Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today
announced financial and operating results for the three months
ended March 31, 2015.
The operating results of Health Management Associates, Inc.
(“HMA”) are included in the Company’s consolidated results and
statistical data from January 27, 2014, the date the Company
completed its acquisition of HMA. For hospitals acquired in the HMA
merger, same-store operating results and statistical data reflect
the periods from January 1 through March 31, 2015 and 2014, as if
such hospitals were owned during both comparable periods. The
Company has restated its prior period financial statements and
statistical results to reflect the reclassification as discontinued
operations for two hospitals that were held for sale at December
31, 2014, of which one of the two hospitals was subsequently sold
during the three months ended March 31, 2015.
Net operating revenues for the three months ended March 31,
2015, totaled $4.911 billion, a 17.6 percent increase compared with
$4.176 billion for the same period in 2014. Income from continuing
operations attributable to Community Health Systems, Inc. common
stockholders increased to $92 million, or $0.79 per share
(diluted), for the three months ended March 31, 2015, compared with
loss from continuing operations attributable to Community Health
Systems, Inc. common stockholders of $(90) million, or $(0.84) per
share (diluted), for the same period in 2014. The results for the
three months ended March 31, 2015, include $0.04 per share
(diluted) of expenses related to government legal settlements for
several qui tam matters settled in principle and related costs
(other than HMA legal proceedings underlying the contingent value
rights (“CVR”) agreement) and $0.04 per share (diluted) related to
loss from early extinguishment of debt; with these expenses
partially offset by $0.03 per share (diluted) of income from fair
value adjustments, net of legal expenses, related to HMA legal
proceedings underlying the CVR agreement. Excluding these items,
income from continuing operations was $0.85 per share (diluted).
Net income attributable to Community Health Systems, Inc. common
stockholders was $0.68 per share (diluted) for the three months
ended March 31, 2015, compared with a net loss of $(1.05) per share
(diluted) for the same period in 2014. Discontinued operations for
the three months ended March 31, 2015, consisted of $(0.09) per
share (diluted) of losses from operations of entities sold or held
for sale, $(0.01) per share (diluted) of expenses related to the
impairment of long-lived assets held for sale, and $(0.01) per
share (diluted) of losses on sale, net, for a total after-tax loss
of approximately $(13) million, or $(0.11) per share (diluted).
Weighted-average shares outstanding (diluted) were 115 million for
the three months ended March 31, 2015, and 107 million for the
three months ended March 31, 2014.
Adjusted EBITDA for the three months ended March 31, 2015, was
$715 million compared with $543 million for the same period in
2014, representing a 31.7 percent increase.
The consolidated operating results for the three months ended
March 31, 2015, reflect a 15.7 percent increase in total
admissions, and a 17.0 percent increase in total adjusted
admissions compared with the same period in 2014. On a same-store
basis, admissions increased 0.4 percent while adjusted admissions
increased 2.5 percent during the three months ended March 31, 2015,
compared with the same period in 2014. On a same-store basis, net
operating revenues increased 5.2 percent during the three months
ended March 31, 2015, compared with the same period in 2014.
Adjusted EBITDA is EBITDA adjusted to exclude discontinued
operations, loss from early extinguishment of debt, impairment of
long-lived assets, net income attributable to noncontrolling
interests, acquisition and integration expenses from the
acquisition of HMA, expenses related to government legal
settlements and related costs (other than HMA legal proceedings
underlying the CVR agreement), and income from fair value
adjustments, net of legal expenses, related to the HMA legal
proceedings underlying the CVR agreement. For information regarding
why the Company believes Adjusted EBITDA presents useful
information to investors, and for a reconciliation of Adjusted
EBITDA to net cash provided by operating activities, see footnote
(f) to the Financial Highlights, Financial Statements and Selected
Operating Data below.
Commenting on the results, Wayne T. Smith, chairman and chief
executive officer of Community Health Systems, Inc., said, “We are
pleased with our financial and operating performance for the first
quarter of 2015. We are especially encouraged by improved volume in
the quarter, demonstrating the results of our strategic growth
initiatives and the incremental benefits of the Affordable Care
Act. We remain optimistic that these positive trends will continue
as a result of growth in exchange enrollment.
Smith added, “Our results for the first quarter also reflect
operating synergies gained from the HMA acquisition, and we see
more opportunities to gain efficiencies through our ongoing,
focused efforts on effective integration. We believe we have a
sound strategy for success in today’s dynamic healthcare
environment as we continue to apply our centralized operating
model, recruit qualified physicians, manage costs, build integrated
networks, and, above all, focus on the safety and quality of care
in our hospitals.”
