FORM 10-K
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-K
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the year ended December 31, 2008
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from          to          
 
Commission file number 001-15925
 
 
 
 
COMMUNITY HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
 
     
Delaware
(State of incorporation)
  13-3893191
(IRS Employer
Identification No.)
4000 Meridian Boulevard
Franklin, Tennessee
(Address of principal executive offices)
  37067
(Zip Code)
 
Registrant’s telephone number, including area code:
(615) 465-7000
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of Each Class
 
Name of Each Exchange on Which Registered
 
Common Stock, $.01 par value   New York Stock Exchange
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES þ     NO o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  YES o     NO þ
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. þ
 
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):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  YES o     NO þ
 
The aggregate market value of the voting stock held by non-affiliates of the Registrant was $3,198,044,909. Market value is determined by reference to the closing price on June 30, 2008 of the Registrant’s Common Stock as reported by the New York Stock Exchange. The Registrant does not (and did not at June 30, 2008) have any non-voting common stock outstanding. As of February 1, 2009, there were 91,507,617 shares of common stock, par value $.01 per share, outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
The information required for Part III of this annual report is incorporated by reference from portions of the Registrant’s definitive proxy statement for its 2009 annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year ended December 31, 2008.
 


 

 
TABLE OF CONTENTS
 
FORM 10-K ANNUAL REPORT
 
COMMUNITY HEALTH SYSTEMS, INC.
Year ended December 31, 2008
 
             
        Page
 
  Business     1  
  Risk Factors     22  
  Unresolved Staff Comments     29  
  Properties     29  
  Legal Proceedings     34  
  Submission of Matters to a Vote of Security Holders     38  
 
PART II
  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     38  
  Selected Financial Data     40  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     41  
  Quantitative and Qualitative Disclosures about Market Risk     63  
  Financial Statements and Supplementary Data     64  
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     119  
  Controls and Procedures     119  
  Other Information     119  
 
PART III
  Directors and Executive Officers of the Registrant     122  
  Executive Compensation     122  
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     122  
  Certain Relationships and Related Transactions     122  
  Principal Accountant Fees and Services     122  
 
PART IV
  Exhibits and Financial Statement Schedules     122  
 EX-4.7
 EX-4.8
 EX-4.9
 EX-4.10
 EX-4.11
 EX-4.12
 EX-10.5
 EX-10.12
 EX-10.13
 EX-10.14
 EX-10.15
 EX-10.17
 EX-10.18
 EX-10.19
 EX-10.20
 EX-10.22
 EX-12
 EX-21
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


Table of Contents

 
PART I
 
Item 1.   Business of Community Health Systems, Inc.
 
Overview of Our Company
 
We are the largest publicly traded operator of hospitals in the United States in terms of number of facilities and net operating revenues. We were incorporated in 1996 as a Delaware corporation. We provide healthcare services through these hospitals that we own and operate in non-urban and selected urban markets throughout the United States. As of December 31, 2008, included in our continuing operations, are 118 hospitals that we owned or leased. These hospitals are geographically diversified across 28 states, with an aggregate of 17,245 licensed beds. We generate revenues by providing a broad range of general and specialized hospital healthcare services to patients in the communities in which we are located. Services provided by our hospitals include, but are not limited to, general acute care services, emergency room services, general and specialty surgery, critical care, internal medicine, obstetrics and diagnostic services. As part of providing these services we also own, outright or through partnerships with physicians, physician practices, imaging centers, and ambulatory surgery centers. Through our corporate ownership and operation of these businesses we provide: standardization and centralization of operations across key business areas; a strategic direction to expand and improve services and facilities at our hospitals; implementation of quality of care improvement programs; and assistance in the recruitment of additional physicians to the markets in which our hospitals are located. In a number of our markets, we have partnered with local physicians or not-for-profit providers, or both, in the ownership of our facilities. In addition to our hospitals and related businesses, we also own and operate home care agencies, including two home care agencies located in markets where we do not operate a hospital. Through our wholly-owned subsidiary, Quorum Health Resources, LLC, or QHR, we also provide management and consulting services to non-affiliated general acute care hospitals located throughout the United States. The home care agencies and the hospital management services businesses constitute operating segments that are not considered reportable segments since they do not meet the quantitative thresholds defined in Statement of Financial Accounting Standards, or SFAS, No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The financial information for our reportable operating segments is presented in Note 14 of the Notes to our Consolidated Financial Statements included under Item 8 of this Report.
 
Our strategy has also included growth by acquisition. We target hospitals in growing, non-urban and select urban healthcare markets for acquisition because of their favorable demographic and economic trends and competitive conditions. Because these service areas have smaller populations, there are generally fewer hospitals and other healthcare service providers in these communities and generally a lower level of managed care presence in these markets. We believe that smaller populations support less direct competition for hospital-based services. Also, we believe that these communities generally view the local hospital as an integral part of the community.
 
Effective July 25, 2007, we completed our acquisition of Triad Hospitals, Inc., or Triad. Triad owned and operated 50 hospitals with 49 hospitals located in 17 states in non-urban and middle market communities and one hospital located in the Republic of Ireland. At December 31, 2008, 41 of the 50 hospitals acquired from Triad remain in our continuing operations. The acquisition of Triad also expanded our operations into five states where we previously did not own any facilities.
 
Throughout this Form 10-K, we refer to Community Health Systems, Inc., or Parent Company, and its consolidated subsidiaries in a simplified manner and on a collective basis, using words like “we” and “our.” This drafting style is suggested by the Securities and Exchange Commission, or SEC, and is not meant to indicate that the publicly traded Parent Company or any other subsidiary of the Parent Company owns or operates any asset, business, or property. The hospitals, operations, and businesses described in this filing are owned and operated, and management services provided, by distinct and indirect subsidiaries of Community Health Systems, Inc.


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Available Information
 
Our Internet address is www.chs.net and the investor relations section of our website is located at www.chs.net/investor/index.html. We make available free of charge, through the investor relations section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K as well as amendments to those reports, as soon as reasonably practical after they are filed with the SEC. Our filings are also available to the public at the website maintained by the SEC, www.sec.gov.
 
We also make available free of charge, through the investor relations section of our website, our Governance Principles, our Code of Conduct and the charters of our Audit and Compliance Committee, the Compensation Committee and the Governance and Nominating Committee.
 
We have included the Chief Executive Officer and the Chief Financial Officer certifications regarding the company’s public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 of this report. We timely submitted to the New York Stock Exchange, or NYSE, the 2008 Annual CEO certification regarding our compliance with the NYSE’s corporate governance listing standards as required by NYSE Rule 303A.
 
Our Business Strategy
 
With the objective of increasing shareholder value, the key elements of our business strategy are to:
 
  •  increase revenue at our facilities;
 
  •  improve profitability;
 
  •  improve quality; and
 
  •  grow through selective acquisitions.
 
Increase Revenue at Our Facilities
 
Overview.  We seek to increase revenue at our facilities by providing a broader range of services in a more attractive care setting, as well as by supporting and recruiting physicians. We identify the healthcare needs of the community by analyzing demographic data and patient referral trends. We also work with local hospital boards, management teams, and medical staffs to determine the number and type of additional physician specialties needed. Our initiatives to increase revenue include:
 
  •  recruiting additional primary care physicians and specialists;
 
  •  expanding the breadth of services offered at our hospitals through targeted capital expenditures to support the addition of more complex services, including orthopedics, cardiovascular services, and urology; and
 
  •  providing the capital to invest in technology and the physical plant at the facilities, particularly in our emergency rooms, surgery departments, critical care departments, and diagnostic services.
 
Physician Recruiting.  The primary method of adding or expanding medical services is the recruitment of new physicians into the community. A core group of primary care physicians is necessary as an initial contact point for all local healthcare. The addition of specialists who offer services, including general surgery, OB/GYN, cardiovascular services, orthopedics and urology, completes the full range of medical and surgical services required to meet a community’s core healthcare needs. At the time we acquire a hospital and from time to time thereafter, we identify the healthcare needs of the community by analyzing demographic data and patient referral trends. As a result of this analysis, we are able to determine what we believe to be the optimum mix of primary care physicians and specialists. We employ recruiters at the corporate level to support the local hospital managers in their recruitment efforts. We have increased the number of physicians affiliated with us through our recruiting efforts, net of turnover, by approximately 686 in 2008, 440 in 2007 and 300 in 2006. The percentage of recruited or other physicians commencing practice with us that were specialists was over 50% in 2008. Although in recent years we have begun employing more physicians, most of our


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physicians are in private practice in their communities and are not our employees. We have been successful in recruiting physicians because of the practice opportunities afforded physicians in our markets, as well as lower managed care penetration as compared to larger urban areas.
 
Emergency Room Initiatives.  Approximately 55% of our hospital admissions originate in the emergency room. Therefore, we systematically take steps to increase patient flow in our emergency rooms as a means of optimizing utilization rates for our hospitals. Furthermore, the impression of our overall operations by our customers is substantially influenced by our emergency rooms since generally that is their first experience with our hospitals. The steps we take to increase patient flow in our emergency rooms include renovating and expanding our emergency room facilities, improving service and reducing waiting times, as well as publicizing our emergency room capabilities in the local community. We have expanded or renovated 13 of our emergency rooms during the past three years, including four in 2008. We have also implemented marketing campaigns that emphasize the speed, convenience, and quality of our emergency rooms to enhance each community’s awareness of our emergency room services.
 
One component of upgrading our emergency rooms is the implementation of specialized computer software programs designed to assist physicians in making diagnoses and determining treatments. The software also benefits patients and hospital personnel by assisting in proper documentation of patient records and tracking patient flow. It enables our nurses to provide more consistent patient care and provides clear instructions to patients at time of discharge to help them better understand their treatments.
 
Expansion of Services.  In an effort to better meet the healthcare needs of the communities we serve and to capture a greater portion of the healthcare spending in our markets, we have added a broad range of services to our facilities. These services range from various types of diagnostic equipment capabilities to additional and renovated emergency rooms, surgical and critical care suites and specialty services. For example, in 2008, we spent $108.7 million as a part of 27 major construction projects. The 2008 projects included new emergency rooms, cardiac cathertization labs, intensive care units, hospital additions, and ambulatory surgery centers. These projects improved various diagnostic and other inpatient and outpatient service capabilities. We continue to believe that appropriate capital investments in our facilities combined with the development of our service capabilities will reduce the migration of patients to competing providers while providing an attractive return on investment. We also employ a small group of clinical consultants at our corporate headquarters to assist the hospitals in their development of surgery, emergency services, critical care and cardiovascular services. In addition to spending capital on expanding services at our existing hospitals, we also build replacement facilities to better meet the healthcare needs of our communities. In 2008, three replacement hospitals were completed and opened: one in Clarksville, Tennessee (June 2008), one in Shelbyville, Tennessee (July 2008) and one in Petersburg, Virginia (August 2008). We spent approximately $374 million on these three replacement hospitals which includes expenditures by Triad prior to our acquisition of Triad.
 
Managed Care Strategy.  Managed care has seen growth across the U.S. as health plans expand service areas and membership in an attempt to control rising medical costs. As we service primarily non-urban markets, we do not have significant relationships with managed care organizations, including Medicare+Choice HMOs, now referred to as Medicare Advantage. We have responded with a proactive and carefully considered strategy developed specifically for each of our facilities. Our experienced corporate managed care department reviews and approves all managed care contracts, which are organized and monitored using a central database. The primary mission of this department is to select and evaluate appropriate managed care opportunities, manage existing reimbursement arrangements and negotiate increases. Generally, we do not intend to enter into capitated or risk sharing contracts. However, some purchased hospitals have risk sharing contracts at the time of our acquisition of them. We seek to discontinue these contracts to eliminate risk retention related to payment for patient care. We do not believe that we have, at the present time, any risk sharing contracts that would have a material impact on our results of operations.


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Improve Profitability
 
Overview.  To improve efficiencies and increase operating margins, we implement cost containment programs and adhere to operating philosophies that include:
 
  •  standardizing and centralizing our operations;
 
  •  optimizing resource allocation by utilizing our company-devised case and resource management program, which assists in improving clinical care and containing expenses;
 
  •  capitalizing on purchasing efficiencies through the use of company-wide standardized purchasing contracts and terminating or renegotiating specified vendor contracts;
 
  •  installing a standardized management information system, resulting in more efficient billing and collection procedures; and
 
  •  monitoring and enhancing productivity of our human resources.
 
In addition, each of our hospital management teams is supported by our centralized operational, reimbursement, regulatory and compliance expertise, as well as by our senior management team, which has an average of over 25 years of experience in the healthcare industry.
 
Standardization and Centralization.  Our standardization and centralization initiatives encompass nearly every aspect of our business, from developing standard policies and procedures with respect to patient accounting and physician practice management to implementing standard processes to initiate, evaluate and complete construction projects. Our standardization and centralization initiatives are a key element in improving our operating results.
 
  •  Billing and Collections.  We have adopted standard policies and procedures with respect to billing and collections. We have also automated and standardized various components of the collection cycle, including statement and collection letters and the movement of accounts through the collection cycle. Upon completion of an acquisition, our management information system team converts the hospital’s existing information system to our standardized system. This enables us to quickly implement our business controls and cost containment initiatives.
 
  •  Physician Support.  We support our newly recruited physicians to enhance their transition into our communities. We have implemented physician practice management seminars and training. We host these seminars bi-monthly. All newly recruited physicians are required to attend a three-day introductory seminar that covers issues involved in starting up a practice.
 
  •  Procurement and Materials Management.  We have standardized and centralized our operations with respect to medical supplies, equipment and pharmaceuticals used in our hospitals. We have a participation agreement with HealthTrust Purchasing Group, L.P., HealthTrust, a group purchasing organization, or GPO. HealthTrust is the source for a substantial portion of our medical supplies, equipment and pharmaceuticals. This agreement extends to March 2010, with automatic renewal terms of one year unless either party terminates by giving notice of non-renewal.
 
  •  Facilities Management.  We have standardized interiors, lighting and furniture programs. We have also implemented a standard process to initiate, evaluate and complete construction projects. Our corporate staff monitors all construction projects, and reviews and pays all construction project invoices. Our initiatives in this area have reduced our construction costs while maintaining the same level of quality and have shortened the time it takes us to complete these projects.
 
  •  Other Initiatives.  We have also improved margins by implementing standard programs with respect to ancillary services in areas including emergency rooms, pharmacy, laboratory, imaging, home care, skilled nursing, centralized outpatient scheduling and health information management. We have reduced costs associated with these services by improving contract terms and standardizing information systems. We work to identify and communicate best practices and monitor these improvements throughout the Company.


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  •  Internal Controls Over Financial Reporting.  We have centralized many of our significant internal controls over financial reporting and standardized those other controls that are performed at our hospital locations. We continuously monitor compliance with and evaluate the effectiveness of our internal controls over financial reporting.
 
Case and Resource Management.  Our case and resource management program is a company-devised program developed with the goal of improving clinical care and cost containment. The program focuses on:
 
  •  appropriately treating patients along the care continuum;
 
  •  reducing inefficiently applied processes, procedures and resources;
 
  •  developing and implementing standards for operational best practices; and
 
  •  using on-site clinical facilitators to train and educate care practitioners on identified best practices.
 
Our case and resource management program integrates the functions of utilization review, discharge planning, overall clinical management, and resource management into a single effort to improve the quality and efficiency of care. Issues evaluated in this process include patient treatment, patient length of stay and utilization of resources.
 
Under our case and resource management program, patient care begins with a clinical assessment of the appropriate level of care, discharge planning, and medical necessity for planned services. Once a patient is admitted to the hospital, we conduct a review for ongoing medical necessity using appropriateness criteria. We reassess and adjust discharge plan options as the needs of the patient change. We closely monitor cases to prevent delayed service or inappropriate utilization of resources. Once the patient attains clinical improvement, we encourage the attending physician to consider alternatives to hospitalization through discussions with the facility’s physician advisor. Finally, we refer the patient to the appropriate post-hospitalization resources.
 
Improve Quality
 
We have implemented various programs to ensure continuous improvement in the quality of care provided. We have developed training programs for all senior hospital management, chief nursing officers, quality directors, physicians and other clinical staff. We share information among our hospital management to implement best practices and assist in complying with regulatory requirements. We have standardized accreditation documentation and requirements. All hospitals conduct patient, physician, and staff satisfaction surveys to help identify methods of improving the quality of care.
 
Each of our hospitals is governed by a board of trustees, which includes members of the hospital’s medical staff. The board of trustees establishes policies concerning the hospital’s medical, professional, and ethical practices, monitors these practices, and is responsible for ensuring that these practices conform to legally required standards. We maintain quality assurance programs to support and monitor quality of care standards and to meet Medicare and Medicaid accreditation and regulatory requirements. Patient care evaluations and other quality of care assessment activities are reviewed and monitored continuously.
 
Grow Through Selective Acquisitions
 
Acquisition Criteria.  Each year we intend to acquire, on a selective basis, two to four hospitals that fit our acquisition criteria. Generally, we pursue acquisition candidates that:
 
  •  have a service area population between 20,000 and 400,000 with a stable or growing population base;
 
  •  are the sole or primary provider of acute care services in the community;
 
  •  are located in an area with the potential for service expansion;
 
  •  are not located in an area that is dependent upon a single employer or industry; and
 
  •  have financial performance that we believe will benefit from our management’s operating skills.


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In each year since 1997, we have met or exceeded our acquisition goals. Occasionally, we have pursued acquisition opportunities outside of our specified criteria when such opportunities have had uniquely favorable characteristics. In addition to two hospitals acquired from local governmental entities in 2007, we also acquired Triad, which, at the time of our acquisition, owned and operated 50 hospitals with 49 hospitals located in 17 states across the U.S. and one hospital located in the Republic of Ireland. Since our acquisition of Triad’s 50 hospital portfolio in July, 2007, we have primarily focused our efforts on integrating those hospitals, as opposed to pursuing further acquisition opportunities. In the fourth quarter of 2008, we completed an acquisition of a two hospital system located in Spokane, Washington, an acquisition we had been pursuing, and for which we were awaiting government approval, for almost a year. In 2009, in light of the current economic conditions, we intend to proceed cautiously with our acquisition strategy, anticipating closing on only two acquisitions during the year. One of these two anticipated acquisitions closed on February 1, 2009.
 
Disciplined Acquisition Approach.  We have been disciplined in our approach to acquisitions. We have a dedicated team of internal and external professionals who complete a thorough review of the hospital’s financial and operating performance, the demographics and service needs of the market and the physical condition of the facilities. Based on our historical experience, we then build a pro forma financial model that reflects what we believe can be accomplished under our ownership. Whether we buy or lease the existing facility or agree to construct a replacement hospital, we believe we have been disciplined in our approach to pricing. We typically begin the acquisition process by entering into a non-binding letter of intent with an acquisition candidate. After we complete business and financial due diligence and financial modeling, we decide whether or not to enter into a definitive agreement. Once an acquisition is completed, we have an organized and systematic approach to transitioning and integrating the new hospital into our system of hospitals.
 
Acquisition Efforts.  Most of our acquisition targets are municipal or other not-for-profit hospitals. We believe that our access to capital, ability to recruit physicians and reputation for providing quality care make us an attractive partner for these communities. In addition, we have found that communities located in states where we already operate a hospital are more receptive to us, when they consider selling their hospital, because they are aware of our operating track record with respect to our hospitals within the state.
 
At the time we acquire a hospital, we may commit to an amount of capital expenditures, such as a replacement facility, renovations, or equipment over a specified period of time. As an obligation under a hospital purchase agreement in effect as of December 31, 2008, we are required to build a replacement facility in Valparaiso, Indiana by April 2011. 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 costs, are approximately $269.0 million for these two replacement hospitals, of which approximately $8.5 million has been incurred to date. In addition, other commitments under purchase agreements in effect as of December 31, 2008, obligate us to spend approximately $266.8 million through 2013, for costs such as capital improvements, equipment, selected leases and physician recruiting.
 
Industry Overview
 
The Centers for Medicare and Medicaid Services, or CMS, reported that in 2007 total U.S. healthcare expenditures grew by 6.1% to $2.2 trillion. CMS also projected total U.S. healthcare spending to grow by 6.6% in 2008 and by an average of 6.7% annually from 2009 through 2017. By these estimates, healthcare expenditures will account for approximately $4.3 trillion, or 19.5% of the total U.S. gross domestic product, by 2017.
 
Hospital services, the market in which we operate, is the largest single category of healthcare at 30% of total healthcare spending in 2007, or $696.5 billion, as reported by CMS. CMS projects the hospital services category to grow by at least 6.4% per year through 2017. It expects growth in hospital healthcare spending to continue due to the aging of the U.S. population and consumer demand for expanded medical services. As hospitals remain the primary setting for healthcare delivery, CMS expects hospital services to remain the largest category of healthcare spending.


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U.S. Hospital Industry.  The U.S. hospital industry is broadly defined to include acute care, rehabilitation, and psychiatric facilities that are either public (government owned and operated), not-for-profit private (religious or secular), or for-profit institutions (investor owned). According to the American Hospital Association, there are approximately 4,900 inpatient hospitals in the U.S. which are not-for-profit owned, investor owned, or state or local government owned. Of these hospitals, approximately 41% are located in non-urban communities. We believe that a majority of these hospitals are owned by not-for-profit or governmental entities. These facilities offer a broad range of healthcare services, including internal medicine, general surgery, cardiology, oncology, orthopedics, OB/GYN, and emergency services. In addition, hospitals also offer other ancillary services including psychiatric, diagnostic, rehabilitation, home care, and outpatient surgery services.
 
Urban vs. Non-Urban Hospitals
 
According to the U.S. Census Bureau, 21% of the U.S. population lives in communities designated as non-urban. In these non-urban communities, hospitals are typically the primary source of healthcare. In many cases a single hospital is the only provider of general healthcare services in these communities.
 
Factors Affecting Performance.  Among the many factors that can influence a hospital’s financial and operating performance are:
 
  •  facility size and location;
 
  •  facility ownership structure (i.e., tax-exempt or investor owned);
 
  •  a facility’s ability to participate in group purchasing organizations; and
 
  •  facility payor mix.
 
We believe that non-urban hospitals are generally able to obtain higher operating margins than urban hospitals. Factors contributing to a non-urban hospital’s margin advantage include fewer patients with complex medical problems, a lower cost structure, limited competition, and favorable Medicare payment provisions. Patients needing the most complex care are more often served by the larger and/or more specialized urban hospitals. A non-urban hospital’s lower cost structure results from its geographic location, as well as the lower number of patients treated who need the most highly advanced services. Additionally, because non-urban hospitals are generally sole providers or one of a small group of providers in their markets, there is limited competition. This generally results in more favorable pricing with commercial payors. Medicare has special payment provisions for “sole community hospitals.” Under present law, hospitals that qualify for this designation can receive higher reimbursement rates. As of December 31, 2008, 25 of our hospitals were “sole community hospitals.” In addition, we believe that non-urban communities are generally characterized by a high level of patient and physician loyalty that fosters cooperative relationships among the local hospitals, physicians, employees and patients.
 
The type of third party responsible for the payment of services performed by healthcare service providers is also an important factor which affects hospital operating margins. These providers have increasingly exerted pressure on healthcare service providers to reduce the cost of care. The most active providers in this regard have been HMOs, PPOs, and other managed care organizations. The characteristics of non-urban markets make them less attractive to these managed care organizations. This is partly because the limited size of non-urban markets and their diverse, non-national employer bases minimize the ability of managed care organizations to achieve economies of scale as compared to economics of scale that can be achieved in many urban markets.
 
Hospital Industry Trends
 
Demographic Trends.  According to the U.S. Census Bureau, there are presently approximately 37.9 million Americans aged 65 or older in the U.S. who comprise approximately 12.6% of the total U.S. population. By the year 2030, the number of elderly is expected to climb to 72.1 million, or 19.3% of the total population. Due to the increasing life expectancy of Americans, the number of people aged 85 years and older is also expected to


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increase from 5.5 million to 8.7 million by the year 2030. This increase in life expectancy will increase demand for healthcare services and, as importantly, the demand for innovative, more sophisticated means of delivering those services. Hospitals, as the largest category of care in the healthcare market, will be among the main beneficiaries of this increase in demand. Based on data compiled for us, the populations of the service areas where our hospitals are located grew by 24.9% from 1990 to 2007 and are expected to grow by 6.2% from 2007 to 2012. The number of people aged 65 or older in these service areas grew by 24.4% from 1990 to 2007 and is expected to grow by 10.5% from 2007 to 2012.
 
Consolidation.  During recent years a significant amount of private equity capital has been invested into the hospital industry. Also, in addition to our own acquisition of Triad in 2007, consolidation activity, primarily through mergers and acquisitions involving both for-profit and not-for-profit hospital systems is continuing. Reasons for this activity include:
 
  •  excess capacity of available capital;
 
  •  valuation levels;
 
  •  financial performance issues, including challenges associated with changes in reimbursement and collectability of self-pay revenue;
 
  •  the desire to enhance the local availability of healthcare in the community;
 
  •  the need and ability to recruit primary care physicians and specialists;
 
  •  the need to achieve general economies of scale and to gain access to standardized and centralized functions, including favorable supply agreements and access to malpractice coverage; and
 
  •  regulatory changes.
 
As a result of recent changes in the global economic conditions, we anticipate seeing a decline in the trend of consolidation activity, including mergers and acquisitions.


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Selected Operating Data
 
The following table sets forth operating statistics for our hospitals for each of the years presented, which are included in our continuing operations. Statistics for 2008 include a full year of operations for 116 hospitals and partial periods for two hospitals acquired during the year. Statistics for 2007 include a full year of operations for 70 hospitals and partial periods for 45 hospitals acquired during the year. Statistics for 2006 include a full year of operations for 63 hospitals and partial periods for seven hospitals acquired during the year. Hospitals which have been sold and hospitals which are classified as held for sale are excluded from all periods presented.
 
                         
    Year Ended December 31,  
    2008     2007     2006  
    (Dollars in thousands)  
 
Consolidated Data
                       
Number of hospitals (at end of period)
    118       115       70  
Licensed beds (at end of period)(1)
    17,245       16,716       8,406  
Beds in service (at end of period)(2)
    15,063       14,446       6,753  
Admissions(3)
    663,328       459,046       307,964  
Adjusted admissions(4)
    1,196,602       842,368       570,969  
Patient days(5)
    2,808,247       1,923,547       1,264,256  
Average length of stay (days)(6)
    4.2       4.2       4.1  
Occupancy rate (beds in service)(7)
    52.0 %     52.2 %     54.3 %
Net operating revenues
  $ 10,840,098     $ 7,063,775     $ 4,180,136  
Net inpatient revenues as a % of total net operating revenues
    50.3 %     49.2 %     50.0 %
Net outpatient revenues as a % of total net operating revenues
    47.5 %     48.8 %     48.8 %
Net Income
  $ 218,304     $ 30,289     $ 168,263  
Net Income as a % of total net operating revenues
    2.0 %     0.4 %     4.0 %
Liquidity Data
                       
Adjusted EBITDA(8)
  $ 1,524,723     $ 814,980     $ 564,339  
Adjusted EBITDA as a % of total net operating revenues(8)
    14.1 %     11.7 %     13.5 %
Net cash flows provided by operating activities
  $ 1,057,281     $ 687,738     $ 350,255  
Net cash flows provided by operating activities as a % of total net operating revenues
    9.8 %     9.7 %     8.4 %
Net cash flows used in investing activities
  $ (665,471 )   $ (7,498,858 )   $ (640,257 )
Net cash flows provided by (used in) financing activities
  $ (304,029 )   $ 6,903,428     $ 226,460  
 
 
See pages 10 and 11 for footnotes.
 
                         
    Year Ended December 31,     (Decrease)
 
    2008     2007     Increase  
    (Dollars in thousands)        
 
Same-Store Data(9)
                       
Admissions(3)
    651,211       638,635       2.0 %
Adjusted admissions(4)
    1,174,600       1,149,284       2.2 %
Patient days(5)
    2,754,336       2,763,735          
Average length of stay (days)(6)
    4.2       4.3          
Occupancy rate (beds in service)(7)
    52.1 %     52.8 %        
Net operating revenues
  $ 10,620,627     $ 9,962,447       6.6 %
Income from operations
  $ 981,365     $ 621,983       57.8 %
Income from operations as a % of net operating revenues
    9.2 %     6.2 %        
Depreciation and amortization
  $ 487,637     $ 446,254          
Equity in earnings of unconsolidated affiliates
  $ 42,064     $ 48,796          


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(1) Licensed beds are the number of beds for which the appropriate state agency licenses a facility regardless of whether the beds are actually available for patient use.
 
(2) Beds in service are the number of beds that are readily available for patient use.
 
(3) Admissions represent the number of patients admitted for inpatient treatment.
 
(4) 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.
 
(5) Patient days represent the total number of days of care provided to inpatients.
 
(6) Average length of stay (days) represents the average number of days inpatients stay in our hospitals.
 
(7) We calculated occupancy rate percentages by dividing the average daily number of inpatients by the weighted average of beds in service.
 
(8) EBITDA consists of net income (loss) before interest, income taxes, depreciation and amortization. Adjusted EBITDA is EBITDA adjusted to exclude discontinued operations, loss from early extinguishment of debt and minority interest in earnings. We have from time to time sold minority interests in certain of our subsidiaries or acquired subsidiaries with existing minority interest ownership positions. We believe that it is useful to present adjusted EBITDA because it excludes the portion of EBITDA attributable to these third party interests and clarifies for investors our portion of EBITDA generated by continuing operations. We use adjusted EBITDA as a measure of liquidity. We have included this measure because we believe it provides investors with additional information about our ability to incur and service debt and make capital expenditures. Adjusted EBITDA is the basis for a key component in the determination of our compliance with some of the covenants under our senior secured credit facility, as well as to determine the interest rate and commitment fee payable under the senior secured credit facility (although adjusted EBITDA does not include all of the adjustments described in the senior secured credit facility).
 
Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from adjusted EBITDA are significant components in understanding and evaluating financial performance and liquidity. Our calculation of adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.


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The following table reconciles adjusted EBITDA, as defined, to our net cash provided by operating activities as derived directly from our consolidated financial statements for the years ended December 31, 2008, 2007, and 2006 (in thousands):
 
                         
    Year Ended December 31,  
    2008     2007     2006  
 
Adjusted EBITDA
  $ 1,524,723     $ 814,980     $ 564,339  
Interest expense, net
    (651,925 )     (361,773 )     (94,411 )
Provision for income taxes
    (129,479 )     (41,828 )     (110,152 )
Deferred income taxes
    159,870       (39,894 )     (25,228 )
Income (loss) from operations of hospitals sold or held for sale
    5,316       (8,884 )     (6,873 )
Income tax (expense) benefit on the non-cash impairment and (gain) loss on sale of hospitals
    (6,357 )     5,298       1,378  
Depreciation and amortization of discontinued operations
    7,609       21,458       9,485  
Stock compensation expense
    52,105       38,771       20,073  
Excess tax benefits relating to stock based compensation
    (1,278 )     (1,216 )     (6,819 )
Other non-cash (income) expenses, net
    3,577       19,017       500  
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
                       
Patient accounts receivable
    (57,437 )     131,300       (71,141 )
Supplies, prepaid expenses and other current assets
    (34,711 )     (31,977 )     (4,544 )
Accounts payable, accrued liabilities and income taxes
    119,596       125,959       52,151  
Other
    65,672       16,527       21,497  
                         
Net cash provided by operating activities
  $ 1,057,281     $ 687,738     $ 350,255  
                         
 
 
(9) Includes former Triad hospital’s data, as if we owned them as of January 1, 2007 (acquisition date was July 25, 2007) and other acquired hospitals to the extent we operated them during comparable periods in both years. We have restated our 2008 and 2007 financial statements and statistical results to reflect the reclassification in 2008 of one hospital owned by us during these periods, which is held for sale, to discontinued operations.
 
Sources of Revenue
 
We receive payment for healthcare services provided by our hospitals from:
 
  •  the federal Medicare program;
 
  •  state Medicaid or similar programs;
 
  •  healthcare insurance carriers, health maintenance organizations or “HMOs,” preferred provider organizations or “PPOs,” and other managed care programs; and
 
  •  patient directly.


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The following table presents the approximate percentages of net operating revenue received from Medicare, Medicaid, managed care, self-pay and other sources for the periods indicated. The data for the years presented are not strictly comparable due to the significant effect that hospital acquisitions have had on these statistics.
 
                         
Net Operating Revenues by Payor Source
  2008     2007     2006  
 
Medicare
    27.5 %     29.0 %     30.4 %
Medicaid
    9.1 %     10.3 %     11.1 %
Managed Care and other third party payors
    52.7 %     50.7 %     46.7 %
Self-pay
    10.7 %     10.0 %     11.8 %
                         
Total
    100.0 %     100.0 %     100.0 %
                         
 
As shown above, we receive a substantial portion of our revenue from the Medicare and Medicaid programs. Included in Managed Care and other third party payors is net operating revenue from insurance companies from which we have insurance provider contracts, Managed Care Medicare, insurance companies for which we do not have insurance provider contracts, worker’s compensation carriers, and non-patient service revenue, such as rental income and cafeteria sales.
 
Medicare is a federal program that provides medical insurance benefits to persons age 65 and over, some disabled persons, and persons with end-stage renal disease. Medicaid is a federal-state funded program, administered by the states, which provides medical benefits to individuals who are unable to afford healthcare. All of our hospitals are certified as providers of Medicare and Medicaid services. Amounts received under the Medicare and Medicaid programs are generally significantly less than a hospital’s customary charges for the services provided. Since a substantial portion of our revenue comes from patients under Medicare and Medicaid programs, our ability to operate our business successfully in the future will depend in large measure on our ability to adapt to changes in these programs.
 
In addition to government programs, we are paid by private payors, which include insurance companies, HMOs, PPOs, other managed care companies, employers, and by patients directly. Blue Cross payors are included in “Managed Care and other third party payors” line in the above table. Patients are generally not responsible for any difference between customary hospital charges and amounts paid for hospital services by Medicare and Medicaid programs, insurance companies, HMOs, PPOs, and other managed care companies, but are responsible for services not covered by these programs or plans, as well as for deductibles and co-insurance obligations of their coverage. The amount of these deductibles and co-insurance obligations has increased in recent years. Collection of amounts due from individuals is typically more difficult than collection of amounts due from government or business payors. To further reduce their healthcare costs, an increasing number of insurance companies, HMOs, PPOs, and other managed care companies are negotiating discounted fee structures or fixed amounts for hospital services performed, rather than paying healthcare providers the amounts billed. We negotiate discounts with managed care companies, which are typically smaller than discounts under governmental programs. If an increased number of insurance companies, HMOs, PPOs, and other managed care companies succeed in negotiating discounted fee structures or fixed amounts, our results of operations may be negatively affected. For more information on the payment programs on which our revenues depend, see “Payment” on page 17.
 
As of December 31, 2008, Indiana and Texas represented the only areas of geographic concentration. Net operating revenues as a percentage of consolidated net operating revenues generated in Indiana were 11.0% in 2008 and 7.7% in 2007. Net operating revenues as a percentage of consolidated net operating revenues generated in Texas were 13.4% in 2008, 13.0% in 2007 and 10.4% in 2006. As a result of our growth and expansion of services in other states, Pennsylvania no longer represents an area of geographic concentration, which it did as of December 31, 2007.
 
Hospital revenues depend upon inpatient occupancy levels, the volume of outpatient procedures, and the charges or negotiated payment rates for hospital services provided. Charges and payment rates for routine inpatient services vary significantly depending on the type of service performed and the geographic location of


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the hospital. In recent years, we have experienced a significant increase in revenue received from outpatient services. We attribute this increase to:
 
  •  advances in technology, which have permitted us to provide more services on an outpatient basis; and
 
  •  pressure from Medicare or Medicaid programs, insurance companies, and managed care plans to reduce hospital stays and to reduce costs by having services provided on an outpatient rather than on an inpatient basis.
 
Government Regulation
 
Overview.  The healthcare industry is required to comply with extensive government regulation at the federal, state, and local levels. Under these regulations, hospitals must meet requirements to be certified as hospitals and qualified to participate in government programs, including the Medicare and Medicaid programs. These requirements relate to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, hospital use, rate-setting, compliance with building codes, and environmental protection laws. There are also extensive regulations governing a hospital’s participation in these government programs. If we fail to comply with applicable laws and regulations, we can be subject to criminal penalties and civil sanctions, our hospitals can lose their licenses and we could lose our ability to participate in these government programs. In addition, government regulations may change. If that happens, we may have to make changes in our facilities, equipment, personnel, and services so that our hospitals remain certified as hospitals and qualified to participate in these programs. We believe that our hospitals are in substantial compliance with current federal, state, and local regulations and standards.
 
Hospitals are subject to periodic inspection by federal, state, and local authorities to determine their compliance with applicable regulations and requirements necessary for licensing and certification. All of our hospitals are licensed under appropriate state laws and are qualified to participate in Medicare and Medicaid programs. In addition, most of our hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations. This accreditation indicates that a hospital satisfies the applicable health and administrative standards to participate in Medicare and Medicaid programs.
 
Healthcare Reform.  The healthcare industry continues to attract much legislative interest and public attention. In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would affect major changes in the healthcare system. The Obama administration has stated as a top priority its desire to reform the U.S. health care system with the goal of providing affordable, accessible health care for all Americans. Proposals that have been considered include cost controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, and mandatory health insurance coverage for employees. The “American Recovery and Reinvestment Act of 2009” has been signed into law providing for a temporary increase in the federal matching assistance percentage (FMAP), a temporary increase in federal Medicaid DSH allotments, subsidization of health insurance premiums (COBRA) for up to nine months, and grants and loans for infrastructure and incentive payments for providers who adopt and use health information technology. The costs of implementing this law and other proposals could be financed, in part, by reductions in payments to healthcare providers under Medicare, Medicaid, and other government programs. We cannot predict the course of future healthcare legislation, other changes the administration may seek to implement regarding healthcare or interpretations by the administration of existing governmental healthcare programs and the effect that any legislation change or interpretation may have on us.
 
Fraud and Abuse Laws.  Participation in the Medicare program is heavily regulated by federal statute and regulation. If a hospital fails substantially to comply with the requirements for participating in the Medicare program, the hospital’s participation in the Medicare program may be terminated and/or civil or criminal penalties may be imposed. For example, a hospital may lose its ability to participate in the Medicare program if it performs any of the following acts:
 
  •  making claims to Medicare for services not provided or misrepresenting actual services provided in order to obtain higher payments;


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  •  paying money to induce the referral of patients where services are reimbursable under a federal health program; or
 
  •  paying money to limit or reduce the services provided to Medicare beneficiaries.
 
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, broadened the scope of the fraud and abuse laws. Under HIPAA, any person or entity that knowingly and willfully defrauds or attempts to defraud a healthcare benefit program, including private healthcare plans, may be subject to fines, imprisonment or both. Additionally, any person or entity that knowingly and willfully falsifies or conceals a material fact or makes any material false or fraudulent statements in connection with the delivery or payment of healthcare services by a healthcare benefit plan is subject to a fine, imprisonment or both.
 
Another law regulating the healthcare industry is a section of the Social Security Act, known as the “anti-kickback” statute. This law prohibits some business practices and relationships under Medicare, Medicaid, and other federal healthcare programs. These practices include the payment, receipt, offer, or solicitation of remuneration of any kind in exchange for items or services that are reimbursed under most federal or state healthcare program. Violations of the anti-kickback statute may be punished by criminal and civil fines, exclusion from federal healthcare programs, and damages up to three times the total dollar amount involved.
 
The Office of Inspector General of the Department of Health and Human Services, or OIG, is responsible for identifying and investigating fraud and abuse activities in federal healthcare programs. As part of its duties, the OIG provides guidance to healthcare providers by identifying types of activities that could violate the anti-kickback statute. The OIG also publishes regulations outlining activities and business relationships that would be deemed not to violate the anti-kickback statute. These regulations are known as “safe harbor” regulations. However, the failure of a particular activity to comply with the safe harbor regulations does not necessarily mean that the activity violates the anti-kickback statute.
 
The OIG has identified the following incentive arrangements as potential violations of the anti-kickback statute:
 
  •  payment of any incentive by the hospital when a physician refers a patient to the hospital;
 
  •  use of free or significantly discounted office space or equipment for physicians in facilities usually located close to the hospital;
 
  •  provision of free or significantly discounted billing, nursing, or other staff services;
 
  •  free training for a physician’s office staff including management and laboratory techniques (but excluding compliance training);
 
  •  guarantees which provide that if the physician’s income fails to reach a predetermined level, the hospital will pay any portion of the remainder;
 
  •  low-interest or interest-free loans, or loans which may be forgiven if a physician refers patients to the hospital;
 
  •  payment of the costs of a physician’s travel and expenses for conferences;
 
  •  payment of services which require few, if any, substantive duties by the physician, or payment for services in excess of the fair market value of the services rendered; or
 
  •  purchasing goods or services from physicians at prices in excess of their fair market value.
 
We have a variety of financial relationships with physicians who refer patients to our hospitals. Physicians own interests in a number of our facilities. Physicians may also own our stock. We also have contracts with physicians providing for a variety of financial arrangements, including employment contracts, leases, management agreements, and professional service agreements. We provide financial incentives to recruit physicians to relocate to communities served by our hospitals. These incentives include relocation, reimbursement for certain direct expenses, income guarantees and, in some cases, loans. Although we believe that we have structured our arrangements with physicians in light of the “safe harbor” rules, we cannot assure you that regulatory


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authorities will not determine otherwise. If that happens, we could be subject to criminal and civil penalties and/or exclusion from participating in Medicare, Medicaid, or other government healthcare programs.
 
The Social Security Act also includes a provision commonly known as the “Stark law.” This law prohibits physicians from referring Medicare patients to healthcare entities in which they or any of their immediate family members have ownership interests or other financial arrangements. These types of referrals are commonly known as “self referrals.” Sanctions for violating the Stark law include denial of payment, civil money penalties, assessments equal to twice the dollar value of each service, and exclusion from government payor programs. There are ownership and compensation arrangement exceptions to the self-referral prohibition. One exception allows a physician to make a referral to a hospital if the physician owns an interest in the entire hospital, as opposed to an ownership interest in a department of the hospital. Another exception allows a physician to refer patients to a healthcare entity in which the physician has an ownership interest if the entity is located in a rural area, as defined in the statute. There are also exceptions for many of the customary financial arrangements between physicians and providers, including employment contracts, leases, and recruitment agreements. From time to time, the federal government has issued regulations which interpret the provisions included in the Stark law. We strive to comply with the Stark law and regulations; however, the government may interpret the law and regulations differently. If we are found to have violated the Stark law or regulations, we could be subject to significant sanctions, including damages, penalties, and exclusion from federal health care programs.
 
Many states in which we operate also have adopted similar laws relating to financial relationships with physicians. Some of these state laws apply even if the payment for care does not come from the government. These statutes typically provide criminal and civil penalties as well as loss of licensure. While there is little precedent for the interpretation or enforcement of these state laws, we have attempted to structure our financial relationships with physicians and others in light of these laws. However, if we are found to have violated these state laws, it could result in the imposition of criminal and civil penalties as well as possible licensure revocation.
 
False Claims Act.  Another trend in healthcare litigation is the increased use of the False Claims Act, or FCA. This law makes providers liable for, among other things, the knowing submission of a false claim for reimbursement by the federal government. The FCA has been used not only by the U.S. government, but also by individuals who bring an action on behalf of the government under the law’s “qui tam” or “whistleblower” provisions and share in any recovery. When a private party brings a qui tam action under the FCA, it files the complaint with the court under seal, and the defendant will generally not be aware of the lawsuit until the government makes a determination whether it will intervene and take a lead in the litigation.
 
Civil liability under the FCA can be up to three times the actual damages sustained by the government plus civil penalties of up to $11,000 for each separate false claim submitted to the government. There are many potential bases for liability under the FCA. Although liability under the FCA arises when an entity knowingly submits a false claim for reimbursement, the FCA defines the term “knowingly” to include reckless disregard of the truth or falsity of the claim being submitted.
 
A number of states in which we operate have enacted state false claims legislation. These state false claims laws are generally modeled on the federal FCA, with similar damages, penalties, and qui tam enforcement provisions. An increasing number of healthcare false claims cases seek recoveries under both federal and state law.
 
Provisions in the Deficit Reduction Act of 2005, or DRA, that went into effect on January 1, 2007 give states significant financial incentives to enact false claims laws modeled on the federal FCA. Additionally, the DRA requires every entity that receives annual payments of at least $5 million from a state Medicaid plan to establish written policies for its employees that provide detailed information about federal and state false claims statutes and the whistleblower protections that exist under those laws. Both provisions of the DRA are expected to result in increased false claims litigation against health care providers. We have substantially complied with the written policy requirements.


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Corporate Practice of Medicine; Fee-Splitting.  Some states have laws that prohibit unlicensed persons or business entities, including corporations, from employing physicians. Some states also have adopted laws that prohibit direct or indirect payments or fee-splitting arrangements between physicians and unlicensed persons or business entities. Possible sanctions for violations of these restrictions include loss of a physician’s license, civil and criminal penalties and rescission of business arrangements. These laws vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. We structure our arrangements with healthcare providers to comply with the relevant state law. However, we cannot assure you that governmental officials responsible for enforcing these laws will not assert that we, or transactions in which we are involved, are in violation of these laws. These laws may also be interpreted by the courts in a manner inconsistent with our interpretations.
 
Emergency Medical Treatment and Active Labor Act.  The Emergency Medical Treatment and Active Labor Act imposes requirements as to the care that must be provided to anyone who comes to facilities providing emergency medical services seeking care before they may be transferred to another facility or otherwise denied care. Sanctions for failing to fulfill these requirements include exclusion from participation in Medicare and Medicaid programs and civil money penalties. In addition, the law creates private civil remedies which enable an individual who suffers personal harm as a direct result of a violation of the law to sue the offending hospital for damages and equitable relief. A medical facility that suffers a financial loss as a direct result of another participating hospital’s violation of the law also has a similar right. Although we believe that our practices are in compliance with the law, we can give no assurance that governmental officials responsible for enforcing the law or others will not assert we are in violation of these laws.
 
Conversion Legislation.  Many states, including some where we have hospitals and others where we may in the future acquire hospitals, have adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities. In other states that do not have specific legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets from waste. These legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-for-profit seller. While these reviews and, in some instances, approval processes can add additional time to the closing of a hospital acquisition, we have not had any significant difficulties or delays in completing the process. There can be no assurance, however, that future actions on the state level will not seriously delay or even prevent our ability to acquire hospitals. If these activities are widespread, they could limit our ability to acquire additional hospitals.
 
Certificates of Need.  The construction of new facilities, the acquisition of existing facilities and the addition of new services at our facilities may be subject to state laws that require prior approval by state regulatory agencies. These certificate of need laws generally require that a state agency determine the public need and give approval prior to the construction or acquisition of facilities or the addition of new services. As of December 31, 2008, we operated 54 hospitals in 16 states that have adopted certificate of need laws for acute care facilities. If we fail to obtain necessary state approval, we will not be able to expand our facilities, complete acquisitions or add new services in these states. Violation of these state laws may result in the imposition of civil sanctions or the revocation of a hospital’s licenses.
 
Privacy and Security Requirements of HIPAA.  The Administrative Simplification Provisions of HIPAA require the use of uniform electronic data transmission standards for healthcare claims and payment transactions submitted or received electronically. These provisions are intended to encourage electronic commerce in the healthcare industry. We believe we are in compliance with these regulations.
 
The Administrative Simplification Provisions also require CMS to adopt standards to protect the security and privacy of health-related information. The privacy regulations extensively regulate the use and disclosure of individually identifiable health-related information. If we violate these regulations, we could be subject to monetary fines and penalties, criminal sanctions and civil causes of action. We have implemented and operate continuing employee education programs to reinforce operational compliance with policy and procedures which adhere to privacy regulations. The HIPAA security standards and privacy regulations serve similar purposes and overlap to a certain extent, but the security regulations relate more specifically to protecting the integrity, confidentiality and availability of electronic protected health information while it is in our custody or


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being transmitted to others. We believe we have established proper controls to safeguard access to protected health information.
 
Payment
 
Medicare.  Under the Medicare program, we are paid for inpatient and outpatient services performed by our hospitals.
 
Payments for inpatient acute services are generally made pursuant to a prospective payment system, commonly known as “PPS.” Under PPS, our hospitals are paid a predetermined amount for each hospital discharge based on the patient’s diagnosis. Specifically, each discharge is assigned to a diagnosis-related group, commonly known as a “DRG”, based upon the patient’s condition and treatment during the relevant inpatient stay. For the federal fiscal year 2008 (i.e., the federal fiscal year beginning October 1, 2007), each DRG was assigned a payment rate using 67% of the national average cost per case and 33% of the national average charge per case and 50% of the change to severity adjusted DRG weights. Severity adjusted DRG’s more accurately reflect the costs a hospital incurs for caring for a patient and accounts more fully for the severity of each patient’s condition. For the federal fiscal year 2009, each DRG is assigned a payment rate using 100% of the national average cost per case and 100% of the severity adjusted DRG weights. DRG payments are based on national averages and not on charges or costs specific to a hospital. However, DRG payments are adjusted by a predetermined geographic adjustment factor assigned to the geographic area in which the hospital is located. While a hospital generally does not receive payment in addition to a DRG payment, hospitals may qualify for an “outlier” payment when the relevant patient’s treatment costs are extraordinarily high and exceed a specified regulatory threshold.
 
The DRG rates are adjusted by an update factor on October 1 of each year, the beginning of the federal fiscal year. The index used to adjust the DRG rates, known as the “market basket index,” gives consideration to the inflation experienced by hospitals in purchasing goods and services. DRG payment rates were increased by the full “market basket index”, for the federal fiscal years 2006, 2007, 2008 and 2009 or 3.7%, 3.4%, 3.3% and 3.6%, respectively. The Deficit Reduction Act of 2005 imposes a two percentage point reduction to the market basket index beginning October 1, 2007, and each year thereafter, if patient quality data is not submitted. We are complying with this data submission requirement. Future legislation may decrease the rate of increase for DRG payments, but we are not able to predict the amount of any reduction or the effect that any reduction will have on us.
 
In addition, hospitals may qualify for Medicare disproportionate share payments when their percentage of low income patients exceeds specified regulatory thresholds. A majority of our hospitals qualify to receive Medicare disproportionate share payments. For the majority of our hospitals that qualify to receive Medicare disproportionate share payments, these payments were increased by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 effective April 1, 2004. These Medicare disproportionate share payments as a percentage of net operating revenues were 1.8%, 1.8% and 2.1% for the years ended December 31, 2008, 2007 and 2006, respectively.
 
Beginning August 1, 2000, we began receiving Medicare reimbursement for outpatient services through a PPS. Under the Balanced Budget Refinement Act of 1999, non-urban hospitals with 100 beds or less were held harmless through December 31, 2004 under this Medicare outpatient PPS. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 extended the hold harmless provision for non-urban hospitals with 100 beds or less and for non-urban sole community hospitals with more than 100 beds through December 31, 2005. The Deficit Reduction Act of 2005 extended the hold harmless provision for non-urban hospitals with 100 beds or less that are not sole community hospitals through December 31, 2008; however, that Act reduced the amount these hospitals would receive in hold harmless payment by 5% in 2006, 10% in 2007 and 15% in 2008. Of our 118 hospitals in continuing operations at December 31, 2008, 31 qualified for this relief. The Medicare Improvements for Patients and Providers Act extends the hold harmless provision for non-urban hospitals with 100 beds or less, including non-urban sole community hospitals, through December 31, 2009, at 85% of the hold harmless amount. Of our 118 hospitals in continuing operations at December 31, 2008, 44 will qualify for this relief. The outpatient conversion factor was increased 3.7%


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effective January 1, 2006; however, coupled with adjustments to other variables within the outpatient PPS resulted in an approximate 2.2% to 2.6% net increase in outpatient PPS payments. The outpatient conversion factor was increased 3.4% effective January 1, 2007; however, coupled with adjustments to other variables with the outpatient PPS, an approximate 2.5% to 2.9% net increase in outpatient payments occurred. The outpatient conversion factor was increased 3.3% effective January 1, 2008; however, coupled with adjustments to other variables with the outpatient PPS, an approximate 3.0% to 3.4% net increase in outpatient payments occurred. The outpatient conversion factor was increased 3.6% effective January 1, 2009; however, coupled with adjustments to other variables with outpatient PPS, an approximate 3.5% to 3.9% net increase in outpatient payments is expected to occur. The Medicare Improvements and Extension Act of the Tax Relief and Health Care Act of 2006 imposes a two percentage point reduction to the market basket index beginning January 1, 2009, and each year thereafter, if patient quality data is not submitted. We intend to comply with this data submission requirement.
 
Skilled nursing facilities and swing bed facilities were historically paid by Medicare on the basis of actual costs, subject to limitations. The Balanced Budget Act of 1997 established a PPS for Medicare skilled nursing facilities and mandated that swing bed facilities must be incorporated into the skilled nursing facility PPS. For federal fiscal year 2006, skilled nursing facility PPS payment rates were increased by the full market basket of 3.1%; however coupled with adjustments to other variables within the skilled nursing facility PPS, an approximate 3.9% to 4.3% net increase in skilled nursing facility PPS payments occurred. Skilled nursing facility PPS rates were increased by the full SNF market basket index of 3.1%, 3.3% and 3.4% for the federal fiscal years 2007, 2008 and 2009, respectively.
 
The Department of Health and Human Services established a PPS for home health services (i.e. home care) effective October 1, 2000. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 implemented a 0.8% reduction to the market basket increase to the home health agency PPS per episodic payment rate effective April 1, 2004 and for the federal fiscal years 2005 and 2006, and increased Medicare payments by 5.0% to home health services provided in rural areas from April 1, 2004 through March 31, 2005. The Deficit Reduction Act of 2005 extended the 5.0% increase to home health services provided in rural areas for an additional year effective January 1, 2006 and froze home health agency payments for 2006 at 2005 levels. The home health agency PPS per episodic payment rate increased by 0% on January 1, 2006 and 3.3% on January 1, 2007. The home health agency PPS per episodic payment rate increased by 3% on January 1, 2008; however, coupled with adjustments to other variables with home health agency PPS, an approximate 1.5% to 1.9% net increase in home health agency payments occurred. The home health agency PPS per episodic payment rate increased by 2.9% on January 1, 2009; however, coupled with adjustments to other variables with home health agency PPS, an approximate 0.2% net increase in home health agency payments is expected to occur. The Deficit Reduction Act of 2005 imposes a two percentage point reduction to the market basket index beginning January 1, 2007, and each year thereafter, if patient quality data is not submitted. We are complying with this data submission requirement.
 
Medicaid.  Most state Medicaid payments are made under a PPS or under programs which negotiate payment levels with individual hospitals. Medicaid is currently funded jointly by state and federal government. The federal government and many states are currently considering significantly reducing Medicaid funding, while at the same time expanding Medicaid benefits. We can provide no assurance that reductions to Medicaid fundings will not have a material adverse effect on our consolidated results of operations.
 
Annual Cost Reports.  Hospitals participating in the Medicare and some Medicaid programs, whether paid on a reasonable cost basis or under a PPS, are required to meet specified financial reporting requirements. Federal and, where applicable, state regulations require submission of annual cost reports identifying medical costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients.
 
Annual cost reports required under the Medicare and some Medicaid programs are subject to routine governmental audits. These audits may result in adjustments to the amounts ultimately determined to be due to us under these reimbursement programs. Finalization of these audits often takes several years. Providers can appeal any final determination made in connection with an audit. DRG outlier payments have been and


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continue to be the subject of CMS audit and adjustment. The HHS OIG is also actively engaged in audits and investigations into alleged abuses of the DRG outlier payment system.
 
Commercial Insurance.  Our hospitals provide services to individuals covered by private healthcare insurance. Private insurance carriers pay our hospitals or in some cases reimburse their policyholders based upon the hospital’s established charges and the coverage provided in the insurance policy. Commercial insurers are trying to limit the costs of hospital services by negotiating discounts, including PPS, which would reduce payments by commercial insurers to our hospitals. Reductions in payments for services provided by our hospitals to individuals covered by commercial insurers could adversely affect us.
 
Supply Contracts
 
In March 2005, we began purchasing items, primarily medical supplies, medical equipment and pharmaceuticals, under an agreement with HealthTrust, a GPO in which we are a minority partner. Triad was also a minority partner in HeathTrust and we acquired their ownership interest and contractual rights in the acquisition. As of December 31, 2008, we have a 17.0% ownership interest in HealthTrust. By participating in this organization we are able to procure items at competitively priced rates for our hospitals. There can be no assurance that our arrangement with HealthTrust will continue to provide the discounts we expect to achieve.
 
Competition
 
The hospital industry is highly competitive. An important part of our business strategy is to continue to acquire hospitals in non-urban markets and select urban markets. However, other for-profit hospital companies and not-for-profit hospital systems generally attempt to acquire the same type of hospitals as we do. In addition, some hospitals are sold through an auction process, which may result in higher purchase prices than we believe are reasonable.
 
In addition to the competition we face for acquisitions, we must also compete with other hospitals and healthcare providers for patients. The competition among hospitals and other healthcare providers for patients has intensified in recent years. Our hospitals are located in non-urban and selected urban service areas. Those hospitals in non-urban service areas face no direct competition because there are no other hospitals in their primary service areas. However, these hospitals do face competition from hospitals outside of their primary service area, including hospitals in urban areas that provide more complex services. Patients in those service areas may travel to these other hospitals for a variety of reasons, including the need for services we do not offer or physician referrals. Patients who are required to seek services from these other hospitals may subsequently shift their preferences to those hospitals for services we do provide. Those hospitals in selected urban service areas may face competition from hospitals that are more established than our hospitals. Certain of these competing facilities offer services, including extensive medical research and medical education programs, which are not offered by our facilities. In addition, in certain markets where we operate, there are large teaching hospitals that provide highly specialized facilities, equipment and services that may not be available at our hospitals.
 
Some of our hospitals operate in primary service areas where they compete with another hospital. Some of these competing hospitals use equipment and services more specialized than those available at our hospitals and some of the hospitals that compete with us are owned by tax-supported governmental agencies or not-for-profit entities supported by endowments and charitable contributions. These hospitals can make capital expenditures without paying sales, property and income taxes. We also face competition from other specialized care providers, including outpatient surgery, orthopedic, oncology, and diagnostic centers.
 
The number and quality of the physicians on a hospital’s staff is an important factor in a hospital’s competitive advantage. Physicians decide whether a patient is admitted to the hospital and the procedures to be performed. Admitting physicians may be on the medical staffs of other hospitals in addition to those of our hospitals. We attempt to attract our physicians’ patients to our hospitals by offering quality services and facilities, convenient locations, and state-of-the-art equipment.


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Compliance Program
 
We take an operations team approach to compliance and utilize corporate experts for program design efforts and facility leaders for employee-level implementation. Compliance is another area that demonstrates our utilization of standardization and centralization techniques and initiatives which yield efficiencies and consistency throughout our facilities. We recognize that our compliance with applicable laws and regulations depends on individual employee actions as well as company operations. Our approach focuses on integrating compliance responsibilities with operational functions. This approach is intended to reinforce our company-wide commitment to operate strictly in accordance with the laws and regulations that govern our business.
 
Our company-wide compliance program has been in place since 1997. Currently, the program’s elements include leadership, management and oversight at the highest levels, a Code of Conduct, risk area specific policies and procedures, employee education and training, an internal system for reporting concerns, auditing and monitoring programs, and a means for enforcing the program’s policies.
 
Since its initial adoption, the compliance program continues to be expanded and developed to meet the industry’s expectations and our needs. Specific written policies, procedures, training and educational materials and programs, as well as auditing and monitoring activities have been prepared and implemented to address the functional and operational aspects of our business. Included within these functional areas are materials and activities for business sub-units, including laboratory, radiology, pharmacy, emergency, surgery, observation, home care, skilled nursing, and clinics. Specific areas identified through regulatory interpretation and enforcement activities have also been addressed in our program. Claims preparation and submission, including coding, billing, and cost reports, comprise the bulk of these areas. Financial arrangements with physicians and other referral sources, including compliance with anti-kickback and Stark laws, emergency department treatment and transfer requirements, and other patient disposition issues are also the focus of policy and training, standardized documentation requirements, and review and audit. Another focus of the program is the interpretation and implementation of the HIPAA standards for privacy and security.
 
We have a Code of Conduct which applies to all directors, officers, employees and consultants, and a confidential disclosure program to enhance the statement of ethical responsibility expected of our employees and business associates who work in the accounting, financial reporting, and asset management areas of our Company. Our Code of Conduct is posted on our website at www.chs.net/company_overview/code_conduct.html.
 
Employees
 
At December 31, 2008, we employed approximately 55,579 full-time employees and 22,755 part-time employees. Of these employees, approximately 2,010 are union members. We currently believe that our labor relations are good.
 
Professional Liability Claims
 
As part of our business of owning and operating hospitals, we are subject to legal actions alleging liability on our part. To cover claims arising out of the operations of hospitals, we maintain professional malpractice liability insurance and general liability insurance on a claims made basis in excess of those amounts for which we are self-insured, in amounts we believe to be sufficient for our operations. We also maintain umbrella liability coverage for claims which, due to their nature or amount, are not covered by our other insurance policies. However, our insurance coverage does not cover all claims against us or may not continue to be available at a reasonable cost for us to maintain adequate levels of insurance. For a further discussion of our insurance coverage, see our discussion of professional liability claims in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Environmental Matters
 
We are subject to various federal, state, and local laws and regulations governing the use, discharge, and disposal of hazardous materials, including medical waste products. Compliance with these laws and regulations


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is not expected to have a material adverse effect on us. It is possible, however, that environmental issues may arise in the future which we cannot now predict.
 
We are insured for damages of personal property or environmental injury arising out of environmental impairment for both above ground and underground storage tank issues under one insurance policy for all of our hospitals. Our policy coverage is $2 million per occurrence with a $25,000 deductible and a $10 million annual aggregate. This policy also provides pollution legal liability coverage for the former Triad hospitals.
 
Under a separate insurance policy, we are insured for onsite and offsite third party bodily injury, property damage and clean up costs including business interruption insurance coverage for actual losses or rental value resulting from pollution issues for all of our hospitals other than the former Triad hospitals. This policy coverage for pollution legal liability is $3 million per occurrence with a $100,000 deductible and a $6 million annual aggregate.


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Item 1A.   Risk Factors
 
The following risk factors could materially and adversely affect our future operating results and could cause actual results to differ materially from those predicted in the forward-looking statements we make about our business.
 
Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations under the agreements relating to our indebtedness.
 
We are significantly leveraged. The chart below shows our level of indebtedness and other information as of December 31, 2008. In connection with the consummation of our acquisition of Triad in July 2007, $7.215 billion senior secured financing under a new credit facility, or “New Credit Facility”, was obtained by our wholly-owned subsidiary, CHS/Community Health Systems, Inc. or CHS. CHS also issued 8.875% senior notes, or the “Notes”, having an aggregate principal amount of $3.021 billion. Both the indebtedness under the New Credit Facility and the Notes are senior obligations of CHS and are guaranteed on a senior basis by us and by certain of our domestic subsidiaries. We used the net proceeds from the Notes offering and the net proceeds of the $6.065 billion term loans under the New Credit Facility to pay the consideration under the merger agreement with Triad, to refinance certain of our existing indebtedness and the indebtedness of Triad, to complete certain related transactions, to pay certain costs and expenses of the transactions and for general corporate uses. As of December 31, 2008, a $750 million revolving credit facility and $200 million of our delayed draw term loan facility are available to us for working capital and general corporate purposes under the New Credit Facility, with $93.6 million of the revolving credit facility being set aside for outstanding letters of credit. During the fourth quarter of 2008, $100 million of the delayed draw term loan had been drawn down by us, reducing the delayed draw term loan availability from $300 million to $200 million at December 31, 2008. In January 2009, we drew down the remaining $200 million of the delayed draw term loan.
 
Also, in connection with the consummation of the acquisition of Triad, we completed an early repayment of the $300 million aggregate principal amount of 6.5% Senior Subordinated Notes due 2012 through a cash tender offer and consent solicitation.
 
         
    As of
 
    December 31, 2008  
    ($ in millions)  
 
Senior secured credit facility
       
Term loans
  $ 5,965.9  
Notes
    2,910.8  
Other
    90.7  
         
Total debt
    8,967.4  
         
Stockholder equity
    1,672.9  
         
 
The following table shows the ratio of earnings to fixed charges for the periods indicated:
 
                                         
    Year Ended December 31,  
    2004     2005     2006     2007     2008  
 
Ratio of earnings to fixed charges(1)
    3.87 x       3.79 x       3.37 x       1.22 x       1.47 x  
 
 
(1) There are no shares of preferred stock outstanding.
 
As of December 31, 2008, our $5.350 billion notional amount of interest rate swap agreements represented approximately 89.7% of our variable rate debt. On a prospective basis, a 1% change in interest rates on the remaining unhedged variable rate debt existing as of December 31, 2008, would result in interest expense fluctuating approximately $6.2 million per year.


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The New Credit Facility and/or the Notes contain various covenants that limit our ability to take certain actions, including 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;
 
  •  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.
 
The counterparty to the interest rate swap agreements exposes us to credit risk in the event of non-performance. However, at December 31, 2008, we do not anticipate non-performance by the counterparty due to the net settlement feature of the agreements and our liability position with respect to all of our counterparties.
 
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.
 
Our leverage could have important consequences for you, including the following:
 
  •  it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
 
  •  a substantial portion of our cash flows from operations will be dedicated to the payment of principal and interest on our indebtedness and will not be available for other purposes, including our operations, capital expenditures, and future business opportunities;
 
  •  the debt service requirements of our indebtedness could make it more difficult for us to satisfy our financial obligations;
 
  •  some of our borrowings, including borrowings under our New Credit Facility, are at variable rates of interest, exposing us to the risk of increased interest rates;
 
  •  it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt; and
 
  •  we may be vulnerable in a downturn in general economic conditions or in our business, or we may be unable to carry out capital spending that is important to our growth.


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Despite current indebtedness levels, we may still be able to incur substantially more debt. This could further exacerbate the risks described above.
 
We may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing the Notes do not fully prohibit us from doing so. For example, under the indenture for the Notes, we may incur up to $7.815 billion pursuant to a credit facility or a qualified receivables transaction, less certain amounts repaid with the proceeds of asset dispositions. Our New Credit Facility provides for commitments of up to $7.115 billion in the aggregate. Our New Credit Facility also gives us the ability to provide for one or more additional tranches of term loans in aggregate principal amount of up to $600 million without the consent of the existing lenders if specified criteria are satisfied. If new debt is added to our current debt levels, the related risks that we now face could intensify.
 
If competition decreases our ability to acquire additional hospitals on favorable terms, we may be unable to execute our acquisition strategy.
 
An important part of our business strategy is to acquire two to four hospitals each year. However, not-for-profit hospital systems and other for-profit hospital companies generally attempt to acquire the same type of hospitals as we do. Some of these other purchasers have greater financial resources than we do. Our principal competitors for acquisitions have included Health Management Associates, Inc. and LifePoint Hospitals, Inc. On some occasions, we also compete with Universal Health Services, Inc. In addition, some hospitals are sold through an auction process, which may result in higher purchase prices than we believe are reasonable. Therefore, we may not be able to acquire additional hospitals on terms favorable to us.
 
If we fail to improve the operations of acquired hospitals, we may be unable to achieve our growth strategy.
 
Many of the hospitals we have acquired, had, or future acquisitions may have, significantly lower operating margins than we do and/or operating losses prior to the time we acquired or will acquire them. In the past, we have occasionally experienced temporary delays in improving the operating margins or effectively integrating the operations of these acquired hospitals. In the future, if we are unable to improve the operating margins of acquired hospitals, operate them profitably, or effectively integrate their operations, we may be unable to achieve our growth strategy. We acquired 50 hospitals in the Triad acquisition. In the past, we have not acquired this many hospitals at one time. We may still experience delays or difficulties in improving the operating margins or the operations of these acquired hospitals.
 
We may not be able to successfully integrate our acquisition of Triad or realize the potential benefits of the acquisition, which could cause our business to suffer.
 
We may not be able to combine successfully the operations of former Triad hospitals with our operations and, even if such integration is accomplished, we may never realize the potential benefits of the acquisition. The integration of former Triad hospitals with our operations requires significant attention from management and may impose substantial demands on our operations or other projects. In addition, Triad’s corporate officers did not continue their employment with us. The integration of Triad also involves a significant capital commitment, and the return that we achieve on any capital invested may be less than the return that we would achieve on our other projects or investments. Any of these factors could cause delays or increased costs of combining former Triad hospitals with us; and could adversely affect our operations, financial results and liquidity.
 
Certain of Triad’s joint venture partners have put or call rights, the exercise of which could affect our available cash and/or operating results. Triad entered into a number of joint venture transactions that entitle its joint venture partners to require Triad to purchase the partner’s interest or to require Triad to sell its interest to the partner. The consideration provided for in these contracts may not be at an advantageous amount vis-à-vis the consideration paid for the Triad acquisition. If these rights are exercised, we may be required to make unanticipated payments, our operations at certain facilities may be adversely affected, or we may be required to divest certain facilities.


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If we acquire hospitals with unknown or contingent liabilities, we could become liable for material obligations.
 
Hospitals that we acquire may have unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations. Although we generally seek indemnification from prospective sellers covering these matters, we may nevertheless have material liabilities for past activities of acquired hospitals. In the case of the Triad acquisition, there was no indemnification provided given the fact that Triad was a public company and the acquisition was effective through a merger.
 
As a result of the Triad acquisition, on a consolidated basis, we are subject to all of the potential liabilities relating to the hospitals held by Triad, including liabilities relating to pending or threatened litigation matters, which, if adversely decided, could have a material adverse effect on our future results, operations and liquidity.
 
State efforts to regulate the construction, acquisition or expansion of hospitals could prevent us from acquiring additional hospitals, renovating our facilities or expanding the breadth of services we offer.
 
Some states require prior approval for the construction or acquisition of healthcare facilities and for the expansion of healthcare facilities and services. In giving approval, these states consider the need for additional or expanded healthcare facilities or services. In some states in which we operate, we are required to obtain certificates of need, known as CONs, for capital expenditures exceeding a prescribed amount, changes in bed capacity or services, and some other matters. Other states may adopt similar legislation. We may not be able to obtain the required CONs or other prior approvals for additional or expanded facilities in the future. In addition, at the time we acquire a hospital, we may agree to replace or expand the facility we are acquiring. If we are not able to obtain required prior approvals, we would not be able to acquire additional hospitals and expand the breadth of services we offer.
 
State efforts to regulate the sale of hospitals operated by not-for-profit entities could prevent us from acquiring additional hospitals and executing our business strategy.
 
Many states, including some where we have hospitals and others where we may in the future acquire hospitals, have adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities. In other states that do not have specific legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets from waste. These legislative and administrative efforts focus primarily on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the non-profit seller. While these review and, in some instances, approval processes can add additional time to the closing of a hospital acquisition, we have not had any significant difficulties or delays in completing acquisitions. However, future actions on the state level could seriously delay or even prevent our ability to acquire hospitals.
 
If we are unable to effectively compete for patients, local residents could use other hospitals.
 
The hospital industry is highly competitive. In addition to the competition we face for acquisitions and physicians, we must also compete with other hospitals and healthcare providers for patients. The competition among hospitals and other healthcare providers for patients has intensified in recent years. Our hospitals are located in non-urban service areas. In approximately 65% of our markets, we are the sole provider of general healthcare services. In most of our other markets, the primary competitor is a not-for-profit hospital. These not-for-profit hospitals generally differ in each jurisdiction. However, our hospitals face competition from hospitals outside of their primary service area, including hospitals in urban areas that provide more complex services. Patients in our primary service areas may travel to these other hospitals for a variety of reasons. These reasons include physician referrals or the need for services we do not offer. Patients who seek services from these other hospitals may subsequently shift their preferences to those hospitals for the services we provide.
 
Some of our hospitals operate in primary service areas where they compete with one other hospital. One of our hospitals competes with more than one other hospital in its primary service area. Some of these


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competing hospitals use equipment and services more specialized than those available at our hospitals. In addition, some competing hospitals are owned by tax-supported governmental agencies or not-for-profit entities supported by endowments and charitable contributions. These hospitals can make capital expenditures without paying sales, property and income taxes. We also face competition from other specialized care providers, including outpatient surgery, orthopedic, oncology and diagnostic centers.
 
We expect that these competitive trends will continue. Our inability to compete effectively with other hospitals and other healthcare providers could cause local residents to use other hospitals.
 
The failure to obtain our medical supplies at favorable prices could cause our operating results to decline.
 
We have a five-year participation agreement with a GPO. This agreement extends to March 2010, with automatic renewal terms of one year, unless either party terminates by giving notice of non-renewal. GPOs attempt to obtain favorable pricing on medical supplies with manufacturers and vendors who sometimes negotiate exclusive supply arrangements in exchange for the discounts they give. To the extent these exclusive supply arrangements are challenged or deemed unenforceable, we could incur higher costs for our medical supplies obtained through HealthTrust. These higher costs could cause our operating results to decline.
 
There can be no assurance that our arrangement with HealthTrust will provide the discounts we expect to achieve.
 
If the fair value of our reporting units declines, a material non-cash charge to earnings from impairment of our goodwill could result.
 
At December 31, 2008, we had approximately $4.166 billion of goodwill recorded on our books. We expect to recover the carrying value of this goodwill through our future cash flows. On an ongoing basis, we evaluate, based on the fair value of our reporting units, whether the carrying value of our goodwill is impaired. If the carrying value of our goodwill is impaired, we may incur a material non-cash charge to earnings.
 
The current turmoil in the financial markets and weakness in macroeconomic conditions globally continue to be challenging and we cannot be certain of the duration of these conditions and their potential impact on our stock price performance. If a further decline in our market capitalization and other factors resulted in the decline in our fair value, it is reasonably likely that a goodwill impairment assessment prior to the next annual review, in the fourth quarter of 2009, would be necessary. If such an assessment is required, an impairment of goodwill may be recognized. A non-cash goodwill impairment charge would have the effect of decreasing our earnings or increasing our losses in the period the impairment is recognized. The amount of such effect on earnings and losses is dependent on the size of the impairment charge.
 
Risks related to our industry
 
If federal or state healthcare programs or managed care companies reduce the payments we receive as reimbursement for services we provide, our net operating revenues may decline.
 
In 2008, 36.6% of our net operating revenues came from the Medicare and Medicaid programs. In recent years, federal and state governments made significant changes in the Medicare and Medicaid programs, including the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Some of these changes have decreased the amount of money we receive for our services relating to these programs.
 
In recent years, Congress and some state legislatures have introduced an increasing number of other proposals to make major changes in the healthcare system including an increased emphasis on the linkage between quality of care criteria and payment levels such as the submission of patient quality data to the Secretary of Health and Human Services. In addition, CMS conducts ongoing reviews of certain state reimbursement programs. Federal funding for existing programs may not be approved in the future. Future federal and state legislation may further reduce the payments we receive for our services. The Obama administration has stated as a top priority its desire to reform the U.S. healthcare system with the goal of providing affordable, accessible health care for all Americans. Proposals that have been considered include


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cost controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, and mandatory health insurance coverage for employees. The “American Recovery and Reinvestment Act of 2009” has been signed into law providing for a temporary increase in the federal matching assistance percentage (FMAP), a temporary increase in federal Medicaid DSH allotments, subsidization of health insurance premiums (COBRA) for up to nine months, and grants and loans for infrastructure and incentive payments for providers who adopt and use health information technology. The costs of implementing this law and other proposals could be financed, in part, by reductions in payments to healthcare providers under Medicare, Medicaid, and other government programs. We cannot predict the course of future healthcare legislation, other changes the administration may seek to implement regarding healthcare or interpretations by the administration of existing governmental healthcare programs and the effect that any legislation change or interpretation may have on us.
 
In addition, insurance and managed care companies and other third parties from whom we receive payment for our services increasingly are attempting to control healthcare costs by requiring that hospitals discount payments for their services in exchange for exclusive or preferred participation in their benefit plans. We believe that this trend may continue and our inability to negotiate increased reimbursement rates or maintain existing rates may reduce the payments we receive for our services.
 
If we fail to comply with extensive laws and government regulations, including fraud and abuse laws, we could suffer penalties or be required to make significant changes to our operations.
 
The healthcare industry is required to comply with many laws and regulations at the federal, state, and local government levels. These laws and regulations require that hospitals meet various requirements, including those relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, compliance with building codes, environmental protection and privacy. These laws include the Health Insurance Portability and Accountability Act of 1996 and a section of the Social Security Act, known as the “anti-kickback” statute. If we fail to comply with applicable laws and regulations, including fraud and abuse laws, we could suffer civil or criminal penalties, including the loss of our licenses to operate and our ability to participate in the Medicare, Medicaid, and other federal and state healthcare programs.
 
In addition, there are heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare industry, including the hospital segment. The ongoing investigations relate to various referral, cost reporting, and billing practices, laboratory and home care services, and physician ownership and joint ventures involving hospitals. For example, the Department of Justice has alleged that we and three of our 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. For a further discussion of this matter, see “Legal Proceedings.”
 
In the future, different interpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs, and operating expenses.
 
A shortage of qualified nurses could limit our ability to grow and deliver hospital healthcare services in a cost-effective manner.
 
Hospitals are currently experiencing a shortage of nursing professionals, a trend which we expect to continue for some time. If the supply of qualified nurses declines in the markets in which our hospitals operate, it may result in increased labor expenses and lower operating margins at those hospitals. In addition, in some markets like California, there are requirements to maintain specified nurse-staffing levels. To the extent we cannot meet those levels, the healthcare services that we provide in these markets may be reduced.


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If we become subject to significant legal actions, we could be subject to substantial uninsured liabilities or increased insurance costs.
 
In recent years, physicians, hospitals, and other healthcare providers have become subject to an increasing number of legal actions alleging malpractice, product liability, or related legal theories. Even in states that have imposed caps on damages, litigants are seeking recoveries under new theories of liability that might not be subject to the caps on damages. Many of these actions involve large claims and significant defense costs. To protect us from the cost of these claims, we maintain professional malpractice liability insurance and general liability insurance coverage in excess of those amounts for which we are self-insured, in amounts that we believe to be sufficient for our operations. However, our insurance coverage does not cover all claims against us or may not continue to be available at a reasonable cost for us to maintain adequate levels of insurance. The cost of malpractice and other professional liability insurance increased in 2006 by 0.1%, decreased in 2007 by 0.1% and decreased in 2008 by 0.2% as a percentage of net operating revenue. If these costs rise rapidly, our profitability could decline. For a further discussion of our insurance coverage, see our discussion of professional liability insurance claims in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
If we experience growth in self-pay volume and revenue, our financial condition or results of operations could be adversely affected.
 
Like others in the hospital industry, we have experienced an increase in our provision for bad debts as a percentage of net operating revenue due to a growth in self-pay volume and revenue. Although we continue to seek ways of improving point of service collection efforts and implementing appropriate payment plans with our patients, if we experience growth in self-pay volume and revenue, our results of operations could be adversely affected. Further, our ability to improve collections for self-pay patients may be limited by statutory, regulatory and investigatory initiatives, including private lawsuits directed at hospital charges and collection practices for uninsured and underinsured patients.
 
Currently, the global economies, and in particular the United States, are experiencing a period of economic uncertainty and the related financial markets are experiencing a high degree of volatility. This current financial turmoil is adversely affecting the banking system and financial markets and resulting in a tightening in the credit markets, a low level of liquidity in many financial markets and extreme volatility in fixed income, credit, currency and equity markets. This uncertainty poses a risk as it could potentially lead to higher levels of uninsured patients, result in higher levels of patients covered by lower paying government programs and/or result in fiscal uncertainties at both government payors and private insurers.
 
This Report includes forward-looking statements which could differ from actual future results.
 
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 the following:
 
  •  general economic and business conditions, both nationally and in the regions in which we operate;
 
  •  our ability to successfully integrate any acquisitions or to recognize expected synergies from such acquisitions, including facilities acquired from Triad;
 
  •  risks associated with our substantial indebtedness, leverage and debt service obligations;
 
  •  demographic changes;
 
  •  changes in, or the failure to comply with, governmental regulations;
 
  •  legislative proposals for healthcare reform;


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  •  potential adverse impact of known and unknown government investigations and Civil False Claims Act litigation;
 
  •  our ability, where appropriate, to enter into or maintain managed care provider arrangements and the terms of these arrangements;
 
  •  changes in inpatient or outpatient Medicare and Medicaid payment levels;
 
  •  increases in the amount and risk of collectability of patient accounts receivable;
 
  •  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;
 
  •  liabilities and other claims asserted against us, including self-insured malpractice claims;
 
  •  competition;
 
  •  our ability to attract and retain, without significant employment costs, qualified personnel, key management, physicians, nurses and other healthcare workers;
 
  •  trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals;
 
  •  changes in medical or other technology;
 
  •  changes in GAAP;
 
  •  the availability and terms of capital to fund additional acquisitions or replacement facilities;
 
  •  our ability to successfully acquire additional hospitals and complete the sale of hospitals held for sale;
 
  •  our ability to obtain adequate levels of general and professional liability insurance; and
 
  •  timeliness of reimbursement payments received under government programs.
 
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.
 
Item 1B.  Unresolved Staff Comments
 
None
 
Item 2.   Properties
 
Corporate Headquarters
 
We own our corporate headquarters building located in Franklin, Tennessee.
 
Hospitals
 
Our hospitals are general care hospitals offering a wide range of inpatient and outpatient medical services. These services generally include internal medicine, surgery, cardiology, oncology, orthopedics, OB/GYN, diagnostic and emergency room services, laboratory, radiology, respiratory therapy, physical therapy, and rehabilitation services. In addition, some of our hospitals provide skilled nursing and home care services based on individual community needs.


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For each of our hospitals owned or leased as of December 31, 2008, including the two hospitals classified as held for sale and included in discontinued operations, the following table shows its location, the date of its acquisition or lease inception and the number of licensed beds:
 
                     
              Date of
   
        Licensed
    Acquisition/Lease
  Ownership
Hospital
 
City
  Beds(1)     Inception   Type
 
Alabama
                   
LV Stabler Memorial Hospital
  Greenville     72     October, 1994   Owned
South Baldwin Regional Medical Center
  Foley     112     June, 2000   Leased
Cherokee Medical Center
  Centre     60     April, 2006   Owned
Dekalb Regional Medical Center
  Fort Payne     134     April, 2006   Owned
Trinity Medical Center
  Birmingham     560     July, 2007   Owned
Flowers Hospital
  Dothan     235     July, 2007   Owned
Medical Center Enterprise
  Enterprise     131     July, 2007   Owned
Gadsden Regional Medical Center
  Gadsden     346     July, 2007   Owned
Crestwood Medical Center
  Huntsville     150     July, 2007   Owned
Alaska
                   
Mat-Su Regional Medical Center
  Palmer     74     July, 2007   Owned
Arizona
                   
Payson Regional Medical Center
  Payson     44     August, 1997   Leased
Western Arizona Regional Medical Center
  Bullhead City     139     July, 2000   Owned
Northwest Medical Center
  Tucson     300     July, 2007   Owned
Northwest Medical Center Oro Valley
  Oro Valley     144     July, 2007   Owned
Arkansas
                   
Harris Hospital
  Newport     133     October, 1994   Owned
Helena Regional Medical Center
  Helena     155     March, 2002   Leased
Forrest City Medical Center
  Forrest City     118     March, 2006   Leased
Northwest Medical Center — Bentonville
  Bentonville     128     July, 2007   Owned
Northwest Medical Center — Springdale
  Springdale     222     July, 2007   Owned
Willow Creek Women’s Hospital(2)
  Johnson     64     July, 2007   Owned
California
                   
Barstow Community Hospital
  Barstow     56     January, 1993   Leased
Fallbrook Hospital
  Fallbrook     47     November, 1998   Operated(3)
Watsonville Community Hospital
  Watsonville     106     September, 1998   Owned
Florida
                   
Lake Wales Medical Center
  Lake Wales     154     December, 2002   Owned
North Okaloosa Medical Center
  Crestview     110     March, 1996   Owned
Georgia
                   
Fannin Regional Hospital
  Blue Ridge     50     January, 1986   Owned
Trinity Hospital of Augusta
  Augusta     231     July, 2007   Owned
Illinois
                   
Crossroads Community Hospital
  Mt. Vernon     55     October, 1994   Owned
Gateway Regional Medical Center
  Granite City     416     January, 2002   Owned
Heartland Regional Medical Center
  Marion     92     October, 1996   Owned
Red Bud Regional Hospital
  Red Bud     31     September, 2001   Owned
Galesburg Cottage Hospital
  Galesburg     173     July, 2004   Owned


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              Date of
   
        Licensed
    Acquisition/Lease
  Ownership
Hospital
 
City
  Beds(1)     Inception   Type
 
Vista Medical Center East/West
  Waukegan     407     July, 2006   Owned
Union County Hospital
  Anna     25     November, 2006   Leased
Indiana
                   
Porter Hospital
  Valparaiso     301     May, 2007   Owned
Bluffton Regional Medical Center
  Bluffton     79     July, 2007   Owned
Dupont Hospital
  Fort Wayne     131     July, 2007   Owned
Lutheran Hospital
  Fort Wayne     432     July, 2007   Owned
St. Joseph’s Hospital
  Fort Wayne     191     July, 2007   Owned
Dukes Memorial Hospital
  Peru     25     July, 2007   Owned
Kosciusko Community Hospital
  Warsaw     72     July, 2007   Owned
Lutheran Musculoskeletal Center(4)
  Fort Wayne     39     July, 2007   Owned
Kentucky
                   
Parkway Regional Hospital
  Fulton     70     May, 1992   Owned
Three Rivers Medical Center
  Louisa     90     May, 1993   Owned
Kentucky River Medical Center
  Jackson     55     August, 1995   Leased
Louisiana
                   
Byrd Regional Hospital
  Leesville     60     October, 1994   Owned
Northern Louisiana Medical Center
  Ruston     159     April, 2007   Leased
Women & Children’s Hospital
  Lake Charles     88     July, 2007   Owned
Mississippi
                   
Wesley Medical Center
  Hattiesburg     211     July, 2007   Owned
River Region Health System
  Vicksburg     341     July, 2007   Owned
Missouri
                   
Moberly Regional Medical Center
  Moberly     103     November, 1993   Owned
Northeast Regional Medical Center
  Kirksville     115     December, 2000   Leased
Nevada
                   
Mesa View Regional Hospital
  Mesquite     25     July, 2007   Owned
New Jersey
                   
Memorial Hospital of Salem County
  Salem     140     September, 2002   Owned
New Mexico
                   
Mimbres Memorial Hospital
  Deming     49     March, 1996   Owned
Eastern New Mexico Medical Center
  Roswell     162     April, 1998   Owned
Alta Vista Regional Hospital
  Las Vegas     54     April, 2000   Owned
Carlsbad Medical Center
  Carlsbad     112     July, 2007   Owned
Lea Regional Medical Center
  Hobbs     234     July, 2007   Owned
Mountain View Regional Medical Center
  Las Cruces     168     July, 2007   Owned
North Carolina
                   
Martin General Hospital
  Williamston     49     November, 1998   Leased
Ohio
                   
Affinity Medical Center
  Massillon     432     July, 2007   Owned
Oklahoma
                   
Ponca City Medical Center
  Ponca City     140     May, 2006   Owned
Claremore Regional Hospital
  Claremore     81     July, 2007   Owned

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              Date of
   
        Licensed
    Acquisition/Lease
  Ownership
Hospital
 
City
  Beds(1)     Inception   Type
 
Deaconess Hospital
  Oklahoma City     313     July, 2007   Owned
SouthCrest Hospital
  Tulsa     180     July, 2007   Owned
Woodward Regional Hospital
  Woodward     87     July, 2007   Owned
Oregon
                   
McKenzie-Willamette Medical Center
  Springfield     114     July, 2007   Owned
Pennsylvania
                   
Berwick Hospital
  Berwick     101     March, 1999   Owned
Brandywine Hospital
  Coatesville     175     June, 2001   Owned
Jennersville Regional Hospital
  West Grove     59     October, 2001   Owned
Easton Hospital
  Easton     254     October, 2001   Owned
Lock Haven Hospital
  Lock Haven     59     August, 2002   Owned
Pottstown Memorial Medical Center
  Pottstown     226     July, 2003   Owned
Phoenixville Hospital
  Phoenixville     138     August, 2004   Owned
Chestnut Hill Hospital
  Philadelphia     164     February, 2005   Owned
Sunbury Community Hospital
  Sunbury     92     October, 2005   Owned
South Carolina
                   
Marlboro Park Hospital
  Bennettsville     102     August, 1996   Leased
Chesterfield General Hospital
  Cheraw     59     August, 1996   Leased
Springs Memorial Hospital
  Lancaster     231     November, 1994   Owned
Carolinas Hospital System — Florence
  Florence     420     July, 2007   Owned
Mary Black Memorial Hospital
  Spartanburg     209     July, 2007   Owned
Tennessee
                   
Lakeway Regional Hospital
  Morristown     135     May, 1993   Owned
Regional Hospital Of Jackson
  Jackson     154     January, 2003   Owned
Dyersburg Regional Medical Center
  Dyersburg     225     January, 2003   Owned
Haywood Park Community Hospital
  Brownsville     62     January, 2003   Owned
Henderson County Community Hospital
  Lexington     45     January, 2003   Owned
McKenzie Regional Hospital
  McKenzie     45     January, 2003   Owned
McNairy Regional Hospital
  Selmer     45     January, 2003   Owned
Volunteer Community Hospital
  Martin     100     January, 2003   Owned
Heritage Medical Center
  Shelbyville     60     July, 2005   Owned
Sky Ridge Medical Center
  Cleveland     351     October, 2005   Owned
Gateway Medical Center
  Clarksville     270     July, 2007   Owned
Texas
                   
Big Bend Regional Medical Center
  Alpine     25     October, 1999   Owned
Cleveland Regional Medical Center
  Cleveland     107     August, 1996   Leased
Scenic Mountain Medical Center
  Big Spring     150     October, 1994   Owned
Hill Regional Hospital
  Hillsboro     92     October, 1994   Owned
Lake Granbury Medical Center
  Granbury     59     January, 1997   Owned
South Texas Regional Medical Center
  Jourdanton     67     November, 2001   Owned
Laredo Medical Center
  Laredo     326     October, 2003   Owned
Weatherford Regional Medical Center
  Weatherford     99     November, 2006   Leased
Abilene Regional Medical Center
  Abilene     231     July, 2007   Owned

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              Date of
   
        Licensed
    Acquisition/Lease
  Ownership
Hospital
 
City
  Beds(1)     Inception   Type
 
Brownwood Regional Medical Center
  Brownwood     196     July, 2007   Owned
College Station Medical Center
  College Station     150     July, 2007   Owned
Navarro Regional Hospital
  Corsicana     162     July, 2007   Owned
Presbyterian Hospital of Denton
  Denton     255     July, 2007   Owned
Longview Regional Medical Center
  Longview     131     July, 2007   Owned
Woodland Heights Medical Center
  Lufkin     149     July, 2007   Owned
San Angelo Community Medical Center
  San Angelo     171     July, 2007   Owned
DeTar Healthcare System
  Victoria     308     July, 2007   Owned
Cedar Park Regional Medical Center
  Cedar Park     77     December, 2007   Owned
Utah
                   
Mountain West Medical Center
  Tooele     35     October, 2000   Owned
Virginia
                   
Southern Virginia Regional Medical Center
  Emporia     80     March, 1999   Owned
Southampton Memorial Hospital
  Franklin     105     March, 2000   Owned
Southside Regional Medical Center
  Petersburg     300     August, 2003   Owned
Washington
                   
Deaconess Medical Center
  Spokane     388     October, 2008   Owned
Valley Hospital and Medical Center
  Spokane Valley     123     October, 2008   Owned
West Virginia
                   
Plateau Medical Center
  Oak Hill     25     July, 2002   Owned
Greenbrier Valley Medical Center
  Ronceverte     122     July, 2007   Owned
Wyoming
                   
Evanston Regional Hospital
  Evanston     42     November, 1999   Owned
                     
Total Licensed Beds at December 31, 2008
        17,932          
                     
 
 
(1) Licensed beds are the number of beds for which the appropriate state agency licenses a facility regardless of whether the beds are actually available for patient use.
 
(2) In 2008, we segregated this entity from Northwest Medical Center — Bentonville for reporting purposes.
 
(3) We operate this hospital under a lease-leaseback and operating agreement. We recognize all operating statistics, revenue and expenses associated with this hospital in our consolidated financial statements.
 
(4) In 2008, we segregated this entity from Lutheran Hospital for reporting purposes.
 
The real property of substantially all of our wholly-owned hospitals are encumbered by mortgages under the New Credit Facility.

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The following table lists the hospitals owned by joint venture entities in which we do not have a consolidating ownership interest, along with our percentage ownership interest in the joint venture entity as of December 31, 2008. Information on licensed beds was provided by the majority owner and manager of each joint venture. A subsidiary of HCA Inc. is the majority owner of Macon Healthcare LLC, a subsidiary of Universal Health Systems Inc. is the majority owner of Summerlin Hospital Medical Center LLC and Valley Health System LLC and the Share Foundation is the other 50% owner of MCSA LLC.
 
                     
Joint Venture
 
Facility Name
  City   State   Licensed Beds  
 
Macon Healthcare LLC
  Coliseum Medical Center (38%)   Macon   GA     250  
Macon Healthcare LLC
  Coliseum Psychiatric Center (38%)   Macon   GA     60  
Macon Healthcare LLC
  Coliseum Northside Hospital (38%)   Macon   GA     103  
Summerlin Hospital Medical Center LLC
  Summerlin Hospital Medical Center (26.1%)   Las Vegas   NV     281  
Valley Health System LLC
  Desert Springs Hospital (27.5%)   Las Vegas   NV     286  
Valley Health System LLC
  Valley Hospital Medical Center (27.5%)   Las Vegas   NV     404  
Valley Health System LLC
  Spring Valley Hospital Medical Center (27.5%)   Las Vegas   NV     210  
Valley Health System LLC
  Centennial Hills Medical Center (27.5%)   Las Vegas   NV     165  
MCSA LLC
  Medical Center of South Arkansas (50%)   El Dorado   AR     166  
 
Item 3.   Legal Proceedings
 
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 Act’s 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 court’s ruling to the U.S. Court of Appeals for the Sixth Circuit. On September 10, 2003, the Sixth Circuit Court of Appeals rendered its decision in this case, affirming in part and reversing in part the district court’s decision to dismiss the case with prejudice. The court affirmed the lower court’s dismissal of certain of plaintiff’s 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


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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 relator’s allegations. The only remaining allegations involve a small number of charges from 1997 and 1998 at White County. After further motion practice between the relator and the United States Government regarding the relator’s 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 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 filed a motion for rehearing. That motion for rehearing was denied. The relator amended his complaint to conform to the decision of the Court of Appeals and we filed an answer. A case management conference was held August 18, 2008. The parties have exchanged initial written discovery. Relator has recently filed a pleading stating “Relator Sean Bledsoe has a potentially fatal brain tumor that has severely affected Relator’s long-term and short-term memory...” The court has now ordered that a mandatory settlement conference be stayed until Relator and wife can be deposed. 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 pursued our automatic right of appeal to the Alabama Supreme Court. Briefs have now been filed and oral argument requested. 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 granted our motion to dismiss the case, but allowed the plaintiff to re-plead her case. The plaintiff elected to appeal the Circuit Court’s 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 filed a Petition for Leave of Appeal to the Illinois Supreme Court which was denied. The case has now been remanded and we are evaluating our position concerning discovery and possible dispositive motions. We are vigorously defending this case.


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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 have refiled our motion to dismiss in light of subsequent favorable Illinois Appellate court decisions on the consumer fraud issues. 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 Company’s 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. The Company responded to and subsequently met with the government on October 30, 2008 and in January 2009 we provided additional information. We continue to believe that we have not violated the Federal False Claims Act in the manner described in the government’s letter of January 22, 2008. However, in February 2009 we were informed by the Department of Justice that it intends to pursue litigation in this matter.
 
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 seller’s successor-in-interest has agreed to indemnify the Company and its affiliates. A motion to dismiss the case has been granted and the relator’s appeal of the ruling to the U.S. Court of Appeals for the Fourth Circuit was denied. We will no longer refer to this case in future filings unless there is further litigation.
 
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


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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 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. 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 proceeded with discovery and motions. On February 12, 2009, the parties announced the execution of a settlement agreement, pursuant to which we will transfer our partnership interests on or before March 31, 2009 to THR or an affiliate. We will no longer refer to this case in future filings.
 
On June 12, 2008, two of our hospitals received letters from the U.S. Attorney’s 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. On September 16, 2008, one of our hospitals in South Carolina also received an inquiry. 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 that similar investigations have been initiated at unaffiliated facilities in Alabama, South Carolina, Indiana and other states. We believe that this investigation is related to a recent qui tam settlement between the same U.S. Attorney’s office and the manufacturer and distributor of the Kyphon product, which is used in performing the kyphoplasty procedure. We are cooperating 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 our hospitals have engaged in inappropriate billing for kyphoplasty procedures. We are continuing to evaluate and discuss this matter with the government.
 
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. Whitten’s 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 Quorum’s 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 Quorum’s 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. On August 5, 2008, our motion to dismiss was denied. Discovery is continuing and a motion for summary judgment will be filed. The pre-trial order is due March 13, 2009 and any trial would be anticipated for May 2009. We continue to believe that the relator’s 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


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hospital to pay an 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. Relators entered into a settlement agreement with the hospital, subject to confirmation of the hospital’s reorganization plan. The District Court conducted a status conference on January 30, 2009 and has indicated it will convene another conference with the Bankruptcy Court in the near future. We believe that this case is without merit and should the stay be lifted, will continue to vigorously defend it.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2008.
 
PART II
 
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
We completed an initial public offering of our common stock on June 14, 2000. Our common stock began trading on June 9, 2000 and is listed on the New York Stock Exchange under the symbol CYH. At February 2, 2009, there were approximately 46 record holders of our common stock. The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported by the New York Stock Exchange.
 
                 
    High     Low  
 
Year Ended December 31, 2007
               
First Quarter
  $ 39.05     $ 33.28  
Second Quarter
    41.72       34.86  
Third Quarter
    44.50       30.39  
Fourth Quarter
    37.50       27.70  
Year Ended December 31, 2008
               
First Quarter
  $ 36.85     $ 29.79  
Second Quarter
    40.05       32.40  
Third Quarter
    36.81       28.24  
Fourth Quarter
    28.38       10.47  


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Corporate Performance Graph
 
The following graph sets forth the cumulative return of the Company’s common stock during the five year period ended December 31, 2008, as compared to the cumulative return of the Standard & Poor’s 500 Stock Index (S&P 500) and the cumulative return of the Dow Jones Healthcare Index. The graph assumes an initial investment of $100 in our common stock and in each of the foregoing indices and the reinvestment of dividends where applicable.
 
(PERFORMANCE GRAPH)
 
                                                             
      12/31/2003     12/31/2004     12/31/2005     12/31/2006     12/31/2007     12/31/2008
Community Health Systems
    $ 100.00       $ 104.89       $ 144.24       $ 137.40       $ 138.68       $ 54.85  
Dow Jones Health Care Index
    $ 100.00       $ 103.21       $ 110.30       $ 116.20       $ 124.07       $ 93.95  
S&P 500
    $ 100.00       $ 108.99       $ 112.26       $ 127.55       $ 132.06       $ 81.23  
                                                             
 
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 Moody’s 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 December 31, 2008, the amount of permitted dividends and/or stock repurchases permitted under the indenture was $399 million.
 
The following table contains information about our purchases of common stock during the three months ended December 31, 2008:
 
                                 
                Total Number
       
                of Shares
    Maximum
 
                Purchased as
    Number of
 
    Total
    Average
    Part of
    Shares that May
 
    Number of
    Price
    Publicly
    Yet be Purchased
 
    Shares
    Paid per
    Announced
    Under the Plans
 
Period
  Purchased     Share     Plans(a)     or Programs(a)  
 
October 1, 2008 — October 31, 2008
    2,500,000     $ 20.73       2,500,000       1,983,000  
November 1, 2008 — November 30, 2008
    1,319,609       11.75       1,319,609       663,391  
December 1, 2008 — December 31, 2008
    450,000       12.43       450,000       213,391  
                                 
Total
    4,269,609       17.08       4,269,609       213,391  


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(a) 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 year ended December 31, 2008, we repurchased 4,786,609 shares, which is the cumulative number of shares repurchased under this program, at a weighted-average price of $18.80 per share. This repurchase plan follows a prior repurchase plan for up to five million shares which concluded on November 8, 2006. We repurchased 5,000,000 shares at a weighted average price of $35.23 per share under this earlier program.
 
Item 6.   Selected Financial Data
 
The following table summarizes specified selected financial data and should be read in conjunction with our related Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements. The amounts shown below have been adjusted for discontinued operations. We have restated our 2008 and 2007 financial statements to reflect the reclassification in 2008 of one hospital owned by us during these periods, which is held for sale, to discontinued operations.
 
Community Health Systems, Inc.
Five Year Summary of Selected Financial Data
 
                                         
    Year Ended December 31,  
    2008     2007(1)     2006     2005     2004  
    (In thousands, except share and per share data)  
 
Consolidated Statement of Operations Data
                                       
Net operating revenues
  $ 10,840,098     $ 7,063,775     $ 4,180,136     $ 3,576,117     $ 3,042,880  
Income from operations
    983,574       478,726       385,057       398,463       332,767  
Income from continuing operations
    206,658       57,714       177,695       188,370       158,009  
Net income
    218,304       30,289       168,263       167,544       151,433  
Earnings per common
share — Basic:
                                       
Income from continuing operations
  $ 2.21     $ 0.62     $ 1.87     $ 2.13     $ 1.65  
Income (Loss) on discontinued operations
    0.13       (0.30 )     (0.10 )     (0.24 )     (0.07 )
                                         
Net Income
  $ 2.34     $ 0.32     $ 1.77     $ 1.89     $ 1.58  
                                         
Earnings per common
share — Diluted:
                                       
Income from continuing operations
  $ 2.19     $ 0.61     $ 1.85     $ 2.00     $ 1.58  
Income (Loss) on discontinued operations
    0.13       (0.29 )     (0.10 )     (0.21 )     (0.07 )
                                         
Net Income
  $ 2.32     $ 0.32     $ 1.75     $ 1.79     $ 1.51  
                                         
Weighted-average number of shares outstanding
                                       
Basic
    93,371,782       93,517,337       94,983,646       88,601,168       95,643,733  
Diluted(2)
    94,288,829       94,642,294       96,232,910       98,579,977 (4)     105,863,790 (3)
                                         
Cash and cash equivalents
  $ 220,655     $ 132,874     $ 40,566     $ 104,108     $ 82,498  
Total assets
    13,818,254       13,493,643       4,506,579       3,934,218       3,632,608  
Long-term obligations
    10,611,419       10,334,904       2,207,623       1,932,238       2,030,258  
Stockholders’ equity
    1,672,865       1,710,804       1,723,673       1,564,577       1,239,991  


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(1) Includes the results of operations of the former Triad hospitals from July 25, 2007, the date of acquisition.
 
(2) See Note 12 to the Consolidated Financial Statements, included in item 8 of this Form 10-K.
 
(3) Included 8,582,076 shares related to the convertible notes under the if-converted method of determining weighted average shares outstanding.
 
(4) Included 8,385,031 shares related to the convertible notes under the if-converted method of determining weighted average shares outstanding.
 
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
You should read this discussion together with our consolidated financial statements and the accompanying notes to consolidated financial statements and “Selected Financial Data” included elsewhere in this Form 10-K.
 
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 118 general acute care hospitals included in continuing operations. In addition, we own four home care 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.
 
Since our acquisition of Triad on July 25, 2007 and throughout most of 2008, we have focused our efforts toward integrating the former Triad hospitals and realigning our hospital portfolio. As such we have put less effort toward the pursuit of additional acquisitions. During this time we have sold seven of the hospitals acquired from Triad and seven hospitals owned by us prior to our acquisition of Triad. These hospitals have been classified in discontinued operations for the years ended December 31, 2008, 2007 and 2006 to the extent the hospitals were owned by us during the respective periods. Two additional hospitals acquired from Triad have been classified as held for sale and are also included in discontinued operations during the respective periods of our ownership.
 
During 2008, with the exception of acquiring the outstanding minority interests in two of our hospitals, our only hospital acquisition was a two hospital system located in Spokane, Washington, an acquisition we had been pursuing and for which we were awaiting government approval since 2007.
 
Currently, the global economies, and in particular the United States, are experiencing a period of economic uncertainty and the related financial markets are experiencing a high degree of volatility. This current financial turmoil is adversely affecting the banking system and financial markets and resulting in a tightening in the credit markets, a low level of liquidity in many financial markets and extreme volatility in fixed income, credit, currency and equity markets. A risk associated with this uncertainty is that it could potentially lead to higher levels of uninsured patients, result in higher levels of patients covered by lower paying government programs and/or result in fiscal uncertainties at both government payors and private insurers.
 
As a result of our current levels of cash, available borrowing capacity, long term outlook on our debt repayments and our continued projection of our ability to generate cash flows, we do not anticipate a significant impact on our ability to invest the necessary capital in our business over the next twelve months. However, we do believe it to be prudent that we pursue our strategy of acquiring hospitals very cautiously and therefore we anticipate only completing two acquisitions in 2009. On February 1, 2009, we completed one of


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our anticipated acquisitions for 2009 with the acquisition of Siloam Springs Memorial Hospital (74 licensed beds), located in Siloam Springs, Arkansas, from the City of Siloam Springs.
 
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. The 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 approximately $8.0 million reduction in expected payments from these programs on an annual basis.
 
Self-pay revenues represented approximately 10.7% of our net operating revenues in 2008 compared to 10.0% in 2007. The value of charity care services relative to total net operating revenues decreased to 3.5% in 2008 from 4.6% in 2007. Uninsured and underinsured patients continue to be an industry-wide issue, and we anticipate this trend will continue into the foreseeable future. However, we do not anticipate a significant amount of continuing deterioration resulting from our self-pay business as evidenced by the lack of relative growth in business from self-pay patients over the prior year.
 
Operating results and statistical data for the year ended December 31, 2008, include comparative information for the operations of the acquired Triad hospitals from July 25, 2007, the date of acquisition. Same-store operating results and statistical data include the hospitals acquired in the Triad acquisition as if they were owned by us from January 1 through July 24, 2007 and all other hospitals as owned throughout both periods. For the year ended December 31, 2008, we generated $10.840 billion in net operating revenues, a growth of 53.5% over the year ended December 31, 2007, and $218.3 million of net income, an increase of 620.7% over the year ended December 31, 2007. For the year ended December 31, 2008, admissions at hospitals owned throughout both periods increased 2.0% and adjusted admissions increased 2.2%.
 
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.
 
Acquisitions and Dispositions
 
Effective November 14, 2008, we acquired from Willamette Community Health Solutions all of its joint venture interest in MWMC Holdings, LLC, which indirectly owns and operates McKenzie-Willamette Medical Center of Springfield, Oregon. This acquisition resulted from a put right held by Willamette Community Health Solutions in connection with the 2003 transaction establishing the joint venture. The purchase price for this minority interest was $22.7 million in cash. Physicians affiliated with Oregon Healthcare Resources, Inc. continue to own a minority interest in the hospital.
 
Effective October 1, 2008, we completed the acquisition of Deaconess Medical Center (388 licensed beds) and Valley Hospital and Medical Center (123 licensed beds) located in Spokane, Washington, from Empire Health Services. The total consideration for these two hospitals was approximately $182.6 million, of which $149.2 million was paid in cash and $33.4 million was assumed in liabilities.
 
Effective June 30, 2008, we acquired the remaining 35% equity 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 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 to Affinity Health Systems, LLC in the original principal amount of $32.8 million.
 
Effective March 1, 2008, we 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. Mary’s 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


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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, we 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, we 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.
 
As of December 31, 2008, we had two hospitals classified as held for sale and included in discontinued operations.
 
Sources of 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 years presented are not strictly comparable due to the significant effect that hospital acquisitions have had on these statistics.
 
                         
    Year Ended December 31,  
    2008     2007     2006  
 
Medicare
    27.5 %     29.0 %     30.4 %
Medicaid
    9.1 %     10.3 %     11.1 %
Managed care and other third party payors
    52.7 %     50.7 %     46.7 %
Self pay
    10.7 %     10.0 %     11.8 %
                         
Total
    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 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 adjustments and report them in the periods that such adjustments become known. Adjustments related to final settlements were insignificant to both net operating revenue and net income in the years ended December 31, 2008, 2007 and 2006. In the future, we expect the percentage of revenues received from the Medicare program to increase due to the general aging of the population.
 
The payment rates under the Medicare program for inpatient acute services are based on a prospective payment system, depending upon the diagnosis of a patient’s condition. These rates are indexed for inflation annually, although the 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 effect our net operating revenue growth.


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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 care 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.
 
                         
    Year Ended December 31,  
    2008     2007     2006  
    (Expressed as a percentage
 
    of net operating revenues)  
 
Consolidated(a):
                       
Net operating revenues
    100.0       100.0       100.0  
Operating expenses(b)
    (86.3 )     (88.9 )     (86.5 )
Depreciation and amortization
    (4.6 )     (4.4 )     (4.3 )
                         
Income from operations
    9.1       6.7       9.2  
Interest expense, net
    (6.0 )     (5.1 )     (2.2 )
Loss from early extinguishment of debt
          (0.4 )      
Minority interest in earnings
    (0.4 )     (0.2 )     (0.1 )
Equity in earnings of unconsolidated affiliates
    0.4       0.4        
                         
Income from continuing operations before income taxes
    3.1       1.4       6.9  
Provision for income taxes
    (1.2 )     (0.6 )     (2.6 )
                         
Income from continuing operations
    1.9       0.8       4.3  
Income (loss) on discontinued operations, net of tax
    0.1       (0.4 )     (0.3 )
                         
Net income
    2.0       0.4       4.0  
                         
 
                 
    Year Ended December 31,  
    2008     2007  
    (Expressed in percentages)  
 
Percentage increase from prior year(a):
               
Net operating revenues
    53.5 %     69.0 %
Admissions
    44.5       49.1  
Adjusted admissions(c)
    42.1       47.5  
Average length of stay
          2.4  
Net Income(d)
    620.7       (82.0 )
Same-store percentage increase from prior year(a)(e):
               
Net operating revenues
    6.6 %     4.2 %
Admissions
    2.0       (1.1 )
Adjusted admissions(c)
    2.2       0.3  
 
 
(a) Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we have restated our 2008 and 2007 financial statements to reflect the reclassification in 2008 of one hospital owned by us during these periods, which is held for sale, to discontinued operations. Our statistical results have also been restated to reflect the aforementioned reclassification.


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(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 income (loss) on discontinued operations.
 
(e) Includes former Triad hospitals during the comparable periods and other acquired hospitals to the extent we operated them during comparable periods in both years.
 
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
Net operating revenues increased by 53.5% to $10.840 billion in 2008, from $7.064 billion in 2007. On a combined basis, the hospitals acquired in the Triad acquisition and growth from those hospitals owned throughout both periods contributed $3.557 billion of the increase and $219 million was contributed by other hospitals acquired in 2008. On a same-store basis, including the former Triad hospitals as if they were owned by us as of January 1, 2007, this represents an increase in same-store net revenue of 6.6%. The increase from hospitals that we owned throughout both periods was attributable to volume increases, rate increases, payor mix and the acuity level of services provided.
 
On a consolidated basis inpatient admissions increased by 44.5% and adjusted admissions increased by 42.1%. With respect to consolidated admissions, approximately 50.5% were contributed from newly acquired hospitals, including those hospitals acquired from Triad, and 49.5% 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 both years, admissions increased by 2.0% during the year ended December 31, 2008.
 
Operating expenses, excluding depreciation and amortization, as a percentage of net operating revenues, decreased from 88.9% in 2007 to 86.3% in 2008. Salaries and benefits, as a percentage of net operating revenues, decreased from 40.7% in 2007 to 39.9% in 2008, primarily as a result of efficiency improvements realized at hospitals owned throughout both periods. These improvements were partially offset by an increase in the number of employed physicians as well as an increase in salaries for certain IT employees who were previously treated as leased employees with related expense previously being included in other operating expense. Provision for bad debts, as a percentage of net revenues, decreased from 12.5% in 2007 to 11.2% in 2008, due primarily to $70.1 million of additional bad debt expense recorded as a change in estimate to increase the allowance for doubtful accounts in 2007. Supplies, as a percentage of net operating revenues, increased from 13.2% in 2007 to 14.0% in 2008, 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 22.5% in 2007 to 21.2% in 2008, primarily as a result of the hospitals acquired from Triad having lower rent expense as a percentage of net operating revenues. As part of our acquisition of Triad, we acquired minority ownership interests in several hospitals. Our percentage of ownership interests in these joint ventures provided earnings of 0.4% of net operating revenues during both of the years ended December 31, 2008 and 2007. Prior to the Triad acquisition, we did not have any material minority investments in joint ventures.
 
Income from continuing operations margin increased from 0.8% in 2007 to 1.9% in 2008. Net income margins increased from 0.4% in 2007 to 2.0% in 2008. The increase in these margins is reflective of the impact of the net decrease in expenses, as a percentage of net revenue, discussed above.
 
Depreciation and amortization increased from 4.4% of net operating revenues in 2007 to 4.6% of net operating revenues in 2008.
 
Interest expense, net, increased by $290.1 million from $361.8 million in 2007, to $651.9 million in 2008. The primary reason for the increase in interest expense is the increase in our average outstanding debt during the year ended December 31, 2008, as compared to the year ended December 31, 2007, resulting in an additional $299.2 million of interest expense. Interest expense for the year ended December 31, 2008 includes


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a full year of interest expense from borrowings under our New Credit Facility and the issuance of Notes in connection with the acquisition of Triad in 2007. Since 2008 was a leap year, one additional day in the year resulted in $1.8 million of the increase in interest expense. A decrease in our effective interest rate during the year ended December 31, 2008, as compared to the year ended December 31, 2007, resulted in a decrease in interest expense of $10.9 million.
 
The net results of the above mentioned changes resulted in income from continuing operations before income taxes increasing $236.6 million from $99.5 million in 2007 to $336.1 million for 2008.
 
Provision for income taxes from continuing operations increased from $41.8 million in 2007 to $129.5 million in 2008 due to the increase in income from continuing operations before income taxes. Our effective tax rates were 38.5% and 41.8% for the years ended December 31, 2008 and 2007, respectively. The decrease in our effective tax rate is primarily a result of a decrease in our effective state tax rate.
 
Net income was $218.3 million in 2008 compared to $30.3 million for 2007, an increase of 620.7%. The increase in net income is reflective of the impact of the net decrease in expenses discussed above, including the effect of the change in estimate that increased bad debt expense in 2007.
 
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 
Net operating revenues increased by 69.0% to $7.064 billion in 2007, from $4.180 billion in 2006. This increase was net of a $96.3 million reduction to net operating revenues as a result of the change in estimate to increase contractual allowances recorded in the fourth quarter of 2007. On a combined basis, the hospitals acquired in the Triad acquisition and growth from those hospitals owned throughout both periods contributed $2.458 billion of that increase and $426 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 4.2%. The increase from hospitals that we owned throughout both periods was attributable to volume increases, rate increases, payor mix and the acuity level of services provided.
 
On a consolidated basis inpatient admissions increased by 49.1% and adjusted admissions increased by 47.5%. With respect to consolidated admissions, approximately 34% were contributed from newly acquired hospitals, including those hospitals acquired from Triad, and 66% 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 from August 1 through December 31 of both periods, admissions decreased by 1.1% during the year ended December 31, 2007.
 
Operating expenses, excluding depreciation and amortization, as a percentage of net operating revenues, increased from 86.5% in 2006 to 88.9% in 2007. Salaries and benefits, as a percentage of net operating revenues, increased from 39.8% in 2006 to 40.7% in 2007, primarily as a result of an increase in stock compensation expense, incurring duplicate salary costs related to the acquisition of Triad for certain corporate overhead positions not yet eliminated and an increase in the number of employed physicians. These increases have offset improvements realized at hospitals owned throughout both periods. Provision for bad debts, as a percentage of net revenues, increased from 12.4% in 2006 to 12.5% in 2007, due primarily to $70.1 million of additional bad debt expense recorded as a change in estimate to increase the allowance for doubtful accounts. Supplies, as a percentage of net operating revenues, increased from 11.7% in 2006 to 13.2% in 2007, primarily from the acquisition of hospitals from Triad whose higher acuity of services and lower purchasing program utilization resulted in higher supply costs than our other hospitals taken collectively and from other recent acquisitions for which we have yet to fully integrate into our purchasing program, offsetting improvements at hospitals owned throughout both periods 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% in 2006 to 22.5% in 2007, primarily as a result of the hospitals acquired from Triad having lower rent expense as a percentage of net operating revenues. As part of our acquisition of Triad, we acquired minority ownership interests in several hospitals. These investments provided earnings of 0.4% of net operating revenues during the year ended December 31, 2007. Prior to the Triad acquisition, we did not have any material minority investments in joint ventures.


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Income from continuing operations margin decreased from 4.3% in 2006 to 0.8% in 2007. Net income margins decreased from 4.0% in 2006 to 0.4% in 2007. The decrease in these margins is reflective of the impact of the net increase in expenses, as a percentage of net revenue, discussed above and the increase in interest expense and loss on early extinguishment of debt associated with the acquisition of Triad.
 
Depreciation and amortization increased from 4.3% of net operating revenues in 2006 to 4.4% of net operating revenues in 2007.
 
Interest expense, net, increased by $267.4 million from $94.4 million in 2006, to $361.8 million in 2007. An increase in the average debt balance in 2007 as compared to 2006 of $3.583 billion, due primarily to the additional borrowings to fund the Triad acquisition and repay our previous outstanding debt, accounted for a $245.9 million increase in interest expense. An increase in interest rates due to an increase in LIBOR during 2007, as compared to 2006, accounted for $21.5 million of the increase.
 
The net results of the above mentioned changes plus a $27.3 million loss from early extinguishment of debt incurred in connection with the financing of the Triad acquisition, resulted in income from continuing operations before income taxes decreasing $188.3 million from $287.8 million in 2006 to $99.5 million for 2007.
 
Provision for income taxes from continuing operations decreased from $110.2 million in 2006 to $41.8 million in 2007 due to the decrease in income from continuing operations before income taxes. Our effective tax rates were 41.8% and 38.3% for the years ended December 31, 2007 and 2006, respectively. The increase in our effective tax rate is primarily a result of an increase in valuation allowances. As a result of the additional interest expense expected to be incurred, we determined that certain of our state net operating losses will expire before being utilized and accordingly established appropriate valuation allowances.
 
Net income was $30.3 million in 2007 compared to $168.3 million for 2006, a decrease of 82%. The decrease in net income is reflective of the impact of the net increase in expenses discussed above, including the effect of the change in estimate that increased bad debt expense in 2007.
 
Liquidity and Capital Resources
 
2008 Compared to 2007
 
Net cash provided by operating activities increased $369.5 million from $687.7 million for the year ended December 31, 2007 to $1.057 billion for the year ended December 31, 2008. This increase is due to an increase in cash flow from net income of $188.0 million, increases in cash flows from other assets of $29.1 million and a net increase in non-cash expenses of $350.2 million, of which $174.1 million was related to depreciation and $199.8 million related to deferred income taxes. These cash flow increases were offset by decreases in cash flows from supplies, prepaid expenses and other current assets of $2.7 million, accounts receivable of $188.7 million and accounts payable, accrued liabilities and income taxes of $6.4 million. The decrease in income taxes was primarily a result of a prior year prepaid tax position which was used to offset taxes owed during the current year.
 
The use of cash in investing activities decreased $6.833 billion from $7.499 billion in 2007 to $665.5 million in 2008, as a result of the acquisition occurring in 2007. The purchase of property and equipment in 2008 increased $169.4 million from $522.8 million in 2007 to $692.2 million in 2008. This increase reflects the increased number of hospitals owned by us after the acquisition of Triad. We anticipate being able to fund future routine capital expenditures with cash flows generated from operations.
 
In 2008, our net cash provided by financing activities decreased $7.207 billion from $6.903 billion in 2007 to a net cash used in financing activities of $304.0 million in 2008, primarily due to borrowings under our New Credit Facility and issuance of Notes in connection with the acquisition of Triad in 2007. During the fourth quarter of 2008, $100 million of delayed draw term loans had been drawn by us.
 
In 2008, we used $90.0 million for the repurchase of 4,786,609 shares of our outstanding common stock on the open market. We believed this to be a prudent use of cash as a result of the severely depressed stock price under the current economic conditions. Our New Credit Facility limits our ability to pay dividends and/


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or repurchase stock to an amount not to exceed $400 million in the aggregate (but not in excess $200 million unless we receive confirmation from Moody’s 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 December 31, 2008, the amount of permitted dividends and/or stock repurchases permitted under the indenture was $399 million.
 
With the exception of some small principal payments of our term loans under our New Credit Facility, representing less than 1% of the outstanding balance each year through 2013, the term loans under our New Credit Facility mature in 2014 and our Notes are not due until 2015. We believe this five to six year period before final maturity allows sufficient time for the current financial environment to improve and permits us to make favorable changes, including refinancing, to our debt structure. Furthermore, we do not anticipate the need to use funds currently available under our New Credit Facility for purposes of funding our operations, although these funds could be used for the purpose of making further acquisitions or for restructuring our existing debt. Furthermore, we anticipate we will remain in compliance with our debt covenants and thus it would not be necessary to exercise the cures available to us in our existing debt agreements.
 
As described in Notes 6, 9 and 15 of the Notes to Consolidated Financial Statements, at December 31, 2008, we had certain cash obligations, which are due as follows (in thousands):
 
                                         
                            2015
 
    Total     2009     2010-2012     2013-2014     and thereafter  
 
Long Term Debt
  $ 6,015,529     $ 22,730     $ 148,787     $ 5,821,263     $ 22,749  
Senior Notes
    2,910,831                         2,910,831  
Interest on Bank Facility and Notes(1)
    2,947,815       487,993       1,454,945       864,943       139,934  
Capital Leases, including interest
    58,972       10,589       16,553       5,865       25,965  
                                         
Total Long-Term Debt
    11,933,147       521,312       1,620,285       6,692,071       3,099,479  
Operating Leases
    842,523       159,954       339,486       137,514       205,569  
Replacement Facilities and Other Capital Committments(2)
    527,320       110,683       383,615       18,022       15,000  
Open Purchase Orders(3)
    93,257       93,257                    
Financial Interpretation No. 48 obligations, including interest and penalties
    18,211       6,454       11,757              
                                         
Total
  $ 13,414,458     $ 891,660     $ 2,355,143     $ 6,847,607     $ 3,320,048  
                                         
 
 
(1) Estimate of interest payments assumes the interest rates at December 31, 2008 remain constant during the period presented for the New Credit Facility, which is variable rate debt. The interest rate used to calculate interest payments for the New Credit Facility was LIBOR as of December 31, 2008 plus the spread. The Notes are fixed at an interest rate of 8.875% per annum.
 
(2) Pursuant to purchase agreements in effect as of December 31, 2008 and where certificate of need approval has been obtained, we have commitments to build the following replacement facilities and the following capital commitments. As required by an amendment to our lease agreement entered into in 2005, we agreed to build a replacement hospital at our Barstow, California location by November 2012. As part of an acquisition in 2007, we agreed to build a replacement hospital in Valparaiso, Indiana by April 2011. Construction costs, including equipment costs, for these two replacement facilities are currently estimated to be approximately $269.0 million of which approximately $8.5 million has been incurred to date. In addition as a part of an acquisition in 2004, we committed to spend $90.0 million in capital expenditures within eight years in Phoenixville, Pennsylvania, and as part of an acquisition in 2005, we committed to spend approximately $64 million within seven years and an additional $15 million with no set completion


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date related to capital expenditures at Chestnut Hill Hospital in Philadelphia, Pennsylvania. As of December 31, 2008, we have incurred to date approximately $53.6 million and $17.0 million for the capital expenditures at Phoenixville, Pennsylvania and Chestnut Hill, Pennsylvania, respectively. As part of an acquisition in 2008, we committed to spend $100.0 million within five years related to capital expenditures at Deaconess Hospital and Valley Hospital and Medical Center, both in Spokane, Washington. As of December 31, 2008, we have incurred to date approximately $11.3 million related to this commitment.
 
(3) Open purchase orders represent our commitment for items ordered but not yet received.
 
As more fully described in Note 6 of the Notes to Consolidated Financial Statements at December 31, 2008, we had issued letters of credit primarily in support of potential insurance related claims and specified outstanding bonds of approximately $93.6 million.
 
Our debt as a percentage of total capitalization remained consistent at 84% for both December 31, 2008 and 2007.
 
2007 Compared to 2006
 
Net cash provided by operating activities increased $337.4 million from $350.3 million for the year ended December 31, 2006 compared to $687.7 million for the year ended December 31, 2007. This increase is due to an increase in cash flow from changes in accounts receivable of $202.4 million, increases in cash flows from accounts payable, accrued liabilities and income taxes of $73.8 million, and an increase in non-cash expenses of $231.6 million, of which $143.8 million was related to depreciation. These cash flow increases were offset by decreases in cash flows from supplies, prepaid expenses and other current assets of $27.4 million, decreases in cash flows from other assets and liabilities of $5.0 million and a decrease in net income of $138.0 million.
 
The use of cash in investing activities increased $6.859 billion from $640.3 million in 2006 to $7.499 billion in 2007, as a result of the acquisition of Triad for $6.836 billion.
 
In 2007, our net cash provided by financing activities increased $6.677 billion from $226.5 million in 2006 to $6.903 billion in 2007 from our New Credit Facility and issuance of Notes in connection with the acquisition of Triad.
 
Capital Expenditures
 
Cash expenditures for purchases of facilities were $161.9 million in 2008, $7.018 billion in 2007 and $384.6 million in 2006. Our expenditures in 2008 included $149.1 million for the purchase of two hospitals and $12.8 million for the purchase of physician practices and a home care agency. Our expenditures in 2007 included $6.865 billion for the purchase of Triad, $133.7 million for the purchase of two additional hospitals, $3.4 million for the purchase of physician practices, $7.7 million for equipment to integrate acquired hospitals and $8.5 million for the settlement of acquired working capital. Our expenditures in 2006 included $334.5 million for the purchase of the eight hospitals acquired in 2006, $21.8 million for the purchase of three home care agencies and physician practices, $21.5 million for information systems and other equipment to integrate the hospitals acquired in 2006 and $6.8 million for the settlement of acquired working capital.
 
Excluding the cost to construct replacement hospitals and a de novo hospital, our cash expenditures for routine capital for 2008 totaled $569.4 million compared to $344.1 million in 2007, and $207.7 million in 2006. Costs to construct replacement hospitals and a de novo hospital totaled $122.8 million in 2008, $178.7 million in 2007 and $16.8 million in 2006.
 
Pursuant to hospital purchase agreements in effect as of December 31, 2008, as part of an acquisition in 2007, we agreed to build a replacement hospital in Valparaiso, Indiana by April 2011. Also as required by an amendment to a lease agreement entered into in 2005, we agreed to build a replacement facility at Barstow Community Hospital in Barstow, California. Estimated construction costs, including equipment costs, are approximately $269 million for these two replacement facilities. We expect total capital expenditures of approximately $600 to $650 million in 2009 (which includes amounts which are required to be expended pursuant to the terms of hospital purchase agreements), including approximately $593 to $640 million for


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renovation and equipment cost and approximately $7 to $10 million for construction and equipment cost of the replacement hospitals.
 
Capital Resources
 
Net working capital was $1.071 billion at December 31, 2008 compared to $1.105 billion at December 31, 2007, a decrease of $34 million. This decrease in working capital is due to increases in accounts payable of $16.4 million and accrued liabilities of $21.6 million, decreases in other current assets of approximately $100.1 million and deferred income taxes of $21.9 million and the net reduction in all other working capital assets and liabilities of $15.1 million. This decrease in working capital was offset by an increase in working capital attributable to the acquisition of Deaconess Medical Center and Valley Hospital and Medical Center, which provided additional working capital of $17.7 million at December 31, 2008. In addition, an increase in cash of $85.3 million and accounts receivable of $38.1 million also offset the decrease in working capital.
 
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 nine years. During the fourth quarter of 2008, $100 million of the delayed draw term loan had been drawn down by us reducing the delayed draw term loan availability to $200 million at December 31, 2008. In January 2009, we drew down the remaining $200 million of the delayed draw term loan. 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 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 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 was initially 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.


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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 were 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. With respect to the delayed draw term loan facility, we were also obligated to pay commitment fees of 0.50% per annum for the first nine months after the close of the New Credit Facility and 0.75% per annum for the next three months thereafter. Thereafter, we are obligated to pay a commitment fee of 1.0% per annum. In each case, the commitment fee is based 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 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 December 31, 2008, there was approximately $950 million of available borrowing capacity under our New Credit Facility, of which $93.6 million was set aside for outstanding letters of credit and $200 million was available under the delayed draw term loan facility (which was borrowed in January 2009). We believe that 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 year ended December 31, 2008, we repurchased on the open market and cancelled $110.5 million of principal amount of the Notes. This resulted in a net gain from early extinguishment of debt of $2.5 million with an after-tax impact of $1.6 million.


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As of December 31, 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
    Fixed
             
    Amount
    Interest
    Termination
    Fair Value
 
Swap #
  (In 000’s)     Rate     Date     (In 000’s)  
 
1
  $ 100,000       3.9350 %     June 6, 2009     $ (975 )
2
    100,000       4.3375 %     November 30, 2009       (2,147 )
3
    200,000       2.8800 %     September 17, 2010       (3,846 )
4
    100,000       4.9360 %     October 4, 2010       (5,632 )
5
    100,000       4.7090 %     January 24, 2011       (6,327 )
6
    300,000       5.1140 %     August 8, 2011       (25,737 )
7
    100,000       4.7185 %     August 19, 2011       (7,645 )
8
    100,000       4.7040 %     August 19, 2011       (7,609 )
9
    100,000       4.6250 %     August 19, 2011       (7,408 )
10
    200,000       4.9300 %     August 30, 2011       (16,510 )
11
    200,000       3.0920 %     September 18, 2011       (7,118 )
12
    100,000       3.0230 %     October 23, 2011       (3,432 )
13
    200,000       4.4815 %     October 26, 2011       (14,788 )
14
    200,000       4.0840 %     December 3, 2011       (12,949 )
15
    100,000       3.8470 %     January 4, 2012       (5,908 )
16
    100,000       3.8510 %     January 4, 2012       (5,919 )
17
    100,000       3.8560 %     January 4, 2012       (5,934 )
18
    200,000       3.7260 %     January 8, 2012       (11,150 )
19
    200,000       3.5065 %     January 16, 2012       (9,924 )
20
    250,000       5.0185 %     May 30, 2012       (25,375 )
21
    150,000       5.0250 %     May 30, 2012       (15,337 )
22
    200,000       4.6845 %     September 11, 2012       (19,262 )
23
    100,000       3.3520 %     October 23, 2012       (5,080 )
24
    125,000       4.3745 %     November 23, 2012       (10,932 )
25
    75,000       4.3800 %     November 23, 2012       (6,668 )
26
    150,000       5.0200 %     November 30, 2012       (16,905 )
27
    100,000       5.0230 %     May 30, 2013       (12,247 )
28
    300,000       5.2420 %     August 6, 2013       (40,561 )
29
    100,000       5.0380 %     August 30, 2013       (12,762 )
30
    50,000       3.5860 %     October 23, 2013       (3,297 )
31
    50,000       3.5240 %     October 23, 2013       (3,160 )
32
    100,000       5.0500 %     November 30, 2013       (13,262 )
33
    200,000       2.0700 %     December 19, 2013       161  
34
    100,000       5.2310 %     July 25, 2014       (15,376 )
35
    100,000       5.2310 %     July 25, 2014       (15,376 )
36
    200,000       5.1600 %     July 25, 2014       (30,033 )
37
    75,000       5.0405 %     July 25, 2014       (10,809 )
38
    125,000       5.0215 %     July 25, 2014       (17,895 )


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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 $950 million (consisting of a $750 million revolving credit facility and $200 million of our 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. On December 22, 2008, we filed a universal automatic shelf registration statement on Form S-3ASR that will permit us, from time to time, in one or more public offerings, to offer debt securities, common stock, preferred stock, warrants, depositary shares, or any combination of such securities. The shelf registration statement will also permit our subsidiary, CHS, to offer debt securities that would be guaranteed by us, from time to time in one or more public offerings. The terms of any such future offerings would be established at the time of the offering.
 
Off-balance sheet arrangements
 
Excluding the hospital whose lease terminated in conjunction with our sale of interests in the partnership holding the lease and whose operating results are included in discontinued operations, our consolidated operating results for the years ended December 31, 2008 and 2007, included $282.0 million and $275.6 million, respectively, of net operating revenue and $18.4 million and $22.7 million, respectively, of income from operations, generated from seven hospitals operated by us under operating lease arrangements. In accordance with accounting principles generally accepted in the United States of America, the respective assets and the future lease obligations under these arrangements are not recorded in our consolidated balance sheet. Lease payments under these arrangements are included in rent expense and totaled approximately $16.7 million and $15.2 million for the years ended December 31, 2008 and 2007, respectively. 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.


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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 operating strategies to 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.
 
As described more fully in Note 15 of the Notes to Consolidated Financial Statements, at December 31, 2008, we have certain cash obligations for replacement facilities and other construction commitments of $527.3 million and open purchase orders for $93.3 million.
 
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, and in conjunction with the acquisition of Triad, we acquired 19 hospitals containing minority ownership interests ranging from less than 1% to 35%. As of December 31, 2008, 22 of our hospitals were owned by physician joint ventures, of which one also had a non-profit entity as a partner. In addition, five other hospitals had non-profit entities as partners. During 2008, we sold minority interests in six of our hospitals for total consideration of $80.0 million. These minority interest positions represent ownership positions in the hospitals ranging from less than 1% to 40%. Effective June 30, 2008, we acquired the remaining 35% equity 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 to acquire this interest was $51.5 million in cash and the cancellation of a promissory note issued by Baptist to Affinity Health Systems, LLC in the original principal amount of $32.8 million. Effective November 14, 2008, we acquired from Willamette Community Health Solutions all of its joint venture interest in MWMC Holdings, LLC, which indirectly owns and operates McKenzie-Willamette Medical Center of Springfield, Oregon. This acquisition resulted from a put right held by Willamette Community Health Solutions in connection with the 2003 transaction establishing the joint venture. The purchase price to acquire this interest was $22.7 million in cash. Physicians affiliated with Oregon Health Resources, Inc. continue to own a minority interest in the hospital. Minority interests in equity of consolidated subsidiaries was $325.2 million and $366.1 million as of December 31, 2008 and December 31, 2007, respectively, and the amount of minority interest in earnings was $40.1 million and $15.2 million for the years ended December 31, 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.


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Critical Accounting Policies
 
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 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. For a detailed discussion on the application of these and other accounting policies, see Note 1 in the Notes to the Consolidated Financial Statements.
 
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. Contractual allowances are automatically calculated and recorded through our internally developed “automated contractual allowance system.” Within the automated system, excluding the former Triad hospitals, 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, regardless of payor or method of calculation, contractual allowances are determined through a process wherein contractual allowance adjustments are reviewed and compared to actual payment experience. 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. The process of estimating contractual allowances requires us to estimate the amount expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification and historical paid claims data. Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record. If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% from our estimated reimbursement percentage, net income for the year ended December 31, 2008 would have changed by approximately $24.1 million, and net accounts receivable would have changed by $39.1 million. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements were insignificant to both net operating revenue and net income in each of the years ended December 31, 2008, 2007 and 2006.
 
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.


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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 primary key cash collection indicator that experienced deterioration during the fourth quarter of 2007 was “cash receipts as a percentage of net revenue less bad debts.” This indicator decreased to the lowest percentage experienced by us since the quarter ended September 30, 2006. Further analysis indicated the primary causes of this deterioration were a continuing increase in the volume of indigent non-resident aliens, an increase in the number of patients qualifying for charity care and a greater than expected impact of the removal of participants from TennCare (Tennessee’s state provided Medicaid program) which increased the number of uninsured patients with limited financial means receiving care at our eight Tennessee hospitals. During the fourth quarter of 2007, due to the deteriorating cash collections and the desire to standardize processes with those of the former Triad hospitals, we undertook a detailed programming effort to develop data around the deteriorating classes of accounts receivable needed to update its historical cash collections percentages as well as enable it to estimate how much of certain self-pay categories ultimately convert to Medicaid, charity and indigent programs. Triad’s processes for establishing contractual allowances and allowances for bad debts related to accounts classified as Medicaid — pending, charity — pending and indigent non-resident alien included inputs and assumptions based on the historical percentage of these accounts which ultimately qualified for specific government programs or for write-off as charity care.
 
We used these new inputs and assumptions regarding Medicaid — pending, charity — pending, and indigent non-resident alien in conjunction with the new data developed in the fourth quarter of 2007 as described above to evaluate the reliability of accounts receivable and to revise our estimate of contractual allowances for estimated amounts of self-pay accounts receivable that will ultimately qualify as charity care, or that will ultimately qualify for Medicaid, indigent care or other specific governmental reimbursement, resulting in an increase to our contractual reserves of $96.3 million as of December 31, 2007. Previous estimates of uncollectible amounts for such receivables were included in our bad debt reserves for each period.
 
Furthermore, in updating the historical collection statistics of all our hospitals, we also took into account a detailed study of the historical collection information for the hospitals acquired from Triad. The updated collection statistics of the hospitals acquired from Triad also showed subsequent deterioration in cash collections similar to those experienced by the other hospitals that we own. Therefore, we also standardized the processes for calculating the allowance for doubtful accounts of the hospitals acquired from Triad to that of our other hospitals which, along with the allowance percentages determined from the new collection data, resulted in the recording of an additional $70.1 million of allowance for bad debts as of December 31, 2007.
 
The resulting impact of the above, 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. The process of estimating the allowance for doubtful accounts requires us to estimate the collectability of self-pay accounts receivable, which is primarily based on our collection history, adjusted for expected recoveries and, if available, anticipated changes in collection trends. Significant change in payor mix, business office operations, economic conditions, trends in federal and state governmental healthcare coverage or other third party payors could affect our estimates of accounts receivable collectability. If the actual collection percentage differed by 1% from our


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estimated collection percentage as a result of a change in expected recoveries, net income for the year ended December 31, 2008 would have changed by $11.5 million, and net accounts receivable would have changed by $18.7 million. 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 $1.5 billion at December 31, 2008 and 2007, 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 as a reduction to bad debt expense 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.
 
All of the following information is derived from our hospitals, excluding clinics, unless otherwise noted.
 
Patient accounts receivable from our hospitals represent approximately 95% of our total consolidated accounts receivable.
 
Days revenue outstanding was 53 days at December 31, 2008 and 54 days at December 31, 2007. Our target range for days revenue outstanding is from 52 to 58 days.
 
Total gross accounts receivable (prior to allowance for contractual adjustments and doubtful accounts) was approximately $5.458 billion as of December 31, 2008 and approximately $4.692 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 December 31,  
    2008     2007  
 
0 – 60 days
    59.8 %     61.2 %
60 – 150 days
    19.0 %     18.8 %
151 – 360 days
    16.2 %     15.3 %
Over 360 days
    5.0 %     4.7 %
                 
Total
    100.0 %     100.0 %
 
The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and doubtful accounts) summarized by payor is as follows:
 
                 
    As of December 31,  
    2008     2007  
 
Insured receivables
    67.0 %     66.7 %
Self-pay receivables
    33.0 %     33.3 %
                 
Total
    100.0 %     100.0 %
 
For the hospital segment, the combined total of the allowance for doubtful accounts and related allowances for other self-pay discounts and contractuals, as a percentage of gross self-pay receivables, was approximately 80% at December 31, 2008 and 79% at December 31, 2007. If the receivables that have been written-off, but where collections are still being pursued by outside collection agencies, were included in both the allowances and gross self-pay receivables specified above, the percentage of combined allowances to total self-pay receivables would have been approximately 88% at December 31, 2008 and 89% at December 31, 2007.


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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 Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets” and is not amortized. SFAS 142 requires goodwill to be evaluated for impairment at the same time every year and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. SFAS No. 142 requires a two-step method for determining goodwill impairment. Step one is to compare the fair value of the reporting unit with the unit’s carrying amount, including goodwill. If this test indicates the fair value is less than the carrying value, then step two is required to compare the implied fair value of the reporting unit’s goodwill with the carrying value of the reporting unit’s goodwill. We have selected September 30th as our annual testing date.
 
We estimate the fair value of the related reporting units using both a discounted cash flow model as well as an 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. Historically our valuation models did not fully capture the fair value of our business as a whole, as they did not consider the increased consideration a potential acquirer would be required to pay, in the form of a control premium, in order to gain sufficient ownership to set policies, direct operations and control management decisions. However, because our models have indicated value significantly in excess of the carrying amount of assets in our reporting units, the additional value from a control premium was not a determining factor in the outcome of step one of our impairment assessment.
 
As indicated above, in addition to the annual impairment analysis, we are required to evaluate goodwill for impairment whenever an event occurs or circumstances change such that it is more likely than not that an impairment may exist. In light of this requirement, we have considered whether the decline in our market capitalization between September 30, 2008 and December 31, 2008 has, more likely than not, resulted in the existence of an impairment and have concluded that the decline in our market capitalization did not, more likely than not, result in the existence of an impairment. In making this conclusion, we gave consideration to the valuation of hospitals in which we sold equity interests during periods subsequent to September 30, 2008, currently proposed hospital equity sale transactions, our proposed purchase price for a hospital which we anticipate closing on the acquisition in the first half of 2009, the increase in our stock price since December 31, 2008 and our average stock price over the trailing 3 month, 6 month and 1 year periods. We also considered the fact that the decline in our stock price has not been related to a decline in our operating performance and that any near term credit tightening within the financial markets could be overcome by us through the substantial amount of cash flows being generated by us, as well as, the borrowing capacity available to us through our existing credit facilities. The current turmoil in the financial markets and weakness in macroeconomic conditions globally continue to be challenging and we cannot be certain of the duration of these conditions and their potential impact on our stock price performance. If a further decline in our market capitalization and other factors resulted in the decline in our fair value, it is reasonably likely that a goodwill impairment assessment prior to the next annual review, in the fourth quarter of 2009, would be necessary. If such an assessment is required, an impairment of goodwill may be recognized. A non-cash goodwill impairment charge would have the effect of decreasing our earnings or increasing our losses in the period the impairment is recognized. The amount of such effect on earnings and losses is dependent on the size of the impairment charge. Such a change, however, would be a non-cash charge and therefore would not impact our compliance with covenants contained in our New Credit Facility.
 
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


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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 Claims
 
As part of our business of owning and operating hospitals, we are subject to legal actions alleging liability on our part. We accrue for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims. These direct out-of-pocket expenses include fees of outside counsel and experts. We do not accrue for costs that are part of our corporate overhead, such as the costs of our in-house legal and risk management departments. The losses resulting from professional liability claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the nature and level of our hospital operations, and actuarially determined projections. The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns which have been gathered over an approximate 20-year period. As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third party insurers, the liability we accrue does not include an amount for the losses covered by our excess insurance. Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue for losses resulting from professional liability claims using the risk-free interest rate corresponding to the timing of our expected payments.
 
The net present value of the projected payments was discounted using a weighted-average risk-free rate of 2.6%, 4.1% and 4.6% in 2008, 2007 and 2006, respectively. This liability is adjusted for new claims information in the period such information becomes known to us. Professional malpractice expense includes the losses resulting from professional liability claims and loss adjustment expense, as well as paid excess insurance premiums, and is presented within other operating expenses in the accompanying consolidated statements of income.
 
Our processes for obtaining and analyzing claims and incident data are standardized across all of our hospitals and have been consistent for many years. We monitor the outcomes of the medical care services that we provide and for each reported claim, we obtain various information concerning the facts and circumstances related to that claim. In addition, we routinely monitor current key statistics and volume indicators in our assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between 4 and 5 years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent less than 1.0% of the total liability at the end of any period.
 
For purposes of estimating our individual claim accruals, we utilize specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years, geography, and claims relating to the acquired Triad hospitals versus claims relating to our other hospitals. Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses our company-specific historical claims data and other information. This company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data.
 
Based on these analyses we determine our estimate of the professional liability claims. The determination of management’s estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of the management. Changes in reserving data or the trends and factors that influence reserving data may signal fundamental shifts in our future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change


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may not become evident until years later. Moreover, since our methods and models use different types of data and we select our liability from the results of all of these methods, we typically cannot quantify the precise impact of such factors on our estimates of the liability. Due to our standardized and consistent processes for handling claims and the long history and depth of our company-specific data, our methodologies have produced reliably determinable estimates of ultimate paid losses.
 
Although we have not historically maintained and presented our claims data in this manner, we are providing the following table to present the amounts of our accrual for professional liability claims and approximate amounts of our activity for each of the respective years listed (excludes premiums for excess insurance coverage) (in thousands):
 
                         
    Year Ended December 31,  
    2008     2007     2006  
 
Accrual for professional liability claims, January 1
  $ 300,184     $ 104,161     $ 88,371  
                         
Liability acquired through acquisition:
                       
Gross liability acquired
          197,453        
Discount of liability acquired
          (26,309 )      
                         
Discounted liability acquired
          171,144        
                         
Expense (income) related to(1):
                       
Current accident year
    110,010       73,039       43,441  
Prior accident years
    (15,826 )     7,158       3,146  
Expense (income) from discounting
    11,499       (1,040 )     3,667  
                         
Total incurred loss and loss expense
    105,683       79,157       50,254  
                         
Paid claims and expenses related to:
                       
Current accident year
    (688 )     (701 )     (574 )
Prior accident years
    (54,600 )     (53,577 )     (33,890 )
                         
Total paid claims and expenses
    (55,288 )     (54,278 )     (34,464 )
                         
Accrual for professional liability claims, December 31
  $ 350,579     $ 300,184     $ 104,161  
                         
 
 
(1) Total expense, including premiums for insured coverage, was $65.7 million in 2006, $99.7 million in 2007 and $130.4 million in 2008.
 
The increase in current accident year claims expense in each respective year from 2006 to 2008 is consistent with the increase in net operating revenues during the respective periods. Income/expense related to prior accident years reflects changes in estimates resulting from the filing of claims for prior year incidents, claim settlements, updates from litigation, and our ongoing investigation of open claims. Expense/income from discounting reflects the changes in the weighted-average risk-free interest rate used and timing of estimated payments for discounting in each respective year.
 
We are primarily self-insured for these claims; however, we obtain excess insurance that transfers the risk of loss to a third-party insurer for claims in excess of our self-insured retentions. Our excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of our professional and general liability risks were subject to a $0.5 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2.0 million per occurrence. 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 has been purchased through commercial insurance companies and generally covers us for liabilities in excess of the self-insured retentions and up to $100 million per occurrence for claims reported on


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or after June 1, 2003 and up to $150 million per occurrence for claims occurred and reported after January 1, 2008.
 
Effective January 1, 2008, the former Triad Hospitals are insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims occurring on or after January 1, 2002 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, Triad’s 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 HCA’s 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 occurring during 2007 were self-insured up to $10 million per claim.
 
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 the FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, is approximately $10.5 million as of December 31, 2008. It is our policy to recognize interest and penalties accrued related to unrecognized benefits in our consolidated statement of operations as income tax expense. During the year ended December 31, 2008, we decreased liabilities by approximately $0.8 million and recorded $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 FASB Interpretation No. 48 liability at December 31, 2008. A total of approximately $1.2 million of interest and penalties is included in the amount of FASB Interpretation No. 48 liability at December 31, 2008. During the year ended December 31, 2008, we released $7.5 million for income taxes and $1.8 million for accrued interest of our FASB Interpretation No. 48 liability, as a result of the expiration of the statute of limitations pertaining to tax positions taken in prior years relative to state tax positions.
 
We believe it is reasonably possible that approximately $5.3 million of our current unrecognized tax benefit may be recognized 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. We have extended the federal statute of limitations for Triad for the tax periods ended December 31, 1999, December 31, 2000, April 30, 2001, June 30, 2001, December 31, 2001, December 31, 2002 and December 31, 2003. With few exceptions, we are no longer subject to state income tax examinations for years prior to 2003. During 2007, we agreed to a settlement with the Internal Revenue Service, or IRS, Appeals Office with respect to the 2003 tax year. We have since received a closing letter with respect to the examination for that tax year. The settlement was not material to our results of operations or consolidated financial position.
 
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. On May 10, 2006, the IRS issued an examination report with proposed adjustments. Triad filed a protest on June 9, 2006 and the matter was referred to the IRS Appeals Office. Representatives of the former Triad hospitals met with the IRS Appeals Office in April 2007 and reached a tentative settlement. Triad has since received a closing letter with respect to the examination for those tax years. The settlement was not material to our results of operations or consolidated financial position. In December 2008, we were notified by


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the IRS of its intent to examine the federal tax return of Triad for the tax periods ended December 31, 2005 and ended July 25, 2007. We believe the results of this examination will not be material to our results of operations or consolidated financial position.
 
Recent Accounting Pronouncements
 
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 us as of January 1, 2008. The adoption of this statement has not had a material effect on our consolidated results of operations or consolidated financial position.
 
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 to 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 to 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 do not currently have on our consolidated balance sheet any material deferred costs related to prospective acquisitions that would be required to be expensed upon the adoption of SFAS No. 141(R). Any outstanding deferred costs will be expensed in 2009 for any acquisitions that are not closed by December 31, 2008. Furthermore, the impact of SFAS No. 141(R) on our consolidated results of operations and consolidated financial position in future periods will be largely dependent on the number of acquisitions we pursue; however, it is not anticipated at this time that such impact will be material.
 
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 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


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will be adopted by us in the first quarter of 2009. We are currently assessing the potential impact of SFAS No. 157 for non-financial assets and non-financial liabilities 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 entity’s 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.
 
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk
 
We are exposed to interest rate changes, primarily as a result of our New 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”. We do not anticipate any material changes in our primary market risk exposures in 2009. 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 $13 million in 2008, $14 million in 2007 and $4 million in 2006.


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Item 8.   Financial Statements and Supplementary Data.
 
Index to Financial Statements
 
         
    Page
 
Community Health Systems, Inc. Consolidated Financial Statements:
       
    65  
    66  
    67  
    68  
    69  
    70  


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
Community Health Systems, Inc.
Franklin, Tennessee
 
We have audited the accompanying consolidated balance sheets of Community Health Systems, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Community Health Systems, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
 
As discussed in Note 8 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”) effective January 1, 2008, which changed the Company’s definitions of fair value, framework for measuring fair value, and disclosures for fair value measurements.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
/s/ Deloitte & Touche LLP
 
Nashville, Tennessee
February 26, 2009


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
                         
    Year Ended December 31,  
    2008     2007     2006  
    (In thousands, except share and per share data)  
 
Net operating revenues
  $ 10,840,098     $ 7,063,775     $ 4,180,136  
                         
Operating costs and expenses:
                       
Salaries and benefits
    4,326,526       2,875,795       1,661,619  
Provision for bad debts
    1,208,687       885,653       518,861  
Supplies
    1,518,987       935,812       487,778  
Other operating expenses
    2,073,713       1,422,972       855,596  
Rent
    229,526       153,695       91,943  
Depreciation and amortization
    499,085       311,122       179,282  
                         
Total operating costs and expenses
    9,856,524       6,585,049       3,795,079  
                         
Income from operations
    983,574       478,726       385,057  
Interest expense, net of interest income of $7,057, $8,181, and $1,779 in 2008, 2007 and 2006, respectively
    651,925       361,773       94,411  
(Gain) loss from early extinguishment of debt
    (2,525 )     27,388       4  
Minority interest in earnings
    40,101       15,155       2,795  
Equity in earnings of unconsolidated affiliates
    (42,064 )     (25,132 )      
                         
Income from continuing operations before income taxes
    336,137       99,542       287,847  
Provision for income taxes
    129,479       41,828       110,152  
                         
Income from continuing operations
    206,658       57,714       177,695  
Discontinued operations, net of taxes:
                       
Income (loss) from operations of hospitals sold and held for sale
    5,316       (8,884 )     (6,873 )
Gain (loss) on sale of hospitals and partnership interests
    9,580       (2,594 )     (2,559 )
Impairment of long-lived assets of hospitals held for sale
    (3,250 )     (15,947 )      
                         
Income (loss) on discontinued operations
    11,646       (27,425 )     (9,432 )
                         
Net income
  $ 218,304     $ 30,289     $ 168,263  
                         
Earnings per common share — basic:
                       
Income from continuing operations
  $ 2.21     $ 0.62     $ 1.87  
Income (loss) on discontinued operations
  $ 0.13     $ (0.30 )   $ (0.10 )
                         
Net income
  $ 2.34     $ 0.32     $ 1.77  
                         
Earnings per common share — diluted:
                       
Income from continuing operations
  $ 2.19     $ 0.61     $ 1.85  
Income (loss) on discontinued operations
  $ 0.13     $ (0.29 )   $ (0.10 )
                         
Net income
  $ 2.32     $ 0.32     $ 1.75  
                         
Weighted-average number of shares outstanding:
                       
Basic
    93,371,782       93,517,337       94,983,646  
                         
Diluted
    94,288,829       94,642,294       96,232,910  
                         
 
See notes to consolidated financial statements.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
                 
    December 31,  
    2008     2007  
    (In thousands, except share data)  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 220,655     $ 132,874  
Patient accounts receivable, net of allowance for doubtful accounts of $1,102,900 and $1,033,516 in 2008 and 2007, respectively
    1,613,959       1,533,798  
Supplies
    272,937       262,903  
Prepaid income taxes
    92,710       99,417  
Deferred income taxes
    91,875       113,741  
Prepaid expenses and taxes
    72,900       70,339  
Other current assets (including assets of hospitals held for sale of $40,853 and $118,893 at December 31, 2008 and 2007, respectively)
    240,014       339,826  
                 
Total current assets
    2,605,050       2,552,898  
                 
Property and equipment:
               
Land and improvements
    508,690       463,373  
Buildings and improvements
    4,480,999       4,166,888  
Equipment and fixtures
    2,093,241       1,679,979  
                 
      7,082,930       6,310,240  
Less accumulated depreciation and amortization
    (1,213,871 )     (797,666 )
                 
