Goodwill and Intangible Assets

12 Months Ended

Jun. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The following table provides information regarding the intangible assets, including deferred loan costs, included on the accompanying consolidated balance sheets as of June 30, 2012 and 2013 (in millions).



	Gross Carrying Amount				Accumulated Amortization
	2012		2013		2012		2013
Class of Intangible Asset
Amortized intangible assets:
Deferred loan costs	$	63.5	$	61.8	$	14.2	$	19.2
Contracts	31.4		31.4		24.3		27.5
Physician income and other guarantees	42.8		46.7		34.9		39.7
Other	9.0		11.8		4.6		5.7
Subtotal	146.7		151.7		78.0		92.1
Indefinite-lived intangible assets:
License and accreditation	20.3		21.0		—		—
Total	$	167.0	$	172.7	$	78.0	$	92.1

Amortization expense for contract-based intangibles and other intangible assets during the years ended June 30, 2011, 2012 and 2013 was approximately $4.0 million, $4.1 million and $4.2 million, respectively. Estimated amortization expense for these intangible assets during the next five years and thereafter is as follows: 2014 — $4.3 million; 2015 — $1.9 million; 2016 — $1.1 million; 2017 — $0.4 million; 2018 — $0.3 million; and $2.0 million thereafter.

Amortization of deferred loan costs of $6.3 million, $6.9 million and $9.2 million during the years ended June 30, 2011, 2012 and 2013, respectively, is included in net interest. During the year ended June 30, 2013, net deferred loan costs of $1.2 million were written off as part of the debt extinguishment costs associated with the redemption of the 10.375% Senior Discount Notes, the term loan facility refinancing and revolver increase (see Note 7). During the year ended June 30, 2013, the Company capitalized an additional $2.8 million of deferred loan costs, whereas $5.0 million of the previously unamortized deferred loan costs will continue to be capitalized as intangible assets under the carryover lender provisions.

Amortization of physician income and other guarantees of $4.8 million, $5.1 million and $4.8 million during the years ended June 30, 2011, 2012 and 2013, respectively, is included in purchased services or other operating expenses.

The weighted-average amortization period for the intangible assets subject to amortization is approximately three years for each class of asset and in total. There is no expected residual values related to these assets.

Goodwill

As of June 30, 2013, the acute care services segment and the health plans segment had approximately $698.2 million and $91.7 million, respectively, of goodwill. During the year ended June 30, 2012, goodwill increased by $7.7 million related to acute care services segment acquisitions and $3.6 million related to a health plan service segment acquisition. During the year ended June 30, 2013, goodwill increased by $17.8 million related to an adjustment to the Company's estimate of the acquired DMC pension benefit obligation (see Note 3) and other acute care services segment acquisitions and $3.8 million related to a health plan service segment acquisition. During the year ended June 30, 2013, goodwill decreased by approximately $0.1 million related to the dispositions of certain businesses within the Company's acute care services segment. As of June 30, 2013, the Company had recognized cumulative goodwill impairments of $166.9 million, all of which relate to the Company’s acute care services segment. As of June 30, 2013, approximately $201.5 million of the Company's goodwill is deductible for tax purposes.

As of June 30, 2013, the Company had $789.9 million of goodwill, which is tested for impairment at least annually but also as impairment indicators become known. The Company's annual impairment analysis did not result in any impairments of its goodwill for the year ended June 30, 2013. The fair value of each of the Company's reporting units exceeded carrying value by approximately 40%, except for the Arizona hospitals reporting unit (which had $100.7 million of goodwill at June 30, 2013),

which exceeded its carrying value by approximately 15%. In order to address the uncertainties in the DCF assumptions the Company performed sensitivity analyses and noted that given a reasonable range of key variables, the DCF estimates still exceeded carrying value for the reporting units. Additionally, for the health plan reporting unit, the revenues derived from PHP could significantly decrease if the cap placed on PHP's new contract with AHCCCS in Maricopa County is not lifted (see below for further discussion of the AHCCCS capped contract). If AHCCCS does not lift the cap, then the Company's revenues and profitability would be negatively impacted by the reduction in membership. However, given the expected growth in the Company's other health plans along with the Company's efforts to expand PHP's membership, the calculated fair value of the health plan reporting unit exceeded the carrying value by more than 100%.

In order for the estimated fair values to decrease below the carrying values for all of the reporting units, the Company would need to experience a significant decrease in future profitability projections coupled with a significant increase in the weighted average cost of capital, both of which the Company believes is unlikely to occur during the year ended June 30, 2014. However, as noted in Item 1A. Risk Factors, potential events that could negatively affect the Company's key assumptions include, among others, a continuation of current challenging economic conditions, uncertainty within the Health Reform Law and PHP's contract with AHCCCS. These changes could create additional pricing, volume and reimbursement pressures that are not within the Company's control.

The Company has $79.4 million of goodwill related to PHP, which is included in the Company's health plan services segment. PHP's current contract with AHCCCS, expires September 30, 2013. On March 22, 2013, the Company was notified that PHP was not awarded an acute care program contract with AHCCCS for the three-year period commencing October 1, 2013. However, on April 1, 2013, PHP agreed with AHCCCS on the general terms of a capped contract for Maricopa County for the three-year period commencing October 1, 2013. Approximately 98,000 of PHP's members resided in Maricopa County as of June 30, 2013. Pursuant to the terms of PHP's agreement with AHCCCS, PHP will not file a protest of any of the AHCCCS decisions. In addition, PHP agreed that enrollment will be capped effective October 1, 2013 and the enrollment cap will not be lifted at any time during the total contracting period, unless AHCCCS deems additional plan capacity necessary based upon growth in covered lives or other reasons as outlined in a letter provided by AHCCCS that clarifies certain terms of the capped contract. AHCCCS has also indicated that it intends to hold an open enrollment for PHP members in Maricopa County sometime in calendar year 2014. The Company will continue to monitor the projections of future cash flows in the health plan reporting unit as impacted by this contractual change. The Company's calculations used to determine the fair value of the health plan reporting unit require significant judgment, assumptions, and estimation, the most significant of which is projected membership levels, and may be revised in the future as additional information becomes available. If these estimates and assumptions prove to be materially inaccurate, an impairment charge could be required in a future period.

- 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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