What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-04-25 · 174 added, 102 removed, 376 unchanged (42% of the section changed)

5 unchanged sentences

Our affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 40 distinct markets across 15 states.

As of March 31, 2024, our subsidiaries own or lease 71 affiliated hospitals, with approximately 12,000 beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments, occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers.

As of June 30, 2024, our subsidiaries own or lease 71 affiliated hospitals, with more than 11,000 beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments, occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers.

We generate revenues by providing a broad range of general and specialized hospital healthcare services and outpatient services to patients in the communities in which we are located.

1 unchanged sentence

Acquisition and Divestiture Activity

During the three months ended March 31, 2024, we paid approximately $1 million to acquire the operating assets and related businesses of certain physician practices and clinics that operate within the communities served by our hospitals.

During the six months ended June 30, 2024, we paid approximately $1 million to acquire the operating assets and related businesses of certain physician practices and clinics that operate within the communities served by our hospitals.

The purchase price for these transactions was primarily allocated to working capital and property and equipment.

There were no hospital divestitures completed during the three months ended March 31, 2024.

There were no hospital divestitures completed during the three and six months ended June 30, 2024.

The following table provides a summary of hospitals that we divested (or, in the case of Lutheran Rehabilitation Hospital, in which we sold a majority interest) during the year ended December 31, 2023.

34 unchanged sentences

December 1, 2023

In addition to hospitals divested in 2023, we have entered into definitive agreements to sell a total of three hospitals where the divestiture has not yet been completed.

The following sets forth such definitive agreements:

On February 28, 2023, we entered into a definitive agreement for the sale of substantially all of the assets of Lake Norman Regional Medical Center (123 licensed beds) in Mooresville, North Carolina, and Davis Regional Medical Center (144 licensed beds) in Statesville, North Carolina, to Novant Health, Inc., or Novant.

For additional information regarding this potential disposition, see the Current Report on Form 8-K filed by us on February 28, 2023.

On January 25, 2024, the Federal Trade Commission, or FTC, filed a complaint seeking to enjoin the consummation of the sale of these hospitals to Novant.

For additional information regarding this litigation, see the Legal Proceedings section of Part I, Item 3 of the 2023 Form 10-K.

Taking into account this FTC action, there can be no assurance that this transaction with Novant will be completed, or if this transaction is completed, the ultimate timing of the completion of this transaction.

• On April 18, 2024, we entered into a definitive agreement for the sale of substantially all of the assets of Tennova Healthcare - Cleveland (351 licensed beds) in Cleveland, Tennessee, to affiliates of Hamilton Health Care System, Inc.

Following judicial developments involving efforts of the Federal Trade Commission to prevent completion of this transaction, the aforementioned definitive agreement was terminated effective June 21, 2024.

For additional information regarding termination of this definitive agreement, see the Current Report on Form 8-K filed by us on June 24, 2024.

On April 18, 2024, we entered into a definitive agreement for the sale of substantially all of the assets of Tennova Healthcare - Cleveland (351 licensed beds) in Cleveland, Tennessee, to Hamilton Health Care System, Inc.

and certain of its affiliates.

For additional information regarding this potential disposition, see the Current Report on Form 8-K filed by us on April 18, 2024.

There can be no assurance that these potential divestitures subject to definitive agreements will be completed, or if they are completed, the ultimate timing of the completion of the divestitures.

There can be no assurance that this potential disposition will be completed, or if this potential disposition is completed, the ultimate timing of the completion of this potential disposition.

Moreover, we may give consideration to divesting certain additional hospitals and non-hospital businesses.

4 unchanged sentences

Overview of Operating Results

Net operating revenues increased from $3.108 billion for the three months ended March 31, 2023 to $3.140 billion for the three months ended March 31, 2024.

On a same-store basis, net operating revenues for the three months ended March 31, 2024 increased $170 million.

We had net loss of $6 million during the three months ended March 31, 2024, compared to a net loss of $20 million for the same period in 2023.

Net loss for the three months ended March 31, 2024 included the following:

Net operating revenues increased from $3.115 billion for the three months ended June 30, 2023 to $3.140 billion for the three months ended June 30, 2024.

On a same-store basis, net operating revenues for the three months ended June 30, 2024 increased $141 million compared to the same period in 2023.

We had net income of $26 million during the three months ended June 30, 2024, compared to $2 million for the same period in 2023.

Net income for the three months ended June 30, 2024 included the following:

• an after-tax benefit of $27 million for gain from early extinguishment of debt,

• an after-tax charge of $10 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes, and

• an after-tax charge of $8 million resulting from impairment of certain long-lived assets that were disposed as well as divestiture related costs.

Net income for the three months ended June 30, 2023 included the following:

• an after-tax charge of $5 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes,

• an after-tax benefit of $3 million for the gain related to the sale of a hospital partially offset by impairment of long-lived assets that were idled, disposed of or held-for-sale, and

• an after-tax charge of $7 million for restructuring charges related to the closure of businesses as well as service line closures and consolidations at certain hospitals.

Consolidated inpatient admissions for the three months ended June 30, 2024, decreased 2.8%, compared to the same period in 2023.

Consolidated adjusted admissions for the three months ended June 30, 2024, decreased 2.4%, compared to the same period in 2023.

Same-store inpatient admissions for the three months ended June 30, 2024, increased 3.0%, compared to the same period in 2023, and same-store adjusted admissions for the three months ended June 30, 2024, increased 3.2%, compared to the same period in 2023.

Net operating revenues increased from $6.2 billion for the six months ended June 30, 2023 to $6.3 billion for the six months ended June 30, 2024.

On a same-store basis, net operating revenues for the six months ended June 30, 2024 increased $311 million compared to the same period in 2023.

We had net income of $20 million during the six months ended June 30, 2024, compared to a net loss of $(18) million for the same period in 2023.

Net income for the six months ended June 30, 2024 included the following:

• an after-tax benefit of $27 million for gain from early extinguishment of debt,

• an after-tax charge of $19 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes, and

• an after-tax charge of $21 million resulting from impairment of long-lived assets that were idled, disposed of or held-for-sale.

Net loss for the three months ended March 31, 2023 included the following:

Net loss for the six months ended June 30, 2023 included the following:

• an after-tax charge of $5 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes,

• an after-tax charge of $8 million for expense related to government and other legal matters and related costs,

• an after-tax benefit of $14 million for the gain related to the sale of a hospital and the impairment of long-lived assets that were idled, disposed of or held-for-sale, and

• an after-tax benefit of $17 million for the gain related to the sale of two hospitals partially offset by impairment of long-lived assets that were idled, disposed of or held-for-sale, and

• an after-tax charge of $8 million for restructuring charges related to the closure of businesses as well as service line closures and consolidations at certain hospitals.

Consolidated inpatient admissions for the three months ended March 31, 2024, decreased 2.3%, compared to the same period in 2023.

Consolidated adjusted admissions for the three months ended March 31, 2024, decreased 4.0%, compared to the same period in 2023.

Same-store inpatient admissions for the three months ended March 31, 2024, increased 3.8%, compared to the same period in 2023, and same-store adjusted admissions for the three months ended March 31, 2024, increased 1.9%, compared to the same period in 2023.

Self-pay revenues represented approximately 1.4% and 0.8% of net operating revenues for the three months ended March 31, 2024 and 2023, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 10.1% and 10.5% for the three months ended March 31, 2024 and 2023, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.0% and 1.2% for the three months ended March 31, 2024 and 2023, respectively.

Consolidated inpatient admissions for the six months ended June 30, 2024, decreased 2.6%, compared to the same period in 2023.

Consolidated adjusted admissions for the six months ended June 30, 2024, decreased 3.2%, compared to the same period in 2023.

Same-store inpatient admissions for the six months ended June 30, 2024, increased 3.4%, compared to the same period in 2023, and same-store adjusted admissions for the six months ended June 30, 2024, increased 2.5%, compared to the same period in 2023.

Self-pay revenues represented approximately 1.6% and 0.8% of net operating revenues for the three months ended June 30, 2024 and 2023, respectively, and 1.5% and 0.8% for the six months ended June 30, 2024 and 2023, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 9.1% and 10.3% for the three months ended June 30, 2024 and 2023, respectively, and 9.6% and 10.4% for the six months ended June 30, 2024 and 2023, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 0.9% and 1.1% for the three months ended June 30, 2024 and 2023, respectively, and 0.9% and 1.2% for the six months ended June 30, 2024 and 2023, respectively.

Overview of Legislative and Other Governmental Developments

2 unchanged sentences

Congress and certain state legislatures have introduced and passed a large number of proposals and legislation affecting the healthcare system, including laws intended to impact access to health insurance and reduce healthcare costs and government spending.

The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed, and expanded health insurance coverage through a combination of public program expansion and private sector health insurance reforms.

The most prominent of these efforts, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed, and expanded health insurance coverage through a combination of public program expansion and private sector health insurance reforms.

The Affordable Care Act has been, and continues to be, subject to legislative and regulatory changes and court challenges.

3 unchanged sentences

The expiration of this “continuous coverage” requirement in April 2023 has resulted in significant Medicaid coverage disruptions and disenrollments.

The Centers for Medicare & Medicaid Services, or CMS, has required certain states to pause disenrollments due to noncompliant renewal systems.

Although it was originally anticipated that states would complete unwinding-related Medicaid renewals by June 2024, the Centers for Medicare & Medicaid Services, or CMS, required certain states to pause procedural disenrollments due to noncompliant renewal systems, and CMS has approved state implementation of other flexibilities and mitigation strategies that extended timelines for completion.

These and other changes and initiatives may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if obtained.

2 unchanged sentences

A number of states have opted out of the Medicaid coverage expansion provisions, but could ultimately decide to expand their programs at a later date.

Of the 15 states in which we operated hospitals as of March 31, 2024, nine states have taken action to expand their Medicaid programs.

The other six states have not, including Florida, Alabama, Tennessee, Mississippi and Texas, where we operated a significant number of hospitals as of March 31, 2024.

Of the 15 states in which we operated hospitals as of June 30, 2024, nine states have taken action to expand their Medicaid programs.

The other six states have not, including Florida, Alabama, Tennessee, Mississippi and Texas, where we operated a significant number of hospitals as of June 30, 2024.

Some states use, or have applied to use, waivers granted by CMS to implement expansion, impose different eligibility or enrollment conditions, or otherwise implement programs that vary from federal standards.

19 unchanged sentences

We anticipate that the federal deficit will continue to place pressure on government healthcare programs, and it is possible that future deficit reduction legislation will impose additional spending reductions.

