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Community Health Systems Inc. Reports Operating Results (10-Q)

November 01, 2012 | About:
Andrew Barrett

10qk

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Community Health Systems Inc. (CYH) filed Quarterly Report for the period ended 2012-09-30.

Community Health Systems Inc has a market cap of $2.44 billion; its shares were traded at around $29.75 with a P/E ratio of 7.6 and P/S ratio of 0.2. Community Health Systems Inc had an annual average earning growth of 22.3% over the past 10 years. GuruFocus rated Community Health Systems Inc the business predictability rank of 4.5-star.

Highlight of Business Operations:

Our net operating revenues for the nine months ended September 30, 2012 increased to approximately $9.8 billion, as compared to approximately $8.9 billion for the nine months ended September 30, 2011. Income from continuing operations, before noncontrolling interests, for the nine months ended September 30, 2012 decreased 7.0% over the nine months ended September 30, 2011 to $260.6 million compared to $280.3 million. Included in income from continuing operations for the nine months ended September 30, 2012, is a $42.8 million after-tax benefit from the resolution of an industry-wide governmental settlement and a payment update related to prior periods, an $8.7 million after-tax charge to establish reserves for certain legal matters and a $72.8 million after-tax loss from the early extinguishment of debt. Excluding these one-time items, income from continuing operations, before noncontrolling interests, for the nine months ended September 30, 2012 increased 6.7% over the nine months ended September 30, 2011 to $299.2 million compared to $280.3 million. This increase in income from continuing operations during the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011, is due primarily to increased revenues at our same-store hospitals, income from electronic health records incentive reimbursements and reductions in interest expense. Total inpatient admissions for the nine months ended September 30, 2012 increased 3.7%, compared to the nine months ended September 30, 2011, and adjusted admissions for the nine months ended September 30, 2012 increased 6.7%, compared to the nine months ended September 30, 2011. On a same-store basis, admissions decreased 1.6% and adjusted admissions increased 1.3%, compared with the nine months ended September 30, 2011.

Self-pay revenues represented approximately 13.3% and 12.5% of our operating revenues, net of contractual allowances and discounts (but before provision for bad debts) for the three months ended September 30, 2012 and 2011, respectively, and 13.2% and 12.2% of our operating revenues, net of contractual allowances and discounts (but before provision for bad debts) for the nine months ended September 30, 2012 and 2011, respectively. The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 5.6% and 5.1% for the three months ended September 30, 2012 and 2011, respectively, and 5.3% and 5.1% of our net operating revenues for the nine months ended September 30, 2012 and 2011, respectively. Direct and indirect costs incurred by us in providing charity care services were approximately 1.0% of net operating revenues for both of the three-month periods ended September 30, 2012 and 2011, and 1.0% of our net operating revenues for both of the nine months ended September 30, 2012 and 2011.

Operating expenses, excluding depreciation and amortization, as a percentage of net operating revenues, increased 0.4% to 85.3% for the three months ended September 30, 2012, compared to 84.9% for the three months ended September 30, 2011. Salaries and benefits, as a percentage of net operating revenues, increased 0.2% to 47.5% for the three months ended September 30, 2012, compared to 47.3% for the three months ended September 30, 2011. This increase in salaries and benefits is primarily due to recent acquisitions. Supplies, as a percentage of net operating revenues, decreased 0.5% to 15.1% for the three months ended September 30, 2012, as compared to 15.6% for the three months ended September 30, 2011. This decrease is due primarily to lower drug, implant and food costs. Other operating expenses, as a percentage of net operating revenues, increased 0.4% to 21.6% for the three months ended September 30, 2012, as compared to 21.2% for the three months ended September 30, 2011. This increase is due primarily to an increase in costs associated with provider taxes from states with provider assessment programs. Rent, as a percentage of net operating revenues, decreased 0.1% to 2.1% for the three months ended September 30, 2012, as compared to 2.2% for the three months ended September 30, 2011. Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, decreased 0.1% to 0.2% for the three months ended September 30, 2012, as compared to 0.3% for the three months ended September 30, 2011.

Operating expenses, excluding depreciation and amortization, as a percentage of net operating revenues, remained consistent at 85.0% for each of the nine months ended September 30, 2012 and 2011. Salaries and benefits, as a percentage of net operating revenues, decreased 0.1% to 46.6% for the nine months ended September 30, 2012, compared to 46.7% for the nine months ended September 30, 2011. This decrease in salaries and benefits, as a percentage of net operating revenues, is due primarily to the increase in non-same store net operating revenues described above as well as efficiencies gained since the prior year in our hospitals owned throughout both periods. Supplies, as a percentage of net operating revenues, decreased 0.3% to 15.1% for the nine months ended September 30, 2012, as compared to 15.4% for the nine months ended September 30, 2011. This decrease is due primarily to lower drug, implant and food costs. Other operating expenses, as a percentage of net operating revenues, increased 0.7% to 22.0% for the nine months ended September 30, 2012, as compared to 21.3% for the nine months ended September 30, 2011. This increase is due primarily to an increase in costs associated with provider taxes from states with provider assessment programs. Rent, as a percentage of net operating revenues, remained consistent at 2.1% for each of the nine months ended September 30, 2012 and 2011. Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, decreased 0.1% to 0.3% for the nine months ended September 30, 2012, compared to 0.4% for the nine months ended September 30, 2011.

We have sold noncontrolling interests in certain of our subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions. As of September 30, 2012, we have hospitals in 21 of the markets we serve, with noncontrolling physician ownership interests ranging from less than 1% to 40%, including one hospital that also has a non-profit entity as a partner. In addition, we have three other hospitals with noncontrolling interests owned by non-profit entities. During the three months ended March 31, 2012, one of our subsidiaries purchased the outstanding partnership interests not already owned by us that were held by physician investors in the limited partnership that owns and operates Longview Regional Medical Center in Longview, Texas. The purchase price for these partnership interests was $28.8 million. After acquiring these partnership interests, one or more of our subsidiaries collectively own 100% of the outstanding equity of the limited partnership that owns and operates this hospital. Redeemable noncontrolling interests in equity of consolidated subsidiaries was $370.5 million and $395.7 million as of September 30, 2012 and December 31, 2011, respectively. Noncontrolling interests in equity of consolidated subsidiaries was $58.3 million and $67.3 million as of September 30, 2012 and December 31, 2011, respectively. The amount of net income attributable to noncontrolling interests was $14.5 million and $18.3 million for the three months ended September 30, 2012 and 2011, respectively, and $57.1 million and $53.5 million for the nine months ended September 30, 2012 and 2011, respectively. As a result of the change in the Stark Law whole hospital exception included in the Reform Legislation, we are not permitted to introduce physician ownership at any of our wholly-owned facilities or increase the aggregate percentage of physician ownership in any of our existing joint ventures.

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