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, 2020

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 22, 2020, there were outstanding 119,620,952 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, 2020

Part I.	Financial Information		Page
	Item 1.	Financial Statements:
		Condensed Consolidated Statements of Income (Loss) – Three and Nine Months Ended September 30, 2020 and September 30, 2019 (Unaudited)	2
		Condensed Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months Ended September 30, 2020 and September 30, 2019 (Unaudited)	3
		Condensed Consolidated Balance Sheets - September 30, 2020 and December 31, 2019 (Unaudited)	4
		Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and September 30, 2019 (Unaudited)	5
		Notes to Condensed Consolidated Financial Statements (Unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	59
	Item 4.	Controls and Procedures	59
Part II.	Other Information
	Item 1.	Legal Proceedings	60
	Item 1A.	Risk Factors	63
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
	Item 3.	Defaults Upon Senior Securities	65
	Item 4.	Mine Safety Disclosures	65
	Item 5.	Other Information	65
	Item 6.	Exhibits	66
Signatures			67

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In millions, except share and per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net operating revenues	$	3,126		$	3,246		$	8,670		$	9,925
Operating costs and expenses:
Salaries and benefits		1,365			1,469			4,054			4,499
Supplies		523			526			1,439			1,623
Other operating expenses		736			812			2,211			2,516
Government and other legal settlements and related costs		—			26			4			35
Lease cost and rent		85			79			248			240
Pandemic relief funds		—			—			(448	)		—
Depreciation and amortization		139			151			424			456
Impairment and (gain) loss on sale of businesses, net		(7	)		(1	)		48			70
Total operating costs and expenses		2,841			3,062			7,980			9,439
Income from operations		285			184			690			486
Interest expense, net		257			259			779			782
(Gain) loss from early extinguishment of debt		(115	)		—			(111	)		31
Equity in earnings of unconsolidated affiliates		(5	)		(3	)		(11	)		(12	)
Income (loss) before income taxes		148			(72	)		33			(315	)
Provision for (benefit from) income taxes		20			(74	)		(221	)		(71	)
Net income (loss)		128			2			254			(244	)
Less: Net income attributable to noncontrolling interests		16			19			54			58
Net income (loss) attributable to Community Health Systems,    Inc. stockholders	$	112		$	(17	)	$	200		$	(302	)
Earnings (loss) per share attributable to Community Health    Systems, Inc. common stockholders:
Basic	$	0.98		$	(0.15	)	$	1.74		$	(2.66	)
Diluted	$	0.97		$	(0.15	)	$	1.74		$	(2.66	)
Weighted-average number of shares outstanding:
Basic		115,015,460			113,891,721			114,764,050			113,672,798
Diluted		115,640,852			113,891,721			115,012,202			113,672,798

See accompanying notes to the condensed consolidated financial statements.

2

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2020		2019			2020		2019
Net income (loss)	$	128	$	2		$	254	$	(244	)
Other comprehensive (loss) income, net of income taxes:
Net change in fair value of interest rate swaps, net of tax		—		(1	)		—		(3	)
Net change in fair value of available-for-sale debt securities,    net of tax		—		1			3		5
Amortization and recognition of unrecognized pension cost    components, net of tax		—		—			1		—
Other comprehensive income		—		—			4		2
Comprehensive income (loss)		128		2			258		(242	)
Less: Comprehensive income attributable to noncontrolling    interests		16		19			54		58
Comprehensive income (loss) attributable to Community Health    Systems, Inc. stockholders	$	112	$	(17	)	$	204	$	(300	)

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, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,823		$	216
Patient accounts receivable		1,956			2,258
Supplies		337			354
Prepaid income taxes		50			48
Prepaid expenses and taxes		166			193
Other current assets		360			358
Total current assets		4,692			3,427
Property and equipment		9,293			9,653
Less accumulated depreciation and amortization		(4,003	)		(4,045	)
Property and equipment, net		5,290			5,608
Goodwill		4,220			4,328
Deferred income taxes		88			38
Other assets, net		2,226			2,208
Total assets	$	16,516		$	15,609
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt	$	19		$	20
Current operating lease liabilities		131			136
Accounts payable		710			811
Accrued liabilities:
Employee compensation		580			594
Accrued interest		180			189
Other		2,009			532
Total current liabilities		3,629			2,282
Long-term debt		12,860			13,385
Deferred income taxes		29			200
Long-term operating lease liabilities		523			487
Other long-term liabilities		951			894
Total liabilities		17,992			17,248
Redeemable noncontrolling interests in equity of consolidated subsidiaries		481			502
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; 119,604,720    shares issued and outstanding at September 30, 2020, and 117,822,631 shares issued    and outstanding at December 31, 2019		1			1
Additional paid-in capital		2,005			2,008
Accumulated other comprehensive loss		(5	)		(9	)
Accumulated deficit		(4,018	)		(4,218	)
Total Community Health Systems, Inc. stockholders’ deficit		(2,017	)		(2,218	)
Noncontrolling interests in equity of consolidated subsidiaries		60			77
Total stockholders’ deficit		(1,957	)		(2,141	)
Total liabilities and stockholders’ deficit	$	16,516		$	15,609

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,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	254		$	(244	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		424			456
Deferred income taxes		(223	)		(73	)
Government and other legal settlements and related costs		4			25
Stock-based compensation expense		8			8
Impairment and (gain) loss on sale of businesses, net		48			70
(Gain) loss from early extinguishment of debt		(111	)		31
Other non-cash expenses, net		99			140
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Patient accounts receivable		281			82
Supplies, prepaid expenses and other current assets		16			40
Medicare accelerated payments		1,159			—
Repayment/derecognition of Medicare accelerated payments		(22	)		—
Unrecognized pandemic relief funds		271			—
Accounts payable, accrued liabilities and income taxes		(81	)		(242	)
Other		(25	)		(102	)
Net cash provided by operating activities		2,102			191
Cash flows from investing activities:
Acquisitions of facilities and other related businesses		(1	)		(13	)
Purchases of property and equipment		(317	)		(322	)
Proceeds from disposition of hospitals and other ancillary operations		347			363
Proceeds from sale of property and equipment		4			1
Purchases of available-for-sale debt securities and equity securities		(68	)		(58	)
Proceeds from sales of available-for-sale debt securities and equity securities		80			72
Increase in other investments		(36	)		(146	)
Net cash provided by (used in) investing activities		9			(103	)
Cash flows from financing activities:
Repurchase of restricted stock shares for payroll tax withholding requirements		(1	)		(1	)
Deferred financing costs and other debt-related costs		(32	)		(28	)
Proceeds from noncontrolling investors in joint ventures		—			10
Redemption of noncontrolling investments in joint ventures		(4	)		(6	)
Distributions to noncontrolling investors in joint ventures		(84	)		(78	)
Proceeds from sale-lease back		2			56
Other borrowings		31			26
Issuance of long-term debt		1,462			2,489
Proceeds from ABL Facility		540			25
Repayments of long-term indebtedness		(2,418	)		(2,620	)
Net cash used in financing activities		(504	)		(127	)
Net change in cash and cash equivalents		1,607			(39	)
Cash and cash equivalents at beginning of period		216			196
Cash and cash equivalents at end of period	$	1,823		$	157
Supplemental disclosure of cash flow information:
Interest payments	$	(765	)	$	(810	)
Income tax refunds (payments), net	$	(2	)	$	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, 2020 and December 31, 2019 and for the three-month and nine-month periods ended September 30, 2020 and 2019, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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, 2020, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2020. The preparation of financial statements in conformity with U.S. 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, 2019, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 20, 2020 (“2019 Form 10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation within the condensed consolidated statements of cash flows.

During the first quarter of 2020, the Company early adopted the SEC’s Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities rules, which simplify the disclosure requirements related to the Company’s registered debt securities under Rule 3-10 of Regulation S-X (see Note 15).

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 $41 million and $48 million for the three months ended September 30, 2020 and 2019, respectively, and $136 million and $135 million for the nine months ended September 30, 2020 and 2019, respectively. Included in these corporate office costs is stock-based compensation of $3 million and $2 million for the three months ended September 30, 2020 and 2019, respectively, and $8 million for both of the nine-month periods ended September 30, 2020 and 2019.

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.