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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ________

 

Commission file number 001-15925

COMMUNITY HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

13-3893191

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

4000 Meridian Boulevard

Franklin, Tennessee

37067

(Zip Code)

(Address of principal executive offices)

 

 

615-465-7000

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

CYH

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  

Accelerated filer 

Smaller reporting company 

 

 

 

Non-accelerated filer 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  

As of October 20, 2022, there were outstanding 134,713,179 shares of the Registrant’s Common Stock, $0.01 par value.

 

 


 

Community Health Systems, Inc.

Form 10-Q

For the Three and Nine Months Ended September 30, 2022

 

 

 

 

 

 

 

 

Part I.

 

Financial Information

 

Page

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of (Loss) Income – Three and Nine Months Ended September 30, 2022 and September 30, 2021 (Unaudited)

 

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income – Three and Nine Months Ended September 30, 2022 and September 30, 2021 (Unaudited)

 

3

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2022 and December 31, 2021 (Unaudited)

 

4

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2022 and September 30, 2021 (Unaudited)

 

5

 

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

 

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

45

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

45

 

 

 

 

 

 

 

Part II.

 

Other Information

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

46

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

48

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

48

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

48

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

48

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

49

 

 

 

 

 

 

 

Signatures

 

50

 

 

 


 

 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(In millions, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net operating revenues

 

$

3,025

 

 

$

3,115

 

 

$

9,069

 

 

$

9,135

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

1,352

 

 

 

1,336

 

 

 

3,972

 

 

 

3,905

 

Supplies

 

 

492

 

 

 

529

 

 

 

1,477

 

 

 

1,521

 

Other operating expenses

 

 

828

 

 

 

716

 

 

 

2,511

 

 

 

2,170

 

Lease cost and rent

 

 

80

 

 

 

75

 

 

 

236

 

 

 

231

 

Pandemic relief funds

 

 

(115

)

 

 

(19

)

 

 

(171

)

 

 

(102

)

Depreciation and amortization

 

 

137

 

 

 

137

 

 

 

398

 

 

 

408

 

Impairment and (gain) loss on sale of businesses, net

 

 

47

 

 

 

1

 

 

 

54

 

 

 

24

 

Total operating costs and expenses

 

 

2,821

 

 

 

2,775

 

 

 

8,477

 

 

 

8,157

 

Income from operations

 

 

204

 

 

 

340

 

 

 

592

 

 

 

978

 

Interest expense, net

 

 

217

 

 

 

216

 

 

 

652

 

 

 

666

 

(Gain) loss from early extinguishment of debt

 

 

(78

)

 

 

 

 

 

(73

)

 

 

79

 

Gain on sale of equity interests in Macon Healthcare, LLC

 

 

 

 

 

(26

)

 

 

 

 

 

(26

)

Equity in earnings of unconsolidated affiliates

 

 

(5

)

 

 

(4

)

 

 

(11

)

 

 

(19

)

Income before income taxes

 

 

70

 

 

 

154

 

 

 

24

 

 

 

278

 

Provision for income taxes

 

 

70

 

 

 

10

 

 

 

291

 

 

 

132

 

Net income (loss)

 

 

 

 

 

144

 

 

 

(267

)

 

 

146

 

Less: Net income attributable to noncontrolling interests

 

 

42

 

 

 

33

 

 

 

102

 

 

 

94

 

Net (loss) income attributable to Community Health Systems,

   Inc. stockholders

 

$

(42

)

 

$

111

 

 

$

(369

)

 

$

52

 

(Loss) earnings per share attributable to Community Health

   Systems, Inc. stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.32

)

 

$

0.87

 

 

$

(2.86

)

 

$

0.41

 

Diluted

 

$

(0.32

)

 

$

0.85

 

 

$

(2.86

)

 

$

0.40

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

129,141,673

 

 

 

127,077,786

 

 

 

128,689,999

 

 

 

126,638,291

 

Diluted

 

 

129,141,673

 

 

 

130,885,139

 

 

 

128,689,999

 

 

 

129,885,951

 

 

See accompanying notes to the condensed consolidated financial statements.

 

2


 

 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income (loss)

 

$

 

 

$

144

 

 

$

(267

)

 

$

146

 

Other comprehensive (loss) income, net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in fair value of available-for-sale debt securities,

   net of tax

 

 

(6

)

 

 

(1

)

 

 

(20

)

 

 

(4

)

Amortization and recognition of unrecognized pension cost

  components, net of tax

 

 

 

 

 

2

 

 

 

1

 

 

 

3

 

Other comprehensive (loss) income

 

 

(6

)

 

 

1

 

 

 

(19

)

 

 

(1

)

Comprehensive (loss) income

 

 

(6

)

 

 

145

 

 

 

(286

)

 

 

145

 

Less: Comprehensive income attributable to noncontrolling

   interests

 

 

42

 

 

 

33

 

 

 

102

 

 

 

94

 

Comprehensive (loss) income attributable to Community Health

   Systems, Inc. stockholders

 

$

(48

)

 

$

112

 

 

$

(388

)

 

$

51

 

 

See accompanying notes to the condensed consolidated financial statements.

3


 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

 

 

 

September 30,

2022

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

300

 

 

$

507

 

Patient accounts receivable

 

 

1,969

 

 

 

2,062

 

Supplies

 

 

355

 

 

 

355

 

Prepaid income taxes

 

 

98

 

 

 

94

 

Prepaid expenses and taxes

 

 

246

 

 

 

192

 

Other current assets

 

 

301

 

 

 

269

 

Total current assets

 

 

3,269

 

 

 

3,479

 

Property and equipment

 

 

9,727

 

 

 

9,757

 

Less accumulated depreciation and amortization

 

 

(4,277

)

 

 

(4,204

)

Property and equipment, net

 

 

5,450

 

 

 

5,553

 

Goodwill

 

 

4,201

 

 

 

4,219

 

Deferred income taxes

 

 

53

 

 

 

53

 

Other assets, net

 

 

1,941

 

 

 

1,913

 

Total assets

 

$

14,914

 

 

$

15,217

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

21

 

 

$

31

 

Current operating lease liabilities

 

 

151

 

 

 

147

 

Accounts payable

 

 

820

 

 

 

830

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Employee compensation

 

 

601

 

 

 

655

 

Accrued interest

 

 

218

 

 

 

225

 

Other

 

 

572

 

 

 

476

 

    Total current liabilities

 

 

2,383

 

 

 

2,364

 

Long-term debt

 

 

11,943

 

 

 

12,109

 

Deferred income taxes

 

 

477

 

 

 

192

 

Long-term operating lease liabilities

 

 

563

 

 

 

535

 

Other long-term liabilities

 

 

726

 

 

 

827

 

Total liabilities

 

 

16,092

 

 

 

16,027

 

Redeemable noncontrolling interests in equity of consolidated subsidiaries

 

 

516

 

 

 

480

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Community Health Systems, Inc. stockholders’ deficit:

 

 

 

 

 

 

 

 

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; 134,698,067

   shares issued and outstanding at September 30, 2022, and 132,146,282 shares issued

   and outstanding at December 31, 2021

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

2,091

 

 

 

2,118

 

Accumulated other comprehensive loss

 

 

(33

)

 

 

(14

)

Accumulated deficit

 

 

(3,845

)

 

 

(3,477

)

Total Community Health Systems, Inc. stockholders’ deficit

 

 

(1,786

)

 

 

(1,372

)

Noncontrolling interests in equity of consolidated subsidiaries

 

 

92

 

 

 

82

 

Total stockholders’ deficit

 

 

(1,694

)

 

 

(1,290

)

Total liabilities and stockholders’ deficit

 

$

14,914

 

 

$

15,217

 

 

See accompanying notes to the condensed consolidated financial statements.

4


 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(267

)

 

$

146

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

398

 

 

 

408

 

Deferred income taxes

 

 

290

 

 

 

123

 

Stock-based compensation expense

 

 

14

 

 

 

18

 

Impairment and (gain) loss on sale of businesses, net

 

 

54

 

 

 

24

 

(Gain) loss from early extinguishment of debt

 

 

(73

)

 

 

79

 

Gain on sale of equity interests in Macon Healthcare, LLC

 

 

 

 

 

(26

)

Other non-cash expenses, net

 

 

140

 

 

 

22

 

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

 

 

 

 

 

 

 

 

Patient accounts receivable

 

 

93

 

 

 

(99

)

Supplies, prepaid expenses and other current assets

 

 

(94

)

 

 

14

 

Repayment/derecognition of Medicare accelerated payments

 

 

 

 

 

(267

)

Accounts payable, accrued liabilities and income taxes

 

 

(90

)

 

 

85

 

Other

 

 

(174

)

 

 

(127

)

Net cash provided by operating activities

 

 

291

 

 

 

400

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions of facilities and other related businesses

 

 

(9

)

 

 

(3

)

Purchases of property and equipment

 

 

(284

)

 

 

(334

)

Proceeds from disposition of hospitals and other ancillary operations

 

 

3

 

 

 

17

 

Proceeds from sale of property and equipment

 

 

30

 

 

 

7

 

Purchases of available-for-sale debt securities and equity securities

 

 

(73

)

 

 

(135

)

Proceeds from sales of available-for-sale debt securities and equity securities

 

 

62

 

 

 

86

 

Proceeds from sale of equity interests in Macon Healthcare, LLC

 

 

 

 

 

110

 

Distribution of CoreTrust proceeds

 

 

121

 

 

 

 

Purchases of investments in unconsolidated affiliates

 

 

(18

)

 

 

(4

)

Increase in other investments

 

 

(39

)

 

 

(57

)

Net cash used in investing activities

 

 

(207

)

 

 

(313

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repurchase of restricted stock shares for payroll tax withholding requirements

 

 

(8

)

 

 

(5

)

Deferred financing costs and other debt-related costs

 

 

(73

)

 

 

(310

)

Proceeds from noncontrolling investors in joint ventures

 

 

10

 

 

 

1

 

Redemption of noncontrolling investments in joint ventures

 

 

(2

)

 

 

(5

)

Distributions to noncontrolling investors in joint ventures

 

 

(105

)

 

 

(95

)

Other borrowings

 

 

35

 

 

 

50

 

Issuance of long-term debt

 

 

1,535

 

 

 

4,310

 

Repayments of long-term indebtedness

 

 

(1,683

)

 

 

(4,415

)

Net cash used in financing activities

 

 

(291

)

 

 

(469

)

Net change in cash and cash equivalents

 

 

(207

)

 

 

(382

)

Cash and cash equivalents at beginning of period

 

 

507

 

 

 

1,676

 

Cash and cash equivalents at end of period

 

$

300

 

 

$

1,294

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest payments

 

$

(614

)

 

$

(572

)

Income tax payments, net

 

$

(6

)

 

$

(3

)

 

See accompanying notes to the condensed consolidated financial statements.

 

 

5


COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 

The unaudited condensed consolidated financial statements of Community Health Systems, Inc. (the “Parent” or “Parent Company”) and its subsidiaries (the “Company”) as of September 30, 2022 and December 31, 2021 and for the three-month and nine-month periods ended September 30, 2022 and 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2022. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions.

Certain information and disclosures normally included in the notes to the consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 17, 2022 (“2021 Form 10-K”).

Reclassifications. Certain prior period amounts have been reclassified to conform to the current period presentation within the condensed consolidated statements of cash flows.

Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity on the condensed consolidated balance sheets to distinguish between the interests of the Parent Company and the interests of the noncontrolling owners. Noncontrolling interests that are redeemable or may become redeemable at a fixed or determinable price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine equity on the condensed consolidated balance sheets.

Substantially all of the Company’s operating costs and expenses are “cost of revenue” items. Operating costs that could be classified as general and administrative by the Company include the Company’s corporate office costs at its Franklin, Tennessee office, which were $60 million and $56 million for the three months ended September 30, 2022 and 2021, respectively, and $179 million and $168 million for the nine months ended September 30, 2022 and 2021, respectively.

Throughout these notes to the unaudited condensed consolidated financial statements, Community Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as the “Company.” This drafting style is not meant to indicate that the publicly traded Parent or any particular subsidiary of the Parent owns or operates any asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of Community Health Systems, Inc.

Revenue Recognition.   

Net Operating Revenues

Net operating revenues are recorded at the transaction price estimated by the Company to reflect the total consideration due from patients and third-party payors in exchange for providing goods and services in patient care. These services are considered to be a single performance obligation and have a duration of less than one year. Revenues are recorded as these goods and services are provided. The transaction price, which involves significant estimates, is determined based on the Company’s standard charges for the goods and services provided, with a reduction recorded for price concessions related to third party contractual arrangements as well as patient discounts and other patient price concessions. During each of the three and nine-month periods ended September 30, 2022 and 2021, the impact of changes to the inputs used to determine the transaction price was considered immaterial.

Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers that is not specifically tied to an individual’s care, some of which offsets a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from the Centers for Medicare & Medicaid Services (“CMS”) and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Under these supplemental programs, the Company recognizes revenue and related expenses in the period in which amounts are estimable and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues. Taxes or other program-related costs are reflected in other operating expenses.

6


COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

 

 

The Company’s net operating revenues during the three and nine months ended September 30, 2022 and 2021 have been presented in the following table based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in millions):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Medicare

 

$

644

 

 

$

653

 

 

$

1,928

 

 

$

1,988

 

Medicaid

 

 

449

 

 

 

412

 

 

 

1,362

 

 

 

1,223

 

Managed Care and other third-party payors

 

 

1,925

 

 

 

2,010

 

 

 

5,719

 

 

 

5,845

 

Self-pay

 

 

7

 

 

 

40

 

 

 

60

 

 

 

79

 

Total

 

$