Market Overview

Community Health Systems, Inc. Announces Second Quarter 2018 Results with Net Operating Revenues of $3.562 Billion

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Community Health Systems, Inc. (NYSE:CYH) (the "Company") today
announced financial and operating results for the three and six months
ended June 30, 2018.

The following highlights the financial and operating results for the
three months ended June 30, 2018.

  • Net operating revenues totaled $3.562 billion.
  • Net loss attributable to Community Health Systems, Inc. common
    stockholders was $(110) million, or $(0.97) per share (diluted),
    compared with net loss of $(137) million, or $(1.22) per share
    (diluted) for the same period in 2017. Excluding the adjusting items
    as presented in the table in footnote (h) on page 15, net loss
    attributable to Community Health Systems, Inc. common stockholders was
    $(0.01) per share (diluted), compared with $(0.31) per share (diluted)
    for the same period in 2017.
  • Adjusted EBITDA was $411 million.
  • Net cash (used in) provided by operating activities was $(12)
    million, compared with $261 million for the same period in 2017. Cash
    flows from operations for the three months ended June 30, 2018
    included additional cash outflows of approximately $60 million from
    the acceleration of interest payments associated with the closing of
    our debt exchange and cash payments of $11 million from workforce
    reduction and restructuring charges. Cash flows from operations for
    the three months ended June 30, 2017 included the benefit of
    approximately $65 million from interest payments that had been
    accelerated to the first quarter of 2017, as well as approximately $24
    million of cash received for meaningful use incentives.
  • On a same-store basis, admissions decreased 2.1 percent and
    adjusted admissions decreased 0.2 percent, compared with the same
    period in 2017.

Net operating revenues for the three months ended June 30, 2018, totaled
$3.562 billion, a 14.0 percent decrease, compared with $4.144 billion
for the same period in 2017.

Net loss attributable to Community Health Systems, Inc. common
stockholders was $(110) million, or $(0.97) per share (diluted), for the
three months ended June 30, 2018, compared with $(137) million, or
$(1.22) per share (diluted), for the same period in 2017. Excluding the
adjusting items as presented in the table in footnote (h) on page 15,
net loss attributable to Community Health Systems, Inc. common
stockholders was $(0.01) per share (diluted), for the three months ended
June 30, 2018, compared with $(0.31) per share (diluted) for the same
period in 2017. Weighted-average shares outstanding (diluted) were 113
million for the three months ended June 30, 2018, and 112 million for
the three months ended June 30, 2017.

Adjusted EBITDA for the three months ended June 30, 2018, was $411
million compared with $435 million for the same period in 2017,
representing a 5.5 percent decrease.

The consolidated operating results for the three months ended June 30,
2018, reflect a 16.9 percent decrease in both total admissions and total
adjusted admissions, compared with the same period in 2017. On a
same-store basis, admissions decreased 2.1 percent and adjusted
admissions decreased 0.2 percent during the three months ended June 30,
2018, compared with the same period in 2017. On a same-store basis, net
operating revenues increased 3.3 percent during the three months ended
June 30, 2018, compared with the same period in 2017.

Net operating revenues for the six months ended June 30, 2018, totaled
$7.251 billion, a 16.0 percent decrease, compared with $8.629 billion
for the same period in 2017.

Net loss attributable to Community Health Systems, Inc. common
stockholders was $(135) million, or $(1.20) per share (diluted), for the
six months ended June 30, 2018, compared with $(335) million, or $(3.01)
per share (diluted), for the same period in 2017. Excluding the
adjusting items as presented in the table in footnote (h) on page 15,
net income attributable to Community Health Systems, Inc. common
stockholders was $0.12 per share (diluted), for the six months ended
June 30, 2018, compared with net loss of $(0.24) per share (diluted) for
the same period in 2017. Weighted-average shares outstanding (diluted)
were 113 million for the six months ended June 30, 2018, and 112 million
for the six months ended June 30, 2017.

Adjusted EBITDA for the six months ended June 30, 2018, was $851 million
compared with $963 million for the same period in 2017, representing an
11.6 percent decrease.

The consolidated operating results for the six months ended June 30,
2018, reflect an 18.3 percent decrease in total admissions, and a 19.0
percent decrease in total adjusted admissions, compared with the same
period in 2017. On a same-store basis, admissions decreased 2.2 percent
and adjusted admissions decreased 1.0 percent during the six months
ended June 30, 2018, compared with the same period in 2017. On a
same-store basis, net operating revenues increased 2.5 percent during
the six months ended June 30, 2018, compared with the same period in
2017.

Commenting on the results, Wayne T. Smith, chairman and chief executive
officer of Community Health Systems, Inc., said, "Our second quarter
results reflect progress in our key areas of strategic focus, most
notably improvements in same-store operating results, progress on
divestitures and successful refinancings. As we complete additional
divestitures this year, we believe our portfolio will become stronger,
and more of our resources can be directed to markets where we have the
greatest opportunities to drive incremental growth. We remain confident
in our ability to strengthen our company through execution of our
strategic growth initiatives, investments in high-quality healthcare
services, and a continuous focus on expense management."

During 2018, the Company has completed seven hospital divestitures. In
addition, the Company has entered into definitive agreements to sell
five additional hospitals, which divestitures have not yet been
completed. The Company is pursuing interests for sale transactions
involving hospitals, which, together with the hospitals that are
currently subject to definitive agreements and the hospitals that have
been divested during 2018, had a combined total of approximately $2.0
billion in annual net operating revenues and combined mid-single digit
Adjusted EBITDA margins during 2017. These sale transactions are
currently in various stages of negotiation with potential buyers. There
can be no assurance that these potential divestitures (or the potential
divestitures currently subject to definitive agreements) will be
completed, or if they are completed, the ultimate timing of the
completion of these divestitures. The Company continues to receive
interest from potential acquirers for certain of its hospitals.

Financial and statistical data for 2018 and 2017 presented in this press
release includes the operating results of divested hospitals through the
effective closing date of each respective divestiture. Same-store
operating results exclude the results of the hospitals divested in 2018
and 2017.

Information About Non-GAAP Financial Measures

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, (gain) loss from early
extinguishment of debt, impairment and (gain) loss on sale of
businesses, gain on sale of investments in unconsolidated affiliates,
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 (income) related to government and other
legal settlements and related costs, expense related to employee
termination benefits and other restructuring charges, expense (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 the overall impact of the change in estimate related to
net patient revenue recorded in the fourth quarter of 2017 resulting
from the increase in contractual allowances and the provision for bad
debts.

For information regarding why the Company believes Adjusted EBITDA
provides 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.

Additionally, the Company has provided adjusted (loss) income from
continuing operations attributable to Community Health Systems, Inc.
common stockholders per share (diluted) and adjusted net (loss) income
attributable to Community Health Systems, Inc. common stockholders per
share (diluted) to reflect the impact on earnings per share from the
selected items used in the calculation of Adjusted EBITDA. For a
presentation and reconciliation of these measures, see footnote (h) to
the Financial Highlights, Financial Statements and Selected Operating
Data below.

Included on pages 17, 18, 19 and 20 of this press release are tables
setting forth the Company's 2018 updated annual earnings guidance. The
2018 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 in 2018.

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. The
Company, through its subsidiaries, owns, leases or operates 119
affiliated hospitals in 20 states with an aggregate of approximately
20,000 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 Friday,
July 27, 2018, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review
financial and operating results for the second quarter ended June 30,
2018. 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 August 27, 2018. 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.

 
 
 
 
 
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Financial Highlights (a)(b)(c)(d)
(In millions, except per share amounts)
(Unaudited)
 
       

Three Months Ended

   

Six Months Ended

June 30, June 30,
2018     2017 2018     2017
 
Net operating revenues (k) $ 3,562 $ 4,144 $ 7,251 $ 8,629
Loss from continuing operations (f), (i), (j) (91 ) (116 ) (98 ) (292 )

Net loss attributable to Community Health Systems, Inc.
stockholders

(110 ) (137 ) (135 ) (335 )
Adjusted EBITDA (e) 411 435 851 963
Net cash (used in) provided by operating activities (12 ) 261 94 503
 

Basic loss per share attributable to Community Health Systems,
Inc. common stockholders (l):

Continuing operations (f), (i), (j) $ (0.97 ) $ (1.17 ) $ (1.20 ) $ (2.94 )
Discontinued operations   -     (0.06 )   -     (0.06 )
Net loss $ (0.97 ) $ (1.22 ) $ (1.20 ) $ (3.01 )
 

Diluted loss per share attributable to Community Health
Systems, Inc. common stockholders (l):

Continuing operations (f), (h), (i), (j) $ (0.97 ) $ (1.17 ) $ (1.20 ) $ (2.94 )
Discontinued operations   -     (0.06 )   -     (0.06 )
Net loss (h) $ (0.97 ) $ (1.22 ) $ (1.20 ) $ (3.01 )

 

Weighted-average number of shares outstanding (g):
Basic 113 112 113 112
Diluted 113 112 113 112
 
 

____

For footnotes, see pages 12, 13, 14, 15 and 16.

   
 
 
 
 
 
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Loss (a)(b)(c)(d)
(In millions, except per share amounts)
(Unaudited)
               
Three Months Ended June 30,
2018 2017
Amount % of Net Operating

Revenues

Amount

% of Net Operating

Revenues

Operating revenues (net of contractual allowances and discounts) $ 4,823
Provision for bad debts   679    
Net operating revenues (k) $ 3,562 100.0 %   4,144   100.0 %
 
Operating costs and expenses:
Salaries and benefits 1,617 45.4 % 1,920 46.3 %
Supplies 592 16.6 % 697 16.8 %
Other operating expenses 879 24.7 % 1,017 24.6 %
Government and other legal settlements and related costs (j) 1 - % 7 0.2 %
Electronic health records incentive reimbursement - - % (17 ) (0.4 )%
Rent 85 2.4 % 104 2.5 %
Depreciation and amortization 177 5.0 % 223 5.4 %
Impairment and (gain) loss on sale of businesses, net (i)   174   4.9 %   80   1.9 %
Total operating costs and expenses 3,525   99.0 %     4,031   97.3 %
 
Income from operations (f), (i), (j) 37 1.0 % 113 2.7 %
Interest expense, net 235 6.6 % 239 5.8 %
(Gain) loss from early extinguishment of debt (64 ) (1.8 )% 10 0.2 %
Equity in earnings of unconsolidated affiliates   (5 ) (0.2 )%   (5 ) (0.1 )%
 
Loss from continuing operations before income taxes (129 ) (3.6 )% (131 ) (3.2 )%
Benefit from income taxes   (38 ) (1.0 )%   (15 ) (0.4 )%
Loss from continuing operations (f), (i), (j)   (91 ) (2.6 )%     (116 ) (2.8 )%
 
Discontinued operations, net of taxes:
Loss from operations of entities sold or held for sale - - % (1 ) - %
Impairment of hospitals sold or held for sale   -   - %   (5 ) (0.1 )%
Loss from discontinued operations, net of taxes -   - %     (6 ) (0.1 )%
Net loss (91 ) (2.6 )% (122 ) (2.9 )%
Less: Net income attributable to noncontrolling interests   19   0.5 %     15   0.4 %
Net loss attributable to Community Health Systems, Inc. stockholders $ (110 ) (3.1 )%   $ (137 ) (3.3 )%
 

Basic loss per share attributable to Community Health Systems,
Inc. common stockholders (l):

Continuing operations (f), (i), (j) $ (0.97 ) $ (1.17 )
Discontinued operations   -     (0.06 )
Net loss $ (0.97 ) $ (1.22 )
 

Diluted loss per share attributable to Community Health
Systems, Inc. common stockholders (l):

Continuing operations (f), (h), (i), (j) $ (0.97 ) $ (1.17 )
Discontinued operations   -     (0.06 )
Net loss (h) $ (0.97 ) $ (1.22 )
 
Weighted-average number of shares outstanding (g):
Basic   113     112  
Diluted   113     112  

 

 

____

For footnotes, see pages 12, 13, 14, 15 and 16.

 
 
 
 
 
 
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In millions)
(Unaudited)
 
        Three Months Ended     Six Months Ended
June 30, June 30,
2018     2017 2018     2017
 
Net loss $ (91 ) $ (122 ) $ (98 ) $ (299 )
Other comprehensive income (loss), net of income taxes:
Net change in fair value of interest rate swaps, net of tax 7 (2 ) 25 3
Net change in fair value of available-for-sale securities, net of tax (1 ) 2 (2 ) 5

Amortization and recognition of unrecognized pension cost
components, net of tax

  1     1     1     1  
Other comprehensive income   7     1     24     9  
Comprehensive loss (84 ) (121 ) (74 ) (290 )
Less: Comprehensive income attributable to noncontrolling interests   19     15     37     36  

Comprehensive loss attributable to Community Health Systems, Inc.
stockholders

$ (103 ) $ (136 ) $ (111 ) $ (326 )
 
 

____

For footnotes, see pages 12, 13, 14, 15 and 16.

                           
 
 
 
 
 
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (a)(c)
(Dollars in millions)
(Unaudited)
 
Three Months Ended June 30,
Consolidated Same-Store
2018 2017 % Change 2018 2017 % Change
Number of hospitals (at end of period) 119 143 118 118
Licensed beds (at end of period) 20,123 23,829 19,997 19,968
Beds in service (at end of period) 17,753 21,549 17,643 18,054
Admissions 157,509 189,435 -16.9 % 154,587 157,838 -2.1 %
Adjusted admissions 345,374 415,515 -16.9 % 338,037 338,828 -0.2 %
Patient days 697,213 840,516 687,261 701,341
Average length of stay (days) 4.4 4.4 4.4 4.4
Occupancy rate (average beds in service) 42.1 % 41.9 % 42.8 % 42.7 %
Net operating revenues (k) $ 3,562 $ 4,144 -14.0 % $ 3,515 $ 3,404 3.3 %

Net inpatient revenues as a % of net operating revenues

47.0 % 46.9 % 47.1 % 48.7 %

Net outpatient revenues as a % of net operating revenues

53.0 % 53.1 % 52.9 % 51.3 %
Income from operations (f), (i), (j) $ 37 $ 113 -67.3 %

Income from operations as a % of net operating revenues

1.0 % 2.7 %
Depreciation and amortization $ 177 $ 223
Equity in earnings of unconsolidated affiliates $ (5 ) $ (5 )

Net loss attributable to Community Health Systems, Inc.
stockholders

$ (110 ) $ (137 ) 19.7 %

Net loss attributable to Community Health Systems, Inc.
stockholders as a % of net operating revenues

-3.1 % -3.3 %
Adjusted EBITDA (e) $ 411 $ 435 -5.5 %

Adjusted EBITDA as a % of net operating revenues

11.5 % 10.5 %
Net cash (used in) provided by operating activities $ (12 ) $ 261 -104.6 %
 
 

____

For footnotes, see pages 12, 13, 14, 15 and 16.

 
 
 
 
 
 
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Selected Operating Data (a)(c)
(Dollars in millions)
(Unaudited)
                           
Six Months Ended June 30,
Consolidated Same-Store
2018 2017 % Change 2018 2017 % Change
Number of hospitals (at end of period) 119 143 118 118
Licensed beds (at end of period) 20,123 23,829 19,997 19,968
Beds in service (at end of period) 17,753 21,549 17,643 18,054
Admissions 328,189 401,677 -18.3 % 319,850 327,027 -2.2 %
Adjusted admissions 700,738 864,682 -19.0 % 680,358 687,452 -1.0 %
Patient days 1,481,518 1,813,401 1,450,923 1,475,503
Average length of stay (days) 4.5 4.5 4.5 4.5
Occupancy rate (average beds in service) 44.6 % 44.2 % 45.3 % 45.2 %
Net operating revenues (k) $ 7,251 $ 8,629 -16.0 % $ 7,107 $ 6,937 2.5 %

Net inpatient revenues as a % of net operating revenues

48.1 % 47.9 % 48.2 % 48.9 %

Net outpatient revenues as a % of net operating revenues

51.9 % 52.1 % 51.8 % 51.1 %
Income from operations (f), (i), (j) $ 250 $ 183 -36.6 %

Income from operations as a % of net operating revenues

3.4 % 2.1 %
Depreciation and amortization $ 358 $ 458
Equity in earnings of unconsolidated affiliates $ (12 ) $ (9 )

Net loss attributable to Community Health Systems, Inc.
stockholders

$ (135 ) $ (335 ) 59.7 %

Net loss attributable to Community Health Systems, Inc.
stockholders as a % of net operating revenues

-1.9 % -3.9 %
Adjusted EBITDA (e) $ 851 $ 963 -11.6 %

Adjusted EBITDA as a % of net operating revenues

11.7 % 11.2 %
Net cash provided by operating activities $ 94 $ 503 -81.3 %
 
 

____

For footnotes, see pages 12, 13, 14, 15 and 16.

 
 
 
 
 
 
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions, except share data)
(Unaudited)
 
        June 30, 2018     December 31, 2017
ASSETS
Current assets
Cash and cash equivalents $ 208 $ 563
Patient accounts receivable (k) 2,407 2,384
Supplies 432 444
Prepaid income taxes 8 17
Prepaid expenses and taxes 217 198
Other current assets   422     462  
Total current assets   3,694     4,068  
Property and equipment, gross 11,148 11,497
Less accumulated depreciation and amortization   (4,399 )   (4,445 )
Property and equipment, net   6,749     7,052  
Goodwill   4,653     4,723  
Deferred income taxes   101     62  
Other assets, net   1,597     1,545  
Total assets $ 16,794   $ 17,450  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 41 $ 33
Accounts payable 839 967
Accrued liabilities:
Employee compensation 592 685
Accrued interest 174 229
Other   416     442  
Total current liabilities   2,062     2,356  
Long-term debt   13,673     13,880  
Deferred income taxes   19     19  
Other long-term liabilities (b)   1,329     1,360  
Total liabilities   17,083     17,615  
Redeemable noncontrolling interests in equity of consolidated
subsidiaries
514     527  
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; 116,261,738 shares issued and outstanding at June 30,
2018, and 114,651,004 shares issued and outstanding at December
31, 2017

1 1
Additional paid-in capital 2,013 2,014
Accumulated other comprehensive loss (9 ) (21 )
Accumulated deficit   (2,884 )   (2,761 )
Total Community Health Systems, Inc. stockholders' deficit (879 ) (767 )
Noncontrolling interests in equity of consolidated subsidiaries   76     75  
Total stockholders' deficit   (803 )   (692 )
Total liabilities and stockholders' deficit $ 16,794   $ 17,450  
 
 

____

For footnotes, see pages 12, 13, 14, 15 and 16.

 
 
 
 
 
 
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
        Six Months Ended June 30,
2018     2017
 
Cash flows from operating activities
Net loss $ (98 ) $ (299 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 358 458
Government and other legal settlements and related costs (j) 7 6
Stock-based compensation expense 7 15
Impairment of hospitals sold or held for sale - 5
Impairment and (gain) loss on sale of businesses, net (i) 202 330
(Gain) loss from early extinguishment of debt (59 ) 31
Other non-cash expenses, net 23 18
Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures:
Patient accounts receivable (21 ) 186
Supplies, prepaid expenses and other current assets (15 ) (55 )
Accounts payable, accrued liabilities and income taxes (308 ) (126 )
Other   (2 )   (66 )
Net cash provided by operating activities   94     503  
 
Cash flows from investing activities
Acquisitions of facilities and other related businesses (10 ) (4 )
Purchases of property and equipment (295 ) (274 )
Proceeds from disposition of hospitals and other ancillary operations 88 921
Proceeds from sale of property and equipment 4 3
Purchases of available-for-sale securities and equity securities (38 ) (37 )
Proceeds from sales of available-for-sale securities and equity
securities
63 47
Increase in other investments   (53 )   (60 )
Net cash (used in) provided by investing activities   (241 )   596  
 
Cash flows from financing activities
Repurchase of restricted stock shares for payroll tax withholding
requirements
(1 ) (5 )
Deferred financing costs and other debt-related costs (54 ) (62 )
Proceeds from noncontrolling investors in joint ventures 1 5
Redemption of noncontrolling investments in joint ventures (6 ) (4 )
Distributions to noncontrolling investors in joint ventures (52 ) (53 )
Borrowings under credit agreements 26 840
Issuance of long-term debt - 3,100
Proceeds from ABL and receivables facility 587 26
Repayments of long-term indebtedness   (709 )   (4,416 )
Net cash used in financing activities   (208 )   (569 )
 
Net change in cash and cash equivalents (355 ) 530
Cash and cash equivalents at beginning of period   563     238  
Cash and cash equivalents at end of period $ 208   $ 768  
 
 

____

For footnotes, see pages 12, 13, 14, 15 and 16.

 
 
 
 
 

Footnotes to Financial Highlights, Financial Statements and Selected
Operating Data

(a) Continuing operating results exclude discontinued operations for the
three and six months ended June 30, 2018 and 2017. Both financial and
statistical results exclude entities in discontinued operations for all
periods presented. In addition, financial and statistical results
include the operating results of divested hospitals through the
effective closing date of each respective divestiture. Same-store
operating results exclude the results of the hospitals divested in 2018
and 2017.

(b) The contingent value right ("CVR") is included in other long-term
liabilities on the condensed consolidated balance sheets and 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 Health Management Associates,
Inc. ("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 $35 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, after consideration
of amounts paid and current estimates of valuation inputs, has been
adjusted to its estimated fair value of $263 million at June 30, 2018.
For the CVR valuation at June 30, 2018, the change in fair value from
the estimate of $256 million at December 31, 2017 was primarily the
result of a decrease in the discount rate applied to an estimated
settlement amount. 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.

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):

        As of
June 30,
2018
Legal and other related costs incurred to date $ 35
Settlements paid 30
Estimated liability for probable contingencies -
Estimated liability for unresolved contingencies at fair value   263  

Costs incurred plus certain estimated liabilities for CVR-related
matters

328
Allocated to:
CHS deductible of $18 million (18 )
CHS co-insurance at 10%   (29 )

Recorded amounts that reduce CVR value after giving effect to
deductible and co-insurance

$ 281  
 
CVRs outstanding   265  
 

(c) Included in discontinued operations for the three and six months
ended June 30, 2017, are three smaller hospitals, one of which is being
actively marketed for sale (and is no longer separately presented as
discontinued operations) and two hospitals that have been sold. The
after-tax loss for the sold or held for sale hospitals, was
approximately $6 million and $7 million for the three and six months
ended June 30, 2017, respectively.



Footnotes to Financial Highlights, Financial Statements and Selected
Operating Data (Continued)



(d) The following table provides information needed to calculate loss
per share, which is adjusted for income attributable to noncontrolling
interests (in millions):

        Three Months Ended     Six Months Ended
June 30, June 30,
2018     2017 2018     2017

Loss from continuing operations attributable to Community Health
Systems, Inc. common stockholders:

Loss from continuing operations, net of taxes $ (91 ) $ (116 ) $ (98 ) $ (292 )

Less: Income from continuing operations attributable to
noncontrolling interests, net of taxes

  19     15     37     36  

Loss from continuing operations attributable to Community Health
Systems, Inc. common stockholders — basic and diluted

$ (110 ) $ (131 ) $ (135 ) $ (328 )
 

Loss from discontinued operations attributable to Community Health
Systems, Inc. common stockholders:

Loss from discontinued operations, net of taxes $ - $ (6 ) $ - $ (7 )

Less: Loss from discontinued operations attributable to
noncontrolling interests, net of taxes

  -     -     -     -  

Loss from discontinued operations attributable to Community Health
Systems, Inc. common stockholders — basic and diluted

$ -   $ (6 ) $ -   $ (7 )
 

(e) EBITDA is a non-GAAP financial measure which consists of net loss
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, (gain) loss from early extinguishment of debt,
impairment and (gain) loss on sale of businesses, gain on sale of
investments in unconsolidated affiliates, 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 (income)
related to government and other legal settlements and related costs,
expense related to employee termination benefits and other restructuring
charges, expense (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 the overall impact of the
change in estimate related to net patient revenue recorded in the fourth
quarter of 2017 resulting from the increase in contractual allowances
and the provision for bad debts. 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 reports
Adjusted EBITDA as a measure of financial performance. 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).



Footnotes to Financial Highlights, Financial Statements and Selected
Operating Data (Continued)



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 attributable to Community Health Systems, Inc.
stockholders as derived directly from the condensed consolidated
financial statements (in millions):

        Three Months Ended       Six Months Ended
June 30, June 30,
2018     2017 2018     2017

Net loss attributable to Community Health Systems, Inc.
stockholders

$ (110 ) $ (137 ) $ (135 ) $ (335 )
Adjustments:
Benefit from income taxes (38 ) (15 ) (45 ) (15 )
Depreciation and amortization 177 223 358 458
Net income attributable to noncontrolling interests 19 15 37 36
Loss from discontinued operations - 6 - 7
Interest expense, net 235 239 464 468
(Gain) loss from early extinguishment of debt (64 ) 10 (59 ) 31
Impairment and (gain) loss on sale of businesses, net 174 80 202 330

Expense (income) from government and other legal settlements and
related costs

1 7 7 (34 )

Expense from fair value adjustments and legal expenses related to
cases covered by the CVR

4 5 9 12
Expense related to the sale of a majority interest in home care
division
- - - 1

Expense related to employee termination benefits and other
restructuring charges

  13     2     13     4  
Adjusted EBITDA $ 411   $ 435   $ 851   $ 963  
 

(f) Included in non-same-store loss from operations and loss from
continuing operations are pre-tax charges related to acquisition costs
of less than $1 million for both the three-month periods ended June 30,
2018 and 2017, and $1 million for both the six-month periods ended June
30, 2018 and 2017.

(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):

        Three Months Ended     Six Months Ended
June 30, June 30,
2018     2017 2018     2017

Weighted-average number of shares outstanding - basic

113 112 113 112

Add effect of dilutive securities: Stock awards and options

- - - -

Weighted-average number of shares outstanding - diluted

113 112 113 112
 

The Company generated a loss from continuing operations attributable to
Community Health Systems, Inc. common stockholders for the three and six
months ended June 30, 2018 and 2017, so the effect of dilutive
securities is not considered because their effect would be antidilutive.
If the Company had generated income from continuing operations, the
effect of restricted stock awards on the diluted shares calculation
would have been an increase of 47,754 shares and 215,313 shares during
the three months ended June 30, 2018 and 2017, respectively, and 60,558
shares and 147,043 shares during the six months ended June 30, 2018 and
2017, respectively.



Footnotes to Financial Highlights, Financial Statements and Selected
Operating Data (Continued)



(h) The following supplemental tables reconcile loss from continuing
operations and net loss 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). The Company believes that the presentation of non-GAAP
adjusted loss from continuing operations per share (diluted) and
non-GAAP adjusted net loss attributable to Community Health Systems,
Inc. common stockholders presents useful information to investors
through highlighting the impact on earnings per share of selected items
used in calculating Adjusted EBITDA.

        Three Months Ended     Six Months Ended
June 30, June 30,
  2018         2017     2018         2017  
 
Loss from continuing operations, as reported $ (0.97 ) $ (1.17 ) $ (1.20 ) $ (2.94 )
Adjustments:
(Gain) loss from early extinguishment of debt (0.44 ) 0.06 (0.41 ) 0.18
Impairment and (gain) loss on sale of businesses, net 1.29 0.77 1.53 2.68

Expense (income) from government and other legal settlements and
related costs

0.01 0.04 0.05 (0.19 )

Expense from fair value adjustments and legal expenses related to
cases covered by the CVR

0.03 0.04 0.06 0.08

Expense related to employee termination benefits and other
restructuring charges

  0.08     0.01     0.09     0.01  

(Loss) income from continuing operations, excluding adjustments

$ (0.01 ) $ (0.25 ) $ 0.12   $ (0.17 )
 
 
Three Months Ended Six Months Ended
June 30, June 30,
  2018     2017     2018     2017  
 
Net loss, as reported $ (0.97 ) $ (1.22 ) $ (1.20 ) $ (3.01 )
Adjustments:
(Gain) loss from early extinguishment of debt (0.44 ) 0.06 (0.41 ) 0.18
Impairment and (gain) loss on sale of businesses, net 1.29 0.77 1.53 2.68

Expense (income) from government and other legal settlements and
related costs

0.01 0.04 0.05 (0.19 )

Expense from fair value adjustments and legal expenses related to
cases covered by the CVR

0.03 0.04 0.06 0.08

Expense related to employee termination benefits and other
restructuring charges

  0.08     0.01     0.09     0.01  
Net (loss) income, excluding adjustments $ (0.01 ) $ (0.31 ) $ 0.12   $ (0.24 )
 
 
 

Footnotes to Financial Highlights, Financial Statements and Selected
Operating Data (Continued)

(i) Both income from operations and loss from continuing operations for
the three and six months ended June 30, 2018, included non-cash expense
of approximately $174 million and $202 million, respectively, related to
impairment charges to reduce the value of long-lived assets, primarily
allocated goodwill, at hospitals that the Company has identified for
sale or sold. Both income from operations and loss from continuing
operations for the three and six months ended June 30, 2017, included
non-cash expense of approximately $80 million and $330 million,
respectively, related to impairment charges to reduce the value of
long-lived assets, primarily allocated goodwill, at hospitals that the
Company has identified for sale or sold. These impairment charges do not
have an impact on the calculation of the Company's financial covenants
under the Company's Credit Facility.

(j) The $(0.01) per share (diluted) and $(0.05) per share (diluted) of
expense for "Government and other legal settlements and related costs"
for the three and six months ended June 30, 2018, respectively, is the
net impact of several lawsuits settled in principle during the related
periods, and related legal expenses. The $(0.04) per share (diluted) of
expense for "Government and other legal settlements and related costs"
for the three months ended June 30, 2017, is the settlement in principle
of several lawsuits during the three months ended June 30, 2017, and
related legal expenses. The $0.19 per share (diluted) of income for
"Government and other legal settlements and related costs" for the six
months ended June 30, 2017, is primarily the impact of the shareholder
derivative action settled during the six months ended June 30, 2017, net
of related legal expenses.

(k) On January 1, 2018, the Company adopted the new revenue recognition
accounting standard issued by the Financial Accounting Standards Board
("FASB") and codified in the FASB Accounting Standards Codification
("ASC") as topic 606 ("ASC 606"). The revenue recognition standard in
ASC 606 outlines a single comprehensive model for recognizing revenue as
performance obligations, defined in a contract with a customer as goods
or services transferred to the customer in exchange for consideration,
are satisfied.

The Company applied the modified retrospective approach to all contracts
when adopting ASC 606. As a result, the majority of what was previously
classified as the provision for bad debts in the statement of loss is
now reflected as implicit price concessions (as defined in ASC 606) and
therefore included as a reduction to net operating revenues in 2018. For
changes in credit issues not assessed at the date of service, the
Company will prospectively recognize those amounts as a component of
operating costs and expenses. For periods prior to the adoption of ASC
606, the provision for bad debts has been presented consistent with the
previous revenue recognition standards that required it to be presented
separately as a component of net operating revenues. Additionally, upon
adoption of ASC 606 the allowance for doubtful accounts of approximately
$3.9 billion at December 31, 2017 was reclassified as a component of net
patient accounts receivable.

(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, 2018. These projections update selected guidance provided
on May 1, 2018, and are based on the Company's historical operating
performance, current trends and other assumptions that the Company
believes are reasonable at this time. The 2018 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:

        2018 Projection Range
Net operating revenues (in millions) $ 13,900     to     $ 14,200
Adjusted EBITDA (in millions) $ 1,600 to $ 1,650
Loss from continuing operations per share - diluted $ (1.85 ) to $ (1.70 )
Same-store hospital annual adjusted admissions (1.0 )% to - %
Weighted-average diluted shares, in millions 113.0 to 114.0
 

The following assumptions were used in developing the 2018 guidance
provided above:

  • The current completed and planned divestitures generated approximately
    $2.0 billion of net operating revenues in 2017, with mid-single digit
    Adjusted EBITDA margins. The guidance assumes the completion of a
    majority of these divestitures and the related net operating revenues
    in 2018.
  • The Company's projections also exclude the following:
    • Payments related to the CVRs issued in connection with the HMA
      acquisition, and changes in the valuation of liabilities
      underlying the CVR;
    • Effect of debt refinancing activities, including gains and losses
      from early extinguishment of debt;
    • Impairment of goodwill and long-lived assets;
    • Gains or losses from the sales of businesses;
    • Employee termination benefits and restructuring costs;
    • Resolution of government investigations or other significant legal
      settlements;
    • Costs incurred in connection with divestitures;
    • Insurance recoveries that may be received for property losses and
      business interruption coverage related to Hurricanes Harvey and
      Irma;
    • Changes in the estimated impact of the Tax Cuts and Jobs Act ("Tax
      Act") on our deferred tax assets and liabilities; and
    • Other significant gains or losses that neither relate to the
      ordinary course of business nor reflect the Company's underlying
      business performance.

Other assumptions used in the above guidance:

  • Health Information Technology (HITECH) electronic health records
    incentive reimbursement will be zero for the year ending December 31,
    2018.
  • Same-store hospital annual adjusted admissions decline of (1.0)% to
    0.0% for 2018, which does not take into account service closures and
    weather-related or other unusual events.
  • Expressed as a percentage of net operating revenues, depreciation and
    amortization of approximately 4.9% to 5.0% for 2018. Additionally,
    this is a fixed cost and the percentages may change as revenue varies.
    Such amounts exclude the possible impact of any future hospital fixed
    asset impairments.
  • Interest expense, expressed as a percentage of net operating revenues,
    of approximately 7.1% to 7.2%; however, interest expense may vary as
    revenue varies. Interest expense has been adjusted to reflect the
    repayment of debt with proceeds from the divestitures noted above,
    based on the expected timing of those divestitures. Total fixed rate
    debt, including swaps, is expected to average approximately 90% to 95%
    of total debt during 2018.
  • Expressed as a percentage of net operating revenues, net income
    attributable to noncontrolling interests of approximately 0.5% to 0.6%
    for 2018.
  • Expressed as a percentage of net operating revenues, provision for
    income taxes of approximately 0.4% to 0.5% for 2018.

A reconciliation of the Company's projected 2018 Adjusted EBITDA, a
forward-looking non-GAAP financial measure, to the Company's projected
net loss attributable to Community Health Systems, Inc. stockholders,
the most directly comparable GAAP financial measure, is shown below:

        Year Ending
December 31, 2018
Low     High

Net loss attributable to Community Health Systems, Inc.
stockholders (1)

$ (211 ) $ (192 )
Adjustments:
Depreciation and amortization 690 690
Interest expense, net 990 1,010
Provision for income taxes 61 67
Net income attributable to noncontrolling interests   70     75  
Adjusted EBITDA (1) $ 1,600   $ 1,650  
 

(1) The Company does not include in this reconciliation the impact of
certain items not included in the Company's forecast set forth above
that would be included in a reconciliation of historical net loss
attributable to Community Health Systems, Inc. stockholders to Adjusted
EBITDA such as, but not limited to, (gains) 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, on a forward-looking basis.

  • Capital expenditures are projected as follows (in millions):
        2018
Guidance
Total $500       to       $575
 
  • Net cash provided by operating activities, including accelerated
    interest payments of approximately $60 million and increased interest
    payments from higher interest rates of approximately $65 million
    associated with debt refinancing, is projected as follows (in
    millions):
        2018
Guidance
Total $550       to       $650
 
  • Diluted weighted-average shares outstanding are projected to be
    between approximately 113.0 million to 114.0 million for 2018.

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:

  • general economic and business conditions, both nationally and in the
    regions in which we operate;
  • the impact of changes made to the Affordable Care Act, the potential
    for repeal or additional changes to the Affordable Care Act, its
    implementation or its interpretation (including through executive
    orders), as well as changes in other federal, state or local laws or
    regulations affecting our business;
  • the extent to which states support increases, decreases or changes in
    Medicaid programs, implement health insurance exchanges or alter the
    provision of healthcare to state residents through regulation or
    otherwise;
  • the future and long-term viability of health insurance exchanges and
    potential changes to the beneficiary enrollment process;
  • risks associated with our substantial indebtedness, leverage and debt
    service obligations, and the fact that a substantial portion of our
    indebtedness will mature and become due in the near future, including
    our ability to refinance such indebtedness on acceptable terms or to
    incur additional indebtedness;
  • 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 and other legal proceedings;
  • our ability, where appropriate, to enter into and maintain provider
    arrangements with payors and the terms of these arrangements, which
    may be further affected by the increasing consolidation of health
    insurers and managed care companies and vertical integration efforts
    involving payors and healthcare providers;
  • changes in, or the failure to comply with, contract terms with payors
    and changes in reimbursement rates paid by federal or state healthcare
    programs or commercial payors;
  • any potential additional impairments in the carrying value of
    goodwill, other intangible assets, or other long-lived assets, or
    changes in the useful lives of other intangible assets;
  • changes in inpatient or outpatient Medicare and Medicaid payment
    levels and methodologies;
  • the effects related to the continued implementation of the
    sequestration spending reductions and the potential for future deficit
    reduction legislation;
  • increases in the amount and risk of collectability of patient accounts
    receivable, including decreases in collectability which may result
    from, among other things, self-pay growth and difficulties in
    recovering payments for which patients are responsible, including
    co-pays and deductibles;
  • the efforts of insurers, healthcare providers, large employer groups
    and others to contain healthcare costs, including the trend toward
    value-based purchasing;
  • our ongoing ability to demonstrate meaningful use of certified
    electronic health record technology and recognize income for the
    related Medicare or Medicaid incentive payments, to the extent such
    payments have not expired;
  • increases in wages as a result of inflation or competition for highly
    technical positions and rising supply and drug 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, at reasonable employment costs,
    qualified personnel, key management, physicians, nurses and other
    healthcare 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 any additional
    acquisitions or replacement facilities or other capital expenditures;
  • our ability to successfully make acquisitions or complete
    divestitures, including the disposition of hospitals and non-hospital
    businesses pursuant to our portfolio rationalization and deleveraging
    strategy, our ability to complete any such acquisitions or
    divestitures on desired terms or at all (including to realize the
    anticipated amount of proceeds from contemplated dispositions), the
    timing of the completion of any such acquisitions or divestitures, and
    our ability to realize the intended benefits from any such
    acquisitions or divestitures;
  • the impact that changes in our relationships with joint venture or
    syndication partners could have on effectively operating our hospitals
    or ancillary services or in advancing strategic opportunities;
  • our ability to successfully integrate any acquired hospitals, or to
    recognize expected synergies from acquisitions;
  • the impact of seasonal severe weather conditions, including the timing
    and amount of insurance recoveries in relation to severe weather
    events such as Hurricanes Harvey and Irma, which impacted several of
    our affiliated hospitals in 2017;
  • our ability to obtain adequate levels of general and professional
    liability insurance;
  • timeliness of reimbursement payments received under government
    programs;
  • effects related to outbreaks of infectious diseases;
  • the impact of prior or potential future cyber-attacks or security
    breaches;
  • any failure to comply with the terms of the Corporate Integrity
    Agreement;
  • the concentration of our revenue in a small number of states;
  • our ability to realize anticipated cost savings and other benefits
    from our current strategic and operational cost savings initiatives;
  • changes in interpretations, assumptions and expectations regarding the
    Tax Act; and
  • the other risk factors set forth in our Annual Report on Form 10-K for
    the year ended December 31, 2017, filed with the Securities and
    Exchange Commission on February 28, 2018, and our other public filings
    with the Securities and Exchange Commission.

The consolidated operating results for the three and six months ended
June 30, 2018, are not necessarily indicative of the results that may be
experienced for any future periods. The Company cautions that the
projections for calendar year 2018 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.

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