Community Health Systems, Inc. Announces Third Quarter 2009 Results with Net Operating Revenues of $3.1 Billion
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- Community Health Systems, Inc. Announces Third Quarter 2009 Results with Net Operating Revenues of $3.1 Billion
FRANKLIN, Tenn.--(BUSINESS WIRE)-- Community Health Systems, Inc. (NYSE: CYH) today announced financial and operating results for the third quarter and nine months ended September 30, 2009.
Net operating revenues for the three months ended September 30, 2009, totaled $3.087 billion, a 12.1 percent increase compared with $2.755 billion for the same period in 2008. Income from continuing operations increased to $75.4 million, or $0.65 per share (diluted), on 92.0 million weighted average shares outstanding for the three months ended September 30, 2009, compared with $59.1 million, or $0.52 per share (diluted), on 95.2 million weighted average shares outstanding for the same period in 2008. Net income increased 18.5 percent to $59.7 million, or $0.65 per share (diluted), for the three months ended September 30, 2009, compared with $50.4 million, or $0.53 per share (diluted), for the same period in 2008.
Adjusted EBITDA for the three months ended September 30, 2009, was $417.8 million, compared with $385.8 million for the same period in 2008, representing an 8.3 percent increase. 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 uses adjusted EBITDA as a measure of liquidity. Net cash provided by operating activities for the three months ended September 30, 2009, was $356.4 million, compared with $268.3 million for the same period in 2008.
The consolidated financial results for the three months ended September 30, 2009, reflect a 7.2 percent increase in total admissions compared with the three months ended September 30, 2008. This increase was due primarily to acquisitions during the past twelve months. On a same-store basis, admissions decreased 0.2 percent and adjusted admissions increased 1.9 percent, compared with the same period in 2008. On a same-store basis, net operating revenues increased 5.2 percent, compared with the same period in 2008.
Net operating revenues for the nine months ended September 30, 2009, totaled $9.016 billion, a 10.8 percent increase compared with $8.138 billion for the same period in 2008. Income from continuing operations increased to $220.7 million, or $1.94 per share (diluted), on 91.1 million weighted average shares outstanding for the nine months ended September 30, 2009, compared with $171.8 million, or $1.54 per share (diluted), on 95.1 million weighted average shares outstanding for the same period in 2008. Net income was $178.1 million, or $1.95 per share (diluted), for the nine months ended September 30, 2009, compared with $158.4 million, or $1.67 per share (diluted), for the same period in 2008.
Adjusted EBITDA for the nine months ended September 30, 2009, was $1.237 billion, compared with $1.124 billion for the same period in 2008, representing a 10.1 percent increase. Net cash provided by operating activities for the nine months ended September 30, 2009, was $900.8 million, compared with $685.1 million for the same period in 2008.
The consolidated financial results for the nine months ended September 30, 2009, reflect a 3.5 percent increase in total admissions compared with the nine months ended September 30, 2008. This increase was due primarily to acquisitions during the past twelve months. On a same-store basis, admissions decreased 1.9 percent and adjusted admissions increased 0.4 percent, compared with the same period in 2008. On a same-store basis, net operating revenues increased 5.4 percent, compared with the same period in 2008.
Commenting on the results, Wayne T. Smith, chairman, president and chief executive officer of Community Health Systems, Inc., stated, "We are pleased with our solid financial and operating performance in the third quarter of 2009, as we again exceeded expectations. We continued to benefit from a consistent performance at the hospital level, as evidenced by favorable revenue trends and same-store margin expansion. These results confirm that the fundamentals of our business are strong and our centralized operating strategy is working across all of our markets.
"We believe our proven ability to enhance essential healthcare services and recruit and retain qualified physicians in our markets will help support our continued growth. Our conservative operating strategy has served us well, and we are mindful of the critical need to manage our costs and drive margins. We see considerable opportunities to leverage our assets and realize additional operating improvements at our more recently acquired hospitals. We are pleased with the trends in our business and we look forward to continued progress for the remainder of 2009 and into 2010," added Smith.
Included on pages 12, 13 and 14 of this press release are tables setting forth the Company's updated 2009 guidance. This guidance reaffirms the Company's previous annual earnings guidance provided on July 30, 2009, as modified to reflect certain changes as detailed in the guidance assumptions on pages 12, 13 and 14. Also reflected is the Company's initial 2010 guidance.
Located in the Nashville, Tennessee, suburb of Franklin, Community Health Systems, Inc. is the largest publicly-traded hospital company 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 122 hospitals in 29 states with an aggregate of approximately 18,000 licensed beds. Its hospitals offer a broad range of inpatient and surgical services, outpatient treatment and skilled nursing care. In addition, through its QHR subsidiary, the Company provides management and consulting services to over 150 independent 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 to discuss this press release on Thursday, October 29, 2009, at 10:30 a.m. Central, 11:30 a.m. Eastern. 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 through November 29, 2009. Copies of the Company's Form 8-K (including this press release) and conference call slide show are available on the Company's website at www.chs.net.
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)(c)(d)
($ in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net operating revenues $ 3,086,757 $ 2,754,509 $ 9,016,467 $ 8,138,017
Adjusted EBITDA (e) $ 417,827 $ 385,751 $ 1,236,976 $ 1,123,694
Income from continuing $ 75,361 $ 59,106 $ 220,679 $ 171,754
operations (f)(g)(h)
Net income attributable to
Community Health Systems, $ 59,712 $ 50,384 $ 178,062 $ 158,404
Inc.
Income from continuing
operations attributable to
Community Health Systems,
Inc. common stockholders per
share:
Basic (a) $ 0.66 $ 0.53 $ 1.96 $ 1.56
Diluted (a) $ 0.65 $ 0.52 $ 1.94 $ 1.54
Net income attributable to
Community Health Systems,
Inc. common stockholders per
share:
Basic $ 0.66 $ 0.54 $ 1.97 $ 1.69
Diluted $ 0.65 $ 0.53 $ 1.95 $ 1.67
Weighted-average number of
shares outstanding:
Basic (i) 90,923 94,045 90,424 93,995
Diluted (i) 92,011 95,160 91,117 95,106
Net cash provided by $ 356,353 $ 268,273 $ 900,760 $ 685,056
operating activities
For footnotes, see pages 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (a)(b)(c)(d)
($ in thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
2009 2008
% of Net % of Net
Amount Amount
Operating Operating Revenue
Revenue
Net operating $ 3,086,757 100.0 % $ 2,754,509 100.0 %
revenues
Operating costs
and expenses:
Salaries and 1,239,147 40.1 % 1,090,037 39.6 %
benefits
Provision for 378,357 12.3 % 321,570 11.7 %
bad debts
Supplies 428,120 13.9 % 379,913 13.8 %
Other operating 567,624 18.4 % 527,778 19.1 %
expenses
Rent 62,683 2.0 % 58,155 2.1 %
Depreciation and 143,558 4.7 % 128,663 4.7 %
amortization
Total operating
costs and 2,819,489 91.4 % 2,506,116 91.0 %
expenses
Income from 267,268 8.6 % 248,393 9.0 %
operations (h)
Interest 161,823 5.2 % 166,773 6.1 %
expense, net
Loss from early
extinguishment 21 0.0 % - 0.0 %
of debt
Equity in
earnings of (7,001 ) -0.2 % (8,695 ) -0.3 %
unconsolidated
affiliates
Income from
continuing
operations 112,425 3.6 % 90,315 3.2 %
before income
taxes
Provision for 37,064 1.2 % 31,209 1.1 %
income taxes
Income from
continuing 75,361 2.4 % 59,106 2.1 %
operations (h)
Discontinued
operations, net
of taxes (d):
Loss from
operations of - 0.0 % (608 ) 0.0 %
hospitals sold
(g)
Loss on sale of - 0.0 % - 0.0 %
hospitals, net
Loss from
discontinued - 0.0 % (608 ) 0.0 %
operations
Net income 75,361 2.4 % 58,498 2.1 %
Less: Net income
attributable to 15,649 0.5 % 8,114 0.3 %
noncontrolling
interests (a)
Net income
attributable to $ 59,712 1.9 % $ 50,384 1.8 %
Community Health
Systems, Inc.
Income from
continuing
operations
attributable to
Community Health
Systems, Inc.
common
stockholders per
share (a):
Basic $ 0.66 $ 0.53
Diluted $ 0.65 $ 0.52
Discontinued
operations
attributable to
Community Health
Systems, Inc.
common
stockholders per
share (a):
Basic $ 0.00 $ 0.01
Diluted $ 0.00 $ 0.01
Net income
attributable to
Community Health
Systems, Inc.
common
stockholders per
share (a):
Basic $ 0.66 $ 0.54
Diluted $ 0.65 $ 0.53
Weighted-average
number of shares
outstanding (i):
Basic 90,923 94,045
Diluted 92,011 95,160
For footnotes, see pages 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (a)(b)(c)(d)
($ in thousands, except per share amounts)
(Unaudited)
Nine Months Ended
September 30,
2009 2008
% of Net % of Net
Amount Amount
Operating Operating Revenue
Revenue
Net operating $ 9,016,467 100.0 % $ 8,138,017 100.0 %
revenues
Operating costs
and expenses:
Salaries and 3,614,267 40.1 % 3,255,287 40.0 %
benefits
Provision for 1,078,587 12.0 % 899,236 11.0 %
bad debts
Supplies 1,253,713 13.9 % 1,139,220 14.0 %
Other operating 1,680,414 18.7 % 1,577,172 19.4 %
expenses
Rent 184,211 2.0 % 175,486 2.2 %
Depreciation and 421,566 4.7 % 373,513 4.6 %
amortization
Total operating
costs and 8,232,758 91.4 % 7,419,914 91.2 %
expenses
Income from 783,709 8.6 % 718,103 8.8 %
operations (h)
Interest 487,209 5.3 % 484,836 6.0 %
expense, net
(Gain) loss from
early (2,385 ) 0.0 % 1,328 0.0 %
extinguishment
of debt (f)
Equity in
earnings of (31,701 ) -0.4 % (32,078 ) -0.4 %
unconsolidated
affiliates
Income from
continuing
operations 330,586 3.7 % 264,017 3.2 %
before income
taxes
Provision for 109,907 1.2 % 92,263 1.1 %
income taxes
Income from
continuing 220,679 2.5 % 171,754 2.1 %
operations (h)
(f)
Discontinued
operations, net
of taxes (d):
Income from
operations of
hospitals sold 1,977 0.0 % 1,044 0.0 %
and hospitals
held for sale
(g)
(Loss) gain on
sale of (405 ) 0.0 % 9,580 0.1 %
hospitals, net
Income from
discontinued 1,572 0.0 % 10,624 0.1 %
operations
Net income 222,251 2.5 % 182,378 2.2 %
Less: Net income
attributable to 44,189 0.5 % 23,974 0.3 %
noncontrolling
interests (a)
Net income
attributable to $ 178,062 2.0 % $ 158,404 1.9 %
Community Health
Systems, Inc.
Income from
continuing
operations
attributable to
Community Health
Systems, Inc.
common
stockholders per
share (a):
Basic $ 1.96 $ 1.56
Diluted $ 1.94 $ 1.54
Discontinued
operations
attributable to
Community Health
Systems, Inc.
common
stockholders per
share (a):
Basic $ 0.01 $ 0.12
Diluted $ 0.01 $ 0.12
Net income
attributable to
Community Health
Systems, Inc.
common
stockholders per
share (a)(j):
Basic $ 1.97 $ 1.69
Diluted $ 1.95 $ 1.67
Weighted-average
number of shares
outstanding (i):
Basic 90,424 93,995
Diluted 91,117 95,106
For footnotes, see pages 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (b)(c)
($ in thousands)
(Unaudited)
For the Three Months Ended September 30,
Consolidated Same-Store
2009 2008 % 2009 2008 %
Change Change
Number of
hospitals (at 122 117 117 117
end of period)
Licensed beds
(at end of 18,176 16,869 16,873 16,869
period)
Beds in
service (at 15,907 14,670 14,688 14,670
end of period)
Admissions 175,107 163,382 7.2 % 163,133 163,382 -0.2 %
Adjusted 327,837 300,822 9.0 % 306,657 300,822 1.9 %
admissions
Patient days 730,676 677,034 7.9 % 672,483 677,034 -0.7 %
Average length 4.2 4.1 4.1 4.1
of stay (days)
Occupancy rate
(average beds 49.9 % 49.9 % 49.7 % 49.9 %
in service)
Net operating $ 3,086,757 $ 2,754,509 12.1 % $ 2,895,990 $ 2,754,072 5.2 %
revenues
Net inpatient
revenue as a %
of total net 49.7 % 49.2 % 49.3 % 49.3 %
operating
revenues
Net outpatient
revenue as a %
of total net 48.0 % 48.4 % 48.5 % 48.5 %
operating
revenues
Income from $ 267,268 $ 248,393 7.6 % $ 272,479 $ 247,973 9.9 %
operations (h)
Income from
operations as
a % of net 8.7 % 9.0 % 9.4 % 9.0 %
operating
revenues
Depreciation
and $ 143,558 $ 128,663 $ 135,507 $ 128,663
amortization
Equity in
earnings of $ (7,001 ) $ (8,695 ) $ (6,739 ) $ (10,201 )
unconsolidated
affiliates
Liquidity
Data:
Adjusted $ 417,827 $ 385,751 8.3 %
EBITDA (e)
Adjusted
EBITDA as a %
of net 13.5 % 14.0 %
operating
revenues
Net cash
provided by $ 356,353 $ 268,273
operating
activities
Net cash
provided by
operating
activities as 11.5 % 9.7 %
a % of net
operating
revenues
For footnotes, see pages 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (b)(c)
($ in thousands)
(Unaudited)
For the Nine Months Ended September 30,
Consolidated Same-Store
2009 2008 % 2009 2008 %
Change Change
Number of
hospitals (at 122 117 117 117
end of period)
Licensed beds
(at end of 18,176 16,869 16,873 16,869
period)
Beds in
service (at 15,907 14,670 14,698 14,670
end of period)
Admissions 520,921 503,475 3.5 % 494,044 503,475 -1.9 %
Adjusted 958,674 908,539 5.5 % 911,716 908,533 0.4 %
admissions
Patient days 2,203,623 2,135,435 3.2 % 2,074,107 2,135,435 -2.9 %
Average length 4.2 4.2 4.2 4.2
of stay (days)
Occupancy rate
(average beds 51.6 % 53.0 % 51.7 % 53.0 %
in service)
Net operating $ 9,016,467 $ 8,138,017 10.8 % $ 8,572,358 $ 8,136,911 5.4 %
revenues
Net inpatient
revenue as a %
of total net 50.0 % 50.1 % 49.6 % 50.1 %
operating
revenues
Net outpatient
revenue as a %
of total net 47.8 % 47.6 % 48.2 % 47.6 %
operating
revenues
Income from
operations (f) $ 783,709 $ 718,103 9.1 % $ 795,758 $ 716,516 11.1 %
(h)
Income from
operations as
a % of net 8.7 % 8.8 % 9.3 % 8.8 %
operating
revenues
Depreciation
and $ 421,566 $ 373,513 $ 405,677 $ 373,513
amortization
Equity in
earnings of $ (31,701 ) $ (32,078 ) $ (31,439 ) $ (33,795 )
unconsolidated
affiliates
Liquidity
Data:
Adjusted $ 1,236,976 $ 1,123,694 10.1 %
EBITDA (e)
Adjusted
EBITDA as a %
of net 13.7 % 13.8 %
operating
revenues
Net cash
provided by $ 900,760 $ 685,056
operating
activities
Net cash
provided by
operating
activities as 10.0 % 8.4 %
a % of net
operating
revenues
For footnotes, see pages 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (a)
(in thousands, except share data)
(Unaudited)
September 30, December 31,
2009 2008
ASSETS
Current assets
Cash and cash equivalents $ 432,815 $ 220,655
Patient accounts receivable, net of allowance
for doubtful accounts of $1,367,290 and 1,676,345 1,625,470
$1,111,131 at September 30, 2009, and December
31, 2008, respectively
Supplies 289,145 275,696
Prepaid income taxes - 92,710
Deferred income taxes 91,875 91,875
Prepaid expenses and taxes 91,192 73,792
Other current assets 213,260 224,852
Total current assets 2,794,632 2,605,050
Property and equipment 7,593,143 7,110,357
Less accumulated depreciation and amortization (1,539,796 ) (1,215,952 )
Property and equipment, net 6,053,347 5,894,405
Goodwill 4,187,677 4,166,091
Other assets, net 1,008,027 1,152,708
Total assets $ 14,043,683 $ 13,818,254
LIABILITIES
Current liabilities
Current maturities of long-term debt $ 62,265 $ 33,904
Accounts payable 495,377 532,595
Current income taxes payable 48,251 -
Deferred income taxes 6,740 6,740
Accrued interest 83,562 153,234
Accrued liabilities 863,903 782,944
Total current liabilities 1,560,098 1,509,417
Long-term debt 8,864,698 8,938,185
Deferred income taxes 461,098 460,793
Other long-term liabilities 873,587 888,557
Total liabilities 11,759,481 11,796,952
Redeemable noncontrolling interests in equity of 335,019 320,171
consolidated subsidiaries (a)
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; 93,910,591
shares issued and 92,935,042 shares outstanding 939 925
at September 30, 2009, and 92,483,166 shares
issued and 91,507,617 shares outstanding at
December 31, 2008
Additional paid-in capital 1,164,238 1,151,119
Treasury stock, at cost, 975,549 shares at (6,678 ) (6,678 )
September 30, 2009 and December 31, 2008
Accumulated other comprehensive loss (242,242 ) (295,575 )
Retained earnings 954,311 776,249
Total Community Health Systems, Inc. 1,870,568 1,626,040
stockholders' equity
Noncontrolling interests in equity of 78,615 75,091
consolidated subsidiaries (a)
Total equity 1,949,183 1,701,131
Total liabilities and equity $ 14,043,683 $ 13,818,254
For footnotes, see pages 10 and 11.
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
2009 2008
Cash flows from operating activities
Net income attributable to Community Health $ 178,062 $ 158,404
Systems, Inc.
Plus: Net income attributable to noncontrolling 44,189 23,974
interests
Net income 222,251 182,378
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 421,898 378,107
Stock-based compensation expense 35,121 39,812
Loss (gain) on sale of hospitals and partnership 405 (17,687 )
interest, net
Income tax payable increase (excess tax benefit) 3,544 (1,278 )
relating to stock-based compensation
(Gain) loss on early extinguishment of debt (2,385 ) 1,328
Other non-cash expenses, net 13,410 7,578
Changes in operating assets and liabilities, net of
effects of acquisitions and divestitures:
Patient accounts receivable (10,235 ) (117,193 )
Supplies, prepaid expenses and other current assets 18,278 3,099
Accounts payable, accrued liabilities and income 194,955 184,995
taxes
Other 3,518 23,917
Net cash provided by operating activities 900,760 685,056
Cash flows from investing activities
Acquisitions of facilities and other related (211,941 ) (7,274 )
equipment
Purchases of property and equipment (398,138 ) (451,409 )
Proceeds from disposition of hospitals and other 89,514 365,635
ancillary operations
Proceeds from sale of property and equipment 2,521 13,964
Increase in other non-operating assets (111,476 ) (152,168 )
Net cash used in investing activities (629,520 ) (231,252 )
Cash flows from financing activities
Proceeds from exercise of stock options 9,952 1,688
(Income tax payable increase) excess tax benefit (3,544 ) 1,278
relating to stock-based compensation
Deferred financing costs (82 ) (2,569 )
Stock buy-back - (17,096 )
Proceeds from noncontrolling investors in joint 26,314 11,652
ventures
Redemption of noncontrolling investments in joint (2,387 ) (53,485 )
ventures
Distributions to noncontrolling investors in joint (43,744 ) (24,351 )
ventures
Borrowings under credit agreement 200,000 30,596
Repayments of long-term indebtedness (245,589 ) (192,507 )
Net cash used in financing activities (59,080 ) (244,794 )
Net change in cash and cash equivalents 212,160 209,010
Cash and cash equivalents at beginning of period 220,655 132,874
Cash and cash equivalents at end of period $ 432,815 $ 341,884
Footnotes to Financial Statements
(a) On January 1, 2009, the Company adopted revisions to U.S. generally accepted
accounting principles (U.S. GAAP) related to consolidations, the provisions of
which, among other things, requires that minority interests be renamed
noncontrolling interests and that a company present a consolidated net income
measure that includes the amounts attributable to both the controlling and
noncontrolling interests for all periods presented. The following table provides
information needed to recalculate income per share which is adjusted for
noncontrolling interests.
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Income from continuing operations
attributable to Community Health
Systems, Inc. common stockholders:
Income from continuing operations, $ 75,361 $ 59,106 $ 220,679 $ 171,754
net of tax
Less: Income from continuing
operations attributable to 15,649 9,424 43,834 25,026
noncontrolling interests, net of
taxes
Income from continuing operations
attributable to Community Health $ 59,712 $ 49,682 $ 176,845 $ 146,728
Systems, Inc. common stockholders
- basic and diluted
(Loss) income from discontinued
operations attributable to
Community Health Systems, Inc.
common stockholders:
(Loss) income from discontinued $ - $ (608 ) $ 1,572 $ 10,624
operations, net of tax
Less: Income (loss) from
discontinued operations - (1,310 ) 355 (1,052 )
attributable to noncontrolling
interests, net of taxes
Income from discontinued
operations attributable to
Community Health Systems, Inc. $ - $ 702 $ 1,217 $ 11,676
common stockholders - basic and
diluted
For the balance sheet presentation, U.S. GAAP requires that minority interests
be renamed noncontrolling interests and that a company present such
noncontrolling interests as a component of equity for all periods presented,
except for the redeemable noncontrolling interests, which are presented as a
component of mezzanine equity.
(b) Continuing operating results exclude discontinued operations for all periods
presented, as applicable.
(c) On March 31, 2009, the Company completed the settlement of all pending
litigation that resulted in the conveyance by two of the Company's indirect
subsidiaries of their 80% partnership interest in the partnership that owns
Presbyterian Hospital of Denton located in Denton, Texas, to the minority
partner of that partnership for approximately $100 million. For 2008, the
Denton, Texas, hospital had net operating revenues of approximately $150 million
with an EBITDA margin in the double digits. This hospital is included in
discontinued operations for all applicable periods presented.
(d) During the second quarter 2009, the Company made the decision to retain a
hospital and related businesses previously classified as being held for sale.
Results of operations, assets and liabilities and cash flows for this retained
hospital and related businesses are reported as continuing operations for all
periods presented.
(e) 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. generally accepted accounting principles. 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. generally accepted accounting principles. 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 for the three months and nine months ended September 30,
2009 and 2008 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Adjusted EBITDA $ 417,827 $ 385,751 $ 1,236,976 $ 1,123,694
Interest expense, net (161,823) (166,773) (487,209) (484,836)
Provision for income taxes (37,064) (31,209) (109,907) (92,263)
Income (loss) from operations of
hospitals sold and hospitals - (608) 1,977 1,044
held for sale, net of taxes
Other non-cash expenses, net 30,352 16,561 52,406 42,599
Net changes in operating assets
and liabilities, net of effects 107,061 64,551 206,517 94,818
of acquisitions
Net cash provided by operating $ 356,353 $ 268,273 $ 900,760 $ 685,056
activities
(f) Included in income from continuing operations for the nine months ended
September 30, 2009, is a gain from early extinguishment of debt of $2.4 million
with an after-tax impact of $1.5 million related to the repurchases on the open
market and cancellation of $126.5 million of Senior Notes and the early payment
of $110.4 million of term loans under the Company's Credit Facility. Included in
income from continuing operations for the nine months ended September 30, 2008,
is a loss from early extinguishment of debt of $1.3 million with an after-tax
impact of $0.9 million related to the repurchases on the open market and
cancellation of $62.7 million of Senior Notes and a pre-tax gain of $5.7 million
with an after-tax impact of $3.5 million from the sale of some excess land
previously held by the Company.
(g) Included in discontinued operations for the applicable periods are the
following:
-- Presbyterian Hospital of Denton (255 licensed beds) located in Denton,
Texas, which was conveyed to the noncontrolling partner on March 31,
2009; and,
-- Russell County Medical Center (78 licensed beds) located in Lebanon,
Virginia, nine hospitals with an aggregate total of 1,058 licensed beds
located in Alabama, Arkansas, Missouri, Oregon and Tennessee, and one
hospital located in the Republic of Ireland (122 licensed beds), all of
which were sold during the first quarter of 2008.
(h) Included in income from operations and income from continuing operations for
the three months and nine months ended September 30, 2009, are the following
non-same-store charges:
-- A pre-tax charge of $0.6 million and $3.6 million, respectively, related
to acquisition costs required to be expensed pursuant to revised
business combination accounting rules that became effective January 1,
2009; and
-- A pre-tax charge of $2.0 million and $7.0 million, respectively, for
system conversion costs related to conversion of Triad's former IT
systems to the Company's IT system.
(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,
2009 2008 2009 2008
Weighted-average number of shares 90,923 94,045 90,424 93,995
outstanding - basic
Add effect of dilutive securities:
Stock awards and options 1,088 1,115 693 1,111
Weighted-average number of shares 92,011 95,160 91,117 95,106
outstanding - diluted
(j) Total per share amounts may not add due to rounding.
Regulation FD Disclosure
The following table sets forth selected information concerning the Company's
updated projected consolidated operating results for the year ending December
31, 2009 and the Company's initial 2010 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. This
guidance reaffirms the Company's previous annual earnings guidance for 2009
provided on July 30, 2009, as modified to reflect certain changes as detailed
in the guidance assumptions below. See page 14 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 2009
Projection Range
Net operating revenues (in millions) $ 12,000 to $ 12,200
Adjusted EBITDA (in millions) $ 1,645 to $ 1,665
Income from continuing operations per share - diluted $ 2.57 to $ 2.65
Same hospitals annual admissions/adjusted admissions -1.0 % to 1.0 %
growth
Initial 2010
Projection Range*
Net operating revenues (in millions) $ 12,800 to $ 13,200
Income from continuing operations per share - diluted $ 2.80 to $ 3.00
Acquisitions of new hospitals 2
* Detail assumptions and additional guidance will be provided in February 2010
in conjunction with the Company's year-end earnings release.
The following assumptions were used in developing the 2009 guidance provided above:
-- The three acquisitions completed during 2009 have been included.
-- Projected 2009 same hospital annual admissions/adjusted admissions
growth does not consider unanticipated service closures and other
unusual events.
-- The Company's guidance does not take into account any resolution of the
New Mexico qui tam case (U.S. ex rel. Baker vs. Community Health
Systems, Inc.) in which it is alleged that the Company and three of the
Company's New Mexico hospitals have caused the State of New Mexico to
submit improper claims for federal funds in violation of the Federal
False Claims Act. The Company is vigorously defending this litigation.
-- Expressed as a percentage of net operating revenues, the provision for
bad debts is projected to be approximately 12.0% to 12.4% for 2009.
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 4.6% to 4.8% for 2009;
however, this is a fixed cost and the percentages may vary as revenue
varies. Excludes possible impact of any future fair-value adjustments to
investments and hospital fixed assets.
-- 2009 projection assumes an estimate of $0.03 to $0.04 per share
(diluted) of acquisition costs will be expensed pursuant to revised
business combination accounting rules that became effective January 1,
2009.
-- For the purpose of providing interest expense guidance, the Company
assumes that the borrowing rate under the Company's $7.215 billion
Senior Secured Credit Facility for 2009 will remain relatively stable
with the rates existing currently, particularly since the Company is a
party to interest rate swap agreements (with original maturities equal
to or greater than 2 years) in an amount equal to approximately 91% of
our outstanding debt which limits 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
5.3% to 5.5% for 2009; however, these percentages will vary as revenue
and interest rates vary.
-- Expressed as a percentage of net operating revenues, net income
attributable to noncontrolling interests is projected to be
approximately 0.4% to 0.6% for 2009.
-- On December 13, 2006, the Company announced a new open market repurchase
program for up to five million shares of the Company's common stock not
to exceed $200 million in purchases. This repurchase program will
conclude at the earlier of three years or when the maximum number of
shares has been repurchased or the maximum dollar amount has been
reached. Through October 28, 2009, 4.8 million shares have been
purchased under this repurchase plan. No additional share purchases have
been assumed for 2009. From January 1, 2009 through October 28, 2009,
the Company repurchased on the open market and cancelled $126.5 million
of principal amount of its Senior Notes and paid off and retired $110.4
million of principal amount of its Term Loans under the Company's Credit
Facility.
-- Expressed as a percentage of income from continuing operations before
income taxes, provision for income tax is projected to be approximately
31.5% to 33.5% for 2009. The adoption of U.S. GAAP related to
consolidation and the related presentation of noncontrolling interests
outside of income from continuing operations caused the effective tax
rate to be lower than previously projected. The income tax projection
includes possible additional unrecognized tax benefits and tax
revaluations that may be recognized prior to the end of 2009.
-- Capital expenditures are projected as follows (in millions):
2009
Guidance
Total $ 600 to $ 625
-- Net cash provided by operating activities are projected as follows (in
millions):
2009
Guidance
Total $ 1,000 to $ 1,100
-- The above guidance reflects a 0% to 1% increase in Medicare inpatient
reimbursement at October 1, 2009. This guidance reflects no new
significant changes in Medicaid reimbursements for 2009 and does not
reflect any state Medicaid legislation that has not been enacted or is
not known to date. This guidance does not reflect any state discount
programs not implemented to date. The 2009 guidance includes a reduction
of 0.10% of calendar year 2009 net operating revenues for the estimated
impact of the implementation of an outpatient prospective payment system
under the TRICARE/CHAMPUS program, which became effective on May 1,
2009.
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;
-- legislative proposals for healthcare reform and universal access to
healthcare coverage;
-- 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;
-- 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 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 quarter and nine months ended September 30, 2009, are not necessarily indicative of the results that may be experienced for any such future period or for any future year, including 2009 and 2010.
The Company cautions that the projections for calendar years 2009 and 2010 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.
Source: Community Health Systems, Inc.
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