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Press release from Business Wire

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

Wednesday, October 30, 2013

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

16:30 EDT Wednesday, October 30, 2013

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

Net operating revenues for the three months ended September 30, 2013, totaled $3.218 billion, a 0.2 percent increase compared with $3.212 billion for the same period in 2012. Income from continuing operations decreased to $21.6 million for the three months ended September 30, 2013, compared with $58.8 million for the same period in 2012. Both income from continuing operations and net income attributable to Community Health Systems, Inc. common stockholders were $0.04 per share (diluted) for the three months ended September 30, 2013, compared with $0.49 per share (diluted) for the same period in 2012. We are currently in negotiations with the Department of Justice about resolving its claims in connection with the Department's investigation into the Company's short stay hospital admissions for the years 2005-2010, as well as their investigation at our hospital in Laredo, Texas. Based on those negotiations, which are not final, we believe that a reserve of $98 million, or $0.65 per share (diluted), is sufficient to cover the federal government's claims for Medicare admissions, certain claims specifically related to our hospital in Laredo, Texas, and on other related legal expenses. This reserve is not meant to include claims in this investigation arising from Tricare, Medicaid, or third party legal expenses. The results for the three months ended September 30, 2013, include $0.65 per share (diluted) of expenses related to this reserve as well as $0.03 per share (diluted) of expenses related to the anticipated acquisition of Health Management Associates, Inc. (“HMA”). Excluding these expenses, both income from continuing operations and net income attributable to Community Health Systems, Inc. common stockholders were $0.72 per share (diluted) for the three months ended September 30, 2013. For the three months ended September 30, 2012, excluding the loss from early extinguishment of debt of $0.37 per share (diluted), both income from continuing operations and net income attributable to Community Health Systems, Inc. common stockholders were $0.86 per share (diluted). Weighted-average shares outstanding (diluted) were 94.5 million for the three months ended September 30, 2013, and 90.0 million for the three months ended September 30, 2012.

Adjusted EBITDA for the three months ended September 30, 2013, was $375.2 million compared with $477.3 million for the same period in 2012, representing a 21.4 percent decrease. Excluding the $98.0 million reserve for governmental settlement referenced above and $4.2 million of expenses related to the anticipated HMA acquisition, Adjusted EBITDA was $477.4 million for the three months ended September 30, 2013. 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. A reconciliation of Adjusted EBITDA to net cash provided by operating activities is included in the attached footnotes.

The consolidated and same-store operating results for the three months ended September 30, 2013, reflect a 6.8 percent decrease in total admissions and a 3.9 percent decrease in total adjusted admissions compared with the same period in 2012. On a same-store basis, net operating revenues increased 0.2 percent compared with the same period in 2012.

Net operating revenues for the nine months ended September 30, 2013, totaled $9.766 billion, a 0.1 percent increase compared with $9.752 billion for the same period in 2012. Income from continuing operations decreased to $165.0 million, or $1.21 per share (diluted), for the nine months ended September 30, 2013, compared with $260.6 million, or $2.27 per share (diluted), for the same period in 2012. Net income attributable to Community Health Systems, Inc. common stockholders was $1.21 per share (diluted) for the nine months ended September 30, 2013, compared with $2.27 per share (diluted) for the same period in 2012. The results for the nine months ended September 30, 2013, include $0.65 per share (diluted) of expenses related to a reserve to cover certain governmental claims and other related costs, $0.04 per share (diluted) of expenses related to the anticipated acquisition of HMA, and a $0.01 per share (diluted) loss from the early extinguishment of debt. Excluding these items, both income from continuing operations and net income attributable to Community Health Systems, Inc. common stockholders were $1.91 per share (diluted) for the nine months ended September 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 $0.81 per share (diluted) loss from the early extinguishment of debt, both income from continuing operations and net income attributable to Community Health Systems, Inc. common stockholders were $2.70 per share (diluted) for the nine months ended September 30, 2012. Weighted-average shares outstanding (diluted) were 93.5 million for the nine months ended September 30, 2013, and 89.5 million for the nine months ended September 30, 2012.

Adjusted EBITDA for the nine months ended September 30, 2013, was $1.28 billion compared with $1.50 billion for the same period in 2012, representing a 14.2 percent decrease. Excluding the $98.0 million reserve for governmental settlement referenced above and $5.3 million of expenses related to the anticipated HMA acquisition, Adjusted EBITDA was $1.39 billion for the nine months ended September 30, 2013. A reconciliation of Adjusted EBITDA to net cash provided by operating activities is included in the attached footnotes.

The consolidated operating results for the nine months ended September 30, 2013, reflect a 5.4 percent decrease in total admissions and a 3.1 percent decrease in total adjusted admissions compared with the same period in 2012. On a same-store basis, admissions decreased 6.2 percent while adjusted admissions decreased 3.9 percent compared with the same period in 2012. On a same-store basis, net operating revenues increased 0.2 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, “We are pleased with our results for the third quarter of 2013 during what has continued to be a very challenging operating environment for healthcare providers. Our net operating revenues improved over the prior year period on both a consolidated and same store basis in spite of ongoing volume weakness. We have begun to realize the benefits of our cost management initiatives, and we remain focused on driving operating efficiencies across our hospital network. We believe we have the right strategies in place as we continue to position Community Health Systems to fully benefit from healthcare reform.”

Included on pages 15, 16, 17 and 18 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.

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 Thursday, October 31, 2013, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the third quarter ended September 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 November 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 Nine Months Ended
September 30, September 30,
2013 2012 2013 2012
 
Net operating revenues $ 3,218,231 $ 3,212,030 $ 9,766,372 $ 9,752,039
Adjusted EBITDA (c) 375,210 477,254 1,283,270 1,495,843
Income from continuing operations (d), (e) 21,598 58,758 165,006 260,643
Net income attributable to Community Health Systems, Inc. stockholders 4,095 44,233 113,022 203,066
 

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

Continuing operations (d), (e) $ 0.04 $ 0.50 $ 1.22 $ 2.29
Discontinued operations   -   -   -   (0.01 )
Net income $ 0.04 $ 0.50 $ 1.22 $ 2.28  
 

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

Continuing operations (d), (e) $ 0.04 $ 0.49 $ 1.21 $ 2.27
Discontinued operations   -   -   -   (0.01 )
Net income $ 0.04 $ 0.49 $ 1.21 $ 2.27  
 
Weighted-average number of shares outstanding (f):
Basic 93,259 89,260 92,384 89,028
Diluted 94,484 90,009 93,516 89,465
 
Net cash provided by operating activities $ 131,927 $ 294,938 $ 441,100 $ 777,865
 

____

For footnotes, see pages 12, 13 and 14.

 
       
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (a)(b)
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended September 30,
2013 2012
Amount

% of Net

Operating

Revenues

Amount

% of Net

Operating

Revenues

Operating revenues (net of contractual allowances and discounts) $ 3,766,833 $ 3,696,661
Provision for bad debts   548,602         484,631      
Net operating revenues   3,218,231   100.0   %   3,212,030   100.0   %
 
Operating costs and expenses:
Salaries and benefits 1,541,692 47.9 % 1,525,111 47.5 %
Supplies 486,374 15.1 % 484,212 15.1 %
Other operating expenses 721,957 22.5 % 694,857 21.6 %
Government settlement and related costs reserve 98,000 3.0 % - 0.0 %
Electronic health records incentive reimbursement (d) (65,007 ) (2.0 ) % (30,622 ) (1.0 ) %
Rent 71,646 2.2 % 68,637 2.1 %
Depreciation and amortization   195,841   6.1   %   182,207   5.7   %
Total operating costs and expenses   3,050,503   94.8   %   2,924,402   91.0   %
 
Income from operations (d), (e) 167,728 5.2 % 287,628 9.0 %
Interest expense, net 154,329 4.8 % 158,565 5.0 %
Loss from early extinguishment of debt - 0.0 % 52,024 1.6 %
Equity in earnings of unconsolidated affiliates   (11,641 ) (0.4 ) %   (7,419 ) (0.2 ) %

Income from continuing operations before income taxes

25,040 0.8 % 84,458 2.6 %
Provision for income taxes   3,442   0.1   %   25,700   0.8   %
Income from continuing operations (d), (e)   21,598   0.7   %   58,758   1.8   %
 
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 21,598 0.7 % 58,758 1.8 %
Less: Net income attributable to noncontrolling interests   17,503   0.6   %   14,525   0.4   %
Net income attributable to Community Health Systems, Inc. stockholders $ 4,095   0.1   % $ 44,233   1.4   %
 

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

Continuing operations (d), (e) $ 0.04 $ 0.50
Discontinued operations   -     -  
Net income $ 0.04   $ 0.50  
 

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

Continuing operations (d), (e) $ 0.04 $ 0.49
Discontinued operations   -     -  
Net income $ 0.04   $ 0.49  
 

Weighted-average number of shares outstanding (f):

Basic   93,259     89,260  
Diluted   94,484     90,009  
 

____

For footnotes, see pages 12, 13 and 14.

 
       
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (a)(b)
(In thousands, except per share amounts)
(Unaudited)
 
Nine Months Ended September 30,
2013 2012
Amount

% of Net

Operating

Revenues

Amount

% of Net

Operating

Revenues

Operating revenues (net of contractual allowances and discounts) $ 11,334,783 $ 11,226,580
Provision for bad debts   1,568,411         1,474,541      
Net operating revenues   9,766,372   100.0   %   9,752,039   100.0   %
 
Operating costs and expenses:
Salaries and benefits 4,674,791 47.9 % 4,547,532 46.6 %
Supplies 1,482,245 15.2 % 1,472,520 15.1 %
Other operating expenses 2,159,728 22.1 % 2,140,025 22.0 %
Government settlement and related costs reserve 98,000 1.0 % - 0.0 %
Electronic health records incentive reimbursement (d) (110,307 ) (1.1 ) % (73,592 ) (0.8 ) %
Rent 215,020 2.2 % 202,324 2.1 %
Depreciation and amortization   582,604   5.9   %   536,362   5.5   %
Total operating costs and expenses   9,102,081   93.2   %   8,825,171   90.5   %
 
Income from operations (d), (e) 664,291 6.8 % 926,868 9.5 %
Interest expense, net 465,735 4.8 % 462,347 4.7 %
Loss from early extinguishment of debt 1,295 0.0 % 115,453 1.2 %
Equity in earnings of unconsolidated affiliates   (36,375 ) (0.4 ) %   (32,613 ) (0.3 ) %

Income from continuing operations before income taxes

233,636 2.4 % 381,681 3.9 %
Provision for income taxes   68,630   0.7   %   121,038   1.2   %
Income from continuing operations (d), (e)   165,006   1.7   %   260,643   2.7   %
 
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 165,006 1.7 % 260,177 2.7 %
Less: Net income attributable to noncontrolling interests   51,984   0.5   %   57,111   0.6   %
Net income attributable to Community Health Systems, Inc. stockholders $ 113,022   1.2   % $ 203,066   2.1   %
 

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

Continuing operations (d), (e) $ 1.22 $ 2.29
Discontinued operations   -     (0.01 )
Net income $ 1.22   $ 2.28  
 

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

Continuing operations (d), (e) $ 1.21 $ 2.27
Discontinued operations   -     (0.01 )
Net income $ 1.21   $ 2.27  
 

Weighted-average number of shares outstanding (f):

Basic   92,384     89,028  
Diluted   93,516     89,465  
 

____

For footnotes, see pages 12, 13 and 14.

 
       
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2013 2012 2013 2012
 
Net income $ 21,598 $ 58,758 $ 165,006 $ 260,177
Other comprehensive income, net of income taxes:
Net change in fair value of interest rate swaps 10,850 8,254 47,759 28,766
Net change in fair value of available-for-sale securities 1,171 1,370 2,841 3,509
Amortization and recognition of unrecognized pension cost components   731   1,202   2,195   3,483

Other comprehensive income

  12,752   10,826   52,795   35,758
Comprehensive income 34,350 69,584 217,801 295,935
Less: Comprehensive income attributable to noncontrolling interests   17,503   14,525   51,984   57,111

Comprehensive income attributable to Community Health Systems, Inc. stockholders

$ 16,847 $ 55,059 $ 165,817 $ 238,824
 

____

For footnotes, see pages 12, 13 and 14.

 
           
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (b)
(In thousands)
(Unaudited)
 
For the Three Months Ended September 30,
Consolidated Same-Store
2013 2012 % Change 2013 2012 % Change
Number of hospitals (at end of period) 135 135 135 135
Licensed beds (at end of period) 20,196 20,357 20,196 20,357
Beds in service (at end of period) 17,370 17,274 17,370 17,274
Admissions 161,256 173,108 -6.8 % 161,256 173,108 -6.8 %
Adjusted admissions 341,652 355,672 -3.9 % 341,652 355,672 -3.9 %
Patient days 695,844 747,616 695,844 747,616
Average length of stay (days) 4.3 4.3 4.3 4.3
Occupancy rate (average beds in service) 43.6 % 47.1 % 43.6 % 47.1 %
Net operating revenues $ 3,218,231 $ 3,212,030 0.2 % $ 3,217,252 $ 3,209,806 0.2 %

