NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business.
Community Health Systems, Inc. is a holding company and operates no business in its own name. On a
consolidated basis, Community Health Systems, Inc. and its subsidiaries (collectively the Company) own, lease and operate general acute care hospitals in communities across the country. As of December 31, 2017, the Company owned or
leased 125 hospitals, included in continuing operations, including two stand-alone rehabilitation or psychiatric hospitals, licensed for 20,850 beds in 19 states. Throughout these notes to the consolidated financial statements, Community Health
Systems, Inc. (the Parent) and its consolidated subsidiaries are referred to on a collective basis as the Company. This drafting style is not meant to indicate that the publicly-traded Parent or any particular subsidiary of
the Parent owns or operates any asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated, and management services provided, by distinct and indirect subsidiaries of Community Health
Systems, Inc.
As of December 31, 2017, Florida, Texas, Pennsylvania and Indiana represent the only areas of significant geographic
concentration. Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), generated by the Companys hospitals in Florida, as a percentage of consolidated operating revenues, were 14.8% in 2017,
14.1% in 2016 and 13.6% in 2015. Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), generated by the Companys hospitals in Texas, as a percentage of consolidated operating revenues, were
12.1% in 2017, 11.4% in 2016 and 11.1% in 2015. Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), generated by the Companys hospitals in Pennsylvania, as a percentage of consolidated
operating revenues, were 9.2% in 2017, 11.2% in 2016 and 10.6% in 2015. Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), generated by the Companys hospitals in Indiana, as a percentage
of consolidated operating revenues, were 9.9% in 2017, 8.6% in 2016 and 7.3% in 2015.
Use of Estimates
. The
preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements.
Actual results could differ from these estimates under different assumptions or conditions.
Principles of
Consolidation
. The consolidated financial statements include the accounts of the Parent, its subsidiaries, all of which are controlled by the Parent through majority voting control, and variable interest entities for which
the Company is the primary beneficiary. All intercompany accounts, profits and transactions have been eliminated. Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity
to distinguish between the interests of the Parent and the interests of the noncontrolling owners. Revenues, expenses and income from continuing operations from these subsidiaries are included in the consolidated amounts as presented on the
consolidated statements of (loss) income, along with a net income measure that separately presents the amounts attributable to the controlling interests and the amounts attributable to the noncontrolling interests for each of the periods presented.
Noncontrolling interests that are redeemable or may become redeemable at a fixed or determinable price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine equity on the
consolidated balance sheets.
Cost of Revenue
. Substantially all of the Companys operating costs and
expenses are cost of revenue items. Operating costs that could be classified as general and administrative by the Company would include the Companys corporate office costs at its Franklin, Tennessee office which were collectively
$189 million, $197 million and $266 million for the years ended December 31, 2017, 2016 and 2015, respectively. Included in these corporate office costs is stock-based compensation of $24 million, $46 million and
$59 million for the years ended December 31, 2017, 2016 and 2015, respectively.
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Equivalents
. The Company considers highly liquid
investments with original maturities of three months or less to be cash equivalents.
Supplies.
Supplies,
principally medical supplies, are stated at the lower of cost
(first-in,
first-out
basis) or market.
Marketable Securities.
The Companys marketable securities are classified as trading or
available-for-sale.
Available-for-sale
securities are carried at fair value as determined by
quoted market prices, with unrealized gains and losses reported as a separate component of stockholders (deficit) equity. Trading securities are reported at fair value with unrealized gains and losses included in earnings. Other comprehensive
(loss) income, net of tax, included an unrealized gain of $8 million during the year ended December 31, 2017 and an unrealized loss of $11 million and $5 million during the years ended December 31, 2016 and 2015,
respectively, related to these
available-for-sale
securities.
Property and Equipment
. Property and equipment are recorded at cost. Depreciation is recognized using the
straight-line method over the estimated useful lives of the land and improvements (3 to 20 years), buildings and improvements (5 to 40 years) and equipment and fixtures (3 to 18 years). Costs capitalized as construction in progress were
$222 million and $227 million at December 31, 2017 and 2016, respectively. Expenditures for renovations and other significant improvements are capitalized; however, maintenance and repairs which do not improve or extend the useful
lives of the respective assets are charged to operations as incurred. Interest capitalized related to construction in progress was $11 million, $9 million and $16 million for the years ended December 31, 2017, 2016 and 2015,
respectively. Purchases of property and equipment and
internal-use
software accrued in accounts payable and not yet paid were $166 million and $115 million at December 31, 2017 and 2016,
respectively.
The Company also leases certain facilities and equipment under capital leases (see Note 10). Such assets are amortized on a
straight-line basis over the lesser of the term of the lease or the remaining useful lives of the applicable assets. During the year ended December 31, 2017, the Company had
non-cash
investing activity of
$31 million related to certain facility and equipment additions that were financed through capital leases and other debt.
Goodwill.
Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over
the fair value of net assets acquired. Goodwill arising from business combinations is not amortized. Goodwill is required to be evaluated for impairment at the same time every year and when an event occurs or circumstances change such that it is
more likely than not that impairment may exist. The Company performs its annual testing of impairment for goodwill in the fourth quarter of each year. As further discussed in Note 5, the Company recorded impairment charges of $1.419 billion and
$1.395 billion during the years ended December 31, 2017 and 2016, respectively.
Other
Assets.
Other assets consist of the insurance recovery receivable from excess insurance carriers related to the Companys self-insured malpractice general liability and workers compensation insurance liability;
costs to recruit physicians to the Companys markets, which are deferred and expensed over the term of the respective physician recruitment contract, generally three years, and included in amortization expense; and capitalized
internal-use
software costs, which are expensed over the expected useful life, which is generally three years for routine software and eight to ten years for major software projects, and included in amortization
expense.
Net Operating Revenues
. Net operating revenues are recorded net of provisions for contractual
allowance of approximately $93.6 billion, $98.2 billion and $95.3 billion for the years ended December 31, 2017, 2016 and 2015, respectively. Net operating revenues are recognized when services are provided and are reported at
the estimated net realizable amount from patients, third-party payors and others for services rendered. Also included
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in the provision for contractual allowance shown above is the value of administrative and other discounts provided to
self-pay
patients eliminated from net
operating revenues which was $3.6 billion, $3.2 billion and $3.0 billion for the years ended December 31, 2017, 2016 and 2015, respectively.
Throughout 2017 and culminating with the financial close process at December 31, 2017, the Company developed new accounting methodologies
and processes to implement ASU
2014-09,
the new accounting standard for revenue recognition that was adopted effective January 1, 2018. By implementing new data extraction techniques and updated hindsight
information on historical collection data, the Company was able to better estimate the net amount after contractual allowances owed by the third-party payor and what will be owed by the patient based on historical experience. Such updated
information included portfolio-level data related to historical collection amounts on an individual hospital and patient level that previously had not been readily available. Using this information the Company created a new accounting process by
which it can estimate contractual allowances on a per patient basis. In addition to this new accounting methodology, the Company also revised its methods of estimating contractual allowances to (1) expand the hindsight period over which the
Company analyzes payors historical paid claims data to estimate contractual allowances, (2) expand the basis for payor denied claims to refine the hindsight reserve for such denials, and (3) adjust the contractual allowances for
certain categories of commercial payors using more precise historical experience based on recent patterns of account reimbursement. Additionally, the Company evaluated the estimated collection of those amounts due from the patient as part of the
Companys estimate of the allowance for doubtful accounts. This analysis also included an evaluation of patient accounts receivable retained after the divestiture of 30 hospitals throughout 2017, and certain other revenues. Based on these new
accounting processes and methodologies, the Company recorded a change in estimate during the three months ended December 31, 2017 to increase contractual allowances by approximately $197 million, and to record additional provision for bad
debts and increase the allowance for doubtful accounts by $394 million. The total impact of the change in estimate recorded during the three months ended December 31, 2017 was a decrease to net operating revenues of $591 million.
In the ordinary course of business, the Company renders services to patients who are financially unable to pay for hospital care. The
Companys policy is to not pursue collections for such amounts; therefore, the related charges for those patients who are financially unable to pay and that otherwise do not qualify for reimbursement from a governmental program are not reported
in net operating revenues or in the provision for bad debts, and are thus classified as charity care. The Company determines amounts that qualify for charity care primarily based on the patients household income relative to the federal poverty
level guidelines, as established by the federal government.
Included in the provision for contractual allowance shown above is
$482 million, $487 million and $453 million for the years ended December 31, 2017, 2016 and 2015, respectively, representing the value (at the Companys standard charges) of these charity care services that are excluded from
net operating revenues.
The estimated cost incurred by the Company to provide these charity care services to patients who are unable to
pay was approximately $62 million, $64 million and $64 million for the years ended December 31, 2017, 2016 and 2015, respectively. The estimated cost of these charity care services was determined using a ratio of cost to gross
charges and applying that ratio to the gross charges associated with providing care to charity patients for the period.
Currently,
several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers to offset a portion of the cost of providing care to Medicaid patients. These programs are designed with input from the Centers for
Medicare and Medicaid Services and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Similar programs are also being considered by other states. After these
supplemental programs are signed into law, the Company recognizes revenue and related expenses in the period in which amounts are estimable and collection is
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reasonably assured. Reimbursement under these programs is reflected in net operating revenues and fees, taxes or other program-related costs are reflected in other operating expenses.
Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), recognized during the years ended
December 31, 2017, 2016 and 2015, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Medicare
|
|
$
|
4,188
|
|
|
$
|
5,089
|
|
|
$
|
5,439
|
|
Medicaid
|
|
|
1,900
|
|
|
|
2,234
|
|
|
|
2,532
|
|
Managed Care and other third-party payors
|
|
|
9,991
|
|
|
|
11,354
|
|
|
|
11,816
|
|
Self-pay
|
|
|
2,319
|
|
|
|
2,598
|
|
|
|
2,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,398
|
|
|
$
|
21,275
|
|
|
$
|
22,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-Party Reimbursement
. Net patient service revenue is reported at the
estimated net realizable amount from patients, third-party payors and others for services rendered. Operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems, provisions
of cost-reimbursement and other payment methods. Approximately 33.1%, 34.4% and 35.3% of operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), for the years ended December 31, 2017, 2016 and
2015, respectively, are related to services rendered to patients covered by the Medicare and Medicaid programs. Revenues from Medicare outlier payments are included in the amounts received from Medicare and were approximately 0.33%, 0.38% and 0.28%
of operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), for the years ended December 31, 2017, 2016 and 2015, respectively. In addition, the Company is reimbursed by
non-governmental
payors using a variety of payment methodologies. Amounts received by the Company for treatment of patients covered by such programs are generally less than the standard billing rates. The
differences between the estimated program reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are deducted from gross revenues to arrive at operating revenues (net of contractual allowances and
discounts). These net operating revenues are an estimate of the net realizable amount due from these payors. The process of estimating contractual allowances requires the Company to estimate the amount expected to be received based on payor contract
provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification and historical paid claims data. Due to the complexities involved in these estimates, actual payments the
Company receives could be different from the amounts it estimates and records. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. Adjustments to previous program
reimbursement estimates are accounted for as contractual allowance adjustments and reported in the periods that such adjustments become known.
Amounts due to third-party payors were $156 million and $99 million as of December 31, 2017 and 2016, respectively, and are
included in accrued liabilities-other in the accompanying consolidated balance sheets. As part of the change in estimate to contractual allowances recorded during the three months ended December 31, 2017 discussed above, the Company recorded
additional amounts due to third-party payors related to estimated amounts owed or expected to be recouped under certain state Medicaid disproportionate share reimbursement programs. These estimates were based on the results of completed audits and
an estimate of probable outcomes of future audits considering the cost limits defined under the respective state program. Amounts due from third-party payors were $153 million and $186 million as of December 31, 2017 and 2016,
respectively, and are included in other current assets in the accompanying consolidated balance sheets. Substantially all Medicare and Medicaid cost reports are final settled through 2014.
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. As discussed above, the Companys historical accounting systems and processes to estimate
net operating revenues from third-party payors did not have the ability to specifically identify the portion of an insured patient account that was due from the patient (e.g., deductibles and
co-payments),
and
did not provide portfolio-level data related to historical collection amounts on an individual hospital or patient level. As part of the new accounting methodologies and processes developed in 2017 to implement the new accounting standard on revenue
recognition, which was required to be adopted on January 1, 2018, the Company changed its methodology for estimating those amounts that are recorded as part of the receivable with the primary insurance payor but will ultimately be due from the
patient. While the Companys historical estimation process for the allowance for doubtful accounts utilized historical
write-off
and collection information on a consolidated basis, the new processes and
related data obtained from the hindsight analysis provided updated information on the ultimate collectability of all patient accounts for the amount at the date of service that will ultimately be due from the patient. Such information was evaluated
at a portfolio level by payor and by hospital rather than on a consolidated basis.
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.
As discussed above, during the three months ended
December 31, 2017, the Company recorded $394 million of additional provision for bad debts and a corresponding increase to the allowance for doubtful accounts. As required by generally accepted accounting principles, the Company adopted
the new revenue recognition accounting standards in ASU
2014-09
on January 1, 2018. In connection with the adoption of this ASU, during the fourth quarter of 2017, the Company completed an extensive
analysis of its patient revenues and patient accounts receivable and developed new accounting processes and methodologies. This analysis also included an evaluation of patient accounts receivable retained after the divestiture of 30 hospitals
throughout 2017, and certain other revenues.
During the fourth quarter of 2015, the Company recorded $169 million of additional
provision for bad debts and a corresponding increase to the allowance for doubtful accounts. The additional amount was the result of new information obtained since the end of the third quarter of 2015 related to the deterioration in the overall
collectability of
self-pay
accounts receivable. As a result, the Company refined its estimate of the allowance for doubtful accounts and the additional amount was recorded as a change in estimate for the year
ended December 31, 2015.
Electronic Health Records Incentive Reimbursement.
The federal government has
implemented a number of regulations and programs designed to promote the use of electronic health records (EHR) technology and,
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $28 million, $70 million and $160 million for the years ended December 31, 2017, 2016
and 2015, respectively, of incentive reimbursement for HITECH incentives from Medicare and Medicaid related to certain of the Companys hospitals and for certain of the Companys employed physicians that have demonstrated meaningful use of
certified EHR technology or have completed attestations to their adoption or implementation of certified EHR technology. These incentive reimbursements are presented as a reduction of operating costs and expenses on the consolidated statements of
(loss) income. The Company received cash related to the incentive reimbursement for HITECH incentives of approximately $41 million, $123 million and $75 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The Company recorded no deferred revenue in connection with the receipt of these cash payments at either December 31, 2017 or 2016.
Physician Income Guarantees
. The Company enters into physician recruiting agreements under which it supplements
physician income to a minimum amount over a period of time, typically one year, while the physicians establish themselves in the community. As part of the agreements, the physicians are committed to practice in the community for a period of time,
typically three years, which extends beyond their income guarantee period. The Company records an asset and liability for the estimated fair value of minimum revenue guarantees on new agreements. Adjustments to the ultimate value of the guarantee
paid to physicians are recognized in the period that the change in estimate is identified. The Company amortizes an asset over the life of
107
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the agreement. As of December 31, 2017 and 2016, the unamortized portion of these physician income guarantees was $29 million and $37 million, respectively.
Concentrations of Credit Risk
. The Company grants unsecured credit to its patients, most of whom reside in the
service area of the Companys facilities and are insured under third-party payor agreements. Because of the economic diversity of the Companys facilities and
non-governmental
third-party payors,
Medicare represents the only significant concentration of credit risk from payors. Accounts receivable, net of contractual allowances, from Medicare was $220 million and $402 million at December 31, 2017 and 2016, respectively,
representing 4% and 6% of consolidated net accounts receivable, before allowance for doubtful accounts, as of December 31, 2017 and 2016, respectively.
Accounting for the Impairment or Disposal of Long-Lived Assets.
During the year ended December 31, 2017,
the Company recorded a total combined impairment charge and loss on disposal of approximately $388 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 December 31, 2017 is a net allocation of approximately $7 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.
Additionally, the Company recorded an impairment charge of approximately $341 million during the three months ended December 31,
2017 for several underperforming hospitals as well as for certain hospitals deemed held for sale or where the Company has received offers or executed
non-binding
letters of intent to sell the hospital.
During the year ended December 31, 2016, the Company recorded a total impairment charge of $326 million to reduce the carrying value
of certain hospitals that have been deemed held for sale based on the difference between the carrying value of the hospital disposal groups compared to estimated fair value less costs to sell. Additionally, the Company recorded an impairment charge
of approximately $270 million for several underperforming hospitals to their estimated fair value. The impairment charge for the year ended December 31, 2016 also included approximately $19 million recorded on the sale or closure of
certain of the Companys hospitals during the year based on the remaining net book value of the assets at the date of disposal. In total, the Company recorded impairment charges of approximately $615 million on its long-lived assets other
than the impairment charge taken on the hospital reporting unit goodwill that is further discussed in Note 5. Included in the carrying value of the hospital disposal groups is an allocation of approximately $365 million of goodwill allocated
from the hospital reporting unit goodwill based on a calculation of the disposal groups relative fair value compared to the total reporting unit.
Income Taxes.
The Company accounts for income taxes under the asset and liability method, in which deferred
income tax assets and liabilities are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in the consolidated statement of loss during the period in which the tax rate change becomes law.
Comprehensive Loss
. Comprehensive loss is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from
non-owner
sources.
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Segment Reporting
. A public company is required to report
annual and interim financial and descriptive information about its reportable operating segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in assessing performance. Aggregation of similar operating segments into a single reportable operating segment is permitted if the businesses have similar economic
characteristics and meet the criteria established by U.S. GAAP.
The Company operated in two distinct operating segments during 2016,
represented by the hospital operations (which includes the Companys acute care hospitals and related healthcare entities that provide inpatient and outpatient healthcare services) and the home care agencies operations (which provide
in-home
outpatient care). U.S. GAAP requires (1) that financial information be disclosed for operating segments that meet a 10% quantitative threshold of the consolidated totals of net revenue, profit or loss,
or total assets; and (2) that the individual reportable segments disclosed contribute at least 75% of total consolidated net revenue. Based on these measures, only the hospital operations segment meets the criteria as a separate reportable
segment. Financial information for the home care agencies segment does not meet the quantitative thresholds and is therefore combined with corporate into the all other reportable segment. Additionally, as discussed in Note 3, on December 31,
2016, the Company sold 80% of its ownership interest in the home care segment. In 2017 and in future periods, the Company will only operate in one operating segment.
Derivative Instruments and Hedging Activities
. The Company records derivative instruments on the consolidated
balance sheet as either an asset or liability measured at its fair value. Changes in a derivatives fair value are recorded each period in earnings or other comprehensive income (OCI), depending on whether the derivative is
designated and is effective as a hedged transaction, and on the type of hedge transaction. Changes in the fair value of derivative instruments recorded to OCI are reclassified to earnings in the period affected by the underlying hedged item. Any
portion of the fair value of a derivative instrument determined to be ineffective under the standard is recognized in current earnings.
The Company has entered into several interest rate swap agreements. See Note 8 for further discussion about the swap transactions.
New Accounting Pronouncements.
In May 2014, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU)
2014-09,
which outlines a single comprehensive model for recognizing revenue and supersedes most existing revenue recognition guidance, including guidance
specific to the healthcare industry. This ASU provides companies the option of applying a full or modified retrospective approach upon adoption. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption
permitted for annual periods beginning after December 15, 2016. The Company adopted this ASU on January 1, 2018 and during the fourth quarter of 2017 it completed its plan for adoption, including updating its revenue recognition policies,
procedures and control framework and evaluating the resulting impact on its consolidated financial position, results of operations and cash flows. A significant element of executing this plan was 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. As part of this evaluation, the Company invested significant time
and resources to evaluate the estimates of how much of its insured patient accounts receivable will ultimately be due from the patient as a
co-pay
or deductible, and of that amount, how much will ultimately be
collectible. The application of these new processes and methodologies to evaluate updated collection data to determine the patient portfolios and estimate the implicit price concessions and constraints on revenue required by this new accounting
standard resulted in new information that reflected a required reduction to the amount of net patient accounts receivable on the Companys consolidated statement of financial position. As a result, the
109
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company recorded a change in estimate through additional contractual allowances and allowance for doubtful accounts at December 31, 2017 as further discussed above with respect to the
Companys accounting policies on net operating revenues and the allowance for doubtful accounts. 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.
The Company also assessed 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. 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. The Company does not believe 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 2018. 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.
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 applied 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 adopted this ASU on January 1, 2018, and does not expect the adoption of this ASU will have a material impact 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
110
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 year ended December 31, 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. During the fourth quarter of 2017, the Company performed its
annual goodwill impairment analysis. Prior to the completion of the annual goodwill impairment analysis, the Company identified additional indicators of impairment that required an interim goodwill impairment evaluation, which was performed as of
November 30, 2017. The result of that step one analysis indicated that the carrying value of the hospital reporting unit exceeded the estimated fair value. At that time, the Company elected to early adopt the simplified goodwill impairment
model in ASU
2017-04,
and as a result recorded a
non-cash
impairment charge of $1.419 billion to goodwill during the three months ended December 31, 2017.
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 adopted this ASU on January 1, 2018, and has determined that adoption will have an immaterial impact on the Companys consolidated financial position and 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
111
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 early adopted this ASU on January 1, 2018, and concluded the adoption of this ASU will not have a material impact on its consolidated financial position and results of operations.
2. ACCOUNTING FOR STOCK-BASED COMPENSATION
Stock-based compensation awards have been granted under the Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award
Plan, amended and restated as of March 20, 2013 (the 2000 Plan), and the Community Health Systems, Inc. Amended and Restated 2009 Stock Option and Award Plan, which was amended and restated as of March 16, 2016 and approved by
the Companys stockholders at the annual meeting of stockholders held on May 17, 2016 (the 2009 Plan).
The 2000
Plan allowed for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (the IRC), as well as stock options which do not so qualify, stock appreciation rights, restricted stock,
restricted stock units, performance-based shares or units and other share awards. Prior to being amended in 2009, the 2000 Plan also allowed for the grant of phantom stock. Persons eligible to receive grants under the 2000 Plan include the
Companys directors, officers, employees and consultants. All options granted under the 2000 Plan have been nonqualified stock options for tax purposes. Generally, vesting of these granted options occurs in
one-third
increments on each of the first three anniversaries of the award date. Options granted prior to 2005 have a
10-year
contractual term, options granted in 2005 through
2007 have an eight-year contractual term and options granted in 2008 through 2011 have a
10-year
contractual term. The Company has not granted stock option awards under the 2000 Plan since 2011. Pursuant to
the amendment and restatement of the 2000 Plan dated March 20, 2013, no further grants will be awarded under the 2000 Plan.
The 2009
Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the IRC and for the grant of stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units,
performance-based shares or units and other share awards. Persons eligible to receive grants under the 2009 Plan include the Companys directors, officers, employees and consultants. To date, all options granted under the 2009 Plan have been
nonqualified stock options for tax purposes. Generally, vesting of these granted options occurs in
one-third
increments on each of the first three anniversaries of the award date. Options granted
in 2011 or later have a
10-year
contractual term. The amendment and restatement of the 2009 Plan, as approved by the Companys stockholders at the 2016 Annual Meeting, increased the number of shares
of common stock available for grant under the 2009 Plan by an additional 5,000,000 shares. As of December 31, 2017, 4,022,248 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.
The following table reflects the impact of total compensation expense related to stock-based equity plans
on the reported operating results for the respective periods (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Effect on (loss) income from continuing operations before income taxes
|
|
$
|
(24)
|
|
|
$
|
(46)
|
|
|
$
|
(59)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on net (loss) income
|
|
$
|
(16)
|
|
|
$
|
(27)
|
|
|
$
|
(35)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2017, $16 million of unrecognized stock-based compensation expense
related to outstanding unvested restricted stock and restricted stock units (the terms of which are summarized below) was expected to be recognized over a weighted-average period of 19 months. There is no expense to be recognized related to
stock options. There were no modifications to awards during the years ended December 31, 2017 and 2016, other than those required by the Employee Matters Agreement (EMA) entered into as part of the spinoff of Quorum Health
Corporation (QHC), as further discussed below.
Options outstanding and exercisable under the 2000 Plan and the 2009 Plan as
of December 31, 2017, and changes during each of the years in the three-year period prior to December 31, 2017, were as follows (in millions, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
Value as of
December 31,
2017
|
|
Outstanding at December 31, 2014
|
|
|
1,953,727
|
|
|
$
|
32.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(711,568
|
)
|
|
|
35.15
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(10,001
|
)
|
|
|
34.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
1,232,158
|
|
|
|
31.65
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(46,838
|
)
|
|
|
27.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
1,185,320
|
|
|
|
28.12
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(69,653
|
)
|
|
|
33.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
1,115,667
|
|
|
$
|
31.56
|
|
|
|
2.0 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2017
|
|
|
1,115,667
|
|
|
$
|
31.56
|
|
|
|
2.0 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average exercise prices in the table above for periods prior to the April 29, 2016
spin-off
of QHC reflect the historical prices at those dates. No stock options were granted during the years ended December 31, 2017, 2016 and 2015. 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 ($4.26) and the exercise
price of the respective stock options) in the table above represents the amount that would have been received by the option holders had all option holders exercised their options on December 31, 2017. This amount changes based on the market
value of the Companys common stock. There were no options exercised during the years ended December 31, 2017 and 2016. The aggregate intrinsic value of options exercised during the year ended December 31, 2015 was $9 million.
The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.
113
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with the terms of the EMA, on April 29, 2016, the exercise prices of all
stock options outstanding as of that date were modified to reflect the reduction in the Companys stock price that occurred as a result of the distribution of QHC to the Companys stockholders in order to maintain a consistent intrinsic
value before and following the QHC distribution. There were no other modifications to the term or number of the outstanding options. The Company evaluated the fair value of the stock options immediately before and after the exercise price
modification, and concluded that no incremental stock compensation expense should be recorded.
The Company has also awarded restricted
stock under the 2000 Plan and the 2009 Plan to its directors and employees of certain subsidiaries. The restrictions on these shares generally lapse in
one-third
increments on each of the first three
anniversaries of the award date. Certain of the restricted stock awards granted to the Companys senior executives contain a performance objective that must be met in addition to any time-based vesting requirements. If the performance objective
is not attained, the awards will be forfeited in their entirety. 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.
On April 29, 2016, the Company cancelled 106,005 restricted stock awards from the
March 1, 2016 grant that were held by former employees whose employment with the Company terminated as the result of commencing employment with QHC in connection with the
spin-off.
This cancellation did
not include the issuance of replacement awards by the Company. As a result, the Company recorded approximately $2 million of compensation expense related to the unrecognized stock compensation expense for those awards at the cancellation date.
This expense is recorded as part of the costs related to the
spin-off
of QHC presented in other operating expenses on the accompanying consolidated statement of (loss) income for the year ended
December 31, 2016.
114
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted stock outstanding under the 2000 Plan and the 2009 Plan as of December 31,
2017, and changes during each of the years in the three-year period prior to December 31, 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Unvested at December 31, 2014
|
|
|
2,760,639
|
|
|
$
|
39.82
|
|
Granted
|
|
|
1,254,500
|
|
|
|
47.69
|
|
Vested
|
|
|
(1,156,226
|
)
|
|
|
37.61
|
|
Forfeited
|
|
|
(13,334
|
)
|
|
|
41.32
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2015
|
|
|
2,845,579
|
|
|
|
44.18
|
|
Granted
|
|
|
1,611,049
|
|
|
|
14.11
|
|
Vested
|
|
|
(1,343,003
|
)
|
|
|
43.39
|
|
Forfeited
|
|
|
(144,340
|
)
|
|
|
19.99
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016
|
|
|
2,969,285
|
|
|
|
29.39
|
|
Granted
|
|
|
1,502,000
|
|
|
|
9.10
|
|
Vested
|
|
|
(1,586,855
|
)
|
|
|
33.91
|
|
Forfeited
|
|
|
(240,511
|
)
|
|
|
18.20
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2017
|
|
|
2,643,919
|
|
|
|
16.17
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units (RSUs) have been granted to the Companys outside directors under the
2000 Plan and the 2009 Plan. On March 1, 2015, each of the Companys outside directors received a grant under the 2009 Plan of 3,504 RSUs. On March 1, 2016, each of the Companys outside directors received a grant under the 2009
Plan of 11,017 RSUs. On March 1, 2017, each of the Companys outside directors received a grant under the 2009 Plan of 18,498 RSUs. Each of the 2015, 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.
In connection with the
spin-off
of QHC, holders of outstanding RSUs were credited with a total of
22,021 incremental RSUs at a ratio calculated to maintain a consistent intrinsic value before and following the QHC distribution. There were no other changes to the awards and the incremental RSUs will vest in accordance with the initial vesting
period of the corresponding original award.
115
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
RSUs outstanding under the 2000 Plan and the 2009 Plan as of December 31, 2017, and
changes during each of the years in the three-year period prior to December 31, 2017, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Unvested at December 31, 2014
|
|
|
49,362
|
|
|
$
|
36.07
|
|
Granted
|
|
|
21,024
|
|
|
|
47.70
|
|
Vested
|
|
|
(27,708
|
)
|
|
|
31.76
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2015
|
|
|
42,678
|
|
|
|
44.59
|
|
Granted
|
|
|
99,140
|
|
|
|
16.90
|
|
Vested
|
|
|
(21,432
|
)
|
|
|
43.87
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016
|
|
|
120,386
|
|
|
|
22.06
|
|
Granted
|
|
|
110,988
|
|
|
|
9.19
|
|
Vested
|
|
|
(59,296
|
)
|
|
|
24.90
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2017
|
|
|
172,078
|
|
|
|
12.78
|
|
|
|
|
|
|
|
|
|
|
3. ACQUISITIONS AND DIVESTITURES
Acquisitions
The Company accounts
for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity are recognized and measured
at their fair values on the date the Company obtains control in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts. Adjustments to these
provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has
been obtained, limited to one year from the acquisition date) are recorded when identified. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired.
Excluding acquisition and integration expenses related to the 2014 acquisition of HMA, acquisition and integration expenses related to
prospective and closed acquisitions included in other operating expenses on the consolidated statements of (loss) income were $2 million, $5 million and $8 million during the years ended December 31, 2017, 2016 and 2015,
respectively. Approximately $1 million of acquisition and related integration expense related to the HMA acquisition was recognized during the year ended December 31, 2015.
On April 1, 2016, one or more subsidiaries of the Company completed the acquisition of an 80% interest in Physicians Specialty
Hospital (20 licensed beds), a Medicare-certified specialty surgical hospital in Fayetteville, Arkansas. The total cash consideration paid for the 80% ownership interest in this joint venture was approximately $12 million, with additional
consideration of $2 million assumed in liabilities, for a total consideration of $14 million. The value of the noncontrolling interest at acquisition was $2 million. Based upon the Companys final purchase price allocation
relating to this acquisition as of December 31, 2016, approximately $12 million of goodwill has been recorded.
116
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On March 1, 2016, one or more subsidiaries of the Company completed the acquisition of
an 80% ownership interest in a joint venture entity with Indiana University Health that includes substantially all of the assets of IU Health La Porte Hospital (La Porte) in La Porte, Indiana (227 licensed beds) and IU Health Starke
Hospital (Starke) in Knox, Indiana (50 licensed beds), and affiliated outpatient centers and physician practices. The total cash consideration paid for the 80% ownership interest in this joint venture was approximately $96 million
with additional consideration of $8 million assumed in liabilities, for a total consideration of $104 million. The value of the noncontrolling interest at acquisition was $25 million. Based upon the Companys final purchase price
allocation relating to this acquisition as of December 31, 2016, approximately $45 million of goodwill has been recorded.
There
were no hospital acquisitions in either of the years ended December 31, 2017 and 2015. The table below summarizes the allocations of the purchase price (including assumed liabilities) for the above hospital acquisition transactions in 2016 (in
millions):
|
|
|
|
|
|
|
2016
|
|
Current assets
|
|
$
|
7
|
|
Property and equipment
|
|
|
69
|
|
Goodwill
|
|
|
57
|
|
Intangible assets
|
|
|
10
|
|
Other long-term assets
|
|
|
3
|
|
Liabilities
|
|
|
(10
|
)
|
Noncontrolling interests
|
|
|
(28
|
)
|
|
|
|
|
|
Total identifiable net assets
|
|
$
|
108
|
|
|
|
|
|
|
The operating results of the foregoing transactions have been included in the accompanying consolidated
statements of (loss) income from their respective dates of acquisition, including net operating revenues of $214 million for the year ended December 31, 2016, from hospital acquisitions that closed during that year.
Other Acquisitions
During the
years ended December 31, 2017, 2016 and 2015, one or more subsidiaries of the Company paid approximately $6 million, $16 million and $51 million, respectively, to acquire the operating assets and related businesses of certain
physician practices, clinics and other ancillary businesses that operate within the communities served by the Companys affiliated hospitals. In connection with these acquisitions, during the year ended December 31, 2017, the Company
allocated approximately $2 million of the consideration paid to property and equipment and net working capital and the remainder, approximately $4 million consisting of intangible assets that do not qualify for separate recognition, to
goodwill. No value was allocated to noncontrolling interest recorded in these acquisitions. During 2016, the Company allocated approximately $8 million of the consideration paid to property and equipment and net working capital and the
remainder, approximately $14 million consisting of intangible assets that do not qualify for separate recognition, to goodwill. The value of noncontrolling interest acquired in these acquisitions was $6 million. During 2015, the Company
allocated approximately $19 million of the consideration paid to property and equipment and net working capital and the remainder, approximately $39 million consisting of intangible assets that do not qualify for separate recognition, to
goodwill. The value of noncontrolling interest acquired in these acquisitions was $7 million.
117
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 years ended December 31, 2017 and 2016.
Additionally, the impact of the hospitals and other assets spun off to QHC are discussed in Note 4 below.
The following table provides a summary of
hospitals included in continuing operations that the Company divested during the years ended December 31, 2017, 2016, and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital
|
|
Buyer
|
|
|
City, State
|
|
|
Licensed
Beds
|
|
|
Effective Date
|
|
2017 Divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highlands Regional Medical Center
|
|
|
HCA Holdings, Inc.
(HCA)
|
|
|
|
Sebring, FL
|
|
|
|
126
|
|
|
|
November 1, 2017
|
|
Merit Health Northwest Mississippi
|
|
|
Curae Health, Inc.
|
|
|
|
Clarksdale, MS
|
|
|
|
181
|
|
|
|
November 1, 2017
|
|
Weatherford Regional Medical Center
|
|
|
HCA
|
|
|
|
Weatherford, TX
|
|
|
|
103
|
|
|
|
October 1, 2017
|
|
Brandywine Hospital
|
|
|
Reading Health System
|
|
|
|
Coatesville, PA
|
|
|
|
169
|
|
|
|
October 1, 2017
|
|
Chestnut Hill Hospital
|
|
|
Reading Health System
|
|
|
|
Philadelphia, PA
|
|
|
|
148
|
|
|
|
October 1, 2017
|
|
Jennersville Hospital
|
|
|
Reading Health System
|
|
|
|
West Grove, PA
|
|
|
|
63
|
|
|
|
October 1, 2017
|
|
Phoenixville Hospital
|
|
|
Reading Health System
|
|
|
|
Phoenixville, PA
|
|
|
|
151
|
|
|
|
October 1, 2017
|
|
Pottstown Memorial Medical Center
|
|
|
Reading Health System
|
|
|
|
Pottstown, PA
|
|
|
|
232
|
|
|
|
October 1, 2017
|
|
Yakima Regional Medical and Cardiac Center
|
|
|
Regional Health
|
|
|
|
Yakima, WA
|
|
|
|
214
|
|
|
|
September 1, 2017
|
|
Toppenish Community Hospital
|
|
|
Regional Health
|
|
|
|
Toppenish, WA
|
|
|
|
63
|
|
|
|
September 1, 2017
|
|
Memorial Hospital of York
|
|
|
PinnacleHealth System
|
|
|
|
York, PA
|
|
|
|
100
|
|
|
|
July 1, 2017
|
|
Lancaster Regional Medical Center
|
|
|
PinnacleHealth System
|
|
|
|
Lancaster, PA
|
|
|
|
214
|
|
|
|
July 1, 2017
|
|
Heart of Lancaster Regional Medical Center
|
|
|
PinnacleHealth System
|
|
|
|
Lititz, PA
|
|
|
|
148
|
|
|
|
July 1, 2017
|
|
Carlisle Regional Medical Center
|
|
|
PinnacleHealth System
|
|
|
|
Carlisle, PA
|
|
|
|
165
|
|
|
|
July 1, 2017
|
|
Tomball Regional Medical Center
|
|
|
HCA
|
|
|
|
Tomball, TX
|
|
|
|
350
|
|
|
|
July 1, 2017
|
|
South Texas Regional Medical Center
|
|
|
HCA
|
|
|
|
Jourdanton, TX
|
|
|
|
67
|
|
|
|
July 1, 2017
|
|
Deaconess Hospital
|
|
|
MultiCare Health System
|
|
|
|
Spokane, WA
|
|
|
|
388
|
|
|
|
July 1, 2017
|
|
Valley Hospital
|
|
|
MultiCare Health System
|
|
|
|
Spokane Valley, WA
|
|
|
|
123
|
|
|
|
July 1, 2017
|
|
Lake Area Medical Center
|
|
|
CHRISTUS Health
|
|
|
|
Lake Charles, LA
|
|
|
|
88
|
|
|
|
June 30, 2017
|
|
Easton Hospital
|
|
|
Steward Health, Inc.
|
|
|
|
Easton, PA
|
|
|
|
196
|
|
|
|
May 1, 2017
|
|
Sharon Regional Health System
|
|
|
Steward Health, Inc.
|
|
|
|
Sharon, PA
|
|
|
|
258
|
|
|
|
May 1, 2017
|
|
Northside Medical Center
|
|
|
Steward Health, Inc.
|
|
|
|
Youngstown, OH
|
|
|
|
355
|
|
|
|
May 1, 2017
|
|
Trumbull Memorial Hospital
|
|
|
Steward Health, Inc.
|
|
|
|
Warren, OH
|
|
|
|
311
|
|
|
|
May 1, 2017
|
|
Hillside Rehabilitation Hospital
|
|
|
Steward Health, Inc.
|
|
|
|
Warren, OH
|
|
|
|
69
|
|
|
|
May 1, 2017
|
|
118
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Hospital
|
|
Buyer
|
|
City, State
|
|
Licensed
Beds
|
|
|
Effective Date
|
Wuesthoff Health System Rockledge
|
|
Steward Health, Inc.
|
|
Rockledge, FL
|
|
|
298
|
|
|
May 1, 2017
|
Wuesthoff Health System Melbourne
|
|
Steward Health, Inc.
|
|
Melbourne, FL
|
|
|
119
|
|
|
May 1, 2017
|
Sebastian River Medical Center
|
|
Steward Health, Inc.
|
|
Sebastian, FL
|
|
|
154
|
|
|
May 1, 2017
|
Stringfellow Memorial Hospital
|
|
The Health Care Authority
of the City of Anniston
|
|
Anniston, AL
|
|
|
125
|
|
|
May 1, 2017
|
Merit Health Gilmore Memorial
|
|
Curae Health, Inc.
|
|
Amory, MS
|
|
|
95
|
|
|
May 1, 2017
|
Merit Health Batesville
|
|
Curae Health, Inc.
|
|
Batesville, MS
|
|
|
112
|
|
|
May 1, 2017
|
|
|
|
|
|
2016 Divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance Health Blackwell *
|
|
The Blackwell Hospital
Trust Authority
|
|
Blackwell, OK
|
|
|
53
|
|
|
September 3, 2016
|
Lehigh Regional Medical Center
|
|
Prime Healthcare
Services, Inc. (Prime)
|
|
Lehigh Acres, FL
|
|
|
88
|
|
|
February 1, 2016
|
Bartow Regional Medical Center
|
|
BayCare Health Systems,
Inc.
|
|
Bartow, FL
|
|
|
72
|
|
|
January 1, 2016
|
|
|
|
|
|
2015 Divestitures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payson Regional Medical Center *
|
|
Banner Health
|
|
Payson, AZ
|
|
|
44
|
|
|
July 31, 2015
|
Fallbrook Hospital *
|
|
Fallbrook Healthcare
District
|
|
Fallbrook, CA
|
|
|
47
|
|
|
June 30, 2015
|
Chesterfield General Hospital
|
|
M/C Healthcare, LLC
|
|
Cheraw, SC
|
|
|
59
|
|
|
April 1, 2015
|
Marlboro Park Hospital
|
|
M/C Healthcare, LLC
|
|
Bennettsville, SC
|
|
|
102
|
|
|
April 1, 2015
|
Dallas Regional Medical Center
|
|
Prime
|
|
Mesquite, TX
|
|
|
202
|
|
|
March 1, 2015
|
Riverview Regional Medical Center
|
|
Prime
|
|
Gadsden, AL
|
|
|
281
|
|
|
March 1, 2015
|
Harris Hospital
|
|
White County Medical
Center
|
|
Newport, AR
|
|
|
133
|
|
|
February 1, 2015
|
Carolina Pines Regional Medical Center
|
|
Capella Healthcare
|
|
Hartsville, SC
|
|
|
116
|
|
|
January 1, 2015
|
*
|
Divestiture relates to termination of a prior lease for the hospital.
|
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.
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 marketed for sale. In addition to this hospital, 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 consolidated statements of (loss) income, and classified these hospitals as held for sale in the accompanying consolidated balance sheets.
119
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Net operating revenues and loss from discontinued operations for the respective periods are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net operating revenues
|
|
$
|
79
|
|
|
$
|
99
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale before income taxes
|
|
$
|
(10
|
)
|
|
$
|
(11
|
)
|
|
|
(42
|
)
|
Impairment of hospitals sold or held for sale
|
|
|
(8
|
)
|
|
|
(12
|
)
|
|
|
(8
|
)
|
Loss on sale, net
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, before taxes
|
|
|
(19
|
)
|
|
|
(23
|
)
|
|
|
(56
|
)
|
Income tax benefit
|
|
|
(7
|
)
|
|
|
(8
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
$
|
(12
|
)
|
|
$
|
(15
|
)
|
|
$
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $8 million, net of tax, for the years ended December 31, 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 consolidated balance sheet for the hospitals classified as held for sale as of December 31, 2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Other current assets
|
|
$
|
8
|
|
|
$
|
117
|
|
Other assets, net
|
|
|
12
|
|
|
|
878
|
|
Accrued liabilities
|
|
|
2
|
|
|
|
81
|
|
Financial and statistical data reported in this Annual Report on Form
10-K
(Form
10-K)
includes operating results for hospitals held for sale at December 31, 2017 and for the 30 hospitals that were divested through 2017
through the effective date of each respective transaction. Summary financial results of these hospitals included in continuing operations for the periods included in the accompanying consolidated statements of (loss) income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
(Loss) income from operations before income taxes
|
|
$
|
(544
|
)
|
|
$
|
(517
|
)
|
|
$
|
27
|
|
Less: Income attributable to noncontrolling interests
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations before income taxes attributable to Community Health Systems, Inc.
stockholders
|
|
$
|
(545
|
)
|
|
$
|
(518
|
)
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The operating results for these held for sale or divested hospitals included impairment
charges of approximately $368 million and $463 million that were allocated to the divestitures during the years ended December 31, 2017 and 2016, respectively. No impairment charges were allocated to the divestitures for the year
ended December 31, 2015.
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. No additional impairment was recorded related to the closure of this facility.
4. SPIN-OFF
OF QUORUM HEALTH CORPORATION
On April 29, 2016, the Company completed the
spin-off
of 38 hospitals and Quorum Health
Resources, LLC into Quorum Health Corporation, an independent, publicly traded corporation. The transaction was structured to be generally tax free to the Company and its stockholders. The Company distributed, on a pro rata basis, all of the shares
of QHC common stock to the Companys stockholders of record as of April 22, 2016. These stockholders of record as of April 22, 2016 received a distribution of one share of QHC common stock for every four shares of Company common stock
held as of the record date plus cash in lieu of any fractional shares. In recognition of the
spin-off,
the Company recorded a
non-cash
dividend of approximately
$713 million during the year ended December 31, 2016, representing the net assets of QHC distributed to the Companys stockholders. Immediately following the completion of the
spin-off,
the
Companys stockholders owned 100% of the outstanding shares of QHC common stock. Following the
spin-off,
QHC became an independent public company with its common stock listed for trading under the symbol
QHC on the New York Stock Exchange.
In connection with the
spin-off,
the Company and
QHC entered into a separation and distribution agreement as well as certain ancillary agreements on April 29, 2016. These agreements allocate between the Company and QHC the various assets, employees, liabilities and obligations (including
investments, property and employee benefits and
tax-related
assets and liabilities) that comprise the separate companies and govern certain relationships between, and activities of, the Company and QHC for a
period of time after the
spin-off.
The results of operations for QHC through the date of the
spin-off
are presented in continuing operations in the consolidated statements of (loss) income as the Company has determined that the
spin-off
of QHC does not meet the
criteria as discontinued operations under ASU
2014-08.
Financial and statistical data reported in
this Form
10-K
include QHC operating results through April 29, 2016. Summary financial results of QHC for the periods included in the accompanying consolidated statements of (loss) income are as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2016
|
|
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
|
)
|
|
|
|
|
|
121
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the
carrying amount of goodwill for the years ended December 31, 2017 and 2016 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Balance, beginning of year
|
|
$
|
6,521
|
|
|
$
|
8,965
|
|
Goodwill acquired as part of acquisitions during current year
|
|
|
5
|
|
|
|
71
|
|
Consideration and purchase price allocation adjustments for prior years acquisitions and
other adjustments
|
|
|
(27
|
)
|
|
|
-
|
|
Goodwill allocated to QHC in the
spin-off
|
|
|
-
|
|
|
|
(709
|
)
|
Goodwill in the home care operations reporting unit included in the sale of a majority interest in
the home care division
|
|
|
-
|
|
|
|
(46
|
)
|
Goodwill allocated to hospitals held for sale
|
|
|
(357
|
)
|
|
|
(365
|
)
|
Impairment of goodwill
|
|
|
(1,419
|
)
|
|
|
(1,395
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
4,723
|
|
|
$
|
6,521
|
|
|
|
|
|
|
|
|
|
|
Goodwill is allocated to each identified reporting unit, which is defined as an operating segment or one level
below the operating segment (referred to as a component of the entity). Management has determined that the Companys operating segments meet the criteria to be classified as reporting units. During the year ended December 31, 2016, the
Company allocated approximately $709 million of goodwill to the
spin-off
of QHC, including approximately $33 million of goodwill related to the former management services reporting unit and
approximately $676 million of goodwill allocated from the hospital operations reporting unit based on the relative fair value of the hospitals that were included in the QHC distribution. Additionally, the Company allocated approximately
$46 million of goodwill related to the sale of the home care operations reporting unit on December 31, 2016. At December 31, 2016, after giving effect to the disposition of QHC, the sale of an 80% majority ownership interest in the
Companys home care division and the $1.395 billion impairment charge discussed below, the Company had approximately $6.5 billion of goodwill recorded, all of which resides at its hospital operations reporting unit. At
December 31, 2017, after giving effect to 2017 divestiture activity and the $1.419 billion impairment charge discussed below, the Company had approximately $4.7 billion of goodwill recorded.
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. Prior to the adoption of ASU
2017-04
that is further discussed below, there was a
two-step
method
for determining goodwill impairment. Step one was to compare the fair value of the reporting unit with the units carrying amount, including goodwill. If this test indicated the fair value was less than the carrying value, then step two was
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 2017. The next annual goodwill evaluation will be performed during the fourth quarter of 2018, or sooner if the Company identifies certain indicators of impairment.
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
122
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 December 31, 2017, the Company
identified certain indicators of impairment occurring following its annual goodwill evaluation that required an interim goodwill impairment evaluation, which was performed as of November 30, 2017. Those indicators were primarily a further
decline in the Companys market capitalization and fair value of the Companys long-term debt during November 2017. The Company performed an estimated calculation of fair value in step one of the impairment test at November 30, 2017,
which indicated that the carrying value of the hospital operations reporting unit exceeded its fair value. Additionally, during the three months ended December 31, 2017 the Company early adopted the accounting guidance in ASU
2017-04,
which eliminates the step two calculation to determine the implied value of goodwill, and instead requires an impairment of goodwill equal to the difference between the carrying value and estimated fair
value of the reporting unit. As a result of this evaluation and the early adoption of ASU
2017-04,
the Company recorded a
non-cash
impairment charge of
$1.419 billion to goodwill during the three months ended December 31, 2017.
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.
The impairment charges taken during 2017 and 2016 represent the cumulative amount
of impairment recorded historically on the Companys goodwill.
The reduction in the Companys fair value and the resulting
goodwill impairment charge recorded during 2016 and 2017 reduced the carrying value of the Companys hospital operations reporting unit to an amount equal to its estimated fair value. This 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, higher market interest rates or increased operating costs. Such changes impacting the calculation of fair value could result in a material impairment charge in the
future.
123
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Intangible Assets
No intangible assets other than goodwill were acquired during the year ended December 31, 2017. The gross carrying amount of the
Companys other intangible assets subject to amortization was $18 million and $41 million at December 31, 2017 and 2016, respectively, and the net carrying amount was $10 million and $14 million at December 31,
2017 and 2016, respectively. The carrying amount of the Companys other intangible assets not subject to amortization was $79 million and $86 million at December 31, 2017 and 2016, respectively. Other intangible assets are
included in other assets, net on the Companys consolidated balance sheets. Substantially all of the Companys intangible assets are contract-based intangible assets related to operating licenses, management contracts, or
non-compete
agreements entered into in connection with prior acquisitions.
The weighted-average
remaining amortization period for the intangible assets subject to amortization is approximately six years. There are no expected residual values related to these intangible assets. Amortization expense on these intangible assets was
$4 million, $14 million and $15 million during the years ended December 31, 2017, 2016 and 2015, respectively. Amortization expense on intangible assets is estimated to be $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 $1.2 billion and $1.3 billion at December 31, 2017 and 2016, respectively, and the net carrying amount was approximately $416 million and $574 million at
December 31, 2017 and 2016, respectively. The estimated amortization period for capitalized
internal-use
software is generally three years, except for capitalized costs related to significant system
conversions, for which the estimated amortization period is generally eight to ten years. There is no expected residual value for capitalized
internal-use
software. At December 31, 2017, there were
approximately $32 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 $178 million, $201 million and $212 million during the years ended December 31, 2017, 2016 and 2015,
respectively. Amortization expense on capitalized
internal-use
software is estimated to be $153 million in 2018, $93 million in 2019, $69 million in 2020, $47 million in 2021,
$33 million in 2022 and $21 million thereafter.
124
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INCOME TAXES
The (benefit from) provision for income taxes for (loss) income from continuing operations consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
7
|
|
State
|
|
|
5
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
12
|
|
|
|
14
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(485
|
)
|
|
|
(88
|
)
|
|
|
103
|
|
State
|
|
|
31
|
|
|
|
(28
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(454
|
)
|
|
|
(116
|
)
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit from) provision for income taxes for (loss) income from
continuing
operations
|
|
$
|
(449
|
)
|
|
$
|
(104
|
)
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the differences between the statutory federal income tax rate and the effective
tax rate (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
(Benefit from) provision for income taxes at statutory federal rate
|
|
$
|
(991
|
)
|
|
|
35.0
|
%
|
|
$
|
(600
|
)
|
|
|
35.0
|
%
|
|
$
|
144
|
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
(10
|
)
|
|
|
0.3
|
|
|
|
(1
|
)
|
|
|
0.1
|
|
|
|
13
|
|
|
|
3.3
|
|
Net income attributable to noncontrolling interests
|
|
|
(22
|
)
|
|
|
0.8
|
|
|
|
(33
|
)
|
|
|
1.9
|
|
|
|
(35
|
)
|
|
|
(8.6
|
)
|
Change in valuation allowance
|
|
|
26
|
|
|
|
(0.9
|
)
|
|
|
(1
|
)
|
|
|
0.1
|
|
|
|
(2
|
)
|
|
|
(0.4
|
)
|
Federal rate change
|
|
|
32
|
|
|
|
(1.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Federal and state tax credits
|
|
|
(5
|
)
|
|
|
0.1
|
|
|
|
(6
|
)
|
|
|
0.3
|
|
|
|
(5
|
)
|
|
|
(1.2
|
)
|
Nondeductible transaction costs
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
-
|
|
Nondeductible goodwill
|
|
|
504
|
|
|
|
(17.8
|
)
|
|
|
536
|
|
|
|
(31.2
|
)
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
17
|
|
|
|
(0.6
|
)
|
|
|
(2
|
)
|
|
|
0.1
|
|
|
|
1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes and effective tax rate for (loss) income from continuing
operations
|
|
$
|
(449
|
)
|
|
|
15.8
|
%
|
|
$
|
(104
|
)
|
|
|
6.1
|
%
|
|
$
|
116
|
|
|
|
28.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rates were 15.8%, 6.1% and 28.4% for the years ended December 31, 2017,
2016 and 2015, respectively. Including the net income attributable to noncontrolling interests, which is not tax effected in the consolidated statement of (loss) income, the effective tax rate for the years ended December 31, 2017, 2016 and
2015 would have been 15.5%, 5.7% and 37.6% respectively. This increase in the Companys effective tax rate for the year ended December 31, 2017, when compared to the year ended December 31, 2016, was
125
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
primarily due to the difference between the
non-deductible
nature of certain goodwill written off in those years. The decrease in the Companys
effective tax rate for the year ended December 31, 2016, when compared to the year ended December 31, 2015, was primarily due to the
non-deductible
nature of goodwill written off for impairment and
divestitures, as well as the
non-deductible
nature of certain costs incurred to complete the
spin-off
of QHC.
Deferred income taxes are based on the estimated future tax effects of differences between the financial statement and tax bases of assets and
liabilities under the provisions of the enacted tax laws. Deferred income taxes as of December 31, 2017 and 2016 consist of (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Net operating loss and credit carryforwards
|
|
$
|
583
|
|
|
$
|
-
|
|
|
$
|
412
|
|
|
$
|
-
|
|
Property and equipment
|
|
|
-
|
|
|
|
263
|
|
|
|
-
|
|
|
|
583
|
|
Self-insurance liabilities
|
|
|
78
|
|
|
|
-
|
|
|
|
130
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
61
|
|
Intangibles
|
|
|
-
|
|
|
|
128
|
|
|
|
-
|
|
|
|
238
|
|
Investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
54
|
|
|
|
-
|
|
|
|
81
|
|
Other liabilities
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
22
|
|
Long-term debt and interest
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
Accounts receivable
|
|
|
144
|
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
Accrued vacation
|
|
|
27
|
|
|
|
-
|
|
|
|
56
|
|
|
|
-
|
|
Other comprehensive income
|
|
|
9
|
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
10
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
Deferred compensation
|
|
|
77
|
|
|
|
-
|
|
|
|
132
|
|
|
|
-
|
|
Other
|
|
|
89
|
|
|
|
-
|
|
|
|
125
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,023
|
|
|
|
491
|
|
|
|
986
|
|
|
|
997
|
|
Valuation allowance
|
|
|
(489)
|
|
|
|
-
|
|
|
|
(385)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income taxes
|
|
$
|
534
|
|
|
$
|
491
|
|
|
$
|
601
|
|
|
$
|
997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that the net deferred tax assets will ultimately be realized, except as noted below. Its
conclusion is based on its estimate of future taxable income and the expected timing of temporary difference reversals. The Company has gross federal net operating loss carryforwards of approximately $610 million and state net operating loss
carryforwards of approximately $6.3 billion, which expire from 2018 to 2037. The Companys tax affected federal and state net operating loss and credit carryforwards which it expects to be able to utilize are approximately
$136 million and $16 million, respectively. A valuation allowance of approximately $489 million has been recognized for state net operating loss carryforwards, credit carryforwards and deferred tax assets that the Company does not
expect to be able to utilize prior to the expiration of the carryforward period. The Company also has unrecognized deferred tax assets primarily related to interest expense that are included in other comprehensive income. If recognized, additional
state net operating losses will be created which the Company does not expect to be able to utilize prior to the expiration of the carryforward period. A valuation allowance of approximately $2 million has been recognized for those items. With
respect to the deferred tax liability pertaining to intangibles, as included above, goodwill purchased in connection with certain of the Companys business acquisitions is amortizable for income tax reporting purposes. However, for financial
reporting purposes, there is no corresponding amortization allowed with respect to such purchased goodwill.
126
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The valuation allowance increased by $104 million and $49 million during the years
ended December 31, 2017 and 2016, respectively, for losses incurred in certain state jurisdictions where the Company concluded associated deferred tax assets would not be realized.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the
Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code which impacted 2017, including a permanent reduction in the U.S. federal corporate tax rate from 35% to 21% (Rate Reduction).
The Tax Act also puts into place new tax laws that will apply prospectively, which include, but are not limited to (1) creating a new
limitation on deductible interest expense; (2) changing rules related to uses and limitations of net operating loss carryforwards: and (3) modifying the rules governing the deductibility of certain executive compensation.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period
that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the
accounting under ASC 740 is complete. To the extent that a companys accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the
financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the
enactment of the Tax Act.
The Company has not completed the accounting for the income tax effects of the Tax Act. At December 31,
2017, the Company recorded a discrete net tax expense of $32 million primarily related to provisional amounts under SAB 118 for the remeasurement of U.S. deferred tax assets and liabilities due to Rate Reduction. No additional provisional
amounts were recorded as part of the Companys initial accounting for the Tax Act. However, these estimates may differ from the final accounting due to, among other things, future clarification and guidance to be issued, changes in
interpretations the Company has made and state tax conformity to federal tax changes. Such changes in estimate could impact the recorded U.S. federal and state deferred tax assets and liabilities as well as valuation allowances in those
jurisdictions.
At December 31, 2017, the Company was not able to reasonably estimate and, therefore, has not recorded a provisional
amount for the Tax Acts impact on certain state valuation allowances. The Company will record a provisional amount in the first reporting period in which a reasonable estimate can be determined. Such timing will depend upon the Companys
ability to obtain, prepare and analyze the necessary information to determine whether a valuation allowance needs to be recognized.
The
total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximately $7 million as of December 31, 2017. A total of approximately $4 million of interest and penalties is included in the
amount of the liability for uncertain tax positions at December 31, 2017. It is the Companys policy to recognize interest and penalties related to unrecognized benefits in its consolidated statements of (loss) income as income tax
expense.
It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute
of limitations and settlements with taxing authorities; however, the Company does not anticipate the change will have a material impact on the Companys consolidated results of operations or consolidated financial position.
127
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a tabular reconciliation of the total amount of unrecognized tax benefit for
the years ended December 31, 2017, 2016 and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Unrecognized tax benefit, beginning of year
|
|
$
|
18
|
|
|
$
|
15
|
|
|
$
|
16
|
|
Gross increases tax positions in current period
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
Lapse of statute of limitations
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit, end of year
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and 2010 tax years are currently under
examination by the Internal Revenue Service. The Company believes the results of these examinations will not be material to its consolidated results of operations or consolidated financial position. The Company has extended the federal statute of
limitations through December 31, 2018 for Community Health Systems, Inc. for the tax periods ended December 31, 2007, 2008, 2009 and 2010 and through September 6, 2019 for the tax period ended December 31, 2014.
Cash paid for income taxes, net of refunds received, resulted in net cash paid of $4 million and $12 million during the years ended
December 31, 2017 and 2015, respectively, and net cash refund of $16 million for the year ended December 31, 2016.
128
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. LONG-TERM DEBT
Long-term debt, net of unamortized debt issuance costs and discounts or premiums, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Credit Facility:
|
|
|
|
|
|
|
|
|
Term A Loan
|
|
$
|
-
|
|
|
$
|
749
|
|
Term F Loan
|
|
|
-
|
|
|
|
1,445
|
|
Term G Loan
|
|
|
1,037
|
|
|
|
1,528
|
|
Term H Loan
|
|
|
1,903
|
|
|
|
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
|
|
|
565
|
|
|
|
677
|
|
Capital lease obligations
|
|
|
304
|
|
|
|
328
|
|
Other
|
|
|
48
|
|
|
|
74
|
|
Less: Unamortized deferred debt issuance costs and note premium
|
|
|
(169
|
)
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
13,913
|
|
|
|
15,244
|
|
Less: Current maturities
|
|
|
(33
|
)
|
|
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
13,880
|
|
|
$
|
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.
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
129
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
On November 3, 2017, using a portion of the cash generated from the divestitures that closed on November 1, 2017, CHS repaid
approximately $21 million of the Term G Facility and approximately $39 million of the Term H Facility.
130
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 divestiture announcements), (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
131
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
enter into acquisitions and joint ventures, (5) incur additional indebtedness or provide certain guarantees, (6) make capital expenditures, (7) engage in mergers, acquisitions and
asset sales, (8) conduct transactions with affiliates, (9) alter the nature of the Companys businesses, (10) grant certain guarantees with respect to physician practices, (11) engage in sale and leaseback transactions or
(12) change the Companys fiscal year. The Company is also required to comply with specified financial covenants (consisting of a maximum secured net leverage ratio and an interest coverage ratio) and various affirmative covenants. Under
the Credit Facility, the secured net leverage ratio is calculated as the ratio of total secured debt, less unrestricted cash and cash equivalents, to consolidated EBITDA, as defined in the Credit Facility, and the interest coverage ratio is the
ratio of consolidated EBITDA, as defined in the Credit Facility, to consolidated interest expense for the period. The calculation of consolidated EBITDA as defined in the Credit Facility is a trailing
12-month
calculation that begins with net income attributable to the Company, with certain pro forma adjustments to consider the impact of material acquisitions or divestitures, and adjustments for interest, taxes, depreciation and amortization, net income
attributable to noncontrolling interests, stock compensation expense, restructuring costs, and the financial impact of other
non-cash
or
non-recurring
items recorded
during any such
12-month
period. For the
12-month
period ended December 31, 2017, the secured net leverage ratio financial covenant under the Credit Facility
limited the ratio of secured debt to EBITDA, as defined, to less than or equal to 4.50 to 1.00. For the
12-month
period ended December 31, 2017, the interest coverage ratio financial covenant under 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. The Company was in compliance with all such covenants at December 31, 2017, with a secured net
leverage ratio of approximately 4.08 to 1.00 and an interest coverage ratio of approximately 2.10 to 1.00.
Events of default under the
Credit Facility include, but are not limited to, (1) CHS failure to pay principal, interest, fees or other amounts under the credit agreement when due (taking into account any applicable grace period), (2) any representation or warranty
proving to have been materially incorrect when made, (3) covenant defaults subject, with respect to certain covenants, to an available cure through the issuance of qualified equity for a period of 60 days after the end of the first three
quarters and 100 days after a year end, (4) bankruptcy and insolvency events, (5) a cross default to certain other debt, (6) certain undischarged judgments (not paid within an applicable grace period), (7) a change of control (as
defined), (8) certain ERISA-related defaults and (9) the invalidity or impairment of specified security interests, guarantees or subordination provisions in favor of the administrative agent or lenders under the Credit Facility.
As of December 31, 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 shall reduce to $739 million on January 27, 2019), of which approximately $63 million is in the form of outstanding letters of
credit. CHS had 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 December 31, 2017, the weighted-average interest rate under the Credit Facility, excluding swaps, was 5.1%.
132
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2017, the term loans and outstanding revolving credit loans are
scheduled to be paid with principal payments for future years as follows (in millions):
|
|
|
|
|
Year
|
|
Amount
|
|
2018
|
|
$
|
-
|
|
2019
|
|
|
1,037
|
|
2020
|
|
|
-
|
|
2021
|
|
|
1,903
|
|
2022
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
|
|
|
|
|
Total maturities
|
|
|
2,940
|
|
Less: Deferred debt issuance costs
|
|
|
(38
|
)
|
|
|
|
|
|
Total term loans and outstanding revolving credit loans
|
|
$
|
2,902
|
|
|
|
|
|
|
As of December 31, 2017, the Company had letters of credit issued, primarily in support of potential
insurance-related claims and certain bonds, of approximately $63 million.
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, 2017 to November 14, 2019
|
|
|
100.000%
|
|
Pursuant to a registration rights agreement entered into at the time of the issuance of the 8% Senior Notes,
as a result of an exchange offer made by CHS, substantially all of the 8% Senior Notes issued in November 2011 and March 2012 were exchanged in May 2012 for new notes (the 8% Exchange Notes) having terms substantially identical in all
material respects to the 8% Senior Notes (except that the 8% Exchange Notes were issued under a registration statement pursuant to the Securities Act of 1933, as amended (the 1933 Act)). References to the 8% Senior Notes shall also be
deemed to include the 8% Exchange Notes unless the context provides otherwise.
During the year ended December 31, 2016, the Company
repurchased approximately $75 million of aggregate principal amount outstanding of the 8% Senior Notes in open market transactions.
133
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
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 year ended
December 31, 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
134
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
135
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 %
|
|
Receivables Facility
CHS, through certain of its subsidiaries, participates in 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 and PNC Bank, National Association, as managing agents. 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. On November 13, 2017, CHS and certain of its subsidiaries amended the Receivables
136
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Facility to extend the scheduled termination date and amend certain other provisions thereof. The existing and future
non-self
pay patient-related accounts
receivable (the Receivables) for certain affiliated hospitals serve as collateral for the outstanding borrowings under the Receivables Facility. The interest rate on the borrowings is based on the commercial paper rate plus an applicable
interest rate spread. Unless earlier terminated or subsequently extended pursuant to its terms, the Receivables Facility will expire on November 13, 2019 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 December 31,
2017 totaled $565 million on the consolidated balance sheet. At December 31, 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 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 $40 million,
$30 million and $16 million for the years ended December 31, 2017, 2016 and 2015, respectively, and an
after-tax
loss of $26 million, $19 million and $10 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
Other Debt
As of December 31, 2017, other debt consisted primarily of other obligations maturing in various installments through 2028.
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 December 31, 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 8 for additional information regarding these swaps.
137
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2017, the scheduled maturities of long-term debt outstanding,
including capital lease obligations for each of the next five years and thereafter are as follows (in millions):
|
|
|
|
|
Year
|
|
Amount
|
|
2018
|
|
$
|
33
|
|
2019
|
|
|
3,569
|
|
2020
|
|
|
1,210
|
|
2021
|
|
|
2,913
|
|
2022
|
|
|
3,010
|
|
Thereafter
|
|
|
3,347
|
|
|
|
|
|
|
Total maturities
|
|
|
14,082
|
|
Less: Deferred debt issuance costs
|
|
|
(191
|
)
|
Plus: unamortized note premium
|
|
|
22
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
13,913
|
|
|
|
|
|
|
The Company paid interest of $852 million, $930 million and $925 million on borrowings during
the years ended December 31, 2017, 2016 and 2015, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments has been estimated by the Company using available market information as of December 31, 2017 and
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
|
Carrying
Amount
|
|
|
Estimated Fair
Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
563
|
|
|
$
|
563
|
|
|
$
|
238
|
|
|
$
|
238
|
|
Available-for-sale
securities
|
|
|
252
|
|
|
|
252
|
|
|
|
299
|
|
|
|
299
|
|
Trading securities
|
|
|
37
|
|
|
|
37
|
|
|
|
80
|
|
|
|
80
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Value Right
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
Credit Facility
|
|
|
2,902
|
|
|
|
2,826
|
|
|
|
6,456
|
|
|
|
6,370
|
|
8% Senior Notes
|
|
|
1,922
|
|
|
|
1,637
|
|
|
|
1,920
|
|
|
|
1,615
|
|
7
1
⁄
8
%
Senior Notes
|
|
|
1,192
|
|
|
|
897
|
|
|
|
1,189
|
|
|
|
917
|
|
5
1
⁄
8
%
Senior Secured Notes due 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
698
|
|
|
|
690
|
|
5
1
⁄
8
%
Senior Secured Notes due 2021
|
|
|
978
|
|
|
|
902
|
|
|
|
972
|
|
|
|
930
|
|
6
7
⁄
8
%
Senior Notes
|
|
|
2,943
|
|
|
|
1,729
|
|
|
|
2,932
|
|
|
|
2,102
|
|
6
1
⁄
4
%
Senior Secured Notes
|
|
|
3,061
|
|
|
|
2,800
|
|
|
|
-
|
|
|
|
-
|
|
Receivables Facility and other debt
|
|
|
611
|
|
|
|
611
|
|
|
|
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
138
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
accordance with accounting standards related to the determination of fair value based on the U.S. GAAP fair value hierarchy as discussed in Note 9. The estimated fair value for financial
instruments with a fair value that does not equal its carrying value is considered a Level 1 valuation. The Company utilizes the market approach and obtains indicative pricing from the administrative agent to the Credit Facility to
determine fair values or through publicly available subscription services such as Bloomberg where relevant.
Cash and cash
equivalents.
The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).
Available-for-sale
securities.
Estimated
fair value is based on closing price as quoted in public markets or other various valuation techniques.
Trading
securities.
Estimated fair value is based on closing price as quoted in public markets.
Contingent Value
Right
. Estimated fair value is based on the closing price as quoted on the public market where the CVR is traded.
Credit Facility.
Estimated fair value is based on publicly available trading activity and supported with information from
the Companys bankers regarding relevant pricing for trading activity among the Companys lending institutions.
8% Senior
Notes.
Estimated fair value is based on the closing market price for these notes.
7
1
⁄
8
% Senior
Notes.
Estimated fair value is based on the closing market price for these notes.
5
1
⁄
8
% Senior Secured Notes due
2018.
Estimated fair value is based on the closing market price for these notes.
5
1
⁄
8
% Senior Secured Notes due
2021.
Estimated fair value is based on the closing market price for these notes.
6
7
⁄
8
% Senior
Notes.
Estimated fair value is based on the closing market price for these notes.
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 years ended December 31, 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
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
139
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
nonperformance. However, at December 31, 2017, since the majority 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 December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap #
|
|
Notional Amount
(in millions)
|
|
|
Fixed Interest Rate
|
|
|
Termination Date
|
|
Liability (Asset)
Fair Value
(in millions)
|
|
1
|
|
$
|
400
|
|
|
|
1.882 %
|
|
|
August 30, 2019
|
|
$
|
(1
|
)
|
2
|
|
|
200
|
|
|
|
2.515 %
|
|
|
August 30, 2019
|
|
|
2
|
|
3
|
|
|
200
|
|
|
|
2.613 %
|
|
|
August 30, 2019
|
|
|
2
|
|
4
|
|
|
300
|
|
|
|
2.041 %
|
|
|
August 30, 2020
|
|
|
-
|
|
5
|
|
|
300
|
|
|
|
2.738 %
|
|
|
August 30, 2020
|
|
|
5
|
|
6
|
|
|
300
|
|
|
|
2.892 %
|
|
|
August 30, 2020
|
|
|
6
|
|
7
|
|
|
300
|
|
|
|
2.363 %
|
|
|
January 27, 2021
|
|
|
2
|
|
8
|
|
|
200
|
|
|
|
2.368 %
|
|
|
January 27, 2021
|
|
|
1
|
|
The Company is exposed to certain risks relating to its ongoing business operations. The risk managed by using
derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate fluctuation risk associated with the term loans in the Credit Facility. Companies are required to recognize all derivative instruments as
either assets or liabilities at fair value in the consolidated statement of financial position. The Company designates its interest rate swaps as cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.
Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
Assuming no change in December 31, 2017 interest rates, approximately $22 million of interest expense resulting from the spread
between the fixed and floating rates defined in each interest rate swap agreement will be recognized during the next 12 months. If interest rate swaps do not remain highly effective as a cash flow hedge, the derivatives gains or losses
resulting from the change in fair value reported through OCI will be reclassified into earnings.
The following tabular disclosure
provides the amount of
pre-tax
income (loss) recognized as a component of OCI during the years ended December 31, 2017, 2016 and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Pre-Tax Income (Loss)
Recognized in OCI (Effective
Portion)
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest rate swaps
|
|
$
|
2
|
|
|
$
|
(27
|
)
|
|
$
|
(51
|
)
|
140
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tabular disclosure provides the location of the effective portion of the
pre-tax
loss reclassified from accumulated other comprehensive loss (AOCL) into interest expense on the consolidated statements of (loss) income during the years ended December 31, 2017, 2016 and
2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss Reclassified from
AOCL into Income (Effective Portion)
|
|
Amount of
Pre-Tax
Loss Reclassified from
AOCL into Income (Effective Portion)
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Interest expense, net
|
|
$
|
30
|
|
|
$
|
54
|
|
|
$
|
42
|
|
The fair values of derivative instruments in the consolidated balance sheets as of December 31, 2017 and
2016 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
December 31, 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
|
|
$
|
1
|
|
|
Other
assets,
net
|
|
$
|
-
|
|
|
Other
long-
term
liabilities
|
|
$
|
18
|
|
|
Other
long-
term
liabilities
|
|
$
|
49
|
|
9. FAIR VALUE
Fair Value Hierarchy
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company utilizes the U.S. GAAP fair value hierarchy that distinguishes
between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumption
about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
The inputs used to measure
fair value are classified into the following fair value hierarchy:
Level
1:
Quoted market
prices in active markets for identical assets or liabilities.
Level
2:
Observable
market-based inputs or unobservable inputs that are corroborated by market data.
Level
3:
Unobservable inputs that are supported by little or no market activity and are
significant to the fair value of the assets or liabilities. Level 3 includes values determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting the Companys own assumptions.
In instances where the determination of the fair value hierarchy measurement is based on inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the entire fair value
141
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 years ending December 31, 2017 or December 31, 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 December 31, 2017 and 2016 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Available-for-sale
securities
|
|
$
|
252
|
|
|
$
|
132
|
|
|
$
|
120
|
|
|
$
|
-
|
|
Trading securities
|
|
|
37
|
|
|
|
37
|
|
|
|
-
|
|
|
|
-
|
|
Fair value of interest rate swap agreements
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
290
|
|
|
$
|
169
|
|
|
$
|
121
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Value Right (CVR)
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
-
|
|
CVR-related
liability
|
|
|
256
|
|
|
|
-
|
|
|
|
-
|
|
|
|
256
|
|
Fair value of interest rate swap agreements
|
|
|
18
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
276
|
|
|
$
|
2
|
|
|
$
|
18
|
|
|
$
|
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
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.
142
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Available-for-Sale
Securities
Supplemental information regarding the Companys
available-for-sale
securities (all of which had no withdrawal restrictions) is set forth in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Values
|
|
As of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities and debt-based mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and corporate
|
|
$
|
189
|
|
|
$
|
-
|
|
|
$
|
(4
|
)
|
|
$
|
185
|
|
Equity securities and equity-based mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
51
|
|
|
|
10
|
|
|
|
-
|
|
|
|
61
|
|
International
|
|
|
5
|
|
|
|
1
|
|
|
|
-
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
245
|
|
|
$
|
11
|
|
|
$
|
(4
|
)
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated
Fair
Values
|
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities and debt-based mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and corporate
|
|
$
|
232
|
|
|
$
|
-
|
|
|
$
|
(9
|
)
|
|
$
|
223
|
|
Equity securities and equity-based mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
67
|
|
|
|
3
|
|
|
|
-
|
|
|
|
70
|
|
International
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
305
|
|
|
$
|
3
|
|
|
$
|
(9
|
)
|
|
$
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017 and 2016, investments with aggregate estimated fair values of approximately
$181 million (246 investments) and $232 million (226 investments), respectively, generated the gross unrealized losses disclosed in the above table. At each reporting date, the Company performs an evaluation of impaired securities to
determine if the unrealized losses are other-than-temporary. This evaluation considers a number of factors including, but not limited to, the length of time and extent to which the fair value has been less than cost, and managements ability
and intent to hold the securities until fair value recovers. Based on the results of this evaluation, management concluded that as of December 31, 2017, there was approximately less than $1 million of other-than-temporary losses related to
available-for-sale
securities. The recent declines in value of the remaining securities and/or length of time they have been below cost, as well as the Companys
ability and intent to hold the securities for a reasonable period of time sufficient for a projected recovery of fair value, have caused management to conclude that the remaining securities, that have generated gross unrealized losses, were not
other-than-temporarily impaired. Management will continue to monitor and evaluate the recoverability of the Companys
available-for-sale
securities.
143
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The contractual maturities of debt-based securities held by the Company as of
December 31, 2017 and 2016, excluding mutual fund holdings, are set forth in the table below (in millions). Expected maturities will differ from contractual maturities because the issuers of the debt securities may have the right to prepay
their obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Values
|
|
|
Amortized
Cost
|
|
|
Estimated
Fair Values
|
|
Within 1 year
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
2
|
|
After 1 year and through year 5
|
|
|
46
|
|
|
|
46
|
|
|
|
40
|
|
|
|
40
|
|
After 5 years and through year 10
|
|
|
32
|
|
|
|
31
|
|
|
|
42
|
|
|
|
40
|
|
After 10 years
|
|
|
41
|
|
|
|
40
|
|
|
|
57
|
|
|
|
54
|
|
Gross realized gains and losses on sales of
available-for-sale
securities and other investment income, which includes interest and dividends, are summarized in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Realized gains
|
|
$
|
3
|
|
|
$
|
28
|
|
|
$
|
8
|
|
Realized losses
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Investment income
|
|
|
8
|
|
|
|
7
|
|
|
|
8
|
|
Contingent Value Right (CVR)
The CVR represents the estimate of the fair value for the contingent consideration paid to HMA shareholders as part of the HMA merger. The CVR
is listed on the Nasdaq and the valuation at December 31, 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 consolidated statements of
(loss) income.
CVR-related
Liability
The
CVR-related
legal liability represents the Companys estimate of fair value at
December 31, 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 consolidated balance sheet. This liability did not include those matters
previously accrued by HMA as a probable contingency, which were settled and paid during the year ended December 31, 2015. To develop the estimate of fair value, the Company engaged an independent third-party valuation firm to measure the
liability. The valuation was made utilizing the Companys estimates of future outcomes for each legal case and simulating future outcomes based on the timing, probability and distribution of several scenarios using a Monte Carlo simulation
model. Other inputs were then utilized for discounting the liability to the measurement date. The HMA legal matters underlying this fair value estimate were evaluated by management to determine the likelihood and impact of each of the potential
outcomes. Using that information, as well as the potential correlation and variability associated with each case, a fair value was determined for the estimated future cash outflows to conclude or settle the HMA legal matters included in the
analysis, excluding legal fees (which are expensed as incurred). Because of the unobservable nature of the majority of the inputs used to value the liability, the Company has classified the fair value measurement as a Level 3 measurement in the
fair value hierarchy.
The fair value of the
CVR-related
legal liability will be measured each
reporting period using similar measurement techniques, updated for the assumptions and facts existing at that date for each of the underlying legal matters. Changes in the fair value of the CVR related legal liability are recorded in future periods
through the consolidated statements of (loss) income.
144
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value of Interest Rate Swap Agreements
The valuation of the Companys interest rate swap agreements is determined using market valuation techniques, including discounted cash
flow analysis on the expected cash flows of each agreement. This analysis reflects the contractual terms of the agreement, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. The fair
value of interest rate swap agreements are determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates based on
observable market forward interest rate curves and the notional amount being hedged.
The Company incorporates CVAs to appropriately
reflect both its own nonperformance or credit risk and the respective counterpartys nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance
or credit risk, the Company has considered the impact of any netting features included in the agreements. The CVA on the Companys interest rate swap agreements resulted in a decrease in the fair value of the related liability of
$1 million and an
after-tax
adjustment of less than $1 million to OCI at December 31, 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.
10. LEASES
The
Company leases hospitals, medical office buildings, and certain equipment under capital and operating lease agreements. During 2017, 2016 and 2015, the Company entered into capital lease obligations of $31 million, $179 million and
$50 million, respectively. All lease agreements generally require the Company to pay maintenance, repairs, property taxes and insurance costs.
Commitments relating to noncancellable operating and capital leases for each of the next five years and thereafter are as follows (in
millions):
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Operating (1)
|
|
|
Capital
|
|
2018
|
|
$
|
208
|
|
|
$
|
32
|
|
2019
|
|
|
161
|
|
|
|
28
|
|
2020
|
|
|
130
|
|
|
|
23
|
|
2021
|
|
|
91
|
|
|
|
23
|
|
2022
|
|
|
70
|
|
|
|
22
|
|
Thereafter
|
|
|
246
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
Total minimum future payments
|
|
$
|
906
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
Less: Imputed interest
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
Total capital lease obligations
|
|
|
|
|
|
|
304
|
|
Less: Current portion
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Long-term capital lease obligations
|
|
|
|
|
|
$
|
287
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Minimum lease payments have not been reduced by minimum sublease rentals due in the future of $6 million.
|
145
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On December 22, 2016, the Company completed the sale and leaseback of ten medical office
buildings for net proceeds of $159 million to HCP, Inc. The buildings, with a combined total of 756,183 square feet, are located in five states and support a wide array of diagnostic, medical and surgical services in an outpatient setting for
the respective nearby hospitals. Because of the Companys continuing involvement in these leased buildings, the transaction does not qualify for sale treatment and the related leases have been recorded as financing obligations in the
Companys consolidated balance sheet at December 31, 2017. Such financing obligations are included with the capital lease obligations discussed throughout these footnotes to the consolidated financial statements.
Assets capitalized under capital leases as reflected in the accompanying consolidated balance sheets were $63 million of land and
improvements, $774 million of buildings and improvements and $28 million of equipment and fixtures as of December 31, 2017 and $69 million of land and improvements, $826 million of buildings and improvements and
$56 million of equipment and fixtures as of December 31, 2016. The accumulated depreciation related to assets under capital leases was $218 million and $240 million as of December 31, 2017 and 2016, respectively.
Depreciation of assets under capital leases is included in depreciation and amortization expense and amortization of debt discounts on capital lease obligations is included in interest expense in the accompanying consolidated statements of (loss)
income.
11. EMPLOYEE BENEFIT PLANS
The Company maintains various benefit plans, including defined contribution plans, defined benefit plans and deferred compensation plans, for
which certain of the Companys subsidiaries are the plan sponsors. The CHS/Community Health Systems, Inc. Retirement Savings Plan is a defined contribution plan which covers the majority of the employees at subsidiaries owned prior to the HMA
merger. Employees at these locations whose employment is covered by collective bargaining agreements are generally eligible to participate in the CHS/Community Health Systems, Inc. Standard 401(k) Plan. The Company also maintains the Health
Management Associates, Inc. Retirement Savings Plan, a defined contribution plan covering substantially all of the employees formerly employed by HMA. Total expense to the Company under the 401(k) plans was $94 million, $98 million and
$103 million for the years ended December 31, 2017, 2016 and 2015, respectively, and is recorded in salaries and benefits expense on the consolidated statements of (loss) income.
The Company maintains unfunded deferred compensation plans that allow participants to defer receipt of a portion of their compensation. The
liability for the deferred compensation plans was $189 million and $229 million as of December 31, 2017 and 2016, respectively, and is included in other long-term liabilities on the consolidated balance sheets. The Company had assets
of $173 million and $219 million as of December 31, 2017 and 2016, respectively, in a
non-qualified
plan trust generally designated to pay benefits of the deferred compensation plans, consisting
of trading securities of $37 million and $80 million as of December 31, 2017 and 2016, respectively, and company-owned life insurance contracts of $136 million and $139 million as of December 31, 2017 and 2016,
respectively.
The Company provides an unfunded Supplemental Executive Retirement Plan (SERP) for certain members of its
executive management. The Company uses a December 31 measurement date for the benefit obligations and a January 1 measurement date for its net periodic costs for the SERP. Variances from actuarially assumed rates will result in increases
or decreases in benefit obligations and net periodic cost in future periods. Benefits expense under the SERP was $16 million, $12 million and $12 million for the years ended December 31, 2017, 2016 and 2015, respectively. The
accrued benefit liability for the SERP totaled $83 million and $122 million at December 31, 2017 and 2016, respectively, and is included in other long-term liabilities on the consolidated balance sheets. The weighted-average
assumptions used in determining net periodic cost for the year ended December 31, 2017 was a discount rate of 3.6% and annual salary increase of 2.0%. The Company had
146
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
available-for-sale
securities in a rabbi trust generally designated to pay benefits of the SERP in the amounts of
$99 million and $131 million at December 31, 2017 and 2016, respectively. These amounts are included in other assets, net on the consolidated balance sheets.
During the year ended December 31, 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 and first half of 2018. As required by the pension accounting rules in U.S. GAAP, the Company recognized a
non-cash
settlement loss of approximately $6 million during the year ended December 31, 2017, and will recognize a
non-cash
settlement of approximately $1 million during the year ended December 31,
2018, which represent a
pro-rata
portion of the accumulated unrecognized actuarial loss out of accumulated other comprehensive loss.
The Company maintains the CHS/Community Health Systems, Inc. Retirement Income Plan (Pension Plan), which is a defined benefit,
non-contributory
pension plan that covers certain employees at three of its formerly owned hospitals. The Pension Plan provides benefits to covered individuals satisfying certain age and service requirements.
Employer contributions to the Pension Plan are in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended. The Company expects to make no contribution to the Pension Plan in 2018. The
Company uses a December 31 measurement date for the benefit obligations and a January 1 measurement date for its net periodic costs for the Pension Plan. Variances from actuarially assumed rates will result in increases or decreases in
benefit obligations, net periodic cost and funding requirements in future periods. Benefits expense under the Pension Plan was $7 million for the year ended December 31, 2017, and was less than $1 million for both the years ended
December 31, 2016 and 2015. The accrued benefit liability for the Pension Plan totaled $12 million and $16 million at December 31, 2017 and 2016, respectively, and is included in other long-term liabilities on the consolidated
balance sheets. The weighted-average assumptions used for determining the net periodic cost for the year ended December 31, 2017 was a discount rate of 4.1% and the expected long-term rate of return on assets of 7.0%.
12. STOCKHOLDERS (DEFICIT) EQUITY
Authorized capital shares of the Company include 400,000,000 shares of capital stock consisting of 300,000,000 shares of common stock and
100,000,000 shares of preferred stock. Each of the aforementioned classes of capital stock has a par value of $0.01 per share. Shares of preferred stock, none of which were outstanding as of December 31, 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 years ended December 31, 2017 and 2016.
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.
147
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 December 31, 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.
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 (deficit) equity (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net (loss) income attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(2,459
|
)
|
|
$
|
(1,721
|
)
|
|
$
|
158
|
|
Transfers from the noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in Community Health Systems, Inc.
paid-in-capital
for purchase of subsidiary partnership interests
|
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers from the noncontrolling interests
|
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change to Community Health Systems, Inc. stockholders (deficit) equity from net (loss)
income attributable to Community Health Systems, Inc. stockholders and transfers to noncontrolling interests
|
|
$
|
(2,461
|
)
|
|
$
|
(1,730
|
)
|
|
$
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. EARNINGS PER SHARE
The following table sets forth the components of the numerator and denominator for the computation of basic and diluted (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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations, net of taxes
|
|
$
|
(2,384
|
)
|
|
$
|
(1,611
|
)
|
|
$
|
295
|
|
Less: Income from continuing operations attributable to noncontrolling interests, net of
taxes
|
|
|
63
|
|
|
|
95
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to Community Health Systems, Inc. common
stockholders basic and diluted
|
|
$
|
(2,447
|
)
|
|
$
|
(1,706
|
)
|
|
$
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
$
|
(12
|
)
|
|
$
|
(15
|
)
|
|
$
|
(36
|
)
|
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
|
|
$
|
(12
|
)
|
|
$
|
(15
|
)
|
|
$
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding basic
|
|
|
111,769,821
|
|
|
|
110,730,971
|
|
|
|
114,454,674
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
449,961
|
|
Employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
357,188
|
|
Other equity-based awards
|
|
|
-
|
|
|
|
-
|
|
|
|
10,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding diluted
|
|
|
111,769,821
|
|
|
|
110,730,971
|
|
|
|
115,272,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company generated a loss from continuing operations attributable to Community Health Systems, Inc. common
stockholders for the years ended December 31, 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 during the years
ended December 31, 2017 and 2016, the effect of restricted stock awards, employee stock options, and other equity-based awards on the diluted shares calculation would have been an increase in shares of 111,464 and 331,518, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Dilutive securities outstanding not included in the computation of earnings per share because
their effect is antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and restricted stock awards
|
|
|
3,008,919
|
|
|
|
2,554,627
|
|
|
|
255,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. EQUITY INVESTMENTS
As of December 31, 2017, the Company owned equity interests of 38.0% in three hospitals in Macon, Georgia, in which HCA owns 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.
On
April 29, 2016, the Company sold its unconsolidated minority equity interests in Valley Health System, LLC, a joint venture with Universal Health Systems, Inc. (UHS) representing four hospitals in Las Vegas, Nevada, in which the
Company owned a 27.5% interest, and in Summerlin Hospital Medical Center, LLC, a joint venture with UHS representing one hospital in Las Vegas, Nevada, in which the Company owned a 26.1% interest. The Company received $403 million in cash in
return for the sale of its equity interests and, as a result, recognized a gain of approximately $94 million on the sale of investments in unconsolidated affiliates during the year ended December 31, 2016.
Summarized combined financial information for these unconsolidated entities in the periods in which the Company owned these equity interests
is as follows (in millions):
|
|
|
|
|
|
|
December 31, 2016
|
|
Current assets
|
|
$
|
54
|
|
Noncurrent assets
|
|
|
112
|
|
|
|
|
|
|
Total assets
|
|
$
|
166
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
17
|
|
Noncurrent liabilities
|
|
|
2
|
|
Members equity
|
|
|
147
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
731
|
|
|
$
|
1,494
|
|
Operating costs and expenses
|
|
|
602
|
|
|
|
1,287
|
|
Income from continuing operations before taxes
|
|
|
129
|
|
|
|
207
|
|
The summarized financial information was derived from the financial information provided to the Company by
those unconsolidated entities. Following the sale of its unconsolidated minority equity interests to UHS in 2016, none of the Companys equity investments, individually or in the aggregate, were considered material. As such, summarized combined
financial information for these unconsolidated entities is not provided as of or for the year ended December 31, 2017.
In March
2005, the Company began purchasing items, primarily medical supplies, medical equipment and pharmaceuticals, under an agreement with HealthTrust Purchasing Group, L.P. (HealthTrust), a group purchasing organization in which the Company
is a noncontrolling partner. As of December 31, 2017, the Company had a 19.7% ownership interest in HealthTrust.
The Companys
investment in all of its unconsolidated affiliates was $171 million and $177 million at December 31, 2017 and 2016, respectively, and is included in other assets, net in the accompanying consolidated balance sheets. Included in the
Companys results of operations is the Companys equity in
pre-tax
earnings from
150
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
all of its investments in unconsolidated affiliates, which was $16 million, $43 million and $63 million for the years ended December 31, 2017, 2016 and 2015, respectively.
15. 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
outpatient care). However, only the hospital operations segment met the criteria as a separate
reportable segment due to the fact that the home care agency segment did not meet the quantitative thresholds for a separate identifiable reportable segment and was combined into the corporate and all other reportable segment. Since 2017, the
Company has only operated in one operating segment.
The distribution between reportable segments of the Companys net operating
revenues, (loss) income from continuing operations before income taxes, expenditures for segment assets and total assets as of and for the years ended December 31, 2016 and 2015, prior to the Companys sale of an 80% ownership interest in
the home care division as noted above, is summarized in the following tables (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
18,210
|
|
|
$
|
19,234
|
|
Corporate and all other
|
|
|
228
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,438
|
|
|
$
|
19,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
(1,418
|
)
|
|
$
|
767
|
|
Corporate and all other
|
|
|
(297
|
)
|
|
|
(356
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,715
|
)
|
|
$
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for segment assets:
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
727
|
|
|
$
|
915
|
|
Corporate and all other
|
|
|
17
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
744
|
|
|
$
|
953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
|
|
|
|
$
|
20,582
|
|
Corporate and all other
|
|
|
|
|
|
|
1,362
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
21,944
|
|
|
|
|
|
|
|
|
|
|
151
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. OTHER COMPREHENSIVE INCOME
The following tables present information about items reclassified out of accumulated other comprehensive (loss) income by component for the
years ended December 31, 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 December 31, 2016
|
|
$
|
(31
|
)
|
|
$
|
(10
|
)
|
|
$
|
(21
|
)
|
|
$
|
(62
|
)
|
Other comprehensive income before reclassifications
|
|
|
-
|
|
|
|
8
|
|
|
|
5
|
|
|
|
13
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
19
|
|
|
|
-
|
|
|
|
9
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income
|
|
|
19
|
|
|
|
8
|
|
|
|
14
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
(12
|
)
|
|
$
|
(2
|
)
|
|
$
|
(7
|
)
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) income before reclassifications
|
|
|
(17
|
)
|
|
|
2
|
|
|
|
1
|
|
|
|
(14
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
34
|
|
|
|
(13
|
)
|
|
|
2
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
17
|
|
|
|
(11
|
)
|
|
|
3
|
|
|
|
9
|
|
AOCI distributed to QHC in
spin-off
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
(31
|
)
|
|
$
|
(10
|
)
|
|
$
|
(21
|
)
|
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present a subtotal for each significant reclassification to net (loss)
income out of AOCL and the line item affected in the accompanying consolidated statements of (loss) income for the years ended December 31, 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
|
|
Year Ended
December 31, 2017
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(30
|
)
|
|
Interest expense, net
|
|
|
|
11
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
$
|
(19
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
(2
|
)
|
|
Salaries and benefits
|
Actuarial losses
|
|
|
(1
|
)
|
|
Salaries and benefits
|
Settlement losses recognized
|
|
|
(13
|
)
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
Total before tax
|
|
|
|
7
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
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
|
|
Year Ended
December 31, 2016
|
|
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(54
|
)
|
|
Interest expense, net
|
|
|
|
20
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
$
|
(34
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
Prior service costs
|
|
$
|
(2
|
)
|
|
Salaries and benefits
|
Actuarial losses
|
|
|
(1
|
)
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
Total before tax
|
|
|
|
1
|
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
|
$
|
(2
|
)
|
|
Net of tax
|
|
|
|
|
|
|
|
17. COMMITMENTS AND CONTINGENCIES
Construction and Other Capital Commitments.
Pursuant to a hospital purchase agreement in effect as of
December 31, 2017, the Company is required to build replacement facilities in La Porte, Indiana and Knox, Indiana. The estimated construction costs, including equipment costs, for the La Porte and Starke replacement facilities are currently
estimated to be approximately $125 million and $15 million, respectively. No costs have been incurred to date on these facilities. In addition, under other purchase agreements outstanding at
153
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2017, the Company has committed to spend approximately $289 million for costs such as capital improvements, equipment, selected leases and physician recruiting. These
commitments are required to be fulfilled generally over a five to seven year period after acquisition. Through December 31, 2017, the Company has spent approximately $135 million related to these commitments.
Physician Recruiting Commitments.
As part of its physician recruitment strategy, the Company provides income
guarantee agreements to certain physicians who agree to relocate to its communities and commit to remain in practice there. Under such agreements, the Company is required to make payments to the physicians in excess of the amounts they earned in
their practice up to the amount of the income guarantee. These income guarantee periods are typically for 12 months. Such payments are recoverable by the Company from physicians who do not fulfill their commitment period, which is typically three
years, to the respective community. At December 31, 2017, the maximum potential amount of future payments under these guarantees in excess of the liability recorded is $31 million.
Professional Liability Claims.
As part of the Companys business of owning and operating hospitals, it is
subject to legal actions alleging liability on its part. The Company accrues for losses resulting from such liability claims, as well as loss adjustment expenses that are
out-of-pocket
and directly related to such liability claims. These direct
out-of-pocket
expenses include fees of outside counsel and experts. The Company does not accrue for costs that are part of corporate overhead, such as the costs of
in-house
legal and risk management departments. The losses
resulting from professional liability claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, historical claim reporting and payment
patterns, the nature and level of hospital operations and actuarially determined projections. The actuarially determined projections are based on the Companys actual claim data, including historic reporting and payment patterns which have been
gathered over an approximate
20-year
period. As discussed below, since the Company purchases excess insurance on a claims-made basis that transfers risk to third-party insurers, the liability it accrues does
include an amount for the losses covered by its excess insurance. The Company also records a receivable for the expected reimbursement of losses covered by excess insurance. Since the Company believes that the amount and timing of its future claims
payments are reliably determinable, it discounts the amount accrued for losses resulting from professional liability claims using the risk-free interest rate corresponding to the timing of expected payments.
The net present value of the projected payments was discounted using a weighted-average risk-free rate of 2.2%, 1.8% and 1.6% in 2017, 2016
and 2015, respectively. This liability is adjusted for new claims information in the period such information becomes known. The Companys estimated liability for professional and general liability claims was $711 million and
$788 million as of December 31, 2017 and 2016, respectively. The estimated undiscounted claims liability was $760 million and $843 million as of December 31, 2017 and 2016, respectively. The current portion of the liability
for professional and general liability claims was $115 million and $130 million as of December 31, 2017 and 2016, respectively, and is included in other accrued liabilities in the accompanying consolidated balance sheets, with the
long-term portion recorded in other long-term liabilities. Professional malpractice expense includes the losses resulting from professional liability claims and loss adjustment expense, as well as paid excess insurance premiums, and is presented
within other operating expenses in the accompanying consolidated statements of (loss) income.
The Companys processes for obtaining
and analyzing claims and incident data are standardized across all of its hospitals and have been consistent for many years. The Company monitors the outcomes of the medical care services that it provides and for each reported claim, the Company
obtains various information concerning the facts and circumstances related to that claim. In addition, the Company routinely monitors current key statistics and volume indicators in its assessment of utilizing historical trends. The average lag
period between claim occurrence and payment of a final settlement is between three and four years, although the facts and
154
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached,
settled claims represent approximately 1.0% of the total liability at the end of any period.
For purposes of estimating its individual
claim accruals, the Company utilizes specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals
for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years, geography and claims relating to the acquired HMA hospitals versus claims relating to the Companys other hospitals.
Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses company-specific historical claims data and other information. This
company-specific data includes information regarding the Companys business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of
hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data.
Based on these analyses the Company determines its estimate of the professional liability claims. The determination of managements
estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of the management. Changes in reserving data or the trends and factors that influence reserving data may signal fundamental shifts
in the Companys future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since the
Companys methods and models use different types of data and the Company selects its liability from the results of all of these methods, it typically cannot quantify the precise impact of such factors on its estimates of the liability. Due to
the Companys standardized and consistent processes for handling claims and the long history and depth of company-specific data, the Companys methodologies have produced reliably determinable estimates of ultimate paid losses.
The Company is primarily self-insured for professional liability claims; however, the Company obtains excess insurance that transfers the risk
of loss to a third-party insurer for claims in excess of self-insured retentions. The Companys excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of the Companys
professional and general liability risks were subject to a less than $1 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million
per occurrence. Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005 and before June 1, 2014 are
self-insured up to $5 million per claim. Substantially all claims reported on or after June 1, 2014 are self-insured up to $10 million per claim. Management on occasion has selectively increased the insured risk at certain hospitals
based upon insurance pricing and other factors and may continue that practice in the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers the Company for liabilities in excess of
the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003, up to $145 million
per occurrence and in the aggregate for claims reported on or after January 1, 2008, up to $195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to $220 million per occurrence and
in the aggregate for claims reported on or after June 1, 2015. In addition, for integrated occurrence malpractice claims, there is an additional $50 million of excess coverage for claims reported on or after June 1, 2014 and an
additional $75 million of excess coverage for claims reported on or after June 1, 2015. For certain policy years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the Companys
self-insured retention will increase to $10 million per claim for any subsequent claims in that policy year until the Companys total aggregate coverage is met.
155
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective June 1, 2014, the hospitals acquired from HMA were insured on a claims-made
basis as described above and through commercial insurance companies as described above for substantially all claims reported on or after June 1, 2014 except for physician-related claims with an occurrence date prior to June 1, 2014. Prior
to June 1, 2014, the former HMA hospitals obtained insurance coverage through a wholly-owned captive insurance subsidiary and a risk retention group subsidiary which are domiciled in the Cayman Islands and South Carolina, respectively. Those
insurance subsidiaries, which are collectively referred to as the Insurance Subsidiaries, provided (i) claims-made coverage to all of the former HMA hospitals and (ii) occurrence-basis coverage to most of the physicians
employed by the former HMA hospitals. The employed physicians not covered by the Insurance Subsidiaries generally maintained claims-made policies with unrelated third party insurance companies. To mitigate the exposure of the program covering the
former HMA hospitals and other healthcare facilities, the Insurance Subsidiaries bought claims-made reinsurance policies from unrelated third parties for claims above self-retention levels of $10 million or $15 million per claim, depending
on the policy year.
Effective January 1, 2008, the hospitals acquired from Triad were insured on a claims-made basis as described
above and through commercial insurance companies as described above for substantially all claims occurring on or after January 1, 2002 and reported on or after January 1, 2008. Substantially all losses for the former Triad hospitals in
periods prior to May 1, 1999 were insured through a wholly-owned insurance subsidiary of HCA, Triads owner prior to that time, and excess loss policies maintained by HCA. HCA has agreed to indemnify the former Triad hospitals in respect
of claims covered by such insurance policies arising prior to May 1, 1999. After May 1, 1999 through December 31, 2006, the former Triad hospitals obtained insurance coverage on a claims incurred basis from HCAs wholly-owned
insurance subsidiary, with excess coverage obtained from other carriers that is subject to certain deductibles. Effective for claims incurred after December 31, 2006, Triad began insuring its claims from $1 million to $5 million
through its wholly-owned captive insurance company, replacing the coverage provided by HCA. Substantially all claims occurring during 2007 were self-insured up to $10 million per claim.
Legal Matters.
The Company is a party to various legal, regulatory and governmental proceedings incidental to
its business. Based on current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters, including the matters described herein, will have a material adverse effect on the
consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending legal, regulatory and governmental matters, some of which are beyond the Companys control, and the very large or
indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Companys results of operations or cash flows for any particular reporting period.
With respect to all legal, regulatory and governmental proceedings, the Company considers the likelihood of a negative outcome. If the Company
determines the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, the Company records an accrual for the estimated loss for the expected outcome of the matter. If the
likelihood of a negative outcome with respect to material matters is reasonably possible and the Company is able to determine an estimate of the possible loss or a range of loss, whether in excess of a related accrued liability or where there is no
accrued liability, the Company discloses the estimate of the possible loss or range of loss. However, the Company is unable to estimate a possible loss or range of loss in some instances based on the significant uncertainties involved in, and/or the
preliminary nature of, certain legal, regulatory and governmental matters.
In connection with the
spin-off
of QHC, the Company agreed to indemnify QHC for certain liabilities relating to outcomes or events occurring prior to April 29, 2016, the closing date of the
spin-off,
including (i) certain claims and proceedings that were known to be outstanding at or prior to the consummation of the
spin-off
and involved multiple
facilities and (ii) certain claims, proceedings and investigations by governmental authorities or
156
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. In addition, on August 4, 2017, the Company initiated an
arbitration against QHC for unpaid amounts due from QHC related to two transition services agreements. QHC filed a counterclaim, claiming breach of contract and tortious interference, among others. The arbitration is set to begin June 18, 2018.
The Company believes the counterclaim is without merit and will vigorously defend the case.
HMA Legal Matters and Related CVR
The CVR agreement entitles the holder to receive a
one-time
cash payment of up to $1.00 per CVR,
subject to downward adjustment based on the final resolution of certain litigation, investigations (whether formal or informal, including subpoenas), or other actions or proceedings related to HMA or its affiliates existing on or prior to
July 29, 2013 (the date of the Companys merger agreement with HMA) as more specifically provided in the CVR agreement (all such matters are referred to as the HMA Legal Matters), which include, but are not limited to,
investigation and litigation matters as previously disclosed by HMA in public filings with the SEC and/or as described in more detail below. The adjustment reducing the ultimate amount paid to holders of the CVR is determined based on the amount of
losses incurred by the Company in connection with the HMA Legal Matters as more specifically provided in the CVR agreement, which generally includes the amount paid for damages, costs, fees and expenses (including, without limitation,
attorneys fees and expenses), and all fines, penalties, settlement amounts, indemnification obligations and other liabilities (all such losses are referred to as HMA Losses). If the aggregate amount of HMA Losses exceeds a
deductible of $18 million, then the amount payable in respect of each CVR shall be reduced (but not below zero) by an amount equal to the quotient obtained by dividing: (a) the product of (i) all losses in excess of the deductible and
(ii) 90%; by (b) the number of CVRs outstanding on the date on which final resolution of the existing litigation occurs. There are 264,544,053 CVRs outstanding as of the date hereof. If total HMA Losses (including HMA Losses that have occurred
to date as noted in the table below) exceed approximately $312 million, then the holders of the CVRs will not be entitled to any payment in respect of the CVRs.
The CVRs do not have a finite payment date. Any payments the Company makes under the CVR agreement will be payable within 60 days after the
final resolution of the HMA Legal Matters. The CVRs are unsecured obligations of CHS and all payments under the CVRs will be subordinated in right of payment to the prior payment in full of all of the Companys senior obligations (as defined in
the CVR agreement), which include outstanding indebtedness of the Company (subject to certain exceptions set forth in the CVR agreement) and the HMA Losses. The CVR agreement permits the Company to acquire all or some of the CVRs, whether in open
market transactions, private transactions or otherwise. As of December 31, 2017, the Company had acquired no CVRs.
157
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table represents the impact of legal expenses paid or incurred and settlements
paid or deemed final as of December 31, 2017 and 2016 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, 2015
|
|
$
|
58
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
36
|
|
Settlements paid
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Legal expenses incurred and/or paid during the year ended December 31, 2016
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
62
|
|
|
|
18
|
|
|
|
4
|
|
|
|
40
|
|
Settlements paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Legal expenses incurred and/or paid during the year ended December 31, 2017
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
$
|
64
|
|
|
$
|
18
|
|
|
$
|
4
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 year ended December 31, 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 December 31, 2017, which is recorded in other long-term liabilities on the accompanying
consolidated balance sheet. As of December 31, 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.
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.
158
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, December 18, 2017 and now until March 19, 2018. 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
159
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Supreme Court. The appeal was accepted and oral argument was heard on June 9, 2015. On September 15, 2015, the court denied the Companys appeal and remanded to the trial court; a
previous trial setting of September 12, 2016 has been vacated and not reset. The Company continues to vigorously defend these actions.
Summary of
Recorded Amounts
The table below presents a reconciliation of the beginning and ending liability balances (in millions) during the
years ended December 31, 2017 and 2016, 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, 2015
|
|
$
|
261
|
|
|
$
|
10
|
|
(Income) expense
|
|
|
(8
|
)
|
|
|
14
|
|
Reserve for insured claim
|
|
|
-
|
|
|
|
1
|
|
Cash payments
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
252
|
|
|
|
14
|
|
Expense
|
|
|
4
|
|
|
|
14
|
|
Cash payments
|
|
|
-
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
256
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
With respect to the Other Probable Contingencies referenced in the chart above, in accordance with
applicable accounting guidance, the Company establishes a liability for litigation, regulatory and governmental matters for which, based on information currently available, the Company believes that a negative outcome is known or is probable and the
amount of the loss is reasonably estimable. For all such matters (whether or not discussed in this contingencies footnote), such amounts have been recorded in other accrued liabilities on the consolidated balance sheet and are included in the table
above in the Other Probable Contingencies column. Due to the uncertainties and difficulty in predicting the ultimate resolution of these contingencies, the actual amount could differ from the estimated amount reflected as a liability on
the consolidated balance sheet.
In the aggregate, attorneys fees and other costs incurred but not included in the table above
related to probable contingencies, and
CVR-related
contingencies accounted for at fair value, totaled $2 million and $4 million for the years ended December 31, 2017 and 2016, respectively, and
are included in other operating expenses in the accompanying consolidated statements of (loss) income.
Matters for which an Outcome Cannot be Assessed
For the 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
160
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 was heard on May 3, 2017. On December 13, 2017, the Sixth Circuit reversed the trial courts dismissal of the case and remanded it to the District Court. The Company filed a renewed partial motion to dismiss on
February 9, 2018. The Company believes this consolidated matter is without merit and will vigorously defend this case.
18. SUBSEQUENT
EVENTS
The Company has evaluated all material events occurring subsequent to the balance sheet date for events requiring disclosure
or recognition in the consolidated financial statements.
On January 31, 2018, one or more subsidiaries of the Company signed a
definitive agreement for the sale of Tennova Healthcare Jamestown (85 licensed beds) in Jamestown, Tennessee, and its associated assets to subsidiaries of Rennova Health, Inc.
On February 14, 2018, one or more subsidiaries of the Company signed a definitive agreement for the sale of Byrd Regional Hospital (60
licensed beds) in Leesville, Louisiana, and its associated assets to subsidiaries of Allegiance Health Management.
On February 26,
2018, the Credit Facility was amended, with requisite revolving lender approval, to remove the EBITDA to interest expense ratio financial covenant, to replace the senior secured net debt to EBITDA ratio financial covenant with a first lien net debt
to EBITDA ratio financial covenant, and to reduce the extended revolving credit commitments to $650 million (for a total of $840 million in revolving credit commitments when combined with the
non-extended
portion of the revolving credit facility). The new financial covenant provides for a maximum first lien net debt to EBITDA ratio of 5.25 to 1.0, reducing to 5.0 to 1.0 on July 1, 2018, 4.75
to 1.0 on January 1, 2019, 4.5 to 1.0 on January 1, 2020 and 4.25 to 1.0 on July 1, 2020. In addition, CHS agreed pursuant to the amendment to modify its ability to retain asset sale proceeds, and instead to apply them to prepayments
of term loans based on pro forma first lien leverage. To the extent the ratio of first lien net debt to EBITDA is greater than or equal to 4.5 to 1.0, 100% of net cash proceeds of asset sales will be applied to prepay term loans; to the extent the
first lien leverage ratio is less than 4.5 to 1.0 but greater than or equal to 4.0 to 1.0, 50% of such proceeds will be applied to prepay term loans; and to the extent the first lien leverage ratio is less than 4.0 to 1.0, there will be no
requirement to prepay term loans with such proceeds. These ratios will be determined on a pro forma basis giving appropriate effect to the relevant asset sales and corresponding prepayments of term loans.
161
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
|
|
|
1
st
|
|
|
2
nd
|
|
|
3
rd
|
|
|
4
th
|
|
|
Total (2)
|
|
|
|
(in millions, except share and per share data)
|
|
Year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$
|
4,486
|
|
|
$
|
4,144
|
|
|
$
|
3,666
|
|
|
$
|
3,059
|
|
|
$
|
15,353
|
|
Loss from continuing operations before income taxes
|
|
|
(176
|
)
|
|
|
(131
|
)
|
|
|
(147
|
)
|
|
|
(2,379
|
)
|
|
|
(2,833
|
)
|
Loss from continuing operations
|
|
|
(176
|
)
|
|
|
(116
|
)
|
|
|
(88
|
)
|
|
|
(2,004
|
)
|
|
|
(2,384
|
)
|
Loss from discontinued operations
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(12
|
)
|
Net loss attributable to Community Health Systems, Inc.
|
|
$
|
(199
|
)
|
|
$
|
(137
|
)
|
|
$
|
(110
|
)
|
|
$
|
(2,013
|
)
|
|
$
|
(2,459
|
)
|
Basic loss per share attributable to Community Health Systems, Inc. common
stockholders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.78
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(17.95
|
)
|
|
$
|
(21.89
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1.79
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(17.98
|
)
|
|
$
|
(22.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share attributable to Community Health Systems, Inc. common
stockholders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.78
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(0.96
|
)
|
|
$
|
(17.95
|
)
|
|
$
|
(21.89
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1.79
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(0.98
|
)
|
|
$
|
(17.98
|
)
|
|
$
|
(22.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
111,252,331
|
|
|
|
111,909,858
|
|
|
|
111,935,738
|
|
|
|
111,971,628
|
|
|
|
111,769,821
|
|
Diluted
|
|
|
111,252,331
|
|
|
|
111,909,858
|
|
|
|
111,935,738
|
|
|
|
111,971,628
|
|
|
|
111,769,821
|
|
Year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$
|
4,999
|
|
|
$
|
4,590
|
|
|
$
|
4,380
|
|
|
$
|
4,469
|
|
|
$
|
18,438
|
|
Income (loss) from continuing operations before income taxes
|
|
|
63
|
|
|
|
(1,543
|
)
|
|
|
(83
|
)
|
|
|
(152
|
)
|
|
|
(1,715
|
)
|
Income (loss) from continuing operations
|
|
|
37
|
|
|
|
(1,405
|
)
|
|
|
(54
|
)
|
|
|
(189
|
)
|
|
|
(1,611
|
)
|
Loss from discontinued operations
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
(15
|
)
|
Net income (loss) attributable to Community
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Systems, Inc.
|
|
$
|
11
|
|
|
$
|
(1,432
|
)
|
|
$
|
(79
|
)
|
|
$
|
(220
|
)
|
|
$
|
(1,721
|
)
|
Basic earnings (loss) per share attributable to Community Health Systems, Inc. common
stockholders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.11
|
|
|
$
|
(12.90
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(1.91
|
)
|
|
$
|
(15.41
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.09
|
)
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.10
|
|
|
$
|
(12.91
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
(15.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common
stockholders(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.11
|
|
|
$
|
(12.90
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(1.91
|
)
|
|
$
|
(15.41
|
)
|
Discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
(0.09
|
)
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.10
|
|
|
$
|
(12.91
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
(1.99
|
)
|
|
$
|
(15.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
110,247,867
|
|
|
|
110,879,285
|
|
|
|
110,888,040
|
|
|
|
110,905,052
|
|
|
|
110,730,971
|
|
Diluted
|
|
|
110,309,372
|
|
|
|
110,879,285
|
|
|
|
110,888,040
|
|
|
|
110,905,052
|
|
|
|
110,730,971
|
|
(1)
|
Total per share amounts may not add due to rounding.
|
(2)
|
Total quarterly amounts may not add due to rounding.
|
162
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Senior Notes due 2019, 2020 and 2022, which are senior unsecured obligations of CHS, 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 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
(deficit) equity. As this approach represents an allocation, the income tax expense allocation is considered
non-cash
for statement of cash flow purposes.
|
|
|
|
Interest expense, net has been presented to reflect net interest expense and interest income from outstanding long-term debt and intercompany balances.
|
The Companys intercompany activity consists primarily of daily cash transfers for purposes of cash management, the allocation of certain
expenses and expenditures paid for by the Parent on behalf of its subsidiaries, and the push down of investment in its subsidiaries. This activity also includes the intercompany transactions between consolidated entities as part of the Receivables
Facility that is further discussed in Note 7. The Companys subsidiaries generally do not purchase services from one another; thus, the intercompany transactions do not represent revenue generating transactions. All intercompany transactions
eliminate in consolidation.
From time to time, subsidiaries of the Company sell and/or repurchase noncontrolling interests in
consolidated subsidiaries, which may change subsidiaries between guarantors and
non-guarantors.
Effective with the
spin-off
of QHC, all subsidiaries of the Company that
were part of that distribution have been removed as guarantors. Amounts for prior periods have been revised to reflect the status of guarantors and
non-guarantors
as of December 31, 2017.
163
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Loss
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(22
|
)
|
|
$
|
10,765
|
|
|
$
|
7,655
|
|
|
$
|
-
|
|
|
$
|
18,398
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
2,063
|
|
|
|
982
|
|
|
|
-
|
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(22
|
)
|
|
|
8,702
|
|
|
|
6,673
|
|
|
|
-
|
|
|
|
15,353
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
3,614
|
|
|
|
3,762
|
|
|
|
-
|
|
|
|
7,376
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,628
|
|
|
|
1,044
|
|
|
|
-
|
|
|
|
2,672
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
2,376
|
|
|
|
1,488
|
|
|
|
-
|
|
|
|
3,864
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(31
|
)
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
(28
|
)
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
198
|
|
|
|
196
|
|
|
|
-
|
|
|
|
394
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
501
|
|
|
|
360
|
|
|
|
-
|
|
|
|
861
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,212
|
|
|
|
911
|
|
|
|
-
|
|
|
|
2,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
9,486
|
|
|
|
7,745
|
|
|
|
-
|
|
|
|
17,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
-
|
|
|
|
(22
|
)
|
|
|
(784
|
)
|
|
|
(1,072
|
)
|
|
|
-
|
|
|
|
(1,878
|
)
|
Interest expense, net
|
|
|
-
|
|
|
|
327
|
|
|
|
587
|
|
|
|
17
|
|
|
|
-
|
|
|
|
931
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
40
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
2,459
|
|
|
|
1,955
|
|
|
|
865
|
|
|
|
-
|
|
|
|
(5,295
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(2,459
|
)
|
|
|
(2,344
|
)
|
|
|
(2,236
|
)
|
|
|
(1,089
|
)
|
|
|
5,295
|
|
|
|
(2,833
|
)
|
Provision for (benefit from) income taxes
|
|
|
-
|
|
|
|
115
|
|
|
|
(297
|
)
|
|
|
(267
|
)
|
|
|
-
|
|
|
|
(449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(2,459
|
)
|
|
|
(2,459
|
)
|
|
|
(1,939
|
)
|
|
|
(822
|
)
|
|
|
5,295
|
|
|
|
(2,384
|
)
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,459
|
)
|
|
|
(2,459
|
)
|
|
|
(1,948
|
)
|
|
|
(825
|
)
|
|
|
5,295
|
|
|
|
(2,396
|
)
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63
|
|
|
|
-
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(2,459
|
)
|
|
$
|
(2,459
|
)
|
|
$
|
(1,948
|
)
|
|
$
|
(888
|
)
|
|
$
|
5,295
|
|
|
$
|
(2,459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Loss
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(25
|
)
|
|
$
|
11,089
|
|
|
$
|
10,211
|
|
|
$
|
-
|
|
|
$
|
21,275
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
1,707
|
|
|
|
1,130
|
|
|
|
-
|
|
|
|
2,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
9,382
|
|
|
|
9,081
|
|
|
|
-
|
|
|
|
18,438
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
3,754
|
|
|
|
4,870
|
|
|
|
-
|
|
|
|
8,624
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,660
|
|
|
|
1,351
|
|
|
|
-
|
|
|
|
3,011
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
2,238
|
|
|
|
2,010
|
|
|
|
-
|
|
|
|
4,248
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(37
|
)
|
|
|
(33
|
)
|
|
|
-
|
|
|
|
(70
|
)
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
199
|
|
|
|
251
|
|
|
|
-
|
|
|
|
450
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
614
|
|
|
|
486
|
|
|
|
-
|
|
|
|
1,100
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,262
|
|
|
|
657
|
|
|
|
-
|
|
|
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
9,706
|
|
|
|
9,592
|
|
|
|
-
|
|
|
|
19,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
(324
|
)
|
|
|
(511
|
)
|
|
|
-
|
|
|
|
(860
|
)
|
Interest expense, net
|
|
|
-
|
|
|
|
241
|
|
|
|
631
|
|
|
|
90
|
|
|
|
-
|
|
|
|
962
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
Gain on sale of investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
(94
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(94
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
1,721
|
|
|
|
1,466
|
|
|
|
585
|
|
|
|
-
|
|
|
|
(3,815
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(1,721
|
)
|
|
|
(1,762
|
)
|
|
|
(1,446
|
)
|
|
|
(601
|
)
|
|
|
3,815
|
|
|
|
(1,715
|
)
|
(Benefit from) provision for income taxes
|
|
|
-
|
|
|
|
(41
|
)
|
|
|
19
|
|
|
|
(82
|
)
|
|
|
-
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1,721
|
)
|
|
|
(1,721
|
)
|
|
|
(1,465
|
)
|
|
|
(519
|
)
|
|
|
3,815
|
|
|
|
(1,611
|
)
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(9
|
)
|
|
|
2
|
|
|
|
-
|
|
|
|
(7
|
)
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,721
|
)
|
|
|
(1,721
|
)
|
|
|
(1,475
|
)
|
|
|
(524
|
)
|
|
|
3,815
|
|
|
|
(1,626
|
)
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
|
|
-
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(1,721
|
)
|
|
$
|
(1,721
|
)
|
|
$
|
(1,475
|
)
|
|
$
|
(619
|
)
|
|
$
|
3,815
|
|
|
$
|
(1,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Income
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Operating revenues (net of contractual allowances and discounts)
|
|
$
|
-
|
|
|
$
|
(20
|
)
|
|
$
|
11,063
|
|
|
$
|
11,521
|
|
|
$
|
-
|
|
|
$
|
22,564
|
|
Provision for bad debts
|
|
|
-
|
|
|
|
-
|
|
|
|
1,944
|
|
|
|
1,183
|
|
|
|
-
|
|
|
|
3,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
9,119
|
|
|
|
10,338
|
|
|
|
-
|
|
|
|
19,437
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
3,688
|
|
|
|
5,303
|
|
|
|
-
|
|
|
|
8,991
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
1,586
|
|
|
|
1,462
|
|
|
|
-
|
|
|
|
3,048
|
|
Other operating expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
2,120
|
|
|
|
2,400
|
|
|
|
-
|
|
|
|
4,520
|
|
Government and other legal settlements and related costs
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Electronic health records incentive reimbursement
|
|
|
-
|
|
|
|
-
|
|
|
|
(76
|
)
|
|
|
(84
|
)
|
|
|
-
|
|
|
|
(160
|
)
|
Rent
|
|
|
-
|
|
|
|
-
|
|
|
|
189
|
|
|
|
268
|
|
|
|
-
|
|
|
|
457
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
615
|
|
|
|
557
|
|
|
|
-
|
|
|
|
1,172
|
|
Impairment and (gain) loss on sale of businesses, net
|
|
|
-
|
|
|
|
-
|
|
|
|
55
|
|
|
|
13
|
|
|
|
-
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
8,181
|
|
|
|
9,919
|
|
|
|
-
|
|
|
|
18,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
938
|
|
|
|
419
|
|
|
|
-
|
|
|
|
1,337
|
|
Interest expense, net
|
|
|
-
|
|
|
|
107
|
|
|
|
717
|
|
|
|
149
|
|
|
|
-
|
|
|
|
973
|
|
Loss from early extinguishment of debt
|
|
|
-
|
|
|
|
16
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(158
|
)
|
|
|
(220
|
)
|
|
|
(125
|
)
|
|
|
-
|
|
|
|
440
|
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
158
|
|
|
|
77
|
|
|
|
346
|
|
|
|
270
|
|
|
|
(440
|
)
|
|
|
411
|
|
(Benefit from) provision for income taxes
|
|
|
-
|
|
|
|
(81
|
)
|
|
|
130
|
|
|
|
67
|
|
|
|
-
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
158
|
|
|
|
158
|
|
|
|
216
|
|
|
|
203
|
|
|
|
(440
|
)
|
|
|
295
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations of entities sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
(27
|
)
|
Impairment of hospitals sold or held for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(5
|
)
|
