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Press release from Business Wire

Community Health Systems, Inc. Announces Second Quarter 2013 Results with Net Operating Revenues of $3.2 Billion

Monday, July 29, 2013

Community Health Systems, Inc. Announces Second Quarter 2013 Results with Net Operating Revenues of $3.2 Billion

16:15 EDT Monday, July 29, 2013

FRANKLIN, Tenn. (Business Wire) -- Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today announced financial and operating results for the three and six months ended June 30, 2013.

Net operating revenues for the three months ended June 30, 2013, totaled $3.236 billion, a 0.2 percent decrease compared with $3.243 billion for the same period in 2012. Income from continuing operations decreased to $47.1 million for the three months ended June 30, 2013, compared with $102.2 million for the same period in 2012. Both income from continuing operations and net income attributable to Community Health Systems, Inc. common stockholders were $0.32 per share (diluted) for the three months ended June 30, 2013, compared with $0.93 per share (diluted) for the same period in 2012. Weighted-average shares outstanding (diluted) were 94.1 million for the three months ended June 30, 2013, and 89.5 million for the three months ended June 30, 2012.

Adjusted EBITDA for the three months ended June 30, 2013, was $414.2 million compared with $483.1 million for the same period in 2012, representing a 14.3 percent decrease. Adjusted EBITDA is EBITDA adjusted to exclude discontinued operations, loss from early extinguishment of debt, and net income attributable to non-controlling interests. The Company uses adjusted EBITDA as a measure of liquidity. Net cash provided by operating activities for the three months ended June 30, 2013, was $252.0 million compared with $295.6 million for the same period in 2012.

The consolidated operating results for the three months ended June 30, 2013, reflect a 5.1 percent decrease in total admissions and a 1.8 percent decrease in total adjusted admissions compared with the same period in 2012. On a same-store basis, admissions decreased 5.7 percent while adjusted admissions decreased 2.6 percent compared with the same period in 2012. On a same-store basis, net operating revenues decreased 0.9 percent compared with the same period in 2012.

Net operating revenues for the six months ended June 30, 2013, totaled $6.548 billion, a 0.1 percent increase compared with $6.540 billion for the same period in 2012. Income from continuing operations decreased to $143.4 million, or $1.17 per share (diluted), for the six months ended June 30, 2013, compared with $201.9 million, or $1.79 per share (diluted), for the same period in 2012. Net income attributable to Community Health Systems, Inc. common stockholders was $1.17 per share (diluted) for the six months ended June 30, 2013, compared with $1.78 per share (diluted) for the same period in 2012. The results for the six months ended June 30, 2013, include a $0.01 per share (diluted) loss from the early extinguishment of debt. Excluding this loss, both income from continuing operations and net income attributable to Community Health Systems, Inc. common stockholders were $1.18 per share (diluted) for the six months ended June 30, 2013. For comparison, excluding a $0.48 per share (diluted) net benefit from the resolution of an industry-wide governmental settlement and a payment update relating to prior periods, a $0.10 per share (diluted) charge to establish reserves for certain legal matters, and a $0.44 per share (diluted) loss from the early extinguishment of debt, income from continuing operations attributable to Community Health Systems, Inc. common stockholders was $1.85 per share (diluted) and net income attributable to Community Health Systems, Inc. common stockholders was $1.84 per share (diluted) for the six months ended June 30, 2012. Weighted-average shares outstanding (diluted) were 93.0 million for the six months ended June 30, 2013, and 89.2 million for the six months ended June 30, 2012.

Adjusted EBITDA for the six months ended June 30, 2013, was $908.1 million compared with $1.0 billion for the same period in 2012, representing a 10.9 percent decrease. Net cash provided by operating activities for the six months ended June 30, 2013, was $309.2 million compared with $482.9 million for the same period in 2012.

The consolidated operating results for the six months ended June 30, 2013, reflect a 4.7 percent decrease in total admissions and a 2.7 percent decrease in total adjusted admissions compared with the same period in 2012. On a same-store basis, admissions decreased 5.8 percent while adjusted admissions decreased 3.9 percent compared with the same period in 2012. On a same-store basis, net operating revenues increased 0.3 percent compared with the same period in 2012.

Commenting on the results, Wayne T. Smith, chairman, president and chief executive officer of Community Health Systems, Inc. said, “Our results for the second quarter reflect the ongoing challenges facing healthcare providers in 2013. As we previously announced, weakness in volume, most significantly in May and June, coupled with higher-than-anticipated bad debts and deterioration in payor mix, resulted in lower-than-anticipated net operating revenues during the period. As a result, we have intensified our focus on core operating strategies, volume initiatives and expense management across our hospital network to efficiently manage our operations in this challenging environment.

“We look forward to the opportunities ahead with the potential benefits of healthcare reform and expansion of coverage. With our strategic focus on network development and clinical excellence, we are well positioned to leverage our strengths against these industry dynamics and continue to deliver sustainable results. Our operating model has consistently demonstrated expertise across a diversity of growth drivers - implementing best practice standards, making selective acquisitions, driving operational efficiencies and recruiting physicians. Together, these efforts support our ultimate objective to deliver quality healthcare services in an efficient manner and, in turn, build stronger communities,” said Smith.

Included on pages 14, 15 and 16 of this press release are tables setting forth the Company's updated 2013 annual earnings guidance. The 2013 guidance is based on the Company's historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time.

As previously announced, the Company received an OIG subpoena on July 9, 2013, from the Government in connection with the Department of Justice's investigation of Medicare short-stay admissions from emergency departments. Subsequent to the Company's earnings pre-release on July 18, 2013, the Company's lawyers had a discussion with the Government regarding the subpoena, during which the Government characterized the subpoena as having two primary purposes; first, to “clean up” the prior subpoena and informal document requests in order to make sure that nothing had fallen through the cracks and, secondly, to collect certain documents relating to the factual defenses the Company has presented to the Government this year. In response to the Company's questions, the Government indicated that the subpoena generally was not intended to expand the document production to additional hospitals or to broaden the scope into any new substantive area of the investigation.

Located in the Nashville, Tennessee, suburb of Franklin, 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 non-urban and mid-size markets throughout the country. Through its subsidiaries, the Company currently owns, leases or operates 135 hospitals in 29 states with an aggregate of approximately 20,000 licensed beds. Its hospitals offer a broad range of inpatient and surgical services, outpatient treatment and skilled nursing care. In addition, through its subsidiary, Quorum Health Resources, LLC, the Company provides management and consulting services to non-affiliated general acute-care hospitals located throughout the United States. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol “CYH.”

Community Health Systems, Inc. will hold a conference call on Tuesday, July 30, 2013, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the second quarter ended June 30, 2013. 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 30, 2013. 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)

(In thousands, except per share amounts)

(Unaudited)

 
Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
 
Net operating revenues $ 3,236,391 $ 3,242,974 $ 6,548,141 $ 6,540,009
Adjusted EBITDA (c) 414,231 483,094 908,060 1,018,589
Income from continuing operations (d), (e), (f), (g) 47,085 102,167 143,408 201,855
Net income attributable to Community Health Systems, Inc. stockholders 29,753 83,359 108,927 158,833
 

Basic earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders (i):

Continuing operations (d), (e), (f), (g) $ 0.32 $ 0.94 $ 1.18 $ 1.79
Discontinued operations   -   -   -   (0.01 )
Net income $ 0.32 $ 0.94 $ 1.18 $ 1.79  
 

Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:

Continuing operations (d), (e), (f), (g) $ 0.32 $ 0.93 $ 1.17 $ 1.79
Discontinued operations   -   -   -   (0.01 )
Net income $ 0.32 $ 0.93 $ 1.17 $ 1.78  
 
Weighted-average number of shares outstanding (h):
Basic 92,866 89,147 91,940 88,911
Diluted 94,109 89,531 93,025 89,192
 
Net cash provided by operating activities $ 252,018 $ 295,617 $ 309,172 $ 482,927
 

____

For footnotes, see pages 12 and 13.

 
     
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (a)(b)

(In thousands, except per share amounts)

(Unaudited)

 
 
Three Months Ended June 30,
2013 2012
Amount  

% of Net

Operating

Revenues

Amount

% of Net

Operating

Revenues

Operating revenues (net of contractual allowances and discounts) $ 3,768,086 $ 3,746,428
Provision for bad debts   531,695       503,454    
Net operating revenues   3,236,391   100.0 %   3,242,974   100.0 %
 
Operating costs and expenses:
Salaries and benefits 1,555,951 48.1 % 1,497,446 46.2 %
Supplies 498,030 15.4 % 489,729 15.1 %
Other operating expenses 729,797 22.6 % 736,225 22.7 %
Electronic health records incentive reimbursement (d) (24,384 ) -0.8 % (16,802 ) -0.5 %
Rent 71,820 2.2 % 66,463 2.0 %
Depreciation and amortization   194,605   6.0 %   179,801   5.5 %
Total operating costs and expenses   3,025,819   93.5 %   2,952,862   91.0 %
 
Income from operations (d), (e), (f) 210,572 6.5 % 290,112 9.0 %
Interest expense, net 155,056 4.8 % 151,607 4.7 %
Loss from early extinguishment of debt - 0.0 % - 0.0 %
Equity in earnings of unconsolidated affiliates   (9,054 ) -0.3 %   (13,181 ) -0.4 %

Income from continuing operations before income taxes

64,570 2.0 % 151,686 4.7 %
Provision for income taxes   17,485   0.5 %   49,519   1.5 %
Income from continuing operations (d), (e), (f)   47,085   1.5 %   102,167   3.2 %
 
Discontinued operations, net of taxes:
Loss from operations of entities sold   -   0.0 %   -   0.0 %
Loss from discontinued operations, net of taxes   -   0.0 %   -   0.0 %
Net income 47,085 1.5 % 102,167 3.2 %
Less: Net income attributable to noncontrolling interests   17,332   0.6 %   18,808   0.6 %
Net income attributable to Community Health Systems, Inc. stockholders $ 29,753   0.9 % $ 83,359   2.6 %
 

Basic earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:

Continuing operations (d), (e), (f) $ 0.32 $ 0.94
Discontinued operations   -     -  
Net income $ 0.32   $ 0.94  
 

Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:

Continuing operations (d), (e), (f) $ 0.32 $ 0.93
Discontinued operations   -     -  
Net income $ 0.32   $ 0.93  
 

Weighted-average number of shares outstanding (h):

Basic   92,866     89,147  
Diluted   94,109     89,531  
 

____

For footnotes, see pages 12 and 13.

 
     
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (a)(b)

(In thousands, except per share amounts)

(Unaudited)

 
Six Months Ended June 30,
2013 2012
Amount  

% of Net

Operating

Revenues

Amount

% of Net

Operating

Revenues

Operating revenues (net of contractual allowances and discounts) $ 7,567,950 $ 7,529,919
Provision for bad debts   1,019,809       989,910    
Net operating revenues   6,548,141   100.0 %   6,540,009   100.0 %
 
Operating costs and expenses:
Salaries and benefits 3,133,099 47.8 % 3,022,421 46.2 %
Supplies 995,871 15.2 % 988,308 15.1 %
Other operating expenses 1,437,771 22.0 % 1,445,168 22.2 %
Electronic health records incentive reimbursement (d) (45,300 ) -0.7 % (42,970 ) -0.7 %
Rent 143,374 2.2 % 133,687 2.0 %
Depreciation and amortization   386,763   5.9 %   354,155   5.4 %
Total operating costs and expenses   6,051,578   92.4 %   5,900,769   90.2 %
 
Income from operations (d), (e), (f), (g) 496,563 7.6 % 639,240 9.8 %
Interest expense, net 311,406 4.8 % 303,782 4.7 %
Loss from early extinguishment of debt 1,295 0.0 % 63,429 1.0 %
Equity in earnings of unconsolidated affiliates   (24,734 ) -0.4 %   (25,194 ) -0.4 %

Income from continuing operations before income taxes

208,596 3.2 % 297,223 4.5 %
Provision for income taxes   65,188   1.0 %   95,338   1.4 %
Income from continuing operations (d), (e), (f), (g)   143,408   2.2 %   201,885   3.1 %
 
Discontinued operations, net of taxes:
Loss from operations of entities sold   -   0.0 %   (466 ) 0.0 %
Loss from discontinued operations, net of taxes   -   0.0 %   (466 ) 0.0 %
Net income 143,408 2.2 % 201,419 3.1 %
Less: Net income attributable to noncontrolling interests   34,481   0.5 %   42,586   0.7 %
Net income attributable to Community Health Systems, Inc. stockholders $ 108,927   1.7 % $ 158,833   2.4 %
 

Basic earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders (i):

Continuing operations (d), (e), (f), (g) $ 1.18 $ 1.79
Discontinued operations   -     (0.01 )
Net income $ 1.18   $ 1.79  
 

Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:

Continuing operations (d), (e), (f), (g) $ 1.17 $ 1.79
Discontinued operations   -     (0.01 )
Net income $ 1.17   $ 1.78  
 

Weighted-average number of shares outstanding (h):

Basic   91,940     88,911  
Diluted   93,025     89,192  
 

____

For footnotes, see pages 12 and 13.

 
   
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2013   2012 2013   2012
 
Net income $ 47,085 $ 102,167 $ 143,408 $ 201,419
Other comprehensive income, net of income taxes:
Net change in fair value of interest rate swaps 21,139 9,976 36,909 20,512
Net change in fair value of available-for-sale securities (139 ) (527 ) 1,670 2,140
Amortization and recognition of unrecognized pension cost components   731     1,140     1,464   2,281
Other comprehensive income   21,731     10,589     40,043   24,933
Comprehensive income 68,816 112,756 183,451 226,352
Less: Comprehensive income attributable to noncontrolling interests   17,332     18,808     34,481   42,586

Comprehensive income attributable to Community Health Systems, Inc. stockholders

$ 51,484   $ 93,948   $ 148,970 $ 183,766
 

____

For footnotes, see pages 12 and 13.

 
       
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (b)

($ In thousands)

(Unaudited)

 
For the Three Months Ended June 30,
Consolidated Same-Store
2013   2012   % Change 2013 2012 % Change
Number of hospitals (at end of period) 135 134 134 134
Licensed beds (at end of period) 20,176 20,235 20,076 20,235
Beds in service (at end of period) 17,299 17,180 17,199 17,180
Admissions 164,588 173,449 -5.1 % 163,505 173,449 -5.7 %
Adjusted admissions 344,672 350,982 -1.8 % 341,716 350,982 -2.6 %
Patient days 723,662 750,686 719,341 750,686
Average length of stay (days) 4.4 4.3 4.4 4.3
Occupancy rate (average beds in service) 46.0 % 48.1 % 46.0 % 48.1 %
Net operating revenues $ 3,236,391 $ 3,242,974 -0.2 % $ 3,212,738 $ 3,242,542 -0.9 %

Net inpatient revenues as a % of operating revenues before provision for bad debts

43.7 % 45.5 % 43.8 % 45.5 %

Net outpatient revenues as a % of operating revenues before provision for bad debts

54.6 % 52.8 % 54.5 % 52.8 %
Income from operations (d), (e), (f) $ 210,572 $ 290,112 -27.4 % $ 218,763 $ 295,934 -26.1 %

Income from operations as a % of net operating revenues

6.5 % 9.0 % 6.8 % 9.1 %
Depreciation and amortization $ 194,605 $ 179,801 $ 193,386 $ 179,801
Equity in earnings of unconsolidated affiliates $ (9,054 ) $ (13,181 ) $ (9,054 ) $ (13,181 )
Liquidity Data:
Adjusted EBITDA (c) $ 414,231 $ 483,094 -14.3 %

Adjusted EBITDA as a % of net operating revenues

12.8 % 14.9 %
Net cash provided by operating activities $ 252,018 $ 295,617

Net cash provided by operating activities as a % of net operating revenues

7.8 % 9.1 %
 

____

For footnotes, see pages 12 and 13.

 
       
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (b)

($ In thousands)

(Unaudited)

 
For the Six Months Ended June 30,
Consolidated Same-Store
2013   2012   % Change 2013 2012 % Change
Number of hospitals (at end of period) 135 134 134 134
Licensed beds (at end of period) 20,176 20,235 20,076 20,235
Beds in service (at end of period) 17,299 17,180 17,199 17,180
Admissions 338,544 355,337 -4.7 % 334,643 355,337 -5.8 %
Adjusted admissions 690,906 709,841 -2.7 % 681,819 709,841 -3.9 %
Patient days 1,514,184 1,555,098 1,499,025 1,555,098
Average length of stay (days) 4.5 4.4 4.5 4.4
Occupancy rate (average beds in service) 48.6 % 49.9 % 48.5 % 49.9 %
Net operating revenues $ 6,548,141 $ 6,540,009 0.1 % $ 6,473,805 $ 6,457,309 0.3 %

Net inpatient revenues as a % of operating revenues before provision for bad debts

44.1 % 45.8 % 44.2 % 45.2 %

Net outpatient revenues as a % of operating revenues before provision for bad debts

54.0 % 52.3 % 54.0 % 52.9 %
Income from operations (d), (e), (f), (g) $ 496,563 $ 639,240 -22.3 % $ 508,806 $ 584,810 -13.0 %

Income from operations as a % of net operating revenues

7.6 % 9.8 % 7.9 % 9.1 %
Depreciation and amortization $ 386,763 $ 354,155 $ 383,379 $ 354,155
Equity in earnings of unconsolidated affiliates $ (24,734 ) $ (25,194 ) $ (24,734 ) $ (25,194 )
Liquidity Data:
Adjusted EBITDA (c) $ 908,060 $ 1,018,589 -10.9 %

Adjusted EBITDA as a % of net operating revenues

13.9 % 15.6 %
Net cash provided by operating activities $ 309,172 $ 482,927

Net cash provided by operating activities as a % of net operating revenues

4.7 % 7.4 %
 

____

For footnotes, see pages 12 and 13.

 
   
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)

 
June 30, December 31,
2013 2012
ASSETS
Current assets
Cash and cash equivalents $ 251,227 $ 387,813

Patient accounts receivable, net of allowance for doubtful accounts of $2,304,813 and $2,201,875 at June 30, 2013 and December 31, 2012, respectively

2,173,064 2,067,379
Supplies 375,440 368,172
Prepaid income taxes 35,697 49,888
Deferred income taxes 117,045 117,045
Prepaid expenses and taxes 133,524 126,561
Other current assets   270,611     302,284  
Total current assets   3,356,608     3,419,142  
Property and equipment 10,354,246 10,145,408
Less accumulated depreciation and amortization   (3,250,002 )   (2,993,535 )
Property and equipment, net   7,104,244     7,151,873  
Goodwill   4,412,097     4,408,138  
Other assets, net   1,723,873     1,627,182  
Total assets $ 16,596,822   $ 16,606,335  
 
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt $ 119,037 $ 89,911
Accounts payable 753,009 825,914
Income taxes payable - -
Accrued interest 111,156 110,702
Accrued liabilities   1,003,747     1,116,693  
Total current liabilities   1,986,949     2,143,220  
Long-term debt   9,388,197     9,451,394  
Deferred income taxes   808,489     808,489  
Other long-term liabilities   1,019,415     1,039,045  
Total liabilities   13,203,050     13,442,148  
Redeemable noncontrolling interests in equity of consolidated subsidiaries   371,413     367,666  
 
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; 95,775,089 shares issued and 94,799,540 shares outstanding at June 30, 2013 and 92,925,715 shares issued and 91,950,166 shares outstanding at December 31, 2012

958 929
Additional paid-in capital 1,220,523 1,138,274
Treasury stock, at cost, 975,549 shares at June 30, 2013 and December 31, 2012 (6,678 ) (6,678 )
Accumulated other comprehensive loss (105,267 ) (145,310 )
Retained earnings   1,852,919     1,743,992  
Total Community Health Systems, Inc. stockholders' equity 2,962,455 2,731,207
Noncontrolling interests in equity of consolidated subsidiaries   59,904     65,314  
Total equity   3,022,359     2,796,521  
Total liabilities and equity $ 16,596,822   $ 16,606,335  
 

____

For footnotes, see pages 12 and 13.

 
 
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
Six Months Ended
June 30,
2013   2012
Cash flows from operating activities
Net income $ 143,408 $ 201,419

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization

386,763

354,155
Stock-based compensation expense 19,429 20,624
Loss from early extinguishment of debt 1,295 63,429
Excess tax benefit relating to stock-based compensation (6,331 ) (1,037 )
Other non-cash expenses, net 26,955 16,461

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

Patient accounts receivable (105,579 ) (199,383 )
Supplies, prepaid expenses and other current assets 15,141 (39,920 )
Accounts payable, accrued liabilities and income taxes (179,760 ) 51,843
Other   7,851     15,336  
Net cash provided by operating activities   309,172     482,927  
 
Cash flows from investing activities
Acquisitions of facilities and other related equipment (10,492 ) (245,227 )
Purchases of property and equipment (294,991 ) (386,461 )
Proceeds from sale of property and equipment 2,056 3,437
Increase in other investments   (134,389 )   (162,316 )
Net cash used in investing activities   (437,816 )   (790,567 )
 
Cash flows from financing activities
Proceeds from exercise of stock options 103,626 1,269
Repurchase of restricted stock shares for payroll tax withholding requirements (14,569 ) (9,074 )
Stock buy-back (27,133 ) -
Deferred financing costs (924 ) (63,986 )
Excess tax benefit relating to stock-based compensation 6,331 1,037
Proceeds from noncontrolling investors in joint ventures 64 637
Redemption of noncontrolling investments in joint ventures (701 ) (35,888 )
Distributions to noncontrolling investors in joint ventures (37,937 ) (34,590 )
Borrowings under credit agreements 296,001 3,633,589
Issuance of long-term debt - 1,025,000
Proceeds from receivables facility 300,000 300,000
Repayments of long-term indebtedness   (632,700 )   (4,525,110 )
Net cash (used in) provided by financing activities   (7,942 )   292,884  
 
Net change in cash and cash equivalents (136,586 ) (14,756 )
Cash and cash equivalents at beginning of period   387,813     129,865  
Cash and cash equivalents at end of period $ 251,227   $ 115,109  
 

____

For footnotes, see pages 12 and 13.

 

Footnotes to Financial Highlights, Financial Statements and Selected Operating Data

     

(a)

The following table provides information needed to calculate income per share, which is adjusted for income attributable to noncontrolling interests (in thousands):

 
Three Months Ended Six Months Ended
June 30, June 30,
2013   2012 2013   2012

Income from continuing operations attributable to Community Health Systems, Inc. common stockholders:

Income from continuing operations, net of taxes $ 47,085 $ 102,167 $ 143,408 $ 201,885

Less: Income from continuing operations attributable to noncontrolling interests, net of taxes

  17,332   18,808   34,481   42,586  

Income from continuing operations attributable to Community Health Systems, Inc. common stockholders - basic and diluted

$ 29,753 $ 83,359 $ 108,927 $ 159,299  
 

Loss from discontinued operations attributable to Community Health Systems, Inc. common stockholders:

Loss from operations of entities sold, net of taxes $ - $ - $ - $ (466 )

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

$ - $ - $ - $ (466 )
 

(b)

Continuing operating results exclude discontinued operations for the three and six months ended June 30, 2013 and 2012. Both financial and statistical results exclude entities in discontinued operations for all periods presented.

 

(c)

EBITDA 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 and net income attributable to noncontrolling interests. 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 included this measure 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 is the basis for a key component in the determination of the Company's compliance with some of the covenants under the Company's senior secured credit facility, as well as 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 thousands):
     
Three Months Ended Six Months Ended
June 30, June 30,
2013   2012 2013   2012
Adjusted EBITDA $ 414,231 $ 483,094 $ 908,060 $ 1,018,589
Interest expense, net (155,056 ) (151,607 ) (311,406 ) (303,782 )
Provision for income taxes (17,485 ) (49,519 ) (65,188 ) (95,338 )
Loss from operations of entities sold, net of taxes - - - (466 )
Other non-cash expenses, net 30,184 23,988 40,053 36,048

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures

  (19,856 )   (10,339 )   (262,347 )   (172,124 )
Net cash provided by operating activities $ 252,018   $ 295,617   $ 309,172   $ 482,927  
 

____

Footnotes continued on the next page.

 

Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued)

(d)

Included in income from operations and income from continuing operations for the three and six months ended June 30, 2013, 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 costs and expenses related to the implementation of electronic health records for the three and six months ended June 30, 2013, were approximately $27.3 million and $47.0 million, respectively, including depreciation and amortization of approximately $15.3 million and $29.3 million, respectively. Total costs and expenses related to the implementation of electronic health records for the three and six months ended June 30, 2012, were approximately $10.7 million and $23.5 million, respectively, including depreciation and amortization of approximately $7.9 million and $14.0 million, respectively.

 

(e)

Included in non-same-store income from operations and income from continuing operations are pre-tax legal and other costs, offset by insurance recoveries beginning in June 2012, primarily related to the governmental investigation and shareholder lawsuits of $2.4 million and $4.4 million for the three and six months ended June 30, 2013, respectively, and $(0.5) million and $1.4 million for the three and six months ended June 30, 2012, respectively.

 

(f)

Included in non-same-store income from operations and income from continuing operations are pre-tax charges related to acquisition costs of $3.0 million and $2.3 million for the three months ended June 30, 2013 and 2012, respectively, and $3.6 million and $6.6 million for the six months ended June 30, 2013 and 2012, respectively.

 

(g)

The following items are included in the results for the six months ended June 30, 2012:

 
Included in non-same-store income from operations and income from continuing operations for the six months ended June 30, 2012, is approximately $102 million of net operating revenues and approximately $9 million of related expenses from an industry-wide settlement with the United States Department of Health and Human Services and Centers for Medicare and Medicaid Services based on a claim that acute-care hospitals in the U.S. were underpaid from the Medicare inpatient prospective payment system in federal fiscal years 1999 through 2011. The underpayments resulted from calculations related to the rural floor budget neutrality adjustments implemented in connection with the Balanced Budget Act of 1997. In addition, included in net income attributable to noncontrolling interests is approximately $3 million related to this settlement. Also included is an unfavorable adjustment to net operating revenue of approximately $21 million related to the revised Supplemental Security Income ratios for federal fiscal years 2006 through 2009 utilized for calculating Medicare Disproportionate Share Hospital reimbursements. These adjustments resulted in an after-tax benefit to net income of $0.48 per share (diluted).
 
Included in non-same-store income from operations and income from continuing operations for the six months ended June 30, 2012, are pre-tax charges of $14.0 million to establish an accrual for the settlement of certain legal matters. These items resulted in an after-tax charge to net income of $0.10 per share (diluted) for the six months ended June 30, 2012.
 

(h)

The following table sets forth components reconciling the basic weighted-average number of shares to the diluted weighted-average number of shares (in thousands):

   
Three Months Ended Six Months Ended
June 30, June 30,
2013   2012 2013   2012

Weighted-average number of shares outstanding - basic

92,866 89,147 91,940 88,911
Add effect of dilutive securities:
Stock awards and options 1,243 384 1,085 281

Weighted-average number of shares outstanding - diluted

94,109 89,531 93,025 89,192
 

(i)

Total per share amounts may not add due to rounding.

 

____

 

Regulation FD Disclosure

The following tables set forth selected information concerning the Company's projected consolidated operating results for the year ending December 31, 2013. These projections update previous guidance provided on April 29, 2013, and reaffirm our preliminarily updated guidance on July 18, 2013, 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 2013 guidance should be considered in conjunction with the assumptions included herein. See page 16 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:

        2013 Projection Range
Net operating revenues less provision for bad debts (in millions) $ 13,000   to   $ 13,400
Adjusted EBITDA (in millions) $ 1,900 to $ 1,950
Income from continuing operations per share - diluted $ 2.95 to $ 3.25
Same-store hospital annual adjusted admissions growth -3.0% to -1.0%
Weighted-average diluted shares (in millions) 93 to 95
 

Income from continuing operations per share - diluted for quarter ending September 30, 2013

$ 0.60 to $ 0.75
 

The following assumptions were used in developing the 2013 guidance provided above:

  • The Company's projection excludes any future loss on early extinguishment of debt, impairment loss, the resolution of government investigations or other significant legal settlements, and other significant gains or losses that neither relate to the ordinary course of our business nor reflect our underlying business performance.
  • For 2012, adjusted EBITDA excluding the net benefit from the resolution of the industry-wide governmental settlement and payment update relating to prior periods was $1.901 billion.
  • Included in the Company's 2013 projection are estimated sequester-related cuts, primarily beginning April 1, 2013, and other new reimbursement cuts beginning October 1, 2013, of 0.5% to 0.8% of net operating revenues.
  • Included in the Company's 2013 projection are estimated savings, in the second half of the year, from cost reduction initiatives of approximately $40 million to $60 million.
  • Health Information Technology (HITECH) electronic health records incentive reimbursement for 2013 is projected to be approximately $150 million to $160 million. Electronic health records-related total costs and expenses for 2013, expressed as a percentage of net operating revenues, are projected to be approximately 0.5% to 0.6%, including depreciation and amortization, expressed as a percentage of net operating revenues, of approximately 0.3% to 0.4%.
  • 2013 projection includes one targeted hospital acquisition being completed late in the year.
  • Projected 2013 same-store hospital annual adjusted admissions growth does not take into account service closures and other unusual events.
  • Expressed as a percentage of net operating revenues, depreciation and amortization is projected to be approximately 5.7% to 5.9% for 2013, an increase over 2012 caused primarily by the investments being made in electronic health records; however, this is a fixed cost and the percentages may vary as revenue varies. Such amounts exclude the possible impact of any future hospital fixed asset impairments.
  • 2013 projection includes an estimate of $0.05 to $0.07 per share (diluted) for costs related to individual market acquisitions that are required to be expensed.
  • Interest expense, expressed as a percentage of net operating revenues, is projected to be approximately 4.6% to 4.8%; 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 75% to 85% of total debt during 2013.
  • Expressed as a percentage of net operating revenues, equity in earnings of unconsolidated affiliates is projected to be approximately 0.3% to 0.4% for 2013.
  • Expressed as a percentage of net operating revenues, net income attributable to noncontrolling interests is projected to be approximately 0.5% to 0.7% for 2013.
  • Expressed as a percentage of income from continuing operations before income taxes, provision for income tax is projected to be approximately 31.5% to 33.5% for 2013.
  • Capital expenditures are projected as follows (in millions):
                    2013

Guidance

Total $775       to       $825
 
  • Net cash provided by operating activities is projected as follows (in millions):
                2013

Guidance

Total $1,175       to       $1,250
 
  • Weighted average shares outstanding are projected to be 93 million to 95 million, and have been adjusted to include the effects of the exercise in stock options earlier in 2013, as well as the estimated dilutive impact from “in-the-money” stock options and restricted shares of approximately 1 million to 2 million shares.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act 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 are 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 and effect of adopted and potential federal and state healthcare legislation;
  • 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;
  • 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;
  • increases in the amount and risk of collectability of patient accounts receivable;
  • 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 health care 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;
  • our ability to successfully make acquisitions or complete divestitures;
  • our ability to successfully integrate any acquired hospitals or to recognize expected synergies from such acquisitions;
  • our ability to obtain adequate levels of general and professional liability insurance;
  • timeliness of reimbursement payments received under government programs; and
  • the other risk factors set forth in our public filings with the Securities and Exchange Commission.

The consolidated operating results for the three and six months ended June 30, 2013, are not necessarily indicative of the results that may be experienced for any such future period or for any future year.

The Company cautions that the projections for calendar year 2013 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.

Community Health Systems, Inc.
W. Larry Cash, 615-465-7000
Executive Vice President and Chief Financial Officer

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