SEC Filing | Community Health Systems, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ________

Commission file number 001-15925

COMMUNITY HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3893191
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

4000 Meridian Boulevard Franklin, Tennessee	37067 (Zip Code)
(Address of principal executive offices)

615-465-7000

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	CYH	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑	Accelerated filer ☐	Smaller reporting company ☐

Non-accelerated filer ☐		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of April 21, 2022, there were outstanding 134,694,299 shares of the Registrant’s Common Stock, $0.01 par value.

Community Health Systems, Inc.

Form 10-Q

For the Three Months Ended March 31, 2022



Part I.	Financial Information		Page

	Item 1.	Financial Statements:

		Condensed Consolidated Statements of Loss – Three Months Ended March 31, 2022 and March 31, 2021 (Unaudited)	2

		Condensed Consolidated Statements of Comprehensive Loss - Three Months Ended March 31, 2022 and March 31, 2021 (Unaudited)	3

		Condensed Consolidated Balance Sheets - March 31, 2022 and December 31, 2021 (Unaudited)	4

		Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and March 31, 2021 (Unaudited)	5

		Notes to Condensed Consolidated Financial Statements (Unaudited)	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

	Item 4.	Controls and Procedures	37

Part II.	Other Information

	Item 1.	Legal Proceedings	38

	Item 1A.	Risk Factors	39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

	Item 3.	Defaults Upon Senior Securities	40

	Item 4.	Mine Safety Disclosures	40

	Item 5.	Other Information	40

	Item 6.	Exhibits	41

Signatures			42

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF LOSS

(In millions, except share and per share data)

(Unaudited)

	Three Months Ended
	March 31,
	2022			2021
Net operating revenues	$	3,111		$	3,013
Operating costs and expenses:
Salaries and benefits		1,325			1,303
Supplies		499			491
Other operating expenses		853			738
Lease cost and rent		77			78
Pandemic relief funds		(47	)		(82	)
Depreciation and amortization		128			138
Impairment and (gain) loss on sale of businesses, net		6			21
Total operating costs and expenses		2,841			2,687
Income from operations		270			326
Interest expense, net		217			231
Loss from early extinguishment of debt		5			71
Equity in earnings of unconsolidated affiliates		(5	)		(10	)
Income before income taxes		53			34
Provision for income taxes		23			69
Net income (loss)		30			(35	)
Less: Net income attributable to noncontrolling interests		31			29
Net loss attributable to Community Health Systems, Inc. stockholders	$	(1	)	$	(64	)
Loss per share attributable to Community Health Systems, Inc. common stockholders:
Basic	$	(0.01	)	$	(0.51	)
Diluted	$	(0.01	)	$	(0.51	)
Weighted-average number of shares outstanding:
Basic		127,818,209			125,753,278
Diluted		127,818,209			125,753,278

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In millions)

(Unaudited)

	Three Months Ended
	March 31,
	2022			2021
Net income (loss)	$	30		$	(35	)
Other comprehensive loss, net of income taxes:
Net change in fair value of available-for-sale debt securities, net of tax		(8	)		(3	)
Other comprehensive loss		(8	)		(3	)
Comprehensive income (loss)		22			(38	)
Less: Comprehensive income attributable to noncontrolling interests		31			29
Comprehensive loss attributable to Community Health Systems, Inc. stockholders	$	(9	)	$	(67	)

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

	March 31, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	460		$	507
Patient accounts receivable		2,079			2,062
Supplies		353			355
Prepaid income taxes		95			94
Prepaid expenses and taxes		229			192
Other current assets		272			269
Total current assets		3,488			3,479
Property and equipment		9,779			9,757
Less accumulated depreciation and amortization		(4,223	)		(4,204	)
Property and equipment, net		5,556			5,553
Goodwill		4,219			4,219
Deferred income taxes		53			53
Other assets, net		1,947			1,913
Total assets	$	15,263		$	15,217
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt	$	43		$	31
Current operating lease liabilities		149			147
Accounts payable		825			830
Accrued liabilities:
Employee compensation		697			655
Accrued interest		186			225
Other		447			476
Total current liabilities		2,347			2,364
Long-term debt		12,154			12,109
Deferred income taxes		213			192
Long-term operating lease liabilities		578			535
Other long-term liabilities		790			827
Total liabilities		16,082			16,027
Redeemable noncontrolling interests in equity of consolidated subsidiaries		493			480
STOCKHOLDERS’ DEFICIT
Community Health Systems, Inc. stockholders’ deficit:
Preferred stock, $.01 par value per share, 100,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value per share, 300,000,000 shares authorized; 134,686,087 shares issued and outstanding at March 31, 2022, and 132,146,282 shares issued and outstanding at December 31, 2021		1			1
Additional paid-in capital		2,107			2,118
Accumulated other comprehensive loss		(22	)		(14	)
Accumulated deficit		(3,478	)		(3,477	)
Total Community Health Systems, Inc. stockholders’ deficit		(1,392	)		(1,372	)
Noncontrolling interests in equity of consolidated subsidiaries		80			82
Total stockholders’ deficit		(1,312	)		(1,290	)
Total liabilities and stockholders’ deficit	$	15,263		$	15,217

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Three Months Ended
	March 31,
	2022			2021
Cash flows from operating activities:
Net income (loss)	$	30		$	(35	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		128			138
Deferred income taxes		22			68
Stock-based compensation expense		5			8
Impairment and (gain) loss on sale of businesses, net		6			21
Loss from early extinguishment of debt		5			71
Other non-cash expenses, net		45			(40	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Patient accounts receivable		(17	)		(34	)
Supplies, prepaid expenses and other current assets		(40	)		(2	)
Repayment/derecognition of Medicare accelerated payments		—			(18	)
Accounts payable, accrued liabilities and income taxes		(23	)		(23	)
Other		(60	)		(53	)
Net cash provided by operating activities		101			101
Cash flows from investing activities:
Acquisitions of facilities and other related businesses		(1	)		(4	)
Purchases of property and equipment		(97	)		(105	)
Proceeds from disposition of hospitals and other ancillary operations		2			6
Proceeds from sale of property and equipment		—			2
Purchases of available-for-sale debt securities and equity securities		(31	)		(22	)
Proceeds from sales of available-for-sale debt securities and equity securities		24			26
Purchases of investments in unconsolidated affiliates		(4	)		—
Increase in other investments		(14	)		(23	)
Net cash used in investing activities		(121	)		(120	)
Cash flows from financing activities:
Repurchase of restricted stock shares for payroll tax withholding requirements		(8	)		(5	)
Deferred financing costs and other debt-related costs		(73	)		(220	)
Proceeds from noncontrolling investors in joint ventures		1			—
Distributions to noncontrolling investors in joint ventures		(29	)		(21	)
Other borrowings		27			3
Issuance of long-term debt		1,535			2,870
Repayments of long-term indebtedness		(1,480	)		(3,033	)
Net cash used in financing activities		(27	)		(406	)
Net change in cash and cash equivalents		(47	)		(425	)
Cash and cash equivalents at beginning of period		507			1,676
Cash and cash equivalents at end of period	$	460		$	1,251
Supplemental disclosure of cash flow information:
Interest payments	$	(242	)	$	(203	)
Income tax payments, net	$	(2	)	$	—

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements of Community Health Systems, Inc. (the “Parent” or “Parent Company”) and its subsidiaries (the “Company”) as of March 31, 2022 and December 31, 2021 and for the three-month periods ended March 31, 2022 and 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2022. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions.

Certain information and disclosures normally included in the notes to the consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 17, 2022 (“2021 Form 10-K”).

Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity on the condensed consolidated balance sheets to distinguish between the interests of the Parent Company and the interests of the noncontrolling owners. Noncontrolling interests that are redeemable or may become redeemable at a fixed or determinable price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine equity on the condensed consolidated balance sheets.

Substantially all of the Company’s operating costs and expenses are “cost of revenue” items. Operating costs that could be classified as general and administrative by the Company include the Company’s corporate office costs at its Franklin, Tennessee office, which were $63 million and $60 million for the three months ended March 31, 2022 and 2021, respectively.

Throughout these notes to the unaudited condensed consolidated financial statements, Community Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as the “Company.” This drafting style is not meant to indicate that the publicly traded Parent or any particular subsidiary of the Parent owns or operates any asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of Community Health Systems, Inc.

Revenue Recognition.

Net Operating Revenues

Net operating revenues are recorded at the transaction price estimated by the Company to reflect the total consideration due from patients and third-party payors in exchange for providing goods and services in patient care. These services are considered to be a single performance obligation and have a duration of less than one year. Revenues are recorded as these goods and services are provided. The transaction price, which involves significant estimates, is determined based on the Company’s standard charges for the goods and services provided, with a reduction recorded for price concessions related to third party contractual arrangements as well as patient discounts and other patient price concessions. During both of the three-month periods ended March 31, 2022 and 2021, the impact of changes to the inputs used to determine the transaction price was considered immaterial.

Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers that is not specifically tied to an individual’s care, some of which offsets a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from the Centers for Medicare & Medicaid Services (“CMS”) and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Under these supplemental programs, the Company recognizes revenue and related expenses in the period in which amounts are estimable and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues. Taxes or other program-related costs are reflected in other operating expenses.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

The Company’s net operating revenues during the three months ended March 31, 2022 and 2021 have been presented in the following table based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in millions):

	Three Months Ended
	March 31,
	2022		2021
Medicare	$	668	$	693
Medicaid		467		391
Managed Care and other third-party payors		1,933		1,915
Self-pay		43		14
Total	$	3,111	$	3,013

Patient Accounts Receivable

Patient accounts receivable are recorded at net realizable value based on certain assumptions determined by each payor. For third-party payors including Medicare, Medicaid, and Managed Care, the net realizable value is based on the estimated contractual reimbursement percentage, which is based on current contract prices or historical paid claims data by payor. For self-pay accounts receivable, which includes patients who are uninsured and the patient responsibility portion for patients with insurance, the net realizable value is determined using estimates of historical collection experience without regard to aging category. These estimates are adjusted for estimated conversions of patient responsibility portions, expected recoveries and any anticipated changes in trends.

Patient accounts receivable can be impacted by the effectiveness of the Company’s collection efforts. Additionally, significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the net realizable value of accounts receivable. The Company also continually reviews the net realizable value of accounts receivable by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net revenue and admissions by payor classification, days revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of third-party insured receivables, the impact of recent acquisitions and dispositions and the impact of current economic and other events.

Final settlements for some payors and programs are subject to adjustment based on administrative review and audit by third parties. As a result of these final settlements, the Company has recorded amounts due to third-party payors of $115 million and $118 million as of March 31, 2022 and December 31, 2021, respectively, and these amounts are included in accrued liabilities-other in the accompanying condensed consolidated balance sheets. Amounts due from third-party payors were $108 million and $114 million as of March 31, 2022 and December 31, 2021, respectively, and are included in other current assets in the accompanying condensed consolidated balance sheets. Substantially all Medicare and Medicaid cost reports are final settled through 2017.

Charity Care

In the ordinary course of business, the Company renders services to patients who are financially unable to pay for hospital care. The Company’s policy is to not pursue collections for such amounts; therefore, the related charges for those patients who are financially unable to pay and that otherwise do not qualify for reimbursement from a governmental program are not reported in net operating revenues, and are thus classified as charity care. The Company determines amounts that qualify for charity care based on the patient’s household income relative to the federal poverty level guidelines, as established by the federal government. The Company updated its policy during the three months ended March 31, 2022 in a manner which increased the number of accounts qualifying for charity care. This resulted in an increase in charity care services during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

These charity care services are estimated to be $363 million and $229 million for the three months ended March 31, 2022 and 2021, respectively, representing the value (at the Company’s standard charges) of these charity care services that are excluded from net operating revenues. The estimated cost incurred by the Company to provide these charity care services to patients who are unable to pay was approximately $41 million and $26 million during the three months ended March 31, 2022 and 2021, respectively. The estimated cost of these charity care services was determined using a ratio of cost to gross charges and applying that ratio to the gross charges associated with providing care to charity patients for the period.

Accounting for the Impairment or Disposal of Long-Lived Assets. During the three months ended March 31, 2022, the Company recorded an impairment charge of approximately $6 million related to a hospital that has been classified as held for sale based on the difference between the carrying value of the hospital disposal group compared to the estimated fair value less costs to sell.

During the three months ended March 31, 2021, the Company recorded a total combined net impairment charge and loss on disposal of approximately $21 million, of which (i) approximately $27 million was recorded to adjust the carrying value of long-lived assets at several hospitals that were sold at a sales price below carrying value, (ii) approximately $2 million was recorded related to divestiture related expenses, (iii) approximately $8 million of gain was recorded related to the disposal of the Company’s majority interest in a surgery center that was sold on January 1, 2021, and (iv) approximately $5 million of goodwill was allocated to facilities disposed of or held for sale during the three months ended March 31, 2021.

The Company will continue to evaluate the potential for impairment of the long-lived assets of hospitals and other held-and-used businesses as well as evaluate offers for potential sales, as applicable. Based on such analysis, additional impairment charges may be recorded in the future.

Pandemic Relief Funds

During the three months ended March 31, 2022 and 2021, the Company received approximately $42 million and $3 million, respectively, in pandemic relief fund payments through various federal, state and local programs. Approximately $47 million and $82 million was recognized as a reduction to operating costs and expenses during the three months ended March 31, 2022 and 2021, respectively, as denoted by the caption “pandemic relief funds” within the condensed consolidated statements of loss. Approximately $9 million of unrecognized pandemic relief funds received are reflected within accrued liabilities-other in the condensed consolidated balance sheet as of March 31, 2022. Such unrecognized amounts may either be returned or may be recognized in future periods if the underlying conditions for recognition are reasonably assured of having been met. The Company’s accounting policies for the recognition of pandemic relief funds is unchanged from the policies described in Note 1 to the Company’s consolidated financial statements included in the 2021 Form 10-K.

2. ACCOUNTING FOR STOCK-BASED COMPENSATION

Stock-based compensation awards have been granted under the Community Health Systems, Inc. Amended and Restated 2009 Stock Option and Award Plan, which was amended and restated as of March 17, 2021 and approved by the Company’s stockholders at the annual meeting of stockholders held on May 11, 2021 (the “2009 Plan”).

The 2009 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (“IRC”) and for the grant of stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Persons eligible to receive grants under the 2009 Plan include the Company’s directors, officers, employees and consultants. As of March 31, 2022, 6,884,914 shares of unissued common stock were reserved for future grants under the 2009 Plan.

The following table reflects the impact of total compensation expense related to stock-based equity plans on the reported operating results for the respective periods (in millions):

	Three Months Ended
	March 31,
	2022			2021
Effect on income before income taxes	$	(5	)	$	(8	)
Effect on net loss	$	(4	)	$	(6	)

At March 31, 2022, $52 million of unrecognized stock-based compensation expense related to outstanding unvested stock options, restricted stock and restricted stock units (the terms of which are summarized below) was expected to be recognized over a weighted-

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

average period of 29 months. Of that amount, $8 million relates to outstanding unvested stock options expected to be recognized over a weighted-average period of 29 months and $44 million relates to outstanding unvested restricted stock and restricted stock units expected to be recognized over a weighted-average period of 29 months. There were no modifications to awards during the three months ended March 31, 2022 and 2021.

To date, all options granted under the 2009 Plan have been “nonqualified” stock options for tax purposes. Generally, these options vest in one-third increments on each of the first three anniversaries of the award date and have a 10-year contractual term. The exercise price of all options granted under the 2009 Plan is equal to the fair value of the Company’s common stock on the option grant date.

The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions and weighted-average fair values during the three months ended March 31, 2022 and 2021:

	Three Months Ended March 31,
	2022		2021
Expected volatility	84.3% - 87.5%		84.3% - 88.9%
Expected dividends		—		—
Expected term	3 - 6 years		3 - 6 years
Risk-free interest rate	1.5% - 1.6%		0.3% - 0.9%

In determining the expected term, the Company examined concentrations of option holdings and historical patterns of option exercises and forfeitures, as well as forward-looking factors, in an effort to determine if there were any discernable employee populations. From this analysis, the Company identified two primary employee populations, one consisting of certain senior executives and the other consisting of substantially all other recipients.

The expected volatility rate was estimated based on historical volatility. In determining expected volatility, the Company also reviewed the market-based implied volatility of actively traded options of its common stock and determined that historical volatility utilized to estimate the expected volatility rate did not differ significantly from the implied volatility.

The expected term computation is based on historical exercise and cancellation patterns and forward-looking factors, where present, for each population identified. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The pre-vesting forfeiture rate is based on historical rates and forward-looking factors for each population identified. The Company adjusts the estimated forfeiture rate to its actual experience.

Options outstanding and exercisable under the 2009 Plan as of March 31, 2022, and changes during the three-month period following December 31, 2021, was as follows (in millions, except share and per share data):

						Weighted-	Aggregate
				Weighted-		Average	Intrinsic
				Average		Remaining	Value as of
				Exercise		Contractual	March 31,
	Shares			Price		Term	2022
Outstanding at December 31, 2021		2,301,753		$	6.77
Granted		760,000			10.18
Exercised		(56,500	)		4.97
Forfeited and cancelled		(151,002	)		14.67
Outstanding at March 31, 2022		2,854,251		$	7.30	8.5 years	$	13
Exercisable at March 31, 2022		1,316,912		$	5.64	7.7 years	$	8

The weighted-average grant date fair value of stock options granted during the three months ended March 31, 2022 and 2021 was $7.25 and $6.22, respectively. The aggregate intrinsic value (calculated as the number of in-the-money stock options multiplied by the difference between the Company’s closing stock price on the last trading day of the reporting period ($11.87) and the exercise price of the respective stock options) in the table above represents the amount that would have been received by the option holders had all option holders exercised their options on March 31, 2022. This amount changes based on the market value of the Company’s common

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

stock. The aggregate intrinsic value of options exercised was less than $1 million during both of the three-month periods ended March 31, 2022 and 2021. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.

