NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business.
Community Health Systems, Inc. is a holding company and operates no business in its own name. On a
consolidated basis, Community Health Systems, Inc. and its subsidiaries (collectively the Company) own, lease and operate general acute care hospitals in communities across the country. As of December 31, 2016, the Company owned or
leased 155 hospitals, included in continuing operations, including three stand-alone rehabilitation or psychiatric hospitals, licensed for 26,222 beds in 21 states. Throughout these notes to the consolidated financial statements, Community Health
Systems, Inc. (the Parent) and its consolidated subsidiaries are referred to on a collective basis as the Company. This drafting style is not meant to indicate that the publicly-traded Parent or any particular subsidiary of
the Parent owns or operates any asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated, and management services provided, by distinct and indirect subsidiaries of Community Health
Systems, Inc. The results of Health Management Associates, Inc. (HMA) are included from January 27, 2014, the date of the HMA merger.
As of December 31, 2016, Florida, Texas, Pennsylvania and Indiana represent the only areas of significant geographic concentration.
Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), generated by the Companys hospitals in Florida, as a percentage of consolidated operating revenues, were 14.1% in 2016, 13.6% in 2015 and
13.0% in 2014. Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), generated by the Companys hospitals in Texas, as a percentage of consolidated operating revenues, were 11.4% in 2016,
11.1% in 2015 and 10.9% in 2014. Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), generated by the Companys hospitals in Pennsylvania, as a percentage of consolidated operating revenues,
were 11.2% in 2016, 10.6% in 2015 and 11.1% in 2014. Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), generated by the Companys hospitals in Indiana, as a percentage of consolidated
operating revenues, were 8.6% in 2016, 7.3% in 2015 and 7.6% in 2014.
Use of Estimates
. The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates under different
assumptions or conditions.
Principles of Consolidation
. The consolidated financial statements include the
accounts of the Parent, its subsidiaries, all of which are controlled by the Parent through majority voting control, and variable interest entities for which the Company is the primary beneficiary. All intercompany accounts, profits and transactions
have been eliminated. Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity to distinguish between the interests of the Parent and the interests of the noncontrolling
owners. Revenues, expenses and income from continuing operations from these subsidiaries are included in the consolidated amounts as presented on the consolidated statements of (loss) income, along with a net income measure that separately presents
the amounts attributable to the controlling interests and the amounts attributable to the noncontrolling interests for each of the periods presented. Noncontrolling interests that are redeemable or may become redeemable at a fixed or determinable
price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine equity on the consolidated balance sheets.
Cost of Revenue
. Substantially all of the Companys operating costs and expenses are cost of
revenue items. Operating costs that could be classified as general and administrative by the Company would include the
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Companys corporate office costs at its Franklin, Tennessee office and Naples, Florida office (which was the headquarters of HMA prior to the closing of the HMA merger), which collectively
were $197 million, $266 million and $281 million for the years ended December 31, 2016, 2015 and 2014, respectively. Included in these corporate office costs is stock-based compensation of $46 million, $59 million and $54 million for the
years ended December 31, 2016, 2015 and 2014, respectively.
Cash Equivalents
. The Company considers
highly liquid investments with original maturities of three months or less to be cash equivalents.
Supplies.
Supplies, principally medical supplies, are stated at the lower of cost (first-in, first-out basis) or
market.
Marketable Securities.
The Companys marketable securities are classified as trading or
available-for-sale. Available-for-sale securities are carried at fair value as determined by quoted market prices, with unrealized gains and losses reported as a separate component of stockholders equity. Trading securities are reported at
fair value with unrealized gains and losses included in earnings. Other comprehensive (loss) income, net of tax, included an unrealized loss of $11 million and $5 million during the years ended December 31, 2016 and 2015, respectively, and an
unrealized gain of less than $1 million during the year ended December 31, 2014, related to these available-for-sale securities.
Property and Equipment
. Property and equipment are recorded at cost. Depreciation is recognized using the
straight-line method over the estimated useful lives of the land and improvements (3 to 20 years), buildings and improvements (5 to 40 years) and equipment and fixtures (3 to 18 years). Costs capitalized as construction in progress were $227 million
and $267 million at December 31, 2016 and 2015, respectively. Expenditures for renovations and other significant improvements are capitalized; however, maintenance and repairs which do not improve or extend the useful lives of the respective
assets are charged to operations as incurred. Interest capitalized related to construction in progress was $9 million, $16 million and $10 million for the years ended December 31, 2016, 2015 and 2014, respectively. Purchases of property and
equipment and internal-use software accrued in accounts payable and not yet paid were $115 million and $173 million at December 31, 2016 and 2015, respectively.
The Company also leases certain facilities and equipment under capital leases (see Note 10). Such assets are amortized on a straight-line
basis over the lesser of the term of the lease or the remaining useful lives of the applicable assets. During the year ended December 31, 2016, the Company had non-cash investing activity of $17 million related to certain facility and
equipment additions that were financed through capital leases and other debt.
Goodwill.
Goodwill represents
the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired. Goodwill arising from business combinations is not amortized. Goodwill is required to be evaluated for impairment at the same
time every year and when an event occurs or circumstances change such that it is more likely than not that impairment may exist. The Company performs its annual testing of impairment for goodwill in the fourth quarter of each year. As further
discussed in Note 5, the Company recorded an impairment charge of $1.395 billion during the year ended December 31, 2016, based on an interim impairment evaluation performed during the second quarter of 2016.
Other Assets.
Other assets consist of the insurance recovery receivable from excess insurance carriers related
to the Companys self-insured malpractice general liability and workers compensation insurance liability; costs to recruit physicians to the Companys markets, which are deferred and expensed over the term of the respective physician
recruitment contract, generally three years, and included in amortization expense; and capitalized internal-use software costs, which are expensed over the expected useful life, which is generally three years for routine software and eight to ten
years for major software projects, and included in amortization expense.
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Third-Party Reimbursement
. Net patient service revenue is
reported at the estimated net realizable amount from patients, third-party payors and others for services rendered. Operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment
systems, provisions of cost-reimbursement and other payment methods. Approximately 34.4%, 35.3% and 35.5% of operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), for the years ended
December 31, 2016, 2015 and 2014, respectively, are related to services rendered to patients covered by the Medicare and Medicaid programs. Revenues from Medicare outlier payments are included in the amounts received from Medicare and were
approximately 0.38%, 0.28% and 0.41% of operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), for the years ended December 31, 2016, 2015 and 2014, respectively. In addition, the Company is
reimbursed by non-governmental payors using a variety of payment methodologies. Amounts received by the Company for treatment of patients covered by such programs are generally less than the standard billing rates. The differences between the
estimated program reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are deducted from gross revenues to arrive at operating revenues (net of contractual allowances and discounts). These net
operating revenues are an estimate of the net realizable amount due from these payors. The process of estimating contractual allowances requires the Company to estimate the amount expected to be received based on payor contract provisions. The key
assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification and historical paid claims data. Due to the complexities involved in these estimates, actual payments the Company receives could
be different from the amounts it estimates and records. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. Adjustments to previous program reimbursement estimates are
accounted for as contractual allowance adjustments and reported in the periods that such adjustments become known.
Amounts due to
third-party payors were $99 million and $112 million as of December 31, 2016 and 2015, respectively, and are included in accrued liabilities-other in the accompanying consolidated balance sheets. Amounts due from third-party payors were $186
million and $213 million as of December 31, 2016 and 2015, respectively, and are included in other current assets in the accompanying consolidated balance sheets. Substantially all Medicare and Medicaid cost reports are final settled through
2012.
Net Operating Revenues
. Net operating revenues are recorded net of provisions for contractual
allowance of approximately $98.2 billion, $95.3 billion and $84.4 billion for the years ended December 31, 2016, 2015 and 2014, respectively. Net operating revenues are recognized when services are provided and are reported at the estimated net
realizable amount from patients, third-party payors and others for services rendered. Also included in the provision for contractual allowance shown above is the value of administrative and other discounts provided to self-pay patients eliminated
from net operating revenues which was $3.2 billion, $3.0 billion and $2.8 billion for the years ended December 31, 2016, 2015 and 2014, respectively.
In the ordinary course of business, the Company renders services to patients who are financially unable to pay for hospital care. The
Companys policy is to not pursue collections for such amounts; therefore, the related charges for those patients who are financially unable to pay and that otherwise do not qualify for reimbursement from a governmental program are not reported
in net operating revenues or in the provision for bad debts, and are thus classified as charity care. The Company determines amounts that qualify for charity care primarily based on the patients household income relative to the federal poverty
level guidelines, as established by the federal government.
Included in the provision for contractual allowance shown above is $487
million, $453 million and $550 million for the years ended December 31, 2016, 2015 and 2014, respectively, representing the value (at the Companys standard charges) of these charity care services that are excluded from net operating
revenues.
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated cost incurred by the Company to provide these charity care services to patients
who are unable to pay was approximately $64 million, $64 million and $84 million for the years ended December 31, 2016, 2015 and 2014, respectively. The estimated cost of these charity care services was determined using a ratio of cost to gross
charges and applying that ratio to the gross charges associated with providing care to charity patients for the period.
Currently,
several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers to offset a portion of the cost of providing care to Medicaid patients. These programs are designed with input from Centers for
Medicare and Medicaid Services and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Similar programs are also being considered by other states. After these
supplemental programs are signed into law, the Company recognizes revenue and related expenses in the period in which amounts are estimable and collection is reasonably assured. Reimbursement under these programs is reflected in net operating
revenues and fees, taxes or other program-related costs are reflected in other operating expenses.
Operating revenues, net of contractual
allowances and discounts (but before the provision for bad debts), recognized during the years ended December 31, 2016, 2015 and 2014, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Medicare
|
|
$
|
5,089
|
|
|
$
|
5,439
|
|
|
$
|
5,327
|
|
Medicaid
|
|
|
2,234
|
|
|
|
2,532
|
|
|
|
2,332
|
|
Managed Care and other third-party payors
|
|
|
11,354
|
|
|
|
11,816
|
|
|
|
11,109
|
|
Self-pay
|
|
|
2,598
|
|
|
|
2,777
|
|
|
|
2,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,275
|
|
|
$
|
22,564
|
|
|
$
|
21,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
. Accounts receivable are reduced by an allowance
for amounts that could become uncollectible in the future. Substantially all of the Companys receivables are related to providing healthcare services to patients at its hospitals and affiliated businesses.
The Company estimates the allowance for doubtful accounts by reserving a percentage of all self-pay accounts receivable without regard to
aging category, based on collection history, adjusted for expected recoveries and any anticipated changes in trends. The Companys ability to estimate the allowance for doubtful accounts is not impacted by not utilizing an aging of net accounts
receivable as the Company believes that substantially all of the risk exists at the point in time such accounts are identified as self-pay. For all other non-self-pay payor categories, the Company reserves an estimated amount on historical
collection rates for the uncontractualized portion of all accounts aging over 365 days from the date of discharge. These amounts represent an immaterial percentage of the outstanding accounts receivable. The percentage used to reserve for all
self-pay accounts is based on the Companys collection history. The Company collects substantially all of its third-party insured receivables, which include receivables from governmental agencies.
Collections are impacted by the economic ability of patients to pay and the effectiveness of the Companys collection efforts.
Significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the Companys collection of accounts receivable and the estimates of the
collectability of future accounts receivable and are considered in the Companys estimates of accounts receivable collectability. The Company also continually reviews its overall reserve adequacy by monitoring historical cash collections as a
percentage of trailing net revenue less provision for bad debts, as well as by analyzing current period net revenue and admissions by payor classification, aged accounts
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
receivable by payor, days revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of third-party insured receivables and
the impact of recent acquisitions and dispositions.
During the fourth quarter of 2015, the Company recorded $169 million of additional
provision for bad debts and a corresponding increase to the allowance for doubtful accounts. The additional amount was the result of new information obtained since the end of the third quarter of 2015 related to the deterioration in the overall
collectability of self-pay accounts receivable. As a result, the Company refined its estimate of the allowance for doubtful accounts and the additional amount was recorded as a change in estimate for the year ended December 31, 2015.
Electronic Health Records Incentive Reimbursement.
The federal government has implemented a number of
regulations and programs designed to promote the use of electronic health records (EHR) technology and, pursuant to the Health Information Technology for Economic and Clinical Health Act (HITECH), established requirements for
a Medicare and Medicaid incentive payments program for eligible hospitals and professionals that adopt and meaningfully use certified EHR technology. The Company utilizes a gain contingency model to recognize EHR incentive payments. Recognition
occurs when the eligible hospitals adopt or demonstrate meaningful use of certified EHR technology for the applicable payment period and have available the Medicare cost report information for the relevant full cost report year used to determine the
final incentive payment.
Medicaid EHR incentive payments are calculated based on prior period Medicare cost report information available
at the time when eligible hospitals adopt, implement, upgrade or demonstrate meaningful use of certified EHR technology. Since the information for the relevant full Medicare cost report year is available at the time of attestation, the incentive
income from resolving the gain contingency is recognized when eligible hospitals adopt, implement, upgrade or demonstrate meaningful use of certified EHR technology.
Medicare EHR incentive payments are calculated based on the Medicare cost report information for the full cost report year that began during
the federal fiscal year in which meaningful use is demonstrated. Since the necessary information is only available at the end of the relevant full Medicare cost report year and after the cost report is settled, the incentive income from resolving
the gain contingency is recognized when eligible hospitals demonstrate meaningful use of certified EHR technology and the information for the applicable full Medicare cost report year to determine the final incentive payment is available.
In some instances, the Company may receive estimated Medicare EHR incentive payments prior to when the Medicare cost report information used
to determine the final incentive payment is available. In these instances, recognition of the gain for EHR incentive payments is deferred until all recognition criteria described above are met.
Eligibility for annual Medicare incentive payments is dependent on providers successfully attesting to the meaningful use of EHR technology.
Medicaid incentive payments are available to providers in the first payment year that they adopt, implement or upgrade certified EHR technology; however, providers must demonstrate meaningful use of such technology in any subsequent payment years to
qualify for additional incentive payments. Medicaid EHR incentive payments are fully funded by the federal government and administered by the states; however, the states are not required to offer EHR incentive payments to providers.
The Company recognized approximately $70 million, $160 million and $259 million for the years ended December 31, 2016, 2015 and 2014,
respectively, of incentive reimbursement for HITECH incentives from Medicare and Medicaid related to certain of the Companys hospitals and for certain of the Companys employed physicians that have demonstrated meaningful use of certified
EHR technology or have completed attestations to their adoption or implementation of certified EHR technology. These incentive reimbursements are presented as a reduction of operating costs and expenses on the consolidated statements of (loss)
income. The Company
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
received cash related to the incentive reimbursement for HITECH incentives of approximately $123 million, $75 million and $253 million for the years ended December 31, 2016, 2015 and
2014, respectively. The Company recorded no deferred revenue in connection with the receipt of these cash payments at either December 31, 2016 or 2015.
Physician Income Guarantees
. The Company enters into physician recruiting agreements under which it supplements
physician income to a minimum amount over a period of time, typically one year, while the physicians establish themselves in the community. As part of the agreements, the physicians are committed to practice in the community for a period of time,
typically three years, which extends beyond their income guarantee period. The Company records an asset and liability for the estimated fair value of minimum revenue guarantees on new agreements. Adjustments to the ultimate value of the guarantee
paid to physicians are recognized in the period that the change in estimate is identified. The Company amortizes an asset over the life of the agreement. As of December 31, 2016 and 2015, the unamortized portion of these physician income
guarantees was $37 million and $47 million, respectively.
Concentrations of Credit Risk
. The Company grants
unsecured credit to its patients, most of whom reside in the service area of the Companys facilities and are insured under third-party payor agreements. Because of the economic diversity of the Companys facilities and non-governmental
third-party payors, Medicare represents the only significant concentration of credit risk from payors. Accounts receivable, net of contractual allowances, from Medicare was $402 million and $453 million at December 31, 2016 and 2015,
respectively, representing 6% of consolidated net accounts receivable, before allowance for doubtful accounts, for each of the years ended December 31, 2016 and 2015.
Accounting for the Impairment or Disposal of Long-Lived Assets.
During the year ended December 31, 2016,
the Company recorded a total impairment charge of $326 million to reduce the carrying value of certain hospitals that have been deemed held for sale based on the difference between the carrying value of the hospital disposal groups compared to
estimated fair value less costs to sell. Additionally, the Company recorded an impairment charge of approximately $270 million for several underperforming hospitals to their estimated fair value. The impairment charge for the year ended
December 31, 2016 also included approximately $19 million recorded on the sale or closure of certain of the Companys hospitals during the year based on the remaining net book value of the assets at the date of disposal. In total, the
Company recorded impairment charges of approximately $615 million on its long-lived assets other than the impairment charge taken on the hospital reporting unit goodwill that is further discussed in Note 5. Included in the carrying value of the
hospital disposal groups is an allocation of approximately $365 million of goodwill allocated from the hospital reporting unit goodwill based on a calculation of the disposal groups relative fair value compared to the total reporting unit.
During the year ended December 31, 2015, the Company recorded a pretax impairment charge of approximately $68 million related to the
write-off of approximately $6 million of allocated reporting unit goodwill for Payson Regional Medical Center and $62 million for the impairment of certain long-lived assets for several smaller hospitals to their estimated fair value. During the
year ended December 31, 2014, the Company recorded a pretax impairment charge of $17 million to reduce the carrying value of certain long-lived assets at three of its smaller hospitals to their estimated fair value. The impairments for 2016,
2015 and 2014 were identified because of declining operating results and projections of future cash flows at these hospitals caused by competitive and operational challenges specific to the markets in which these hospitals operate.
Income Taxes.
The Company accounts for income taxes under the asset and liability method, in which deferred
income tax assets and liabilities are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in the consolidated statement of (loss) income during the period in which the tax rate change becomes law.
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Comprehensive (Loss) Income
. Comprehensive (loss) income is the
change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
Segment Reporting
. A public company is required to report annual and interim financial and descriptive
information about its reportable operating segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Aggregation of similar operating segments into a single reportable operating segment is permitted if the businesses have similar economic characteristics and meet the criteria
established by U.S. GAAP.
The Company operated in two distinct operating segments during 2016, represented by the hospital operations
(which includes the Companys acute care hospitals and related healthcare entities that provide inpatient and outpatient healthcare services) and the home care agencies operations (which provide in-home outpatient care). U.S. GAAP requires
(1) that financial information be disclosed for operating segments that meet a 10% quantitative threshold of the consolidated totals of net revenue, profit or loss, or total assets; and (2) that the individual reportable segments disclosed
contribute at least 75% of total consolidated net revenue. Based on these measures, only the hospital operations segment meets the criteria as a separate reportable segment. Financial information for the home care agencies segment does not meet the
quantitative thresholds and is therefore combined with corporate into the all other reportable segment. Additionally, as discussed in Note 3, on December 31, 2016, the Company sold 80% of its ownership interest in the home care segment.
Derivative Instruments and Hedging Activities
. The Company records derivative instruments on the consolidated
balance sheet as either an asset or liability measured at its fair value. Changes in a derivatives fair value are recorded each period in earnings or other comprehensive income (OCI), depending on whether the derivative is
designated and is effective as a hedged transaction, and on the type of hedge transaction. Changes in the fair value of derivative instruments recorded to OCI are reclassified to earnings in the period affected by the underlying hedged item. Any
portion of the fair value of a derivative instrument determined to be ineffective under the standard is recognized in current earnings.
The Company has entered into several interest rate swap agreements. See Note 8 for further discussion about the swap transactions.
New Accounting Pronouncements.
In May 2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2014-09, which outlines a single comprehensive model for recognizing revenue and supersedes most existing revenue recognition guidance, including guidance specific to the healthcare industry. This ASU
provides companies the option of applying a full or modified retrospective approach upon adoption. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted for annual periods beginning after
December 15, 2016. The Company expects to adopt this ASU on January 1, 2018 and is currently developing its plan for adoption and the impact on its revenue recognition policies, procedures and control framework and the resulting impact on
its consolidated financial position, results of operations and cash flows. An implementation group for this ASU has been established with an implementation plan to transition to the new standard and determine its impact during 2017. Additionally,
the Company plans to elect to apply the full retrospective approach upon adoption.
In April 2015, the FASB issued ASU 2015-03, which
requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with the accounting for debt discounts. The ASU did not change
the measurement or recognition guidance for debt issuance costs. This ASU is effective for fiscal years beginning after December 31, 2015. The Company adopted this ASU on January 1, 2016, which resulted in the reclassification of
approximately
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$266 million of debt issuance costs from other long-term assets to a reduction of the related long-term debt. The adoption of this ASU was applied retroactively to all periods presented, and
had no impact on the Companys results of operations or cash flows.
In November 2015, the FASB issued ASU 2015-17, which amended the
balance sheet classification requirements for deferred income taxes to simplify their presentation in the statement of financial position. The ASU requires that deferred tax liabilities and assets be classified as noncurrent in a classified
statement of financial position. This ASU is effective for fiscal years beginning after December 31, 2016, with early adoption permitted. The Company early adopted the provisions of this ASU for the presentation and classification of its
deferred tax assets at December 31, 2015. The effect of this change primarily resulted in the current portion of deferred income taxes at December 31, 2015 being included in the noncurrent deferred income tax liability.
In January 2016, the FASB issued ASU 2016-01, which amends the measurement, presentation and disclosure requirements for equity investments,
other than those accounted for under the equity method or that require consolidation of the investee. The ASU eliminates the classification of equity investments as available-for-sale with any changes in fair value of such investments recognized in
other comprehensive income, and requires entities to measure equity investments at fair value, with any changes in fair value recognized in net income. This ASU is effective for fiscal years beginning after December 15, 2017, with early
adoption permitted. The Company expects to adopt this ASU on January 1, 2018, and is currently evaluating the impact that adoption of this ASU will have on its consolidated financial position and results of operations.
In February 2016, the FASB issued ASU 2016-02, which amends the accounting for leases, requiring lessees to recognize most leases on their
balance sheet with a right-of-use asset and a lease liability. Leases will be classified as either finance or operating leases, which will impact the expense recognition of such leases over the lease term. The ASU also modifies the lease
classification criteria for lessors and eliminates some of the real estate leasing guidance previously applied for certain leasing transactions. This ASU is effective for fiscal years beginning after December 15, 2018, with early adoption
permitted. The Company expects to adopt this ASU on January 1, 2019. Because of the number of leases the Company utilizes to support its operations, the adoption of this ASU is expected to have a significant impact on the Companys
consolidated financial position and results of operations. Management is currently evaluating the extent of this anticipated impact on the Companys consolidated financial position and results of operations, and the quantitative and qualitative
factors that will impact the Company as part of the adoption of this ASU, as well as any changes to its leasing strategy that may occur because of the changes to the accounting and recognition of leases.
In March 2016, the FASB issued ASU 2016-09, which was issued to simplify some of the accounting guidance for share-based compensation. Among
the areas impacted by the amendments in this ASU is the accounting for income taxes related to share-based payments, accounting for forfeitures, classification of awards as equity or liabilities, and classification on the statement of cash flows.
This ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company expects to adopt this ASU on January 1, 2017. Management is currently evaluating the impact that the adoption of this ASU
will have on its consolidated financial position, results of operations and cash flows. Because of the decline in the Companys stock price within the last year, the principal impact from adopting this ASU will be an increase in the
Companys provision for income taxes due to the deficiency in income taxes recorded for book purposes over the vesting of the outstanding share-based awards compared to the actual tax deduction that will be recognized upon vesting.
In January 2017, the FASB issued ASU 2017-04, which simplifies the accounting for goodwill impairment by eliminating step two from the
goodwill impairment test. Instead of a two-step impairment model, if the carrying amount of a reporting unit exceeds its fair value as determined in step one of the impairment test, an impairment loss is measured at the amount equal to that excess,
limited to the total amount of goodwill allocated to that
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reporting unit. This ASU is effective for any interim or annual impairment tests for fiscal years beginning after December 15, 2019, with early adoption permitted. As noted in the
Companys critical accounting policy discussion on goodwill, during the fourth quarter of 2016 the Company performed its annual goodwill impairment analysis. While the result of the step two valuation in that analysis did not indicate an
impairment of goodwill, the initial calculation of reporting unit fair value in the step one test indicated that the carrying amount of the hospital reporting unit exceeded its fair value by approximately $800 million. Depending on future changes in
fair value and the impact of allocated goodwill for planned divestitures, at adoption there could be a material impairment charge recorded for this excess amount. The Company is evaluating whether to early adopt this ASU and what impact it will have
on its consolidated financial position and results of operations.
2. ACCOUNTING FOR STOCK-BASED COMPENSATION
Stock-based compensation awards have been granted under the Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award
Plan, amended and restated as of March 20, 2013 (the 2000 Plan), and the Community Health Systems, Inc. Amended and Restated 2009 Stock Option and Award Plan, which was amended and restated as of March 16, 2016 and approved by
the Companys stockholders at the annual meeting of stockholders held on May 17, 2016 (the 2009 Plan).
The 2000
Plan allowed for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (the IRC), as well as stock options which do not so qualify, stock appreciation rights, restricted stock,
restricted stock units, performance-based shares or units and other share awards. Prior to being amended in 2009, the 2000 Plan also allowed for the grant of phantom stock. Persons eligible to receive grants under the 2000 Plan include the
Companys directors, officers, employees and consultants. All options granted under the 2000 Plan have been nonqualified stock options for tax purposes. Generally, vesting of these granted options occurs in one-third increments on
each of the first three anniversaries of the award date. Options granted prior to 2005 have a 10-year contractual term, options granted in 2005 through 2007 have an eight-year contractual term and options granted in 2008 through 2011 have a 10-year
contractual term. The Company has not granted stock option awards under the 2000 Plan since 2011. Pursuant to the amendment and restatement of the 2000 Plan dated March 20, 2013, no further grants will be awarded under the 2000 Plan.
The 2009 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the IRC and for the grant of
stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Persons eligible to receive grants under the 2009 Plan include the Companys
directors, officers, employees and consultants. To date, all options granted under the 2009 Plan have been nonqualified stock options for tax purposes. Generally, vesting of these granted options occurs in one-third increments on each of
the first three anniversaries of the award date. Options granted in 2011 or later have a 10-year contractual term. The amendment and restatement of the 2009 Plan, as approved by the Companys stockholders at the 2016 Annual Meeting,
increased the number of shares of common stock available for grant under the 2009 Plan by an additional 5,000,000 shares. As of December 31, 2016, 5,960,188 shares of unissued common stock were reserved for future grants under the 2009 Plan.
The exercise price of all options granted under the 2000 Plan and the 2009 Plan has been equal to the fair value of the Companys
common stock on the option grant date.
111
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table reflects the impact of total compensation expense related to stock-based
equity plans on the reported operating results for the respective periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Effect on (loss) income from continuing operations before income taxes
|
|
$
|
(46)
|
|
|
$
|
(59)
|
|
|
$
|
(54)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on net (loss) income
|
|
$
|
(27)
|
|
|
$
|
(35)
|
|
|
$
|
(34)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, $32 million of unrecognized stock-based compensation expense related to
outstanding unvested restricted stock and restricted stock units (the terms of which are summarized below) was expected to be recognized over a weighted-average period of 19 months. There is no expense to be recognized related to stock options.
There were no modifications to awards during the years ended December 31, 2016 and 2015, other than those required by the Employee Matters Agreement (EMA) entered into as part of the spinoff of Quorum Health Corporation
(QHC), as further discussed below.
Options outstanding and exercisable under the 2000 Plan and the 2009 Plan as of
December 31, 2016, and changes during each of the years in the three-year period prior to December 31, 2016, were as follows (in millions, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value as of
December 31,
2016
|
|
Outstanding at December 31, 2013
|
|
|
3,737,545
|
|
|
$
|
34.88
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,768,473
|
)
|
|
|
37.06
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(15,345
|
)
|
|
|
29.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
1,953,727
|
|
|
|
32.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(711,568
|
)
|
|
|
35.15
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(10,001
|
)
|
|
|
34.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
1,232,158
|
|
|
|
31.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(46,838
|
)
|
|
|
27.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
1,185,320
|
|
|
$
|
28.12
|
|
|
|
3.0 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
1,185,320
|
|
|
$
|
28.12
|
|
|
|
3.0 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average exercise prices in the table above for periods prior to the April 29, 2016 spin-off
of QHC reflect the historical prices at those dates. No stock options were granted during the years ended
112
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016, 2015 and 2014. The aggregate intrinsic value (calculated as the number of in-the-money stock options multiplied by the difference between the Companys closing stock
price on the last trading day of the reporting period ($5.59) and the exercise price of the respective stock options) in the table above represents the amount that would have been received by the option holders had all option holders exercised their
options on December 31, 2016. This amount changes based on the market value of the Companys common stock. There were no options exercised during the year ended December 31, 2016. The aggregate intrinsic value of options exercised
during the years ended December 31, 2015 and 2014 was $9 million and $22 million, respectively. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.
In accordance with the terms of the EMA, on April 29, 2016, the exercise prices of all stock options outstanding as of that date were
modified to reflect the reduction in the Companys stock price that occurred as a result of the distribution of QHC to the Companys stockholders in order to maintain a consistent intrinsic value before and following the QHC distribution.
There were no other modifications to the term or number of the outstanding options. The Company evaluated the fair value of the stock options immediately before and after the exercise price modification, and concluded that no incremental stock
compensation expense should be recorded.
The Company has also awarded restricted stock under the 2000 Plan and the 2009 Plan to its
directors and employees of certain subsidiaries. The restrictions on these shares generally lapse in one-third increments on each of the first three anniversaries of the award date. Certain of the restricted stock awards granted to the
Companys senior executives contain a performance objective that must be met in addition to any time-based vesting requirements. If the performance objective is not attained, the awards will be forfeited in their entirety. Once the performance
objective has been attained, restrictions will lapse in one-third increments on each of the first three anniversaries of the award date. In addition, 835,000 restricted stock awards granted March 1, 2014 had a performance objective that was
measured based on the realization of synergies related to the acquisition of Health Management Associates, Inc. (HMA) over a two-year period that began on February 1, 2014. The performance objective could be met in part in the first
year or in whole or in part over such two-year period. Depending on the degree of attainment of the performance objective, restrictions would lapse on a portion of the award grant over the first three anniversaries of the award date at a level
dependent upon the amount of synergies realized. If the synergies related to the HMA merger had not reached a certain level, then the awards would have been forfeited in their entirety. Based on the synergy levels attained in the first annual
measurement period ended on January 31, 2015, the performance objective for the first measurement period was met, and one-third of the awards vested on March 1, 2015. Based on the synergy levels attained in the second annual measurement
period ended on January 31, 2016, the performance objective for the second measurement period was also met, so the full amount of each award has been earned and one-third of the awards vested on March 1, 2016. The remaining one-third of
each award will vest on March 1, 2017. Notwithstanding the above-mentioned performance objectives and vesting requirements, the restrictions with respect to restricted stock granted under the 2000 Plan and the 2009 Plan will lapse earlier in
the event of death, disability or termination of employment by the Company for any reason other than for cause of the holder of the restricted stock, or change in control of the Company. Restricted stock awards subject to performance standards that
have not yet been satisfied are not considered outstanding for purposes of determining earnings per share until the performance objectives have been satisfied.
On April 29, 2016, the Company cancelled 106,005 restricted stock awards from the March 1, 2016 grant that were held by former
employees whose employment with the Company terminated as the result of commencing employment with QHC in connection with the spin-off. This cancellation did not include the issuance of replacement awards by the Company. As a result, the Company
recorded approximately $2 million of compensation expense related to the unrecognized stock compensation expense for those awards at the cancellation date. This expense is recorded as part of the costs related to the spin-off of QHC presented in
other operating expenses on the accompanying consolidated statement of (loss) income for the year ended December 31, 2016.
113
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted stock outstanding under the 2000 Plan and the 2009 Plan as of December 31,
2016, and changes during each of the years in the three-year period prior to December 31, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Unvested at December 31, 2013
|
|
|
1,607,489
|
|
|
$
|
35.13
|
|
Granted
|
|
|
2,011,000
|
|
|
|
41.35
|
|
Vested
|
|
|
(846,818
|
)
|
|
|
34.60
|
|
Forfeited
|
|
|
(11,032
|
)
|
|
|
37.37
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2014
|
|
|
2,760,639
|
|
|
|
39.82
|
|
Granted
|
|
|
1,254,500
|
|
|
|
47.69
|
|
Vested
|
|
|
(1,156,226
|
)
|
|
|
37.61
|
|
Forfeited
|
|
|
(13,334
|
)
|
|
|
41.32
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2015
|
|
|
2,845,579
|
|
|
|
44.18
|
|
Granted
|
|
|
1,611,049
|
|
|
|
14.11
|
|
Vested
|
|
|
(1,343,003
|
)
|
|
|
43.39
|
|
Forfeited
|
|
|
(144,340
|
)
|
|
|
19.99
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016
|
|
|
2,969,285
|
|
|
|
29.39
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units (RSUs) have been granted to the Companys outside directors under the
2000 Plan and the 2009 Plan. On March 1, 2014, each of the Companys outside directors received a grant under the 2009 Plan of 3,614 RSUs. On March 1, 2015, each of the Companys outside directors received a grant under the 2009
Plan of 3,504 RSUs. On March 1, 2016, each of the Companys outside directors received a grant under the 2009 Plan of 11,017 RSUs. Both the 2015 and 2016 grants had a grant date fair value of approximately $170,000. The 2014 grants had a
grant date fair value of approximately $150,000. Vesting of these RSUs occurs in one-third increments on each of the first three anniversaries of the award date.
In connection with the spin-off of QHC, holders of outstanding RSUs were credited with a total of 22,021 incremental RSUs at a ratio
calculated to maintain a consistent intrinsic value before and following the QHC distribution. There were no other changes to the awards and the incremental RSUs will vest in accordance with the initial vesting period of the corresponding original
award.
114
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
RSUs outstanding under the 2000 Plan and the 2009 Plan as of December 31, 2016, and
changes during each of the years in the three-year period prior to December 31, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Unvested at December 31, 2013
|
|
|
55,536
|
|
|
$
|
31.33
|
|
Granted
|
|
|
21,684
|
|
|
|
41.51
|
|
Vested
|
|
|
(27,858
|
)
|
|
|
30.87
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2014
|
|
|
49,362
|
|
|
|
36.07
|
|
Granted
|
|
|
21,024
|
|
|
|
47.70
|
|
Vested
|
|
|
(27,708
|
)
|
|
|
31.76
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2015
|
|
|
42,678
|
|
|
|
44.59
|
|
Granted
|
|
|
99,140
|
|
|
|
16.90
|
|
Vested
|
|
|
(21,432
|
)
|
|
|
43.87
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016
|
|
|
120,386
|
|
|
|
22.06
|
|
|
|
|
|
|
|
|
|
|
3. ACQUISITIONS AND DIVESTITURES
Acquisitions
The Company accounts
for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity are recognized and measured
at their fair values on the date the Company obtains control in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts. Adjustments to these
provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has
been obtained, limited to one year from the acquisition date) are recorded as of the date of acquisition. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets
acquired.
Excluding acquisition and integration expenses related to the 2014 acquisition of HMA, approximately $5 million, $8 million
and $13 million of acquisition costs related to prospective and closed acquisitions were expensed during the years ended December 31, 2016, 2015 and 2014, respectively, are included in other operating expenses on the consolidated statements of
(loss) income. Approximately $1 million and $69 million of acquisition and related integration expense related to the HMA acquisition were recognized during the years ended December 31, 2015 and 2014, respectively.
On April 1, 2016, one or more subsidiaries of the Company completed the acquisition of an 80% interest in Physicians Specialty
Hospital (20 licensed beds), a Medicare-certified specialty surgical hospital in Fayetteville, Arkansas. The total cash consideration paid for the 80% ownership interest in this joint venture was approximately $12 million, with additional
consideration of $2 million assumed in liabilities, for a total consideration of $14 million. The value of the noncontrolling interest at acquisition was $2 million. Based upon the Companys final purchase price allocation relating to this
acquisition as of December 31, 2016, approximately $12 million of goodwill has been recorded.
115
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On March 1, 2016, one or more subsidiaries of the Company completed the acquisition of
an 80% ownership interest in a joint venture entity with Indiana University Health that includes substantially all of the assets of IU Health La Porte Hospital (La Porte) in La Porte, Indiana (227 licensed beds) and IU Health Starke
Hospital (Starke) in Knox, Indiana (50 licensed beds), and affiliated outpatient centers and physician practices. The total cash consideration paid for the 80% ownership interest in this joint venture was approximately $96 million with
additional consideration of $8 million assumed in liabilities, for a total consideration of $104 million. The value of the noncontrolling interest at acquisition was $25 million. Based upon the Companys final purchase price allocation relating
to this acquisition as of December 31, 2016, approximately $45 million of goodwill has been recorded.
Effective November 1,
2014, the Company entered into and closed on a restructuring agreement related to the joint venture between an affiliate of the Company and an affiliate of Novant Health, Inc. (Novant), the
non-profit
joint venture partner. Through this joint venture, Novant owned an indirect noncontrolling interest in Lake Norman Regional Medical Center (Lake Norman), one of the former HMA hospitals.
The HMA merger triggered a change in control provision in the operating agreement of this joint venture, requiring the Company to purchase the 30% noncontrolling interest in Lake Norman held by Novant for the higher of fair value or $150 million. As
part of the restructuring agreement, on November 3, 2014, the Company paid Novant (1) $150 million for its 30% noncontrolling interest in Lake Norman, (2) approximately $4 million to acquire Upstate Carolina Medical Center (125
licensed beds) in Gaffney, South Carolina, and (3) approximately $5 million to settle prior claims with Novant. The amounts paid to Novant to acquire the noncontrolling interest in Lake Norman and to settle prior claims were recognized as part
of the opening balance sheet in the purchase accounting for HMA. Based upon the Companys final purchase price allocation relating to this acquisition as of December 31, 2015, no goodwill has been recorded related to the acquisition of
Upstate Carolina Medical Center.
On October 1, 2014, one or more subsidiaries of the Company completed the acquisition of Natchez
Regional Medical Center (179 licensed beds) in Natchez, Mississippi. The total cash consideration paid at closing for
long-lived
assets was $10 million. As part of the closing, the Company also paid $8 million
as a prepayment for future property taxes that will be applied to the tax liability for the next 17 years. Based upon the Companys final purchase price allocation relating to this acquisition as of December 31, 2015, no goodwill has been
recorded.
Effective April 1, 2014, one or more subsidiaries of the Company completed the acquisition of Sharon Regional Health
System in Sharon, Pennsylvania. This healthcare system includes Sharon Regional (258 licensed beds) and other outpatient and ancillary services. The total cash consideration paid for long-lived assets and working capital was approximately $67
million and $1 million, respectively, with additional consideration of $9 million assumed in liabilities, for a total consideration of $77 million. Based upon the Companys final purchase price allocation relating to this acquisition as of
December 31, 2015, approximately $8 million of goodwill has been recorded.
Effective April 1, 2014, one or more subsidiaries of
the Company completed the acquisition of a 95% interest in Munroe Regional Medical Center (421 licensed beds) in Ocala, Florida and its other outpatient and ancillary services through a joint venture arrangement with an affiliate of a regional
not-for-profit healthcare system, which acquired the remaining 5% interest. The total cash consideration paid for long-lived assets plus prepaid rent on the leased property and working capital was approximately $192 million and $4 million,
respectively, with additional consideration of $11 million assumed in liabilities, for a total consideration of $207 million. The value of the noncontrolling interest at acquisition was $10 million. Based upon the Companys final purchase price
allocation relating to this acquisition as of December 31, 2015, approximately $11 million of goodwill has been recorded.
116
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below summarizes the allocations of the purchase price (including assumed
liabilities) for the above hospital acquisition transactions (excluding HMA) in 2016 and 2014 (in millions) and reflects the fact that there were no hospital acquisitions in 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current assets
|
|
$
|
7
|
|
|
|
N/A
|
|
|
$
|
29
|
|
Property and equipment
|
|
|
69
|
|
|
|
N/A
|
|
|
|
257
|
|
Goodwill
|
|
|
57
|
|
|
|
N/A
|
|
|
|
19
|
|
Intangible assets
|
|
|
10
|
|
|
|
N/A
|
|
|
|
-
|
|
Other long-term assets
|
|
|
3
|
|
|
|
N/A
|
|
|
|
28
|
|
Liabilities
|
|
|
(10
|
)
|
|
|
N/A
|
|
|
|
(46
|
)
|
Noncontrolling interests
|
|
|
(28
|
)
|
|
|
N/A
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable net assets
|
|
$
|
108
|
|
|
|
N/A
|
|
|
$
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The operating results of the foregoing transactions have been included in the accompanying consolidated
statements of (loss) income from their respective dates of acquisition, including net operating revenues of $214 million for the year ended December 31, 2016, from hospital acquisitions that closed during that year.
HMA Merger
On January 27, 2014,
the Company completed the HMA merger by acquiring all the outstanding shares of HMAs common stock for approximately $7.3 billion, including the assumption of approximately $3.8 billion of existing indebtedness, for consideration for each share
of HMAs common stock consisting of $10.50 in cash, 0.06942 of a share of the Companys common stock, and one contingent value right (CVR). The CVR entitles the holder to receive a cash payment of up to $1.00 per CVR (subject
to downward adjustment but not below zero), subject to the final resolution of certain legal matters pertaining to HMA, as defined in the CVR agreement. At the time of the completion of the HMA merger, HMA owned and operated 71 hospitals in
15 states in non-urban communities located primarily in the southeastern United States.
In connection with the HMA merger, the
Company and CHS/Community Health Systems, Inc. (CHS) entered into a third amendment and restatement of its credit facility, providing for additional financing and recapitalization of certain of the Companys term loans. In addition,
the Company and CHS also issued in connection with the HMA merger: (i) $1.0 billion aggregate principal amount of 5.125% Senior Secured Notes due 2021 and (ii) $3.0 billion aggregate principal amount of 6.875% Senior Notes due 2022.
The total consideration of the HMA merger has been allocated to the assets acquired and liabilities assumed based upon their respective fair
values, resulting in approximately $4.5 billion of goodwill resulting from the final purchase price allocation at December 31, 2014. The purchase price represented a premium over the fair value of the net tangible and identifiable intangible
assets acquired for reasons such as:
|
|
|
the expansion of the number of markets in which the Company operates in existing states;
|
|
|
|
the extension and strengthening of the Companys hospital and physician networks;
|
|
|
|
the centralization of many support functions; and
|
|
|
|
the elimination of duplicate corporate functions.
|
117
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below summarizes the calculation of consideration paid and allocations of the
purchase price (including assumed liabilities and long-term debt assumed and repaid at closing) for the HMA merger (in millions):
|
|
|
|
|
Cash paid
|
|
$
|
2,778
|
|
Shares issued
|
|
|
736
|
|
Contingent value right
|
|
|
17
|
|
|
|
|
|
|
Total consideration
|
|
$
|
3,531
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
1,519
|
|
Property and equipment
|
|
|
2,895
|
|
Goodwill
|
|
|
4,494
|
|
Intangible assets
|
|
|
112
|
|
Other long-term assets
|
|
|
508
|
|
Liabilities
|
|
|
(5,662
|
)
|
Noncontrolling interests
|
|
|
(335
|
)
|
|
|
|
|
|
Total identifiable net assets
|
|
$
|
3,531
|
|
|
|
|
|
|
The allocation process requires the analysis of acquired fixed assets, contracts, contractual commitments, and
legal contingencies to identify and record the fair value of all assets acquired and liabilities assumed. All goodwill related to HMA is recorded in the hospital operations reporting unit.
Net operating revenues and income from continuing operations before income taxes and allocation of both interest and corporate overhead from
hospitals acquired from HMA from the date of acquisition through December 31, 2014 was approximately $5.3 billion and $564 million, respectively.
Other Acquisitions
During the
years ended December 31, 2016, 2015 and 2014, one or more subsidiaries of the Company paid approximately $16 million, $51 million and $29 million, respectively, to acquire the operating assets and related businesses of certain physician
practices, clinics and other ancillary businesses that operate within the communities served by the Companys affiliated hospitals. In connection with these acquisitions, during the year ended December 31, 2016, the Company allocated
approximately $8 million of the consideration paid to property and equipment and net working capital and the remainder, approximately $14 million consisting of intangible assets that do not qualify for separate recognition, to goodwill. The value of
the noncontrolling interest recorded in these acquisitions was $6 million. During 2015, the Company allocated approximately $19 million of the consideration paid to property and equipment and net working capital and the remainder, approximately $39
million consisting of intangible assets that do not qualify for separate recognition, to goodwill. The value of noncontrolling interest acquired in these acquisitions was $7 million. During 2014, the Company allocated approximately $15 million of
the consideration paid to property and equipment and net working capital and the remainder, approximately $14 million consisting of intangible assets that do not qualify for separate recognition, to goodwill.
Divestitures
In April 2014, FASB
issued ASU 2014-08, which changes the requirements for reporting discontinued operations. A discontinued operation is a disposal that represents a strategic shift that has (or will have) a major effect on an entitys operations and financial
results. Additional disclosures are required for significant
118
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
components of the entity that are disposed of or are held for sale but do not qualify as discontinued operations. This ASU was adopted on January 1, 2015 and is required to be applied on a
prospective basis for disposals or components initially classified as held for sale after adoption. As a result, the following divestitures occurring subsequent to the date of adoption are included in continuing operations for the years ended
December 31, 2016 and 2015. Additionally, the impact of the hospitals and other assets spun off to QHC are discussed in Note 4 below.
On December 31, 2016, one or more subsidiaries of the Company sold an 80% majority ownership interest in the home care division to a
subsidiary of Almost Family, Inc. for $128 million. In connection with the divestiture of a controlling interest in the home care division, the Company recorded a gain of approximately $91 million during the year ended December 31, 2016.
Effective September 3, 2016, one or more subsidiaries of the Company finalized an agreement to terminate the lease and cease operations
of Alliance Health Blackwell (53 licensed beds) in Blackwell, Oklahoma, agreeing to terminate the lease with the landlord, The Blackwell Hospital Trust Authority. Income from continuing operations for the year ended December 31, 2016 includes
an impairment charge of approximately $3 million related to the write-off of certain intangible assets abandoned as part of exiting the lease to operate this hospital.
Effective February 1, 2016, one or more subsidiaries of the Company sold Lehigh Regional Medical Center (88 licensed beds) in Lehigh
Acres, Florida, (Lehigh) and related outpatient services to Prime Healthcare Services, Inc. (Prime) for approximately $11 million in cash. In connection with the divestiture of Lehigh, the Company recorded an impairment
charge of approximately $4 million related to the allocated hospital reporting unit goodwill in 2016.
Effective January 1, 2016, one
or more subsidiaries of the Company sold Bartow Regional Medical Center (72 licensed beds) in Bartow, Florida, (Bartow) and related outpatient services to BayCare Health Systems, Inc. for approximately $60 million in cash, which was
received at a preliminary closing on December 31, 2015. In connection with the divestiture of Bartow, the Company recorded an impairment charge of approximately $5 million related to the allocated hospital reporting unit goodwill in 2016.
Effective July 31, 2015, one or more subsidiaries of the Company sold certain assets used in the operation of Payson Regional
Medical Center (44 licensed beds) in Payson, Arizona (Payson) to Banner Health for approximately $20 million in cash. The Company previously operated Payson under the terms of an operating lease with Mogollon Health Alliance, Inc., an
Arizona nonprofit corporation, that expired on July 31, 2015. The lease termination and sale closed effective July 31, 2015.
The financial results included in discontinued operations for divestitures or hospitals held for sale at December 31, 2014, prior to the
Companys adoption of ASU 2014-08, are summarized below.
During the three months ended June 30, 2015, one or more subsidiaries
of the Company finalized an agreement to terminate the lease and cease operations of Fallbrook Hospital (47 licensed beds) in Fallbrook, California. In agreeing to terminate the lease, the Company received approximately $3 million in cash from the
Fallbrook Healthcare District, as the landlord, as consideration for certain operating assets of the hospital.
Effective April 1,
2015, one or more subsidiaries of the Company sold Chesterfield General Hospital (59 licensed beds) in Cheraw, South Carolina and Marlboro Park Hospital (102 licensed beds) in Bennettsville, South Carolina and related outpatient services to M/C
Healthcare, LLC for approximately $4 million in cash.
Effective March 1, 2015 one or more subsidiaries of the Company sold Dallas
Regional Medical Center (202 licensed beds) in Mesquite, Texas to Prime for approximately $25 million in cash.
119
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective March 1, 2015 one or more subsidiaries of the Company sold Riverview Regional
Medical Center (281 licensed beds) in Gadsden, Alabama to Prime for approximately $25 million in cash. This hospital was required to be divested by the Federal Trade Commission as a condition of its approval of the HMA merger.
Effective February 1, 2015, one or more subsidiaries of the Company sold Harris Hospital (133 licensed beds) in Newport, Arkansas and
related healthcare services to White County Medical Center in Searcy, Arkansas for approximately $5 million in cash.
Effective
January 1, 2015, one or more subsidiaries of the Company sold Carolina Pines Regional Medical Center (116 licensed beds) in Hartsville, South Carolina and related outpatient services to Capella Healthcare for approximately $74 million in cash,
which was received at the closing on December 31, 2014. This hospital was required to be divested by the Federal Trade Commission as a condition of its approval of the HMA merger.
On November 3, 2014, one or more subsidiaries of the Company sold Special Care Hospital (67 licensed beds) located in Nanticoke,
Pennsylvania, which is a long-term acute care hospital, to Post Acute Medical, LLC for approximately $3 million in cash.
During the year
ended December 31, 2014, the Company made the decision to sell and began actively marketing several smaller hospitals. In addition, HMA entered into a definitive agreement to sell Williamson Memorial Hospital (76 licensed beds) located in
Williamson, West Virginia prior to the HMA merger, and the Company has continued the effort to divest this facility. In connection with managements decision to sell these hospitals and the sale of the seven hospitals (excluding Payson) noted
above during 2015, the Company has classified the results of operations of such hospitals as discontinued operations in the accompanying consolidated statements of (loss) income, and classified these hospitals as held for sale in the accompanying
consolidated balance sheets.
Net operating revenues and loss from discontinued operations for the respective periods are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net operating revenues
|
|
$
|
99
|
|
|
$
|
114
|
|
|
$
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale before income taxes
|
|
|
(11
|
)
|
|
|
(42
|
)
|
|
|
(11
|
)
|
Impairment of hospitals sold or held for sale
|
|
|
(12
|
)
|
|
|
(8
|
)
|
|
|
(71
|
)
|
Loss on sale, net
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, before taxes
|
|
|
(23
|
)
|
|
|
(56
|
)
|
|
|
(82
|
)
|
Income tax benefit
|
|
|
(8
|
)
|
|
|
(20
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
$
|
(15
|
)
|
|
$
|
(36
|
)
|
|
$
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense was allocated to discontinued operations based on sale proceeds available for debt repayment.
Other Hospital Closures
During the three months ended March 31, 2016, the Company announced the planned closure of McNairy Regional Hospital in Selmer,
Tennessee. The Company recorded an impairment charge of approximately $7 million during the three months ended March 31, 2016, to adjust the fair value of the supplies inventory and
120
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
long-lived assets of this hospital, including property and equipment and capitalized software costs, based on their estimated fair value and future utilization. McNairy Regional Hospital closed
on May 19, 2016. No additional impairment was recorded during the year ended December 31, 2016.
4. SPIN-OFF OF QUORUM HEALTH
CORPORATION
On April 29, 2016, the Company completed the spin-off of 38 hospitals and Quorum Health Resources, LLC into Quorum
Health Corporation, an independent, publicly traded corporation. The transaction was structured to be generally tax free to the Company and its stockholders. The Company distributed, on a pro rata basis, all of the shares of QHC common stock to the
Companys stockholders of record as of April 22, 2016. These stockholders of record as of April 22, 2016 received a distribution of one share of QHC common stock for every four shares of Company common stock held as of the record date
plus cash in lieu of any fractional shares. In recognition of the spin-off, the Company recorded a non-cash dividend of approximately $713 million during the year ended December 31, 2016, representing the net assets of QHC distributed to the
Companys stockholders. Immediately following the completion of the spin-off, the Companys stockholders owned 100% of the outstanding shares of QHC common stock. Following the spin-off, QHC became an independent public company with its
common stock listed for trading under the symbol QHC on the New York Stock Exchange.
In connection with the spin-off, the
Company and QHC entered into a separation and distribution agreement as well as certain ancillary agreements on April 29, 2016. These agreements allocate between the Company and QHC the various assets, employees, liabilities and obligations
(including investments, property and employee benefits and tax-related assets and liabilities) that comprise the separate companies and govern certain relationships between, and activities of, the Company and QHC for a period of time after the
spin-off.
The results of operations for QHC through the date of the spin-off are presented in continuing operations in the consolidated
statements of (loss) income as the Company has determined that the spin-off of QHC does not meet the criteria as discontinued operations under ASU 2014-08.
Financial and statistical data reported in this Annual Report on Form 10-K (Form 10-K) include QHC operating results through
April 29, 2016. Summary financial results of QHC for the periods included in the accompanying consolidated statements of (loss) income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
(Loss) income from operations before income taxes
|
|
$
|
(12
|
)
|
|
$
|
21
|
|
|
$
|
14
|
|
Less: Income attributable to noncontrolling interests
|
|
|
1
|
|
|
|
3
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income taxes attributable to Community Health Systems,
Inc.
|
|
$
|
(13
|
)
|
|
$
|
18
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the
carrying amount of goodwill for the years ended December 31, 2016 and 2015 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance, beginning of year
|
|
$
|
8,965
|
|
|
$
|
8,951
|
|
Goodwill acquired as part of acquisitions during current year
|
|
|
71
|
|
|
|
39
|
|
Consideration and purchase price allocation adjustments for prior years acquisitions and
other adjustments
|
|
|
-
|
|
|
|
11
|
|
Goodwill allocated to QHC in the spin-off
|
|
|
(709
|
)
|
|
|
-
|
|
Goodwill in the home care operations reporting unit included in the sale of a majority interest in
the home care division
|
|
|
(46
|
)
|
|
|
-
|
|
Goodwill allocated to hospitals held for sale
|
|
|
(365
|
)
|
|
|
(36
|
)
|
Impairment of goodwill
|
|
|
(1,395
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
6,521
|
|
|
$
|
8,965
|
|
|
|
|
|
|
|
|
|
|
Goodwill is allocated to each identified reporting unit, which is defined as an operating segment or one level
below the operating segment (referred to as a component of the entity). Management has determined that the Companys operating segments meet the criteria to be classified as reporting units. During the year ended December 31, 2016, the
Company allocated approximately $709 million of goodwill to the spin-off of QHC, including approximately $33 million of goodwill related to the former management services reporting unit and approximately $676 million of goodwill allocated from the
hospital operations reporting unit based on the relative fair value of the hospitals that were included in the QHC distribution. Additionally, the Company allocated approximately $46 million of goodwill related to the sale of the home care
operations reporting unit on December 31, 2016. At December 31, 2016, after giving effect to the disposition of QHC, the sale of an 80% majority ownership interest in the Companys home care division and the $1.395 billion impairment
charge discussed below, the Company had approximately $6.5 billion of goodwill recorded, all of which resides at its hospital operations reporting unit.
Goodwill is evaluated for impairment at the same time every year and when an event occurs or circumstances change that, more likely than not,
reduce the fair value of the reporting unit below its carrying value. There is a two-step method for determining goodwill impairment. Step one is to compare the fair value of the reporting unit with the units carrying amount, including
goodwill. If this test indicates the fair value is less than the carrying value, then step two is required to compare the implied fair value of the reporting units goodwill utilizing a hypothetical purchase price allocation with the carrying
value of the reporting units goodwill. The Company performed its last annual goodwill evaluation during the fourth quarter of 2016. No impairment was indicated by this evaluation. The next annual goodwill evaluation will be performed during
the fourth quarter of 2017, or sooner if the Company identifies certain indicators of impairment.
While no impairment was indicated by
the fourth quarter of 2016 evaluation, the reduction in the Companys fair value and the resulting goodwill impairment charge recorded during 2016 reduced the excess of fair value calculated in the step two analysis over the carrying value of
the Companys hospital operations reporting unit to an amount less than 1% of the Companys carrying value. This minimal amount in the excess fair value over carrying value of the hospital operations reporting unit increases the risk that
future declines in fair value could result in goodwill impairment. The determination of fair value in step one of the Companys goodwill
122
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
impairment analysis is based on an estimate of fair value for each reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited
to, the most recent price of the Companys common stock or fair value of long-term debt, estimates of future revenue and expense growth, estimated market multiples expected capital expenditures, income tax rates, and costs of invested capital.
Future estimates of fair value could be adversely affected if the actual outcome of one or more of these assumptions changes materially in the future, including further decline in the Companys stock price or fair value of long-term debt, lower
than expected hospital volumes, or increased operating costs. Such changes impacting the calculation of fair value could result in a material impairment charge in the future.
The Company estimates the fair value of the related reporting units using both a discounted cash flow model as well as a market multiple
model. The cash flow forecasts are adjusted by an appropriate discount rate based on the Companys estimate of a market participants weighted-average cost of capital. These models are both based on the Companys best estimate of
future revenues and operating costs and are reconciled to the Companys consolidated market capitalization, with consideration of the amount a potential acquirer would be required to pay, in the form of a control premium, in order to gain
sufficient ownership to set policies, direct operations and control management decisions.
During the three months ended June 30,
2016, the Company identified certain indicators of impairment requiring an interim goodwill impairment evaluation. Those indicators were primarily the decline in the Companys market capitalization and fair value of long-term debt during the
three months ended June 30, 2016, as well as a decrease in the estimated future earnings of the Company compared to the Companys most recent annual evaluation. The Company performed an estimated calculation of fair value in step one of
the impairment test at June 30, 2016, which indicated that the carrying value of its hospital operations reporting unit exceeded its fair value. An initial step two calculation was performed to determine the implied value of goodwill in a
hypothetical purchase price allocation. The Company recorded an estimated non-cash impairment charge of $1.4 billion to goodwill at June 30, 2016 based on these analyses, and adjusted the estimated impairment charge based on the final step
two valuation of $1.395 billion at September 30, 2016. The decrease in the goodwill impairment as of September 30, 2016, from the original estimate as of June 30, 2016, was primarily due to lower estimated fair values of the
individual hospital property and equipment assets as compared to the assumptions used in the June 30, 2016 estimate, resulting in a higher implied goodwill amount when applied to a hypothetical purchase price allocation as required in the step
two analysis. This impairment charge taken during 2016 represents the cumulative amount of impairment recorded historically on the Companys goodwill.
The determination of fair value of the Companys hospital operations reporting unit represents a Level 3 fair value measurement in the
fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
These impairment charges do not have an
impact on the calculation of the Companys financial covenants under the Companys Credit Facility.
Intangible Assets
Approximately $10 million of intangible assets other than goodwill were acquired during the year ended December 31, 2016, primarily
related to the preliminary fair value of the tradename intangible asset associated with the La Porte and Starke acquisitions. The gross carrying amount of the Companys other intangible assets subject to amortization was $41 million and $82
million at December 31, 2016 and December 31, 2015, respectively, and the net carrying amount was $14 million and $31 million at December 31, 2016 and December 31, 2015, respectively. The carrying amount of the Companys
other intangible assets not subject to amortization was $86 million and $121 million at December 31, 2016 and December 31, 2015, respectively. Other intangible assets are included in other assets, net on the Companys
consolidated balance sheets.
123
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Substantially all of the Companys intangible assets are contract-based intangible assets related to operating licenses, management contracts, or non-compete agreements entered into in
connection with prior acquisitions.
The weighted-average remaining amortization period for the intangible assets subject to amortization
is approximately six years. There are no expected residual values related to these intangible assets. Amortization expense on these intangible assets was $14 million, $15 million and $13 million during the years ended December 31, 2016, 2015
and 2014, respectively. Amortization expense on intangible assets is estimated to be $4 million in 2017, $3 million in 2018, $1 million in 2019, $1 million in 2020, $1 million in 2021 and $4 million thereafter.
The gross carrying amount of capitalized software for internal use was approximately $1.3 billion and $1.5 billion at December 31, 2016
and December 31, 2015, respectively, and the net carrying amount was approximately $574 million and $771 million at December 31, 2016 and December 31, 2015, respectively. The estimated amortization period for capitalized internal-use
software is generally three years, except for capitalized costs related to significant system conversions, which is generally eight to ten years. There is no expected residual value for capitalized internal-use software. At December 31, 2016,
there was approximately $33 million of capitalized costs for internal-use software that is currently in the development stage and will begin amortization once the software project is complete and ready for its intended use. Amortization expense on
capitalized internal-use software was $201 million, $212 million and $260 million during the years ended December 31, 2016, 2015 and 2014, respectively. Amortization expense on capitalized internal-use software is estimated to be $176 million
in 2017, $125 million in 2018, $83 million in 2019, $60 million in 2020, $48 million in 2021 and $82 million thereafter.
In
connection with the HMA merger, the Company further analyzed its intangible assets related to internal-use software used in certain of its hospitals for patient and clinical systems, including software required to meet criteria for meaningful use
attestation and ICD-10 compliance. This analysis resulted in management reassessing its usage of certain software products and rationalizing that, with the addition of the HMA hospitals in the first quarter of 2014, those software applications were
going to be discontinued and replaced with new applications that better integrate meaningful use and ICD-10 compliance, are more cost effective and can be implemented at a greater efficiency of scale over future implementations. During the year
ended December 31, 2014, the Company recorded an impairment charge of approximately $24 million related to software in-process that was abandoned and the acceleration of amortization of approximately $75 million related to shortening the
remaining useful life of software abandoned.
124
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INCOME TAXES
The (benefit from) provision for income taxes for (loss) income from continuing operations consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5
|
|
|
$
|
7
|
|
|
$
|
(29
|
)
|
State
|
|
|
7
|
|
|
|
7
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
14
|
|
|
|
(26
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(88
|
)
|
|
|
103
|
|
|
|
106
|
|
State
|
|
|
(28
|
)
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
102
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit from) provision for income taxes for (loss) income from continuing
operations
|
|
$
|
(104
|
)
|
|
$
|
116
|
|
|
$
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the differences between the statutory federal income tax rate and the effective
tax rate (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Provision for income taxes at statutory federal rate
|
|
$
|
(600
|
)
|
|
|
35.0
|
%
|
|
$
|
144
|
|
|
|
35.0
|
%
|
|
$
|
120
|
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
(1
|
)
|
|
|
0.1
|
|
|
|
13
|
|
|
|
3.3
|
|
|
|
11
|
|
|
|
3.2
|
|
Release of unrecognized tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
(2.6
|
)
|
Net income attributable to noncontrolling interests
|
|
|
(33
|
)
|
|
|
1.9
|
|
|
|
(35
|
)
|
|
|
(8.6
|
)
|
|
|
(39
|
)
|
|
|
(11.5
|
)
|
Change in valuation allowance
|
|
|
(1
|
)
|
|
|
0.1
|
|
|
|
(2
|
)
|
|
|
(0.4
|
)
|
|
|
-
|
|
|
|
-
|
|
Federal and state tax credits
|
|
|
(6
|
)
|
|
|
0.3
|
|
|
|
(5
|
)
|
|
|
(1.2
|
)
|
|
|
(4
|
)
|
|
|
(1.2
|
)
|
Nondeductible transaction costs
|
|
|
3
|
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
0.9
|
|
Nondeductible goodwill
|
|
|
536
|
|
|
|
(31.2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
(2
|
)
|
|
|
0.1
|
|
|
|
1
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes and effective tax rate for (loss) income from continuing
operations
|
|
$
|
(104
|
)
|
|
|
6.1
|
%
|
|
$
|
116
|
|
|
|
28.4
|
%
|
|
$
|
82
|
|
|
|
23.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rates were 6.1%, 28.4% and 23.8% for the years ended December 31, 2016,
2015 and 2014, respectively. Including the net income attributable to noncontrolling interests, which is not tax effected in the consolidated statement of (loss) income, the effective tax rate for the years ended December 31, 2016, 2015 and
2014 would have been 5.7%, 37.6% and 35.5% respectively. This decrease in the Companys effective tax rate for the year ended December 31, 2016, when compared to the year ended December 31, 2015, was primarily due to the
non-deductible nature of goodwill written off for impairment and divestitures, as well as the non-deductible nature of certain costs incurred to complete the spin-off of QHC.
125
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred income taxes are based on the estimated future tax effects of differences between
the financial statement and tax bases of assets and liabilities under the provisions of the enacted tax laws. Deferred income taxes as of December 31, 2016 and 2015 consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Net operating loss and credit carryforwards
|
|
$
|
412
|
|
|
$
|
-
|
|
|
$
|
609
|
|
|
$
|
-
|
|
Property and equipment
|
|
|
-
|
|
|
|
583
|
|
|
|
-
|
|
|
|
836
|
|
Self-insurance liabilities
|
|
|
130
|
|
|
|
-
|
|
|
|
149
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
61
|
|
|
|
-
|
|
|
|
62
|
|
Intangibles
|
|
|
-
|
|
|
|
238
|
|
|
|
-
|
|
|
|
353
|
|
Investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
81
|
|
|
|
-
|
|
|
|
133
|
|
Other liabilities
|
|
|
-
|
|
|
|
22
|
|
|
|
-
|
|
|
|
16
|
|
Long-term debt and interest
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
20
|
|
Accounts receivable
|
|
|
70
|
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
Accrued vacation
|
|
|
56
|
|
|
|
-
|
|
|
|
66
|
|
|
|
-
|
|
Other comprehensive income
|
|
|
38
|
|
|
|
-
|
|
|
|
45
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
23
|
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
Deferred compensation
|
|
|
132
|
|
|
|
-
|
|
|
|
125
|
|
|
|
-
|
|
Other
|
|
|
125
|
|
|
|
-
|
|
|
|
117
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
986
|
|
|
|
997
|
|
|
|
1,163
|
|
|
|
1,420
|
|
Valuation allowance
|
|
|
(385
|
)
|
|
|
-
|
|
|
|
(336
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
$
|
601
|
|
|
$
|
997
|
|
|
$
|
827
|
|
|
$
|
1,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that the net deferred tax assets will ultimately be realized, except as noted below. Its
conclusion is based on its estimate of future taxable income and the expected timing of temporary difference reversals. The Company has state net operating loss carryforwards of approximately $5.5 billion, which expire from 2017 to 2036. The Company
also has unrecognized deferred tax assets primarily related to interest expense that are included in other comprehensive income. If recognized, additional state net operating losses will be created which the Company does not expect to be able to
utilize prior to the expiration of the carryforward period. A valuation allowance of approximately $4 million has been recognized for those items. With respect to the deferred tax liability pertaining to intangibles, as included above, goodwill
purchased in connection with certain of the Companys business acquisitions is amortizable for income tax reporting purposes. However, for financial reporting purposes, there is no corresponding amortization allowed with respect to such
purchased goodwill.
The valuation allowance increased by $49 million and $56 million during the years ended December 31, 2016 and
2015, respectively. In addition to amounts previously discussed, the change in valuation allowance relates to a redetermination of the amount of, and realizability of, net operating losses and credits in certain income tax jurisdictions.
The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximately $9 million as of
December 31, 2016. A total of approximately $3 million of interest and penalties is included in the amount of the liability for uncertain tax positions at December 31, 2016. It is the Companys policy to recognize interest and
penalties related to unrecognized benefits in its consolidated statements of (loss) income as income tax expense.
126
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
It is possible the amount of unrecognized tax benefit could change in the next 12 months as a
result of a lapse of the statute of limitations and settlements with taxing authorities; however, the Company does not anticipate the change will have a material impact on the Companys consolidated results of operations or consolidated
financial position.
The following is a tabular reconciliation of the total amount of unrecognized tax benefit for the years ended
December 31, 2016, 2015 and 2014 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Unrecognized tax benefit, beginning of year
|
|
$
|
15
|
|
|
$
|
16
|
|
|
$
|
-
|
|
Gross increases assumed liability of acquired entity
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
Gross increases tax positions in current period
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
Reductions tax positions in prior period
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
Lapse of statute of limitations
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit, end of year
|
|
$
|
18
|
|
|
$
|
15
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction
and various state jurisdictions. The Company has extended the federal statute of limitations through March 31, 2017 for Triad Hospitals, Inc. for the tax periods ended December 31, 1999, December 31, 2000, April 30,
2001, June 30, 2001, December 31, 2001, December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005, December 31, 2006 and July 25, 2007. With few exceptions,
the Company is no longer subject to state income tax examinations for years prior to 2012. The Companys federal income tax returns for the 2009 and 2010 tax years are currently under examination by the Internal Revenue Service. The Company
believes the results of these examinations will not be material to its consolidated results of operations or consolidated financial position. The Company has extended the federal statute of limitations through January 31, 2018 for Community
Health Systems, Inc. for the tax periods ended December 31, 2007, 2008, 2009 and 2010, and through December 31, 2017 for the tax periods ended December 31, 2011 and 2012.
Cash paid for income taxes, net of refunds received, resulted in a net cash refund of $16 million and $180 million during the years ended
December 31, 2016 and 2014, respectively, and net cash paid of $12 million during the year ended December 31, 2015.
127
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT
Long-term debt, net of debt issuance costs and discounts or premiums, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Credit Facility:
|
|
|
|
|
|
|
|
|
Term A Loan
|
|
$
|
745
|
|
|
$
|
844
|
|
Term F Loan
|
|
|
1,435
|
|
|
|
1,671
|
|
Term G Loan
|
|
|
1,510
|
|
|
|
1,568
|
|
Term H Loan
|
|
|
2,776
|
|
|
|
2,884
|
|
Revolving credit loans
|
|
|
(10
|
)
|
|
|
147
|
|
8% Senior Notes due 2019
|
|
|
1,920
|
|
|
|
1,992
|
|
7
1
⁄
8
%
Senior Notes due 2020
|
|
|
1,189
|
|
|
|
1,186
|
|
5
1
⁄
8
%
Senior Secured Notes due 2018
|
|
|
698
|
|
|
|
1,587
|
|
5
1
⁄
8
%
Senior Secured Notes due 2021
|
|
|
972
|
|
|
|
967
|
|
6
7
⁄
8
%
Senior Notes due 2022
|
|
|
2,932
|
|
|
|
2,921
|
|
Receivables Facility
|
|
|
675
|
|
|
|
699
|
|
Capital lease obligations
|
|
|
328
|
|
|
|
227
|
|
Other
|
|
|
74
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
15,244
|
|
|
|
16,785
|
|
Less current maturities
|
|
|
(455
|
)
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
14,789
|
|
|
$
|
16,556
|
|
|
|
|
|
|
|
|
|
|
The amounts in the table above represent the outstanding principal balance for each debt issue at the
respective balance sheet date, adjusted for the unamortized balance of deferred debt issuance costs and any debt premium or discount.
Credit
Facility
The Companys wholly-owned subsidiary, CHS, has senior secured financing under a credit facility with a syndicate
of financial institutions led by Credit Suisse, as administrative agent and collateral agent. In connection with the HMA merger, the Company and CHS entered into a third amendment and restatement of its credit facility (the Credit
Facility), providing for additional financing and recapitalization of certain of the Companys term loans, including (i) the replacement of the revolving credit facility with a new $1.0 billion revolving facility maturing in 2019
(the Revolving Facility), (ii) the addition of a new $1.0 billion Term A facility due 2019 (the Term A Facility), (iii) a Term D facility in an aggregate principal amount equal to approximately $4.6 billion due 2021
(which included certain term C loans that were converted into such Term D facility (collectively, the Term D Facility)), (iv) the conversion of certain term C loans into Term E Loans and the borrowing of new Term E Loans in an
aggregate principal amount of approximately $1.7 billion due 2017 and (v) the addition of flexibility commensurate with the Companys post-acquisition structure. In addition to funding a portion of the consideration in connection with the
HMA merger, some of the proceeds of the Term A Facility and Term D Facility were used to refinance the outstanding $637 million existing term A facility due 2016 and the $60 million of term B loans due 2014, respectively. The Revolving Facility
includes a subfacility for letters of credit.
On March 9, 2015, CHS entered into Amendment No. 1 and Incremental Term Loan
Assumption Agreement to refinance the existing Term E Loans due 2017 into Term F Loans due 2018, in an original aggregated principal amount of $1.7 billion (the Term F Facility). On May 18, 2015, CHS entered into an Incremental Term
Loan Assumption Agreement to provide for a new $1.6 billion incremental Term G facility due 2019 (the Term G
128
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Facility) and a new approximately $2.9 billion incremental Term H facility due 2021 (the Term H Facility). The proceeds of the Term G Facility and Term H Facility were used to
repay the Companys existing Term D Facility in full. Pursuant to a special distribution paid by QHC to the Company as part of the series of transactions to complete the spin-off, the Company received approximately $1.2 billion in cash
generated from the net proceeds of certain financing arrangements entered into by QHC as part of the separation. On April 29, 2016, using part of the cash generated from the QHC spin-off, the Company repaid approximately $190 million of its
Term F Facility. On December 30, 2016, using the cash generated from the sale of a majority ownership in the Companys home care division and from the completion of the sale-lease back transaction for ten of the Companys owned
medical office buildings, the Company repaid approximately $48 million of the Term F Facility, approximately $26 million of the Term A Facility, approximately $52 million of the Term G Facility and $96 million of the Term H Facility.
On December 5, 2016, CHS entered into Amendment No. 2 to the Credit Facility (Amendment No. 2) to adjust upward the maximum
leverage ratios and adjust downward the minimum interest coverage ratio the Company is required to comply with each fiscal quarter under the financial maintenance covenants in the Credit Facility. In connection with the amendment, the Company agreed
to certain other additional undertakings for the benefit of the lenders under the Revolving Facility and the Term A Facility.
The loans
under the Credit Facility bear interest on the outstanding unpaid principal amount at a rate equal to an applicable percentage plus, at CHS option, either (a) an Alternate Base Rate (as defined) determined by reference to the greater of
(1) the Prime Rate (as defined) announced by Credit Suisse or (2) the Federal Funds Effective Rate (as defined) plus 0.50% or (3) the adjusted London Interbank Offered Rate (LIBOR) on such day for a three-month interest
period commencing on the second business day after such day plus 1% or (b) LIBOR. Loans in respect of the Revolving Facility and the Term A Facility will accrue interest at a rate per annum initially equal to LIBOR plus 2.75%, in the case of
LIBOR borrowings, and Alternate Base Rate plus 1.75%, in the case of Alternate Base Rate borrowings. In addition, the margin in respect of the Revolving Facility and the Term A Facility will be subject to adjustment determined by reference to a
leverage-based pricing grid. Loans in respect of the Term F Facility will accrue interest at a rate per annum equal to LIBOR plus 3.25%, in the case of LIBOR borrowings, and Alternate Base Rate plus 2.25%, in the case of Alternate Base Rate
borrowings. The Term G Loan and Term H Loan will accrue interest at a rate per annum equal to LIBOR plus 2.75% and 3.00%, respectively, in the case of LIBOR borrowings, and Alternate Base Rate plus 1.75% and 2.00%, respectively, in the case of
Alternate Base Rate borrowings. The Term G Loan and the Term H Loan are subject to a 1.00% LIBOR floor and a 2.00% Alternate Base Rate floor.
Under the Term A Facility, CHS is required to make amortization payments in aggregate amounts equal to 15% of the original principal amount of
the Term A Facility in 2017 and 45% of the original principal amount of the Term A Facility in 2018. Under the Term F Facility, the Term G Facility and the Term H Facility, CHS is required to make amortization payments in aggregate amounts equal to
1% of the original principal amount of the Term F Facility, the Term G Facility, or the Term H Facility, as applicable, each year.
The
term loan facility must be prepaid in an amount equal to (1) 100% of the net cash proceeds of certain asset sales and dispositions by the Company and its subsidiaries, subject to certain exceptions and reinvestment rights (provided that, in
connection with Amendment No. 2, CHS agreed with the lenders under the Revolving Facility and the Term A Facility not to exercise such reinvestment rights prior to January 1, 2018), (2) 100% of the net cash proceeds of issuances of certain debt
obligations or receivables-based financing by the Company and its subsidiaries, subject to certain exceptions, and (3) 50%, subject to reduction to a lower percentage based on the Companys leverage ratio (as defined in the Credit Facility
generally as the ratio of total debt on the date of determination to the Companys EBITDA, as defined, for the four quarters most recently ended prior to such date), of excess cash flow (as defined) for any year, subject to certain exceptions.
Voluntary prepayments and commitment reductions are permitted in whole or in part, without any premium or penalty, subject to minimum prepayment or reduction requirements.
129
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The borrower under the Credit Facility is CHS. All of the obligations under the Credit
Facility are unconditionally guaranteed by the Company and certain of its existing and subsequently acquired or organized domestic subsidiaries. All obligations under the Credit Facility and the related guarantees are secured by a perfected first
priority lien or security interest in substantially all of the assets of the Company, CHS and each subsidiary guarantor, including equity interests held by the Company, CHS or any subsidiary guarantor, but excluding, among others, the equity
interests of non-significant subsidiaries, syndication subsidiaries, securitization subsidiaries and joint venture subsidiaries. Such assets constitute substantially the same assets, subject to certain exceptions, that secure CHS obligations
under the 2018 Senior Secured Notes (as defined below) and the 2021 Senior Secured Notes (as defined below).
CHS has agreed to pay letter
of credit fees equal to the applicable percentage then in effect with respect to LIBOR borrowings under the Revolving Facility times the maximum aggregate amount available to be drawn under all letters of credit outstanding under the subfacility for
letters of credit. The issuer of any letter of credit issued under the subfacility for letters of credit will also receive a customary fronting fee and other customary processing charges. CHS is obligated to pay commitment fees of 0.50% per
annum (subject to adjustment based upon the Companys leverage ratio) on the unused portion of the Revolving Facility.
The Credit
Facility contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the Companys and its subsidiaries ability, subject to certain exceptions, to, among other things
(1) declare dividends, make distributions or redeem or repurchase capital stock, (2) prepay, redeem or repurchase other debt, (3) incur liens or grant negative pledges, (4) make loans and investments and enter into acquisitions
and joint ventures, (5) incur additional indebtedness or provide certain guarantees, (6) make capital expenditures, (7) engage in mergers, acquisitions and asset sales, (8) conduct transactions with affiliates, (9) alter the
nature of the Companys businesses, (10) grant certain guarantees with respect to physician practices, (11) engage in sale and leaseback transactions or (12) change the Companys fiscal year. The Company is also required to
comply with specified financial covenants (consisting of a maximum secured net leverage ratio and an interest coverage ratio) and various affirmative covenants. Under the Credit Facility, the secured net leverage ratio is calculated as the ratio of
total secured debt, less unrestricted cash and cash equivalents, to consolidated EBITDA, as defined in the Credit Facility, and the interest coverage ratio is the ratio of consolidated EBITDA, as defined in the Credit Facility, to consolidated
interest expense for the period. The calculation of consolidated EBITDA as defined in the Credit Facility is a trailing 12-month calculation that begins with net income attributable to the Company, with certain pro forma adjustments to consider the
impact of material acquisitions or divestitures, and adjustments for interest, taxes, depreciation and amortization, net income attributable to noncontrolling interests, stock compensation expense, restructuring costs, and the financial impact of
other non-cash or non-recurring items recorded during any such 12-month period. For the
12-month
period ended December 31, 2016, the secured net leverage ratio financial covenant in the Credit Facility
limited the ratio of secured debt to EBITDA, as defined, to less than or equal to 4.50 to 1.00, which will decrease to 4.00 to 1.00 on January 1, 2018. For the 12-month period ended December 31, 2016, the interest coverage ratio financial
covenant in the Credit Facility required the ratio of consolidated EBITDA, as defined, to consolidated interest expense to be greater than or equal to 2.00 to 1.00, which will increase to 2.25 to 1.00 on January 1, 2018. The Company was in
compliance with all such covenants at December 31, 2016, with a secured net leverage ratio of approximately 3.96 to 1.00 and an interest coverage ratio of approximately 2.43 to 1.00.
Events of default under the Credit Facility include, but are not limited to, (1) CHS failure to pay principal, interest, fees or
other amounts under the credit agreement when due (taking into account any applicable grace period), (2) any representation or warranty proving to have been materially incorrect when made, (3) covenant defaults subject, with respect to
certain covenants, to an available cure through the issuance of qualified equity for a period of 60 days after the end of the first three quarters and 100 days after a year end, (4) bankruptcy and insolvency events, (5) a cross default to
certain other debt, (6) certain undischarged judgments (not paid within
130
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
an applicable grace period), (7) a change of control (as defined), (8) certain ERISA-related defaults and (9) the invalidity or impairment of specified security interests,
guarantees or subordination provisions in favor of the administrative agent or lenders under the Credit Facility.
As of December 31,
2016, the availability for additional borrowings under the Credit Facility, subject to certain limitations as set forth in the Credit Facility, was approximately $1.0 billion pursuant to the Revolving Facility, of which $55 million is in the form of
outstanding letters of credit. CHS has the ability to amend the Credit Facility to provide for one or more tranches of term loans or increases in the Revolving Facility in an aggregate principal amount of up to $1.5 billion, only $750 million of
which is effectively available because of the Companys additional undertakings in connection with Amendment No. 2. As of December 31, 2016, the weighted-average interest rate under the Credit Facility, excluding swaps, was 5.0%.
As of December 31, 2016, the term loans and outstanding revolving credit loans are scheduled to be paid with principal payments for
future years as follows (in millions):
|
|
|
|
|
Year
|
|
Amount
|
|
2017
|
|
$
|
149
|
|
2018
|
|
|
1,895
|
|
2019
|
|
|
1,678
|
|
2020
|
|
|
29
|
|
2021
|
|
|
2,782
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total maturities
|
|
|
6,533
|
|
Less: Deferred debt issuance costs
|
|
|
(77
|
)
|
|
|
|
|
|
Total term loans and outstanding revolving credit loans
|
|
$
|
6,456
|
|
|
|
|
|
|
As of December 31, 2016, the Company had letters of credit issued, primarily in support of potential
insurance-related claims and certain bonds, of approximately $55 million.
8% Senior Notes due 2019
On November 22, 2011, CHS completed an offering of $1.0 billion aggregate principal amount of 8% Senior Notes due 2019 (the 8%
Senior Notes), which were issued in a private placement. The net proceeds from this issuance, together with available cash on hand, were used to finance the purchase of up to $1.0 billion aggregate principal amount of CHS then
outstanding 8
7
⁄
8
% Senior Notes due 2015 and related fees and expenses. On March 21, 2012, CHS completed an offering of an additional $1.0 billion
aggregate principal amount of 8% Senior Notes, which were issued in a private placement (at a premium of 102.5%). The net proceeds from this issuance were used to finance the purchase of approximately $850 million aggregate principal amount of
CHS then outstanding 8
7
⁄
8
% Senior Notes due 2015, to pay related fees and expenses and for general corporate purposes. The 8% Senior Notes bear interest
at 8% per annum, payable semiannually in arrears on May 15 and November 15, commencing May 15, 2012. Interest on the 8% Senior Notes accrues from the date of original issuance. Interest is calculated on the basis of a 360-day
year comprised of twelve 30-day months.
131
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CHS is entitled, at its option, to redeem all or a portion of the 8% Senior Notes upon not
less than 30 nor more than 60 days notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:
|
|
|
|
|
Period
|
|
Redemption Price
|
|
November 15, 2016 to November 14, 2017
|
|
|
102.000%
|
|
November 15, 2017 to November 14, 2019
|
|
|
100.000%
|
|
Pursuant to a registration rights agreement entered into at the time of the issuance of the 8% Senior Notes,
as a result of an exchange offer made by CHS, substantially all of the 8% Senior Notes issued in November 2011 and March 2012 were exchanged in May 2012 for new notes (the 8% Exchange Notes) having terms substantially identical in all
material respects to the 8% Senior Notes (except that the 8% Exchange Notes were issued under a registration statement pursuant to the Securities Act of 1933, as amended (the 1933 Act)). References to the 8% Senior Notes shall also be
deemed to include the 8% Exchange Notes unless the context provides otherwise.
During the year ended December 31, 2016, the Company
repurchased approximately $75 million of aggregate principal amount outstanding of the 8% Senior Notes in open market transactions.
7
1
⁄
8
% Senior Notes due 2020
On July 18,
2012, CHS completed an underwritten public offering under its automatic shelf registration statement filed with the SEC of $1.2 billion aggregate principal amount of 7
1
⁄
8
% Senior Notes due 2020 (the 7
1
⁄
8
% Senior Notes). The net proceeds from this issuance were used to finance
the purchase or redemption of $934 million aggregate principal amount of CHS then outstanding 8
7
⁄
8
% Senior Notes due 2015, to pay for consents delivered
in connection with a related tender offer, to pay related fees and expenses, and for general corporate purposes. The 7
1
⁄
8
% Senior Notes bear interest at
7.125% per annum, payable semiannually in arrears on July 15 and January 15, commencing January 15, 2013. Interest on the 7
1
⁄
8
% Senior
Notes accrues from the date of original issuance. Interest is calculated on the basis of a 360-day year comprised of twelve 30-day months.
CHS is entitled, at its option, to redeem all or a portion of the 7
1
⁄
8
% Senior Notes upon not less than 30 nor more than 60 days notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:
|
|
|
|
|
Period
|
|
Redemption Price
|
|
July 15, 2016 to July 14, 2017
|
|
|
103.563 %
|
|
July 15, 2017 to July 14, 2018
|
|
|
101.781 %
|
|
July 15, 2018 to July 15, 2020
|
|
|
100.000 %
|
|
5
1
⁄
8
% Senior Secured Notes
due 2018
On August 17, 2012, CHS completed an underwritten public offering under its automatic shelf registration statement
filed with the SEC of $1.6 billion aggregate principal amount of 5
1
⁄
8
% Senior Secured Notes due 2018 (the 2018 Senior Secured Notes). The net
proceeds from this issuance, together with available cash on hand, were used to finance the prepayment of $1.6 billion of the then outstanding term loans due 2014 under the Credit
132
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Facility and related fees and expenses. The 2018 Senior Secured Notes bear interest at 5.125% per annum, payable semiannually in arrears on August 15 and February 15, commencing
February 15, 2013. Interest on the 2018 Senior Secured Notes accrues from the date of original issuance. Interest is calculated on the basis of a
360-day
year comprised of twelve 30-day months. The 2018
Senior Secured Notes are secured by a first-priority lien subject to a shared lien of equal priority with certain other obligations, including obligations under the Credit Facility, and subject to prior ranking liens permitted by the indenture
governing the 2018 Senior Secured Notes on substantially the same assets, subject to certain exceptions, that secure CHS obligations under the Credit Facility.
CHS is entitled, at its option, to redeem all or a portion of the 2018 Senior Secured Notes upon not less than 30 nor more than 60
days notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:
|
|
|
|
|
Period
|
|
Redemption Price
|
|
August 15, 2016 to August 14, 2017
|
|
|
101.281 %
|
|
August 15, 2017 to August 14, 2018
|
|
|
100.000 %
|
|
On May 16, 2016, using part of the cash generated from the QHC spin-off, the Company completed a cash
tender offer for $900 million aggregate principal amount outstanding of the 2018 Senior Secured Notes.
5
1
⁄
8
% Senior Secured Notes due 2021
On January 27, 2014, CHS issued $1.0 billion aggregate principal amount of 5
1
⁄
8
% Senior Secured Notes due 2021 (the 2021 Senior Secured Notes) in connection with the HMA merger, which were issued in a private placement. The net proceeds from this issuance were used to finance
the HMA merger. The 2021 Senior Secured Notes bear interest at 5.125% per annum, payable semiannually in arrears on February 1 and August 1, commencing August 1, 2014. Interest on the 2021 Senior Secured Notes accrues from the
date of original issuance. Interest is calculated on the basis of a 360-day year comprised of twelve 30-day months. The 2021 Senior Secured Notes are secured by a first-priority lien, subject to a shared lien of equal priority with certain other
obligations, including obligations under the Credit Facility and the 2018 Senior Secured Notes, and subject to prior ranking liens permitted by the indenture governing the 2021 Senior Secured Notes, on substantially the same assets, subject to
certain exceptions, that secure CHS obligations under the Credit Facility and the 2018 Senior Secured Notes.
CHS is entitled, at
its option, to redeem all or a portion of the 2021 Senior Secured Notes upon not less than 30 nor more than 60 days notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:
|
|
|
|
|
Period
|
|
Redemption Price
|
|
February 1, 2017 to January 31, 2018
|
|
|
103.844 %
|
|
February 1, 2018 to January 31, 2019
|
|
|
102.563 %
|
|
February 1, 2019 to January 31, 2020
|
|
|
101.281 %
|
|
February 1, 2020 to January 31, 2021
|
|
|
100.000 %
|
|
Pursuant to a registration rights agreement entered into at the time of the issuance of the 2021 Senior
Secured Notes, as a result of an exchange offer made by CHS, all of the 2021 Senior Secured Notes issued in January
133
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2014 were exchanged in October 2014 for new notes (the 2021 Exchange Notes) having terms substantially identical in all material respects to the 2021 Senior Secured Notes (except that
the exchange notes were issued under a registration statement pursuant to the 1933 Act). References to the 2021 Senior Secured Notes shall be deemed to be the 2021 Exchange Notes unless the context provides otherwise.
6
7
⁄
8
% Senior Notes due 2022
On January 27, 2014, CHS issued $3.0 billion aggregate principal amount of 6
7
⁄
8
% Senior Notes due 2022 (the 6
7
⁄
8
% Senior Notes) in connection with the HMA merger, which were issued in a
private placement. The net proceeds from this issuance were used to finance the HMA merger. The 6
7
⁄
8
% Senior Notes bear interest at 6.875% per annum,
payable semiannually in arrears on February 1 and August 1, commencing August 1, 2014. Interest on the 6
7
⁄
8
% Senior Notes accrues from the date
of original issuance. Interest is calculated on the basis of a 360-day year comprised of twelve 30-day months.
Prior to February 1,
2018, CHS may redeem some or all of the 6
7
⁄
8
% Senior Notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and
unpaid interest, if any, plus a make-whole premium, as described in the indenture governing the 6
7
⁄
8
% Senior Notes. After February 1, 2018,
CHS is entitled, at its option, to redeem all or a portion of the 6
7
⁄
8
% Senior Notes upon not less than 30 nor more than 60 days notice, at the
following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive
interest due on the relevant interest payment date), if redeemed during the periods set forth below:
|
|
|
|
|
Period
|
|
Redemption Price
|
|
February 1, 2018 to January 31, 2019
|
|
|
103.438 %
|
|
February 1, 2019 to January 31, 2020
|
|
|
101.719 %
|
|
February 1, 2020 to January 31, 2022
|
|
|
100.000 %
|
|
Pursuant to a registration rights agreement entered into at the time of the issuance of the 6
7
⁄
8
% Senior Notes, as a result of an exchange offer made by CHS, all of the
6
7
⁄
8
% Senior Notes issued in January 2014 were exchanged in October 2014 for new notes (the 6
7
⁄
8
% Exchange Notes) having terms substantially identical in all material respects to the 6
7
⁄
8
% Senior Notes (except
that the exchange notes were issued under a registration statement pursuant to the 1933 Act). References to the 6
7
⁄
8
% Senior Notes shall be deemed to be the 6
7
⁄
8
% Exchange Notes unless the context provides otherwise.
Receivables Facility
On
March 21, 2012, through certain of its subsidiaries, CHS entered into an accounts receivable loan agreement (the Receivables Facility) with a group of lenders and banks, Credit Agricolé Corporate and Investment Bank, as a
managing agent and as the administrative agent, and The Bank of Nova Scotia, as a managing agent. On March 7, 2013, CHS and certain of its subsidiaries amended the Receivables Facility to add an additional managing agent, The Bank of
Tokyo-Mitsubishi UFJ, Ltd., to increase the size of the facility from $300 million to $500 million and to extend the scheduled termination date. Additional subsidiaries also agreed to participate in the Receivables Facility as of that date. On
March 31, 2014, CHS and certain of its subsidiaries amended the Receivables Facility to increase the size of the facility from $500 million to $700 million and to extend the scheduled termination date. Additional subsidiaries also agreed to
participate in the Receivables Facility as of that date. On November 13, 2015, CHS and certain of its subsidiaries amended the Receivables Facility to extend the scheduled termination date and amend certain other provisions thereof. On
November 18, 2016, CHS and certain of its subsidiaries amended the Receivables Facility to extend the scheduled termination date in respect of a $450 million portion of the commitments thereunder and amend certain other provisions
134
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
thereof. The existing and future non-self pay patient-related accounts receivable (the Receivables) for certain affiliated hospitals serve as collateral for the outstanding borrowings
under the Receivables Facility. The interest rate on the borrowings is based on the commercial paper rate plus an applicable interest rate spread. Unless earlier terminated or subsequently extended pursuant to its terms, the Receivables Facility
will expire on November 13, 2018 in respect of a $450 million portion of the commitments thereunder and November 13, 2017 in respect of the remaining $250 million of commitments thereunder, subject to customary termination events that
could cause an early termination date. CHS maintains effective control over the Receivables because, pursuant to the terms of the Receivables Facility, the Receivables are sold from certain of CHS subsidiaries to CHS, and CHS then sells or
contributes the Receivables to a special-purpose entity that is wholly-owned by CHS. The wholly-owned special-purpose entity in turn grants security interests in the Receivables in exchange for borrowings obtained from the group of third-party
lenders and banks of up to $700 million outstanding from time to time based on the availability of eligible Receivables and other customary factors. The wholly-owned special-purpose entity is not a subsidiary guarantor under the Credit Facility or
CHS outstanding notes. The group of third-party lenders and banks do not have recourse to CHS or its subsidiaries beyond the assets of the wholly-owned special-purpose entity that collateralizes the loan. The Receivables and other assets of
the wholly-owned special-purpose entity will be available first and foremost to satisfy the claims of the creditors of such entity. The outstanding borrowings pursuant to the Receivables Facility at December 31, 2016 totaled $677 million with
approximately $435 million classified as long-term debt on the consolidated balance sheet. At December 31, 2016, the carrying amount of Receivables included in the Receivables Facility totaled approximately $1.7 billion and is included in
patient accounts receivable on the consolidated balance sheet.
Loss from Early Extinguishment of Debt
The financing and repayment transactions discussed above resulted in a loss from the early extinguishment of debt of $30 million, $16 million
and $73 million for the years ended December 31, 2016, 2015 and 2014, respectively, and an after-tax loss of $19 million, $10 million and $45 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Other Debt
As of
December 31, 2016, other debt consisted primarily of the mortgage obligation on the Companys corporate headquarters and other obligations maturing in various installments through 2021.
To limit the effect of changes in interest rates on a portion of the Companys long-term borrowings, the Company is a party to 10
separate interest swap agreements in effect at December 31, 2016, with an aggregate notional amount for currently effective swaps of $2.6 billion. On each of these swaps, the Company receives a variable rate of interest based on the three-month
LIBOR in exchange for the payment of a fixed rate of interest. The Company currently pays, on a quarterly basis, interest on the Revolving Facility and the Term A Facility at a rate per annum equal to LIBOR plus 2.75%. Loans in respect of the Term F
Facility accrue interest at a rate per annum equal to LIBOR plus 3.25%. The Term G Loan and Term H Loan accrue interest at a rate per annum equal to LIBOR plus 2.75% and 3.00%, in the case of LIBOR borrowings, respectively, and Alternate Base Rate
plus 1.75% and 2.00%, respectively, in the case of Alternate Base Rate Borrowings. The Term G Loan and the Term H Loan are subject to a 1.00% LIBOR floor and a 2.00% Alternate Base Rate floor. See Note 8 for additional information regarding these
swaps.
135
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2016, the scheduled maturities of long-term debt outstanding,
including capital lease obligations for each of the next five years and thereafter are as follows (in millions):
|
|
|
|
|
Year
|
|
Amount
|
|
2017
|
|
$
|
455
|
|
2018
|
|
|
3,054
|
|
2019
|
|
|
3,641
|
|
2020
|
|
|
1,240
|
|
2021
|
|
|
3,790
|
|
Thereafter
|
|
|
3,257
|
|
|
|
|
|
|
Total maturities
|
|
|
15,437
|
|
Less: Deferred debt issuance costs
|
|
|
(204
|
)
|
Plus unamortized note premium
|
|
|
11
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
15,244
|
|
|
|
|
|
|
The Company paid interest of $930 million, $925 million and $831 million on borrowings during the years ended
December 31, 2016, 2015 and 2014, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments has been estimated by the Company using available market information as of December 31, 2016 and
December 31, 2015, and valuation methodologies considered appropriate. The estimates presented in the table below are not necessarily indicative of amounts the Company could realize in a current market exchange (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
238
|
|
|
$
|
238
|
|
|
$
|
184
|
|
|
$
|
184
|
|
Available-for-sale securities
|
|
|
299
|
|
|
|
299
|
|
|
|
271
|
|
|
|
271
|
|
Trading securities
|
|
|
80
|
|
|
|
80
|
|
|
|
61
|
|
|
|
61
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Value Right
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
Credit Facility
|
|
|
6,456
|
|
|
|
6,370
|
|
|
|
7,114
|
|
|
|
7,115
|
|
8% Senior Notes
|
|
|
1,920
|
|
|
|
1,615
|
|
|
|
1,992
|
|
|
|
2,018
|
|
7
1
⁄
8
%
Senior Notes
|
|
|
1,189
|
|
|
|
917
|
|
|
|
1,186
|
|
|
|
1,193
|
|
5
1
⁄
8
%
Senior Secured Notes due 2018
|
|
|
698
|
|
|
|
690
|
|
|
|
1,587
|
|
|
|
1,610
|
|
5
1
⁄
8
%
Senior Secured Notes due 2021
|
|
|
972
|
|
|
|
930
|
|
|
|
967
|
|
|
|
997
|
|
6
7
⁄
8
%
Senior Notes
|
|
|
2,932
|
|
|
|
2,102
|
|
|
|
2,921
|
|
|
|
2,858
|
|
Receivables Facility and other debt
|
|
|
749
|
|
|
|
749
|
|
|
|
791
|
|
|
|
791
|
|
The estimated fair value is determined using the methodologies discussed below in accordance with accounting
standards related to the determination of fair value based on the U.S. GAAP fair value hierarchy as discussed in Note 9. The estimated fair value for financial instruments with a fair value that does not equal its
136
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
carrying value is considered a Level 1 valuation. The Company utilizes the market approach and obtains indicative pricing from the administrative agent to the Credit Facility to determine
fair values or through publicly available subscription services such as Bloomberg where relevant.
Cash and cash
equivalents.
The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).
Available-for-sale securities.
Estimated fair value is based on closing price as quoted in public markets or other various
valuation techniques.
Trading securities.
Estimated fair value is based on closing price as quoted in public markets.
Contingent Value Right
. Estimated fair value is based on the closing price as quoted on the public market where the CVR
is traded.
Credit Facility.
Estimated fair value is based on publicly available trading activity and supported with
information from the Companys bankers regarding relevant pricing for trading activity among the Companys lending institutions.
8% Senior Notes.
Estimated fair value is based on the closing market price for these notes.
7
1
⁄
8
% Senior Notes.
Estimated
fair value is based on the closing market price for these notes.
5
1
⁄
8
% Senior Secured Notes due 2018.
Estimated fair value is based on the closing market price for these notes.
5
1
⁄
8
% Senior Secured Notes due
2021.
Estimated fair value is based on the closing market price for these notes.
6
7
⁄
8
% Senior Notes.
Estimated
fair value is based on the closing market price for these notes.
Receivables Facility and other debt.
The carrying
amount of the Receivables Facility and all other debt approximates fair value due to the nature of these obligations.
Interest rate
swaps.
The fair value of interest rate swap agreements is the amount at which they could be settled, based on estimates calculated by the Company using a discounted cash flow analysis based on observable market inputs and validated by comparison
to estimates obtained from the counterparty. The Company incorporates credit valuation adjustments (CVAs) to appropriately reflect both its own nonperformance or credit risk and the respective counterpartys nonperformance or credit
risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreements.
The Company assesses the effectiveness of its hedge instruments on a quarterly basis. For the years ended December 31, 2016 and 2015, the
Company completed an assessment of the cash flow hedge instruments and determined the hedges to be highly effective. The Company has also determined that the ineffective portion of the hedges do not have a material effect on the Companys
consolidated financial position, operations or cash flows. The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at December 31, 2016, all of the swap agreements
entered into by the Company were in a net liability position such that the Company would be required to make the net settlement payments to the counterparties; the Company does not anticipate nonperformance by those counterparties. The Company does
not hold or issue derivative financial instruments for trading purposes.
137
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest rate swaps consisted of the following at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap #
|
|
Notional Amount
(in millions)
|
|
|
Fixed Interest Rate
|
|
|
Termination Date
|
|
Fair Value (in
millions)
|
|
1
|
|
$
|
200
|
|
|
|
2.055 %
|
|
|
July 25, 2019
|
|
$
|
3
|
|
2
|
|
|
200
|
|
|
|
2.059 %
|
|
|
July 25, 2019
|
|
|
2
|
|
3
|
|
|
400
|
|
|
|
1.882 %
|
|
|
August 30, 2019
|
|
|
3
|
|
4
|
|
|
200
|
|
|
|
2.515 %
|
|
|
August 30, 2019
|
|
|
5
|
|
5
|
|
|
200
|
|
|
|
2.613 %
|
|
|
August 30, 2019
|
|
|
5
|
|
6
|
|
|
300
|
|
|
|
2.041 %
|
|
|
August 30, 2020
|
|
|
2
|
|
7
|
|
|
300
|
|
|
|
2.738 %
|
|
|
August 30, 2020
|
|
|
9
|
|
8
|
|
|
300
|
|
|
|
2.892 %
|
|
|
August 30, 2020
|
|
|
11
|
|
9
|
|
|
300
|
|
|
|
2.363 %
|
|
|
January 27, 2021
|
|
|
5
|
|
10
|
|
|
200
|
|
|
|
2.368 %
|
|
|
January 27, 2021
|
|
|
4
|
|
The Company is exposed to certain risks relating to its ongoing business operations. The risk managed by using
derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate fluctuation risk associated with the term loans in the Credit Facility. Companies are required to recognize all derivative instruments as
either assets or liabilities at fair value in the consolidated statement of financial position. The Company designates its interest rate swaps as cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.
Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
Assuming no change in December 31, 2016 interest rates, approximately $35 million of interest expense resulting from the spread between
the fixed and floating rates defined in each interest rate swap agreement will be recognized during the next 12 months. If interest rate swaps do not remain highly effective as a cash flow hedge, the derivatives gains or losses resulting from
the change in fair value reported through OCI will be reclassified into earnings.
The following tabular disclosure provides the amount of
pre-tax loss recognized as a component of OCI during the years ended December 31, 2016, 2015 and 2014 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Pre-Tax Loss
Recognized in OCI (Effective Portion)
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest rate swaps
|
|
$
|
(27
|
)
|
|
$
|
(51
|
)
|
|
$
|
(41
|
)
|
138
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tabular disclosure provides the location of the effective portion of the
pre-tax loss reclassified from accumulated other comprehensive loss (AOCL) into interest expense on the consolidated statements of (loss) income during the years ended December 31, 2016, 2015 and 2014 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss Reclassified from
AOCL into Income (Effective Portion)
|
|
Amount of Pre-Tax Loss Reclassified from
AOCL into Income (Effective Portion)
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest expense, net
|
|
$
|
54
|
|
|
$
|
42
|
|
|
$
|
61
|
|
The fair values of derivative instruments in the consolidated balance sheets as of December 31, 2016 and
December 31, 2015 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Balance
Sheet
Location
|
|
Fair Value
|
|
|
Balance
Sheet
Location
|
|
Fair Value
|
|
|
Balance
Sheet
Location
|
|
Fair Value
|
|
|
Balance
Sheet
Location
|
|
Fair Value
|
|
Derivatives designated as hedging instruments
|
|
Other
assets,
net
|
|
$
|
-
|
|
|
Other
assets,
net
|
|
$
|
-
|
|
|
Other
long-
term
liabilities
|
|
$
|
49
|
|
|
Other
long-
term
liabilities
|
|
$
|
76
|
|
9. FAIR VALUE
Fair Value Hierarchy
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company utilizes the U.S. GAAP fair value hierarchy that distinguishes
between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumption
about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
The inputs used to measure
fair value are classified into the following fair value hierarchy:
Level 1:
Quoted market prices in
active markets for identical assets or liabilities.
Level 2:
Observable market-based inputs or
unobservable inputs that are corroborated by market data.
Level 3:
Unobservable inputs that are
supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 includes values determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting the
Companys own assumptions.
In instances where the determination of the fair value hierarchy measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its
139
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment of factors specific to the asset or liability.
Transfers between levels within the fair value hierarchy are recognized by the Company on the date of the change in circumstances that requires such transfer. There were no transfers between levels during the years ending December 31, 2016 or
December 31, 2015.
The following table sets forth, by level within the fair value hierarchy, the financial assets and liabilities
recorded at fair value on a recurring basis as of December 31, 2016 and December 31, 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Available-for-sale securities
|
|
$
|
299
|
|
|
$
|
163
|
|
|
$
|
136
|
|
|
$
|
-
|
|
Trading securities
|
|
|
80
|
|
|
|
80
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
379
|
|
|
$
|
243
|
|
|
$
|
136
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Value Right (CVR)
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
CVR-related liability
|
|
|
252
|
|
|
|
-
|
|
|
|
-
|
|
|
|
252
|
|
Fair value of interest rate swap agreements
|
|
|
49
|
|
|
|
-
|
|
|
|
49
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
302
|
|
|
$
|
1
|
|
|
$
|
49
|
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Available-for-sale securities
|
|
$
|
271
|
|
|
$
|
155
|
|
|
$
|
116
|
|
|
$
|
-
|
|
Trading securities
|
|
|
61
|
|
|
|
61
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
332
|
|
|
$
|
216
|
|
|
$
|
116
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Value Right (CVR)
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
CVR-related liability
|
|
|
261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
261
|
|
Fair value of interest rate swap agreements
|
|
|
76
|
|
|
|
-
|
|
|
|
76
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
339
|
|
|
$
|
2
|
|
|
$
|
76
|
|
|
$
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities and trading securities classified as Level 1 are measured using quoted market
prices. Level 2 available-for-sale securities primarily consisted of bonds and notes issued by the United States government and its agencies and domestic and foreign corporations. The estimated fair values of these securities are determined using
various valuation techniques, including a multi-dimensional relational model that incorporates standard observable inputs and assumptions such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids/offers and other pertinent reference data.
140
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Available-for-sale Securities
Supplemental information regarding the Companys available-for-sale securities (all of which had no withdrawal restrictions) is set forth
in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Values
|
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities and debt-based mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and corporate
|
|
$
|
232
|
|
|
$
|
-
|
|
|
$
|
(9
|
)
|
|
$
|
223
|
|
Equity securities and equity-based mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
67
|
|
|
|
3
|
|
|
|
-
|
|
|
|
70
|
|
International
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
305
|
|
|
$
|
3
|
|
|
$
|
(9
|
)
|
|
$
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Values
|
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities and debt-based mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and corporate
|
|
$
|
161
|
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
156
|
|
Equity securities and equity-based mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
79
|
|
|
|
15
|
|
|
|
(1
|
)
|
|
|
93
|
|
International
|
|
|
21
|
|
|
|
1
|
|
|
|
-
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
261
|
|
|
$
|
17
|
|
|
$
|
(7
|
)
|
|
$
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 and 2015, investments with aggregate estimated fair values of approximately $232
million (226 investments) and $119 million (329 investments), respectively, generated the gross unrealized losses disclosed in the above table. At each reporting date, the Company performs an evaluation of impaired securities to determine if the
unrealized losses are other-than-temporary. This evaluation considers a number of factors including, but not limited to, the length of time and extent to which the fair value has been less than cost, and managements ability and intent to hold
the securities until fair value recovers. Based on the results of this evaluation, management concluded that as of December 31, 2016, there are approximately $2 million of other-than-temporary losses related to available-for-sale securities.
The recent declines in value of the remaining securities and/or length of time they have been below cost, as well as the Companys ability and intent to hold the securities for a reasonable period of time sufficient for a projected recovery of
fair value, have caused management to conclude that the remaining securities, that have generated gross unrealized losses, were not other-than-temporarily impaired. Management will continue to monitor and evaluate the recoverability of the
Companys available-for-sale securities.
141
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The contractual maturities of debt-based securities held by the Company as of
December 31, 2016 and 2015, excluding mutual fund holdings, are set forth in the table below (in millions). Expected maturities will differ from contractual maturities because the issuers of the debt securities may have the right to prepay
their obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Values
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Values
|
|
Within 1 year
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
1
|
|
After 1 year and through year 5
|
|
|
40
|
|
|
|
40
|
|
|
|
12
|
|
|
|
12
|
|
After 5 years and through year 10
|
|
|
42
|
|
|
|
40
|
|
|
|
11
|
|
|
|
11
|
|
After 10 years
|
|
|
57
|
|
|
|
54
|
|
|
|
22
|
|
|
|
22
|
|
Gross realized gains and losses on sales of available-for-sale securities and other investment income, which
includes interest and dividends, are summarized in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Realized gains
|
|
$
|
28
|
|
|
$
|
8
|
|
|
$
|
13
|
|
Realized losses
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(3
|
)
|
Investment income
|
|
|
7
|
|
|
|
8
|
|
|
|
8
|
|
Contingent Value Right (CVR)
The CVR represents the estimate of the fair value for the contingent consideration paid to HMA shareholders as part of the HMA merger. The CVR
is listed on the NASDAQ and the valuation at December 31, 2016 is based on the quoted trading price for the CVR on the last day of the period. Changes in the estimated fair value of the CVR are recorded through the consolidated statements of
(loss) income.
CVR-related Liability
The CVR-related legal liability represents the Companys estimate of fair value at December 31, 2016 of the liability associated
with the legal matters assumed in the HMA merger, which are included in accrued liabilities in the accompanying consolidated balance sheet. This liability did not include those matters previously accrued by HMA as a probable contingency, which were
settled and paid during the year ended December 31, 2015. To develop the estimate of fair value, the Company engaged an independent third-party valuation firm to measure the liability. The valuation was made utilizing the Companys
estimates of future outcomes for each legal case and simulating future outcomes based on the timing, probability and distribution of several scenarios using a Monte Carlo simulation model. Other inputs were then utilized for discounting the
liability to the measurement date. The HMA legal matters underlying this fair value estimate were evaluated by management to determine the likelihood and impact of each of the potential outcomes. Using that information, as well as the potential
correlation and variability associated with each case, a fair value was determined for the estimated future cash outflows to conclude or settle the HMA legal matters included in the analysis, excluding legal fees (which are expensed as incurred).
Because of the unobservable nature of the majority of the inputs used to value the liability, the Company has classified the fair value measurement as a Level 3 measurement in the fair value hierarchy.
The fair value of the CVR-related legal liability will be measured each reporting period using similar measurement techniques, updated for the
assumptions and facts existing at that date for each of the underlying legal matters. Changes in the fair value of the CVR related legal liability are recorded in future periods through the consolidated statements of (loss) income.
142
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value of Interest Rate Swap Agreements
The valuation of the Companys interest rate swap agreements is determined using market valuation techniques, including discounted cash
flow analysis on the expected cash flows of each agreement. This analysis reflects the contractual terms of the agreement, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. The fair
value of interest rate swap agreements are determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates based on
observable market forward interest rate curves and the notional amount being hedged.
The Company incorporates CVAs to appropriately
reflect both its own nonperformance or credit risk and the respective counterpartys nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance
or credit risk, the Company has considered the impact of any netting features included in the agreements. The CVA on the Companys interest rate swap agreements resulted in a decrease in the fair value of the related liability of $3 million and
an after-tax adjustment of $2 million to OCI at December 31, 2016. The CVA on the Companys interest rate swap agreements resulted in a decrease in the fair value of the related liability of $4 million and an after-tax adjustment of $2
million to OCI at December 31, 2015.
The majority of the inputs used to value the Companys interest rate swap agreements,
including the forward interest rate curves and market perceptions of the Companys credit risk used in the CVAs, are observable inputs available to a market participant. As a result, the Company has determined that the interest rate swap
valuations are classified in Level 2 of the fair value hierarchy.
10. LEASES
The Company leases hospitals, medical office buildings, and certain equipment under capital and operating lease agreements. During 2016, 2015
and 2014, the Company entered into capital lease obligations of $179 million, $50 million and $18 million, respectively. All lease agreements generally require the Company to pay maintenance, repairs, property taxes and insurance costs.
Commitments relating to noncancellable operating and capital leases for each of the next five years and thereafter are as follows (in
millions):
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Operating (1)
|
|
|
Capital
|
|
2017
|
|
$
|
269
|
|
|
$
|
43
|
|
2018
|
|
|
207
|
|
|
|
32
|
|
2019
|
|
|
156
|
|
|
|
27
|
|
2020
|
|
|
118
|
|
|
|
22
|
|
2021
|
|
|
81
|
|
|
|
22
|
|
Thereafter
|
|
|
246
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
Total minimum future payments
|
|
$
|
1,077
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
Less: Imputed interest
|
|
|
|
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
|
|
|
|
|
328
|
|
Less: Current portion
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Long-term capital lease obligations
|
|
|
|
|
|
$
|
302
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Minimum lease payments have not been reduced by minimum sublease rentals due in the future of $15 million.
|
143
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On December 22, 2016, the Company completed the sale and leaseback of ten medical office
buildings for net proceeds of $159 million to HCP, Inc. The buildings, with a combined total of 756,183 square feet, are located in five states and support a wide array of diagnostic, medical and surgical services in an outpatient setting for the
respective nearby hospitals. Because of the Companys continuing involvement in these leased buildings, the transaction does not qualify for sale treatment and the related leases have been recorded as financing obligations in the Companys
consolidated balance sheet at December 31, 2016. Such financing obligations are included with the capital lease obligations discussed throughout these footnotes to the consolidated financial statements.
Assets capitalized under capital leases as reflected in the accompanying consolidated balance sheets were $69 million of land and
improvements, $826 million of buildings and improvements and $56 million of equipment and fixtures as of December 31, 2016 and $74 million of land and improvements, $793 million of buildings and improvements and $112 million of equipment and
fixtures as of December 31, 2015. The accumulated depreciation related to assets under capital leases was $240 million and $246 million as of December 31, 2016 and 2015, respectively. Depreciation of assets under capital leases is included
in depreciation and amortization expense and amortization of debt discounts on capital lease obligations is included in interest expense in the accompanying consolidated statements of (loss) income.
11. EMPLOYEE BENEFIT PLANS
The
Company maintains various benefit plans, including defined contribution plans, defined benefit plans and deferred compensation plans, for which certain of the Companys subsidiaries are the plan sponsors. The CHS/Community Health Systems, Inc.
Retirement Savings Plan is a defined contribution plan which covers the majority of the employees at subsidiaries owned prior to the HMA merger. Employees at these locations whose employment is covered by collective bargaining agreements are
generally eligible to participate in the CHS/Community Health Systems, Inc. Standard 401(k) Plan. The Company also maintains the Health Management Associates, Inc. Retirement Savings Plan, a defined contribution plan covering substantially all of
the employees formerly employed by HMA. Total expense to the Company under the 401(k) plans was $98 million, $103 million and $99 million for the years ended December 31, 2016, 2015 and 2014, respectively, and is recorded in salaries and
benefits expense on the consolidated statements of (loss) income.
The Company maintains unfunded deferred compensation plans that allow
participants to defer receipt of a portion of their compensation. The liability for the deferred compensation plans was $229 million and $199 million as of December 31, 2016 and 2015, respectively, and is included in other long-term liabilities
on the consolidated balance sheets. The Company had assets of $219 million and $197 million as of December 31, 2016 and 2015, respectively, in a non-qualified plan trust generally designated to pay benefits of the deferred compensation plans,
consisting of trading securities of $80 million and $61 million as of December 31, 2016 and 2015, respectively, and company-owned life insurance contracts of $139 million and $136 million as of December 31, 2016 and 2015, respectively.
The Company provides an unfunded Supplemental Executive Retirement Plan (SERP) for certain members of its executive
management. The Company uses a December 31 measurement date for the benefit obligations and a January 1 measurement date for its net periodic costs for the SERP. Variances from actuarially assumed rates will result in increases or
decreases in benefit obligations and net periodic cost in future periods. Benefits expense under the SERP was $12 million, $12 million and $11 million for the years ended December 31, 2016, 2015 and 2014, respectively. The accrued benefit
liability for the SERP totaled $122 million and $131 million at December 31, 2016 and 2015, respectively, and is included in other long-term liabilities on the consolidated balance sheets. The weighted-average assumptions used in determining
net periodic cost for the year ended December 31, 2016 was a discount rate of 3.6% and annual salary increase of 3.0%. The Company had available-for-sale securities in a rabbi trust generally designated to pay benefits of the SERP in the
amounts of $131 million and $95 million at December 31, 2016 and 2015, respectively. These amounts are included in other assets, net on the consolidated balance sheets.
144
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company maintains the CHS/Community Health Systems, Inc. Retirement Income Plan
(Pension Plan), which is a defined benefit, non-contributory pension plan that covers certain employees at three of its hospitals. The Pension Plan provides benefits to covered individuals satisfying certain age and service requirements.
Employer contributions to the Pension Plan are in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended. The Company expects to make no contribution to the Pension Plan in 2017. The
Company uses a December 31 measurement date for the benefit obligations and a January 1 measurement date for its net periodic costs for the Pension Plan. Variances from actuarially assumed rates will result in increases or decreases in
benefit obligations, net periodic cost and funding requirements in future periods. Benefits expense under the Pension Plan was less than $1 million for each of the years ended December 31, 2016, 2015 and 2014. The accrued benefit liability for
the Pension Plan totaled $16 million and $13 million at December 31, 2016 and 2015, respectively, and is included in other long-term liabilities on the consolidated balance sheets. The weighted-average assumptions used for determining the net
periodic cost for the year ended December 31, 2016 was a discount rate of 4.5% and the expected long-term rate of return on assets of 7.0%.
12.
STOCKHOLDERS EQUITY
Authorized capital shares of the Company include 400,000,000 shares of capital stock consisting of
300,000,000 shares of common stock and 100,000,000 shares of preferred stock. Each of the aforementioned classes of capital stock has a par value of $0.01 per share. Shares of preferred stock, none of which were outstanding as of December 31,
2016, may be issued in one or more series having such rights, preferences and other provisions as determined by the Board of Directors without approval by the holders of common stock.
On November 6, 2015, the Company adopted an open market repurchase program for up to 10,000,000 shares of the Companys common
stock, not to exceed $300 million in repurchases. The repurchase program will expire on the earlier of November 5, 2018, when the maximum number of shares has been repurchased, or when the maximum dollar amount has been expended. During the
year ended December 31, 2015, the Company repurchased and retired 532,188 shares at a weighted-average price of $27.31 per share, which is the cumulative number of shares repurchased and retired under this program. No shares were repurchased
under this program during the year ended December 31, 2016.
On December 10, 2014, the Company adopted an open market repurchase
program for up to 5,000,000 shares of the Companys common stock, not to exceed $150 million in repurchases. This repurchase program expired on December 1, 2015 after the Company repurchased and retired the maximum 5,000,000 shares at a
weighted average price of $28.84 per share during the three months ended December 31, 2015.
On December 14, 2011, the Company
adopted an open market repurchase program for up to 4,000,000 shares of the Companys common stock, not to exceed $100 million in repurchases. This repurchase program expired on December 13, 2014. During the year ended December 31,
2014, the Company repurchased and retired 175,000 shares at a weighted-average price of $49.72 per share. During the year ended December 31, 2013, the Company repurchased and retired 706,023 shares at a weighted-average price of $38.39 per
share. The cumulative number of shares repurchased and retired under this program was 881,023 shares at a weighted-average price of $40.64 per share.
The Company is a holding company which operates through its subsidiaries. The Companys Credit Facility and the indentures governing the
senior and senior secured notes contain various covenants under which the assets of the subsidiaries of the Company are subject to certain restrictions relating to, among other matters, dividends and distributions, as referenced in the paragraph
below.
With the exception of a special cash dividend of $0.25 per share paid by the Company in December 2012, historically, the Company
has not paid any cash dividends. Subject to certain exceptions, the Companys Credit Facility limits the ability of the Companys subsidiaries to pay dividends and make distributions to the Company,
145
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and limits the Companys ability to pay dividends and/or repurchase stock, to an amount not to exceed $200 million in the aggregate plus an additional $25 million in any particular year plus
the aggregate amount of proceeds from the exercise of stock options. The indentures governing the senior and senior secured notes also restrict the Companys subsidiaries from, among other matters, paying dividends and making distributions to
the Company, which thereby limits the Companys ability to pay dividends and/or repurchase stock. The non-cash dividend of approximately $713 million recorded by the Company during the year ended December 31, 2016 to reflect the
distribution of the net assets of QHC was a permitted transaction under the Companys Credit Facility. As of December 31, 2016, under the most restrictive test under these agreements (and subject to certain exceptions), the Company has
approximately $318 million remaining available with which to pay permitted dividends and/or repurchase shares of stock or its senior and senior secured notes.
The following schedule discloses the effects of changes in the Companys ownership interest in its less-than-wholly-owned subsidiaries on
Community Health Systems, Inc. stockholders equity (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net (loss) income attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(1,721
|
)
|
|
$
|
158
|
|
|
$
|
92
|
|
Transfers from the noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in Community Health Systems, Inc.paid-in-capital for purchase of subsidiary
partnership interests
|
|
|
(9
|
)
|
|
|
(16
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers from the noncontrolling interests
|
|
|
(9
|
)
|
|
|
(16
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change to Community Health Systems, Inc. stockholders equity from net (loss) income
attributable to Community Health Systems, Inc. stockholders and transfers to noncontrolling interests
|
|
$
|
(1,730
|
)
|
|
$
|
142
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. EARNINGS PER SHARE
The following table sets forth the components of the numerator and denominator for the computation of basic and diluted earnings per share for
(loss) income from continuing operations, discontinued operations and net (loss) income attributable to Community Health Systems, Inc. common stockholders (in millions, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations, net of taxes
|
|
$
|
(1,611
|
)
|
|
$
|
295
|
|
|
$
|
260
|
|
Less: Income from continuing operations attributable to noncontrolling interests, net of
taxes
|
|
|
95
|
|
|
|
101
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Community Health Systems, Inc. common
stockholders basic and diluted
|
|
$
|
(1,706
|
)
|
|
$
|
194
|
|
|
$
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
$
|
(15
|
)
|
|
$
|
(36
|
)
|
|
$
|
(57
|
)
|
Less: Loss from discontinued operations attributable to noncontrolling interests, net of
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations attributable to Community Health Systems, Inc. common
stockholders basic and diluted
|
|
$
|
(15
|
)
|
|
$
|
(36
|
)
|
|
$
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding basic
|
|
|
110,730,971
|
|
|
|
114,454,674
|
|
|
|
111,579,088
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
-
|
|
|
|
449,961
|
|
|
|
377,190
|
|
Employee stock options
|
|
|
-
|
|
|
|
357,188
|
|
|
|
578,395
|
|
Other equity-based awards
|
|
|
-
|
|
|
|
10,581
|
|
|
|
14,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding diluted
|
|
|
110,730,971
|
|
|
|
115,272,404
|
|
|
|
112,549,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company generated a loss from continuing operations attributable to Community Health Systems, Inc. common
stockholders for the year ended December 31, 2016, so the effect of dilutive securities is not considered because their effect would be antidilutive. If the Company had generated income from continuing operations during the year ended
December 31, 2016, the effect of restricted stock awards, employee stock options, and other equity-based awards on the diluted shares calculation would have been an increase in shares of 331,518 shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Dilutive securities outstanding not included in the computation of earnings per share because
their effect is antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and restricted stock awards
|
|
|
2,554,627
|
|
|
|
255,564
|
|
|
|
472,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. EQUITY INVESTMENTS
As of December 31, 2016, the Company owned equity interests of 38.0% in three hospitals in Macon, Georgia, in which HCA Holdings, Inc.
(HCA) owns the majority interest. On April 29, 2016, the Company sold its unconsolidated minority equity interests in Valley Health System, LLC, a joint venture with Universal Health Systems, Inc. (UHS) representing four
hospitals in Las Vegas, Nevada, in which the Company owned a 27.5% interest, and in Summerlin Hospital Medical Center, LLC, a joint venture with UHS representing one hospital in Las Vegas, Nevada, in which the Company owned a 26.1% interest. The
Company received $403 million in cash in return for the sale of its equity interests and, as a result, recognized a gain of approximately $94 million on the sale of investments in unconsolidated affiliates during the year ended December 31,
2016.
Summarized combined financial information for these unconsolidated entities in the periods in which the Company owned these equity
interests is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current assets
|
|
$
|
54
|
|
|
$
|
283
|
|
Noncurrent assets
|
|
|
112
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
166
|
|
|
$
|
1,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
17
|
|
|
$
|
111
|
|
Noncurrent liabilities
|
|
|
2
|
|
|
|
2
|
|
Members equity
|
|
|
147
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
166
|
|
|
$
|
1,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues
|
|
$
|
731
|
|
|
$
|
1,494
|
|
|
$
|
1,368
|
|
Operating costs and expenses
|
|
|
602
|
|
|
|
1,287
|
|
|
|
1,184
|
|
Income from continuing operations before taxes
|
|
|
129
|
|
|
|
207
|
|
|
|
184
|
|
The summarized financial information was derived from the financial information provided to the Company by
those unconsolidated entities.
In March 2005, the Company began purchasing items, primarily medical supplies, medical equipment and
pharmaceuticals, under an agreement with HealthTrust Purchasing Group, L.P. (HealthTrust), a group purchasing organization in which the Company is a noncontrolling partner. As of December 31, 2016, the Company had a 23.1% ownership
interest in HealthTrust.
On December 31, 2016, the Company sold 80% of its ownership interest in the legal entity that owned and
operated its home care agency business. As part of the divestiture of its controlling interest in the home care agency business, the Company recorded an equity method investment representing its remaining 20% ownership at a fair value of $32
million.
The Companys investment in all of its unconsolidated affiliates was $177 million and $479 million at
December 31, 2016 and December 31, 2015, respectively, and is included in other assets, net in the accompanying consolidated balance sheets. Included in the Companys results of operations is the Companys equity in pre-tax
earnings from all of its investments in unconsolidated affiliates, which was $43 million, $63 million and $48 million for the years ended December 31, 2016, 2015 and 2014, respectively.
148
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. SEGMENT INFORMATION
The Company operates in two distinct operating segments, represented by hospital operations (which includes its general acute care hospitals
and related healthcare entities that provide inpatient and outpatient healthcare services) and home care agency operations (which provide in-home outpatient care).
Only the hospital operations segment meets the criteria as a separate reportable segment. The financial information for the home care agency
segment does not meet the quantitative thresholds for a separate identifiable reportable segment and is combined into the corporate and all other reportable segment. On December 31, 2016, the Company sold 80% of its ownership interest in the
home care division.
The distribution between reportable segments of the Companys net operating revenues and (loss) income from
continuing operations before income taxes, expenditures for segment assets and total assets is summarized in the following tables (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
18,210
|
|
|
$
|
19,234
|
|
|
$
|
18,399
|
|
Corporate and all other
|
|
|
228
|
|
|
|
203
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,438
|
|
|
$
|
19,437
|
|
|
$
|
18,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
(1,418
|
)
|
|
$
|
767
|
|
|
$
|
772
|
|
Corporate and all other
|
|
|
(297
|
)
|
|
|
(356
|
)
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,715
|
)
|
|
$
|
411
|
|
|
$
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for segment assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
727
|
|
|
$
|
915
|
|
|
$
|
817
|
|
Corporate and all other
|
|
|
17
|
|
|
|
38
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
744
|
|
|
$
|
953
|
|
|
$
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
20,582
|
|
|
$
|
25,005
|
|
|
|
|
|
Corporate and all other
|
|
|
1,362
|
|
|
|
1,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,944
|
|
|
$
|
26,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. OTHER COMPREHENSIVE INCOME
The following tables present information about items reclassified out of accumulated other comprehensive (loss) income by component for the
years ended December 31, 2016 and 2015 (in millions, net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Fair
Value of Interest
Rate Swaps
|
|
|
Change in Fair
Value of Available
for Sale Securities
|
|
|
Change in
Unrecognized
Pension Cost
Components
|
|
|
Accumulated Other
Comprehensive
Income (Loss)
|
|
Balance as of December 31, 2015
|
|
$
|
(48
|
)
|
|
$
|
1
|
|
|
$
|
(26
|
)
|
|
$
|
(73
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(17
|
)
|
|
|
2
|
|
|
|
1
|
|
|
|
(14
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
34
|
|
|
|
(13
|
)
|
|
|
2
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive (loss) income
|
|
|
17
|
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
9
|
|
AOCI distributed to QHC in spin-off
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
(31
|
)
|
|
$
|
(10
|
)
|
|
$
|
(21
|
)
|
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Fair
Value of Interest
Rate Swaps
|
|
|
Change in Fair
Value of Available
for Sale Securities
|
|
|
Change in
Unrecognized
Pension Cost
Components
|
|
|
Accumulated Other
Comprehensive
Income (Loss)
|
|
Balance as of December 31, 2014
|
|
$
|
(43
|
)
|
|
$
|
7
|
|
|
$
|
(27
|
)
|
|
$
|
(63
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(32
|
)
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(39
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
27
|
|
|
|
-
|
|
|
|
2
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive (loss) income
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
|
1
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
(48
|
)
|
|
$
|
1
|
|
|
$
|
(26
|
)
|
|
$
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present a subtotal for each significant reclassification to net (loss)
income out of AOCL and the line item affected in the accompanying consolidated statements of (loss) income for the years ended December 31, 2016 and 2015 (in millions):
|
|
|
|
|
|
|
|
|
Amount reclassified
from AOCL
|
|
|
Affected line item in the
statement where net
(loss) income is presented
|
Details about accumulated other
comprehensive income (loss) components
|
|
Year Ended
December 31, 2016
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(54
|
)
|
|
Interest expense, net
|
|
|
|
20
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
$
|
(34
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
(2
|
)
|
|
Salaries and benefits
|
Actuarial losses
|
|
|
(1
|
)
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
Total before tax
|
|
|
|
1
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
$
|
(2
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified
from AOCL
|
|
|
Affected line item in the
statement where net
income is presented
|
Details about accumulated other
comprehensive income (loss)
components
|
|
Year Ended
December 31, 2015
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(42
|
)
|
|
Interest expense, net
|
|
|
|
15
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
$
|
(27
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
(1
|
)
|
|
Salaries and benefits
|
Actuarial losses
|
|
|
(2
|
)
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
Total before tax
|
|
|
|
1
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
$
|
(2
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
17. COMMITMENTS AND CONTINGENCIES
Construction and Other Capital Commitments.
Pursuant to a hospital purchase agreement in effect as of December 31,
2016, the Company has agreed to build a replacement facility in York, Pennsylvania. The estimated construction cost, including equipment costs, is approximately $125 million. This project is required to be completed in 2017 and approximately $17
million has been expended through December 31, 2016 related to this replacement hospital. Pursuant to a hospital purchase agreement in effect as of December 31, 2016, the Company is required to build replacement facilities in La Porte and
Knox, Indiana. The estimated construction costs, including equipment costs, are approximately $125 million and $15 million, respectively. No costs have
151
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
been incurred to date on those facilities. In addition, under other purchase agreements outstanding at December 31, 2016, the Company has committed to spend approximately $464 million for
costs such as capital improvements, equipment, selected leases and physician recruiting. These commitments are required to be fulfilled generally over a five to seven year period after acquisition. Through December 31, 2016, the Company has
spent approximately $209 million related to these commitments.
Physician Recruiting Commitments.
As part of its
physician recruitment strategy, the Company provides income guarantee agreements to certain physicians who agree to relocate to its communities and commit to remain in practice there. Under such agreements, the Company is required to make payments
to the physicians in excess of the amounts they earned in their practice up to the amount of the income guarantee. These income guarantee periods are typically for 12 months. Such payments are recoverable by the Company from physicians who do not
fulfill their commitment period, which is typically three years, to the respective community. At December 31, 2016, the maximum potential amount of future payments under these guarantees in excess of the liability recorded is $30 million.
Professional Liability Claims.
As part of the Companys business of owning and operating hospitals, it is subject to
legal actions alleging liability on its part. The Company accrues for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims. These direct out-of-pocket
expenses include fees of outside counsel and experts. The Company does not accrue for costs that are part of corporate overhead, such as the costs of in-house legal and risk management departments. The losses resulting from professional liability
claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, historical claim reporting and payment patterns, the nature and level of hospital
operations and actuarially determined projections. The actuarially determined projections are based on the Companys actual claim data, including historic reporting and payment patterns which have been gathered over an approximate 20-year
period. As discussed below, since the Company purchases excess insurance on a claims-made basis that transfers risk to third-party insurers, the liability it accrues does include an amount for the losses covered by its excess insurance. The Company
also records a receivable for the expected reimbursement of losses covered by excess insurance. Since the Company believes that the amount and timing of its future claims payments are reliably determinable, it discounts the amount accrued for losses
resulting from professional liability claims using the risk-free interest rate corresponding to the timing of expected payments.
The net
present value of the projected payments was discounted using a weighted-average risk-free rate of 1.8%, 1.6% and 1.7% in 2016, 2015 and 2014, respectively. This liability is adjusted for new claims information in the period such information becomes
known. The Companys estimated liability for professional and general liability claims was $788 million and $901 million as of December 31, 2016 and 2015, respectively. The estimated undiscounted claims liability was $843 million and $949
million as of December 31, 2016 and 2015, respectively. The current portion of the liability for professional and general liability claims was $130 million and $156 million as of December 31, 2016 and 2015, respectively, and is included in
other accrued liabilities in the accompanying consolidated balance sheets, with the long-term portion recorded in other long-term liabilities. Professional malpractice expense includes the losses resulting from professional liability claims and loss
adjustment expense, as well as paid excess insurance premiums, and is presented within other operating expenses in the accompanying consolidated statements of (loss) income.
The Companys processes for obtaining and analyzing claims and incident data are standardized across all of its hospitals and have been
consistent for many years. The Company monitors the outcomes of the medical care services that it provides and for each reported claim, the Company obtains various information concerning the facts and circumstances related to that claim. In
addition, the Company routinely monitors current key statistics and volume indicators in its assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between four and five years,
although the facts and circumstances
152
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims
represent approximately 1.0% of the total liability at the end of any period.
For purposes of estimating its individual claim accruals,
the Company utilizes specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims
are determined, information is stratified by loss layers and retentions, accident years, reported years, geography and claims relating to the acquired HMA hospitals versus claims relating to the Companys other hospitals. Several actuarial
methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses company-specific historical claims data and other information. This company-specific data
includes information regarding the Companys business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census
information, employed physician information, professional liability retentions for each policy year, geographic information and other data.
Based on these analyses the Company determines its estimate of the professional liability claims. The determination of managements
estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of the management. Changes in reserving data or the trends and factors that influence reserving data may signal fundamental shifts
in the Companys future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since the
Companys methods and models use different types of data and the Company selects its liability from the results of all of these methods, it typically cannot quantify the precise impact of such factors on its estimates of the liability. Due to
the Companys standardized and consistent processes for handling claims and the long history and depth of company-specific data, the Companys methodologies have produced reliably determinable estimates of ultimate paid losses.
The Company is primarily self-insured for professional liability claims; however, the Company obtains excess insurance that transfers the risk
of loss to a third-party insurer for claims in excess of self-insured retentions. The Companys excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of the Companys
professional and general liability risks were subject to a less than $1 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million per
occurrence. Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005 and before June 1, 2014 are
self-insured up to $5 million per claim. Substantially all claims reported on or after June 1, 2014 are self-insured up to $10 million per claim. Management on occasion has selectively increased the insured risk at certain hospitals based upon
insurance pricing and other factors and may continue that practice in the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers the Company for liabilities in excess of the
self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence
and in the aggregate for claims reported on or after January 1, 2008, up to $195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to $220 million per occurrence and in the aggregate for
claims reported on or after June 1, 2015. In addition, for integrated occurrence malpractice claims, there is an additional $50 million of excess coverage for claims reported on or after June 1, 2014 and an additional $75 million of excess
coverage for claims reported on or after June 1, 2015. For certain policy years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the Companys self-insured retention will increase to
$10 million per claim for any subsequent claims in that policy year until the Companys total aggregate coverage is met.
153
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective June 1, 2014, the hospitals acquired from HMA were insured on a claims-made
basis as described above and through commercial insurance companies as described above for substantially all claims reported on or after June 1, 2014 except for physician-related claims with an occurrence date prior to June 1, 2014. Prior
to June 1, 2014, the former HMA hospitals obtained insurance coverage through a wholly-owned captive insurance subsidiary and a risk retention group subsidiary which are domiciled in the Cayman Islands and South Carolina, respectively. Those
insurance subsidiaries, which are collectively referred to as the Insurance Subsidiaries, provided (i) claims-made coverage to all of the former HMA hospitals and (ii) occurrence-basis coverage to most of the physicians
employed by the former HMA hospitals. The employed physicians not covered by the Insurance Subsidiaries generally maintained claims-made policies with unrelated third party insurance companies. To mitigate the exposure of the program covering the
former HMA hospitals and other healthcare facilities, the Insurance Subsidiaries bought claims-made reinsurance policies from unrelated third parties for claims above self-retention levels of $10 million or $15 million per claim, depending on the
policy year.
Effective January 1, 2008, the hospitals acquired from Triad were insured on a claims-made basis as described above and
through commercial insurance companies as described above for substantially all claims occurring on or after January 1, 2002 and reported on or after January 1, 2008. Substantially all losses for the former Triad hospitals in periods prior
to May 1, 1999 were insured through a wholly-owned insurance subsidiary of HCA, Triads owner prior to that time, and excess loss policies maintained by HCA. HCA has agreed to indemnify the former Triad hospitals in respect of claims
covered by such insurance policies arising prior to May 1, 1999. After May 1, 1999 through December 31, 2006, the former Triad hospitals obtained insurance coverage on a claims incurred basis from HCAs wholly-owned insurance
subsidiary, with excess coverage obtained from other carriers that is subject to certain deductibles. Effective for claims incurred after December 31, 2006, Triad began insuring its claims from $1 million to $5 million through its wholly-owned
captive insurance company, replacing the coverage provided by HCA. Substantially all claims occurring during 2007 were self-insured up to $10 million per claim.
Legal Matters.
The Company is a party to various legal, regulatory and governmental proceedings incidental to its business.
Based on current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters, including the matters described herein, will have a material adverse effect on the consolidated
financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending legal, regulatory and governmental matters, some of which are beyond the Companys control, and the very large or indeterminate
damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Companys results of operations or cash flows for any particular reporting period.
With respect to all legal, regulatory and governmental proceedings, the Company considers the likelihood of a negative outcome. If the Company
determines the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, the Company records an accrual for the estimated loss for the expected outcome of the matter. If the
likelihood of a negative outcome with respect to material matters is reasonably possible and the Company is able to determine an estimate of the possible loss or a range of loss, whether in excess of a related accrued liability or where there is no
accrued liability, the Company discloses the estimate of the possible loss or range of loss. However, the Company is unable to estimate a possible loss or range of loss in some instances based on the significant uncertainties involved in, and/or the
preliminary nature of, certain legal, regulatory and governmental matters.
In connection with the spin-off of QHC, the Company agreed to
indemnify QHC for certain liabilities relating to outcomes or events occurring prior to April 29, 2016, the closing date of the spin-off, including (i) certain claims and proceedings that were known to be outstanding at or prior to the
consummation of the spin-off and involved multiple facilities and (ii) certain claims, proceedings and investigations by governmental authorities or private plaintiffs related to activities occurring at or related to QHCs healthcare
facilities prior to the closing
154
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
date of the spin-off, but only to the extent, in the case of clause (ii), that such claims are covered by insurance policies maintained by the Company, including professional liability and
employer practices. In this regard, the Company continues to be responsible for HMA Legal Matters (as defined below) covered by the CVR agreement that relate to QHCs business, and any amounts payable by the Company in connection therewith will
continue to reduce the amount payable by the Company in respect of the CVRs. Notwithstanding the foregoing, the Company is not required to indemnify QHC in respect of any claims or proceedings arising out of or related to the business operations of
Quorum Health Resources, LLC at any time or QHCs compliance with the corporate integrity agreement. Subsequent to the spin-off of QHC, the Office of the Inspector General provided the Company with written assurance that it would look solely at
QHC for compliance for its facilities under the Companys Corporate Integrity Agreement; however, the Office of the Inspector General declined to enter into a separate corporate integrity agreement with QHC.
HMA Legal Matters and Related CVR
The CVR agreement entitles the holder to receive a one-time cash payment of up to $1.00 per CVR, subject to downward adjustment based on the
final resolution of certain litigation, investigations (whether formal or informal, including subpoenas), or other actions or proceedings related to HMA or its affiliates existing on or prior to July 29, 2013 (the date of the Companys
merger agreement with HMA) as more specifically provided in the CVR agreement (all such matters are referred to as the HMA Legal Matters), which include, but are not limited to, investigation and litigation matters as previously
disclosed by HMA in public filings with the SEC and/or as described in more detail below. The adjustment reducing the ultimate amount paid to holders of the CVR is determined based on the amount of losses incurred by the Company in connection with
the HMA Legal Matters as more specifically provided in the CVR agreement, which generally includes the amount paid for damages, costs, fees and expenses (including, without limitation, attorneys fees and expenses), and all fines, penalties,
settlement amounts, indemnification obligations and other liabilities (all such losses are referred to as HMA Losses). If the aggregate amount of HMA Losses exceeds a deductible of $18 million, then the amount payable in respect of each
CVR shall be reduced (but not below zero) by an amount equal to the quotient obtained by dividing: (a) the product of (i) all losses in excess of the deductible and (ii) 90%; by (b) the number of CVRs outstanding on the date on
which final resolution of the existing litigation occurs. There are 264,544,053 CVRs outstanding as of the date hereof. If total HMA Losses (including HMA Losses that have occurred to date as noted in the table below) exceed approximately $312
million, then the holders of the CVRs will not be entitled to any payment in respect of the CVRs.
The CVRs do not have a finite payment
date. Any payments the Company makes under the CVR agreement will be payable within 60 days after the final resolution of the HMA Legal Matters. The CVRs are unsecured obligations of CHS and all payments under the CVRs will be subordinated in right
of payment to the prior payment in full of all of the Companys senior obligations (as defined in the CVR agreement), which include outstanding indebtedness of the Company (subject to certain exceptions set forth in the CVR agreement) and the
HMA Losses. The CVR agreement permits the Company to acquire all or some of the CVRs, whether in open market transactions, private transactions or otherwise. As of December 31, 2016, the Company had acquired no CVRs.
155
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table represents the impact of legal expenses paid or incurred and settlements
paid or deemed final as of December 31, 2016 and 2015 on the amounts owed to CVR holders (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Expenses and Settlements Paid
|
|
|
|
Total Expenses
and Settlement
Cost
|
|
|
Deductible
|
|
|
CHS
Responsibility
at 10%
|
|
|
Reduction to
Amount Owed
to CVR Holders
at 90%
|
|
As of December 31, 2014
|
|
$
|
24
|
|
|
$
|
18
|
|
|
$
|
-
|
|
|
$
|
6
|
|
Settlements paid
|
|
|
26
|
|
|
|
-
|
|
|
|
3
|
|
|
|
23
|
|
Legal expenses incurred and/or paid during the year ended December 31, 2015
|
|
|
8
|
|
|
|
-
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
$
|
58
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
36
|
|
Settlements paid
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Legal expenses incurred and/or paid during the year ended December 31, 2016
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
$
|
62
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts owed to CVR holders are dependent on the ultimate resolution of the HMA Legal Matters and
determination of HMA Losses incurred. The settlement of any or all of the claims and expenses incurred on behalf of the Company in defending itself will (subject to the deductible) reduce the amounts owed to the CVR holders.
Underlying the CVR agreement are a number of claims included in the HMA Legal Matters asserted against HMA. The Company has recorded a
liability in connection with those claims as part of the acquired assets and liabilities at the date of acquisition pursuant to the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 805 Business
Combinations. For the estimate of the Companys liabilities associated with the HMA Legal Matters that will be covered by the CVR and were not previously accrued by HMA, the Company recorded a liability of $284 million as part of the
acquisition accounting for the HMA merger based on the Companys estimate of fair value of such liabilities as of the date of acquisition. There was a $9 million decrease in the liability during the year ended December 31, 2016 and the
fair value of such liabilities of $252 million as of December 31, 2016 is recorded in other long-term liabilities on the accompanying consolidated balance sheet. As of December 31, 2016, there is currently no accrual recorded for the
probable contingency claims underlying the CVR agreement. The estimated liability for probable contingency claims underlying the CVR agreement that was previously recorded by HMA, and reflected in the purchase accounting for HMA as an acquired
liability has been settled and was paid during the year ended December 31, 2015. In addition, although legal fees are not included in the amounts currently accrued, such legal fees are taken into account in determining HMA Losses under the CVR
agreement. Certain significant HMA Legal Matters underlying these liabilities are discussed in greater detail below.
HMA Matters Recorded at Fair
Value
Medicare/Medicaid Billing Lawsuits
Beginning during the week of December 16, 2013, eleven qui tam lawsuits filed by private individuals against HMA were unsealed in various
United States district courts. The United States has elected to intervene in all or part of eight of these matters; namely U.S. ex rel. Craig Brummer v. Health Management Associates, Inc. et al. (Middle District Georgia) (Brummer); U.S.
ex rel. Ralph D. Williams v. Health Management Associates, Inc. et al. (Middle District Georgia) (Williams); U.S. ex rel. Scott H. Plantz, M.D. et al. v. Health Management Associates,
156
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inc., et al. (Northern District Illinois) (Plantz); U.S. ex rel. Thomas L. Mason, M.D. et al. v. Health Management Associates, Inc. et al. (Western District North Carolina)
(Mason); U.S. ex rel. Jacqueline Meyer, et al. v. Health Management Associates, Inc., Gary Newsome et al. (Jacqueline Meyer) (District of South Carolina); U.S. ex rel. George Miller, et al. v. Health Management Associates,
Inc. (Eastern District of Pennsylvania) (Miller); U.S. ex rel. Bradley Nurkin v. Health Management Associates, Inc. et al. (Middle District of Florida) (Nurkin); and U.S. ex rel. Paul Meyer v. Health Management Associates,
Inc. et al. (Southern District Florida) (Paul Meyer). The United States has elected to intervene with respect to allegations in these cases that certain HMA hospitals inappropriately admitted patients and then submitted reimbursement
claims for treating those individuals to federal healthcare programs in violation of the False Claims Act or that certain HMA hospitals had inappropriate financial relationships with physicians which violated the Stark law, the Anti-Kickback
Statute, and the False Claims Act. Certain of these complaints also allege the same actions violated various state laws which prohibit false claims. The United States has declined to intervene in three of the eleven matters, namely U.S. ex rel.
Anita France, et al. v. Health Management Associates, Inc. (Middle District Florida) (France) which involved allegations of wrongful billing and was settled; U.S. ex rel. Sandra Simmons v. Health Management Associates, Inc. et al.
(Eastern District Oklahoma) (Simmons) which alleges unnecessary surgery by an employed physician and which was settled as to all allegations except alleged wrongful termination; and U.S. ex rel. David Napoliello, M.D. v. Health
Management Associates, Inc. (Middle District Florida) (Napoliello) which alleges inappropriate admissions. On April 3, 2014, the Multi District Litigation Panel ordered the transfer and consolidation for pretrial proceedings of the
eight intervened cases, plus the Napoliello matter, to the District of the District of Columbia under the name In Re: Health Management Associates, Inc. Qui Tam Litigation. On June 2, 2014, the court entered a stay of this matter until
October 6, 2014, which was subsequently extended until February 27, 2015, May 27, 2015, September 25, 2015, January 25, 2016, May 25, 2016, September 26, 2016, December 27, 2016
and now until April 27, 2017. The Company intends to defend against the allegations in these matters, but also continues to cooperate with the government in the ongoing investigation of these allegations. The Company has been in discussions
with the Civil Division of the United States Department of Justice (DOJ) regarding the resolutions of these matters. During the first quarter of 2015, the Company was informed that the Criminal Division continues to investigate former
executive-level employees of HMA, and continues to consider whether any HMA entities should be held criminally liable for the acts of the former HMA employees. The Company is voluntarily cooperating with these inquiries and has not been served with
any subpoenas or other legal process.
Other Probable Contingencies
Lopez v. Yakima Regional Medial & Cardiac Center and Toppenish Community Hospital.
This class action lawsuit arose out of
alleged conduct at these hospitals prior to the HMA acquisition. The suit alleges the hospitals charity care policies did not comply with Washington state law. The trial court has certified a class and granted partial summary judgment in favor
of the plaintiffs. This matter has now been settled. The Company has recorded an estimate of the probable liability at December 31, 2016 based on the settlement of this matter.
Becker v. Community Health Systems, Inc. d/b/a Community Health Systems Professional Services Corporation d/b/a Community Health Systems
d/b/a Community Health Systems PSC, Inc. d/b/a Rockwood Clinic P.S. and Rockwood Clinic, P.S. (Superior Court, Spokane, Washington).
This suit was filed on February 29, 2012, by a former chief financial officer at Rockwood Clinic in
Spokane, Washington. Becker claims he was wrongfully terminated for allegedly refusing to certify a budget for Rockwood Clinic in 2012. On February 29, 2012, he also filed an administrative complaint with the Department of Labor, Occupational
Safety and Health Administration alleging that he is a whistleblower under Sarbanes-Oxley, which was dismissed by the agency and was appealed to an administrative law judge for a hearing that occurred on January 19-26, 2016. In a decision dated
November 9, 2016, the law judge awarded Becker approximately $1.9 million for front pay, back pay and emotional damages with attorney fees to be later determined. The Company has appealed the award to the Administrative Review Board and
briefing is currently underway. At a hearing on July 27, 2012, the trial
157
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
court dismissed Community Health Systems, Inc. from the state case and subsequently certified the state case for an interlocutory appeal of the denial to dismiss his employer and the management
company. The appellate court accepted the interlocutory appeal, and it was argued on April 30, 2014. On August 14, 2014, the court denied the Companys appeal. On October 20, 2014, the Company filed a petition to review the
denial with the Washington Supreme Court. The appeal was accepted and oral argument was heard on June 9, 2015. On September 15, 2015, the court denied the Companys appeal and remanded to the trial court; a previous trial setting of
September 12, 2016 has been vacated and not reset. The Company continues to vigorously defend these actions.
Summary of Recorded Amounts
The table below presents a reconciliation of the beginning and ending liability balances (in millions) during the years ended
December 31, 2016 and 2015, with respect to the Companys fair value determination in connection with HMA Legal Matters that were not previously accrued by HMA, the estimated liability in connection with HMA legal matters that were
previously recorded by HMA as a probable contingency, and the remaining contingencies of the Company in respect of which an accrual has been recorded. In addition, future legal fees (which are expensed as incurred) and costs related to possible
indemnification and criminal investigation matters associated with the HMA Legal Matters have not been accrued or included in the table below. Furthermore, although not accrued, such costs, if incurred, will be taken into account in determining the
total amount of reductions applied to the amounts owed to CVR holders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVR-Related
Liability
at Fair Value
|
|
|
CVR-Related Liability
for Probable
Contingencies
|
|
|
Other
Probable
Contingencies
|
|
Balance as of December 31, 2014
|
|
$
|
265
|
|
|
$
|
29
|
|
|
$
|
125
|
|
Expense (income)
|
|
|
4
|
|
|
|
(12
|
)
|
|
|
20
|
|
Cash payments
|
|
|
(8
|
)
|
|
|
(17
|
)
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
261
|
|
|
$
|
-
|
|
|
$
|
10
|
|
(Income) expense
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
14
|
|
Reserve for insured claim
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Cash payments
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
252
|
|
|
$
|
-
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With respect to the Other Probable Contingencies referenced in the chart above, in accordance with
applicable accounting guidance, the Company establishes a liability for litigation, regulatory and governmental matters for which, based on information currently available, the Company believes that a negative outcome is known or is probable and the
amount of the loss is reasonably estimable. For all such matters (whether or not discussed in this contingencies footnote), such amounts have been recorded in other accrued liabilities on the consolidated balance sheet and are included in the table
above in the Other Probable Contingencies column. Due to the uncertainties and difficulty in predicting the ultimate resolution of these contingencies, the actual amount could differ from the estimated amount reflected as a liability on
the consolidated balance sheet.
In the aggregate, attorneys fees and other costs incurred but not included in the table above
related to probable contingencies, and CVR-related contingencies accounted for at fair value, totaled $4 million and $9 million for the years ended December 31, 2016 and 2015, respectively, and are included in other operating expenses in the
accompanying consolidated statements of (loss) income.
Matters for which an Outcome Cannot be Assessed
For the legal matters below, the Company cannot at this time assess what the outcome may be and is further unable to determine any estimate of
loss or range of loss. Because the matters below are at a preliminary stage and other factors, there are not sufficient facts available to make these assessments.
158
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Class Action Shareholder Federal Securities Cases
. Three purported class
action cases have been filed in the United States District Court for the Middle District of Tennessee; namely, Norfolk County Retirement System v. Community Health Systems, Inc., et al., filed May 9, 2011; De Zheng v. Community Health Systems,
Inc., et al., filed May 12, 2011; and Minneapolis Firefighters Relief Association v. Community Health Systems, Inc., et al., filed June 21, 2011. All three seek class certification on behalf of purchasers of the Companys common stock
between July 27, 2006 and April 11, 2011 and allege that misleading statements resulted in artificially inflated prices for the Companys common stock. In December 2011, the cases were consolidated for pretrial purposes and NYC Funds
and its counsel were selected as lead plaintiffs/lead plaintiffs counsel. In lieu of ruling on the Companys motion to dismiss, the court permitted the plaintiffs to file a first amended consolidated class action complaint, which was
filed on October 5, 2015. The Companys motion to dismiss was filed on November 4, 2015 and oral argument was held on April 11, 2016. The Companys motion to dismiss was granted on June 16, 2016 and on June 27,
2016, the plaintiffs filed a notice of appeal to the Sixth Circuit Court of Appeals. The matter is fully briefed and the Company is waiting on the setting of a date for oral argument. The Company believes this consolidated matter is without merit
and will vigorously defend this case.
Other Matters
Shareholder Derivative Actions
. Three purported shareholder derivative actions have also been filed in the United States
District Court for the Middle District of Tennessee; Plumbers and Pipefitters Local Union No. 630 Pension Annuity Trust Fund v. Wayne T. Smith, et al., filed May 24, 2011; Roofers Local No. 149 Pension Fund v. Wayne T. Smith, et al.,
filed June 21, 2011; and Lambert Sweat v. Wayne T. Smith, et al., filed October 5, 2011. These three cases allege breach of fiduciary duty arising out of allegedly improper inpatient admission practices, mismanagement, waste and unjust
enrichment. These cases have been consolidated into a single, consolidated action. The plaintiffs filed an operative amended derivative complaint in these three consolidated actions on March 15, 2012. The Companys motion to dismiss was
argued on June 13, 2013. On September 27, 2013, the court issued an order granting in part and denying in part the Companys motion to dismiss. This case was settled pursuant a final order entered on January 17, 2017. Pursuant to
the terms of the settlement, the Company is required to adopt and maintain for a specified period certain corporate governance measures. For more information, see the order and stipulation of settlement filed as Exhibit 99.2 to this Annual Report on
Form 10-K.
18. SUBSEQUENT EVENTS
The Company has evaluated all material events occurring subsequent to the balance sheet date for events requiring disclosure or recognition in
the consolidated financial statements.
As noted above, a final order approving the terms of settlement of the shareholder derivative
action was entered on January 17, 2017. In January 2017, the Company received $40 million of proceeds, which is net of attorneys costs, from the settlement of this litigation. These proceeds were paid out of the Companys directors
and officers insurance policy.
On February 16, 2017, the Company signed a definitive agreement for the sale of eight hospitals
and their associated assets to subsidiaries of Steward Health, Inc. The facilities included in this transaction are Easton Hospital (254 licensed beds) in Easton, Pennsylvania, Sharon Regional Health System (258 licensed beds) in Sharon,
Pennsylvania, Northside Medical Center (355 licensed beds) in Youngstown, Ohio, Trumbull Memorial Hospital (311 licensed beds) in Warren, Ohio, Hillside Rehabilitation Hospital (69 licensed beds) in Warren, Ohio, Wuesthoff Health System
Rockledge (298 licensed beds) in Rockledge, Florida, Wuesthoff Health System Melbourne (119 licensed beds) in Melbourne, Florida and Sebastian River Medical Center (154 licensed beds) in Sebastian, Florida.
159
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
|
|
|
1
st
|
|
|
2
nd
|
|
|
3
rd
|
|
|
4
th
|
|
|
Total (2)
|
|
|
|
(in millions, except share and per share data)
|
|
Year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$
|
4,999
|
|
|
$
|
4,590
|
|
|
$
|
4,380
|
|
|
$
|
4,469
|
|
|
$
|
18,438
|
|
Income (loss) from continuing operations before income taxes
|
|
|
63
|
|
|
|
(1,543
|
)
|
|
|
(83
|
)
|
|
|
(152
|
)
|
|
|
(1,715
|
)
|
Income (loss) from continuing operations
|
|
|
37
|
|
|
|
(1,405
|
)
|
|
|
(54
|
)
|
|
|
(189
|
)
|
|
|
(1,611
|
)
|
Loss from discontinued operations
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
(15
|
)
|
Net income (loss) attributable to Community
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Systems, Inc.
|
|
$
|
11
|
|
|
$
|
(1,432
|
)
|
|
$
|
(79
|
)
|
|
$
|
(220
|
)
|
|
$
|
(1,721
|
)
|
Basic earnings (loss) per share attributable to Community Health Systems, Inc. common
stockholders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.11
|
|
|
$
|
(12.90
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(1.91
|
)
|
|
$
|
(15.41
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.09
|
)
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.10
|
|
|
$
|
(12.91
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
(15.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common
stockholders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.11
|
|
|
$
|
(12.90
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(1.91
|
)
|
|
$
|
(15.41
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.09
|
)
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.10
|
|
|
$
|
(12.91
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
(15.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
110,247,867
|
|
|
|
110,879,285
|
|
|
|
110,888,040
|
|
|
|
110,905,052
|
|
|
|
110,730,971
|
|
Diluted
|
|
|
110,309,372
|
|
|
|
110,879,285
|
|
|
|
110,888,040
|
|
|
|
110,905,052
|
|
|
|
110,730,971
|
|
Year ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$
|
4,911
|
|
|
$
|
4,882
|
|
|
$
|
4,846
|
|
|
$
|
4,798
|
|
|
$
|
19,437
|
|
Income (loss) from continuing operations before income taxes
|
|
|
168
|
|
|
|
214
|
|
|
|
121
|
|
|
|
(91
|
)
|
|
|
411
|
|
Income (loss) from continuing operations
|
|
|
112
|
|
|
|
140
|
|
|
|
83
|
|
|
|
(40
|
)
|
|
|
295
|
|
Loss from discontinued operations
|
|
|
(13
|
)
|
|
|
(6
|
)
|
|
|
(8
|
)
|
|
|
(9
|
)
|
|
|
(36
|
)
|
Net income (loss) attributable to Community
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Systems, Inc.
|
|
$
|
79
|
|
|
$
|
111
|
|
|
$
|
52
|
|
|
$
|
(83
|
)
|
|
$
|
158
|
|
Basic earnings (loss) per share attributable to Community Health Systems, Inc. common
stockholders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.80
|
|
|
$
|
1.02
|
|
|
$
|
0.52
|
|
|
$
|
(0.66
|
)
|
|
$
|
1.69
|
|
Discontinued operations
|
|
|
(0.11
|
)
|
|
|
(0.06
|
)
|
|
|
(0.07
|
)
|
|
|
(0.08
|
)
|
|
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.69
|
|
|
$
|
0.96
|
|
|
$
|
0.45
|
|
|
$
|
(0.73
|
)
|
|
$
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common
stockholders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.79
|
|
|
$
|
1.01
|
|
|
$
|
0.51
|
|
|
$
|
(0.66
|
)
|
|
$
|
1.68
|
|
Discontinued operations
|
|
|
(0.11
|
)
|
|
|
(0.06
|
)
|
|
|
(0.07
|
)
|
|
|
(0.08
|
)
|
|
|
(0.31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.68
|
|
|
$
|
0.95
|
|
|
$
|
0.44
|
|
|
$
|
(0.73
|
)
|
|
$
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
114,419,590
|
|
|
|
115,194,899
|
|
|
|
115,319,986
|
|
|
|
112,891,505
|
|
|
|
114,454,674
|
|
Diluted
|
|
|
115,057,668
|
|
|
|
116,100,417
|
|
|
|
116,368,157
|
|
|
|
112,891,505
|
|
|
|
115,272,404
|
|
(1)
|
Total per share amounts may not add due to rounding.
|
(2)
|
Total quarterly amounts may not add due to rounding.
|
160
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Senior Notes due 2019, 2020 and 2022, which are senior unsecured obligations of CHS, and the
5
1
⁄
8
% Senior Secured Notes due 2018 and 2021 (collectively, the Notes) are guaranteed on a senior basis by the Company and by certain of its
existing and subsequently acquired or organized 100% owned domestic subsidiaries. The Notes are fully and unconditionally guaranteed on a joint and several basis, with exceptions considered customary for such guarantees, limited to the release of
the guarantee when a subsidiary guarantors capital stock is sold, or a sale of all of the subsidiary guarantors assets used in operations. The following condensed consolidating financial statements present Community Health Systems, Inc.
(as parent guarantor), CHS (as the issuer), the subsidiary guarantors, the subsidiary non-guarantors and eliminations. These condensed consolidating financial statements have been prepared and presented in accordance with SEC Regulation S-X
Rule 3-10 Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.
The
accounting policies used in the preparation of this financial information are consistent with those elsewhere in the consolidated financial statements of the Company, except as noted below:
|
|
|
Intercompany receivables and payables are presented gross in the supplemental condensed consolidating balance sheets.
|
|
|
|
Cash flows from intercompany transactions are presented in cash flows from financing activities, as changes in intercompany balances with affiliates, net.
|
|
|
|
Income tax expense is allocated from the parent guarantor to the income producing operations (other guarantors and non-guarantors) and the issuer through stockholders equity. As this approach represents an
allocation, the income tax expense allocation is considered non-cash for statement of cash flow purposes.
|
|
|
|
Interest expense, net has been presented to reflect net interest expense and interest income from outstanding long-term debt and intercompany balances.
|
The Companys intercompany activity consists primarily of daily cash transfers for purposes of cash management, the allocation of certain
expenses and expenditures paid for by the Parent on behalf of its subsidiaries, and the push down of investment in its subsidiaries. This activity also includes the intercompany transactions between consolidated entities as part of the Receivables
Facility that is further discussed in Note 7. The Companys subsidiaries generally do not purchase services from one another; thus, the intercompany transactions do not represent revenue generating transactions. All intercompany transactions
eliminate in consolidation.
From time to time, subsidiaries of the Company sell and/or repurchase noncontrolling interests in
consolidated subsidiaries, which may change subsidiaries between guarantors and non-guarantors. Effective with the spin-off of QHC, all subsidiaries of the Company that were part of that distribution have been removed as guarantors. Amounts for
prior periods have been revised to reflect the status of guarantors or non-guarantors as of December 31, 2016.
161
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Loss
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(25
|
)
|
|
$
|
13,213
|
|
|
$
|
8,087
|
|
|
$
|
-
|
|
|
$
|
21,275
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
1,902
|
|
|
|
935
|
|
|
|
-
|
|
|
|
2,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
11,311
|
|
|
|
7,152
|
|
|
|
-
|
|
|
|
18,438
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
4,569
|
|
|
|
4,055
|
|
|
|
-
|
|
|
|
8,624
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,990
|
|
|
|
1,021
|
|
|
|
-
|
|
|
|
3,011
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
2,823
|
|
|
|
1,425
|
|
|
|
-
|
|
|
|
4,248
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(70
|
)
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
235
|
|
|
|
215
|
|
|
|
-
|
|
|
|
450
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
734
|
|
|
|
366
|
|
|
|
-
|
|
|
|
1,100
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,409
|
|
|
|
510
|
|
|
|
-
|
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
11,734
|
|
|
|
7,564
|
|
|
|
-
|
|
|
|
19,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
(423
|
)
|
|
|
(412
|
)
|
|
|
-
|
|
|
|
(860
|
)
|
Interest expense, net
|
|
|
-
|
|
|
|
241
|
|
|
|
655
|
|
|
|
66
|
|
|
|
-
|
|
|
|
962
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
Gain on sale of investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
(94
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(94
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
1,721
|
|
|
|
1,461
|
|
|
|
467
|
|
|
|
-
|
|
|
|
(3,692
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(1,721
|
)
|
|
|
(1,757
|
)
|
|
|
(1,451
|
)
|
|
|
(478
|
)
|
|
|
3,692
|
|
|
|
(1,715
|
)
|
Provision for (benefit from) income taxes
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
7
|
|
|
|
(75
|
)
|
|
|
-
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(1,721
|
)
|
|
|
(1,721
|
)
|
|
|
(1,458
|
)
|
|
|
(403
|
)
|
|
|
3,692
|
|
|
|
(1,611
|
)
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
2
|
|
|
|
-
|
|
|
|
(7
|
)
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(1,721
|
)
|
|
|
(1,721
|
)
|
|
|
(1,469
|
)
|
|
|
(407
|
)
|
|
|
3,692
|
|
|
|
(1,626
|
)
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
|
|
-
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(1,721
|
)
|
|
$
|
(1,721
|
)
|
|
$
|
(1,469
|
)
|
|
$
|
(502
|
)
|
|
$
|
3,692
|
|
|
$
|
(1,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(20
|
)
|
|
$
|
12,983
|
|
|
$
|
9,601
|
|
|
$
|
-
|
|
|
$
|
22,564
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
1,961
|
|
|
|
1,166
|
|
|
|
-
|
|
|
|
3,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
11,022
|
|
|
|
8,435
|
|
|
|
-
|
|
|
|
19,437
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
4,506
|
|
|
|
4,485
|
|
|
|
-
|
|
|
|
8,991
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,911
|
|
|
|
1,137
|
|
|
|
-
|
|
|
|
3,048
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
2,693
|
|
|
|
1,827
|
|
|
|
-
|
|
|
|
4,520
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(95
|
)
|
|
|
(65
|
)
|
|
|
-
|
|
|
|
(160
|
)
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
223
|
|
|
|
234
|
|
|
|
-
|
|
|
|
457
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
729
|
|
|
|
443
|
|
|
|
-
|
|
|
|
1,172
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
|
|
13
|
|
|
|
-
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
10,026
|
|
|
|
8,074
|
|
|
|
-
|
|
|
|
18,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
996
|
|
|
|
361
|
|
|
|
-
|
|
|
|
1,337
|
|
Interest expense, net
|
|
|
-
|
|
|
|
107
|
|
|
|
742
|
|
|
|
124
|
|
|
|
-
|
|
|
|
973
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(158
|
)
|
|
|
(226
|
)
|
|
|
(106
|
)
|
|
|
-
|
|
|
|
427
|
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
158
|
|
|
|
83
|
|
|
|
360
|
|
|
|
237
|
|
|
|
(427
|
)
|
|
|
411
|
|
(Benefit from) provision for income taxes
|
|
|
-
|
|
|
|
(75
|
)
|
|
|
136
|
|
|
|
55
|
|
|
|
-
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
158
|
|
|
|
158
|
|
|
|
224
|
|
|
|
182
|
|
|
|
(427
|
)
|
|
|
295
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
(27
|
)
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
Loss on sale, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
158
|
|
|
|
158
|
|
|
|
216
|
|
|
|
154
|
|
|
|
(427
|
)
|
|
|
259
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Community Health
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems, Inc. stockholders
|
|
$
|
158
|
|
|
$
|
158
|
|
|
$
|
216
|
|
|
$
|
53
|
|
|
$
|
(427
|
)
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(18
|
)
|
|
$
|
12,420
|
|
|
$
|
9,159
|
|
|
$
|
-
|
|
|
$
|
21,561
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
1,819
|
|
|
|
1,103
|
|
|
|
-
|
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
10,601
|
|
|
|
8,056
|
|
|
|
-
|
|
|
|
18,639
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
4,394
|
|
|
|
4,224
|
|
|
|
-
|
|
|
|
8,618
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,804
|
|
|
|
1,058
|
|
|
|
-
|
|
|
|
2,862
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
2,401
|
|
|
|
1,921
|
|
|
|
-
|
|
|
|
4,322
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(149
|
)
|
|
|
(110
|
)
|
|
|
-
|
|
|
|
(259
|
)
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
216
|
|
|
|
218
|
|
|
|
-
|
|
|
|
434
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
708
|
|
|
|
398
|
|
|
|
-
|
|
|
|
1,106
|
|
Amortization of software to be abandoned
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
|
|
30
|
|
|
|
-
|
|
|
|
75
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
|
|
1
|
|
|
|
-
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
9,560
|
|
|
|
7,740
|
|
|
|
-
|
|
|
|
17,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
1,041
|
|
|
|
316
|
|
|
|
-
|
|
|
|
1,339
|
|
Interest expense, net
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
492
|
|
|
|
490
|
|
|
|
-
|
|
|
|
972
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
73
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(92
|
)
|
|
|
(222
|
)
|
|
|
179
|
|
|
|
-
|
|
|
|
87
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
92
|
|
|
|
141
|
|
|
|
370
|
|
|
|
(174
|
)
|
|
|
(87
|
)
|
|
|
342
|
|
Provision for (benefit from) income taxes
|
|
|
-
|
|
|
|
49
|
|
|
|
136
|
|
|
|
(103
|
)
|
|
|
-
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
92
|
|
|
|
92
|
|
|
|
234
|
|
|
|
(71
|
)
|
|
|
(87
|
)
|
|
|
260
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
5
|
|
|
|
-
|
|
|
|
(7
|
)
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
92
|
|
|
|
92
|
|
|
|
222
|
|
|
|
(116
|
)
|
|
|
(87
|
)
|
|
|
203
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
111
|
|
|
|
-
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Community Health Systems, Inc. stockholders
|
|
$
|
92
|
|
|
$
|
92
|
|
|
$
|
222
|
|
|
$
|
(227
|
)
|
|
$
|
(87
|
)
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Comprehensive Loss
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net loss
|
|
$
|
(1,721
|
)
|
|
$
|
(1,721
|
)
|
|
$
|
(1,469
|
)
|
|
$
|
(407
|
)
|
|
$
|
3,692
|
|
|
$
|
(1,626
|
)
|
Other comprehensive income (loss), net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
17
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
17
|
|
Net change in fair value of available-for-sale securities, net of tax
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
22
|
|
|
|
(11
|
)
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
9
|
|
|
|
9
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(1,712
|
)
|
|
|
(1,712
|
)
|
|
|
(1,477
|
)
|
|
|
(407
|
)
|
|
|
3,691
|
|
|
|
(1,617
|
)
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
|
|
-
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders
|
|
$
|
(1,712
|
)
|
|
$
|
(1,712
|
)
|
|
$
|
(1,477
|
)
|
|
$
|
(502
|
)
|
|
$
|
3,691
|
|
|
$
|
(1,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net income
|
|
$
|
158
|
|
|
$
|
158
|
|
|
$
|
216
|
|
|
$
|
154
|
|
|
$
|
(427
|
)
|
|
$
|
259
|
|
Other comprehensive (loss) income, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
(6
|
)
|
Net change in fair value of available-for-sale securities, net of tax
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
10
|
|
|
|
(5
|
)
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
14
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
148
|
|
|
|
148
|
|
|
|
212
|
|
|
|
154
|
|
|
|
(413
|
)
|
|
|
249
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders
|
|
$
|
148
|
|
|
$
|
148
|
|
|
$
|
212
|
|
|
$
|
53
|
|
|
$
|
(413
|
)
|
|
$
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net income (loss)
|
|
$
|
92
|
|
|
$
|
92
|
|
|
$
|
222
|
|
|
$
|
(116
|
)
|
|
$
|
(87
|
)
|
|
$
|
203
|
|
Other comprehensive income (loss), net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
13
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
13
|
|
Net change in fair value of available-for-sale securities, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
18
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
4
|
|
|
|
4
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
96
|
|
|
|
96
|
|
|
|
213
|
|
|
|
(116
|
)
|
|
|
(82
|
)
|
|
|
207
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
111
|
|
|
|
-
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Community Health Systems, Inc. stockholders
|
|
$
|
96
|
|
|
$
|
96
|
|
|
$
|
213
|
|
|
$
|
(227
|
)
|
|
$
|
(82
|
)
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
162
|
|
|
$
|
76
|
|
|
$
|
-
|
|
|
$
|
238
|
|
Patient accounts receivable, net of allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
843
|
|
|
|
2,333
|
|
|
|
-
|
|
|
|
3,176
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
324
|
|
|
|
156
|
|
|
|
-
|
|
|
|
480
|
|
Prepaid income taxes
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
Prepaid expenses and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
133
|
|
|
|
54
|
|
|
|
-
|
|
|
|
187
|
|
Other current assets
|
|
|
-
|
|
|
|
-
|
|
|
|
283
|
|
|
|
285
|
|
|
|
-
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17
|
|
|
|
-
|
|
|
|
1,745
|
|
|
|
2,904
|
|
|
|
-
|
|
|
|
4,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
295
|
|
|
|
14,966
|
|
|
|
667
|
|
|
|
6,985
|
|
|
|
(22,913
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
-
|
|
|
|
5,403
|
|
|
|
2,746
|
|
|
|
-
|
|
|
|
8,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
3,735
|
|
|
|
2,786
|
|
|
|
-
|
|
|
|
6,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
15
|
|
|
|
-
|
|
|
|
2,820
|
|
|
|
995
|
|
|
|
(1,222
|
)
|
|
|
2,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,728
|
|
|
|
22,205
|
|
|
|
8,607
|
|
|
|
-
|
|
|
|
(32,540
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,055
|
|
|
$
|
37,171
|
|
|
$
|
22,977
|
|
|
$
|
16,416
|
|
|
$
|
(56,675
|
)
|
|
$
|
21,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
-
|
|
|
$
|
149
|
|
|
$
|
56
|
|
|
$
|
250
|
|
|
$
|
-
|
|
|
$
|
455
|
|
Accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
715
|
|
|
|
280
|
|
|
|
-
|
|
|
|
995
|
|
Accrued interest
|
|
|
-
|
|
|
|
205
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
207
|
|
Accrued liabilities
|
|
|
17
|
|
|
|
-
|
|
|
|
775
|
|
|
|
438
|
|
|
|
-
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
17
|
|
|
|
354
|
|
|
|
1,547
|
|
|
|
969
|
|
|
|
-
|
|
|
|
2,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
-
|
|
|
|
14,018
|
|
|
|
233
|
|
|
|
538
|
|
|
|
-
|
|
|
|
14,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
-
|
|
|
|
19,811
|
|
|
|
17,508
|
|
|
|
13,393
|
|
|
|
(50,712
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
411
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
12
|
|
|
|
1,259
|
|
|
|
1,187
|
|
|
|
339
|
|
|
|
(1,222
|
)
|
|
|
1,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
440
|
|
|
|
35,442
|
|
|
|
20,475
|
|
|
|
15,239
|
|
|
|
(51,934
|
)
|
|
|
19,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
554
|
|
|
|
-
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
1,975
|
|
|
|
676
|
|
|
|
1,080
|
|
|
|
816
|
|
|
|
(2,572
|
)
|
|
|
1,975
|
|
Accumulated other comprehensive loss
|
|
|
(62
|
)
|
|
|
(62
|
)
|
|
|
(22
|
)
|
|
|
(9
|
)
|
|
|
93
|
|
|
|
(62
|
)
|
(Accumulated deficit) retained earnings
|
|
|
(299
|
)
|
|
|
1,115
|
|
|
|
1,444
|
|
|
|
(297
|
)
|
|
|
(2,262
|
)
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Health Systems, Inc. stockholders equity
|
|
|
1,615
|
|
|
|
1,729
|
|
|
|
2,502
|
|
|
|
510
|
|
|
|
(4,741
|
)
|
|
|
1,615
|
|
Noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113
|
|
|
|
-
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,615
|
|
|
|
1,729
|
|
|
|
2,502
|
|
|
|
623
|
|
|
|
(4,741
|
)
|
|
|
1,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,055
|
|
|
$
|
37,171
|
|
|
$
|
22,977
|
|
|
$
|
16,416
|
|
|
$
|
(56,675
|
)
|
|
$
|
21,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31
|
|
|
$
|
153
|
|
|
$
|
-
|
|
|
$
|
184
|
|
Patient accounts receivable, net of allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
924
|
|
|
|
2,687
|
|
|
|
-
|
|
|
|
3,611
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
362
|
|
|
|
218
|
|
|
|
-
|
|
|
|
580
|
|
Prepaid income taxes
|
|
|
27
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
Prepaid expenses and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
69
|
|
|
|
-
|
|
|
|
197
|
|
Other current assets
|
|
|
-
|
|
|
|
-
|
|
|
|
336
|
|
|
|
231
|
|
|
|
-
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
27
|
|
|
|
-
|
|
|
|
1,781
|
|
|
|
3,358
|
|
|
|
-
|
|
|
|
5,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
1,159
|
|
|
|
16,540
|
|
|
|
4,062
|
|
|
|
7,479
|
|
|
|
(29,240
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
-
|
|
|
|
6,311
|
|
|
|
3,801
|
|
|
|
-
|
|
|
|
10,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
5,501
|
|
|
|
3,464
|
|
|
|
-
|
|
|
|
8,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
-
|
|
|
|
-
|
|
|
|
2,185
|
|
|
|
1,212
|
|
|
|
(1,045
|
)
|
|
|
2,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
3,438
|
|
|
|
20,257
|
|
|
|
9,354
|
|
|
|
-
|
|
|
|
(33,049
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,624
|
|
|
$
|
36,797
|
|
|
$
|
29,194
|
|
|
$
|
19,314
|
|
|
$
|
(63,334
|
)
|
|
$
|
26,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
-
|
|
|
$
|
162
|
|
|
$
|
49
|
|
|
$
|
18
|
|
|
$
|
-
|
|
|
$
|
229
|
|
Accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
785
|
|
|
|
473
|
|
|
|
-
|
|
|
|
1,258
|
|
Accrued interest
|
|
|
-
|
|
|
|
226
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
227
|
|
Accrued liabilities
|
|
|
4
|
|
|
|
-
|
|
|
|
824
|
|
|
|
530
|
|
|
|
-
|
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4
|
|
|
|
388
|
|
|
|
1,658
|
|
|
|
1,022
|
|
|
|
-
|
|
|
|
3,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
-
|
|
|
|
15,605
|
|
|
|
136
|
|
|
|
815
|
|
|
|
-
|
|
|
|
16,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
-
|
|
|
|
16,150
|
|
|
|
22,232
|
|
|
|
15,524
|
|
|
|
(53,906
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
593
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
8
|
|
|
|
1,216
|
|
|
|
1,196
|
|
|
|
322
|
|
|
|
(1,044
|
)
|
|
|
1,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
605
|
|
|
|
33,359
|
|
|
|
25,222
|
|
|
|
17,683
|
|
|
|
(54,950
|
)
|
|
|
21,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
571
|
|
|
|
-
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
1,963
|
|
|
|
1,324
|
|
|
|
1,505
|
|
|
|
965
|
|
|
|
(3,794
|
)
|
|
|
1,963
|
|
Treasury stock, at cost
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
Accumulated other comprehensive loss
|
|
|
(73
|
)
|
|
|
(73
|
)
|
|
|
(21
|
)
|
|
|
(3
|
)
|
|
|
97
|
|
|
|
(73
|
)
|
Retained earnings
|
|
|
2,135
|
|
|
|
2,187
|
|
|
|
2,488
|
|
|
|
12
|
|
|
|
(4,687
|
)
|
|
|
2,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Health Systems, Inc. stockholders equity
|
|
|
4,019
|
|
|
|
3,438
|
|
|
|
3,972
|
|
|
|
974
|
|
|
|
(8,384
|
)
|
|
|
4,019
|
|
Noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86
|
|
|
|
-
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
4,019
|
|
|
|
3,438
|
|
|
|
3,972
|
|
|
|
1,060
|
|
|
|
(8,384
|
)
|
|
|
4,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
4,624
|
|
|
$
|
36,797
|
|
|
$
|
29,194
|
|
|
$
|
19,314
|
|
|
$
|
(63,334
|
)
|
|
$
|
26,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net cash provided by (used in) operating activities
|
|
$
|
14
|
|
|
$
|
(335
|
)
|
|
$
|
1,322
|
|
|
$
|
136
|
|
|
$
|
-
|
|
|
$
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(120
|
)
|
|
|
-
|
|
|
|
(123
|
)
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(519
|
)
|
|
|
(225
|
)
|
|
|
-
|
|
|
|
(744
|
)
|
Proceeds from disposition of hospitals and other ancillary operations
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
127
|
|
|
|
-
|
|
|
|
143
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
7
|
|
|
|
-
|
|
|
|
15
|
|
Purchases of available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(263
|
)
|
|
|
(242
|
)
|
|
|
-
|
|
|
|
(505
|
)
|
Proceeds from sales of available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
218
|
|
|
|
246
|
|
|
|
-
|
|
|
|
464
|
|
Proceeds from sale of investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
403
|
|
|
|
-
|
|
|
|
-
|
|
|
|
403
|
|
Distribution from Quorum Health Corporation
|
|
|
-
|
|
|
|
1,219
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,219
|
|
Increase in other investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(178
|
)
|
|
|
(64
|
)
|
|
|
-
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
-
|
|
|
|
1,219
|
|
|
|
(318
|
)
|
|
|
(271
|
)
|
|
|
-
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of restricted stock shares for payroll tax withholding requirements
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
Deferred financing costs and other debt-related costs
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
Redemption of noncontrolling investments in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19
|
)
|
|
|
-
|
|
|
|
(19
|
)
|
Distributions to noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(92
|
)
|
|
|
-
|
|
|
|
(92
|
)
|
Proceeds from sale-lease back
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
|
|
|
12
|
|
|
|
-
|
|
|
|
159
|
|
Changes in intercompany balances with affiliates, net
|
|
|
(8
|
)
|
|
|
801
|
|
|
|
(980
|
)
|
|
|
187
|
|
|
|
-
|
|
|
|
-
|
|
Borrowings under credit agreements
|
|
|
-
|
|
|
|
4,848
|
|
|
|
28
|
|
|
|
3
|
|
|
|
-
|
|
|
|
4,879
|
|
Proceeds from receivables facility
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107
|
|
|
|
-
|
|
|
|
107
|
|
Repayments of long-term indebtedness
|
|
|
-
|
|
|
|
(6,507
|
)
|
|
|
(68
|
)
|
|
|
(140
|
)
|
|
|
-
|
|
|
|
(6,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(14
|
)
|
|
|
(884
|
)
|
|
|
(873
|
)
|
|
|
58
|
|
|
|
-
|
|
|
|
(1,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
131
|
|
|
|
(77
|
)
|
|
|
-
|
|
|
|
54
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
|
|
153
|
|
|
|
-
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
162
|
|
|
$
|
76
|
|
|
$
|
-
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(25
|
)
|
|
$
|
159
|
|
|
$
|
569
|
|
|
$
|
218
|
|
|
$
|
-
|
|
|
$
|
921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
(57
|
)
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(660
|
)
|
|
|
(293
|
)
|
|
|
-
|
|
|
|
(953
|
)
|
Proceeds from disposition of hospitals and other ancillary operations
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
134
|
|
|
|
-
|
|
|
|
155
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
8
|
|
|
|
-
|
|
|
|
15
|
|
Purchases of available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(53
|
)
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
(162
|
)
|
Proceeds from sales of available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
110
|
|
|
|
-
|
|
|
|
156
|
|
Increase in other investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(156
|
)
|
|
|
(49
|
)
|
|
|
-
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
(816
|
)
|
|
|
(235
|
)
|
|
|
-
|
|
|
|
(1,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Repurchase of restricted stock shares for payroll tax withholding requirements
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
Stock buy-back
|
|
|
(159
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159
|
)
|
Deferred financing costs and other debt-related costs
|
|
|
-
|
|
|
|
(30
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(30
|
)
|
Proceeds from noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47
|
|
|
|
-
|
|
|
|
47
|
|
Redemption of noncontrolling investments in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
Distributions to noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
(100
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
179
|
|
|
|
(181
|
)
|
|
|
(57
|
)
|
|
|
59
|
|
|
|
-
|
|
|
|
-
|
|
Borrowings under credit agreements
|
|
|
-
|
|
|
|
4,880
|
|
|
|
34
|
|
|
|
8
|
|
|
|
-
|
|
|
|
4,922
|
|
Proceeds from receivables facility
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
206
|
|
|
|
-
|
|
|
|
206
|
|
Repayments of long-term indebtedness
|
|
|
-
|
|
|
|
(4,828
|
)
|
|
|
(69
|
)
|
|
|
(153
|
)
|
|
|
-
|
|
|
|
(5,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
25
|
|
|
|
(159
|
)
|
|
|
(92
|
)
|
|
|
31
|
|
|
|
-
|
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
(339
|
)
|
|
|
14
|
|
|
|
-
|
|
|
|
(325
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
370
|
|
|
|
139
|
|
|
|
-
|
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31
|
|
|
$
|
153
|
|
|
$
|
-
|
|
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net cash provided by operating activities
|
|
$
|
176
|
|
|
$
|
319
|
|
|
$
|
919
|
|
|
$
|
201
|
|
|
$
|
-
|
|
|
$
|
1,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,876
|
)
|
|
|
(215
|
)
|
|
|
-
|
|
|
|
(3,091
|
)
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(577
|
)
|
|
|
(276
|
)
|
|
|
-
|
|
|
|
(853
|
)
|
Proceeds from disposition of hospitals and other ancillary operations
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
85
|
|
|
|
-
|
|
|
|
88
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
9
|
|
|
|
-
|
|
|
|
50
|
|
Purchases of available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(23
|
)
|
|
|
(240
|
)
|
|
|
-
|
|
|
|
(263
|
)
|
Proceeds from sales of available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
|
205
|
|
|
|
-
|
|
|
|
229
|
|
Increase in other investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(352
|
)
|
|
|
(159
|
)
|
|
|
-
|
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,760
|
)
|
|
|
(591
|
)
|
|
|
-
|
|
|
|
(4,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
65
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65
|
|
Repurchase of restricted stock shares for payroll tax withholding requirements
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11
|
)
|
Stock buy-back
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
Deferred financing costs and other debt-related costs
|
|
|
-
|
|
|
|
(276
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(276
|
)
|
Proceeds from noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
-
|
|
|
|
10
|
|
Redemption of noncontrolling investments in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(158
|
)
|
|
|
-
|
|
|
|
(158
|
)
|
Distributions to noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(104
|
)
|
|
|
-
|
|
|
|
(104
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
(221
|
)
|
|
|
(3,334
|
)
|
|
|
3,017
|
|
|
|
538
|
|
|
|
-
|
|
|
|
-
|
|
Borrowings under credit agreements
|
|
|
-
|
|
|
|
9,081
|
|
|
|
34
|
|
|
|
16
|
|
|
|
-
|
|
|
|
9,131
|
|
Issuance of long-term debt
|
|
|
-
|
|
|
|
4,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000
|
|
Proceeds from receivables facility
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
204
|
|
|
|
-
|
|
|
|
204
|
|
Repayments of long-term indebtedness
|
|
|
-
|
|
|
|
(9,790
|
)
|
|
|
(89
|
)
|
|
|
(101
|
)
|
|
|
-
|
|
|
|
(9,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(176
|
)
|
|
|
(319
|
)
|
|
|
2,962
|
|
|
|
405
|
|
|
|
-
|
|
|
|
2,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
121
|
|
|
|
15
|
|
|
|
-
|
|
|
|
136
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
249
|
|
|
|
124
|
|
|
|
-
|
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
370
|
|
|
$
|
139
|
|
|
$
|
-
|
|
|
$
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171