Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as “Tenet,” “we” or “us”) is a national, diversified healthcare services company. We operate regionally focused, integrated healthcare delivery networks, primarilycompany headquartered in large urban and suburban markets.Dallas, Texas. Through our subsidiaries, partnerships and joint ventures, includingan expansive care network that includes USPI Holding Company, Inc. (“USPI”), at JuneSeptember 30, 2019, we operated 65 hospitals 23and approximately 500 other healthcare facilities, including surgical hospitals, ambulatory surgery centers, urgent care and approximately 480 outpatientimaging centers, throughout the United States. In addition,and other care sites and clinics. We also operate Conifer Health Solutions, through our Conifer Holdings, Inc. (“Conifer”) subsidiary, which provides healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care solutionsservices to healthcarehospitals, health systems, as well as individual hospitals, physician practices, self-insured organizations, health plansemployers and other entities.customers.

This quarterly report supplements our Annual Report on Form 10-K for the year ended December 31, 2018 (“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, 2019, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) using the modified retrospective transition approach as of the period of adoption. Our financial statements for periods prior to January 1, 2019 were not modified for the application of the new lease accounting standard. The main difference between the guidance in ASU 2016-02 and previous accounting principles generally accepted in the United States of America (“GAAP”) is the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under previous GAAP. Upon adoption of ASU 2016-02, we recorded $822 million of right-of-use assets, net of deferred rent, associated with operating leases in investments and other assets in our condensed consolidated balance sheet, $147 million of current liabilities associated with operating leases in other current liabilities in our condensed consolidated balance sheet and $715 million of long-term liabilities associated with operating leases in other long-term liabilities in our condensed consolidated balance sheet. We also recognized $1 million of cumulative effect adjustment that decreased accumulated deficit at January 1, 2019.

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 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 sixnine month periods ended JuneSeptember 30, 2019 are not necessarily indicative of the results that may be expected for the full year. Reasons for this include, but are not limited to: 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 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 and state healthcare regulations; the business

We treat highly liquid investments with original maturities of three months or less as cash equivalents. Cash and cash equivalents were $249$314 million and $411 million at JuneSeptember 30, 2019 and December 31, 2018, respectively. At JuneSeptember 30, 2019 and December 31, 2018, our book overdrafts were $251$287 million and $288 million, respectively, which were classified as accounts payable.

At JuneSeptember 30, 2019 and December 31, 2018, $156$204 million and $177 million, respectively, of total cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets were intended for the operations of our captive insurance subsidiaries, and $2 million and $8 million, respectively, of total cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets were intended for the operations of our health plan-related businesses.

Also at JuneSeptember 30, 2019 and December 31, 2018, we had $80$69 million and $135 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, $53$50 million and $114 million, respectively, were included in accounts payable.

During the sixnine months ended JuneSeptember 30, 2019 and 2018, we entered into non-cancellable capital (finance) leases of $58$91 million and $50$94 million, respectively.

We recognized amortization expense of $90$138 million and $89$134 million in the accompanying Condensed Consolidated Statements of Operations for the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively.

We control 232237 of the facilities within our Ambulatory Care segment and, therefore, consolidate their results. We account for many of the facilities our Ambulatory Care segment operates (112(111 of 344348 at JuneSeptember 30, 2019), as well as additional companies in which our Hospital Operations and other segment holds ownership interests, under the equity method as investments in unconsolidated affiliates and report only our share of net income as equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Operations. Summarized financial information for these equity method investees is included in the following table; among the equity method investees are four4 North Texas hospitals in which we held minority interests that were operated by our Hospital Operations and other segment through the divestiture of these investments effective March 1, 2018. For investments acquired during the reporting periods, amounts reflect 100% of the investee’s results beginning on the date of our acquisition of the investment.

The principal components of accounts receivable are shown in the table below: 

We had $297$274 million and $149$218 million of receivables recorded in other current assets and investments and other assets, respectively, and $91$70 million and $29$50 million of payables recorded in other current liabilities and other long-term liabilities, respectively, in the accompanying Condensed Consolidated Balance Sheet at JuneSeptember 30, 2019 related to California’s provider fee program. We had $278 million and $231 million of receivables recorded in other current assets and investments and other assets, respectively, and $100 million and $42 million of payables recorded in other current liabilities and other long-term liabilities, respectively, in the accompanying Condensed Consolidated Balance Sheet at December 31, 2018 related to California’s provider fee program.

