Notes to the Unaudited Consolidated Financial Statements
(
1
)
Description of Business and Basis of Presentation
Description of Business
Envision Healthcare Corporation (the Company) was formed on June 10, 2016 for the purpose of effecting the merger (the Merger) of AmSurg Corp. (AmSurg) and Envision Healthcare Holdings, Inc. (EHH). Prior to the Merger, the Company did not conduct any activities other than those incidental to its formation and matters in connection with the consummation of the Merger. On December 1, 2016, AmSurg and EHH completed the Merger and the strategic combination of their respective businesses. In connection with the Merger, (i) AmSurg merged with and into the Company, a wholly owned subsidiary of AmSurg, with the Company as the surviving entity and (ii) EHH merged with and into the Company, with the Company as the surviving entity. AmSurg was the accounting acquirer in the Merger; therefore, the historical consolidated financial statements of AmSurg for periods prior to the Merger are considered to be the historical financial statements of the Company. The Company's unaudited consolidated financial statements reflect AmSurg's results for the
three and nine
months ended
September 30, 2016
, and the Company’s results as of December 31, 2016 and for the
three and nine
months ended
September 30, 2017
.
Following the completion of the Merger, the Company had
three
reportable segments: physician services, medical transportation and ambulatory services. The physician services segment reflects the combination of AmSurg’s physician services segment and EHH’s physician services segment, while the ambulatory services segment reflects AmSurg's ambulatory services segment. On February 28, 2017, the Company announced it would explore strategic alternatives for the medical transportation business. During the
nine
months ended
September 30, 2017
, the Company's board of directors (the Board) approved a plan to actively market and divest the medical transportation business. Accordingly, the results of the medical transportation business have been recorded in discontinued operations for the
three and nine
months ended
September 30, 2017
and assets and liabilities have been recorded as held for sale as of
September 30, 2017
and
December 31, 2016
. The medical transportation business is no longer a separate reportable segment.
Basis of Presentation
These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X. In the opinion of management, the unaudited interim consolidated financial statements contained in this report reflect all normal recurring adjustments, which are necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
.
Restricted Cash and Marketable Securities
As of
September 30, 2017
and
December 31, 2016
, the Company held restricted cash and cash equivalents of
$45.8 million
and
$43.5 million
, respectively, classified within insurance collateral in the accompanying consolidated balance sheets. The cash was restricted for the purpose of satisfying the obligations of the Company's wholly owned captive insurance companies.
Supplemental Cash Flow Data
The following presents supplemental cash flow statement disclosure (in millions):
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Nine Months Ended September 30,
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2017
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2016
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Supplemental cash flow information:
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Interest payments
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$
|
242.2
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$
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101.5
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Income tax paid, net of refunds
|
$
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20.4
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$
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53.4
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Item 1. Financial Statements - (continued)
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts in the accompanying consolidated financial statements and these notes have been reclassified to reflect the impact of discontinued operations as further discussed in Note
5
and also to conform to current year classifications as a result of the Merger.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 “Revenue from Contracts with Customers,” which will eliminate the transaction and industry-specific revenue recognition guidance under current GAAP and replace it with a principle-based approach using the following steps: identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date,” which granted a one-year deferral of this ASU. In 2016 and 2017, the FASB issued the following ASUs to provide entities further clarity on the application of ASU 2014-09:
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•
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ASU No. 2016-08 “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”
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•
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ASU No. 2016-10 “Identifying Performance Obligations and Licensing”
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•
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ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients”
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•
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ASU No. 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”
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•
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ASU No. 2017-13 “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior Securities and Exchange Commission (SEC) Staff Announcements and Observer Comments (SEC Update)”
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The guidance in ASU No. 2014-09 and the subsequently related ASUs will now be effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods therein. The Company expects to adopt the new standard effective January 1, 2018 using the modified retrospective method. As a result of using this approach, the Company will recognize the cumulative effect adjustment to retained earnings for initial application of the guidance at the date of initial adoption. The Company does not believe adoption of the standard will have a material impact on the results of operations or cash flows for the ambulatory services segment. The Company is continuing its evaluation of the impact on the physician services segment to determine the impact, if any, on the results of operations and cash flows. However, the Company does anticipate that, as a result of certain changes by ASU No. 2014-09 and the subsequently related ASUs, the majority of its provision for uncollectibles will be recognized as a direct reduction to revenues, instead of separately as a deduction to arrive at revenue.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall,” which requires entities to measure at fair value equity investments that do not result in consolidation and are not accounted for under the equity method and recognize any changes in fair value in net income unless the investments qualify for the practicability exception. The standard does not change the guidance for classifying and measuring investments in debt securities and loans. The standard is effective for annual periods beginning after December 15, 2017, and interim periods within those years. The Company does not believe the impact of this ASU will be material to the Company's consolidated financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases,” and subsequently ASU No. 2017-13, which amend existing accounting standards for lease accounting, including requiring lessees to recognize most leases on the balance sheet and making changes to lessor accounting. The standard is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The new standard requires a modified retrospective application for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company will adopt the new standard effective January 1, 2019. The Company expects that nearly all leases currently classified as operating leases will be classified as operating leases under the new standard with a right-of-use asset and a corresponding obligation recognized on the balance sheet at the adoption date. The Company has not yet determined the impact this ASU will have on the Company's results of consolidated financial position, results of operations or cash flows.
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Item 1. Financial Statements - (continued)
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In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which changed how companies account for certain aspects of share-based payments to employees by requiring companies to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this standard effective January 1, 2017 and determined there were no unrecognized tax benefits which required reclassification from additional paid in capital to retained earnings. As a result of the adoption, the Company has recognized an expense of
$2.2 million
associated with the awards that were either exercised or vested during the three months ended
September 30, 2017
. The impact of the adoption for the
nine
months ended
September 30, 2017
was an expense of
$0.1 million
.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (A Consensus of the FASB Emerging Issues Task Force),” which requires entities to show the changes in cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. Entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, and interim periods within those years and is to be adopted retrospectively. The Company has not yet determined the impact this ASU will have on the Company's cash flows.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805) - Clarifying the Definition of a Business,” which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within those years. The Company does not believe the impact of this ASU will be material to the Company's consolidated financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill to measure an impairment charge. Instead, companies will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. The standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company has not yet determined the impact this ASU will have on the Company's consolidated financial position, results of operations or cash flows.
(
2
)
Variable Interest Entities
GAAP requires variable interest entities (VIEs) to be consolidated if an entity’s interest in the VIE is a controlling financial interest. Under the variable interest model, a controlling financial interest is determined based on which entity, if any, has (i) the power to direct the activities of the VIE that most significantly impacts the VIE’s economic performance and (ii) the obligations to absorb the losses that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company performs ongoing reassessments of (i) whether entities previously evaluated under the majority voting-interest framework have become VIEs, based on certain triggering events, and therefore would be subject to the VIE consolidation framework, and (ii) whether changes in the facts and circumstances regarding the Company’s involvement with a VIE cause the Company’s consolidation conclusion to change. The consolidation status of the VIEs with which the Company is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively with assets and liabilities of a newly consolidated VIE initially recorded at fair value.
Physician Services Segment
The physician services segment structures its contractual arrangements for services in various ways. In most states, a wholly owned subsidiary contracts with hospitals to provide management services. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries along with the accounts of affiliated professional corporations (PCs) with which the Company has management arrangements. The Company's agreements with these PCs provide that the term of the arrangements is permanent, subject only to termination by the Company, except in the case of gross negligence, fraud or bankruptcy of the Company. The PC structure is necessary in states which prohibit the corporate practice of medicine but this structure is utilized by the Company in the majority of its physician practices regardless of the state where the PC operates. The arrangements are captive in nature as a majority of the outstanding voting equity instruments of the PCs are owned by nominee shareholders appointed at the sole discretion of the Company. The nominee shareholder is a medical doctor who is generally a senior corporate employee of the Company. The Company has a contractual right to transfer the ownership of the PCs at any time to any person it designates as the nominee
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Item 1. Financial Statements - (continued)
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shareholder. The Company has the right to all assets and to receive income, both as ongoing fees and as proceeds from the sale of any interest in the PCs, in an amount that fluctuates based on the performance of the PCs and the change in the fair value of the interest in the PCs. The Company has exclusive responsibility for the provision of all non-medical services required for the day-to-day operation and management of the PCs and establishes the guidelines for the employment and compensation of the physicians and other employees of the PCs, which is consistent with the operation of the Company's wholly owned subsidiaries. Based on the provisions of these agreements, the Company has determined that the PCs are variable interest entities and that the Company is the primary beneficiary as defined in ASC 810 “Consolidations.”
The Company has a variable interest in the PCs through the management contracts and the PCs are considered VIEs due to its equity holder lacking the obligation to absorb expected losses or receive expected residual returns. The contractual arrangement to provide management services allows the Company to direct the economic activities considered most significant to the PC. Accordingly, the Company is the primary beneficiary of the PCs and consolidates the PCs under the variable interest model in ASC 810.
The physician services segment also has partnerships with health systems that are considered VIEs. The Company consolidates the majority of the partnerships with health systems as the Company is the primary beneficiary due to its ability to direct the majority of activities that most significantly impact the economic performance of the partnership which occurs generally through a management services agreement. Therefore, the results of consolidated partnerships are reflected as a component of the accompanying consolidated balance sheets, statements of operations and statements of cash flows.
The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs within the physician services segment, which are included in the accompanying consolidated balance sheets, as of
September 30, 2017
and
December 31, 2016
, were
$1.48 billion
and
$1.31 billion
, respectively, and the total liabilities of the consolidated VIEs were
$1.17 billion
and
$1.10 billion
, respectively. Included in total assets as of
September 30, 2017
and
December 31, 2016
were
$228.6 million
and
$215.7 million
, respectively, of assets which were restricted as to use due to the Company's ownership percentage in certain of the partnerships with health systems and could only be used to settle the obligations of the VIEs. The creditors of the consolidated VIEs within the physician services segment have no recourse to the Company.
Ambulatory Services Segment
The Company, through its wholly owned subsidiaries, owns interests, primarily
51%
, in limited liability companies (LLCs) and limited partnerships (LPs) which own and operate ambulatory surgery centers (ASCs or surgery centers). The Company has variable interests in the LLCs and LPs through its equity ownership interests. Each LLC and LP is considered a VIE due to its structure as a limited partnership or functional equivalent under ASU No. 2015-02. For those LLCs and LPs which the Company consolidates, the Company is considered the primary beneficiary due to the partnership agreements allowing the Company to govern the day-to-day activities and thereby control the most significant economic activities.
The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs within the ambulatory services segment, which are included in the accompanying consolidated balance sheets, as of
September 30, 2017
and
December 31, 2016
, were
$371.1 million
and
$388.1 million
, respectively, and the total liabilities of the consolidated VIEs were
$122.1 million
and
$117.9 million
, respectively. Included in total assets as of
September 30, 2017
and
December 31, 2016
, were
$176.2 million
and
$185.5 million
of assets, respectively, which were restricted as to use due to the Company's ownership percentage in these entities from the ambulatory services segments and could only be used to settle the obligations of the VIEs. The creditors of the VIEs have no recourse to the Company, with the exception of
$20.9 million
and
$14.7 million
of debt guaranteed by the Company at
September 30, 2017
and
December 31, 2016
, respectively.
Unconsolidated Variable Interest Entities
The Company also has certain equity interests in unconsolidated affiliates which meet the definition of a VIE. The Company has a variable interest in
27
LLCs and LPs through its equity interests; however, the Company is not the primary beneficiary of these entities as it does not have the power to direct the activities that most significantly impact the entities' economic performance as a result of the Company's shared or lack of control. In each of the investments, the Company is not obligated to contribute any additional capital beyond its initial contribution and its maximum exposure to loss is limited to the initial capital contribution. As a result, the Company has accounted for these investments under the equity method of accounting and net earnings or loss from these investments is included in equity in earnings of unconsolidated affiliates in the accompanying consolidated statements of operations. See Note
7
for further information.
The Company recognized management and billing fees associated with these investments totaling
$1.1 million
and
$0.9 million
during the three months ended
September 30, 2017
and
2016
, respectively, and
$4.1 million
and
$12.7 million
for the
nine
months ended
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Item 1. Financial Statements - (continued)
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September 30, 2017
and
2016
, respectively, which are included in net revenue in the accompanying consolidated statements of operations. The Company has also recorded receivables from these entities in the amount of
$3.9 million
and
$6.1 million
as of
September 30, 2017
and
December 31, 2016
, respectively. These receivables are included in the other current assets in the accompanying consolidated balance sheets.
(
3
)
Revenue Recognition and Accounts Receivable
Revenue Recognition
Net revenue primarily consists of fee for service revenue and is derived principally from the provision of physician services to patients of the healthcare facilities and communities served and from facility fees for the procedures performed at surgery centers. Contract revenue and other revenue primarily represents income earned from hospital customers to supplement payments from third-party payors, contract staffing assignments and subscription fees.
Patients are billed for services provided, and the Company receives payments for these services from patients or their third-party payors. Payments for services provided are generally less than billed charges. The Company recognizes fee for service revenue, net of contractual adjustments and provision for uncollectibles, at the time services are provided by healthcare providers. Services provided but not yet billed are estimated and recognized in the period services are provided. Revenue is recognized for services provided during the period but not yet billed based on fees and negotiated payment rates in the case of third-party payors, the specific benefits provided for under each patients’ healthcare plan, mandated payment rates under the Medicare and Medicaid programs, and historical cash collections. The Company records net revenue from uninsured patients at an estimated realizable value, which includes a provision for uncollectible balances, based on historical cash collections (net of recoveries). The Company records revenue net of an allowance for contractual adjustments, which represents the net revenue expected to collect from third-party payors (including managed care, commercial and governmental payors such as Medicare and Medicaid) and patients insured by these payors. These expected collections are based on fees and negotiated payment rates in the case of third-party payors, the specific benefits provided for under each patient's healthcare plans, mandated payment rates in the case of Medicare and Medicaid programs, and historical cash collections (net of recoveries). The provision for uncollectibles includes an estimate of uncollectible balances due from uninsured patients, uncollectible co-pay and deductible balances due from insured patients and special charges, if any, for uncollectible balances due from managed care, commercial and governmental payors.
In certain circumstances, federal law requires providers to render emergency medical services to any patient who requires care regardless of their ability to pay. Services to these patients are not considered to be charity care and provisions for uncompensated care for these services are estimated accordingly. Although the Company does provide a level of charity care, it is not significant to the Company's net revenues.
Estimating net revenue is a complex process, largely due to the volume of transactions, the number and complexity of contracts with payors, the limited availability, at times, of certain patient and payor information at the time services are provided, and the length of time it takes for collections to fully mature. In the period services are provided, the Company estimates gross charges based on billed services plus an estimate for unbilled services based on pending case data collected, estimates contractual allowances based on contracted rates and historical or actual cash collections (net of recoveries), when available, and estimates the provision for uncollectibles based on historical cash collections (net of recoveries) from uninsured patients. The relationship between gross charges and the allowances for both contractual adjustments and provision for uncollectibles is significantly influenced by payor mix, as collections on gross charges may vary significantly depending on whether and with whom the patients the Company provides services to in the period are insured and the Company's contractual relationships with those payors. Payor mix is subject to change as additional patient and payor information is obtained after the period services are provided. The Company periodically assesses the estimates of unbilled revenue, contractual adjustments, provision for uncollectibles and payor mix for a period of at least one year following the date of service by analyzing actual results, including cash collections, against estimates. Changes in these estimates are charged or credited to the consolidated statement of operations in the period that the assessment is made. Significant changes in payor mix, contractual arrangements with payors, specialty mix, acuity, business office operations, general economic conditions and health care coverage provided by federal or state governments or private insurers may have a significant impact on estimates and significantly affect the results of operations and cash flows. Concentration of credit risk with respect to other payors is limited due to the large number of such payors.
The Company's billing and accounting systems provide historical trends of cash collections and contractual write-offs, accounts receivable agings and established fee adjustments from third-party payors. These estimates are recorded and monitored monthly as revenues are recognized. These estimates are not, however, established from billing system generated contractual adjustments based on fee schedules for the patient’s insurance plan for each patient encounter.
The principal exposure for uncollectible fee for service visits is from self-pay patients and, to a lesser extent, for co-payments and deductibles from patients with insurance.
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Item 1. Financial Statements - (continued)
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Net revenue for the Company consists of the following major payors (in millions):
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Three Months Ended September 30,
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Nine Months Ended September 30,
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2017
|
|
2016
(1)
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2017
|
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2016
(1)
|
Medicare
|
$
|
467.9
|
|
|
24
|
%
|
|
$
|
166.8
|
|
|
20
|
%
|
|
$
|
1,420.5
|
|
|
24
|
%
|
|
$
|
475.4
|
|
|
21
|
%
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Medicaid
|
163.8
|
|
|
8
|
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|
38.9
|
|
|
5
|
|
|
485.9
|
|
|
8
|
|
|
106.7
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|
|
5
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|
Commercial and managed care
|
1,271.2
|
|
|
64
|
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|
616.8
|
|
|
75
|
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3,708.4
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|
|
64
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|
1,702.9
|
|
|
73
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|
Self-pay
|
900.6
|
|
|
45
|
|
|
111.8
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|
|
14
|
|
|
2,596.3
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|
|
45
|
|
|
253.3
|
|
|
11
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|
Net fee for service revenue
|
2,803.5
|
|
|
141
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|
934.3
|
|
|
114
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|
|
8,211.1
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|
|
141
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|
2,538.3
|
|
|
110
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|
Contract and other revenue
|
265.5
|
|
|
13
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|
34.5
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4
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734.3
|
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|
13
|
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|
108.6
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5
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Provision for uncollectibles
|
(1,078.3
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)
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|
(54
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)
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|
(146.6
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)
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(18
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)
|
|
(3,129.1
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)
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|
(54
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)
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|
(341.5
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)
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(15
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)
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Net revenue
|
$
|
1,990.7
|
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|
100
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%
|
|
$
|
822.2
|
|
|
100
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%
|
|
$
|
5,816.3
|
|
|
100
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%
|
|
$
|
2,305.4
|
|
|
100
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%
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(1)
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On December 1, 2016, the Company completed the Merger. Accordingly, historical amounts from EHH for periods prior to that date are not included.
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During the
three and nine
months ended
September 30, 2017
, the Company's net fee for service revenue associated with self-pay, prior to the provision for uncollectibles, has significantly increased primarily due to the payor mix of EHH, which has a higher percentage of self-pay patients from the concentration of emergency medicine services.
Due to the nature of the Company's operations, it is required to separate the presentation of its bad debt expense on the consolidated statements of operations. The Company records the portion of its bad debts associated with its physician services segment as a component of net revenue in the accompanying consolidated statements of operations, and the remaining portion, which is associated with its ambulatory services segment, is recorded as a component of other operating expenses in the accompanying consolidated statements of operations. The bifurcation is a result of the Company's ability to assess the ultimate collection of the patient service revenue associated with its ambulatory services segment before services are provided as those services are pre-scheduled and non-emergent. Bad debt expense for ambulatory services is included in other operating expenses and was
$6.3 million
and
$5.7 million
for the three months ended
September 30, 2017
and
2016
, respectively, and
$18.6 million
and
$17.8 million
for the
nine
months ended
September 30, 2017
and
2016
, respectively.
Accounts Receivable
The Company manages accounts receivable by regularly reviewing its accounts and contracts and by providing appropriate allowances for contractual adjustments and uncollectible amounts. Some of the factors considered by management in determining the amount of such allowances are the historical trends of cash collections, contractual and bad debt write-offs, accounts receivable agings, established fee schedules, contracts with payors, changes in payor mix and procedure statistics. Actual collections of accounts receivable in subsequent periods may require changes in the estimated contractual allowances and provision for uncollectibles.
The Company tests its analysis by comparing cash collections to net patient revenues and monitoring self-pay utilization. In addition, when actual collection percentages differ from expected results, on a contract by contract basis, supplemental detailed reviews of the outstanding accounts receivable balances may be performed by the Company’s billing operations to determine whether there are facts and circumstances existing that may cause a different conclusion as to the estimate of the collectability of that contract’s accounts receivable from the estimate resulting from using the historical collection experience. The Company also supplements its allowance for doubtful accounts analysis for its physician services segment quarterly using a hindsight calculation that utilizes write-off data for all payor classes during the previous twelve month period to estimate the allowance for doubtful accounts at a point in time. Changes in these estimates, if any, are charged or credited to the consolidated statements of operations in the period of change. Material changes in estimates may result from unforeseen write-offs of patient or third-party accounts receivable, unsuccessful disputes with managed care payors, adverse macro-economic conditions which limit patients’ ability to meet their financial obligations for the care provided by physicians, or broad changes to government regulations that adversely impact reimbursement rates for services provided by the Company. Significant changes in payor mix, changes in contractual arrangements with payors, business office operations, general economic conditions and health care coverage provided by federal or state governments or private insurers may have a significant impact on the Company’s estimates and significantly affect its results of operations and cash flows. Concentration of credit risk is limited by the diversity and number of facilities, patients, payors and by the geographic dispersion of the Company’s operations.
At
September 30, 2017
and
December 31, 2016
, the allowance for doubtful accounts was
$2.48 billion
and
$584.0 million
, respectively. The increase in the allowance for doubtful accounts from
December 31, 2016
to
September 30, 2017
is attributable to the
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Item 1. Financial Statements - (continued)
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growth of the allowance from the accounts receivable acquired in the Merger, which represents
$1.81 billion
, and from recent acquisitions that were recorded at net realizable value. Additionally, the allowance at
December 31, 2016
has been reduced by
$68.2 million
related to the amount reclassified as part of the medical transportation business held for sale.
(
4
)
Acquisitions and Disposals
The Company accounts for its business combinations under the fundamental requirements of the acquisition method of accounting and under the premise that an acquirer be identified for each business combination. The acquirer is the entity that obtains control of one or more businesses in the business combination and the acquisition date is the date the acquirer achieves control. The assets acquired, liabilities assumed and any noncontrolling interests in the acquired business at the acquisition date are recognized at their fair values as of that date, and the direct costs incurred in connection with the business combination are recorded and expensed separately from the business combination. Acquisitions in which the Company is able to exert significant influence but does not have control are accounted for using the equity method.
EHH Merger
On December 1, 2016, AmSurg and EHH completed the Merger and the strategic combination of their respective businesses. We believe the Merger combined
two
industry leaders to create a premier healthcare services provider offering clinical solutions on a national scale, enabling the Company to create value for health systems, payors, providers and patients. Based on an evaluation of the provisions of ASC Topic 805, “Business Combinations”, AmSurg was determined to be the acquirer for accounting purposes. Under the terms of the Merger, each share of AmSurg common stock was converted into
one
share of Company common stock, each share of AmSurg
5.25%
mandatory convertible preferred stock, Series A-1 (AmSurg Preferred Stock) was converted into
one
share of Company
5.25%
mandatory convertible preferred stock, Series A-1 (Company Preferred Stock), and each share of EHH common stock was converted into
0.334
shares of Company common stock. Pursuant to the Merger, the Company issued
62,582,161
shares of common stock to former EHH stockholders, which were valued at approximately
$4.26 billion
based on the closing price of AmSurg's common stock on November 30, 2016. In addition, the Company issued replacement equity awards, which were valued at
$180.3 million
.
Concurrently with the Merger, on December 1, 2016, the Company entered into a new senior secured credit facility, incurring a new
$3.50 billion
term loan and an
$850.0 million
ABL revolving credit facility. At the closing of the Merger, the Company also completed a private offering of
$550.0 million
aggregate principal amount of
6.25%
senior unsecured notes due 2024 to provide incremental financing to the Company, adjust scheduled maturities and reallocate between variable and fixed rate debt.
Fees and expenses associated with the Merger, which includes fees incurred related to the Company's equity issuances and debt financings, was approximately
$199.0 million
during the year ended December 31, 2016. Approximately
$94.9 million
was capitalized as deferred financing costs,
$73.8 million
was expensed as transaction and integration costs, and
$30.3 million
was recorded as debt extinguishment costs during the year ended December 31, 2016.
Physician Services Activity
The Company, through wholly owned subsidiaries, completed the acquisition of
ten
physician practices in the
nine
months ended
September 30, 2017
and
eight
physician practices in the
nine
months ended
September 30, 2016
. The aggregate amount paid for the physician practices and for settlement of purchase price payable obligations during the
nine
months ended
September 30, 2017
and
2016
was approximately
$562.0 million
and
$312.4 million
, respectively, and was paid in cash and funded by either operating cash flow or borrowings under the Company's existing or prior credit agreement or a combination thereof.
Ambulatory Services Activity
During the
nine
months ended
September 30, 2017
and
2016
, the Company, through wholly-owned subsidiaries, acquired a controlling interest in
four
and
seven
surgery centers, respectively. The aggregate amount paid for the centers during the
nine
months ended
September 30, 2017
and
2016
was approximately
$47.3 million
and
$39.4 million
, respectively, and was paid in cash and funded by either operating cash flow or borrowings under the Company's existing or prior credit agreement or a combination thereof. During the
nine
months ended
September 30, 2017
, the Company disposed of
three
surgery centers and recognized a net loss from the disposals of
$3.5 million
. During the
nine
months ended
September 30, 2016
, the Company disposed of
three
surgery centers and recognized a net gain from the disposals of
$7.4 million
.
|
|
|
Item 1. Financial Statements - (continued)
|
|
Purchase Price Allocations
Acquired assets and assumed liabilities include, but are not limited to, accounts receivable, fixed assets, intangible assets, deferred income taxes and insurance liabilities. The valuations are based on appraisal reports, discounted cash flow analyses, actuarial analyses or other appropriate valuation techniques to determine the fair value of the assets acquired or liabilities assumed. The preliminary estimated fair value assigned to goodwill is primarily attributable to synergies expected to arise after the Merger by enhancing the growth profile and diversity of the Company across the healthcare continuum. The Merger did not result in additional tax deductible goodwill. A majority of the deferred income taxes recognized as a component of the Company's purchase price allocation is a result of the difference between the book and tax basis of the intangible assets recognized. The amount allocated to the deferred income tax liability is subject to change as a result of the final allocation of purchase price to amortizable intangibles. The accounting for the Merger is currently preliminary. The Company continues to obtain information relative to the fair values of assets acquired, liabilities assumed and any noncontrolling interests in the transaction which could result in material changes to the amounts allocated below. The Company expects to finalize the purchase price allocation for EHH as soon as practical.
During the
nine
months ended
September 30, 2017
, adjustments were recorded to the purchase price allocation related to EHH as part of the Company’s continuing evaluation of the assets and liabilities existing at the date of acquisition. This resulted in a net increase to goodwill of approximately
$151.8 million
and corresponding changes to certain account classes from the preliminary allocation recorded at December 31, 2016 that are reflected in the table below. The Company is still in the process of reviewing all major classes of consideration and expects to use the full measurement period from the Merger date to complete the evaluation. The acquisition date fair value of the total consideration transferred and acquisition date fair value of each major class of consideration for the acquisition of EHH are as follows (in millions):
|
|
|
|
|
Cash and cash equivalents
|
$
|
165.8
|
|
Insurance collateral
|
59.9
|
|
Accounts receivable
|
1,155.4
|
|
Supplies inventory
|
38.7
|
|
Prepaid and other current assets
|
119.3
|
|
Property and equipment
|
375.9
|
|
Goodwill
|
4,672.6
|
|
Intangible assets
|
3,030.8
|
|
Other long-term assets
|
103.1
|
|
Accounts payable
|
(63.7
|
)
|
Accrued salaries and benefits
|
(338.0
|
)
|
Accrued interest
|
(17.3
|
)
|
Other accrued liabilities
|
(333.3
|
)
|
Deferred income taxes
|
(968.0
|
)
|
Long term insurance reserves
|
(316.3
|
)
|
Other long-term liabilities
|
(62.8
|
)
|
Long-term debt
|
(3,063.1
|
)
|
Total fair value
|
4,559.0
|
|
Less: Fair value attributable to noncontrolling interests
|
115.6
|
|
Acquisition date fair value of total consideration transferred
|
$
|
4,443.4
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
The acquisition date fair value of the total consideration transferred and acquisition date fair value of each major financial class for individual acquisitions in both the ambulatory services and physician services segments completed in the
nine
months ended
September 30, 2017
, including post acquisition date adjustments, are as follows (in millions):
|
|
|
|
|
Accounts receivable
|
$
|
58.9
|
|
Supplies inventory
|
0.3
|
|
Prepaid and other current assets
|
4.0
|
|
Property and equipment
|
5.4
|
|
Goodwill
|
490.9
|
|
Intangible assets
|
253.0
|
|
Other long-term assets
|
1.1
|
|
Accounts payable
|
(9.0
|
)
|
Accrued salaries and benefits
|
(24.1
|
)
|
Other accrued liabilities
|
(39.8
|
)
|
Deferred income taxes
|
(59.0
|
)
|
Other long-term liabilities
|
(40.8
|
)
|
Long-term debt
|
(0.5
|
)
|
Total fair value
|
640.4
|
|
Less: Fair value attributable to noncontrolling interests
|
31.1
|
|
Acquisition date fair value of total consideration transferred
|
$
|
609.3
|
|
Represents the preliminary allocation of fair value of acquired assets and liabilities associated with these acquisitions at
September 30, 2017
.
During the
nine
months ended
September 30, 2017
, no significant changes were made to the purchase price allocation of assets and liabilities, existing at the date of acquisition, related to individual acquisitions completed in
2016
. For the
nine
months ended
September 30, 2017
and
2016
approximately
$246.6 million
and
$159.1 million
, respectively, of goodwill recorded was deductible for tax purposes.
The total fair value of acquisitions completed by the Company include amounts allocated to goodwill, which result from the acquisitions' favorable reputations in their markets, their market positions and their ability to deliver quality care with high patient satisfaction consistent with the Company’s business model. Fair value attributable to noncontrolling interests is based on significant inputs that are not observable in the market. Key inputs used to determine the fair value include financial multiples used in the purchase of noncontrolling interests primarily from acquisitions of centers. Such multiples, based on earnings, are used as a benchmark for the discount to be applied for the lack of control or marketability. The fair value of noncontrolling interests for acquisitions where the purchase price allocation is not finalized may be subject to adjustment as the Company completes its initial accounting for acquired intangible assets. Additionally, the Company continues to obtain information relative to the fair values of assets acquired, liabilities assumed and any noncontrolling interests associated with acquisitions completed in the last 12 months. Acquired assets and assumed liabilities include, but are not limited to, fixed assets, licenses, intangible assets and professional liabilities. The valuations are based on appraisal reports, discounted cash flow analyses, actuarial analyses or other appropriate valuation techniques used to determine the fair value of the assets acquired or liabilities assumed. A majority of the deferred income taxes recognized as a component of the Company's purchase price allocation is a result of the difference between the book and tax basis of the amortizable intangible assets recognized. The amount allocated to the deferred income tax liability is subject to change as a result of the final allocation of purchase price to amortizable intangibles. The Company expects to finalize the purchase price allocation for its most recent acquisitions as soon as practical.
During the
three and nine
months ended
September 30, 2017
, the Company incurred approximately
$18.8 million
and
$67.7 million
of transaction and integration costs, respectively, and during the
three and nine
months ended
September 30, 2016
the Company incurred approximately
$16.9 million
and
$23.4 million
, respectively. The costs incurred during these periods were primarily a result of the Merger and from recent acquisitions.
|
|
|
Item 1. Financial Statements - (continued)
|
|
Net revenue and net earnings associated with completed acquisitions during the
nine
months ended
September 30, 2017
and
2016
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Net revenue
|
$
|
225.6
|
|
|
$
|
52.2
|
|
|
|
|
|
Net earnings
|
$
|
9.8
|
|
|
$
|
6.6
|
|
Less: Net earnings attributable to noncontrolling interests
|
1.7
|
|
|
1.3
|
|
Net earnings attributable to Envision Healthcare Corporation stockholders
|
$
|
8.1
|
|
|
$
|
5.3
|
|
The unaudited consolidated pro forma results for the
nine
months ended
September 30, 2017
and
2016
, assuming all
2017
acquisitions had been consummated on January 1,
2016
, and the Merger and all
2016
acquisitions had been consummated on January 1,
2015
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Net revenue
|
$
|
6,011.4
|
|
|
$
|
5,999.2
|
|
Net earnings from continuing operations attributable to Envision Healthcare Corporation stockholders
|
221.5
|
|
|
215.8
|
|
The unaudited pro forma results for the
nine
months ended
September 30, 2017
were adjusted to exclude
$67.7 million
of transaction costs, which is reflected in the unaudited pro forma results for
2016
. The unaudited pro forma results for the
nine
months ended
September 30, 2017
and
2016
were adjusted to exclude the results from the medical transportation business, including
$44.9 million
of pre-tax corporate overhead expenses allocated to continuing operations during the
nine
months ended
September 30, 2017
. In addition, the unaudited pro forma results assume proceeds from the sale of the medical transportation business would be used to repay outstanding debt obligations. Certain other adjustments, including those related to conforming accounting policies, have not been reflected in the supplemental pro forma operating results due to the impracticability of estimating such impacts.
(
5
)
Discontinued Operations
During the
nine
months ended
September 30, 2017
, the Company initiated a strategic review of each of the Company's lines of business. As a result of that review, management and the Board determined that the Company will focus on physician centric services, including facility based physician services, post-acute services and ambulatory services, which partners with community based physicians across the country. Accordingly, the Board approved a plan to market and divest the medical transportation business, representing the historical medical transportation reportable segment. The Company determined that the planned divestiture of the medical transportation business meets the criteria for classification as discontinued operations. All historical operating results for the medical transportation business are reflected within discontinued operations in the consolidated statements of operations. Furthermore, all assets and liabilities associated with the medical transportation business were classified as assets and liabilities held for sale in our consolidated balance sheets for all periods presented and are preliminary due to the purchase price allocation from the Merger. On August 7, 2017, the Company executed a definitive agreement to sell its medical transportation business to an entity controlled by funds affiliated with KKR & Co. L.P. for approximately
$2.40 billion
in cash. The transaction is subject to regulatory approval and customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act. The Company received a second request from the Federal Trade Commission (FTC) asking for further information related to the transaction, and the buyer is exploring potential divestiture remedies to address certain concerns raised by the FTC. The Company expects that the transaction will be completed during the fourth quarter of 2017 or the first quarter of 2018. Accordingly, the Company could record a gain or loss in discontinued operations on the transaction following the closing once the final net proceeds are determined and the purchase price allocation of EHH is completed.
In accordance with ASC 740,
“
Income Taxes
”
, a tax liability should be recognized for the excess of the financial reporting basis over the tax basis (or the tax benefit when the tax basis exceeds the financial reporting basis) of an investment in a subsidiary (outside basis difference) when it is apparent that the temporary differences will reverse in the foreseeable future. In connection with presenting the medical transportation business as a discontinued operation as of
September 30, 2017
, the Company was required to re-evaluate its position related to the recognition of a deferred tax asset or liability for the outside basis differences of the entities being held for sale. Previously, deferred taxes for such outside basis differences had not been recognized as the Company applied one of the exceptions provided in ASC 740. However, the outside basis differences are now expected to reverse in the foreseeable future and
|
|
|
Item 1. Financial Statements - (continued)
|
|
therefore, these exceptions no longer applied at
September 30, 2017
. As a result, the Company recorded deferred tax expense and associated deferred tax liability in the amount of
$503.0 million
, which is a component of income tax expense of discontinued operations, as of
September 30, 2017
, and will be the obligation of the Company upon the completion of the divestiture of the medical transportation business.
The following table is a reconciliation of the major classes of assets and liabilities classified as held for sale in the accompanying consolidated balance sheets representing the medical transportation business as of
September 30, 2017
and
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2017
|
|
2016
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
41.2
|
|
|
$
|
14.7
|
|
Insurance collateral
(1)
|
1.3
|
|
|
—
|
|
Accounts receivable, net
|
522.8
|
|
|
457.2
|
|
Supplies inventory
|
37.9
|
|
|
37.8
|
|
Prepaid and other current assets
|
41.2
|
|
|
41.4
|
|
Property and equipment, net
|
306.4
|
|
|
294.4
|
|
Investments in unconsolidated affiliates
|
0.3
|
|
|
2.2
|
|
Goodwill
|
1,410.9
|
|
|
1,235.0
|
|
Intangible assets, net
|
904.8
|
|
|
929.4
|
|
Other assets
|
29.6
|
|
|
27.4
|
|
Total assets held for sale
|
$
|
3,296.4
|
|
|
$
|
3,039.5
|
|
Liabilities
|
|
|
|
Current liabilities:
|
|
|
|
Current portion of long-term debt
|
$
|
0.1
|
|
|
$
|
0.4
|
|
Accounts payable
|
34.2
|
|
|
31.4
|
|
Accrued salaries and benefits
|
74.8
|
|
|
77.4
|
|
Other accrued liabilities
|
208.4
|
|
|
140.2
|
|
Long-term debt
|
1.4
|
|
|
1.4
|
|
Deferred income taxes
|
360.3
|
|
|
337.0
|
|
Insurance reserves
|
95.7
|
|
|
91.6
|
|
Other long-term liabilities
|
22.1
|
|
|
38.6
|
|
Total liabilities held for sale
|
$
|
797.0
|
|
|
$
|
718.0
|
|
|
|
(1)
|
Insurance collateral for claims related to the medical transportation business are generally held within a captive insurance company. Such balances are available to settle the insurance claims of the medical transportation business but are not recorded into assets held for sale as the captive insurance company is a subsidiary of the Company, not the medical transportation business.
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
The following table summarizes the results of discontinued operations for the
three and nine
months ended
September 30, 2017
(in millions):
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Nine Months Ended September 30, 2017
|
Net revenues
|
$
|
692.2
|
|
|
$
|
1,874.5
|
|
Operating expenses:
|
|
|
|
Salaries and benefits
|
358.9
|
|
|
1,032.8
|
|
Supply cost
|
15.1
|
|
|
42.9
|
|
Insurance expense
|
22.0
|
|
|
63.0
|
|
Other operating expenses
|
213.6
|
|
|
517.1
|
|
Transaction and integration costs
|
11.3
|
|
|
17.3
|
|
Depreciation and amortization
|
39.6
|
|
|
108.5
|
|
Total operating expenses
|
660.5
|
|
|
1,781.6
|
|
Equity in earnings of unconsolidated affiliates
|
0.1
|
|
|
0.4
|
|
Operating income
|
31.8
|
|
|
93.3
|
|
Interest expense, net
|
22.2
|
|
|
67.0
|
|
Earnings before income taxes
|
$
|
9.6
|
|
|
$
|
26.3
|
|
|
|
|
|
Results of discontinued operations:
|
|
|
|
Earnings from discontinued operations
|
$
|
9.6
|
|
|
$
|
26.3
|
|
Income tax expense of discontinued operations
|
(22.0
|
)
|
|
(513.0
|
)
|
Net loss from discontinued operations
|
$
|
(12.4
|
)
|
|
$
|
(486.7
|
)
|
In accordance with ASC 205, “Presentation of Financial Statements”, for purposes of discontinued operations presentation, general corporate expenses are not permitted to be allocated to the operations of a business to be disposed. Accordingly, for the
three and nine
months ended
September 30, 2017
and on a before tax basis, approximately
$15.3 million
and
$44.9 million
, respectively, of general corporate expenses, including allocations for corporate salaries and stock-based compensation, general and administrative costs and depreciation, were removed from the medical transportation business and reallocated to the Company's remaining segments. In addition, ASC 205 requires interest associated with debt that is required to be repaid as a result of the disposal transaction to be allocated to discontinued operations. Accordingly, during the
three and nine
months ended
September 30, 2017
, the Company allocated
$21.8 million
and
$65.5 million
, respectively, in interest expense to the medical transportation business, which is reflected in the loss from discontinued operations. The Company estimated the interest allocation by applying the effective interest rate of the Company's term loan B due 2023 by the estimated proceeds, less taxes and professional fees, from the potential divestiture of the medical transportation business.
For the
nine
months ended
September 30, 2017
, the net cash flows provided by operating activities attributable to discontinued operations
were
$114.0 million
and the net cash flows used in investing activities
attributable to discontinued operations
were
$155.3 million
, including
$78.0 million
for acquisitions. As the Medical Transportation business was acquired on December 1, 2016, there were
no
cash flows attributable to discontinued operations for the
nine
months ended
September 30, 2016
.
(
6
)
Fair Value Measurements
The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The inputs used by the Company to measure fair value are classified into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3: Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
|
|
|
Item 1. Financial Statements - (continued)
|
|
In determining the fair value of assets and liabilities that are measured on a recurring basis at
September 30, 2017
and
December 31, 2016
, with the exception of contingent purchase price payables, the Company utilized Level 1 and 2 inputs to perform such measurements methods, which were commensurate with the market approach. The Company utilizes Level 3 inputs to measure the fair value of the contingent consideration. There were no transfers to or from Levels 1 and 2 during the
three and nine
months ended
September 30, 2017
. The Company's non-patient receivables and accounts payable are reflected in the financial statements at cost, which approximates fair value.
The following table summarizes the valuation of the Company’s financial instruments by the above fair value hierarchy levels as of
September 30, 2017
and
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
0.4
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
Corporate bonds/Fixed income
|
32.9
|
|
|
9.9
|
|
|
—
|
|
|
42.8
|
|
Corporate equity
|
12.0
|
|
|
0.2
|
|
|
—
|
|
|
12.2
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
7.8
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
0.4
|
|
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
1.0
|
|
Corporate bonds/Fixed income
|
22.8
|
|
|
5.5
|
|
|
—
|
|
|
28.3
|
|
Corporate equity
|
14.2
|
|
|
—
|
|
|
—
|
|
|
14.2
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
The following table summarizes the change in financial instruments classified as Level 3 in the fair value hierarchy as of
September 30, 2017
(in millions):
|
|
|
|
|
Balance at December 31, 2016
|
$
|
1.0
|
|
Increase due to current period acquisitions
|
6.5
|
|
Net change in fair value
|
0.3
|
|
Balance at September 30, 2017
|
$
|
7.8
|
|
Insurance Collateral
Insurance collateral is comprised of investments in U.S. Treasuries and marketable equity and debt securities held by the Company’s wholly owned captive insurance subsidiaries that support the Company’s insurance programs and reserves, as well as cash deposits with third parties. Certain of these investments, if sold or otherwise liquidated, would have to be replaced by other suitable financial assurances and are, therefore, considered restricted. These investments are designated as available-for-sale and reported at fair value with the related temporary unrealized gains and losses reported as a separate component of accumulated other comprehensive income (loss), net of deferred income tax. Declines in the fair value of a marketable investment security which are determined to be other-than-temporary are recognized in the statements of operations, thus establishing a new cost basis for such investment. Investment income earned on these investments is reported as a component of other income, net in the accompanying statements of operations. Realized gains and losses are determined based on an average cost basis.
Investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
|
|
|
Item 1. Financial Statements - (continued)
|
|
Insurance collateral consisted of the following as of
September 30, 2017
and
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Available-for-sale securities:
|
|
|
|
U.S. Treasuries
|
$
|
1.7
|
|
|
$
|
1.0
|
|
Corporate bonds/Fixed income
|
42.8
|
|
|
28.3
|
|
Corporate equity
|
12.2
|
|
|
14.2
|
|
Total available-for-sale securities
|
56.7
|
|
|
43.5
|
|
Cash deposits and other
|
45.8
|
|
|
43.5
|
|
Insurance collateral
|
$
|
102.5
|
|
|
$
|
87.0
|
|
Amortized cost basis and aggregate fair value of the Company's available-for-sale securities as of
September 30, 2017
and
December 31, 2016
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
Gross
|
|
Gross
|
|
|
|
Cost
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Basis
|
|
Gains
|
|
Losses
|
|
Value
|
Description:
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
Corporate bonds/Fixed income
|
42.5
|
|
|
0.5
|
|
|
(0.2
|
)
|
|
42.8
|
|
Corporate equity
|
10.5
|
|
|
1.8
|
|
|
(0.1
|
)
|
|
12.2
|
|
Total available-for-sale securities
|
$
|
54.7
|
|
|
$
|
2.3
|
|
|
$
|
(0.3
|
)
|
|
$
|
56.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Gross
|
|
Gross
|
|
|
|
Cost
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Basis
|
|
Gains
|
|
Losses
|
|
Value
|
Description:
|
|
|
|
|
|
|
|
U.S. Treasuries
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.0
|
|
Corporate bonds/Fixed income
|
28.3
|
|
|
—
|
|
|
—
|
|
|
28.3
|
|
Corporate equity
|
14.4
|
|
|
0.1
|
|
|
(0.3
|
)
|
|
14.2
|
|
Total available-for-sale securities
|
$
|
43.7
|
|
|
$
|
0.1
|
|
|
$
|
(0.3
|
)
|
|
$
|
43.5
|
|
As of
September 30, 2017
, available-for-sale securities included U.S. Treasuries, corporate bonds and fixed income securities of
$3.5 million
with contractual maturities within one year and
$39.7 million
with contractual maturities extending longer than one year through five years and
$1.3 million
with contractual maturities extending longer than five years. Actual maturities may differ from contractual maturities as a result of the Company's ability to sell these securities prior to maturity.
The Company's available-for-sale investment securities that were temporarily impaired as of
September 30, 2017
and
December 31, 2016
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Loss
|
|
Value
|
|
Loss
|
Description:
|
|
|
|
|
|
|
|
Corporate bonds/Fixed income
|
$
|
13.3
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate equity
|
0.2
|
|
|
(0.1
|
)
|
|
7.6
|
|
|
(0.3
|
)
|
|
$
|
13.5
|
|
|
$
|
(0.3
|
)
|
|
$
|
7.6
|
|
|
$
|
(0.3
|
)
|
There were
no
available-for-sale investment securities that were other-than-temporarily impaired as of
September 30, 2017
.
|
|
|
Item 1. Financial Statements - (continued)
|
|
The Company evaluates the investment securities available-for-sale on a quarterly basis to determine whether declines in the fair value of these securities are other-than-temporary. The evaluation consists of reviewing the fair value of the security compared to the carrying amount, the historical volatility of the price of each security, and any industry and company specific factors related to each security.
The Company is not aware of any specific factors indicating that the underlying issuers of the corporate bonds/fixed income securities would not be able to pay interest as it becomes due or repay the principal amount at maturity. Therefore, the Company believes that the changes in the estimated fair values of these debt securities are related to temporary market fluctuations and the Company does not intend to dispose of these investments. Additionally, the Company is not aware of any specific factors which indicate the unrealized losses on the investments in corporate equity securities are due to anything other than temporary market fluctuations.
The Company received proceeds of
$0.2 million
and
$7.2 million
on the sale and maturities of available-for-sale securities for the
three and nine
months ended
September 30, 2017
, respectively. The Company did
no
t receive any proceeds from the maturity or sale of available-for-sale securities for the
three and nine
months ended
September 30, 2016
. For the
three and nine
months ended
September 30, 2017
, a loss of approximately
$0.1 million
was reclassified from accumulated other comprehensive income to other income, net in the accompanying consolidated statements of operations. There were
$1.3 million
of unrealized gains for the
nine
months ended
September 30, 2017
recorded in accumulated other comprehensive income. There were
no
unrealized gains for the three months ended
September 30, 2017
.
(
7
)
Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates in which the Company exerts significant influence but does not control or otherwise consolidate are accounted for using the equity method. Equity method investments are initially recorded at cost, unless such investments are a result of the Company entering into a transaction whereby the Company loses control of a previously controlled entity but retains a noncontrolling interest. Such transactions, which result in the deconsolidation of a previously consolidated entity, are measured at fair value. The fair value measurement utilizes Level 3 inputs, which include unobservable data, to measure the fair value of the retained noncontrolling interest. The fair value determination is generally based on a combination of multiple valuation methods, which can include discounted cash flow, income approach, or market value approach, which incorporates estimates of future earnings and market valuation multiples for certain guideline companies. These investments are included as investments in unconsolidated affiliates in the accompanying consolidated balance sheets. The Company’s share of the profits and losses from these investments is reported in equity in earnings of unconsolidated affiliates in the accompanying consolidated statements of operations. The Company monitors its investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the companies and records reductions in carrying values when necessary.
As of
September 30, 2017
and
December 31, 2016
, the Company recorded in the accompanying consolidated balance sheets its investments in unconsolidated affiliates of
$135.0 million
and
$114.7 million
, respectively. The Company's net earnings from these investments during the three months ended
September 30, 2017
and
2016
were approximately
$5.0 million
and
$4.4 million
, respectively, and
$15.6 million
and
$18.4 million
for the
nine
months ended
September 30, 2017
and
2016
, respectively,.
During the
nine
months ended
September 30, 2017
, the Company entered into
two
equity method investments. As a result of these investments, the Company contributed its controlling interest in
two
centers in exchange for a noncontrolling interest in the new investments and net cash consideration of
$1.2 million
. These investments are jointly owned by health systems and the Company. The newly formed investments (including the contributed centers) are controlled by the health systems. Also, as part of these transactions, the Company obtained a non-controlling interest in
two
additional centers which were contributed by the health systems. During the
nine
months ended
September 30, 2016
, the Company's ambulatory services segment sold a portion of its interest in
one
surgery center, which resulted in the surgery center being deconsolidated and subsequently accounted for as an equity method investment.
As a result of these transactions, the Company recorded in the accompanying consolidated balance sheet, as a component of investments in unconsolidated affiliates, the fair value of the Company's investment in these entities of approximately
$15.4 million
and
$1.8 million
during the
nine
months ended
September 30, 2017
and
2016
, respectively.
In each of these transactions, the gain or loss on deconsolidation, which is primarily non-cash in nature, was determined based on the difference between the fair value of the Company’s interest, which was based on estimates of the expected future earnings, in the new entity and the carrying value of both the tangible and intangible assets of the contributed center immediately prior to the transaction. In certain cases, the Company evaluated likely scenarios which were weighted by a range of expected probabilities of 10% to 50% which were primarily based on third-party valuations received by the Company. Accordingly, the Company recognized a net gain on
|
|
|
Item 1. Financial Statements - (continued)
|
|
deconsolidation which is included in net gain on disposals and deconsolidations in the accompanying consolidated statements of operations of approximately
$7.4 million
during the
nine
months ended
September 30, 2017
. There was
no
deconsolidation activity during the three months ended
September 30, 2017
. During both the
three and nine
months ended
September 30, 2016
, the Company recognized a net loss on deconsolidation in the accompanying consolidated statements of operations of approximately
$0.7 million
.
During the three months ended
September 30, 2017
, the Company disposed of an equity method investment, which included
two
unconsolidated centers in the ambulatory services segment, and resulted in a loss on disposal of
$2.7 million
.
(
8
)
Goodwill and Intangible Assets
Due to the Merger, and as a result of purchase accounting, the book value of the indefinite-lived intangibles acquired from the legacy EHH physician services reporting unit was recorded at fair value as of the acquisition date and subsequently was combined within the Company's existing physician services reporting unit. As a result, the excess of fair value over carrying value of the indefinite-lived intangibles as of December 31, 2016 was not significant. During the three months ended September 30, 2017, the Company experienced lower than expected operating results in its physician services reporting unit combined with an observed decline in market capitalization, which prompted the Company to evaluate whether circumstances had changed that would more likely than not reduce the fair value of the physician services reporting unit below its carrying amount. While conducting this evaluation, the Company considered macroeconomic and industry conditions, overall financial performance of the reporting unit and the decline in the share price, among other factors, all of which require considerable judgment. After considering the totality of the events and circumstances, the Company concluded that an interim impairment test was not required. The Company will perform its annual goodwill impairment test during the fourth quarter of 2017 and there can be no assurance that the estimates and assumptions made for purposes of this qualitative evaluation will prove to be an accurate prediction of future results. Factors that could impact the final determination of fair value in connection with the completion of the annual goodwill impairment process include a sustained decline in market capitalization, changes in the estimated fair values of the physician services assets and liabilities, changes in projected future earnings and net cash flows, changes in market related multiples, and changes in valuation related assumptions such as discount rates and perpetual growth rates.
Goodwill
The changes in the carrying amount of goodwill for the
nine
months ended
September 30, 2017
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physician Services
|
|
Ambulatory Services
|
|
Total
|
Balance at December 31, 2016
|
$
|
5,509.7
|
|
|
$
|
2,074.3
|
|
|
$
|
7,584.0
|
|
Goodwill acquired, including post acquisition adjustments
|
456.1
|
|
|
75.2
|
|
|
531.3
|
|
Goodwill disposed, including impact of deconsolidation transactions
|
—
|
|
|
(14.1
|
)
|
|
(14.1
|
)
|
Balance at September 30, 2017
|
$
|
5,965.8
|
|
|
$
|
2,135.4
|
|
|
$
|
8,101.2
|
|
During the
nine
months ended
September 30, 2017
, goodwill was recorded in the Company's physician services segment due to the acquisition of
ten
physician practices. In the Company's ambulatory services segment, goodwill increased due to the acquisition of
four
surgery centers and was offset by
$14.1 million
of goodwill from the disposal or deconsolidation of consolidated surgery centers within the ambulatory services segment.
Intangible Assets
|
|
|
|
|
|
Amortizable Intangible Assets
|
|
Estimated Useful Life
|
|
Weighted Average Amortization Period
|
Customer relationships
|
|
17 to 20 years
|
|
18.4
|
Capitalized software
|
|
3 to 7 years
|
|
4.5
|
Trade names
|
|
1 year
|
|
0.2
|
Agreements, contracts and other
|
|
3 to 10 years
|
|
3.3
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
Intangible assets at
September 30, 2017
and
December 31, 2016
consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
|
|
Carrying
|
|
Accumulated
|
|
|
|
Amount
|
|
Amortization
|
|
Net
|
|
Amount
|
|
Amortization
|
|
Net
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
3,429.8
|
|
|
$
|
(279.2
|
)
|
|
$
|
3,150.6
|
|
|
$
|
3,235.0
|
|
|
$
|
(154.6
|
)
|
|
$
|
3,080.4
|
|
Capitalized software
|
152.6
|
|
|
(65.2
|
)
|
|
87.4
|
|
|
136.5
|
|
|
(41.8
|
)
|
|
94.7
|
|
Trade names
|
25.0
|
|
|
(20.8
|
)
|
|
4.2
|
|
|
25.0
|
|
|
(2.1
|
)
|
|
22.9
|
|
Agreements, contracts and other
|
13.8
|
|
|
(6.3
|
)
|
|
7.5
|
|
|
13.2
|
|
|
(4.7
|
)
|
|
8.5
|
|
Total amortizable intangible assets
|
3,621.2
|
|
|
(371.5
|
)
|
|
3,249.7
|
|
|
3,409.7
|
|
|
(203.2
|
)
|
|
3,206.5
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
430.0
|
|
|
—
|
|
|
430.0
|
|
|
460.0
|
|
|
—
|
|
|
460.0
|
|
Restrictive covenant arrangements
|
8.0
|
|
|
—
|
|
|
8.0
|
|
|
9.0
|
|
|
—
|
|
|
9.0
|
|
Total non-amortizable intangible assets
|
438.0
|
|
|
—
|
|
|
438.0
|
|
|
469.0
|
|
|
—
|
|
|
469.0
|
|
Total intangible assets
|
$
|
4,059.2
|
|
|
$
|
(371.5
|
)
|
|
$
|
3,687.7
|
|
|
$
|
3,878.7
|
|
|
$
|
(203.2
|
)
|
|
$
|
3,675.5
|
|
Amortization of intangible assets for the three months ended
September 30, 2017
and
2016
was
$57.1 million
and
$22.3 million
, respectively, and
$168.7 million
and
$63.8 million
for the
nine
months ended
September 30, 2017
and
2016
, respectively. Estimated amortization of intangible assets for the remainder of
2017
and each of the following five years and thereafter is
$59.9 million
,
$202.3 million
,
$193.1 million
,
$186.2 million
,
$181.8 million
,
$176.5 million
and
$2.25 billion
, respectively. The Company expects to recognize amortization of all intangible assets over a weighted average period of
18.0
years with no expected residual values.
(
9
)
Other Accrued Liabilities
The following table presents a summary of items comprising other accrued liabilities in the accompanying consolidated balance sheets as of
September 30, 2017
and
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2017
|
|
2016
|
Insurance reserves
|
$
|
76.3
|
|
|
$
|
78.2
|
|
Refunds payable
|
35.1
|
|
|
33.6
|
|
Deferred revenue
|
13.5
|
|
|
9.4
|
|
Other
|
165.3
|
|
|
132.0
|
|
Total other accrued liabilities
|
$
|
290.2
|
|
|
$
|
253.2
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
(
10
)
Long-term Debt
Long-term debt at
September 30, 2017
and
December 31, 2016
consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2017
|
|
2016
|
ABL Facility
|
$
|
—
|
|
|
$
|
—
|
|
Term Loan B - 2023
|
3,966.3
|
|
|
3,495.0
|
|
Senior Unsecured Notes due 2022 (5.625%)
|
1,100.0
|
|
|
1,100.0
|
|
Senior Unsecured Notes due 2022 (5.125%)
|
750.0
|
|
|
750.0
|
|
Senior Unsecured Notes due 2024 (6.250%)
|
550.0
|
|
|
550.0
|
|
Other debt due through 2025
|
26.1
|
|
|
20.9
|
|
Capitalized lease arrangements due through 2031
|
32.5
|
|
|
31.9
|
|
|
6,424.9
|
|
|
5,947.8
|
|
Less current portion
|
52.5
|
|
|
46.6
|
|
Less net deferred financing costs
|
101.7
|
|
|
111.0
|
|
Long-term debt
|
$
|
6,270.7
|
|
|
$
|
5,790.2
|
|
The fair value of fixed rate long-term debt, with a carrying value of
$2.46 billion
, was
$2.57 billion
at
September 30, 2017
. The fair value of variable rate long-term debt approximates its carrying value of
$3.97 billion
at
September 30, 2017
. With the exception of the Company’s senior unsecured notes, the fair value of fixed rate debt (Level 2) is determined based on an estimation of discounted future cash flows of the debt at rates currently quoted or offered to the Company for similar debt instruments of comparable maturities by its lenders. The fair value of the Company’s senior unsecured notes (Level 1) is determined based on quoted prices in an active market.
On June 23, 2017, the Company incurred incremental term loan borrowings in an aggregate principal amount of
$500 million
, maturing on December 1, 2023. The incremental amounts were borrowed pursuant to the Increase Supplement, dated as of June 23, 2017, which supplements the Company’s existing Amended and Restated Credit Agreement, dated as of December 1, 2016. The incremental borrowings bear interest at the same rate and have the same terms as the Company’s Term Loan B.
|
|
|
Item 1. Financial Statements - (continued)
|
|
(
11
)
Insurance Reserves
Insurance reserves are established for professional and general liability claims utilizing policies with both fully-insured and self-insured components. This includes the use of an off-shore captive insurance program through wholly owned subsidiaries for certain professional (medical malpractice) and general liability programs. In those instances where the Company has obtained third-party insurance coverage, the Company normally retains liability for the first
$1 million
to
$3 million
of the loss. Insurance reserves cover known claims and incidents within the level of Company retention that may result in the assertion of additional claims, as well as claims from unknown incidents that may be asserted arising from activities through
September 30, 2017
.
The Company establishes reserves for claims based upon an assessment of claims reported and claims incurred but not reported. The reserves are established based on consultation with third-party independent actuaries using actuarial principles and assumptions that consider a number of factors, including historical claim payment patterns (including legal costs) and changes in case reserves and the assumed rate of inflation in health care costs and property damage repairs. Claims are not discounted.
Provisions for insurance expense included in the statements of operations include provisions determined in consultation with third-party actuaries and premiums paid to third-party insurers.
At
September 30, 2017
and
December 31, 2016
, the Company's accrued professional liabilities are presented in the accompanying consolidated balance sheets as a component of other accrued liabilities and insurance reserves as follows (in millions):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Third-party insurance reserves
|
$
|
106.0
|
|
|
$
|
92.8
|
|
Estimated losses under self-insured programs
|
174.8
|
|
|
170.0
|
|
Incurred but not reported losses
|
104.1
|
|
|
94.3
|
|
Total accrued insurance reserves
|
384.9
|
|
|
357.1
|
|
Less estimated losses payable within one year
|
76.3
|
|
|
78.2
|
|
Total
|
$
|
308.6
|
|
|
$
|
278.9
|
|
The changes to the Company's estimated losses under insurance programs as of
September 30, 2017
were as follows (in millions):
|
|
|
|
|
Balance at December 31, 2016
|
$
|
357.1
|
|
Assumed liabilities through acquisitions
|
32.7
|
|
Provision related to current period reserves
|
50.9
|
|
Payments for current period reserves
|
(0.6
|
)
|
Benefit related to changes in prior period reserves
|
(4.0
|
)
|
Payments for prior period reserves
|
(54.6
|
)
|
Change in third-party insurance reserves
|
4.3
|
|
Other, net including post-acquisition adjustments
|
(0.9
|
)
|
Balance at September 30, 2017
|
$
|
384.9
|
|
(
12
)
Stockholders’ Equity
a. Common Stock
On December 1, 2016, the Company completed the Merger. Upon completion of the Merger, each share of AmSurg common stock was converted into
one
share of Company common stock, par value of
$0.01
per share, and each share of EHH common stock was converted into
0.334
shares of Company common stock. Pursuant to the Merger, the Company issued
62,582,161
shares of common stock to the former stockholders of EHH, which represented the conversion of all outstanding common stock of EHH as of December 1, 2016.
The Company repurchases shares by withholding a portion of employee restricted stock that vests to cover payroll withholding taxes in accordance with the restricted stock agreements. During the
nine
months ended
September 30, 2017
and
2016
, the Company repurchased approximately
135,532
shares and
83,587
shares, respectively, of common stock for approximately
$9.4 million
and
$6.1 million
, respectively.
|
|
|
Item 1. Financial Statements - (continued)
|
|
On September 17, 2017, the Board authorized a stock repurchase program that authorizes the Company to repurchase up to
$250 million
of its common stock. The timing and amount of any shares repurchased will be determined based on the Company's evaluation of market conditions and other factors. Repurchases will be made in accordance with the rules and regulations promulgated by the SEC and certain other legal requirements to which the Company may be subject. The program may be suspended or discontinued at any time, and has no time limit. As of September 30, 2017, the Company had made no repurchases under the stock repurchase program.
b. Preferred Stock
Upon completion of the Merger, each share of AmSurg
5.25%
mandatory convertible preferred stock, Series A-1 (AmSurg Preferred Stock) was converted into
one
share, par value of $
0.01
per share, of Company
5.25%
mandatory convertible preferred stock, Series A-1 (Company Preferred Stock). The Company issued
1,725,000
shares of Company Preferred Stock. During 2017, and prior to the mandatory conversion date of July 3, 2017, holders elected to convert
518,879
shares of Company Preferred Stock into
941,294
shares of Company common stock. On the mandatory conversion date, the remaining
1,206,121
shares outstanding of Company Preferred Stock automatically converted into
2,188,024
shares of Company common stock.
The Company Preferred Stock paid dividends at an annual rate of
5.25%
of the initial liquidation preference of $
100
per share. During the
nine
months ended
September 30, 2017
and
2016
, the Board declared
two
and
three
dividends, respectively, each totaling
$1.3125
per share in cash, or
$2.3 million
, for the Company Preferred Stock. Following the mandatory conversion date,
no
shares of Company Preferred Stock were outstanding and all rights of the holders of Company Preferred Stock, including dividend rights, terminated.
c. Stock Incentive Plans
Transactions in which the Company receives employee and non-employee services in exchange for the Company’s equity instruments or liabilities that are based on the fair value of the Company’s equity securities or may be settled by the issuance of these securities are accounted using a fair value method. The Company applies the Black-Scholes method of valuation in determining share-based compensation expense for option awards. For performance share units, the Company utilizes the Monte-Carlo method of valuation. For awards with graded vesting schedules, the Company recognizes compensation expense using the accelerated method. Forfeitures are recognized as incurred.
In May 2014, the Company adopted the AmSurg Corp. 2014 Equity and Incentive Plan (the “2014 Plan”), which was amended in both 2016 and 2017, most recently to change the name of the plan to the Envision Healthcare Corporation 2014 Equity and Incentive Plan, among other things. Under this plan, the Company has granted restricted stock unit awards, non-qualified options and market-based performance share units to employees and outside directors. At
September 30, 2017
,
3,200,000
shares were authorized for grant under the 2014 Plan and
1,816,237
shares were available for future equity grants.
Restricted stock and stock units granted to outside directors vest on the first anniversary of the date of grant. Restricted stock granted to employees generally vests over
three
to
four
years in
three
equal installments. The fair value of restricted stock is determined based on the closing bid price of the Company’s common stock on the grant date. The market-based performance share units vest based on achievement of both the
three
year service condition and market condition. Under the terms of the 2014 Plan, all equity awards granted thereunder are subject to a
one year
minimum vesting period.
During the
nine
months ended
September 30, 2017
, the Company issued
58,022
market-based performance share units with a grant date fair value of
$57.47
per unit using a Monte Carlo simulation model. In addition, as a result of the Merger,
191,927
market-based performance share units were converted at a fair value of
$62.69
per share. At
September 30, 2017
,
207,809
market-based performance shares were outstanding. The market-based performance share units continue to have the same terms and conditions as were in effect prior to the Merger. The Monte Carlo simulation used to calculate the fair value of the market-based performance share units simulates the present value of the potential outcomes of future stock prices of the Company and the companies included in the defined performance index over the performance cycle. The projection of stock prices are based on the risk-free rate of return, the volatilities of the stock price of the Company and the companies included in the defined performance index, and the correlation of the stock price of the Company with these companies. If the financial performance goal is not achieved, the market based performance share units will be forfeited. The number of market based performance share units that will ultimately be received by the holders range from
0%
to
150%
of the units granted, depending on the Company’s level of achievement with respect to the financial performance goal.
During the
nine
months ended
September 30, 2017
, the Company issued
351,832
performance-based share units which vest in a range from
0%
to
150%
of the number of target units awarded, depending on the Company’s level of achievement with respect to the financial performance goal, after
three years
. The Company has not recognized stock compensation expense for the performance-
|
|
|
Item 1. Financial Statements - (continued)
|
|
based share units during the
nine
months ended
September 30, 2017
as the performance conditions have not been determined as of
September 30, 2017
. The Company expects the performance conditions to be determined during the third year of vesting. At
September 30, 2017
,
328,929
performance-based share units were outstanding.
The Company did not issue options subsequent to 2008 from the 2014 Plan, and all outstanding options issued under the 2014 Plan are fully vested. Options previously issued under the 2014 Plan were granted at market value on the date of the grant and vested over
four
years. Outstanding options issued under the 2014 Plan have a term of
ten
years from the date of grant.
Under Company policy, shares held by outside directors and senior management are subject to certain stock ownership guidelines and restrictions on hedging and pledging.
On December 1, 2016, upon completion of the Merger, each outstanding option to purchase shares of EHH common stock and each outstanding EHH stock unit (including stock units subject to time-based and performance-based vesting conditions) were converted into an option to purchase
0.334
shares of common stock of the Company and
0.334
stock units of the Company, respectively. Each option and stock unit continues to have the same terms and conditions as were in effect under the Envision Healthcare Holdings, Inc. 2013 Omnibus Incentive Plan (“2013 Plan”) prior to the completion of the Merger. During the
nine
months ended
September 30, 2017
, the plan was renamed to the Envision Healthcare Corporation 2013 Omnibus Incentive Plan. At
September 30, 2017
,
5,580,568
shares were authorized for grant under the 2013 Plan and
4,134,210
shares were available for future equity grants. Non-performance and performance-based awards issued under the 2013 Plan have a time-based vesting ranging from
one
to
three
years. All options issued under the 2013 Plan have a term of
ten
years from the date of grant. Under the terms of the 2013 Plan, all equity awards granted thereunder are subject to a
one year
minimum vesting period.
A summary of the status of non-vested restricted shares at
September 30, 2017
and changes during the
nine
months ended
September 30, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Number
|
|
Average
|
|
of Shares
|
|
Grant Price
|
Non-vested awards at December 31, 2016
|
1,240,526
|
|
|
$
|
63.09
|
|
Shares granted
|
681,664
|
|
|
64.61
|
|
Shares vested
|
(418,125
|
)
|
|
54.37
|
|
Shares forfeited
|
(29,468
|
)
|
|
66.50
|
|
Non-vested awards at September 30, 2017
|
1,474,597
|
|
|
66.20
|
|
A summary of stock option activity for the
nine
months ended
September 30, 2017
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
Average
|
|
|
|
Average
|
|
Remaining
|
|
Number
|
|
Exercise
|
|
Contractual
|
|
of Shares
|
|
Price
|
|
Term (in years)
|
Outstanding at December 31, 2016
|
3,511,114
|
|
|
$
|
20.81
|
|
|
5.1
|
Options granted
|
239
|
|
|
55.98
|
|
|
|
Options exercised with total intrinsic value of $18.6 million
|
(416,256
|
)
|
|
13.12
|
|
|
|
Options canceled
|
(89,385
|
)
|
|
65.05
|
|
|
|
Outstanding at September 30, 2017 with an aggregate intrinsic value of $85.0 million
|
3,005,712
|
|
|
$
|
20.56
|
|
|
4.4
|
Vested and Exercisable at September 30, 2017 with an aggregate intrinsic value of $84.9 million
|
2,857,421
|
|
|
$
|
16.12
|
|
|
4.0
|
The aggregate intrinsic value represents the total pre-tax intrinsic value received by the option holders on the exercise date or that would have been received by the option holders had all holders of in-the-money outstanding options at
September 30, 2017
exercised their options at the Company’s closing stock price on
September 30, 2017
.
|
|
|
Item 1. Financial Statements - (continued)
|
|
The fair value of each stock option award converted as part of the Merger was calculated on the merger date, December 1, 2016, using the Black-Scholes valuation model with the following assumptions indicated in the below table. The volatility assumptions were based on the historical stock volatility of the Company.
|
|
|
|
Volatility
|
|
31.9%
|
Risk free rate
|
|
0.82% - 1.90%
|
Expected term of options in years
|
|
1.0 - 5.0
|
Expected dividend yield
|
|
0%
|
Other information pertaining to share-based activity during the
three and nine
months ended
September 30, 2017
and
2016
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Share-based compensation expense from continuing operations
|
$
|
9.2
|
|
|
$
|
6.1
|
|
|
$
|
34.5
|
|
|
$
|
21.2
|
|
Fair value of shares vested
|
2.2
|
|
|
1.1
|
|
|
32.4
|
|
|
19.4
|
|
Cash received from option exercises
|
0.3
|
|
|
—
|
|
|
4.0
|
|
|
0.5
|
|
Tax expense (benefit) from exercises of share based awards
|
2.2
|
|
|
(0.2
|
)
|
|
0.1
|
|
|
(3.9
|
)
|
As of
September 30, 2017
, the Company had total unrecognized compensation cost of approximately
$47.7 million
related to non-vested awards, which the Company expects to recognize through 2020 and over a weighted average period of
0.9
years. For the
nine
months ended
September 30, 2017
and
2016
, there were
490,072
and
no
options that were anti-dilutive, respectively.
d. Earnings per Share
Basic net earnings (loss) attributable to Envision Healthcare Corporation common stockholders, per common share, excludes dilution and is computed by dividing net earnings (loss) attributable to Envision Healthcare Corporation common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) attributable to Envision Healthcare Corporation common stockholders, per common share is computed by dividing net earnings (loss) attributable to Envision Healthcare Corporation common stockholders by the weighted-average number of common shares outstanding during the period plus any potential dilutive common share equivalents, including shares issuable (i) upon the vesting of restricted stock awards, restricted stock units and performance stock units as determined under the treasury stock method and (ii) prior to July 3, 2017, the mandatory conversion date, upon conversion of the Company Preferred Stock as determined under the if-converted method. For purposes of calculating diluted earnings (loss) per share, preferred stock dividends have been subtracted from both net earnings (loss) from continuing operations attributable to Envision Healthcare Corporation and net earnings (loss) attributable to Envision Healthcare Corporation common stockholders in periods in which utilizing the if-converted method would be anti-dilutive.
|
|
|
Item 1. Financial Statements - (continued)
|
|
The following is a reconciliation of the numerator and denominators of basic and diluted earnings (loss) per share (dollars in millions; per share amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
Earnings
|
|
Shares
|
|
Per Share
|
|
Earnings
|
|
Shares
|
|
Per Share
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
|
(Numerator)
|
|
(Denominator)
|
|
Amount
|
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations attributable to Envision Healthcare Corporation common stockholders (basic)
|
$
|
40.7
|
|
|
119,949
|
|
|
$
|
0.34
|
|
|
$
|
121.6
|
|
|
117,788
|
|
|
$
|
1.03
|
|
Effect of dilutive securities, options and non-vested shares
|
—
|
|
|
2,751
|
|
|
|
|
|
—
|
|
|
2,770
|
|
|
|
|
Net earnings from continuing operations attributable to Envision Healthcare Corporation common stockholders (diluted)
|
$
|
40.7
|
|
|
122,700
|
|
|
$
|
0.33
|
|
|
$
|
121.6
|
|
|
120,558
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations attributable to Envision Healthcare Corporation common stockholders (basic)
|
$
|
37.7
|
|
|
53,757
|
|
|
$
|
0.70
|
|
|
$
|
110.1
|
|
|
53,720
|
|
|
$
|
2.05
|
|
Effect of dilutive securities, options and non-vested shares
|
—
|
|
|
501
|
|
|
|
|
—
|
|
|
432
|
|
|
|
Net earnings attributable to Envision Healthcare Corporation common stockholders (diluted)
|
$
|
37.7
|
|
|
54,258
|
|
|
$
|
0.69
|
|
|
$
|
110.1
|
|
|
54,152
|
|
|
$
|
2.03
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
(
13
)
Income Taxes
The Company files a consolidated federal income tax return. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company applies recognition thresholds and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return as it relates to accounting for uncertainty in income taxes. In addition, it is the Company’s policy to recognize interest accrued and penalties, if any, related to unrecognized benefits as income tax expense in its consolidated statements of operations. The Company does not expect significant changes to its tax positions or liability for tax uncertainties during the next 12 months.
The Company and its subsidiaries file U.S. federal and various state tax returns. With few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations for years prior to
2013
.
(
14
)
Commitments and Contingencies
Litigation
The Company is subject to litigation arising in the ordinary course of business, including litigation principally relating to professional and general liability. There can be no assurance that the Company's insurance coverage and self-insured liabilities will be adequate to cover all liabilities occurring out of such claims. In addition, the Company receives requests for information from government agencies in connection with their regulatory or investigational authority. Such requests can include subpoenas or demand letters for documents to assist the government in audits or investigations. The Company reviews such requests and notices and takes appropriate action. The Company has been subject to certain requests for information and investigations in the past and could be subject to such requests for information and investigations in the future.
Other than the proceedings described below, the Company believes that it is not engaged in any legal proceedings that would reasonably be expected to have a material adverse effect on the Company's business, financial condition, cash flows or results of operations.
On August 7, 2012, EmCare received a subpoena from the Office of Inspector General of the Department of Health and Human Services (OIG) requesting documents focused on EmCare’s contracts for services at hospitals affiliated with Health Management Associates, Inc. (HMA). The Company is a named defendant in
two
lawsuits filed by whistleblowers alleging misconduct by HMA and certain other parties (the HMA Lawsuits). The federal government has not intervened in these matters as they relate to allegations against EmCare. The Company continues to engage in dialogue with the government to resolve this matter. As the Company has made significant progress towards resolution with the government, the Company has recorded a reserve of
$31.3 million
based on estimates of probable exposure.
Four
putative class action lawsuits were filed against certain subsidiaries of the Company's medical transportation business in California alleging violations of California wage and hour laws, including failures to pay overtime wages and to provide required meal and rest breaks to employees. On April 16, 2008, L. Bartoni commenced a suit in the Superior Court of California, Alameda County, on July 8, 2008, Vaughn Banta filed suit in the Superior Court of California, Los Angeles County (L.A. Superior Court), on January 22, 2009, Laura Karapetian filed suit in the L.A. Superior Court, and on March 11, 2010, Melanie Aguilar filed suit in L.A. Superior Court. The Aguilar and Karapetian cases were consolidated into a single action. In July 2017, the Company entered into an agreement to settle all pending claims with the plaintiffs in the Aguilar/Karapetian case. In the Bartoni case, the court denied class certification of the meal break claim, but the appellate court reversed and remanded the ruling on rest breaks for further proceedings. The plaintiffs in Bartoni have asserted representative claims on behalf of similarly situated employees under the California Private Attorney General Act (PAGA). In the Banta case, while all classes have been decertified, the plaintiffs have also asserted representative claims under PAGA. The Company is unable at this time to estimate the amount of potential damages of these pending claims, if any.
In 2012, the Company's Rural/Metro subsidiary entered into a Corporate Integrity Agreement (CIA) with the OIG in connection with a qui tam action alleging that Rural/Metro had falsified Medicare documents and improperly billed for ambulance services. The CIA requires the Company to maintain a compliance program. This program includes, among other elements, the appointment of a
|
|
|
Item 1. Financial Statements - (continued)
|
|
compliance officer and committee, training of employees nationwide, safeguards for ambulance billing operations, review by an independent review organization, and reporting of certain events. The term of the CIA expired in June 2017 and the Company is awaiting formal release by the OIG.
Insurance Programs
Given the nature of the services provided, the Company and its subsidiaries are subject to professional and general liability claims and related lawsuits in the ordinary course of business. The Company maintains professional insurance with third-party insurers generally on a claims-made basis, subject to self-insured retentions, exclusions and other restrictions. A substantial portion of the professional liability loss risks are being provided by a third-party insurer which is fully reinsured by the Company's wholly owned captive insurance subsidiary. The assets, liabilities and results of operations of the wholly owned captive are consolidated in the accompanying consolidated financial statements. The liabilities for self-insurance in the accompanying consolidated balance sheets include estimates of the ultimate costs related to both reported claims on an individual and aggregate basis and unreported claims. The Company also obtains professional liability insurance on a claims-made basis from third-party insurers for its surgery centers and certain of its owned practices and employed physicians.
The Company’s reserves for professional liability claims within the self-insured retention are based upon periodic actuarial calculations. These actuarial estimates consider historical claims frequency and severity, loss development patterns and other actuarial assumptions and are not discounted to present value.
The Company also maintains insurance for director and officer liability, workers’ compensation liability and property damage. Certain policies are subject to deductibles. In addition to the insurance coverage provided, the Company indemnifies its officers and directors for actions taken on behalf of the Company and its subsidiaries.
Redeemable Noncontrolling Interests
In the event of a change in current law that would prohibit the physicians’ current form of ownership in the partnerships, the Company would be obligated to purchase the physicians’ interests in a substantial majority of the Company’s partnerships. The purchase price to be paid in such event would be determined by a predefined formula, as specified in the partnership agreements. The Company believes the likelihood of a change in current law that would trigger such purchases was remote as of
September 30, 2017
. As a result, the noncontrolling interests that are subject to this redemption feature are not included as part of the Company’s equity and are classified as noncontrolling interests – redeemable on the Company’s consolidated balance sheets.
In addition, certain wholly owned subsidiaries in the Company's ambulatory surgery segment are responsible for all debts incurred but unpaid by the Company's less than wholly owned partnerships as these subsidiaries are the general partner. As manager of the operations of these partnerships, the Company has the ability to limit potential liabilities by curtailing operations or taking other operating actions.
|
|
|
Item 1. Financial Statements - (continued)
|
|
(
15
)
Segment Reporting
Prior to the classification of the medical transportation business into discontinued operations, the Company operated in
three
major lines of business, physician services, medical transportation and ambulatory services, which had been identified as its operating and reportable segments. Subsequent to the discontinued operations classification, the Company has aligned financial results into
two
operating and reportable segments: physician services and ambulatory services. The physician services segment includes the Company’s hospital-based and non-hospital-based physician services business. The ambulatory services segment includes the Company’s ambulatory surgery business, which acquires, develops, owns and operates ASCs and surgical hospitals in partnership with physicians and health systems.
The Company’s financial information by segment is prepared on an internal management reporting basis and includes allocations of corporate expenses. This financial information is used by the chief operating decision maker to allocate resources and assess the performance of the segments. The Company’s segments have been defined based on the separate financial information that is regularly produced and reviewed by the Company’s chief operating decision maker which is its Chief Executive Officer.
The following table presents financial information for each reportable segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Revenue:
|
|
|
|
|
|
|
|
Physician Services
(1)
|
$
|
1,681.3
|
|
|
$
|
507.6
|
|
|
$
|
4,872.5
|
|
|
$
|
1,363.9
|
|
Ambulatory Services
|
309.4
|
|
|
314.6
|
|
|
943.8
|
|
|
941.5
|
|
Total
|
$
|
1,990.7
|
|
|
$
|
822.2
|
|
|
$
|
5,816.3
|
|
|
$
|
2,305.4
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
Physician Services
(1) (2)
|
$
|
179.0
|
|
|
$
|
91.9
|
|
|
$
|
522.4
|
|
|
$
|
245.9
|
|
Ambulatory Services
(2)
|
54.5
|
|
|
61.1
|
|
|
175.2
|
|
|
176.4
|
|
Total
|
$
|
233.5
|
|
|
$
|
153.0
|
|
|
$
|
697.6
|
|
|
$
|
422.3
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
$
|
233.5
|
|
|
$
|
153.0
|
|
|
$
|
697.6
|
|
|
$
|
422.3
|
|
Net earnings attributable to noncontrolling interests
|
50.7
|
|
|
55.6
|
|
|
156.4
|
|
|
166.5
|
|
Interest expense, net
|
(61.4
|
)
|
|
(32.9
|
)
|
|
(169.9
|
)
|
|
(95.6
|
)
|
Depreciation and amortization
|
(73.0
|
)
|
|
(31.6
|
)
|
|
(215.9
|
)
|
|
(90.7
|
)
|
Share-based compensation
|
(9.2
|
)
|
|
(6.1
|
)
|
|
(34.5
|
)
|
|
(21.2
|
)
|
Transaction and integration costs
|
(18.8
|
)
|
|
(16.9
|
)
|
|
(67.7
|
)
|
|
(23.4
|
)
|
Impairment charges
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
Net gain on disposals and deconsolidations, net of noncontrolling interests
|
(3.0
|
)
|
|
4.1
|
|
|
(2.7
|
)
|
|
6.7
|
|
Net change in fair value of contingent consideration
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
2.6
|
|
Earnings before income taxes
|
$
|
118.5
|
|
|
$
|
125.2
|
|
|
$
|
362.7
|
|
|
$
|
367.2
|
|
|
|
|
|
|
|
|
|
Acquisition and Capital Expenditures:
|
|
|
|
|
|
|
|
Physician Services
(1)
|
$
|
144.1
|
|
|
$
|
72.5
|
|
|
$
|
613.0
|
|
|
$
|
347.8
|
|
Ambulatory Services
|
21.9
|
|
|
24.6
|
|
|
73.0
|
|
|
68.0
|
|
Total
|
$
|
166.0
|
|
|
$
|
97.1
|
|
|
$
|
686.0
|
|
|
$
|
415.8
|
|
|
|
(1)
|
On December 1, 2016, the Company completed the Merger. Accordingly, historical amounts from EHH for periods prior to that date are not included.
|
|
|
(2)
|
For the
three and nine
months ended
September 30, 2017
and on a before tax basis, approximately
$15.3 million
and
$44.9 million
, respectively, of general corporate expenses, including allocations for corporate salaries and stock based compensation, general and administrative costs and depreciation, were removed from the medical transportation business and reallocated to the Company's remaining segments. This removal of corporate expenses resulted in a reduction of Adjusted EBITDA in the physician services and ambulatory services segments of
$7.2 million
and
$2.1 million
, respectively, and
$20.6 million
and
$6.1 million
, respectively, for the three and
nine
months ended
September 30, 2017
.
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
(
16
)
Financial Information for the Company and Its Subsidiaries
The 2022 Senior Unsecured Notes are senior unsecured obligations of the Company and are guaranteed by its existing and subsequently acquired or organized 100% owned domestic subsidiaries. The 2022 Senior Unsecured Notes are guaranteed on a full and unconditional and joint and several basis, with limited exceptions considered customary for such guarantees, including the release of the guarantee when a subsidiary's assets are sold. The following condensed consolidating financial statements present the Company (as parent issuer), the subsidiary guarantors, the subsidiary non-guarantors and consolidating adjustments. These condensed consolidating financial statements have been prepared and presented in accordance with Rule 3-10 of Regulation S-X “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” The operating and investing activities of the separate legal entities are fully interdependent and integrated. Accordingly, the results of the separate legal entities are not representative of what the operating results would be on a stand-alone basis. As a result of the refinancing related to the Merger, the guarantor structure of certain entities changed and these statements have been revised to reflect the current structure post-Merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet - September 30, 2017 (In millions)
|
|
Parent Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Total Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
134.0
|
|
|
$
|
0.9
|
|
|
$
|
143.2
|
|
|
$
|
—
|
|
|
$
|
278.1
|
|
Insurance collateral
|
—
|
|
|
—
|
|
|
102.5
|
|
|
—
|
|
|
102.5
|
|
Accounts receivable, net
|
—
|
|
|
266.2
|
|
|
1,112.4
|
|
|
—
|
|
|
1,378.6
|
|
Supplies inventory
|
—
|
|
|
—
|
|
|
22.9
|
|
|
—
|
|
|
22.9
|
|
Prepaid and other current assets
|
34.8
|
|
|
17.3
|
|
|
95.6
|
|
|
(3.3
|
)
|
|
144.4
|
|
Current assets held for sale
|
—
|
|
|
3,296.4
|
|
|
—
|
|
|
—
|
|
|
3,296.4
|
|
Total current assets
|
168.8
|
|
|
3,580.8
|
|
|
1,476.6
|
|
|
(3.3
|
)
|
|
5,222.9
|
|
Property and equipment, net
|
11.6
|
|
|
96.6
|
|
|
190.6
|
|
|
—
|
|
|
298.8
|
|
Investments in and advances to affiliates
|
11,259.9
|
|
|
1,446.4
|
|
|
—
|
|
|
(12,571.3
|
)
|
|
135.0
|
|
Intercompany receivable
|
2,900.7
|
|
|
253.0
|
|
|
—
|
|
|
(3,153.7
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
1,619.3
|
|
|
—
|
|
|
6,481.9
|
|
|
8,101.2
|
|
Intangible assets, net
|
11.7
|
|
|
1,280.1
|
|
|
2,395.9
|
|
|
—
|
|
|
3,687.7
|
|
Other assets
|
40.1
|
|
|
40.4
|
|
|
65.8
|
|
|
—
|
|
|
146.3
|
|
Total assets
|
$
|
14,392.8
|
|
|
$
|
8,316.6
|
|
|
$
|
4,128.9
|
|
|
$
|
(9,246.4
|
)
|
|
$
|
17,591.9
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
40.0
|
|
|
$
|
0.4
|
|
|
$
|
12.1
|
|
|
$
|
—
|
|
|
$
|
52.5
|
|
Accounts payable
|
1.3
|
|
|
25.6
|
|
|
32.7
|
|
|
—
|
|
|
59.6
|
|
Accrued salaries and benefits
|
7.9
|
|
|
177.1
|
|
|
313.9
|
|
|
—
|
|
|
498.9
|
|
Accrued interest
|
35.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35.1
|
|
Other accrued liabilities
|
5.4
|
|
|
160.3
|
|
|
127.8
|
|
|
(3.3
|
)
|
|
290.2
|
|
Current liabilities held for sale
|
—
|
|
|
797.0
|
|
|
—
|
|
|
—
|
|
|
797.0
|
|
Total current liabilities
|
89.7
|
|
|
1,160.4
|
|
|
486.5
|
|
|
(3.3
|
)
|
|
1,733.3
|
|
Long-term debt
|
6,224.3
|
|
|
0.2
|
|
|
46.2
|
|
|
—
|
|
|
6,270.7
|
|
Deferred income taxes
|
1,650.0
|
|
|
—
|
|
|
237.4
|
|
|
—
|
|
|
1,887.4
|
|
Insurance reserves
|
5.1
|
|
|
123.3
|
|
|
180.2
|
|
|
—
|
|
|
308.6
|
|
Other long-term liabilities
|
32.5
|
|
|
81.5
|
|
|
35.5
|
|
|
—
|
|
|
149.5
|
|
Intercompany payable
|
—
|
|
|
2,638.2
|
|
|
515.5
|
|
|
(3,153.7
|
)
|
|
—
|
|
Noncontrolling interests – redeemable
|
—
|
|
|
—
|
|
|
73.4
|
|
|
111.7
|
|
|
185.1
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
Total Envision Healthcare Corporation equity
|
6,391.2
|
|
|
4,313.0
|
|
|
2,419.4
|
|
|
(6,732.4
|
)
|
|
6,391.2
|
|
Noncontrolling interests – non-redeemable
|
—
|
|
|
—
|
|
|
134.8
|
|
|
531.3
|
|
|
666.1
|
|
Total equity
|
6,391.2
|
|
|
4,313.0
|
|
|
2,554.2
|
|
|
(6,201.1
|
)
|
|
7,057.3
|
|
Total liabilities and equity
|
$
|
14,392.8
|
|
|
$
|
8,316.6
|
|
|
$
|
4,128.9
|
|
|
$
|
(9,246.4
|
)
|
|
$
|
17,591.9
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet - December 31, 2016 (In millions)
|
|
Parent Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Total Consolidated
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
41.6
|
|
|
$
|
45.0
|
|
|
$
|
230.3
|
|
|
$
|
—
|
|
|
$
|
316.9
|
|
Insurance collateral
|
—
|
|
|
0.8
|
|
|
86.2
|
|
|
—
|
|
|
87.0
|
|
Accounts receivable, net
|
—
|
|
|
282.2
|
|
|
1,015.6
|
|
|
—
|
|
|
1,297.8
|
|
Supplies inventory
|
—
|
|
|
—
|
|
|
23.4
|
|
|
—
|
|
|
23.4
|
|
Prepaid and other current assets
|
21.2
|
|
|
58.3
|
|
|
56.6
|
|
|
(1.0
|
)
|
|
135.1
|
|
Current assets held for sale
|
—
|
|
|
551.1
|
|
|
—
|
|
|
—
|
|
|
551.1
|
|
Total current assets
|
62.8
|
|
|
937.4
|
|
|
1,412.1
|
|
|
(1.0
|
)
|
|
2,411.3
|
|
Property and equipment, net
|
11.6
|
|
|
96.5
|
|
|
192.7
|
|
|
—
|
|
|
300.8
|
|
Investments in and advances to affiliates
|
11,289.9
|
|
|
2,250.9
|
|
|
—
|
|
|
(13,426.1
|
)
|
|
114.7
|
|
Intercompany receivable
|
2,324.9
|
|
|
291.2
|
|
|
—
|
|
|
(2,616.1
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
1,580.6
|
|
|
—
|
|
|
6,003.4
|
|
|
7,584.0
|
|
Intangible assets, net
|
12.8
|
|
|
1,276.4
|
|
|
2,386.3
|
|
|
—
|
|
|
3,675.5
|
|
Other assets
|
31.3
|
|
|
54.2
|
|
|
59.4
|
|
|
(10.7
|
)
|
|
134.2
|
|
Noncurrent assets held for sale
|
—
|
|
|
2,488.4
|
|
|
—
|
|
|
—
|
|
|
2,488.4
|
|
Total assets
|
$
|
13,733.3
|
|
|
$
|
8,975.6
|
|
|
$
|
4,050.5
|
|
|
$
|
(10,050.5
|
)
|
|
$
|
16,708.9
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
35.0
|
|
|
$
|
0.6
|
|
|
$
|
11.0
|
|
|
$
|
—
|
|
|
$
|
46.6
|
|
Accounts payable
|
5.0
|
|
|
34.1
|
|
|
30.8
|
|
|
—
|
|
|
69.9
|
|
Accrued salaries and benefits
|
13.4
|
|
|
186.1
|
|
|
284.3
|
|
|
—
|
|
|
483.8
|
|
Accrued interest
|
51.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51.4
|
|
Other accrued liabilities
|
3.9
|
|
|
147.4
|
|
|
102.9
|
|
|
(1.0
|
)
|
|
253.2
|
|
Current liabilities held for sale
|
—
|
|
|
249.4
|
|
|
—
|
|
|
—
|
|
|
249.4
|
|
Total current liabilities
|
108.7
|
|
|
617.6
|
|
|
429.0
|
|
|
(1.0
|
)
|
|
1,154.3
|
|
Long-term debt
|
5,749.0
|
|
|
0.3
|
|
|
40.9
|
|
|
—
|
|
|
5,790.2
|
|
Deferred income taxes
|
1,109.9
|
|
|
—
|
|
|
233.8
|
|
|
—
|
|
|
1,343.7
|
|
Insurance reserves
|
4.2
|
|
|
127.6
|
|
|
147.1
|
|
|
—
|
|
|
278.9
|
|
Other long-term liabilities
|
30.4
|
|
|
33.1
|
|
|
38.9
|
|
|
—
|
|
|
102.4
|
|
Noncurrent liabilities held for sale
|
—
|
|
|
468.6
|
|
|
—
|
|
|
—
|
|
|
468.6
|
|
Intercompany payable
|
—
|
|
|
2,290.1
|
|
|
326.0
|
|
|
(2,616.1
|
)
|
|
—
|
|
Noncontrolling interests – redeemable
|
—
|
|
|
—
|
|
|
70.5
|
|
|
112.4
|
|
|
182.9
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
Total Envision Healthcare Corporation equity
|
6,731.1
|
|
|
5,438.3
|
|
|
2,558.9
|
|
|
(7,997.2
|
)
|
|
6,731.1
|
|
Noncontrolling interests – non-redeemable
|
—
|
|
|
—
|
|
|
205.4
|
|
|
451.4
|
|
|
656.8
|
|
Total equity
|
6,731.1
|
|
|
5,438.3
|
|
|
2,764.3
|
|
|
(7,545.8
|
)
|
|
7,387.9
|
|
Total liabilities and equity
|
$
|
13,733.3
|
|
|
$
|
8,975.6
|
|
|
$
|
4,050.5
|
|
|
$
|
(10,050.5
|
)
|
|
$
|
16,708.9
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations - For the Three Months Ended September 30, 2017 (In millions)
|
|
Parent Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Total Consolidated
|
Net revenue
|
$
|
7.1
|
|
|
$
|
458.2
|
|
|
$
|
1,574.6
|
|
|
$
|
(49.2
|
)
|
|
$
|
1,990.7
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
21.7
|
|
|
375.2
|
|
|
1,028.2
|
|
|
(0.2
|
)
|
|
1,424.9
|
|
Supply cost
|
—
|
|
|
1.3
|
|
|
52.1
|
|
|
(0.1
|
)
|
|
53.3
|
|
Insurance expense
|
0.4
|
|
|
11.6
|
|
|
62.5
|
|
|
(29.3
|
)
|
|
45.2
|
|
Other operating expenses
|
7.7
|
|
|
39.0
|
|
|
171.2
|
|
|
(19.6
|
)
|
|
198.3
|
|
Transaction and integration costs
|
1.7
|
|
|
17.0
|
|
|
0.1
|
|
|
—
|
|
|
18.8
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Depreciation and amortization
|
1.3
|
|
|
53.0
|
|
|
18.7
|
|
|
—
|
|
|
73.0
|
|
Total operating expenses
|
32.8
|
|
|
497.1
|
|
|
1,332.8
|
|
|
(49.2
|
)
|
|
1,813.5
|
|
Net gain (loss) on disposals and deconsolidations
|
—
|
|
|
(3.9
|
)
|
|
0.6
|
|
|
—
|
|
|
(3.3
|
)
|
Equity in earnings of unconsolidated affiliates
|
71.1
|
|
|
172.7
|
|
|
—
|
|
|
(238.8
|
)
|
|
5.0
|
|
Operating income
|
45.4
|
|
|
129.9
|
|
|
242.4
|
|
|
(238.8
|
)
|
|
178.9
|
|
Interest expense, net
|
6.2
|
|
|
43.9
|
|
|
11.3
|
|
|
—
|
|
|
61.4
|
|
Other income (expense)
|
0.8
|
|
|
(6.7
|
)
|
|
6.9
|
|
|
—
|
|
|
1.0
|
|
Earnings before income taxes
|
40.0
|
|
|
79.3
|
|
|
238.0
|
|
|
(238.8
|
)
|
|
118.5
|
|
Income tax expense (benefit)
|
11.7
|
|
|
(3.0
|
)
|
|
18.4
|
|
|
—
|
|
|
27.1
|
|
Net earnings from continuing operations
|
28.3
|
|
|
82.3
|
|
|
219.6
|
|
|
(238.8
|
)
|
|
91.4
|
|
Net loss from discontinued operations
|
—
|
|
|
(12.4
|
)
|
|
—
|
|
|
—
|
|
|
(12.4
|
)
|
Net earnings
|
28.3
|
|
|
69.9
|
|
|
219.6
|
|
|
(238.8
|
)
|
|
79.0
|
|
Less net earnings attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
50.7
|
|
|
—
|
|
|
50.7
|
|
Net earnings attributable to Envision Healthcare Corporation stockholders
|
28.3
|
|
|
69.9
|
|
|
168.9
|
|
|
(238.8
|
)
|
|
28.3
|
|
Preferred stock dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net earnings attributable to Envision Healthcare Corporation common stockholders
|
$
|
28.3
|
|
|
$
|
69.9
|
|
|
$
|
168.9
|
|
|
$
|
(238.8
|
)
|
|
$
|
28.3
|
|
Amounts attributable to Envision Healthcare common stockholders:
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of income tax
|
$
|
28.3
|
|
|
$
|
82.3
|
|
|
$
|
168.9
|
|
|
$
|
(238.8
|
)
|
|
$
|
40.7
|
|
Loss from discontinued operations, net of income tax
|
—
|
|
|
(12.4
|
)
|
|
—
|
|
|
—
|
|
|
(12.4
|
)
|
Net earnings attributable to Envision Healthcare Corporation common stockholders
|
$
|
28.3
|
|
|
$
|
69.9
|
|
|
$
|
168.9
|
|
|
$
|
(238.8
|
)
|
|
$
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Envision Healthcare Corporation
|
$
|
28.3
|
|
|
$
|
69.9
|
|
|
$
|
168.9
|
|
|
$
|
(238.8
|
)
|
|
$
|
28.3
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations - For the Nine Months Ended September 30, 2017 (In millions)
|
|
Parent Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Total Consolidated
|
Net revenue
|
$
|
22.6
|
|
|
$
|
1,348.6
|
|
|
$
|
4,579.9
|
|
|
$
|
(134.8
|
)
|
|
$
|
5,816.3
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
62.4
|
|
|
1,185.9
|
|
|
2,888.8
|
|
|
(0.5
|
)
|
|
4,136.6
|
|
Supply cost
|
—
|
|
|
3.9
|
|
|
160.5
|
|
|
(0.1
|
)
|
|
164.3
|
|
Insurance expense
|
1.5
|
|
|
39.9
|
|
|
179.0
|
|
|
(83.8
|
)
|
|
136.6
|
|
Other operating expenses
|
21.0
|
|
|
115.9
|
|
|
485.1
|
|
|
(50.4
|
)
|
|
571.6
|
|
Transaction and integration costs
|
7.0
|
|
|
60.0
|
|
|
0.7
|
|
|
—
|
|
|
67.7
|
|
Impairment charges
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
0.3
|
|
Depreciation and amortization
|
4.3
|
|
|
160.3
|
|
|
51.3
|
|
|
—
|
|
|
215.9
|
|
Total operating expenses
|
96.2
