Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three and six
months ended June 30, 2015.
The operating results of Health Management Associates, Inc.
(“HMA”) are included in the Company’s consolidated results and
statistical data from January 27, 2014, the date the Company
completed its acquisition of HMA. For hospitals acquired in the HMA
merger, same-store operating results and statistical data reflect
the periods from January 1 through June 30, 2015 and 2014, as if
such hospitals were owned during both comparable six-month periods.
The Company had previously restated its prior period financial
statements and statistical results to reflect the reclassification
in the fourth quarter of 2014 to discontinued operations for one
hospital that was held for sale at December 31, 2014, and was
subsequently sold during the six months ended June 30, 2015.
Net operating revenues for the three months ended June 30, 2015,
totaled $4.882 billion, a 2.5 percent increase compared with $4.765
billion for the same period in 2014. Income from continuing
operations attributable to Community Health Systems, Inc. common
stockholders increased to $117 million, or $1.01 per share
(diluted), for the three months ended June 30, 2015, compared to
$48 million, or $0.42 per share (diluted), for the same period in
2014. The results for the three months ended June 30, 2015, include
$0.05 per share (diluted) related to loss from early extinguishment
of debt, $0.04 per share (diluted) related to impairment of
long-lived assets and $0.08 per share (diluted) of expense from
fair value adjustments related to HMA legal proceedings, accounted
for at fair value, underlying the contingent value rights (“CVR”)
agreement, and related legal expenses; these expenses were
partially offset by $0.03 per share (diluted) of income related to
favorable outcomes for government legal settlements for several qui
tam matters previously accrued and settled in principle, net of
related legal expenses. Excluding these items, income from
continuing operations was $1.14 per share (diluted). Net income
attributable to Community Health Systems, Inc. common stockholders
was $0.95 per share (diluted) for the three months ended June 30,
2015, compared with $0.37 per share (diluted) for the same period
in 2014. Discontinued operations for the three months ended June
30, 2015, consisted of a loss of approximately $(6) million, or
$(0.06) per share (diluted) from operations of entities sold or
held for sale. Weighted-average shares outstanding (diluted) were
116 million for the three months ended June 30, 2015, and 113
million for the three months ended June 30, 2014.
Adjusted EBITDA for the three months ended June 30, 2015, was
$769 million compared with $700 million for the same period in
2014, representing a 9.9 percent increase.
The consolidated operating results for the three months ended
June 30, 2015, reflect a 1.9 percent decrease in total admissions,
compared with the same period in 2014. Total adjusted admissions
were flat for the three months ended June 30, 2015, compared with
the same period in 2014. On a same-store basis, admissions
decreased 2.2 percent and adjusted admissions decreased 0.2 percent
during the three months ended June 30, 2015, compared with the same
period in 2014. On a same-store basis, net operating revenues
increased 2.2 percent during the three months ended June 30, 2015,
compared with the same period in 2014.
Net operating revenues for the six months ended June 30, 2015,
totaled $9.793 billion, a 9.5 percent increase compared with $8.941
billion for the same period in 2014. Income from continuing
operations attributable to Community Health Systems, Inc. common
stockholders increased to $209 million, or $1.80 per share
(diluted), for the six months ended June 30, 2015, compared with
loss from continuing operations attributable to Community Health
Systems, Inc. common stockholders of $(42) million, or $(0.38) per
share (diluted), for the same period in 2014. The results for the
six months ended June 30, 2015, include $0.09 per share (diluted)
of expense related to loss from early extinguishment of debt, $0.05
per share (diluted) of expense from fair value adjustments related
to HMA legal proceedings, accounted for at fair value, underlying
the CVR agreement, and related legal expenses, $0.04 per share
(diluted) related to impairment of long-lived assets and $0.01 per
share (diluted) of expenses related to government legal settlements
for several qui tam matters settled in principle and related legal
expenses. Excluding these items, income from continuing operations
was $1.99 per share (diluted). Net income attributable to Community
Health Systems, Inc. common stockholders was $1.64 per share
(diluted) for the six months ended June 30, 2015, compared with a
net loss of $(0.64) per share (diluted) for the same period in
2014. Discontinued operations for the six months ended June 30,
2015, consisted of $(0.15) per share (diluted) of losses from
operations of entities sold or held for sale, $(0.01) per share
(diluted) of expenses related to the impairment of long-lived
assets held for sale, and $(0.01) per share (diluted) of losses on
sale, net, for a total after-tax loss of approximately $(20)
million, or $(0.17) per share (diluted). Weighted-average shares
outstanding (diluted) were 116 million for the six months ended
June 30, 2015, and 110 million for the six months ended June 30,
2014.
Adjusted EBITDA for the six months ended June 30, 2015, was
$1.483 billion compared with $1.242 billion for the same period in
2014, representing a 19.4 percent increase.
The consolidated operating results for the six months ended June
30, 2015, reflect a 6.4 percent increase in total admissions, and a
7.9 percent increase in total adjusted admissions, compared with
the same period in 2014. On a same-store basis, admissions
decreased 0.9 percent while adjusted admissions increased 1.1
percent during the six months ended June 30, 2015, compared with
the same period in 2014. On a same-store basis, net operating
revenues increased 3.7 percent during the six months ended June 30,
2015, compared with the same period in 2014.
Adjusted EBITDA is EBITDA adjusted to exclude discontinued
operations, loss from early extinguishment of debt, impairment of
long-lived assets, net income attributable to noncontrolling
interests, acquisition and integration expenses from the
acquisition of HMA, (income) expense related to government legal
settlements and related costs, and expense from fair value
adjustments related to the HMA legal proceedings, accounted for at
fair value, underlying the CVR agreement, and related legal
expenses. For information regarding why the Company believes
Adjusted EBITDA presents useful information to investors, and for a
reconciliation of Adjusted EBITDA to net cash provided by operating
activities, see footnote (f) to the Financial Highlights, Financial
Statements and Selected Operating Data below.
Commenting on the results, Wayne T. Smith, chairman and chief
executive officer of Community Health Systems, Inc., said, “Our
ability to execute fundamental operating strategies in an evolving
healthcare environment resulted in a solid financial and operating
performance for the second quarter of fiscal 2015. We are pleased
with the incremental improvement in operating revenues across our
hospital network and our ability to drive higher earnings compared
with the second quarter of last year. These results include
operating synergies from the integration of the HMA hospitals, the
benefit of numerous strategic initiatives, and the incremental
opportunities created by the Affordable Care Act. We look forward
to more opportunities this year as we continue to deliver quality
care for our patients, recruit qualified physicians, make the right
investments in facilities and technology, and work to develop our
markets and networks to their full potential.”
Included on pages 15, 16, 17 and 18 of this press release is the
Company’s updated 2015 annual earnings guidance. The 2015 guidance
is based on the Company’s historical operating performance, current
trends and other assumptions that the Company believes are
reasonable at this time.
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. Through its subsidiaries, the Company currently
owns, leases or operates 198 affiliated hospitals in 29 states with
an aggregate of approximately 30,000 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
Tuesday, August 4, 2015, at 10:00 a.m. Central, 11:00 a.m. Eastern,
to review financial and operating results for the second quarter
ended June 30, 2015. 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 September
5, 2015. Copies of the Company’s Current Report on Form 8-K
(including this press release) and conference call slide show will
be available on the Company’s website at www.chs.net.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Financial Highlights
(a)(b)(c)(d)(e) (In millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months
Ended June 30, June 30, 2015 2014
2015 2014 Net operating revenues $ 4,882 $
4,765 $ 9,793 $ 8,941 Adjusted EBITDA (f) 769 700 1,483 1,242
Income from continuing operations (g), (h), (k) 140 76 252 1
Net income (loss) attributable to
Community Health Systems, Inc. stockholders
111 42 189 (70 )
Basic earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (g), (h), (k) $ 1.02 $ 0.43 $ 1.82 $ (0.38 )
Discontinued operations (0.06 ) (0.06 ) (0.17
) (0.26 ) Net income (loss) $ 0.96 $ 0.37 $
1.65 $ (0.64 )
Diluted earnings (loss) per share
attributable to Community Health Systems, Inc. common stockholders
(n):
Continuing operations (g), (h), (k), (l) $ 1.01 $ 0.42 $ 1.80 $
(0.38 ) Discontinued operations (0.06 ) (0.06 )
(0.17 ) (0.26 ) Net income (loss) (l) $ 0.95 $
0.37 $ 1.64 $ (0.64 ) Weighted-average number
of shares outstanding (i): Basic 115 113 115 110 Diluted 116 113
116 110 Net cash provided by operating activities $ 565 $
449 $ 504 $ 514
____
For footnotes, see pages 12, 13 and
14.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Condensed Consolidated Statements of
Income (a)(b)(c)(d)(e) (In millions, except per share amounts)
(Unaudited)
Three Months Ended June 30, 2015
2014 Amount
% of Net
Operating
Revenues
Amount
% of Net
Operating
Revenues
Operating revenues (net of contractual allowances and discounts) $
5,614 $ 5,508 Provision for bad debts 732
743 Net operating revenues
4,882 100.0 % 4,765 100.0
% Operating costs and expenses: Salaries and benefits 2,217
45.4 % 2,221 46.6 % Supplies 750 15.4 % 736 15.4 % Other operating
expenses 1,125 23.0 % 1,115 23.5 % Government settlement and
related costs (m) (6 ) (0.1 ) % - - % Electronic health records
incentive reimbursement (g) (55 ) (1.1 ) % (84 ) (1.8 ) % Rent 113
2.3 % 111 2.3 % Depreciation and amortization 291 6.0 % 281 5.9 %
Amortization of software to be abandoned (k) - -
% 33 0.7 % Total operating costs and
expenses 4,435 90.9 % 4,413 92.6
% Income from operations (g), (h), (k) 447 9.1 % 352
7.4 % Interest expense, net 239 4.9 % 255 5.4 % Loss from early
extinguishment of debt 9 0.2 % - - % Equity in earnings of
unconsolidated affiliates (21 ) (0.4 ) % (12 ) (0.3 ) % Impairment
of long-lived assets (k) 6 0.1 % -
- %
Income from continuing operations before
income taxes
214 4.3 % 109 2.3 % Provision for income taxes 74 1.5
% 33 0.7 % Income from continuing
operations (g), (h), (k) 140 2.8 % 76
1.6 % Discontinued operations, net of taxes:
Loss from operations of entities sold or held for sale (6 ) (0.1 )
% (1 ) - % Impairment of hospitals sold or held for sale -
- % (5 ) (0.1 ) % Loss from discontinued
operations, net of taxes (6 ) (0.1 ) % (6 ) (0.1 ) %
Net income 134 2.7 % 70 1.5 % Less: Net income attributable to
noncontrolling interests 23 0.4 % 28
0.6 % Net income attributable to Community Health
Systems, Inc. stockholders $ 111 2.3 % $ 42
0.9 %
Basic earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (g), (h), (k) $ 1.02 $ 0.43 Discontinued
operations (0.06 ) (0.06 ) Net income $ 0.96 $
0.37
Diluted earnings (loss) per share
attributable to Community Health Systems, Inc. common stockholders
(n):
Continuing operations (g), (h), (k), (l) $ 1.01 $ 0.42 Discontinued
operations (0.06 ) (0.06 ) Net income (l) $ 0.95
$ 0.37
Weighted-average number of shares
outstanding (i):
Basic 115 113 Diluted 116
113
____
For footnotes, see pages 12, 13 and
14.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Condensed Consolidated Statements of
Income (Loss) (a)(b)(c)(d)(e) (In millions, except per share
amounts) (Unaudited)
Six Months Ended June 30,
2015 2014 Amount
% of Net
Operating
Revenues
Amount
% of Net
Operating
Revenues
Operating revenues (net of contractual allowances and discounts) $
11,260 $ 10,383 Provision for bad debts 1,467
1,442 Net operating revenues
9,793 100.0 % 8,941 100.0
% Operating costs and expenses: Salaries and benefits 4,474
45.7 % 4,213 47.1 % Supplies 1,512 15.4 % 1,368 15.3 % Other
operating expenses 2,225 22.8 % 2,133 24.0 % Government settlement
and related costs (m) 1 - % - - % Electronic health records
incentive reimbursement (g) (81 ) (0.8 ) % (124 ) (1.4 ) % Rent 229
2.3 % 209 2.3 % Depreciation and amortization 587 6.0 % 536 6.0 %
Amortization of software to be abandoned (k) - -
% 75 0.8 % Total operating costs and
expenses 8,947 91.4 % 8,410 94.1
% Income from operations (g), (h), (k) 846 8.6 % 531
5.9 % Interest expense, net 481 4.8 % 478 5.3 % Loss from early
extinguishment of debt 16 0.2 % 73 0.8 % Equity in earnings of
unconsolidated affiliates (39 ) (0.4 ) % (22 ) (0.2 ) % Impairment
of long-lived assets (k) 6 0.1 % 24
0.3 %
Income (loss) from continuing operations
before income taxes
382 3.9 % (22 ) (0.3 ) % Provision (benefit) for income taxes
130 1.3 % (23 ) (0.3 ) % Income from
continuing operations (g), (h), (k) 252 2.6 %
1 - % Discontinued operations, net of
taxes: Loss from operations of entities sold or held for sale (17 )
(0.2 ) % (6 ) (0.1 ) % Impairment of hospitals sold or held for
sale (2 ) - % (22 ) (0.2 ) % Loss on sale, net (1 ) -
% - - % Loss from discontinued operations, net
of taxes (20 ) (0.2 ) % (28 ) (0.3 ) % Net income
(loss) 232 2.4 % (27 ) (0.3 ) % Less: Net income attributable to
noncontrolling interests 43 0.5 % 43
0.5 % Net income (loss) attributable to Community
Health Systems, Inc. stockholders $ 189 1.9 % $ (70 )
(0.8 ) %
Basic earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (g), (h), (k) $ 1.82 $ (0.38 ) Discontinued
operations (0.17 ) (0.26 ) Net income (loss) $ 1.65
$ (0.64 )
Diluted earnings (loss) per share
attributable to Community Health Systems, Inc. common stockholders
(n):
Continuing operations (g), (h), (k), (l) $ 1.80 $ (0.38 )
Discontinued operations (0.17 ) (0.26 ) Net income
(loss) (l) $ 1.64 $ (0.64 )
Weighted-average number of shares
outstanding (i):
Basic 115 110 Diluted 116
110
____
For footnotes, see pages 12, 13 and
14.
COMMUNITY HEALTH
SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated
Statements of Comprehensive Income (Loss) (c) (In millions)
(Unaudited)
Three Months Ended Six Months
Ended June 30, June 30, 2015 2014
2015 2014 Net income (loss) $ 134 $ 70 $ 232 $
(27 ) Other comprehensive income (loss), net of income taxes: Net
change in fair value of interest rate swaps, net of tax 8 - (1 ) 9
Net change in fair value of available-for-sale securities, net of
tax (2 ) 3 (1 ) 3
Amortization and recognition of
unrecognized pension cost components, net of tax
- - 1 - Other
comprehensive income (loss) 6 3 (1 )
12 Comprehensive income (loss) 140 73 231 (15 ) Less:
Comprehensive income attributable to noncontrolling interests
23 28 43 43
Comprehensive income (loss) attributable
to Community Health Systems, Inc. stockholders
$ 117 $ 45 $ 188 $ (58 )
____
For footnotes, see pages 12, 13 and
14.
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES Selected Operating
Data (a)(d) (Dollars in millions) (Unaudited)
Three
Months Ended June 30, Consolidated Same-Store
2015 2014 % Change 2015 2014
% Change Number of hospitals (at end of period) 196 195 194
194 Licensed beds (at end of period) 29,964 29,915 29,660 29,758
Beds in service (at end of period) 26,206 26,578 26,081 26,469
Admissions 233,517 238,112 -1.9 % 232,584 237,905 -2.2 % Adjusted
admissions 511,456 511,219 0.0 % 509,227 510,405 -0.2 % Patient
days 1,033,244 1,052,886 1,028,442 1,051,796 Average length of stay
(days) 4.4 4.4 4.4 4.4 Occupancy rate (average beds in service)
43.0 % 43.4 % 43.0 % 43.6 % Net operating revenues $ 4,882 $ 4,765
2.5 % $ 4,863 $ 4,758 2.2 %
Net inpatient revenues as a % of net
patient revenues before provision for bad debts
42.4 % 43.4 % 42.4 % 43.5 %
Net outpatient revenues as a % of net
patient revenues before provision for bad debts
57.6 % 56.6 % 57.6 % 56.5 % Income from operations (g), (h), (k) $
447 $ 352 27.0 %
Income from operations as a % of net
operating revenues
9.2 % 7.4 % Depreciation and amortization $ 291 $ 314 Equity in
earnings of unconsolidated affiliates $ (21 ) $ (12 ) Liquidity
Data: Adjusted EBITDA (f) $ 769 $ 700 9.9 %
Adjusted EBITDA as a % of net operating
revenues
15.8 % 14.7 % Net cash provided by operating activities $ 565 $ 449
Net cash provided by operating activities
as a % of net operating revenues
11.6 % 9.4 %
____
For footnotes, see pages 12, 13 and
14.
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES Selected Operating
Data (a)(d)(j) (Dollars in millions) (Unaudited)
Six
Months Ended June 30, Consolidated Same-Store (1)
2015 2014 % Change 2015 2014
% Change Number of hospitals (at end of period) 196 195 194
194 Licensed beds (at end of period) 29,964 29,915 29,660 29,758
Beds in service (at end of period) 26,206 26,578 26,081 26,469
Admissions 479,532 450,808 6.4 % 469,467 473,827 -0.9 % Adjusted
admissions 1,021,309 946,615 7.9 % 1,001,396 990,308 1.1 % Patient
days 2,160,321 2,021,738 2,109,597 2,128,734 Average length of stay
(days) 4.5 4.5 4.5 4.5 Occupancy rate (average beds in service)
45.0 % 45.5 % 44.7 % 45.0 % Net operating revenues $ 9,793 $ 8,941
9.5 % $ 9,645 $ 9,303 3.7 %
Net inpatient revenues as a % of net
patient revenues before provision for bad debts
43.3 % 44.3 % 43.2 % 44.7 %
Net outpatient revenues as a % of net
patient revenues before provision for bad debts
56.7 % 55.7 % 56.8 % 55.3 % Income from operations (g), (h), (k) $
846 $ 531 59.3 %
Income from operations as a % of net
operating revenues
8.6 % 5.9 % Depreciation and amortization $ 587 $ 611 Equity in
earnings of unconsolidated affiliates $ (39 ) $ (22 ) Liquidity
Data: Adjusted EBITDA (f) $ 1,483 $ 1,242 19.4 %
Adjusted EBITDA as a % of net operating
revenues
15.1 % 13.9 % Net cash provided by operating activities $ 504 $ 514
Net cash provided by operating activities
as a % of net operating revenues
5.1 % 5.7 %
(1)
For hospitals acquired in the HMA merger,
same-store operating results and statistical data reflect the
periods from January 1 through June 30, 2015 and 2014, as if such
hospitals were owned during both comparable periods.
____
For footnotes, see pages 12, 13 and
14.
COMMUNITY HEALTH SYSTEMS, INC. AND
SUBSIDIARIES Condensed Consolidated Balance Sheets (b)
(In millions, except share data) (Unaudited)
June 30,
2015 December 31, 2014 ASSETS Current assets Cash
and cash equivalents $ 365 $ 509
Patient accounts receivable, net of
allowance for doubtful accounts of $3,773 and $3,504 at June 30,
2015 and December 31, 2014, respectively
3,491 3,409 Supplies 568 557 Prepaid income taxes - 30 Deferred
income taxes 345 341 Prepaid expenses and taxes 216 192
Other current assets (including assets of
hospitals held for sale of $5 and $38 at June 30, 2015 and December
31, 2014, respectively)
515 528 Total current assets 5,500
5,566 Property and equipment, gross 14,577
14,264 Less accumulated depreciation and amortization (4,487
) (4,095 ) Property and equipment, net 10,090
10,169 Goodwill 8,956 8,951
Other assets, net (including assets of
hospitals held for sale of $34 and $90 at June 30, 2015 and
December 31, 2014, respectively)
2,640 2,735 Total assets $ 27,186
$ 27,421
LIABILITIES AND EQUITY Current
liabilities Current maturities of long-term debt $ 246 $ 235
Accounts payable 1,144 1,293 Income tax payable 83 - Deferred
income taxes 23 23 Accrued interest 226 227
Accrued liabilities (including liabilities
of hospitals held for sale of $1 and $10 at June 30, 2015 and
December 31, 2014, respectively)
1,508 1,811 Total current liabilities
3,230 3,589 Long-term debt
16,621 16,681 Deferred income taxes 844
845 Other long-term liabilities 1,683
1,692 Total liabilities 22,378
22,807 Redeemable noncontrolling interests in equity
of consolidated subsidiaries 524 531
EQUITY Community Health Systems, Inc. stockholders’ 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; 119,095,425 shares issued and
118,119,876 shares outstanding at June 30, 2015, and 117,701,087
shares issued and 116,725,538 shares outstanding at December 31,
2014
1 1 Additional paid-in capital 2,105 2,095 Treasury stock, at cost,
975,549 shares at June 30, 2015 and December 31, 2014 (7 ) (7 )
Accumulated other comprehensive loss (64 ) (63 ) Retained earnings
2,166 1,977 Total Community Health
Systems, Inc. stockholders’ equity 4,201 4,003 Noncontrolling
interests in equity of consolidated subsidiaries 83
80 Total equity 4,284 4,083
Total liabilities and equity $ 27,186 $ 27,421
____
For footnotes, see pages 12, 13 and
14.
COMMUNITY HEALTH SYSTEMS, INC. AND
SUBSIDIARIES Condensed Consolidated Statements of Cash Flows
(b) (In millions) (Unaudited)
Six Months Ended
June 30, 2015 2014 Cash flows from
operating activities Net income (loss) $ 232 $ (27 ) Adjustments to
reconcile net income (loss) to net cash provided by operating
activities: Depreciation and amortization 588 617 Government
settlement and related costs (m) 1 - Stock-based compensation
expense 30 22 Loss on sale, net 1 - Impairment of long-lived assets
and hospitals sold or held for sale 8 46 Loss from early
extinguishment of debt 16 73 Excess tax benefit relating to
stock-based compensation - (3 ) Other non-cash expenses, net (1 )
19 Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures: Patient accounts receivable (88 )
(166 ) Supplies, prepaid expenses and other current assets (30 ) 38
Accounts payable, accrued liabilities and income taxes (238 ) (55 )
Other (15 ) (50 ) Net cash provided by operating
activities 504 514 Cash flows
from investing activities Acquisitions of facilities and other
related equipment (27 ) (3,041 ) Purchases of property and
equipment (474 ) (361 ) Proceeds from disposition of hospitals and
other ancillary operations 62 12 Proceeds from sale of property and
equipment 11 3 Purchases of available-for-sale securities (90 )
(137 ) Proceeds from sales of available-for-sale securities 86 123
Increase in other investments (80 ) (251 ) Net cash
used in investing activities (512 ) (3,652 )
Cash flows from financing activities Proceeds from exercise of
stock options 22 14 Repurchase of restricted stock shares for
payroll tax withholding requirements (20 ) (11 ) Deferred financing
costs and other debt-related costs (30 ) (269 ) Excess tax benefit
relating to stock-based compensation - 3 Proceeds from
noncontrolling investors in joint ventures - 10 Redemption of
noncontrolling investments in joint ventures (14 ) (6 )
Distributions to noncontrolling investors in joint ventures (48 )
(44 ) Borrowings under credit agreements 2,385 7,488 Issuance of
long-term debt - 4,000 Proceeds from receivables facility 91 133
Repayments of long-term indebtedness (2,522 ) (8,164
) Net cash (used in) provided by financing activities (136 )
3,154 Net change in cash and cash equivalents
(144 ) 16 Cash and cash equivalents at beginning of period
509 373 Cash and cash equivalents at end of
period $ 365 $ 389
____
For footnotes, see pages 12, 13 and
14.
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,
2015 and 2014. Both financial and statistical results exclude
entities in discontinued operations for all periods presented.
(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 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 $26 million in costs have been incurred and
approximately $19 million of settlements have been paid related to
certain HMA legal matters, which collectively exceed the deductible
of $18 million under the CVR agreement. An estimated liability of
$2 million was recorded at June 30, 2015 for certain claims which
HMA had previously recognized as probable. In addition, CHS
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 has been
adjusted to its estimated fair value of $271 million at June 30,
2015. 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, 2015 Legal and other
related costs incurred to date $ 26 Settlements 19 Estimated
liability for probable contingencies 2 Estimated liability for
unresolved contingencies at fair value 271
Costs incurred plus certain estimated
liabilities for CVR-related matters
318 Less: CHS deductible of $18 million (18 ) CHS co-insurance at
10% (30 )
Impact of recorded amounts under CVR
agreement after giving effect to deductible and co-insurance
$ 270 CVRs outstanding 265
(c)
The effective date of the HMA acquisition
was January 27, 2014.
(d)
Included in discontinued operations for
the three and six months ended June 30, 2015, is one hospital that
was required by the Federal Trade Commission to be divested as part
of its approval of the HMA acquisition, and this hospital was sold
on March 1, 2015. Management is actively marketing other smaller
hospitals included as held for sale at June 30, 2015. In addition,
the Company sold several smaller hospitals during the six months
ended June 30, 2015. The after-tax loss for the sold or held for
sale hospitals, including an impairment charge on certain
long-lived assets sold or held for sale, is approximately $6
million and $20 million for the three and six months ended June 30,
2015, respectively.
(e)
The following table provides information
needed to calculate income per share, which is adjusted for income
attributable to noncontrolling interests (in millions):
Three Months Ended Six Months Ended June
30, June 30, 2015 2014 2015
2014
Income (loss) from continuing operations
attributable to Community Health Systems, Inc. common
stockholders:
Income from continuing operations, net of taxes $ 140 $ 76 $ 252 $
1
Less: Income from continuing operations
attributable to noncontrolling interests
23 28 43 43
Income (loss) from continuing operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ 117 $ 48 $ 209 $ (42 )
Loss from discontinued operations
attributable to Community Health Systems, Inc. common
stockholders:
Loss from discontinued operations, net of taxes $ (6 ) $ (6 ) $ (20
) $ (28 )
Less: Loss from discontinued operations
attributable to noncontrolling interests
- - - -
Loss from discontinued operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ (6 ) $ (6 ) $ (20 ) $ (28 )
(f)
EBITDA is a non-GAAP financial measure
which consists of net income attributable to Community Health
Systems, Inc. before interest, income taxes, and depreciation and
amortization. Adjusted EBITDA is EBITDA adjusted to exclude
discontinued operations, loss from early extinguishment of debt,
impairment of long-lived assets, net income attributable to
noncontrolling interests, acquisition and integration expenses from
the acquisition of HMA, (income) expense related to government
legal settlements and related costs, and expense from fair value
adjustments related to the HMA legal proceedings, accounted for at
fair value, underlying the CVR agreement, and related legal
expenses. 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 excludes 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
uses Adjusted EBITDA as a measure of liquidity. The Company has
also presented Adjusted EBITDA in this release because it believes
it provides investors with additional information about the
Company’s ability to incur and service debt and make capital
expenditures. Adjusted EBITDA also aligns with a similar metric 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, and is used to determine the interest rate and commitment
fee payable under the senior secured credit facility.
Adjusted EBITDA is not a measurement of
financial performance or liquidity under U.S. GAAP. It should not
be considered in isolation or as a substitute for net income,
operating income, cash flows from operating, investing or financing
activities or any other measure calculated in accordance with U.S.
GAAP. The items excluded from Adjusted EBITDA are significant
components in understanding and evaluating financial performance
and liquidity. This calculation of Adjusted EBITDA may not be
comparable to similarly titled measures reported by other
companies.
The following table reconciles Adjusted
EBITDA, as defined, to net cash provided by operating activities as
derived directly from the condensed consolidated financial
statements (in millions):
Three Months Ended Six Months Ended June
30, June 30, 2015 2014 2015
2014 Adjusted EBITDA $ 769 $ 700 $ 1,483 $ 1,242 Interest
expense, net (239 ) (255 ) (481 ) (478 ) Provision for income taxes
(74 ) (33 ) (130 ) 23 Loss from operations of entities sold or held
for sale, net of taxes (6 ) (1 ) (17 ) (6 ) Other non-cash
expenses, net 6 24 26 43
Changes in operating assets and
liabilities, net of effects of acquisitions and divestitures
109 14 (377 ) (310 ) Net
cash provided by operating activities $ 565 $ 449 $
504 $ 514
(g)
Included in income from operations and
income from continuing operations for the three and six months
ended June 30, 2015, is the electronic health records incentive
reimbursement, which represents reimbursement from Medicare and
Medicaid related to certain of the Company’s hospitals and for
certain employed physicians. Total operating costs and expenses
related to the implementation of electronic health records were
approximately $4 million and $43 million for the three months ended
June 30, 2015 and 2014, respectively, and $9 million and $59
million for the six months ended June 30, 2015 and 2014,
respectively.
(h)
Included in non-same-store income from
operations and income from continuing operations are pre-tax
charges related to acquisition costs of $2 million and $8 million
for the three months ended June 30, 2015 and 2014, respectively,
and $5 million and $47 million for the six months ended June 30,
2015 and 2014, respectively. These acquisition costs include
expenses related to the acquisition of HMA of $2 million and $39
million for the three and six months ended June 30, 2014,
respectively.
(i)
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, 2015 2014 2015
2014
Weighted-average number of shares
outstanding - basic
115 113 115 110 Add effect of dilutive securities: Stock awards and
options 1 - 1 -
Weighted-average number of shares
outstanding - diluted
116 113 116 110
(j)
For hospitals acquired in the HMA merger,
same-store operating results and statistical data reflect the
periods from January 1 through June 30, 2015 and 2014, as if such
hospitals were owned during both comparable periods.
(k)
Income from continuing operations for the
three and six months ended June 30, 2015, includes an impairment
charge of approximately $6 million related to the allocated
reporting unit goodwill for one hospital where a definitive
agreement to sell the hospital was entered into during the quarter
ended June 30, 2015. Included in income from continuing operations
for the six months ended June 30, 2014, is an impairment charge of
approximately $24 million for internal-use software, and an
acceleration of amortization for the three and six months ended
June 30, 2014, of approximately $33 million and $75 million,
respectively, to adjust for its shortened remaining life which
ended on July 1, 2014. In connection with the HMA acquisition, the
Company further analyzed its intangible assets related to
internal-use software used in certain of its hospitals for patient
and clinical systems, including software required to meet criteria
for meaningful use attestation and ICD-10 compliance. This analysis
resulted in management reassessing its usage of certain software
products and rationalizing that, with the addition of the HMA
hospitals in the first quarter of 2014, those software applications
were going to be discontinued and replaced with new applications
that better integrate meaningful use and ICD-10 compliance, are
more cost effective and can be implemented at a greater efficiency
of scale over future implementations.
(l)
The following supplemental tables
reconcile income from continuing operations and net income
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):
Three Months Ended Six Months Ended June
30, June 30, 2015 2014 2015
2014 (per share - diluted) (per share -
diluted) Income (loss) from continuing operations, as
reported $ 1.01 $ 0.42 $ 1.80 $ (0.38 ) Adjustments: Loss from
early extinguishment of debt 0.05 - 0.09 0.41 Amortization of
software to be abandoned - 0.19 - 0.43 Impairment of long-lived
assets 0.04 - 0.04 0.14 Expenses related to the acquisition and
integration of HMA - 0.07 - 0.37 (Income) expense from government
settlement and related costs (0.03 ) - 0.01 -
Expense from fair value adjustments and
legal expenses related to cases covered by the CVR
0.08 0.06 0.05 0.07
Income from continuing operations, excluding adjustments $ 1.14
$ 0.74 $ 1.99 $ 1.04
Three
Months Ended Six Months Ended June 30, June
30, 2015 2014 2015 2014 (per
share - diluted) (per share - diluted) Net income
(loss), as reported $ 0.95 $ 0.37 $ 1.64 $ (0.64 ) Adjustments:
Loss from early extinguishment of debt 0.05 - 0.09 0.41
Amortization of software to be abandoned - 0.19 - 0.43 Impairment
of long-lived assets 0.04 - 0.04 0.14 Expenses related to the
acquisition and integration of HMA - 0.07 - 0.37 (Income) expense
from government settlement and related costs (0.03 ) - 0.01 -
Expense from fair value adjustments and
legal expenses related to cases covered by the CVR
0.08 0.06 0.05 0.07 Net
income, excluding adjustments $ 1.08 $ 0.68 $ 1.82 $ 0.79
(m)
The $0.03 per share (diluted) of income
for “Government settlement and related costs” for the three months
ended June 30, 2015, related primarily to favorable outcomes for
several qui tam matters previously accrued and settled in
principle, net of related legal expenses. The $0.01 per share
(diluted) of expense for “Government settlement and related costs”
for the six months ended June 30, 2015, is the net impact of
several qui tam lawsuits settled in principle during the six months
ended June 30, 2015, and related legal expenses.
(n)
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, 2015. These projections
update selected guidance reaffirmed on May 5, 2015, 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 2015 guidance should be considered in conjunction
with the assumptions included herein. See pages 17 and 18 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:
2015 Projection Range Net operating revenues less
provision for bad debts (in millions) $ 19,600 to $ 20,300 Adjusted
EBITDA (in millions) $ 3,000 to $ 3,165 Income from continuing
operations per share - diluted $ 3.65 to $ 4.10 Same-store hospital
annual adjusted admissions growth 0.0 % to 2.0 % Weighted-average
diluted shares, in millions, for the full year 115.5 to 116.5
Weighted-average diluted shares, in millions, for the 3rd and 4th
quarters 116.0 to 117.0
The following assumptions were used in developing the 2015
guidance provided above:
- The Company’s projections 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;
- Losses from the early extinguishment of
debt;
- Impairment of long-lived assets;
- Resolution of government investigations
or other significant legal settlements;
- Costs incurred in connection with the
proposed spin-off transaction of Quorum Health Corporation, which
consists of 38 hospitals and Quorum Health Resources, LLC; and
- Other significant gains or losses that
neither relate to the ordinary course of business nor reflect the
Company’s underlying business performance.
- The Company has classified several
small hospitals as held for sale, and the operating results of
these hospitals have been moved to discontinued operations and have
also been excluded from these projections.
- The previously assumed acquisition of
MetroHealth Hospital in Grand Rapids, Michigan was terminated on
August 3, 2015. The 2015 projections have been updated and assume
no hospital acquisitions in 2015.
Other assumptions used in the above guidance:
- Benefits to Adjusted EBITDA from
Healthcare Reform in 2015 of an additional $100 million to $175
million of net operating revenues before government
deductions.
- Achievement of additional acquisition
synergies related to the HMA acquisition of at least an additional
$150 million during 2015.
- Health Information Technology (HITECH)
electronic health records incentive reimbursement of approximately
0.7% to 0.8% of net operating revenues for the year ended December
31, 2015, with operating expenses related to achieving meaningful
use of 0.25% to 0.35% of net operating revenues.
- Continuation and approval of the
California hospital provider fee program for 2015.
- For comparison purposes, 2014 earnings
per share of $3.29, included a benefit from the reversal of a tax
liability of approximately $0.08 per share (diluted) and the
benefit of reduced amortization from the abandonment of software of
$0.09 per share (diluted) which the Company does not anticipate
recurring in 2015.
- Settlement of certain claims related to
the BP oil spill, for which the Company now expects to recognize up
to approximately $28 million in the second half of 2015.
- Same-store hospital annual adjusted
admissions growth, of 0.0% to 2.0% for 2015, 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
6.0% to 6.2% for 2015. 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 and
acceleration of amortization of software to be abandoned.
- Interest expense, expressed as a
percentage of net operating revenues, of approximately 5.1% to
5.2%; however, interest expense is a fixed cost and percentages may
vary as revenue varies. Total fixed rate debt, including swaps, is
expected to average approximately 60% to 70% of total debt during
2015.
- Expressed as a percentage of net
operating revenues, equity in earnings of unconsolidated affiliates
of approximately 0.2% to 0.3% for 2015.
- Expressed as a percentage of net
operating revenues, net income attributable to noncontrolling
interests of approximately 0.6% to 0.7% for 2015.
- Expressed as a percentage of income
from continuing operations before income taxes, provision for
income tax of approximately 32.0% to 34.0% for 2015.
- Capital expenditures are projected as
follows (in millions):
2015 Guidance Total $950 to $1,100
- Net cash provided by operating
activities, excluding cash flows related to the CVR and settlement
of legal contingencies, is projected as follows (in millions):
2015 Guidance
Total $1,650 to $1,850
Cash provided by operating activities in 2015
will be negatively impacted by approximately $300 million,
primarily from a reduction in tax refunds, and the timing of
payroll payments, compared to the adjusted cash flows from
operations of $1.822 billion in 2014.
- Weighted average shares outstanding are
projected to be approximately 115.5 million to 116.5 million for
the year ended 2015 and between 116.0 million and 117.0 million for
each of the remaining quarters of 2015. Weighted average shares
outstanding have been adjusted to include the estimated dilutive
impact from “in-the-money” stock options and restricted
shares.
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;
- implementation, effect of, and changes
to, adopted and potential federal and state healthcare reform
legislation and other federal, state or local laws or regulations
affecting the healthcare industry;
- the extent to which states support
increases, decreases or changes in Medicaid programs, implement
healthcare exchanges or alter the provision of healthcare to state
residents through regulation or otherwise;
- risks associated with our substantial
indebtedness, leverage, and debt service obligations;
- 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 managed care provider arrangements and the
terms of these arrangements, which may be further impacted by the
consolidation of managed care companies;
- changes in, or the failure to comply
with, managed care provider contracts, which could result in, among
other things, disputes and changes in reimbursements, both
prospectively and retroactively;
- changes in inpatient or outpatient
Medicare and Medicaid payment levels;
- 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 the impact
of the adoption of ICD-10;
- the efforts of insurers, healthcare
providers and others to contain healthcare costs;
- our ongoing ability to demonstrate
meaningful use of certified electronic health record technology and
recognize income for the related Medicare or Medicaid incentive
payments;
- increases in wages as a result of
inflation or competition for highly technical positions and rising
supply 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 additional acquisitions or replacement facilities or other
capital expenditures;
- our ability to successfully make
acquisitions or complete divestitures;
- our ability to successfully integrate
any acquired hospitals, including those of HMA, or to recognize
expected synergies from acquisitions;
- the impact of the acquisition of HMA on
third-party relationships;
- the impact of seasonal severe weather
conditions;
- 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;
- impact of the external, criminal
cyber-attack suffered by us in the second quarter of 2014,
including potential reputational damage, the outcome of our
investigation and any potential governmental inquiries, the outcome
of litigation filed against us in connection with this
cyber-attack, the extent of remediation costs and additional
operating or other expenses that we may continue to incur, and the
impact of future cyber-attacks or security breaches;
- the timing and completion of the
planned spin-off;
- the effects of the planned spin-off on
our business, including our ability to achieve the anticipated
benefits of the spin-off; and
- the other risk factors set forth in our
other public filings with the Securities and Exchange Commission,
including our 2014 Form 10-K, filed on February 25, 2015.
The consolidated operating results for the three and six months
ended June 30, 2015, are not necessarily indicative of the results
that may be experienced for any future periods. The Company
cautions that the projections for calendar year 2015 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/20150803006252/en/
Community Health Systems, Inc.W. Larry Cash,
615-465-7000President of Financial Services and Chief Financial
Officer
Community Health Systems (NYSE:CYH)
Historical Stock Chart
From Apr 2024 to May 2024
Community Health Systems (NYSE:CYH)
Historical Stock Chart
From May 2023 to May 2024