Community Health Systems 2015 Annual Report Download - page 131

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the year ended December 31, 2015 are as follows (in
millions):
Year Ended December 31,
2015 2014
Balance, beginning of year ......................................... $ 8,951 $ 4,424
Goodwill acquired as part of acquisitions during current year .............. 39 4,527
Consideration and purchase price allocation adjustments for prior year’s
acquisitions and other adjustments ................................. 11 -
Impairment or allocation of goodwill to hospitals held for sale ............. (36) -
Balance, end of year .............................................. $ 8,965 $ 8,951
Goodwill is allocated to each identified reporting unit, which is defined as an operating segment or one level
below the operating segment (referred to as a component of the entity). Management has determined that the
Company’s operating segments and hospital management services operations meet the criteria to be classified as
reporting units. At December 31, 2015, the hospital operations reporting unit, the home care agency operations
reporting unit and the hospital management services reporting unit had approximately $8.9 billion, $47 million
and $33 million, respectively, of goodwill.
Goodwill is evaluated for impairment at the same time every year and when an event occurs or circumstances
change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. There is a
two-step method for determining goodwill impairment. Step one is to compare the fair value of the reporting unit
with the unit’s carrying amount, including goodwill. If this test indicates the fair value is less than the carrying
value, then step two is required to compare the implied fair value of the reporting unit’s goodwill with the
carrying value of the reporting unit’s goodwill. The Company performed its last annual goodwill evaluation
during the fourth quarter of 2015. No impairment was indicated by this evaluation. The next annual goodwill
evaluation will be performed during the fourth quarter of 2016.
The Company estimates the fair value of the related reporting units using both a discounted cash flow model as
well as an EBITDA multiple model. The cash flow forecasts are adjusted by an appropriate discount rate based
on the Company’s estimate of a market participant’s weighted-average cost of capital. These models are both
based on the Company’s best estimate of future revenues and operating costs and are reconciled to the
Company’s consolidated market capitalization, with consideration of the amount a potential acquirer would be
required to pay, in the form of a control premium, in order to gain sufficient ownership to set policies, direct
operations and control management decisions.
Intangible Assets
Approximately $1 million of intangible assets other than goodwill were acquired during the year ended
December 31, 2015. The gross carrying amount of the Company’s other intangible assets subject to amortization
was $82 million and $76 million at December 31, 2015 and 2014, respectively, and the net carrying amount was
$31 million and $39 million at December 31, 2015 and 2014. The carrying amount of the Company’s other
intangible assets not subject to amortization was $121 million and $131 million at December 31, 2015 and 2014,
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