Loss on sale, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
(29
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
158
|
|
|
|
158
|
|
|
|
209
|
|
|
|
174
|
|
|
|
(440
|
)
|
|
|
259
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Community Health Systems, Inc. stockholders
|
|
$
|
158
|
|
|
$
|
158
|
|
|
$
|
209
|
|
|
$
|
73
|
|
|
$
|
(440
|
)
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Comprehensive Loss
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net loss
|
|
|
$(2,459)
|
|
|
|
$(2,459)
|
|
|
|
$(1,948)
|
|
|
|
$(825)
|
|
|
|
$5,295
|
|
|
|
$(2,396)
|
|
Other comprehensive income, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
19
|
|
|
|
19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19
|
)
|
|
|
19
|
|
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
|
|
|
14
|
|
|
|
14
|
|
|
|
14
|
|
|
|
-
|
|
|
|
(28
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
41
|
|
|
|
41
|
|
|
|
22
|
|
|
|
-
|
|
|
|
(63
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(2,418
|
)
|
|
|
(2,418
|
)
|
|
|
(1,926
|
)
|
|
|
(825
|
)
|
|
|
5,232
|
|
|
|
(2,355
|
)
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63
|
|
|
|
-
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders
|
|
$
|
(2,418
|
)
|
|
$
|
(2,418
|
)
|
|
$
|
(1,926
|
)
|
|
$
|
(888
|
)
|
|
$
|
5,232
|
|
|
$
|
(2,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Loss
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net loss
|
|
$
|
(1,721
|
)
|
|
$
|
(1,721
|
)
|
|
$
|
(1,475
|
)
|
|
$
|
(524
|
)
|
|
$
|
3,815
|
|
|
$
|
(1,626
|
)
|
Other comprehensive income (loss), net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
17
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17
|
)
|
|
|
17
|
|
Net change in fair value of
available-for-sale
securities, net of tax
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
22
|
|
|
|
(11
|
)
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
9
|
|
|
|
9
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
(1,712
|
)
|
|
|
(1,712
|
)
|
|
|
(1,483
|
)
|
|
|
(524
|
)
|
|
|
3,814
|
|
|
|
(1,617
|
)
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
|
|
-
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Community Health Systems, Inc. stockholders
|
|
$
|
(1,712
|
)
|
|
$
|
(1,712
|
)
|
|
$
|
(1,483
|
)
|
|
$
|
(619
|
)
|
|
$
|
3,814
|
|
|
$
|
(1,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net income
|
|
$
|
158
|
|
|
$
|
158
|
|
|
$
|
209
|
|
|
$
|
174
|
|
|
$
|
(440
|
)
|
|
$
|
259
|
|
Other comprehensive (loss) income, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of interest rate swaps, net of tax
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
(6
|
)
|
Net change in fair value of
available-for-sale
securities, net of tax
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
10
|
|
|
|
(5
|
)
|
Amortization and recognition of unrecognized pension cost components, net of tax
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
14
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
148
|
|
|
|
148
|
|
|
|
205
|
|
|
|
174
|
|
|
|
(426
|
)
|
|
|
249
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders
|
|
$
|
148
|
|
|
$
|
148
|
|
|
$
|
205
|
|
|
$
|
73
|
|
|
$
|
(426
|
)
|
|
$
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non -
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
497
|
|
|
$
|
66
|
|
|
$
|
-
|
|
|
$
|
563
|
|
Patient accounts receivable, net of allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
355
|
|
|
|
2,029
|
|
|
|
-
|
|
|
|
2,384
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
288
|
|
|
|
156
|
|
|
|
-
|
|
|
|
444
|
|
Prepaid income taxes
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
Prepaid expenses and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
146
|
|
|
|
52
|
|
|
|
-
|
|
|
|
198
|
|
Other current assets
|
|
|
-
|
|
|
|
-
|
|
|
|
152
|
|
|
|
310
|
|
|
|
-
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17
|
|
|
|
-
|
|
|
|
1,438
|
|
|
|
2,613
|
|
|
|
-
|
|
|
|
4,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
-
|
|
|
|
13,381
|
|
|
|
5,857
|
|
|
|
7,109
|
|
|
|
(26,347
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
-
|
|
|
|
4,448
|
|
|
|
2,604
|
|
|
|
-
|
|
|
|
7,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,882
|
|
|
|
1,841
|
|
|
|
-
|
|
|
|
4,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
62
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
15
|
|
|
|
39
|
|
|
|
1,594
|
|
|
|
939
|
|
|
|
(1,042
|
)
|
|
|
1,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
-
|
|
|
|
21,717
|
|
|
|
10,890
|
|
|
|
-
|
|
|
|
(32,607
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
94
|
|
|
$
|
35,137
|
|
|
$
|
27,109
|
|
|
$
|
15,106
|
|
|
$
|
(59,996
|
)
|
|
$
|
17,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
33
|
|
Accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
663
|
|
|
|
304
|
|
|
|
-
|
|
|
|
967
|
|
Accrued interest
|
|
|
-
|
|
|
|
228
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
229
|
|
Accrued liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
644
|
|
|
|
483
|
|
|
|
-
|
|
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
-
|
|
|
|
228
|
|
|
|
1,332
|
|
|
|
796
|
|
|
|
-
|
|
|
|
2,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
-
|
|
|
|
12,998
|
|
|
|
216
|
|
|
|
666
|
|
|
|
-
|
|
|
|
13,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
833
|
|
|
|
21,582
|
|
|
|
24,028
|
|
|
|
13,310
|
|
|
|
(59,753
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
19
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
9
|
|
|
|
1,018
|
|
|
|
997
|
|
|
|
378
|
|
|
|
(1,042
|
)
|
|
|
1,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
861
|
|
|
|
35,826
|
|
|
|
26,573
|
|
|
|
15,150
|
|
|
|
(60,795
|
)
|
|
|
17,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
527
|
|
|
|
-
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders (deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Additional
paid-in
capital
|
|
|
2,014
|
|
|
|
(252
|
)
|
|
|
204
|
|
|
|
234
|
|
|
|
(186
|
)
|
|
|
2,014
|
|
Accumulated other comprehensive loss
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
29
|
|
|
|
(21
|
)
|
(Accumulated deficit) retained earnings
|
|
|
(2,761
|
)
|
|
|
(416
|
)
|
|
|
336
|
|
|
|
(876
|
)
|
|
|
956
|
|
|
|
(2,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Health Systems, Inc. stockholders (deficit) equity
|
|
|
(767
|
)
|
|
|
(689
|
)
|
|
|
536
|
|
|
|
(646
|
)
|
|
|
799
|
|
|
|
(767
|
)
|
Noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75
|
|
|
|
-
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (deficit) equity
|
|
|
(767
|
)
|
|
|
(689
|
)
|
|
|
536
|
|
|
|
(571
|
)
|
|
|
799
|
|
|
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
94
|
|
|
$
|
35,137
|
|
|
$
|
27,109
|
|
|
$
|
15,106
|
|
|
$
|
(59,996
|
)
|
|
$
|
17,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
174
|
|
|
$
|
64
|
|
|
$
|
-
|
|
|
$
|
238
|
|
Patient accounts receivable, net of allowance for doubtful accounts
|
|
|
-
|
|
|
|
-
|
|
|
|
799
|
|
|
|
2,377
|
|
|
|
-
|
|
|
|
3,176
|
|
Supplies
|
|
|
-
|
|
|
|
-
|
|
|
|
297
|
|
|
|
183
|
|
|
|
-
|
|
|
|
480
|
|
Prepaid income taxes
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
Prepaid expenses and taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
124
|
|
|
|
63
|
|
|
|
-
|
|
|
|
187
|
|
Other current assets
|
|
|
-
|
|
|
|
-
|
|
|
|
158
|
|
|
|
410
|
|
|
|
-
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
17
|
|
|
|
-
|
|
|
|
1,552
|
|
|
|
3,097
|
|
|
|
-
|
|
|
|
4,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
295
|
|
|
|
14,996
|
|
|
|
3,150
|
|
|
|
7,597
|
|
|
|
(26,038
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
-
|
|
|
|
4,965
|
|
|
|
3,184
|
|
|
|
-
|
|
|
|
8,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
3,947
|
|
|
|
2,574
|
|
|
|
-
|
|
|
|
6,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,869
|
|
|
|
1,946
|
|
|
|
(1,222
|
)
|
|
|
2,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,728
|
|
|
|
21,224
|
|
|
|
10,122
|
|
|
|
-
|
|
|
|
(33,074
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,055
|
|
|
$
|
36,220
|
|
|
$
|
25,605
|
|
|
$
|
18,398
|
|
|
$
|
(60,334
|
)
|
|
$
|
21,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
-
|
|
|
$
|
149
|
|
|
$
|
53
|
|
|
$
|
253
|
|
|
$
|
-
|
|
|
$
|
455
|
|
Accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
628
|
|
|
|
367
|
|
|
|
-
|
|
|
|
995
|
|
Accrued interest
|
|
|
-
|
|
|
|
205
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
207
|
|
Accrued liabilities
|
|
|
17
|
|
|
|
-
|
|
|
|
626
|
|
|
|
587
|
|
|
|
-
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
17
|
|
|
|
354
|
|
|
|
1,308
|
|
|
|
1,208
|
|
|
|
-
|
|
|
|
2,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
-
|
|
|
|
14,018
|
|
|
|
232
|
|
|
|
539
|
|
|
|
-
|
|
|
|
14,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
-
|
|
|
|
18,861
|
|
|
|
20,517
|
|
|
|
15,071
|
|
|
|
(54,449
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
411
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
12
|
|
|
|
1,259
|
|
|
|
1,082
|
|
|
|
444
|
|
|
|
(1,222
|
)
|
|
|
1,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
440
|
|
|
|
34,492
|
|
|
|
23,139
|
|
|
|
17,262
|
|
|
|
(55,671
|
)
|
|
|
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
|
|
|
|
939
|
|
|
|
768
|
|
|
|
(2,382
|
)
|
|
|
1,975
|
|
Accumulated other comprehensive loss
|
|
|
(62
|
)
|
|
|
(62
|
)
|
|
|
(22
|
)
|
|
|
(9
|
)
|
|
|
93
|
|
|
|
(62
|
)
|
(Accumulated deficit) retained earnings
|
|
|
(299
|
)
|
|
|
1,115
|
|
|
|
1,549
|
|
|
|
(290
|
)
|
|
|
(2,374
|
)
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Health Systems, Inc. stockholders equity
|
|
|
1,615
|
|
|
|
1,728
|
|
|
|
2,466
|
|
|
|
469
|
|
|
|
(4,663
|
)
|
|
|
1,615
|
|
Noncontrolling interests in equity of consolidated subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
113
|
|
|
|
-
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,615
|
|
|
|
1,728
|
|
|
|
2,466
|
|
|
|
582
|
|
|
|
(4,663
|
)
|
|
|
1,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,055
|
|
|
$
|
36,220
|
|
|
$
|
25,605
|
|
|
$
|
18,398
|
|
|
$
|
(60,334
|
)
|
|
$
|
21,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(12
|
)
|
|
$
|
(317
|
)
|
|
$
|
750
|
|
|
$
|
352
|
|
|
$
|
-
|
|
|
$
|
773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related businesses
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(365
|
)
|
|
|
(199
|
)
|
|
|
-
|
|
|
|
(564
|
)
|
Proceeds from disposition of hospitals and other ancillary operations
|
|
|
-
|
|
|
|
-
|
|
|
|
596
|
|
|
|
1,096
|
|
|
|
-
|
|
|
|
1,692
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
3
|
|
|
|
-
|
|
|
|
7
|
|
Purchases of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(91
|
)
|
|
|
(34
|
)
|
|
|
-
|
|
|
|
(125
|
)
|
Proceeds from sales of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
154
|
|
|
|
54
|
|
|
|
-
|
|
|
|
208
|
|
Increase in other investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(106
|
)
|
|
|
(37
|
)
|
|
|
-
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
191
|
|
|
|
878
|
|
|
|
-
|
|
|
|
1,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(6
|
)
|
Distributions to noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
(100
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
17
|
|
|
|
1,566
|
|
|
|
(575
|
)
|
|
|
(1,008
|
)
|
|
|
-
|
|
|
|
-
|
|
Borrowings under credit agreements
|
|
|
-
|
|
|
|
795
|
|
|
|
30
|
|
|
|
16
|
|
|
|
-
|
|
|
|
841
|
|
Issuance of long-term debt
|
|
|
-
|
|
|
|
3,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,100
|
|
Proceeds from receivables facility
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105
|
|
|
|
-
|
|
|
|
105
|
|
Repayments of long-term indebtedness
|
|
|
-
|
|
|
|
(5,079
|
)
|
|
|
(73
|
)
|
|
|
(239
|
)
|
|
|
-
|
|
|
|
(5,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
12
|
|
|
|
317
|
|
|
|
(618
|
)
|
|
|
(1,228
|
)
|
|
|
-
|
|
|
|
(1,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
323
|
|
|
|
2
|
|
|
|
-
|
|
|
|
325
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
174
|
|
|
|
64
|
|
|
|
-
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
497
|
|
|
$
|
66
|
|
|
$
|
-
|
|
|
$
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net cash provided by (used in) operating activities
|
|
$
|
14
|
|
|
$
|
(335
|
)
|
|
$
|
1,218
|
|
|
$
|
240
|
|
|
$
|
-
|
|
|
$
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related businesses
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(120
|
)
|
|
|
-
|
|
|
|
(123
|
)
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(474
|
)
|
|
|
(270
|
)
|
|
|
-
|
|
|
|
(744
|
)
|
Proceeds from disposition of hospitals and other ancillary operations
|
|
|
-
|
|
|
|
-
|
|
|
|
16
|
|
|
|
127
|
|
|
|
-
|
|
|
|
143
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
9
|
|
|
|
-
|
|
|
|
15
|
|
Purchases of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(263
|
)
|
|
|
(242
|
)
|
|
|
-
|
|
|
|
(505
|
)
|
Proceeds from sales of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
218
|
|
|
|
246
|
|
|
|
-
|
|
|
|
464
|
|
Proceeds from sale of investments in unconsolidated affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
403
|
|
|
|
-
|
|
|
|
-
|
|
|
|
403
|
|
Distribution from Quorum Health Corporation
|
|
|
-
|
|
|
|
1,219
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,219
|
|
Increase in other investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(156
|
)
|
|
|
(86
|
)
|
|
|
-
|
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
-
|
|
|
|
1,219
|
|
|
|
(253
|
)
|
|
|
(336
|
)
|
|
|
-
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of restricted stock shares for payroll tax withholding requirements
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
Deferred financing costs and other debt-related costs
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26
|
)
|
Redemption of noncontrolling investments in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19
|
)
|
|
|
-
|
|
|
|
(19
|
)
|
Distributions to noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(92
|
)
|
|
|
-
|
|
|
|
(92
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
(8
|
)
|
|
|
801
|
|
|
|
(925
|
)
|
|
|
132
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from sale-lease back
|
|
|
-
|
|
|
|
-
|
|
|
|
147
|
|
|
|
12
|
|
|
|
-
|
|
|
|
159
|
|
Borrowings under credit agreements
|
|
|
-
|
|
|
|
4,848
|
|
|
|
28
|
|
|
|
3
|
|
|
|
-
|
|
|
|
4,879
|
|
Proceeds from receivables facility
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107
|
|
|
|
-
|
|
|
|
107
|
|
Repayments of long-term indebtedness
|
|
|
-
|
|
|
|
(6,507
|
)
|
|
|
(64
|
)
|
|
|
(144
|
)
|
|
|
-
|
|
|
|
(6,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(14
|
)
|
|
|
(884
|
)
|
|
|
(814
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
151
|
|
|
|
(97
|
)
|
|
|
-
|
|
|
|
54
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
|
|
161
|
|
|
|
-
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
174
|
|
|
$
|
64
|
|
|
$
|
-
|
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Guarantor
|
|
|
Issuer
|
|
|
Other
Guarantors
|
|
|
Non -
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In millions)
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(25
|
)
|
|
$
|
159
|
|
|
$
|
349
|
|
|
$
|
438
|
|
|
$
|
-
|
|
|
$
|
921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related businesses
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
(57
|
)
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(600
|
)
|
|
|
(353
|
)
|
|
|
-
|
|
|
|
(953
|
)
|
Proceeds from disposition of hospitals and other ancillary operations
|
|
|
-
|
|
|
|
-
|
|
|
|
21
|
|
|
|
134
|
|
|
|
-
|
|
|
|
155
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
9
|
|
|
|
-
|
|
|
|
15
|
|
Purchases of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(53
|
)
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
(162
|
)
|
Proceeds from sales of
available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
110
|
|
|
|
-
|
|
|
|
156
|
|
Increase in other investments
|
|
|
-
|
|
|
|
-
|
|
|
|
(143
|
)
|
|
|
(62
|
)
|
|
|
-
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
(744
|
)
|
|
|
(307
|
)
|
|
|
-
|
|
|
|
(1,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
Repurchase of restricted stock shares for payroll tax withholding requirements
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
Stock
buy-back
|
|
|
(159
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(159
|
)
|
Deferred financing costs and other debt-related costs
|
|
|
-
|
|
|
|
(30
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(30
|
)
|
Proceeds from noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47
|
|
|
|
-
|
|
|
|
47
|
|
Redemption of noncontrolling investments in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
Distributions to noncontrolling investors in joint ventures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
(100
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
179
|
|
|
|
(181
|
)
|
|
|
89
|
|
|
|
(87
|
)
|
|
|
-
|
|
|
|
-
|
|
Borrowings under credit agreements
|
|
|
-
|
|
|
|
4,880
|
|
|
|
34
|
|
|
|
8
|
|
|
|
-
|
|
|
|
4,922
|
|
Proceeds from receivables facility
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
206
|
|
|
|
-
|
|
|
|
206
|
|
Repayments of long-term indebtedness
|
|
|
-
|
|
|
|
(4,828
|
)
|
|
|
(77
|
)
|
|
|
(145
|
)
|
|
|
-
|
|
|
|
(5,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
25
|
|
|
|
(159
|
)
|
|
|
46
|
|
|
|
(107
|
)
|
|
|
-
|
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
|
(349
|
)
|
|
|
24
|
|
|
|
-
|
|
|
|
(325
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
|
372
|
|
|
|
137
|
|
|
|
-
|
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
23
|
|
|
$
|
161
|
|
|
$
|
-
|
|
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173