    

The following table provides information on significant components of our business that have been disposed of since January 1, 2018:

During the sixnine months ended JuneSeptember 30, 2019, we recorded impairment and restructuring charges and acquisition-related costs of $55$101 million, consisting of $5$7 million of impairment charges, $47$90 million of restructuring charges and $3$4 million of acquisition-related costs. Restructuring charges consisted of $18$38 million of employee severance costs, $2$3 million of contract and lease termination fees, and $27$49 million of other restructuring costs. Acquisition-related costs consisted of $3$4 million of transaction costs. Our impairment charges for the sixnine months ended JuneSeptember 30, 2019 were comprised of $4 million from our Hospital Operations and other segment and $1$3 million from our Ambulatory Care segment.

During the sixnine months ended JuneSeptember 30, 2018, we recorded impairment and restructuring charges and acquisition-related costs of $77$123 million, consisting of $23$29 million of impairment charges, $47$82 million of restructuring charges and $7$12 million of acquisition-related costs. Impairment charges consisted primarily of $17 million of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for certain Chicago-area facilities, $4$9 million of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for Aspen and $2$3 million of other impairment charges. Restructuring charges consisted of $26$47 million of employee severance costs, $5$10 million of contract and lease termination fees, and $16$25 million of other restructuring costs. Acquisition-related costs consisted of $5$8 million of transaction

Our impairment tests presume stable, improving or, in some cases, declining operating results in our facilities, which are based on programs and initiatives being implemented that are designed to achieve each facility’s most recent projections. If these projections are not met, or if in the future negative trends occur that impact our future outlook, impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be material.

At JuneSeptember 30, 2019, our continuing operations consisted of three3 reportable segments, Hospital Operations and other, Ambulatory Care and Conifer. Our segments are reporting units used to perform our goodwill impairment analysis.

We periodically incur costs to implement restructuring efforts for specific operations, which are recorded in our consolidated statement of operations as they are incurred. Our restructuring plans focus on various aspects of operations, including aligning our operations in the most strategic and cost-effective structure. Certain restructuring and acquisition-related costs are based on estimates. Changes in estimates are recognized as they occur. 

The following table presents the components of our right-of-use assets and liabilities related to leases and their classification in our Condensed Consolidated Balance Sheet at JuneSeptember 30, 2019:

We determine if an arrangement is a lease at inception of the contract. Our right-of-use assets represent our right to use the underlying assets for the lease term and our lease liabilities represent our obligation to make lease payments arising from the leases. Right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. For our Hospital Operations and other and Conifer segments, we estimate our incremental borrowing rates for our portfolio of leases using documented rates included in our recent equipment finance leases or, if applicable, recent secured debt issuances that correspond to various lease terms. We also give consideration to information obtained from our bankers, our secured debt fair value and publicly available data for instruments with similar characteristics. For our Ambulatory Care segment, we estimate an incremental borrowing rate for each center by utilizing historical and projected financial data, estimating a hypothetical credit rating using publicly available market data and adjusting the market data to reflect the effects of collateralization.

Our operating leases are primarily for real estate, including off-campus outpatient facilities, medical office buildings, and corporate and other administrative offices, as well as medical and office equipment. Our finance leases are primarily for medical equipment and information technology and telecommunications assets. Our real estate lease agreements typically have initial terms of five to 10 years, and our equipment lease agreements typically have initial terms of three years. We do not record leases with an initial term of 12 months or less (“short-term leases”) in our consolidated balance sheets.

Our real estate leases may include one or more options to renew, with renewals that can extend the lease term from five to 10 years. The exercise of lease renewal options is at our sole discretion. In general, we do not consider renewal options

Certain of our lease agreements for real estate include payments based on actual common area maintenance expenses and others include rental payments adjusted periodically for inflation. These variable lease payments are recognized in other operating expenses, net, but are not included in the right-of-use asset or liability balances. Our lease agreements do not contain any material residual value guarantees, restrictions or covenants.

We have elected the practical expedient that allows lessees to choose to not separate lease and non-lease components by class of underlying asset and are applying this expedient to all relevant asset classes. We have also elected the practical expedient package to not reassess at adoption (i) expired or existing contracts for whether they are or contain a lease, (ii) the lease classification of any existing leases or (iii) initial indirect costs for existing leases.