Included on pages 12, 13, 14 and 15 of this press release is the
Company’s 2015 reaffirmed annual earnings guidance. The 2015
guidance is based on the Company’s historical operating
performance, current trends and other assumptions that the Company
believes are reasonable at this time.
Community Health Systems, Inc. is one of the largest
publicly-traded hospital companies in the United States and a
leading operator of general acute care hospitals in communities
across the country. Through its subsidiaries, the Company currently
owns, leases or operates 199 affiliated hospitals in 29 states with
an aggregate of approximately 30,000 licensed beds. The Company’s
headquarters are located in Franklin, Tennessee, a suburb south of
Nashville. Shares in Community Health Systems, Inc. are traded on
the New York Stock Exchange under the symbol “CYH.” More
information about the Company can be found on its website at
www.chs.net.
Community Health Systems, Inc. will hold a conference call on
Wednesday, May 6, 2015, at 10:00 a.m. Central, 11:00 a.m. Eastern,
to review financial and operating results for the three months
ended March 31, 2015. Investors will have the opportunity to listen
to a live internet broadcast of the conference call by clicking on
the Investor Relations link of the Company’s website at
www.chs.net. To listen to the live call, please go to the website
at least fifteen minutes early to register, download and install
any necessary audio software. For those who cannot listen
to the live broadcast, a replay will be available shortly
after the call and will continue to be available through June
7, 2015. Copies of the Company’s Current Report on Form 8-K
(including this press release) and conference call slide show will
be available on the Company’s website at www.chs.net.
COMMUNITY HEALTH SYSTEMS, INC. AND
SUBSIDIARIES Financial Highlights (a)(b)(c)(d)(e) (In
millions, except per share amounts) (Unaudited)
Three Months Ended March 31, 2015 2014
Net operating revenues $ 4,911 $ 4,176 Adjusted EBITDA (f)
715 543 Income (loss) from continuing operations (g), (h), (k) 112
(76 ) Net income (loss) attributable to Community Health Systems,
Inc. stockholders 79 (112 )
Basic earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (g), (h), (k) $ 0.80 $ (0.84 ) Discontinued
operations (0.11 ) (0.21 ) Net income (loss) $ 0.69
$ (1.05 )
Diluted earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (g), (h), (k), (l) $ 0.79 $ (0.84 )
Discontinued operations (0.11 ) (0.21 ) Net income
(loss) (l) $ 0.68 $ (1.05 ) Weighted-average number
of shares outstanding (i): Basic 114 107 Diluted 115 107 Net
cash (used in) provided by operating activities $ (61 ) $ 65
____For footnotes, see pages 9, 10 and
11.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES Condensed
Consolidated Statements of Income (Loss) (a)(b)(c)(d)(e) (In
millions, except per share amounts) (Unaudited)
Three
Months Ended March 31, 2015 2014 Amount
% of
NetOperatingRevenues
Amount
% of
NetOperatingRevenues
Operating revenues (net of contractual allowances and discounts) $
5,646 $ 4,875 Provision for bad debts 735
699 Net operating revenues
4,911 100.0 % 4,176 100.0
% Operating costs and expenses: Salaries and benefits 2,257
46.0 % 1,992 47.7 % Supplies 762 15.5 % 632 15.1 % Other operating
expenses 1,099 22.4 % 1,019 24.4 % Government settlement and
related costs (m) 8 0.1 % - - % Electronic health records incentive
reimbursement (g) (26 ) (0.5 ) % (40 ) (1.0 ) % Rent 116 2.4 % 98
2.4 % Depreciation and amortization 296 6.0 % 255 6.1 %
Amortization of software to be abandoned (k) - -
% 42 1.0 % Total operating costs and
expenses 4,512 91.9 % 3,998 95.7
% Income from operations (g), (h), (k) 399 8.1 % 178
4.3 % Interest expense, net 241 4.9 % 224 5.4 % Loss from early
extinguishment of debt 8 0.2 % 73 1.7 % Equity in earnings of
unconsolidated affiliates (18 ) (0.4 ) % (11 ) (0.3 ) % Impairment
of long-lived assets (k) - - % 24
0.6 %
Income (loss) from continuing operations
before income taxes
168 3.4 % (132 ) (3.1 ) % Provision (benefit) for income taxes
56 1.1 % (56 ) (1.3 ) % Income (loss)
from continuing operations (g), (h), (k) 112 2.3
% (76 ) (1.8 ) % Discontinued operations, net
of taxes: Loss from operations of entities sold or held for sale
(11 ) (0.3 ) % (4 ) (0.1 ) % Impairment of hospitals sold or held
for sale (1 ) (0.0 ) % (18 ) (0.4 ) % Loss on sale, net (1 )
(0.0 ) % - - % Loss from discontinued
operations, net of taxes (13 ) (0.3 ) % (22 ) (0.5 )
% Net income (loss) 99 2.0 % (98 ) (2.3 ) % Less: Net income
attributable to noncontrolling interests 20 0.4
% 14 0.4 % Net income (loss)
attributable to Community Health Systems, Inc. stockholders $ 79
1.6 % $ (112 ) (2.7 ) %
Basic earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (g), (h), (k) $ 0.80 $ (0.84 ) Discontinued
operations (0.11 ) (0.21 ) Net income (loss) $ 0.69
$ (1.05 )
Diluted earnings (loss) per share
attributable to Community Health Systems, Inc. common
stockholders:
Continuing operations (g), (h), (k), (l) $ 0.79 $ (0.84 )
Discontinued operations (0.11 ) (0.21 ) Net income
(loss) (l) $ 0.68 $ (1.05 )
Weighted-average number of shares
outstanding (i):
Basic 114 107 Diluted 115
107
____For footnotes, see pages 9, 10 and
11.
COMMUNITY HEALTH SYSTEMS,
INC. AND SUBSIDIARIES Condensed Consolidated Statements of
Comprehensive Income (Loss) (c) (In millions) (Unaudited)
Three Months Ended March 31, 2015
2014 Net income (loss) $ 99 $ (98 )
Other comprehensive (loss) income, net of income taxes: Net change
in fair value of interest rate swaps, net of tax (9 ) 9 Net change
in fair value of available-for-sale securities, net of tax 1 -
Amortization and recognition of
unrecognized pension cost components, net of tax
1 - Other comprehensive (loss) income
(7 ) 9 Comprehensive income (loss) 92 (89 )
Less: Comprehensive income attributable to noncontrolling interests
20 14
Comprehensive income (loss) attributable
to Community Health Systems, Inc. stockholders
$ 72 $ (103 )
____For footnotes, see pages 9, 10 and
11.
COMMUNITY HEALTH SYSTEMS, INC. AND
SUBSIDIARIES Selected Operating Data (a)(d)(j) (Dollars
in millions) (Unaudited)
Three Months Ended March 31,
Consolidated Same-Store (1) 2015 2014
% Change 2015 2014 % Change Number of
hospitals (at end of period) 197 195 193 193 Licensed beds (at end
of period) 30,256 29,423 29,267 29,336 Beds in service (at end of
period) 26,498 25,771 25,718 25,710 Admissions 246,015 212,696 15.7
% 236,883 235,922 0.4 % Adjusted admissions 509,719 435,613 17.0 %
492,194 480,133 2.5 % Patient days 1,127,077 968,852 1,081,155
1,076,938 Average length of stay (days) 4.6 4.6 4.6 4.6 Occupancy
rate (average beds in service) 47.1 % 47.9 % 46.5 % 46.5 % Net
operating revenues $ 4,911 $ 4,176 17.6 % $ 4,781 $ 4,544 5.2 %
Net inpatient revenues as a % of net
patient revenues before provision for bad debts
44.2 % 45.3 % 44.1 % 45.9 %
Net outpatient revenues as a % of net
patient revenues before provision for bad debts
55.8 % 54.7 % 55.9 % 54.1 % Income from operations (g), (h), (k) $
399 $ 178 124.2 %
Income from operations as a % of net
operating revenues
8.1 % 4.3 % Depreciation and amortization $ 296 $ 297 Equity in
earnings of unconsolidated affiliates $ (18 ) $ (11 ) Liquidity
Data: Adjusted EBITDA (f) $ 715 $ 543 31.7 %
Adjusted EBITDA as a % of net operating
revenues
14.6 % 13.0 % Net cash (used in) provided by operating activities $
(61 ) $ 65
Net cash (used in) provided by operating
activities a % of net operating revenues
(1.2 %) 1.6 %
(1)
For hospitals acquired in the HMA merger,
same-store operating results and statistical data reflect the
periods from January 1 through March 31, 2015 and 2014, as if such
hospitals were owned during both comparable periods.
____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, 2015
December 31, 2014 ASSETS Current assets Cash and cash
equivalents $ 222 $ 509
Patient accounts receivable, net of
allowance for doubtful accounts of $3,628 and $3,504 at March 31,
2015 and December 31, 2014, respectively
3,606 3,409 Supplies 561 557 Prepaid income taxes - 30 Deferred
income taxes 341 341 Prepaid expenses and taxes 189 192
Other current assets (including assets of
hospitals held for sale of $7 and $38 at March 31, 2015 and
December 31, 2014, respectively)
507 528 Total current assets
5,426 5,566 Property and equipment, gross
14,400 14,264 Less accumulated depreciation and amortization
(4,309 ) (4,095 ) Property and equipment, net 10,091
10,169 Goodwill 8,954
8,951
Other assets, net (including assets of
hospitals held for sale of $36 and $90 at March 31, 2015 and
December 31, 2014, respectively)
2,648 2,735 Total assets $ 27,119
$ 27,421
LIABILITIES AND EQUITY Current
liabilities Current maturities of long-term debt $ 229 $ 235
Accounts payable 1,192 1,293 Income tax payable 13 - Deferred
income taxes 23 23 Accrued interest 157 227
Accrued liabilities (including liabilities
of hospitals held for sale of $2 and $10 at March 31, 2015 and
December 31, 2014, respectively)
1,547 1,811 Total current liabilities
3,161 3,589 Long-term debt
16,740 16,681 Deferred income taxes 844
845 Other long-term liabilities 1,694
1,692 Total liabilities 22,439
22,807 Redeemable noncontrolling interests in equity
of consolidated subsidiaries 520 531
EQUITY Community Health Systems, Inc. stockholders’ equity:
Preferred stock, $.01 par value per share, 100,000,000 shares
authorized; none issued - -
Common stock, $.01 par value per share,
300,000,000 shares authorized; 119,000,326 shares issued and
118,024,777 shares outstanding at March 31, 2015, and 117,701,087
shares issued and 116,725,538 shares outstanding at December 31,
2014
1 1 Additional paid-in capital 2,101 2,095 Treasury stock, at cost,
975,549 shares at March 31, 2015 and December 31, 2014 (7 ) (7 )
Accumulated other comprehensive loss (70 ) (63 ) Retained earnings
2,056 1,977 Total Community Health
Systems, Inc. stockholders’ equity 4,081 4,003 Noncontrolling
interests in equity of consolidated subsidiaries 79
80 Total equity 4,160 4,083
Total liabilities and equity $ 27,119 $ 27,421
____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, 2015 2014
Cash flows from operating activities Net income (loss) $ 99
$ (98 ) Adjustments to reconcile net income (loss) to net cash
provided by operating activities: Depreciation and amortization 296
302 Government settlement and related costs (m) 8 - Stock-based
compensation expense 14 11 Loss on sale, net 1 - Impairment of
long-lived assets and hospitals sold or held for sale 2 42 Loss
from early extinguishment of debt 8 73 Excess tax benefit relating
to stock-based compensation - (3 ) Other non-cash expenses, net (7
) 6 Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures: Patient accounts receivable (202 )
(171 ) Supplies, prepaid expenses and other current assets 14 14
Accounts payable, accrued liabilities and income taxes (284 ) (83 )
Other (10 ) (28 ) Net cash (used in) provided by
operating activities (61 ) 65 Cash
flows from investing activities Acquisitions of facilities and
other related equipment (13 ) (2,774 ) Purchases of property and
equipment (241 ) (181 ) Proceeds from disposition of hospitals and
other ancillary operations 62 - Proceeds from sale of property and
equipment 3 - Purchases of available-for-sale securities (59 ) (78
) Proceeds from sales of available-for-sale securities 56 76
Increase in other investments (39 ) (99 ) Net cash
used in investing activities (231 ) (3,056 )
Cash flows from financing activities Proceeds from exercise of
stock options 17 6 Repurchase of restricted stock shares for
payroll tax withholding requirements (20 ) (11 ) Deferred financing
costs and other debt-related costs (20 ) (269 ) Excess tax benefit
relating to stock-based compensation - 3 Redemption of
noncontrolling investments in joint ventures (7 ) (5 )
Distributions to noncontrolling investors in joint ventures (23 )
(19 ) Borrowings under credit agreements 1,251 7,079 Issuance of
long-term debt - 4,000 Proceeds from receivables facility 75 133
Repayments of long-term indebtedness (1,268 ) (7,686
) Net cash provided by financing activities 5
3,231 Net change in cash and cash equivalents (287 )
240 Cash and cash equivalents at beginning of period 509
373 Cash and cash equivalents at end of period
$ 222 $ 613
____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, 2015 and 2014. Both
financial and statistical results exclude entities in discontinued
operations for all periods presented. (b) The contingent
value right (“CVR”) entitles the holder to receive a cash payment
up to $1.00 per CVR (subject to downward adjustment but not below
zero), subject to the final resolution of certain legal matters
pertaining to HMA, as defined in the CVR agreement. If the
aggregate amount of applicable losses under the CVR agreement
exceeds a deductible of $18 million, then the amount payable in
respect of each CVR shall be reduced (but not below zero) by an
amount equal to the quotient obtained by dividing: (a) the product
of (i) all losses in excess of the deductible and (ii) 90%; by (b)
the number of CVRs outstanding on the date on which final
resolution of the existing litigation occurs. Since the HMA
acquisition date of January 27, 2014, approximately $24 million in
costs have been incurred and approximately $3 million of
settlements have been incurred related to certain HMA legal
matters, which collectively exceed the deductible of $18 million
under the CVR agreement. An estimated liability of $24 million has
been recorded for certain claims which HMA had previously
recognized as probable. In addition, CHS previously recorded an
estimated fair value of the remaining underlying claims that will
be covered by the CVR of $284 million as part of the acquisition
accounting for HMA, which has been adjusted to its estimated fair
value of $256 million at March 31, 2015. In addition, although
future legal fees (which are expensed as incurred) associated with
the HMA legal matters have not been accrued or included in the
table below, such legal fees are taken into account in determining
the total amount of reductions applied to the amounts owed to CVR
holders. The following table presents the impact of the
recorded amounts as described above as applied to the CVR and the
$18 million deductible and 10% co-insurance amounts (in millions):
As of March 31, 2015 Legal and other
related costs incurred to date $ 24 Settlements 3 Estimated
liability for probable contingencies 24 Estimated liability for
unresolved contingencies at fair value 256
Costs incurred plus certain estimated
liabilities for CVR-related matters
307 Less: CHS deductible of $18 million (18 ) CHS co-insurance at
10% (29 )
Impact of recorded amounts under CVR
agreement after giving effect to deductible and co-insurance
$ 260 CVRs outstanding 265 (c)
The effective date of the HMA acquisition was January 27, 2014.
(d) Included in discontinued operations for the three months
ended March 31, 2015, is one hospital that was required by the
Federal Trade Commission to be divested as part of its approval of
the HMA acquisition, and this hospital was sold on March 1, 2015.
Management is actively marketing several smaller hospitals included
as held for sale at March 31, 2015. In addition, the Company sold
several smaller hospitals during the three months ended March 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 $13 million for the three months
ended March 31, 2015. (e) The following table provides
information needed to calculate income per share, which is adjusted
for income attributable to noncontrolling interests (in millions):
Three Months Ended
March 31, 2015 2014
Income (loss) from continuing operations
attributable to Community Health Systems, Inc. common
stockholders:
Income (loss) from continuing operations, net of taxes $ 112 $ (76
)
Less: Income from continuing operations
attributable to noncontrolling interests
20 14
Income (loss) from continuing operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ 92 $ (90 )
Loss from discontinued operations
attributable to Community Health Systems, Inc. common
stockholders:
Loss from discontinued operations, net of taxes $ (13 ) $ (22 )
Less: Loss from discontinued operations
attributable to noncontrolling interests
- -
Loss from discontinued operations
attributable to Community Health Systems, Inc. common stockholders
— basic and diluted
$ (13 ) $ (22 )
Footnotes to Financial Highlights,
Financial Statements and Selected Operating Data
(Continued)
(f) EBITDA is a non-GAAP financial measure which consists of
net income attributable to Community Health Systems, Inc. before
interest, income taxes, and depreciation and amortization. Adjusted
EBITDA is EBITDA adjusted to exclude discontinued operations, loss
from early extinguishment of debt, impairment of long-lived assets,
net income attributable to noncontrolling interests, acquisition
and integration expenses from the acquisition of HMA, expenses
related to government legal settlements and related costs (other
than HMA legal proceedings underlying the CVR agreement), and
income from fair value adjustments, net of legal expenses, related
to the HMA legal proceedings underlying the CVR agreement. The
Company has from time to time sold noncontrolling interests in
certain of its subsidiaries or acquired subsidiaries with existing
noncontrolling interest ownership positions. The Company believes
that it is useful to present Adjusted EBITDA because it excludes
the portion of EBITDA attributable to these third-party interests
and clarifies for investors the Company’s portion of EBITDA
generated by continuing operations. The Company uses Adjusted
EBITDA as a measure of liquidity. The Company has also presented
Adjusted EBITDA in this release because it believes it provides
investors with additional information about the Company’s ability
to incur and service debt and make capital expenditures. Adjusted
EBITDA also aligns with a similar metric as defined in the
Company’s senior secured credit facility, which is a key component
in the determination of the Company’s compliance with some of the
covenants under the Company’s senior secured credit facility, and
is used to determine the interest rate and commitment fee payable
under the senior secured credit facility. Adjusted EBITDA is
not a measurement of financial performance or liquidity under U.S.
GAAP. It should not be considered in isolation or as a substitute
for net income, operating income, cash flows from operating,
investing or financing activities or any other measure calculated
in accordance with U.S. GAAP. The items excluded from Adjusted
EBITDA are significant components in understanding and evaluating
financial performance and liquidity. This calculation of Adjusted
EBITDA may not be comparable to similarly titled measures reported
by other companies. The following table reconciles Adjusted
EBITDA, as defined, to net cash provided by operating activities as
derived directly from the condensed consolidated financial
statements (in millions):
Three
Months Ended March 31, 2015 2014 Adjusted
EBITDA $ 715 $ 543 Interest expense, net (241 ) (224 ) Provision
for income taxes (56 ) 56 Loss from operations of entities sold or
held for sale, net of taxes (11 ) (4 ) Other non-cash expenses, net
18 18
Changes in operating assets and
liabilities, net of effects of acquisitions and divestitures
(486 ) (324 ) Net cash (used in) provided by
operating activities $ (61 ) $ 65 (g) Included
in income from operations and income from continuing operations for
the three months ended March 31, 2015, is the electronic health
records incentive reimbursement, which represents reimbursement
from Medicare and Medicaid related to certain of the Company’s
hospitals and for certain employed physicians. Total operating
costs and expenses related to the implementation of electronic
health records were approximately $5 million and $16 million for
the three months ended March 31, 2015 and 2014, respectively.
(h) Included in non-same-store income from operations and
income from continuing operations are pre-tax charges related to
acquisition costs of $3 million and $39 million for the three
months ended March 31, 2015 and 2014, respectively. These
acquisition costs include expenses related to the acquisition of
HMA of less than $1 million and $37 million for the three months
ended March 31, 2015 and 2014, respectively. (i) The
following table sets forth components reconciling the basic
weighted-average number of shares to the diluted weighted-average
number of shares (in millions):
Three Months Ended March 31, 2015 2014
Weighted-average number of shares
outstanding - basic
114 107 Add effect of dilutive securities: Stock awards and options
1 -
Weighted-average number of shares
outstanding - diluted
115 107 (j) For hospitals acquired in the HMA merger,
same-store operating results and statistical data reflect the
periods from January 1 through March 31, 2015 and 2014, as if such
hospitals were owned during both comparable periods.
Footnotes to Financial Highlights,
Financial Statements and Selected Operating Data
(Continued)
(k) Included in income from continuing operations for the
quarter ended March 31, 2014, is an impairment charge of
approximately $24 million for internal-use software, and an
acceleration of amortization for the quarter ended March 31, 2014,
of approximately $42 million, to adjust for its shortened remaining
life which ended on July 1, 2014. In connection with the HMA
acquisition, the Company further analyzed its intangible assets
related to internal-use software used in certain of its hospitals
for patient and clinical systems, including software required to
meet criteria for meaningful use attestation and ICD-10 compliance.
This analysis resulted in management reassessing its usage of
certain software products and rationalizing that, with the addition
of the HMA hospitals in the first quarter of 2014, those software
applications were going to be discontinued and replaced with new
applications that better integrate meaningful use and ICD-10
compliance, are more cost effective and can be implemented at a
greater efficiency of scale over future implementations. (l)
The following supplemental tables reconcile income from continuing
operations and net income attributable to Community Health Systems,
Inc. common stockholders, as reported, on a per share (diluted)
basis, with the adjustments described herein (total per share
amounts may not add due to rounding):
Three Months Ended March 31, 2015
2014 (per share - diluted) Income (loss) from
continuing operations, as reported $ 0.79 $ (0.84 ) Adjustments:
Loss from early extinguishment of debt 0.04 0.42 Amortization of
software to be abandoned - 0.24 Impairment of long-lived assets -
0.14 Expenses related to the acquisition and integration of HMA -
0.30
Government settlement and related
costs
0.04 -
(Income) expense from fair value
adjustments, net of legal expenses, related to cases covered by the
CVR
(0.03 ) 0.02 Income from continuing
operations, excluding adjustments $ 0.85 $ 0.29
Three Months Ended March 31,
2015 2014 (per share - diluted) Net
income (loss), as reported $ 0.68 $ (1.05 ) Adjustments: Loss from
early extinguishment of debt 0.04 0.42 Amortization of software to
be abandoned - 0.24 Impairment of long-lived assets - 0.14 Expenses
related to the acquisition and integration of HMA - 0.30 Government
settlement and related costs 0.04 -
(Income) expense from fair value
adjustments, net of legal expenses, related to cases covered by the
CVR
(0.03 ) 0.02 Net income, excluding adjustments
$ 0.74 $ 0.08 (m) The $0.04 per share
(diluted) of “Government settlement and related costs” for the
three months ended March 31, 2015 is related to several qui tam
lawsuits settled in principle during the three months ended March
31, 2015.
Regulation FD Disclosure
Set forth below is selected information concerning the Company’s
projected consolidated operating results for the year ending
December 31, 2015. These projections reaffirm selected
guidance provided on February 19, 2015, and are based on the
Company’s historical operating performance, current trends and
other assumptions that the Company believes are reasonable at this
time. The 2015 guidance should be considered in conjunction with
the assumptions included herein. See pages 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 reaffirmed guidance to analysts and
investors:
2015 Projection
Range Net operating revenues less provision for bad debts (in
millions) $ 19,600 to $ 20,600 Adjusted EBITDA (in millions) $
3,000 to $ 3,200 Income from continuing operations per share -
diluted $ 3.40 to $ 4.05 Same-store hospital annual adjusted
admissions growth 0.0 % to 2.0 % Weighted-average diluted shares,
in millions, for the full year 115 to 116
The following assumptions were used in developing the 2015
guidance provided above:
- The Company’s projections exclude the
following:
- Payments related to the CVRs issued in
connection with the HMA acquisition, and changes in the valuation
of liabilities underlying the CVR;
- Losses on the early extinguishment of
debt;
- Impairment of long-lived assets;
- Resolution of government investigations
or other significant legal settlements; and
- Other significant gains or losses that
neither relate to the ordinary course of business nor reflect the
Company’s underlying business performance.
- The Company has classified several
small hospitals as held for sale, and the operating results of
these hospitals have been moved to discontinued operations, and
have also been excluded from these projections.
- The 2015 projections include the
acquisition of MetroHealth Hospital in Grand Rapids, Michigan,
which is currently targeted to close during the middle of 2015, and
assume the completion of one additional targeted hospital
acquisition during 2015.
Other assumptions used in the above guidance:
- Benefits to Adjusted EBITDA from
Healthcare Reform in 2015 of an additional $100 million to $175
million of net operating revenues before government
deductions.
- Achievement of additional acquisition
synergies related to the HMA acquisition of approximately $125
million to $150 million during 2015.
- Health Information Technology (HITECH)
electronic health records incentive reimbursement of approximately
0.7% to 0.8% of net operating revenues for the year ended December
31, 2015, with operating expenses related to achieving meaningful
use of 0.25% to 0.35% of net operating revenues.
- Continuation and approval of the
California hospital provider fee program for 2015.
- For comparison purposes, 2014 earnings
per share of $3.29, included a benefit from the reversal of a tax
liability of approximately $0.08 per share (diluted) and the
benefit of reduced amortization from the abandonment of software of
$0.09 per share (diluted) which the Company does not anticipate
recurring in 2015.
- Settlement of certain claims related to
the BP oil spill, for which the Company now expects to recognize up
to approximately $28 million in the second half of 2015.
- Same-store hospital annual adjusted
admissions growth, of 0.0% to 2.0% for 2015, which does not take
into account service closures and weather-related or other unusual
events.
- Expressed as a percentage of net
operating revenues, depreciation and amortization of approximately
6.0% to 6.2% for 2015. Additionally, this is a fixed cost and the
percentages may change as revenue varies. Such amounts exclude the
possible impact of any future hospital fixed asset impairments and
acceleration of amortization of software to be abandoned.
- Interest expense, expressed as a
percentage of net operating revenues, of approximately 5.1% to
5.2%; however, interest expense is a fixed cost and percentages may
vary as revenue varies. Total fixed rate debt, including swaps, is
expected to average approximately 60% to 70% of total debt during
2015.
- Expressed as a percentage of net
operating revenues, equity in earnings of unconsolidated affiliates
of approximately 0.2% to 0.3% for 2015.
- Expressed as a percentage of net
operating revenues, net income attributable to noncontrolling
interests of approximately 0.6% to 0.7% for 2015.
- Expressed as a percentage of income
from continuing operations before income taxes, provision for
income tax of approximately 31.5% to 33.0% for 2015.
- Capital expenditures are projected as
follows (in millions):
2015 Guidance Total $1,050 to
$1,250
- Net cash provided by operating
activities, excluding cash flows related to the CVR and settlement
of legal contingencies, is projected as follows (in millions):
2015 Guidance Total $1,650 to $1,850
Cash provided by operating
activities in 2015 will be negatively impacted by approximately
$300 million, primarily from a reduction in tax refunds, and the
timing of payroll payments, compared to the adjusted cash flows
from operations of $1.822 billion in 2014.
- Weighted average shares outstanding are
projected to be approximately 115 million to 116 million for the
year ended 2015 and have been adjusted to include the estimated
dilutive impact from “in-the-money” stock options and restricted
shares.
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995
that involve risk and uncertainties. All statements in this press
release other than statements of historical fact, including
statements regarding projections, expected operating results, and
other events that depend upon or refer to future events or
conditions or that include words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “estimates,” “thinks,” and similar
expressions, are forward-looking statements. Although the Company
believes that these forward-looking statements are based on
reasonable assumptions, these assumptions are inherently subject to
significant economic and competitive uncertainties and
contingencies, which are difficult or impossible to predict
accurately and may be beyond the control of the Company.
Accordingly, the Company cannot give any assurance that its
expectations will in fact occur and cautions that actual results
may differ materially from those in the forward-looking statements.
A number of factors could affect the future results of the Company
or the healthcare industry generally and could cause the Company’s
expected results to differ materially from those expressed in this
press release.
These factors include, among other things:
- general economic and business
conditions, both nationally and in the regions in which we
operate;
- implementation, effect of, and changes
to adopted and potential federal and state healthcare reform
legislation and other federal, state or local laws or regulations
affecting the healthcare industry;
- the extent to which states support
increases, decreases or changes in Medicaid programs, implement
healthcare exchanges or alter the provision of healthcare to state
residents through regulation or otherwise;
- risks associated with our substantial
indebtedness, leverage, and debt service obligations;
- demographic changes;
- changes in, or the failure to comply
with, governmental regulations;
- potential adverse impact of known and
unknown government investigations, audits, and Federal and State
False Claims Act litigation and other legal proceedings;
- our ability, where appropriate, to
enter into and maintain managed care provider arrangements and the
terms of these arrangements;
- changes in, or the failure to comply
with, managed care provider contracts, which could result in, among
other things, disputes and changes in reimbursements, both
prospectively and retroactively;
- changes in inpatient or outpatient
Medicare and Medicaid payment levels;
- the effects related to the continued
implementation of the sequestration spending reductions and the
potential for future deficit reduction legislation;
- increases in the amount and risk of
collectability of patient accounts receivable;
- the efforts of insurers, healthcare
providers and others to contain healthcare costs;
- our ongoing ability to demonstrate
meaningful use of certified electronic health record technology and
recognize income for the related Medicare or Medicaid incentive
payments;
- increases in wages as a result of
inflation or competition for highly technical positions and rising
supply costs due to market pressure from pharmaceutical companies
and new product releases;
- liabilities and other claims asserted
against us, including self-insured malpractice claims;
- competition;
- our ability to attract and retain, at
reasonable employment costs, qualified personnel, key management,
physicians, nurses and other healthcare workers;
- trends toward treatment of patients in
less acute or specialty healthcare settings, including ambulatory
surgery centers or specialty hospitals;
- changes in medical or other
technology;
- changes in U.S. generally accepted
accounting principles;
- the availability and terms of capital
to fund additional acquisitions or replacement facilities or other
capital expenditures;
- our ability to successfully make
acquisitions or complete divestitures;
- our ability to successfully integrate
any acquired hospitals, including those of HMA, or to recognize
expected synergies from acquisitions;
- the impact of the acquisition of HMA on
third-party relationships;
- the impact of seasonal severe weather
conditions;
- our ability to obtain adequate levels
of general and professional liability insurance;
- timeliness of reimbursement payments
received under government programs;
- effects related to outbreaks of
infectious diseases, including Ebola;
- impact of the external, criminal
cyber-attack suffered by us in the second quarter of 2014,
including potential reputational damage, the outcome of our
investigation and any potential governmental inquiries, the outcome
of litigation filed against us in connection with this
cyber-attack, the extent of remediation costs and additional
operating or other expenses that we may continue to incur, and the
impact of future cyber-attacks or security breaches; and
- the other risk factors set forth in our
other public filings with the Securities and Exchange Commission,
including our Annual Report on Form 10-K for the year ended
December 31, 2014, filed on February 25, 2015.
The consolidated operating results for the three months ended
March 31, 2015, are not necessarily indicative of the results that
may be experienced for any such future period. The Company cautions
that the projections for calendar year 2015 set forth in this press
release are given as of the date hereof based on currently
available information. The Company undertakes no obligation to
revise or update any forward-looking statements, or to make any
other forward-looking statements, whether as a result of new
information, future events or otherwise.
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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