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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Community Health Systems Inc | NYSE:CYH | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.20 | 6.15% | 3.45 | 3.45 | 3.31 | 3.32 | 2,505,350 | 23:54:23 |
Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today announced financial and operating results for the three and nine months ended September 30, 2016.
On April 29, 2016, the Company completed the spin-off of Quorum Health Corporation (“QHC”), comprised of 38 affiliated hospitals and related outpatient services in 16 states, together with Quorum Health Resources, LLC, a subsidiary providing management advisory and consulting services to non-affiliated hospitals. Following the spin-off, QHC became an independent public company with its common stock listed for trading under the symbol “QHC” on the New York Stock Exchange. Financial and statistical data reported in this earnings release include QHC operating results through the spin-off date. Same-store operating results and statistical data exclude information for the hospitals divested in the spin-off of QHC in both the 2016 periods and the comparable periods in 2015.
Net operating revenues for the three months ended September 30, 2016, totaled $4.380 billion, a 9.6 percent decrease compared with $4.846 billion for the same period in 2015. Income from continuing operations attributable to Community Health Systems, Inc. common stockholders decreased to a loss of $(77) million, or $(0.69) per share (diluted), for the three months ended September 30, 2016, compared with income from continuing operations of $60 million, or $0.51 per share (diluted), for the same period in 2015. During the three months ended September 30, 2016, the Company recorded a non-cash impairment charge totaling $39 million, primarily related to the allocation of hospital reporting unit goodwill to four hospitals classified as held for sale in September 2016 upon the execution of a definitive agreement to sell these hospitals as announced by the Company on September 29, 2016, as well as the Company’s update to the previous estimated impairment of goodwill and other long-lived assets recorded during the three months ended June 30, 2016. This update to the estimated goodwill impairment charge was based on the Company’s updated valuation assumptions, as well as information obtained from third-party valuation services. These impairment charges do not have an impact on the calculation of the Company’s financial covenants under the Company’s Credit Facility. The results for the three months ended September 30, 2016, included the loss of $(0.28) per share (diluted) related to impairment of goodwill and long-lived assets and loss of $(0.06) per share (diluted) related to government and other legal settlements for several legal matters settled in principle and related legal expenses. Excluding these items, income from continuing operations was a loss of $(0.35) per share (diluted).
Net income attributable to Community Health Systems, Inc. common stockholders was a loss of $(0.71) per share (diluted) for the three months ended September 30, 2016, compared with income of $0.44 per share (diluted) for the same period in 2015. Discontinued operations for the three months ended September 30, 2016, consisted of $(0.02) per share (diluted) of losses from operations of entities sold or held for sale for a total after-tax loss of approximately $(2) million or $(0.02) per share (diluted). Weighted-average shares outstanding (diluted) were 111 million for the three months ended September 30, 2016, and 116 million for the three months ended September 30, 2015.
Net cash provided by operating activities for the three months ended September 30, 2016, was $178 million compared with $111 million for the same period in 2015, representing a 60.4 percent increase. Adjusted EBITDA for the three months ended September 30, 2016, was $465 million compared with $661 million for the same period in 2015, representing a 29.7 percent decrease.
The consolidated operating results for the three months ended September 30, 2016, reflect a 12.4 percent decrease in total admissions, and a 13.0 percent decrease in total adjusted admissions, compared with the same period in 2015. On a same-store basis, admissions decreased 2.1 percent and adjusted admissions decreased 1.5 percent during the three months ended September 30, 2016, compared with the same period in 2015. On a same-store basis, net operating revenues increased 1.2 percent during the three months ended September 30, 2016, compared with the same period in 2015.
Net operating revenues for the nine months ended September 30, 2016, totaled $13.969 billion, a 4.6 percent decrease compared with $14.639 billion for the same period in 2015. Income from continuing operations attributable to Community Health Systems, Inc. common stockholders decreased to a loss of $(1.495) billion, or $(13.50) per share (diluted), for the nine months ended September 30, 2016, compared with income from continuing operations of $268 million, or $2.32 per share (diluted), for the same period in 2015. During the nine months ended September 30, 2016, the Company recorded non-cash impairment charges totaling $1.695 billion, primarily from an impairment charge of $1.395 billion on the value of goodwill for the Company’s hospital reporting unit, and impairment charges totaling approximately $300 million to reduce the value of long-lived assets at certain under-performing hospitals and hospitals that the Company has closed, sold, or has identified for sale. The estimated impairment charge recorded for goodwill incurred during the three months ended June 30, 2016, resulted from a determination that the carrying value of the Company’s hospital operations reporting unit exceeded its fair value, primarily as the result of the decline in the Company’s market capitalization and fair value of long-term debt during the three months ended June 30, 2016, as well as a decrease in the estimated future earnings of the Company compared to previous estimates. As noted above, the goodwill impairment charge originally estimated at June 30, 2016 was updated during the three months ended September 30, 2016. These impairment charges do not have an impact on the calculation of the Company’s financial covenants under the Company’s Credit Facility. The results for the nine months ended September 30, 2016, included the loss of $(13.72) per share (diluted) related to impairment of goodwill and long-lived assets, loss of $(0.18) per share (diluted) from early extinguishment of debt, loss of $(0.06) per share (diluted) related to government and other legal settlements for several legal matters settled in principle and related legal expenses, loss of $(0.08) per share (diluted) related to expenses from the spin-off of QHC, which were partially offset by income of $0.54 per share (diluted) related to the gain on sale of investments in unconsolidated affiliates in connection with the Company’s sale of its minority equity interests in five hospitals located in Las Vegas, Nevada, on April 29, 2016. Excluding these items, income from continuing operations was $0.00 per share (diluted).
