Information About Non-GAAP Financial Measures
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,
loss (gain) from early extinguishment of debt, impairment and (gain) loss on sale of businesses, expense incurred related to the sale of a majority ownership interest in the Companys 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 settlement and fair value adjustments on the CVR agreement liability related to the Health
Management Associates, Inc., or 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 impact of changes in estimate to increase the professional liability claims accrual recorded during the second quarter of 2019 (which estimate was further revised in the third quarter of 2019 based on
updated actuarial analysis) with respect to claims incurred in 2016 and prior years, and expense related to the valuation allowance recorded in the second quarter of 2019 to reserve the outstanding balance of a promissory note received from the
buyer in connection with the sale of two of the Companys hospitals in 2017, as well as income from a reduction of the valuation allowance on the outstanding balance of a promissory note from the buyer of another hospital. 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 Companys 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 Companys hospital operations and to make decisions on the allocation of resources. Adjusted EBITDA is also used to evaluate the performance of the
Companys executive management team and is one of the primary metrics used in connection with determining short-term cash incentive compensation and the achievement of vesting criteria with respect to performance-based equity awards. In
addition, management utilizes Adjusted EBITDA in assessing the Companys consolidated results of operations and operational performance and in comparing the Companys results of operations between periods. The Company believes it is useful
to provide investors and other users of the Companys financial statements this performance measure to align with how management assesses the Companys results of operations. Adjusted EBITDA also is comparable to a similar metric called
Consolidated EBITDA, as defined in the Companys asset-based loan (ABL) facility, which is a key component in the determination of our compliance with some of the covenants under the ABL facility (including our ability to service debt and incur
capital expenditures), and is used to determine the interest rate and commitment fee payable under the ABL facility (although Adjusted EBITDA does not include all of the adjustments described in the ABL facility). Adjusted EBITDA includes the
Adjusted EBITDA attributable to hospitals that were divested during the course of such year, but in each case solely to the extent relating to the period prior to the consummation of the applicable divestiture.
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.
Forward-Looking Statements
This Form 8-K 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. 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 Companys expected results to differ materially from those expressed in this report. These factors include, among other things: