Community Health Systems, Inc. Announces Third 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 third quarter and nine months ended September 30, 2011.

Net operating revenues for the three months ended September 30, 2011, totaled $3.4 billion, an 8.7 percent increase compared with $3.2 billion for the same period in 2010. Income from continuing operations increased to $95.8 million for the three months ended September 30, 2011, an 8.9 percent increase compared with $88.0 million for the same period in 2010. Income from continuing operations attributable to Community Health Systems, Inc. common stockholders increased to $0.86 per share (diluted), on 89.9 million weighted-average shares outstanding for the three months ended September 30, 2011, compared with $0.80 per share (diluted), on 92.5 million weighted-average shares outstanding for the same period in 2010. Net income attributable to Community Health Systems, Inc. common stockholders increased to $74.3 million, or $0.83 per share (diluted), for the three months ended September 30, 2011, compared with $70.4 million, or $0.76 per share (diluted), for the same period in 2010.

Adjusted EBITDA for the three months ended September 30, 2011, was $453.5 million, compared with $441.5 million for the same period in 2010, representing a 2.7 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 September 30, 2011, was $235.6 million, compared with $356.6 million for the same period in 2010, lower in 2011 primarily as a result of timing of payroll and related payments.

The consolidated financial results for the three months ended September 30, 2011, reflect a 0.7 percent decrease in total admissions and a 4.9 percent increase in total adjusted admissions compared with the same period in 2010. On a same-store basis, admissions decreased 7.0 percent and adjusted admissions decreased 1.1 percent, compared with the same period in 2010. On a same-store basis, net operating revenues increased 3.8 percent, compared with the same period in 2010.

Commenting on the results, Wayne T. Smith, chairman, president and chief executive officer of Community Health Systems, Inc., stated, “Our results for the third quarter of 2011 further extend Community Health Systems’ consistent record of earnings growth in spite of a challenging marketplace. While our volumes have been constrained by the macroeconomic environment, we believe these results continue to demonstrate the underlying strength of our operating model.”

Net operating revenues for the nine months ended September 30, 2011, totaled $10.2 billion, a 9.8 percent increase compared with $9.3 billion for the same period in 2010. Income from continuing operations increased to $280.3 million for the nine months ended September 30, 2011, a 7.5 percent increase compared with $260.7 million for the same period in 2010. Income from continuing operations attributable to Community Health Systems, Inc. common stockholders increased to $2.49 per share (diluted), on 91.3 million weighted-average shares outstanding for the nine months ended September 30, 2011, compared with $2.31 per share (diluted), on 93.2 million weighted-average shares outstanding for the same period in 2010. Net income attributable to Community Health Systems, Inc. common stockholders decreased to $171.0 million, or $1.87 per share (diluted), for the nine months ended September 30, 2011, compared with $210.5 million, or $2.26 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 during the six months ended June 30, 2011. The impairment loss is primarily related to the write-off of allocated goodwill based on the projected cash proceeds at time of sale for the hospitals sold and hospital held for sale.

Adjusted EBITDA for the nine months ended September 30, 2011, was $1.4 billion, compared with $1.3 billion for the same period in 2010, representing a 4.8 percent increase. Net cash provided by operating activities for the nine months ended September 30, 2011, was $820.2 million, compared with $898.4 million for the same period in 2010, lower in 2011 primarily as a result of timing of payroll and related payments.

The consolidated financial results for the nine months ended September 30, 2011, reflect a 0.5 percent increase in total admissions and a 5.0 percent increase in total adjusted admissions compared with the same period in 2010. On a same-store basis, admissions decreased 5.2 percent and adjusted admissions decreased 0.5 percent, compared with the same period in 2010. On a same-store basis, net operating revenues increased 5.0 percent, compared with the same period in 2010. Included on pages 11 and 12 of this press release are footnotes to the Company’s financial statements which provide additional information regarding reported results.

On July 19, 2011, the Company announced that certain of its 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. This transaction is expected to close during the first quarter of 2012.

On September 1, 2011, the Company announced that it completed the sale of SouthCrest Hospital in Tulsa, Oklahoma, Claremore Regional Hospital in Claremore, Oklahoma, and other related assets to Hillcrest Health Care System, part of Ardent Health Services. Ardent Health Services, a privately-held healthcare company, proposed the acquisition to expand its Tulsa-based network of hospitals.

