TENET HEALTHCARE CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 20, 2018

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Exhibit 99.1

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.


1

Tenet Healthcare Corporation
Unaudited Pro Forma Condensed Balance Sheet
June 30, 2018
 
 
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




2

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.
 
 
 
 
 
 
 
 
 
 
 
 


3

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




4

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




5


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.
 
 
(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.
 
 
 
 



6

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