Unaudited Pro Forma Financial Statements
The following Unaudited Pro Forma Financial Statements are based on the Company’s historical consolidated results of operations and financial position, adjusted to give effect to the Transaction, as defined in Item 2.01 of this Form 8-K, as if it had been completed on June 30, 2018 with respect to the pro forma condensed balance sheet and as of January 1, 2017 with respect to the pro forma condensed statements of operations.
The Unaudited Pro Forma Financial Statements and the accompanying notes should be read together with the Company’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2017, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“Annual Report”) and its unaudited condensed consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2018 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Quarterly Report on Form 10-Q ("Quarterly Report") for the six months ended June 30, 2018. The Unaudited Pro Forma Financial Statements may differ materially from the future financial position or results of operations due to a number of factors described in “Risk Factors” under Item 1A of Part 1 of our Annual Report and “Forward-Looking Statements” under Item 1 of Part 1 of our Annual Report.
Tenet Healthcare Corporation
Unaudited Pro Forma Condensed Balance Sheet
June 30, 2018
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| | | | | | | | | | | | | | |
| | | Historical | | Pro Forma Adjustments | | Pro Forma |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 403 |
| | $ | 12 |
| �� | (a) | | $ | 415 |
|
| Accounts receivable, less allowance for doubtful accounts | | 2,483 |
| | | | | | 2,483 |
|
| Inventories of supplies, at cost | | 298 |
| | | | | | 298 |
|
| Income tax receivable | | 28 |
| | | | | | 28 |
|
| Assets held for sale | | 452 |
| | (310 | ) | | (a) | | 142 |
|
| Other current assets | | 1,041 |
| | | | | | 1,041 |
|
| Total current assets | | 4,705 |
| | (298 | ) | | | | 4,407 |
|
| Investments and other assets | | 1,416 |
| | | | | | 1,416 |
|
| Deferred income taxes | | 348 |
| | 7 |
| | (a) | | 355 |
|
| Property and equipment, at cost, less accumulated depreciation and amortization | | 6,863 |
| |
|
| | | | 6,863 |
|
| Goodwill | | 7,218 |
| | | | | | 7,218 |
|
| Other intangible assets, at cost, less accumulated amortization | | 1,793 |
| | | | | | 1,793 |
|
Total assets | | $ | 22,343 |
| | $ | (291 | ) | | | | $ | 22,052 |
|
| LIABILITIES AND EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Current portion of long-term debt | | $ | 663 |
| | | | | | $ | 663 |
|
| Accounts payable | | 1,047 |
| | | | | | 1,047 |
|
| Accrued compensation and benefits | | 711 |
| | | | | | 711 |
|
| Professional and general liability reserves | | 230 |
| | | | | | 230 |
|
| Accrued interest payable | | 243 |
| | | | | | 243 |
|
| Liabilities held for sale | | 393 |
| | $ | (320 | ) | | (a) | | 73 |
|
| Other current liabilities | | 1,067 |
| | | | | | 1,067 |
|
| Total current liabilities | | 4,354 |
| | (320 | ) | | | | 4,034 |
|
| Long-term debt, net of current portion | | 14,204 |
| | | | | | 14,204 |
|
| Professional and general liability reserves | | 630 |
| | | | | | 630 |
|
| Defined benefit plan obligations | | 515 |
| | | | | | 515 |
|
| Deferred income taxes | | 36 |
| | | | | | 36 |
|
| Other long-term liabilities | | 599 |
| | | | | | 599 |
|
| Total liabilities | | 20,338 |
| | (320 | ) | | | | 20,018 |
|
| Commitments and contingencies | | | | | | | | |
| Redeemable noncontrolling interests in equity of consolidated subsidiaries | | 1,429 |
| | | | | | 1,429 |
|
| Equity: | | | | | | | | |
| Shareholders’ equity: | | | | | | | | |
| Common stock | | 7 |
| | | | | | 7 |
|
| Additional paid-in capital | | 4,722 |
| | | | | | 4,722 |
|
| Accumulated other comprehensive loss | | (243 | ) | | 40 |
| | (a) | | (203 | ) |
| Accumulated deficit | | (2,222 | ) | | — |
| | (a) | | (2,222 | ) |
| Common stock in treasury, at cost | | (2,418 | ) | | | | | | (2,418 | ) |
| Total shareholders’ equity | | (154 | ) | | 40 |
| | | | (114 | ) |
| Noncontrolling interests | | 730 |
| | (11 | ) | | (a) | | 719 |
|
| Total equity | | 576 |
| | 29 |
| | | | 605 |
|
| Total liabilities and equity | | $ | 22,343 |
| | $ | (291 | ) | | | | $ | 22,052 |
|
Notes to Unaudited Pro Forma
Condensed Balance Sheet
|
| |
| (a) | Records the initial base purchase price proceeds (converted to US dollars at the June 30, 2018 exchange rate of 1.3197) from the sale of the Aspen hospitals and related facilities, derecognition of the related assets and liabilities, and the related tax impact from the sale, using an effective rate of 22%, which includes the federal statutory rate of 21% and the applicable state taxes. This transaction will result in a loss on sale for US tax purposes that will be treated as a capital loss and realized as an offset to the capital gains we recognized as a result of previous divestitures. |
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Tenet Healthcare Corporation
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended December 31, 2017
|
| | | | | | | | | | | | | | |
| (Dollars in millions except per share amounts) | | Historical | | Pro Forma Adjustments | | Pro Forma |
| | | | | | | | | |
| Net operating revenues: | | | | | | | | |
| Net operating revenues before provision for doubtful accounts | | $ | 20,613 |
| | $ | (175 | ) | | (a) | | $ | 20,438 |
|
| Less: Provision for doubtful accounts | | 1,434 |
| | | | | | 1,434 |
|
Net operating revenues | | 19,179 |
| | (175 | ) | | | | 19,004 |
|
| Equity in earnings of unconsolidated affiliates | | 144 |
| | | | | | 144 |
|
| Operating expenses: | | | | | | | | |
| Salaries, wages and benefits | | 9,274 |
| | (65 | ) | | (a) | | 9,209 |
|
| Supplies | | 3,085 |
| | (37 | ) | | (a) | | 3,048 |
|
| Other operating expenses, net | | 4,570 |
| | (49 | ) | | (a) | | 4,521 |
|
| Electronic health record incentives | | (9 | ) | | | | | | (9 | ) |
| Depreciation and amortization | | 870 |
| | (14 | ) | | (a) | | 856 |
|
| Impairment and restructuring charges, and acquisition-related costs | | 541 |
| | (59 | ) | | (a) | | 482 |
|
| Litigation and investigation costs | | 23 |
| | | | | | 23 |
|
| Gains on sales, consolidation and deconsolidation of facilities | | (144 | ) | | | | | | (144 | ) |
| Operating income | | 1,113 |
| | 49 |
| | | | 1,162 |
|
| Interest expense | | (1,028 | ) | | 19 |
| | (a) | | (1,009 | ) |
| Other non-operating income (expense), net | | (22 | ) | | | | | | (22 | ) |
| Loss on early extinguishment of debt | | (164 | ) | | | | | | (164 | ) |
| Net loss from continuing operations, before income taxes | | (101 | ) | | 68 |
| | | | (33 | ) |
| Income tax benefit (expense) | | (219 | ) | | (35 | ) | | (b) | | (254 | ) |
Net loss from continuing operations | | (320 | ) | | 33 |
| | | | (287 | ) |
| Less: Net income attributable to noncontrolling interests | | 384 |
| | (2 | ) | | (a) | | 382 |
|
Net loss attributable to Tenet Healthcare Corporation common shareholders | | $ | (704 | ) | | $ | 35 |
| | | | $ | (669 | ) |
| Loss per share attributable to Tenet Healthcare Corporation common shareholders: | | | | | | | | |
| Basic | | $ | (7.00 | ) | | | | | | $ | (6.65 | ) |
| Diluted | | $ | (7.00 | ) | | | | | | $ | (6.65 | ) |
| Weighted average shares and dilutive securities outstanding (in thousands): | | | | | | | | |
| Basic | | 100,592 |
| | | | | | 100,592 |
|
| Diluted | | 100,592 |
| | | | | | 100,592 |
|
Tenet Healthcare Corporation
Unaudited Pro Forma Condensed Statement of Operations
For the Six Months Ended June 30, 2018
|
| | | | | | | | | | | | | | |
| (Dollars in millions except per share amounts) | | Historical | | Pro Forma Adjustments | | Pro Forma |
| | | | | | | | | |
| Net operating revenues | | $ | 9,205 |
| | $ | (97 | ) | | (a) | | $ | 9,108 |
|
| Equity in earnings of unconsolidated affiliates | | 64 |
| | | | | | 64 |
|
| Operating expenses: | | | | | | | | |
| Salaries, wages and benefits | | 4,362 |
| | (36 | ) | | (a) | | 4,326 |
|
| Supplies | | 1,522 |
| | (20 | ) | | (a) | | 1,502 |
|
| Other operating expenses, net | | 2,087 |
| | (27 | ) | | (a) | | 2,060 |
|
| Electronic health record incentives | | (1 | ) | | | | | | (1 | ) |
| Depreciation and amortization | | 398 |
| | | | | | 398 |
|
| Impairment and restructuring charges, and acquisition-related costs | | 77 |
| | (4 | ) | | (a) | | 73 |
|
| Litigation and investigation costs | | 19 |
| | | | | | 19 |
|
| Gains on sales, consolidation and deconsolidation of facilities | | (118 | ) | | | | | | (118 | ) |
| Operating income | | 923 |
| | (10 | ) | | | | 913 |
|
| Interest expense | | (509 | ) | | 10 |
| | (a) | | (499 | ) |
| Other non-operating income (expense), net | | (2 | ) | | | | | | (2 | ) |
| Loss from early extinguishment of debt | | (2 | ) | | | | | | (2 | ) |
| Net income from continuing operations, before income taxes | | 410 |
| | — |
| | | | 410 |
|
| Income tax benefit (expense) | | (114 | ) | | — |
| | (c) | | (114 | ) |
| Net income from continuing operations | | 296 |
| | — |
| | | | 296 |
|
| Less: Net income attributable to noncontrolling interests | | 174 |
| | (1 | ) | | (a) | | 173 |
|
| Net income attributable to Tenet Healthcare Corporation common shareholders | | $ | 122 |
| | $ | 1 |
| | | | $ | 123 |
|
| Earnings per share attributable to Tenet Healthcare Corporation common shareholders: | | | | | | | | |
| Basic | | $ | 1.20 |
| | | | | | $ | 1.21 |
|
| Diluted | | $ | 1.18 |
| | | | | | $ | 1.19 |
|
| Weighted average shares and dilutive securities outstanding (in thousands): | | | | | | | | |
| Basic | | 101,770 |
| | | | | | 101,770 |
|
| Diluted | | 103,416 |
| | | | | | 103,416 |
|
Notes to Unaudited Pro Forma
Condensed Statement of Operations
|
| |
| (a) | Eliminates the historical revenue and operating expenses of the divested Aspen hospitals and related facilities. |
| | |
| (b) | Reflects the applicable income tax effects of the pro forma adjustments in this column at an effective tax rate of 36%, which includes the federal statutory rate of 35% and the applicable state tax rate that were in effect during the period presented. Also includes the reversal of $30 million of tax benefit related to a deferred tax asset recorded in the third quarter of 2017 due to the Company's reversal of its permanent reinvestment assumption for Aspen, as well as the reversal of $19 million of tax expense related to the impact on deferred taxes of the decrease in the federal statutory rate from 35% to 21% due to the Tax Cuts and Jobs Act enacted December 22, 2017. |
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| (c) | Reflects the applicable income tax effects of the pro forma adjustments in this column at an effective tax rate of 22%, which includes the federal statutory rate of 21% and the applicable state tax rate that were in effect during the period presented. |
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