UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2017

OR

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from               to               

Commission File Number 1-7293

_________________________________________

TENET HEALTHCARE CORPORATION

(Exact name of Registrant as specified in its charter)

_________________________________________

Nevada (State of Incorporation) 95-2557091 (IRS Employer Identification No.)

1445 Ross Avenue, Suite 1400

Dallas, TX 75202

(Address of principal executive offices, including zip code)

(469) 893-2200

(Registrant’s telephone number, including area code)

_________________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.   Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (each as defined in Exchange Act Rule 12b-2).

Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐
Smaller reporting company ☐		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).   Yes ☐ No ☒

At July 31, 2017, there were 100,820,539 shares of the Registrant’s common stock, $0.05 par value, outstanding.

TENET HEALTHCARE CORPORATION

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Financial Statements	1
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	57
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 6.	Exhibits	58

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in Millions

(Unaudited)

	June 30,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	475		$	716
Accounts receivable, less allowance for doubtful accounts ($966 at June 30, 2017 and $1,031 at December 31, 2016)	2,706			2,897
Inventories of supplies, at cost	316			326
Income tax receivable	7			4
Assets held for sale	705			29
Other current assets	1,173			1,285
Total current assets	5,382			5,257
Investments and other assets	1,238			1,250
Deferred income taxes	1,020			871
Property and equipment, at cost, less accumulated depreciation and amortization ($4,826 at June 30, 2017 and $4,974 at December 31, 2016)	7,738			8,053
Goodwill	7,157			7,425
Other intangible assets, at cost, less accumulated amortization ($839 at June 30, 2017 and $772 at December 31, 2016)	1,806			1,845
Total assets	$	24,341		$	24,701
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	143		$	191
Accounts payable	1,086			1,329
Accrued compensation and benefits	749			872
Professional and general liability reserves	208			181
Accrued interest payable	238			210
Liabilities held for sale	51			9
Accrued legal settlement costs	1			8
Other current liabilities	1,861			1,234
Total current liabilities	4,337			4,034
Long-term debt, net of current portion	15,012			15,064
Professional and general liability reserves	644			613
Defined benefit plan obligations	618			626
Deferred income taxes	296			279
Other long-term liabilities	598			610
Total liabilities	21,505			21,226
Commitments and contingencies
Redeemable noncontrolling interests in equity of consolidated subsidiaries	1,781			2,393
Equity:
Shareholders’ equity:
Common stock, $0.05 par value; authorized 262,500,000 shares; 149,127,794 shares issued at June 30, 2017 and 148,106,249 shares issued at December 31, 2016	7			7
Additional paid-in capital	4,819			4,827
Accumulated other comprehensive loss	(242		)	(258		)
Accumulated deficit	(1,794		)	(1,742		)
Common stock in treasury, at cost, 48,417,575 shares at June 30, 2017 and 48,420,650 shares at December 31, 2016	(2,417		)	(2,417		)
Total shareholders’ equity	373			417
Noncontrolling interests	682			665
Total equity	1,055			1,082
Total liabilities and equity	$	24,341		$	24,701

See accompanying Notes to Condensed Consolidated Financial Statements.

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Dollars in Millions, Except Per-Share Amounts

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net operating revenues:
Net operating revenues before provision for doubtful accounts	$	5,173		$	5,220		$	10,369		$	10,640
Less: Provision for doubtful accounts	371			352			754			728
Net operating revenues	4,802			4,868			9,615			9,912
Equity in earnings of unconsolidated affiliates	28			30			57			54
Operating expenses:
Salaries, wages and benefits	2,346			2,309			4,726			4,704
Supplies	780			773			1,545			1,584
Other operating expenses, net	1,159			1,213			2,346			2,455
Electronic health record incentives	(6		)	(21		)	(7		)	(21		)
Depreciation and amortization	222			215			443			427
Impairment and restructuring charges, and acquisition-related costs	41			22			74			50
Litigation and investigation costs	1			114			6			287
Gains on sales, consolidation and deconsolidation of facilities	(23		)	(1		)	(38		)	(148		)
Operating income	310			274			577			628
Interest expense	(260		)	(244		)	(518		)	(487		)
Other non-operating expense, net	(5		)	(5		)	(10		)	(11		)
Loss from early extinguishment of debt	(26		)	—			(26		)	—
Net income from continuing operations, before income taxes	19			25			23			130
Income tax benefit (expense)	12			16			45			(51		)
Net income from continuing operations, before discontinued operations	31			41			68			79
Discontinued operations:
Income (loss) from operations	2			(2		)	—			(7		)
Income tax benefit (expense)	(1		)	—			—			1
Net income (loss) from discontinued operations	1			(2		)	—			(6		)
Net income	32			39			68			73
Less: Net income attributable to noncontrolling interests	87			85			176			178
Net loss attributable to Tenet Healthcare Corporation common shareholders	$	(55	)	$	(46	)	$	(108	)	$	(105	)
Amounts attributable to Tenet Healthcare Corporation common shareholders
Net loss from continuing operations, net of tax	$	(56	)	$	(44	)	$	(108	)	$	(99	)
Net income (loss) from discontinued operations, net of tax	1			(2		)	—			(6		)
Net loss attributable to Tenet Healthcare Corporation common shareholders	$	(55	)	$	(46	)	$	(108	)	$	(105	)
Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common shareholders:
Basic
Continuing operations	$	(0.56	)	$	(0.44	)	$	(1.08	)	$	(1.00	)
Discontinued operations	0.01			(0.02		)	—			(0.06		)
	$	(0.55	)	$	(0.46	)	$	(1.08	)	$	(1.06	)
Diluted
Continuing operations	$	(0.56	)	$	(0.44	)	$	(1.08	)	$	(1.00	)
Discontinued operations	0.01			(0.02		)	—			(0.06		)
	$	(0.55	)	$	(0.46	)	$	(1.08	)	$	(1.06	)
Weighted average shares and dilutive securities outstanding (in thousands):
Basic	100,612			99,341			100,306			99,054
Diluted	100,612			99,341			100,306			99,054

See accompanying Notes to Condensed Consolidated Financial Statements.

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TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)

Dollars in Millions

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Net income	$	32		$	39		$	68		$	73
Other comprehensive income:
Amortization of net actuarial loss included in other non-operating expense, net	4			3			8			3
Unrealized gains (losses) on securities held as available-for-sale	1			(2		)	3			1
Foreign currency translation adjustments	6			(43		)	9			(41		)
Other comprehensive income (loss) before income taxes	11			(42		)	20			(37		)
Income tax benefit (expense) related to items of other comprehensive income (loss)	2			(1		)	(4		)	(2		)
Total other comprehensive income (loss), net of tax	13			(43		)	16			(39		)
Comprehensive net income (loss)	45			(4		)	84			34
Less: Comprehensive income attributable to noncontrolling interests	87			85			176			178
Comprehensive loss attributable to Tenet Healthcare Corporation common shareholders	$	(42	)	$	(89	)	$	(92	)	$	(144	)

See accompanying Notes to Condensed Consolidated Financial Statements.

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TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in Millions

(Unaudited)

	Six Months Ended June 30,
	2017			2016
Net income	$	68		$	73
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	443			427
Provision for doubtful accounts	754			728
Deferred income tax expense (benefit)	(81		)	37
Stock-based compensation expense	29			35
Impairment and restructuring charges, and acquisition-related costs	74			50
Litigation and investigation costs	6			287
Gains on sales, consolidation and deconsolidation of facilities	(38		)	(148		)
Loss from early extinguishment of debt	26			—
Equity in earnings of unconsolidated affiliates, net of distributions received	4			10
Amortization of debt discount and debt issuance costs	22			21
Pre-tax loss from discontinued operations	—			7
Other items, net	(25		)	(2		)
Changes in cash from operating assets and liabilities:
Accounts receivable	(673		)	(725		)
Inventories and other current assets	160			(30		)
Income taxes	(7		)	(17		)
Accounts payable, accrued expenses and other current liabilities	(345		)	(106		)
Other long-term liabilities	48			34
Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements	(62		)	(99		)
Net cash used in operating activities from discontinued operations, excluding income taxes	(2		)	—
Net cash provided by operating activities	401			582
Cash flows from investing activities:
Purchases of property and equipment — continuing operations	(348		)	(413		)
Purchases of businesses or joint venture interests, net of cash acquired	(26		)	(94		)
Proceeds from sales of facilities and other assets	74			573
Proceeds from sales of marketable securities, long-term investments and other assets	16			24
Purchases of equity investments	(2		)	(35		)
Other long-term assets	(12		)	(3		)
Other items, net	(10		)	2
Net cash provided by (used in) investing activities	(308		)	54
Cash flows from financing activities:
Repayments of borrowings under credit facility	(100		)	(1,195		)
Proceeds from borrowings under credit facility	100			1,195
Repayments of other borrowings	(1,029		)	(76		)
Proceeds from other borrowings	837			—
Debt issuance costs	(29		)	—
Distributions paid to noncontrolling interests	(123		)	(95		)
Proceeds from sales of noncontrolling interests	14			15
Purchases of noncontrolling interests	(5		)	(177		)
Proceeds from employee stock plan purchases	3			3
Other items, net	(2		)	(6		)
Net cash used in financing activities	(334		)	(336		)
Net increase (decrease) in cash and cash equivalents	(241		)	300
Cash and cash equivalents at beginning of period	716			356
Cash and cash equivalents at end of period	$	475		$	656
Supplemental disclosures:
Interest paid, net of capitalized interest	$	(468	)	$	(467	)
Income tax payments, net	$	(44	)	$	(29	)

See accompanying Notes to Condensed Consolidated Financial Statements.

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TENET HEALTHCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Description of Business and Basis of Presentation

Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as “Tenet,” “we” or “us”) is a diversified healthcare services company. At June 30, 2017, we operated 80 hospitals, 20 short-stay surgical hospitals and over 470 outpatient centers in the United States, as well as nine facilities in the United Kingdom, through our subsidiaries, partnerships and joint ventures, including USPI Holding Company, Inc. (“USPI joint venture”). Our Conifer Holdings, Inc. (“Conifer”) subsidiary provides healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care solutions to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.

This quarterly report supplements our Annual Report on Form 10-K for the year ended December 31, 2016 (“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).  In addition to the impact of the new accounting standards discussed below, certain prior-year amounts have also been reclassified to conform to the current-year presentation, primarily related to the detail of other intangible assets in Note 1 and the line items presented in the changes in shareholders’ equity table in Note 8.

Effective January 1, 2017, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-09, “Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which affects all entities that issue share-based payment awards to their employees. The guidance in ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Upon adoption of ASU 2016-09, we recorded previously unrecognized excess tax benefits of approximately $56 million as a deferred tax asset and a cumulative effect adjustment to retained earnings as of January 1, 2017. Prospectively, all excess tax benefits and deficiencies will be recognized as income tax benefit or expense in our consolidated statement of operations when awards vest.

Also effective January 1, 2017, we early adopted ASU 2017-07, “Compensation—Retirement Benefits (Topic 715) Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which the FASB issued in March 2017. The amendments in ASU 2017-07 apply to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715 of the FASB Accounting Standards Codification. The guidance in ASU 2017-07 requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside a subtotal of income from operations. The line item or items used in the statement of operations to present the other components of net benefit cost must be disclosed. The amendments in ASU 2017-07 must be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the statement of operations. As a result of the adoption of ASU 2017-07, we reclassified approximately $14 million of net benefit cost from salaries, wages and benefits expense to other non-operating income (expense), net, in the accompanying Condensed Consolidated Statement of Operations for both of the six month periods ended June 30, 2017 and 2016. Upon adoption of ASU 2017-07, we also reclassified approximately $6 million and $8 million of net benefit cost from salaries, wages and benefits expense to other non-operating income (expense), net for the three month periods ended September 30, 2016 and December 31, 2016, respectively, and we reclassified approximately $21 million of net benefit cost from salaries, wages and benefits expense to other non-operating income (expense), net for the year ended December 31, 2015.

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 accounting principles generally accepted in the United States of America (“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

5

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 six month periods ended June 30, 2017 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; changes in Medicare and Medicaid regulations; Medicaid and other supplemental funding levels set by the states in which we operate; the timing of approval by the Centers for Medicare and Medicaid Services of Medicaid provider fee revenue programs; trends in patient accounts receivable collectability and associated provisions for doubtful accounts; fluctuations in interest rates; levels of malpractice insurance expense and settlement trends; the timing of when we meet the criteria to recognize electronic health record incentives; 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; 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 or losses from early extinguishment of debt; and changes in occupancy levels and patient volumes. Factors that affect patient volumes and, thereby, the results of operations at our hospitals and related healthcare facilities include, but are not limited to: the business environment, economic conditions and demographics of local communities in which we operate; the number of uninsured and underinsured individuals in local communities treated at our hospitals; seasonal cycles of illness; climate and weather conditions; physician recruitment, retention and attrition; advances in technology and treatments that reduce length of stay; local healthcare competitors; managed care contract negotiations or terminations; the number of patients with high-deductible health insurance plans; any unfavorable publicity about us, or our joint venture partners, that impacts our relationships with physicians and patients; changes in healthcare regulations and the participation of individual states in federal programs; and the timing of elective procedures. These considerations apply to year-to-year comparisons as well.

Translation of Foreign Currencies

The accounts of European Surgical Partners Limited (“Aspen”) were measured in its local currency (the pound sterling) and then translated into U.S. dollars. All assets and liabilities were translated using the current rate of exchange at the balance sheet date. Results of operations were translated using the average rates prevailing throughout the period of operations. Translation gains or losses resulting from changes in exchange rates are accumulated in shareholders’ equity. Deferred U.S. taxes have not been provided with respect to translation gains or losses because Aspen’s accumulated earnings are indefinitely reinvested outside the United States.

Net Operating Revenues Before Provision for Doubtful Accounts

We recognize net operating revenues before provision for doubtful accounts in the period in which our services are performed. Net operating revenues before provision for doubtful accounts primarily consist of net patient service revenues that are recorded based on established billing rates (i.e., gross charges), less estimated discounts for contractual and other allowances, principally for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our Compact with Uninsured Patients and other uninsured discount and charity programs.

6

The table below shows the sources of net operating revenues before provision for doubtful accounts from continuing operations:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Hospital Operations and other:
Net patient revenues from acute care hospitals, related outpatient facilities and physician practices
Medicare	$	852		$	915		$	1,754		$	1,814
Medicaid	291			296			566			670
Managed care	2,664			2,539			5,343			5,302
Indemnity, self-pay and other	449			484			874			936
Net patient revenues(1)	4,256			4,234			8,537			8,722
Health plans	25			136			90			263
Revenue from other sources	164			174			309			324
Hospital Operations and other total prior to inter-segment eliminations	4,445			4,544			8,936			9,309
Ambulatory Care	483			452			945			889
Conifer	400			386			802			771
Inter-segment eliminations	(155		)	(162		)	(314		)	(329		)
Net operating revenues before provision for doubtful accounts	$	5,173		$	5,220		$	10,369		$	10,640

(1) Net patient revenues include revenues from physician practices of $190 million and $186 million for the three months ended June 30, 2017 and 2016, respectively, and $380 million and $379 million for the six months ended June 30, 2017 and 2016, respectively.

Cash and Cash Equivalents

We treat highly liquid investments with original maturities of three months or less as cash equivalents. Cash and cash equivalents were approximately $475 million and $716 million at June 30, 2017 and December 31, 2016, respectively. At June 30, 2017 and December 31, 2016, our book overdrafts were approximately $187 million and $279 million, respectively, which were classified as accounts payable.

At June 30, 2017 and December 31, 2016, approximately $160 million and $147 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 approximately $84 million and $85 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 June 30, 2017 and December 31, 2016, we had $92 million and $179 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, $57 million and $141 million, respectively, were included in accounts payable.

During the six months ended June 30, 2017 and 2016, we entered into non-cancellable capital leases of approximately $43 million and $77 million, respectively, primarily for equipment.

Other Intangible Assets

The following tables provide information regarding other intangible assets, which are included in the accompanying Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016:

	Gross Carrying Amount		Accumulated Amortization			Net Book Value
At June 30, 2017:
Capitalized software costs	$	1,581	$	(728	)	$	853
Trade names	106		—			106
Contracts	849		(51		)	798
Other	109		(60		)	49
Total	$	2,645	$	(839	)	$	1,806

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	Gross Carrying Amount		Accumulated Amortization			Net Book Value
At December 31, 2016:
Capitalized software costs	$	1,572	$	(681	)	$	891
Trade names	106		—			106
Contracts	845		(43		)	802
Other	94		(48		)	46
Total	$	2,617	$	(772	)	$	1,845

Estimated future amortization of intangibles with finite useful lives at June 30, 2017 is as follows:

			Six Months Ending		Years Ending								Later Years
			December 31,
	Total		2017		2018		2019		2020		2021
Amortization of intangible assets	$	1,146	$	90	$	152	$	132	$	101	$	89	$	582

We recognized amortization expense of $81 million and $78 million in the accompanying Condensed Consolidated Statements of Operations for the six months ended June 30, 2017 and 2016, respectively.

Investments in Unconsolidated Affiliates

We control 219 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 (107 of 326 at June 30, 2017) and four of the hospitals our Hospital Operations and other segment operates, as well as 11 additional facilities 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 attributable to the investee as equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Operations. Summarized financial information for the equity method investees within our Ambulatory Care segment and the four equity method investee hospitals operated by our Hospital Operations and other segment are included in the following table. For investments acquired during the reported periods, amounts reflect 100% of the investee’s results beginning on the date of our acquisition of the investment.

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Net operating revenues	$	600	$	615	$	1,184	$	1,193
Net income	$	118	$	130	$	233	$	235
Net income attributable to the investees	$	73	$	89	$	149	$	158

NOTE 2. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

	June 30, 2017			December 31, 2016
Continuing operations:
Patient accounts receivable	$	3,558		$	3,799
Allowance for doubtful accounts	(966		)	(1,031		)
Estimated future recoveries	129			141
Net cost reports and settlements payable and valuation allowances	(17		)	(14		)
	2,704			2,895
Discontinued operations	2			2
Accounts receivable, net	$	2,706		$	2,897

At June 30, 2017 and December 31, 2016, our allowance for doubtful accounts was 27.2% and 27.1%, respectively, of our patient accounts receivable. Accounts that are pursued for collection through Conifer’s regional business offices are maintained on our hospitals’ books and reflected in patient accounts receivable with an allowance for doubtful accounts established to reduce the carrying value of such receivables to their estimated net realizable value. Generally, we estimate this allowance based on the aging of our accounts receivable by hospital, our historical collection experience by hospital and for each type of payer, and other relevant factors.

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We also provide charity care to patients who are unable to pay for the healthcare services they receive. Most patients who qualify for charity care are charged a per-diem amount for services received, subject to a cap. Except for the per-diem amounts, our policy is not to pursue collection of amounts determined to qualify as charity care; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid disproportionate share hospital (“DSH”) payments. These payments are intended to mitigate our cost of uncompensated care, as well as reduced Medicaid funding levels. The table below shows our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses and which exclude the costs of our health plan businesses) of caring for our self-pay patients and charity care patients, and revenues attributable to Medicaid DSH and other supplemental revenues we recognized in three and six months ended June 30, 2017 and 2016:

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Estimated costs for:
Self-pay patients	$	160	$	151	$	320	$	295
Charity care patients	33		29		63		68
Total	$	193	$	180	$	383	$	363
Medicaid DSH and other supplemental revenues	$	164	$	215	$	322	$	442

At June 30, 2017 and December 31, 2016, we had approximately $380 million and $537 million, respectively, of receivables recorded in other current assets and approximately $97 million and $139 million, respectively, of payables recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheets related to California’s provider fee program.

NOTE 3. ASSETS AND LIABILITIES HELD FOR SALE

In the three months ended June 30, 2017, we entered into a definitive agreement for the sale of our hospitals, physician practices and related assets in Houston, Texas and the surrounding area. In accordance with the guidance in the FASB’s Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment,” we classified $705 million of our Houston-area assets as “assets held for sale” in current assets and the related liabilities of $51 million as “liabilities held for sale” in current liabilities in the accompanying Condensed Consolidated Balance Sheet at June 30, 2017. These assets and liabilities were recorded at the lower of their carrying amount or their fair value less estimated costs to sell. There was no impairment recorded for the write-down of assets held for sale to their estimated fair value, less estimated costs to sell, as a result of this anticipated transaction.

Assets and liabilities classified as held for sale at June 30, 2017, all of which were in the Hospital Operations and other segment, were comprised of the following:

Accounts receivable	$	113
Other current assets	25
Investments and other long-term assets	3
Property and equipment	217
Other intangible assets	37
Goodwill	310
Current liabilities	(48		)
Long-term liabilities	(3		)
Net assets held for sale	$	654

In the three months ended September 30, 2016, certain of our health plan assets and liabilities met the criteria to be classified as held for sale. In the three months ended March 31, 2017, we completed the sale of our health plan businesses in Michigan at a transaction price of approximately $16 million and recognized a gain on sale of approximately $9 million. In the three months ended June 30, 2017, we completed the sales of certain of our health plan businesses in Arizona and Texas at transaction prices of approximately $13 million and $12 million, respectively, and recognized gains on the sales of approximately $13 million and $10 million, respectively.

Our hospitals, physician practices and related assets in Georgia met the criteria to be classified as assets held for sale in the three months ended June 30, 2015. We completed the sale of our Georgia assets on March 31, 2016 at a transaction price of approximately $575 million and recognized a gain on sale of approximately $113 million. Because we did not sell the related accounts receivable with respect to the pre-closing period, net receivables of approximately $25 million are included in

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accounts receivable, less allowance for doubtful accounts, in the accompanying Condensed Consolidated Balance Sheet at June 30, 2017.

NOTE 4. IMPAIRMENT AND RESTRUCTURING CHARGES, AND ACQUISITION-RELATED COSTS

During the six months ended June 30, 2017, we recorded impairment and restructuring charges and acquisition-related costs of $74 million primarily related to our Hospital Operations and other segment, consisting of an approximately $15 millionimpairment of two equity method investments, $30 million of employee severance costs, $7 million of contract and lease termination fees, $2 million to write-down intangible assets, $7 million of other restructuring costs, and $13 million in acquisition-related costs, which include $2 million of transaction costs and $11 million of acquisition integration charges.

During the six months ended June 30, 2016, we recorded impairment and restructuring charges and acquisition-related costs of $50 million primarily related to our Hospital Operations and other segment, consisting of approximately $17 million of employee severance costs, $1 million of contract and lease termination fees, $2 million to write-down intangible assets, $2 million of other restructuring costs, and $28 million in acquisition-related costs, which include $3 million of transaction costs and $25 million of acquisition integration charges.

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 the 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 June 30, 2017, our continuing operations consisted of three reportable segments, Hospital Operations and other, Ambulatory Care and Conifer. Our Hospital Operations and other segment was structured as follows at June 30, 2017:

• Our Eastern region included all of our segment operations in Alabama, Florida, Illinois, Massachusetts, Michigan, Missouri, Pennsylvania, South Carolina and Tennessee;

• Our Texas region included all of our segment operations in New Mexico and Texas; and 

• Our Western region included all of our segment operations in Arizona and California.

These regions are reporting units used to perform our goodwill impairment analysis and are one level below our reportable business segments. We also perform a goodwill impairment analysis for our Ambulatory Care and Conifer reporting units.

We periodically incur costs to implement restructuring efforts for specific operations, which are recorded in our consolidated statements 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.

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NOTE 5. LONG-TERM DEBT AND LEASE OBLIGATIONS

The table below shows our long-term debt at June 30, 2017 and December 31, 2016:

	June 30, 2017			December 31, 2016
Senior unsecured notes:
5.000% due 2019	$	1,100		$	1,100
5.500% due 2019	500			500
6.750% due 2020	300			300
8.000% due 2020	750			750
8.125% due 2022	2,800			2,800
6.750% due 2023	1,900			1,900
6.875% due 2031	430			430
Senior secured notes:
6.250% due 2018	1,041			1,041
4.750% due 2020	500			500
6.000% due 2020	1,800			1,800
Floating % due 2020	—			900
4.500% due 2021	850			850
4.375% due 2021	1,050			1,050
7.500% due 2022	750			750
4.625% due 2024	830			—
Capital leases	684			735
Mortgage notes	81			84
Unamortized issue costs, note discounts and premiums	(211		)	(235		)
Total long-term debt	15,155			15,255
Less current portion	143			191
Long-term debt, net of current portion	$	15,012		$	15,064

Senior Secured Notes

 On June 14, 2017, we sold $830 million aggregate principal amount of our 4.625% senior secured first lien notes, which will mature on July 15, 2024 (the “2024 Secured First Lien Notes”). We will pay interest on the 2024 Secured First Lien Notes semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2018. The proceeds from the sale of the 2024 Secured First Lien Notes were used, after payment of fees and expenses, together with cash on hand, to deposit with the trustee an amount sufficient to fund the redemption of all $900 million in aggregate principal amount of our floating rate senior secured notes due 2020 (the “2020 Floating Rate Notes”) on July 14, 2017, thereby fully discharging the 2020 Floating Rate Notes as of June 14, 2017. In connection with the redemption, we recorded a loss from early extinguishment of debt of approximately $26 million, primarily related to the difference between the redemption price and the par value of the notes, as well as the write-off of associated unamortized note discounts and issuance costs. Several other debt refinancing transactions were completed in July and August 2017, as further described in Note 18.

Credit Agreement

We have a senior secured revolving credit facility (as amended, the “Credit Agreement”) that provides, subject to borrowing availability, for revolving loans in an aggregate principal amount of up to $1 billion, with a $300 million subfacility for standby letters of credit. Obligations under the Credit Agreement, which has a scheduled maturity date of December 4, 2020, are guaranteed by substantially all of our domestic wholly owned hospital subsidiaries and are secured by a first-priority lien on the accounts receivable owned by us and the subsidiary guarantors. Outstanding revolving loans accrue interest at a base rate plus a margin ranging from 0.25% to 0.75% per annum or the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.25% to 1.75% per annum, in each case based on available credit. An unused commitment fee payable on the undrawn portion of the revolving loans ranges from 0.25% to 0.375% per annum based on available credit. Our borrowing availability is based on a specified percentage of eligible accounts receivable, including self-pay accounts. At June 30, 2017, we had no cash borrowings outstanding under the Credit Agreement, and we had approximately $2 million of standby letters of credit outstanding. Based on our eligible receivables, approximately $998 million was available for borrowing under the Credit Agreement at June 30, 2017.

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Letter of Credit Facility

We have a letter of credit facility (as amended, the “LC Facility”) that provides for the issuance of standby and documentary letters of credit, from time to time, in an aggregate principal amount of up to $180 million (subject to increase to up to $200 million). Obligations under the LC Facility are guaranteed and secured by a first-priority pledge of the capital stock and other ownership interests of certain of our wholly owned domestic hospital subsidiaries on an equal ranking basis with our senior secured first lien notes. On September 15, 2016, we entered into an amendment to the existing letter of credit facility agreement in order to, among other things, (i) extend the scheduled maturity date of the LC Facility to March 7, 2021, (ii) reduce the margin payable with respect to unreimbursed drawings under letters of credit and undrawn letters of credit issued under the LC Facility, and (iii) reduce the commitment fee payable with respect to the undrawn portion of the commitments under the LC Facility.

Drawings under any letter of credit issued under the LC Facility that we have not reimbursed within three business days after notice thereof will accrue interest at a base rate plus a margin equal to 0.50% per annum. An unused commitment fee is payable at an initial rate of 0.25% per annum with a step up to 0.375% per annum should our secured-debt-to-EBITDA ratio equal or exceed 3.00 to 1.00 at the end of any fiscal quarter. A fee on the aggregate outstanding amount of issued but undrawn letters of credit will accrue at a rate of 1.50% per annum. An issuance fee equal to 0.125% per annum of the aggregate face amount of each outstanding letter of credit is payable to the account of the issuer of the related letter of credit. At June 30, 2017, we had approximately $108 million of standby letters of credit outstanding under the LC Facility.

NOTE 6. GUARANTEES

At June 30, 2017, 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 $123 million. We had a total liability of $96 million recorded for these guarantees included in other current liabilities at June 30, 2017.

At June 30, 2017, 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 $28 million. Of the total, $17 million relates to the obligations of consolidated subsidiaries, which obligations are recorded in the accompanying Condensed Consolidated Balance Sheet at June 30, 2017.

NOTE 7. EMPLOYEE BENEFIT PLANS

In recent years, we have granted both options and restricted stock units to certain of our employees. 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 one share of our common stock or the equivalent value in cash 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 longer vesting periods. In addition, we grant performance-based restricted stock units and performance-based options that vest subject to the achievement of specified performance goals within a specified time frame. At June 30, 2017, assuming outstanding performance-based restricted stock units and options for which performance has not yet been determined will achieve target performance, approximately 5.9 million shares of common stock were available under our 2008 Stock Incentive Plan for future stock option grants and other incentive awards, including restricted stock units (approximately 4.9 million shares remain available if we assume maximum performance for outstanding performance-based restricted stock units and options for which performance has not yet been determined).

Our Condensed Consolidated Statements of Operations for the six months ended June 30, 2017 and 2016 include $29 million and $31 million, respectively, of pre-tax compensation costs related to our stock-based compensation arrangements.

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Stock Options

The following table summarizes stock option activity during the six months ended June 30, 2017:

	Options		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted Average Remaining Life
					(In Millions)
Outstanding at December 31, 2016	1,435,921		$	22.87
Granted	987,781		18.99
Exercised	(11,175	)	4.56
Forfeited/Expired	(187,458	)	26.07
Outstanding at June 30, 2017	2,225,069		$	20.97	$	3	5.4 years
Vested and expected to vest at June 30, 2017	2,225,069		$	20.97	$	3	5.4 years
Exercisable at June 30, 2017	1,237,288		$	22.55	$	2	1.9 years

There were 11,175 and 104,815 stock options exercised during the six months ended June 30, 2017 and 2016, respectively, with aggregate intrinsic values of less than $1 million and approximately $1 million, respectively.

At June 30, 2017, there were $7 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.7 years.

In the six months ended June 30, 2017, we granted an aggregate of 987,781 stock options under our 2008 Stock Incentive Plan to certain of our senior officers. The stock options will all vest on the third anniversary of the grant date, subject to achieving a closing stock price of at least $23.74 (a 25% premium above the March 1, 2017 grant-date closing stock price of $18.99) 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 six months ended June 30, 2016, there were no stock options granted.

The weighted average estimated fair value of stock options we granted in the six months ended June 30, 2017 was $8.52 per share. The fair values were calculated based on the grant date, using a Monte Carlo simulation with the following assumptions:

	Six Months Ended June 30, 2017
Expected volatility	49%
Expected dividend yield	0%
Expected life	6.2 years
Expected forfeiture rate	0%
Risk-free interest rate	2.15%

The expected volatility used in the Monte Carlo simulation incorporates historical and implied share-price volatility and is based on an analysis of historical prices of our stock and open-market exchanged options. The expected volatility reflects the historical volatility for a duration consistent with the contractual life of the options, and the volatility implied by the trading of options to purchase our stock on open-market exchanges. The historical share-price volatility excludes the movements in our stock price on two dates (April 8, 2011 and April 11, 2011) with unusual volatility due to an unsolicited acquisition proposal. The expected life of options granted is derived from Tenet’s historical stock option exercise behavior, adjusted for the exercisable period (i.e., from the third anniversary through the tenth anniversary of the grant date). The risk-free interest rates are based on zero-coupon United States Treasury yields in effect at the date of grant consistent with the expected exercise time frames.

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The following table summarizes information about our outstanding stock options at June 30, 2017:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price
$0.00 to $4.569	159,711	1.7 years	$	4.56	159,711	$	4.56
$4.57 to $19.759	988,081	9.7 years	18.99		300	14.52
$19.76 to $32.569	822,890	2.3 years	20.87		822,890	20.87
$32.57 to $42.529	254,387	0.7 years	39.31		254,387	39.31
	2,225,069	5.4 years	$	20.97	1,237,288	$	22.55

Restricted Stock Units

The following table summarizes restricted stock unit activity during the six months ended June 30, 2017: 

	Restricted Stock Units		Weighted Average Grant Date Fair Value Per Unit
Unvested at December 31, 2016	3,174,533		$	38.75
Granted	614,208		18.72
Vested	(1,291,475	)	35.95
Forfeited	(52,135	)	36.64
Unvested at June 30, 2017	2,445,131		$	35.46

In the six months ended June 30, 2017, we granted 614,208 restricted stock units, of which 601,305 will vest and be settled ratably over a three-year period from the grant date. The vesting of the remaining 12,903 restricted stock units is contingent on our achievement of specified performance goals for the years 2017 to 2019. Provided the goals are achieved, the performance-based restricted stock units will vest and settle on the third anniversary of the grant date. The actual number of performance-based restricted stock units that could vest will range from 0% to 200% of the 12,903 units granted, depending on our level of achievement with respect to the performance goals.

At June 30, 2017, there were $55 million of total unrecognized compensation costs related to restricted stock units. These costs are expected to be recognized over a weighted average period of 1.9 years.

Employee Retirement Plans

In both of the six-month periods ended June 30, 2017 and 2016, we recognized (i) service cost related to one of our frozen nonqualified defined benefit pension plans of approximately $1 million in salaries, wages and benefits expense, and (ii) other components of net periodic pension cost and net periodic postretirement benefit cost related to our frozen qualified and nonqualified defined benefit plans of approximately $14 million in other non-operating income (expense), net, in the accompanying Condensed Consolidated Statements of Operations.

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NOTE 8. EQUITY

Changes in Shareholders’ Equity

The following table shows the changes in consolidated equity during the six months ended June 30, 2017 and 2016 (dollars in millions, share amounts in thousands):

	Tenet Healthcare Corporation Shareholders’ Equity
	Common Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Treasury Stock			Noncontrolling Interests			Total Equity
	Shares Outstanding	Issued Par Amount
Balances at December 31, 2016	99,686	$	7	$	4,827		$	(258	)	$	(1,742	)	$	(2,417	)	$	665		$	1,082
Net income (loss)	—	—		—			—			(108		)	—			71			(37		)
Distributions paid to noncontrolling interests	—	—		—			—			—			—			(65		)	(65		)
Other comprehensive income	—	—		—			16			—			—			—			16
Accretion of redeemable noncontrolling interests	—	—		(29		)	—			—			—			—			(29		)
Purchases (sales) of businesses and noncontrolling interests	—	—		(4		)	—			—			—			11			7
Cumulative effect of accounting change	—	—		—			—			56			—			—			56
Stock-based compensation expense, tax benefit and issuance of common stock	1,024	—		25			—			—			—			—			25
Balances at June 30, 2017	100,710	$	7	$	4,819		$	(242	)	$	(1,794	)	$	(2,417	)	$	682		$	1,055
Balances at December 31, 2015	98,495	$	7	$	4,815		$	(164	)	$	(1,550	)	$	(2,417	)	$	267		$	958
Net income (loss)	—	—		—			—			(105		)	—			62			(43		)
Distributions paid to noncontrolling interests	—	—		—			—			—			—			(51		)	(51		)
Other comprehensive loss	—	—		—			(39		)	—			—			—			(39		)
Purchases (sales) of businesses and noncontrolling interests	—	—		(36		)	—			—			—			114			78
Purchase accounting adjustments	—	—		—			—			—			—			237			237
Stock-based compensation expense and issuance of common stock	1,021	—		12			—			—			—			—			12
Balances at June 30, 2016	99,516	$	7	$	4,791		$	(203	)	$	(1,655	)	$	(2,417	)	$	629		$	1,152

Our noncontrolling interests balances at June 30, 2017 and December 31, 2016 were comprised of $91 million and $89 million, respectively, from our Hospital Operations and other segment, and $591 million and $576 million, respectively, from our Ambulatory Care segment. Our net income attributable to noncontrolling interests for the six months ended June 30, 2017 and 2016 in the table above were comprised of $9 million and $5 million, respectively, from our Hospital Operations and other segment, and $62 million and $57 million, respectively, from our Ambulatory Care segment.

NOTE 9. PROPERTY AND PROFESSIONAL AND GENERAL LIABILITY INSURANCE

Property Insurance

We have property, business interruption and related insurance coverage to mitigate the financial impact of catastrophic events or perils that is subject to deductible provisions based on the terms of the policies. These policies are on an occurrence basis. For the policy period April 1, 2017 through March 31, 2018, we have coverage totaling $850 million per occurrence, after deductibles and exclusions, with annual aggregate sub-limits of $100 million for floods, $200 million for earthquakes and a per-occurrence sub-limit of $200 million for named windstorms with no annual aggregate. With respect to fires and other perils, excluding floods, earthquakes and named windstorms, the total $850 million limit of coverage per occurrence applies. Deductibles are 5% of insured values up to a maximum of $25 million for California earthquakes and wind-related claims, and 2% of insured values for New Madrid fault earthquakes, with a maximum per claim deductible of $25 million. Other covered losses, including floods, fires and other perils, have a minimum deductible of $1 million.

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Professional and General Liability Reserves

At June 30, 2017 and December 31, 2016, the aggregate current and long-term professional and general liability reserves in our accompanying Condensed Consolidated Balance Sheets were approximately $852 million and $794 million, respectively. These reserves include the reserves recorded by our captive insurance subsidiaries and our self-insured retention reserves recorded based on modeled estimates for the portion of our professional and general liability risks, including incurred but not reported claims, for which we do not have insurance coverage. We estimated the reserves for losses and related expenses using expected loss-reporting patterns discounted to their present value under a risk-free rate approach using a Federal Reserve seven-year maturity rate of 2.14% at June 30, 2017 and 2.25% at December 31, 2016.

If the aggregate limit of any of our professional and general liability policies is exhausted, in whole or in part, it could deplete or reduce the limits available to pay any other material claims applicable to that policy period.

Included in other operating expenses, net, in the accompanying Condensed Consolidated Statements of Operations is malpractice expense of $167 million and $164 million for the six months ended June 30, 2017 and 2016, respectively.

NOTE 10. CLAIMS AND LAWSUITS

We operate in a highly regulated and litigious industry. Healthcare companies are subject to numerous investigations by various governmental agencies. Further, private parties have the right to bring qui tam or “whistleblower” lawsuits against companies that allegedly submit false claims for payments to, or improperly retain overpayments from, the government and, in some states, private payers. We and our subsidiaries have received inquiries in recent years from government agencies, and we may receive similar inquiries in future periods. We are also subject to class action lawsuits, employment-related claims and other legal actions in the ordinary course of business. Some of these actions may involve large demands, as well as substantial defense costs. We cannot predict the outcome of current or future legal actions against us or the effect that judgments or settlements in such matters may have on us.

We are also subject to a non-prosecution agreement, as described in our Annual Report. If we fail to comply with this agreement, we could be subject to criminal prosecution, substantial penalties and exclusion from participation in federal healthcare programs, any of which could adversely impact our business, financial condition, results of operations or cash flows.

We record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and we can reasonably estimate the amount of the loss or a range of loss. Significant judgment is required in both the determination of the probability of a loss and the determination as to whether a loss is reasonably estimable. These determinations are updated at least quarterly and are adjusted to reflect the effects of negotiations, settlements, rulings, advice of legal counsel and technical experts, and other information and events pertaining to a particular matter. If a loss on a material matter is reasonably possible and estimable, we disclose an estimate of the loss or a range of loss. In cases where we have not disclosed an estimate, we have concluded that the loss is either not reasonably possible or the loss, or a range of loss, is not reasonably estimable, based on available information.

Securities Litigation

On February 10, 2017, the U.S. District Court for the Northern District of Texas consolidated two previously disclosed lawsuits filed by purported shareholders of the Company’s common stock against the Company and several current and former executive officers into a single matter captioned In re Tenet Healthcare Corporation Securities Litigation. On April 11, 2017, the four court-appointed lead plaintiffs filed a consolidated amended class action complaint asserting violations of the federal securities laws. The plaintiffs are seeking class certification on behalf of all persons who acquired the Company’s common stock between February 28, 2012 and August 1, 2016. The complaint alleges that false or misleading statements or omissions concerning the Company’s financial performance and compliance policies, specifically with respect to the previously disclosed civil qui tam litigation and parallel criminal investigation of the Company and certain of its subsidiaries (together, the “Clinica de la Mama matters”), caused the price of the Company’s common stock to be artificially inflated. In addition, the plaintiffs claim that the defendants violated GAAP by failing to disclose an estimate of the possible loss or a range of loss related to the Clinica de la Mama matters. On June 12, 2017, the Company filed a motion to dismiss the consolidated complaint on behalf of all defendants. The Company intends to vigorously defend against the allegations in the purported shareholder class action.

Shareholder Derivative Litigation

In January 2017, the Dallas County District Court consolidated two previously disclosed shareholder derivative lawsuits filed by purported shareholders of the Company’s common stock on behalf of the Company against current and former

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officers and directors into a single matter captioned In re Tenet Healthcare Corporation Shareholder Derivative Litigation. The plaintiffs filed a consolidated shareholder derivative petition in February 2017.  A separate shareholder derivative lawsuit, captioned Horwitz, derivatively on behalf of Tenet Healthcare Corporation, was filed in January 2017 in the U.S. District Court for the Northern District of Texas. The consolidated shareholder derivative petition and the Horowitz complaint generally track the allegations in the securities class action complaint described above and claim that the plaintiffs did not make demand on the current directors to bring the lawsuits because such a demand would have been futile. Both shareholder derivative matters were stayed in the second quarter of 2017 pending the final resolution of the motion to dismiss in the consolidated securities litigation. The Company intends to vigorously defend against the allegations in the purported shareholder derivative lawsuits.

Antitrust Class Action Lawsuit Filed by Registered Nurses in San Antonio

In Maderazo, et al. v. VHS San Antonio Partners, L.P. d/b/a Baptist Health Systems, et al., filed in June 2006 in the U.S. District Court for the Western District of Texas, a purported class of registered nurses employed by three unaffiliated San Antonio-area hospital systems allege those hospital systems, including Baptist Health System, and other unidentified San Antonio regional hospitals violated Section §1 of the federal Sherman Act by conspiring to depress nurses’ compensation and exchanging compensation-related information among themselves in a manner that reduced competition and suppressed the wages paid to such nurses. The suit seeks unspecified damages (subject to trebling under federal law), interest, costs and attorneys’ fees. The case was stayed from 2008 through mid-2015. At this time, we are awaiting the court’s ruling on class certification and will continue to vigorously defend ourselves against the plaintiffs’ allegations. It remains impossible at this time to predict the outcome of these proceedings with any certainty; however, we believe that the ultimate resolution of this matter will not have a material effect on our business, financial condition or results of operations.

Ordinary Course Matters

We are also subject to other claims and lawsuits arising in the ordinary course of business, including potential claims related to, among other things, the care and treatment provided at our hospitals and outpatient facilities, the application of various federal and state labor laws, tax audits and other matters. Although the results of these claims and lawsuits cannot be predicted with certainty, we believe that the ultimate resolution of these ordinary course claims and lawsuits will not have a material effect on our business or financial condition.

New claims or inquiries may be initiated against us from time to time. These matters could (1) require us to pay substantial damages or amounts in judgments or settlements, which, individually or in the aggregate, could exceed amounts, if any, that may be recovered under our insurance policies where coverage applies and is available, (2) cause us to incur substantial expenses, (3) require significant time and attention from our management, and (4) cause us to close or sell hospitals or otherwise modify the way we conduct business.

The table below presents reconciliations of the beginning and ending liability balances in connection with legal settlements and related costs recorded during the six months ended June 30, 2017 and 2016: 

	Balances at Beginning of Period		Litigation and investigation Costs		Cash Payments			Balances at End of Period
Six Months Ended June 30, 2017
Continuing operations	$	12	$	6	$	(13	)	$	5
Discontinued operations	—		—		—			—
	$	12	$	6	$	(13	)	$	5
Six Months Ended June 30, 2016
Continuing operations	$	299	$	287	$	(57	)	$	529
Discontinued operations	—		—		—			—
	$	299	$	287	$	(57	)	$	529

For the six months ended June 30, 2017 and 2016, we recorded costs of $6 million and $287 million, respectively, in continuing operations in connection with significant legal proceedings and governmental investigations.

NOTE 11. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES

As previously disclosed, as part of the formation of our USPI joint venture in 2015, we entered into a put/call agreement (the “Put/Call Agreement”) with respect to the equity interests in the joint venture held by our joint venture partners. In January 2016, Welsh, Carson, Anderson & Stowe (“Welsh Carson”), on behalf of our joint venture partners, delivered a put notice for the minimum number of shares they were required to put to us in 2016 according to the Put/Call Agreement. In

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April 2016, we paid approximately $127 million to purchase those shares, which increased our ownership interest in the USPI joint venture to approximately 56.3%. On May 1, 2017, we amended and restated the Put/Call Agreement to provide for, among other things, the acceleration of our acquisition of certain shares of our USPI joint venture. Under the terms of the amendment, we agreed to pay Welsh Carson, on or before July 3, 2017, approximately $711 million to buy 23.7% of our USPI joint venture, which amount will be subject to adjustment for actual 2017 financial results in accordance with the terms of the Put/Call Agreement. Following the execution of the amendment, we recorded the present value of the liability for this purchase in other current liabilities, with an offset to redeemable noncontrolling interest of $687 million for the carrying amount of the shares and $21 million to additional paid-in capital for the difference between the carrying value and present value of the purchase price for these shares. At June 30, 2017, we had a liability of $716 million recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheet for the purchase of these shares, as well as the final adjustment to the 2016 purchase price.

The amended and restated Put/Call Agreement also provides that the remaining 15% ownership interest in our USPI joint venture held by our Welsh Carson joint venture partners will be subject to put options in equal shares in each of 2018 and 2019. In the event our Welsh Carson joint venture partners do not exercise these put options, we will have the option, but not the obligation, to buy 7.5% of our USPI joint venture from them in 2018 and another 7.5% in 2019. In connection with such puts or calls, we will have the ability to choose whether to settle the purchase price in cash or shares of our common stock.

The following table shows the changes in redeemable noncontrolling interests in equity of consolidated subsidiaries during the six months ended June 30, 2017 and 2016:

	Six Months Ended June 30,
	2017			2016
Balances at beginning of period	$	2,393		$	2,266
Net income	105			116
Distributions paid to noncontrolling interests	(58		)	(44		)
Purchase accounting adjustments	—			(47		)
Accretion of redeemable noncontrolling interests	29			—
Purchases and sales of businesses and noncontrolling interests, net	(688		)	(16		)
Balances at end of period	$	1,781		$	2,275

The following tables show the composition by segment of our redeemable noncontrolling interests balances at June 30, 2017 and December 31, 2016, as well as our net income attributable to redeemable noncontrolling interests for the six months ended June 30, 2017 and 2016:

	June 30, 2017		December 31, 2016
Hospital Operations and other	$	528	$	520
Ambulatory Care	1,071		1,715
Conifer	182		158
Redeemable noncontrolling interests	$	1,781	$	2,393

	Six Months Ended June 30,
	2017		2016
Hospital Operations and other	$	12	$	15
Ambulatory Care	70		78
Conifer	23		23
Net income attributable to redeemable noncontrolling interests	$	105	$	116

NOTE 12. INCOME TAXES

During the three months ended June 30, 2017, we recorded an income tax benefit of $12 million in continuing operations on pre-tax income of $19 million compared to an income tax benefit of $16 million on pre-tax income of $25 million during the three months ended June 30, 2016. During the six months ended June 30, 2017, we recorded an income tax benefit of $45 million in continuing operations on pre-tax income of $23 million compared to income tax expense of $51 million on pre-tax income of $130 million during the six months ended June 30, 2016. Our provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. In calculating

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“ordinary” income, non-taxable income or loss attributable to non-controlling interests has been deducted from pre-tax income or loss in the determination of the annualized effective tax rate used to calculate income taxes for the quarter. In addition, certain state income taxes have been treated as discrete items in calculating income taxes for the quarter. The reconciliation between the amount of recorded income tax expense (benefit) and the amount calculated at the statutory federal tax rate is shown in the following table:

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Tax expense at statutory federal rate of 35%	$	7		$	9		$	8		$	46
State income taxes, net of federal income tax benefit	12			(6		)	5			7
Tax benefit attributable to noncontrolling interests	(28		)	(26		)	(54		)	(47		)
Nondeductible goodwill	—			—			—			29
Nontaxable gains	—			—			—			(17		)
Nondeductible litigation	—			7			—			33
Change in tax contingency reserves, including interest	—			—			(2		)	(3		)
Stock-based compensation	1			—			9			—
Other items	(4		)	—			(11		)	3
	$	(12	)	$	(16	)	$	(45	)	$	51

During the six months ended June 30, 2017, we decreased our estimated liabilities for uncertain tax positions by $2 million, net of related deferred tax assets. The total amount of unrecognized tax benefits at June 30, 2017 was $33 million, of which $30 million, if recognized, would impact our effective tax rate and income tax expense (benefit) from continuing operations. 

Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our consolidated statements of operations. Total accrued interest and penalties on unrecognized tax benefits at June 30, 2017 were $4 million, all of which related to continuing operations.

At June 30, 2017, approximately $3 million of unrecognized federal and state tax benefits, as well as reserves for interest and penalties, may decrease in the next 12 months as a result of the settlement of audits, the filing of amended tax returns or the expiration of statutes of limitations.

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NOTE 13. LOSS PER COMMON SHARE

The following table is a reconciliation of the numerators and denominators of our basic and diluted loss per common share calculations for our continuing operations for three and six months ended June 30, 2017 and 2016. Loss attributable to our common shareholders is expressed in millions and weighted average shares are expressed in thousands.

	Loss Attributable to Common Shareholders (Numerator)			Weighted Average Shares (Denominator)	Per-Share Amount
Three Months Ended June 30, 2017
Net loss attributable to Tenet Healthcare Corporation common shareholders for basic loss per share	$	(56	)	100,612	$	(0.56	)
Effect of dilutive stock options, restricted stock units and deferred compensation units	—			—	—
Net loss attributable to Tenet Healthcare Corporation common shareholders for diluted loss per share	$	(56	)	100,612	$	(0.56	)
Three Months Ended June 30, 2016
Net loss attributable to Tenet Healthcare Corporation common shareholders for basic loss per share	$	(44	)	99,341	$	(0.44	)
Effect of dilutive stock options, restricted stock units and deferred compensation units	—			—	—
Net loss attributable to Tenet Healthcare Corporation common shareholders for diluted loss per share	$	(44	)	99,341	$	(0.44	)
Six Months Ended June 30, 2017
Net loss attributable to Tenet Healthcare Corporation common shareholders for basic loss per share	$	(108	)	100,306	$	(1.08	)
Effect of dilutive stock options, restricted stock units and deferred compensation units	—			—	—
Net loss attributable to Tenet Healthcare Corporation common shareholders for diluted loss per share	$	(108	)	100,306	$	(1.08	)
Six Months Ended June 30, 2016
Net loss attributable to Tenet Healthcare Corporation common shareholders for basic loss per share	$	(99	)	99,054	$	(1.00	)
Effect of dilutive stock options, restricted stock units and deferred compensation units	—			—	—
Net loss attributable to Tenet Healthcare Corporation common shareholders for diluted loss per share	$	(99	)	99,054	$	(1.00	)

All potentially dilutive securities were excluded from the calculation of diluted loss per share for the three and six months ended June 30, 2017 and 2016 because we did not report income from continuing operations available to common shareholders in those periods. In circumstances where we do not have income from continuing operations available to common shareholders, the effect of stock options and other potentially dilutive securities is anti-dilutive, that is, a loss from continuing operations attributable to common shareholders has the effect of making the diluted loss per share less than the basic loss per share. Had we generated income from continuing operations available to common shareholders in the three and six months ended June 30, 2017 and 2016, the effect (in thousands) of employee stock options, restricted stock units and deferred compensation units on the diluted shares calculation would have been an increase in shares of 682 and 1,386 for the three months ended June 30, 2017 and 2016, respectively, and 766 and 1,477 for the six months ended June 30, 2017 and 2016, respectively.

NOTE 14. FAIR VALUE MEASUREMENTS

Our financial assets and liabilities recorded at fair value on a recurring basis primarily relate to investments in available-for-sale securities held by our captive insurance subsidiaries. The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis. The following tables also indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair values. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. We consider a security that trades at least weekly to have an active market. Fair values determined by Level 2 inputs utilize data points that are observable, such as

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quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

Investments	June 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Marketable debt securities — noncurrent	$	54	$	39	$	15	$	—
	$	54	$	39	$	15	$	—

Investments