Net income attributable to Community Health Systems, Inc. common stockholders was a loss of $(13.55) per share (diluted) for the nine months ended September 30, 2016, compared with income of $2.08 per share (diluted) for the same period in 2015. Discontinued operations for the nine months ended September 30, 2016, consisted of $(0.04) per share (diluted) of losses from operations of entities sold or held for sale and $(0.01) per share (diluted) of expenses related to the impairment of long-lived assets held for sale, for a total after-tax loss of approximately $(5) million, or $(0.05) per share (diluted). Weighted-average shares outstanding (diluted) were 111 million for the nine months ended September 30, 2016, and 116 million for the nine months ended September 30, 2015.
Net cash provided by operating activities for the nine months ended September 30, 2016, was $810 million compared with $615 million for the same period in 2015, representing a 31.7 percent increase. Adjusted EBITDA for the nine months ended September 30, 2016, was $1.661 billion compared with $2.144 billion for the same period in 2015, representing a 22.5 percent decrease.
The consolidated operating results for the nine months ended September 30, 2016, reflect a 7.9 percent decrease in total admissions, and a 6.9 percent decrease in total adjusted admissions, compared with the same period in 2015. On a same-store basis, admissions decreased 2.0 percent and adjusted admissions decreased 0.2 percent during the nine months ended September 30, 2016, compared with the same period in 2015. On a same-store basis, net operating revenues increased 1.6 percent during the nine months ended September 30, 2016, compared with the same period in 2015.
As initially disclosed on September 19, 2016, the Company announced that, with the assistance of advisors, it is exploring a variety of options with financial sponsors, as well as other potential alternatives. The discussions are at a very preliminary stage and there is no timeline established for this review. There can be no certainty that the exploration will result in any kind of transaction. As previously disclosed, the Company does not expect to make further public comment regarding these matters while the exploration process takes place. In addition, the Board of Directors of the Company adopted a Stockholder Protection Rights Agreement on October 3, 2016. For additional information regarding this Stockholder Protection Rights Agreement, see the Company’s press release and Current Report on Form 8-K, each filed on October 3, 2016.
Adjusted EBITDA, a non-GAAP financial measure, is EBITDA adjusted to add back net income attributable to noncontrolling interests and to exclude the effect of discontinued operations, loss from early extinguishment of debt, impairment of goodwill and long-lived assets, gain on sale of investments in unconsolidated affiliates, acquisition and integration expenses from the acquisition of Health Management Associates, Inc. (“HMA”), expense incurred related to the spin-off of QHC, expense incurred related to the divestiture of the home care division, expense related to government and other 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 (e) 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 operating and financial performance in the third quarter was below expectations due to lower than expected volumes and higher than expected expenses in certain areas. Moving into the fourth quarter, we are intensely focused on driving operational improvements and generating better results. We believe that performance improvements, combined with our portfolio rationalization efforts, should ultimately create a stronger portfolio of hospitals for the future.”
Included on pages 16, 17, 18 and 19 of this press release are tables setting forth the Company’s updated 2016 annual earnings guidance. The 2016 guidance is based on the Company’s historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time, and reflects the impact of the spin-off of QHC and other planned divestitures that the Company expects to occur in 2016.
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. After giving effect to the spin-off noted above, the Company, through its subsidiaries, owns, leases or operates 158 affiliated hospitals in 22 states with an aggregate of nearly 27,000 licensed beds.
The Company’s headquarters are located in Franklin, Tennessee, a suburb south of Nashville. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol “CYH.” More information about the Company can be found on its website at www.chs.net.
Community Health Systems, Inc. will hold a conference call on Wednesday, November 2, 2016, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the third quarter ended September 30, 2016. 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 9, 2016. Copies of this press release and conference call slide show, as well as the Company’s Current Report on Form 8-K (including this press release), will be available on the Company’s website at www.chs.net.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Financial Highlights (a)(b)(c)(d) (In millions, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Net operating revenues $ 4,380 $ 4,846 $ 13,969 $ 14,639 (Loss) income from continuing operations (f), (i), (k) (54 ) 83 (1,422 ) 335Net (loss) income attributable to Community Health Systems, Inc. stockholders
(79 ) 52 (1,500 ) 241 Adjusted EBITDA (e) 465 661 1,661 2,144 Net cash provided by operating activities 178 111 810 615 Basic (loss) earnings per share attributable to Community Health Systems, Inc. common stockholders: Continuing operations (f), (i) $ (0.69 ) $ 0.52 $ (13.50 ) $ 2.33 Discontinued operations (0.02 ) (0.07 ) (0.05 ) (0.24 ) Net (loss) income $ (0.71 ) $ 0.45 $ (13.55 ) $ 2.09 Diluted (loss) earnings per share attributable to Community Health Systems, Inc. common stockholders: Continuing operations (f), (h), (i) $ (0.69 ) $ 0.51 $ (13.50 ) $ 2.32 Discontinued operations (0.02 ) (0.07 ) (0.05 ) (0.24 ) Net (loss) income (h) $ (0.71 ) $ 0.44 $ (13.55 ) $ 2.08 Weighted-average number of shares outstanding (g): Basic 111 115 111 115 Diluted 111 116 111 116____
For footnotes, see pages 12, 13, 14 and 15. CYH Announces Third Quarter 2016 Results
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of (Loss) Income (a)(b)(c)(d) (In millions, except per share amounts) (Unaudited) Three Months Ended September 30, 2016 2015 Amount% of NetOperatingRevenues
Amount% of NetOperatingRevenues
Operating revenues (net of contractual allowances and discounts) $ 5,084 $ 5,580 Provision for bad debts 704 734 Net operating revenues 4,380 100.0 % 4,846 100.0 % Operating costs and expenses: Salaries and benefits 2,067 47.2 % 2,240 46.2 % Supplies 723 16.5 % 762 15.7 % Other operating expenses 1,026 23.4 % 1,144 23.7 % Government and other legal settlements and related costs (j) 10 0.2 % - - % Electronic health records incentive reimbursement (5 ) (0.1 )% (54 ) (1.1 )% Rent 109 2.5 % 115 2.4 % Depreciation and amortization 265 6.1 % 288 5.9 % Impairment of goodwill and long-lived assets (i) 39 0.9 % - - % Total operating costs and expenses 4,234 96.7 % 4,495 92.8 % Income from operations (f), (i) 146 3.3 % 351 7.2 % Interest expense, net 233 5.3 % 242 4.9 % Equity in earnings of unconsolidated affiliates (4 ) (0.1 )% (12 ) (0.2 )%(Loss) income from continuing operations before income taxes
(83 ) (1.9 )% 121 2.5 % (Benefit from) provision for income taxes (29 ) (0.7 )% 38 0.8 % (Loss) income from continuing operations (f), (i), (k) (54 ) (1.2 )% 83 1.7 % Discontinued operations, net of taxes: Loss from operations of entities sold or held for sale (2 ) (0.0 )% (5 ) (0.1 )% Loss on sale, net - - % (3 ) (0.1 )% Loss from discontinued operations, net of taxes (2 ) (0.0 )% (8 ) (0.2 )% Net (loss) income (56 ) (1.2 )% 75 1.5 % Less: Net income attributable to noncontrolling interests 23 0.6 % 23 0.4 % Net (loss) income attributable to Community Health Systems, Inc. stockholders $ (79 ) (1.8 )% $ 52 1.1 %Basic (loss) earnings per share attributable to Community Health Systems, Inc. common stockholders:
Continuing operations (f), (i), (k) $ (0.69 ) $ 0.52 Discontinued operations (0.02 ) (0.07 ) Net (loss) income $ (0.71 ) $ 0.45Diluted (loss) earnings per share attributable to Community Health Systems, Inc. common stockholders:
Continuing operations (f), (h), (i), (k) $ (0.69 ) $ 0.51 Discontinued operations (0.02 ) (0.07 ) Net (loss) income (h) $ (0.71 ) $ 0.44 Weighted-average number of shares outstanding (g): Basic 111 115 Diluted 111 116
____
For footnotes, see pages 12, 13, 14 and 15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of (Loss) Income (a)(b)(c)(d) (In millions, except per share amounts) (Unaudited) Nine Months Ended September 30, 2016 2015 Amount% of NetOperatingRevenues
Amount% of NetOperatingRevenues
Operating revenues (net of contractual allowances and discounts) $ 16,128 $ 16,840 Provision for bad debts 2,159 2,201 Net operating revenues 13,969 100.0 % 14,639 100.0 % Operating costs and expenses: Salaries and benefits 6,537 46.8 % 6,714 45.9 % Supplies 2,281 16.3 % 2,274 15.5 % Other operating expenses 3,256 23.4 % 3,370 23.0 % Government and other legal settlements and related costs (j) 10 0.1 % 1 - % Electronic health records incentive reimbursement (54 ) (0.4 )% (135 ) (0.9 )% Rent 340 2.4 % 344 2.3 % Depreciation and amortization 839 6.0 % 875 6.0 % Impairment of goodwill and long-lived assets (i) 1,695 12.1 % 6 - % Total operating costs and expenses 14,904 106.7 % 13,449 91.8 % (Loss) income from operations (f), (i) (935 ) (6.7 )% 1,190 8.2 % Interest expense, net 730 5.2 % 723 5.0 % Loss from early extinguishment of debt 30 0.3 % 16 0.1 % Gain on sale of investments in unconsolidated affiliates (k) (94 ) (0.7 )% - - % Equity in earnings of unconsolidated affiliates (38 ) (0.3 )% (51 ) (0.3 )%(Loss) income from continuing operations before income taxes
(1,563 ) (11.2 )% 502 3.4 % (Benefit from) provision for income taxes (141 ) (1.0 )% 167 1.1 % (Loss) income from continuing operations (f), (i), (k) (1,422 ) (10.2 )% 335 2.3 % Discontinued operations, net of taxes: Loss from operations of entities sold or held for sale (4 ) - % (22 ) (0.2 )% Impairment of hospitals sold or held for sale (1 ) - % (2 ) - % Loss on sale, net - - % (3 ) - % Loss from discontinued operations, net of taxes (5 ) - % (27 ) (0.2 )% Net (loss) income (1,427 ) (10.2 )% 308 2.1 % Less: Net income attributable to noncontrolling interests 73 0.5 % 67 0.5 % Net (loss) income attributable to Community Health Systems, Inc. stockholders $ (1,500 ) (10.7 )% $ 241 1.6 %Basic (loss) earnings per share attributable to Community Health Systems, Inc. common stockholders:
Continuing operations (f), (i), (k) $ (13.50 ) $ 2.33 Discontinued operations (0.05 ) (0.24 ) Net (loss) income $ (13.55 ) $ 2.09Diluted (loss) earnings per share attributable to Community Health Systems, Inc. common stockholders:
Continuing operations (f), (h), (i), (k) $ (13.50 ) $ 2.32 Discontinued operations (0.05 ) (0.24 ) Net (loss) income (h) $ (13.55 ) $ 2.08 Weighted-average number of shares outstanding (g): Basic 111 115 Diluted 111 116____
For footnotes, see pages 12, 13, 14 and 15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive (Loss) Income (In millions) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Net (loss) income $ (56 ) $ 75 $ (1,427 ) $ 308 Other comprehensive income (loss), net of income taxes: Net change in fair value of interest rate swaps, net of tax 10 (21 ) (11 ) (22 ) Net change in fair value of available-for-sale securities, net of tax (7 ) (9 ) (8 ) (10 )Amortization and recognition of unrecognized pension cost components, net of tax
- 1 3 2 Other comprehensive income (loss) 3 (29 ) (16 ) (30 ) Comprehensive (loss) income (53 ) 46 (1,443 ) 278 Less: Comprehensive income attributable to noncontrolling interests 23 23 73 67Comprehensive (loss) income attributable to Community Health Systems, Inc. stockholders
$ (76 ) $ 23 $ (1,516 ) $ 211____
For footnotes, see pages 12, 13, 14 and 15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Selected Operating Data (a)(c) (Dollars in millions) (Unaudited) Three Months Ended September 30, Consolidated Same-Store 2016 2015 % Change 2016 2015 % Change Number of hospitals (at end of period) 155 195 152 152 Licensed beds (at end of period) 26,246 30,019 25,945 26,169 Beds in service (at end of period) 23,231 26,309 23,066 23,164 Admissions 201,957 230,510 -12.4 % 200,365 204,600 -2.1 % Adjusted admissions 445,817 512,465 -13.0 % 441,545 448,317 -1.5 % Patient days 898,177 1,003,025 892,828 900,086 Average length of stay (days) 4.4 4.4 4.5 4.4 Occupancy rate (average beds in service) 41.9 % 41.6 % 42.0 % 42.4 % Net operating revenues $ 4,380 $ 4,846 -9.6 % $ 4,321 $ 4,268 1.2 %Net inpatient revenues as a % of net patient revenues before provision for bad debts
42.6 % 41.7 % 42.6 % 41.7 %Net outpatient revenues as a % of net patient revenues before provision for bad debts
57.4 % 58.3 % 57.4 % 58.3 % Income from operations (f), (i) $ 146 $ 351 -58.4 %Income from operations as a % of net operating revenues
3.3 % 7.2 % Depreciation and amortization $ 265 $ 288 Equity in earnings of unconsolidated affiliates $ (4 ) $ (12 ) Liquidity Data: Adjusted EBITDA (e) $ 465 $ 661 -29.7 %Adjusted EBITDA as a % of net operating revenues
10.6 % 13.6 % Net cash provided by operating activities $ 178 $ 111 60.4 %Net cash provided by operating activities as a % of net operating revenues
4.1 % 2.3 %____
For footnotes, see pages 12, 13, 14 and 15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Selected Operating Data (a)(c) (Dollars in millions) (Unaudited) Nine Months Ended September 30, Consolidated Same-Store 2016 2015 % Change 2016 2015 % Change Number of hospitals (at end of period) 155 195 152 152 Licensed beds (at end of period) 26,246 30,019 25,945 26,169 Beds in service (at end of period) 23,231 26,309 23,066 23,164 Admissions 653,916 710,042 -7.9 % 616,756 629,656 -2.0 % Adjusted admissions 1,427,298 1,533,763 -6.9 % 1,337,641 1,340,485 -0.2 % Patient days 2,921,895 3,163,346 2,773,674 2,841,861 Average length of stay (days) 4.5 4.5 4.5 4.5 Occupancy rate (average beds in service) 43.3 % 43.9 % 43.6 % 44.8 % Net operating revenues $ 13,969 $ 14,639 -4.6 % $ 13,081 $ 12,870 1.6 %Net inpatient revenues as a % of net patient revenues before provision for bad debts
43.1 % 42.8 % 43.1 % 42.8 %Net outpatient revenues as a % of net patient revenues before provision for bad debts
56.9 % 57.2 % 56.9 % 57.2 % (Loss) income from operations (f), (i) $ (935 ) $ 1,190 -178.6 %(Loss) income from operations as a % of net operating revenues
-6.7 % 8.1 % Depreciation and amortization $ 839 $ 875 Equity in earnings of unconsolidated affiliates $ (38 ) $ (51 ) Liquidity Data: Adjusted EBITDA (e) $ 1,661 $ 2,144 -22.5 %Adjusted EBITDA as a % of net operating revenues
11.9 % 14.6 % Net cash provided by operating activities $ 810 $ 615 31.7 %Net cash provided by operating activities as a % of net operating revenues
5.8 % 4.2 %____
For footnotes, see pages 12, 13, 14 and 15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (b) (In millions, except share data) (Unaudited) September 30, 2016 December 31, 2015 ASSETS Current assets Cash and cash equivalents $ 133 $ 184Patient accounts receivable, net of allowance for doubtful accounts of $3,754 and $4,110 at September 30, 2016 and December 31, 2015, respectively
3,179 3,611 Supplies 527 580 Prepaid income taxes 33 27 Prepaid expenses and taxes 208 197Other current assets (including assets of hospitals held for sale of $11 and $17 at September 30, 2016 and December 31, 2015, respectively)
461 567 Total current assets 4,541 5,166 Property and equipment 13,378 14,906 Less accumulated depreciation and amortization (4,548 ) (4,794 ) Property and equipment, net 8,830 10,112 Goodwill 6,901 8,965Other assets, net (including assets of hospitals held for sale of $109 and $41 at September 30, 2016 and December 31, 2015, respectively)
1,955 2,352 Total assets $ 22,227 $ 26,595 LIABILITIES AND EQUITY Current liabilities Current maturities of long-term debt $ 240 $ 229 Accounts payable 1,018 1,258 Accrued interest 151 227Accrued liabilities (including liabilities of hospitals held for sale of $13 and $6 at September 30, 2016 and December 31, 2015, respectively)
1,277 1,358 Total current liabilities 2,686 3,072 Long-term debt 15,082 16,556 Deferred income taxes 357 593 Other long-term liabilities 1,622 1,698 Total liabilities 19,747 21,919 Redeemable noncontrolling interests in equity of consolidated subsidiaries 553 571 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; 113,633,148 shares issued and outstanding at September 30, 2016, and 113,732,933 shares issued and 112,757,384 shares outstanding at December 31, 2015
1 1 Additional paid-in capital 1,967 1,963Treasury stock, at cost, no shares at September 30, 2016 and 975,549 shares at December 31, 2015
- (7 ) Accumulated other comprehensive loss (87 ) (73 ) (Accumulated deficit) retained earnings (60 ) 2,135 Total Community Health Systems, Inc. stockholders’ equity 1,821 4,019 Noncontrolling interests in equity of consolidated subsidiaries 106 86 Total equity 1,927 4,105 Total liabilities and equity $ 22,227 $ 26,595____
For footnotes, see pages 12, 13, 14 and 15.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (b) (In millions) (Unaudited) Nine Months Ended September 30, 2016 2015 Cash flows from operating activities Net (loss) income $ (1,427 ) $ 308 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 839 876 Government and other legal settlements and related costs (j) 10 1 Stock-based compensation expense 36 44 Loss on sale, net - 4 Impairment of hospitals sold or held for sale 1 8 Impairment of goodwill and long-lived assets (i) 1,695 - Loss from early extinguishment of debt 30 16 Gain on sale of investments in unconsolidated affiliates (94 ) - Other non-cash expenses, net 19 22 Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: Patient accounts receivable (40 ) (291 ) Supplies, prepaid expenses and other current assets 64 (72 ) Accounts payable, accrued liabilities and income taxes (256 ) (239 ) Other (67 ) (62 ) Net cash provided by operating activities 810 615 Cash flows from investing activities Acquisitions of facilities and other related equipment (122 ) (41 ) Purchases of property and equipment (561 ) (696 ) Proceeds from disposition of hospitals and other ancillary operations 12 87 Proceeds from sale of property and equipment 10 13 Purchases of available-for-sale securities (395 ) (127 ) Proceeds from sales of available-for-sale securities 386 123 Proceeds from sale of investments in unconsolidated affiliates 403 - Distribution from Quorum Health Corporation 1,219 - Increase in other investments (201 ) (136 ) Net cash provided by (used in) investing activities 751 (777 ) Cash flows from financing activities Proceeds from exercise of stock options - 24 Repurchase of restricted stock shares for payroll tax withholding requirements (5 ) (20 ) Deferred financing costs and other debt-related costs (22 ) (30 ) Redemption of noncontrolling investments in joint ventures (19 ) (18 ) Distributions to noncontrolling investors in joint ventures (69 ) (69 ) Borrowings under credit agreements 3,929 3,464 Proceeds from receivables facility 66 112 Repayments of long-term indebtedness (5,492 ) (3,624 ) Net cash used in financing activities (1,612 ) (161 ) Net change in cash and cash equivalents (51 ) (323 ) Cash and cash equivalents at beginning of period 184 509 Cash and cash equivalents at end of period $ 133 $ 186____
For footnotes, see pages 12, 13, 14 and 15.
Footnotes to Financial Highlights, Financial Statements and Selected Operating Data
(a) Continuing operating results exclude discontinued operations for the three and nine months ended September 30, 2016 and 2015. Both financial and statistical results exclude entities in discontinued operations for all periods presented. Same-store operating results and statistical data exclude information for the hospitals divested in the spin-off of QHC in both the 2016 periods and the comparable periods in 2015. (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 $31 million in costs have been incurred and approximately $30 million of settlements have been paid related to certain HMA legal matters, which collectively exceed the deductible of $18 million under the CVR agreement. The Company previously recorded an estimated fair value of the remaining underlying claims that will be covered by the CVR of $284 million as part of the acquisition accounting for HMA, which has been adjusted to its estimated fair value of $259 million at September 30, 2016. 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 September 30, 2016 Legal and other related costs incurred to date $ 31 Settlements 30 Estimated liability for probable contingencies - Estimated liability for unresolved contingencies at fair value 259Costs incurred plus certain estimated liabilities for CVR-related matters
320 Allocated to: CHS deductible of $18 million (18 ) CHS co-insurance at 10% (29 )Recorded amounts that reduce CVR value after giving effect to deductible and co-insurance
$ 273 CVRs outstanding 265 (c) Included in discontinued operations for the three and nine months ended September 30, 2016, are three smaller hospitals that are being actively marketed for sale. Included in discontinued operations for the three and nine months ended September 30, 2015, were several hospitals held for sale at December 31, 2014, some of which were sold during the year ended December 31, 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, was approximately $2 million and $8 million for the three months ended September 30, 2016 and 2015, respectively, and approximately $5 million and $27 million for the nine months ended September 30, 2016 and 2015, respectively. (d) The following table provides information needed to calculate (loss) income per share, which is adjusted for income attributable to noncontrolling interests (in millions): Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015(Loss) income from continuing operations attributable to Community Health Systems, Inc. common stockholders:
(Loss) income from continuing operations, net of taxes $ (54 ) $ 83 $ (1,422 ) $ 335Less: Income from continuing operations attributable to noncontrolling interests, net of taxes
23 23 73 67(Loss) income from continuing operations attributable to Community Health Systems, Inc. common stockholders — basic and diluted
$ (77 ) $ 60 $ (1,495 ) $ 268Loss from discontinued operations attributable to Community Health Systems, Inc. common stockholders:
Loss from discontinued operations, net of taxes $ (2 ) $ (8 ) $ (5 ) $ (27 )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
$ (2 ) $ (8 ) $ (5 ) $ (27 )Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued)
(e) EBITDA is a non-GAAP financial measure which consists of net (loss) income attributable to Community Health Systems, Inc. before interest, income taxes, and depreciation and amortization. Adjusted EBITDA, also a non-GAAP financial measure, is EBITDA adjusted to add back net income attributable to noncontrolling interests and to exclude the effect of discontinued operations, loss from early extinguishment of debt, impairment of goodwill and long-lived assets, gain on sale of investments in unconsolidated affiliates, acquisition and integration expenses from the acquisition of HMA, expense incurred related to the spin-off of QHC, expense incurred related to the divestiture of the home care division, expense related to government and other 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 adds back the portion of EBITDA attributable to these third-party interests and clarifies for investors the Company’s portion of EBITDA generated by continuing operations. The Company 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 reflects the calculation of Adjusted EBITDA, as defined, from (loss) income from continuing operations before income taxes and reconciles Adjusted EBITDA to net cash provided by operating activities as derived directly from the condensed consolidated financial statements (in millions): Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 (Loss) income from continuing operations before income taxes $ (83 ) $ 121 $ (1,563 ) $ 502 Adjustments: Depreciation and amortization 265 288 839 875 Interest expense, net 233 242 730 723 Loss from early extinguishment of debt - - 30 16 Impairment of goodwill and long-lived assets 39 - 1,695 6 Gain on sale of investments in unconsolidated affiliates - - (94 ) - Expenses related to the acquisition and integration of HMA - - - 1 Expense from government and other legal settlements and related costs 10 - 10 1Expense from fair value adjustments and legal expenses related to cases covered by the CVR
- - 1 10 Expenses related to the divestiture of home care division 1 - 1 - Expenses related to the spin-off of QHC - 10 12 10 Adjusted EBITDA $ 465 $ 661 $ 1,661 $ 2,144 Adjusted EBITDA $ 465 $ 661 $ 1,661 $ 2,144 Interest expense, net (233 ) (242 ) (730 ) (723 ) Benefit from (provision for) income taxes 29 (38 ) 141 (167 )Loss from operations of entities sold or held for sale, net of taxes
(2 ) (5 ) (4 ) (22 ) Other non-cash expenses, net 7 39 56 63Changes in operating assets and liabilities, net of effects of acquisitions and divestitures
(88 ) (304 ) (314 ) (680 ) Net cash provided by operating activities $ 178 $ 111 $ 810 $ 615 (f) Included in non-same-store (loss) income from operations and (loss) income from continuing operations are pre-tax charges related to acquisition costs of $1 million and $2 million for the three months ended September 30, 2016 and 2015, respectively, and $4 million and $6 million for the nine months ended September 30, 2016 and 2015, respectively.Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued)
(g) The following table sets forth components reconciling the basic weighted-average number of shares to the diluted weighted-average number of shares (in millions): Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015Weighted-average number of shares outstanding - basic
111 115 111 115 Add effect of dilutive securities: Stock awards and options - 1 - 1Weighted-average number of shares outstanding - diluted
111 116 111 116 The Company generated a loss from continuing operations attributable to Community Health Systems, Inc. common stockholders for the three and nine months ended September 30, 2016, so the effect of dilutive securities is not considered because their effect would be antidilutive. If the Company had generated income from continuing operations during the three and nine months ended September 30, 2016, the effect of restricted stock awards, employee stock options, and other equity-based awards on the diluted shares calculation would have been an increase in shares of 445,732 shares and 225,334 shares, respectively. (h) The following supplemental tables reconcile (loss) income from continuing operations and net (loss) 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 Nine Months Ended September 30, September 30, 2016 2015 2016 2015 (per share - diluted) (per share - diluted) (Loss) income from continuing operations, as reported $ (0.69 ) $ 0.51 $ (13.50 ) $ 2.32 Adjustments: Loss from early extinguishment of debt - - 0.18 0.09 Impairment of goodwill and long-lived assets 0.28 - 13.72 0.04Expense from government and other legal settlements and related costs
0.06 - 0.06 0.01Expense from fair value adjustments and legal expenses related to cases covered by the CVR
- - - 0.05 Gain on sale of investments in unconsolidated affiliates - - (0.54 ) - Expense related to the spin-off of QHC - 0.05 0.08 0.05(Loss) income from continuing operations, excluding adjustments
$ (0.35 ) $ 0.56 $ - $ 2.55 Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 (per share - diluted) (per share - diluted) Net (loss) income, as reported $ (0.71 ) $ 0.44 $ (13.55 ) $ 2.08 Adjustments: Loss from early extinguishment of debt - - 0.18 0.09 Impairment of goodwill and long-lived assets 0.28 - 13.72 0.04Expense from government and other legal settlements and related costs
0.06 - 0.06 0.01Expense from fair value adjustments and legal expenses related to cases covered by the CVR
- - - 0.05 Gain on sale of investments in unconsolidated affiliates - - (0.54 ) - Expense related to the spin-off of QHC - 0.05 0.08 0.05 Net (loss) income, excluding adjustments $ (0.37 ) $ 0.49 $ (0.04 ) $ 2.31Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued)
(i) Both income from operations and loss from continuing operations for the three months ended September 30, 2016, included an impairment charge of approximately $39 million, primarily related to the allocation of hospital reporting unit goodwill to four hospitals classified as held for sale in September 2016 upon the execution of a definitive agreement to sell such hospitals as announced by us on September 29, 2016, as well as the updated measurement of the estimated impairment charge recorded during the three months ended June 30, 2016. Both loss from operations and loss from continuing operations for the nine months ended September 30, 2016, included an impairment charge of approximately $1.695 billion, of which $1.395 billion was a charge related to the write-down of a portion of the goodwill for the Company’s hospital operation reporting unit, and $283 million was a charge related to the adjustment of the fair value of long-lived assets at certain of the Company’s underperforming hospitals and some of the hospitals that the Company has been or is currently marketing for sale that have experienced declining operating results or have had a decline in their estimated fair value. The estimated impairment charge recorded for goodwill incurred during the three months ended June 30, 2016, resulted from a determination that the carrying value of the Company’s hospital operations reporting unit exceeded its fair value, primarily as the result of the decline in the Company’s market capitalization and fair value of long-term debt during the three months ended June 30, 2016, as well as a decrease in the estimated future earnings of the Company compared to previous estimates. The goodwill impairment charge originally estimated at June 30, 2016 was updated during the three months ended September 30, 2016 based on the Company’s updated valuation assumptions, as well as information obtained from third-party valuation services. Also, included in loss from operations and loss from continuing operations for the nine months ended September 30, 2016, was an impairment charge of approximately $17 million incurred during the three months ended March 31, 2016, related to the write-down of a portion of the goodwill allocated to the divestitures of Lehigh Regional Medical Center and Bartow Regional Medical Center, as well as the impairment of certain long-lived assets at one of the Company’s smaller hospitals where the decision was made during the quarter ended March 31, 2016, to permanently close the hospital. These impairment charges do not have an impact on the calculation of the Company’s financial covenants under the Company’s Credit Facility. Both income from operations and income from continuing operations for the three and nine months ended September 30, 2015, include 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. (j) The $0.06 per share (diluted) of expense for “Government and other legal settlements and related costs” for the three and nine months ended September 30, 2016, is the net impact of several lawsuits settled in principle during the three and nine months ended September 30, 2016, and related legal expenses. The $0.01 per share (diluted) of expense for “Government and other legal settlements and related costs” for the nine months ended September 30, 2015, is the net impact of several qui tam lawsuits settled in principle during the three months ended September 30, 2015, and related legal expenses. (k) On April 29, 2016, the Company sold its unconsolidated minority equity interests in Valley Health System, LLC, a joint venture with Universal Health Systems, Inc. (“UHS”) representing four hospitals in Las Vegas, Nevada, in which the Company owned a 27.5% interest, and in Summerlin Hospital Medical Center, LLC, a joint venture with UHS representing one hospital in Las Vegas, Nevada, in which the Company owned a 26.1% interest. The Company received $403 million in cash in return for the sale of its equity interests and recognized a gain on sale of investments in unconsolidated affiliates during the nine months ended September 30, 2016.Regulation FD Disclosure
Set forth below is selected information concerning the Company’s projected consolidated operating results for the year ending December 31, 2016. These projections update selected guidance issued on August 2, 2016, 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 2016 guidance should be considered in conjunction with the assumptions included herein. See pages 18 and 19 for a list of factors that could affect the future results of the Company or the healthcare industry generally.
A reconciliation of the Company’s projected 2016 Adjusted EBITDA, a forward-looking non-GAAP financial measure, to the most directly comparable GAAP financial measure is omitted from this release because the Company is unable to provide such reconciliation without unreasonable effort (the Company’s presentation of projected net cash provided by operating activities later in this Regulation FD Disclosure section is not projected using the same factors as the Adjusted EBITDA guidance, as there are different assumptions made in connection with the determination of such projected net cash provided by operating activities amount). This inability results from the inherent difficulty in forecasting generally and in quantifying certain projected amounts that are necessary for such reconciliation. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliation without unreasonable effort, including interest expense, net; provision for (benefit from) income taxes; other non-cash expenses, net; other changes in operating assets and liabilities and other adjustments that would be necessary to prepare a forward-looking statement of cash flows prepared in accordance with GAAP. For the same reasons, the Company is unable to address the probable significance of the unavailable information.
The following is provided as guidance to analysts and investors:
2016 Projection Range Net operating revenues less provision for bad debts (in millions) $ 18,300 to$
18,500
Adjusted EBITDA (in millions) $ 2,200 to $ 2,275 Income from continuing operations per share - diluted $ 0.30 to $ 0.50 Same-store hospital annual adjusted admissions growth (0.3 )% to 0.3 % Weighted-average diluted shares, in millions 111.5 to 112.5The following assumptions were used in developing the 2016 guidance provided above:
Other assumptions used in the above guidance:
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:
The consolidated operating results for the three and nine months ended September 30, 2016, are not necessarily indicative of the results that may be experienced for any future periods. The Company cautions that the projections for calendar year 2016 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/20161101006539/en/
Community Health Systems, Inc.W. Larry Cash, 615-465-7000President of Financial Services and Chief Financial Officer
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