We did not receive or recognize any significant level of payments or benefits under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, or other COVID-19 related stimulus and relief legislation, during the three months ended March 31, 2024, and do not expect to receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation related to COVID-19 in future periods.

We did not receive or recognize any significant level of payments or benefits under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, or other COVID-19 related stimulus and relief legislation, during the six months ended June 30, 2024, and do not expect to receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation related to COVID-19 in future periods.

Reimbursement by government programs may be affected by broad shifts in payment policy.

9 unchanged sentences

This adjustment will start in calendar year 2026 and continue for approximately 16 years.

This reduction to payment rates adversely affected our results for the three months ended March 31, 2024, and the reduction to the outpatient PPS conversion factor as noted above is anticipated to adversely impact our future results.

This reduction to payment rates adversely affected our results for the six months ended June 30, 2024, and the reduction to the outpatient PPS conversion factor as noted above is anticipated to adversely impact our future results.

In June 2024, the U.S.

Supreme Court issued decisions affecting judicial review of federal agency-related actions that increase judicial scrutiny of agency authority, shift greater responsibility for statutory interpretation to courts, and expand the timeline in which a plaintiff can sue regulators.

In particular, in Loper Bright Enterprises v.

Raimondo, the U.S.

Supreme Court overruled its prior ruling in Chevron U.S.A., Inc.

Natural Resources Defense Council, Inc., which held that when a statute is ambiguous or silent, courts should not substitute their own judgments regarding the actions of those agencies so long as the agencies’ interpretation of the enabling federal statute was reasonable.

In Loper Bright, the U.S.

Supreme Court held that courts must instead exercise their independent judgment when deciding whether an agency has acted within its statutory authority, and that courts may not defer to an agency interpretation simply because a statute is ambiguous.

The Loper Bright decision, as well as certain other recent decisions of the U.S.

Supreme Court, could have significant impacts on government agency regulation, particularly within the heavily-regulated healthcare industry, and may have broad implications for our business.

As a result of these decisions, there may be an increase in legal challenges to regulations and guidance issued by federal agencies responsible for regulating various aspects of our business.

These potential legal challenges, if successful, could have a negative or positive impact on our business, and any such impact could be material.

In addition to potential changes to regulations and agency guidance as a result of legal challenges, these recent U.S.

Supreme Court decisions may result in increased regulatory uncertainty, inconsistent judicial interpretations, and delays in and other impacts to the agency rulemaking process, any of which could adversely impact our business and operations.

Sources of Revenue

2 unchanged sentences

Three Months Ended

Six Months Ended

Medicare Managed Care

6 unchanged sentences

Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate the amounts paid to hospitals.

Our relationships with payors may be impacted by price transparency

initiatives and out-of-network billing restrictions, including those in the No Surprises Act.

Our relationships with payors may be impacted by price transparency initiatives and out-of-network billing restrictions, including those in the No Surprises Act.

There can be no assurance that we will retain our existing reimbursement arrangements or that third-party payors will not attempt to further reduce the rates they pay for our services.

5 unchanged sentences

We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues by an insignificant amount in each of the three-month periods ended March 31, 2024 and 2023.

The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on prospective payment systems, which depend upon a patient’s diagnosis or the clinical complexity of services provided to a patient, among other factors.

21 unchanged sentences

Three Months Ended

Six Months Ended

Operating results, as a percentage of net operating revenues:

5 unchanged sentences

Interest expense, net

Gain from early extinguishment of debt

Equity in earnings of unconsolidated affiliates

1 unchanged sentence

Provision for income taxes

Net income (loss)

Net income attributable to noncontrolling interests

1 unchanged sentence

Systems, Inc.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Percentage increase (decrease) from prior year:

17 unchanged sentences

These metrics provide useful insight to investors about the volume and acuity of services we provide, which aid in evaluating our financial results.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Net operating revenues increased to $3.140 billion for the three months ended March 31, 2024, compared to $3.108 billion for the same period in 2023.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $170 million, or 5.7%, during the three months ended March 31, 2024, compared to the same period in 2023.

On a period-over-period basis, the increase in net operating revenues was primarily attributable to increased reimbursement rates and higher revenues from supplemental reimbursement programs.

Non-same-store net operating revenues decreased $138 million during the three months ended March 31, 2024, compared to the same period in 2023, with the decrease primarily attributable to the divestiture of hospitals in 2023.

On a consolidated basis, inpatient admissions decreased by 2.3% and adjusted admissions decreased by 4.0% during the three months ended March 31, 2024, compared to the same period in 2023.

On a same-store basis, net operating revenues per adjusted admission increased 3.7%, while inpatient admissions increased by 3.8% and adjusted admissions increased by 1.9% for the three months ended March 31, 2024, compared to the same period in 2023.

Operating costs and expenses, as a percentage of net operating revenues, decreased from 93.2% during the three months ended March 31, 2023 to 92.6% during the three months ended March 31, 2024.

Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 89.7% for the three months ended March 31, 2023 to 88.4% for the three months ended March 31, 2024.

Salaries and benefits, as a percentage of net operating revenues, decreased from 43.9% for the three months ended March 31, 2023 to 43.5% for the three months ended March 31, 2024, primarily due to an increase in net operating revenues.

Supplies, as a percentage of net operating revenues, decreased from 16.3% for the three months ended March 31, 2023 to 15.5% for the three months ended March 31, 2024, primarily due to changes in the mix of surgical services and cost savings initiatives.

Other operating expenses, as a percentage of net operating revenues, remained consistent at 26.9% for both of the three-month periods ended March 31, 2024 and 2023, primarily due to increased expense for supplemental reimbursement programs, offset by decreased costs for contract labor and an increase in net operating revenues.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.6% for the three months ended March 31, 2023 to 2.5% for the three months ended March 31, 2024.

Depreciation and amortization, as a percentage of net operating revenues, decreased to 3.7% for the three months ended March 31, 2024 from 4.2% for the same period in 2023, primarily due to an increase in net operating revenues and a reduction in the amortization of capitalized internal-use software.

Impairment and (gain) loss on sale of businesses, net was expense of $17 million for the three months ended March 31, 2024, compared to a gain of $22 million for the same period in 2023.

The expense recognized during the three months ended March 31, 2024 was recorded to reduce the carrying value of several assets that were idled, disposed of or held-for-sale.

The gain recognized during the three months ended March 31, 2023 related primarily to divestiture activity during the respective period as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, increased by $4 million to $211 million for the three months ended March 31, 2024, compared to $207 million for the same period in 2023 due primarily to financing activities in 2023.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, remained consistent at (0.1)% for both of the three-month periods ended March 31, 2024 and 2023.

The net results of the above-mentioned changes resulted in income before income taxes increasing $16 million to $22 million for the three months ended March 31, 2024 from $6 million for the same period in 2023.

Our provision for income taxes for the three months ended March 31, 2024 and 2023 was $28 million and $26 million, respectively, and the effective tax rates were 127.3% and 433.3% for the three months ended March 31, 2024 and 2023, respectively.

The increase in the provision for income taxes and the difference in our effective tax rate for the three months ended March 31, 2024, compared to the same period in 2023 was due to an increase in income before income taxes for the three months ended March 31, 2024 compared to the same period in 2023.

Net loss, as a percentage of net operating revenues, was (0.2)% for the three months ended March 31, 2024, compared to (0.6)% for the same period in 2023.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.1% for the three months ended March 31, 2024, compared to 1.0% for the same period in 2023.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Net operating revenues increased to $3.140 billion for the three months ended June 30, 2024, compared to $3.115 billion for the same period in 2023.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $141 million, or 4.7%, during the three months ended June 30, 2024, compared to the same period in 2023.

On a period-over-period basis, the increase in same-store net operating revenues was primarily attributable to higher inpatient and outpatient volumes, increased reimbursement rates and higher revenues from supplemental reimbursement programs.

Non-same-store net operating revenues decreased $116 million during the three months ended June 30, 2024, compared to the same period in 2023, due to the divestiture of hospitals in 2023.

On a consolidated basis, inpatient admissions decreased by 2.8% and adjusted admissions decreased by 2.4% during the three months ended June 30, 2024, compared to the same period in 2023.

On a same-store basis, net operating revenues per adjusted admission increased 1.4%, while inpatient admissions increased by 3.0% and adjusted admissions increased by 3.2% for the three months ended June 30, 2024, compared to the same period in 2023.

Operating costs and expenses, as a percentage of net operating revenues, increased from 92.1% during the three months ended June 30, 2023 to 92.4% during the three months ended June 30, 2024.

Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 88.5% for the three months ended June 30, 2023 to 88.1% for the three months ended June 30, 2024.

Salaries and benefits, as a percentage of net operating revenues, decreased from 42.9% for the three months ended June 30, 2023 to 42.3% for the three months ended June 30, 2024, primarily due to an increase in net operating revenues.

Supplies, as a percentage of net operating revenues, decreased from 16.2% for the three months ended June 30, 2023 to 15.4% for the three months ended June 30, 2024, primarily due to changes in the mix of services, the benefit of cost savings initiatives and an increase in net operating revenues.

Other operating expenses, as a percentage of net operating revenues, increased from 26.8% for the three months ended June 30, 2023 to 28.1% for the three months ended June 30, 2024, primarily due to increased expense for supplemental reimbursement programs and outsourced medical specialists, partially offset by decreased costs for contract labor and an increase in net operating revenues.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.6% for the three months ended June 30, 2023 to 2.3% for the three months ended June 30, 2024.

Depreciation and amortization, as a percentage of net operating revenues, remained consistent at 4.0% for both of the three-month periods ended June 30, 2024 and 2023.

Impairment and (gain) loss on sale of businesses, net was an expense of $10 million for the three months ended June 30, 2024, compared to a gain of $13 million for the same period in 2023.

The expense recognized during the three months ended June 30, 2024 was primarily to reduce the carrying value of certain assets that were disposed as well as for divestiture related costs.

The gain recognized during the three months ended June 30, 2023 related primarily to divestiture activity during the respective period as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, increased by $9 million to $216 million for the three months ended June 30, 2024, compared to $207 million for the same period in 2023 due primarily to financing activities in 2023.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, increased to 0.1% for the three months ended June 30, 2024 from 0.0% for the same period in 2023.

Gain from early extinguishment of debt of $26 million was recognized during the three months ended June 30, 2024 as a result of the refinancing and extinguishment of certain of our outstanding notes as discussed further in Liquidity.

There were no financing transactions during the three months ended June 30, 2023.

The net results of the above-mentioned changes resulted in income before income taxes increasing $10 million to $50 million for the three months ended June 30, 2024 from $40 million for the same period in 2023.

Our provision for income taxes for the three months ended June 30, 2024 and 2023 was $24 million and $38 million, respectively, and the effective tax rates were 48.0% and 95.0% for the three months ended June 30, 2024 and 2023, respectively.

The decrease in the provision for income taxes and the difference in our effective tax rate for the three months ended June 30, 2024, compared to the same period in 2023 was due to a decrease in nondeductible goodwill for the three months ended June 30, 2024 compared to the same period in 2023.

Net income, as a percentage of net operating revenues, was 0.8% for the three months ended June 30, 2024, compared to 0.1% for the same period in 2023.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for the three months ended June 30, 2024, compared to 1.3% for the same period in 2023.

Net loss attributable to Community Health Systems, Inc.

stockholders was $(41) million for the three months ended March 31, 2024, compared to $(51) million for the same period in 2023.

stockholders was $(13) million for the three months ended June 30, 2024, compared to $(38) million for the same period in 2023.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Net operating revenues increased to $6.279 billion for the six months ended June 30, 2024, compared to $6.223 billion for the same period in 2023.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $311 million, or 5.2%, during the six months ended June 30, 2024, compared to the same period in 2023.

Non-same-store net operating revenues decreased $255 million during the six months ended June 30, 2024, compared to the same period in 2023, due to the divestiture of hospitals in 2023.

On a consolidated basis, inpatient admissions decreased by 2.6% and adjusted admissions decreased by 3.2% during the six months ended June 30, 2024, compared to the same period in 2023.

On a same-store basis, net operating revenues per adjusted admission increased 2.6%, while inpatient admissions increased by 3.4% and adjusted admissions increased by 2.5% for the six months ended June 30, 2024, compared to the same period in 2023.

Operating costs and expenses, as a percentage of net operating revenues, decreased from 92.7% during the six months ended June 30, 2023 to 92.5% during the six months ended June 30, 2024.

Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 89.2% for the six months ended June 30, 2023 to 88.3% for the six months ended June 30, 2024.

Salaries and benefits, as a percentage of net operating revenues, decreased from 43.5% for the six months ended June 30, 2023 to 43.0% for the six months ended June 30, 2024, primarily due to an increase in net operating revenues.

Supplies, as a percentage of net operating revenues, decreased from 16.2% for the six months ended June 30, 2023 to 15.4% for the six months ended June 30, 2024, primarily due to changes in the mix of services, the benefit of cost savings initiatives and an increase in net operating revenues.

Other operating expenses, as a percentage of net operating revenues, increased from 26.9% for the six months ended June 30, 2023 to 27.5% for the six months ended June 30, 2024, primarily due to increased expense for supplemental reimbursement programs and outsourced medical specialists, partially offset by decreased costs for contract labor and an increase in net operating revenues.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.6% for the six months ended June 30, 2023 to 2.4% for the six months ended June 30, 2024.

Depreciation and amortization, as a percentage of net operating revenues, decreased to 3.8% for the six months ended June 30, 2024 from 4.1% for the same period in 2023, primarily due to an increase in net operating revenues and a reduction in the amortization of capitalized internal-use software.

Impairment and (gain) loss on sale of businesses, net was an expense of $27 million for the six months ended June 30, 2024, compared to a gain of $35 million for the same period in 2023.

The expense recognized during the six months ended June 30, 2024 was primarily to reduce the carrying value of several assets that were idled, disposed of or held-for-sale.

The gain recognized during the six months ended June 30, 2023 related primarily to divestiture activity during the respective period as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, increased by $12 million to $426 million for the six months ended June 30, 2024, compared to $414 million for the same period in 2023 due primarily to financing activities in 2023.

Gain from early extinguishment of debt of $26 million was recognized during the six months ended June 30, 2024 as a result of the refinancing and extinguishment of certain of our outstanding notes as discussed further in Liquidity.

There were no financing transactions during the six months ended June 30, 2023.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, remained consistent at (0.1)% for both of the six-month periods ended June 30, 2024 and 2023.

The net results of the above-mentioned changes resulted in income before income taxes increasing $25 million to $72 million for the six months ended June 30, 2024 from $47 million for the same period in 2023.

Our provision for income taxes for the six months ended June 30, 2024 and 2023 was $52 million and $65 million, respectively, and the effective tax rates were 72.2% and 138.3% for the six months ended June 30, 2024 and 2023, respectively.

The decrease in the provision for income taxes and the difference in our effective tax rate for the six months ended June 30, 2024, compared to the same period in 2023 was due to a decrease in nondeductible goodwill for the six months ended June 30, 2024 compared to the same period in 2023.

Net income, as a percentage of net operating revenues, was 0.3% for the six months ended June 30, 2024, compared to a net loss of (0.3)% for the same period in 2023.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for the six months ended June 30, 2024, compared to 1.1% for the same period in 2023.

Net loss attributable to Community Health Systems, Inc.

stockholders was $(55) million for the six months ended June 30, 2024, compared to $(89) million for the same period in 2023.

Liquidity and Capital Resources

Net cash provided by operating activities increased $91 million, from approximately $5 million for the three months ended March 31, 2023, to approximately $96 million for the three months ended March 31, 2024.

The increase in cash provided by operating activities is primarily due to increased collections of patient accounts receivable and decreases in payments for professional liability claims and interest.

Cash paid for interest was $149 million during the three months ended March 31, 2024, compared to $197 million for the same period in 2023.

