Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three months
ended March 31, 2016.
Net operating revenues for the three months ended March 31,
2016, totaled $4.999 billion, a 1.8 percent increase compared with
$4.911 billion for the same period in 2015. Income from continuing
operations attributable to Community Health Systems, Inc. common
stockholders decreased to $12 million, or $0.11 per share
(diluted), for the three months ended March 31, 2016, compared with
$92 million, or $0.79 per share (diluted), for the same period in
2015. The results for the three months ended March 31, 2016,
include $0.13 per share (diluted) related to impairment of
long-lived assets and $0.02 per share (diluted) related to expenses
from the spin-off of Quorum Health Corporation (“QHC”). Excluding
these items, income from continuing operations was $0.27 per share
(diluted).
Net income attributable to Community Health Systems, Inc. common
stockholders was $0.10 per share (diluted) for the three months
ended March 31, 2016, compared with $0.68 per share (diluted) for
the same period in 2015. Discontinued operations for the three
months ended March 31, 2016, consisted of $(0.01) per share
(diluted) of expenses related to the impairment of long-lived
assets held for sale for an after-tax loss of approximately $(1)
million. Weighted-average shares outstanding (diluted) were 110
million for the three months ended March 31, 2016, and 115 million
for the three months ended March 31, 2015.
Adjusted EBITDA for the three months ended March 31, 2016, was
$633 million compared with $715 million for the same period in
2015, representing an 11.5 percent decrease.
The consolidated operating results for the three months ended
March 31, 2016, reflect a 2.6 percent decrease in total admissions,
and a 0.7 percent increase in total adjusted admissions, compared
with the same period in 2015. On a same-store basis, admissions
decreased 2.0 percent while adjusted admissions increased 1.3
percent during the three months ended March 31, 2016, compared with
the same period in 2015. On a same-store basis, net operating
revenues increased 2.2 percent during the three months ended March
31, 2016, compared with the same period in 2015.
Adjusted EBITDA, a non-GAAP financial measure, is EBITDA
adjusted to exclude discontinued operations, loss from early
extinguishment of debt, impairment of long-lived assets, net income
attributable to noncontrolling interests, acquisition and
integration expenses from the acquisition of Health Management
Associates, Inc. (“HMA”), expenses incurred related to the spin-off
of QHC, expense related to government legal settlements and related
costs, and expense (income) 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.
On April 29, 2016, the Company completed the spin-off of 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.
Commenting on the results, Wayne T. Smith, chairman and chief
executive officer of Community Health Systems, Inc., said, “We
intend to use the substantial majority of the net proceeds of $1.21
billion from the QHC spin-off to reduce our debt, and we expect
other potential divestiture transactions this year will help drive
down our debt even further. As we refine our portfolio into what we
anticipate will be a more sustainable, higher-margin group of
hospitals, our resources and future investments can be targeted
into markets where we have the greatest opportunity to achieve
performance improvement in our operations and financial
results.”
Included on pages 12, 13, 14 and 15 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, through
its subsidiaries, the Company owns, leases or operates 160
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
Tuesday, May 3, 2016, at 11:00 a.m. Central, 12:00 noon Eastern, to
review financial and operating results for the three months ended
March 31, 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 June 3, 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 March 31, 2016 2015
Net operating revenues $ 4,999 $ 4,911 Adjusted EBITDA (e)
633 715 Income from continuing operations (f), (i) 37 112 Net
income attributable to Community Health Systems, Inc. stockholders
11 79
Basic earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (f), (i) $ 0.11 $ 0.80 Discontinued
operations (0.01 ) (0.11 ) Net income $ 0.10 $
0.69
Diluted earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (f), (h), (i) $ 0.11 $ 0.79 Discontinued
operations (0.01 ) (0.11 ) Net income (h) $ 0.10
$ 0.68
Weighted-average number of shares outstanding (g): Basic 110 114