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

43.1 % 43.6 % 43.1 % 43.5 %

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

55.1 % 54.6 % 55.1 % 54.6 %
Income from operations (d), (e) $ 167,728 $ 287,628 -41.7 % $ 273,704 $ 297,809 -8.1 %

Income from operations as a % of net operating revenues

5.2 % 9.0 % 8.5 % 9.3 %
Depreciation and amortization $ 195,841 $ 182,207 $ 195,840 $ 182,207
Equity in earnings of unconsolidated affiliates $ (11,641 ) $ (7,419 ) $ (11,641 ) $ (7,491 )
Liquidity Data:
Adjusted EBITDA (c) $ 375,210 $ 477,254 -21.4 %

Adjusted EBITDA as a % of net operating revenues

11.7 % 14.9 %
Net cash provided by operating activities $ 131,927 $ 294,938

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

4.1 % 9.2 %

____

For footnotes, see pages 12, 13 and 14.

 
           
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (b)
(In thousands)
(Unaudited)
 
For the Nine Months Ended September 30,
Consolidated Same-Store
2013 2012 % Change 2013 2012 % Change
Number of hospitals (at end of period) 135 135 135 135
Licensed beds (at end of period) 20,196 20,357 20,196 20,357
Beds in service (at end of period) 17,370 17,274 17,370 17,274
Admissions 499,800 528,445 -5.4 % 495,899 528,445 -6.2 %
Adjusted admissions 1,032,649 1,065,547 -3.1 % 1,023,513 1,065,547 -3.9 %
Patient days 2,210,028 2,302,714 2,194,869 2,302,714
Average length of stay (days) 4.4 4.4 4.4 4.4
Occupancy rate (average beds in service) 46.9 % 48.9 % 46.9 % 48.9 %
Net operating revenues $ 9,766,372 $ 9,752,039 0.1 % $ 9,691,057 $ 9,667,115 0.2 %

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

43.8 % 45.1 % 43.8 % 44.6 %

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

54.4 % 53.1 % 54.4 % 53.5 %
Income from operations (d), (e) $ 664,291 $ 926,868 -28.3 % $ 782,510 $ 882,619 -11.3 %

Income from operations as a % of net operating revenues

6.8 % 9.5 % 8.1 % 9.1 %
Depreciation and amortization $ 582,604 $ 536,362 $ 579,219 $ 536,362
Equity in earnings of unconsolidated affiliates $ (36,375 ) $ (32,613 ) $ (36,375 ) $ (32,685 )
Liquidity Data:
Adjusted EBITDA (c) $ 1,283,270 $ 1,495,843 -14.2 %

Adjusted EBITDA as a % of net operating revenues

13.1 % 15.3 %
Net cash provided by operating activities $ 441,100 $ 777,865

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

4.5 % 8.0 %
 

____

For footnotes, see pages 12, 13 and 14.

 
   
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
September 30, 2013 December 31, 2012
ASSETS
Current assets
Cash and cash equivalents $ 143,605 $ 387,813

Patient accounts receivable, net of allowance for doubtful accounts of $2,390,567 and $2,201,875 at September 30, 2013 and December 31, 2012, respectively

2,298,619 2,067,379
Supplies 377,909 368,172
Prepaid income taxes 26,730 49,888
Deferred income taxes 117,045 117,045
Prepaid expenses and taxes 148,762 126,561

Other current assets

  333,612     302,284  
Total current assets   3,446,282     3,419,142  
Property and equipment 10,439,250 10,145,408
Less accumulated depreciation and amortization   (3,370,689 )   (2,993,535 )
Property and equipment, net   7,068,561     7,151,873  
Goodwill   4,437,260     4,408,138  
Other assets, net   1,770,140     1,627,182  
Total assets $ 16,722,243   $ 16,606,335  
 
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt $ 180,386 $ 89,911
Accounts payable 743,776 825,914
Accrued interest 107,463 110,702
Accrued liabilities   1,077,882     1,116,693  
Total current liabilities   2,109,507     2,143,220  
Long-term debt   9,368,293     9,451,394  
Deferred income taxes   808,489     808,489  
Other long-term liabilities   1,016,203     1,039,045  
Total liabilities   13,302,492     13,442,148  
Redeemable noncontrolling interests in equity of consolidated subsidiaries   366,787     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; 95,918,306 shares issued and 94,942,757 shares outstanding at September 30, 2013, and 92,925,715 shares issued and 91,950,166 shares outstanding at December 31, 2012