The following table presents the components of our lease expense and their classification in our Condensed Consolidated Statement of Operations for the three and sixnine months ended JuneSeptember 30, 2019:

The weighted-average lease terms and discount rates for operating and finance leases are presented in the following table:

Cash flow and other information related to leases is included in the following table:

Future maturities of lease liabilities at JuneSeptember 30, 2019 are presented in the following table:

Future maturities of lease liabilities at December 31, 2018, prior to our adoption of ASU 2016-02, are presented in the following table:

The table below shows our long-term debt at JuneSeptember 30, 2019 and December 31, 2018:

 

At JuneSeptember 30, 2019, the maximum potential amount of future payments under our income guarantees to certain physicians who agree to relocate and revenue collection guarantees to hospital-based physician groups providing certain services at our hospitals was $138$143 million. We had a total liability of $112$122 million recorded for these guarantees included in other current liabilities at JuneSeptember 30, 2019.

At JuneSeptember 30, 2019, we also had issued guarantees of the indebtedness and other obligations of our investees to third parties, the maximum potential amount of future payments under which was approximately $24$25 million. Of the total, $8 million relates to the obligations of consolidated subsidiaries, which obligations are recorded in the accompanying Condensed Consolidated Balance Sheet at JuneSeptember 30, 2019.

In recent years, we have granted options and restricted stock units to certain of our employees and directors pursuant to our stock incentive plans. Options have an exercise price equal to the fair market value of the shares on the date of grant and generally expire 10 years from the date of grant. A restricted stock unit is a contractual right to receive one1 share of our common stock in the future. Typically, options and time-based restricted stock units vest one-third on each of the first three anniversary dates of the grant; however, certain special retention awards may have different vesting terms. In addition, we grant performance-based options and performance-based restricted stock units that vest subject to the achievement of specified

The accompanying Condensed Consolidated Statements of Operations for both the sixnine months ended JuneSeptember 30, 2019 and 2018 include $23$34 million and $20 million, respectively, of pre-tax compensation costs related to our stock-based compensation arrangements.

The following table summarizes stock option activity during the sixnine months ended JuneSeptember 30, 2019:

There were 76,159 and 581,120612,074 stock options exercised during the sixnine months ended JuneSeptember 30, 2019 and 2018, respectively, with aggregate intrinsic values of approximately $1 million and $3$4 million, respectively.

At JuneSeptember 30, 2019, there were $6$5 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.91.7 years.

On March 29, 2019, we granted an aggregate of 7,862 performance-based stock options to a new senior officer. The options will all vest on the third anniversary of the grant date, subject to the achievement of a closing stock price of at least $36.05 (a 25% premium above the March 29, 2019 grant-date closing stock price of $28.84) for at least 20 consecutive trading days within three years of the grant date, and will expire on the tenth anniversary of the grant date. On February 27, 2019, we granted to certain of our senior officers an aggregate of 222,851 performance-based stock options. The options will all vest on the third anniversary of the grant date, subject to the achievement of a closing stock price of at least $35.33 (a 25% premium above the February 27, 2019 grant-date closing stock price of $28.26) for at least 20 consecutive trading days within three years of the grant date, and will expire on the tenth anniversary of the grant date.

In the three months ended June 30, 2018, we granted new senior officers 31,184 performance-based stock options. The options will all vest on the third anniversary of the grant date, subject to achieving a closing stock price of at least $44.29 (a 25% premium above the May 31, 2018 grant-date closing stock price of $35.43) for at least 20 consecutive trading days within three years of the grant date, and will expire on the tenth anniversary of the grant date. In the three months ended March 31, 2018, we granted to certain of our senior officers an aggregate of 604,012 performance-based stock options. The stock options will all vest on the third anniversary of the grant date because, in the three months ended June 30, 2018, the requirement that our stock close at a price of at least $25.75 (a 25% premium above the February 28, 2018 grant-date closing stock price of $20.60) for at least 20 consecutive trading days within three years of the grant date was met; these options will expire on the tenth anniversary of the grant date.

The weighted average estimated fair value of stock options we granted in the sixnine months ended JuneSeptember 30, 2019 and 2018 was $12.50 and $9.16 per share, respectively. These fair values were calculated based on each grant date, using a Monte Carlo simulation with the following assumptions: