Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2011

Goodwill and Other Intangible Assets [Abstract]

7. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the six months ended June 30, 2011, are as follows (in thousands):


Balance as of December 31, 2010 (as previously reported)	$	4,199,905
Goodwill allocated to disposal and hospitals held for sale		(49,658	)

Balance as of December 31, 2010 (as adjusted)		4,150,247
Goodwill acquired as part of acquisitions during 2011		77,760
Consideration adjustments and purchase price allocation adjustments for prior year’s acquisitions		(37	)

Balance as of June 30, 2011	$	4,227,970

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 meet the criteria to be classified as reporting units. At June 30, 2011, the hospital operations reporting unit, the home care agency operations reporting unit, and the hospital management services reporting unit had approximately $4.2 billion, $35.9 million and $33.3 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 has selected September 30 as its annual testing date. The Company performed its last annual goodwill evaluation as of September 30, 2010, which evaluation took place during the fourth quarter of 2010. No impairment was indicated by this evaluation.

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.

The gross carrying amount of the Company’s other intangible assets subject to amortization was $61.7 million at June 30, 2011 and $60.5 million at December 31, 2010, and the net carrying amount was $34.1 million at June 30, 2011 and $36.1 million at December 31, 2010. The carrying amount of the Company’s other intangible assets not subject to amortization was $44.1 million and $44.4 million at June 30, 2011 and December 31, 2010, respectively. Other intangible assets are included in other assets, net on the Company’s condensed consolidated balance sheets. Substantially all of the Company’s intangible assets are contract-based intangible assets related to operating licenses, management contracts, or non-compete agreements entered into in connection with prior acquisitions.

The weighted-average amortization period for the intangible assets subject to amortization is approximately nine years. There are no expected residual values related to these intangible assets. Amortization expense on these intangible assets was $2.3 million and $3.1 million during the three months ended June 30, 2011 and 2010, respectively, and $4.2 million and $6.3 million during the six months ended June 30, 2011 and 2010, respectively. Amortization expense on intangible assets is estimated to be $3.9 million for the remainder of 2011, $7.1 million in 2012, $4.5 million in 2013, $2.9 million in 2014, $2.5 million in 2015 and $13.2 million in 2016 and thereafter.

The gross carrying amount of capitalized software for internal use was approximately $396.9 million and $356.5 million at June 30, 2011 and December 31, 2010, respectively, and the net carrying amount considering accumulated amortization was approximately $219.1 million and $209.4 million at June 30, 2011 and December 31, 2010, respectively. The estimated amortization period for capitalized internal-use software is generally three years, except for capitalized costs related to significant system conversions, which is generally eight years. There is no expected residual value for capitalized internal-use software. At June 30, 2011, there was approximately $76.6 million of capitalized costs for internal-use software that is currently in the development stage and will begin amortization once the software project is complete and ready for its intended use. Amortization expense on capitalized internal-use software was $16.7 million and $11.0 million during the three months ended June 30, 2011 and 2010, respectively, and $34.7 million and $20.2 million during the six months ended June 30, 2011 and 2010, respectively. Amortization expense on capitalized internal-use software is estimated to be $37.5 million for the remainder of 2011, $75.1 million in 2012, $45.1 million in 2013, $18.1 million in 2014, $15.7 million in 2015 and $27.6 million in 2016 and thereafter.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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