Supplemental Condensed Consolidating Financial Information Disclosure | 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION The Senior Notes due 2019, 2020 and 2022, which are senior unsecured obligations of CHS, and the 5⅛% Senior Secured Notes due 2018 and 2021 (collectively, “the Notes”) are guaranteed on a senior basis by the Company and by certain of its existing and subsequently acquired or organized 100 % owned domestic subsidiaries. The Notes are fully and unconditionally guaranteed on a joint and several basis, with exceptions considered customary for such guarantees, limited to the release of the guarantee when a subsidiary guarantor’s capital stock is sold, or a sale of all of the subsidiary guarantor’s assets used in operations. The following condensed consolidating financial statements present Community Health Systems, Inc. (as parent guarantor), CHS (as the issuer), the subsidiary guarantors, the subsidiary non-guarantors and eliminations. These condensed consolidating financial statements have been prepared and presented in accordance with SEC Regulation S-X Rule 3-10 “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” The accounting policies used in the preparation of this financial information are consistent with those elsewhere in the condensed consolidated financial statements of the Company, except as noted below: • Intercompany receivables and payables are presented gross in the supplemental condensed consolidating balance sheets. • Cash flows from intercompany transactions are presented in cash flows from financing activities, as changes in intercompany balances with affiliates, net. • Income tax expense is allocated from the parent guarantor to the income producing operations (other guarantors and non-guarantors) and the issuer through stockholders’ equity. As this approach represents an allocation, the income tax expense allocation is considered non-cash for statement of cash flow purposes. • Interest expense, net has been presented to reflect net interest expense and interest income from outstanding long-term debt and intercompany balances. The Company’s intercompany activity consists primarily of daily cash transfers for purposes of cash management, the allocation of certain expenses and expenditures paid for by the Parent on behalf of its subsidiaries, and the push down of investment in its subsidiaries. This activity also includes the intercompany transactions between consolidated entities as part of the Receivables Facility that is further discussed in Note 12. The Company’s subsidiaries generally do not purchase services from one another; thus, the intercompany transactions do not represent revenue generating transactions. All intercompany transactions eliminate in consolidation. From time to time, subsidiaries of the Company sell and/or repurchase noncontrolling interests in consolidated subsidiaries, which may change subsidiaries between guarantors and non-guarantors. Effective with the spin-off of QHC, all subsidiaries of the Company that were part of that distribution have been removed as guarantors. Amounts for prior periods have been revised to reflect the status of guarantors or non-guarantors as of June 30, 2016. Condensed Consolidating Statement of Loss Three Months Ended June 30, 2016 Parent Guarantor Issuer Other Guarantors Non - Guarantors Eliminations Consolidated (In millions) Operating revenues (net of contractual allowances and discounts) $ - $ (6) $ 3,220 $ 2,076 $ - $ 5,290 Provision for bad debts - - 452 248 - 700 Net operating revenues - (6) 2,768 1,828 - 4,590 Operating costs and expenses: Salaries and benefits - - 1,130 1,024 - 2,154 Supplies - - 495 264 - 759 Other operating expenses - - 683 373 - 1,056 Government settlement and related costs - - - - - - Electronic health records incentive reimbursement - - (21) (10) - (31) Rent - - 56 56 - 112 Depreciation and amortization - - 181 95 - 276 Impairment of goodwill and long-lived assets - - 1,134 505 - 1,639 Total operating costs and expenses - - 3,658 2,307 - 5,965 Loss from operations - (6) (890) (479) - (1,375) Interest expense, net - 39 186 21 - 246 Loss from early extinguishment of debt - 30 - - - 30 Gain on sale of investments in unconsolidated affiliates - - (94) - - (94) Equity in earnings of unconsolidated affiliates 1,432 1,384 462 - (3,292) (14) Loss from continuing operations before income taxes (1,432) (1,459) (1,444) (500) 3,292 (1,543) Provision for (benefit from) income taxes - (27) (57) (54) - (138) Loss from continuing operations (1,432) (1,432) (1,387) (446) 3,292 (1,405) Discontinued operations, net of taxes: (Loss) income from operations of entities sold or held for sale - - (2) 1 - (1) (Loss) income from discontinued operations, net of taxes - - (2) 1 - (1) Net loss (1,432) (1,432) (1,389) (445) 3,292 (1,406) Less: Net income attributable to noncontrolling interests - - - 26 - 26 Net loss attributable to Community Health Systems, Inc. stockholders $ (1,432) $ (1,432) $ (1,389) $ (471) $ 3,292 $ (1,432) Condensed Consolidating Statement of Income Three Months Ended June 30, 2015 Parent Guarantor Issuer Other Guarantors Non - Guarantors Eliminations Consolidated (In millions) Operating revenues (net of contractual allowances and discounts) $ - $ (5) $ 3,182 $ 2,437 $ - $ 5,614 Provision for bad debts - - 410 322 - 732 Net operating revenues - (5) 2,772 2,115 - 4,882 Operating costs and expenses: Salaries and benefits - - 1,083 1,134 - 2,217 Supplies - - 465 285 - 750 Other operating expenses - - 652 473 - 1,125 Government settlement and related costs - - (6) - - (6) Electronic health records incentive reimbursement - - (36) (19) - (55) Rent - - 54 59 - 113 Depreciation and amortization - - 178 113 - 291 Impairment of long-lived assets - - 6 - - 6 Total operating costs and expenses - - 2,396 2,045 - 4,441 (Loss) income from operations - (5) 376 70 - 441 Interest expense, net - 28 177 34 - 239 Loss from early extinguishment of debt - 9 - - - 9 Equity in earnings of unconsolidated affiliates (111) (139) (20) - 249 (21) Income from continuing operations before income taxes 111 97 219 36 (249) 214 Provision for (benefit from) income taxes - (14) 81 7 - 74 Income from continuing operations 111 111 138 29 (249) 140 Discontinued operations, net of taxes: Loss from operations of entities sold or held for sale - - (2) (4) - (6) Income (loss) on sale, net - - 1 (1) - - Loss from discontinued operations, net of taxes - - (1) (5) - (6) Net income 111 111 137 24 (249) 134 Less: Net income attributable to noncontrolling interests - - - 23 - 23 Net income (loss) attributable to Community Health Systems, Inc. stockholders $ 111 $ 111 $ 137 $ 1 $ (249) $ 111 Condensed Consolidating Statement of Loss Six Months Ended June 30, 2016 Parent Guarantor Issuer Other Guarantors Non - Guarantors Eliminations Consolidated (In millions) Operating revenues (net of contractual allowances and discounts) $ - $ (12) $ 6,507 $ 4,549 $ - $ 11,044 Provision for bad debts - - 929 526 - 1,455 Net operating revenues - (12) 5,578 4,023 - 9,589 Operating costs and expenses: Salaries and benefits - - 2,235 2,235 - 4,470 Supplies - - 991 568 - 1,559 Other operating expenses - - 1,362 867 - 2,229 Government settlement and related costs - - 1 - - 1 Electronic health records incentive reimbursement - - (29) (20) - (49) Rent - - 113 118 - 231 Depreciation and amortization - - 366 208 - 574 Impairment of goodwill and long-lived assets - - 1,145 511 - 1,656 Total operating costs and expenses - - 6,184 4,487 - 10,671 Loss from operations - (12) (606) (464) - (1,082) Interest expense, net - 74 366 56 - 496 Loss from early extinguishment of debt - 30 - - - 30 Gain on sale of investments in unconsolidated affiliates - - (94) - - (94) Equity in earnings of unconsolidated affiliates 1,421 1,325 469 - (3,249) (34) Loss from continuing operations before income taxes (1,421) (1,441) (1,347) (520) 3,249 (1,480) Provision for (benefit from) income taxes - (20) (19) (73) - (112) Loss from continuing operations (1,421) (1,421) (1,328) (447) 3,249 (1,368) Discontinued operations, net of taxes: Loss from operations of entities sold or held for sale - - (3) 1 - (2) Impairment of hospitals sold or held for sale - - - (1) - (1) Loss from discontinued operations, net of taxes - - (3) - - (3) Net loss (1,421) (1,421) (1,331) (447) 3,249 (1,371) Less: Net income attributable to noncontrolling interests - - - 50 - 50 Net loss attributable to Community Health Systems, Inc. stockholders $ (1,421) $ (1,421) $ (1,331) $ (497) $ 3,249 $ (1,421) Condensed Consolidating Statement of Income Six Months Ended June 30, 2015 Parent Guarantor Issuer Other Guarantors Non - Guarantors Eliminations Consolidated (In millions) Operating revenues (net of contractual allowances and discounts) $ - $ (9) $ 6,376 $ 4,893 $ - $ 11,260 Provision for bad debts - - 848 619 - 1,467 Net operating revenues - (9) 5,528 4,274 - 9,793 Operating costs and expenses: Salaries and benefits - - 2,177 2,297 - 4,474 Supplies - - 934 578 - 1,512 Other operating expenses - - 1,275 950 - 2,225 Government settlement and related costs - - 1 - - 1 Electronic health records incentive reimbursement - - (46) (35) - (81) Rent - - 110 119 - 229 Depreciation and amortization - - 360 227 - 587 Impairment of long-lived assets - - 6 - - 6 Total operating costs and expenses - - 4,817 4,136 - 8,953 (Loss) income from operations - (9) 711 138 - 840 Interest expense, net - 48 369 64 - 481 Loss from early extinguishment of debt - 16 - - - 16 Equity in earnings of unconsolidated affiliates (189) (240) (32) - 422 (39) Income from continuing operations before income taxes 189 167 374 74 (422) 382 Provision for (benefit from) income taxes - (22) 137 15 - 130 Income from continuing operations 189 189 237 59 (422) 252 Discontinued operations, net of taxes: Loss from operations of entities sold or held for sale - - - (17) - (17) Impairment of hospitals sold or held for sale - - (2) - - (2) Loss on sale, net - - - (1) - (1) Loss from discontinued operations, net of taxes - - (2) (18) - (20) Net income 189 189 235 41 (422) 232 Less: Net income attributable to noncontrolling interests - - - 43 - 43 Net income (loss) attributable to Community Health Systems, Inc. stockholders $ 189 $ 189 $ 235 $ (2) $ (422) $ 189 Condensed Consolidating Statement of Comprehensive Loss Three Months Ended June 30, 2016 Parent Guarantor Issuer Other Guarantors Non - Guarantors Eliminations Consolidated (In millions) Net loss $ (1,432) $ (1,432) $ (1,389) $ (445) $ 3,292 $ (1,406) Other comprehensive loss, net of income taxes: Net change in fair value of interest rate swaps (2) (2) - - 2 (2) Net change in fair value of available-for-sale securities (3) (3) (3) - 6 (3) Amortization and recognition of unrecognized pension cost components 2 2 2 - (4) 2 Other comprehensive loss (3) (3) (1) - 4 (3) Comprehensive loss (1,435) (1,435) (1,390) (445) 3,296 (1,409) Less: Comprehensive income attributable to noncontrolling interests - - - 26 - 26 Comprehensive loss attributable to Community Health Systems, Inc. stockholders $ (1,435) $ (1,435) $ (1,390) $ (471) $ 3,296 $ (1,435) Condensed Consolidating Statement of Comprehensive Income Three Months Ended June 30, 2015 Parent Guarantor Issuer Other Guarantors Non - Guarantors Eliminations Consolidated (In millions) Net income $ 111 $ 111 $ 137 $ 24 $ (249) $ 134 Other comprehensive income (loss), net of income taxes: Net change in fair value of interest rate swaps 8 8 - - (8) 8 Net change in fair value of available-for-sale securities (2) (2) (2) - 4 (2) Amortization and recognition of unrecognized pension cost components - - - - - - Other comprehensive income (loss) 6 6 (2) - (4) 6 Comprehensive income 117 117 135 24 (253) 140 Less: Comprehensive income attributable to noncontrolling interests - - - 23 - 23 Comprehensive income attributable to Community Health Systems, Inc. stockholders $ 117 $ 117 $ 135 $ 1 $ (253) $ 117 Condensed Consolidating Statement of Comprehensive Loss Six Months Ended June 30, 2016 Parent Guarantor Issuer Other Guarantors Non - Guarantors Eliminations Consolidated (In millions) Net loss $ (1,421) $ (1,421) $ (1,331) $ (447) $ 3,249 $ (1,371) Other comprehensive (loss) income, net of income taxes: Net change in fair value of interest rate swaps, net of tax (21) (21) - - 21 (21) Net change in fair value of available-for-sale securities, net of tax (1) (1) (1) - 2 (1) Amortization and recognition of unrecognized pension cost components, net of tax 3 3 3 - (6) 3 Other comprehensive (loss) income (19) (19) 2 - 17 (19) Comprehensive loss (1,440) (1,440) (1,329) (447) 3,266 (1,390) Less: Comprehensive income attributable to noncontrolling interests - - - 50 - 50 Comprehensive loss attributable to Community Health Systems, Inc. stockholders $ (1,440) $ (1,440) $ (1,329) $ (497) $ 3,266 $ (1,440) Condensed Consolidating Statement of Comprehensive Income Six Months Ended June 30, 2015 Parent Guarantor Issuer Other Guarantors Non - Guarantors Eliminations Consolidated (In millions) Net income $ 189 $ 189 $ 235 $ 41 $ (422) $ 232 Other comprehensive loss, net of income taxes: Net change in fair value of interest rate swaps, net of tax (1) (1) - - 1 (1) Net change in fair value of available-for-sale securities, net of tax (1) (1) (1) - 2 (1) Amortization and recognition of unrecognized pension cost components, net of tax 1 1 1 - (2) 1 Other comprehensive loss (1) (1) - - 1 (1) Comprehensive income 188 188 235 41 (421) 231 Less: Comprehensive income attributable to noncontrolling interests - - - 43 - 43 Comprehensive income (loss) attributable to Community Health Systems, Inc. stockholders $ 188 $ 188 $ 235 $ (2) $ (421) $ 188 Condensed Consolidating Balance Sheet June 30, 2016 Parent Other Non - Guarantor Issuer Guarantors Guarantors Eliminations Consolidated (In millions) ASSETS Current assets: Cash and cash equivalents $ - $ - $ 178 $ 283 $ - $ 461 Patient accounts receivable, net of allowance for doubtful accounts - - 846 2,333 - 3,179 Supplies - - 359 168 - 527 Prepaid income taxes 33 - - - - 33 Prepaid expenses and taxes - - 150 67 - 217 Other current assets - - 252 173 - 425 Total current assets 33 - 1,785 3,024 - 4,842 Intercompany receivable 262 15,370 5,402 8,453 (29,487) - Property and equipment, net - - 5,905 3,050 - 8,955 Goodwill - - 4,055 2,871 - 6,926 Other assets, net - - 2,132 842 (1,265) 1,709 Net investment in subsidiaries 2,000 20,224 9,834 - (32,058) - Total assets $ 2,295 $ 35,594 $ 29,113 $ 18,240 $ (62,810) $ 22,432 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ - $ 170 $ 73 $ 10 $ - $ 253 Accounts payable - - 695 284 - 979 Accrued interest - 206 1 1 - 208 Accrued liabilities 4 - 707 577 - 1,288 Total current liabilities 4 376 1,476 872 - 2,728 Long-term debt - 14,232 107 771 - 15,110 Intercompany payable - 17,736 23,705 14,994 (56,435) - Deferred income taxes 388 - - - - 388 Other long-term liabilities 8 1,250 1,177 488 (1,265) 1,658 Total liabilities 400 33,594 26,465 17,125 (57,700) 19,884 Redeemable noncontrolling interests in equity of consolidated subsidiaries - - - 546 - 546 Equity: Community Health Systems, Inc. stockholders’ equity: Preferred stock - - - - - - Common stock 1 - - - - 1 Additional paid-in capital 1,965 788 1,004 763 (2,555) 1,965 Treasury stock, at cost - - - - - - Accumulated other comprehensive loss (90) (90) (15) (8) 113 (90) Retained earnings (deficit) 19 1,302 1,659 (293) (2,668) 19 Total Community Health Systems, Inc. stockholders’ equity 1,895 2,000 2,648 462 (5,110) 1,895 Noncontrolling interests in equity of consolidated subsidiaries - - - 107 - 107 Total equity 1,895 2,000 2,648 569 (5,110) 2,002 Total liabilities and equity $ 2,295 $ 35,594 $ 29,113 $ 18,240 $ (62,810) $ 22,432 Condensed Consolidating Balance Sheet December 31, 2015 Parent Other Non - Guarantor Issuer Guarantors Guarantors Eliminations Consolidated (In millions) ASSETS Current assets: Cash and cash equivalents $ - $ - $ 32 $ 152 $ - $ 184 Patient accounts receivable, net of allowance for doubtful accounts - - 894 2,717 - 3,611 Supplies - - 355 225 - 580 Prepaid income taxes 27 - - - - 27 Prepaid expenses and taxes - - 125 72 - 197 Other current assets - - 335 232 - 567 Total current assets 27 - 1,741 3,398 - 5,166 Intercompany receivable 1,159 16,004 4,590 7,478 (29,231) - Property and equipment, net - - 6,199 3,913 - 10,112 Goodwill - - 4,965 4,000 - 8,965 Other assets, net - - 2,018 1,379 (1,045) 2,352 Net investment in subsidiaries 3,438 20,218 9,414 - (33,070) - Total assets $ 4,624 $ 36,222 $ 28,927 $ 20,168 $ (63,346) $ 26,595 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ - $ 162 $ 62 $ 5 $ - $ 229 Accounts payable - - 774 484 - 1,258 Accrued interest - 226 - 1 - 227 Accrued liabilities 4 - 814 540 - 1,358 Total current liabilities 4 388 1,650 1,030 - 3,072 Long-term debt - 15,603 136 817 - 16,556 Intercompany payable - 15,577 22,143 16,196 (53,916) - Deferred income taxes 593 - - - - 593 Other long-term liabilities 8 1,216 1,028 491 (1,045) 1,698 Total liabilities 605 32,784 24,957 18,534 (54,961) 21,919 Redeemable noncontrolling interests in equity of consolidated subsidiaries - - - 571 - 571 Equity: Community Health Systems, Inc. stockholders’ equity: Preferred stock - - - - - - Common stock 1 - - - - 1 Additional paid-in capital 1,963 1,324 1,505 964 (3,793) 1,963 Treasury stock, at cost (7) - - - - (7) Accumulated other comprehensive loss (73) (73) (22) (1) 96 (73) Retained earnings 2,135 2,187 2,487 14 (4,688) 2,135 Total Community Health Systems, Inc. stockholders’ equity 4,019 3,438 3,970 977 (8,385) 4,019 Noncontrolling interests in equity of consolidated subsidiaries - - - 86 - 86 Total equity 4,019 3,438 3,970 1,063 (8,385) 4,105 Total liabilities and equity $ 4,624 $ 36,222 $ 28,927 $ 20,168 $ (63,346) $ 26,595 Condensed Consolidating Statement of Cash Flows Six Months Ended June 30, 2016 Parent Other Non - Guarantor Issuer Guarantors Guarantors Eliminations Consolidated (In millions) Net cash (used in) provided by operating activities $ (5) $ (294) $ 599 $ 332 $ - $ 632 Cash flows from investing activities: Acquisitions of facilities and other related equipment - - (3) (111) - (114) Purchases of property and equipment - - (282) (125) - (407) Proceeds from disposition of hospitals and other ancillary operations - - 8 4 - 12 Proceeds from sale of property and equipment - - 4 3 - 7 Purchases of available-for-sale securities - - (21) (42) - (63) Proceeds from sales of available-for-sale securities - - 14 219 - 233 Proceeds from sale of investments in unconsolidated affiliates - - 403 - - 403 Distribution from Quorum Health Corporation - 1,219 - - - 1,219 Increase in other investments - - (84) (29) - (113) Net cash provided by (used in) investing activities - 1,219 39 (81) - 1,177 Cash flows from financing activities: Repurchase of restricted stock shares for payroll tax withholding requirements (5) - - - - (5) Deferred financing costs and other debt-related costs - (22) - - - (22) Redemption of noncontrolling investments in joint ventures - - - (16) - (16) Distributions to noncontrolling investors in joint ventures - - - (47) - (47) Changes in intercompany balances with affiliates, net 10 497 (469) (38) - - Borrowings under credit agreements - 2,783 2 21 - 2,806 Proceeds from receivables facility - - - 31 - 31 Repayments of long-term indebtedness - (4,183) (25) (71) - (4,279) Net cash provided by (used in) financing activities 5 (925) (492) (120) - (1,532) Net change in cash and cash equivalents - - 146 131 - 277 Cash and cash equivalents at beginning of period - - 32 152 - 184 Cash and cash equivalents at end of period $ - $ - $ 178 $ 283 $ - $ 461 Condensed Consolidating Statement of Cash Flows Six Months Ended June 30, 2015 Parent Other Non - Guarantor Issuer Guarantors Guarantors Eliminations Consolidated (In millions) Net cash (used in) provided by operating activities $ (14) $ (81) $ 242 $ 357 $ - $ 504 Cash flows from investing activities: Acquisitions of facilities and other related equipment - - (20) (7) - (27) Purchases of property and equipment - - (338) (136) - (474) Proceeds from disposition of hospitals and other ancillary operations - - 4 58 - 62 Proceeds from sale of property and equipment - - 5 6 - 11 Purchases of available-for-sale securities - - (32) (58) - (90) Proceeds from sales of available-for-sale securities - - 30 56 - 86 Increase in other investments - - (57) (23) - (80) Net cash used in investing activities - - (408) (104) - (512) Cash flows from financing activities: Proceeds from exercise of stock options 22 - - - - 22 Repurchase of restricted stock shares for payroll tax withholding requirements (20) - - - - (20) Deferred financing costs and other debt-related costs - (30) - - - (30) Redemption of noncontrolling investments in joint ventures - - - (14) - (14) Distributions to noncontrolling investors in joint ventures - - - (48) - (48) Changes in intercompany balances with affiliates, net 12 137 (26) (123) - - Borrowings under credit agreements - 2,355 30 - - 2,385 Proceeds from receivables facility - - - 91 - 91 Repayments of long-term indebtedness - (2,381) (19) (122) - (2,522) Net cash provided by (used in) financing activities 14 81 (15) (216) - (136) Net change in cash and cash equivalents - - (181) 37 - (144) Cash and cash equivalents at beginning of period - - 373 136 - 509 Cash and cash equivalents at end of period $ - $ - $ 192 $ 173 $ - $ 365 |