NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements of Community Health Systems, Inc. (the Parent or Parent
Company) and its subsidiaries (the Company) as of September 30, 2017 and December 31, 2016 and for the three-month and nine-month periods ended September 30, 2017 and 2016, have been prepared in accordance with
accounting principles generally accepted in the United States of America (U.S. GAAP). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of the results to be
expected for the full fiscal year ending December 31, 2017. Certain information and disclosures normally included in the notes to condensed consolidated financial statements have been condensed or omitted as permitted by the rules and
regulations of the Securities and Exchange Commission (the SEC). The Company believes the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2016, contained in the Companys Annual Report on Form
10-K
filed with the
SEC on February 21, 2017 (2016 Form
10-K).
Noncontrolling interests in
less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity on the condensed consolidated balance sheets to distinguish between the interests of the Parent Company and the interests of the
noncontrolling owners. 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 condensed consolidated balance sheets.
Throughout these notes to the condensed consolidated financial statements,
Community Health Systems, Inc., 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 by distinct and indirect subsidiaries of Community Health Systems, Inc.
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 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.
6
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Operating revenues, net of contractual allowances and discounts (but before the provision for
bad debts), recognized during the three and nine months ended September 30, 2017 and 2016, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Medicare
|
|
$
|
961
|
|
|
$
|
1,170
|
|
|
$
|
3,268
|
|
|
$
|
3,866
|
|
Medicaid
|
|
|
478
|
|
|
|
531
|
|
|
|
1,538
|
|
|
|
1,676
|
|
Managed Care and other third-party payors
|
|
|
2,319
|
|
|
|
2,741
|
|
|
|
7,722
|
|
|
|
8,580
|
|
Self-pay
|
|
|
575
|
|
|
|
642
|
|
|
|
1,795
|
|
|
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,333
|
|
|
$
|
5,084
|
|
|
$
|
14,323
|
|
|
$
|
16,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $2 million and $5 million for the three months ended September 30, 2017 and 2016,
respectively, and $25 million and $54 million for the nine months ended September 30, 2017 and 2016, 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 condensed consolidated statements of loss. The Company received cash related to the incentive reimbursement for HITECH incentives of approximately $3 million and
$7 million for the three months ended September 30, 2017 and 2016, respectively, and approximately $39 million and $116 million for the nine months ended September 30, 2017 and 2016, respectively. The Company recorded no
deferred revenue in connection with the receipt of these payments for either September 30, 2017 or September 30, 2016.
7
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Accounting for the Impairment or Disposal of Long-Lived
Assets.
During the nine months ended September 30, 2017, the Company recorded a total combined impairment charge and loss on disposal of approximately $363 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. Included in the carrying value of the hospital disposal groups at
September 30, 2017 is a net allocation of approximately $229 million of goodwill allocated from the hospital operations reporting unit goodwill based on a calculation of the disposal groups relative fair value compared to the total
reporting unit. The Company will continue to evaluate the potential for further impairment of the long-lived assets of underperforming hospitals as well as evaluating offers for potential sale. Based on such analysis, additional impairment charges
may be recorded in the future.
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 implementing its plan for adoption and evaluating 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. The Company has established an implementation group for this ASU with
an implementation plan to transition to the new standard and determine its impact during 2017. A significant element of executing this plan is the process of reviewing sources of revenue and evaluating the patient account population to determine the
appropriate distribution of patient accounts into portfolios with similar characteristics that, when evaluated under the new revenue standard, will result in a materially consistent revenue amount for such portfolios as if each patient account was
evaluated on a
contract-by-contract
basis. The Company is currently evaluating the appropriate portfolios to apply in its analysis and is considering the impact of
applying the new standard when its individual patient accounts are evaluated in those portfolios. The Company continues to assess the quantitative impact that the adoption of this accounting standard will have on the financial statements of the
Company. Currently, the Company does not expect the adoption of this ASU to have a material impact on its consolidated results of operations on a prospective basis. However, it is possible that as a result of the evaluation process to adopt this
ASU, a material adjustment could be made to reduce the amount of net patient accounts receivable on the consolidated statement of financial position of the Company. This potential impact is a result of the Companys preliminary observations
from the application of new processes and methodologies to determine the patient portfolios and estimate the implicit price concessions and constraints on revenue required by this new accounting standard. These assessments of the impact of
implementing this ASU are subject to completion of the Companys processes in adopting this new standard. The Company expects this process will be completed in the fourth quarter of 2017 and expects to disclose the effect of implementing this
ASU in its Annual Report on Form
10-K
for the year ending December 31, 2017 (2017 Form
10-K).
The Company is also in the process of assessing the impact of the new standard on various reimbursement programs that represent variable
consideration, including settlements with third party payors, disproportionate share payments, supplemental state Medicaid programs, bundled payment of care programs and other reimbursement programs in which the Companys hospitals participate.
Due to the many different forms of calculation and reimbursement that these programs take that vary from state to state, the application of the new accounting standard could have an impact on the revenue recognized for variable consideration.
Moreover, industry guidance is continuing to develop around this issue, and any conclusions in the final industry guidance that is inconsistent with the Companys application could result in changes to the Companys expectations regarding
the impact that this new accounting standard could have on the Companys financial statements. For example, in July 2017, a draft of industry guidance was issued on the application of this ASU on variable consideration resulting from
settlements with third party payors, and in October 2017, a draft of industry guidance was issued on the application of this ASU on variable consideration resulting from bundled payment of care programs and other risk-sharing arrangements. The
Company is evaluating whether such industry guidance will have an impact on its current accounting policies and procedures related to third party settlements. Final drafts of industry guidance on these and other reimbursement programs unique to the
healthcare industry are expected later in 2017. The Company is monitoring the development of such guidance.
Additionally, the adoption of
the new accounting standard will impact the presentation on the Companys statement of operations for a significant component of its provision for bad debts. After adoption of the new standard, the majority of what is currently classified as
the provision for bad debts will be reflected as an implicit price concession as defined in the standard and therefore a reduction to net patient revenue. The Company will consider certain changes in collectability on its
self-pay
patient accounts receivable resulting from certain credit and collection issues not assessed at the date of service and recognize such amounts in the provision for bad debts included in operating expenses
on the statement of operations.
8
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Previously, the Company disclosed its intention to apply the full retrospective approach to
implementing this ASU upon adoption at January 1, 2018. During the last several months, as the Company has developed and implemented new processes for accumulating detailed financial information on patient revenue at the portfolio level,
management concluded that the full retrospective approach to applying this ASU to prior periods would be significantly impacted by the number of hospitals that the Company has divested or
spun-off
in recent
years, and the effect of those transactions on the portfolios. As a result, the Company has now decided to apply the modified retrospective approach to adopting this ASU.
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. Most recently, the Company has organized an implementation group of cross-functional
departmental management to ensure the completeness of its lease information, analyze the appropriate classification of current leases under the new standard, and develop new processes to execute, approve and classify leases on an ongoing basis. The
Company has also engaged outside experts to assist in the development of this plan, as well as the identification and selection of software tools and processes to maintain lease information critical to applying the new standard.
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. The Company adopted this ASU on January 1, 2017. Because of the recent decline in the Companys stock price below
the Companys stock price at the stock award grant date for outstanding share-based awards, the principal impact from adopting this ASU has been a $16 million increase in the Companys current provision for income taxes due to the
deficiency created by a difference between the actual tax deduction that will be recognized from the vesting of outstanding share-based awards during the nine months ended September 30, 2017, compared to the higher stock compensation expense
previously recorded over the vesting period as determined based on the fair value of the restricted stock at the grant date.
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 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 hospital operations reporting unit fair value in the step one test indicated that the carrying amount of the hospital operations 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.
9
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
In March 2017, the FASB issued ASU
2017-07,
which
changes the presentation of the components of net periodic benefit cost for sponsors of defined benefit plans for pensions. Under the changes in this ASU, the service cost component of net periodic benefit cost will be reported in the same income
statement line as other employee compensation costs arising from services during the reporting period. The other components of net periodic benefit cost will be presented separately in a line item outside of operating 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
results of operations. Since the changes required in this new ASU only change the income statement classification of the components of net periodic benefit cost, no changes are expected to income from continuing operations or net income. Currently,
the Company reports all of the components of net periodic benefit cost as a component of salaries and benefits on the consolidated statement of income.
In August 2017, the FASB issued ASU
2017-12,
which was issued to amend hedge accounting recognition
and disclosure requirements to improve transparency and simplify the application of hedge accounting for certain hedging instruments. The amendments in this ASU that will have an impact on the Company include simplification of the periodic hedge
effectiveness assessment, elimination of the benchmark interest rate concept for interest rate swaps, and enhancement of the ability to use the critical-terms match method for its cash flow hedges of forecasted interest payments. This ASU is
effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company expects to early 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.
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. As of September 30, 2017, 4,040,703 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.
10
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Effect on loss from continuing operations before income taxes
|
|
$
|
(6)
|
|
|
$
|
(10)
|
|
|
$
|
(20)
|
|
|
$
|
(36)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on net loss
|
|
$
|
(4)
|
|
|
$
|
(6)
|
|
|
$
|
(13)
|
|
|
$
|
(21)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2017, $24 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 21 months. There is no expense to be recognized related to stock options.
There were no modifications to awards during the three or nine months ended September 30, 2017 and 2016.
Options outstanding and
exercisable under the 2000 Plan and the 2009 Plan as of September 30, 2017, and changes during each of the three-month periods following December 31, 2016, were as follows (in millions, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
Intrinsic
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
Value as of
|
|
|
|
|
Average
|
|
Contractual
|
|
September 30,
|
|
|
Shares
|
|
Exercise Price
|
|
Term
|
|
2017
|
Outstanding at December 31, 2016
|
|
|
1,185,320
|
|
|
$
|
28.12
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(16,815)
|
|
|
|
28.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2017
|
|
|
1,168,505
|
|
|
|
31.71
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(16,168)
|
|
|
|
36.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
1,152,337
|
|
|
|
31.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(20,168)
|
|
|
|
35.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
1,132,169
|
|
|
$
|
31.56
|
|
|
|
2.2 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
1,132,169
|
|
|
$
|
31.56
|
|
|
|
2.2 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock options were granted during the three or nine months ended September 30, 2017 and 2016. 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 ($7.68) 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
September 30, 2017. This amount changes based on the market value of the Companys common stock. There were no options exercised during the three or nine months ended September 30, 2017 and 2016. The aggregate intrinsic value of
options vested and expected to vest approximates that of the outstanding options.
11
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The Company has also awarded restricted stock under the 2000 Plan and the 2009 Plan to
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. For
such performance-based awards granted prior to 2017, 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. For performance-based awards granted beginning in March 2017, the performance objective is measured cumulatively over a three-year period. With respect to these performance-based awards granted beginning in March 2017, if the performance
criteria are met at the end of three years, then the restricted stock award will vest in full. Additionally, for these awards, based on the level of achievement for the performance criteria, the number of shares to be issued in connection with the
vesting of the award can be adjusted to decrease or increase the number of shares specified in the original award. 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.
