TENET HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated 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 September 30, 2023 with respect to the pro forma condensed consolidated balance sheet and as of January 1, 2022 with respect to the pro forma condensed consolidated statements of operations.
These unaudited pro forma condensed consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X and do not include all of the information and note disclosures required by generally accepted accounting principles of the United States.
The unaudited pro forma condensed consolidated financial information is subject to the assumptions and adjustments described in the accompanying notes. These assumptions and adjustments are based on information presently available. Actual adjustments may differ materially from the information presented. The unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of the Company for each period presented and in the opinion of the Company's management, all adjustments and disclosures necessary for a fair presentation of the pro forma data have been made. These unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the results of operations or financial condition that would have been achieved had events reflected been completed as of the dates indicated, and may not be useful in predicting the impact of the Transaction on the future financial condition and results of operations of the Company due to a variety of factors.
TENET HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2023
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| (Dollars in millions) | | | | Pro Forma | | | |
| Historical | | Adjustments | | | Pro Forma |
| ASSETS | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 1,054 | | | $ | 2,395 | | (a) | | $ | 3,449 | |
| Accounts receivable | | 2,897 | | | (82) | | (b) | | 2,815 | |
| Inventories of supplies, at cost | | 413 | | | (11) | | (b) | | 402 | |
| Income tax receivable | | — | | | — | | | | — | |
| Assets held for sale | | 140 | | | — | | | | 140 | |
| Other current assets | | 1,855 | | | (23) | | (b) | | 1,832 | |
Total current assets | | 6,359 | | | 2,279 | | | | 8,638 | |
| Investments and other assets | | 3,152 | | | (26) | | (b) | | 3,126 | |
| Deferred income taxes | | 4 | | | — | | | | 4 | |
| Property and equipment, at cost, less accumulated depreciation and amortization | | 6,260 | | | (199) | | (b) | | 6,061 | |
| Goodwill | | 10,415 | | | (425) | | (b) | | 9,990 | |
| Other intangible assets, at cost, less accumulated amortization | | 1,400 | | | (18) | | (b) | | 1,382 | |
Total assets | | $ | 27,590 | | | $ | 1,611 | | | | $ | 29,201 | |
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| LIABILITIES AND EQUITY | | | | | | | |
| Current liabilities: | | | | | | | |
| Current portion of long-term debt | | $ | 141 | | | $ | (1) | | (b) | | $ | 140 | |
| Accounts payable | | 1,202 | | | (18) | | (b) | | 1,184 | |
| Accrued compensation and benefits | | 787 | | | (6) | | (b) | | 781 | |
| Professional and general liability reserves | | 264 | | | — | | | | 264 | |
| Accrued interest payable | | 273 | | | — | | | | 273 | |
| Liabilities held for sale | | 17 | | | — | | | | 17 | |
| Contract liabilities | | 86 | | | — | | | | 86 | |
| Other current liabilities | | 1,662 | | | (25) | | (b) | | |
| | | | 640 | | (e) | | 2,277 | |
Total current liabilities | | 4,432 | | | 590 | | | | 5,022 | |
| Long-term debt, net of current portion | | 14,901 | | | (1) | | (b) | | 14,900 | |
| Professional and general liability reserves | | 787 | | | — | | | | 787 | |
| Defined benefit plan obligations | | 327 | | | — | | | | 327 | |
| Deferred income taxes | | 278 | | | (53) | | (e) | | 225 | |
| Other long-term liabilities | | 1,684 | | | (24) | | (b) | | 1,660 | |
Total liabilities | | 22,409 | | | 512 | | | | 22,921 | |
| Commitments and contingencies | | | | | | | |
| Redeemable noncontrolling interests in equity of consolidated subsidiaries | | 2,303 | | | — | | | | 2,303 | |
| Equity: | | | | | | | |
| Shareholders’ equity: | | | | | | | |
| Common stock | | 8 | | | — | | | | 8 | |
| Additional paid-in capital | | 4,818 | | | — | | | | 4,818 | |
| Accumulated other comprehensive loss | | (176) | | | — | | | | (176) | |
| Retained earnings (deficit) | | (436) | | | 1,099 | | (c) | | 663 | |
| Common stock in treasury, at cost | | (2,750) | | | — | | | | (2,750) | |
| Total shareholders’ equity | | 1,464 | | | 1,099 | | | | 2,563 | |
Noncontrolling interests | | 1,414 | | | — | | | | 1,414 | |
| Total equity | | 2,878 | | | 1,099 | | | | 3,977 | |
Total liabilities and equity | | $ | 27,590 | | | $ | 1,611 | | | | $ | 29,201 | |
TENET HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
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| | | | Pro Forma | | |
| (Dollars in millions, except per share amounts) | | Historical | | Adjustments | | 2022 |
| Net operating revenues | | $ | 19,174 | | | $ | (534) | | (d) | | $ | 18,640 | |
| Grant income | | 194 | | | — | | | | 194 | |
| Equity in earnings of unconsolidated affiliates | | 216 | | | — | | | | 216 | |
| Operating expenses: | | | | | | | |
| Salaries, wages and benefits | | 8,844 | | | (190) | | (d) | | 8,654 | |
| Supplies | | 3,273 | | | (83) | | (d) | | 3,190 | |
| Other operating expenses, net | | 3,998 | | | (113) | | (d) | | 3,885 | |
| Depreciation and amortization | | 841 | | | (19) | | (d) | | 822 | |
| Impairment and restructuring charges, and acquisition-related costs | | 226 | | | — | | | | 226 | |
| Litigation and investigation costs | | 70 | | | (2) | | (d) | | 68 | |
| Net gains on sales, consolidation and deconsolidation of facilities | | (1) | | | (1,686) | | (c) | | (1,687) | |
| Operating income | | 2,333 | | | 1,559 | | | | 3,892 | |
| Interest expense | | (890) | | | 1 | | (d) | | (889) | |
| Other non-operating income (expense), net | | 10 | | | — | | | | 10 | |
| Loss from early extinguishment of debt | | (109) | | | — | | | | (109) | |
| Income from continuing operations, before income taxes | | 1,344 | | | 1,560 | | | | 2,904 | |
| Income tax benefit (expense) | | (344) | | | (551) | | (e) | | (895) | |
| Income from continuing operations | | 1,000 | | | 1,009 | | | | 2,009 | |
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| Less: Net income available to noncontrolling interests | | 590 | | | — | | | | 590 | |
| Net income from continuing operations available to Tenet Healthcare Corporation common shareholders | | $ | 410 | | | $ | 1,009 | | | | $ | 1,419 | |
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| Earnings per share available to Tenet Healthcare Corporation common shareholders: | | | | | | | |
| Basic | | | | | | | |
| Continuing operations | | $ | 3.83 | | | | | | $ | 13.27 | |
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| Diluted | | | | | | | |
| Continuing operations | | $ | 3.78 | | | | | | $ | 12.91 | |
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| Weighted average shares and dilutive securities outstanding (in thousands): | | | | | | | |
| Basic | | 106,929 | | | | | | 106,929 |
| Diluted | | 110,516 | | | | | | 110,516 |
TENET HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions, except per share amounts) | | Historical | | Pro Forma Adjustments | | Pro Forma |
| Net operating revenues | | $ | 15,169 | | | $ | (412) | | (d) | | $ | 14,757 | |
| Grant income | | 14 | | | — | | | | 14 | |
| Equity in earnings of unconsolidated affiliates | | 155 | | | — | | | | 155 | |
| Operating expenses: | | | | | | | — | |
| Salaries, wages and benefits | | 6,831 | | | (145) | | (d) | | 6,686 | |
| Supplies | | 2,659 | | | (65) | | (d) | | 2,594 | |
| Other operating expenses, net | | 3,319 | | | (93) | | (d) | | 3,226 | |
| Depreciation and amortization | | 654 | | | (15) | | (d) | | 639 | |
| Impairment and restructuring charges, and acquisition-related costs | | 84 | | | (1) | | (d) | | 83 | |
| Litigation and investigation costs | | 28 | | | (2) | | (d) | | 26 | |
| Net gains on sales, consolidation and deconsolidation of facilities | | (12) | | | — | | | | (12) | |
| Operating income | | 1,775 | | | (91) | | | | 1,684 | |
| Interest expense | | (674) | | | 1 | | (d) | | (673) | |
| Other non-operating income, net | | 8 | | | — | | | | 8 | |
| Loss from early extinguishment of debt | | (11) | | | — | | | | (11) | |
| Income from continuing operations, before income taxes | | 1,098 | | | (90) | | | | 1,008 | |
| Income tax expense | | (243) | | | 26 | | (e) | | (217) | |
| Income from continuing operations | | 855 | | | (64) | | | | 791 | |
| Less: Net income available to noncontrolling interests | | 488 | | | — | | | | 488 | |
| Net income available to Tenet Healthcare Corporation common shareholders | | $ | 367 | | | $ | (64) | | | | $ | 303 | |
| Earnings per share available to Tenet Healthcare Corporation common shareholders: | | | | | | | |
| Basic | | | | | | | |
| Continuing operations | | $ | 3.60 | | | | | | $ | 2.97 | |
| Diluted | | | | | | | |
| Continuing operations | | $ | 3.41 | | | | | | $ | 2.80 | |
Weighted average shares and dilutive securities outstanding (in thousands): | | | | | | | |
| Basic | | 101,869 | | | | | | 101,869 |
| Diluted | | 105,021 | | | | | | 105,021 |
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(a) Adjustment to reflect cash consideration received from the Transaction of approximately $2,400 million net of $5 million in transaction costs.
(b) Adjustment to eliminate the assets and liabilities attributable to the Divested Assets.
(c) Adjustment reflects the gain on sale from the Transaction, calculated as follows:
| | | | | |
| Cash received | $ | 2,400 | |
| Transaction costs | (5) | |
| Net book value of Divested Assets | (284) | |
| Goodwill allocated to the sale | (425) | |
| Pro forma gain before income taxes | 1,686 | |
| Provision for income taxes | (587) | |
| Pro forma net gain on sale | $ | 1,099 | |
This adjustment is not expected to recur in income of the Company beyond 12 months from the Transaction.
(d) Adjustment to eliminate the historical revenue and operating expenses of the Divested Assets including expenses of $1 million related to the Transaction recorded in the nine months ended September 30, 2023. Adjustments do not include general corporate overhead or other costs previously allocated to the facilities sold if they are expected to recur in income of the Company beyond 12 months from the Transaction.
(e) Adjustment reflects the applicable income tax effects of $551 million from the Transaction. Approximately $587 million relates to the gain on sale and $36 million and $26 million relates to the eliminations set forth in Note (d) for the year ended December 31, 2022 and the nine months ended September 30, 2023, respectively. Current liabilities also reflects an adjustment for $640 million of taxes payable on the gain. These adjustments are not expected to recur in income of the Company beyond 12 months from the Transaction.