The Company has also awarded restricted stock under the 2009 Plan to employees of certain subsidiaries. With respect to time-based vesting restricted stock that has been awarded under the 2009 Plan, the restrictions on these shares have generally lapsed in one-third increments on each of the first three anniversaries of the award date. In addition, certain of the restricted stock awards granted to the Company’s senior executives have contained performance objectives required to be met in addition to any time-based vesting requirements. If the applicable performance objectives are not attained, these awards will be forfeited in their entirety. For performance-based awards, the performance objectives are measured cumulatively over a three-year period. If the applicable target performance objective is met at the end of the three-year period, then the restricted stock award subject to such performance objective will vest in full on the third anniversary of the award date. Additionally, for these performance-based awards, based on the level of achievement for the applicable performance objective within the parameters specified in the award agreement, the number of shares to be issued in connection with the vesting of the award may be adjusted to decrease or increase the number of shares specified in the original award. Notwithstanding the above-mentioned performance objectives and vesting requirements, the restrictions with respect to restricted stock granted under the 2009 Plan may lapse earlier in the event of death or disability of the holder of the restricted stock, or change in control of the Company. On March 1, 2022, restricted stock awards subject to performance objectives granted on March 1, 2019 vested at 200% of the shares originally granted based on the Company’s cumulative performance compared to objectives for the 2019 through 2021 performance period. Restricted stock awards subject to performance objectives that have not yet been satisfied are not considered outstanding for purposes of determining earnings per share unless the performance objectives have been satisfied on the basis of results through the end of each respective reporting period.

Restricted stock outstanding under the 2009 Plan as of March 31, 2022, and changes during the three-month period following December 31, 2021, was as follows:

				Weighted-
				Average Grant
	Shares			Date Fair Value
Unvested at December 31, 2021		4,995,314		$	6.30
Granted		3,179,000			9.05
Vested		(2,516,247	)		5.62
Forfeited		(30,000	)		6.87
Unvested at March 31, 2022		5,628,067			8.61

Restricted stock units (“RSUs”) have been granted to the Company’s non-management directors under the 2009 Plan. Each of the Company’s then serving non-management directors received grants under the 2009 Plan of 17,682 RSUs and 19,296 RSUs on March 1, 2022 and 2021, respectively. The 2022 and 2021 grants had a grant date fair value of approximately $180,000 and $170,000, respectively. Vesting of these RSUs occurs in one-third increments on each of the first three anniversaries of the award date or upon the director’s earlier cessation of service on the board, other than for cause. Each non-management director may elect, prior to the beginning of the calendar year in which the award is granted, to defer the receipt of shares of the Company’s common stock issuable upon vesting until either his or her (i) separation from service with the Company or (ii) attainment of an age specified in advance by the non-management director. A total of three directors elected to defer the receipt of RSUs granted on March 1, 2022 to a future date and a total of four directors elected to defer the receipt of RSUs granted on March 1, 2021 to a future date.

RSUs outstanding under the 2009 Plan as of March 31, 2022, and changes during the three-month period following December 31, 2021, was as follows:

				Weighted-
				Average Grant
	Shares			Date Fair Value
Unvested at December 31, 2021		486,598		$	6.17
Granted		159,138			10.18
Vested		(151,058	)		5.63
Forfeited		—			—
Unvested at March 31, 2022		494,678			7.63

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

3. ACQUISITIONS AND DIVESTITURES

Acquisitions

The Company accounts for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity are recognized and measured at their fair values on the date the Company obtains control of the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts. Adjustments to these provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has been obtained, limited to one year from the acquisition date) are recorded when identified. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired.

During the three months ended March 31, 2022, one or more subsidiaries of the Company paid approximately $1 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by the Company’s affiliated hospitals. The Company allocated the purchase price to property and equipment, working capital, noncontrolling interests and goodwill.

Divestitures

No hospitals were divested during the three months ended March 31, 2022. The following table provides a summary of hospitals that the Company divested during the year ended December 31, 2021: