Community Health Systems, Inc.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
Commission file number
001-15925
COMMUNITY HEALTH SYSTEMS,
INC.
(Exact name of
registrant as specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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13-3893191
(I.R.S. Employer
Identification Number)
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4000 Meridian Boulevard
Franklin, Tennessee
(Address of principal
executive offices)
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37067
(Zip Code)
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615-465-7000
(Registrants telephone
number)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (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 þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicated by check mark whether the registrant is a shell
company (as defined in
Rule 126-2
of the Exchange
Act). Yes o No þ
As of July 25, 2008, there were outstanding
95,884,621 shares of the Registrants Common Stock,
$.01 par value.
Community
Health Systems, Inc.
Form 10-Q
For the
Three and Six Months Ended June 30, 2008
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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CONDENSED
CONSOLIDATED BALANCE SHEETS
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June 30,
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December 31,
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2008
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2007
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(Unaudited)
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(In thousands, except share data)
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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264,072
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$
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132,874
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Patient accounts receivable, net of allowance for doubtful
accounts of $1,052,811 and $1,033,516 at June 30, 2008, and
December 31, 2007, respectively
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1,603,702
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1,533,798
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Supplies
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266,403
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262,903
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Prepaid income taxes
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99,417
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Deferred income taxes
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88,531
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113,741
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Prepaid expenses and taxes
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89,724
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70,339
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Other current assets
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191,226
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339,826
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Total current assets
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2,503,658
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2,552,898
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Property and equipment
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6,639,690
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6,310,240
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Less accumulated depreciation and amortization
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(1,017,936
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(797,666
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Property and equipment, net
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5,621,754
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5,512,574
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Goodwill
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4,165,041
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4,247,714
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Other assets, net
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1,069,055
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1,180,457
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Total assets
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$
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13,359,508
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$
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13,493,643
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Current maturities of long-term debt
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$
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24,279
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$
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20,710
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Accounts payable
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438,518
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492,693
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Current income taxes payable
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12,224
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Accrued interest
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147,451
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153,832
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Accrued liabilities
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691,406
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780,700
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Total current liabilities
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1,313,878
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1,447,935
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Long-term debt
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8,889,915
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9,077,367
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Deferred income taxes
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429,934
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407,947
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Other long-term liabilities
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571,085
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483,459
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Minority interests in equity of consolidated subsidiaries
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320,587
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366,131
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Stockholders equity
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Preferred stock, $.01 par value per share,
100,000,000 shares authorized, none issued
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Common stock, $.01 par value per share,
300,000,000 shares authorized; 96,944,770 shares
issued and 95,969,221 shares outstanding at June 30,
2008, and 96,611,085 shares issued and
95,635,536 shares outstanding at December 31, 2007
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969
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966
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Additional paid-in capital
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1,251,746
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1,240,308
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Treasury stock, at cost, 975,549 shares at June 30,
2008 and December 31, 2007
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(6,678
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)
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(6,678
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)
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Accumulated other comprehensive income
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(77,893
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)
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(81,737
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)
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Retained earnings
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665,965
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557,945
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Total stockholders equity
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1,834,109
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1,710,804
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Total liabilities and stockholders equity
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$
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13,359,508
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$
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13,493,643
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See accompanying notes to the condensed consolidated financial
statements.
2
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2008
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2007
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2008
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2007
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(Unaudited)
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(In thousands, except share and per share data)
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Net operating revenues
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$
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2,690,600
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$
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1,197,865
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$
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5,418,154
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$
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2,352,143
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Operating costs and expenses:
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Salaries and benefits
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1,079,376
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472,846
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2,167,146
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935,611
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Provision for bad debts
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291,045
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141,820
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588,125
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269,874
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Supplies
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377,586
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140,348
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763,995
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274,642
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Other operating expenses
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526,098
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246,980
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1,052,265
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481,145
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Rent
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58,479
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26,966
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118,336
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51,722
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Depreciation and amortization
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124,942
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51,982
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247,657
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100,479
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Total operating costs and expenses
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2,457,526
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1,080,942
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4,937,524
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2,113,473
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Income from operations
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233,074
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116,923
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480,630
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238,670
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Interest expense, net
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154,361
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29,184
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320,063
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57,617
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Loss from early extinguishment of debt
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1,328
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Minority interest in earnings
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8,317
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625
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17,999
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818
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Equity in earnings of unconsolidated affiliates
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(10,508
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(23,392
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Income from continuing operations before income taxes
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80,904
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87,114
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164,632
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180,235
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Provision for income taxes
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31,148
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33,556
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63,383
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69,388
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Income from continuing operations
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49,756
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53,558
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101,249
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110,847
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Discontinued operations, net of taxes:
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Income (loss) from operations of hospitals sold and hospital
held for sale
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(1,854
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)
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205
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(2,837
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)
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(2,760
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)
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Gain (loss) on sale of hospitals, net
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(9
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)
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9,608
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Income (loss) on discontinued operations
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(1,863
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)
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205
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6,771
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(2,760
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)
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Net income
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$
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47,893
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$
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53,763
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$
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108,020
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$
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108,087
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Income from continuing operations per common share:
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Basic
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$
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0.53
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$
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0.57
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$
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1.08
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$
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1.19
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Diluted
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$
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0.52
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$
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0.57
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$
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1.06
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$
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1.17
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Net income per common share:
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Basic
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$
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0.51
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$
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0.57
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$
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1.15
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$
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1.16
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Diluted
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$
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0.50
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$
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0.57
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$
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1.14
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$
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1.14
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Weighted-average number of shares outstanding:
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Basic
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94,192,295
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93,518,991
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94,017,435
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93,373,357
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Diluted
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95,513,127
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94,647,870
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95,127,523
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94,422,000
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See accompanying notes to the condensed consolidated financial
statements.
3
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
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Six Months Ended
|
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June 30,
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2008
|
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2007
|
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(Unaudited)
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(In thousands)
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Cash flows from operating activities
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Net income
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$
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108,020
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$
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108,087
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation and amortization
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247,426
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104,619
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Minority interest in earnings
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17,999
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|
818
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Stock-based compensation expense
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26,681
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14,295
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Gain on sale of hospitals, net
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(13,211
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)
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Excess tax benefits relating to stock-based compensation
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|
947
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(2,295
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)
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Loss on early extinguishment of debt
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1,328
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|
|
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Other non-cash expenses (gains), net
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2,041
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(1,542
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)
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Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures:
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Patient accounts receivable
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(74,786
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)
|
|
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(47,415
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)
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Supplies, prepaid expenses and other current assets
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13,570
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(13,458
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)
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Accounts payable, accrued liabilities and income taxes
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83,868
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|
|
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46,353
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Other
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|
2,900
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|
|
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6,526
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|
|
|
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|
|
|
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Net cash provided by operating activities
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|
416,783
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|
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215,988
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Cash flows from investing activities
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Acquisitions of facilities and other related equipment
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(6,646
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)
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(187,955
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)
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Purchases of property and equipment
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|
|
(275,605
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)
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(108,849
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)
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Proceeds from disposition of hospitals and other ancillary
operations
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|
365,913
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|
12,662
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Proceeds from sale of property and equipment
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|
|
12,889
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|
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|
234
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Increase in other assets
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|
(144,380
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)
|
|
|
(25,362
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)
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Net cash used in investing activities
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|
(47,829
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)
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|
|
(309,270
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)
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|
|
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Cash flows from financing activities
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|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
1,357
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|
|
|
6,693
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|
Excess tax benefits relating to stock-based compensation
|
|
|
(947
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)
|
|
|
2,295
|
|
Stock buy-back
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|
(10,194
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)
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|
|
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Deferred financing costs
|
|
|
(2,444
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)
|
|
|
(367
|
)
|
Proceeds from minority investors in joint ventures
|
|
|
11,214
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|
|
|
1,105
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|
Redemption of minority investments in joint ventures
|
|
|
(53,485
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)
|
|
|
(1,369
|
)
|
Distributions to minority investors in joint ventures
|
|
|
(14,916
|
)
|
|
|
(1,705
|
)
|
Borrowings under credit agreement
|
|
|
22,657
|
|
|
|
132,000
|
|
Repayments of long-term indebtedness
|
|
|
(190,998
|
)
|
|
|
(64,579
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(237,756
|
)
|
|
|
74,073
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
131,198
|
|
|
|
(19,209
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
132,874
|
|
|
|
40,566
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
264,072
|
|
|
$
|
21,357
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
4
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
The unaudited condensed consolidated financial statements of
Community Health Systems, Inc. and its subsidiaries (the
Company) as of June 30, 2008 and for the three
and six month periods ended June 30, 2008 and June 30,
2007, have been prepared in accordance with accounting
principles generally accepted in the United States of America
(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 six months ended June 30, 2008, are not
necessarily indicative of the results to be expected for the
full fiscal year ending December 31, 2008. Certain
information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted
as permitted by the rules and regulations of the Securities and
Exchange Commission (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, 2007, contained in the Companys
Annual Report on
Form 10-K.
The presentation of gross property and equipment and accumulated
depreciation and amortization at December 31, 2007 has been
corrected to reflect certain assets acquired from Triad
Hospitals, Inc. (Triad). This correction increased
both gross property and equipment and accumulated depreciation
and amortization by the same amount and did not impact the net
balance of property and equipment as previously presented on the
balance sheet.
|
|
2.
|
ACCOUNTING
FOR STOCK-BASED COMPENSATION
|
Stock-based compensation awards are granted under the Community
Health Systems, Inc. Amended and Restated 2000 Stock Option and
Award Plan (the 2000 Plan). The 2000 Plan allows for
the grant of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code, as well as stock
options which do not so qualify, stock appreciation rights,
restricted stock, performance units and performance shares,
phantom stock awards and share awards. Persons eligible to
receive grants under the 2000 Plan include the Companys
directors, officers, employees and consultants. To date, the
options granted under the 2000 Plan have all been
nonqualified stock options for tax purposes.
Generally, vesting of these granted options occurs in one-third
increments on each of the first three anniversaries of the award
date. Options granted prior to 2005 have a 10 year
contractual term, options granted in 2005 through 2007 have an
8 year contractual term and options granted in 2008 have a
10 year contractual term. The exercise price of all options
granted to employees under the 2000 Plan is equal to the fair
value of the Companys common stock on the option grant
date. As of June 30, 2008, 3,529,664 shares of
unissued common stock remain reserved for future grants under
the 2000 Plan.
The Company has also awarded restricted stock under the 2000
Plan to its directors and employees. The restrictions on these
shares generally lapse in one-third increments on each of the
first three anniversaries of the award date, except for
restricted stock granted on July 25, 2007, which
restrictions lapse equally on the first two anniversaries of the
award date. Certain of the restricted stock awards granted to
the Companys senior executives contain a performance
objective that must be met in addition to any vesting
requirements. If the performance objective is not attained, the
awards will be forfeited in their entirety. Once the performance
objective has been attained, restrictions will lapse in
one-third increments on each of the first three anniversaries of
the award date with the exception of the July 25, 2007
restricted stock awards, which have no additional time vesting
restrictions once the performance restrictions are met.
Notwithstanding the above mentioned performance objectives and
vesting requirements, the restrictions will lapse earlier in the
event of death, disability, or termination of employment of the
holder of the restricted stock by the Company for any reason
other than for cause or change in control of the Company.
Restricted stock awards subject to
5
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
performance standards are not considered outstanding for
purposes of determining earnings per share until the performance
objectives have been satisfied.
The following table reflects the impact of total compensation
expense related to stock-based equity plans under the Statement
of Financial Accounting Standards (SFAS)
No. 123(R), on the reported operating results for the
respective periods (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Effect on income from continuing operations before income taxes
|
|
$
|
(13,435
|
)
|
|
$
|
(7,965
|
)
|
|
$
|
(26,681
|
)
|
|
$
|
(14,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on net income
|
|
$
|
(8,162
|
)
|
|
$
|
(4,839
|
)
|
|
$
|
(16,209
|
)
|
|
$
|
(8,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on net income per share-diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, $84.2 million of unrecognized
stock-based compensation expense from all outstanding unvested
stock options and restricted stock is expected to be recognized
over a weighted-average period of 19 months.
The fair value of stock options was estimated using the Black
Scholes option pricing model during the three and six months
ended June 30, 2008 and 2007, with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Expected volatility
|
|
24.5%
|
|
24.6%
|
|
24.1%
|
|
25.5%
|
Expected dividends
|
|
0
|
|
0
|
|
0
|
|
0
|
Expected term
|
|
4 years
|
|
4 years
|
|
4 years
|
|
4 years
|
Risk-free interest rate
|
|
2.80%
|
|
4.77%
|
|
2.59%
|
|
4.50%
|
In determining expected return, the Company examined
concentrations of option holdings, historical patterns of option
exercises and forfeitures, as well as forward looking factors,
in an effort to determine if there were any discernable employee
populations. From this analysis, the Company identified two
employee populations, one consisting primarily of certain senior
executives and the other consisting of all other recipients.
The expected volatility rate was estimated based on historical
volatility. In determining expected volatility, the Company also
reviewed the market-based implied volatility of actively traded
options of its common stock and determined that historical
volatility did not differ significantly from the implied
volatility.
The expected life computation is based on historical exercise
and cancellation patterns and forward looking factors, where
present, for each population identified. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at
the time of the grant. The pre-vesting forfeiture rate is based
on historical rates and forward looking factors for each
population identified. The Company adjusts the estimated
forfeiture rate to its actual experience.
6
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Options outstanding and exercisable under the 2000 Plan as of
June 30, 2008, and changes during the three and six months
then ended were as follows (in thousands, except share and per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise
|
|
|
Term
|
|
|
Value as of
|
|
|
|
Shares
|
|
|
Price
|
|
|
(In Years)
|
|
|
June 30, 2008
|
|
|
Outstanding at December 31, 2007
|
|
|
8,439,015
|
|
|
$
|
30.90
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
996,500
|
|
|
|
32.28
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(11,666
|
)
|
|
|
23.26
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(172,600
|
)
|
|
|
35.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
9,251,249
|
|
|
|
30.98
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
95,500
|
|
|
|
35.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(36,998
|
)
|
|
|
29.69
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(142,836
|
)
|
|
|
33.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
9,166,915
|
|
|
$
|
30.99
|
|
|
|
6.1 years
|
|
|
$
|
40,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008
|
|
|
4,794,980
|
|
|
$
|
25.68
|
|
|
|
5.2 years
|
|
|
$
|
39,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of stock options
granted during the six months ended June 30, 2008 and 2007,
was $7.64 and $10.36, respectively. The aggregate intrinsic
value (the number of in-the-money stock options multiplied by
the difference between the Companys closing stock price on
the last trading day of the reporting period ($32.98) and the
exercise price of the respective stock options) in the table
above represents the amount that would have been received by the
option holders had all option holders exercised their options on
June 30, 2008. This amount changes based on the market
value of the Companys common stock. The aggregate
intrinsic value of options exercised during the three months
ended June 30, 2008 and 2007 was $0.3 million and
$1.5 million, respectively, and the aggregate intrinsic
value of options exercised during the six months ended
June 30, 2008 and 2007 was $0.4 million and
$2.9 million, respectively. The aggregate intrinsic value
of options vested and expected to vest approximates that of the
outstanding options.
Restricted stock outstanding under the 2000 Plan as of
June 30, 2008, and changes during the three and six months
then ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
Unvested at December 31, 2007
|
|
|
1,956,543
|
|
|
$
|
38.04
|
|
Granted
|
|
|
748,500
|
|
|
|
32.38
|
|
Vested
|
|
|
(592,505
|
)
|
|
|
36.09
|
|
Forfeited
|
|
|
(3,000
|
)
|
|
|
37.20
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2008
|
|
|
2,109,538
|
|
|
|
36.58
|
|
Granted
|
|
|
25,000
|
|
|
|
35.33
|
|
Vested
|
|
|
(17,832
|
)
|
|
|
38.81
|
|
Forfeited
|
|
|
(3,500
|
)
|
|
|
32.88
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2008
|
|
|
2,113,206
|
|
|
|
36.55
|
|
|
|
|
|
|
|
|
|
|
7
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
As of June 30, 2008, there was $55.8 million of
unrecognized stock-based compensation expense related to
unvested restricted stock expected to be recognized over a
weighted-average period of 18 months.
Under the Directors Fee Deferral Plan, the Companys
outside directors may elect to receive share equivalent units in
lieu of cash for their directors fee. Share equivalent
units are calculated by dividing the deferred directors
fees by the closing market price of the Companys common
stock on the last trading day of the reporting period. These
units are held in the plan until the director electing to
receive the share equivalent units retires or otherwise
terminates
his/her
directorship with the Company. Share equivalent units are
converted to shares of common stock of the Company at the time
of distribution. The following table represents the amount of
directors fees which were deferred and the equivalent
units into which they converted for each of the respective
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Directors fees earned and deferred into plan
|
|
$
|
17,000
|
|
|
$
|
29,375
|
|
|
$
|
57,875
|
|
|
$
|
65,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent units
|
|
|
515.464
|
|
|
|
726.205
|
|
|
|
1,733.069
|
|
|
|
1,743.936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008, there are a total of
15,141.601 units deferred in the plan with an aggregate
fair value of $0.5 million, based on the closing market
price of the Companys common stock on the last trading day
of the reporting period of $32.98.
The majority of the Companys operating costs and expenses
are cost of revenue items. Operating costs that
could be classified as general and administrative by the Company
would include the Companys corporate office costs at the
Companys Franklin, Tennessee office, which were
$43.0 million and $23.9 million for the three months
ended June 30, 2008 and 2007, respectively, and
$81.1 million and $47.0 million for the six months
ended June 30, 2008 and 2007, respectively. Included in
these amounts is stock-based compensation expense of
$13.4 million and $8.0 million for the three months
ended June 30, 2008 and 2007, respectively, and
$26.7 million and $14.3 million for the six months
ended June 30, 2008 and 2007, respectively.
The preparation of financial statements in conformity with 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.
|
|
5.
|
ACQUISITIONS
AND DIVESTITURES
|
Triad
Acquisition
On July 25, 2007, the Company completed its acquisition of
Triad. Triad owned and operated 50 hospitals in non-urban and
middle market communities in 17 states, as well as the
Republic of Ireland. Immediately following the acquisition, on a
combined basis, the Company owned and operated
128 hospitals in 28 states, as well as the Republic of
Ireland. As of December 31, 2007, two hospitals acquired
from Triad had been sold and six hospitals acquired from Triad
were classified as held for sale. During the six months ended
June 30, 2008, the Company completed the sale of five of
the six former Triad hospitals held for sale at
December 31, 2007. The Company also provides management and
consulting services on a contract basis to independent
hospitals, through its subsidiary, Quorum Health Resources, LLC,
which was acquired as part of the
8
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
acquisition of Triad. The Company acquired Triad for
approximately $6.857 billion, including the assumption of
$1.686 billion of existing indebtedness.
In connection with the consummation of the acquisition of Triad,
the Company obtained $7.215 billion of senior secured
financing under a new credit facility (the New Credit
Facility) and its wholly-owned subsidiary CHS/Community
Health Systems, Inc. (CHS) issued
$3.021 billion aggregate principal amount of
8.875% senior notes due 2015 (the Notes). The
Company used the net proceeds of $3.000 billion from the
Notes offering and the net proceeds of $6.065 billion of
term loans under the New Credit Facility to acquire the
outstanding shares of Triad, to refinance certain of
Triads indebtedness and the Companys indebtedness,
to complete certain related transactions, to pay certain costs
and expenses of the transactions and for general corporate uses.
This New Credit Facility also provides an additional
$750 million revolving credit facility and a
$300 million delayed draw term loan facility for future
acquisitions, working capital and general corporate purposes.
The delayed draw term loan was reduced from $400 million to
$300 million at the request of the Company in the fourth
quarter of 2007.
The total cost of the Triad acquisition has been allocated to
the assets acquired and liabilities assumed based upon their
respective preliminary estimated fair values in accordance with
SFAS No. 141. The purchase price represented a premium
over the fair value of the net tangible and identifiable
intangible assets acquired for reasons such as:
|
|
|
|
|
strategically, Triad had operations in five states in which the
Company previously had no operations;
|
|
|
|
the combined company has smaller concentrations of credit risk
through greater geographic diversification;
|
|
|
|
many support functions will be centralized; and
|
|
|
|
duplicate corporate functions will be eliminated.
|
The allocation process requires the analysis of acquired fixed
assets, contracts, contractual commitments, and legal
contingencies to identify and record the fair value of all
assets acquired and liabilities assumed. The values of certain
assets and liabilities are based on preliminary valuations and
are subject to adjustment as additional information is obtained.
Such additional information includes, but is not limited to,
valuations of property and equipment, valuation of equity
investments, valuation of contractual commitments, and review of
open cost report settlement periods. The Company is also
negotiating the termination of certain assumed contracts it
deems unfavorable, such as various physician and service
contracts. Under GAAP, the Company has up to twelve months from
the closing of the acquisition to complete its valuations and
complete contract terminations in order for these terminations
to be considered in the allocation process. The Company expects
to complete the allocation of the total cost of the Triad
acquisition in the third quarter of 2008. Material adjustments
to goodwill may result upon the completion of these matters.
Other
Acquisitions
Effective April 1, 2007, the Company completed its
acquisition of Lincoln General Hospital (157 licensed beds),
located in Ruston, Louisiana. The total consideration for this
hospital was approximately $49.4 million, of which
$44.7 million was paid in cash and $4.7 million was
assumed in liabilities. On May 1, 2007, the Company
completed its acquisition of Porter Health (301 licensed beds),
located in Valparaiso, Indiana, with a satellite campus in
Portage, Indiana and outpatient medical campuses located in
Chesterton, Demotte, and Hebron, Indiana. As part of this
acquisition, the Company has agreed to construct a 225-bed
replacement facility for the Valparaiso hospital no later than
April 2011. The total consideration for Porter Health was
approximately $113.2 million, of which $88.9 million
was paid in cash and $24.3 million was assumed in
9
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
liabilities. The Companys purchase price allocation
relating to these acquisitions resulted in approximately
$8.1 million of goodwill being recorded.
Effective June 30, 2008, the Company acquired the 35%
minority interest in Affinity Health Systems, LLC which
indirectly owns and operates Trinity Medical Center (560
licensed beds) in Birmingham, Alabama, from Baptist Health
Systems, Inc. of Birmingham, Alabama (Baptist),
giving the Company 100% ownership of that facility. The purchase
price for this minority interest was $51.5 million in cash
and the cancellation of a promissory note issued by Baptist and
held by Affinity Health Systems, LLC in the original principal
amount of $32.8 million.
Discontinued
Operations
Effective March 1, 2008, the Company sold Woodland Medical
Center (100 licensed beds) located in Cullman, Alabama; Parkway
Medical Center (108 licensed beds) located in Decatur, Alabama;
Hartselle Medical Center (150 licensed beds) located in
Hartselle, Alabama; Jacksonville Medical Center (89 licensed
beds) located in Jacksonville, Alabama; National Park Medical
Center (166 licensed beds) located in Hot Springs, Arkansas;
St. Marys Regional Medical Center (170 licensed beds)
located in Russellville, Arkansas; Mineral Area Regional Medical
Center (135 licensed beds) located in Farmington, Missouri;
Willamette Valley Medical Center (80 licensed beds) located in
McMinnville, Oregon; and White County Community Hospital (60
licensed beds) located in Sparta, Tennessee, to Capella
Healthcare, Inc., headquartered in Franklin, Tennessee. The
proceeds from this sale were $315 million in cash.
Effective February 21, 2008, the Company sold THI Ireland
Holdings Limited, a private limited company incorporated in the
Republic of Ireland, which leased and managed the operations of
Beacon Medical Center (122 licensed beds) located in Dublin,
Ireland, to Beacon Medical Group Limited, headquartered in
Dublin, Ireland. The proceeds from this sale were
$1.5 million in cash.
Effective February 1, 2008, the Company sold Russell County
Medical Center (78 licensed beds) located in Lebanon, Virginia
to Mountain States Health Alliance, headquartered in Johnson
City, Tennessee. The proceeds from this sale were
$48.6 million in cash.
Effective November 30, 2007, the Company sold Barberton
Citizens Hospital (312 licensed beds) located in Barberton, Ohio
to Summa Health System of Akron, Ohio. The proceeds from this
sale were $53.8 million in cash.
Effective October 31, 2007, the Company sold its 60%
membership interest in Northeast Arkansas Medical Center, a 104
bed facility in Jonesboro, Arkansas to Baptist Memorial Health
Care (Baptist), headquartered in Memphis, Tennessee,
for $16.8 million. In connection with this transaction, the
Company also sold real estate and other assets to a subsidiary
of Baptist for $26.2 million in cash.
Effective September 1, 2007, the Company sold its
partnership interest in River West L.P., which owned and
operated River West Medical Center (80 licensed beds) located in
Plaquemine, Louisiana, to an affiliate of Shiloh Health
Services, Inc. of Lubbock, Texas. The proceeds from this sale
were $0.3 million in cash.
As of June 30, 2008, the Company had one hospital
classified as held for sale.
In connection with the above actions and in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company has classified
the results of operations of the above mentioned hospitals as
discontinued operations in the accompanying condensed
consolidated statements of income.
10
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Net operating revenues and income (loss) on discontinued
operations for the respective periods are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net operating revenues
|
|
$
|
18,485
|
|
|
$
|
51,263
|
|
|
$
|
125,118
|
|
|
$
|
100,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold or held for sale
before income taxes
|
|
|
(3,422
|
)
|
|
|
306
|
|
|
|
(4,211
|
)
|
|
|
(4,483
|
)
|
Gain (loss) on sale of hospitals, net
|
|
|
(9
|
)
|
|
|
|
|
|
|
17,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, before taxes
|
|
|
(3,431
|
)
|
|
|
306
|
|
|
|
13,504
|
|
|
|
(4,483
|
)
|
Income tax expense (benefit)
|
|
|
1,568
|
|
|
|
(101
|
)
|
|
|
(6,733
|
)
|
|
|
1,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
(1,863
|
)
|
|
$
|
205
|
|
|
$
|
6,771
|
|
|
$
|
(2,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of income (loss) from discontinued operations,
before taxes, for the three months and six months ended
June 30, 2008 includes the net write-off of
$96.3 million of tangible assets and $32.5 million of
goodwill (including $21.3 million of goodwill included in
non-current assets held for sale at December 31,
2007) at the hospitals sold during the six months ended
June 30, 2008.
Interest expense was allocated to discontinued operations based
on estimated sale proceeds available for debt repayment.
The assets and liabilities of one hospital held for sale as of
June 30, 2008 are included in the accompanying condensed
consolidated balance sheet as follows: current assets of
$17.1 million, included in other current assets; net
property and equipment of $33.9 million and other long-term
assets of $0.1 million, included in other assets; and
current liabilities of $22.1 million, included in other
accrued liabilities.
The assets and liabilities of the hospitals held for sale as of
December 31, 2007 are included in the accompanying
condensed consolidated balance sheet as follows: current assets
of $118.9 million, included in other current assets; net
property and equipment of $331.1 million and other
long-term assets of $31.4 million, included in other
assets; and current liabilities of $67.6 million, included
in accrued liabilities.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), on January 1, 2007.
The total amount of unrecognized benefit that would affect the
effective tax rate, if recognized, is approximately
$6.2 million as of June 30, 2008. It is the
Companys policy to recognize interest and penalties
accrued related to unrecognized benefits in its condensed
consolidated statements of income as income tax expense. During
the three months ended June 30, 2008, the Company recorded
approximately $0.2 million in interest and penalties
related to prior state income tax returns through its income tax
provision from continuing operations and which are included in
its FIN 48 liability at June 30, 2008. A total of
approximately $2.2 million of interest and penalties is
included in the amount of FIN 48 liability at June 30,
2008.
The Companys unrecognized tax benefits consist primarily
of state exposure items. The Company believes that it is
reasonably possible that approximately $1.2 million of its
current unrecognized tax benefit may decrease within the next
twelve months as a result of a lapse of the statute of
limitations and settlements with taxing authorities.
11
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
The Company or one of its subsidiaries files income tax returns
in the U.S. federal jurisdiction and various state
jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal or state income tax examinations
for years prior to 2003.
The IRS has concluded an examination of the federal income tax
returns of Triad for the short taxable years ended
April 27, 2001, June 30, 2001 and December 31,
2001, and the taxable years ended December 31, 2002 and
2003. The Company has received a closing letter from the IRS
with respect to the examination for those tax years. The
settlement was not material to the Companys consolidated
results of operations or consolidated financial position.
Cash paid for income taxes, net of refunds received, resulted in
a net cash refund of $46.5 million and $49.3 million
for the three and six months ended June 30, 2008,
respectively, and net cash paid of $16.2 million and
$29.4 million for the three and six months ended
June 30, 2007, respectively.
|
|
7.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The changes in the carrying amount of goodwill for the six
months ended June 30, 2008, are as follows (in thousands):
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
4,247,714
|
|
Goodwill acquired as part of acquisitions during 2008
|
|
|
4,109
|
|
Consideration adjustments and purchase price allocation
adjustments for acquisitions in 2007
|
|
|
(75,441
|
)
|
Goodwill written-off as part of disposals
|
|
|
(11,341
|
)
|
|
|
|
|
|
Balance as of June 30, 2008
|
|
$
|
4,165,041
|
|
|
|
|
|
|
Goodwill related to the former Triad hospitals of
$2.825 billion has not been allocated to the reporting unit
level (hospital operations, home health and management services)
as of June 30, 2008 because the final purchase price
allocation has not been completed (see Note 5).
The Company completed its most recent annual goodwill impairment
test as required by SFAS No. 142, Goodwill and
Other Intangible Assets, during 2007, using a measurement
date of September 30, 2007. Based on the results of the
impairment test, the Company was not required to recognize an
impairment of goodwill in 2007.
The gross carrying amount of the Companys other intangible
assets was $207.9 million at June 30, 2008 and
$194.6 million at December 31, 2007, and the net
carrying amount was $195.4 million at June 30, 2008
and $181.0 million at December 31, 2007. Other
intangible assets are included in other assets, net on the
Companys condensed consolidated balance sheets.
The weighted-average amortization period for the intangible
assets subject to amortization is approximately ten years. There
are no expected residual values related to these intangible
assets. Amortization expense on these intangible assets during
the three months ended June 30, 2008 and 2007 was
$0.8 million and $0.5 million, respectively.
Amortization expense on these intangible assets during the six
months ended June 30, 2008 and 2007 was $3.2 million
and $1.0 million, respectively. Amortization expense on
intangible assets is estimated to be $5.4 million for the
remainder of 2008, $14.0 million in 2009,
$12.2 million in 2010, $7.0 million in 2011,
$6.6 million in 2012, and $22.7 million in 2013 and
thereafter.
12
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
The following table sets forth the components of the numerator
and denominator for the computation of basic and diluted income
from continuing operations per share (in thousands, except share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
stockholders basic
|
|
$
|
49,756
|
|
|
$
|
53,558
|
|
|
$
|
101,249
|
|
|
$
|
110,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
stockholders diluted
|
|
$
|
49,756
|
|
|
$
|
53,558
|
|
|
$
|
101,249
|
|
|
$
|
110,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding basic
|
|
|
94,192,295
|
|
|
|
93,518,991
|
|
|
|
94,017,435
|
|
|
|
93,373,357
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee director options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,913
|
|
Restricted stock awards
|
|
|
399,975
|
|
|
|
181,183
|
|
|
|
871,373
|
|
|
|
111,539
|
|
Employee options
|
|
|
920,857
|
|
|
|
947,696
|
|
|
|
238,715
|
|
|
|
931,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding diluted
|
|
|
95,513,127
|
|
|
|
94,647,870
|
|
|
|
95,127,523
|
|
|
|
94,422,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities outstanding not included in the computation
of earning per share because their effect is antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee options
|
|
|
3,540,068
|
|
|
|
1,032,071
|
|
|
|
3,950,600
|
|
|
|
1,479,319
|
|
Authorized capital shares of the Company include
400,000,000 shares of capital stock consisting of
300,000,000 shares of common stock and
100,000,000 shares of preferred stock. Each of the
aforementioned classes of capital stock has a par value of $0.01
per share. Shares of preferred stock, none of which are
outstanding as of June 30, 2008, may be issued in one or
more series having such rights, preferences and other provisions
as determined by the Board of Directors without approval by the
holders of common stock.
On January 14, 2006, the Company commenced an open market
repurchase program for up to 5,000,000 shares of the
Companys common stock, not to exceed $200 million in
repurchases. Under this program, the Company repurchased the
entire 5,000,000 shares at a weighted-average price of
$35.23. This program concluded on November 8, 2006 when the
maximum number of shares had been repurchased. This repurchase
plan followed a prior repurchase plan for up to
5,000,000 shares which concluded on January 13, 2006.
The Company repurchased 3,029,700 shares at a
weighted-average price of $31.20 per share under this program.
On December 13, 2006, the Company commenced another open
market repurchase program for up to 5,000,000 shares of the
Companys common stock, not to exceed $200 million in
repurchases. This program will conclude at the earlier of three
years or when the maximum number of shares has been repurchased.
13
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
During the period from June 1, 2008 to June 30, 2008,
the Company repurchased 305,400 shares at a
weighted-average price of $33.34 per share under this program.
The following table presents the components of comprehensive
income, net of related taxes. The net change in fair value of
interest rate swap agreements is a function of the spread
between the fixed interest rate of each swap and the underlying
variable interest rate under the Companys New Credit
Facility, the change in fair value of available for sale
securities is the unrealized gain (losses) on the related
investments and the amortization of unrecognized pension cost
components is the amortization of prior service costs and
credits and actuarial gains and losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
47,893
|
|
|
$
|
53,763
|
|
|
$
|
108,020
|
|
|
$
|
108,087
|
|
Net change in fair value of interest rate swaps
|
|
|
109,368
|
|
|
|
13,670
|
|
|
|
4,814
|
|
|
|
9,800
|
|
Net change in fair value of available for sale securities
|
|
|
(105
|
)
|
|
|
237
|
|
|
|
(858
|
)
|
|
|
24
|
|
Amortization of unrecognized pension components
|
|
|
880
|
|
|
|
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
158,036
|
|
|
$
|
67,670
|
|
|
$
|
111,864
|
|
|
$
|
117,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net change in fair value of the interest rate swaps, the net
change in fair value of available for sale securities and
amortization of unrecognized pension cost components are
included in accumulated other comprehensive income on the
accompanying condensed consolidated balance sheets.
The Company owns equity interests of 27.5% in four hospitals in
Las Vegas, Nevada, and 26.1% in one hospital in Las Vegas,
Nevada in which Universal Health Systems, Inc. owns the majority
interest; an equity interest of 38.0% in three hospitals in
Macon, Georgia in which HCA, Inc. owns the majority interest;
and an equity interest of 50.0% in a hospital in El Dorado,
Arkansas in which the SHARE Foundation, a
not-for-profit
foundation, owns the remaining 50.0%. These equity investments
were acquired as part of the acquisition of Triad. The Company
uses the equity method of accounting for its investments in
these entities. During the three months ended June 30,
2008, the Company adjusted the carrying amount of these equity
investments based on the preliminary Triad asset valuations. The
difference between the fair value of these equity investments
and the estimated underlying equity in net assets is
approximately $128.1 million and represents goodwill under
the equity method of accounting. The Companys investment
in unconsolidated affiliates is $419.2 million and
$267.8 million at June 30, 2008 and December 31,
2007, respectively, and is included in other assets in the
accompanying condensed consolidated balance sheets. The
Companys investment in unconsolidated affiliates at
December 31, 2007 has been corrected from amounts
previously disclosed to eliminate amounts related to
discontinued operations; the correction did not affect the
amounts reported in other assets in the accompanying condensed
consolidated balance sheet. Included in the Companys
results of operations for the three and six months ended
June 30, 2008, is $10.5 million and
$23.4 million, respectively, representing the
Companys equity in pre-tax earnings from investments in
unconsolidated affiliates.
14
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Summarized combined financial information for the three months
and six months ended June 30, 2008, for the unconsolidated
entities in which the Company owns an equity interest is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2008
|
|
|
Revenues
|
|
$
|
359,695
|
|
|
$
|
723,362
|
|
Operating costs and expenses
|
|
|
322,151
|
|
|
|
641,914
|
|
Net income
|
|
|
37,578
|
|
|
|
88,277
|
|
Terminated
Credit Facility and Notes
On August 19, 2004, CHS entered into a $1.625 billion
senior secured credit facility with a consortium of lenders
which was subsequently amended on December 16, 2004,
July 8, 2005 and December 13, 2006 (the
Terminated Credit Facility). The purpose of the
Terminated Credit Facility was to refinance and replace the
Companys previous credit agreement, repay specified other
indebtedness, and fund general corporate purposes, including
amending the credit facility to permit declaration and payment
of cash dividends, to repurchase shares or make other
distributions, subject to certain restrictions. The Terminated
Credit Facility consisted of a $1.2 billion term loan that
was due to mature in 2011 and a $425 million revolving
credit facility that was due to mature in 2009. The First
Incremental Facility Amendment, dated as of December 13,
2006, increased the Companys term loans by
$400 million (the Incremental Term Loan
Facility) and also gave the Company the ability to add up
to $400 million of additional term loans. The full amount
of the Incremental Term Loan Facility was funded on
December 13, 2006, and the proceeds were used to repay the
full outstanding amount (approximately $326 million) of the
revolving credit facility under the Terminated Credit Agreement
and the balance was available to be used for general corporate
purposes. The Company was able to elect from time to time an
interest rate per annum for the borrowings under the term loan,
including the incremental term loan, and revolving credit
facility equal to (a) an alternate base rate, which would
have been equal to the greatest of (i) the Prime Rate (as
defined) in effect and (ii) the Federal Funds Effective
Rate (as defined), plus 50 basis points, plus
(1) 75 basis points for the term loan and (2) the
Applicable Margin (as defined) for revolving credit loans or
(b) the Eurodollar Rate (as defined) plus
(1) 175 basis points for the term loan and
(2) the Applicable Margin for Eurodollar revolving credit
loans. The Company also paid a commitment fee for the daily
average unused commitments under the revolving credit facility.
The commitment fee was based on a pricing grid depending on the
Applicable Margin for Eurodollar revolving credit loans and
ranged from 0.250% to 0.500%. The commitment fee was payable
quarterly in arrears and on the revolving credit termination
date with respect to the available revolving credit commitments.
In addition, the Company paid fees for each letter of credit
issued under the credit facility.
On December 16, 2004, the Company issued $300 million
6.50% senior subordinated notes due 2012. On April 8,
2005, the Company exchanged these notes for notes having
substantially the same terms as the outstanding notes, except
the exchanged notes were registered under the Securities Act of
1933, as amended (the 1933 Act). The debt was
repaid in 2007.
New
Credit Facility and Notes
On July 25, 2007, the New Credit Facility was entered into
with a syndicate of financial institutions led by Credit Suisse,
as administrative agent and collateral agent. The New Credit
Facility consists of a $6.065 billion funded term loan
facility with a maturity of seven years, a $400 million
delayed draw term loan facility with a maturity of seven years
and a $750 million revolving credit facility with a
maturity of six years. As of December 31, 2007, the
$400 million delayed draw term loan had been reduced to
$300 million at the
15
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
request of the Company. The revolving credit facility also
includes a subfacility for letters of credit and a swingline
subfacility. As previously disclosed, in connection with the
consummation of the acquisition of Triad, the Company used a
portion of the net proceeds from its New Credit Facility and the
Notes offering to repay its outstanding debt under the
Terminated Credit Facility, the 6.50% Notes and certain of
Triads existing indebtedness. During the third quarter of
2007, the Company recorded a pre-tax write-off of approximately
$13.9 million in deferred loan costs relative to the early
extinguishment of the debt under the Terminated Credit Facility
and incurred tender and solicitation fees of approximately
$13.4 million on the early repayment of the Companys
$300 million aggregate principal amount of
6.50% Senior Subordinated Notes due 2012 through a cash
tender offer and consent solicitation.
The New Credit Facility requires quarterly amortization payments
of each term loan facility equal to 0.25% of the outstanding
amount of the term loans, if any, with the outstanding principal
balance payable on July 25, 2014.
The term loan facility must be prepaid in an amount equal to
(1) 100% of the net cash proceeds of certain asset sales
and dispositions by the Company and its subsidiaries, subject to
certain exceptions and reinvestment rights, (2) 100% of the
net cash proceeds of issuances of certain debt obligations or
receivables based financing by the Company and its subsidiaries,
subject to certain exceptions, and (3) 50%, subject to
reduction to a lower percentage based on the Companys
leverage ratio (as defined in the New Credit Facility generally
as the ratio of total debt on the date of determination to the
Companys EBITDA, as defined, for the four quarters most
recently ended prior to such date), of excess cash flow (as
defined) for any year, commencing in 2008, subject to certain
exceptions. Voluntary prepayments and commitment reductions are
permitted in whole or in part, without any premium or penalty,
subject to minimum prepayment or reduction requirements.
The obligor under the New Credit Facility is CHS. All of the
obligations under the New Credit Facility are unconditionally
guaranteed by the Company and certain existing and subsequently
acquired or organized domestic subsidiaries. All obligations
under the New Credit Facility and the related guarantees are
secured by a perfected first priority lien or security interest
in substantially all of the assets of the Company, CHS and each
subsidiary guarantor, including equity interests held by the
Company, CHS or any subsidiary guarantor, but excluding, among
others, the equity interests of non-significant subsidiaries,
syndication subsidiaries, securitization subsidiaries and joint
venture subsidiaries.
The loans under the New Credit Facility will bear interest on
the outstanding unpaid principal amount at a rate equal to an
applicable percentage plus, at the Companys option, either
(a) an Alternate Base Rate (as defined) determined by
reference to the greater of (1) the Prime Rate (as defined)
announced by Credit Suisse or (2) the Federal Funds
Effective Rate (as defined) plus one-half of 1.0%, or (b) a
reserve adjusted London interbank offered rate for dollars
(Eurodollar Rate) (as defined). The applicable percentage for
term loans is 1.25% for Alternate Base Rate loans and 2.25% for
Eurodollar rate loans. The applicable percentage for revolving
loans is initially 1.25% for Alternate Base Rate revolving loans
and 2.25% for Eurodollar revolving loans, in each case subject
to reduction based on the Companys leverage ratio. Loans
under the swingline subfacility bear interest at the rate
applicable to Alternate Base Rate loans under the revolving
credit facility.
CHS has agreed to pay letter of credit fees equal to the
applicable percentage then in effect with respect to Eurodollar
rate loans under the revolving credit facility times the maximum
aggregate amount available to be drawn under all letters of
credit outstanding under the subfacility for letters of credit.
The issuer of any letter of credit issued under the subfacility
for letters of credit will also receive a customary fronting fee
and other customary processing charges. CHS is initially
obligated to pay commitment fees of 0.50% per annum (subject to
reduction based upon the Companys leverage ratio) on the
unused portion of the revolving credit facility. For purposes of
this calculation, swingline loans are not treated as usage of
the revolving credit facility. CHS is also obligated to pay
commitment fees of 0.50% per annum for the first six months
after the
16
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
closing of the New Credit Facility, 0.75% per annum for the next
three months thereafter and 1.0% per annum thereafter, in each
case on the unused amount of the delayed draw term loan
facility. The Company paid arrangement fees on the closing of
the New Credit Facility and will pay an annual administrative
agent fee.
The New Credit Facility contains customary representations and
warranties, subject to limitations and exceptions, and customary
covenants restricting, subject to certain exceptions, the
Companys and its subsidiaries ability to, among
other things (1) declare dividends, make distributions or
redeem or repurchase capital stock, (2) prepay, redeem or
repurchase other debt, (3) incur liens or grant negative
pledges, (4) make loans and investments and enter into
acquisitions and joint ventures, (5) incur additional
indebtedness or provide certain guarantees, (6) make
capital expenditures, (7) engage in mergers, acquisitions
and asset sales, (8) conduct transactions with affiliates,
(9) alter the nature of the Companys businesses,
(10) grant certain guarantees with respect to physician
practices, (11) engage in sale and leaseback transactions
or (12) change the Companys fiscal year. The Company
is also required to comply with specified financial covenants
(consisting of a leverage ratio and an interest coverage ratio)
and various affirmative covenants.
Events of default under the New Credit Facility include, but are
not limited to, (1) the Companys failure to pay
principal, interest, fees or other amounts under the credit
agreement when due (taking into account any applicable grace
period), (2) any representation or warranty proving to have
been materially incorrect when made, (3) covenant defaults
subject, with respect to certain covenants, to a grace period,
(4) bankruptcy events, (5) a cross default to certain
other debt, (6) certain undischarged judgments (not paid
within an applicable grace period), (7) a change of
control, (8) certain ERISA-related defaults and
(9) the invalidity or impairment of specified security
interests, guarantees or subordination provisions in favor of
the administrative agent or lenders under the New Credit
Facility.
The Notes were issued by CHS in connection with the Triad
acquisition in the principal amount of $3.021 billion.
These Notes will mature on July 15, 2015. The Notes bear
interest at the rate of 8.875% per annum, payable
semiannually in arrears on January 15 and July 15,
commencing January 15, 2008. Interest on the Notes accrue
from the date of original issuance. Interest will be calculated
on the basis of
360-day year
comprised of twelve
30-day
months.
Except as set forth below, CHS is not entitled to redeem the
Notes prior to July 15, 2011.
On and after July 15, 2011, CHS is entitled, at its option,
to redeem all or a portion of the Notes upon not less than 30
nor more than 60 days notice, at the redemption prices
(expressed as a percentage of principal amount on the redemption
date), plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the
12-month
period commencing on July 15 of the years set forth below:
|
|
|
|
|
|
|
Redemption
|
|
Period
|
|
Price
|
|
|
2011
|
|
|
104.438
|
%
|
2012
|
|
|
102.219
|
%
|
2013 and thereafter
|
|
|
100.000
|
%
|
In addition, any time prior to July 15, 2010, CHS is
entitled, at its option, on one or more occasions to redeem the
Notes (which include additional Notes (the Additional
Notes), if any which may be issued from time to time under
the indenture under which the Notes were issued) in an aggregate
principal amount not to exceed 35% of the aggregate principal
amount of the Notes (which includes Additional Notes, if any)
originally issued at a redemption price (expressed as a
percentage of principal amount) of 108.875%, plus accrued and
unpaid interest to the redemption date, with the Net Cash
Proceeds (as defined) from one or more Public Equity Offerings
(as defined) (provided that if the Public Equity Offering is an
offering by the
17
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Company, a portion of the Net Cash Proceeds thereof equal to the
amount required to redeem any such Notes is contributed to the
equity capital of CHS); provided, however, that:
1) at least 65% of such aggregate principal amount of Notes
originally issued remains outstanding immediately after the
occurrence of each such redemption (other than the Notes held,
directly or indirectly, by the Company or its
subsidiaries); and
2) each such redemption occurs within 90 days after
the date of the related Public Equity Offering.
CHS is entitled, at its option, to redeem the Notes, in whole or
in part, at any time prior to July 15, 2011, upon not less
than 30 or more than 60 days notice, at a redemption price
equal to 100% of the principal amount of Notes redeemed plus the
Application Premium (as defined), and accrued and unpaid
interest, if any, as of the applicable redemption date.
Pursuant to a registration rights agreement entered into at the
time of the issuance of the Notes, as a result of an exchange
offer made by CHS, substantially all of the Notes issued in July
2007 were exchanged in November 2007 for new notes (the
Exchange Notes) having terms substantially identical
in all material respects to the Notes (except that the Exchange
Notes were issued under a registration statement pursuant to the
1933 Act). References to the Notes shall also be deemed to
include Exchange Notes unless the context provides otherwise.
During the six months ended June 30, 2008, the Company
repurchased on the open market and cancelled $62.7 million
of principal amount of the Notes. This resulted in a loss from
early extinguishment of debt of $1.3 million with an
after-tax impact of $0.9 million.
As of June 30, 2008, the availability for additional
borrowings under the New Credit Facility was $1.050 billion
(consisting of a $750 million revolving credit facility and
a $300 million delayed draw term loan facility), of which
$78.8 million was set aside for outstanding letters of
credit. CHS also has the ability to add up to $300 million
of borrowing capacity from receivable transactions (including
securitizations) under the New Credit Facility which has not yet
been accessed. CHS also has the ability to amend the New Credit
Facility to provide for one or more tranches of term loans in an
aggregate principal amount of $600 million, which CHS has
not yet accessed. As of June 30, 2008, the weighted-average
interest rate under the New Credit Facility was 5.2%.
Cash paid for interest, net of interest income, was
$97.4 million and $34.6 million during the three
months ended June 30, 2008 and 2007, respectively, and
$326.4 million and $60.3 million during the six months
ended June 30, 2008 and 2007, respectively.
|
|
13.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS No. 159).
SFAS No. 159 expands the use of fair value accounting
but does not affect existing standards that require assets or
liabilities to be carried at fair value. SFAS No. 159
permits an entity, on a
contract-by-contract
basis, to make an irrevocable election to account for certain
types of financial instruments and warranty and insurance
contracts at fair value, rather than historical cost, with
changes in the fair value, whether realized or unrealized,
recognized in earnings. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. The Company
adopted SFAS No. 159 as of January 1, 2008 and
did not elect to re-measure any assets or liabilities. The
adoption of this statement has not had a material effect on the
Companys consolidated results of operations or
consolidated financial position.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) replaces SFAS No. 141 and
addresses the recognition and accounting for identifiable assets
18
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
acquired, liabilities assumed, and noncontrolling interests in
business combinations. This standard will require more assets
and liabilities to be recorded at fair value and will require
expense recognition (rather than capitalization) of certain
pre-acquisition costs. This standard also will require any
adjustments to acquired deferred tax assets and liabilities
occurring after the related allocation period to be made through
earnings. Furthermore, this standard requires this treatment of
acquired deferred tax assets and liabilities also be applied to
acquisitions occurring prior to the effective date of this
standard. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008 and is required to
be adopted prospectively with no early adoption permitted.
SFAS No. 141(R) will be adopted by the Company in the
first quarter of 2009. The Company is currently assessing the
potential impact that SFAS No. 141(R) will have on its
consolidated results of operations and consolidated financial
position.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements (SFAS No. 160).
SFAS No. 160 addresses the accounting and reporting
framework for noncontrolling ownership interests in consolidated
subsidiaries of the parent. SFAS No. 160 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent company and the
interests of the noncontrolling owners and that require minority
ownership interests be presented separately within equity in the
consolidated financial statements. SFAS No. 160 is
effective for fiscal years beginning after December 15,
2008, and will be adopted by the Company in the first quarter of
2009. The Company is currently assessing the potential impact
that SFAS No. 160 will have on its consolidated
results of operations and consolidated financial position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161).
SFAS No. 161 expands the disclosure requirements for
derivative instruments and for hedging activities in order to
provide additional understanding of how an entity uses
derivative instruments and how they are accounted for and
reported in an entitys financial statements. The new
disclosure requirements for SFAS No. 161 are effective
for fiscal years beginning after November 15, 2008, and
will be adopted by the Company in the first quarter of 2009.
The Company operates in three distinct operating segments,
represented by the hospital operations (which includes its
general acute care hospitals and related healthcare entities
that provide inpatient and outpatient health care services), the
home health agencies operations (which provide in-home
outpatient care), and its hospital management services business
(which provides executive management and consulting services to
non-affiliated acute care hospitals). Only the hospital
operations segment meets the criteria in SFAS No. 131,
Disclosure about Segments of an Enterprise and Related
Information (SFAS No. 131), as a
separate reportable segment. The financial information for the
home health agencies and management services segments do not
meet the quantitative thresholds defined in
SFAS No. 131 and are combined into the corporate and
all other reportable segment.
19
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
The distribution between reportable segments of our revenues and
income from continuing operations before income taxes is
summarized in the following tables (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
2,630,281
|
|
|
$
|
1,153,583
|
|
|
$
|
5,294,297
|
|
|
$
|
2,283,790
|
|
Corporate and all other
|
|
|
60,319
|
|
|
|
44,282
|
|
|
|
123,857
|
|
|
|
68,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,690,600
|
|
|
$
|
1,197,865
|
|
|
$
|
5,418,154
|
|
|
$
|
2,352,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
118,572
|
|
|
$
|
105,824
|
|
|
$
|
236,464
|
|
|
$
|
219,354
|
|
Corporate and all other
|
|
|
(37,668
|
)
|
|
|
(18,710
|
)
|
|
|
(71,832
|
)
|
|
|
(39,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,904
|
|
|
$
|
87,114
|
|
|
$
|
164,632
|
|
|
$
|
180,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
provides a framework for measuring fair value, and expands
disclosures required for fair value measurements.
SFAS No. 157 applies to other accounting
pronouncements that require fair value measurement; it does not
require any new fair value measurements. SFAS No. 157
is effective for fiscal years beginning after November 15,
2007, and was adopted by the Company as of January 1, 2008.
The adoption of this statement has not had a material effect on
the Companys consolidated results of operations or
consolidated financial position.
In February 2008, the FASB issued FASB Statement of Position
No. 157-2,
Effective Date of FASB Statement No. 157,
(FSP 157-2).
FSP 157-2
deferred the effective date of the provisions of
SFAS No. 157 for all non-financial assets and
non-financial liabilities to fiscal years beginning after
November 15, 2008, and will be adopted by the Company in
the first quarter of 2009. The Company is currently assessing
the potential impact of SFAS No. 157 for non-financial
assets and non-financial liabilities on its consolidated
statements of financial position and consolidated results of
operations.
Fair
Value Hierarchy
SFAS No. 157 classifies the inputs used to measure
fair value into the following hierarchy:
Level 1: Quoted market prices in active
markets for identical assets or liabilities.
Level 2: Observable market-based inputs
or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are
supported by little or no market activity and are significant to
the fair value of the assets or liabilities. Level 3
includes values determined using pricing models, discounted cash
flow methodologies, or similar techniques reflecting the
Companys own assumptions.
20
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
The following table sets forth, by level within the fair value
hierarchy, the financial assets and liabilities recorded at fair
value on a recurring basis as of June 30, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Available-for-sale
securities
|
|
$
|
8,081
|
|
|
$
|
8,081
|
|
|
$
|
|
|
|
$
|
|
|
Trading securities
|
|
|
32,317
|
|
|
|
32,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
40,398
|
|
|
$
|
40,398
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of interest rate swap agreements
|
|
$
|
121,598
|
|
|
$
|
|
|
|
$
|
121,598
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
121,598
|
|
|
$
|
|
|
|
$
|
121,598
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities and trading securities classified as Level 1 are
measured using quoted market prices. The fair value of the
Companys interest rate swap agreements are classified as
Level 2, and are estimated using an income approach based
on the LIBOR swap rate, which is observable at commonly quoted
intervals for the full term of the swap.
The Company is a party to various legal proceedings incidental
to its business. In the opinion of management, any ultimate
liability with respect to these actions will not have a material
adverse effect on the Companys consolidated financial
position, cash flows or results of operations. In addition, in
connection with the closing of the Triad acquisition on
July 25, 2007, the Company has assumed both recorded and
unrecorded contingencies of Triad. The Companys management
is not aware of any unrecorded contingencies assumed in
connection with the Triad acquisition, whose ultimate outcome
will have a material adverse effect on the Companys
consolidated financial position, cash flows or results of
operations.
In a letter dated October 4, 2007, the Civil Division of
the Department of Justice notified the Company that, as a result
of an investigation into the way in which different state
Medicaid programs apply to the federal government for matching
or supplemental funds that are ultimately used to pay for a
small portion of the services provided to Medicaid and indigent
patients, it believes the Company and three of its New Mexico
hospitals have caused the State of New Mexico to submit improper
claims for federal funds in violation of the federal False
Claims Act. In a letter dated January 22, 2008, the Civil
Division notified the Company that based on its investigation,
it has calculated that these three hospitals received ineligible
federal participation payments from August 2000 to June 2006 of
approximately $27.5 million. The Civil Division also
advised the Company that were it to proceed to trial, it would
seek treble damages plus an appropriate penalty for each of the
violations of the False Claims Act. On May 28, 2008, the
Company received a letter from the Office of the
U.S. Attorney for the State of New Mexico requesting
additional information. The Company is in the process of
providing the requested information. The Company continues to
believe that it has not violated the False Claims Act, and is
continuing discussions with the Civil Division in an effort to
resolve this matter.
|
|
17.
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
|
In connection with the consummation of the Triad acquisition in
July, 2007, the Company obtained $7.215 billion of senior
secured financing under the New Credit Facility and CHS issued
the Notes in the aggregate principal amount of
$3.021 billion. The Notes are senior unsecured obligations
of CHS and are guaranteed on a senior basis by the Company and
by certain existing and subsequently acquired or organized 100%
owned domestic subsidiaries.
The Notes are fully and unconditionally guaranteed on a joint
and several basis. The following condensed consolidating
financial statements present the Company (as parent guarantor),
CHS (as the issuer), the
21
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
subsidiary guarantors, the subsidiary non-guarantors and
eliminations. These supplemental condensed consolidating
financial statements have been prepared and presented in
accordance with SEC
Regulation S-X
Rule 3-10
Financial Statements of Guarantors and Issuers of
Guaranteed Securities Registered or Being Registered.
The presentation of intercompany balances and allocated income
tax expense in the Companys previously issued supplemental
condensed consolidating financial statements is being corrected
as follows:
|
|
|
|
|
Intercompany receivables and payables are presented gross in the
supplemental consolidating balance sheets; the intercompany
balances were previously reported net as intercompany
(receivable) payable. In addition, a portion of the
intercompany (receivable) payable was netted against
long-term debt payable (receivable) of the Issuer
and other guarantors.
|
|
|
|
Cash flows from intercompany transactions are presented in cash
flows from financing activities, as changes in intercompany
balances with affiliates, net; these cash flows were previously
reported in cash flows from operating activities as
advances to subsidiaries, net of return of
investment and other operating cash flows.
|
|
|
|
Income tax expense is allocated from the parent guarantor to the
income producing operations (other guarantors and
non-guarantors) and the Issuer through shareholders
equity; income tax expense was previously allocated entirely to
the Parent Guarantor, which is the tax paying entity. As this
approach represents an allocation, the income tax expense
allocation is considered non-cash for statement of cash flow
purposes.
|
|
|
|
Interest expense, net has been presented to reflect net interest
expense and interest income from outstanding long-term debt and
intercompany balances; these interest expense and interest
income amounts were previously netted within certain
subsidiaries.
|
The Companys intercompany activity consists primarily of
daily cash transfers for purposes of cash management, the
allocation of certain expenses and expenditures paid for by the
parent on behalf of its subsidiaries, and the push down of
investment in its subsidiaries. The Companys subsidiaries
generally do not purchase services from one another and
therefore the intercompany transactions do not represent revenue
generating transactions. All intercompany transactions eliminate
in consolidation. Therefore, the aforementioned corrections do
not impact the Companys consolidated balance sheet,
consolidated statement of income or consolidated statement of
cash flows for any period presented. Management believes the
effects of these corrections are not material to the
Companys previously issued consolidated financial
statements and intends, for those prior period supplemental
condensed consolidating financial statements not presented as
part of this footnote, to reflect these corrections in future
filings whenever such supplemental condensed consolidating
financial statements are included.
The tables on pages 23 to 28 disclose the impact of
these corrections on each of the respective line items of the
supplemental condensed consolidating financial statements as of
and for the periods ending March 31, 2008, June 30,
2007, and December 31, 2007, 2006 and 2005 (in thousands).
22
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and taxes
|
|
$
|
|
|
|
$
|
58
|
|
|
$
|
180,024
|
|
|
$
|
13,930
|
|
|
$
|
|
|
|
$
|
194,012
|
|
Total current assets
|
|
|
113,741
|
|
|
|
448
|
|
|
|
1,709,370
|
|
|
|
832,359
|
|
|
|
(49,526
|
)
|
|
|
2,606,392
|
|
Intercompany receivables (non-current)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
21,126
|
|
|
|
|
|
|
|
2,435,773
|
|
|
|
1,918,394
|
|
|
|
|
|
|
|
4,375,293
|
|
Net investment in subsidiaries
|
|
|
1,506,013
|
|
|
|
1,234,270
|
|
|
|
3,680,406
|
|
|
|
|
|
|
|
(6,420,689
|
)
|
|
|
|
|
Total Assets
|
|
|
1,640,880
|
|
|
|
1,420,794
|
|
|
|
11,656,624
|
|
|
|
5,084,266
|
|
|
|
(6,470,215
|
)
|
|
|
13,332,349
|
|
Long-term debt
|
|
|
4
|
|
|
|
4,325,296
|
|
|
|
4,509,849
|
|
|
|
51,206
|
|
|
|
|
|
|
|
8,886,355
|
|
Intercompany payables (non-current)
|
|
|
(438,836
|
)
|
|
|
(4,698,000
|
)
|
|
|
4,841,662
|
|
|
|
4,101,680
|
|
|
|
(3,806,506
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,247,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,247,241
|
|
Retained earnings
|
|
|
618,072
|
|
|
|
1,694,047
|
|
|
|
1,232,700
|
|
|
|
(118,796
|
)
|
|
|
(2,807,951
|
)
|
|
|
618,072
|
|
Total stockholders equity
|
|
|
1,671,570
|
|
|
|
1,506,010
|
|
|
|
1,226,967
|
|
|
|
(118,794
|
)
|
|
|
(2,614,183
|
)
|
|
|
1,671,570
|
|
Total liabilities and stockholders equity
|
|
|
1,640,880
|
|
|
|
1,420,794
|
|
|
|
11,656,624
|
|
|
|
5,084,266
|
|
|
|
(6,470,215
|
)
|
|
|
13,332,349
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and taxes
|
|
|
110,160
|
|
|
|
58
|
|
|
|
69,864
|
|
|
|
13,930
|
|
|
|
|
|
|
|
194,012
|
|
Total current assets
|
|
|
223,901
|
|
|
|
448
|
|
|
|
1,599,210
|
|
|
|
832,359
|
|
|
|
(49,526
|
)
|
|
|
2,606,392
|
|
Intercompany receivables (non-current)
|
|
|
928,673
|
|
|
|
9,198,002
|
|
|
|
10,361,699
|
|
|
|
1,937,602
|
|
|
|
(22,425,976
|
)
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,456,899
|
|
|
|
1,918,394
|
|
|
|
|
|
|
|
4,375,293
|
|
Net investment in subsidiaries
|
|
|
1,473,779
|
|
|
|
4,194,870
|
|
|
|
2,380,982
|
|
|
|
|
|
|
|
(8,049,631
|
)
|
|
|
|
|
Total Assets
|
|
|
2,626,352
|
|
|
|
13,579,396
|
|
|
|
20,629,866
|
|
|
|
7,021,868
|
|
|
|
(30,525,133
|
)
|
|
|
13,332,349
|
|
Long-term debt
|
|
|
4
|
|
|
|
8,825,296
|
|
|
|
54,667
|
|
|
|
6,388
|
|
|
|
|
|
|
|
8,886,355
|
|
Intercompany payables (non-current)
|
|
|
546,636
|
|
|
|
2,992,839
|
|
|
|
18,370,619
|
|
|
|
6,084,099
|
|
|
|
(27,994,193
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,247,241
|
|
|
|
639,797
|
|
|
|
435,885
|
|
|
|
|
|
|
|
(1,075,682
|
)
|
|
|
1,247,241
|
|
Retained earnings
|
|
|
618,072
|
|
|
|
1,022,014
|
|
|
|
696,282
|
|
|
|
(118,796
|
)
|
|
|
(1,599,500
|
)
|
|
|
618,072
|
|
Total stockholders equity
|
|
|
1,671,570
|
|
|
|
1,473,774
|
|
|
|
1,126,434
|
|
|
|
(118,794
|
)
|
|
|
(2,481,414
|
)
|
|
|
1,671,570
|
|
Total liabilities and stockholders equity
|
|
|
2,626,352
|
|
|
|
13,579,396
|
|
|
|
20,629,866
|
|
|
|
7,021,868
|
|
|
|
(30,525,133
|
)
|
|
|
13,332,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
853
|
|
|
|
164,026
|
|
|
|
321,361
|
|
|
|
(427,836
|
)
|
|
|
(49,526
|
)
|
|
|
8,878
|
|
Changes in intercompany balances with affiliates, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
activities
|
|
|
(853
|
)
|
|
|
(164,026
|
)
|
|
|
(123,280
|
)
|
|
|
126,688
|
|
|
|
|
|
|
|
(161,471
|
)
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(45,719
|
)
|
|
|
(102,699
|
)
|
|
|
319,923
|
|
|
|
(113,101
|
)
|
|
|
(49,526
|
)
|
|
|
8,878
|
|
Changes in intercompany balances with affiliates, net
|
|
|
46,572
|
|
|
|
266,725
|
|
|
|
(43,381
|
)
|
|
|
(269,916
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
45,719
|
|
|
|
102,699
|
|
|
|
(121,843
|
)
|
|
|
(188,046
|
)
|
|
|
|
|
|
|
(161,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
72,577
|
|
|
|
75,937
|
|
|
|
17,188
|
|
|
|
|
|
|
|
165,702
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(92,362
|
)
|
|
|
(166,267
|
)
|
|
|
(20,967
|
)
|
|
|
|
|
|
|
266,712
|
|
|
|
(12,884
|
)
|
Income (loss) from continuing operations before income taxes
|
|
|
92,362
|
|
|
|
92,362
|
|
|
|
166,029
|
|
|
|
(313
|
)
|
|
|
(266,712
|
)
|
|
|
83,728
|
|
Provision for income taxes
|
|
|
32,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,235
|
|
Income (loss) from continuing operations
|
|
|
60,127
|
|
|
|
92,362
|
|
|
|
166,029
|
|
|
|
(313
|
)
|
|
|
(266,712
|
)
|
|
|
51,493
|
|
Net income
|
|
|
60,127
|
|
|
|
92,362
|
|
|
|
166,029
|
|
|
|
8,321
|
|
|
|
(266,712
|
)
|
|
|
60,127
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
12,924
|
|
|
|
135,590
|
|
|
|
17,188
|
|
|
|
|
|
|
|
165,702
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(60,127
|
)
|
|
|
(65,733
|
)
|
|
|
(21,088
|
)
|
|
|
|
|
|
|
134,064
|
|
|
|
(12,884
|
)
|
Income (loss) from continuing operations before income taxes
|
|
|
60,127
|
|
|
|
51,481
|
|
|
|
106,496
|
|
|
|
(312
|
)
|
|
|
(134,064
|
)
|
|
|
83,728
|
|
Provision for income taxes
|
|
|
|
|
|
|
(8,646
|
)
|
|
|
41,001
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
32,235
|
|
Income (loss) from continuing operations
|
|
|
60,127
|
|
|
|
60,127
|
|
|
|
65,495
|
|
|
|
(192
|
)
|
|
|
(134,064
|
)
|
|
|
51,493
|
|
Net income
|
|
$
|
60,127
|
|
|
$
|
60,127
|
|
|
$
|
65,495
|
|
|
$
|
8,442
|
|
|
$
|
(134,064
|
)
|
|
$
|
60,127
|
|
23
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and taxes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
44,099
|
|
|
$
|
(7,812
|
)
|
|
$
|
|
|
|
$
|
36,287
|
|
Total current assets
|
|
|
13,249
|
|
|
|
1,000
|
|
|
|
875,500
|
|
|
|
242,564
|
|
|
|
|
|
|
|
1,132,313
|
|
Intercompany receivables (non-current)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,184,171
|
|
|
|
160,785
|
|
|
|
|
|
|
|
1,344,956
|
|
Net investment in subsidiaries
|
|
|
1,265,254
|
|
|
|
1,242,139
|
|
|
|
415,423
|
|
|
|
|
|
|
|
(2,922,816
|
)
|
|
|
|
|
Total Assets
|
|
|
1,278,503
|
|
|
|
1,279,256
|
|
|
|
4,356,882
|
|
|
|
801,286
|
|
|
|
(2,922,816
|
)
|
|
|
4,793,111
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
49,010
|
|
|
|
|
|
|
|
|
|
|
|
49,010
|
|
Total current liabilities
|
|
|
867
|
|
|
|
22,971
|
|
|
|
486,955
|
|
|
|
100,231
|
|
|
|
|
|
|
|
611,024
|
|
Long-term debt
|
|
|
300,000
|
|
|
|
1,626,000
|
|
|
|
47,886
|
|
|
|
354
|
|
|
|
|
|
|
|
1,974,240
|
|
Intercompany payables (non-current)
|
|
|
(1,024,803
|
)
|
|
|
(1,634,966
|
)
|
|
|
2,420,325
|
|
|
|
722,874
|
|
|
|
(483,430
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,215,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215,321
|
|
Retained earnings
|
|
|
635,743
|
|
|
|
1,249,629
|
|
|
|
1,244,075
|
|
|
|
(62,450
|
)
|
|
|
(2,431,254
|
)
|
|
|
635,743
|
|
Total stockholders equity
|
|
|
1,860,967
|
|
|
|
1,265,251
|
|
|
|
1,236,583
|
|
|
|
(62,448
|
)
|
|
|
(2,439,386
|
)
|
|
|
1,860,967
|
|
Total liabilities and stockholders equity
|
|
|
1,278,503
|
|
|
|
1,279,256
|
|
|
|
4,356,882
|
|
|
|
801,286
|
|
|
|
(2,922,816
|
)
|
|
|
4,793,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and taxes
|
|
|
|
|
|
|
|
|
|
|
32,150
|
|
|
|
4,137
|
|
|
|
|
|
|
|
36,287
|
|
Total current assets
|
|
|
13,249
|
|
|
|
1,000
|
|
|
|
821,752
|
|
|
|
296,311
|
|
|
|
|
|
|
|
1,132,312
|
|
Intercompany receivables (non-current)
|
|
|
1,235,247
|
|
|
|
2,165,424
|
|
|
|
3,654,627
|
|
|
|
291,969
|
|
|
|
(7,347,267
|
)
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,165,653
|
|
|
|
179,303
|
|
|
|
|
|
|
|
1,344,956
|
|
Net investment in subsidiaries
|
|
|
1,197,054
|
|
|
|
1,790,793
|
|
|
|
469,040
|
|
|
|
|
|
|
|
(3,456,887
|
)
|
|
|
|
|
Total Assets
|
|
|
2,445,550
|
|
|
|
3,993,334
|
|
|
|
7,904,544
|
|
|
|
1,253,837
|
|
|
|
(10,804,154
|
)
|
|
|
4,793,111
|
|
Income taxes payable
|
|
|
49,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,010
|
|
Total current liabilities
|
|
|
49,877
|
|
|
|
23,322
|
|
|
|
416,758
|
|
|
|
121,067
|
|
|
|
|
|
|
|
611,024
|
|
Long-term debt
|
|
|
300,000
|
|
|
|
1,627,000
|
|
|
|
22,937
|
|
|
|
24,303
|
|
|
|
|
|
|
|
1,974,240
|
|
Intercompany payables (non-current)
|
|
|
88,494
|
|
|
|
1,145,962
|
|
|
|
6,129,544
|
|
|
|
1,131,143
|
|
|
|
(8,495,143
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,215,321
|
|
|
|
452,487
|
|
|
|
451,060
|
|
|
|
|
|
|
|
(903,547
|
)
|
|
|
1,215,321
|
|
Retained earnings
|
|
|
640,484
|
|
|
|
728,941
|
|
|
|
726,642
|
|
|
|
(62,993
|
)
|
|
|
(1,397,331
|
)
|
|
|
635,743
|
|
Total stockholders equity
|
|
|
1,865,708
|
|
|
|
1,197,050
|
|
|
|
1,170,211
|
|
|
|
(62,991
|
)
|
|
|
(2,309,011
|
)
|
|
|
1,860,967
|
|
Total liabilities and stockholders equity
|
|
|
2,445,550
|
|
|
|
3,993,334
|
|
|
|
7,904,544
|
|
|
|
1,253,837
|
|
|
|
(10,804,154
|
)
|
|
|
4,793,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(9,039
|
)
|
|
|
(71,000
|
)
|
|
|
188,772
|
|
|
|
107,255
|
|
|
|
|
|
|
|
215,988
|
|
Changes in intercompany balances with affiliates, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
9,039
|
|
|
|
71,000
|
|
|
|
(2,628
|
)
|
|
|
(3,338
|
)
|
|
|
|
|
|
|
74,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(31,955
|
)
|
|
|
(4,182
|
)
|
|
|
269,777
|
|
|
|
(17,652
|
)
|
|
|
|
|
|
|
215,988
|
|
Changes in intercompany balances with affiliates, net
|
|
|
22,916
|
|
|
|
(57,951
|
)
|
|
|
(83,304
|
)
|
|
|
118,339
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
31,955
|
|
|
|
11,682
|
|
|
|
(86,449
|
)
|
|
|
116,885
|
|
|
|
|
|
|
|
74,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
51,995
|
|
|
|
9,564
|
|
|
|
|
|
|
|
61,559
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(175,752
|
)
|
|
|
(175,752
|
)
|
|
|
3,955
|
|
|
|
|
|
|
|
347,549
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
175,752
|
|
|
|
175,752
|
|
|
|
174,939
|
|
|
|
(3,142
|
)
|
|
|
(347,549
|
)
|
|
|
175,752
|
|
Provision for income taxes
|
|
|
67,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,665
|
|
Income (loss) from continuing operations
|
|
|
108,087
|
|
|
|
175,752
|
|
|
|
174,939
|
|
|
|
(3,142
|
)
|
|
|
(347,549
|
)
|
|
|
108,087
|
|
Net income
|
|
|
108,087
|
|
|
|
175,752
|
|
|
|
174,939
|
|
|
|
(3,142
|
)
|
|
|
(347,549
|
)
|
|
|
108,087
|
|
As adjusted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
3,774
|
|
|
|
40,410
|
|
|
|
13,433
|
|
|
|
|
|
|
|
57,617
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(108,087
|
)
|
|
|
(114,657
|
)
|
|
|
10,138
|
|
|
|
|
|
|
|
212,606
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
108,087
|
|
|
|
110,883
|
|
|
|
184,511
|
|
|
|
(10,640
|
)
|
|
|
(212,606
|
)
|
|
|
180,235
|
|
Provision for income taxes
|
|
|
|
|
|
|
2,795
|
|
|
|
70,668
|
|
|
|
(4,075
|
)
|
|
|
|
|
|
|
69,388
|
|
Income (loss) from continuing operations
|
|
|
108,087
|
|
|
|
108,088
|
|
|
|
113,843
|
|
|
|
(6,565
|
)
|
|
|
(212,606
|
)
|
|
|
110,847
|
|
Net income
|
|
$
|
108,087
|
|
|
$
|
108,088
|
|
|
$
|
113,843
|
|
|
$
|
(9,325
|
)
|
|
$
|
(212,606
|
)
|
|
$
|
108,087
|
|
|
|
|
(1)
|
|
Includes effects of
reclassification for discontinued operations and for conforming
corrections as applied to other periods presented.
|
24
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and taxes
|
|
$
|
|
|
|
$
|
102
|
|
|
$
|
156,733
|
|
|
$
|
12,921
|
|
|
$
|
|
|
|
$
|
169,756
|
|
|
|
|
|
Total current assets
|
|
|
113,741
|
|
|
|
102
|
|
|
|
1,518,022
|
|
|
|
921,033
|
|
|
|
|
|
|
|
2,552,898
|
|
|
|
|
|
Intercompany receivables (non-current)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
96,671
|
|
|
|
|
|
|
|
2,162,601
|
|
|
|
1,988,442
|
|
|
|
|
|
|
|
4,247,714
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,519,952
|
|
|
|
1,464,944
|
|
|
|
4,968,905
|
|
|
|
|
|
|
|
(7,953,801
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
1,730,364
|
|
|
|
1,654,186
|
|
|
|
12,593,604
|
|
|
|
5,469,290
|
|
|
|
(7,953,801
|
)
|
|
|
13,493,643
|
|
|
|
|
|
Long-term debt
|
|
|
4
|
|
|
|
4,487,090
|
|
|
|
4,633,801
|
|
|
|
(43,528
|
)
|
|
|
|
|
|
|
9,077,367
|
|
|
|
|
|
Intercompany payables (non-current)
|
|
|
(385,872
|
)
|
|
|
(4,627,439
|
)
|
|
|
5,956,358
|
|
|
|
4,562,215
|
|
|
|
(5,505,262
|
)
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
(2,519
|
)
|
|
|
121,482
|
|
|
|
188,316
|
|
|
|
176,180
|
|
|
|
|
|
|
|
483,459
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,240,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,240,308
|
|
|
|
|
|
Retained earnings
|
|
|
557,945
|
|
|
|
1,601,686
|
|
|
|
1,066,671
|
|
|
|
(134,094
|
)
|
|
|
(2,534,263
|
)
|
|
|
557,945
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,710,804
|
|
|
|
1,519,949
|
|
|
|
1,062,682
|
|
|
|
(134,092
|
)
|
|
|
(2,448,539
|
)
|
|
|
1,710,804
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
|
1,730,364
|
|
|
|
1,654,186
|
|
|
|
12,593,604
|
|
|
|
5,469,290
|
|
|
|
(7,953,801
|
)
|
|
|
13,493,643
|
|
|
|
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and taxes
|
|
|
99,417
|
|
|
|
102
|
|
|
|
57,316
|
|
|
|
12,921
|
|
|
|
|
|
|
|
169,756
|
|
|
|
|
|
Total current assets
|
|
|
213,158
|
|
|
|
102
|
|
|
|
1,418,605
|
|
|
|
921,033
|
|
|
|
|
|
|
|
2,552,898
|
|
|
|
|
|
Intercompany receivables (non-current)
|
|
|
1,085,684
|
|
|
|
9,129,859
|
|
|
|
18,854,467
|
|
|
|
884,296
|
|
|
|
(29,954,306
|
)
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,259,113
|
|
|
|
1,988,601
|
|
|
|
|
|
|
|
4,247,714
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
957,750
|
|
|
|
4,168,316
|
|
|
|
2,485,035
|
|
|
|
|
|
|
|
(7,611,101
|
)
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
2,256,592
|
|
|
|
13,487,417
|
|
|
|
28,961,296
|
|
|
|
6,353,745
|
|
|
|
(37,565,407
|
)
|
|
|
13,493,643
|
|
|
|
|
|
Long-term debt
|
|
|
4
|
|
|
|
8,987,090
|
|
|
|
62,792
|
|
|
|
27,481
|
|
|
|
|
|
|
|
9,077,367
|
|
|
|
|
|
Intercompany payables (non-current)
|
|
|
137,837
|
|
|
|
3,267,993
|
|
|
|
27,008,767
|
|
|
|
5,378,021
|
|
|
|
(35,792,618
|
)
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
121,482
|
|
|
|
188,316
|
|
|
|
173,661
|
|
|
|
|
|
|
|
483,459
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,240,308
|
|
|
|
434,505
|
|
|
|
398,338
|
|
|
|
|
|
|
|
(832,843
|
)
|
|
|
1,240,308
|
|
|
|
|
|
Retained earnings
|
|
|
557,945
|
|
|
|
604,980
|
|
|
|
554,624
|
|
|
|
(133,935
|
)
|
|
|
(1,025,669
|
)
|
|
|
557,945
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,710,804
|
|
|
|
957,748
|
|
|
|
948,974
|
|
|
|
(133,933
|
)
|
|
|
(1,772,789
|
)
|
|
|
1,710,804
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
|
2,256,592
|
|
|
|
13,487,417
|
|
|
|
28,961,296
|
|
|
|
6,353,745
|
|
|
|
(37,565,407
|
)
|
|
|
13,493,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
290,438
|
|
|
|
(326,264
|
)
|
|
|
707,127
|
|
|
|
16,437
|
|
|
|
|
|
|
|
687,738
|
|
|
|
|
|
Changes in intercompany balances with affiliates, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(290,438
|
)
|
|
|
7,196,560
|
|
|
|
(137,159
|
)
|
|
|
134,465
|
|
|
|
|
|
|
|
6,903,428
|
|
|
|
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(85,881
|
)
|
|
|
141,137
|
|
|
|
417,930
|
|
|
|
214,552
|
|
|
|
|
|
|
|
687,738
|
|
|
|
|
|
Changes in intercompany balances with affiliates, net
|
|
|
376,319
|
|
|
|
(468,160
|
)
|
|
|
360,206
|
|
|
|
(268,365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
85,881
|
|
|
|
6,728,400
|
|
|
|
152,038
|
|
|
|
(62,891
|
)
|
|
|
|
|
|
|
6,903,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
(160,144
|
)
|
|
|
455,541
|
|
|
|
69,136
|
|
|
|
|
|
|
|
364,533
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(73,292
|
)
|
|
|
59,464
|
|
|
|
74,773
|
|
|
|
|
|
|
|
(86,077
|
)
|
|
|
(25,132
|
)
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
73,292
|
|
|
|
73,292
|
|
|
|
(59,464
|
)
|
|
|
(70,297
|
)
|
|
|
86,077
|
|
|
|
102,900
|
|
|
|
|
|
Provision for income taxes
|
|
|
43,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,003
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
30,289
|
|
|
|
73,292
|
|
|
|
(59,464
|
)
|
|
|
(70,297
|
)
|
|
|
86,077
|
|
|
|
59,897
|
|
|
|
|
|
Net income
|
|
$
|
30,289
|
|
|
$
|
73,292
|
|
|
$
|
(59,464
|
)
|
|
$
|
(99,905
|
)
|
|
$
|
86,077
|
|
|
$
|
30,289
|
|
|
|
|
|
25
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
|
|
|
$
|
67,495
|
|
|
$
|
227,902
|
|
|
$
|
69,136
|
|
|
$
|
|
|
|
$
|
364,533
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(30,289
|
)
|
|
|
(114,008
|
)
|
|
|
43,066
|
|
|
|
|
|
|
|
76,099
|
|
|
|
(25,132
|
)
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
30,289
|
|
|
|
19,125
|
|
|
|
199,880
|
|
|
|
(70,295
|
)
|
|
|
(76,099
|
)
|
|
|
102,900
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
(11,164
|
)
|
|
|
83,550
|
|
|
|
(29,383
|
)
|
|
|
|
|
|
|
43,003
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
30,289
|
|
|
|
30,289
|
|
|
|
116,330
|
|
|
|
(40,912
|
)
|
|
|
(76,099
|
)
|
|
|
59,897
|
|
|
|
|
|
Net income
|
|
$
|
30,289
|
|
|
$
|
30,289
|
|
|
$
|
116,330
|
|
|
$
|
(70,520
|
)
|
|
$
|
(76,099
|
)
|
|
$
|
30,289
|
|
|
|
|
|
26
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables (non-current)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Net investment in subsidiaries
|
|
|
1,085,218
|
|
|
|
1,071,903
|
|
|
|
420,246
|
|
|
|
|
|
|
|
(2,577,367
|
)
|
|
|
|
|
Total Assets
|
|
|
1,098,467
|
|
|
|
1,092,707
|
|
|
|
4,064,626
|
|
|
|
828,146
|
|
|
|
(2,577,367
|
)
|
|
|
4,506,579
|
|
Current income taxes payable
|
|
|
|
|
|
|
|
|
|
|
7,626
|
|
|
|
|
|
|
|
|
|
|
|
7,626
|
|
Total current liabilities
|
|
|
867
|
|
|
|
21,866
|
|
|
|
443,751
|
|
|
|
108,799
|
|
|
|
|
|
|
|
575,283
|
|
Long-term debt
|
|
|
300,000
|
|
|
|
1,556,000
|
|
|
|
24,942
|
|
|
|
24,839
|
|
|
|
|
|
|
|
1,905,781
|
|
Intercompany payables (non-current)
|
|
|
(1,067,545
|
)
|
|
|
(1,570,373
|
)
|
|
|
2,403,385
|
|
|
|
709,118
|
|
|
|
(474,585
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,195,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,195,947
|
|
Retained earnings
|
|
|
527,656
|
|
|
|
1,079,416
|
|
|
|
1,074,675
|
|
|
|
(49,594
|
)
|
|
|
(2,104,497
|
)
|
|
|
527,656
|
|
Total stockholders equity
|
|
|
1,723,673
|
|
|
|
1,085,214
|
|
|
|
1,067,160
|
|
|
|
(49,592
|
)
|
|
|
(2,102,782
|
)
|
|
|
1,723,673
|
|
Total liabilities and stockholders equity
|
|
|
1,098,467
|
|
|
|
1,092,707
|
|
|
|
4,064,626
|
|
|
|
828,146
|
|
|
|
(2,577,367
|
)
|
|
|
4,506,579
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivables (non-current)
|
|
|
1,360,530
|
|
|
|
5,620,834
|
|
|
|
5,590,489
|
|
|
|
275,417
|
|
|
|
(12,847,270
|
)
|
|
|
|
|
Net investment in subsidiaries
|
|
|
975,063
|
|
|
|
1,650,140
|
|
|
|
415,506
|
|
|
|
|
|
|
|
(3,040,709
|
)
|
|
|
|
|
Total Assets
|
|
|
2,348,842
|
|
|
|
7,291,778
|
|
|
|
9,650,375
|
|
|
|
1,103,563
|
|
|
|
(15,887,979
|
)
|
|
|
4,506,579
|
|
Current income taxes payable
|
|
|
7,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,626
|
|
Total current liabilities
|
|
|
8,493
|
|
|
|
21,866
|
|
|
|
436,125
|
|
|
|
108,799
|
|
|
|
|
|
|
|
575,283
|
|
Long-term debt
|
|
|
300,000
|
|
|
|
1,556,000
|
|
|
|
24,942
|
|
|
|
24,839
|
|
|
|
|
|
|
|
1,905,781
|
|
Intercompany payables (non-current)
|
|
|
175,204
|
|
|
|
4,738,853
|
|
|
|
8,083,418
|
|
|
|
984,535
|
|
|
|
(13,982,010
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,195,947
|
|
|
|
371,227
|
|
|
|
375,072
|
|
|
|
|
|
|
|
(746,299
|
)
|
|
|
1,195,947
|
|
Retained earnings
|
|
|
527,656
|
|
|
|
598,034
|
|
|
|
612,946
|
|
|
|
(49,594
|
)
|
|
|
(1,161,386
|
)
|
|
|
527,656
|
|
Total stockholders equity
|
|
|
1,723,673
|
|
|
|
975,059
|
|
|
|
980,502
|
|
|
|
(49,592
|
)
|
|
|
(1,905,969
|
)
|
|
|
1,723,673
|
|
Total liabilities and stockholders equity
|
|
|
2,348,842
|
|
|
|
7,291,778
|
|
|
|
9,650,375
|
|
|
|
1,103,563
|
|
|
|
(15,887,979
|
)
|
|
|
4,506,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
155,052
|
|
|
|
(387,000
|
)
|
|
|
487,607
|
|
|
|
94,596
|
|
|
|
|
|
|
|
350,255
|
|
Changes in intercompany balances with affiliates, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(155,052
|
)
|
|
|
387,000
|
|
|
|
(5,734
|
)
|
|
|
246
|
|
|
|
|
|
|
|
226,460
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(151,205
|
)
|
|
|
(20,514
|
)
|
|
|
522,332
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
350,255
|
|
Changes in intercompany balances with affiliates, net
|
|
|
306,257
|
|
|
|
(366,486
|
)
|
|
|
(34,727
|
)
|
|
|
94,956
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
151,205
|
|
|
|
20,514
|
|
|
|
(40,460
|
)
|
|
|
95,201
|
|
|
|
|
|
|
|
226,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
71,797
|
|
|
|
22,618
|
|
|
|
|
|
|
|
94,415
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(278,415
|
)
|
|
|
(278,415
|
)
|
|
|
53,778
|
|
|
|
|
|
|
|
503,052
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
278,415
|
|
|
|
278,415
|
|
|
|
273,103
|
|
|
|
(39,034
|
)
|
|
|
(503,052
|
)
|
|
|
287,847
|
|
Provision for income taxes
|
|
|
110,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,152
|
|
Income (loss) from continuing operations
|
|
|
168,263
|
|
|
|
278,415
|
|
|
|
273,103
|
|
|
|
(39,034
|
)
|
|
|
(503,052
|
)
|
|
|
177,695
|
|
Net income
|
|
|
168,263
|
|
|
|
278,415
|
|
|
|
273,103
|
|
|
|
(48,466
|
)
|
|
|
(503,052
|
)
|
|
|
168,263
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
14,130
|
|
|
|
57,667
|
|
|
|
22,618
|
|
|
|
|
|
|
|
94,415
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(168,263
|
)
|
|
|
(191,759
|
)
|
|
|
38,829
|
|
|
|
|
|
|
|
321,193
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
168,263
|
|
|
|
177,629
|
|
|
|
302,182
|
|
|
|
(39,034
|
)
|
|
|
(321,193
|
)
|
|
|
287,847
|
|
Provision for income taxes
|
|
|
|
|
|
|
9,366
|
|
|
|
115,736
|
|
|
|
(14,950
|
)
|
|
|
|
|
|
|
110,152
|
|
Income (loss) from continuing operations
|
|
|
168,263
|
|
|
|
168,263
|
|
|
|
186,446
|
|
|
|
(24,084
|
)
|
|
|
(321,193
|
)
|
|
|
177,695
|
|
Net income
|
|
$
|
168,263
|
|
|
$
|
168,263
|
|
|
$
|
186,446
|
|
|
$
|
(33,516
|
)
|
|
$
|
(321,193
|
)
|
|
$
|
168,263
|
|
27
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
30,571
|
|
|
$
|
12,000
|
|
|
$
|
333,376
|
|
|
$
|
35,102
|
|
|
$
|
|
|
|
$
|
411,049
|
|
Changes in intercompany balances with affiliates, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(30,571
|
)
|
|
|
(12,000
|
)
|
|
|
(13,122
|
)
|
|
|
(6,474
|
)
|
|
|
|
|
|
|
(62,167
|
)
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(67,739
|
)
|
|
|
(38,924
|
)
|
|
|
469,028
|
|
|
|
48,684
|
|
|
|
|
|
|
|
411,049
|
|
Changes in intercompany balances with affiliates, net
|
|
|
98,309
|
|
|
|
50,924
|
|
|
|
(135,653
|
)
|
|
|
(13,580
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
67,739
|
|
|
|
38,924
|
|
|
|
(148,774
|
)
|
|
|
(20,056
|
)
|
|
|
|
|
|
|
(62,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
(9
|
)
|
|
|
67,927
|
|
|
|
19,267
|
|
|
|
|
|
|
|
87,185
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(287,348
|
)
|
|
|
(287,499
|
)
|
|
|
15,315
|
|
|
|
|
|
|
|
559,532
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
287,348
|
|
|
|
287,508
|
|
|
|
287,499
|
|
|
|
5,351
|
|
|
|
(559,532
|
)
|
|
|
308,174
|
|
Provision for income taxes
|
|
|
119,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,804
|
|
Income (loss) from continuing operations
|
|
|
167,544
|
|
|
|
287,508
|
|
|
|
287,499
|
|
|
|
5,351
|
|
|
|
(559,532
|
)
|
|
|
188,370
|
|
Net income
|
|
|
167,544
|
|
|
|
287,508
|
|
|
|
287,499
|
|
|
|
(15,475
|
)
|
|
|
(559,532
|
)
|
|
|
167,544
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
34,930
|
|
|
|
32,988
|
|
|
|
19,267
|
|
|
|
|
|
|
|
87,185
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(167,544
|
)
|
|
|
(195,805
|
)
|
|
|
17,143
|
|
|
|
|
|
|
|
346,206
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
167,544
|
|
|
|
160,875
|
|
|
|
320,610
|
|
|
|
5,351
|
|
|
|
(346,206
|
)
|
|
|
308,174
|
|
Provision for income taxes
|
|
|
|
|
|
|
(6,669
|
)
|
|
|
124,397
|
|
|
|
2,076
|
|
|
|
|
|
|
|
119,804
|
|
Income (loss) from continuing operations
|
|
|
167,544
|
|
|
|
167,544
|
|
|
|
196,213
|
|
|
|
3,275
|
|
|
|
(346,206
|
)
|
|
|
188,370
|
|
Net income
|
|
$
|
167,544
|
|
|
$
|
167,544
|
|
|
$
|
196,213
|
|
|
$
|
(17,551
|
)
|
|
$
|
(346,206
|
)
|
|
$
|
167,544
|
|
28
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Condensed
Consolidating Balance Sheet
June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands, except share data)
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
264,514
|
|
|
$
|
|
|
|
$
|
(442
|
)
|
|
$
|
264,072
|
|
Patient accounts receivable,
net of allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
1,005,103
|
|
|
|
598,599
|
|
|
|
|
|
|
|
1,603,702
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
164,395
|
|
|
|
102,008
|
|
|
|
|
|
|
|
266,403
|
|
Deferred income taxes
|
|
|
88,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,531
|
|
Prepaid expenses and taxes
|
|
|
|
|
|
|
15
|
|
|
|
106,088
|
|
|
|
(16,379
|
)
|
|
|
|
|
|
|
89,724
|
|
Other current assets
|
|
|
|
|
|
|
610
|
|
|
|
115,069
|
|
|
|
75,547
|
|
|
|
|
|
|
|
191,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
88,531
|
|
|
|
625
|
|
|
|
1,655,169
|
|
|
|
759,775
|
|
|
|
(442
|
)
|
|
|
2,503,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
903,283
|
|
|
|
9,533,225
|
|
|
|
11,486,044
|
|
|
|
2,777,775
|
|
|
|
(24,700,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
3,509,232
|
|
|
|
2,112,522
|
|
|
|
|
|
|
|
5,621,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,633,866
|
|
|
|
1,531,175
|
|
|
|
|
|
|
|
4,165,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
|
|
|
|
183,525
|
|
|
|
102,849
|
|
|
|
782,681
|
|
|
|
|
|
|
|
1,069,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,631,815
|
|
|
|
4,567,686
|
|
|
|
2,435,096
|
|
|
|
|
|
|
|
(8,634,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,623,629
|
|
|
$
|
14,285,061
|
|
|
$
|
21,822,256
|
|
|
$
|
7,963,928
|
|
|
$
|
(33,335,366
|
)
|
|
$
|
13,359,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,856
|
|
|
$
|
3,423
|
|
|
$
|
|
|
|
$
|
24,279
|
|
Accounts payable
|
|
|
|
|
|
|
92
|
|
|
|
349,822
|
|
|
|
88,162
|
|
|
|
442
|
|
|
|
438,518
|
|
Current income taxes payable
|
|
|
12,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,224
|
|
Accrued liabilities
|
|
|
12,126
|
|
|
|
|
|
|
|
417,221
|
|
|
|
262,059
|
|
|
|
|
|
|
|
691,406
|
|
Interest payable (receivable)
|
|
|
|
|
|
|
146,644
|
|
|
|
1,984
|
|
|
|
(1,177
|
)
|
|
|
|
|
|
|
147,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
24,350
|
|
|
|
146,736
|
|
|
|
789,883
|
|
|
|
352,467
|
|
|
|
442
|
|
|
|
1,313,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable
|
|
|
4
|
|
|
|
8,825,296
|
|
|
|
54,969
|
|
|
|
9,646
|
|
|
|
|
|
|
|
8,889,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
334,140
|
|
|
|
3,567,256
|
|
|
|
19,505,014
|
|
|
|
7,235,026
|
|
|
|
(30,641,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
429,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
429,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,092
|
|
|
|
113,960
|
|
|
|
279,640
|
|
|
|
176,393
|
|
|
|
|
|
|
|
571,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
7,067
|
|
|
|
313,520
|
|
|
|
|
|
|
|
320,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
969
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
969
|
|
Additional paid-in capital
|
|
|
1,251,746
|
|
|
|
658,237
|
|
|
|
458,396
|
|
|
|
|
|
|
|
(1,116,633
|
)
|
|
|
1,251,746
|
|
Treasury stock, at cost,
975,549 shares
|
|
|
(6,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,678
|
)
|
Accumulated other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (loss)
|
|
|
(77,893
|
)
|
|
|
(77,893
|
)
|
|
|
(4,959
|
)
|
|
|
|
|
|
|
82,852
|
|
|
|
(77,893
|
)
|
Retained earnings
|
|
|
665,965
|
|
|
|
1,051,469
|
|
|
|
732,245
|
|
|
|
(123,126
|
)
|
|
|
(1,660,588
|
)
|
|
|
665,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,834,109
|
|
|
|
1,631,813
|
|
|
|
1,185,683
|
|
|
|
(123,124
|
)
|
|
|
(2,694,372
|
)
|
|
|
1,834,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,623,629
|
|
|
$
|
14,285,061
|
|
|
$
|
21,822,256
|
|
|
$
|
7,963,928
|
|
|
$
|
(33,335,366
|
)
|
|
$
|
13,359,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Condensed
Consolidating Balance Sheet
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
114,075
|
|
|
$
|
18,799
|
|
|
$
|
|
|
|
$
|
132,874
|
|
Patient accounts receivable, net of allowance for doubtful
accounts
|
|
|
|
|
|
|
|
|
|
|
954,106
|
|
|
|
579,692
|
|
|
|
|
|
|
|
1,533,798
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
163,961
|
|
|
|
98,942
|
|
|
|
|
|
|
|
262,903
|
|
Deferred income taxes
|
|
|
113,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,741
|
|
Prepaid expenses and taxes
|
|
|
99,417
|
|
|
|
102
|
|
|
|
57,316
|
|
|
|
12,921
|
|
|
|
|
|
|
|
169,756
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
129,147
|
|
|
|
210,679
|
|
|
|
|
|
|
|
339,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
213,158
|
|
|
|
102
|
|
|
|
1,418,605
|
|
|
|
921,033
|
|
|
|
|
|
|
|
2,552,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
1,085,684
|
|
|
|
9,129,859
|
|
|
|
18,854,467
|
|
|
|
884,296
|
|
|
|
(29,954,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
3,667,487
|
|
|
|
1,845,087
|
|
|
|
|
|
|
|
5,512,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,259,113
|
|
|
|
1,988,601
|
|
|
|
|
|
|
|
4,247,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
|
|
|
|
189,140
|
|
|
|
276,589
|
|
|
|
714,728
|
|
|
|
|
|
|
|
1,180,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
957,750
|
|
|
|
4,168,316
|
|
|
|
2,485,035
|
|
|
|
|
|
|
|
(7,611,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,256,592
|
|
|
$
|
13,487,417
|
|
|
$
|
28,961,296
|
|
|
$
|
6,353,745
|
|
|
$
|
(37,565,407
|
)
|
|
$
|
13,493,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,603
|
|
|
$
|
4,107
|
|
|
$
|
|
|
|
$
|
20,710
|
|
Accounts payable
|
|
|
|
|
|
|
19
|
|
|
|
276,503
|
|
|
|
216,171
|
|
|
|
|
|
|
|
492,693
|
|
Current income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
437,808
|
|
|
|
342,892
|
|
|
|
|
|
|
|
780,700
|
|
Interest payable (receivable)
|
|
|
|
|
|
|
153,085
|
|
|
|
8,042
|
|
|
|
(7,295
|
)
|
|
|
|
|
|
|
153,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
153,104
|
|
|
|
738,956
|
|
|
|
555,875
|
|
|
|
|
|
|
|
1,447,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable (receivable)
|
|
|
4
|
|
|
|
8,987,090
|
|
|
|
62,792
|
|
|
|
27,481
|
|
|
|
|
|
|
|
9,077,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
137,837
|
|
|
|
3,267,993
|
|
|
|
27,008,767
|
|
|
|
5,378,021
|
|
|
|
(35,792,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
407,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
121,482
|
|
|
|
188,316
|
|
|
|
173,661
|
|
|
|
|
|
|
|
483,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
13,491
|
|
|
|
352,640
|
|
|
|
|
|
|
|
366,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
966
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
966
|
|
Additional paid-in capital
|
|
|
1,240,308
|
|
|
|
434,505
|
|
|
|
398,338
|
|
|
|
|
|
|
|
(832,843
|
)
|
|
|
1,240,308
|
|
Treasury stock, at cost, 975,549 shares
|
|
|
(6,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,678
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(81,737
|
)
|
|
|
(81,737
|
)
|
|
|
(3,989
|
)
|
|
|
|
|
|
|
85,726
|
|
|
|
(81,737
|
)
|
Retained earnings
|
|
|
557,945
|
|
|
|
604,980
|
|
|
|
554,624
|
|
|
|
(133,935
|
)
|
|
|
(1,025,669
|
)
|
|
|
557,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,710,804
|
|
|
|
957,748
|
|
|
|
948,974
|
|
|
|
(133,933
|
)
|
|
|
(1,772,789
|
)
|
|
|
1,710,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,256,592
|
|
|
$
|
13,487,417
|
|
|
$
|
28,961,296
|
|
|
$
|
6,353,745
|
|
|
$
|
(37,565,407
|
)
|
|
$
|
13,493,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Condensed
Consolidating Statement of Income
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,658,492
|
|
|
$
|
1,032,108
|
|
|
$
|
|
|
|
$
|
2,690,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
623,124
|
|
|
|
456,252
|
|
|
|
|
|
|
|
1,079,376
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
184,372
|
|
|
|
106,673
|
|
|
|
|
|
|
|
291,045
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
222,385
|
|
|
|
155,201
|
|
|
|
|
|
|
|
377,586
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
300,853
|
|
|
|
225,245
|
|
|
|
|
|
|
|
526,098
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
29,859
|
|
|
|
28,620
|
|
|
|
|
|
|
|
58,479
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
77,112
|
|
|
|
47,830
|
|
|
|
|
|
|
|
124,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,437,705
|
|
|
|
1,019,821
|
|
|
|
|
|
|
|
2,457,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
220,787
|
|
|
|
12,287
|
|
|
|
|
|
|
|
233,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
14,598
|
|
|
|
146,962
|
|
|
|
(7,199
|
)
|
|
|
|
|
|
|
154,361
|
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
(491
|
)
|
|
|
8,808
|
|
|
|
|
|
|
|
8,317
|
|
Equity in earnings of subsidiary
|
|
|
(47,893
|
)
|
|
|
(59,313
|
)
|
|
|
(4,164
|
)
|
|
|
|
|
|
|
100,862
|
|
|
|
(10,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
47,893
|
|
|
|
44,715
|
|
|
|
78,480
|
|
|
|
10,678
|
|
|
|
(100,862
|
)
|
|
|
80,904
|
|
Provision for income taxes
|
|
|
|
|
|
|
(3,178
|
)
|
|
|
30,215
|
|
|
|
4,111
|
|
|
|
|
|
|
|
31,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
47,893
|
|
|
|
47,893
|
|
|
|
48,265
|
|
|
|
6,567
|
|
|
|
(100,862
|
)
|
|
|
49,756
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,854
|
)
|
|
|
|
|
|
|
(1,854
|
)
|
Gain (loss) on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,863
|
)
|
|
|
|
|
|
|
(1,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
47,893
|
|
|
$
|
47,893
|
|
|
$
|
48,265
|
|
|
$
|
4,704
|
|
|
$
|
(100,862
|
)
|
|
$
|
47,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Condensed
Consolidating Statement of Income
Three Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
931,026
|
|
|
$
|
266,839
|
|
|
$
|
|
|
|
$
|
1,197,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
347,753
|
|
|
|
125,093
|
|
|
|
|
|
|
|
472,846
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
113,264
|
|
|
|
28,556
|
|
|
|
|
|
|
|
141,820
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
107,429
|
|
|
|
32,919
|
|
|
|
|
|
|
|
140,348
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
185,496
|
|
|
|
61,484
|
|
|
|
|
|
|
|
246,980
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
18,008
|
|
|
|
8,958
|
|
|
|
|
|
|
|
26,966
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
41,837
|
|
|
|
10,145
|
|
|
|
|
|
|
|
51,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
813,787
|
|
|
|
267,155
|
|
|
|
|
|
|
|
1,080,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
117,239
|
|
|
|
(316
|
)
|
|
|
|
|
|
|
116,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
3,774
|
|
|
|
18,729
|
|
|
|
6,681
|
|
|
|
|
|
|
|
29,184
|
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
625
|
|
|
|
|
|
|
|
625
|
|
Equity in earnings of subsidiary
|
|
|
(53,763
|
)
|
|
|
(65,367
|
)
|
|
|
4,795
|
|
|
|
|
|
|
|
114,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
53,763
|
|
|
|
61,593
|
|
|
|
93,715
|
|
|
|
(7,622
|
)
|
|
|
(114,335
|
)
|
|
|
87,114
|
|
Provision for income taxes
|
|
|
|
|
|
|
582
|
|
|
|
35,893
|
|
|
|
(2,919
|
)
|
|
|
|
|
|
|
33,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
53,763
|
|
|
|
61,011
|
|
|
|
57,822
|
|
|
|
(4,703
|
)
|
|
|
(114,335
|
)
|
|
|
53,558
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
205
|
|
Gain (loss) on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
53,763
|
|
|
$
|
61,011
|
|
|
$
|
57,822
|
|
|
$
|
(4,498
|
)
|
|
$
|
(114,335
|
)
|
|
$
|
53,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Condensed
Consolidating Statement of Income
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,347,235
|
|
|
$
|
2,070,919
|
|
|
$
|
|
|
|
$
|
5,418,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
1,261,764
|
|
|
|
905,382
|
|
|
|
|
|
|
|
2,167,146
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
378,262
|
|
|
|
209,863
|
|
|
|
|
|
|
|
588,125
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
448,515
|
|
|
|
315,480
|
|
|
|
|
|
|
|
763,995
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
601,045
|
|
|
|
451,220
|
|
|
|
|
|
|
|
1,052,265
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
61,159
|
|
|
|
57,177
|
|
|
|
|
|
|
|
118,336
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
154,897
|
|
|
|
92,760
|
|
|
|
|
|
|
|
247,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,905,642
|
|
|
|
2,031,882
|
|
|
|
|
|
|
|
4,937,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
441,593
|
|
|
|
39,037
|
|
|
|
|
|
|
|
480,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
27,522
|
|
|
|
267,683
|
|
|
|
24,858
|
|
|
|
|
|
|
|
320,063
|
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,328
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
(685
|
)
|
|
|
18,684
|
|
|
|
|
|
|
|
17,999
|
|
Equity in earnings of subsidiary
|
|
|
(108,020
|
)
|
|
|
(124,379
|
)
|
|
|
(26,986
|
)
|
|
|
|
|
|
|
235,993
|
|
|
|
(23,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
108,020
|
|
|
|
95,529
|
|
|
|
201,581
|
|
|
|
(4,505
|
)
|
|
|
(235,993
|
)
|
|
|
164,632
|
|
Provision for income taxes
|
|
|
|
|
|
|
(12,491
|
)
|
|
|
77,608
|
|
|
|
(1,734
|
)
|
|
|
|
|
|
|
63,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
108,020
|
|
|
|
108,020
|
|
|
|
123,973
|
|
|
|
(2,771
|
)
|
|
|
(235,993
|
)
|
|
|
101,249
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,837
|
)
|
|
|
|
|
|
|
(2,837
|
)
|
Gain (loss) on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,608
|
|
|
|
|
|
|
|
9,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,771
|
|
|
|
|
|
|
|
6,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
108,020
|
|
|
$
|
108,020
|
|
|
$
|
123,973
|
|
|
$
|
4,000
|
|
|
$
|
(235,993
|
)
|
|
$
|
108,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Condensed
Consolidating Statement of Income
Six Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,852,257
|
|
|
$
|
499,886
|
|
|
$
|
|
|
|
$
|
2,352,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
700,235
|
|
|
|
235,376
|
|
|
|
|
|
|
|
935,611
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
218,804
|
|
|
|
51,070
|
|
|
|
|
|
|
|
269,874
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
214,545
|
|
|
|
60,097
|
|
|
|
|
|
|
|
274,642
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
365,498
|
|
|
|
115,647
|
|
|
|
|
|
|
|
481,145
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
35,687
|
|
|
|
16,035
|
|
|
|
|
|
|
|
51,722
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
82,429
|
|
|
|
18,050
|
|
|
|
|
|
|
|
100,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,617,198
|
|
|
|
496,275
|
|
|
|
|
|
|
|
2,113,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
235,059
|
|
|
|
3,611
|
|
|
|
|
|
|
|
238,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
3,774
|
|
|
|
40,410
|
|
|
|
13,433
|
|
|
|
|
|
|
|
57,617
|
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
818
|
|
|
|
|
|
|
|
818
|
|
Equity in earnings of subsidiary
|
|
|
(108,087
|
)
|
|
|
(114,657
|
)
|
|
|
10,138
|
|
|
|
|
|
|
|
212,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
108,087
|
|
|
|
110,883
|
|
|
|
184,511
|
|
|
|
(10,640
|
)
|
|
|
(212,606
|
)
|
|
|
180,235
|
|
Provision for income taxes
|
|
|
|
|
|
|
2,795
|
|
|
|
70,668
|
|
|
|
(4,075
|
)
|
|
|
|
|
|
|
69,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
108,087
|
|
|
|
108,088
|
|
|
|
113,843
|
|
|
|
(6,565
|
)
|
|
|
(212,606
|
)
|
|
|
110,847
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,760
|
)
|
|
|
|
|
|
|
(2,760
|
)
|
Gain (loss) on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,760
|
)
|
|
|
|
|
|
|
(2,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
108,087
|
|
|
$
|
108,088
|
|
|
$
|
113,843
|
|
|
$
|
(9,325
|
)
|
|
$
|
(212,606
|
)
|
|
$
|
108,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Condensed
Consolidating Statement of Cash Flows
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by(used in) operating activities
|
|
$
|
58,738
|
|
|
$
|
(31,359
|
)
|
|
$
|
621,921
|
|
|
$
|
(232,517
|
)
|
|
$
|
|
|
|
$
|
416,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
|
|
|
|
|
|
|
|
(6,464
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
(6,646
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(180,745
|
)
|
|
|
(94,860
|
)
|
|
|
|
|
|
|
(275,605
|
)
|
Proceeds from disposition of hospitals and other ancillary
services
|
|
|
|
|
|
|
|
|
|
|
10,693
|
|
|
|
355,220
|
|
|
|
|
|
|
|
365,913
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
1,094
|
|
|
|
11,795
|
|
|
|
|
|
|
|
12,889
|
|
Investment in other assets
|
|
|
|
|
|
|
|
|
|
|
(110,380
|
)
|
|
|
(34,000
|
)
|
|
|
|
|
|
|
(144,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
(285,802
|
)
|
|
|
237,973
|
|
|
|
|
|
|
|
(47,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
1,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,357
|
|
Deferred financing costs
|
|
|
|
|
|
|
(2,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,444
|
)
|
Excess tax benefits relating to stock-based compensation
|
|
|
(947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(947
|
)
|
Stock buy-back
|
|
|
(10,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,194
|
)
|
Proceeds from minority investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,214
|
|
|
|
|
|
|
|
11,214
|
|
Redemption of minority investments in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,485
|
)
|
|
|
|
|
|
|
(53,485
|
)
|
Distributions to minority investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,916
|
)
|
|
|
|
|
|
|
(14,916
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
(48,954
|
)
|
|
|
195,597
|
|
|
|
(100,769
|
)
|
|
|
(45,432
|
)
|
|
|
(442
|
)
|
|
|
|
|
Borrowings under credit agreement
|
|
|
|
|
|
|
25,000
|
|
|
|
44,818
|
|
|
|
(47,161
|
)
|
|
|
|
|
|
|
22,657
|
|
(Repayments) borrowings of
long-term
indebtedness
|
|
|
|
|
|
|
(186,794
|
)
|
|
|
(129,729
|
)
|
|
|
125,525
|
|
|
|
|
|
|
|
(190,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(58,738
|
)
|
|
|
31,359
|
|
|
|
(185,680
|
)
|
|
|
(24,255
|
)
|
|
|
(442
|
)
|
|
|
(237,756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
150,439
|
|
|
|
(18,799
|
)
|
|
|
(442
|
)
|
|
|
131,198
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
114,075
|
|
|
|
18,799
|
|
|
|
|
|
|
|
132,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
264,514
|
|
|
$
|
|
|
|
$
|
(442
|
)
|
|
$
|
264,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
Condensed
Consolidating Statement of Cash Flows
Six Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by(used in) operating activities
|
|
$
|
(31,955
|
)
|
|
$
|
(4,182
|
)
|
|
$
|
269,777
|
|
|
$
|
(17,652
|
)
|
|
$
|
|
|
|
$
|
215,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
|
|
|
|
|
|
|
|
(100,525
|
)
|
|
|
(87,430
|
)
|
|
|
|
|
|
|
(187,955
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(91,443
|
)
|
|
|
(17,406
|
)
|
|
|
|
|
|
|
(108,849
|
)
|
Proceeds from disposition of hospitals and other ancillary
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,662
|
|
|
|
|
|
|
|
12,662
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
167
|
|
|
|
67
|
|
|
|
|
|
|
|
234
|
|
Investment in other assets
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
(16,563
|
)
|
|
|
(1,299
|
)
|
|
|
|
|
|
|
(25,362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
(7,500
|
)
|
|
|
(208,364
|
)
|
|
|
(93,406
|
)
|
|
|
|
|
|
|
(309,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
6,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,693
|
|
Deferred financing costs
|
|
|
|
|
|
|
(367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(367
|
)
|
Excess tax benefits relating to stock-based compensation
|
|
|
2,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,295
|
|
Proceeds from minority investors in joint ventures
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
1,054
|
|
|
|
|
|
|
|
1,105
|
|
Redemption of minority investments in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,369
|
)
|
|
|
|
|
|
|
(1,369
|
)
|
Distributions to minority investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,705
|
)
|
|
|
|
|
|
|
(1,705
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
22,916
|
|
|
|
(57,951
|
)
|
|
|
(83,304
|
)
|
|
|
118,339
|
|
|
|
|
|
|
|
|
|
Borrowings under credit agreement
|
|
|
|
|
|
|
132,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,000
|
|
(Repayments) borrowings of
long-term
indebtedness
|
|
|
|
|
|
|
(62,000
|
)
|
|
|
(3,145
|
)
|
|
|
566
|
|
|
|
|
|
|
|
(64,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
31,955
|
|
|
|
11,682
|
|
|
|
(86,449
|
)
|
|
|
116,885
|
|
|
|
|
|
|
|
74,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(25,036
|
)
|
|
|
5,827
|
|
|
|
|
|
|
|
(19,209
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
28,560
|
|
|
|
12,006
|
|
|
|
|
|
|
|
40,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,524
|
|
|
$
|
17,833
|
|
|
$
|
|
|
|
$
|
21,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read this discussion together with our unaudited
condensed consolidated financial statements and accompanying
notes included herein.
Unless the context otherwise requires, Community Health
Systems, the Company, we,
us and our refer to Community Health
Systems, Inc. and its consolidated subsidiaries.
Executive
Overview
We are the largest publicly traded operator of hospitals in the
United States in terms of number of facilities and net operating
revenues. We provide healthcare services through these hospitals
that we own and operate in non-urban and selected urban markets.
We generate revenue primarily by providing a broad range of
general hospital healthcare services to patients in the
communities in which we are located. We currently have 116
general acute care hospitals included in continuing operations.
In addition, we own four home health agencies, located in
markets where we do not operate a hospital and through our
wholly-owned subsidiary, Quorum Health Resources, LLC
(QHR), we provide management and consulting services
to non-affiliated general acute care hospitals located
throughout the United States. We are paid for our services by
governmental agencies, private insurers and directly by the
patients we serve.
Effective July 25, 2007, we completed our acquisition of
Triad Hospitals, Inc., or Triad, for an aggregate
consideration of $6.857 billion, including
$1.686 billion of assumed indebtedness. In connection with
this acquisition, one of our subsidiaries issued
$3.021 billion principal amount of 8.875% senior notes
due 2015 (the Notes) and we entered into a new
$7.215 billion credit facility (the New Credit
Facility) consisting of a $6.065 billion term loan, a
$750 million revolving credit facility and a
$400 million delayed draw term loan facility. The delayed
draw term loan facility was reduced in the fourth quarter of
2007, per our request, from $400 million to
$300 million. The proceeds of these financings were used to
pay the cash consideration under the merger agreement and to
refinance substantially all of both the assumed indebtedness and
our existing indebtedness and to pay related fees and expenses.
The revolving credit facility and the delayed draw term loan
facility remain available to us for future acquisitions, working
capital, and general corporate purposes. We believe the
acquisition of Triad will benefit us since it has expanded the
number of markets we serve, expanded our operations into five
states where we previously did not operate, and reduced our
concentration of credit risk in any one state. We also believe
that synergies obtained from eliminating duplicate corporate
functions and centralizing many support functions will allow us
to improve Triads margins. During the three and six months
ended June 30, 2008, we have realized approximately
$42 million and $77 million, respectively, of our
estimated synergies related to the Triad acquisition. We
continue to believe our integration is on track and we
anticipate recognizing all of the anticipated synergies.
As of December 31, 2007, two of the former Triad hospitals
had been sold and six other hospitals formerly owned by Triad
along with six hospitals owned by us had been identified as
available for sale. During the three months ended March 31,
2008, we completed the sale of eleven of these hospitals that
were available for sale as of December 31, 2007.
Accordingly, these hospitals have been classified in
discontinued operations in the condensed consolidated statements
of income for the three and six months ended June 30, 2008
and three and six months ended June 30, 2007 to the extent
that the hospitals were owned by us during the respective
periods. Additionally, effective June 30, 2008, we acquired
the 35% minority interest in Affinity Health Systems, LLC which
indirectly owns and operates Trinity Medical Center (560
licensed beds) located in Birmingham, Alabama, from Baptist
Health Systems, Inc. of Birmingham, Alabama
(Baptist), giving us 100% ownership of that
facility. The purchase price for this minority interest was
$51.5 million in cash and the cancellation of a promissory
note issued by Baptist and held by Affinity Health Systems, LLC
in the original principal amount of $32.8 million. The
Company, prior to the acquisition of the 35% minority interest,
consolidated all the operations of Affinity Health Systems, LLC
as the majority owner of 65% of the equity.
With the exception of the previously announced definitive
agreement to acquire a two hospital system in Spokane,
Washington, our focus has remained on the integration of the
former Triad hospitals. The acquisition of the two hospital
system in Spokane is pending governmental approval and is
expected to be completed in
37
the fourth quarter of 2008. We do not anticipate any further
acquisition activity in 2008; however, we intend to begin
considering additional acquisitions in 2009.
In the quarter ended June 30, 2008, we were informed that
we would not receive the full amount of previously estimated
reimbursements under certain Indiana Medicaid programs. These
reductions are due partly to the state not receiving a federal
waiver for one of its programs and partly as a result of changes
to its disproportionate share program which were different from
what had previously been communicated to us. This represents an
approximate $8.0 million reduction in expected payments
from these programs on an annual basis.
For the three months ended June 30, 2008, we generated
$2.691 billion in net operating revenues, a growth of
124.6% over the three months ended June 30, 2007, and
$47.9 million of net income, a decrease of 10.9% over the
three months ended June 30, 2007. For the three months
ended June 30, 2008, consolidated admissions increased
101.3% and adjusted admissions increased 93.4% over the three
months ended June 30, 2007. The increases in net operating
revenue and volume reflect both our acquisition of the former
Triad hospitals as well as the benefit from the strong flu
season.
For the six months ended June 30, 2008, we generated
$5.418 billion in net operating revenues, a growth of
130.3% over the six months ended June 30, 2007, and
$108.0 million of net income, consistent with the six
months ended June 30, 2007. For the six months ended
June 30, 2008, consolidated admissions increased 106.3% and
adjusted admissions increased 97.6% over the six months ended
June 30, 2007. The increases in net operating revenue and
volume reflect both our acquisition of the former Triad
hospitals as well as the benefit from the strong flu season.
We believe there continues to be ample opportunity for growth in
substantially all of our markets by decreasing the need for
patients to travel outside their communities for health care
services. Furthermore, we continue to strive to improve
operating efficiencies and procedures in order to improve our
profitability at all of our hospitals.
Sources
of Consolidated Net Operating Revenue
The following table presents the approximate percentages of net
operating revenue derived from Medicare, Medicaid, managed care
and other third party payors, and self-pay for the periods
indicated. The data for the periods presented are not strictly
comparable due to the significant effect that hospital
acquisitions have had on these statistics.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Medicare
|
|
|
27.5
|
%
|
|
|
29.4
|
%
|
|
|
28.0
|
%
|
|
|
30.1
|
%
|
Medicaid
|
|
|
8.7
|
%
|
|
|
11.5
|
%
|
|
|
8.5
|
%
|
|
|
10.9
|
%
|
Managed Care and other third party payors
|
|
|
52.8
|
%
|
|
|
46.8
|
%
|
|
|
52.7
|
%
|
|
|
46.6
|
%
|
Self-pay
|
|
|
11.0
|
%
|
|
|
12.3
|
%
|
|
|
10.8
|
%
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues include amounts estimated by management
to be reimbursable by Medicare and Medicaid under prospective
payment systems and provisions of cost-based reimbursement and
other payment methods. In addition, we are reimbursed by
non-governmental payors using a variety of payment
methodologies. Amounts we receive for treatment of patients
covered by these programs are generally less than the standard
billing rates. We account for the differences between the
estimated program reimbursement rates and the standard billing
rates as contractual allowance adjustments, which we deduct from
gross revenues to arrive at net operating revenues. 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.
Adjustments related to final settlements that increased revenue
were insignificant to both net operating revenue and net income
in each of the three and six months ended June 30, 2008 and
2007. In the future, we expect the percentage of revenues
received from the Medicare program to increase due to the
general aging of the population.
38
The payment rates under the Medicare program for inpatient acute
services are based on a prospective payment system, depending
upon the diagnosis of a patients condition. These rates
are indexed for inflation annually, although increases have
historically been less than actual inflation. Reductions in the
rate of increase in Medicare reimbursement may cause our net
operating revenue growth to decline.
In addition, specified managed care programs, insurance
companies, and employers are actively negotiating the amounts
paid to hospitals. The trend toward increased enrollment in
managed care may adversely affect our net operating revenue
growth.
Results
of Operations
Our hospitals offer a variety of services involving a broad
range of inpatient and outpatient medical and surgical services.
These include orthopedics, cardiology, occupational medicine,
diagnostic services, emergency services, rehabilitation
treatment, home health and skilled nursing. The strongest demand
for hospital services generally occurs during January through
April and the weakest demand for these services occurs during
the summer months. Accordingly, eliminating the effect of new
acquisitions, our net operating revenues and earnings are
historically highest during the first quarter and lowest during
the third quarter.
The following tables summarize, for the periods indicated,
selected operating data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Consolidated(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses(b)
|
|
|
(86.7
|
)
|
|
|
(85.9
|
)
|
|
|
(86.5
|
)
|
|
|
(85.6
|
)
|
Depreciation and amortization
|
|
|
(4.6
|
)
|
|
|
(4.3
|
)
|
|
|
(4.6
|
)
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
8.7
|
|
|
|
9.8
|
|
|
|
8.9
|
|
|
|
10.1
|
|
Interest expense, net
|
|
|
(5.8
|
)
|
|
|
(2.5
|
)
|
|
|
(5.9
|
)
|
|
|
(2.4
|
)
|
Minority interest in earnings
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
3.0
|
|
|
|
7.3
|
|
|
|
3.0
|
|
|
|
7.7
|
|
Provision for income taxes
|
|
|
(1.2
|
)
|
|
|
(2.8
|
)
|
|
|
(1.1
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1.8
|
|
|
|
4.5
|
|
|
|
1.9
|
|
|
|
4.7
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1.8
|
%
|
|
|
4.5
|
%
|
|
|
2.0
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2008
|
|
|
Percentage increase (decrease) from same period prior year(a):
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
124.6
|
%
|
|
|
130.3
|
%
|
Admissions
|
|
|
101.3
|
|
|
|
106.3
|
|
Adjusted admissions(c)
|
|
|
93.4
|
|
|
|
97.6
|
|
Average length of stay
|
|
|
2.4
|
|
|
|
4.9
|
|
Net income(d)
|
|
|
(10.9
|
)
|
|
|
0.0
|
|
Same-store percentage increase from same period prior year(a)(e):
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
4.9
|
%
|
|
|
5.3
|
%
|
Admissions
|
|
|
2.3
|
|
|
|
3.1
|
|
Adjusted admissions(c)
|
|
|
2.4
|
|
|
|
3.1
|
|
|
|
|
(a) |
|
Pursuant to Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we have
restated our prior period financial statements and |
39
|
|
|
|
|
statistical results to reflect as discontinued operations the
seven hospitals that were in discontinued operations during the
three and six months ended June 30, 2008, which were also
owned or leased during the three months ended June 30, 2007. |
|
(b) |
|
Operating expenses include salaries and benefits, provision for
bad debts, supplies, rent and other operating expenses. |
|
(c) |
|
Adjusted admissions is a general measure of combined inpatient
and outpatient volume. We computed adjusted admissions by
multiplying admissions by gross patient revenues and then
dividing that number by gross inpatient revenues. |
|
(d) |
|
Includes loss from operations of discontinued hospitals and gain
on sale of discontinued hospitals. |
|
(e) |
|
Includes former Triad hospitals during the comparable periods
and other acquired hospitals to the extent we operated them in
both years. |
Three
months Ended June 30, 2008 Compared to Three months Ended
June 30, 2007
Net operating revenues increased $1.493 billion to
$2.691 billion for the three months ended June 30,
2008, from $1.198 billion for the three months ended
June 30, 2007. On a combined basis, the hospitals acquired
in the Triad acquisition and growth from those hospitals owned
throughout both periods contributed $1.460 billion of that
increase and $32.6 million was contributed by other
hospitals acquired in 2007. On a same-store basis, including the
former Triad hospitals during the comparable periods, this
represents an increase in same-store net revenue of 4.9%. The
increase from hospitals that we owned throughout both periods
was attributable to volume increases, primarily from flu and
respiratory cases, rate increases, payor mix and the acuity
level of services provided.
On a consolidated basis, inpatient admissions increased by
101.3% and adjusted admissions increased by 93.4%. With respect
to the increase in consolidated admissions, approximately 50.6%
of the admissions were contributed from newly acquired
hospitals, including those hospitals acquired from Triad, and
49.4% of the admissions were contributed by hospitals we owned
throughout both periods. On a same-store basis, which includes
the hospitals acquired from Triad, as if we owned them during
both periods, admissions increased by 2.3% during the three
months ended June 30, 2008.
Operating expenses, excluding depreciation and amortization, as
a percentage of net operating revenues, increased to 86.7% for
the three months ended June 30, 2008 compared to 85.9% for
the three months ended June 30, 2007. Salaries and
benefits, as a percentage of net operating revenues, increased
0.6% to 40.1% for the three months ended June 30, 2008,
compared to 39.5% for the three months ended June 30, 2007.
This increase is primarily the result of an increase in the
number of employed physicians as well as certain IT employees
who were previously treated as leased employees with related
expense previously being included in other operating expense.
These increases have offset improvements realized at our other
hospitals owned throughout both periods. Provision for bad
debts, as a percentage of net operating revenues, decreased 1.0%
to 10.8% for the three months ended June 30, 2008 compared
to 11.8% for the three months ended June 30, 2007. This
decrease is primarily the result of the former Triad hospitals
having a self-pay discount program and historically lower
provision for bad debts, as well as our phasing in of a
discounting program at those hospitals where one previously did
not exist. Supplies, as a percentage of net operating revenues,
increased 2.3% to 14.0% for the three months ended June 30,
2008, as compared to 11.7% for the three months ended
June 30, 2007. This increase is primarily the result of the
acquisition of the former Triad hospitals whose higher acuity of
services resulted in higher supply costs than our other
hospitals taken collectively, offsetting improvements from
greater utilization of and improved pricing under our purchasing
program. Rent and other operating expenses, as a percentage of
net operating revenues, decreased from 22.9% for the three
months ended June 30, 2007, to 21.8% for the three months
ended June 30, 2008. As part of our acquisition of Triad,
we acquired minority investments in certain joint ventures.
These investments provided earnings of 0.4% of net operating
revenues. Prior to the Triad acquisition, we did not have any
material investments in unconsolidated subsidiaries.
Depreciation and amortization increased from 4.3% of net
operating revenues for the three months ended June 30, 2007
to 4.6% of net operating revenues for the three months ended
June 30, 2008. The increase in
40
depreciation and amortization as a percentage of net operating
revenue is primarily due to the acquisition of the former Triad
hospitals which, as a result of a higher level of capital
spending, had a higher fair market valuation in relation to
their respective revenue than that of our other hospitals in the
comparable period.
Interest expense, net, increased by $125.2 million from
$29.2 million for the three months ended June 30, 2007
to $154.4 million for the three months ended June 30,
2008. An increase in interest rates during the three months
ended June 30, 2008, as compared to the three months ended
June 30, 2007, accounted for $4.7 million of this
increase, while an increase in our average outstanding debt
during the three months ended June 30, 2008, as compared to
the three months ended June 30, 2007, accounted for the
remaining $120.5 million.
Income from continuing operations margin decreased from 4.5% for
the three months ended June 30, 2007 to 1.8% for the three
months ended June 30, 2008. Net income margin decreased
from 4.5% for the three months ended June 30, 2007 to 1.8%
for the three months ended June 30, 2008. The decrease in
income from continuing operations margin and net income margin
are reflective of the net increases in operating expenses,
depreciation expense and interest expense, as discussed above.
The net results of the above mentioned changes resulted in
income from continuing operations before income taxes decreasing
$6.2 million from $87.1 million for the three months
ended June 30, 2007 to $80.9 million for the three
months ended June 30, 2008.
Provision for income taxes decreased from $33.6 million for
the three months ended June 30, 2007 to $31.1 million
for the three months ended June 30, 2008, due primarily to
a reduction in taxable income in the comparable period which was
the result of higher operating expenses.
Net income was $47.9 million for the three months ended
June 30, 2008 compared to $53.8 million for the three
months ended June 30, 2007, a decrease of 10.9%.
Six
months Ended June 30, 2008 Compared to Six months Ended
June 30, 2007
Net operating revenues increased $3.066 billion to
$5.418 billion for the six months ended June 30, 2008,
from $2.352 billion for the six months ended June 30,
2007. On a combined basis, the hospitals acquired in the Triad
acquisition and growth from those hospitals owned throughout
both periods contributed $2.945 billion of that increase
and $120.8 million was contributed by other hospitals
acquired in 2007. On a same-store basis, including the former
Triad hospitals during the comparable periods, this represents
an increase in same-store net revenue of 5.3%. The increase from
hospitals that we owned throughout both periods was attributable
to volume increases, primarily from flu and respiratory cases,
rate increases, payor mix and the acuity level of services
provided. Our revenue and volume increases were benefited by one
additional business day because the current year is a leap year.
On a consolidated basis, inpatient admissions increased by
106.3% and adjusted admissions increased by 97.6%. With respect
to the increase in consolidated admissions, approximately 51.6%
of the admissions were contributed from newly acquired
hospitals, including those hospitals acquired from Triad, and
48.4% of the admissions were contributed by hospitals we owned
throughout both periods. On a same-store basis, which includes
the hospitals acquired from Triad, as if we owned them during
both periods, admissions increased by 3.1% during the six months
ended June 30, 2008.
Operating expenses, excluding depreciation and amortization, as
a percentage of net operating revenues, increased to 86.5% for
the six months ended June 30, 2008 compared to 85.6% for
the six months ended June 30, 2007. Salaries and benefits,
as a percentage of net operating revenues, increased 0.2% to
40.0% for the six months ended June 30, 2008, compared to
39.8% for the six months ended June 30, 2007. This increase
is primarily the result of an increase in the number of employed
physicians as well as certain IT employees who were previously
treated as leased employees with related expense previously
being included in other operating expense. These increases have
offset improvements realized at our other hospitals owned
throughout both periods. Provision for bad debts, as a
percentage of net operating revenues, decreased 0.6% to 10.9%
for the six months ended June 30, 2008 compared to 11.5%
for the six months ended June 30, 2007. This decrease is
primarily the result of the former Triad hospitals having a
self-pay discount program and
41
historically lower provision for bad debts, as well as our
phasing in of a discounting program at those hospitals where one
previously did not exist. Supplies, as a percentage of net
operating revenues, increased 2.4% to 14.1% for the six months
ended June 30, 2008, as compared to 11.7% for the six
months ended June 30, 2007. This increase is primarily the
result of the acquisition of the former Triad hospitals whose
higher acuity of services resulted in higher supply costs than
our other hospitals taken collectively, offsetting improvements
from greater utilization of and improved pricing under our
purchasing program. Rent and other operating expenses, as a
percentage of net operating revenues, decreased from 22.6% for
the six months ended June 30, 2007 to 21.5% for the six
months ended June 30, 2008. As part of our acquisition of
Triad, we acquired minority investments in certain joint
ventures. These investments provided earnings of 0.4% of net
operating revenues. Prior to the Triad acquisition, we did not
have any material investments in unconsolidated subsidiaries.
Depreciation and amortization increased from 4.3% of net
operating revenues for the six months ended June 30, 2007
to 4.6% of net operating revenues for the six months ended
June 30, 2008. The increase in depreciation and
amortization as a percentage of net operating revenue is
primarily due to the acquisition of the former Triad hospitals
which, as a result of a higher level of capital spending, had a
higher fair market valuation in relation to their respective
revenue than that of our other hospitals in the comparable
period.
Interest expense, net, increased by $262.4 million from
$57.6 million for the six months ended June 30, 2007
to $320.1 million for the six months ended June 30,
2008. Since the current year is a leap year, one additional day
in the six months resulted in $0.3 million of the increase
in interest expense. An increase in interest rates during the
six months ended June 30, 2008, as compared to the six
months ended June 30, 2007, accounted for
$11.3 million of this increase, while an increase in our
average outstanding debt during the six months ended
June 30, 2008, as compared to the six months ended
June 30, 2007, accounted for the remaining
$250.8 million.
Income from continuing operations margin decreased from 4.7% for
the six months ended June 30, 2007 to 1.9% for the six
months ended June 30, 2008. Net income margin decreased
from 4.6% for the six months ended June 30, 2007 to 2.0%
for the six months ended June 30, 2008. The decrease in
income from continuing operations margin and net income margin
are reflective of the net increases in operating expenses,
depreciation expense and interest expense, as discussed above.
The net results of the above mentioned changes resulted in
income from continuing operations before income taxes decreasing
$15.6 million from $180.2 million for the six months
ended June 30, 2007 to $164.6 million for the six
months ended June 30, 2008.
Provision for income taxes decreased from $69.4 million for
the six months ended June 30, 2007 to $63.4 million
for the six months ended June 30, 2008, due primarily to a
reduction in taxable income in the comparable period which was
the result of higher operating expenses.
Net income was $108.0 million for the six months ended
June 30, 2008 compared to $108.1 million for the six
months ended June 30, 2007.
Liquidity
and Capital Resources
Net cash provided by operating activities increased
$200.8 million from $216.0 million for the six months
ended June 30, 2007 to $416.8 million for the six
months ended June 30, 2008. The increase in cash flow, in
comparison to the prior year period, is from a net cash inflow
from accounts payable, accrued liabilities and income taxes of
$33.5 million and supplies, prepaid expenses and other
assets of $27.0 million. Additionally, there was an
increase in cash flow in comparison to the prior year period
resulting from an increase in non-cash depreciation expense of
$142.8 million and an increase of other non-cash expenses
of $34.2 million. These changes in cash were offset by a
decrease in cash from the net activity of all other assets and
liabilities of $9.3 million and a net cash outflow from
accounts receivable of $27.4 million, reflecting the growth
in net operating revenues and volume, as compared to the same
prior year period. As much of this growth occurred in the latter
part of the quarter ended June 30, 2008, the collections of
the related cash has not yet occurred as of June 30, 2008.
The cash used in investing activities was $47.8 million for
the six months ended June 30,
42
2008 compared to $309.3 million for the six months ended
June 30, 2007. This decrease in cash used in investing
activities was due to the sale of 11 hospitals, as well as not
completing any hospital acquisitions during the six months ended
June 30, 2008, offset by an increase in capital
expenditures compared to the six months ended June 30,
2007. Increase in other assets used in investing activities
includes $40.1 million of proceeds received from the sale
of hospitals and land that has been deposited in escrow accounts
to be used for the acquisition of like-kind property.
Capital
Expenditures
Cash expenditures related to purchases of facilities were
$6.6 million for the six months ended June 30, 2008,
compared to $188.0 million for the six months ended
June 30, 2007. These expenditures during the six months
ended June 30, 2008 were for the acquisition of ten
physician practices and a clinic. The expenditures during the
six months ended June 30, 2007, included $45.5 million
related to the acquisition of Triad and $137.1 million for
the acquisition of two hospitals, the contingent settlements of
working capital items from acquisitions in the prior year and
the acquisition of five physician practices and
$5.4 million for the purchase of information systems and
other equipment to integrate recently acquired hospitals.
Excluding the cost to construct replacement hospitals, our
capital expenditures for the six months ended June 30,
2008, totaled $172.2 million, compared to
$71.0 million for the six months ended June 30, 2007.
Costs to construct replacement hospitals totaled
$103.4 million during the six months ended June 30,
2008 compared to $37.8 million during the six months ended
June 30, 2007.
Pursuant to hospital purchase agreements in effect as of
June 30, 2008, where required certificate of need approval
has been obtained, we are required to build replacement
facilities in Petersburg, Virginia, by August 2008,
Valparaiso, Indiana, by April 2011 and Birmingham, Alabama
within three years of receiving a certificate of need. Two
previously required replacement hospitals recently opened, one
in Clarksville, Tennessee (June 2008) and one in Shelbyville,
Tennessee (July 2008). Also, as required by an amendment to a
lease agreement entered into in 2005, we agreed to build a
replacement hospital at our Barstow, California location.
Estimated construction costs, including equipment, are
approximately $864.2 million for these six replacement
hospitals of which approximately $368.5 million has been
incurred to date, including costs incurred by Triad prior to our
acquisition. The certificate of need for the hospital in
Birmingham, Alabama was received in June, 2008, however, the
decision to issue the certificate of need is being appealed.
Capital
Resources
Net working capital was $1.190 billion at June 30,
2008, compared to $1.105 billion at December 31, 2007.
The $85 million increase was attributable primarily to an
increase in cash and accounts receivable and a decrease in
accounts payable, which reflects the timing of our cash
collections and payments.
In connection with the consummation of the Triad acquisition in
July 2007, we obtained $7.215 billion of senior secured
financing under a New Credit Facility with a syndicate of
financial institutions led by Credit Suisse, as administrative
agent and collateral agent. The New Credit Facility consists of
a $6.065 billion funded term loan facility with a maturity
of seven years, a $300 million delayed draw term loan
facility, (reduced from $400 million) with a maturity of
seven years and a $750 million revolving credit facility
with a maturity of six years. The revolving credit facility also
includes a subfacility for letters of credit and a swingline
subfacility. The New Credit Facility requires us to make
quarterly amortization payments of each term loan facility equal
to 0.25% of the initial outstanding amount of the term loans, if
any, with the outstanding principal balance of each term loan
facility payable on July 25, 2014.
The term loan facility must be prepaid in an amount equal to
(1) 100% of the net cash proceeds of certain asset sales
and dispositions by us and our subsidiaries, subject to certain
exceptions and reinvestment rights, (2) 100% of the net
cash proceeds of issuances of certain debt obligations or
receivables based financing by us and our subsidiaries, subject
to certain exceptions, and (3) 50%, subject to reduction to
a lower percentage based on our leverage ratio (as defined in
the New Credit Facility generally as the ratio of total debt on
the date of determination to our EBITDA, as defined, for the
four quarters most recently ended prior to such date), of excess
cash flow (as defined) for any year, commencing in 2008, subject
to certain
43
exceptions. Voluntary prepayments and commitment reductions are
permitted in whole or in part, without premium or penalty,
subject to minimum prepayment or reduction requirements.
The obligor under the New Credit Facility is CHS/Community
Health Systems, Inc., or CHS, a wholly-owned subsidiary of
Community Health Systems, Inc. All of our obligations under the
New Credit Facility are unconditionally guaranteed by Community
Health Systems, Inc. and certain existing and subsequently
acquired or organized domestic subsidiaries. All obligations
under the New Credit Facility and the related guarantees are
secured by a perfected first priority lien or security interest
in substantially all of the assets of Community Health Systems,
Inc., CHS and each subsidiary guarantor, including equity
interests held by us or any subsidiary guarantor, but excluding,
among others, the equity interests of non-significant
subsidiaries, syndication subsidiaries, securitization
subsidiaries and joint venture subsidiaries.
The loans under the New Credit Facility will bear interest on
the outstanding unpaid principal amount at a rate equal to an
applicable percentage plus, at our option, either (a) an
Alternate Base Rate (as defined) determined by reference to the
greater of (1) the Prime Rate (as defined) announced by
Credit Suisse or (2) the Federal Funds Effective Rate (as
defined) plus one-half of 1.0%, or (b) a reserve adjusted
London interbank offered rate for dollars (Eurodollar rate) (as
defined). The applicable percentage for term loans is 1.25% for
Alternate Base Rate loans and 2.25% for Eurodollar rate loans.
The applicable percentage for revolving loans will initially be
1.25% for Alternate Base Rate revolving loans and 2.25% for
Eurodollar revolving loans, in each case subject to reduction
based on our leverage ratio. Loans under the swingline
subfacility bear interest at the rate applicable to Alternate
Base Rate loans under the revolving credit facility.
We have agreed to pay letter of credit fees equal to the
applicable percentage then in effect with respect to Eurodollar
rate loans under the revolving credit facility times the maximum
aggregate amount available to be drawn under all letters of
credit outstanding under the subfacility for letters of credit.
The issuer of any letter of credit issued under the subfacility
for letters of credit will also receive a customary fronting fee
and other customary processing charges. We are initially
obligated to pay commitment fees of 0.50% per annum (subject to
reduction based upon on our leverage ratio), on the unused
portion of the revolving credit facility. For purposes of this
calculation, swingline loans are not treated as usage of the
revolving credit facility. We are also obligated to pay
commitment fees of 0.50% per annum for the first six months
after the close of the New Credit Facility, 0.75% per annum for
the next three months thereafter and 1.0% per annum thereafter,
in each case on the unused amount of the delayed draw term loan
facility. We also paid arrangement fees on the closing of the
New Credit Facility and will pay an annual administrative agent
fee.
The New Credit Facility contains customary representations and
warranties, subject to limitations and exceptions, and customary
covenants restricting our and our subsidiaries ability to,
among other things and subject to various exceptions,
(1) declare dividends, make distributions or redeem or
repurchase capital stock, (2) prepay, redeem or repurchase
other debt, (3) incur liens or grant negative pledges,
(4) make loans and investments and enter into acquisitions
and joint ventures, (5) incur additional indebtedness or
provide certain guarantees, (6) make capital expenditures,
(7) engage in mergers, acquisitions and asset sales,
(8) conduct transactions with affiliates, (9) alter
the nature of our businesses, (10) grant certain guarantees
with respect to physician practices, (11) engage in sale
and leaseback transactions or (12) change our fiscal year.
We and our subsidiaries are also required to comply with
specified financial covenants (consisting of a leverage ratio
and an interest coverage ratio) and various affirmative
covenants.
Events of default under the New Credit Facility include, but are
not limited to, (1) our failure to pay principal, interest,
fees or other amounts under the credit agreement when due
(taking into account any applicable grace period), (2) any
representation or warranty proving to have been materially
incorrect when made, (3) covenant defaults subject, with
respect to certain covenants, to a grace period,
(4) bankruptcy events, (5) a cross default to certain
other debt, (6) certain undischarged judgments (not paid
within an applicable grace period), (7) a change of
control, (8) certain ERISA-related defaults and
(9) the invalidity or impairment of specified security
interests, guarantees or subordination provisions in favor of
the administrative agent or lenders under the New Credit
Facility.
As of June 30, 2008, there was approximately
$1.050 billion of available borrowing capacity under our
New Credit Facility, of which $78.8 million was set aside
for outstanding letters of credit. We believe that
44
these funds, along with internally generated cash and continued
access to the bank credit and capital markets, will be
sufficient to finance future acquisitions, capital expenditures
and working capital requirements through the next 12 months
and into the foreseeable future.
During the six months ended June 30, 2008, we repurchased
on the open market and cancelled $62.7 million of principal
amount of the Notes. This resulted in a loss from early
extinguishment of debt of $1.3 million with an after-tax
impact of $0.9 million.
As of June 30, 2008, we are currently a party to the
following interest rate swap agreements to limit the effect of
changes in interest rates on a portion of our long-term
borrowings. On each of these swaps, we received a variable rate
of interest based on the three-month London Inter-Bank Offer
Rate (LIBOR), in exchange for the payment by us of a
fixed rate of interest. We currently pay, on a quarterly basis,
a margin above LIBOR of 225 basis points for revolving
credit and term loans under the New Credit Facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Fixed Interest
|
|
|
|
|
Swap #
|
|
|
(In 000s)
|
|
|
Rate
|
|
|
Termination Date
|
|
|
|
1
|
|
|
|
100,000
|
|
|
|
3.5860
|
%
|
|
|
August 29, 2008
|
|
|
2
|
|
|
|
100,000
|
|
|
|
3.9350
|
%
|
|
|
June 6, 2009
|
|
|
3
|
|
|
|
100,000
|
|
|
|
4.3375
|
%
|
|
|
November 30, 2009
|
|
|
4
|
|
|
|
100,000
|
|
|
|
4.9360
|
%
|
|
|
October 4, 2010
|
|
|
5
|
|
|
|
100,000
|
|
|
|
4.7090
|
%
|
|
|
January 24, 2011
|
|
|
6
|
|
|
|
300,000
|
|
|
|
5.1140
|
%
|
|
|
August 8, 2011
|
|
|
7
|
|
|
|
100,000
|
|
|
|
4.7185
|
%
|
|
|
August 19, 2011
|
|
|
8
|
|
|
|
100,000
|
|
|
|
4.7040
|
%
|
|
|
August 19, 2011
|
|
|
9
|
|
|
|
100,000
|
|
|
|
4.6250
|
%
|
|
|
August 19, 2011
|
|
|
10
|
|
|
|
200,000
|
|
|
|
4.9300
|
%
|
|
|
August 30, 2011
|
|
|
11
|
|
|
|
200,000
|
|
|
|
4.4815
|
%
|
|
|
October 26, 2011
|
|
|
12
|
|
|
|
200,000
|
|
|
|
4.0840
|
%
|
|
|
December 3, 2011
|
|
|
13
|
|
|
|
100,000
|
|
|
|
3.8470
|
%
|
|
|
January 4, 2012
|
|
|
14
|
|
|
|
100,000
|
|
|
|
3.8510
|
%
|
|
|
January 4, 2012
|
|
|
15
|
|
|
|
100,000
|
|
|
|
3.8560
|
%
|
|
|
January 4, 2012
|
|
|
16
|
|
|
|
200,000
|
|
|
|
3.7260
|
%
|
|
|
January 8, 2012
|
|
|
17
|
|
|
|
200,000
|
|
|
|
3.5065
|
%
|
|
|
January 16, 2012
|
|
|
18
|
|
|
|
250,000
|
|
|
|
5.0185
|
%
|
|
|
May 30, 2012
|
|
|
19
|
|
|
|
150,000
|
|
|
|
5.0250
|
%
|
|
|
May 30, 2012
|
|
|
20
|
|
|
|
200,000
|
|
|
|
4.6845
|
%
|
|
|
September 11, 2012
|
|
|
21
|
|
|
|
125,000
|
|
|
|
4.3745
|
%
|
|
|
November 23, 2012
|
|
|
22
|
|
|
|
75,000
|
|
|
|
4.3800
|
%
|
|
|
November 23, 2012
|
|
|
23
|
|
|
|
150,000
|
|
|
|
5.0200
|
%
|
|
|
November 30, 2012
|
|
|
24
|
|
|
|
100,000
|
|
|
|
5.0230
|
%
|
|
|
May 30, 2013
|
|
|
25
|
|
|
|
300,000
|
|
|
|
5.2420
|
%
|
|
|
August 6, 2013
|
|
|
26
|
|
|
|
100,000
|
|
|
|
5.0380
|
%
|
|
|
August 30, 2013
|
|
|
27
|
|
|
|
100,000
|
|
|
|
5.0500
|
%
|
|
|
November 30, 2013
|
(1)
|
|
28
|
|
|
|
100,000
|
|
|
|
5.2310
|
%
|
|
|
July 25, 2014
|
|
|
29
|
|
|
|
100,000
|
|
|
|
5.2310
|
%
|
|
|
July 25, 2014
|
|
|
30
|
|
|
|
200,000
|
|
|
|
5.1600
|
%
|
|
|
July 25, 2014
|
|
|
31
|
|
|
|
75,000
|
|
|
|
5.0405
|
%
|
|
|
July 25, 2014
|
|
|
32
|
|
|
|
125,000
|
|
|
|
5.0215
|
%
|
|
|
July 25, 2014
|
|
|
|
|
(1) |
|
This swap agreement becomes effective September 2, 2008,
after the termination of agreement #1 listed above. |
45
The New Credit Facility
and/or the
Notes contain various covenants that limit our ability to take
certain actions including, among other things, our ability to:
|
|
|
|
|
incur, assume or guarantee additional indebtedness;
|
|
|
|
issue redeemable stock and preferred stock;
|
|
|
|
repurchase capital stock;
|
|
|
|
make restricted payments, including paying dividends and making
investments;
|
|
|
|
redeem debt that is junior in right of payment to the notes;
|
|
|
|
create liens without securing the notes;
|
|
|
|
sell or otherwise dispose of assets, including capital stock of
subsidiaries;
|
|
|
|
enter into agreements that restrict dividends from subsidiaries;
|
|
|
|
merge, consolidate, sell or otherwise dispose of substantial
portions of our assets;
|
|
|
|
enter into transactions with affiliates; and
|
|
|
|
guarantee certain obligations.
|
In addition, our New Credit Facility contains restrictive
covenants and requires us to maintain specified financial ratios
and satisfy other financial condition tests. Our ability to meet
these restricted covenants and financial ratios and tests can be
affected by events beyond our control, and we cannot assure you
that we will meet those tests. A breach of any of these
covenants could result in a default under our New Credit
Facility
and/or the
Notes. Upon the occurrence of an event of default under our New
Credit Facility or the Notes, all amounts outstanding under our
New Credit Facility and the Notes may become due and payable and
all commitments under the New Credit Facility to extend further
credit may be terminated.
We believe that internally generated cash flows, availability
for additional borrowings under our New Credit Facility of
$1.050 billion (consisting of a $750 million revolving
credit facility and a $300 million delayed draw term loan
facility) and our ability to add up to $300 million of
borrowing capacity from receivable transactions (including
securitizations) and continued access to the bank credit and
capital markets will be sufficient to finance acquisitions,
capital expenditures and working capital requirements through
the next 12 months. We believe these same sources of cash
flows, borrowings under our credit agreement as well as access
to bank credit and capital markets will be available to us
beyond the next 12 months and into the foreseeable future.
Off-balance
sheet arrangements
Excluding the hospitals whose leases terminated in conjunction
with our sale of interests in the partnerships holding the
leases and whose operating results are included in discontinued
operations, our consolidated operating results for the six
months ended June 30, 2008 and 2007, included
$139.0 million and $136.4 million, respectively, of
net operating revenue and $7.4 million and
$9.9 million, respectively, of income from operations
generated from six hospitals operated by us under operating
lease arrangements. In accordance with accounting principles
generally accepted in the United States of America, or GAAP, the
respective assets and the future lease obligations under these
arrangements are not recorded on our condensed consolidated
balance sheet. Lease payments under these arrangements are
included in rent expense when paid and totaled approximately
$8.2 million for the six months ended June 30, 2008,
compared to $7.4 million for the six months ended
June 30, 2007. The current terms of these operating leases
expire between June 2010 and December 2019, not including lease
extension options. If we allow these leases to expire, we would
no longer generate revenue nor incur expenses from these
hospitals.
In the past, we have utilized operating leases as a financing
tool for obtaining the operations of specified hospitals without
acquiring, through ownership, the related assets of the hospital
and without a significant outlay of cash at the front end of the
lease. We utilize the same management and operating strategies
to
46
improve operations at those hospitals held under operating
leases as we do at those hospitals that we own. We have not
entered into any operating leases for hospital operations since
December 2000.
Joint
Ventures
We have sold minority interests in certain of our subsidiaries
or acquired subsidiaries with existing minority interest
ownership positions. Triad implemented this strategy to a
greater extent than we did. In conjunction with the acquisition
of Triad, we acquired 19 hospitals containing minority ownership
interests ranging from less than 1% to 35%. As of June 30,
2008, 20 of our hospitals were owned by physician joint
ventures, of which two also had non-profit entities as partners.
In addition, five other hospitals had non-profit entities as
partners. Effective June 30, 2008, we acquired the 35%
minority interest in Affinity Health Systems, LLC which
indirectly owns and operates Trinity Medical Center (560
licensed beds) in Birmingham, Alabama, from Baptist, giving us
100% ownership of that facility. The purchase price for this
minority interest was $51.5 million in cash and the
cancellation of a promissory note issued by Baptist and held by
Affinity Health Systems, LLC in the original principal amount of
$32.8 million. Minority interests in equity of consolidated
subsidiaries was $320.6 million and $366.1 million as
of June 30, 2008 and December 31, 2007, respectively,
and the amount of minority interest in earnings was
$8.3 million and $0.6 million for the three months
ended June 30, 2008 and 2007, respectively, and
$18.0 million and $0.8 million for the six months
ended June 30, 2008 and 2007, respectively.
Reimbursement,
Legislative and Regulatory Changes
Legislative and regulatory action has resulted in continuing
change in the Medicare and Medicaid reimbursement programs which
will continue to limit payment increases under these programs
and in some cases implement payment decreases. Within the
statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings,
interpretations, and discretion which may further affect
payments made under those programs, and the federal and state
governments might, in the future, reduce the funds available
under those programs or require more stringent utilization and
quality reviews of hospital facilities. Additionally, there may
be a continued rise in managed care programs and future
restructuring of the financing and delivery of healthcare in the
United States. These events could cause our future financial
results to decline.
Inflation
The healthcare industry is labor intensive. Wages and other
expenses increase during periods of inflation and when labor
shortages occur in the marketplace. In addition, our suppliers
pass along rising costs to us in the form of higher prices. We
have implemented cost control measures, including our case and
resource management program, to curb increases in operating
costs and expenses. We have generally offset increases in
operating costs by increasing reimbursement for services,
expanding services and reducing costs in other areas. However,
we cannot predict our ability to cover or offset future cost
increases.
Critical
Accounting Policies
The discussion and analysis of our financial condition and
results of operations are based upon our condensed consolidated
financial statements, which have been prepared in accordance
with GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amount of assets and liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities at the date of our condensed consolidated financial
statements. Actual results may differ from these estimates under
different assumptions or conditions.
Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, and
potentially result in materially different results under
different assumptions and conditions. We believe that our
critical accounting policies are limited to those described
below.
47
Third
Party Reimbursement
Net operating revenues include amounts estimated by management
to be reimbursable by Medicare and Medicaid under prospective
payment systems and provisions of cost-reimbursement and other
payment methods. In addition, we are reimbursed by
non-governmental payors using a variety of payment
methodologies. Amounts we receive for treatment of patients
covered by these programs are generally less than the standard
billing rates. Excluding the former Triad hospitals, contractual
allowances are automatically calculated and recorded through our
internally developed automated contractual allowance
system. Within the automated system, actual Medicare DRG
data, coupled with all payors historical paid claims data,
is utilized to calculate the contractual allowances. This data
is automatically updated on a monthly basis. For the former
Triad hospitals, contractual allowances are determined through a
manual process wherein contractual allowance adjustments,
regardless of payor or method of calculation, are reviewed and
compared to actual payment experience. The methodology used is
similar to the methodology used within our automated
contractual allowance system. The former Triad hospitals
are being phased into the automated contractual allowance
system. 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 we deduct from gross revenues to arrive at net operating
revenues. Determining payor classification, proper DRG and other
coding of services performed and the relevance of historical
paid claims data are the key assumptions in determining the
estimate of expected reimbursement. Assuming the aforementioned
assumptions changed our estimate of expected reimbursement by 1%
of gross accounts receivable, a change in net accounts
receivable of approximately $38.8 million and an impact on
net income of approximately $23.9 million would have
occurred as of and for the six months ended June 30, 2008.
However, due to the complexities involved in these estimates,
actual payments we receive could be different from the amounts
we estimate and record. 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 increased net operating revenue and
net income by an insignificant amount in each of the three and
six months ended June 30, 2008 and June 30, 2007.
Allowance
for Doubtful Accounts
Substantially all of our accounts receivable are related to
providing healthcare services to our hospitals patients.
Collection of these accounts receivable is our primary source of
cash and is critical to our operating performance. Our primary
collection risks relate to uninsured patients and outstanding
patient balances for which the primary insurance payor has paid
some but not all of the outstanding balance, with the remaining
outstanding balance (generally deductibles and co-payments) owed
by the patient. At the point of service, for patients required
to make a co-payment, we generally collect less than 15% of the
related revenue. For all procedures scheduled in advance, our
policy is to verify insurance coverage prior to the date of the
procedure. Insurance coverage is not verified in advance of
procedures for walk-in and emergency room patients.
We estimate the allowance for doubtful accounts by reserving a
percentage of all self-pay accounts receivable without regard to
aging category, based on collection history, adjusted for
expected recoveries and, if present, anticipated changes in
trends. For all other payor categories we reserve 100% of all
accounts aging over 365 days from the date of discharge.
The percentage used to reserve for all self-pay accounts is
based on our collection history. We believe that we collect
substantially all of our third-party insured receivables which
include receivables from governmental agencies. During the
quarter ended December 31, 2007, in conjunction with our
ongoing process of monitoring the net realizable value of our
accounts receivable, as well as integrating the methodologies,
data and assumptions used by the former Triad management, we
performed various analyses including updating a review of
historical cash collections. As a result of these analyses, we
noted deterioration in certain key cash collection indicators.
The acquisition of Triad also provided additional data and a
comparative and larger population on which to base our
estimates. As a result of the lower estimated collectability
indicated by the updated analyses, we revised our estimate of
contractual allowances for estimated amounts of self-pay
accounts receivable that will ultimately qualify as charity
care, or that will
48
ultimately qualify for Medicaid, indigent care or other specific
governmental reimbursement resulting in an increase to our
contractual reserves of $96.3 million. Previous estimates
of uncollectible amounts for such receivables were included in
our bad debt reserves for each period. We also recorded an
increase to our allowance for doubtful accounts of approximately
$70.1 million as of December 31, 2007. The resulting
impact, net of taxes, for the year ended December 31, 2007
was a decrease to income from continuing operations of
$105.4 million. We believe this lower collectability was
primarily the result of an increase in the number of patients
qualifying for charity care, reduced enrollment in certain state
Medicaid programs and an increase in the number of indigent
non-resident aliens. Collections are impacted by the economic
ability of patients to pay and the effectiveness of our
collection efforts. Significant changes in payor mix, business
office operations, economic conditions or trends in federal and
state governmental healthcare coverage could affect our
collection of accounts receivable. Assuming the aforementioned
factors resulted in a hypothetical 1% change in the allowance
for doubtful accounts as a percentage of self-pay receivables, a
change in net accounts receivable of approximately
$17.1 million and net income of approximately
$10.5 million would have occurred as of and for the six
months ended June 30, 2008. We also continually review our
overall reserve adequacy by monitoring historical cash
collections as a percentage of trailing net revenue less
provision for bad debts, as well as by analyzing current period
net revenue and admissions by payor classification, aged
accounts receivable by payor, days revenue outstanding, and the
impact of recent acquisitions and dispositions.
Our policy is to write-off gross accounts receivable if the
balance is under $10.00 or when such amounts are placed with
outside collection agencies. We believe this policy accurately
reflects our ongoing collection efforts and is consistent with
industry practices. We had approximately $1.4 billion and
$1.5 billion at June 30, 2008 and December 31,
2007, respectively, being pursued by various outside collection
agencies. We expect to collect less than 3%, net of estimated
collection fees, of the amounts being pursued by outside
collection agencies. As these amounts have been written-off,
they are not included in our gross accounts receivable or our
allowance for doubtful accounts. Collections on amounts
previously written-off are recognized in income when received.
However, we take into consideration estimated collections of
these future amounts written-off in evaluating the
reasonableness of our allowance for doubtful accounts.
Patient accounts receivable from our hospital segment represent
approximately 96% of our total consolidated accounts receivable.
All of the following information represents that derived from
our hospital segment.
Days revenue outstanding was 54 days at June 30, 2008
and December 31, 2007. Our target range for days revenue
outstanding is 52 58 days.
Total gross accounts receivable (prior to allowance for
contractual adjustments and doubtful accounts) was approximately
$5.335 billion as of June 30, 2008 and approximately
$4.544 billion as of December 31, 2007. The
approximate percentage of total gross accounts receivable (prior
to allowance for contractual adjustments and doubtful accounts)
summarized by aging categories is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
0 to 60 days
|
|
|
64.2
|
%
|
|
|
62.7
|
%
|
61 to 150 days
|
|
|
17.4
|
%
|
|
|
18.4
|
%
|
151 to 360 days
|
|
|
14.4
|
%
|
|
|
14.6
|
%
|
Over 360 days
|
|
|
4.0
|
%
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
49
The approximate percentage of total gross accounts receivable
(prior to allowances for contractual adjustments and doubtful
accounts) summarized by payor category is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Insured receivables
|
|
|
69.1
|
%
|
|
|
69.7
|
%
|
Self-pay receivables
|
|
|
30.9
|
%
|
|
|
30.3
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
On a combined basis, as a percentage of gross self-pay
receivables, the combined total allowance for doubtful accounts
and related allowances for other self-pay discounts and
contractuals, was approximately 80% at June 30, 2008 and
82% at December 31, 2007.
Goodwill
and Other Intangibles
Goodwill represents the excess of cost over the fair value of
net assets acquired. Goodwill arising from business combinations
is accounted for under the provisions of SFAS No. 141
Business Combinations and SFAS No. 142
Goodwill and Other Intangible Assets and is not
amortized. SFAS No. 142 requires goodwill to be
evaluated for impairment at the same time every year and when an
event occurs or circumstances change such that it is reasonably
possible that an impairment may exist. We selected
September 30th as our annual testing date.
The SFAS No. 142 goodwill impairment model requires a
comparison of the book value of net assets to the fair value of
the related operations that have goodwill assigned to them. If
the fair value is determined to be less than book value, a
second step is performed to compute the amount of the
impairment. We estimated the fair values of the related
operations using both a debt free discounted cash flow model as
well as an adjusted EBITDA multiple model. These models are both
based on our best estimate of future revenues and operating
costs and are reconciled to our consolidated market
capitalization. The cash flow forecasts are adjusted by an
appropriate discount rate based on our weighted-average cost of
capital. We performed our initial evaluation, as required by
SFAS No. 142, during the first quarter of 2002 and the
annual evaluation as of each succeeding September 30. No
impairment has been indicated by these evaluations. Estimates
used to conduct the impairment review, including revenue and
profitability projections or fair values, could cause our
analysis to indicate that our goodwill is impaired in subsequent
periods and result in a write-off of a portion or all of our
goodwill.
Impairment
or Disposal of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, whenever
events or changes in circumstances indicate that the carrying
values of certain long-lived assets may be impaired, we project
the undiscounted cash flows expected to be generated by these
assets. If the projections indicate that the reported amounts
are not expected to be recovered, such amounts are reduced to
their estimated fair value based on a quoted market price, if
available, or an estimate based on valuation techniques
available in the circumstances.
Professional
Liability Insurance Claims
We accrue for estimated losses resulting from professional
liability claims. The accrual, which includes an estimate for
incurred but not reported claims, is based on historical loss
patterns and actuarially determined projections and is
discounted to its net present value using a weighted-average
risk-free discount rate of 4.1% and 4.6% in 2007 and 2006,
respectively. To the extent that subsequent claims information
varies from managements estimates, the liability is
adjusted currently. Our insurance is underwritten on a
claims-made basis. Prior to June 1, 2002,
substantially all of our professional and general liability
risks were subject to a $0.5 million per occurrence
deductible; for claims reported from June 1, 2002 through
June 1, 2003, these deductibles were $2.0 million per
occurrence. Additional coverage above these deductibles was
purchased
50
through captive insurance companies in which we had a 7.5%
minority ownership interest in each and to which the premiums
paid by us represented less than 8% of the total premium
revenues of each captive insurance company. With the formation
of our own wholly-owned captive insurance company in June 2003,
we terminated our minority interest relationships in those
entities. Substantially all claims reported after June 1,
2003 and before June 1, 2005 are self-insured up to
$4 million per claim. Substantially all claims reported on
or after June 1, 2005 are self-insured up to
$5 million per claim. Management on occasion has
selectively increased the insured risk at certain hospitals
based upon insurance pricing and other factors and may continue
that practice in the future. Excess insurance for all hospitals
was purchased through commercial insurance companies and
generally covers us for liabilities in excess of the
self-insured amount and up to $100 million per occurrence
for claims reported on or after June 1, 2003.
Effective January 1, 2008, the former Triad Hospitals are
insured on a claims-made basis through a policy purchased
through our wholly-owned captive insurance company and
commercial insurance companies as described above for
substantially all claims occurring on or after January 1,
2007 and reported on or after January 1, 2008.
Substantially all losses for the former Triad hospitals in
periods prior to May 1999 were insured through a wholly-owned
insurance subsidiary of HCA, Inc., or HCA, Triads owner
prior to that time, and excess loss policies maintained by HCA.
HCA has agreed to indemnify the former Triad hospitals in
respect of claims covered by such insurance policies arising
prior to May 1999. After May 1999 through December 31,
2006, the former Triad hospitals obtained insurance coverage on
a claims incurred basis from HCAs wholly-owned insurance
subsidiary with excess coverage obtained from other carriers
that is subject to certain deductibles. Effective for claims
incurred after December 31, 2006, Triad began insuring its
claims from $1 million to $5 million through its
wholly-owned captive insurance company, replacing the coverage
provided by HCA. Substantially all claims reported during 2007
were self-insured up to $10 million per claim.
There have been no significant changes in our estimate of the
reserve for professional liability claims during the six months
ended June 30, 2008.
Income
Taxes
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 these deferred tax assets, subject to
the valuation allowance we have established.
On January 1, 2007, we adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes (FIN 48). The total amount
of unrecognized benefit that would affect the effective tax
rate, if recognized, is approximately $6.2 million as of
June 30, 2008. It is our policy to recognize interest and
penalties accrued related to unrecognized benefits in our
condensed consolidated statements of income as income tax
expense. During the three months ended June 30, 2008, we
recorded approximately $0.2 million in interest and
penalties related to prior state income tax returns through our
income tax provision from continuing operations and which are
included in our FIN 48 liability at June 30, 2008. A
total of approximately $2.2 million of interest and
penalties is included in the amount of FIN 48 liability at
June 30, 2008.
Our unrecognized tax benefits consist primarily of state
exposure items. We believe it is reasonably possible that
approximately $1.2 million of our current unrecognized tax
benefit may decrease within the next twelve months as a result
of a lapse of the statute of limitations and settlements with
taxing authorities.
We or one of our subsidiaries file income tax returns in the
U.S. federal jurisdiction and various state jurisdictions.
With few exceptions, we are no longer subject to
U.S. federal or state income tax examinations for years
prior to 2003.
The IRS has concluded an examination of the federal income tax
returns of Triad for the short taxable years ended
April 27, 2001, June 30, 2001 and December 31,
2001, and the taxable years ended December 31, 2002 and
2003. We have since received a closing letter with respect to
the examination for those tax years. The settlement was not
material to our consolidated results of operations or
consolidated financial position.
51
Recent
Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS No. 159).
SFAS No. 159 expands the use of fair value accounting
but does not affect existing standards that require assets or
liabilities to be carried at fair value. SFAS No. 159
permits an entity, on a
contract-by-contract
basis, to make an irrevocable election to account for certain
types of financial instruments and warranty and insurance
contracts at fair value, rather than historical cost, with
changes in the fair value, whether realized or unrealized,
recognized in earnings. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. We adopted
SFAS No. 159 as of January 1, 2008 and did not
elect to re-measure any assets or liabilities. The adoption of
this statement has not had a material effect on our consolidated
results of operations or consolidated financial position.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) replaces SFAS No. 141 and
addresses the recognition and accounting for identifiable assets
acquired, liabilities assumed, and noncontrolling interests in
business combinations. This standard will require more assets
and liabilities be recorded at fair value and will require
expense recognition (rather than capitalization) of certain
pre-acquisition costs. This standard will also require any
adjustments to acquired deferred tax assets and liabilities
occurring after the related allocation period to be made through
earnings. Furthermore, this standard requires this treatment of
acquired deferred tax assets and liabilities also be applied to
acquisitions occurring prior to the effective date of this
standard. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008 and is required to
be adopted prospectively with no early adoption permitted. We
will begin applying SFAS No. 141(R) in the first
quarter of 2009. We are currently assessing the potential impact
that SFAS No. 141(R) will have on our consolidated
results of operations and consolidated financial position.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements (SFAS No. 160).
SFAS No. 160 addresses the accounting and reporting
framework for noncontrolling ownership interests in consolidated
subsidiaries of the parent. SFAS No. 160 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent company and the
interests of the noncontrolling owners and that require minority
ownership interests to be presented separately within equity in
the consolidated financial statements. SFAS No. 160 is
effective for fiscal years beginning after December 15,
2008, and will be adopted by us in the first quarter of 2009. We
are currently assessing the potential impact that
SFAS No. 160 will have on our consolidated results of
operations and consolidated financial position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161).
SFAS No. 161 expands the disclosure requirements for
derivative instruments and for hedging activities in order to
provide additional understanding of how an entity uses
derivative instruments and how they are accounted for and
reported in an entitys financial statements. The new
disclosure requirements for SFAS No. 161 are effective
for fiscal years beginning after November 15, 2008, and
will be adopted by us in the first quarter of 2009.
FORWARD-LOOKING
STATEMENTS
Some of the matters discussed in this report include
forward-looking statements. Statements that are predictive in
nature, 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. These
statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results and performance
to be materially different from any future results or
performance expressed or implied by these forward-looking
statements. These factors include, but are not limited to, the
following:
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general economic and business conditions, both nationally and in
the regions in which we operate;
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our ability to successfully integrate any acquisitions or to
recognize expected synergies from such acquisitions, including
facilities acquired from Triad;
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52
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risks associated with our substantial indebtedness, leverage and
debt service obligations;
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demographic changes;
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existing governmental regulations and changes in, or the failure
to comply with, governmental regulations;
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legislative proposals for healthcare reform;
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potential adverse impact of known and unknown government
investigations;
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our ability, where appropriate, to enter into managed care
provider arrangements and the terms of these arrangements;
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changes in inpatient or outpatient Medicare and Medicaid payment
levels;
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increases in the amount and risk of collectability of patient
accounts receivable;
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increases in wages as a result of inflation or competition for
highly technical positions and rising supply costs due to market
pressure from pharmaceutical companies and new product releases;
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liabilities and other claims asserted against us, including
self-insured malpractice claims;
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competition;
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our ability to attract and retain, without significant
employment costs, qualified personnel, key management,
physicians, nurses and other healthcare workers;
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trends toward treatment of patients in less acute or specialty
healthcare settings including ambulatory surgery centers or
specialty hospitals;
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changes in medical or other technology;
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changes in GAAP;
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the availability and terms of capital to fund additional
acquisitions or replacement facilities;
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our ability to successfully acquire additional hospitals and
complete the sale of hospitals held for sale;
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our ability to obtain adequate levels of general and
professional liability insurance; and
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timeliness of reimbursement payments received under government
programs.
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Although we believe that these statements are based upon
reasonable assumptions, we can give no assurance that our goals
will be achieved. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on these
forward-looking statements. These forward-looking statements are
made as of the date of this filing. We assume no obligation to
update or revise them or provide reasons why actual results may
differ.
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Item 3.
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Quantitative
and Qualitative Disclosures about Market Risk
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We are exposed to interest rate changes, primarily as a result
of our senior secured credit facility which bears interest based
on floating rates. In order to manage the volatility relating to
the market risk, we entered into interest rate swap agreements
described under the heading Liquidity and Capital
Resources in Item 2. We do not anticipate any
material changes in our primary market risk exposures in 2008.
We utilize risk management procedures and controls in executing
derivative financial instrument transactions. We do not execute
transactions or hold derivative financial instruments for
trading purposes. Derivative financial instruments related to
interest rate sensitivity of debt obligations are used with the
goal of mitigating a portion of the exposure when it is cost
effective to do so.
A 1% change in interest rates on variable rate debt in excess of
that amount covered by interest rate swaps would have resulted
in interest expense fluctuating approximately $3.5 million
for the three months ended June 30, 2008 and
$7.3 million for the six months ended June 30, 2008.
53
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Item 4.
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Controls
and Procedures
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Our Chief Executive Officer and Chief Financial Officer, with
the participation of other members of management, have evaluated
the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a 15(e) and 15d
15(e) under the Securities and Exchange Act of 1934, as
amended), as of the end of the period covered by this quarterly
report. Based on such evaluations, our Chief Executive Officer
and Chief Financial Officer concluded that, as of such date, our
disclosure controls and procedures were effective (at the
reasonable assurance level) to ensure that the information
required to be included in this report has been recorded,
processed, summarized and reported within the time periods
specified in the Commissions rules and forms and to ensure
that the information required to be included in this report was
accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.
As a result of the completion of the acquisition of Triad on
July 25, 2007, our internal controls over financial
reporting have changed. Since the Triad acquisition, we have
started to analyze the systems of disclosure controls and
procedures and internal controls over financial reporting of the
former Triad hospitals and other operations acquired in the
Triad acquisition and integrate them within our broader
framework of controls. The Securities and Exchange
Commissions rules require us to complete this process by
the first anniversary of the acquisition. We plan to complete
this evaluation and integration within the required time frame
and report any changes in internal controls in our first annual
report in which our assessment of the former Triad hospitals and
other operations is to be included. Although we have not yet
identified any material weaknesses in our disclosure controls
and procedures or internal control over financial reporting as a
result of this acquisition, there can be no assurance that a
material weakness will not be identified in the course of this
review.
There have been no changes in our internal control over
financial reporting during the quarter ended June 30, 2008,
that have materially affected or are reasonably likely to
materially affect our internal controls over financial reporting.
PART II
OTHER INFORMATION
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Item 1.
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Legal
Proceedings
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From time to time, we receive various inquiries or subpoenas
from state regulators, fiscal intermediaries, the Centers for
Medicare and Medicaid Services and the Department of Justice
regarding various Medicare and Medicaid issues. In addition, we
are subject to other claims and lawsuits arising in the ordinary
course of our business. We are not aware of any pending or
threatened litigation that is not covered by insurance policies
or reserved for in our financial statements or which we believe
would have a material adverse impact on us; however, some
pending or threatened proceedings against us may involve
potentially substantial amounts as well as the possibility of
civil, criminal, or administrative fines, penalties, or other
sanctions, which could be material. Settlements of suits
involving Medicare and Medicaid issues routinely require both
monetary payments as well as corporate integrity agreements.
Additionally, qui tam or whistleblower actions
initiated under the civil False Claims Act may be pending but
placed under seal by the court to comply with the False Claims
Acts requirements for filing such suits.
Community
Health Systems, Inc. Legal Proceedings
In May 1999, we were served with a complaint in U.S. ex
rel. Bledsoe v. Community Health Systems, Inc.,
subsequently moved to the Middle District of Tennessee, Case
No. 2-00-0083.
This qui tam action sought treble damages and penalties under
the False Claims Act against us. The Department of Justice did
not intervene in this action. The allegations in the amended
complaint were extremely general, but involved Medicare billing
at our White County Community Hospital in Sparta, Tennessee. By
order entered on September 19, 2001, the U.S. District
Court granted our motion for judgment on the pleadings and
dismissed the case, with prejudice. The qui tam whistleblower
(also referred to as a relator) appealed the
district courts ruling to the U.S. Court of Appeals
for the Sixth Circuit. On September 10, 2003, the Sixth
Circuit
54
Court of Appeals rendered its decision in this case, affirming
in part and reversing in part the district courts decision
to dismiss the case with prejudice. The court affirmed the lower
courts dismissal of certain of plaintiffs claims on
the grounds that his allegations had been previously publicly
disclosed. In addition, the appeals court agreed that, as to all
other allegations, the relator had failed to include enough
information to meet the special pleading requirements for fraud
under the False Claims Act and the Federal Rules of Civil
Procedure. However, the case was returned to the district court
to allow the relator another opportunity to amend his complaint
in an attempt to plead his fraud allegations with particularity.
In May 2004, the relator in U.S. ex rel. Bledsoe
filed an amended complaint alleging fraud involving Medicare
billing at White County Community Hospital. We then filed a
renewed motion to dismiss the amended complaint. On
January 6, 2005, the District Court dismissed with
prejudice the bulk of the relators allegations. The only
remaining allegations involve a small number of
1997-98
charges at White County. After further motion practice between
the relator and the United States Government regarding the
relators right to participate in a previous settlement
with the Company, the District Court again dismissed all claims
in the case on December 13, 2005. On January 9, 2006,
the relator filed a notice of appeal to the U.S. Court of
Appeals for the Sixth Circuit and on September 6, 2007, the
Court of Appeals issued its 25 page opinion affirming in part,
reversing in part (and in doing so, reinstating a number of the
allegations claimed by the relator), and remanding the case to
the District Court for further proceedings. The relator has
filed a motion for rehearing. That motion for rehearing was
denied. The relator has amended his complaint to conform to the
decision of the Court of Appeals and we have filed an answer. A
case management conference is set for August 18, 2008. We
will continue to vigorously defend this case.
In August 2004, we were served a complaint in Arleana
Lawrence and Robert Hollins v. Lakeview Community Hospital
and Community Health Systems, Inc. (now styled Arleana Lawrence
and Lisa Nichols vs. Eufaula Community Hospital, Community
Health Systems, Inc., South Baldwin Regional Medical Center and
Community Health Systems Professional Services Corporation)
in the Circuit Court of Barbour County, Alabama (Eufaula
Division). This alleged class action was brought by the
plaintiffs on behalf of themselves and as the representatives of
similarly situated uninsured individuals who were treated at our
Lakeview Hospital or any of our other Alabama hospitals. The
plaintiffs allege that uninsured patients who do not qualify for
Medicaid, Medicare or charity care are charged unreasonably high
rates for services and materials and that we use unconscionable
methods to collect bills. The plaintiffs seek restitution of
overpayment, compensatory and other allowable damages and
injunctive relief. In October 2005, the complaint was amended to
eliminate one of the named plaintiffs and to add our management
company subsidiary as a defendant. In November 2005, the
complaint was again amended to add another plaintiff, Lisa
Nichols and another defendant, our hospital in Foley, Alabama,
South Baldwin Regional Medical Center. After a hearing held on
June 13, 2007, on October 29, 2007 the Circuit Court
ruled in favor of the plaintiffs class action
certification request. On summary judgment, the Circuit Court
dismissed the case against Community Health Systems, Inc. only.
All other parties remain. We disagree with the certification
ruling and have pursued our automatic right of appeal to the
Alabama Supreme Court. We are vigorously defending this case.
On March 3, 2005, we were served with a complaint in
Sheri Rix v. Heartland Regional Medical Center and
Health Care Systems, Inc. in the Circuit Court of Williamson
County, Illinois. This alleged class action was brought by the
plaintiff on behalf of herself and as the representative of
similarly situated uninsured individuals who were treated at our
Heartland Regional Medical Center. The plaintiff alleges that
uninsured patients who do not qualify for Medicaid, Medicare or
charity care are charged unreasonably high rates for services
and materials and that we use unconscionable methods to collect
bills. The plaintiff seeks recovery for breach of contract and
the covenant of good faith and fair dealing, violation of the
Illinois Consumer Fraud and Deceptive Practices Act, restitution
of overpayment, and for unjust enrichment. The plaintiff class
seeks compensatory and other damages and equitable relief. The
Circuit Court Judge recently granted our motion to dismiss the
case, but allowed the plaintiff to re-plead her case. The
plaintiff elected to appeal the Circuit Courts decision in
lieu of amending her case. Oral argument was heard on this case
on January 9, 2008. On June 16, 2008, the Appellate
Court upheld the dismissal of the consumer fraud claim but
reversed dismissal of the contract claim. We are preparing a
Petition for Leave of Appeal to the Illinois Supreme Court. We
are vigorously defending this case.
55
On April 8, 2005, we were served with a first amended
complaint, styled Chronister, et al. v. Granite City
Illinois Hospital Company, LLC d/b/a Gateway Regional Medical
Center, in the Circuit Court of Madison County, Illinois.
The complaint seeks class action status on behalf of the
uninsured patients treated at Gateway Regional Medical Center
and alleges statutory, common law, and consumer fraud in the
manner in which the hospital bills and collects for the services
rendered to uninsured patients. The plaintiff seeks compensatory
and punitive damages and declaratory and injunctive relief. Our
motion to dismiss has been granted in part and denied in part
and discovery has commenced. Gateway Regional Medical
Center v. Holman is a companion case to the
Chronister action, seeking counterclaim recovery on a
collections case. Holman has been stayed pending the
outcome of the Chronister action. We are vigorously
defending these cases.
On February 10, 2006, we received a letter from the Civil
Division of the Department of Justice requesting documents in an
investigation they are conducting involving the Company. The
inquiry relates to the way in which different state Medicaid
programs apply to the federal government for matching or
supplemental funds that are ultimately used to pay for a small
portion of the services provided to Medicaid and indigent
patients. These programs are referred to by different names,
including intergovernmental payments, upper
payment limit programs, and Medicaid
disproportionate share hospital payments. The
February 10th letter focused on our hospitals in
3 states: Arkansas, New Mexico, and South Carolina. On
August 31, 2006, we received a follow up letter from the
Department of Justice requesting additional documents relating
to the programs in New Mexico and the payments to the
Companys three hospitals in that state. We have provided
the Department of Justice with the requested documents. In a
letter dated October 4, 2007, the Civil Division notified
us that, based on its investigation to date, it preliminarily
believes that we and these three New Mexico hospitals have
caused the State of New Mexico to submit improper claims for
federal funds, in violation of the Civil False Claims Act. The
DOJ asserted that these allegedly improper claims and payments
began in 2000 and may be ongoing, but provided no information
about the amount of any improper claims or the possible damages
or penalties it may seek. After a meeting between us and the DOJ
held in November 2007, by letter dated January 22, 2008,
the Civil Division notified us that they continued to believe
that the False Claims Act had been violated and had calculated
that the three hospitals received ineligible federal
participation payments from August 2000 to June 2006 of
approximately $27.5 million. The Civil Division advised us
that if they proceeded to trial, they would seek treble damages
plus an appropriate penalty for each of the violations of the
False Claims Act. Discussions are continuing with the Civil
Division in an effort to resolve this matter. On May 28,
2008, we received a letter from the Office of the
U.S. Attorney for the state of New Mexico requesting
additional information. We are providing the requested
information. We continue to believe that we have not violated
the Federal False Claims Act in the manner described in the
governments letter of January 22, 2008.
In August 2006, our facility in Petersburg, Virginia (Southside
Regional Medical Center) was notified of the pendency of a
federal False Claims Act case styled U.S. ex rel.
Vuyyuru v. Jadhav et al. filed in the Eastern District
of Virginia. In addition to naming the hospital, Community
Health Systems Professional Services Corporation, our management
subsidiary, has also been named. The suit alleges that
Dr. Jadhav, Southside Regional Medical Center, and other
healthcare providers performed medically unnecessary procedures
and billed federal healthcare programs and also alleges that the
defendants defamed Dr. Vuyyuru in the process of
terminating his medical staff privileges. Almost all of the
allegations pre-date our acquisition of this facility and the
sellers
successor-in-interest
has agreed to indemnify the Company and its affiliates. We
believe that the allegations in this case are without merit and
are vigorously defending the case. A motion to dismiss the case
has been granted and the relator has appealed the ruling to the
U.S. Court of Appeals for the Fourth Circuit.
On August 28, 2007, Texas Health Resources of Arlington,
Texas, or THR, notified us of its decision to exercise a call
right to acquire our 80% interest in the limited partnership
that owns Presbyterian Hospital of Denton, Texas, together with
certain land and buildings that we own in Denton (including
rights under a lease for such land and buildings). We acquired
these interests in connection with the Triad acquisition. This
call right became exercisable under the terms of the limited
partnership agreement by reasons of our acquisition of Triad.
Shortly after we initiated efforts to set the purchase price,
which is determined by various formulas set forth in the limited
partnership agreement and related documents, THR filed suit in
Texas state court seeking
56
injunctive and declaratory relief to extend the
90-day
closing date and to set the purchase price. We removed the case
to Federal District Court and proceedings are underway in that
court with respect to THRs renewed motions for relief.
Pursuant to the limited partnership agreement, the closing was
to occur on or before November 26, 2007. The closing did
not occur on November 26, 2007, as THR failed to properly
tender adequate closing consideration. The case will proceed and
the pre-trial and trial scheduling conference is set for
January 5, 2009.
On June 12, 2008, two of our hospitals received letters
from the U.S. Attorneys Office for the Western
District of New York requesting documents in an investigation
they are conducting into billing practices with respect to
kyphoplasty procedures performed during the period
January 1, 2002, through June 9, 2008. Kyphoplasty is
a surgical spine procedure that returns a compromised vertebrae
(either from trauma or osteoporotic disease process) to its
previous height, reducing or eliminating severe pain. We have
been informed there may be as many as fourteen
(14) non-affiliated facilities in Alabama, and possibly
other states that have received an identical or substantially
similar letter from the same U.S. Attorneys office.
We believe that this investigation is related to a recent qui
tam settlement between the same U.S. Attorneys office
and the manufacturer and distributor of the Kyphon product,
which is used in performing the kyphoplasty procedure. We intend
to cooperate with the investigation by collecting and producing
material responsive to the requests. At this early stage, we do
not have sufficient information to determine whether its
hospitals have engaged in inappropriate billing for kyphoplasty
procedures.
Triad
Hospitals, Inc. Legal Proceedings
Triad, and its subsidiary, Quorum Health Resources, Inc. are
defendants in a qui tam case styled U.S. ex rel.
Whitten vs. Quorum Health Resources, Inc. et al., which is
pending in the Southern District of Georgia, Brunswick Division.
Whitten, a long-term employee of a two hospital system in
Brunswick and Camden, Georgia sued both his employer and Quorum
Health Resources, Inc. and its predecessors, which had managed
the facility from 1989 through September 2000; upon his
termination of employment, Whitten signed a release and was paid
$124,000. Whittens original qui tam complaint was filed
under seal in November 2002 and the case was unsealed in 2004.
Whitten alleges various charging and billing infractions,
including charging for routine equipment supplies and services
not separately billable, billing for observation services that
were not medically necessary or for which there was no physician
order, billing labor and delivery patients for durable medical
equipment that was not separately billable, inappropriate
preparation of patients histories and physicals, billing
for cardiac rehabilitation services without physician
supervision, performing outpatient dialysis without Medicare
certification, and performing mental health services without the
proper staff assignments. In October 2005, the district court
granted Quorums motion for summary judgment on the grounds
that his claims were precluded under his severance agreement
with the hospital, without reaching two other arguments made by
Quorum, which included that a prior settlement agreement between
the hospital and the federal government precluded the claims
brought by Whitten as well as the doctrine of prior public
disclosure. On appeal to the 11th Circuit Court of Appeals,
the court reversed the findings of the district court regarding
the severance agreement, but remanded the case to the district
court for findings on Quorums other two defenses. Limited
discovery has been conducted and renewed motions by Quorum to
dismiss the action and to stay further discovery were filed in
September 2007. We await the district courts ruling on our
motion to dismiss. We continue to believe that the
relators claims are without merit and will continue to
vigorously defend this case.
In a case styled U.S. ex rel. Bartlett vs. Quorum Health
Resources, Inc., et al., pending in the Western District of
Pennsylvania, Johnstown Division, the relator alleges in his
second amended complaint, filed in January 2006 (the first
amended complaint having been dismissed), that Quorum conspired
with an unaffiliated hospital to pay a illegal remuneration in
violation of the anti-kickback statute and the Stark laws, thus
causing false claims to be filed. A renewed motion to dismiss
that was filed in March 2006 asserting that the second amended
complaint did not cure the defects contained in the first
amended complaint. In September 2006, the hospital and one of
the other defendants affiliated with the hospital filed for
protection under Chapter 11 of the federal bankruptcy code,
which imposed an automatic stay on proceedings in the case. We
believe that this case is without merit and should the stay be
lifted, will continue to vigorously defend it.
57
On January 14, 2004, Relator Mark E. Thompson filed a Qui
Tam Complaint under seal, styled U.S. ex rel. Mark
E. Thompson v. Quorum Health Resources, LLC and Triad
Hospitals, Inc., which is pending in the United States
District Court, Western District of Kentucky, Bowling Green
Division. The Complaint alleges Quorum Health Resources, LLC
(Quorum) and Triad Hospitals, Inc. (collectively,
the Defendants) filed or caused to be filed false
claims against the United States of America. Relator was the CEO
of Monroe County Medical Center (MCMC) in
Tompkinsville, Kentucky and served as the CEO of MCMC pursuant
to a contractual arrangement between MCMC and Quorum. Plaintiff
alleges certain activities of Defendants relating to:
(1) MCMCs participation in HealthTrust Purchasing
Group, a group purchasing organization (GPO) in which Triad
Hospital, Inc. maintained a 20% ownership interest;
(2) agreements with strategic service partners (SSPs)
acting as vendors of supplies, services and equipment; and
(3) encouraging hospitals to employ American Healthcare
Facilities Development, LLC (a subsidiary of Quorum) for capital
project management services violated the Federal Antikickback
Statute. Plaintiff alleges Quorum received certain
administrative fees from these arrangements and that Quorum,
directly and indirectly, manipulated
and/or
coerced MCMC to participate in these relationships. The
Defendants cooperated with the governments investigation
and on May 5, 2008, the United States of America declined
to intervene in the case and the complaint was subsequently
unsealed by the Court by order dated May 20, 2008. The
Defendants have yet to be served with the complaint. The
Defendants will vigorously defend these allegations. In 2006,
Plaintiff also filed a wrongful discharge case styled, Mark
Thompson v. Quorum Health Resources, LLC and Triad
Hospitals, Inc. in the same court, alleging he was
wrongfully suspended and subsequently terminated because of his
actions regarding his False Claims Act filing. We are vigorously
defending these allegations as well.
There have been no material changes with regard to risk factors
previously disclosed in our most recent annual report on
Form 10-K.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
On December 13, 2006, we commenced an open market
repurchase program for up to 5,000,000 shares of our common
stock not to exceed $200 million in purchases. This
purchase program will conclude at the earlier of three years or
when the maximum number of shares have been repurchased. During
the period from June 1, 2008 to June 30, 2008, the
Company repurchased 305,400 shares at a weighted-average
price of $33.34 per share under this program.
We have not paid any cash dividends since our inception, and do
not anticipate the payment of cash dividends in the foreseeable
future. Our New Credit Facility limits our ability to pay
dividends
and/or
repurchase stock to an amount not to exceed $400 million in
the aggregate (but not in excess of $200 million unless we
receive confirmation from Moodys and S&P that
dividends or repurchases would not result in a downgrade,
qualification or withdrawal of the then corporate credit
rating). The indenture governing our Notes also limits our
ability to pay dividends
and/or
repurchase stock. As of June 30, 2008, the amount of
permitted dividends
and/or stock
repurchases permitted under the indenture was limited by our New
Credit Facility to $400 million.
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Item 3.
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Defaults
Upon Senior Securities
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None
58
|
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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(a) The annual meeting of the stockholders of Community
Health Systems, Inc., was held in New York, New York on
May 20, 2008, for the purpose of voting on the proposals
described below.
(b) Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities and Exchange Act of 1934
and there was no solicitation in opposition to the Governance
and Nominating Committees nominees for directors. All of
the Governance and Nominating Committees nominees for
directors were elected as set forth in clause (c) below. In
addition, the terms of office as a director of Wayne T. Smith,
W. Larry Cash, John A. Clerico, Julia B. North, Harvey
Klein, M.D. and H. Mitchell Watson, Jr. continued
after the meeting.
(c) Two proposals were submitted to a vote of security
holders as follows:
(1) The stockholders approved the election of the following
persons as directors of the Company:
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Name
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For
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Withheld
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|
Abstain
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John A. Fry
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81,112,899
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|
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734,059
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7,715
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William Norris Jennings, M.D.
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81,406,293
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440,875
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7,505
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|
(2) The Board of Directors appointment of
Deloitte & Touche, LLP, as the Companys
independent accountants for 2008 was ratified by the affirmative
votes of stockholders:
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|
|
|
|
|
|
|
|
For
|
|
Against
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|
Abstain
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|
|
|
|
81,606,154
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|
|
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238,672
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|
|
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9,847
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Item 5.
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Other
Information
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None
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31
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.1
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Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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31
|
.2
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Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMMUNITY HEALTH SYSTEMS, INC.
(Registrant)
Wayne T. Smith
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
W. Larry Cash
Executive Vice President, Chief Financial
Officer and Director
(principal financial officer)
T. Mark Buford
Vice President and Corporate Controller
(principal accounting officer)
Date: August 1, 2008
60
Index to
Exhibits
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|
|
|
|
No.
|
|
Description
|
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
61
EX-31.1 Section 302 Certification of the CEO
Exhibit 31.1
I, Wayne T. Smith, certify that:
1. I have reviewed this quarterly report on
Form 10-Q
of Community Health Systems, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and we have:
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) designed such internal controls over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors:
a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
Wayne T. Smith
Chairman of the Board, President
and Chief Executive Officer
Date: August 1, 2008
62
EX-31.2 Section 302 Certification of the CFO
Exhibit 31.2
I, W. Larry Cash, certify that:
1. I have reviewed this quarterly report on
Form 10-Q
of Community Health Systems, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and we have:
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) designed such internal controls over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors:
a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
W. Larry Cash
Executive Vice President,
Chief Financial Officer and Director
Date: August 1, 2008
63
EX-32.1 Section 906 Certification of the CEO
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Community Health
Systems, Inc. (the Company) on
Form 10-Q
for the period ending June 30, 2008, as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, Wayne T. Smith, Chairman of the
Board, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
result of operations of the Company.
Wayne T. Smith
Chairman of the Board, President and
Chief Executive Officer
August 1, 2008
A signed original of this written statement required by
Section 906 has been provided to Community Health Systems,
Inc. and will be retained by Community Health Systems, Inc. and
furnished to the Securities and Exchange Commission or its staff
upon request.
64
EX-32.2 Section 906 Certification of the CFO
Exhibit 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Community Health
Systems, Inc. (the Company) on
Form 10-Q
for the period ending June 30, 2008, as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, W. Larry Cash, Executive Vice
President, Chief Financial Officer and Director of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
result of operations of the Company.
W. Larry Cash
Executive Vice President,
Chief Financial Officer and Director
August 1, 2008
A signed original of this written statement required by
Section 906 has been provided to Community Health Systems,
Inc. and will be retained by Community Health Systems, Inc. and
furnished to the Securities and Exchange Commission or its staff
upon request.
65