Effective October 1, 2011, a subsidiary of the Company acquired substantially all the assets of Tomball Regional Medical Center in Tomball, Texas, located approximately 30 miles northwest of Houston. The 358-bed hospital provides comprehensive healthcare services on a large campus that also includes a cancer center, heart center, women’s health center, outpatient surgery center and a sports medicine complex. The hospital has earned numerous clinical quality distinctions and is included this year on the U.S. News and World Report list of Best Hospitals in the Houston market.

“Our ability to consistently execute our acquisition strategy is encouraging,” added Smith. “As we continue to acquire new facilities, we have the unique ability to leverage our proven model of standardization and centralization across our growing hospital network. This strategy has been a significant factor in effectively managing our operating costs and integrating our acquisitions with favorable results. Additionally, our successful physician recruitment strategy and consistent investments in physical plant improvements have enhanced our reputation in local communities who want a proven operator. We believe there are significant opportunities in this environment for further acquisitions that fit our operating profile.”

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 and initial guidance for 2012. The 2011 guidance primarily reaffirms the Company’s previous guidance provided on July 28, 2011, as updated to reflect historical results through September 30, 2011, with certain changes to the assumptions used in connection with the guidance.

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 131 hospitals in 29 states with an aggregate of approximately 19,700 licensed beds. Its hospitals offer a broad range of inpatient and surgical services, outpatient treatment and skilled nursing care. In addition, through its subsidiary, Quorum Health Resources, LLC, the Company provides management and consulting services to non-affiliated general acute care hospitals located throughout the United States. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol “CYH.”

Community Health Systems, Inc. will hold a conference call on Thursday, October 27, 2011, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the three and nine months ended September 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 November 27, 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.

 
 
 
 
 
 

 

Financial Highlights (a)(b)

(in thousands, except per share amounts)

(Unaudited)

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

 
     
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
 
Net operating revenues (d) $ 3,436,000 $ 3,159,823 $ 10,223,881 $ 9,309,081
Adjusted EBITDA (c) 453,512 441,485 1,372,883 1,310,395
Income from continuing operations (e)(f)(g) 95,800 88,009 280,279 260,745
Net income attributable to Community Health Systems, Inc. $ 74,304 $ 70,401 $ 171,017 $ 210,473
 

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

Continuing operations (e)(f)(g) $ 0.87 $ 0.80 $ 2.51 $ 2.34
Discontinued operations (h)   (0.04 )   (0.03 )   (0.62 )   (0.05 )
Net income $ 0.83   $ 0.77   $ 1.89   $ 2.29  
 

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

Continuing operations (e)(f)(g) $ 0.86 $ 0.80 $ 2.49 $ 2.31
Discontinued operations (h)   (0.04 )   (0.03 )   (0.61 )   (0.05 )
Net income $ 0.83   $ 0.76   $ 1.87   $ 2.26  
 
Weighted-average number of shares outstanding (i):
Basic 89,412 91,485 90,514 92,036
Diluted 89,858 92,463 91,256 93,220
 
Net cash provided by operating activities $ 235,550 $ 356,585 $ 820,235 $ 898,377
 

_____

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 September 30,
2011     2010  
Amount  

% of Net

Operating

Revenues

Amount  

% of Net

Operating

Revenues

Net operating revenues (d) $ 3,436,000   100.0 % $ 3,159,823   100.0 %
 
Operating costs and expenses:
Salaries and benefits 1,393,151 40.5 % 1,267,103 40.1 %
Provision for bad debts 450,296 13.1 % 387,512 12.3 %
Supplies 459,146 13.4 % 434,439 13.7 %
Other operating expenses 623,608 18.1 % 576,649 18.2 %
Rent 64,481 1.9 % 62,173 2.0 %
Depreciation and amortization   161,515   4.7 %   147,289   4.7 %
Total operating costs and expenses   3,152,197   91.7 %   2,875,165   91.0 %
 
Income from operations (e)(g) 283,803 8.3 % 284,658 9.0 %
Interest expense, net 159,480 4.6 % 162,868 5.1 %
Equity in earnings of unconsolidated affiliates   (8,194 ) -0.2 %   (9,538 ) -0.3 %

Income from continuing operations before income taxes

132,517 3.9 % 131,328 4.2 %
Provision for income taxes (f)   36,717   1.1 %   43,319   1.4 %
Income from continuing operations (e)(f)(g)   95,800   2.8 %   88,009   2.8 %
 
Discontinued operations, net of taxes (h):
Loss from operations of entities sold and held for sale (3,103 ) -0.1 % (3,155 ) -0.1 %
Loss on sale   (66 ) 0.0 %   -   0.0 %
 
Loss from discontinued operations, net of taxes   (3,169 ) -0.1 %   (3,155 ) -0.1 %
Net income 92,631 2.7 % 84,854 2.7 %
Less: Net income attributable to noncontrolling interests   18,327   0.5 %   14,453   0.5 %
Net income attributable to Community Health Systems, Inc. $ 74,304   2.2 % $ 70,401   2.2 %
 

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

Continuing operations (e)(f)(g) $ 0.87 $ 0.80
Discontinued operations   (0.04 )   (0.03 )
Net income $ 0.83   $ 0.77  
 

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

Continuing operations (e)(f)(g) $ 0.86 $ 0.80
Discontinued operations   (0.04 )   (0.03 )
Net income $ 0.83   $ 0.76  
 

Weighted-average number of shares outstanding (i):

Basic   89,412     91,485  
Diluted   89,858     92,463  
 

_____

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)

 
 
  Nine Months Ended September 30,
2011   2010
Amount  

% of Net

Operating

Revenues

Amount  

% of Net

Operating

Revenues

Net operating revenues (d) $ 10,223,881   100.0 % $ 9,309,081   100.0 %
 
Operating costs and expenses:
Salaries and benefits 4,156,614 40.7 % 3,745,343 40.2 %
Provision for bad debts 1,283,267 12.6 % 1,121,015 12.0 %
Supplies 1,366,242 13.4 % 1,287,125 13.8 %
Other operating expenses 1,893,138 18.4 % 1,693,230 18.3 %
Rent 190,082 1.9 % 185,081 2.0 %
Depreciation and amortization   481,046   4.7 %   440,971   4.8 %
Total operating costs and expenses   9,370,389   91.7 %   8,472,765   91.1 %
 
Income from operations (e)(g) 853,492 8.3 % 836,316 8.9 %
Interest expense, net 485,928 4.7 % 483,050 5.1 %
Equity in earnings of unconsolidated affiliates   (38,345 ) -0.4 %   (33,108 ) -0.4 %

Income from continuing operations before income taxes

405,909 4.0 % 386,374 4.2 %
Provision for income taxes (f)   125,630   1.3 %   125,629   1.4 %
Income from continuing operations (e)(f)(g)   280,279   2.7 %   260,745   2.8 %
 
Discontinued operations, net of taxes (h):
Loss from operations of entities sold and held for sale (4,546 ) 0.0 % (4,553 ) 0.0 %
Impairment of hospitals sold and held for sale (47,930 ) -0.5 % - 0.0 %
Loss on sale   (3,300 ) 0.0 %   -   0.0 %
Loss from discontinued operations, net of taxes   (55,776 ) -0.5 %   (4,553 ) 0.0 %
Net income 224,503 2.2 % 256,192 2.8 %
Less: Net income attributable to noncontrolling interests   53,486   0.5 %   45,719   0.5 %
Net income attributable to Community Health Systems, Inc. $ 171,017   1.7 % $ 210,473   2.3 %
 

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

Continuing operations (e)(f)(g) $ 2.51 $ 2.34
Discontinued operations   (0.62 )   (0.05 )
Net income $ 1.89   $ 2.29  
 

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

Continuing operations (e)(f)(g) $ 2.49 $ 2.31
Discontinued operations   (0.61 )   (0.05 )
Net income $ 1.87   $ 2.26  
 

Weighted-average number of shares outstanding (i):

Basic   90,514     92,036  
Diluted   91,256     93,220  
 

_____

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 September 30,
Consolidated   Same-Store
2011   2010   % Change 2011   2010   % Change
Number of hospitals (at end of period) 130 123 123 123
Licensed beds (at end of period) 19,358 18,053 18,038 18,053
Beds in service (at end of period) 16,542 15,713 15,523 15,713
Admissions 164,842 166,046 -0.7 % 154,434 166,046 -7.0 %
Adjusted admissions 334,644 319,141 4.9 % 315,672 319,141 -1.1 %
Patient days 717,951 700,971 669,010 700,971
Average length of stay (days) 4.4 4.2 4.3 4.2
Occupancy rate (average beds in service) 47.1 % 48.5 % 46.8 % 48.5 %
Net operating revenues $ 3,436,000 $ 3,159,823 8.7 % $ 3,278,629 $ 3,157,864 3.8 %

Net inpatient revenues as a % of total net operating revenues

44.0 % 48.2 % 43.2 % 48.2 %

Net outpatient revenues as a % of total net operating revenues

53.2 % 49.5 % 53.9 % 49.5 %
Income from operations $ 283,803 $ 284,658 -0.3 % $ 296,430 $ 286,823 3.3 %

Income from operations as a % of net operating revenues

8.3 % 9.0 % 9.0 % 9.1 %
Depreciation and amortization $ 161,515 $ 147,289 $ 155,669 $ 147,289
Equity in earnings of unconsolidated affiliates $ 8,194 $ 9,538 $ 8,195 $ 9,538
Liquidity Data:
Adjusted EBITDA (c) $ 453,512 $ 441,485 2.7 %

Adjusted EBITDA as a % of net operating revenues

13.2 % 14.0 %
Net cash provided by operating activities $ 235,550 $ 356,585

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

6.9 % 11.3 %
 

_____

For footnotes, see pages 11 and 12.

 
 
 
 
 
 
 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Selected Operating Data (b)

($ in thousands)

(Unaudited)

 
 

 

  For the Nine Months Ended September 30,
Consolidated   Same-Store
2011   2010   % Change 2011   2010   % Change
Number of hospitals (at end of period) 130 123 123 123
Licensed beds (at end of period) 19,358 18,053 18,038 18,053
Beds in service (at end of period) 16,542 15,713 15,523 15,713
Admissions 509,508 506,774 0.5 % 480,294 506,774 -5.2 %
Adjusted admissions 998,959 951,129 5.0 % 946,128 951,129 -0.5 %
Patient days 2,237,614 2,154,057 2,104,926 2,154,057
Average length of stay (days) 4.4 4.3 4.4 4.3
Occupancy rate (average beds in service) 49.7 % 50.5 % 49.6 % 50.5 %
Net operating revenues $ 10,223,881 $ 9,309,081 9.8 % $ 9,772,155 $ 9,307,277 5.0 %

Net inpatient revenues as a % of total net operating revenues

46.4 % 49.4 % 46.0 % 49.4 %

Net outpatient revenues as a % of total net operating revenues

51.2 % 48.5 % 51.7 % 48.5 %
Income from operations $ 853,492 $ 836,316 2.1 % $ 889,901 $ 843,699 5.5 %

Income from operations as a % of net operating revenues

8.3 % 9.0 % 9.1 % 9.1 %
Depreciation and amortization $ 481,046 $ 440,971 $ 466,134 $ 440,971
Equity in earnings of unconsolidated affiliates $ 38,345 $ 33,108 $ 38,346 $ 33,045
Liquidity Data:
Adjusted EBITDA (c) $ 1,372,883 $ 1,310,395 4.8 %

Adjusted EBITDA as a % of net operating revenues

13.4 % 14.1 %
Net cash provided by operating activities $ 820,235 $ 898,377

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

8.0 % 9.7 %
 

_____

For footnotes, see pages 11 and 12.

 
 
 
 
 
 
 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)

 
     
September 30, December 31,
2011 2010

ASSETS

Current assets
Cash and cash equivalents $ 266,312 $ 299,169

Patient accounts receivable, net of allowance for doubtful accounts of $1,840,003 and $1,639,198 at September 30, 2011 and December 31, 2010, respectively

1,773,125 1,714,542
Supplies 336,462 329,114
Prepaid income taxes - 118,464
Deferred income taxes 115,819 115,819
Prepaid expenses and taxes 119,073 100,754
Other current assets 225,737   193,331  
Total current assets 2,836,528   2,871,193  
Property and equipment 8,963,658 8,383,122
Less accumulated depreciation and amortization (2,389,718 ) (2,058,685 )
Property and equipment, net 6,573,940   6,324,437  
Goodwill 4,232,913   4,150,247  
Other assets, net 1,204,541   1,352,246  
Total assets $ 14,847,922   $ 14,698,123  
 
LIABILITIES
Current liabilities
Current maturities of long-term debt $ 61,066 $ 63,139
Accounts payable 636,327 526,338
Current income tax payable 17,705 -
Deferred income taxes 8,882 8,882
Accrued interest 83,984 146,415
Accrued liabilities 895,196   897,266  
Total current liabilities 1,703,160   1,642,040  
Long-term debt 8,768,677   8,808,382  
Deferred income taxes 608,177   608,177  
Other long-term liabilities 975,163   1,001,675  
Total liabilities 12,055,177   12,060,274  
 
Redeemable noncontrolling interests in equity of consolidated subsidiaries 383,745   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; 91,753,992 shares issued and 90,778,443 shares outstanding at September 30, 2011, and 93,644,862 shares issued and 92,669,313 shares outstanding at December 31, 2010

918 936
Additional paid-in capital 1,084,415 1,126,751

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

(6,678 ) (6,678 )
Accumulated other comprehensive loss (201,051 ) (230,927 )
Retained earnings 1,470,399   1,299,382  
Total Community Health Systems, Inc. stockholders' equity 2,348,003 2,189,464
Noncontrolling interests in equity of consolidated subsidiaries 60,997   60,913  
Total equity 2,409,000   2,250,377  
Total liabilities and equity $ 14,847,922   $ 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)

 
 
    Nine Months Ended
September 30,
2011   2010
Cash flows from operating activities
Net income $ 224,503 $ 256,192

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

 

 

Depreciation and amortization

485,917

452,179

Stock-based compensation expense 31,588 29,899
Loss on sale 3,300 -
Impairment of hospitals sold and held for sale 47,930 -
Excess tax benefit relating to stock-based compensation (4,616 ) (10,109 )
Other non-cash expenses, net 14,279 8,237

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

Patient accounts receivable (90,805 ) (25,579 )
Supplies, prepaid expenses and other current assets (31,455 ) 4,755
Accounts payable, accrued liabilities and income taxes 146,166 172,687
Other   (6,572 )   10,116  
Net cash provided by operating activities   820,235     898,377  
 
Cash flows from investing activities
Acquisitions of facilities and other related equipment (209,451 ) (67,541 )
Purchases of property and equipment (532,845 ) (381,853 )
Proceeds from disposition of hospitals and other ancillary operations 172,578 -
Proceeds from sale of property and equipment 9,251 2,845
Increase in other non-operating assets   (130,980 )   (98,502 )
Net cash used in investing activities   (691,447 )   (545,051 )
 
Cash flows from financing activities
Proceeds from exercise of stock options 18,880 53,839
Deferred financing costs (100 ) -
Excess tax benefit relating to stock-based compensation 4,616 10,109
Stock buy-back (85,790 ) (107,932 )
Proceeds from noncontrolling investors in joint ventures 1,229 5,155
Redemption of noncontrolling investments in joint ventures (4,784 ) (2,467 )
Distributions to noncontrolling investors in joint ventures (49,928 ) (41,870 )
Borrowings under credit agreement 83,000 -
Repayments of long-term indebtedness   (128,768 )   (46,952 )
Net cash used in financing activities   (161,645 )   (130,118 )
 
Net change in cash and cash equivalents (32,857 ) 223,208
Cash and cash equivalents at beginning of period   299,169     344,541  
Cash and cash equivalents at end of period $ 266,312   $ 567,749  
 
 
 
 
 
 
 
 

Footnotes to Financial Statements

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

  Three Months Ended   Nine Months Ended
September 30, September 30,
2011   2010 2011   2010

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

Income from continuing operations, net of taxes $ 95,800 $ 88,009 $ 280,279 $ 260,745

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

  18,327     14,484     53,486     45,816  

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

$ 77,473   $ 73,525   $ 226,793   $ 214,929  

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

Loss from discontinued operations, net of taxes $ (3,169 ) $ (3,155 ) $ (55,776 ) $ (4,553 )

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

  -     (31 )   -     (97 )

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

$ (3,169 ) $ (3,124 ) $ (55,776 ) $ (4,456 )
 
 

(b) Continuing operating results exclude discontinued operations for the three and nine months ended September 30, 2011 and 2010. Both financial and statistical results exclude entities in discontinued operations (including one hospital held for sale at September 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.

Footnotes to Financial Statements (Continued)

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

  Three Months Ended   Nine Months Ended
September 30, September 30,
2011   2010 2011   2010
Adjusted EBITDA $ 453,512 $ 441,485 $ 1,372,883 $ 1,310,395
Interest expense, net (159,480 ) (162,868 ) (485,928 ) (483,050 )
Provision for income taxes (36,717 ) (43,319 ) (125,630 ) (125,629 )

Loss from operations of entities sold and held for sale, net of taxes

(3,103 ) (3,155 ) (4,546 ) (4,553 )
Other non-cash expenses, net 20,901 23,885 46,123 39,235

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

  (39,563 )   100,557     17,333     161,979  
Net cash provided by operating activities $ 235,550   $ 356,585   $ 820,235   $ 898,377  
 

(d) Same-store consolidated net operating revenues for the three and nine months ended September 30, 2011, include approximately $40.2 million of Healthcare Information Technology (“HITECH”) incentives from Medicare and Medicaid related to certain of the Company’s hospitals completing attestations to their adoption or implementation of certified electronic health record technology.

(e) Included in non-same-store income from operations and income from continuing operations for the three months and nine months ended September 30, 2011, are pre-tax legal and other costs of $6.1 million and $12.3 million, with an after-tax impact of $3.9 million ($0.04 EPS), and $7.8 million ($0.09 EPS), respectively, related to the Tenet Healthcare Corporation (“Tenet”) lawsuit, governmental investigation and shareholder lawsuits.

(f) The provision for income taxes for the three months ended September 30, 2011 includes a benefit of $4.0 million or $0.04 per share related to the expected favorable resolution of a tax issue on appeal with the IRS.

(g) Also included in income from continuing operations for the three and nine months ended September 30, 2011, are pre-tax charges of $2.4 million and $8.0 million, respectively, related to acquisition costs (other than Tenet); and, pre-tax charges of $3.0 million, for the nine months ended September 30, 2011, for Tenet acquisition costs. No Tenet acquisition costs were incurred during the three months ended September 30, 2011.

(h) Included in discontinued operations for the three and nine months ended September 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.
  • Effective September 1, 2011, two hospitals, one in Tulsa, Oklahoma, and one in Claremore, Oklahoma, were sold. The after-tax loss on sale was approximately $39.6 million.
  • Effective October 22, 2011, the company sold its partnership interest in the limited partnership that operates Cleveland Regional Medical Center (107 licensed beds) located in Cleveland, Texas. This hospital was classified as held for sale at September 30, 2011. The estimated after-tax loss on sale was approximately $8.4 million, which was provided for during the nine months ended September 30, 2011 in discontinued operations.

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

  Three Months Ended   Nine Months Ended
September 30, September 30,
2011   2010 2011   2010

Weighted-average number of shares outstanding - basic

89,412 91,485 90,514 92,036
Add effect of dilutive securities:
Stock awards and options 446 978 742 1,184

Weighted-average number of shares outstanding - diluted

89,858 92,463 91,256 93,220
 

(j) 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, and the Company’s initial 2012 guidance. 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 July 28, 2011, as updated to reflect historical results through September 30, 2011, with certain changes to the assumptions used in connection with the guidance. 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) $ 1,840 to $ 1,855
Income from continuing operations per share - diluted $ 3.30 to $ 3.39
Same-store hospital annual adjusted admissions growth -1.0 % to 1.0 %
Weighted-average diluted shares (in millions) 91 to 92
 
 
Initial Mid-Point
2012 Projection*
Income from continuing operations per share - diluted $3.60
 

_____

* Detail assumptions and additional guidance will be provided in February 2012 in conjunction with the Company's year-end earning release.

 
 

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

  • The Company’s 2011 projection range does not include a hospital held for sale at September 30, 2011.
  • 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 12.6% to 12.8% 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 $0.08 to $0.09 per share (diluted) of acquisition costs (including the terminated Tenet acquisition) that are required to be expensed.
  • The Company’s 2011 projection range and initial 2012 projection do not include the legal expense and other expenses either incurred or 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 91% 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 4.8% for 2011; however, these percentages will vary as revenue and interest rates vary. The 2011 projection and initial 2012 projection do not assume any changes to the financing terms of the Senior Secured Credit Facility or any new financing arrangements.
  • 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 October 26, 2011, approximately 3.9 million shares with a value of approximately $99.7 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 0.4% 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 30.0% to 31.0% for 2011.
  • Capital expenditures are projected as follows (in millions):
    2011

Guidance

   
Total $ 750 to $ 800
 
  • Meaningful use certified electronic health records incentives are currently projected to be at least 35 bps 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 2011 projection and initial 2012 projection also do not take into account resolution of government investigations, Tenet-related lawsuits, and other significant lawsuits not resolved at October 26, 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 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 nine months ended September 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 and the initial projections for calendar year 2012 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  Other Health  Nursing  General Health  Managed Care

MEDIA:

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