959 929
Additional paid-in capital 1,231,186 1,138,274
Treasury stock, at cost, 975,549 shares at September 30, 2013 and December 31, 2012 (6,678 ) (6,678 )
Accumulated other comprehensive loss (92,515 ) (145,310 )
Retained earnings   1,857,014     1,743,992  
Total Community Health Systems, Inc. stockholders' equity 2,989,966 2,731,207
Noncontrolling interests in equity of consolidated subsidiaries   62,998     65,314  
Total equity   3,052,964     2,796,521  
Total liabilities and equity $ 16,722,243   $ 16,606,335  
 

____

For footnotes, see pages 12, 13 and 14.

 
   
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended
September 30,
2013 2012
 
Cash flows from operating activities
Net income $ 165,006 $ 260,177
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 582,604 536,362
Government settlement and related costs reserve 98,000 -
Stock-based compensation expense 28,943 30,708
Loss from early extinguishment of debt 1,295 115,453
Excess tax benefit relating to stock-based compensation (6,573 ) (1,545 )
Other non-cash expenses, net 48,387 22,482
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Patient accounts receivable (231,134 ) (227,814 )
Supplies, prepaid expenses and other current assets (60,062 ) (68,247 )
Accounts payable, accrued liabilities and income taxes (205,913 ) 103,156
Other   20,547     7,133  
Net cash provided by operating activities   441,100     777,865  
 
Cash flows from investing activities
Acquisitions of facilities and other related equipment (33,935 ) (312,927 )
Purchases of property and equipment (420,917 ) (557,469 )
Proceeds from sale of property and equipment 4,185 4,808
Increase in other investments   (234,099 )   (222,164 )
Net cash used in investing activities   (684,766 )   (1,087,752 )
 
Cash flows from financing activities
Proceeds from exercise of stock options 108,546 5,750
Repurchase of restricted stock shares for payroll tax withholding requirements (14,696 ) (9,165 )
Stock buy-back (27,133 ) -
Deferred financing costs (12,960 ) (135,647 )
Excess tax benefit relating to stock-based compensation 6,573 1,545
Proceeds from noncontrolling investors in joint ventures 64 535
Redemption of noncontrolling investments in joint ventures (5,720 ) (39,709 )
Distributions to noncontrolling investors in joint ventures (60,282 ) (60,676 )
Borrowings under credit agreements 813,732 3,974,399
Issuance of long-term debt - 3,825,000
Proceeds from receivables facility 320,000 300,000
Repayments of long-term indebtedness   (1,128,666 )   (7,441,360 )
Net cash (used in) provided by financing activities   (542 )   420,672  
 
Net change in cash and cash equivalents (244,208 ) 110,785
Cash and cash equivalents at beginning of period   387,813     129,865  
Cash and cash equivalents at end of period $ 143,605   $ 240,650  
 

____

For footnotes, see pages 12, 13 and 14

 
 

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   Nine Months Ended
September 30, September 30,
2013   2012 2013   2012

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

Income from continuing operations, net of taxes $ 21,598 $ 58,758 $ 165,006 $ 260,643

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

  17,503   14,525   51,984   57,111  

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

$

4,095 $ 44,233 $ 113,022 $ 203,532  
 

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

Loss from discontinued operations, 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 nine months ended September 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 Nine Months Ended
September 30, September 30,
2013 2012 2013 2012
Adjusted EBITDA $ 375,210 $ 477,254 $ 1,283,270 $ 1,495,843
Interest expense, net (154,329 ) (158,565 ) (465,735 ) (462,347 )
Provision for income taxes (3,442 ) (25,700 ) (68,630 ) (121,038 )
Loss from operations of entities sold, net of taxes - - - (466 )
Other non-cash expenses, net 128,704 15,596 168,757 51,645

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

  (214,216 )   (13,647 )   (476,562 )   (185,772 )
Net cash provided by operating activities $ 131,927   $ 294,938   $ 441,100   $ 777,865  
 

____

 

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 nine months ended September 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 nine months ended September 30, 2013, were approximately $27.1 million and $74.1 million, respectively, including depreciation and amortization of approximately $17.2 million and $46.5 million, respectively. Total costs and expenses related to the implementation of electronic health records for the three and nine months ended September 30, 2012, were approximately $23.5 million and $46.9 million, respectively, including depreciation and amortization of approximately $11.1 million and $25.0 million, respectively.

 

(e)

Included in non-same-store income from operations and income from continuing operations are pre-tax charges related to acquisition costs of $5.4 million and $2.5 million for the three months ended September 30, 2013 and 2012, respectively, and $10.1 million and $9.1 million for the nine months ended September 30, 2013 and 2012, respectively. For the three and nine months ended September 30, 2013, these acquisition costs include $4.2 million and $5.3 million, respectively, of expenses related to the anticipated acquisition of Health Management Associates, Inc.

 

(f)

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 Nine Months Ended
September 30, September 30,
2013 2012 2013 2012

Weighted-average number of shares outstanding - basic

93,259 89,260 92,384 89,028
Add effect of dilutive securities:
Stock awards and options 1,225 749 1,132 437

Weighted-average number of shares outstanding - diluted

94,484

90,009 93,516 89,465
 
(g) Total per share amounts may not add due to rounding.

 

____

 

Footnotes continued on the next page.

 

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

 
(h) 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:

 

   
Three Months Ended Nine Months Ended
September 30, September 30,
2013   2012 2013   2012
(per share - diluted) (per share - diluted)
 
Income from continuing operations, as reported $ 0.04 $ 0.49 $ 1.21 $ 2.27
Adjustments:
Loss from early extinguishment of debt - 0.37 0.01 0.81
Expenses related to the anticipated acquisition of HMA 0.03 - 0.04 -

Net benefit from industry-wide governmental settlement and payment update

- - - (0.48 )
Government settlement and related costs reserve 0.65 - 0.65 -
Settlement of certain other legal matters and related expenses   -   -   -   0.10  
Income from continuing operations, excluding adjustments $ 0.72 $ 0.86 $ 1.91 $ 2.70  
 
    Three Months Ended   Nine Months Ended
September 30, September 30,
2013   2012 2013   2012
(per share - diluted) (per share - diluted)
 
Net income, as reported $ 0.04 $ 0.49 $ 1.21 $ 2.27
Adjustments:
Loss from early extinguishment of debt - 0.37 0.01 0.81
Expenses related to the anticipated acquisition of HMA 0.03 - 0.04 -

Net benefit from industry-wide governmental settlement and payment update

- - - (0.48 )
Government settlement and related costs reserve 0.65 - 0.65 0.00
Settlement of certain other legal matters and related expenses   -   -   -   0.10  
Net income, excluding adjustments $ 0.72 $ 0.86 $ 1.91 $ 2.70  
 

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 July 29, 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 $ 13,200
Adjusted EBITDA (in millions) $ 1,885 to $ 1,925
Income from continuing operations per share - diluted $ 2.85 to $ 3.10
Same-store hospital annual adjusted admissions growth (3.5 ) % to (4.5 ) %
Weighted-average diluted shares (in millions) 94,000
 

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, including the government settlement reserve established during the quarter ended September 30, 2013, 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 $155 million to $165 million. Electronic health records-related total costs and expenses for 2013, expressed as a percentage of net operating revenues, are projected to be approximately 0.7% to 0.8%, including depreciation and amortization, expressed as a percentage of net operating revenues, of approximately 0.4% to 0.5%.
  • 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 5.9% to 6.0% 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 $0.13 to $0.17 per share (diluted) for costs related to acquisitions, including costs related to the anticipated acquisition of HMA, 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 32.5% for 2013.
  • Capital expenditures are projected as follows (in millions):
        2013
Guidance
Total $750       to       $800
  • Net cash provided by operating activities is projected as follows (in millions):
        2013
Guidance
Total $1,125         to         $1,225
  • Weighted average shares outstanding are projected to be approximately 94 million for the full year 2013 and 94.5 million for the quarter ended December 31, 2013, and have been adjusted to include the effects of the exercise of stock options earlier in 2013, as well as 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, 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 close the anticipated acquisition of HMA on the proposed terms and within the anticipated time period, or at all, which is dependent on the parties' ability to satisfy certain closing conditions, including the receipt of governmental approvals and the approval of the holders of at least 70% of the outstanding shares of HMA common stock entitled to vote thereon;
  • the impact of the anticipated acquisition of HMA on third-party relationships;
  • 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 nine months ended September 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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