Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three and six
months ended June 30, 2018.
The following highlights the financial and operating results for
the three months ended June 30, 2018.
- Net operating revenues totaled
$3.562 billion.
- Net loss attributable to Community
Health Systems, Inc. common stockholders was $(110) million, or
$(0.97) per share (diluted), compared with net loss of $(137)
million, or $(1.22) per share (diluted) for the same period in
2017. Excluding the adjusting items as presented in the table in
footnote (h) on page 15, net loss attributable to Community Health
Systems, Inc. common stockholders was $(0.01) per share (diluted),
compared with $(0.31) per share (diluted) for the same period in
2017.
- Adjusted EBITDA was $411
million.
- Net cash (used in) provided by
operating activities was $(12) million, compared with $261 million
for the same period in 2017. Cash flows from operations for the
three months ended June 30, 2018 included additional cash outflows
of approximately $60 million from the acceleration of interest
payments associated with the closing of our debt exchange and cash
payments of $11 million from workforce reduction and restructuring
charges. Cash flows from operations for the three months ended June
30, 2017 included the benefit of approximately $65 million from
interest payments that had been accelerated to the first quarter of
2017, as well as approximately $24 million of cash received for
meaningful use incentives.
- On a same-store basis, admissions
decreased 2.1 percent and adjusted admissions decreased 0.2
percent, compared with the same period in 2017.
Net operating revenues for the three months ended June 30, 2018,
totaled $3.562 billion, a 14.0 percent decrease, compared with
$4.144 billion for the same period in 2017.
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(110) million, or $(0.97) per share (diluted),
for the three months ended June 30, 2018, compared with $(137)
million, or $(1.22) per share (diluted), for the same period in
2017. Excluding the adjusting items as presented in the table in
footnote (h) on page 15, net loss attributable to Community Health
Systems, Inc. common stockholders was $(0.01) per share (diluted),
for the three months ended June 30, 2018, compared with $(0.31) per
share (diluted) for the same period in 2017. Weighted-average
shares outstanding (diluted) were 113 million for the three months
ended June 30, 2018, and 112 million for the three months ended
June 30, 2017.
Adjusted EBITDA for the three months ended June 30, 2018, was
$411 million compared with $435 million for the same period in
2017, representing a 5.5 percent decrease.
The consolidated operating results for the three months ended
June 30, 2018, reflect a 16.9 percent decrease in both total
admissions and total adjusted admissions, compared with the same
period in 2017. On a same-store basis, admissions decreased 2.1
percent and adjusted admissions decreased 0.2 percent during the
three months ended June 30, 2018, compared with the same period in
2017. On a same-store basis, net operating revenues increased 3.3
percent during the three months ended June 30, 2018, compared with
the same period in 2017.
Net operating revenues for the six months ended June 30, 2018,
totaled $7.251 billion, a 16.0 percent decrease, compared with
$8.629 billion for the same period in 2017.
Net loss attributable to Community Health Systems, Inc. common
stockholders was $(135) million, or $(1.20) per share (diluted),
for the six months ended June 30, 2018, compared with $(335)
million, or $(3.01) per share (diluted), for the same period in
2017. Excluding the adjusting items as presented in the table in
footnote (h) on page 15, net income attributable to Community
Health Systems, Inc. common stockholders was $0.12 per share
(diluted), for the six months ended June 30, 2018, compared with
net loss of $(0.24) per share (diluted) for the same period in
2017. Weighted-average shares outstanding (diluted) were 113
million for the six months ended June 30, 2018, and 112 million for
the six months ended June 30, 2017.
Adjusted EBITDA for the six months ended June 30, 2018, was $851
million compared with $963 million for the same period in 2017,
representing an 11.6 percent decrease.
The consolidated operating results for the six months ended June
30, 2018, reflect an 18.3 percent decrease in total admissions, and
a 19.0 percent decrease in total adjusted admissions, compared with
the same period in 2017. On a same-store basis, admissions
decreased 2.2 percent and adjusted admissions decreased 1.0 percent
during the six months ended June 30, 2018, compared with the same
period in 2017. On a same-store basis, net operating revenues
increased 2.5 percent during the six months ended June 30, 2018,
compared with the same period in 2017.
Commenting on the results, Wayne T. Smith, chairman and chief
executive officer of Community Health Systems, Inc., said, “Our
second quarter results reflect progress in our key areas of
strategic focus, most notably improvements in same-store operating
results, progress on divestitures and successful refinancings. As
we complete additional divestitures this year, we believe our
portfolio will become stronger, and more of our resources can be
directed to markets where we have the greatest opportunities to
drive incremental growth. We remain confident in our ability to
strengthen our company through execution of our strategic growth
initiatives, investments in high-quality healthcare services, and a
continuous focus on expense management.”
During 2018, the Company has completed seven hospital
divestitures. In addition, the Company has entered into definitive
agreements to sell five additional hospitals, which divestitures
have not yet been completed. The Company is pursuing interests for
sale transactions involving hospitals, which, together with the
hospitals that are currently subject to definitive agreements and
the hospitals that have been divested during 2018, had a combined
total of approximately $2.0 billion in annual net operating
revenues and combined mid-single digit Adjusted EBITDA margins
during 2017. These sale transactions are currently in various
stages of negotiation with potential buyers. There can be no
assurance that these potential divestitures (or the potential
divestitures currently subject to definitive agreements) will be
completed, or if they are completed, the ultimate timing of the
completion of these divestitures. The Company continues to receive
interest from potential acquirers for certain of its hospitals.
Financial and statistical data for 2018 and 2017 presented in
this press release includes the operating results of divested
hospitals through the effective closing date of each respective
divestiture. Same-store operating results exclude the results of
the hospitals divested in 2018 and 2017.
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,
(gain) 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, expense (income) 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.
For information regarding why the Company believes Adjusted
EBITDA provides 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 provided adjusted (loss) income
from continuing operations attributable to Community Health
Systems, Inc. common stockholders per share (diluted) and adjusted
net (loss) income 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 presentation and reconciliation of these
measures, see footnote (h) to the Financial Highlights, Financial
Statements and Selected Operating Data below.
Included on pages 17, 18, 19 and 20 of this press release are
tables setting forth the Company’s 2018 updated 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 119 affiliated hospitals in 20 states with an aggregate of
approximately 20,000 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
Friday, July 27, 2018, at 10:00 a.m. Central, 11:00 a.m. Eastern,
to review financial and operating results for the second quarter
ended June 30, 2018. 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 August 27, 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
Six Months Ended
June 30, June 30, 2018
2017 2018 2017 Net
operating revenues (k) $ 3,562 $ 4,144 $ 7,251 $ 8,629 Loss from
continuing operations (f), (i), (j) (91 ) (116 ) (98 ) (292 )
Net loss attributable to Community Health
Systems, Inc. stockholders
(110 ) (137 ) (135 ) (335 ) Adjusted EBITDA (e) 411 435 851 963 Net
cash (used in) provided by operating activities (12 ) 261 94 503
Basic loss per share attributable to
Community Health Systems, Inc. common stockholders (l):
Continuing operations (f), (i), (j) $ (0.97 ) $ (1.17 ) $ (1.20 ) $
(2.94 ) Discontinued operations - (0.06 )
- (0.06 ) Net loss $ (0.97 ) $ (1.22 ) $ (1.20
) $ (3.01 )
Diluted loss per share attributable to
Community Health Systems, Inc. common stockholders (l):
Continuing operations (f), (h), (i), (j) $ (0.97 ) $ (1.17 ) $
(1.20 ) $ (2.94 ) Discontinued operations -
(0.06 ) - (0.06 ) Net loss (h) $ (0.97 ) $
(1.22 ) $ (1.20 ) $ (3.01 )
Weighted-average number of shares outstanding (g): Basic 113 112
113 112 Diluted 113 112 113 112
____
For footnotes, see pages 12, 13, 14, 15
and 16.
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 June 30, 2018
2017 Amount % of Net Operating
Revenues
Amount
% of Net Operating
Revenues
Operating revenues (net of contractual allowances and discounts) $
4,823 Provision for bad debts 679 Net
operating revenues (k) $ 3,562 100.0 % 4,144 100.0 %
Operating costs and expenses: Salaries and benefits 1,617
45.4 % 1,920 46.3 % Supplies 592 16.6 % 697 16.8 % Other operating
expenses 879 24.7 % 1,017 24.6 % Government and other legal
settlements and related costs (j) 1 - % 7 0.2 % Electronic health
records incentive reimbursement - - % (17 ) (0.4 )% Rent 85 2.4 %
104 2.5 % Depreciation and amortization 177 5.0 % 223 5.4 %
Impairment and (gain) loss on sale of businesses, net (i)
174 4.9 % 80 1.9 % Total operating costs and
expenses 3,525 99.0 % 4,031 97.3 %
Income from operations (f), (i), (j) 37 1.0 % 113 2.7 %
Interest expense, net 235 6.6 % 239 5.8 % (Gain) loss from early
extinguishment of debt (64 ) (1.8 )% 10 0.2 % Equity in earnings of
unconsolidated affiliates (5 ) (0.2 )% (5 ) (0.1 )%
Loss from continuing operations before income taxes (129 )
(3.6 )% (131 ) (3.2 )% Benefit from income taxes (38 ) (1.0
)% (15 ) (0.4 )% Loss from continuing operations (f), (i),
(j) (91 ) (2.6 )% (116 ) (2.8 )%
Discontinued operations, net of taxes: Loss from operations of
entities sold or held for sale - - % (1 ) - % Impairment of
hospitals sold or held for sale - - % (5 )
(0.1 )% Loss from discontinued operations, net of taxes - -
% (6 ) (0.1 )% Net loss (91 ) (2.6 )% (122 ) (2.9 )%
Less: Net income attributable to noncontrolling interests 19
0.5 % 15 0.4 % Net loss attributable to
Community Health Systems, Inc. stockholders $ (110 ) (3.1 )%
$ (137 ) (3.3 )%
Basic loss per share attributable to
Community Health Systems, Inc. common stockholders (l):
Continuing operations (f), (i), (j) $ (0.97 ) $ (1.17 )
Discontinued operations - (0.06 ) Net loss $
(0.97 ) $ (1.22 )
Diluted loss per share attributable to
Community Health Systems, Inc. common stockholders (l):
Continuing operations (f), (h), (i), (j) $ (0.97 ) $ (1.17 )
Discontinued operations - (0.06 ) Net loss (h)
$ (0.97 ) $ (1.22 ) Weighted-average number of shares
outstanding (g): Basic 113 112 Diluted
113 112
____
For footnotes, see pages 12, 13, 14, 15
and 16.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Statements of Comprehensive Loss (In millions) (Unaudited)
Three Months Ended
Six Months Ended June 30, June 30,
2018 2017 2018
2017 Net loss $ (91 ) $ (122 ) $ (98 ) $ (299 ) Other
comprehensive income (loss), net of income taxes: Net change in
fair value of interest rate swaps, net of tax 7 (2 ) 25 3 Net
change in fair value of available-for-sale securities, net of tax
(1 ) 2 (2 ) 5
Amortization and recognition of
unrecognized pension cost components, net of tax
1 1 1 1
Other comprehensive income 7 1
24 9 Comprehensive loss (84 ) (121 ) (74 )
(290 ) Less: Comprehensive income attributable to noncontrolling
interests 19 15 37
36
Comprehensive loss attributable to
Community Health Systems, Inc. stockholders
$ (103 ) $ (136 ) $ (111 ) $ (326 )
____
For footnotes, see pages 12, 13, 14, 15
and 16.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (a)(c) (Dollars in millions)
(Unaudited)
Three Months Ended June 30,
Consolidated Same-Store 2018 2017 %
Change 2018 2017 % Change Number of
hospitals (at end of period) 119 143 118 118 Licensed beds (at end
of period) 20,123 23,829 19,997 19,968 Beds in service (at end of
period) 17,753 21,549 17,643 18,054 Admissions 157,509 189,435
-16.9 % 154,587 157,838 -2.1 % Adjusted admissions 345,374 415,515
-16.9 % 338,037 338,828 -0.2 % Patient days 697,213 840,516 687,261
701,341 Average length of stay (days) 4.4 4.4 4.4 4.4 Occupancy
rate (average beds in service) 42.1 % 41.9 % 42.8 % 42.7 % Net
operating revenues (k) $ 3,562 $ 4,144 -14.0 % $ 3,515 $ 3,404 3.3
%
Net inpatient revenues as a % of net
operating revenues
47.0 % 46.9 % 47.1 % 48.7 %
Net outpatient revenues as a % of net
operating revenues
53.0 % 53.1 % 52.9 % 51.3 % Income from operations (f), (i), (j) $
37 $ 113 -67.3 %
Income from operations as a % of net
operating revenues
1.0 % 2.7 % Depreciation and amortization $ 177 $ 223 Equity in
earnings of unconsolidated affiliates $ (5 ) $ (5 )
Net loss attributable to Community Health
Systems, Inc. stockholders
$ (110 ) $ (137 ) 19.7 %
Net loss attributable to Community Health
Systems, Inc. stockholders as a % of net operating revenues
-3.1 % -3.3 % Adjusted EBITDA (e) $ 411 $ 435 -5.5 %
Adjusted EBITDA as a % of net operating
revenues
11.5 % 10.5 % Net cash (used in) provided by operating activities $
(12 ) $ 261 -104.6 %
____
For footnotes, see pages 12, 13, 14, 15
and 16.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Selected Operating Data
(a)(c) (Dollars in millions) (Unaudited)
Six Months Ended June 30, Consolidated
Same-Store 2018 2017 % Change
2018 2017 % Change Number of hospitals (at end
of period) 119 143 118 118 Licensed beds (at end of period) 20,123
23,829 19,997 19,968 Beds in service (at end of period) 17,753
21,549 17,643 18,054 Admissions 328,189 401,677 -18.3 % 319,850
327,027 -2.2 % Adjusted admissions 700,738 864,682 -19.0 % 680,358
687,452 -1.0 % Patient days 1,481,518 1,813,401 1,450,923 1,475,503
Average length of stay (days) 4.5 4.5 4.5 4.5 Occupancy rate
(average beds in service) 44.6 % 44.2 % 45.3 % 45.2 % Net operating
revenues (k) $ 7,251 $ 8,629 -16.0 % $ 7,107 $ 6,937 2.5 %
Net inpatient revenues as a % of net
operating revenues
48.1 % 47.9 % 48.2 % 48.9 %
Net outpatient revenues as a % of net
operating revenues
51.9 % 52.1 % 51.8 % 51.1 % Income from operations (f), (i), (j) $
250 $ 183 -36.6 %
Income from operations as a % of net
operating revenues
3.4 % 2.1 % Depreciation and amortization $ 358 $ 458 Equity in
earnings of unconsolidated affiliates $ (12 ) $ (9 )
Net loss attributable to Community Health
Systems, Inc. stockholders
$ (135 ) $ (335 ) 59.7 %
Net loss attributable to Community Health
Systems, Inc. stockholders as a % of net operating revenues
-1.9 % -3.9 % Adjusted EBITDA (e) $ 851 $ 963 -11.6 %
Adjusted EBITDA as a % of net operating
revenues
11.7 % 11.2 % Net cash provided by operating activities $ 94 $ 503
-81.3 %
____
For footnotes, see pages 12, 13, 14, 15
and 16.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Balance Sheets (In millions, except share data) (Unaudited)
June 30, 2018
December 31, 2017 ASSETS Current assets Cash
and cash equivalents $ 208 $ 563 Patient accounts receivable (k)
2,407 2,384 Supplies 432 444 Prepaid income taxes 8 17 Prepaid
expenses and taxes 217 198 Other current assets 422
462 Total current assets 3,694
4,068 Property and equipment, gross 11,148 11,497 Less
accumulated depreciation and amortization (4,399 )
(4,445 ) Property and equipment, net 6,749
7,052 Goodwill 4,653 4,723
Deferred income taxes 101 62 Other
assets, net 1,597 1,545 Total assets $
16,794 $ 17,450
LIABILITIES AND
STOCKHOLDERS’ DEFICIT Current liabilities Current maturities of
long-term debt $ 41 $ 33 Accounts payable 839 967 Accrued
liabilities: Employee compensation 592 685 Accrued interest 174 229
Other 416 442 Total current liabilities
2,062 2,356 Long-term debt
13,673 13,880 Deferred income taxes 19
19 Other long-term liabilities (b)
1,329 1,360 Total liabilities 17,083
17,615 Redeemable noncontrolling interests in
equity of consolidated subsidiaries 514 527
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; 116,261,738 shares issued and
outstanding at June 30, 2018, and 114,651,004 shares issued and
outstanding at December 31, 2017
1 1 Additional paid-in capital 2,013 2,014 Accumulated other
comprehensive loss (9 ) (21 ) Accumulated deficit (2,884 )
(2,761 ) Total Community Health Systems, Inc. stockholders’
deficit (879 ) (767 ) Noncontrolling interests in equity of
consolidated subsidiaries 76 75 Total
stockholders’ deficit (803 ) (692 ) Total liabilities
and stockholders’ deficit $ 16,794 $ 17,450
____
For footnotes, see pages 12, 13, 14, 15
and 16.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Statements of Cash Flows (In millions) (Unaudited)
Six Months Ended June 30,
2018 2017 Cash flows from
operating activities Net loss $ (98 ) $ (299 ) Adjustments to
reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 358 458 Government and other legal
settlements and related costs (j) 7 6 Stock-based compensation
expense 7 15 Impairment of hospitals sold or held for sale - 5
Impairment and (gain) loss on sale of businesses, net (i) 202 330
(Gain) loss from early extinguishment of debt (59 ) 31 Other
non-cash expenses, net 23 18 Changes in operating assets and
liabilities, net of effects of acquisitions and divestitures:
Patient accounts receivable (21 ) 186 Supplies, prepaid expenses
and other current assets (15 ) (55 ) Accounts payable, accrued
liabilities and income taxes (308 ) (126 ) Other (2 )
(66 ) Net cash provided by operating activities 94
503 Cash flows from investing activities
Acquisitions of facilities and other related businesses (10 ) (4 )
Purchases of property and equipment (295 ) (274 ) Proceeds from
disposition of hospitals and other ancillary operations 88 921
Proceeds from sale of property and equipment 4 3 Purchases of
available-for-sale securities and equity securities (38 ) (37 )
Proceeds from sales of available-for-sale securities and equity
securities 63 47 Increase in other investments (53 )
(60 ) Net cash (used in) provided by investing activities
(241 ) 596 Cash flows from financing
activities Repurchase of restricted stock shares for payroll tax
withholding requirements (1 ) (5 ) Deferred financing costs and
other debt-related costs (54 ) (62 ) Proceeds from noncontrolling
investors in joint ventures 1 5 Redemption of noncontrolling
investments in joint ventures (6 ) (4 ) Distributions to
noncontrolling investors in joint ventures (52 ) (53 ) Borrowings
under credit agreements 26 840 Issuance of long-term debt - 3,100
Proceeds from ABL and receivables facility 587 26 Repayments of
long-term indebtedness (709 ) (4,416 ) Net cash used
in financing activities (208 ) (569 ) Net
change in cash and cash equivalents (355 ) 530 Cash and cash
equivalents at beginning of period 563 238
Cash and cash equivalents at end of period $ 208 $
768
____
For footnotes, see pages 12, 13, 14, 15
and 16.
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data
(a) Continuing operating results exclude discontinued operations
for the three and six months ended June 30, 2018 and 2017. Both
financial and statistical results exclude entities in discontinued
operations for all periods presented. In addition, financial and
statistical results include the operating results of divested
hospitals through the effective closing date of each respective
divestiture. Same-store operating results exclude the results of
the hospitals divested in 2018 and 2017.
(b) The contingent value right (“CVR”) is included in other
long-term liabilities on the condensed consolidated balance sheets
and 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 $35 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 $263 million at June 30, 2018. For the CVR valuation
at June 30, 2018, the change in fair value from the estimate of
$256 million at December 31, 2017 was primarily the result of a
decrease in the discount rate applied to an estimated settlement
amount. 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 June 30,
2018 Legal and other related costs incurred to date $ 35
Settlements paid 30 Estimated liability for probable contingencies
- Estimated liability for unresolved contingencies at fair value
263
Costs incurred plus certain estimated
liabilities for CVR-related matters
328 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
$ 281 CVRs outstanding 265
(c) Included in discontinued operations for the three and six
months ended June 30, 2017, are three smaller hospitals, one of
which is being actively marketed for sale (and is no longer
separately presented as discontinued operations) and two hospitals
that have been sold. The after-tax loss for the sold or held for
sale hospitals, was approximately $6 million and $7 million for the
three and six months ended June 30, 2017, 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
Six Months Ended June 30, June 30, 2018
2017 2018 2017
Loss from continuing operations
attributable to Community Health Systems, Inc. common
stockholders:
Loss from continuing operations, net of taxes $ (91 ) $ (116 ) $
(98 ) $ (292 )
Less: Income from continuing operations
attributable to noncontrolling interests, net of taxes
19 15 37 36
Loss from continuing operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ (110 ) $ (131 ) $ (135 ) $ (328 )
Loss from discontinued operations
attributable to Community Health Systems, Inc. common
stockholders:
Loss from discontinued operations, net of taxes $ - $ (6 ) $ - $ (7
)
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
$ - $ (6 ) $ - $ (7 )
(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, (gain) 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, expense (income) 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.
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
Six Months Ended June 30, June 30,
2018 2017 2018
2017
Net loss attributable to Community Health
Systems, Inc. stockholders
$ (110 ) $ (137 ) $ (135 ) $ (335 ) Adjustments: Benefit from
income taxes (38 ) (15 ) (45 ) (15 ) Depreciation and amortization
177 223 358 458 Net income attributable to noncontrolling interests
19 15 37 36 Loss from discontinued operations - 6 - 7 Interest
expense, net 235 239 464 468 (Gain) loss from early extinguishment
of debt (64 ) 10 (59 ) 31 Impairment and (gain) loss on sale of
businesses, net 174 80 202 330
Expense (income) from government and other
legal settlements and related costs
1 7 7 (34 )
Expense from fair value adjustments and
legal expenses related to cases covered by the CVR
4 5 9 12 Expense related to the sale of a majority interest in home
care division - - - 1
Expense related to employee termination
benefits and other restructuring charges
13 2 13 4
Adjusted EBITDA $ 411 $ 435 $ 851 $ 963
(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 for both the three-month
periods ended June 30, 2018 and 2017, and $1 million for both the
six-month periods ended June 30, 2018 and 2017.
(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
Six Months Ended June 30, June 30, 2018
2017 2018 2017
Weighted-average number of shares
outstanding - basic
113 112 113 112
Add effect of dilutive securities: Stock
awards and options
- - - -
Weighted-average number of shares
outstanding - diluted
113 112 113 112
The Company generated a loss from continuing operations
attributable to Community Health Systems, Inc. common stockholders
for the three and six months ended June 30, 2018 and 2017, 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
47,754 shares and 215,313 shares during the three months ended June
30, 2018 and 2017, respectively, and 60,558 shares and 147,043
shares during the six months ended June 30, 2018 and 2017,
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
Six Months Ended June 30, June 30,
2018 2017
2018 2017
Loss from continuing operations, as reported $ (0.97 ) $ (1.17 ) $
(1.20 ) $ (2.94 ) Adjustments: (Gain) loss from early
extinguishment of debt (0.44 ) 0.06 (0.41 ) 0.18 Impairment and
(gain) loss on sale of businesses, net 1.29 0.77 1.53 2.68
Expense (income) from government and other
legal settlements and related costs
0.01 0.04 0.05 (0.19 )
Expense from fair value adjustments and
legal expenses related to cases covered by the CVR
0.03 0.04 0.06 0.08
Expense related to employee termination
benefits and other restructuring charges
0.08 0.01 0.09
0.01
(Loss) income from continuing operations,
excluding adjustments
$ (0.01 ) $ (0.25 ) $ 0.12 $ (0.17 )
Three
Months Ended Six Months Ended June 30, June
30, 2018 2017
2018 2017 Net loss, as
reported $ (0.97 ) $ (1.22 ) $ (1.20 ) $ (3.01 ) Adjustments:
(Gain) loss from early extinguishment of debt (0.44 ) 0.06 (0.41 )
0.18 Impairment and (gain) loss on sale of businesses, net 1.29
0.77 1.53 2.68
Expense (income) from government and other
legal settlements and related costs
0.01 0.04 0.05 (0.19 )
Expense from fair value adjustments and
legal expenses related to cases covered by the CVR
0.03 0.04 0.06 0.08
Expense related to employee termination
benefits and other restructuring charges
0.08 0.01 0.09
0.01 Net (loss) income, excluding adjustments $ (0.01 ) $
(0.31 ) $ 0.12 $ (0.24 )
Footnotes to Financial Highlights, Financial
Statements and Selected Operating Data (Continued)
(i) Both income from operations and loss from continuing
operations for the three and six months ended June 30, 2018,
included non-cash expense of approximately $174 million and $202
million, respectively, related to impairment charges to reduce the
value of long-lived assets, primarily allocated goodwill, at
hospitals that the Company has identified for sale or sold. Both
income from operations and loss from continuing operations for the
three and six months ended June 30, 2017, included non-cash expense
of approximately $80 million and $330 million, respectively,
related to impairment charges to reduce the value of long-lived
assets, primarily allocated goodwill, at hospitals that the Company
has identified for sale or sold. 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 $(0.01) per share (diluted) and $(0.05) per share
(diluted) of expense for “Government and other legal settlements
and related costs” for the three and six months ended June 30,
2018, respectively, is the net impact of several lawsuits settled
in principle during the related periods, and related legal
expenses. The $(0.04) per share (diluted) of expense for
“Government and other legal settlements and related costs” for the
three months ended June 30, 2017, is the settlement in principle of
several lawsuits during the three months ended June 30, 2017, and
related legal expenses. The $0.19 per share (diluted) of income for
“Government and other legal settlements and related costs” for the
six months ended June 30, 2017, is primarily the impact of the
shareholder derivative action settled during the six months ended
June 30, 2017, net of related legal expenses.
(k) On January 1, 2018, the Company adopted the new revenue
recognition accounting standard issued by the Financial Accounting
Standards Board (“FASB”) and codified in the FASB Accounting
Standards Codification (“ASC”) as topic 606 (“ASC 606”). The
revenue recognition standard in ASC 606 outlines a single
comprehensive model for recognizing revenue as performance
obligations, defined in a contract with a customer as goods or
services transferred to the customer in exchange for consideration,
are satisfied.
The Company applied the modified retrospective approach to all
contracts when adopting ASC 606. As a result, the majority of what
was previously classified as the provision for bad debts in the
statement of loss is now reflected as implicit price concessions
(as defined in ASC 606) and therefore included as a reduction to
net operating revenues in 2018. For changes in credit issues not
assessed at the date of service, the Company will prospectively
recognize those amounts as a component of operating costs and
expenses. For periods prior to the adoption of ASC 606, the
provision for bad debts has been presented consistent with the
previous revenue recognition standards that required it to be
presented separately as a component of net operating revenues.
Additionally, upon adoption of ASC 606 the allowance for doubtful
accounts of approximately $3.9 billion at December 31, 2017 was
reclassified as a component of net patient accounts receivable.
(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 update selected guidance
provided on May 1, 2018, and 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 19 and 20 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) $ 13,900 to
$ 14,200 Adjusted EBITDA (in millions) $ 1,600 to $ 1,650
Loss from continuing operations per share - diluted $ (1.85 ) to $
(1.70 ) Same-store hospital annual adjusted admissions (1.0 )% to -
% Weighted-average diluted shares, in millions 113.0 to 114.0
The following assumptions were used in developing the 2018
guidance provided above:
- The current completed and planned
divestitures generated approximately $2.0 billion of net operating
revenues in 2017, with mid-single digit Adjusted EBITDA margins.
The guidance assumes the completion of a majority of these
divestitures and the related net operating revenues in 2018.
- 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 debt refinancing activities,
including gains and losses from 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 (“Tax 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 (1.0)% to 0.0% 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
4.9% to 5.0% 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 7.1% to
7.2%; however, interest expense may vary as revenue varies.
Interest expense has been adjusted to reflect the repayment of debt
with proceeds from the divestitures noted above, based on the
expected timing of those divestitures. Total fixed rate debt,
including swaps, is expected to average approximately 90% 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
0.4% to 0.5% 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)
$ (211 ) $ (192 ) Adjustments: Depreciation and amortization 690
690 Interest expense, net 990 1,010 Provision for income taxes 61
67 Net income attributable to noncontrolling interests 70
75 Adjusted EBITDA (1) $ 1,600 $ 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,
(gains) 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 $500
to $575
- Net cash provided by operating
activities, including accelerated interest payments of
approximately $60 million and increased interest payments from
higher interest rates of approximately $65 million associated with
debt refinancing, is projected as follows (in millions):
2018 Guidance Total $550
to $650
- 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, which impacted several of our affiliated hospitals in
2017;
- 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
Annual Report on Form 10-K for the year ended December 31, 2017,
filed with the Securities and Exchange Commission on February 28,
2018, and our other public filings with the Securities and Exchange
Commission.
The consolidated operating results for the three and six months
ended June 30, 2018, 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: https://www.businesswire.com/news/home/20180726005960/en/
Community Health Systems, Inc.Thomas J. Aaron,
615-465-7000Executive Vice President and Chief Financial
Officer
Community Health Systems (NYSE:CYH)
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