,880)
Proceeds from borrowings under credit facility	740		2,155
Repayments of other borrowings	(3,244)		(6,084)
Proceeds from other borrowings	3,815		5,718
Debt issuance costs	(48)		(63)
Distributions paid to noncontrolling interests	(184)		(223)
Proceeds from sale of noncontrolling interests	7		15
Purchases of noncontrolling interests	(34)		(8)
Proceeds from exercise of stock options and employee stock purchase plan	13		4
Other items, net	158		(18)
Net cash provided by (used in) financing activities	483		(384)
Net increase (decrease) in cash and cash equivalents	3,038		(97)
Cash and cash equivalents at beginning of period	262		411
Cash and cash equivalents at end of period	$	3,300	$	314
Supplemental disclosures:
Interest paid, net of capitalized interest	$	(757)	$	(705)
Income tax payments, net	$	(10)	$	(18)

See accompanying Notes to Condensed Consolidated Financial Statements.

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TENET HEALTHCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Description of Business and Basis of Presentation

Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as “Tenet,” “we” or “us”) is a diversified healthcare services company headquartered in Dallas, Texas. Through an expansive care network that includes USPI Holding Company, Inc. (“USPI”), at September 30, 2020 we operated 65 hospitals and approximately 520 other healthcare facilities, including surgical hospitals, ambulatory surgery centers, urgent care and imaging centers, and other care sites and clinics. We also operate Conifer Health Solutions, LLC through our Conifer Holdings, Inc. (“Conifer”) subsidiary, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.

This quarterly report supplements our Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”). As permitted by the Securities and Exchange Commission for interim reporting, we have omitted certain notes and disclosures that substantially duplicate those in our Annual Report. For further information, refer to the audited Consolidated Financial Statements and notes included in our Annual Report. Unless otherwise indicated, all financial and statistical data included in these notes to our Condensed Consolidated Financial Statements relate to our continuing operations, with dollar amounts expressed in millions (except per-share amounts).

Effective January 1, 2020, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) using the modified retrospective transition approach as of the period of adoption. Upon adoption of ASU 2016-13 on January 1, 2020, we recorded a cumulative effect adjustment to increase accumulated deficit by $14 million.

Certain prior-year amounts have been reclassified to conform to the current year presentation. In the accompanying Condensed Consolidated Balance Sheets, contract liabilities, primarily related to Medicare advance payments we received, are now presented separately due to the fact that the balances increased substantially in 2020. In the accompanying Condensed Consolidated Statements of Operations, electronic health record incentives have been reclassified to other operating expenses, net, as they are no longer significant enough to present separately. In the accompanying Condensed Consolidated Statements of Cash Flows, purchases of marketable securities have been reclassified from other items, net within cash flows from investing activities to purchases of marketable securities and equity investments. Additionally, our financial statements and corresponding footnotes for prior periods have been recast to reflect retrospective application of the change in accounting principle discussed in the Professional and General Liability Reserves section of this note.

Although the Condensed Consolidated Financial Statements and related notes within this document are unaudited, we believe all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. In preparing our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), we are required to make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and these accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable given the particular circumstances in which we operate. Actual results may vary from those estimates. Financial and statistical information we report to other regulatory agencies may be prepared on a basis other than GAAP or using different assumptions or reporting periods and, therefore, may vary from amounts presented herein. Although we make every effort to ensure that the information we report to those agencies is accurate, complete and consistent with applicable reporting guidelines, we cannot be responsible for the accuracy of the information they make available to the public.

Operating results for the three and nine-month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the full year. Reasons for this include, but are not limited to: the impact of the COVID-19 pandemic on our operations, business, financial condition and cash flows; overall revenue and cost trends, particularly the timing and magnitude of price changes; fluctuations in contractual allowances and cost report settlements and valuation allowances; managed care contract negotiations, settlements or terminations and payer consolidations; trends in patient accounts receivable collectability and associated implicit price concessions; fluctuations in interest rates; levels of malpractice insurance expense and settlement trends; impairment of long-lived assets and goodwill; restructuring charges; losses, costs and insurance recoveries related to natural disasters and other weather-related occurrences; litigation and investigation costs; acquisitions and dispositions of facilities and other assets; gains (losses) on sales, consolidation and deconsolidation of facilities; income tax

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rates and deferred tax asset valuation allowance activity; changes in estimates of accruals for annual incentive compensation; the timing and amounts of stock option and restricted stock unit grants to employees and directors; gains (losses) from early extinguishment of debt; and changes in occupancy levels and patient volumes. Factors that affect service mix, revenue mix, patient volumes and, thereby, the results of operations at our hospitals and related healthcare facilities include, but are not limited to: changes in federal, state and local healthcare and business regulations, including mandated closures and other operating restrictions; the business environment, economic conditions and demographics of local communities in which we operate; the number of uninsured and underinsured individuals in local communities treated at our hospitals; disease hotspots and seasonal cycles of illness; climate and weather conditions; physician recruitment, satisfaction, retention and attrition; advances in technology and treatments that reduce length of stay; local healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or terminations; hospital performance data on quality measures and patient satisfaction, as well as standard charges for services; any unfavorable publicity about us, or our joint venture partners, that impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures. These considerations apply to year-to-year comparisons as well.

Professional and General Liability Reserves

We accrue for estimated professional and general liability claims when they are probable and can be reasonably estimated. The accrual, which includes an estimate for incurred but not reported claims, is updated each quarter based on a model of projected payments using case-specific facts and circumstances and our historical loss reporting, development and settlement patterns. To the extent that subsequent claims information varies from our estimates, the liability is adjusted in the period such information becomes available. Malpractice expense is presented within other operating expenses in the accompanying Condensed Consolidated Statements of Operations.

In the three months ended March 31, 2020, we changed our method of accounting for our estimated professional and general liability claims. Under the new method of accounting, the liabilities are reported on an undiscounted basis whereas, previously, the liabilities were reported on a discounted basis. We believe that the undiscounted presentation is preferable because it simplifies the accounting for the liabilities, thereby increasing understandability of our financial results and financial condition, is consistent with the manner in which management evaluates our business, and results in an accounting method and financial statement presentation that is consistent with our key peers.

Accordingly, our financial statements and corresponding footnotes for the respective prior periods have been recast to reflect retrospective application of the change in accounting principle. We recorded the cumulative effect for the change in accounting principle as an increase of $44 million to accumulated deficit as of January 1, 2017. This change increased our accumulated deficit by $46 million, $41 million and $63 million at December 31, 2019, September 30, 2019 and December 31, 2018, respectively.

The following tables present the effects of the change in accounting principle to our financial statements:

Condensed Consolidated Balance Sheet:


	As Reported		Effect of Change in Accounting Principle		As Adjusted
At December 31, 2019:
Deferred income taxes	$	169	$	14	$	183
Professional and general liability reserves	$	585	$	50	$	635
Other long-term liabilities	$	1,405	$	10	$	1,415
Accumulated deficit	$	(2,467)	$	(46)	$	(2,513)

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Condensed Consolidated Statements of Operations (in millions, except for per-share amounts):


	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Prior to Change in Accounting Principle		Effect of Change in Accounting Principle		As Reported		Prior to Change in Accounting Principle		Effect of Change in Accounting Principle		As Reported
Salaries, wages and benefits	$	2,142	$	—	$	2,142	$	6,200	$	(7)	$	6,193
Other operating expenses, net	$	1,058	$	—	$	1,058	$	3,088	$	(34)	$	3,054
Operating income	$	271	$	—	$	271	$	1,028	$	41	$	1,069
Income tax benefit	$	197	$	—	$	197	$	237	$	(10)	$	227
Net income (loss)	$	(106)	$	—	$	(106)	$	191	$	31	$	222
Net loss from continuing operations attributable to Tenet Healthcare Corporation common shareholders	$	(197)	$	—	$	(197)	$	(46)	$	31

Price	22.73	EPS	1
Shares	104	P/E	19
MCap	2,354	P/FCF	3
Net Debt	14,544	EBIT	936
TEV	16,898	TEV/EBIT	18
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-10-30
10-Q	2020-06-30	Filed 2020-08-03
10-Q	2020-03-31	Filed 2020-05-04
10-K	2019-12-31	Filed 2020-02-24
10-Q	2019-09-30	Filed 2019-11-04
10-Q	2019-06-30	Filed 2019-08-05
10-Q	2019-03-31	Filed 2019-04-29
10-K	2018-12-31	Filed 2019-02-25
10-Q	2018-09-30	Filed 2018-11-05
10-Q	2018-06-30	Filed 2018-08-06
10-Q	2018-03-31	Filed 2018-04-30
10-K	2017-12-31	Filed 2018-02-26
10-Q	2017-09-30	Filed 2017-11-07
10-Q	2017-06-30	Filed 2017-08-07
10-Q	2017-03-31	Filed 2017-05-01
10-K	2016-12-31	Filed 2017-02-27
10-Q	2016-09-30	Filed 2016-10-31
10-Q	2016-06-30	Filed 2016-08-01
10-Q	2016-03-31	Filed 2016-05-02
10-K	2015-12-31	Filed 2016-02-22
10-Q	2015-09-30	Filed 2015-11-02
10-Q	2015-06-30	Filed 2015-08-03
10-Q	2015-03-31	Filed 2015-05-04
10-K	2014-12-31	Filed 2015-02-23
10-Q	2014-09-30	Filed 2014-11-03
10-Q	2014-06-30	Filed 2014-08-04
10-Q	2014-03-31	Filed 2014-05-05
10-K	2013-12-31	Filed 2014-02-24
10-Q	2013-09-30	Filed 2013-11-04
10-Q	2013-06-30	Filed 2013-08-06
10-Q	2013-03-31	Filed 2013-04-30
10-K	2012-12-31	Filed 2013-02-26
10-Q	2012-09-30	Filed 2012-11-07
10-Q	2012-06-30	Filed 2012-08-07
10-Q	2012-03-31	Filed 2012-05-08
10-K	2011-12-31	Filed 2012-02-28
10-Q	2011-09-30	Filed 2011-11-01
10-Q	2011-06-30	Filed 2011-08-02
10-Q	2011-03-31	Filed 2011-05-03
10-K	2010-12-31	Filed 2011-02-25
10-Q	2010-09-30	Filed 2010-11-02
10-Q	2010-06-30	Filed 2010-08-03
10-Q	2010-03-31	Filed 2010-05-04
10-K	2009-12-31	Filed 2010-02-23

8-K	2020-11-04
8-K	2020-10-20
8-K	2020-09-16
8-K	2020-09-01
8-K	2020-08-03
8-K	2020-06-16
8-K	2020-06-02
8-K	2020-05-28
8-K	2020-05-04
8-K	2020-04-27
8-K	2020-04-07
8-K	2020-04-02
8-K	2020-04-02
8-K	2020-03-19
8-K	2020-02-26
8-K	2020-02-24
8-K	2020-01-14
8-K	2019-12-12
8-K	2019-11-06
8-K	2019-11-04
8-K	2019-09-12
8-K	2019-08-26
8-K	2019-08-16
8-K	2019-08-12
8-K	2019-08-12
8-K	2019-08-05
8-K	2019-07-24
8-K	2019-06-19
8-K	2019-06-01
8-K	2019-05-02
8-K	2019-04-29
8-K	2019-02-27
8-K	2019-02-25
8-K	2019-02-05
8-K	2019-01-28
8-K	2019-01-22
8-K	2019-01-22
8-K	2019-01-03
8-K	2018-11-27
8-K	2018-11-05
8-K	2018-08-17
8-K	2018-08-06
8-K	2018-06-28
8-K	2018-05-25
8-K	2018-05-03
8-K	2018-04-30
8-K	2018-03-23
8-K	2018-03-05
8-K	2018-02-26
8-K	2018-01-21
8-K	2018-01-11
8-K	2018-01-08

EX-31.A	thc-20200930ex31a.htm
EX-31.B	thc-20200930ex31b.htm
EX-32	thc-20200930ex32.htm


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Financial Statements	1

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	66

Item 4.	Controls and Procedures	66

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	67

Item 1A.	Risk Factors	67



Item 6.	Exhibits	69

THC 10Q Quarterly Report

Tenet Healthcare Earnings 2020-09-30