Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three months and
year ended December 31, 2017.
The following highlights the financial and operating results for
the three months ended December 31, 2017. Certain items have been
adjusted for items that management considers not reflective of
ongoing operations as discussed further on pages 4 and 5 of this
press release:
- Net operating revenues totaled
$3.059 billion and were adversely impacted by a $591 million
increase in contractual allowances and provision for bad debts from
the change in estimate further discussed below.
- Net loss attributable to Community
Health Systems, Inc. common stockholders was $(2.013) billion, or
$(17.98) per share (diluted), compared with net loss of $(220)
million, or $(1.99) per share (diluted) for the same period in
2016. Excluding the adjusting items as presented in the table in
footnote (h) on page 17, net loss attributable to Community Health
Systems, Inc. common stockholders was $(0.28) per share
(diluted).
- Adjusted EBITDA was $409
million.
- Loss from continuing operations
attributable to Community Health Systems, Inc. common stockholders
was $(17.95) per share (diluted). Excluding the adjusting items as
presented in the table in footnote (h) on page 17, loss from
continuing operations attributable to Community Health Systems,
Inc. common stockholders was $(0.25) per share (diluted).
- Cash flow from operations was $156
million, compared with $327 million for the same period in
2016.
- On a same-store basis, admissions
decreased 1.7 percent and adjusted admissions decreased 0.9
percent, compared with the same period in 2016.
Net operating revenues for the three months ended December 31,
2017, totaled $3.059 billion, a 31.6 percent decrease, compared
with $4.469 billion for the same period in 2016. As further
discussed below, the financial results include a change in estimate
recorded by the Company during the three months ended December 31,
2017 to increase contractual allowances and the provision for bad
debts by a total of approximately $591 million as a result of
information obtained from new accounting processes and
methodologies implemented in preparation for the adoption of the
new revenue recognition accounting guidance.
Loss from continuing operations attributable to Community Health
Systems, Inc. common stockholders was $(2.010) billion, or $(17.95)
per share (diluted), for the three months ended December 31, 2017,
compared with $(211) million, or $(1.91) per share (diluted), for
the same period in 2016. Excluding the adjusting items as presented
in the table in footnote (h) on page 17, loss from continuing
operations was $(0.25) per share (diluted).
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(2.013) billion, or $(17.98) per share (diluted),
for the three months ended December 31, 2017, compared with $(220)
million, or $(1.99) per share (diluted), for the same period in
2016. Excluding the adjusting items as presented in the table in
footnote (h) on page 17, net loss attributable to Community Health
Systems, Inc. common stockholders was $(0.28) per share (diluted),
for the three months ended December 31, 2017. For the three months
ended December 31, 2017, loss from discontinued operations, net of
tax, was approximately $(3) million, or $(0.03) per share
(diluted). Weighted-average shares outstanding (diluted) were 112
million for the three months ended December 31, 2017, and 111
million for the three months ended December 31, 2016.
Adjusted EBITDA for the three months ended December 31, 2017,
was $409 million compared with $564 million for the same period in
2016, representing a 27.5 percent decrease. Adjusted EBITDA for the
three months ended December 31, 2017, includes an adjustment for
the $591 million adverse impact of the change in estimate recorded
during the three-month period to increase contractual allowances
and the provision for bad debts as noted above.
The consolidated operating results for the three months ended
December 31, 2017, reflect a 19.2 percent decrease in total
admissions, and a 19.3 percent decrease in total adjusted
admissions, compared with the same period in 2016. On a same-store
basis, admissions decreased 1.7 percent and adjusted admissions
decreased 0.9 percent during the three months ended December 31,
2017, compared with the same period in 2016. On a same-store basis
(as further defined in footnote (a) on page 14), net operating
revenues increased 1.8 percent during the three months ended
December 31, 2017, compared with the same period in 2016.
Net operating revenues for the year ended December 31, 2017,
totaled $15.353 billion, a 16.7 percent decrease, compared with
$18.438 billion for the same period in 2016.
Loss from continuing operations attributable to Community Health
Systems, Inc. common stockholders was $(2.447) billion, or $(21.89)
per share (diluted), for the year ended December 31, 2017, compared
with $(1.706) billion, or $(15.41) per share (diluted), for the
same period in 2016. Excluding the adjusting items as presented in
the table in footnote (h) on page 17, loss from continuing
operations was $(1.20) per share (diluted).
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(2.459) billion, or $(22.00) per share (diluted),
for the year ended December 31, 2017, compared with $(1.721)
billion, or $(15.54) per share (diluted), for the same period in
2016. Excluding the adjusting items as presented in the table in
footnote (h) on page 17, net loss attributable to Community Health
Systems, Inc. common stockholders was $(1.26) per share (diluted),
for the year ended December 31, 2017. Loss from discontinued
operations, net of tax, for the year ended December 31, 2017, was
approximately $(12) million, or $(0.11) per share (diluted).
Weighted-average shares outstanding (diluted) were 112 million for
the year ended December 31, 2017, and 111 million for the year
ended December 31, 2016.
Adjusted EBITDA for the year ended December 31, 2017, was $1.703
billion compared with $2.225 billion for the same period in 2016,
representing a 23.5 percent decrease. Adjusted EBITDA for the year
ended December 31, 2017, includes an adjustment for the $591
million adverse impact of the change in estimate recorded during
the three months ended December 31, 2017 to increase contractual
allowances and the provision for bad debts as noted above.
The consolidated operating results for the year ended December
31, 2017, reflect a 13.9 percent decrease in total admissions, and
a 14.5 percent decrease in total adjusted admissions, compared with
the same period in 2016. On a same-store basis, admissions
decreased 1.9 percent and adjusted admissions decreased 1.7 percent
during the year ended December 31, 2017, compared with the same
period in 2016. On a same-store basis (as further defined in
footnote (a) on page 14), net operating revenues increased 0.2
percent during the year ended December 31, 2017, compared with the
same period in 2016.
Commenting on the results, Wayne T. Smith, chairman and chief
executive officer of Community Health Systems, Inc., said, “We are
pleased with our progress in the fourth quarter and expect to carry
that momentum through 2018, as we execute strategies that we
believe will strengthen our core business and drive improved
results. During the fourth quarter, we completed our 2017 announced
divestiture plan and we intend to continue to optimize our
portfolio in 2018 to help pay down debt and refine our portfolio to
stronger markets. In 2018, we remain committed to growth
initiatives to advance our competitive position, including
expanding our transfer and access program across our networks,
launching Accountable Care Organizations, and strategically
expanding outpatient services. We are also committed to driving
operational efficiencies, and, as always, are dedicated to patient
safety and clinical advancements that improve healthcare for the
patients and communities we serve.”
On February 26, 2018, the Company amended its Credit Facility,
with requisite revolving lender approval, to remove the EBITDA to
interest expense ratio financial covenant, to replace the senior
secured net debt to EBITDA ratio financial covenant with a first
lien net debt to EBITDA ratio financial covenant, and to reduce the
extended revolving credit commitments to $650 million (for a total
of $840 million in revolving credit commitments when combined with
the non-extended portion of the revolving credit facility). In
addition, the Company agreed pursuant to the amendment to modify
its ability to retain asset sale proceeds, and instead apply them
to prepayments of term loans based on pro forma first lien
leverage.
Impact of Hurricanes Harvey and Irma on Operating
Results
During August and September 2017, the Company’s facilities in
Victoria, Texas, experienced an interruption in business and
incurred additional costs as a direct result of the landfall of
Hurricane Harvey. Also during September 2017, due to the broad
regional impact of Hurricane Irma, many of the Company’s hospital
operations in the state of Florida and at one of its hospitals in
the state of Georgia experienced disruptions, with the most
significant impact on hospital operations in Key West and Punta
Gorda, Florida. The Company estimates that these hurricanes
resulted in a loss of net operating revenues together with
incremental expenses directly related to hurricane response efforts
of approximately $40 million in the aggregate during the year ended
December 31, 2017 and the three months ended September 30, 2017.
The impact on net operating revenues was the direct result of the
evacuations and population disruption prior to the hurricanes, as
well as during the aftermath and recovery efforts in the
communities affected by the hurricanes. This estimated impact is
prior to any insurance recoveries which the Company may
receive.
Completion of 2017 Divestiture Plan and Expansion of
Divestiture Plan in 2018
The Company completed its divestiture of six hospitals on
October 1, 2017, and two hospitals on November 1, 2017, bringing
its total completed divestitures during 2017 to the previously
announced 30 hospitals that had been subject to definitive
agreements. In addition to the previously announced divestiture of
these 30 hospitals, the Company continues to receive interest from
acquirers for certain of its hospitals. The Company is pursuing
these interests for sale transactions involving hospitals with a
combined total of approximately $2.0 billion in annual net
operating revenues and combined mid-single digit Adjusted EBITDA
margins.
To understand the impact of the recent divestiture activity,
financial and statistical data for 2017 and 2016 presented in this
press release include the following in operating results through
the effective date of each respective transaction:
- On April 29, 2016, the Company
completed the spin-off of Quorum Health Corporation (“QHC”),
comprised of 38 affiliated hospitals and related outpatient
services in 16 states, together with Quorum Health Resources, LLC,
a subsidiary providing management advisory and consulting services
to non-affiliated hospitals. Same-store operating results and
statistical data exclude information for the hospitals divested in
the spin-off of QHC in the comparable period in 2016.
- On April 29, 2016, the Company sold its
unconsolidated minority equity interests in Valley Health System,
LLC and Summerlin Hospital Medical Center, LLC, both joint ventures
with Universal Health Systems, Inc. comprising a total of five
hospitals in Las Vegas, Nevada.
- On December 31, 2016, the Company sold
an 80 percent majority ownership interest in its home care division
to a subsidiary of Almost Family, Inc. Same-store operating results
exclude the home care division in the comparable period in
2016.
- As part of its ongoing portfolio
rationalization efforts, the Company sold 30 hospitals during 2017.
Same-store operating results exclude the results of these hospitals
divested in 2017 and the comparable period in 2016.
Information About Non-GAAP Financial Measures
Adjusted EBITDA, a non-GAAP financial measure, is EBITDA
adjusted to add back net income attributable to noncontrolling
interests and to exclude the effect of discontinued operations,
loss from early extinguishment of debt, impairment and (gain) loss
on sale of businesses, gain on sale of investments in
unconsolidated affiliates, expense incurred related to the spin-off
of QHC, expense incurred related to the sale of a majority
ownership interest in the Company’s home care division, expense
(income) related to government and other legal settlements and
related costs, expense related to employee termination benefits and
other restructuring charges, (income) expense from fair value
adjustments on the CVR agreement liability accounted for at fair
value related to the HMA legal proceedings, and related legal
expenses, and the overall impact of the change in estimate related
to net patient revenue recorded in the fourth quarter of 2017
resulting from the increase in contractual allowances and the
provision for bad debts.
Certain significant adjustments impacting reported amounts for
the three months and year ended December 31, 2017, which were used
in the calculation of Adjusted EBITDA, non-GAAP adjusted loss from
continuing operations attributable to Community Health Systems,
Inc. common stockholders per share (diluted) and non-GAAP adjusted
net loss attributable to Community Health Systems, Inc. common
stockholders per share (diluted) are further discussed below:
(i) Impairment of Goodwill and Other
Long-Lived Assets
During the three months ended December 31, 2017, the Company
recorded non-cash impairment expense totaling $1.760 billion,
resulting from an impairment charge of $1.419 billion on the value
of goodwill for the Company’s hospital reporting unit and
impairment charges of approximately $341 million to reduce the
value of long-lived assets at hospitals that the Company has sold
or identified for sale and at certain under-performing hospitals.
The impairment charge recorded for goodwill resulted from a
determination that the carrying value of the Company’s hospital
operations reporting unit exceeded its fair value, primarily as the
result of the decline in the Company’s market capitalization and
fair value of long-term debt during the three months ended December
31, 2017, as well as a decrease in the estimated future earnings of
the Company compared to previous estimates.
During the year ended December 31, 2017, the Company recorded
non-cash impairment expense totaling $2.123 billion, resulting from
the fourth quarter impairment charge of $1.419 billion on the value
of goodwill for the Company’s hospital reporting unit noted above
and impairment charges of approximately $704 million to reduce the
value of long-lived assets at hospitals that the Company has sold
or identified for sale and at certain under-performing
hospitals.
The impairment charges do not have an impact on the calculation
of the Company’s financial covenants under the Company’s Credit
Facility.
(ii) Change in Estimate for Patient
Revenues and Patient Accounts Receivable
As required by generally accepted accounting principles, the
Company adopted the new revenue recognition accounting standard on
January 1, 2018. In connection with this adoption, during the
fourth quarter of 2017, the Company completed an extensive analysis
of its patient revenues and patient accounts receivable and
developed new accounting processes and methodologies. This analysis
also included an evaluation of patient accounts receivable retained
after the 2017 divestitures of 30 hospitals, and certain other
revenues. Based on the information obtained related to the
aforementioned adoption, the financial results discussed below
include a change in estimate recorded by the Company during the
three months and year ended December 31, 2017 to increase
contractual allowances and the provision for bad debts by
approximately $591 million.
These changes in estimate are not expected to have a material
impact on the recognition of revenue on a prospective basis and do
not have an impact on the calculation of the Company’s financial
covenants under the Company’s Credit Facility. Additionally, the
calculation of Adjusted EBITDA, as defined, excludes this change in
estimate in the amounts presented below.
(iii) Impact of Tax Reform
Changes
The financial results for the three months and year ended
December 31, 2017 include the estimated impact of the Tax Cuts and
Jobs Act of 2017 (the “Tax Act”), which resulted in a recorded loss
of $(0.29) per share (diluted) due to the net effect of changes to
the corporate tax rate, changes in the deductibility of certain
items, and the impact on the Company’s valuation allowances on
existing deferred tax assets resulting from the enactment of the
Tax Act in December 2017. The Company has accounted for the effects
of the Tax Act using reasonable estimates based on currently
available information and the Company’s interpretations thereof,
and this estimated impact may be revised as a result of, among
other things, changes in interpretations the Company has made and
the issuance of new tax or accounting guidance.
For information regarding why the Company believes Adjusted
EBITDA presents useful information to investors, and for a
reconciliation of Adjusted EBITDA to net income attributable to
Community Health Systems, Inc. stockholders, see footnote (e) to
the Financial Highlights, Financial Statements and Selected
Operating Data below.
Additionally, the Company has presented adjusted loss from
continuing operations attributable to Community Health Systems,
Inc. common stockholders per share (diluted) and adjusted net loss
attributable to Community Health Systems, Inc. common stockholders
per share (diluted) to reflect the impact on earnings per share
from the selected items used in the calculation of Adjusted EBITDA.
For a reconciliation of these measures, see footnote (h) to the
Financial Highlights, Financial Statements and Selected Operating
Data below.
Included on pages 19, 20, 21 and 22 of this press release are
tables setting forth the Company’s 2018 annual earnings guidance.
The 2018 guidance is based on the Company’s historical operating
performance, current trends and other assumptions that the Company
believes are reasonable at this time, and reflects the impact of
planned divestitures in 2018.
Community Health Systems, Inc. is one of the largest publicly
traded hospital companies in the United States and a leading
operator of general acute care hospitals in communities across the
country. The Company, through its subsidiaries, owns, leases or
operates 127 affiliated hospitals in 20 states with an aggregate of
approximately 21,000 licensed beds.
The Company’s headquarters are located in Franklin, Tennessee, a
suburb south of Nashville. Shares in Community Health Systems, Inc.
are traded on the New York Stock Exchange under the symbol “CYH.”
More information about the Company can be found on its website at
www.chs.net.
Community Health Systems, Inc. will hold a conference call on
Wednesday, February 28, 2018, at 10:00 a.m. Central, 11:00 a.m.
Eastern, to review financial and operating results for the fourth
quarter and year ended December 31, 2017. Investors will have the
opportunity to listen to a live Internet broadcast of the
conference call by clicking on the Investor Relations link of the
Company’s website at www.chs.net. To listen to the live call,
please go to the website at least fifteen minutes early to
register, download and install any necessary audio software. For
those who cannot listen to the live broadcast, a replay will be
available shortly after the call and will continue to be available
through March 28, 2018. Copies of this press release and conference
call slide show, as well as the Company’s Current Report on Form
8-K (including this press release), will be available on the
Company’s website at www.chs.net.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Financial Highlights (a)(b)(c)(d)
(In millions, except per share amounts) (Unaudited)
Three Months Ended Year Ended December 31,
December 31, 2017 2016 2017 2016
Net operating revenues $ 3,059 $ 4,469 $ 15,353 $ 18,438
Loss from continuing operations (f), (i), (j), (k) (2,004 ) (189 )
(2,384 ) (1,611 )
Net loss attributable to Community Health
Systems, Inc. stockholders
(2,013 ) (220 ) (2,459 ) (1,721 ) Adjusted EBITDA (e) 409 564 1,703
2,225 Net cash provided by operating activities 156 327 773 1,137
Basic loss per share attributable to
Community Health Systems, Inc. common stockholders (l):
Continuing operations (f), (i), (j), (k) $ (17.95 ) $ (1.91 ) $
(21.89 ) $ (15.41 ) Discontinued operations (0.03 )
(0.09 ) (0.11 ) (0.13 ) Net loss $ (17.98 ) $ (1.99 )
$ (22.00 ) $ (15.54 )
Diluted loss per share attributable to
Community Health Systems, Inc. common stockholders (l):
Continuing operations (f), (h), (i), (j), (k) $ (17.95 ) $ (1.91 )
$ (21.89 ) $ (15.41 ) Discontinued operations (0.03 )
(0.09 ) (0.11 ) (0.13 ) Net loss (h) $ (17.98 ) $
(1.99 ) $ (22.00 ) $ (15.54 )
Weighted-average number of shares outstanding (g): Basic 112 111
112 111 Diluted 112 111 112 111
____
For footnotes, see pages 14, 15, 16, 17
and 18.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Condensed Consolidated Statements of
Loss (a)(b)(c)(d) (In millions, except per share amounts)
(Unaudited)
Three Months Ended December 31,
2017 2016 Amount
% of
NetOperatingRevenues
Amount
% of
NetOperatingRevenues
Operating revenues (net of contractual allowances and discounts) $
4,076 $ 5,147 Provision for bad debts 1,017
678 Net operating revenues
3,059 100.0 % 4,469 100.0
% Operating costs and expenses: Salaries and benefits 1,671
54.6 % 2,087 46.7 % Supplies 616 20.1 % 730 16.3 % Other operating
expenses 881 28.9 % 992 22.2 % Government and other legal
settlements and related costs (j) 1 - % 5 0.1 % Electronic health
records incentive reimbursement (3 ) (0.1 ) % (15 ) (0.3 ) % Rent
88 2.9 % 110 2.5 % Depreciation and amortization 196 6.4 % 261 5.8
% Impairment and (gain) loss on sale of businesses, net (i)
1,760 57.5 % 224 5.0 % Total
operating costs and expenses 5,210 170.3 %
4,394 98.3 % (Loss) income from
operations (f), (i), (j) (2,151 ) (70.3 ) % 75 1.7 % Interest
expense, net 225 7.4 % 232 5.2 % Loss from early extinguishment of
debt 5 0.2 % - - % Equity in earnings of unconsolidated affiliates
(2 ) (0.1 ) % (5 ) (0.1 ) % Loss from
continuing operations before income taxes (2,379 ) (77.8 ) % (152 )
(3.4 ) % (Benefit from) provision for income taxes (375 )
(12.3 ) % 37 0.8 % Loss from continuing
operations (f), (i), (j) (2,004 ) (65.5 ) % (189 )
(4.2 ) % Discontinued operations, net of taxes: Loss from
operations of entities sold or held for sale (3 ) (0.1 ) % (3 )
(0.1 ) % Impairment of hospitals sold or held for sale -
- % (6 ) (0.1 ) % Loss from discontinued
operations, net of taxes (3 ) (0.1 ) % (9 ) (0.2 ) %
Net loss (2,007 ) (65.6 ) % (198 ) (4.4 ) % Less: Net income
attributable to noncontrolling interests 6 0.2
% 22 0.5 % Net loss attributable to Community
Health Systems, Inc. stockholders $ (2,013 ) (65.8 ) % $ (220 )
(4.9 ) %
Basic loss per share attributable to
Community Health Systems, Inc. common stockholders (l):
Continuing operations (f), (i), (j) $ (17.95 ) $ (1.91 )
Discontinued operations (0.03 ) (0.09 ) Net loss $
(17.98 ) $ (1.99 )
Diluted loss per share attributable to
Community Health Systems, Inc. common stockholders (l):
Continuing operations (f), (h), (i), (j) $ (17.95 ) $ (1.91 )
Discontinued operations (0.03 ) (0.09 ) Net loss (h)
$ (17.98 ) $ (1.99 ) Weighted-average number of shares
outstanding (g): Basic 112 111 Diluted
112 111
____
For footnotes, see pages 14, 15, 16, 17
and 18.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Condensed Consolidated Statements of
Loss (a)(b)(c)(d) (In millions, except per share amounts)
(Unaudited)
Year Ended December 31, 2017
2016 Amount
% of
NetOperatingRevenues
Amount
% of
NetOperatingRevenues
Operating revenues (net of contractual allowances and discounts) $
18,398 $ 21,275 Provision for bad debts 3,045
2,837 Net operating revenues
15,353 100.0 % 18,438 100.0
% Operating costs and expenses: Salaries and benefits
7,376 48.0 % 8,624 46.8 % Supplies 2,672 17.4 % 3,011 16.3 % Other
operating expenses 3,864 25.2 % 4,248 23.1 % Government and other
legal settlements and related costs (j) (31 ) (0.2 ) % 16 0.1 %
Electronic health records incentive reimbursement (28 ) (0.2 ) %
(70 ) (0.4 ) % Rent 394 2.6 % 450 2.4 % Depreciation and
amortization 861 5.6 % 1,100 6.0 % Impairment and (gain) loss on
sale of businesses, net (i) 2,123 13.8 %
1,919 10.4 % Total operating costs and
expenses 17,231 112.2 % 19,298
104.7 % Loss from operations (f), (i), (j) (1,878 )
(12.2 ) % (860 ) (4.7 ) % Interest expense, net 931 6.1 % 962 5.2 %
Loss from early extinguishment of debt 40 0.3 % 30 0.2 % Gain on
sale of investments in unconsolidated affiliates (k) - - % (94 )
(0.5 ) % Equity in earnings of unconsolidated affiliates (16
) (0.1 ) % (43 ) (0.3 ) % Loss from continuing
operations before income taxes (2,833 ) (18.5 ) % (1,715 ) (9.3 ) %
Benefit from income taxes (449 ) (3.0 ) % (104 ) (0.6
) % Loss from continuing operations (f), (i), (j), (k)
(2,384 ) (15.5 ) % (1,611 ) (8.7 ) % Discontinued
operations, net of taxes: Loss from operations of entities sold or
held for sale (6 ) (0.1 ) % (7 ) - % Impairment of hospitals sold
or held for sale (6 ) - % (8 ) (0.1 ) % Loss
from discontinued operations, net of taxes (12 ) (0.1 ) %
(15 ) (0.1 ) % Net loss (2,396 ) (15.6 ) % (1,626 ) (8.8 ) %
Less: Net income attributable to noncontrolling interests 63
0.4 % 95 0.5 % Net loss
attributable to Community Health Systems, Inc. stockholders $
(2,459 ) (16.0 ) % $ (1,721 ) (9.3 ) %
Basic loss per share attributable to
Community Health Systems, Inc. common stockholders:
Continuing operations (f), (i), (j), (k) $ (21.89 ) $ (15.41 )
Discontinued operations (0.11 ) (0.13 ) Net loss $
(22.00 ) $ (15.54 )
Diluted loss per share attributable to
Community Health Systems, Inc. common stockholders:
Continuing operations (f), (h), (i), (j), (k) $ (21.89 ) $ (15.41 )
Discontinued operations (0.11 ) (0.13 ) Net loss (h)
$ (22.00 ) $ (15.54 ) Weighted-average number of shares
outstanding (g): Basic 112 111 Diluted
112 111
____
For footnotes, see pages 14, 15, 16, 17
and 18.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Statements of Comprehensive Loss (In millions) (Unaudited)
Three Months Ended Year Ended December
31, December 31, 2017 2016 2017
2016 Net loss $ (2,007 ) $ (198 ) $ (2,396 ) $ (1,626
) Other comprehensive income, net of income taxes: Net change in
fair value of interest rate swaps, net of tax 11 28 19 17 Net
change in fair value of available-for-sale securities, net of tax 1
(3 ) 8 (11 )
Amortization and recognition of
unrecognized pension cost components, net of tax
12 (1 ) 14 3 Other
comprehensive income 24 24 41
9 Comprehensive loss (1,983 ) (174 ) (2,355 )
(1,617 ) Less: Comprehensive income attributable to noncontrolling
interests 6 22 63
95
Comprehensive loss attributable to
Community Health Systems, Inc. stockholders
$ (1,989 ) $ (196 ) $ (2,418 ) $ (1,712 )
____
For footnotes, see pages 14, 15, 16, 17
and 18.
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES Selected Operating
Data (a)(c) (Dollars in millions) (Unaudited)
Three
Months Ended December 31, Consolidated Same-Store
2017 2016 % Change 2017 2016
% Change Number of hospitals (at end of period) 125 155 125
125 Licensed beds (at end of period) 20,850 26,222 20,850 20,979
Beds in service (at end of period) 18,457 23,229 18,457 18,662
Admissions 164,365 203,496 -19.2 % 163,859 166,688 -1.7 % Adjusted
admissions 355,418 440,160 -19.3 % 354,134 357,170 -0.9 % Patient
days 726,882 910,209 724,920 738,864 Average length of stay (days)
4.4 4.5 4.4 4.4 Occupancy rate (average beds in service) 42.8 %
42.6 % 42.7 % 43.0 % Net operating revenues $ 3,059 $ 4,469 -31.6 %
$ 3,640 $ 3,576 1.8 %
Net inpatient revenues as a % of net
patient revenues before provision for bad debts (1)
43.4 % 43.6 % 43.4 % 44.5 %
Net outpatient revenues as a % of net
patient revenues before provision for bad debts (1)
56.6 % 56.4 % 56.6 % 55.5 % (Loss) income from operations (f), (i),
(j) $ (2,151 ) $ 75 -2968.0 %
(Loss) income from operations as a % of
net operating revenues
-70.3 % 1.7 % Depreciation and amortization $ 196 $ 261 Equity in
earnings of unconsolidated affiliates $ (2 ) $ (5 )
Net loss attributable to Community Health
Systems, Inc. stockholders
$ (2,013 ) $ (220 ) -815.0 %
Net loss attributable to Community Health
Systems, Inc. stockholders as a % of net operating revenues
-65.8 % -4.9 % Adjusted EBITDA (e) $ 409 $ 564 -27.5 %
Adjusted EBITDA as a % of net operating
revenues
13.4 % 12.6 % Net cash provided by operating activities $ 156 $ 327
-52.3 %
____
For footnotes, see pages 14, 15, 16, 17
and 18.
(1) This calculation excludes the
change in estimate related to net patient revenue to increase
contractual allowances recorded during the three months ended
December 31, 2017.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Selected
Operating Data (a)(c) (Dollars in millions) (Unaudited)
Year Ended December 31, Consolidated
Same-Store 2017 2016 % Change
2017 2016 % Change Number of hospitals (at end
of period) 125 155 125 125 Licensed beds (at end of period) 20,850
26,222 20,850 20,979 Beds in service (at end of period) 18,457
23,229 18,457 18,662 Admissions 738,036 857,412 -13.9 % 659,681
672,375 -1.9 % Adjusted admissions 1,596,739 1,867,348 -14.5 %
1,421,816 1,446,502 -1.7 % Patient days 3,296,469 3,832,104
2,937,290 2,990,760 Average length of stay (days) 4.5 4.5 4.5 4.4
Occupancy rate (average beds in service) 43.3 % 43.1 % 43.4 % 43.8
% Net operating revenues $ 15,353 $ 18,438 -16.7 % $ 14,142 $
14,110 0.2 %
Net inpatient revenues as a % of net
patient revenues before provision for bad debts (1)
43.4 % 43.2 % 43.9 % 44.1 %
Net outpatient revenues as a % of net
patient revenues before provision for bad debts (1)
56.6 % 56.8 % 56.1 % 55.9 % Loss from operations (f), (i), (j) $
(1,878 ) $ (860 ) -118.4 %
Loss from operations as a % of net
operating revenues
-12.2 % -4.7 % Depreciation and amortization $ 861 $ 1,100 Equity
in earnings of unconsolidated affiliates $ (16 ) $ (43 )
Net loss attributable to Community Health
Systems, Inc. stockholders
$ (2,459 ) $ (1,721 ) -42.9 %
Net loss attributable to Community Health
Systems, Inc. stockholders as a % of net operating revenues
-16.0 % -9.3 % Adjusted EBITDA (e) $ 1,703 $ 2,225 -23.5 %
Adjusted EBITDA as a % of net operating
revenues
11.1 % 12.1 % Net cash provided by operating activities $ 773 $
1,137 -32.0 %
____
For footnotes, see pages 14, 15, 16, 17
and 18.
(1) This calculation excludes the
change in estimate related to net patient revenue to increase
contractual allowances recorded during the three months ended
December 31, 2017.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Balance Sheets (b) (In millions, except share data) (Unaudited)
December 31, 2017 December 31, 2016
ASSETS Current assets Cash and cash equivalents $ 563 $ 238
Patient accounts receivable, net of
allowance for doubtful accounts of $3,870 and $3,773 at December
31, 2017 and 2016, respectively
2,384 3,176 Supplies 444 480 Prepaid income taxes 17 17 Prepaid
expenses and taxes 198 187 Other current assets 462
568 Total current assets 4,068
4,666 Property and equipment: Land and improvements 671 782
Buildings and improvements 6,971 7,438 Equipment and fixtures
3,855 4,202 Property and equipment,
gross 11,497 12,422 Less accumulated depreciation and amortization
(4,445 ) (4,273 ) Property and equipment, net
7,052 8,149 Goodwill 4,723
6,521 Deferred income taxes 62
15
Other assets, net of accumulated
amortization of $883 and $929 at December 31, 2017 and 2016
1,545 2,593 Total assets $ 17,450
$ 21,944
LIABILITIES AND EQUITY Current
liabilities Current maturities of long-term debt $ 33 $ 455
Accounts payable 967 995 Accrued liabilities: Employee compensation
685 731 Accrued interest 229 207
Other
442 499 Total current liabilities
2,356 2,887 Long-term debt
13,880 14,789 Deferred income taxes 19
411 Other long-term liabilities 1,360
1,575 Total liabilities 17,615
19,662 Redeemable noncontrolling interests in equity
of consolidated subsidiaries 527 554
EQUITY Community Health Systems, Inc. stockholders’ (deficit)
equity: 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; 114,651,004 shares issued and
outstanding at December 31, 2017, and 113,876,580 shares issued and
outstanding at December 31, 2016
1 1 Additional paid-in capital 2,014 1,975 Accumulated other
comprehensive loss (21 ) (62 ) Accumulated deficit (2,761 )
(299 ) Total Community Health Systems, Inc. stockholders’
(deficit) equity (767 ) 1,615 Noncontrolling interests in equity of
consolidated subsidiaries 75 113 Total
(deficit) equity (692 ) 1,728 Total
liabilities and equity $ 17,450 $ 21,944
____
For footnotes, see pages 14, 15, 16, 17
and 18.
COMMUNITY HEALTH SYSTEMS, INC. AND
SUBSIDIARIES Condensed Consolidated Statements of Cash Flows
(b) (In millions) (Unaudited)
Year Ended December 31,
2017 2016 Cash flows from operating
activities Net loss $ (2,396 ) $ (1,626 ) Adjustments to reconcile
net loss to net cash provided by operating activities: Depreciation
and amortization 861 1,100 Deferred income taxes (454 ) (116 )
Government and other legal settlements and related costs (j) 9 16
Stock-based compensation expense 24 46 Impairment of hospitals sold
or held for sale 6 8 Impairment and (gain) loss on sale of
businesses, net (i) 2,123 1,919 Loss from early extinguishment of
debt 40 30 Gain on sale of investments in unconsolidated affiliates
(k) - (94 ) Other non-cash expenses, net 35 31 Changes in operating
assets and liabilities, net of effects of acquisitions and
divestitures: Patient accounts receivable 732 (96 ) Supplies,
prepaid expenses and other current assets (33 ) 25 Accounts
payable, accrued liabilities and income taxes (69 ) (137 ) Other
(105 ) 31 Net cash provided by operating
activities 773 1,137 Cash flows
from investing activities Acquisitions of facilities and other
related businesses (6 ) (123 ) Purchases of property and equipment
(564 ) (744 ) Proceeds from disposition of hospitals and other
ancillary operations 1,692 143 Proceeds from sale of property and
equipment 7 15 Purchases of available-for-sale securities (125 )
(505 ) Proceeds from sales of available-for-sale securities 208 464
Proceeds from sale of investments in unconsolidated affiliates -
403 Distribution from Quorum Health Corporation - 1,219 Increase in
other investments (143 ) (242 ) Net cash provided by
investing activities 1,069 630
Cash flows from financing activities Repurchase of restricted stock
shares for payroll tax withholding requirements (5 ) (6 ) Deferred
financing costs and other debt-related costs (66 ) (26 ) Proceeds
from noncontrolling investors in joint ventures 5 - Redemption of
noncontrolling investments in joint ventures (6 ) (19 )
Distributions to noncontrolling investors in joint ventures (100 )
(92 ) Proceeds from sale-lease back - 159 Borrowings under credit
agreements 841 4,879 Issuance of long-term debt 3,100 - Proceeds
from receivables facility 105 107 Repayments of long-term
indebtedness (5,391 ) (6,715 ) Net cash used in
financing activities (1,517 ) (1,713 ) Net
change in cash and cash equivalents 325 54 Cash and cash
equivalents at beginning of period 238 184
Cash and cash equivalents at end of period $ 563 $
238
____
For footnotes, see pages 14, 15, 16, 17
and 18.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data
(a) Continuing operating results exclude discontinued
operations for the three months and years ended December 31, 2017
and 2016. Both financial and statistical results exclude entities
in discontinued operations for all periods presented. Same-store
operating results and statistical data exclude information for the
hospitals sold during the period and the hospitals divested in the
spin-off of QHC in the comparable period in 2016. Such same-store
operating results and statistical information also exclude the
overall impact of the change in estimate related to net patient
revenue recorded in the fourth quarter of 2017. (b) The
contingent value right (“CVR”) entitles the holder to receive a
cash payment up to $1.00 per CVR (subject to downward adjustment
but not below zero), subject to the final resolution of certain
legal matters pertaining to Health Management Associates, Inc.
(“HMA”), as defined in the CVR agreement. If the aggregate amount
of applicable losses under the CVR agreement exceeds a deductible
of $18 million, then the amount payable in respect of each CVR
shall be reduced (but not below zero) by an amount equal to the
quotient obtained by dividing: (a) the product of (i) all losses in
excess of the deductible and (ii) 90%; by (b) the number of CVRs
outstanding on the date on which final resolution of the existing
litigation occurs. Since the HMA acquisition date of January 27,
2014, approximately $34 million in costs have been incurred and
approximately $30 million of settlements have been paid related to
certain HMA legal matters, which collectively exceed the deductible
of $18 million under the CVR agreement. The Company previously
recorded an estimated fair value of the remaining underlying claims
that will be covered by the CVR of $284 million as part of the
acquisition accounting for HMA, which, after consideration of
amounts paid and current estimates of valuation inputs, has been
adjusted to its estimated fair value of $256 million at December
31, 2017. In addition, although future legal fees (which are
expensed as incurred) associated with the HMA legal matters have
not been accrued or included in the table below, such legal fees
are taken into account in determining the total amount of
reductions applied to the amounts owed to CVR holders. The
following table presents the impact of the recorded amounts as
described above as applied to the CVR and the $18 million
deductible and 10% co-insurance amounts (in millions):
As of December 31, 2017 Legal
and other related costs incurred to date $ 34 Settlements 30
Estimated liability for probable contingencies - Estimated
liability for unresolved contingencies at fair value 256
Costs incurred plus certain estimated
liabilities for CVR-related matters
320 Allocated to: CHS deductible of $18 million (18 ) CHS
co-insurance at 10% (29 )
Recorded amounts that reduce CVR value
after giving effect to deductible and co-insurance
$ 273 CVRs outstanding 265 (c)
Included in discontinued operations for the three months and years
ended December 31, 2017 and 2016, are three smaller hospitals, two
of which are being actively marketed for sale and one hospital that
sold effective May 1, 2017. The after-tax loss for the sold or held
for sale hospitals, was approximately $3 million and $9 million for
the three months ended December 31, 2017 and 2016, respectively,
and approximately $12 million and $15 million for the years ended
December 31, 2017 and 2016, respectively.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
(d) The following table provides information needed to
calculate loss per share, which is adjusted for income attributable
to noncontrolling interests (in millions):
Three Months Ended Year Ended
December 31, December 31, 2017 2016
2017 2016
Loss from continuing operations
attributable to Community Health Systems, Inc. common
stockholders:
Loss from continuing operations, net of taxes $ (2,004 ) $ (189 ) $
(2,384 ) $ (1,611 )
Less: Income from continuing operations
attributable to noncontrolling interests, net of taxes
6 22 63 95
Loss from continuing operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ (2,010 ) $ (211 ) $ (2,447 ) $ (1,706 )
Loss from discontinued operations
attributable to Community Health Systems, Inc. common
stockholders:
Loss from discontinued operations, net of taxes $ (3 ) $ (9 ) $ (12
) $ (15 )
Less: Loss from discontinued operations
attributable to noncontrolling interests, net of taxes
- - - -
Loss from discontinued operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ (3 ) $ (9 ) $ (12 ) $ (15 ) (e) EBITDA is a non-GAAP
financial measure which consists of net loss attributable to
Community Health Systems, Inc. before interest, income taxes, and
depreciation and amortization. Adjusted EBITDA, also a non-GAAP
financial measure, is EBITDA adjusted to add back net income
attributable to noncontrolling interests and to exclude the effect
of discontinued operations, loss from early extinguishment of debt,
impairment and (gain) loss on sale of businesses, gain on sale of
investments in unconsolidated affiliates, expense incurred related
to the spin-off of QHC, expense incurred related to the sale of a
majority ownership interest in the Company’s home care division,
expense (income) related to government and other legal settlements
and related costs, expense related to employee termination benefits
and other restructuring charges, (income) expense from fair value
adjustments on the CVR agreement liability accounted for at fair
value related to the HMA legal proceedings, and related legal
expenses, and the overall impact of the change in estimate related
to net patient revenue recorded in the fourth quarter of 2017
resulting from the increase in contractual allowances and the
provision for bad debts. During the three months ended December 31,
2017, the Company increased contractual allowances and the
provision for bad debts after completing an extensive analysis of
the Company’s patient revenues and patient accounts receivable that
was initiated as part of the development of new accounting
processes and methodologies to adopt the new accounting standard on
revenue recognition as required by generally accepted accounting
principles on January 1, 2018. This analysis included an evaluation
during the fourth quarter of 2017 of the Company’s patient accounts
receivable retained after the divestiture of 30 hospitals during
2017 and additional allowances recorded on such accounts receivable
based on updated estimates of future collections, and certain other
revenues. The full impact of this change in estimate is included in
the reported results of operations for the three months and year
ended December 31, 2017. These changes in estimate are not expected
to have a material impact on the recognition of revenue on a
prospective basis. The Company has included this adjustment in the
calculation of Adjusted EBITDA based on its belief that these
changes in estimate are consistent with the intended purpose of
Adjusted EBITDA in assessing the Company’s operational performance
and compare the Company’s performance between periods. The Company
has from time to time sold noncontrolling interests in certain of
its subsidiaries or acquired subsidiaries with existing
noncontrolling interest ownership positions. The Company believes
that it is useful to present Adjusted EBITDA because it adds back
the portion of EBITDA attributable to these third-party interests
and clarifies for investors the Company’s portion of EBITDA
generated by continuing operations. The Company reports Adjusted
EBITDA as a measure of financial performance. Adjusted EBITDA is a
key measure used by management to assess the operating performance
of the Company’s hospital operations and to make decisions on the
allocation of resources. Adjusted EBITDA is also used to evaluate
the performance of the Company’s executive management team and is
one of the primary targets used to determine short-term cash
incentive compensation. In addition, management utilizes Adjusted
EBITDA in assessing the Company’s consolidated results of
operations and operational performance and in comparing the
Company’s results of operations between periods. The Company
believes it is useful to provide investors and other users of the
Company’s financial statements this performance measure to align
with how management assesses the Company’s results of operations.
Adjusted EBITDA also is comparable to a similar metric called
Consolidated EBITDA, as defined in the Company’s senior secured
credit facility, which is a key component in the determination of
the Company’s compliance with some of the covenants under the
Company’s senior secured credit facility (including the Company’s
ability to service debt and incur capital expenditures), and is
used to determine the interest rate and commitment fee payable
under the senior secured credit facility (although Adjusted EBITDA
does not include all of the adjustments described in the senior
secured credit facility).
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
Adjusted EBITDA is not a measurement of financial
performance under U.S. GAAP. It should not be considered in
isolation or as a substitute for net income, operating income, or
any other performance measure calculated in accordance with U.S.
GAAP. The items excluded from Adjusted EBITDA are significant
components in understanding and evaluating financial performance.
The Company believes such adjustments are appropriate as the
magnitude and frequency of such items can vary significantly and
are not related to the assessment of normal operating performance.
Additionally, this calculation of Adjusted EBITDA may not be
comparable to similarly titled measures reported by other
companies. The following table reflects the reconciliation
of Adjusted EBITDA, as defined, to net loss attributable to
Community Health Systems, Inc. stockholders as derived directly
from the condensed consolidated financial statements (in millions):
Three Months Ended
Year Ended December 31, December 31,
2017 2016 2017 2016
Net loss attributable to Community Health
Systems, Inc. stockholders
$ (2,013 ) $ (220 ) $ (2,459 ) $ (1,721 ) Adjustments: (Benefit
from) provision for income taxes (375 ) 37 (449 ) (104 )
Depreciation and amortization 196 261 861 1,100 Net income
attributable to noncontrolling interests 6 22 63 95 Loss from
discontinued operations 3 9 12 15 Interest expense, net 225 232 931
962 Loss from early extinguishment of debt 5 - 40 30 Impairment and
(gain) loss on sale of businesses, net 1,760 224 2,123 1,919
Change in estimate for contractual
allowances and provision for bad debts
591 - 591 - Gain on sale of investments in unconsolidated
affiliates - - - (94 )
Expense (income) from government and other
legal settlements and related costs
1 5 (31 ) 16
(Income) expense from fair value
adjustments and legal expenses related to cases covered by the
CVR
- (6 ) 6 (6 ) Expense related to the sale of a majority interest in
home care division - - 1 1 Expense related to the spin-off of QHC -
- - 12
Expense related to employee termination
benefits and other restructuring charges
10 - 14 -
Adjusted EBITDA $ 409 $ 564 $ 1,703 $ 2,225
(f) Included in non-same-store loss from operations
and loss from continuing operations are pre-tax charges related to
acquisition costs of less than $1 million and $1 million for the
three months ended December 31, 2017 and 2016, respectively, and $2
million and $5 million for the years ended December 31, 2017 and
2016, respectively. (g) The following table sets forth
components reconciling the basic weighted-average number of shares
to the diluted weighted-average number of shares (in millions):
Three Months Ended
Year Ended December 31, December 31,
2017 2016 2017 2016
Weighted-average number of shares
outstanding - basic
112 111 112 111 Add effect of dilutive securities: Stock awards and
options - - - -
Weighted-average number of shares
outstanding - diluted
112 111 112 111 The Company generated a loss from continuing
operations attributable to Community Health Systems, Inc. common
stockholders for the three months and years ended December 31, 2017
and 2016, so the effect of dilutive securities is not considered
because their effect would be antidilutive. If the Company had
generated income from continuing operations, the effect of
restricted stock awards on the diluted shares calculation would
have been an increase of 3,000 shares and 650,071 shares during the
three months ended December 31, 2017 and 2016, respectively, and
111,464 shares and 331,518 shares during the years ended December
31, 2017 and 2016, respectively.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
(h) The following supplemental tables reconcile loss from
continuing operations and net loss attributable to Community Health
Systems, Inc. common stockholders, as reported, on a per share
(diluted) basis, with the adjustments described herein (total per
share amounts may not add due to rounding). The Company believes
that the presentation of non-GAAP adjusted loss from continuing
operations per share (diluted) and non-GAAP adjusted net loss
attributable to Community Health Systems, Inc. common stockholders
presents useful information to investors through highlighting the
impact on earnings per share of selected items used in calculating
Adjusted EBITDA.
Three Months
Ended Year Ended December 31, December 31,
2017 2016 2017 2016 Loss from
continuing operations, as reported $ (17.95 ) $ (1.91 ) $ (21.89 )
$ (15.41 ) Adjustments: Loss from early extinguishment of debt 0.03
- 0.23 0.17 Impairment and (gain) loss on sale of businesses, net
13.94 2.35 16.84 16.07
Expense (income) from government and other
legal settlements and related costs
- 0.03 (0.18 ) 0.09
(Income) expense from fair value
adjustments and legal expenses related to cases covered by the
CVR
- (0.04 ) 0.04 (0.04 ) Gain on sale of investments in
unconsolidated affiliates - - - (0.54 ) Expense related to the
spin-off of QHC - 0.02 - 0.10
Expense related to the sale of a majority
interest in home care division
- - - 0.01
Expense related to employee termination
benefits and other restructuring charges
0.06 - 0.08 -
Change in estimate for contractual
allowances and provision for bad debts
3.38 - 3.38 - Expense related to change in Corporate income tax
rate 0.29 - 0.29 -
(Loss) income from continuing operations,
excluding adjustments
$ (0.25 ) $ 0.46 $ (1.20 ) $ 0.46
Three Months Ended Year Ended December 31,
December 31, 2017 2016 2017 2016
Net loss, as reported $ (17.98 ) $ (1.99 ) $ (22.00 ) $
(15.54 ) Adjustments: Loss from early extinguishment of debt 0.03 -
0.23 0.17 Impairment and (gain) loss on sale of businesses, net
13.94 2.35 16.84 16.07
Expense (income) from government and other
legal settlements and related costs
- 0.03 (0.18 ) 0.09
(Income) expense from fair value
adjustments and legal expenses related to cases covered by the
CVR
- (0.04 ) 0.04 (0.04 ) Gain on sale of investments in
unconsolidated affiliates - - - (0.54 ) Expense related to the
spin-off of QHC - 0.02 - 0.10
Expense related to the sale of a majority
interest in home care division
- - - 0.01
Expense related to employee termination
benefits and other restructuring charges
0.06 - 0.08 -
Change in estimate for contractual
allowances and provision for bad debts
3.38 - 3.38 - Expense related to change in Corporate income tax
rate 0.29 - 0.29 - Impairment of long-lived assets in discontinued
operations - 0.06 0.05
0.07 Net (loss) income, excluding adjustments $ (0.28
) $ 0.43 $ (1.26 ) $ 0.40
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
(i) Both loss from operations and loss from continuing
operations for the three months and year ended December 31, 2017,
included non-cash expense of approximately $1.760 billion and
$2.123 billion, respectively, primarily from an impairment charge
with respect to the value of goodwill for the Company’s hospital
reporting unit and impairment charges to reduce the value of
long-lived assets at hospitals that the Company has sold or
identified for sale and at certain under-performing hospitals. Both
income from operations and loss from continuing operations for the
three months ended December 31, 2016, included non-cash net expense
of approximately $224 million, primarily related to impairment
charges totaling approximately $315 million to reduce the value of
long-lived assets, primarily allocated goodwill, at certain
under-performing hospitals and hospitals that the Company had
identified for sale, which were partially offset by the gain of $91
million on the sale of a majority ownership interest in the
Company’s home care division. Both loss from operations and loss
from continuing operations for the year ended December 31, 2016,
included an impairment charge of approximately $1.919 billion, of
which $1.395 billion was a charge related to the write-down of a
portion of the goodwill for the Company’s hospital operation
reporting unit, and $598 million was a charge related to the
adjustment of the fair value of long-lived assets at certain of the
Company’s underperforming hospitals and some of the hospitals that
the Company was marketing for sale that had experienced declining
operating results or had a decline in their estimated fair value
since the Company’s previous impairment review. These impairment
charges were partially offset by the gain on the sale of a majority
ownership interest in the Company’s home care division of $91
million. Also, included in loss from operations and loss from
continuing operations for the year ended December 31, 2016, was an
impairment charge of approximately $17 million incurred during the
three months ended March 31, 2016, related to the write-down of a
portion of the goodwill allocated to the divestitures of Lehigh
Regional Medical Center and Bartow Regional Medical Center, as well
as the impairment of certain long-lived assets at one of the
Company’s smaller hospitals where the decision was made during the
quarter ended March 31, 2016, to permanently close the hospital.
These impairment charges do not have an impact on the calculation
of the Company’s financial covenants under the Company’s Credit
Facility. (j) The $0.18 per share (diluted) of income for
“Government and other legal settlements and related costs” for the
year ended December 31, 2017, is primarily the impact of the
shareholder derivative action settled during the year ended
December 31, 2017, net of related legal expenses. The $(0.03) and
$(0.09) per share (diluted) of expense for “Government and other
legal settlements and related costs” for the three months and year
ended December 31, 2016, respectively, is the net impact of several
lawsuits settled in principle during the three months and year
ended December 31, 2016, and related legal expenses. (k) On
April 29, 2016, the Company sold its unconsolidated minority equity
interests in Valley Health System, LLC, a joint venture with
Universal Health Systems, Inc. (“UHS”) representing four hospitals
in Las Vegas, Nevada, in which the Company owned a 27.5% interest,
and in Summerlin Hospital Medical Center, LLC, a joint venture with
UHS representing one hospital in Las Vegas, Nevada, in which the
Company owned a 26.1% interest. The Company received $403 million
in cash in return for the sale of its equity interests and
recognized a $94 million gain on sale of investments in
unconsolidated affiliates during the year ended December 31, 2016.
(l) Total per share amounts may not add due to rounding.
Regulation FD Disclosure
Set forth below is selected information concerning the Company’s
projected consolidated operating results for the year ending
December 31, 2018. These projections are based on the Company’s
historical operating performance, current trends and other
assumptions that the Company believes are reasonable at this time.
The 2018 guidance should be considered in conjunction with the
assumptions included herein. See pages 21 and 22 for a list of
factors that could affect the future results of the Company or the
healthcare industry generally.
The following is provided as guidance to analysts and
investors:
2018 Projection Range Net operating
revenues (in millions) $ 13,600 to $ 13,900 Adjusted EBITDA (in
millions) $ 1,550 to $ 1,650 Loss from continuing operations per
share - diluted $ (1.50 ) to $ (1.10 ) Same-store hospital annual
adjusted admissions (0.5 ) % to 0.5 % Weighted-average diluted
shares, in millions 113.0 to 114.0
The following assumptions were used in developing the 2018
guidance provided above:
- The guidance above includes
approximately $1.0 billion of net operating revenues with low to
mid-single digit Adjusted EBITDA margins, related to divestitures
we anticipate to occur throughout 2018. The operations associated
with these anticipated divestitures generated approximately $2.0
billion of net operating revenues in 2017 with mid-single digit
Adjusted EBITDA margins.
- The Company’s projections also exclude
the following:
- Payments related to the CVRs issued in
connection with the HMA acquisition, and changes in the valuation
of liabilities underlying the CVR;
- Effect of potential debt refinancing
activities, including losses from the early extinguishment of
debt;
- Impairment of goodwill and long-lived
assets;
- Gains or losses from the sales of
businesses;
- Employee termination benefits and
restructuring costs;
- Resolution of government investigations
or other significant legal settlements;
- Costs incurred in connection with
divestitures;
- Insurance recoveries that may be
received for property losses and business interruption coverage
related to Hurricanes Harvey and Irma;
- Changes in the estimated impact of the
Tax Cuts and Jobs Act on our deferred tax assets and liabilities;
and
- Other significant gains or losses that
neither relate to the ordinary course of business nor reflect the
Company’s underlying business performance.
Other assumptions used in the above guidance:
- Health Information Technology (HITECH)
electronic health records incentive reimbursement will be zero for
the year ending December 31, 2018.
- Same-store hospital annual adjusted
admissions decline of (0.5)% to growth of 0.5% for 2018, which does
not take into account service closures and weather-related or other
unusual events.
- Expressed as a percentage of net
operating revenues, depreciation and amortization of approximately
5.0% to 5.1% for 2018. Additionally, this is a fixed cost and the
percentages may change as revenue varies. Such amounts exclude the
possible impact of any future hospital fixed asset
impairments.
- Interest expense, expressed as a
percentage of net operating revenues, of approximately 6.5% to
6.6%; however, interest expense may vary as revenue varies.
Interest expense has been adjusted to reflect the repayment of debt
with proceeds from the anticipated divestitures, based on the
expected timing of those divestitures. Total fixed rate debt,
including swaps, is expected to average approximately 85% to 95% of
total debt during 2018.
- Expressed as a percentage of net
operating revenues, net income attributable to noncontrolling
interests of approximately 0.5% to 0.6% for 2018.
- Expressed as a percentage of net
operating revenues, provision for income taxes of approximately
0.5% to 0.6% for 2018.
A reconciliation of the Company’s projected 2018 Adjusted
EBITDA, a forward-looking non-GAAP financial measure, to the
Company’s projected net loss attributable to Community Health
Systems, Inc. stockholders, the most directly comparable GAAP
financial measure, is shown below:
Year Ending December 31, 2018
Low High
Net loss attributable to Community Health
Systems, Inc. stockholders (1)
$ (171 ) $ (124 ) Adjustments: Depreciation and amortization 690
700 Interest expense, net 890 910 Provision for income taxes 71 89
Net income attributable to noncontrolling interests 70
75 Adjusted EBITDA (1) $ 1,550 $ 1,650
(1) The Company does not include in
this reconciliation the impact of certain items not included in the
Company’s forecast set forth above that would be included in a
reconciliation of historical net loss attributable to Community
Health Systems, Inc. stockholders to Adjusted EBITDA such as, but
not limited to, losses from early extinguishment of debt,
impairment and (gain) loss on sale of businesses, and expense
(income) related to government and other legal settlements and
related costs, in light of the fact that such items are not
determinable and/or the inherent difficulty in quantifying such
projected amounts on a forward-looking basis.
- Capital expenditures are projected as
follows (in millions):
2018 Guidance Total $475 to $575
- Net cash provided by operating
activities, excluding cash flows related to the CVR and settlement
of legal contingencies, is projected as follows (in millions):
2018 Guidance Total $700 to $800
- Diluted weighted-average shares
outstanding are projected to be between approximately 113.0 million
to 114.0 million for 2018.
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995
that involve risk and uncertainties. All statements in this press
release other than statements of historical fact, including
statements regarding projections, expected operating results, and
other events that depend upon or refer to future events or
conditions or that include words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “estimates,” “thinks,” and similar
expressions, are forward-looking statements. Although the Company
believes that these forward-looking statements are based on
reasonable assumptions, these assumptions are inherently subject to
significant economic and competitive uncertainties and
contingencies, which are difficult or impossible to predict
accurately and may be beyond the control of the Company.
Accordingly, the Company cannot give any assurance that its
expectations will in fact occur and cautions that actual results
may differ materially from those in the forward-looking statements.
A number of factors could affect the future results of the Company
or the healthcare industry generally and could cause the Company’s
expected results to differ materially from those expressed in this
press release.
These factors include, among other things:
- general economic and business
conditions, both nationally and in the regions in which we
operate;
- the impact of changes made to the
Affordable Care Act, the potential for repeal or additional changes
to the Affordable Care Act, its implementation or its
interpretation (including through executive orders), as well as
changes in other federal, state or local laws or regulations
affecting our business;
- the extent to which states support
increases, decreases or changes in Medicaid programs, implement
health insurance exchanges or alter the provision of healthcare to
state residents through regulation or otherwise;
- the future and long-term viability of
health insurance exchanges and potential changes to the beneficiary
enrollment process;
- risks associated with our substantial
indebtedness, leverage and debt service obligations, and the fact
that a substantial portion of our indebtedness will mature and
become due in the near future, including our ability to refinance
such indebtedness on acceptable terms or to incur additional
indebtedness;
- demographic changes;
- changes in, or the failure to comply
with, governmental regulations;
- potential adverse impact of known and
unknown government investigations, audits, and federal and state
false claims act litigation and other legal proceedings;
- our ability, where appropriate, to
enter into and maintain provider arrangements with payors and the
terms of these arrangements, which may be further affected by the
increasing consolidation of health insurers and managed care
companies and vertical integration efforts involving payors and
healthcare providers;
- changes in, or the failure to comply
with, contract terms with payors and changes in reimbursement rates
paid by federal or state healthcare programs or commercial
payors;
- any potential additional impairments in
the carrying value of goodwill, other intangible assets, or other
long-lived assets, or changes in the useful lives of other
intangible assets;
- changes in inpatient or outpatient
Medicare and Medicaid payment levels and methodologies;
- the effects related to the continued
implementation of the sequestration spending reductions and the
potential for future deficit reduction legislation;
- increases in the amount and risk of
collectability of patient accounts receivable, including decreases
in collectability which may result from, among other things,
self-pay growth and difficulties in recovering payments for which
patients are responsible, including co-pays and deductibles;
- the efforts of insurers, healthcare
providers, large employer groups and others to contain healthcare
costs, including the trend toward value-based purchasing;
- our ongoing ability to demonstrate
meaningful use of certified electronic health record technology and
recognize income for the related Medicare or Medicaid incentive
payments, to the extent such payments have not expired;
- increases in wages as a result of
inflation or competition for highly technical positions and rising
supply and drug costs due to market pressure from pharmaceutical
companies and new product releases;
- liabilities and other claims asserted
against us, including self-insured malpractice claims;
- competition;
- our ability to attract and retain, at
reasonable employment costs, qualified personnel, key management,
physicians, nurses and other healthcare workers;
- trends toward treatment of patients in
less acute or specialty healthcare settings, including ambulatory
surgery centers or specialty hospitals;
- changes in medical or other
technology;
- changes in U.S. generally accepted
accounting principles;
- the availability and terms of capital
to fund any additional acquisitions or replacement facilities or
other capital expenditures;
- our ability to successfully make
acquisitions or complete divestitures, including the disposition of
hospitals and non-hospital businesses pursuant to our portfolio
rationalization and deleveraging strategy, our ability to complete
any such acquisitions or divestitures on desired terms or at all
(including to realize the anticipated amount of proceeds from
contemplated dispositions), the timing of the completion of any
such acquisitions or divestitures, and our ability to realize the
intended benefits from any such acquisitions or divestitures;
- the impact that changes in our
relationships with joint venture or syndication partners could have
on effectively operating our hospitals or ancillary services or in
advancing strategic opportunities;
- our ability to successfully integrate
any acquired hospitals, or to recognize expected synergies from
acquisitions;
- the impact of seasonal severe weather
conditions, including the timing and amount of insurance recoveries
in relation to severe weather events such as Hurricanes Harvey and
Irma;
- our ability to obtain adequate levels
of general and professional liability insurance;
- timeliness of reimbursement payments
received under government programs;
- effects related to outbreaks of
infectious diseases;
- the impact of prior or potential future
cyber-attacks or security breaches;
- any failure to comply with the terms of
the Corporate Integrity Agreement;
- the concentration of our revenue in a
small number of states;
- our ability to realize anticipated cost
savings and other benefits from our current strategic and
operational cost savings initiatives;
- changes in interpretations, assumptions
and expectations regarding the Tax Act; and
- the other risk factors set forth in our
other public filings with the Securities and Exchange
Commission.
The consolidated operating results for the three months and year
ended December 31, 2017, are not necessarily indicative of the
results that may be experienced for any future periods. The Company
cautions that the projections for calendar year 2018 set forth in
this press release are given as of the date hereof based on
currently available information. The Company undertakes no
obligation to revise or update any forward-looking statements, or
to make any other forward-looking statements, whether as a result
of new information, future events or otherwise.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180227006595/en/
Community Health Systems, Inc.Thomas J. Aaron,
615-465-7000Executive Vice Presidentand Chief Financial Officer
Community Health Systems (NYSE:CYH)
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