Restricted stock outstanding under the 2000 Plan and the 2009 Plan as of September 30, 2017, and changes during each of the three-month
periods following December 31, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
Unvested at December 31, 2016
|
|
|
2,969,285
|
|
|
$
|
29.39
|
|
Granted
|
|
|
1,323,000
|
|
|
|
9.15
|
|
Vested
|
|
|
(1,470,171)
|
|
|
|
35.31
|
|
Forfeited
|
|
|
(32,837)
|
|
|
|
28.35
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2017
|
|
|
2,789,277
|
|
|
|
16.69
|
|
Granted
|
|
|
133,000
|
|
|
|
9.15
|
|
Vested
|
|
|
(15,002)
|
|
|
|
35.58
|
|
Forfeited
|
|
|
(84,336)
|
|
|
|
16.24
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2017
|
|
|
2,822,939
|
|
|
|
16.25
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(100,336)
|
|
|
|
16.90
|
|
|
|
|
|
|
|
|
|
|
Unvested at September 30, 2017
|
|
|
2,722,603
|
|
|
|
16.22
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units (RSUs) have been granted to the Companys outside directors under the
2000 Plan and the 2009 Plan. On March 1, 2016, each of the Companys outside directors received a grant under the 2009 Plan of 11,017 RSUs. On March 1, 2017, each of the Companys outside directors received a grant under the 2009
Plan of 18,498 RSUs. Each of the 2016 and 2017 grants had a grant date fair value of approximately $170,000. Vesting of these RSUs occurs in
one-third
increments on each of the first three anniversaries of the
award date or upon the directors earlier cessation of service on the board, other than for cause.
12
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
RSUs outstanding under the 2000 Plan and the 2009 Plan as of September 30, 2017, and
changes during each of the three-month periods following December 31, 2016, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares
|
|
Date Fair Value
|
|
Unvested at December 31, 2016
|
|
|
120,386
|
|
|
$
|
22.06
|
|
Granted
|
|
|
110,988
|
|
|
|
9.19
|
|
Vested
|
|
|
(48,876)
|
|
|
|
29.95
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2017
|
|
|
182,498
|
|
|
|
13.19
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(10,420)
|
|
|
|
19.97
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2017
|
|
|
172,078
|
|
|
|
12.78
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at September 30, 2017
|
|
|
172,078
|
|
|
|
12.78
|
|
|
|
|
|
|
|
|
|
|
3. 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 Companys corporate office costs at its Franklin, Tennessee office, which were $42 million and $43 million for the three months ended September 30, 2017
and 2016, respectively, and $135 million and $146 million for the nine months ended September 30, 2017 and 2016, respectively. Included in these corporate office costs is stock-based compensation of $6 million and
$10 million for the three months ended September 30, 2017 and 2016, respectively, and $20 million and $36 million for the nine months ended September 30, 2017 and 2016, respectively.
4. USE OF ESTIMATES
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these
estimates under different assumptions or conditions.
5. 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.
Acquisition and integration expenses related to prospective and closed acquisitions included in other operating expenses on the
condensed consolidated statements of loss were less than $1 million and approximately $1 million during the three months ended September 30, 2017 and 2016, respectively, and approximately $1 million and $4 million during the
nine months ended September 30, 2017 and 2016, respectively.
13
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 September 30, 2017, approximately $12 million of goodwill has been recorded.
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
September 30, 2017, approximately $45 million of goodwill has been recorded.
Other Acquisitions
During the nine months ended September 30, 2017, one or more subsidiaries of the Company paid approximately $4 million 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 nine months ended September 30, 2017, the Company allocated approximately $1 million of the consideration paid to property and equipment and net working capital and the remainder, approximately $3 million consisting of intangible
assets that do not qualify for separate recognition, to goodwill.
Divestitures
In April 2014, FASB issued ASU
2014-08,
which changed the requirements for reporting discontinued
operations. Under this accounting standard, 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 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 nine months ended September 30, 2017 and 2016.
Additionally, the impact of the hospitals and other assets spun off to Quorum Health Corporation (QHC) are discussed in Note 6 below.
Effective September 1, 2017, one or more subsidiaries of the Company sold Yakima Regional Medical and Cardiac Center (214 licensed beds)
in Yakima, Washington and Toppenish Community Hospital (63 licensed beds) in Toppenish, Washington, to Regional Health for approximately $43 million in a combination of cash and a note receivable from the buyer.
Effective July 1, 2017, one or more subsidiaries of the Company sold four Pennsylvania hospitals and their associated assets to
subsidiaries of PinnacleHealth System for approximately $231 million in cash, which was received at closing on July 3, 2017. Hospitals included in the transaction were Memorial Hospital of York (100 licensed beds) in York, Pennsylvania;
Lancaster Regional Medical Center (214 licensed beds) in Lancaster, Pennsylvania; Heart of Lancaster Regional Medical Center (148 licensed beds) in Lititz, Pennsylvania; and Carlisle Regional Medical Center (165 licensed beds) in Carlisle,
Pennsylvania.
Effective July 1, 2017, one or more subsidiaries of the Company sold Tomball Regional Medical Center (350 licensed
beds) in Tomball, Texas and the associated assets to subsidiaries of HCA, and South Texas Regional Medical Center (67 licensed beds) in Jourdanton, Texas, and the associated assets to subsidiaries of HCA and Methodist Healthcare System of San
Antonio, Ltd., L.L.P (a partnership between HCA and Methodist Healthcare Ministries) for approximately $135 million in cash, which was received at the preliminary closing on June 30, 2017.
Effective July 1, 2017, one or more subsidiaries of the Company sold two hospitals, a clinic and their associated assets to MultiCare
Health System for approximately $424 million in cash, of which $414 million was received at the preliminary closing on June 30, 2017, with the remainder held in escrow. Facilities included in this transaction were Deaconess Hospital
(388 licensed beds) in Spokane, Washington, Valley Hospital (123 licensed beds) in Spokane Valley, Washington, and the multi-specialty Rockwood Clinic in Spokane, Washington.
14
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
On June 30, 2017, one or more subsidiaries of the Company sold Lake Area Medical Center
(88 licensed beds) in Lake Charles, Louisiana to subsidiaries of CHRISTUS Health for approximately $32 million in cash, which was received at closing on June 30, 2017.
On May 1, 2017, one or more subsidiaries of the Company sold Stringfellow Memorial Hospital (125 licensed beds) in Anniston, Alabama, and
its associated assets to The Health Care Authority of the City of Anniston for approximately $14 million in cash.
On May 1,
2017, one or more subsidiaries of the Company sold Merit Health Gilmore Memorial (95 licensed beds) in Amory, Mississippi and Merit Health Batesville (112 licensed beds) in Batesville, Mississippi, and the associated assets to Curae Health, Inc. for
approximately $32 million in a combination of cash and a note receivable from the buyer.
On May 1, 2017, one or more
subsidiaries of the Company sold Easton Hospital (196 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, and the associated assets to Steward Health, Inc. for approximately $304 million in cash.
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. Loss 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.
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 in the table below.
On
May 1, 2017, one or more subsidiaries of the Company sold AllianceHealth Pryor (52 licensed beds) in Pryor, Oklahoma, and its associated assets to Ardent Health Services Inc. for approximately $1 million in cash. This hospital has been
reported in the condensed consolidated statements of loss in discontinued operations.
During the year ended December 31, 2014, the
Company made the decision to sell and began actively marketing several smaller hospitals. There is one hospital still included in discontinued operations resulting from the Companys decision to sell these hospitals in 2014 that is currently
being actively marked for sale. In addition to this hospital, Health Management Associates, Inc. (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 two hospitals, the Company has classified the results of operations of such hospitals as discontinued
operations in the accompanying condensed consolidated statements of loss, and classified these hospitals as held for sale in the accompanying condensed consolidated balance sheets.
15
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Net operating revenues and loss from discontinued operations for the respective periods are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Net operating revenues
|
|
$
|
19
|
|
|
$
|
24
|
|
|
$
|
64
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale before income taxes
|
|
$
|
(2)
|
|
|
$
|
(3)
|
|
|
$
|
(6)
|
|
|
$
|
(6)
|
|
Impairment of hospitals sold or held for sale
|
|
|
(2)
|
|
|
|
-
|
|
|
|
(9)
|
|
|
|
(2)
|
|
Loss on sale, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, before taxes
|
|
|
(4)
|
|
|
|
(3)
|
|
|
|
(16)
|
|
|
|
(8)
|
|
Income tax benefit
|
|
|
(2)
|
|
|
|
(1)
|
|
|
|
(6)
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
$
|
(2)
|
|
|
$
|
(2)
|
|
|
$
|
(10)
|
|
|
$
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of its ongoing evaluation of the fair value of the hospitals it is marketing for sale, the Company
recorded an impairment charge on the carrying value of the long-lived assets at these hospitals in discontinued operations of $6 million and $1 million, net of tax, for the nine months ended September 30, 2017 and 2016, respectively.
Interest expense was allocated to discontinued operations based on sale proceeds available for debt repayment.
The following table
discloses amounts included in the condensed consolidated balance sheet for the hospitals classified as held for sale as of September 30, 2017 and December 31, 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Other current assets
|
|
$
|
46
|
|
|
$
|
117
|
|
Other assets, net
|
|
|
529
|
|
|
|
878
|
|
Accrued liabilities
|
|
|
46
|
|
|
|
81
|
|
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 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 and no additional impairment was recorded related to the closure of this facility.
16
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
6. 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 condensed consolidated statements of loss 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 Quarterly Report on Form
10-Q
(Form
10-Q)
include QHC operating results for the three and nine months ended September 30, 2016 (other than
same-store operating results and data, which exclude QHC operating results). Summary financial results of QHC for the three and nine months ended September 30, 2016 included in the accompanying condensed consolidated statements of loss are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2016
|
|
|
September 30, 2016
|
|
|
|
|
Loss from operations before income taxes
|
|
$
|
-
|
|
|
$
|
(12)
|
|
Less: Income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before income taxes attributable to Community Health Systems, Inc.
stockholders
|
|
$
|
-
|
|
|
$
|
(13)
|
|
|
|
|
|
|
|
|
|
|
7. INCOME TAXES
The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximately $9 million as of
September 30, 2017. A total of approximately $3 million of interest and penalties is included in the amount of the liability for uncertain tax positions at September 30, 2017. It is the Companys policy to recognize interest and
penalties related to unrecognized benefits in its condensed consolidated statements of loss as income tax expense.
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 condensed consolidated results of operations or condensed consolidated financial position.
17
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The Company, or one of its subsidiaries, files income tax returns in the United States
federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to state income tax examinations for years prior to 2013. The Companys federal income tax returns for the 2009, 2010, 2014 and 2015 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 June 30, 2018 for Community Health Systems, Inc. for the tax periods ended December 31, 2007, 2008, 2009 and 2010, through December 31, 2017 for the tax periods ended December 31, 2011
and 2012, and through September 6, 2019 for the tax period ended December 31, 2014.
The Companys effective tax rates were
40.1% and 34.9% for the three months ended September 30, 2017 and 2016, respectively, and 16.3% and 9.0% for the nine months ended September 30, 2017 and 2016, respectively. Including the net income attributable to noncontrolling
interests, which is not tax effected in the condensed consolidated statements of loss, the effective tax rate would have been 35.3% and 27.4% for the three months ended September 30, 2017 and 2016, respectively, and 14.5% and 8.6% for the nine
months ended September 30, 2017 and 2016, respectively. This increase in the Companys effective tax rate for the nine months ended September 30, 2017, when compared to the nine months ended September 30, 2016, was primarily due
to the
non-deductible
nature of certain goodwill written off in the $363 million impairment and (gain) loss on sale of businesses for the nine months ended September 30, 2017, and partially offset by
approximately $16 million of tax expense recognized on the tax deficiency created by a difference between the actual tax deduction that will be recognized from the vesting of restricted stock during the nine months ended September 30,
2017, compared to the higher stock compensation expense previously recorded over the vesting period as determined based on the fair value of the restricted stock at the grant date. This additional tax expense was a result of the adoption of ASU
2016-09,
which changed the previously required accounting for such tax deficiencies through additional
paid-in
capital to recording such amounts as part of the tax provision
in the period such restricted stock vests.
Cash paid for income taxes, net of refunds received, resulted in a net refund of less than
$1 million and net cash paid of $2 million during the three months ended September 30, 2017 and 2016, respectively, and net cash paid of $5 million and $6 million during the nine months ended September 30, 2017 and
2016, respectively.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the
carrying amount of goodwill for the nine months ended September 30, 2017 are as follows (in millions):
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
6,521
|
|
Goodwill acquired as part of acquisitions during current year
|
|
|
3
|
|
Consideration and purchase price allocation adjustments for prior year acquisitions and other
adjustments
|
|
|
(24)
|
|
Goodwill allocated to hospitals held for sale
|
|
|
(352)
|
|
|
|
|
|
|
Balance as of September 30, 2017
|
|
$
|
6,148
|
|
|
|
|
|
|
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 hospital operations segment meets the criteria to be classified as a single reporting unit. At September 30, 2017,
the Company had approximately $6.1 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.
18
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 the Companys goodwill 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 as part of its goodwill impairment measurement
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.
19
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Intangible Assets
No intangible assets other than goodwill were acquired during the nine months ended September 30, 2017. The gross carrying amount of the
Companys other intangible assets subject to amortization was $18 million and $41 million at September 30, 2017 and December 31, 2016, respectively, and the net carrying amount was $11 million and $14 million at
September 30, 2017 and December 31, 2016, respectively. The carrying amount of the Companys other intangible assets not subject to amortization was $80 million and $86 million at September 30, 2017 and
December 31, 2016, respectively. Other intangible assets are included in other assets, net on the Companys condensed consolidated balance sheets. Substantially all of the Companys intangible assets are contract-based intangible
assets related to operating licenses, management contracts, tradenames, 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 $1 million and $3 million during the three months ended September 30, 2017 and 2016, respectively, and $3 million
and $10 million during the nine months ended September 30, 2017 and 2016, respectively. Amortization expense on intangible assets is estimated to be $1 million for the remainder of 2017, $3 million in 2018, $1 million in
2019, $1 million in 2020, $1 million in 2021, $1 million in 2022 and $3 million thereafter.
The gross carrying amount
of capitalized software for internal use was approximately $1.3 billion at both September 30, 2017 and December 31, 2016, and the net carrying amount was approximately $472 million and $574 million at September 30, 2017
and December 31, 2016, 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 September 30, 2017, there was approximately $29 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 $46 million and $48 million during the three months ended September 30, 2017 and 2016, respectively, and $141 million and $153 million during the
nine months ended September 30, 2017 and 2016, respectively. Amortization expense on capitalized
internal-use
software is estimated to be $41 million for the remainder of 2017, $151 million in
2018, $93 million in 2019, $73 million in 2020, $50 million in 2021, $35 million in 2022 and $29 million thereafter.
20
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
9. EARNINGS PER SHARE
The following table sets forth the components of the numerator and denominator for the computation of basic and diluted (loss) earnings per
share for loss from continuing operations, discontinued operations and net loss attributable to Community Health Systems, Inc. common stockholders (in millions, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations, net of taxes
|
|
$
|
(88)
|
|
|
$
|
(54)
|
|
|
$
|
(380)
|
|
|
$
|
(1,422)
|
|
Less: Income from continuing operations attributable to noncontrolling interests, net of
taxes
|
|
|
20
|
|
|
|
23
|
|
|
|
56
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to Community Health Systems, Inc. common
stockholders basic and diluted
|
|
$
|
(108)
|
|
|
$
|
(77)
|
|
|
$
|
(436)
|
|
|
$
|
(1,495)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
$
|
(2)
|
|
|
$
|
(2)
|
|
|
$
|
(10)
|
|
|
$
|
(5)
|
|
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
|
|
$
|
(2)
|
|
|
$
|
(2)
|
|
|
$
|
(10)
|
|
|
$
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding basic
|
|
|
111,935,738
|
|
|
|
110,888,040
|
|
|
|
111,701,812
|
|
|
|
110,672,520
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other equity-based awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding diluted
|
|
|
111,935,738
|
|
|
|
110,888,040
|
|
|
|
111,701,812
|
|
|
|
110,672,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company generated a loss from continuing operations attributable to Community Health Systems, Inc. common
stockholders for the three and nine months ended September 30, 2017 and 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, the
effect of restricted stock awards on the diluted shares calculation would have been an increase of 148,768 shares and 445,732 shares during the three months ended September 30, 2017 and 2016, respectively, and an increase of 147,618 shares and
225,334 shares during the nine months ended September 30, 2017 and 2016, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Dilutive securities outstanding not included in the computation of earnings per share because
their effect is antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and restricted stock awards
|
|
|
2,454,467
|
|
|
|
2,076,688
|
|
|
|
2,774,171
|
|
|
|
2,426,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
10. 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 September 30, 2017, 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. In addition, no shares were repurchased under this program during the nine months ended September 30, 2017.
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, 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 September 30, 2017, under the most restrictive test in 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.
22
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The following schedule presents the reconciliation of the carrying amount of total equity,
equity attributable to the Company, and equity attributable to the noncontrolling interests for the nine-month period ended September 30, 2017 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Interest
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
|
Noncontrolling
Interest
|
|
|
Total
Stockholders
Equity
|
|
Balance, December 31, 2016
|
|
$
|
554
|
|
|
$
|
1
|
|
|
$
|
1,975
|
|
|
$
|
(62)
|
|
|
$
|
(299)
|
|
|
$
|
113
|
|
|
$
|
1,728
|
|
Comprehensive income
|
|
|
44
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
(446)
|
|
|
|
12
|
|
|
|
(417)
|
|
Contributions from noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
Distributions to noncontrolling interests
|
|
|
(57)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(22)
|
|
|
|
(22)
|
|
Purchase of subsidiary shares from noncontrolling interests
|
|
|
(4)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Disposition of less-than-wholly owned entity
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10)
|
|
|
|
(10)
|
|
Other reclassifications of noncontrolling interests
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
(2)
|
|
Noncontrolling interests in acquired entity
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjustment to redemption value of redeemable noncontrolling interests
|
|
|
(12)
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
Cancellation of restricted stock for tax withholdings on vested shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2017
|
|
$
|
530
|
|
|
$
|
1
|
|
|
$
|
2,002
|
|
|
$
|
(45)
|
|
|
$
|
(745)
|
|
|
$
|
96
|
|
|
$
|
1,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2017
|
|
Net loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(446)
|
|
Transfers from the noncontrolling interests:
|
|
|
|
|
Net decrease in Community Health Systems, Inc.
paid-in-capital
for purchase of subsidiary partnership interests
|
|
|
-
|
|
|
|
|
|
|
Net transfers from the noncontrolling interests
|
|
|
-
|
|
|
|
|
|
|
Change to Community Health Systems, Inc. stockholders equity from net loss attributable to
Community Health Systems, Inc. stockholders and transfers to noncontrolling interests
|
|
$
|
(446)
|
|
|
|
|
|
|
11. EQUITY INVESTMENTS
As of September 30, 2017, the Company owned equity interests of 38.0% in three hospitals in Macon, Georgia, in which HCA Holdings, Inc.
(HCA) owned the majority interest. 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.
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 September 30, 2017, the Company had a 19.7% ownership interest in HealthTrust.
23
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The Companys investment in all of its unconsolidated affiliates was $173 million
and $177 million at September 30, 2017 and December 31, 2016, respectively, and is included in other assets, net in the accompanying condensed 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 $5 million and $4 million for the three months ended September 30, 2017 and 2016,
respectively, and $13 million and $38 million for the nine months ended September 30, 2017 and 2016, respectively.
12. LONG-TERM DEBT
Long-term
debt, net of unamortized debt issuance costs and discounts or premiums, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Credit Facility:
|
|
|
|
|
|
|
|
|
Term A Loan
|
|
$
|
-
|
|
|
$
|
749
|
|
Term F Loan
|
|
|
-
|
|
|
|
1,445
|
|
Term G Loan
|
|
|
1,059
|
|
|
|
1,528
|
|
Term H Loan
|
|
|
1,941
|
|
|
|
2,811
|
|
Revolving credit loans
|
|
|
-
|
|
|
|
-
|
|
8% Senior Notes due 2019
|
|
|
1,925
|
|
|
|
1,925
|
|
7
1
⁄
8
%
Senior Notes due 2020
|
|
|
1,200
|
|
|
|
1,200
|
|
5
1
⁄
8
%
Senior Secured Notes due 2018
|
|
|
-
|
|
|
|
700
|
|
5
1
⁄
8
%
Senior Secured Notes due 2021
|
|
|
1,000
|
|
|
|
1,000
|
|
6
7
⁄
8
%
Senior Notes due 2022
|
|
|
3,000
|
|
|
|
3,000
|
|
6
1
⁄
4
%
Senior Secured Notes due 2023
|
|
|
3,100
|
|
|
|
-
|
|
Receivables Facility
|
|
|
532
|
|
|
|
677
|
|
Capital lease obligations
|
|
|
308
|
|
|
|
328
|
|
Other
|
|
|
55
|
|
|
|
74
|
|
Less: Unamortized deferred debt issuance costs and note premium
|
|
|
(179)
|
|
|
|
(193)
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
13,941
|
|
|
|
15,244
|
|
Less: Current maturities
|
|
|
(40)
|
|
|
|
(455)
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
13,901
|
|
|
$
|
14,789
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
The Companys wholly-owned subsidiary, CHS/Community Health Systems, Inc. (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.
24
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 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 5, 2016, CHS entered into Amendment
No. 2 to the Credit Facility (Amendment No. 2) to adjust financial maintenance covenants in the Credit Facility. In connection with Amendment No. 2, the Company agreed to certain other additional undertakings for the
benefit of the lenders under the Revolving Facility and the Term A 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 approximately $96 million of the Term H Facility. On March 16, 2017, CHS issued $2.2 billion aggregate
principal amount of 6
1
⁄
4
% Senior Secured Notes due 2023 (the
6
1
⁄
4
% Senior Secured Notes), a portion of the net proceeds of which was used to repay the Companys existing Term F Facility in full. On
May 4, 2017, using the cash generated from the hospital divestiture transactions completed on May 1, 2017, CHS repaid approximately $39 million of the Term A Facility, approximately $75 million of the Term G Facility and
approximately $147 million of the Term H Facility. On May 12, 2017, CHS completed a
tack-on
offering of $900 million aggregate principal amount of
6
1
⁄
4
% Senior Secured Notes, a portion of the net proceeds of which was used to repay the Companys existing Term A Facility in full. The
tack-on
offering increased the total aggregate principal amount of 6
1
⁄
4
% Senior Secured Notes to $3.1 billion.
On May 30, 2017, CHS entered into a Loan Modification Agreement to the Credit Facility (Loan Modification Agreement) to
extend the maturity date of the Revolving Facility. Following the Loan Modification Agreement, CHS has Revolving Facility commitments through January 27, 2019 of approximately $929 million, of which a $739 million portion represents
extended commitments maturing January 27, 2021. In connection with the Loan Modification Agreement, the financial maintenance covenants in the Credit Facility were further adjusted and CHS agreed to certain other additional undertakings for the
benefit of the extending Revolving Facility lenders.
On June 30, 2017, using a portion of the cash generated from the July 1,
2017 hospital divestitures that preliminarily closed on June 30, 2017, CHS repaid approximately $122 million of the Term G Facility and approximately $225 million of the Term H Facility.
On July 7, 2017, using a portion of the cash generated from the divestitures that preliminarily closed on June 30, 2017 and that
closed on July 3, 2017, CHS repaid approximately $121 million of the Term G Facility and approximately $222 million of the Term H Facility.
On September 29, 2017, using a portion of the cash generated from the divestitures that preliminarily closed on September 29, 2017
and that closed on October 1, 2017, CHS repaid approximately $151 million of the Term G Facility and approximately $277 million of the Term H 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. In addition, the margin in respect of the
Revolving Facility will be subject to adjustment determined by reference to a leverage-based pricing grid. Loans in respect of the Revolving Facility currently accrue interest at a rate per annum equal to LIBOR plus 2.50%, in the case of LIBOR
borrowings, and Alternate Base Rate plus 1.50%, 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.
25
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Under 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 H Facility each year. As of December 31, 2016, no additional amortization payments were required to be made under the Term G Facility.
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 the Loan Modification Agreement, CHS agreed with the extending lenders under the Revolving Facility not to exercise such
reinvestment rights with respect to certain announced divestitures), (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.
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 2021 Senior Secured Notes (as defined below) and the 6
1
⁄
4
% Senior Secured Notes.
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 September 30, 2017, 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. The secured net leverage ratio financial covenant will decrease to 4.25 to 1.00 for the period
January 1, 2020 through September 30, 2020, then to 4.00 to 1.00 thereafter. For the
12-month
period ended September 30, 2017, 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 1.75 to 1.00, which will increase to 2.00 to 1.00 on January 1, 2018 (and for all periods thereafter). The Company
was in compliance with all such covenants at September 30, 2017, with a secured net leverage ratio of approximately 3.80 to 1.00 and an interest coverage ratio of approximately 2.45 to 1.00.
26
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 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 September 30, 2017, the availability for additional borrowings under the Credit Facility, subject to certain limitations as set
forth in the Credit Facility, was approximately $929 million pursuant to the Revolving Facility (which amount shall reduce to $739 million on January 27, 2019), of which $63 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 $1.0 billion of which is effectively
available because of the Companys additional undertakings in connection with the Loan Modification Agreement. As of September 30, 2017, the weighted-average interest rate under the Credit Facility, excluding swaps, was 7.2%.
8% Senior Notes due 2019
On
November 22, 2011, CHS completed a private offering of $1.0 billion aggregate principal amount of 8% Senior Notes due 2019 (the 8% Senior Notes). 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. 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.
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 of outstanding 8% Senior Notes in open market transactions.
7
1
⁄
8
% Senior Notes due 2020
On July 18,
2012, CHS completed a public offering 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. 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.
27
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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, 2017 to July 14, 2018
|
|
|
101.781 %
|
|
July 15, 2018 to July 14, 2020
|
|
|
100.000 %
|
|
5
1
⁄
8
% Senior Secured Notes
due 2018
On August 17, 2012, CHS completed a public offering 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 Facility and related fees and expenses. The 2018 Senior Secured Notes bore interest at 5.125% per annum, payable semiannually in arrears on August 15 and February 15. The 2018 Senior
Secured Notes were 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 2021 Senior Secured Notes, 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 and the 2021 Senior Secured Notes.
CHS was 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, 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.
During the nine months ended September 30, 2017, using a portion of the net proceeds from the issuance of the 6
1
⁄
4
% Senior Secured Notes, CHS completed its tender offer of $469 million of the then $700 million aggregate outstanding principal amount of the 2018
Senior Secured Notes and thereafter redeemed the remaining $231 million aggregate principal amount of 2018 Senior Secured Notes pursuant to a redemption notice previously given by CHS.
5
1
⁄
8
% Senior Secured Notes due 2021
On January 27, 2014, CHS completed a private offering of $1.0 billion aggregate principal amount of
5
1
⁄
8
% Senior Secured Notes due 2021 (the 2021 Senior Secured Notes). 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. 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 6
1
⁄
4
% 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 6
1
⁄
4
% Senior Secured Notes.
28
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 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 completed a private offering of $3.0 billion aggregate principal amount of 6
7
⁄
8
% Senior Notes due 2022 (the 6
7
⁄
8
% Senior Notes). 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. 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.
29
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
6
1
⁄
4
% Senior
Secured Notes due 2023
On March 16, 2017, CHS completed a public offering of $2.2 billion aggregate principal amount of
6
1
⁄
4
% Senior Secured Notes. The net proceeds from this issuance were used to finance the purchase or redemption of $700 million aggregate principal
amount of CHS then outstanding 2018 Senior Secured Notes and related fees and expenses, and the repayment of $1.445 billion of the Term F Facility. On May 12, 2017, CHS completed a
tack-on
offering of $900 million aggregate principal amount of 6
1
⁄
4
% Senior Secured Notes, increasing the total aggregate principal amount of 6
1
⁄
4
% Senior Secured Notes to $3.1 billion. A portion of the net proceeds from this issuance were used to finance the repayment of approximately
$713 million aggregate principal amount of CHS then outstanding Term A Facility and related fees and expenses. The
tack-on
notes have identical terms, other than issue date and issue price as the 6
1
⁄
4
% Senior Secured Notes issued on March 16, 2017. The 6
1
⁄
4
%
Senior Secured Notes bear interest at 6.250% per annum, payable semiannually in arrears on March 31 and September 30, commencing September 30, 2017. Interest on the 6
1
⁄
4
% 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 6
1
⁄
4
% 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 2021 Senior Secured Notes, and subject to prior ranking liens permitted by the indenture governing the
6
1
⁄
4
% Senior Secured Notes on substantially the same assets, subject to certain exceptions, that secure CHS obligations under the Credit Facility and
the 2021 Senior Secured Notes.
CHS is entitled, at its option, to redeem all or a portion of the
6
1
⁄
4
% Senior Secured Notes at any time prior to March 31, 2020, upon not less than 30 nor more than 60 days notice, at a price equal to 100% of the
principal amount of the 6
1
⁄
4
% Senior Secured Notes redeemed plus accrued and unpaid interest, if any, plus a make-whole premium, as described in
the indenture governing the 6
1
⁄
4
% Senior Secured Notes. In addition, CHS may redeem up to 40% of the aggregate principal amount of the 6
1
⁄
4
% Senior Secured Notes at any time prior to March 31, 2020 using the net proceeds from certain equity offerings at the redemption price of 106.250% of the
principal amount of the 6
1
⁄
4
% Senior Secured Notes redeemed, plus accrued and unpaid interest, if any.
CHS may redeem some or all of the 6
1
⁄
4
% Senior
Secured Notes at any time on or after March 31, 2020 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
|
|
March 31, 2020 to March 30, 2021
|
|
|
103.125 %
|
|
March 31, 2021 to March 30, 2022
|
|
|
101.563 %
|
|
March 31, 2022 to March 30, 2023
|
|
|
100.000 %
|
|
30
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 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 thereof. On June 23, 2017, CHS and certain of its subsidiaries
amended the Receivables Facility to replace a managing agent, The Bank of Tokyo-Mitsubishi UFJ, Ltd. with PNC Bank, National Association, to decrease the size of the facility from $700 million to $600 million and to extend the scheduled
termination date in respect of $150 million of the previously unextended $250 million portion to expire on November 13, 2018, coterminous with the remaining commitments. The remaining $100 million was repaid with available cash
on hand. 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 the
$600 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 $600 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 September 30, 2017 totaled $532 million on the condensed consolidated balance sheet. At September 30, 2017, the carrying amount of Receivables included in the Receivables Facility
totaled approximately $1.5 billion and is included in patient accounts receivable on the condensed 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 $4 million for the three months ended September 30, 2017, and an
after-tax
loss of $2 million for the three months ended September 30, 2017. In addition, the financing and
repayment transactions discussed above resulted in a loss from the early extinguishment of debt of $35 million and $30 million for the nine months ended September 30, 2017 and 2016, respectively, and an
after-tax
loss of $22 million and $19 million for the nine months ended September 30, 2017 and 2016, respectively.
Other Debt
As of
September 30, 2017, other debt consisted primarily of 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 8 separate interest swap agreements in effect at September 30, 2017, with an aggregate notional amount for currently
effective swaps of $2.2 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 at a rate per annum equal to LIBOR plus 2.50%. 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 13 for additional information
regarding these swaps.
31
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The Company paid interest of $221 million and $279 million on borrowings during the
three months ended September 30, 2017 and 2016, respectively, and $630 million and $767 million on borrowings during the nine months ended September 30, 2017 and 2016, respectively.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments has been estimated by the Company using available market information as of September 30, 2017 and
December 31, 2016, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
Carrying
|
|
Estimated Fair
|
|
Carrying
|
|
Estimated Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
590
|
|
|
$
|
590
|
|
|
$
|
238
|
|
|
$
|
238
|
|
Available-for-sale
securities
|
|
|
278
|
|
|
|
278
|
|
|
|
299
|
|
|
|
299
|
|
Trading securities
|
|
|
43
|
|
|
|
43
|
|
|
|
80
|
|
|
|
80
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Value Right
|
|
|
3
|
|
|
|
3
|
|
|
|
1
|
|
|
|
1
|
|
Credit Facility
|
|
|
2,959
|
|
|
|
2,988
|
|
|
|
6,456
|
|
|
|
6,370
|
|
8% Senior Notes
|
|
|
1,921
|
|
|
|
1,882
|
|
|
|
1,920
|
|
|
|
1,615
|
|
7
1
⁄
8
%
Senior Notes
|
|
|
1,191
|
|
|
|
1,079
|
|
|
|
1,189
|
|
|
|
917
|
|
5
1
⁄
8
%
Senior Secured Notes due 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
698
|
|
|
|
690
|
|
5
1
⁄
8
%
Senior Secured Notes due 2021
|
|
|
976
|
|
|
|
1,003
|
|
|
|
972
|
|
|
|
930
|
|
6
7
⁄
8
%
Senior Notes
|
|
|
2,940
|
|
|
|
2,354
|
|
|
|
2,932
|
|
|
|
2,102
|
|
6
1
⁄
4
%
Senior Secured Notes
|
|
|
3,060
|
|
|
|
3,065
|
|
|
|
-
|
|
|
|
-
|
|
Receivables Facility and other debt
|
|
|
585
|
|
|
|
585
|
|
|
|
749
|
|
|
|
749
|
|
The carrying value of the Companys long-term debt in the above table is presented net of unamortized
deferred debt issuance costs. 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 14. The estimated fair value for financial instruments with a fair value that does not equal its 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.
32
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
6
7
⁄
8
% Senior Notes.
Estimated fair value is based on the closing market price for these notes.
6
1
⁄
4
% Senior Secured
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 nine months ended September 30, 2017 and 2016, 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 condensed 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 September 30, 2017, 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.
Interest rate swaps consisted of the following at September 30, 2017:
|
|
|
|
|
|
|
|
|
Swap #
|
|
Notional Amount
(in millions)
|
|
Fixed Interest Rate
|
|
Termination Date
|
|
Fair Value (in
millions)
|
1
|
|
$ 400
|
|
1.882 %
|
|
August 30, 2019
|
|
$ 1
|
2
|
|
200
|
|
2.515 %
|
|
August 30, 2019
|
|
3
|
3
|
|
200
|
|
2.613 %
|
|
August 30, 2019
|
|
3
|
4
|
|
300
|
|
2.041 %
|
|
August 30, 2020
|
|
2
|
5
|
|
300
|
|
2.738 %
|
|
August 30, 2020
|
|
7
|
6
|
|
300
|
|
2.892 %
|
|
August 30, 2020
|
|
9
|
7
|
|
300
|
|
2.363 %
|
|
January 27, 2021
|
|
5
|
8
|
|
200
|
|
2.368 %
|
|
January 27, 2021
|
|
3
|
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 condensed 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 September 30, 2017 interest rates, approximately $25 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.
33
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The following tabular disclosure provides the amount of
pre-tax
(loss) gain recognized as a component of OCI during the three and nine months ended September 30, 2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
Pre-Tax
(Loss) Gain
|
|
|
Recognized in OCI (Effective Portion)
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
Derivatives in Cash Flow Hedging Relationships
|
|
September 30,
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest rate swaps
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
(8)
|
|
|
$
|
(61)
|
|
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 condensed consolidated statements of loss during the three and nine months ended September 30,
2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
Pre-Tax
Loss Reclassified
|
|
|
from AOCL into Income (Effective Portion)
|
Location of Loss Reclassified from
|
|
Three Months Ended
|
|
Nine Months Ended
|
AOCL into Income (Effective Portion)
|
|
September 30,
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest expense, net
|
|
$
|
7
|
|
|
$
|
15
|
|
|
$
|
24
|
|
|
$
|
45
|
|
The fair values of derivative instruments in the condensed consolidated balance sheets as of
September 30, 2017 and December 31, 2016 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
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
|
|
$ 33
|
|
Other
long-term
liabilities
|
|
$ 49
|
14. 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.
|
34
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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
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 nine-month periods ending September 30, 2017 or September 30, 2016.
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 September 30, 2017 and December 31, 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Available-for-sale
securities
|
|
$
|
278
|
|
|
$
|
158
|
|
|
$
|
120
|
|
|
$
|
-
|
|
Trading securities
|
|
|
43
|
|
|
|
43
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
321
|
|
|
$
|
201
|
|
|
$
|
120
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Value Right (CVR)
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
-
|
|
|
$
|
-
|
|
CVR-related
liability
|
|
|
256
|
|
|
|
-
|
|
|
|
-
|
|
|
|
256
|
|
Fair value of interest rate swap agreements
|
|
|
33
|
|
|
|
-
|
|
|
|
33
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
292
|
|
|
$
|
3
|
|
|
$
|
33
|
|
|
$
|
256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
Securities
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.
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 September 30, 2017 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 condensed consolidated statements of loss.
35
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
CVR-related
Liability
The
CVR-related
legal liability represents the Companys estimate of fair value at
September 30, 2017 of the liability associated with the legal matters assumed in the HMA merger, which are included in other long-term liabilities in the accompanying condensed 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 condensed consolidated statements of loss.
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
$1 million and an
after-tax
adjustment of less than $1 million to OCI at September 30, 2017. 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 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.
15. EMPLOYEE BENEFIT PLANS
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 $3 million for both of the three-month periods ended September 30, 2017 and 2016, and $10 million and $9 million for the nine months ended
September 30, 2017 and 2016, respectively. The accrued benefit liability for the SERP totaled $115 million and $122 million at September 30, 2017 and December 31, 2016, respectively, and is included in other long-term
liabilities on the condensed consolidated balance sheets. The weighted-average assumptions used in determining net periodic cost for the three and nine-month periods ended September 30, 2017 was a discount rate of 3.6% and annual salary
increase of 2.0%. The Company had
available-for-sale
securities in a rabbi trust generally designated to pay benefits of the SERP in the amounts of $126 million and
$131 million at September 30, 2017 and December 31, 2016, respectively. These amounts are included in other assets, net on the condensed consolidated balance sheets.
36
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
During the nine months ended September 30, 2017, certain members of executive management
of the Company that were participants in the SERP retired and met the requirements for payout of their SERP retirement benefit. The SERP payout provisions require payment to the participant in an actuarially determined lump sum amount six months
after the participant retires from the Company. Such amounts have been or will be paid out of the rabbi trust during the latter half of 2017. As required by the pension accounting rules in U.S. GAAP, the Company recognized a
non-cash
settlement loss of approximately $2 million during the three months ended September 30, 2017, and will recognize a
non-cash
settlement loss of approximately
$4 million during the three months ending December 31, 2017, which represent a
pro-rata
portion of the accumulated unrecognized actuarial loss out of accumulated other comprehensive loss.
16. SEGMENT INFORMATION
The
Company operates in one distinct operating segment, represented by hospital operations (which includes its general acute care hospitals and related healthcare entities that provide inpatient and outpatient healthcare services).
Prior to the Companys sale on December 31, 2016 of 80% of its ownership interest in the home care division, the Company also had an
additional distinct operating segment represented by its home care agency operations (which provide
in-home
care). However, only the hospital operations segment met the criteria as a separate reportable
segment due to the fact that the financial information for the home care agency segment did not meet the quantitative thresholds for a separate identifiable reportable segment and as such was combined into the corporate and all other reportable
segment.
The distribution between reportable segments of the Companys net operating revenues and loss from continuing operations
before income taxes, for the three and nine months ended September 30, 2016, prior to the sale of an 80% ownership interest in the home care division, is summarized in the following tables (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2016
|
|
|
Nine Months Ended
September 30, 2016
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
4,314
|
|
|
$
|
13,791
|
|
Corporate and all other
|
|
|
66
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,380
|
|
|
$
|
13,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
(29)
|
|
|
$
|
(1,337)
|
|
Corporate and all other
|
|
|
(54)
|
|
|
|
(226)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(83)
|
|
|
$
|
(1,563)
|
|
|
|
|
|
|
|
|
|
|
37
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
17. OTHER COMPREHENSIVE INCOME
The following tables present information about items reclassified out of accumulated other comprehensive income (loss) by component for the
three and nine months ended September 30, 2017 and 2016 (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 June 30, 2017
|
|
$
|
(28)
|
|
|
$
|
(5)
|
|
|
$
|
(20)
|
|
|
$
|
(53)
|
|
Other comprehensive income before reclassifications
|
|
|
1
|
|
|
|
2
|
|
|
|
-
|
|
|
|
3
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
4
|
|
|
|
-
|
|
|
|
1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income
|
|
|
5
|
|
|
|
2
|
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2017
|
|
$
|
(23)
|
|
|
$
|
(3)
|
|
|
$
|
(19)
|
|
|
$
|
(45)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2016
|
|
$
|
(31)
|
|
|
$
|
(10)
|
|
|
$
|
(21)
|
|
|
$
|
(62)
|
|
Other comprehensive (loss) income before reclassifications
|
|
|
(7)
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
15
|
|
|
|
-
|
|
|
|
2
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income
|
|
|
8
|
|
|
|
7
|
|
|
|
2
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2017
|
|
$
|
(23)
|
|
|
$
|
(3)
|
|
|
$
|
(19)
|
|
|
$
|
(45)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2016
|
|
$
|
(69)
|
|
|
$
|
-
|
|
|
$
|
(21)
|
|
|
$
|
(90)
|
|
Other comprehensive loss before reclassifications
|
|
|
-
|
|
|
|
(7)
|
|
|
|
-
|
|
|
|
(7)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
10
|
|
|
|
(7)
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2016
|
|
$
|
(59)
|
|
|
$
|
(7)
|
|
|
$
|
(21)
|
|
|
$
|
(87)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(40)
|
|
|
|
(8)
|
|
|
|
-
|
|
|
|
(48)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
29
|
|
|
|
-
|
|
|
|
3
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive (loss) income
|
|
|
(11)
|
|
|
|
(8)
|
|
|
|
3
|
|
|
|
(16)
|
|
AOCI distributed to QHC in
spin-off
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2016
|
|
$
|
(59)
|
|
|
$
|
(7)
|
|
|
$
|
(21)
|
|
|
$
|
(87)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The following tables present a subtotal for each significant reclassification to net loss out
of AOCL and the line item affected in the accompanying condensed consolidated statements of loss for the three and nine months ended September 30, 2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCL
|
|
|
Affected line item in the
statement where
net
(loss) income is presented
|
|
Details about accumulated other
comprehensive (loss) income components
|
|
Three Months Ended
September 30, 2017
|
|
|
Nine Months Ended
September 30, 2017
|
|
|
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(6)
|
|
|
$
|
(24)
|
|
|
|
Interest expense, net
|
|
|
|
|
2
|
|
|
|
9
|
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4)
|
|
|
$
|
(15)
|
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
-
|
|
|
$
|
(1)
|
|
|
|
Salaries and benefits
|
|
Actuarial losses
|
|
|
-
|
|
|
|
(1)
|
|
|
|
Salaries and benefits
|
|
Settlement losses recognized
|
|
|
(2)
|
|
|
|
(2)
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
(4)
|
|
|
|
Total before tax
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1)
|
|
|
$
|
(2)
|
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from AOCL
|
|
|
Affected line item in the
statement where net
(loss) income is presented
|
|
Details about accumulated other
comprehensive (loss) income components
|
|
Three Months Ended
September 30, 2016
|
|
|
Nine Months Ended
September 30, 2016
|
|
|
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(15)
|
|
|
$
|
(45)
|
|
|
|
Interest expense, net
|
|
|
|
|
5
|
|
|
|
16
|
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10)
|
|
|
$
|
(29)
|
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
(1)
|
|
|
$
|
(1)
|
|
|
|
Salaries and benefits
|
|
Actuarial losses
|
|
|
-
|
|
|
|
(3)
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
(4)
|
|
|
|
Total before tax
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
(3)
|
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. CONTINGENCIES
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 condensed 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.
40
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 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 September 30, 2017, the Company had acquired no CVRs.
41
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
The following table represents the impact of legal expenses paid or incurred and settlements
paid or deemed final as of September 30, 2017 on the amounts owed to CVR holders (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Expenses and Settlements Paid
|
|
|
|
Total Expenses
and Settlement
Cost
|
|
|
Deductible
|
|
|
Companys
Responsibility
at 10%
|
|
|
Reduction to
Amount Owed
to CVR Holders
at 90%
|
|
As of December 31, 2016
|
|
$
|
62
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
40
|
|
Settlements paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Legal expenses incurred and/or paid during the nine months ended September 30, 2017
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
$
|
63
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $4 million increase in the liability during the nine months ended September 30,
2017 and the estimated fair value of such liabilities, after consideration of amounts paid and current estimates of valuation inputs, was $256 million as of September 30, 2017, which is recorded in other long-term liabilities on the
accompanying condensed consolidated balance sheet. As of September 30, 2017, 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.
42
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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, 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, April 27, 2017, August 28, 2017 and now until December 18, 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
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 is awaiting its decision. At a hearing on July 27, 2012, the trial 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.
43
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Summary of Recorded Amounts
The table below presents a reconciliation of the beginning and ending liability balances (in millions) during the nine months ended
September 30, 2017, with respect to the Companys fair value determination in connection with HMA Legal Matters that were not previously accrued by HMA, 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
|
|
|
Other
Probable
Contingencies
|
|
Balance as of December 31, 2016
|
|
$
|
252
|
|
|
$
|
14
|
|
Expense
|
|
|
4
|
|
|
|
13
|
|
Cash payments
|
|
|
-
|
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2017
|
|
$
|
256
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
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 condensed 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 condensed 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 $1 million for both the three-month periods ended September 30, 2017 and 2016,
and $2 million for both the nine-month periods ended September 30, 2017 and 2016, and are included in other operating expenses in the accompanying condensed consolidated statements of loss.
Matters for which an Outcome Cannot be Assessed
For the following legal matter, due to the uncertainties surrounding the ultimate outcome of the case, 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.
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 oral argument was heard on May 3,
2017. The Company believes this consolidated matter is without merit and will vigorously defend this case.
44
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
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 to a final order entered on January 17, 2017. As a
result of the settlement, the Company recorded a gain of approximately $40 million for the amount of settlement proceeds received, net of related legal expenses. 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 the 2016 Form
10-K.
19. SUBSEQUENT EVENTS
The
Company has evaluated all material events occurring subsequent to the balance sheet date for events requiring disclosure or recognition in the condensed consolidated financial statements.
Effective October 1, 2017, one or more subsidiaries of the Company sold Weatherford Regional Medical Center (103 licensed beds) in
Weatherford, Texas, and its associated assets to subsidiaries of HCA for approximately $66 million in cash, which was received at the preliminary closing on September 29, 2017.
Effective October 1, 2017, one or more subsidiaries of the Company sold five Pennsylvania hospitals and their associated assets to
subsidiaries of Reading Health System for approximately $418 million in cash, which was received at the preliminary closing on September 29, 2017. Hospitals included in the transaction were Brandywine Hospital in Coatesville (169 licensed
beds), Chestnut Hill Hospital in Philadelphia (148 licensed beds), Jennersville Hospital in West Grove (63 licensed beds), Phoenixville Hospital in Phoenixville (151 licensed beds) and Pottstown Memorial Medical Center in Pottstown (232 licensed
beds).
Effective November 1, 2017, one or more subsidiaries of the Company sold Highlands Regional Medical Center (126 licensed
beds) in Sebring, Florida, and its associated assets to subsidiaries of HCA for approximately $11 million in cash.
Effective
November 1, 2017, one or more subsidiaries of the Company sold Merit Health Northwest Mississippi (181 licensed beds) in Clarksdale, Mississippi, and its associated assets to subsidiaries of Curae Health, Inc. for approximately $23 million
in a combination of cash and a note receivable from the buyer.
45
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
20. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Senior Notes due 2019, 2020 and 2022, which are senior unsecured obligations of CHS, the
5
1
⁄
8
% Senior Secured Notes due 2021, and the 6
1
⁄
4
% Senior Secured
Notes due 2023 (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 condensed
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 12. 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 and
non-guarantors
as of September 30, 2017.
46
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Loss
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(5)
|
|
|
$
|
2,661
|
|
|
$
|
1,677
|
|
|
$
|
-
|
|
|
$
|
4,333
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
410
|
|
|
|
257
|
|
|
|
-
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(5)
|
|
|
|
2,251
|
|
|
|
1,420
|
|
|
|
-
|
|
|
|
3,666
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
911
|
|
|
|
813
|
|
|
|
-
|
|
|
|
1,724
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
403
|
|
|
|
207
|
|
|
|
-
|
|
|
|
610
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
614
|
|
|
|
297
|
|
|
|
-
|
|
|
|
911
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(2)
|
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
51
|
|
|
|
42
|
|
|
|
-
|
|
|
|
93
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
129
|
|
|
|
77
|
|
|
|
-
|
|
|
|
206
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
|
|
2
|
|
|
|
-
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
2,139
|
|
|
|
1,437
|
|
|
|
-
|
|
|
|
3,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
-
|
|
|
|
(5)
|
|
|
|
112
|
|
|
|
(17)
|
|
|
|
-
|
|
|
|
90
|
|
Interest expense, net
|
|
|
-
|
|
|
|
84
|
|
|
|
153
|
|
|
|
1
|
|
|
|
-
|
|
|
|
238
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Gain on sale of investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
110
|
|
|
|
39
|
|
|
|
20
|
|
|
|
-
|
|
|
|
(174)
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(110)
|
|
|
|
(132)
|
|
|
|
(61)
|
|
|
|
(18)
|
|
|
|
174
|
|
|
|
(147)
|
|
Benefit from income taxes
|
|
|
-
|
|
|
|
(22)
|
|
|
|
(23)
|
|
|
|
(14)
|
|
|
|
-
|
|
|
|
(59)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(110)
|
|
|
|
(110)
|
|
|
|
(38)
|
|
|
|
(4)
|
|
|
|
174
|
|
|
|
(88)
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(1)
|
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(110)
|
|
|
|
(110)
|
|
|
|
(40)
|
|
|
|
(4)
|
|
|
|
174
|
|
|
|
(90)
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(110)
|
|
|
$
|
(110)
|
|
|
$
|
(40)
|
|
|
$
|
(24)
|
|
|
$
|
174
|
|
|
$
|
(110)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Loss
Three Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(6)
|
|
|
$
|
2,767
|
|
|
$
|
2,323
|
|
|
$
|
-
|
|
|
$
|
5,084
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
393
|
|
|
|
311
|
|
|
|
-
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(6)
|
|
|
|
2,374
|
|
|
|
2,012
|
|
|
|
-
|
|
|
|
4,380
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
969
|
|
|
|
1,098
|
|
|
|
-
|
|
|
|
2,067
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
416
|
|
|
|
307
|
|
|
|
-
|
|
|
|
723
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
615
|
|
|
|
411
|
|
|
|
-
|
|
|
|
1,026
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
|
|
-
|
|
|
|
10
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(4)
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(5)
|
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
52
|
|
|
|
57
|
|
|
|
-
|
|
|
|
109
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
157
|
|
|
|
108
|
|
|
|
-
|
|
|
|
265
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
21
|
|
|
|
-
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
2,228
|
|
|
|
2,006
|
|
|
|
-
|
|
|
|
4,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
-
|
|
|
|
(6)
|
|
|
|
146
|
|
|
|
6
|
|
|
|
-
|
|
|
|
146
|
|
Interest expense, net
|
|
|
-
|
|
|
|
84
|
|
|
|
137
|
|
|
|
12
|
|
|
|
-
|
|
|
|
233
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gain on sale of investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
79
|
|
|
|
14
|
|
|
|
18
|
|
|
|
-
|
|
|
|
(115)
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(79)
|
|
|
|
(104)
|
|
|
|
(9)
|
|
|
|
(6)
|
|
|
|
115
|
|
|
|
(83)
|
|
(Benefit from) provision for income taxes
|
|
|
-
|
|
|
|
(25)
|
|
|
|
5
|
|
|
|
(9)
|
|
|
|
-
|
|
|
|
(29)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(79)
|
|
|
|
(79)
|
|
|
|
(14)
|
|
|
|
3
|
|
|
|
115
|
|
|
|
(54)
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(79)
|
|
|
|
(79)
|
|
|
|
(16)
|
|
|
|
3
|
|
|
|
115
|
|
|
|
(56)
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(79)
|
|
|
$
|
(79)
|
|
|
$
|
(16)
|
|
|
$
|
(20)
|
|
|
$
|
115
|
|
|
$
|
(79)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Loss
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(17)
|
|
|
$
|
8,437
|
|
|
$
|
5,903
|
|
|
$
|
-
|
|
|
$
|
14,323
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
1,337
|
|
|
|
691
|
|
|
|
-
|
|
|
|
2,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(17)
|
|
|
|
7,100
|
|
|
|
5,212
|
|
|
|
-
|
|
|
|
12,295
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
2,786
|
|
|
|
2,918
|
|
|
|
-
|
|
|
|
5,704
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,263
|
|
|
|
793
|
|
|
|
-
|
|
|
|
2,056
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
1,860
|
|
|
|
1,124
|
|
|
|
-
|
|
|
|
2,984
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(32)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(32)
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(12)
|
|
|
|
(13)
|
|
|
|
-
|
|
|
|
(25)
|
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
155
|
|
|
|
151
|
|
|
|
-
|
|
|
|
306
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
385
|
|
|
|
280
|
|
|
|
-
|
|
|
|
665
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
291
|
|
|
|
72
|
|
|
|
-
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
6,696
|
|
|
|
5,325
|
|
|
|
-
|
|
|
|
12,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
-
|
|
|
|
(17)
|
|
|
|
404
|
|
|
|
(113)
|
|
|
|
-
|
|
|
|
274
|
|
Interest expense, net
|
|
|
-
|
|
|
|
241
|
|
|
|
448
|
|
|
|
17
|
|
|
|
-
|
|
|
|
706
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
446
|
|
|
|
210
|
|
|
|
105
|
|
|
|
-
|
|
|
|
(774)
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(446)
|
|
|
|
(503)
|
|
|
|
(149)
|
|
|
|
(130)
|
|
|
|
774
|
|
|
|
(454)
|
|
(Benefit from) provision for income taxes
|
|
|
-
|
|
|
|
(57)
|
|
|
|
56
|
|
|
|
(73)
|
|
|
|
-
|
|
|
|
(74)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(446)
|
|
|
|
(446)
|
|
|
|
(205)
|
|
|
|
(57)
|
|
|
|
774
|
|
|
|
(380)
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(4)
|
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(8)
|
|
|
|
(2)
|
|
|
|
-
|
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(446)
|
|
|
|
(446)
|
|
|
|
(213)
|
|
|
|
(59)
|
|
|
|
774
|
|
|
|
(390)
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
|
|
-
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(446)
|
|
|
$
|
(446)
|
|
|
$
|
(213)
|
|
|
$
|
(115)
|
|
|
$
|
774
|
|
|
$
|
(446)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Loss
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(18)
|
|
|
$
|
8,594
|
|
|
$
|
7,552
|
|
|
$
|
-
|
|
|
$
|
16,128
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
1,349
|
|
|
|
810
|
|
|
|
-
|
|
|
|
2,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(18)
|
|
|
|
7,245
|
|
|
|
6,742
|
|
|
|
-
|
|
|
|
13,969
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
2,901
|
|
|
|
3,636
|
|
|
|
-
|
|
|
|
6,537
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,288
|
|
|
|
993
|
|
|
|
-
|
|
|
|
2,281
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
1,766
|
|
|
|
1,490
|
|
|
|
-
|
|
|
|
3,256
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
4
|
|
|
|
-
|
|
|
|
10
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(28)
|
|
|
|
(26)
|
|
|
|
-
|
|
|
|
(54)
|
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
153
|
|
|
|
187
|
|
|
|
-
|
|
|
|
340
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
477
|
|
|
|
362
|
|
|
|
-
|
|
|
|
839
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,163
|
|
|
|
532
|
|
|
|
-
|
|
|
|
1,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
7,726
|
|
|
|
7,178
|
|
|
|
-
|
|
|
|
14,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
-
|
|
|
|
(18)
|
|
|
|
(481)
|
|
|
|
(436)
|
|
|
|
-
|
|
|
|
(935)
|
|
Interest expense, net
|
|
|
-
|
|
|
|
158
|
|
|
|
497
|
|
|
|
75
|
|
|
|
-
|
|
|
|
730
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
Gain on sale of investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
(94)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(94)
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
1,500
|
|
|
|
1,340
|
|
|
|
478
|
|
|
|
-
|
|
|
|
(3,356)
|
|
|
|
(38)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(1,500)
|
|
|
|
(1,546)
|
|
|
|
(1,362)
|
|
|
|
(511)
|
|
|
|
3,356
|
|
|
|
(1,563)
|
|
Benefit from income taxes
|
|
|
-
|
|
|
|
(46)
|
|
|
|
(18)
|
|
|
|
(77)
|
|
|
|
-
|
|
|
|
(141)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1,500)
|
|
|
|
(1,500)
|
|
|
|
(1,344)
|
|
|
|
(434)
|
|
|
|
3,356
|
|
|
|
(1,422)
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
2
|
|
|
|
-
|
|
|
|
(4)
|
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,500)
|
|
|
|
(1,500)
|
|
|
|
(1,350)
|
|
|
|
(433)
|
|
|
|
3,356
|
|
|
|
(1,427)
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
|
|
-
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(1,500)
|
|
|
$
|
(1,500)
|
|
|
$
|
(1,350)
|
|
|
$
|
(506)
|
|
|
$
|
3,356
|
|
|
$
|
(1,500)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Comprehensive Loss
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net loss
|
|
$
|
(110)
|
|
|
$
|
(110)
|
|
|
$
|
(40)
|
|
|
$
|
(4)
|
|
|
$
|
174
|
|
|
$
|
(90)
|
|
Other comprehensive income, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
5
|
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
5
|
|
Net change in fair value of
available-for-sale
securities, net of tax
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
(4)
|
|
|
|
2
|
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(2)
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
8
|
|
|
|
8
|
|
|
|
3
|
|
|
|
-
|
|
|
|
(11)
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(102)
|
|
|
|
(102)
|
|
|
|
(37)
|
|
|
|
(4)
|
|
|
|
163
|
|
|
|
(82)
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20
|
|
|
|
-
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(102)
|
|
|
$
|
(102)
|
|
|
$
|
(37)
|
|
|
$
|
(24)
|
|
|
$
|
163
|
|
|
$
|
(102)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Loss
Three Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net (loss) income
|
|
$
|
(79)
|
|
|
$
|
(79)
|
|
|
$
|
(16)
|
|
|
$
|
3
|
|
|
$
|
115
|
|
|
$
|
(56)
|
|
Other comprehensive (loss) income, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
10
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10)
|
|
|
|
10
|
|
Net change in fair value of
available-for-sale
securities, net of tax
|
|
|
(7)
|
|
|
|
(7)
|
|
|
|
(7)
|
|
|
|
-
|
|
|
|
14
|
|
|
|
(7)
|
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
3
|
|
|
|
3
|
|
|
|
(7)
|
|
|
|
-
|
|
|
|
4
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
|
(76)
|
|
|
|
(76)
|
|
|
|
(23)
|
|
|
|
3
|
|
|
|
119
|
|
|
|
(53)
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(76)
|
|
|
$
|
(76)
|
|
|
$
|
(23)
|
|
|
$
|
(20)
|
|
|
$
|
119
|
|
|
$
|
(76)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Comprehensive Loss
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net loss
|
|
$
|
(446)
|
|
|
$
|
(446)
|
|
|
$
|
(213)
|
|
|
$
|
(59)
|
|
|
$
|
774
|
|
|
$
|
(390)
|
|
Other comprehensive income, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
8
|
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8)
|
|
|
|
8
|
|
Net change in fair value of
available-for-sale
securities, net of tax
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
|
|
-
|
|
|
|
(14)
|
|
|
|
7
|
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
(4)
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
17
|
|
|
|
17
|
|
|
|
9
|
|
|
|
-
|
|
|
|
(26)
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(429)
|
|
|
|
(429)
|
|
|
|
(204)
|
|
|
|
(59)
|
|
|
|
748
|
|
|
|
(373)
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56
|
|
|
|
-
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(429)
|
|
|
$
|
(429)
|
|
|
$
|
(204)
|
|
|
$
|
(115)
|
|
|
$
|
748
|
|
|
$
|
(429)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Loss
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net loss
|
|
$
|
(1,500)
|
|
|
$
|
(1,500)
|
|
|
$
|
(1,350)
|
|
|
$
|
(433)
|
|
|
$
|
3,356
|
|
|
$
|
(1,427)
|
|
Other comprehensive (loss) income, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
(11)
|
|
|
|
(11)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
(11)
|
|
Net change in fair value of
available-for-sale
securities, net of tax
|
|
|
(8)
|
|
|
|
(8)
|
|
|
|
(8)
|
|
|
|
-
|
|
|
|
16
|
|
|
|
(8)
|
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
-
|
|
|
|
(6)
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(16)
|
|
|
|
(16)
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
21
|
|
|
|
(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(1,516)
|
|
|
|
(1,516)
|
|
|
|
(1,355)
|
|
|
|
(433)
|
|
|
|
3,377
|
|
|
|
(1,443)
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
73
|
|
|
|
-
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(1,516)
|
|
|
$
|
(1,516)
|
|
|
$
|
(1,355)
|
|
|
$
|
(506)
|
|
|
$
|
3,377
|
|
|
$
|
(1,516)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Balance Sheet
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non -
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
529
|
|
|
$
|
61
|
|
|
$
|
-
|
|
|
$
|
590
|
|
Patient accounts receivable, net of allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
740
|
|
|
|
2,148
|
|
|
|
-
|
|
|
|
2,888
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
288
|
|
|
|
157
|
|
|
|
-
|
|
|
|
445
|
|
Prepaid income taxes
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
Prepaid expenses and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
155
|
|
|
|
52
|
|
|
|
-
|
|
|
|
207
|
|
Other current assets
|
|
|
-
|
|
|
|
-
|
|
|
|
343
|
|
|
|
183
|
|
|
|
-
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
22
|
|
|
|
-
|
|
|
|
2,055
|
|
|
|
2,601
|
|
|
|
-
|
|
|
|
4,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
207
|
|
|
|
13,511
|
|
|
|
4,336
|
|
|
|
7,033
|
|
|
|
(25,087)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
-
|
|
|
|
4,613
|
|
|
|
2,718
|
|
|
|
-
|
|
|
|
7,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
3,773
|
|
|
|
2,375
|
|
|
|
-
|
|
|
|
6,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
15
|
|
|
|
25
|
|
|
|
1,716
|
|
|
|
880
|
|
|
|
(1,058)
|
|
|
|
1,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,300
|
|
|
|
21,453
|
|
|
|
10,735
|
|
|
|
-
|
|
|
|
(33,488)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,544
|
|
|
$
|
34,989
|
|
|
$
|
27,228
|
|
|
$
|
15,607
|
|
|
$
|
(59,633)
|
|
|
$
|
19,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
32
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
40
|
|
Accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
560
|
|
|
|
290
|
|
|
|
-
|
|
|
|
850
|
|
Accrued interest
|
|
|
-
|
|
|
|
237
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
238
|
|
Accrued liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
672
|
|
|
|
477
|
|
|
|
-
|
|
|
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
-
|
|
|
|
237
|
|
|
|
1,264
|
|
|
|
776
|
|
|
|
-
|
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
-
|
|
|
|
13,047
|
|
|
|
219
|
|
|
|
635
|
|
|
|
-
|
|
|
|
13,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
-
|
|
|
|
19,355
|
|
|
|
22,436
|
|
|
|
12,989
|
|
|
|
(54,780)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
319
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
12
|
|
|
|
1,050
|
|
|
|
1,026
|
|
|
|
369
|
|
|
|
(1,058)
|
|
|
|
1,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
331
|
|
|
|
33,689
|
|
|
|
24,945
|
|
|
|
14,769
|
|
|
|
(55,838)
|
|
|
|
17,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
530
|
|
|
|
-
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Additional
paid-in
capital
|
|
|
2,002
|
|
|
|
507
|
|
|
|
867
|
|
|
|
572
|
|
|
|
(1,946)
|
|
|
|
2,002
|
|
Accumulated other comprehensive loss
|
|
|
(45)
|
|
|
|
(45)
|
|
|
|
(17)
|
|
|
|
(5)
|
|
|
|
67
|
|
|
|
(45)
|
|
(Accumulated deficit) retained earnings
|
|
|
(745)
|
|
|
|
838
|
|
|
|
1,433
|
|
|
|
(355)
|
|
|
|
(1,916)
|
|
|
|
(745)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Health Systems, Inc. stockholders equity
|
|
|
1,213
|
|
|
|
1,300
|
|
|
|
2,283
|
|
|
|
212
|
|
|
|
(3,795)
|
|
|
|
1,213
|
|
Noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
|
|
-
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,213
|
|
|
|
1,300
|
|
|
|
2,283
|
|
|
|
308
|
|
|
|
(3,795)
|
|
|
|
1,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
1,544
|
|
|
$
|
34,989
|
|
|
$
|
27,228
|
|
|
$
|
15,607
|
|
|
$
|
(59,633)
|
|
|
$
|
19,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Balance Sheet
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non -
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
171
|
|
|
$
|
67
|
|
|
$
|
-
|
|
|
$
|
238
|
|
Patient accounts receivable, net of allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
800
|
|
|
|
2,376
|
|
|
|
-
|
|
|
|
3,176
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
270
|
|
|
|
210
|
|
|
|
-
|
|
|
|
480
|
|
Prepaid income taxes
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
Prepaid expenses and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
120
|
|
|
|
67
|
|
|
|
-
|
|
|
|
187
|
|
Other current assets
|
|
|
-
|
|
|
|
-
|
|
|
|
216
|
|
|
|
352
|
|
|
|
-
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17
|
|
|
|
-
|
|
|
|
1,577
|
|
|
|
3,072
|
|
|
|
-
|
|
|
|
4,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
295
|
|
|
|
14,970
|
|
|
|
1,994
|
|
|
|
7,558
|
|
|
|
(24,817)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
-
|
|
|
|
4,606
|
|
|
|
3,543
|
|
|
|
-
|
|
|
|
8,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
3,735
|
|
|
|
2,786
|
|
|
|
-
|
|
|
|
6,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
15
|
|
|
|
-
|
|
|
|
2,620
|
|
|
|
1,195
|
|
|
|
(1,222)
|
|
|
|
2,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,728
|
|
|
|
21,383
|
|
|
|
9,983
|
|
|
|
-
|
|
|
|
(33,094)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,055
|
|
|
$
|
36,353
|
|
|
$
|
24,515
|
|
|
$
|
18,154
|
|
|
$
|
(59,133)
|
|
|
$
|
21,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
-
|
|
|
$
|
149
|
|
|
$
|
53
|
|
|
$
|
253
|
|
|
$
|
-
|
|
|
$
|
455
|
|
Accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
637
|
|
|
|
358
|
|
|
|
-
|
|
|
|
995
|
|
Accrued interest
|
|
|
-
|
|
|
|
205
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
207
|
|
Accrued liabilities
|
|
|
17
|
|
|
|
-
|
|
|
|
679
|
|
|
|
534
|
|
|
|
-
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
17
|
|
|
|
354
|
|
|
|
1,370
|
|
|
|
1,146
|
|
|
|
-
|
|
|
|
2,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
-
|
|
|
|
14,018
|
|
|
|
219
|
|
|
|
552
|
|
|
|
-
|
|
|
|
14,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
-
|
|
|
|
18,994
|
|
|
|
19,341
|
|
|
|
14,822
|
|
|
|
(53,157)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
411
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
12
|
|
|
|
1,259
|
|
|
|
1,094
|
|
|
|
432
|
|
|
|
(1,222)
|
|
|
|
1,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
440
|
|
|
|
34,625
|
|
|
|
22,024
|
|
|
|
16,952
|
|
|
|
(54,379)
|
|
|
|
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
|
|
|
|
675
|
|
|
|
948
|
|
|
|
825
|
|
|
|
(2,448)
|
|
|
|
1,975
|
|
Accumulated other comprehensive loss
|
|
|
(62)
|
|
|
|
(62)
|
|
|
|
(23)
|
|
|
|
(8)
|
|
|
|
93
|
|
|
|
(62)
|
|
(Accumulated deficit) retained earnings
|
|
|
(299)
|
|
|
|
1,115
|
|
|
|
1,566
|
|
|
|
(282)
|
|
|
|
(2,399)
|
|
|
|
(299)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Health Systems, Inc. stockholders equity
|
|
|
1,615
|
|
|
|
1,728
|
|
|
|
2,491
|
|
|
|
535
|
|
|
|
(4,754)
|
|
|
|
1,615
|
|
Noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113
|
|
|
|
-
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,615
|
|
|
|
1,728
|
|
|
|
2,491
|
|
|
|
648
|
|
|
|
(4,754)
|
|
|
|
1,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,055
|
|
|
$
|
36,353
|
|
|
$
|
24,515
|
|
|
$
|
18,154
|
|
|
$
|
(59,133)
|
|
|
$
|
21,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non -
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(44)
|
|
|
$
|
(228)
|
|
|
$
|
645
|
|
|
$
|
244
|
|
|
$
|
-
|
|
|
$
|
617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4)
|
|
|
|
-
|
|
|
|
(4)
|
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(278)
|
|
|
|
(150)
|
|
|
|
-
|
|
|
|
(428)
|
|
Proceeds from disposition of hospitals and other ancillary operations
|
|
|
-
|
|
|
|
-
|
|
|
|
593
|
|
|
|
1,073
|
|
|
|
-
|
|
|
|
1,666
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Purchases of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(58)
|
|
|
|
(27)
|
|
|
|
-
|
|
|
|
(85)
|
|
Proceeds from sales of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
84
|
|
|
|
49
|
|
|
|
-
|
|
|
|
133
|
|
Increase in other investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(73)
|
|
|
|
(22)
|
|
|
|
-
|
|
|
|
(95)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
272
|
|
|
|
919
|
|
|
|
-
|
|
|
|
1,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of restricted stock shares for payroll tax withholding requirements
|
|
|
(5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
Deferred financing costs and other debt-related costs
|
|
|
-
|
|
|
|
(65)
|
|
|
|
-
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
(66)
|
|
Proceeds from noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
5
|
|
Redemption of noncontrolling investments in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
|
|
-
|
|
|
|
(5)
|
|
Distributions to noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(79)
|
|
|
|
-
|
|
|
|
(79)
|
|
Changes in intercompany balances with affiliates, net
|
|
|
49
|
|
|
|
1,414
|
|
|
|
(525)
|
|
|
|
(938)
|
|
|
|
-
|
|
|
|
-
|
|
Borrowings under credit agreements
|
|
|
-
|
|
|
|
795
|
|
|
|
27
|
|
|
|
17
|
|
|
|
-
|
|
|
|
839
|
|
Issuance of long-term debt
|
|
|
-
|
|
|
|
3,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,100
|
|
Proceeds from receivables facility
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26
|
|
|
|
-
|
|
|
|
26
|
|
Repayments of long-term indebtedness
|
|
|
-
|
|
|
|
(5,016)
|
|
|
|
(61)
|
|
|
|
(194)
|
|
|
|
-
|
|
|
|
(5,271)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
44
|
|
|
|
228
|
|
|
|
(559)
|
|
|
|
(1,169)
|
|
|
|
-
|
|
|
|
(1,456)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
358
|
|
|
|
(6)
|
|
|
|
-
|
|
|
|
352
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
171
|
|
|
|
67
|
|
|
|
-
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
529
|
|
|
$
|
61
|
|
|
$
|
-
|
|
|
$
|
590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Continued)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non -
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(13)
|
|
|
$
|
(322)
|
|
|
$
|
479
|
|
|
$
|
666
|
|
|
$
|
-
|
|
|
$
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
(119)
|
|
|
|
-
|
|
|
|
(122)
|
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(359)
|
|
|
|
(202)
|
|
|
|
-
|
|
|
|
(561)
|
|
Proceeds from disposition of hospitals and other ancillary operations
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
(1)
|
|
|
|
-
|
|
|
|
12
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
5
|
|
|
|
-
|
|
|
|
10
|
|
Purchases of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(171)
|
|
|
|
(224)
|
|
|
|
-
|
|
|
|
(395)
|
|
Proceeds from sales of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
157
|
|
|
|
229
|
|
|
|
-
|
|
|
|
386
|
|
Proceeds from sale of investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
403
|
|
|
|
-
|
|
|
|
-
|
|
|
|
403
|
|
Distribution from Quorum Health Corporation
|
|
|
-
|
|
|
|
1,219
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,219
|
|
Increase in other investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(129)
|
|
|
|
(72)
|
|
|
|
-
|
|
|
|
(201)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
-
|
|
|
|
1,219
|
|
|
|
(84)
|
|
|
|
(384)
|
|
|
|
-
|
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of restricted stock shares for payroll tax withholding requirements
|
|
|
(5)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5)
|
|
Deferred financing costs and other debt-related costs
|
|
|
-
|
|
|
|
(22)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(22)
|
|
Redemption of noncontrolling investments in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19)
|
|
|
|
-
|
|
|
|
(19)
|
|
Distributions to noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(69)
|
|
|
|
-
|
|
|
|
(69)
|
|
Changes in intercompany balances with affiliates, net
|
|
|
18
|
|
|
|
529
|
|
|
|
(384)
|
|
|
|
(163)
|
|
|
|
-
|
|
|
|
-
|
|
Borrowings under credit agreements
|
|
|
-
|
|
|
|
3,905
|
|
|
|
23
|
|
|
|
1
|
|
|
|
-
|
|
|
|
3,929
|
|
Proceeds from receivables facility
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66
|
|
|
|
-
|
|
|
|
66
|
|
Repayments of long-term indebtedness
|
|
|
-
|
|
|
|
(5,309)
|
|
|
|
(49)
|
|
|
|
(134)
|
|
|
|
-
|
|
|
|
(5,492)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
13
|
|
|
|
(897)
|
|
|
|
(410)
|
|
|
|
(318)
|
|
|
|
-
|
|
|
|
(1,612)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
(15)
|
|
|
|
(36)
|
|
|
|
-
|
|
|
|
(51)
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
37
|
|
|
|
147
|
|
|
|
-
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22
|
|
|
$
|
111
|
|
|
$
|
-
|
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56