|
|
|
1,566.2
|
|
|
3,765.4
|
|
|
(134.8
|
)
|
|
5,293.0
|
|
Net gain (loss) on disposals and deconsolidations
|
—
|
|
|
6.1
|
|
|
(14.9
|
)
|
|
—
|
|
|
(8.8
|
)
|
Equity in earnings (loss) of unconsolidated affiliates
|
(227.6
|
)
|
|
528.7
|
|
|
—
|
|
|
(285.5
|
)
|
|
15.6
|
|
Operating income
|
(301.2
|
)
|
|
317.2
|
|
|
799.6
|
|
|
(285.5
|
)
|
|
530.1
|
|
Interest expense, net
|
22.0
|
|
|
115.2
|
|
|
32.7
|
|
|
—
|
|
|
169.9
|
|
Other income (expense)
|
2.2
|
|
|
(8.9
|
)
|
|
9.2
|
|
|
—
|
|
|
2.5
|
|
Earnings before income taxes
|
(321.0
|
)
|
|
193.1
|
|
|
776.1
|
|
|
(285.5
|
)
|
|
362.7
|
|
Income tax expense (benefit)
|
39.6
|
|
|
(66.0
|
)
|
|
106.6
|
|
|
—
|
|
|
80.2
|
|
Net earnings (loss) from continuing operations
|
(360.6
|
)
|
|
259.1
|
|
|
669.5
|
|
|
(285.5
|
)
|
|
282.5
|
|
Net loss from discontinued operations
|
—
|
|
|
(486.7
|
)
|
|
—
|
|
|
—
|
|
|
(486.7
|
)
|
Net earnings (loss)
|
(360.6
|
)
|
|
(227.6
|
)
|
|
669.5
|
|
|
(285.5
|
)
|
|
(204.2
|
)
|
Less net earnings attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
156.4
|
|
|
—
|
|
|
156.4
|
|
Net earnings (loss) attributable to Envision Healthcare Corporation stockholders
|
(360.6
|
)
|
|
(227.6
|
)
|
|
513.1
|
|
|
(285.5
|
)
|
|
(360.6
|
)
|
Preferred stock dividends
|
(4.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.5
|
)
|
Net earnings (loss) attributable to Envision Healthcare Corporation common stockholders
|
$
|
(365.1
|
)
|
|
$
|
(227.6
|
)
|
|
$
|
513.1
|
|
|
$
|
(285.5
|
)
|
|
$
|
(365.1
|
)
|
Amounts attributable to Envision Healthcare common stockholders:
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations, net of income tax
|
$
|
(365.1
|
)
|
|
$
|
259.1
|
|
|
$
|
513.1
|
|
|
$
|
(285.5
|
)
|
|
$
|
121.6
|
|
Loss from discontinued operations, net of income tax
|
—
|
|
|
(486.7
|
)
|
|
—
|
|
|
—
|
|
|
(486.7
|
)
|
Net earnings (loss) attributable to Envision Healthcare Corporation common stockholders
|
$
|
(365.1
|
)
|
|
$
|
(227.6
|
)
|
|
$
|
513.1
|
|
|
$
|
(285.5
|
)
|
|
$
|
(365.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Envision Healthcare Corporation
|
$
|
(360.6
|
)
|
|
$
|
(226.3
|
)
|
|
$
|
513.1
|
|
|
$
|
(285.5
|
)
|
|
$
|
(359.3
|
)
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations - For the Three Months Ended September 30, 2016 (In millions)
|
|
Parent Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Total Consolidated
|
Net revenue
|
$
|
8.4
|
|
|
$
|
279.0
|
|
|
$
|
549.3
|
|
|
$
|
(14.5
|
)
|
|
$
|
822.2
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
20.1
|
|
|
210.9
|
|
|
233.0
|
|
|
(0.1
|
)
|
|
463.9
|
|
Supply cost
|
—
|
|
|
0.9
|
|
|
47.1
|
|
|
(0.1
|
)
|
|
47.9
|
|
Insurance expense
|
—
|
|
|
8.0
|
|
|
11.2
|
|
|
—
|
|
|
19.2
|
|
Other operating expenses
|
6.5
|
|
|
5.5
|
|
|
95.4
|
|
|
(14.3
|
)
|
|
93.1
|
|
Transaction and integration costs
|
8.0
|
|
|
8.9
|
|
|
—
|
|
|
—
|
|
|
16.9
|
|
Depreciation and amortization
|
1.1
|
|
|
20.7
|
|
|
9.8
|
|
|
—
|
|
|
31.6
|
|
Total operating expenses
|
35.7
|
|
|
254.9
|
|
|
396.5
|
|
|
(14.5
|
)
|
|
672.6
|
|
Net gain on disposals and deconsolidations
|
—
|
|
|
3.6
|
|
|
0.5
|
|
|
—
|
|
|
4.1
|
|
Equity in earnings of unconsolidated affiliates
|
79.7
|
|
|
86.6
|
|
|
—
|
|
|
(161.9
|
)
|
|
4.4
|
|
Operating income
|
52.4
|
|
|
114.3
|
|
|
153.3
|
|
|
(161.9
|
)
|
|
158.1
|
|
Interest expense (income)
|
(7.0
|
)
|
|
24.9
|
|
|
15.0
|
|
|
—
|
|
|
32.9
|
|
Earnings before income taxes
|
59.4
|
|
|
89.4
|
|
|
138.3
|
|
|
(161.9
|
)
|
|
125.2
|
|
Income tax expense
|
19.4
|
|
|
9.7
|
|
|
0.5
|
|
|
—
|
|
|
29.6
|
|
Net earnings from continuing operations
|
40.0
|
|
|
79.7
|
|
|
137.8
|
|
|
(161.9
|
)
|
|
95.6
|
|
Less net earnings attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
55.6
|
|
|
—
|
|
|
55.6
|
|
Net earnings attributable to Envision Healthcare Corporation stockholders
|
40.0
|
|
|
79.7
|
|
|
82.2
|
|
|
(161.9
|
)
|
|
40.0
|
|
Preferred stock dividends
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
Net earnings attributable to Envision Healthcare Corporation common stockholders
|
$
|
37.7
|
|
|
$
|
79.7
|
|
|
$
|
82.2
|
|
|
$
|
(161.9
|
)
|
|
$
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Envision Healthcare Corporation
|
$
|
40.0
|
|
|
$
|
79.7
|
|
|
$
|
82.2
|
|
|
$
|
(161.9
|
)
|
|
$
|
40.0
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations - For the Nine Months Ended September 30, 2016 (In millions)
|
|
Parent Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Total Consolidated
|
Net revenue
|
$
|
24.2
|
|
|
$
|
795.0
|
|
|
$
|
1,527.2
|
|
|
$
|
(41.0
|
)
|
|
$
|
2,305.4
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
66.4
|
|
|
605.9
|
|
|
609.6
|
|
|
(0.4
|
)
|
|
1,281.5
|
|
Supply cost
|
—
|
|
|
2.6
|
|
|
142.1
|
|
|
(0.1
|
)
|
|
144.6
|
|
Insurance expense
|
0.4
|
|
|
27.1
|
|
|
28.5
|
|
|
—
|
|
|
56.0
|
|
Other operating expenses
|
19.7
|
|
|
22.7
|
|
|
269.6
|
|
|
(40.5
|
)
|
|
271.5
|
|
Transaction and integration costs
|
10.3
|
|
|
13.1
|
|
|
—
|
|
|
—
|
|
|
23.4
|
|
Depreciation and amortization
|
3.3
|
|
|
58.8
|
|
|
28.6
|
|
|
—
|
|
|
90.7
|
|
Total operating expenses
|
100.1
|
|
|
730.2
|
|
|
1,078.4
|
|
|
(41.0
|
)
|
|
1,867.7
|
|
Net gain on disposals and deconsolidations
|
—
|
|
|
6.5
|
|
|
0.2
|
|
|
—
|
|
|
6.7
|
|
Equity in earnings of unconsolidated affiliates
|
236.8
|
|
|
271.3
|
|
|
—
|
|
|
(489.7
|
)
|
|
18.4
|
|
Operating income
|
160.9
|
|
|
342.6
|
|
|
449.0
|
|
|
(489.7
|
)
|
|
462.8
|
|
Interest expense (income)
|
(14.0
|
)
|
|
81.4
|
|
|
28.2
|
|
|
—
|
|
|
95.6
|
|
Earnings before income taxes
|
174.9
|
|
|
261.2
|
|
|
420.8
|
|
|
(489.7
|
)
|
|
367.2
|
|
Income tax expense
|
58.0
|
|
|
24.4
|
|
|
1.4
|
|
|
—
|
|
|
83.8
|
|
Net earnings from continuing operations
|
116.9
|
|
|
236.8
|
|
|
419.4
|
|
|
(489.7
|
)
|
|
283.4
|
|
Less net earnings attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
166.5
|
|
|
—
|
|
|
166.5
|
|
Net earnings attributable to Envision Healthcare Corporation stockholders
|
116.9
|
|
|
236.8
|
|
|
252.9
|
|
|
(489.7
|
)
|
|
116.9
|
|
Preferred stock dividends
|
(6.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6.8
|
)
|
Net earnings attributable to Envision Healthcare Corporation common stockholders
|
$
|
110.1
|
|
|
$
|
236.8
|
|
|
$
|
252.9
|
|
|
$
|
(489.7
|
)
|
|
$
|
110.1
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Envision Healthcare Corporation
|
$
|
116.9
|
|
|
$
|
236.8
|
|
|
$
|
252.9
|
|
|
$
|
(489.7
|
)
|
|
$
|
116.9
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows - For the Nine Months Ended September 30, 2017 (In millions)
|
|
Parent Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Total Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) operating activities
|
$
|
(16.7
|
)
|
|
$
|
417.7
|
|
|
$
|
485.0
|
|
|
$
|
(325.0
|
)
|
|
$
|
561.0
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisitions and related expenses
|
(352.5
|
)
|
|
(695.1
|
)
|
|
—
|
|
|
353.2
|
|
|
(694.4
|
)
|
Acquisition of property and equipment
|
(2.1
|
)
|
|
(105.6
|
)
|
|
(30.8
|
)
|
|
—
|
|
|
(138.5
|
)
|
Purchases of marketable securities
|
—
|
|
|
—
|
|
|
(18.7
|
)
|
|
—
|
|
|
(18.7
|
)
|
Maturities of marketable securities
|
—
|
|
|
—
|
|
|
7.2
|
|
|
—
|
|
|
7.2
|
|
Other, net
|
—
|
|
|
(20.5
|
)
|
|
16.3
|
|
|
—
|
|
|
(4.2
|
)
|
Net cash flows used in investing activities
|
(354.6
|
)
|
|
(821.2
|
)
|
|
(26.0
|
)
|
|
353.2
|
|
|
(848.6
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
789.0
|
|
|
—
|
|
|
12.2
|
|
|
—
|
|
|
801.2
|
|
Repayment on long-term borrowings
|
(318.0
|
)
|
|
(1.1
|
)
|
|
(8.9
|
)
|
|
—
|
|
|
(328.0
|
)
|
Distributions to owners, including noncontrolling interests
|
—
|
|
|
(125.1
|
)
|
|
(374.2
|
)
|
|
325.0
|
|
|
(174.3
|
)
|
Capital contributions
|
—
|
|
|
352.5
|
|
|
—
|
|
|
(352.5
|
)
|
|
—
|
|
Changes in intercompany balances with affiliates, net
|
5.1
|
|
|
173.0
|
|
|
(178.1
|
)
|
|
—
|
|
|
—
|
|
Other, net
|
(12.4
|
)
|
|
(13.4
|
)
|
|
2.9
|
|
|
(0.7
|
)
|
|
(23.6
|
)
|
Net cash flows provided by (used in) financing activities
|
463.7
|
|
|
385.9
|
|
|
(546.1
|
)
|
|
(28.2
|
)
|
|
275.3
|
|
Net increase (decrease) in cash and cash equivalents
|
92.4
|
|
|
(17.6
|
)
|
|
(87.1
|
)
|
|
—
|
|
|
(12.3
|
)
|
Cash and cash equivalents, beginning of period
|
41.6
|
|
|
59.7
|
|
|
230.3
|
|
|
—
|
|
|
331.6
|
|
Less cash and cash equivalents of held for sale assets, end of period
|
—
|
|
|
41.2
|
|
|
—
|
|
|
—
|
|
|
41.2
|
|
Cash and cash equivalents, end of period
|
$
|
134.0
|
|
|
$
|
0.9
|
|
|
$
|
143.2
|
|
|
$
|
—
|
|
|
$
|
278.1
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows - For the Nine Months Ended September 30, 2016 (In millions)
|
|
Parent Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Total Consolidated
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
$
|
79.4
|
|
|
$
|
172.2
|
|
|
$
|
443.7
|
|
|
$
|
(344.3
|
)
|
|
$
|
351.0
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisitions and related expenses
|
(296.7
|
)
|
|
(356.2
|
)
|
|
—
|
|
|
301.2
|
|
|
(351.7
|
)
|
Acquisition of property and equipment
|
(3.0
|
)
|
|
(34.6
|
)
|
|
(26.4
|
)
|
|
—
|
|
|
(64.0
|
)
|
Increase in cash due to consolidation of previously unconsolidated affiliates
|
—
|
|
|
—
|
|
|
31.4
|
|
|
—
|
|
|
31.4
|
|
Purchases of marketable securities
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
Maturities of marketable securities
|
—
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
|
3.0
|
|
Other, net
|
—
|
|
|
(0.7
|
)
|
|
(5.8
|
)
|
|
—
|
|
|
(6.5
|
)
|
Net cash flows provided by (used in) investing activities
|
(299.7
|
)
|
|
(391.5
|
)
|
|
1.7
|
|
|
301.2
|
|
|
(388.3
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
423.0
|
|
|
—
|
|
|
7.0
|
|
|
—
|
|
|
430.0
|
|
Repayment on long-term borrowings
|
(204.5
|
)
|
|
—
|
|
|
(9.8
|
)
|
|
—
|
|
|
(214.3
|
)
|
Distributions to owners, including noncontrolling interests
|
—
|
|
|
(153.1
|
)
|
|
(363.3
|
)
|
|
344.3
|
|
|
(172.1
|
)
|
Capital contributions
|
—
|
|
|
296.7
|
|
|
—
|
|
|
(296.7
|
)
|
|
—
|
|
Changes in intercompany balances with affiliates, net
|
(5.6
|
)
|
|
51.0
|
|
|
(45.4
|
)
|
|
—
|
|
|
—
|
|
Other, net
|
(9.1
|
)
|
|
3.5
|
|
|
3.2
|
|
|
(4.5
|
)
|
|
(6.9
|
)
|
Net cash flows provided by (used in) financing activities
|
203.8
|
|
|
198.1
|
|
|
(408.3
|
)
|
|
43.1
|
|
|
36.7
|
|
Net increase (decrease) in cash and cash equivalents
|
(16.5
|
)
|
|
(21.2
|
)
|
|
37.1
|
|
|
—
|
|
|
(0.6
|
)
|
Cash and cash equivalents, beginning of period
|
20.4
|
|
|
24.5
|
|
|
61.8
|
|
|
—
|
|
|
106.7
|
|
Cash and cash equivalents, end of period
|
$
|
3.9
|
|
|
$
|
3.3
|
|
|
$
|
98.9
|
|
|
$
|
—
|
|
|
$
|
106.1
|
|
|
|
|
Item 1. Financial Statements - (continued)
|
|
(
17
)
Subsequent Events
On October 31, 2017, the Company announced that its Board, in consultation with management and financial and legal advisors, had unanimously decided to initiate a full review of a broad range of alternatives to enhance shareholder value. The Board has set no timetable for completion of its review. There can be no assurance that this review will result in a transaction or other alternative of any kind, or if such strategic alternative does occur, that it will successfully enhance shareholder value.