Tenet: Tax reform to free up cash flow, boost earnings

Dallas-based Tenet Healthcare expects its tax payments to be significantly lower over the next several years due to the tax overhaul plan signed into law in December.

Tenet projects its cash tax payments will be cut by $10 million to $20 million per year over the next several years because of the tax law's elimination of the corporate alternative minimum tax, which limits certain deductions to ensure companies pay at least a minimum amount of tax.

In addition, Tenet expects taxable income on its federal tax return to be lower due to the extension and expansion of bonus depreciation, which allows companies to immediately deduct the cost of certain facilities.

"We anticipate approximately 80 percent of capital expenditures in 2018 should qualify for immediate expensing," Tenet said.

This change will result in slower utilization of net operating loss carryforwards — operating expenses on Tenet's tax return that exceeded revenues and can be used for the following 20 years as an offset of taxable income. However, Tenet said the expansion of bonus depreciation would more than offset the effects of the tax law's limitation on interest expense deductions.

"The change in the tax law is positive for Tenet from an economic perspective," said Ron Rittenmeyer, executive chairman and CEO of Tenet. "While [earnings per share] will be lower due to the limitation on interest expense deductibility, this does not impact free cash flow, and over the next two to three years, we expect these changes will positively affect EPS due to the lower tax rate."

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