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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File Number 1-13428
COMMUNITY HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0137965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 FRANKLIN ROAD, SUITE 400, BRENTWOOD, TENNESSEE
(Address of principal executive offices)
37027
(Zip code)
(615) 373-9600
(Registrant's telephone number)
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, and (2) has been subject to such filing
requirements for the past 90 days.
YES 'X' NO
As of May 8, 1996, there were outstanding 19,729,830 shares of the
Registrant's Common Stock, $.01 par value.
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<PAGE> 2
COMMUNITY HEALTH SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the
three months ended March 31, 1996 and 1995................... 3
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995........................................ 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995................... 5
Notes to Interim Condensed Consolidated Financial Statements... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 7
PART II. OTHER INFORMATION......................................... 8
SIGNATURES......................................................... 10
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Net Operating Revenues............................... $155,243 $142,065
-------- --------
Costs and Expenses:
Salaries and benefits.............................. 58,920 52,931
Other operating expenses........................... 48,471 43,729
Provision for bad debts............................ 11,708 9,667
Interest........................................... 4,461 4,735
Depreciation and amortization...................... 8,326 8,748
Rent............................................... 3,373 3,069
-------- --------
Total Costs and Expenses......................... 135,259 122,879
-------- --------
Income Before Income Taxes........................... 19,984 19,186
Provision For Income Taxes........................... 7,254 7,118
-------- --------
Net Income........................................... $ 12,730 $ 12,068
======== ========
Net Income Per Share................................. $ 0.63 $ 0.61
======== ========
Weighted Average Common and Common
Equivalent Shares Outstanding...................... 20,102 19,773
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE> 4
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 10,509 $ 14,282
Patient accounts receivable, net of allowance
for doubtful accounts.......................... 106,320 102,089
Other current assets............................. 35,580 40,226
-------- --------
Total Current Assets........................... 152,409 156,597
-------- --------
Property and Equipment............................. 513,815 461,557
Less Accumulated Depreciation and Amortization..... (127,229) (120,525)
-------- --------
Net Property and Equipment..................... 386,586 341,032
-------- --------
Long-term Assets of Facilities Held
for Disposition................................ - 42,925
Other Assets, net.................................. 29,964 27,159
-------- --------
Total Assets....................................... $568,959 $567,713
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt............. $ 6,172 $ 5,424
Accounts payable................................. 25,021 32,072
Accrued liabilities.............................. 42,680 38,783
-------- --------
Total Current Liabilities...................... 73,873 76,279
-------- --------
Long-term Debt..................................... 191,884 207,013
Deferred Income Taxes.............................. 32,781 31,691
Deferred Credits and Other Long-term Liabilities... 21,375 20,075
Stockholders' Equity:
Common stock..................................... 197 195
Additional paid-in capital....................... 201,112 197,453
Retained earnings................................ 47,737 35,007
-------- --------
Total Stockholders' Equity..................... 249,046 232,655
-------- --------
Total Liabilities and Stockholders' Equity......... $568,959 $567,713
======== ========
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE> 5
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Provided by Operating Activities:
Net income.......................................... $ 12,730 $ 12,068
Non-cash expenses and changes in operating
assets and liabilities............................ 6,488 (260)
-------- --------
Net Cash Provided by Operating Activities......... 19,218 11,808
-------- --------
Cash Flows from Investing Activities:
Exchange of hospitals, net of
working capital exchanged......................... (1,658) -
Purchase of property and equipment.................. (7,316) (10,277)
Increase in other assets............................ (2,100) (1,852)
-------- --------
Net Cash Used in Investing Activities............. (11,074) (12,129)
-------- --------
Cash Flows from Financing Activities:
Net repayments under Revolving Credit Facility...... (8,623) (11,500)
Repayment of long-term debt......................... (5,195) (1,678)
Other, net.......................................... 1,901 553
-------- --------
Net Cash Used in Financing Activities............. (11,917) (12,625)
-------- --------
Net Change in Cash and Cash Equivalents............... (3,773) (12,946)
Cash and Cash Equivalents at Beginning of Year........ 14,282 32,138
-------- --------
Cash and Cash Equivalents at End of Period............ $ 10,509 $ 19,192
======== ========
Supplemental Cash Flow Information:
Interest paid....................................... $ 2,485 $ 1,997
Income taxes paid, net of refunds................... 1,657 2,388
</TABLE>
See notes to interim condensed consolidated financial statements.
<PAGE> 6
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION. Community Health Systems, Inc. (the "Company") was incorporated
on March 25, 1985, for the principal purpose of owning and operating acute
care hospitals that are the principal providers of primary healthcare services
in non-urban communities. As of March 31, 1996, the Company owned, leased or
managed 38 hospitals licensed for 3,276 beds (including four managed hospitals
with 307 beds) in 18 states, primarily in the southeastern and southwestern
regions of the United States.
BASIS OF PRESENTATION. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
annual financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the quarterly period
ended March 31, 1996 are not indicative of the results that may be expected
for the year ending December 31, 1996. These financial statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto for the year ended December 31, 1995 included in the Company's
Annual Report on Form 10-K for such period (Commission File No. 1-13428).
NET INCOME PER SHARE. Net income per share is computed by dividing net income
by the weighted average number of common and common equivalent shares
outstanding. Fully diluted net income per share is not presented because it
approximates primary net income per share.
NOTE 2. LONG-TERM LEASE AND EXCHANGE OF HOSPITALS
On March 13, 1996, the Company commenced a long-term operating lease of a
49-bed hospital and related 70-bed nursing home located in Deming, New Mexico
for a term of 11 years.
On March 16, 1996, the Company completed an exchange transaction with
another healthcare company to acquire the 110-bed hospital located in
Crestview, Florida. In exchange, the other party received the Company's three
hospitals in the St. Petersburg, Florida market and a hospital in Pulaski,
Tennessee with an aggregated net book value of $42.9 million and approximately
$1.7 million in cash, net of working capital differential. The exchange
transaction is reflected in the accompanying financial statements as an
exchange of nonmonetary assets. Accordingly, the net book value of the
divested hospitals was allocated to the hospital acquired.
NOTE 3. CONSULTING AGREEMENT WITH A FORMERLY MANAGED HOSPITAL
On February 27, 1996, the Company commenced a one-year consulting
agreement with the formerly managed 230-bed hospital located in Poplar Bluff,
Missouri.
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS--QUARTER ENDED MARCH 31, 1996 COMPARED WITH QUARTER
ENDED MARCH 31, 1995
Net operating revenues for the three months ended March 31, 1996 increased
9.3% to $155.2 million, compared to $142.1 million for the same period of
1995. Of the $13.1 million increase, $11.6 million was contributed by
hospitals owned throughout both periods, $7.3 million by hospitals acquired
since August 1995, offset by a decrease of $5.8 million attributable to the
four divested hospitals (see Note 2). The $11.6 million, or 9.7% increase in
"same hospital" net revenues, consisted of $6.7 million attributable to an
increase in patient volume and a $4.9 million increase related to changes in
prices, payor mix and improved case mix. "Same hospitals" experienced a 0.7%
decrease in inpatient admissions, a 19.2% increase in outpatient
registrations, a 23.3% increase in surgery cases and a 1.8% decrease in
average length of stay ("ALOS"). The decrease in inpatient admissions was
primarily due to a 4.2% decline in specialty unit and psychiatric hospital
admissions. The increase in surgery cases and outpatient registrations was
due primarily to an increase of services offered and addition of physicians
through recruitment. The decrease in "same hospital" ALOS was due to a
reduction in Medicare patients' ALOS resulting from improved case management.
Expressed as a percentage of net operating revenues, operating expenses
(salaries and benefits, other operating expenses and provision for bad debts,
including corporate overhead) increased from 74.8% in the first quarter of
1995 to 76.7% in the same period of 1996, while operating margin declined from
25.2% in the first quarter of 1995 to 23.3% for the same period of 1996. The
decrease in operating margin was primarily attributable to the operating
losses associated with two of the four divested hospitals. "Same hospital"
operating margin decreased slightly from 27.9% in 1995 to 27.4% in 1996 as a
result of services offered that are profitable but yield lower margins, the
employment of physicians during the last 12 months who are still transitioning
into their communities and less favorable operating results associated with
the Company's two psychiatric hospitals.
Nonoperating expenses (interest, depreciation and amortization and rent)
for the three months ended March 31, 1996 decreased $392,000 over the same
period of 1995, primarily due to the elimination of depreciation and
amortization expense of $1.1 million relating to the divested hospitals,
offset by an increase in rent of $461,000 associated with three hospitals
acquired since August 1995.
Net income increased 5.5% to $12.7 million, or $0.63 per share, for the
quarter ended March 31, 1996 from $12.1 million, or $0.61 per share, for the
same period of 1995, due to "same hospital" growth and contributions from
three hospitals acquired since August 1995. Included in 1996 and 1995 net
income were operating (loss) income of $(180,000), or $(0.01) per share, and
$1.5 million, or $0.08 per share, respectively, attributable to the divested
hospitals.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March
31, 1996 increased 62.8% or $7.4 million to $19.2 million, from $11.8 million
for the same period of 1995, due primarily to (i) a $2.1 million decrease in
patient accounts receivable resulting from a decrease in revenues of the
<PAGE> 8
divested hospitals in 1996 as compared to the same period in 1995, (ii) a $2.2
million decrease in patient accounts receivable at one hospital acquired in
November 1994 that in 1996 had been fully integrated into the Company's
receivable collection system, (iii) a $1.7 million increase in deferred income
taxes resulting from a net reversal of temporary differences and (iv) a $1.5
million increase in income tax benefits realized from employee stock option
exercises. The use of cash in investing activities decreased from $12.1
million during 1995 to $11.1 million during 1996, due to a $2.7 million
decrease in capital expenditures primarily attributable to the four divested
hospitals and fewer purchases of physician practices and clinics during 1996.
This decrease was offset by a use of cash of $1.7 million during 1996 in
connection with the consummation of the exchange transaction (see Note 2).
Net cash used in financing activities decreased from $12.6 million in 1995 to
$11.9 million in 1996, due primarily to additional cash received in 1996 from
the exercise of stock options.
Net working capital was $78.5 million at March 31, 1996, as compared to
$80.3 million at December 31, 1995. Total assets increased to $569.0 million
at March 31, 1996, up from $567.7 million at December 31, 1995. The Company's
long-term debt as a percentage of total capitalization was 43.5% at March 31,
1996, compared to 47.1% at December 31, 1995.
As of May 8, 1996, the Company had $102.0 million available under its
Revolving Credit Facility to finance acquisitions, capital expenditures and
working capital requirements. The Company anticipates that internally
generated cash flows and borrowings under its Revolving Credit Facility will
be sufficient to fund future acquisitions, capital expenditures and working
capital requirements through 1996. There can be no assurance that future
developments in the healthcare industry or general economic trends will not
adversely affect the Company's operations.
REGULATORY MATTERS
Healthcare reform legislation has been proposed at both federal and state
levels. The Company cannot predict the effect that such reforms may have on
its business and there can be no assurance that any such reforms will not have
a material adverse effect on the Company's revenues and earnings.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
<PAGE> 9
Item 4. Submission of Matters to Vote of Security Holders.
At the Company's Annual Meeting of Stockholders held on April 30, 1996, the
stockholders elected the following three Class II directors by the votes
indicated:
<TABLE>
<CAPTION> For Withheld
----------- -----------
<S> <C> <C>
Thomas P. Cooper, M.D......................... 15,186,960 485,723
Kay W. Slayden................................ 15,213,374 459,309
David L. Steffy............................... 14,943,960 728,723
- - -------------------
The number of Broker nonvotes has been omitted because such nonvotes had no
effect on the outcome of the election.
</TABLE>
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11.1 Computation of Net Income Per Share.
27.1 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K, dated March 16, 1996,
pursuant to Item 2 thereof, to report the completion of the exchange of four
of the Company's hospitals for a hospital located in Crestview, Florida. The
report included pro forma financial information.
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Community Health Systems, Inc.
(Registrant)
/s/ T. Mark Buford
By -----------------------------
T. Mark Buford, CPA
Vice President and Corporate Controller
(Duly Authorized Officer and
Principal Accounting Officer)
May 8, 1996
Date -----------------
<PAGE> 11
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
11.1 Computation of Net Income Per Share.
27.1 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
EXHIBIT 11.1
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE (UNAUDITED)
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
------- -------
<S> <C> <C>
PRIMARY NET INCOME PER SHARE
(1) Net income available to common stock................. $12,730 $12,068
======= =======
Shares used in this computation:
Weighted average common shares outstanding......... 19,570 19,194
Shares applicable to stock options, net of shares
assumed to be purchased from proceeds at average
market price..................................... 532 579
------- -------
(2) Total shares for net income per share computation.... 20,102 19,773
======= =======
Net Income Per Share (1 divided by 2).............. $ 0.63 $ 0.61
======= =======
FULLY DILUTED NET INCOME PER SHARE
(3) Net income available to common stock (1)............. $12,730 $12,068
======= =======
Shares used in this computation:
Total primary shares (2)........................... 20,102 19,773
Shares applicable to stock options in addition
to those used in primary computation due to
the use of period-end market price when
higher than average.............................. 19 50
------- -------
(4) Total fully diluted shares........................... 20,121 19,823
======= =======
Net Income Per Share (3 divided by 4)............... $ 0.63 $ 0.61
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,509
<SECURITIES> 0
<RECEIVABLES> 106,320
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 152,409
<PP&E> 513,815
<DEPRECIATION> 127,229
<TOTAL-ASSETS> 568,959
<CURRENT-LIABILITIES> 73,873
<BONDS> 191,884
0
0
<COMMON> 197
<OTHER-SE> 248,849
<TOTAL-LIABILITY-AND-EQUITY> 568,959
<SALES> 0
<TOTAL-REVENUES> 155,243
<CGS> 0
<TOTAL-COSTS> 58,920
<OTHER-EXPENSES> 48,471
<LOSS-PROVISION> 11,708
<INTEREST-EXPENSE> 4,461
<INCOME-PRETAX> 19,984
<INCOME-TAX> 7,254
<INCOME-CONTINUING> 12,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,730
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