Cash paid for income taxes, net of refunds received, resulted in a net payment of less than $1 million during both of the three-month periods ended March 31, 2024 and 2023.

Net cash used in investing activities was approximately $99 million for the three months ended March 31, 2024, compared to approximately $19 million for the same period in 2023.

Net cash used in investing activities during the three months ended March 31, 2024 was impacted by a decrease of $92 million in cash proceeds from dispositions of hospitals and other ancillary operations and a decrease of $27 million in cash from the net impact of the purchases and sales of available-for-sale debt and equity securities, offset by a decrease of $29 million in cash used for the purchase of property and equipment.

Our net cash provided by financing activities was approximately $13 million for the three months ended March 31, 2024, compared to approximately $40 million for the same period in 2023, a change of $27 million.

This was primarily due to the net impact of our debt borrowings and repayments during the three months ended March 31, 2024, compared to the same period in 2023.

Net working capital was approximately $1.0 billion at March 31, 2024 and $1.1 billion at December 31, 2023.

Net working capital decreased by approximately $27 million between December 31, 2023 and March 31, 2024.

The decrease is primarily due to decreases in patient accounts receivable and prepaid income taxes and increases in current maturities of long-term debt, accounts payable and accrued interest during the three months ended March 31, 2024, partially offset by increases in cash and other current assets and decreases in current operating lease liabilities, accrued liabilities for employee compensation and other current liabilities.

Net cash provided by operating activities increased $106 million, from approximately $91 million for the six months ended June 30, 2023, to approximately $197 million for the six months ended June 30, 2024.

The increase in cash provided by operating activities is primarily due to increased collections of patient accounts receivable and lower cash paid for interest, partially offset by increased income tax payments.

Cash paid for interest was $360 million during the six months ended June 30, 2024, compared to $385 million for the same period in 2023.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $84 million and $37 million during the six months ended June 30, 2024 and 2023.

Net cash used in investing activities was approximately $207 million for the six months ended June 30, 2024, compared to approximately $105 million for the same period in 2023.

Net cash used in investing activities during the six months ended June 30, 2024 was impacted by a decrease of $111 million in cash proceeds from dispositions of hospitals and other ancillary operations and a decrease of $29 million in cash from the net impact of the purchases and sales of available-for-sale debt and equity securities, offset by a decrease of $46 million in cash used for the purchase of property and equipment.

Our net cash provided by financing activities was approximately $11 million for the six months ended June 30, 2024, compared to approximately $14 million for the same period in 2023, a change of $3 million.

This was primarily due to the net impact of our debt borrowings and repayments during the six months ended June 30, 2024, compared to the same period in 2023.

Net working capital was approximately $1.0 billion at June 30, 2024 and $1.1 billion at December 31, 2023.

Net working capital decreased by approximately $39 million between December 31, 2023 and June 30, 2024.

The decrease is primarily due to decreases in patient accounts receivable and prepaid expenses and taxes and increases in current maturities of long-term debt, accrued interest and other current liabilities during the six months ended June 30, 2024, partially offset by increases in supplies, prepaid income taxes and other current assets and decreases in accounts payable, current operating lease liabilities and accrued liabilities for employee compensation.

In addition to cash flows from operations, available sources of capital include amounts available under the asset-based loan (ABL) credit agreement, or the ABL Credit Agreement, and anticipated access to public and private debt markets as well as proceeds from the disposition of hospitals or other investments such as our minority equity interests in various businesses, as applicable.

1 unchanged sentence

The maximum aggregate amount under the ABL Facility is $1.0 billion, subject to borrowing base capacity.

At March 31, 2024, we had outstanding borrowings of $302 million and approximately $618 million of additional borrowing capacity (after taking into consideration $67 million of outstanding letters of credit) under the ABL Facility.

At June 30, 2024, we had outstanding borrowings of $273 million and approximately $599 million of additional borrowing capacity (after taking into consideration $67 million of outstanding letters of credit) under the ABL Facility.

The issued letters of credit were primarily in support of potential insurance-related claims and certain bonds.

Letters of credit were reduced during the three months ended March 31, 2024 by $14 million, primarily in relation to a professional liability claim that was settled and funded during the three months ended March 31, 2024.

Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full on November 22, 2026.

Letters of credit were reduced during the six months ended June 30, 2024 by $14 million, primarily in relation to a professional liability claim that was settled and funded during the six months ended June 30, 2024.

Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full on June 5, 2029.

2024 Financing Activity

On June 5, 2024, CHS completed the offering of an additional $1.225 billion aggregate principal amount of its outstanding 10.875% Senior Secured Notes due 2032, or the Tack-On Notes, at an issue price of 102.000%, plus accrued and unpaid interest from

December 22, 2023 to the closing date (which equaled approximately $60 million).

The Tack-On Notes are part of the same series as, and rank equally with, the 10⅞% Senior Secured Notes due 2032 issued in December 2023.

Proceeds from the offering of the Tack-On Notes, together with cash on hand, were used to redeem all of the remaining $1.116 billion of outstanding 8.000% Senior Secured Notes due 2026, to fund senior note repurchases in the amount of approximately $98 million resulting in the extinguishment of $130 million principal amount of the 6⅞% Senior Notes due 2028, pay related fees and expenses and for general corporate purposes.

Additionally, on June 5, 2024, the ABL Credit Agreement, as noted above, was amended and restated to, among other things, extend the maturity to June 5, 2029.

For additional information regarding the issuance of the Tack-On Notes and the amendment of the ABL Credit Agreement, see the Current Report on Form 8-K filed by us on June 5, 2024.

Additional Liquidity Information

2 unchanged sentences

Upon the occurrence of an event of default under the ABL Facility or indentures that govern our outstanding notes, all amounts outstanding under the ABL Facility and the indentures that govern our outstanding notes may become immediately due and payable and all commitments under the ABL Facility to extend further credit may be terminated.

As of March 31, 2024, approximately $34 million of our outstanding debt of approximately $11.6 billion is due within the next 12 months.

As of June 30, 2024, approximately $27 million of our outstanding debt of approximately $11.5 billion is due within the next 12 months.

Net proceeds from divestitures, if any, are expected to be used for general corporate purposes (including potential debt repayments and/or debt repurchases) and capital expenditures.

3 unchanged sentences

Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities law requirements and other factors.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended March 31, 2024, from those disclosed under “Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Form 10-K.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended June 30, 2024, from those disclosed under “Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Form 10-K.

Capital Resources

Cash expenditures for purchases of facilities and other related businesses were approximately $1 million for the three months ended March 31, 2024, compared to $8 million for the same period in 2023.

Our expenditures for the three months ended March 31, 2024 and 2023 were primarily related to physician practices and clinics.

Cash expenditures for purchases of facilities and other related businesses were approximately $1 million for the six months ended June 30, 2024, compared to $15 million for the same period in 2023.

Our expenditures for the six months ended June 30, 2024 and 2023 were primarily related to physician practices and clinics.

Capital expenditures relate primarily to expansion and renovation of existing facilities, construction of additional access points such as free-standing emergency departments and ambulatory surgery centers, investments in higher acuity service lines and information technology infrastructure, as well as routine expenditures for equipment, minor renovations and other upgrades.

Capital expenditures totaled $93 million and $122 million for the three months ended March 31, 2024 and 2023, respectively.

Capital expenditures totaled $181 million and $227 million for the six months ended June 30, 2024 and 2023, respectively.

We expect total capital expenditures of approximately $350 million to $400 million in 2024.

Pursuant to a hospital purchase agreement from our March 1, 2016 acquisition of Northwest Health - Starke, formerly known as Starke Hospital, we committed to spend up to $15 million toward the construction of a replacement facility in Knox, Indiana.

Construction is required to be completed within five years of the date we enter into a new lease with Starke County, Indiana, the hospital lessor, or in the event we do not enter into a new lease with Starke County, construction shall be completed by September 30, 2026.

We have not entered into a new lease with the lessor for Northwest Health - Starke.

2 unchanged sentences

Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings, interpretations and discretion, and which are at times subject to court challenges, which may further affect payments made under those programs.

Further, the federal and state governments might, in the future, reduce the funds available under those programs, require repayment of previously received funds or require more stringent utilization and quality reviews of hospital facilities.

We expect legal challenges to healthcare regulations and agency guidance, including those related to Medicare and Medicaid payment policies, to increase as a result of recent U.S.

Supreme Court decisions as noted above.

The increased potential for legal challenges may result in delays in and other impacts to the agency rulemaking process.

Further, the federal and state governments might, in the future, reduce the funds available under the Medicare and Medicaid programs, require repayment of previously received funds or require more stringent utilization and quality reviews of hospital facilities.

Additionally, there may be a continued rise in managed care programs and further restructuring of the financing and delivery of healthcare in the United States.

16 unchanged sentences

This data is updated on a monthly basis.

contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy.

All hospital contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy.

We account for the differences between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which is one component of the deductions from gross revenues to arrive at net operating revenues.

2 unchanged sentences

Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at March 31, 2024 from our estimated reimbursement percentage, net loss for the three months ended March 31, 2024 would have changed by approximately $102 million, and net accounts receivable at March 31, 2024 would have changed by $131 million.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at June 30, 2024 from our estimated reimbursement percentage, net income for the six months ended June 30, 2024 would have changed by approximately $99 million, and net accounts receivable at June 30, 2024 would have changed by $127 million.

Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties.

We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues by an insignificant amount for both of the three-month periods ended March 31, 2024 and 2023.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues by an insignificant amount for the three- and six-month periods ended June 30, 2024 and 2023.

Patient Accounts Receivable

9 unchanged sentences

Patient accounts receivable can be impacted by the effectiveness of our collection efforts and, as described in our significant accounting policies included in Note 1 of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Form 10-Q, numerous factors may affect the net realizable value of accounts receivable.

If the actual collection percentage differed by 1% at March 31, 2024 from our estimated collection percentage as a result of a change in expected recoveries, net loss for the three months ended March 31, 2024 would have changed by $37 million, and net accounts receivable at March 31, 2024 would have changed by $48 million.

If the actual collection percentage differed by 1% at June 30, 2024 from our estimated collection percentage as a result of a change in expected recoveries, net income for the six months ended June 30, 2024 would have changed by $37 million, and net accounts receivable at June 30, 2024 would have changed by $48 million.

We also continually review our overall reserve adequacy by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net operating revenues and admissions by payor classification, days revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of third-party insured receivables and the impact of recent acquisitions and dispositions.

1 unchanged sentence

We believe this policy accurately reflects our ongoing collection efforts and is consistent with industry practices.

We had approximately $1.7 billion at both March 31, 2024 and December 31, 2023, being pursued by various outside collection agencies.

We had approximately $1.8 billion at June 30, 2024 and $1.7 billion at December 31, 2023, being pursued by various outside collection agencies.

We expect to collect less than 4%, net of estimated collection fees, of the amounts being pursued by outside collection agencies.

4 unchanged sentences

Patient accounts receivable from our hospitals represent approximately 98% of our total consolidated accounts receivable.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 59 days at March 31, 2024 and 58 days at December 31, 2023.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $17.4 billion and $16.8 billion as of March 31, 2024 and December 31, 2023, respectively.

The approximate percentage of total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) summarized by aging categories is as follows:

As of March 31, 2024:

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 58 days at both June 30, 2024 and December 31, 2023.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $17.1 billion and $16.8 billion as of June 30, 2024 and December 31, 2023, respectively.

The approximate percentage of total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) summarized by payor and aging categories is as follows:

As of June 30, 2024:

% of Gross Receivables

5 unchanged sentences

Managed Care and other third-party payors

The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions) summarized by payor is as follows:

The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions) summarized by payor-type is as follows:

Insured receivables

Self-pay receivables

The combined total at our hospitals and clinics for the estimated implicit price concessions for self-pay accounts receivable and allowances for other self-pay discounts and contractuals, as a percentage of gross self-pay receivables, was approximately 91% at both March 31, 2024 and December 31, 2023.

If the receivables that have been written-off, but where collections are still being pursued by outside collection agencies, were included in both the allowances and gross self-pay receivables specified above, the percentage of combined allowances to total self-pay receivables would have been 93% at both March 31, 2024 and December 31, 2023.

At March 31, 2024, we had approximately $4.0 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

At June 30, 2024, we had approximately $4.0 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

Goodwill represents the excess of the fair value of the consideration conveyed in an acquisition over the fair value of net assets acquired.

16 unchanged sentences

Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue for losses resulting from professional liability claims.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of approximately 3.7% at both March 31, 2024 and December 31, 2023.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of approximately 3.9% and 3.7% at June 30, 2024 and December 31, 2023, respectively.

This liability is adjusted for new claims information in the period such information becomes known to us.

11 unchanged sentences

Significant assumptions are made on the basis of the aforementioned information in estimating reserves for incurred but not reported claims.

A 1% change in assumptions for either severity or frequency as of March 31, 2024 would have increased or decreased the reserve between $5 million to $15 million.

A 1% change in assumptions for either severity or frequency as of June 30, 2024 would have increased or decreased the reserve between $5 million to $15 million.

Based on these analyses, we determine our estimate of the professional liability claims.

19 unchanged sentences

The $75 million in integrated occurrence coverage will also apply to claims reported between June 1, 2020 and June 1, 2025 for events that occurred prior to June 1, 2020 but which were not previously known or reported.

For certain policy years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met.

For certain policy

years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met.

Beginning June 1, 2018, this drop-down provision in the excess policies attaches over the $15 million per claim self-insured retention.

There were no significant changes in our estimate of the reserve for professional liability claims during the three months ended March 31, 2024.

There were no significant changes in our estimate of the reserve for professional liability claims during the six months ended June 30, 2024.

We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets.

We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation allowance we have established.

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was $45 million at March 31, 2024.

A total of $3 million of interest and penalties is included in the amount of liability for uncertain tax positions at March 31, 2024.

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was $46 million at June 30, 2024.

A total of $3 million of interest and penalties is included in the amount of liability for uncertain tax positions at June 30, 2024.

It is our policy to recognize interest and penalties related to unrecognized benefits in our condensed consolidated statements of loss as income tax expense.

12 unchanged sentences

Additionally, this ASU modifies and eliminates certain existing requirements for indefinitely reinvested foreign earnings and unrecognized tax benefits.

This ASU is effective for annual periods beginning after December 15,

2024 and interim periods beginning after December 15, 2025.

This ASU is effective for annual periods beginning after December 15, 2024 and interim periods beginning after December 15, 2025.

The amendments in this ASU should be applied on a prospective basis and early adoption is permitted.

7 unchanged sentences

These factors include, among other things:

• general economic and business conditions, both nationally and in the regions in which we operate, including the impact of current negative macroeconomic conditions, ongoing inflationary pressures, the current high interest rate environment, and current geopolitical instability, as well as the potential impact on us of financial, credit and capital conditions;

• general economic and business conditions, both nationally and in the regions in which we operate, including the impact of current negative macroeconomic conditions, inflationary conditions, the current high interest rate environment, and current geopolitical instability, as well as the potential impact on us of political, financial, credit and capital conditions;

• the impact of current or future federal and state health reform initiatives;

4 unchanged sentences

• changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business;

• judicial developments impacting the Company or the healthcare industry, including the potential impact of the recent decisions of the U.S.

Supreme Court regarding the actions of federal agencies;

• potential adverse impact of known and unknown legal, regulatory and governmental proceedings and other loss contingencies, including governmental investigations and audits, and federal and state false claims act litigation;

35 unchanged sentences

Quantitative and Qualitat ive Disclosures about Market Risk

During the three months ended March 31, 2024, there have been no material changes in the quantitative and qualitative disclosures set forth in Item 7A.

During the three months ended June 30, 2024, there have been no material changes in the quantitative and qualitative disclosures set forth in Item 7A.

Quantitative and Qualitative Disclosures about Market Risk in our 2023 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis