Community Health Systems, Inc. Announces Second Quarter 2011 Results with Net Operating Revenues of $3.4 Billion

FRANKLIN, Tenn.--(BUSINESS WIRE)-- Community Health Systems, Inc. (NYSE: CYH) (the “Company”) today announced financial and operating results for the three and six months ended June 30, 2011.

Net operating revenues for the three months ended June 30, 2011, totaled $3.4 billion, an 11.5 percent increase compared with $3.1 billion for the same period in 2010. Income from continuing operations increased to $92.9 million for the three months ended June 30, 2011, compared with $88.4 million for the same period in 2010. Income from continuing operations attributable to Community Health Systems, Inc. common stockholders increased to $0.81 per share (diluted), on 91.8 million weighted-average shares outstanding for the three months ended June 30, 2011, compared with $0.76 per share (diluted), on 94.7 million weighted-average shares outstanding for the same period in 2010. Net income attributable to Community Health Systems, Inc. common stockholders decreased to $35.4 million, or $0.39 per share (diluted), for the three months ended June 30, 2011, compared with $70.1 million, or $0.74 per share (diluted), for the same period in 2010, primarily as a result of an impairment loss related to the classification of two hospitals as held for sale. The impairment loss is primarily related to the write-off of allocated goodwill based on the projected cash proceeds recognized at time of sale. The projected sale prices for the two hospitals held for sale are at a reasonable multiple and for an amount greater than the stated net tangible assets of the facilities.

Adjusted EBITDA for the three months ended June 30, 2011, was $462.3 million, compared with $441.7 million for the same period in 2010, representing a 4.7 percent increase. Adjusted EBITDA is EBITDA adjusted to exclude discontinued operations and net income attributable to noncontrolling interests. The Company uses adjusted EBITDA as a measure of liquidity. Net cash provided by operating activities for the three months ended June 30, 2011, was $397.2 million, compared with $242.4 million for the same period in 2010.

The consolidated financial results for the three months ended June 30, 2011, reflect a 0.6 percent increase in total admissions and a 5.3 percent increase in total adjusted admissions compared with the same period in 2010. On a same-store basis, admissions decreased 5.6 percent and adjusted admissions decreased 0.7 percent, compared with the same period in 2010. On a same-store basis, net operating revenues increased 5.8 percent, compared with the same period in 2010.

Net operating revenues for the six months ended June 30, 2011, totaled $6.8 billion, a 10.4 percent increase compared with $6.1 billion for the same period in 2010. Income from continuing operations increased to $184.5 million for the six months ended June 30, 2011, a 6.8 percent increase compared with $172.7 million for the same period in 2010. Income from continuing operations attributable to Community Health Systems, Inc. common stockholders increased to $1.62 per share (diluted), on 92.0 million weighted-average shares outstanding for the six months ended June 30, 2011, compared with $1.51 per share (diluted), on 93.8 million weighted-average shares outstanding for the same period in 2010. Net income attributable to Community Health Systems, Inc. common stockholders decreased to $96.7 million, or $1.05 per share (diluted), for the six months ended June 30, 2011, compared with $140.1 million, or $1.49 per share (diluted), for the same period in 2010, primarily as a result of the impairment of three hospitals held for sale and loss on sale of a physician clinic.

Adjusted EBITDA for the six months ended June 30, 2011, was $919.4 million, compared with $868.9 million for the same period in 2010, representing a 5.8 percent increase. Net cash provided by operating activities for the six months ended June 30, 2011, was $584.7 million, compared with $541.8 million for the same period in 2010.

The consolidated financial results for the six months ended June 30, 2011, reflect a 1.2 percent increase in total admissions and a 5.1 percent increase in total adjusted admissions compared with the same period in 2010. On a same-store basis, admissions decreased 4.4 percent and adjusted admissions decreased 0.2 percent, compared with the same period in 2010. On a same-store basis, net operating revenues increased 5.6 percent, compared with the same period in 2010.

On May 2, 2011, the Company announced that subsidiaries have acquired substantially all of the assets of Mercy Health Partners in northeast Pennsylvania, a system of hospitals and other healthcare providers based in Scranton, Pennsylvania. The health system, acquired from Catholic Health Partners, includes 198-bed Regional Hospital of Scranton and 48-bed Tyler Memorial Hospital in Tunkhannock, which are both general acute care hospitals; Special Care Hospital, a 67-bed long-term acute care facility in Nanticoke; and other outpatient and ancillary services. With the successful completion of this transaction, there are now thirteen Community Health Systems, Inc. affiliated acute-care hospitals in Pennsylvania.

On June 28, 2011, the Company announced that subsidiaries executed a definitive agreement to sell 180-bed SouthCrest Hospital in Tulsa, Oklahoma, 89-bed Claremore Regional Hospital in Claremore, Oklahoma, and other related assets to Hillcrest Health Care System. The transaction is expected to close during the third quarter of 2011.

On July 19, 2011, the Company announced that subsidiaries have executed a definitive agreement to acquire substantially all the assets of Moses Taylor Health Care System, located in northeast Pennsylvania. The system includes 217-bed Moses Taylor Hospital in Scranton and 25-bed Mid-Valley Hospital in Peckville.

Commenting on the results, Wayne T. Smith, chairman, president and chief executive officer of Community Health Systems, Inc., said, “Community Health Systems delivered a solid operating performance for the second quarter of 2011, in spite of the ongoing challenges in the economy. Revenues were up over eleven percent for the second quarter compared with the prior year period and up over ten percent for the first half of the year. Our consistent ability to drive revenues and achieve solid margins in this environment demonstrates solid execution of our centralized operating strategy and our focus on efficient expense management throughout our hospital network.

“We have continued to extend our market reach in 2011 through selective acquisitions,” added Smith. “Our strategy has always been focused on identifying select hospital facilities that meet our operating profile with the greatest opportunity for growth. With the current healthcare regulatory climate, we believe there are significant opportunities for Community Health Systems to pursue additional acquisitions with a greater number of independent hospitals looking for established and operationally-focused partners. We look forward to implementing our proven operating strategies, including capital investments, efficient expense management, best practice standards and physician recruitment, to support and enhance the quality of care provided by our newly acquired facilities.”

Included on pages 13, 14 and 15 of this press release are tables setting forth an update to the Company’s 2011 annual earnings guidance. The 2011 guidance primarily reaffirms the Company’s previous guidance provided on April 27, 2011, with revisions to reflect the impact of hospitals held for sale at June 30, 2011, and revisions to certain assumptions.

Located in the Nashville, Tennessee, suburb of Franklin, Community Health Systems, Inc. is one of the largest publicly-traded hospital companies in the United States and a leading operator of general acute-care hospitals in non-urban and mid-size markets throughout the country. Through its subsidiaries, the Company currently owns, leases or operates 133 hospitals in 29 states with an aggregate of approximately 19,500 licensed beds. Its hospitals offer a broad range of inpatient and surgical services, outpatient treatment and skilled nursing care. In addition, through its subsidiary, Quorum Health Resources, LLC, the Company provides management and consulting services to non-affiliated general acute care hospitals located throughout the United States. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol “CYH.”

Community Health Systems, Inc. will hold a conference call on Friday, July 29, 2011, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the three and six months ended June 30, 2011. 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, or at www.earnings.com. To listen to the live call, please go to the website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and will continue to be available through August 29, 2011. Copies of the Company’s current report on Form 8-K (including this press release) and conference call slide show are available on the Company’s website at www.chs.net.

Forward-Looking Statements

Statements contained in this news release regarding expected operating results, acquisition transactions or divestitures and other events are forward-looking statements that involve risk and uncertainties. Actual future events or results may differ materially from these statements. Readers are referred to the documents filed by Community Health Systems, Inc. with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K, current reports on Form 8-K and quarterly reports on Form 10-Q. These filings identify important risk factors and other uncertainties that could cause actual results to differ from those contained in the forward-looking statements. 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. AND SUBSIDIARIES

Financial Highlights (a)(b)

(in thousands, except per share amounts)

(Unaudited)

 
 
Three Months Ended Six Months Ended
June 30, June 30,
2011 2010 2011 2010
 
Net operating revenues (d) $ 3,433,829 $ 3,080,646 $ 6,787,881 $ 6,149,258
Adjusted EBITDA (c) $ 462,301 $ 441,678 $ 919,371 $ 868,910
Income from continuing operations (d)(e)(f) $ 92,874 $ 88,379 $ 184,479 $ 172,736
Net income attributable to Community Health Systems, Inc. $ 35,389 $ 70,065 $ 96,713 $ 140,072
 

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

Continuing operations $ 0.82 $ 0.77 $ 1.64 $ 1.53
Discontinued operations (g)   (0.43 )   (0.02 )   (0.58 )   (0.01 )
Net income $ 0.39   $ 0.75   $ 1.06   $ 1.51  
 

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

Continuing operations $ 0.81 $ 0.76 $ 1.62 $ 1.51
Discontinued operations (g)   (0.43 )   (0.02 )   (0.57 )   (0.01 )
Net income $ 0.39   $ 0.74   $ 1.05   $ 1.49  
 
Weighted-average number of shares outstanding (h):
Basic 91,131 93,359 91,070 92,492
Diluted 91,784 94,712 91,961 93,779
 
Net cash provided by operating activities $ 397,174 $ 242,432 $ 584,685 $ 541,792
 

_____

For footnotes, see pages 11 and 12.

       

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (a)(b)

(in thousands, except per share amounts)

(Unaudited)

 
 
Three Months Ended June 30,
2011 2010
Amount

% of Net
Operating
Revenues

Amount

% of Net
Operating
Revenues

Net operating revenues (d) $ 3,433,829   100.0 % $ 3,080,646   100.0 %
 
Operating costs and expenses:
Salaries and benefits 1,384,096 40.3 % 1,231,559 40.0 %
Provision for bad debts 433,002 12.6 % 367,002 11.9 %
Supplies 449,279 13.1 % 430,574 14.0 %
Other operating expenses 654,737 19.0 % 559,962 18.2 %
Rent 62,431 1.8 % 60,851 2.0 %
Depreciation and amortization   161,376   4.7 %   149,779   4.8 %
Total operating costs and expenses   3,144,921   91.5 %   2,799,727   90.9 %
 
Income from operations (d)(e)(f) 288,908 8.5 % 280,919 9.1 %
Interest expense, net 163,230 4.8 % 160,759 5.2 %
Equity in earnings of unconsolidated affiliates   (12,017 ) -0.3 %   (10,980 ) -0.4 %

Income from continuing operations before income taxes

137,695 4.0 % 131,140 4.3 %
Provision for income taxes   44,821   1.3 %   42,761   1.4 %
Income from continuing operations (f)   92,874   2.7 %   88,379   2.9 %
 
Discontinued operations, net of taxes (g):
Income (loss) from operations of entities sold and held for sale 235 0.1 % (2,037 ) -0.1 %
Impairment of hospitals held for sale   (39,562 ) -1.2 %   -   0.0 %
 
Loss from discontinued operations, net of taxes   (39,327 ) -1.1 %   (2,037 ) -0.1 %
Net income 53,547 1.6 % 86,342 2.8 %
Less: Net income attributable to noncontrolling interests   18,158   0.6 %   16,277   0.5 %
Net income attributable to Community Health Systems, Inc. $ 35,389   1.0 % $ 70,065   2.3 %
 

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

Continuing operations $ 0.82 $ 0.77
Discontinued operations   (0.43 )   (0.02 )
Net income $ 0.39   $ 0.75  
 

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

Continuing operations $ 0.81 $ 0.76
Discontinued operations   (0.43 )   (0.02 )
Net income $ 0.39   $ 0.74  
 

Weighted-average number of shares outstanding (h):

Basic   91,131     93,359  
Diluted   91,784     94,712  
 

_____

For footnotes, see pages 11 and 12.

       

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (a)(b)
(in thousands, except per share amounts)
(Unaudited)

 
 
Six Months Ended June 30,
2011 2010
Amount

% of Net
Operating
Revenues

Amount

% of Net
Operating
Revenues

Net operating revenues $ 6,787,881   100.0 % $ 6,149,258   100.0 %
 
Operating costs and expenses:
Salaries and benefits 2,763,463 40.7 % 2,478,240 40.3 %
Provision for bad debts 832,971 12.3 % 733,503 11.9 %
Supplies 907,096 13.4 % 852,686 13.9 %
Other operating expenses 1,269,530 18.6 % 1,116,581 18.2 %
Rent 125,601 1.9 % 122,908 2.0 %
Depreciation and amortization   319,531   4.7 %   293,682   4.7 %
Total operating costs and expenses   6,218,192   91.6 %   5,597,600   91.0 %
 
Income from operations (e)(f) 569,689 8.4 % 551,658 9.0 %
Interest expense, net 326,448 4.8 % 320,182 5.3 %
Equity in earnings of unconsolidated affiliates   (30,151 ) -0.4 %   (23,570 ) -0.4 %

Income from continuing operations before income taxes

273,392 4.0 % 255,046 4.1 %
Provision for income taxes   88,913   1.3 %   82,310   1.3 %
Income from continuing operations (f)   184,479   2.7 %   172,736   2.8 %
 
Discontinued operations, net of taxes (g):
Loss from operations of entities sold and held for sale (1,443 ) 0.0 % (1,398 ) 0.0 %
Impairment of hospitals held for sale (47,930 ) -0.7 % - 0.0 %
Loss on sale   (3,234 ) -0.1 %   -   0.0 %
 
Loss from discontinued operations, net of taxes   (52,607 ) -0.8 %   (1,398 ) 0.0 %
Net income 131,872 1.9 % 171,338 2.8 %
Less: Net income attributable to noncontrolling interests   35,159   0.5 %   31,266   0.5 %
Net income attributable to Community Health Systems, Inc. $ 96,713   1.4 % $ 140,072   2.3 %
 

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

Continuing operations $ 1.64 $ 1.53
Discontinued operations   (0.58 )   (0.01 )
Net income $ 1.06   $ 1.51  
 

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

Continuing operations $ 1.62 $ 1.51
Discontinued operations   (0.57 )   (0.01 )
Net income $ 1.05   $ 1.49  
 

Weighted-average number of shares outstanding (h):

Basic   91,070     92,492  
Diluted   91,961     93,779  
 

_____

For footnotes, see pages 11 and 12.

             

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (b)
($ in thousands)
(Unaudited)

 
 
For the Three Months Ended June 30,
Consolidated Same-Store
2011 2010 % Change 2011 2010 % Change
Number of hospitals (at end of period) 130 122 122 122
Licensed beds (at end of period) 19,361 17,911 17,917 17,911
Beds in service (at end of period) 16,617 15,614 15,510 15,614
Admissions 168,336 167,352 0.6 % 158,054 167,352 -5.6 %
Adjusted admissions 332,180 315,414 5.3 % 313,299 315,414 -0.7 %
Patient days 737,850 707,624 691,706 707,624
Average length of stay (days) 4.4 4.2 4.4 4.2
Occupancy rate (average beds in service) 49.1 % 49.8 % 49.0 % 49.8 %
Net operating revenues $ 3,433,829 $ 3,080,646 11.5 % $ 3,258,355 $ 3,080,654 5.8 %

Net inpatient revenues as a % of total net operating revenues

46.4 % 49.1 % 46.0 % 49.1 %

Net outpatient revenues as a % of total net operating revenues

51.5 % 49.0 % 51.9 % 49.0 %
Income from operations (f) $ 288,908 $ 280,919 2.8 % $ 295,741 $ 283,880 4.2 %

Income from operations as a % of net operating revenues

8.5 % 9.1 % 9.1 % 9.2 %
Depreciation and amortization $ 161,376 $ 149,779 $ 155,809 $ 149,779
Equity in earnings of unconsolidated affiliates $ (12,017 ) $ (10,980 ) $ (12,017 ) $ (10,980 )
Liquidity Data:
Adjusted EBITDA (c) $ 462,301 $ 441,678 4.7 %

Adjusted EBITDA as a % of net operating revenues

13.5 % 14.3 %
Net cash provided by operating activities $ 397,174 $ 242,432

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

11.6 % 7.9 %
 

_____

For footnotes, see pages 11 and 12.

             

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (b)
($ in thousands)
(Unaudited)

 
 
For the Six Months Ended June 30,
Consolidated Same-Store
2011 2010 % Change 2011 2010 % Change
Number of hospitals (at end of period) 130 122 122 122
Licensed beds (at end of period) 19,361 17,911 17,917 17,911
Beds in service (at end of period) 16,617 15,614 15,510 15,614
Admissions 344,666 340,728 1.2 % 325,860 340,728 -4.4 %
Adjusted admissions 664,146 631,822 5.1 % 630,277 631,822 -0.2 %
Patient days 1,519,663 1,453,086 1,435,916 1,453,086
Average length of stay (days) 4.4 4.3 4.4 4.3
Occupancy rate (average beds in service) 51.1 % 51.5 % 51.0 % 51.5 %
Net operating revenues $ 6,787,881 $ 6,149,258 10.4 % $ 6,493,526 $ 6,149,363 5.6 %

Net inpatient revenues as a % of total net operating revenues

47.7 % 49.9 % 47.4 % 49.9 %

Net outpatient revenues as a % of total net operating revenues

50.2 % 48.0 % 50.5 % 48.0 %
Income from operations (f) $ 569,689 $ 551,658 3.3 % $ 593,471 $ 556,876 6.6 %

Income from operations as a % of net operating revenues

8.4 % 9.0 % 9.1 % 9.1 %
Depreciation and amortization $ 319,531 $ 293,682 $ 310,465 $ 293,682
Equity in earnings of unconsolidated affiliates $ (30,151 ) $ (23,570 ) $ (30,151 ) $ (23,507 )
Liquidity Data:
Adjusted EBITDA (c) $ 919,371 $ 868,910 5.8 %

Adjusted EBITDA as a % of net operating revenues

13.5 % 14.1 %
Net cash provided by operating activities $ 584,685 $ 541,792

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

8.6 % 8.8 %
 

_____

For footnotes, see pages 11 and 12.

   

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)

 
June 30, December 31,
2011 2010
ASSETS
Current assets
Cash and cash equivalents $ 191,432 $ 299,169

Patient accounts receivable, net of allowance for doubtful accounts of $1,793,404 and $1,639,198 at June 30, 2011 and December 31, 2010, respectively

1,792,404 1,714,542
Supplies 342,268 329,114
Prepaid income taxes - 118,464
Deferred income taxes 115,819 115,819
Prepaid expenses and taxes 117,458 100,754
Other current assets   175,109     193,331  
Total current assets   2,734,490     2,871,193  
Property and equipment 8,798,266 8,383,122
Less accumulated depreciation and amortization   (2,291,842 )   (2,058,685 )
Property and equipment, net   6,506,424     6,324,437  
Goodwill   4,227,970     4,150,247  
Other assets, net   1,356,531     1,352,246  
Total assets $ 14,825,415   $ 14,698,123  
 
LIABILITIES
Current liabilities
Current maturities of long-term debt $ 70,112 $ 63,139
Accounts payable 583,924 526,338
Current income tax payable 349 -
Deferred income taxes 8,882 8,882
Accrued interest 145,146 146,415
Accrued liabilities   854,329     897,266  
Total current liabilities   1,662,742     1,642,040  
Long-term debt   8,781,443     8,808,382  
Deferred income taxes   608,177     608,177  
Other long-term liabilities   1,026,069     1,001,675  
Total liabilities   12,078,431     12,060,274  
 
Redeemable noncontrolling interests in equity of consolidated subsidiaries   376,658     387,472  
 
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; 93,210,424 shares issued and 92,234,875 shares outstanding at June 30, 2011, and 93,644,862 shares issued and 92,669,313 shares outstanding at December 31, 2010

932 936
Additional paid-in capital 1,119,205 1,126,751

Treasury stock, at cost, 975,549 shares at June 30, 2011 and December 31, 2010

(6,678 ) (6,678 )
Accumulated other comprehensive loss (200,533 ) (230,927 )
Retained earnings   1,396,095     1,299,382  
Total Community Health Systems, Inc. stockholders' equity 2,309,021 2,189,464
Noncontrolling interests in equity of consolidated subsidiaries   61,305     60,913  
Total equity   2,370,326     2,250,377  
Total liabilities and equity $ 14,825,415   $ 14,698,123  
 

_____

For footnotes, see pages 11 and 12.

     

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

 
Six Months Ended
June 30,
2011 2010
Cash flows from operating activities
Net income $ 131,872 $ 171,338

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

 

 

Depreciation and amortization

324,367

301,060

Stock-based compensation expense 20,732 20,418
Loss on sale 3,234 -
Impairment of hospitals held for sale 47,930 -
Excess tax benefit relating to stock-based compensation (4,659 ) (10,104 )
Other non-cash expenses, net 4,313 (2,342 )

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

Patient accounts receivable (83,082 ) (63,896 )
Supplies, prepaid expenses and other current assets 9,374 (1,147 )
Accounts payable, accrued liabilities and income taxes 129,518 114,100
Other   1,086     12,365  
Net cash provided by operating activities   584,685     541,792  
 
Cash flows from investing activities
Acquisitions of facilities and other related equipment (204,264 ) (2,413 )
Purchases of property and equipment (351,383 ) (263,924 )
Proceeds from disposition of hospitals and other ancillary operations 18,464 -
Proceeds from sale of property and equipment 8,034 2,307
Increase in other non-operating assets   (75,211 )   (64,258 )
Net cash used in investing activities   (604,360 )   (328,288 )
 
Cash flows from financing activities
Proceeds from exercise of stock options 18,831 53,615
Deferred financing costs (234 ) -
Excess tax benefit relating to stock-based compensation 4,659 10,104
Stock buy-back (50,002 ) (12,242 )
Proceeds from noncontrolling investors in joint ventures 863 5,155
Redemption of noncontrolling investments in joint ventures (3,303 ) (2,395 )
Distributions to noncontrolling investors in joint ventures (30,078 ) (29,371 )
Repayments of long-term indebtedness   (28,798 )   (34,157 )
Net cash used in financing activities   (88,062 )   (9,291 )
 
Net change in cash and cash equivalents (107,737 ) 204,213
Cash and cash equivalents at beginning of period   299,169     344,541  
Cash and cash equivalents at end of period $ 191,432   $ 548,754  
 

Footnotes to Financial Statements

       

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

 
Three Months Ended Six Months Ended
June 30, June 30,
2011 2010 2011   2010

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

Income from continuing operations, net of taxes $ 92,874 $ 88,379 $ 184,479 $ 172,736

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

  18,158     16,313     35,159     31,332  

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

$ 74,716   $ 72,066   $ 149,320   $ 141,404  

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

Loss from discontinued operations, net of taxes $ (39,327 ) $ (2,037 ) $ (52,607 ) $ (1,398 )

Less: Loss from discontinued operations attributable to noncontrolling interests, net of taxes

  -     (36 )   -     (66 )

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

$ (39,327 ) $ (2,001 ) $ (52,607 ) $ (1,332 )
 

(b) Continuing operating results exclude discontinued operations for the three and six months ended June 30, 2011 and 2010. Both financial and statistical results exclude entities in discontinued operations (including three hospitals held for sale at June 30, 2011) for all periods presented.

(c) EBITDA consists of net income attributable to Community Health Systems, Inc. before interest, income taxes, and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted to exclude discontinued operations, gain/loss from early extinguishment of debt and net income attributable to noncontrolling interests. The Company has from time to time sold noncontrolling interests in certain of its subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions. The Company believes that it is useful to present adjusted EBITDA because it excludes the portion of EBITDA attributable to these third-party interests and clarifies for investors the Company’s portion of EBITDA generated by continuing operations. The Company uses adjusted EBITDA as a measure of liquidity. The Company has included this measure because it believes it provides investors with additional information about the Company’s ability to incur and service debt and make capital expenditures. Adjusted EBITDA is the basis for a key component in the determination of the Company’s compliance with some of the covenants under the Company’s senior secured credit facility, as well as to determine the interest rate and commitment fee payable under the senior secured credit facility.

 

Adjusted EBITDA is not a measurement of financial performance or liquidity under U.S. GAAP. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with U.S. GAAP. The items excluded from adjusted EBITDA are significant components in understanding and evaluating financial performance and liquidity. This calculation of adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

 

The following table reconciles adjusted EBITDA, as defined, to net cash provided by operating activities as derived directly from the condensed consolidated financial statements (in thousands):

     
Three Months Ended Six Months Ended
June 30, June 30,
2011   2010 2011   2010
Adjusted EBITDA $ 462,301 $ 441,678 $ 919,371 $ 868,910
Interest expense, net (163,230 ) (160,759 ) (326,448 ) (320,182 )
Provision for income taxes (44,821 ) (42,761 ) (88,913 ) (82,310 )

Income (loss) from operations of entities sold and held for sale, net of taxes

235 (2,037 ) (1,443 ) (1,398 )
Other non-cash expenses, net 27,990 10,117 25,222 15,350

Net changes in operating assets and liabilities, net of effects of acquisitions

  114,699     (3,806 )   56,896     61,422  
Net cash provided by operating activities $ 397,174   $ 242,432   $ 584,685   $ 541,792  
 

(d) Total non-same-store consolidated net operating revenues for the three months ended June 30, 2011 included revenue related to the final settlement of a rate related reimbursement dispute resolved in the Company’s favor and total non-same-store consolidated operating costs and expenses for the three months ended June 30, 2011 included an operating expense charge related to the final settlement of a real estate lawsuit against the Company. The net favorable pre-tax impact of these settlements on income from continuing operations was approximately $1 million.

(e) Included in income from operations and income from continuing operations for the three and six months ended June 30, 2011, are the following non-same-store charges:

  • Pre-tax charges of $4.1 million and $5.6 million, respectively, related to acquisition costs (other than Tenet Healthcare Corporation (“Tenet”));
  • Pre-tax charges of $1.0 million and $2.2 million, respectively, for system conversion costs; and
  • Pre-tax charges of $1.2 million and $3.1 million, respectively, for Tenet acquisition costs.

(f) Included in non-same-store income from operations and income from continuing operations for the three months and six months ended June 30, 2011, are pre-tax legal and other costs of $6.2 million with an after-tax impact of $4.0 million ($0.04 EPS) related to the Tenet lawsuit, governmental investigations and shareholder lawsuits.

(g) Included in discontinued operations for the three and six months ended June 30, 2011, are the following:

  • Effective February 1, 2011, the Company sold Willamette Community Medical Group, which is a physician clinic operating as Oregon Medical Group, located in Springfield, Oregon, with a carrying amount of net assets, including an allocation of reporting unit goodwill, of $19.7 million to Oregon Healthcare Resources, LLC, for $14.6 million in cash.
  • One hospital classified as being held for sale at both March 31, 2011 and June 30, 2011, for which a definitive agreement has been executed. The estimated after-tax loss on sale is approximately $8.4 million.
  • Two hospitals, one in Tulsa, Oklahoma, and one in Claremore, Oklahoma, for which a definitive agreement has been executed are classified as being held for sale at June 30, 2011. The estimated after-tax loss on sale is approximately $39.6 million.

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

         
Three Months Ended Six Months Ended
June 30, June 30,
2011 2010 2011 2010

Weighted-average number of shares outstanding - basic

91,131 93,359 91,070 92,492
Add effect of dilutive securities:
Stock awards and options 653 1,353 891 1,287

Weighted-average number of shares outstanding - diluted

91,784 94,712 91,961 93,779

(i) Total per share amounts may not add due to rounding.

Regulation FD Disclosure

The following tables set forth selected information concerning the Company’s projected consolidated operating results for the year ending December 31, 2011. These projections are based on the Company’s historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time. The 2011 guidance primarily reaffirms the Company’s previous guidance for 2011 provided on April 27, 2011, with revisions to reflect the impact of hospitals held for sale at June 30, 2011 and revisions to certain assumptions. See page 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:

    Updated
2011 Projection Range
Net operating revenues (in millions) $ 13,600   to   $ 14,000
Adjusted EBITDA (in millions) $ 1,830 to $ 1,855
Income from continuing operations per share - diluted $ 3.20 to $ 3.35
Same-store hospital annual admissions/adjusted admissions growth -1.0 % to 1.0 %
Weighted-average diluted shares (in millions) 92 to 93
Acquisitions of new hospitals 2 to 3

_____

The following assumptions were used in developing the 2011 updated guidance provided above:

  • The Company’s 2011 projection range does not include hospitals currently held for sale.
  • Projected 2011 same-store hospital annual adjusted admissions growth does not take into account service closures and other unusual events.
  • Expressed as a percent of net operating revenues, the provision for bad debts is projected to be approximately 12.4% to 12.7% for 2011. These percentages may vary depending on changes in payor mix.
  • Expressed as a percent of net operating revenues, depreciation and amortization is projected to be approximately 4.7% to 4.8% for 2011; however, this is a fixed cost and the percentages may vary as revenue varies. Such amounts exclude the possible impact of any future fair-value adjustments to investments and hospital fixed asset impairments.
  • 2011 projection includes an estimate of $0.05 to $0.08 per share (diluted) of acquisition costs (including the terminated Tenet acquisition) that are required to be expensed.
  • The Company’s 2011 projection range does not take into account the legal expense and other expenses to be incurred related to the Tenet lawsuit, governmental investigations, and shareholder lawsuits.
  • For the purpose of providing interest expense guidance, the Company assumes that the borrowing rate under the Company’s $7.2 billion Senior Secured Credit Facility for 2011 will remain relatively stable with the rates existing currently, particularly since the Company is a party to interest rate swap agreements (with original maturities of at least two years) resulting in total fixed debt including swaps being 93% of total debt. These swap agreements limit the effect of changes in interest rates. Based on these assumptions, expressed as a percentage of net operating revenues, interest expense is projected to be approximately 4.7% to 4.9% for 2011; however, these percentages will vary as revenue and interest rates vary. The 2011 projections do not assume any changes to the financing terms of the Senior Secured Credit Facility or any new financing arrangements, which have not been previously announced.
  • On September 15, 2010, the Company adopted a new open market repurchase program for up to four million shares of the Company’s common stock, not to exceed $100 million in purchases. The new repurchase program will conclude at the earliest of three years, when the maximum number of shares has been repurchased or when the maximum dollar amount has been reached. Through July 28, 2011, approximately 2.2 million shares with a value of approximately $63.8 million were purchased and retired under this repurchase plan.
  • Expressed as a percentage of net operating revenues, equity in earnings of unconsolidated affiliates is projected to be approximately 0.3% to 0.5% for 2011.
  • Expressed as a percentage of net operating revenues, net income attributable to noncontrolling interests is projected to be approximately 0.5% to 0.6% for 2011.
  • Expressed as a percentage of income from continuing operations before income taxes, provision for income tax is projected to be approximately 31.0% to 33.0% for 2011.
  • Capital expenditures are projected as follows (in millions):
       
2011

Guidance

 
Total $ 750 to $ 825
  • Expressed as a percentage of net operating revenues, meaningful use certified electronic health records incentive payments are currently projected to be approximately 0.05% to 0.15%, in excess of related operating expenses for 2011. The Company’s accounting is based on current revenue recognition rules which could change, as various accounting task forces are evaluating accounting for this type of incentive payments.
  • Net cash provided by operating activities are projected as follows (in millions):
       
2011

Guidance

 
Total $ 1,150 to $ 1,250
  • The Company’s guidance does not take into account resolution of government investigations, Tenet-related lawsuits, and other significant lawsuits not resolved at July 28, 2011.

The projections set forth in this report constitute forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. Although the Company believes that these forward-looking statements are based on reasonable assumptions, these assumptions are inherently subject to significant economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and are beyond the control of the Company. Accordingly, the Company cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry generally and could cause the Company’s expected results to differ materially from those expressed in this filing.

These factors include, among other things:

  • general economic and business conditions, both nationally and in the regions in which we operate;
  • implementation and effect of recently-adopted and potential federal and state healthcare legislation;
  • risks associated with our substantial indebtedness, leverage, and debt service obligations;
  • demographic changes;
  • changes in, or the failure to comply with, governmental regulations;
  • potential adverse impact of known and unknown government investigations, audits, and Federal and State False Claims Act litigation and other legal proceedings;
  • our ability, where appropriate, to enter into and maintain managed care provider arrangements and the terms of these arrangements;
  • changes in, or the failure to comply with, managed care provider contracts could result in disputes and changes in reimbursement that could be applied retroactively;
  • changes in inpatient or outpatient Medicare and Medicaid payment levels;
  • increases in the amount and risk of collectability of patient accounts receivable;
  • increases in wages as a result of inflation or competition for highly technical positions and rising supply costs due to market pressure from pharmaceutical companies and new product releases;
  • liabilities and other claims asserted against us, including self-insured malpractice claims;
  • competition;
  • our ability to attract and retain, without significant employment costs, qualified personnel, key management, physicians, nurses and other health care workers;
  • trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals;
  • changes in medical or other technology;
  • changes in U.S. generally accepted accounting principles;
  • the availability and terms of capital to fund additional acquisitions or replacement facilities;
  • our ability to successfully acquire additional hospitals and complete the sale of hospitals held for sale;
  • our ability to successfully integrate any acquired hospitals or to recognize expected synergies from such acquisitions;
  • our ability to obtain adequate levels of general and professional liability insurance;
  • timeliness of reimbursement payments received under government programs; and
  • the other risk factors set forth in our public filings with the Securities and Exchange Commission.

The consolidated operating results for the three and six months ended June 30, 2011, are not necessarily indicative of the results that may be experienced for any such future period or for any future year, including the full year of 2011.

The Company cautions that the projections for calendar year 2011 set forth in this press release are given as of the date hereof based on currently available information. The Company is not undertaking any obligation to update these projections as conditions change or other information becomes available.



CONTACT:

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

KEYWORDS:   United States  North America  Tennessee

INDUSTRY KEYWORDS:   Health  Hospitals

MEDIA:

Logo
 Logo

Suggested Articles

The profit margins and management of Community Health Group raise questions about oversight of managed care insurers.

Financial experts are warning practices about the pitfalls of promoting medical credit cards to their patients.

A proposed rule issued by HHS on Tuesday would expand short-term coverage, a move Seema Verma said will have "virtually no impact" on ACA premiums.