Diluted 110 115 Net cash provided by (used in) operating
activities $ 294 $ (61 )
____
For footnotes, see pages 9, 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed
Consolidated Statements of Income (a)(b)(c)(d) (In millions,
except per share amounts) (Unaudited)
Three Months Ended
March 31, 2016 2015 Amount
% of
NetOperatingRevenues
Amount
% of
NetOperatingRevenues
Operating revenues (net of contractual allowances and discounts) $
5,754 $ 5,646 Provision for bad debts 755
735 Net operating revenues
4,999 100.0 % 4,911 100.0
% Operating costs and expenses: Salaries and benefits 2,317
46.3 % 2,257 46.0 % Supplies 799 16.0 % 762 15.5 % Other operating
expenses 1,173 23.5 % 1,099 22.4 % Government settlement and
related costs (j) - - % 8 0.1 % Electronic health records incentive
reimbursement (18 ) (0.4 ) % (26 ) (0.5 ) % Rent 119 2.4 % 116 2.4
% Depreciation and amortization 298 6.0 % 296 6.0 % Impairment of
long-lived assets (i) 17 0.3 % -
- % Total operating costs and expenses 4,705
94.1 % 4,512 91.9 % Income from
operations (f), (i) 294 5.9 % 399 8.1 % Interest expense, net 251
5.0 % 241 4.9 % Loss from early extinguishment of debt - - % 8 0.2
% Equity in earnings of unconsolidated affiliates (20 ) (0.4
) % (18 ) (0.4 ) %
Income from continuing operations before
income taxes
63 1.3 % 168 3.4 % Provision for income taxes 26 0.6
% 56 1.1 % Income from continuing
operations (f), (i) 37 0.7 % 112
2.3 % Discontinued operations, net of taxes: Loss
from operations of entities sold or held for sale - - % (11 ) (0.3
) % Impairment of hospitals sold or held for sale (1 ) - % (1 )
(0.0 ) % Loss on sale, net - - % (1 )
(0.0 ) % Loss from discontinued operations, net of taxes (1
) - % (13 ) (0.3 ) % Net income 36 0.7 % 99 2.0 %
Less: Net income attributable to noncontrolling interests 25
0.5 % 20 0.4 % Net income
attributable to Community Health Systems, Inc. stockholders $ 11
0.2 % $ 79 1.6 %
Basic earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (f), (i) $ 0.11 $ 0.80 Discontinued
operations (0.01 ) (0.11 ) Net income $ 0.10 $
0.69
Diluted earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (f), (h), (i) $ 0.11 $ 0.79 Discontinued
operations (0.01 ) (0.11 ) Net income (h) $ 0.10
$ 0.68
Weighted-average number of shares
outstanding (g):
Basic 110 114 Diluted 110
115
____
For footnotes, see pages 9, 10 and 11.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Condensed Consolidated Statements of
Comprehensive (Loss) Income (In millions) (Unaudited)
Three Months Ended March 31, 2016 2015
Net income $ 36 $ 99 Other comprehensive (loss) income, net
of income taxes: Net change in fair value of interest rate swaps,
net of tax (19 ) (9 ) Net change in fair value of
available-for-sale securities, net of tax 2 1 Amortization and
recognition of unrecognized pension cost components, net of tax
1 1 Other comprehensive loss (16
) (7 ) Comprehensive income 20 92 Less: Comprehensive income
attributable to noncontrolling interests 25 20
Comprehensive (loss) income attributable to Community Health
Systems, Inc. stockholders $ (5 ) $ 72
____
For footnotes, see pages 9, 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND
SUBSIDIARIES Selected Operating Data (a)(c) (Dollars in
millions) (Unaudited)
Three Months Ended March 31,
Consolidated Same-Store 2016 2015 %
Change 2016 2015 % Change Number of
hospitals (at end of period) 194 197 192 192 Licensed beds (at end
of period) 29,936 30,256 29,611 29,931 Beds in service (at end of
period) 26,285 26,498 26,097 26,290 Admissions 239,700 246,015 -2.6
% 238,829 243,776 -2.0 % Adjusted admissions 513,192 509,719 0.7 %
510,755 504,095 1.3 % Patient days 1,076,226 1,127,077 1,072,943
1,118,334 Average length of stay (days) 4.5 4.6 4.5 4.6 Occupancy
rate (average beds in service) 45.1 % 47.1 % 45.2 % 47.1 % Net
operating revenues $ 4,999 $ 4,911 1.8 % $ 4,974 $ 4,869 2.2 %
Net inpatient revenues as a % of net
patient revenues before provision for bad debts
43.9 % 44.2 % 44.0 % 44.2 %
Net outpatient revenues as a % of net
patient revenues before provision for bad debts
56.1 % 55.8 % 56.0 % 55.8 % Income from operations (f), (i) $ 294 $
399 -26.3 %
Income from operations as a % of net
operating revenues
5.9 % 8.1 % Depreciation and amortization $ 298 $ 296 Equity in
earnings of unconsolidated affiliates $ (20 ) $ (18 ) Liquidity
Data: Adjusted EBITDA (e) $ 633 $ 715 -11.5 %
Adjusted EBITDA as a % of net operating
revenues
12.7 % 14.6 %
Net cash provided by (used in) operating
activities
$ 294 $ (61 )
Net cash provided by (used in) operating
activities as a % of net operating revenues
5.9 % -1.2 %
____
For footnotes, see pages 9, 10 and 11.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets
(b) (In millions, except share data) (Unaudited)
March 31,
2016 December 31, 2015 ASSETS Current assets Cash
and cash equivalents $ 181 $ 184
Patient accounts receivable, net of
allowance for doubtful accounts of $4,051 and $4,110 at March 31,
2016 and December 31, 2015, respectively
3,723 3,611 Supplies 587 580 Prepaid income taxes 2 27 Prepaid
expenses and taxes 218 197
Other current assets (including assets of
hospitals held for sale of $5 and $17 at March 31, 2016 and
December 31, 2015, respectively)
545 567 Total current assets
5,256 5,166 Property and equipment, gross
15,084 14,906 Less accumulated depreciation and amortization
(4,980 ) (4,794 ) Property and equipment, net 10,104
10,112 Goodwill 9,022
8,965
Other assets, net (including assets of
hospitals held for sale of $25 and $41 at March 31, 2016 and
December 31, 2015, respectively)
2,342 2,352 Total assets $ 26,724
$ 26,595
LIABILITIES AND EQUITY Current
liabilities Current maturities of long-term debt $ 249 $ 229
Accounts payable 1,179 1,258 Accrued interest 158 227
Accrued liabilities (including liabilities
of hospitals held for sale of $2 and $6 at March 31, 2016 and
December 31, 2015, respectively)
1,468 1,358 Total current liabilities
3,054 3,072 Long-term debt
16,665 16,556 Deferred income taxes 599
593 Other long-term liabilities 1,723
1,698 Total liabilities 22,041
21,919 Redeemable noncontrolling interests in equity
of consolidated subsidiaries 565 571
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; 114,731,736 shares issued and
113,756,187 shares outstanding at March 31, 2016, and 113,732,933
shares issued and 112,757,384 shares outstanding at December 31,
2015
1 1 Additional paid-in capital 1,952 1,963 Treasury stock, at cost,
975,549 shares at March 31, 2016 and December 31, 2015 (7 ) (7 )
Accumulated other comprehensive loss (89 ) (73 ) Retained earnings
2,146 2,135 Total Community Health
Systems, Inc. stockholders’ equity 4,003 4,019 Noncontrolling
interests in equity of consolidated subsidiaries 115
86 Total equity 4,118 4,105
Total liabilities and equity $ 26,724 $ 26,595
____
For footnotes, see pages 9, 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND
SUBSIDIARIES Condensed Consolidated Statements of Cash Flows
(b) (In millions) (Unaudited)
Three Months
Ended March 31, 2016 2015
Cash flows from operating activities Net income $ 36 $ 99
Adjustments to reconcile net income to net cash provided by (used
in) operating activities: Depreciation and amortization 298 296
Government settlement and related costs (j) - 8 Stock-based
compensation expense 14 14 Loss on sale, net - 1 Impairment of
hospitals sold or held for sale 1 2 Impairment of long-lived assets
17 - Loss from early extinguishment of debt - 8 Other non-cash
expenses, net 14 (7 ) Changes in operating assets and liabilities,
net of effects of acquisitions and divestitures: Patient accounts
receivable (109 ) (202 ) Supplies, prepaid expenses and other
current assets (14 ) 14 Accounts payable, accrued liabilities and
income taxes 64 (284 ) Other (27 ) (10 ) Net cash
provided by (used in) operating activities 294
(61 ) Cash flows from investing activities Acquisitions of
facilities and other related equipment (99 ) (13 ) Purchases of
property and equipment (224 ) (241 ) Proceeds from disposition of
hospitals and other ancillary operations 12 62 Proceeds from sale
of property and equipment 4 3 Purchases of available-for-sale
securities (37 ) (59 ) Proceeds from sales of available-for-sale
securities 40 56 Increase in other investments (67 )
(39 ) Net cash used in investing activities (371 )
(231 ) Cash flows from financing activities Proceeds from
exercise of stock options - 17 Repurchase of restricted stock
shares for payroll tax withholding requirements (7 ) (20 ) Deferred
financing costs and other debt-related costs - (20 ) Redemption of
noncontrolling investments in joint ventures (16 ) (7 )
Distributions to noncontrolling investors in joint ventures (18 )
(23 ) Borrowings under credit agreements 1,564 1,251 Proceeds from
receivables facility 31 75 Repayments of long-term indebtedness
(1,480 ) (1,268 ) Net cash provided by financing
activities 74 5 Net change in
cash and cash equivalents (3 ) (287 ) Cash and cash equivalents at
beginning of period 184 509 Cash and
cash equivalents at end of period $ 181 $ 222
____
For footnotes, see pages 9, 10 and 11.
Footnotes to Financial Highlights,
Financial Statements and Selected Operating Data
(a) Continuing operating results exclude discontinued
operations for the three months ended March 31, 2016 and 2015. Both
financial and statistical results exclude entities in discontinued
operations for all periods presented. (b) The contingent
value right (“CVR”) entitles the holder to receive a cash payment
up to $1.00 per CVR (subject to downward adjustment but not below
zero), subject to the final resolution of certain legal matters
pertaining to HMA, as defined in the CVR agreement. If the
aggregate amount of applicable losses under the CVR agreement
exceeds a deductible of $18 million, then the amount payable in
respect of each CVR shall be reduced (but not below zero) by an
amount equal to the quotient obtained by dividing: (a) the product
of (i) all losses in excess of the deductible and (ii) 90%; by (b)
the number of CVRs outstanding on the date on which final
resolution of the existing litigation occurs. Since the HMA
acquisition date of January 27, 2014, approximately $30 million in
costs have been incurred and approximately $29 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 $261
million at March 31, 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 March 31,
2016 Legal and other related costs incurred to date $ 30
Settlements 29 Estimated liability for probable contingencies -
Estimated liability for unresolved contingencies at fair value
261
Costs 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 months ended March 31,
2016, are three smaller hospitals that are being actively marketed
for sale. Included in discontinued operations for the three months
ended March 31, 2015, were several hospitals held for sale at
December 31, 2014, that 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, is approximately $1 million and $13 million for the
three months ended March 31, 2016 and 2015, respectively.
(d) The following table provides information needed to calculate
income per share, which is adjusted for income attributable to
noncontrolling interests (in millions):
Three Months Ended March 31, 2016 2015
Income from continuing operations
attributable to Community Health Systems, Inc. common
stockholders:
Income from continuing operations, net of taxes $ 37 $ 112
Less: Income from continuing operations
attributable to noncontrolling interests
25 20
Income from continuing operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ 12 $ 92
Loss from discontinued operations
attributable to Community Health Systems, Inc. common
stockholders:
Loss from discontinued operations, net of taxes $ (1 ) $ (13 )
Less: Loss from discontinued operations
attributable to noncontrolling interests
- -
Loss from discontinued operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ (1 ) $ (13 )
Footnotes to Financial Highlights,
Financial Statements and Selected Operating Data
(Continued)
(e) EBITDA is a non-GAAP financial measure which consists of
net income attributable to Community Health Systems, Inc. before
interest, income taxes, and depreciation and amortization. Adjusted
EBITDA, also a non-GAAP financial measure, is EBITDA adjusted to
exclude discontinued operations, loss from early extinguishment of
debt, impairment of long-lived assets, net income attributable to
noncontrolling interests, acquisition and integration expenses from
the acquisition of HMA, expenses incurred related to the spin-off
of QHC, expense related to government legal settlements and related
costs, and expense (income) from fair value adjustments related to
the HMA legal proceedings, accounted for at fair value, underlying
the CVR agreement, and related legal expenses. The Company has from
time to time sold noncontrolling interests in certain of its
subsidiaries or acquired subsidiaries with existing noncontrolling
interest ownership positions. The Company believes that it is
useful to present Adjusted EBITDA because it excludes the portion
of EBITDA attributable to these third-party interests and clarifies
for investors the Company’s portion of EBITDA generated by
continuing operations. The Company uses Adjusted EBITDA as a
measure of liquidity. The Company has also presented Adjusted
EBITDA in this release because it believes it provides investors
with additional information about the Company’s ability to incur
and service debt and make capital expenditures. Adjusted EBITDA
also aligns with a similar metric as defined in the Company’s
senior secured credit facility, which is a key component in the
determination of the Company’s compliance with some of the
covenants under the Company’s senior secured credit facility, and
is used to determine the interest rate and commitment fee payable
under the senior secured credit facility. Adjusted EBITDA is
not a measurement of financial performance or liquidity under U.S.
GAAP. It should not be considered in isolation or as a substitute
for net income, operating income, cash flows from operating,
investing or financing activities or any other measure calculated
in accordance with U.S. GAAP. The items excluded from Adjusted
EBITDA are significant components in understanding and evaluating
financial performance and liquidity. This calculation of Adjusted
EBITDA may not be comparable to similarly titled measures reported
by other companies. The following table reflects the
calculation of Adjusted EBITDA, as defined, from income from
continuing operations before income taxes and reconciles Adjusted
EBITDA to net cash provided by (used in) operating activities as
derived directly from the condensed consolidated financial
statements (in millions):
Three Months Ended March 31, 2016 2015
Income from continuing operations before income taxes $ 63 $ 168
Adjustments: Depreciation and amortization 298 296 Interest
expense, net 251 241 Loss from early extinguishment of debt - 8
Impairment of long-lived assets 17 - Expenses related to the
acquisition and integration of HMA - 1 Expense from government
settlement and related costs - 7
Expense (income) from fair value
adjustments and legal expenses related to cases covered by the
CVR
- (6 ) Expenses related to the spin-off of QHC 4
- Adjusted EBITDA $ 633 $ 715 Adjusted EBITDA $ 633 $
715 Interest expense, net (251 ) (241 ) Provision for income taxes
(26 ) (56 )
Loss from operations of entities sold or
held for sale, net of taxes
- (11 ) Other non-cash expenses, net 29 18
Changes in operating assets and
liabilities, net of effects of acquisitions and divestitures
(91 ) (486 ) Net cash provided by (used in) operating
activities $ 294 $ (61 ) (f) Included in
non-same-store income from operations and income from continuing
operations are pre-tax charges related to acquisition costs of $2
million and $3 million for the three months ended March 31, 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 March 31,
2016 2015
Weighted-average number of shares
outstanding - basic
110 114 Add effect of dilutive securities: Stock awards and options
- 1
Weighted-average number of shares
outstanding - diluted
110 115 (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 (total per share amounts may not add due to
rounding):
Three Months
Ended March 31, 2016 2015 (per share -
diluted) Income from continuing operations, as reported
$ 0.11 $ 0.79 Adjustments: Loss from early extinguishment of debt -
0.04 Impairment of long-lived assets 0.13 - Expense from government
settlement and related costs - 0.04
Expense (income) from fair value
adjustments and legal expenses related to cases covered by the
CVR
- (0.03 ) Expenses related to the spin-off of QHC 0.02
- Income from continuing operations, excluding
adjustments $ 0.27 $ 0.85
Three Months
Ended March 31, 2016 2015 (per share -
diluted) Net income, as reported $ 0.10 $ 0.68
Adjustments: Loss from early extinguishment of debt - 0.04
Impairment of long-lived assets 0.13 - Expense from government
settlement and related costs - 0.04
Expense (income) from fair value
adjustments and legal expenses related to cases covered by the
CVR
- (0.03 ) Expenses related to the spin-off of QHC 0.02
- Net income, excluding adjustments $ 0.25 $ 0.74
(i) Both income from operations and income
from continuing operations for the three months ended March 31,
2016, include an impairment charge of approximately $17 million
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 to permanently close the
hospital. (j) The $0.04 per share (diluted) of expense for
“Government settlement and related costs” for the three months
ended March 31, 2015, is the net impact of several qui tam lawsuits
settled in principle during the three months ended March 31, 2015,
and related legal expenses.
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 February 15, 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 14 and 15 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:
2016 Projection Range Net
operating revenues less provision for bad debts (in millions) $
17,800 to $ 18,300 Adjusted EBITDA (in millions) $ 2,600 to $ 2,700
Income from continuing operations per share - diluted $ 2.50 to $
2.80 Same-store hospital annual adjusted admissions growth 0.5 % to
2.5 % Weighted-average diluted shares, in millions 111 to 113
The following assumptions were used in developing the 2016
guidance provided above:
- The guidance excludes the financial
results of the following:
- Quorum Health Resources, LLC and the 38
hospitals associated with the spin-off of QHC from the spin-off
date of April 29, 2016 through December 31, 2016;
- Three small hospitals which remain held
for sale for which the operating results have been classified in
discontinued operations;
- Ten hospitals that are being actively
marketed for sale that we assume will be divested in the third
quarter of 2016;
- Our investment in a joint venture
representing four hospitals in Las Vegas, Nevada that will be
divested in the second quarter of 2016; and
- An investment in non-hospital
operations that is being actively marketed for sale that we assume
will be divested in the third quarter of 2016.
The Company may also consider additional hospitals for
disposition for which the operating results have not been excluded
from this guidance.
- The Company’s projections also exclude
the following:
- Payments related to the CVRs issued in
connection with the HMA acquisition, and changes in the valuation
of liabilities underlying the CVR;
- Losses from the early extinguishment of
debt;
- Impairment of long-lived assets;
- Resolution of government investigations
or other significant legal settlements;
- Costs incurred in connection with the
spin-off of QHC; and
- Other significant gains or losses that
neither relate to the ordinary course of business nor reflect the
Company’s underlying business performance.
- The 2016 projections include the
results from the date of acquisition of an 80% interest in two
hospitals in La Porte, Indiana and Knox, Indiana, which were
acquired effective March 1, 2016, and an 80% interest in one
hospital in Fayetteville, Arkansas, which was acquired effective
April 1, 2016.
Other assumptions used in the above guidance:
- Health Information Technology (HITECH)
electronic health records incentive reimbursement of approximately
$60 million to $70 million for the year ended December 31,
2016.
- Same-store hospital annual adjusted
admissions growth of 0.5% to 2.5% for 2016, which does not take
into account service closures and weather-related or other unusual
events.
- Expressed as a percentage of net
operating revenues, depreciation and amortization of approximately
6.1% to 6.2% for 2016. Additionally, this is a fixed cost and the
percentages may change as revenue varies. Such amounts exclude the
possible impact of any future hospital fixed asset impairments and
acceleration of amortization of software to be abandoned.
- Interest expense, expressed as a
percentage of net operating revenues, of approximately 5.3% to
5.4%; however, interest expense is a fixed cost and percentages may
vary as revenue varies. Interest expense has been adjusted to
reflect the repayment of debt with proceeds from the QHC spin-off
as well as the anticipated divestitures, based on the expected
timing of those divestitures. Total fixed rate debt, including
swaps, is expected to average approximately 65% to 75% of total
debt during 2016.
- Expressed as a percentage of net
operating revenues, equity in earnings of unconsolidated affiliates
of approximately 0.1% to 0.2% for 2016.
- Expressed as a percentage of net
operating revenues, net income attributable to noncontrolling
interests of approximately 0.5% to 0.6% for 2016.
- Expressed as a percentage of income
from continuing operations before income taxes, provision for
income tax of approximately 31.5% to 33.0% for 2016.
- Capital expenditures are projected as
follows (in millions):
2016 Guidance Total $725 to $875
- Net cash provided by operating
activities, excluding cash flows related to the CVR and settlement
of legal contingencies, is projected as follows (in millions):
2016 Guidance Total $1,350 to $1,500
- Weighted-average shares outstanding are
projected to be between approximately 111 million to 113 million
for the year ended 2016.
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995
that involve risk and uncertainties. All statements in this press
release other than statements of historical fact, including
statements regarding projections, expected operating results, and
other events that depend upon or refer to future events or
conditions or that include words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “estimates,” “thinks,” and similar
expressions, are forward-looking statements. Although the Company
believes that these forward-looking statements are based on
reasonable assumptions, these assumptions are inherently subject to
significant economic and competitive uncertainties and
contingencies, which are difficult or impossible to predict
accurately and may be beyond the control of the Company.
Accordingly, the Company cannot give any assurance that its
expectations will in fact occur and cautions that actual results
may differ materially from those in the forward-looking statements.
A number of factors could affect the future results of the Company
or the healthcare industry generally and could cause the Company’s
expected results to differ materially from those expressed in this
press release.
These factors include, among other things:
- general economic and business
conditions, both nationally and in the regions in which we
operate;
- implementation, effect of, and changes
to, adopted and potential federal and state healthcare reform
legislation and other federal, state or local laws or regulations
affecting the healthcare industry;
- the extent to which states support
increases, decreases or changes in Medicaid programs, implement
health insurance exchanges or alter the provision of healthcare to
state residents through regulation or otherwise;
- the success and long-term viability of
health insurance exchanges, which may be impacted by whether a
sufficient number of payors participate;
- risks associated with our substantial
indebtedness, leverage and debt service obligations, including our
ability to incur additional indebtedness;
- demographic changes;
- changes in, or the failure to comply
with, governmental regulations;
- potential adverse impact of known and
unknown government investigations, audits, and federal and state
false claims act litigation and other legal proceedings;
- our ability, where appropriate, to
enter into and maintain provider arrangements with payors and the
terms of these arrangements, which may be further impacted by the
increasing consolidation of health insurers and managed care
companies;
- changes in, or the failure to comply
with, contract terms with payors and changes in reimbursement rates
paid by federal or state healthcare programs or commercial
payors;
- any potential impairments in the
carrying value of goodwill, other intangible assets, or other
long-lived assets, or changes in the useful lives of other
intangible assets;
- changes in inpatient or outpatient
Medicare and Medicaid payment levels;
- the effects related to the continued
implementation of the sequestration spending reductions and the
potential for future deficit reduction legislation;
- increases in the amount and risk of
collectability of patient accounts receivable, including the impact
of the implementation of ICD-10 and decreases in collectability
which may result from, among other things, self-pay growth in
states that have not expanded Medicaid and difficulties in
recovering payments for which patients are responsible, including
co-pays and deductibles;
- the efforts of insurers, healthcare
providers and others to contain healthcare costs, including the
trend toward value-based purchasing;
- our ongoing ability to demonstrate
meaningful use of certified electronic health record technology and
recognize income for the related Medicare or Medicaid incentive
payments;
- increases in wages as a result of
inflation or competition for highly technical positions and rising
supply and drug costs due to market pressure from pharmaceutical
companies and new product releases;
- liabilities and other claims asserted
against us, including self-insured malpractice claims;
- competition;
- our ability to attract and retain, at
reasonable employment costs, qualified personnel, key management,
physicians, nurses and other healthcare workers;
- trends toward treatment of patients in
less acute or specialty healthcare settings, including ambulatory
surgery centers or specialty hospitals;
- changes in medical or other
technology;
- changes in U.S. generally accepted
accounting principles;
- the availability and terms of capital
to fund additional acquisitions or replacement facilities or other
capital expenditures;
- our ability to successfully make
acquisitions or complete divestitures, including the intended
disposition of an additional ten hospitals and certain investments
as referenced herein, our ability to complete any such acquisitions
or divestitures on desired terms or at all, the timing of the
completion of any such acquisitions or divestitures, and our
ability to realize the intended benefits from any such acquisitions
or divestitures;
- our ability to successfully integrate
any acquired hospitals, including those of HMA, or to recognize
expected synergies from acquisitions;
- the impact of the acquisition of HMA on
third-party relationships;
- the impact of seasonal severe weather
conditions;
- our ability to obtain adequate levels
of general and professional liability insurance;
- timeliness of reimbursement payments
received under government programs;
- effects related to outbreaks of
infectious diseases;
- the impact of the external, criminal
cyber-attack suffered by us in the second quarter of 2014,
including potential reputational damage, the outcome of our
investigation and any potential governmental inquiries, the outcome
of litigation filed against us in connection with this
cyber-attack, the extent of remediation costs and additional
operating or other expenses that we may continue to incur, and the
impact of potential future cyber-attacks or security breaches;
- the effects of the spin-off of QHC that
was completed on April 29, 2016 on our business, including our
ability to achieve the anticipated benefits of the spin-off;
- changes to our intended use of the cash
proceeds of the spin-off of QHC; and
- the other risk factors set forth in our
other public filings with the Securities and Exchange
Commission.
The consolidated operating results for the three months ended
March 31, 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/20160502006206/en/
Community Health Systems, Inc.W. Larry Cash,
615-465-7000President of Financial Servicesand Chief Financial
Officer
Community Health Systems (NYSE:CYH)
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