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Community Health Systems, Inc. Announces Fourth Quarter and Year-End 2016 Results and 2017 GuidanceCommunity Health Systems, Inc. (NYSE: CYH) (the "Company") today announced financial and operating results for the three months and year ended December 31, 2016. The following highlights the financial and operating results for the three months ended December 31, 2016, that are further discussed below:
On April 29, 2016, the Company completed the spin-off of Quorum Health Corporation ("QHC"), comprised of 38 affiliated hospitals and related outpatient services in 16 states, together with Quorum Health Resources, LLC, a subsidiary providing management advisory and consulting services to non-affiliated hospitals. Following the spin-off, QHC became an independent public company with its common stock listed for trading under the symbol "QHC" on the New York Stock Exchange. Financial and statistical data reported in this earnings release include QHC operating results through the spin-off date. Same-store operating results and statistical data exclude information for the hospitals divested in the spin-off of QHC in both the 2016 periods and the comparable periods in 2015. Net operating revenues for the three months ended December 31, 2016, totaled $4.469 billion, a 6.9 percent decrease, compared with $4.798 billion for the same period in 2015. Loss from continuing operations attributable to Community Health Systems, Inc. common stockholders increased to a loss of $(211) million, or $(1.91) per share (diluted), for the three months ended December 31, 2016, compared with a loss from continuing operations of $(74) million, or $(0.66) per share (diluted), for the same period in 2015. During the three months ended December 31, 2016, the Company recorded a non-cash net expense totaling $224 million, primarily related to impairment charges totaling approximately $315 million to reduce the value of long-lived assets, primarily allocated goodwill, at hospitals that the Company has identified for sale and certain under-performing hospitals. These impairment charges were partially offset by the gain of $91 million on the sale of a majority ownership interest in the Company's home care division, which closed on December 31, 2016. The impairment charges do not have an impact on the calculation of the Company's financial covenants under the Company's Credit Facility. The results for the three months ended December 31, 2016, included the loss of $(2.35) per share (diluted) related to impairment and (gain) loss on sale of businesses, and loss of $(0.03) per share (diluted) related to government and other legal settlements and related legal expenses, and loss of $(0.02) per share (diluted) related to expenses from the spin-off of QHC. These expenses were partially offset by income of $0.04 per share (diluted) related to income from fair value adjustments on the CVR agreement liability accounted for at fair value related to the HMA legal proceedings, and related legal expenses. Excluding these items, income from continuing operations was $0.46 per share (diluted). The financial results for the three months and year ended December 31, 2015, include a $169 million increase in the Company's allowance for doubtful accounts on the December 31, 2015 consolidated balance sheet and a corresponding $169 million increase to the provision for bad debts related to a change in estimate recorded during the three months ended December 31, 2015. This adjustment reduced net operating revenues and adjusted EBITDA by $169 million and income from continuing operations by $108 million, or $0.96 and $0.94 per share (diluted), for the three months and year ended December 31, 2015, respectively. Net loss attributable to Community Health Systems, Inc. common stockholders was $(220) million, or $(1.99) per share (diluted) for the three months ended December 31, 2016, compared with $(83) million, or $(0.73) per share (diluted) for the same period in 2015. Discontinued operations for the three months ended December 31, 2016, consisted of $(0.03) per share (diluted) of losses from operations of entities sold or held for sale and $(0.06) per share (diluted) of expense related to the impairment of long-lived assets held for sale, for a total after-tax loss of approximately $(9) million or $(0.09) per share (diluted). Weighted-average shares outstanding (diluted) were 111 million for the three months ended December 31, 2016, and 113 million for the three months ended December 31, 2015. Adjusted EBITDA for the three months ended December 31, 2016, was $564 million compared with $527 million for the same period in 2015, representing a 7.0 percent increase. The consolidated operating results for the three months ended December 31, 2016, reflect an 11.6 percent decrease in total admissions, and a 12.7 percent decrease in total adjusted admissions, compared with the same period in 2015. On a same-store basis, both admissions and adjusted admissions decreased 1.4 percent during the three months ended December 31, 2016, compared with the same period in 2015. On a same-store basis, net operating revenues increased 0.5 percent during the three months ended December 31, 2016, compared with the same period in 2015. Net operating revenues for the year ended December 31, 2016, totaled $18.438 billion, a 5.1 percent decrease compared with $19.437 billion for the same period in 2015. Income from continuing operations attributable to Community Health Systems, Inc. common stockholders decreased to a loss of $(1.706) billion, or $(15.41) per share (diluted), for the year ended December 31, 2016, compared with income from continuing operations of $194 million, or $1.68 per share (diluted), for the same period in 2015. During the year ended December 31, 2016, the Company recorded non-cash impairment charges totaling $1.919 billion, primarily from an impairment charge of $1.395 billion on the value of goodwill for the Company's hospital reporting unit, and impairment charges totaling approximately $615 million to reduce the value of long-lived assets, primarily allocated goodwill, at certain under-performing hospitals and hospitals that the Company has closed, sold, or has identified for sale. These impairment charges were partially offset by the gain of $91 million on the sale of a majority ownership interest in the Company's home care division in the fourth quarter as noted above. The impairment charge recorded for goodwill during the three months ended June 30, 2016, resulted from a determination that the carrying value of the Company's hospital operations reporting unit exceeded its fair value, primarily as the result of the decline in the Company's market capitalization and fair value of long-term debt during the three months ended June 30, 2016, as well as a decrease in the estimated future earnings of the Company compared to previous estimates. The goodwill impairment charge originally estimated at June 30, 2016, was updated during the three months ended September 30, 2016. During the three months ended December 31, 2016, the Company performed its required annual goodwill impairment analysis, which indicated no additional goodwill impairment. These impairment charges do not have an impact on the calculation of the Company's financial covenants under the Company's Credit Facility. The results for the year ended December 31, 2016, included the loss of $(16.07) per share (diluted) related to impairment and (gain) loss on sale of businesses, loss of $(0.17) per share (diluted) from early extinguishment of debt, loss of $(0.09) per share (diluted) related to government and other legal settlements and related legal expenses, loss of $(0.10) per share (diluted) related to expenses from the spin-off of QHC and loss of $(0.01) per share (diluted) of expense incurred related to the sale of a majority ownership interest in the Company's home care division. These expenses were partially offset by income of $0.04 per share (diluted) related to income from fair value adjustments on the CVR agreement liability accounted for at fair value related to the HMA legal proceedings, and related legal expenses, and income of $0.54 per share (diluted) related to the gain on sale of investments in unconsolidated affiliates in connection with the Company's sale of its minority equity interests in five hospitals located in Las Vegas, Nevada, on April 29, 2016. Excluding these items, income from continuing operations was $0.46 per share (diluted). Net income attributable to Community Health Systems, Inc. common stockholders was a loss of $(1.721) billion, or $(15.54) per share (diluted) for the year ended December 31, 2016, compared with income of $158 million, or $1.37 per share (diluted) for the same period in 2015. Discontinued operations for the year ended December 31, 2016, consisted of $(0.06) per share (diluted) of losses from operations of entities sold or held for sale and $(0.07) per share (diluted) of expenses related to the impairment of long-lived assets held for sale, for a total after-tax loss of approximately $(15) million, or $(0.13) per share (diluted). Weighted-average shares outstanding (diluted) were 111 million for the year ended December 31, 2016, and 115 million for the year ended December 31, 2015. Adjusted EBITDA for the year ended December 31, 2016, was $2.225 billion compared with $2.670 billion for the same period in 2015, representing a 16.7 percent decrease. The consolidated operating results for the year ended December 31, 2016, reflect an 8.8 percent decrease in total admissions, and an 8.4 percent decrease in total adjusted admissions, compared with the same period in 2015. On a same-store basis, admissions decreased 1.9 percent and adjusted admissions decreased 0.5 percent during the year ended December 31, 2016, compared with the same period in 2015. On a same-store basis, net operating revenues increased 1.4 percent during the year ended December 31, 2016, compared with the same period in 2015. Adjusted EBITDA, a non-GAAP financial measure, is EBITDA adjusted to add back net income attributable to noncontrolling interests and to exclude the effect of discontinued operations, loss from early extinguishment of debt, impairment and (gain) loss on sale of businesses, gain on sale of investments in unconsolidated affiliates, acquisition and integration expenses from the acquisition of Health Management Associates, Inc. ("HMA"), expense incurred related to the spin-off of QHC, expense incurred related to the sale of a majority ownership interest in the Company's home care division, expense related to government and other legal settlements and related costs, and (income) expense from fair value adjustments on the CVR agreement liability accounted for at fair value related to the HMA legal proceedings, and related legal expenses. For information regarding why the Company believes Adjusted EBITDA presents useful information to investors, and for a reconciliation of Adjusted EBITDA to net income attributable to Community Health Systems, Inc. stockholders, see footnote (e) to the Financial Highlights, Financial Statements and Selected Operating Data below. Commenting on the results, Wayne T. Smith, chairman and chief executive officer of Community Health Systems, Inc., said, "We concluded the year with solid results in the fourth quarter, including sequential improvements in same-store net operating revenue, adjusted EBITDA and cash flow from operations. Significant progress has been made in our work to divest certain hospitals and other operations, enabling a reduction in our debt and the opportunity to reshape our portfolio into a stronger, more sustainable organization. Moving forward in 2017 and beyond, we are intently focused on efficiency improvements in our operations, strategic initiatives that enhance growth in our markets, and portfolio optimization that reduces our total debt. Most importantly, we remain committed to providing high-quality, safe healthcare for the patients and communities we serve." Included on pages 17, 18, 19 and 20 of this press release are tables setting forth the Company's 2017 annual earnings guidance. The 2017 guidance is based on the Company's historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time, and reflects the impact of planned divestitures that the Company expects to occur in 2017. Community Health Systems, Inc. is one of the largest publicly traded hospital companies in the United States and a leading operator of general acute care hospitals in communities across the country. After giving effect to the spin-off noted above, the Company, through its subsidiaries, owns, leases or operates 158 affiliated hospitals in 22 states with an aggregate of approximately 26,000 licensed beds. The Company's headquarters are located in Franklin, Tennessee, a suburb south of Nashville. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol "CYH." More information about the Company can be found on its website at www.chs.net. Community Health Systems, Inc. will hold a conference call on Tuesday, February 21, 2017, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the fourth quarter and year ended December 31, 2016. Investors will have the opportunity to listen to a live Internet broadcast of the conference call by clicking on the Investor Relations link of the Company's website at www.chs.net. To listen to the live call, please go to the website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and will continue to be available through February 28, 2017. Copies of this press release and conference call slide show, as well as the Company's Current Report on Form 8-K (including this press release), will be available on the Company's website at www.chs.net.
Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (a) Continuing operating results exclude discontinued operations for the three months and year ended December 31, 2016 and 2015. Both financial and statistical results exclude entities in discontinued operations for all periods presented. Same-store operating results and statistical data exclude information for the hospitals divested in the spin-off of QHC in both the 2016 periods and the comparable periods in 2015. (b) The contingent value right ("CVR") entitles the holder to receive a cash payment up to $1.00 per CVR (subject to downward adjustment but not below zero), subject to the final resolution of certain legal matters pertaining to HMA, as defined in the CVR agreement. If the aggregate amount of applicable losses under the CVR agreement exceeds a deductible of $18 million, then the amount payable in respect of each CVR shall be reduced (but not below zero) by an amount equal to the quotient obtained by dividing: (a) the product of (i) all losses in excess of the deductible and (ii) 90%; by (b) the number of CVRs outstanding on the date on which final resolution of the existing litigation occurs. Since the HMA acquisition date of January 27, 2014, approximately $32 million in costs have been incurred and approximately $30 million of settlements have been paid related to certain HMA legal matters, which collectively exceed the deductible of $18 million under the CVR agreement. The Company previously recorded an estimated fair value of the remaining underlying claims that will be covered by the CVR of $284 million as part of the acquisition accounting for HMA, which has been adjusted to its estimated fair value of $252 million at December 31, 2016. In addition, although future legal fees (which are expensed as incurred) associated with the HMA legal matters have not been accrued or included in the table below, such legal fees are taken into account in determining the total amount of reductions applied to the amounts owed to CVR holders. For the CVR valuation at December 31, 2016, the change in fair value from the previous quarter was primarily the result of an increase in the discount rate applied to the estimated settlement amount. The following table presents the impact of the recorded amounts as described above as applied to the CVR and the $18 million deductible and 10% co-insurance amounts (in millions):
(c) Included in discontinued operations for the three months and year ended December 31, 2016, are three smaller hospitals that are being actively marketed for sale. Included in discontinued operations for the three months and year ended December 31, 2015, were several hospitals held for sale at December 31, 2014, some of which were sold during the year ended December 31, 2015. The after-tax loss for the sold or held for sale hospitals, including an impairment charge on certain long-lived assets sold or held for sale, was approximately $9 million for both of the three month periods ended December 31, 2016 and 2015, respectively, and approximately $15 million and $36 million for the year ended December 31, 2016 and 2015, respectively. (d) The following table provides information needed to calculate (loss) income per share, which is adjusted for income attributable to noncontrolling interests (in millions):
Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued) (e) EBITDA is a non-GAAP financial measure which consists of net (loss) income attributable to Community Health Systems, Inc. before interest, income taxes, and depreciation and amortization. Adjusted EBITDA, also a non-GAAP financial measure, is EBITDA adjusted to add back net income attributable to noncontrolling interests and to exclude the effect of discontinued operations, loss from early extinguishment of debt, impairment and (gain) loss on sale of businesses, gain on sale of investments in unconsolidated affiliates, acquisition and integration expenses from the acquisition of HMA, expense incurred related to the spin-off of QHC, expense incurred related to the sale of a majority ownership interest in the Company's home care division, expense related to government and other legal settlements and related costs, and (income) expense from fair value adjustments on the CVR agreement liability accounted for at fair value related to the HMA legal proceedings, and related legal expenses. The Company has from time to time sold noncontrolling interests in certain of its subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions. The Company believes that it is useful to present Adjusted EBITDA because it adds back 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 now reports Adjusted EBITDA as a measure of financial performance rather than as a liquidity measure. Adjusted EBITDA is a key measure used by management to assess the operating performance of the Company's hospital operations and to make decisions on the allocation of resources. Adjusted EBITDA is also used to evaluate the performance of the Company's executive management team and is one of the primary targets used to determine short-term cash incentive compensation. In addition, management utilizes Adjusted EBITDA in assessing the Company's consolidated results of operations and operational performance and in comparing the Company's results of operations between periods. The Company believes it is useful to provide investors and other users of the Company's financial statements this performance measure to align with how management assesses the Company's results of operations. Adjusted EBITDA also is comparable to a similar metric called Consolidated EBITDA, as defined in the Company's senior secured credit facility, which is a key component in the determination of the Company's compliance with some of the covenants under the Company's senior secured credit facility (including the Company's ability to service debt and incur capital expenditures), and is used to determine the interest rate and commitment fee payable under the senior secured credit facility (although Adjusted EBITDA does not include all of the adjustments described in the senior secured credit facility). Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP. It should not be considered in isolation or as a substitute for net income, operating income, or any other performance measure calculated in accordance with U.S. GAAP. The items excluded from Adjusted EBITDA are significant components in understanding and evaluating financial performance. The Company believes such adjustments are appropriate as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating performance. Additionally, this calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. The following table reflects the reconciliation of Adjusted EBITDA, as defined, to net (loss) income attributable to Community Health Systems, Inc. stockholders as derived directly from the condensed consolidated financial statements (in millions):
(f) Included in non-same-store (loss) income from operations and (loss) income from continuing operations are pre-tax charges related to acquisition costs of $1 million and $2 million for the three months ended December 31, 2016 and 2015, respectively, and $5 million and $8 million for the year ended December 31, 2016 and 2015, respectively. Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued) (g) The following table sets forth components reconciling the basic weighted-average number of shares to the diluted weighted-average number of shares (in millions):
The Company generated a loss from continuing operations attributable to Community Health Systems, Inc. common stockholders for the three months and year ended December 31, 2016, and the three months ended December 31, 2015, so the effect of dilutive securities is not considered because their effect would be antidilutive. If the Company had generated income from continuing operations during the three months and year ended December 31, 2016, the effect of restricted stock awards, employee stock options, and other equity-based awards on the diluted shares calculation would have been an increase in shares of 2,938,406 shares and 2,554,627 shares, respectively. If the Company had generated income from continuing operations during the three months ended December 31, 2015, the effect of restricted stock awards, employee stock options, and other equity-based awards on the diluted shares calculation would have been an increase in shares of 644,334 shares. (h) The following supplemental tables reconcile (loss) income from continuing operations and net (loss) income attributable to Community Health Systems, Inc. common stockholders, as reported, on a per share (diluted) basis, with the adjustments described herein (total per share amounts may not add due to rounding):
Footnotes to Financial Highlights, Financial Statements and Selected Operating Data (Continued) (i) Both income from operations and loss from continuing operations for the three months ended December 31, 2016, included non-cash net expense of approximately $224 million, primarily related to impairment charges totaling approximately $315 million to reduce the value of long-lived assets, primarily allocated goodwill, at certain under-performing hospitals and hospitals that the Company has identified for sale, which were partially offset by the gain of $91 million on the sale of a majority ownership interest in the Company's home care division. Both loss from operations and loss from continuing operations for the year ended December 31, 2016, included an impairment charge of approximately $1.919 billion, of which $1.395 billion was a charge related to the write-down of a portion of the goodwill for the Company's hospital operation reporting unit, and $598 million was a charge related to the adjustment of the fair value of long-lived assets at certain of the Company's underperforming hospitals and some of the hospitals that the Company has been or is currently marketing for sale. These impairment charges were partially offset by the gain on the sale of a majority ownership interest in the Company's home care division of $91 million. The estimated impairment charge recorded for goodwill incurred during the three months ended June 30, 2016, resulted from a determination that the carrying value of the Company's hospital operations reporting unit exceeded its fair value, primarily as the result of the decline in the Company's market capitalization and fair value of long-term debt during the three months ended June 30, 2016, as well as a decrease in the estimated future earnings of the Company compared to previous estimates. The goodwill impairment charge originally estimated at June 30, 2016 was finalized during the three months ended September 30, 2016 based on the Company's updated valuation assumptions, as well as information obtained from third-party valuation services. Also, included in loss from operations and loss from continuing operations for the year ended December 31, 2016, was an impairment charge of approximately $17 million incurred during the three months ended March 31, 2016, related to the write-down of a portion of the goodwill allocated to the divestitures of Lehigh Regional Medical Center and Bartow Regional Medical Center, as well as the impairment of certain long-lived assets at one of the Company's smaller hospitals where the decision was made during the quarter ended March 31, 2016, to permanently close the hospital. These impairment charges do not have an impact on the calculation of the Company's financial covenants under the Company's Credit Facility. Loss from continuing operations for the three months ended December 31, 2015, includes an impairment charge of approximately $62 million related to the impairment of certain long-lived assets for several smaller hospitals recorded during the three months ended December 31, 2015. Income from continuing operations for the year ended December 31, 2015, includes an impairment charge of approximately $68 million which consists of $6 million related to the allocated reporting unit goodwill for one hospital sold during the three months ended September 30, 2015 and $62 million related to the impairment of certain long-lived assets for several smaller hospitals recorded during the three months ended December 31, 2015. These hospitals were identified as having permanent indicators of impairment due to a history of negative operating results and declining volumes, resulting in a decline in projections of future cash flows and estimated fair values. (j) The $0.03 per share (diluted) and $0.09 per share (diluted) of expense for "Government and other legal settlements and related costs" for the three months and year ended December 31, 2016, respectively, is the net impact of several lawsuits settled in principle during the year ended December 31, 2016, and related legal expenses. The $0.02 per share (diluted) of expense for "Government and other legal settlements and related costs" for the three months and year ended December 31, 2015, is the net impact of several qui tam lawsuits settled in principle during the year ended December 31, 2015, and related legal expenses. (k) On April 29, 2016, the Company sold its unconsolidated minority equity interests in Valley Health System, LLC, a joint venture with Universal Health Systems, Inc. ("UHS") representing four hospitals in Las Vegas, Nevada, in which the Company owned a 27.5% interest, and in Summerlin Hospital Medical Center, LLC, a joint venture with UHS representing one hospital in Las Vegas, Nevada, in which the Company owned a 26.1% interest. The Company received $403 million in cash in return for the sale of its equity interests and recognized a $94 million gain on sale of investments in unconsolidated affiliates during the year ended December 31, 2016. (l) Total per share amounts may not add due to rounding. Regulation FD Disclosure Set forth below is selected information concerning the Company's projected consolidated operating results for the year ending December 31, 2017. 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 2017 guidance should be considered in conjunction with the assumptions included herein. See pages 19 and 20 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:
Other assumptions used in the above guidance:
A reconciliation of the Company's projected 2017 Adjusted EBITDA, a forward-looking non-GAAP financial measure, to the Company's projected net income attributable to Community Health Systems, Inc. stockholders, the most directly comparable GAAP financial measure, is shown below:
(1) The Company does not include in this reconciliation the impact of certain items that would be included in a reconciliation of historical net income attributable to Community Health Systems, Inc. stockholders to Adjusted EBITDA such as, but not limited to, losses from early extinguishment of debt, impairment and (gain) loss on sale of businesses, and expense (income) related to government and other legal settlements and related costs, in light of the fact that such items are not determinable and/or the inherent difficulty in quantifying such projected amounts, and are therefore not included in the Company's forecast shown above.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainties. All statements in this press release other than statements of historical fact, including statements regarding projections, expected operating results, and other events that depend upon or refer to future events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "thinks," and similar expressions, are forward-looking statements. Although the Company believes that these forward-looking statements are based on reasonable assumptions, these assumptions are inherently subject to significant economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond the control of the Company. Accordingly, the Company cannot give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry generally and could cause the Company's expected results to differ materially from those expressed in this press release. These factors include, among other things:
The consolidated operating results for the three months and year ended December 31, 2016, are not necessarily indicative of the results that may be experienced for any future periods. The Company cautions that the projections for calendar year 2017 set forth in this press release are given as of the date hereof based on currently available information. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. View source version on businesswire.com: http://www.businesswire.com/news/home/20170220005681/en/ |