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.
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