Property and equipment, net
    5,869,059       5,512,574  
                 
Goodwill
    4,166,091       4,247,714  
                 
Other assets, net of accumulated amortization of $158,532 and $100,556 in 2008 and 2007, respectively (including assets of hospitals held for sale of $172,870 and $362,546 at December 31, 2008 and 2007, respectively)
    1,178,054       1,180,457  
                 
Total assets
  $ 13,818,254     $ 13,493,643  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Current maturities of long-term debt
  $ 29,462     $ 20,710  
Accounts payable
    529,429       492,693  
Deferred income taxes
    6,740        
Accrued liabilities:
               
Employee compensation
    427,688       403,598  
Interest
    152,228       153,832  
Other (including liabilities of hospitals held for sale of $106,856 and $67,606 at December 31, 2008 and 2007, respectively)
    388,423       377,102  
                 
Total current liabilities
    1,533,970       1,447,935  
                 
Long-term debt
    8,937,984       9,077,367  
                 
Deferred income taxes
    460,793       407,947  
                 
Other long-term liabilities
    887,445       483,459  
                 
Minority interests in equity of consolidated subsidiaries
    325,197       366,131  
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock, $.01 par value per share, 100,000,000 shares authorized; none issued
           
Common stock, $.01 par value per share, 300,000,000 shares authorized; 92,483,166 shares issued and 91,507,617 shares outstanding at December 31, 2008 and 96,611,085 shares issued and 95,635,536 shares outstanding at December 31, 2007
    925       966  
Additional paid-in capital
    1,197,944       1,240,308  
Treasury stock, at cost, 975,549 shares at December 31, 2008 and 2007
    (6,678 )     (6,678 )
Unearned stock compensation
           
Accumulated other comprehensive income (loss)
    (295,575 )     (81,737 )
Retained earnings
    776,249       557,945  
                 
Total stockholders’ equity
    1,672,865       1,710,804  
                 
Total liabilities and stockholders’ equity
  $ 13,818,254     $ 13,493,643  
                 
 
See notes to consolidated financial statements.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
                                                                                 
                                        Accumulated
    Retained
             
                Additional
                Unearned
    Other
    Earnings
             
    Common Stock     Paid-in
    Treasury Stock     Stock
    Comprehensive
    (Accumulated
             
    Shares     Amount     Capital     Shares     Amount     Compensation     Income (Loss)     Deficit)     Total        
                      (In thousands, except share data)                          
 
BALANCE, December 31, 2005
    94,539,837     $ 945     $ 1,208,930       (975,549 )   $ (6,678 )   $ (13,204 )   $ 15,191     $ 359,393     $ 1,564,577          
Comprehensive income (loss):
                                                                               
Net income
                                              168,263       168,263          
Net change in fair value of interest rate swaps, net of tax benefit of $931
                                        (1,654 )           (1,654 )        
Net change in fair value of available for sale securities
                                        562             562          
                                                                                 
Total comprehensive income (loss)
                                                    (1,092 )     168,263       167,171          
Adjustment to adopt FASB statement No. 158, net of tax benefit of $5,465
                                        (8,301 )           (8,301 )        
Repurchases of common stock
    (5,000,000 )     (50 )     (176,265 )                                   (176,315 )        
Issuance of common stock in connection with the exercise of options
    867,833       9       14,564                                     14,573          
Issuance of common stock in connection with the conversion of convertible debt
    4,074,510       41       137,157                                     137,198          
Tax benefit from exercise of options
                4,750                                     4,750          
Share-based compensation
    544,314       5       20,068                                     20,073          
Reclassification of unearned stock compensation
                (13,257 )                 13,204                   (53 )        
                                                                                 
BALANCE, December 31, 2006
    95,026,494     $ 950     $ 1,195,947       (975,549 )   $ (6,678 )   $     $ 5,798     $ 527,656     $ 1,723,673          
Comprehensive income (loss):
                                                                               
Net income
                                              30,289       30,289          
Net change in fair value of interest rate swaps, net of tax benefit of $51,223
                                        (91,063 )           (91,063 )        
Net change in fair value of available for sale securities
                                        237             237          
Adjustment to pension liability, net of tax of $496
                                        3,291             3,291          
                                                                                 
Total comprehensive income (loss)
                                                    (87,535 )     30,289       (57,246 )        
Issuance of common stock in connection with the exercise of options
    321,535       3       8,362                                     8,365          
Tax benefit from exercise of options
                (2,760 )                                   (2,760 )        
Share-based compensation
    1,263,056       13       38,759                                     38,772          
                                                                                 
BALANCE, December 31, 2007
    96,611,085     $ 966     $ 1,240,308       (975,549 )   $ (6,678 )   $     $ (81,737 )   $ 557,945     $ 1,710,804          
Comprehensive income (loss):
                                                                               
Net income
                                              218,304       218,304          
Net change in fair value of interest rate swaps, net of tax benefit of $112,915
                                        (200,737 )           (200,737 )        
Net change in fair value of available for sale securities
                                        (2,613 )           (2,613 )        
Adjustment to pension liability, net of tax of $7,262
                                        (10,488 )           (10,488 )        
                                                                                 
Total comprehensive income (loss)
                                                    (213,838 )     218,304       4,466          
Repurchases of common stock
    (4,786,609 )     (48 )     (90,141 )                                   (90,189 )        
Issuance of common stock in connection with the exercise of options
    281,831       3       1,803                                     1,806          
Cancellation of restricted stock for tax withholdings on vested shares
    (310,806 )     (3 )     (5,455 )                                   (5,455 )        
Tax benefit from exercise of options
                (672 )                                   (672 )        
Share-based compensation
    687,665       7       52,101                                     52,105          
                                                                                 
BALANCE, December 31, 2008
    92,483,166     $ 925     $ 1,197,944       (975,549 )   $ (6,678 )   $     $ (295,575 )   $ 776,249     $ 1,672,865          
                                                                                 
 
See notes to consolidated financial statements.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                         
    Year Ended December 31,  
    2008     2007     2006  
    (In thousands)  
 
Cash flows from operating activities:
                       
Net income
  $ 218,304     $ 30,289     $ 168,263  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    506,694       332,580       188,771  
Deferred income taxes
    159,870       (39,894 )     (25,228 )
Stock-based compensation expense
    52,105       38,771       20,073  
Excess tax benefits relating to stock-based compensation
    (1,278 )     (1,216 )     (6,819 )
(Gain) loss on early extinguishment of debt
    (2,525 )     27,388        
Minority interest in earnings
    40,101       15,996       2,795  
Impairment on hospitals held for sale
    5,000       19,044        
(Gain) loss on sale of hospitals and partnership interest, net
    (17,687 )     3,954       3,937  
Other non-cash expenses, net
    3,577       19,017       500  
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
                       
Patient accounts receivable
    (57,437 )     131,300       (71,141 )
Supplies, prepaid expenses and other current assets
    (34,711 )     (31,977 )     (4,544 )
Accounts payable, accrued liabilities and income taxes
    119,596       125,959       52,151  
Other
    65,672       16,527       21,497  
                         
Net cash provided by operating activities
    1,057,281       687,738       350,255  
                         
Cash flows from investing activities:
                       
Acquisitions of facilities and other related equipment
    (161,907 )     (7,018,048 )     (384,618 )
Purchases of property and equipment
    (692,233 )     (522,785 )     (224,519 )
Proceeds from disposition of hospitals and other ancillary operations
    365,636       109,996       750  
Proceeds from sale of property and equipment
    13,483       4,650       4,480  
Increase in other assets
    (190,450 )     (72,671 )     (36,350 )
                         
Net cash used in investing activities
    (665,471 )     (7,498,858 )     (640,257 )
                         
Cash flows from financing activities:
                       
Proceeds from exercise of stock options
    1,806       8,214       14,573  
Stock buy-back
    (90,188 )           (176,316 )
Deferred financing costs
    (3,136 )     (182,954 )     (2,153 )
Excess tax benefits relating to stock-based compensation
    1,278       1,216       6,819  
Redemption of convertible notes
                (128 )
Proceeds from minority investors in joint ventures
    14,329       2,351       6,890  
Redemption of minority investments in joint ventures
    (77,587 )     (1,356 )     (915 )
Distribution to minority investors in joint ventures
    (46,890 )     (6,645 )     (3,220 )
Borrowings under Credit Agreement
    131,277       9,221,627       1,031,000  
Repayments of long-term indebtedness
    (234,918 )     (2,139,025 )     (650,090 )
                         
Net cash (used in) provided by financing activities
    (304,029 )     6,903,428       226,460  
                         
Net change in cash and cash equivalents
    87,781       92,308       (63,542 )
Cash and cash equivalents at beginning of period
    132,874       40,566       104,108  
                         
Cash and cash equivalents at end of period
  $ 220,655     $ 132,874     $ 40,566  
                         
 
See notes to consolidated financial statements.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.   Business and Summary of Significant Accounting Policies
 
Business.  Community Health Systems, Inc. is a holding company and operates no business in its own name. On a consolidated basis, Community Health Systems, Inc. and its subsidiaries (collectively the “Company”), own, lease and operate acute care hospitals in non-urban and select urban markets. As of December 31, 2008, included in its continuing operations, the Company owned or leased 118 hospitals, licensed for 17,245 beds in 28 states. As of December 31, 2008, Indiana and Texas represent the only areas of geographic concentration. Net operating revenues generated by the Company’s hospitals in Indiana, as a percentage of consolidated net operating revenues, were 11.0% in 2008 and 7.7% in 2007. Net operating revenues generated by the Company’s hospitals in Texas, as a percentage of consolidated net operating revenues, were 13.4% in 2008, 13.0% in 2007 and 10.4% in 2006. As a result of the Company’s growth and expansion of services in other states, Pennsylvania no longer represents an area of geographic concentration, which it did as of December 31, 2007.
 
Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates under different assumptions or conditions.
 
Principles of Consolidation.  The consolidated financial statements include the accounts of the Company, its subsidiaries, all of which are controlled by the Company through majority voting control, and variable interest entities for which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Certain of the subsidiaries have minority stockholders. The amount of minority interest in equity is disclosed separately on the consolidated balance sheets and minority interest in earnings is disclosed separately on the consolidated statements of income.
 
Cost of Revenue.  The majority of the Company’s operating expenses are “cost of revenue” items. Operating costs that could be classified as general and administrative by the Company would include the Company’s corporate office costs at the Company’s Franklin, Tennessee offices and former offices in Brentwood, Tennessee and Plano, Texas, which were $149.9 million, $133.4 million and $88.9 million for the years ended December 31, 2008, 2007 and 2006, respectively. Included in these amounts is stock-based compensation of $52.1 million, $38.8 million and $20.1 million for the years ended December 31, 2008, 2007 and 2006, respectively.
 
Cash Equivalents.  The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents.
 
Supplies.  Supplies, principally medical supplies, are stated at the lower of cost (first-in, first-out basis) or market.
 
Marketable Securities.  The Company accounts for marketable securities in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company’s marketable securities are classified as trading or available-for-sale. Available-for-sale securities are carried at fair value as determined by quoted market prices, with unrealized gains and losses reported as a separate component of stockholders’ equity. Trading securities are reported at fair value with unrealized gains and losses included in earnings. Interest and dividends on securities classified as available-for-sale or trading are included in net operating revenue and were not material in all periods presented. Accumulated other comprehensive income (loss) included an unrealized loss of $2.6 million at December 31, 2008 and an unrealized gain of $0.2 million at December 31, 2007, related to these available-for-sale securities.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Property and Equipment.  Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of the land and improvements (2 to 15 years; weighted average useful life is 14 years), buildings and improvements (5 to 40 years; weighted average useful life is 24 years) and equipment and fixtures (4 to 18 years; weighted average useful life is 8 years). Costs capitalized as construction in progress were $196.4 million and $457.5 million at December 31, 2008 and 2007, respectively. Expenditures for renovations and other significant improvements are capitalized; however, maintenance and repairs which do not improve or extend the useful lives of the respective assets are charged to operations as incurred. Interest capitalized in accordance with SFAS No. 34, “Capitalization of Interest Cost,” was $22.1 million, $19.0 million and $3.0 million for the years ended December 31, 2008, 2007 and 2006, respectively. Net property and equipment additions included in accounts payable decreased $7.9 million for the year ended December 31, 2008, and increased $21.4 million and $16.9 million for the years ended December 31, 2007 and 2006, respectively.
 
The Company also leases certain facilities and equipment under capital leases (see Note 9). Such assets are amortized on a straight-line basis over the lesser of the term of the lease or the remaining useful lives of the applicable assets.
 
Goodwill.  Goodwill represents the excess 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” (“SFAS No. 141”), and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), 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. The Company has selected September 30th as its annual testing date.
 
Other Assets.  Other assets consist of costs associated with the issuance of debt, which are included in interest expense over the life of the related debt using the effective interest method, and costs to recruit physicians to the Company’s markets, which are deferred and amortized in amortization expense over the term of the respective physician recruitment contract, which is generally three years. Long-term assets held for sale at December 31, 2008 and 2007 are also included in other assets.
 
Third-Party Reimbursement.  Net patient service revenue is reported at the estimated net realizable amount from patients, third party payors and others for services rendered. Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems, provisions of cost-reimbursement and other payment methods. Approximately 36.6% of net operating revenues for the year ended December 31, 2008, 39.3% of net operating revenues for the year ended December 31, 2007 and 41.5% of net operating revenues for the year ended December 31, 2006, are related to services rendered to patients covered by the Medicare and Medicaid programs. Revenues from Medicare outlier payments are included in the amounts received from Medicare and were approximately 0.55% of net operating revenues for 2008, 0.42% of net operating revenues for 2007, and 0.44% for 2006. In addition, the Company is reimbursed by non-governmental payors using a variety of payment methodologies. Amounts received by the Company for treatment of patients covered by such programs are generally less than the standard billing rates. The differences between the estimated program reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are deducted from gross revenues to arrive at net operating revenues. These net operating revenues are an estimate of the net realizable amount due from these payors. The process of estimating contractual allowances requires the Company to estimate the amount expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification and historical paid claims data. Due to the complexities involved in these estimates, actual payments the Company receives could be different from the amounts it estimates and records. Final settlements under certain of these programs are subject to adjustment based on administrative review and audit by third parties. Adjustments to the estimated billings are recorded in the periods that such adjustments become known. Adjustments to previous program


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
reimbursement estimates are accounted for as contractual allowance adjustments and reported in the periods that such adjustments become known. Adjustments related to final settlements were insignificant to both net operating revenue and net income in each of the years ended December 31, 2008, 2007 and 2006.
 
Amounts due to third-party payors were $87.9 million and $91.4 million as of December 31, 2008 and 2007, respectively, and are included in accrued liabilities-other in the accompanying consolidated balance sheets. Amounts due from third party payors were $73.6 million and $90.8 million as of December 31, 2008 and 2007, respectively, and are included in other current assets in the accompanying consolidated balance sheets. Substantially all Medicare and Medicaid cost reports are final settled through 2006.
 
Net Operating Revenues.  Net operating revenues are recorded net of provisions for contractual allowance of approximately $26.433 billion, $16.718 billion and $10.024 billion in 2008, 2007 and 2006, respectively. Net operating revenues are recognized when services are provided and are reported at the estimated net realizable amount from patients, third party payors and others for services rendered. Also included in the provision for contractual allowance shown above is the value of administrative and other discounts provided to self-pay patients eliminated from net operating revenues which was $458.6 million, $266.0 million and $100.3 million for the years ended December 31, 2008, 2007 and 2006, respectively. In the ordinary course of business, the Company renders services to patients who are financially unable to pay for hospital care. Included in the provision for contractual allowance shown above is the value (at the Company’s standard charges) of these services to patients who are unable to pay that is eliminated from net operating revenues when it is determined they qualify under the Company’s charity care policy. The value of these services was $380.2 million, $322.2 million and $214.2 million for the years ended December 31, 2008, 2007 and 2006, respectively. In the fourth quarter of 2007, in conjunction with an analysis of the net realizable value of accounts receivable, which included updating the Company’s analysis of historical cash collections, as well as conforming estimation methodologies with those of the hospitals acquired from Triad Hospitals, Inc. (“Triad”), the Company revised its methodology whereby the Company has revised its estimate of contractual allowances for estimated amounts of self-pay accounts receivable that will ultimately qualify as charity care, or that will ultimately qualify for Medicaid, indigent care or other specific governmental reimbursement. Previous estimates of uncollectible amounts for such receivables were included in the Company’s bad debt reserves for each period. The impact of these changes in estimates decreased net operating revenue approximately $96.3 million for the year ended December 31, 2007.
 
Allowance for Doubtful Accounts.  Accounts receivable are reduced by an allowance for amounts that could become uncollectible in the future. Substantially all of the Company’s receivables are related to providing healthcare services to its hospitals’ patients.
 
The Company experienced a significant increase in self-pay volume and related revenue, combined with lower cash collections during the quarter ended September 30, 2006. The Company believes this trend reflected an increased collection risk from self-pay accounts, and as a result the Company performed a review and an alternative analysis of the adequacy of its allowance for doubtful accounts. Based on this review, the Company recorded a $65.0 million increase to its allowance for doubtful accounts to maintain an adequate allowance for doubtful accounts as of September 30, 2006. The Company believed that the increase in self-pay accounts was a result of economic trends, including an increase in the number of uninsured patients, reduced enrollment under Medicaid programs such as TennCare, and higher deductibles and co-payments for patients with insurance.
 
In conjunction with recording the $65.0 million increase to the allowance for doubtful accounts, the Company changed its methodology for estimating its allowance for doubtful accounts effective September 30, 2006, as follows: The Company reserved a percentage of all self-pay accounts receivable without regard to aging category, based on collection history adjusted for expected recoveries and, if present, other changes in trends. For all other payor categories, the Company reserved 100% of all accounts aging over 365 days from the date of discharge. Previously, the Company estimated its allowance for doubtful accounts by reserving all


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
accounts aging over 150 days from the date of discharge without regard to payor class. The Company believes its revised methodology provided a better approach to reflect changes in payor mix and historical collection patterns and to respond to changes in trends.
 
During the quarter ended December 31, 2007, in conjunction with the Company’s ongoing process of monitoring the net realizable value of its accounts receivable, as well as integrating the methodologies, data and assumptions used by the former Triad management, the Company performed various analyses including updating a review of historical cash collections.
 
The primary key cash collection indicator that experienced deterioration during the fourth quarter of 2007 was “cash receipts as a percentage of net revenue less bad debts.” This percentage decreased to the lowest percentage experienced by the Company since the quarter ended September 30, 2006. Further analysis indicated the primary causes of this deterioration were a continuing increase in the volume of indigent non-resident aliens, an increase in the number of patients qualifying for charity care and a greater than expected impact of the removal of participants from TennCare (Tennessee’s state provided Medicaid program) which increased the number of uninsured patients with limited financial means receiving care at the Company’s eight Tennessee hospitals. During the fourth quarter of 2007, due to the deteriorating cash collections and desire to standardize processes with those of the former Triad hospitals, the Company undertook a detailed programming effort to develop data around the deteriorating classes of accounts receivable needed to update its historical cash collections percentages as well as enable it to estimate how much of certain self-pay categories ultimately convert to Medicaid, charity and indigent programs. Triad’s processes for establishing contractual allowances and allowances for bad debts related to accounts classified as Medicaid — pending, charity — pending and indigent non-resident alien included inputs and assumptions based on the historical percentage of these accounts which ultimately qualified for specific government programs or for write-off as charity care.
 
The Company used these new inputs and assumptions regarding Medicaid — pending, charity — pending, and indigent non-resident alien in conjunction with the new data developed in the fourth quarter of 2007 as described above to evaluate the realizability of accounts receivable and to revise the Company’s estimate of contractual allowances for estimated amounts of self-pay accounts receivable that will ultimately qualify as charity care, or that will ultimately qualify for Medicaid, indigent care or other specific governmental reimbursement, resulting in an increase to the Company’s contractual reserves of $96.3 million as of December 31, 2007. Previous estimates of uncollectible amounts for such receivables were included in the Company’s bad debt reserves for each period.
 
Furthermore, in updating the historical collection statistics of all its hospitals, the Company also took into account a detailed study of the historical collection information for the hospitals acquired from Triad. The updated collection statistics of the hospitals acquired from Triad also showed subsequent deterioration in cash collections similar to those experienced by the other hospitals that the Company owns. Therefore, the Company also standardized the processes for calculating the allowance for doubtful accounts of the hospitals acquired from Triad to that of its other hospitals which, along with the allowance percentages determined from the new collection data, resulted in the recording of an additional $70.1 million of allowance for bad debts as of December 31, 2007.
 
The resulting impact of the above, net of taxes, for the year ended December 31, 2007 was a decrease to income from continuing operations of $105.4 million. The Company believes 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 the Company’s collection efforts. Significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the Company’s collection of accounts receivable. The process of estimating the allowance for doubtful accounts requires the Company to estimate the collectability of self-pay accounts receivable, which is primarily based on its collection history, adjusted for expected recoveries


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
and, if available, anticipated changes in collection trends. Significant change in payor mix, business office operations, economic conditions, trends in federal and state governmental healthcare coverage or other third party payors could affect the Company’s estimates of accounts receivable collectability.
 
The Company believes the revised methodology provides a better approach to estimating changes in payor mix, continued increases in charity and indigent care as well as the monitoring of historical collection patterns. The revised accounting methodology and the adequacy of resulting estimates will continue to be reviewed by monitoring accounts receivable write-offs, monitoring cash collections as a percentage of trailing net revenues less provision for bad debts, monitoring historical cash collection trends, as well as 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.
 
Physician Income Guarantees.  The Company enters into physician recruiting agreements under which it supplements physician income to a minimum amount over a period of time, typically one year, while the physician establishes themselves in the community. As part of the agreements, the physicians are committed to practice in the community for a period of time, typically three years, which extends beyond their income guarantee period. The Company accounts for these agreements in accordance with FASB Staff Position No. 45-3, “Application of FASB Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners,” (“FIN 45-3”). FIN 45-3 requires that an asset and liability for the estimated fair value of minimum revenue guarantees be recorded on new agreements entered into on or after January 1, 2006. Adjustments to the ultimate value of the guarantee paid to physicians are recognized in the period that the change in estimate is identified. The Company amortizes such costs over the life of the agreement. As of December 31, 2008 and 2007, the unamortized portion of these physician income guarantees was $49.1 million and $45.7 million, respectively.
 
Concentrations of Credit Risk.  The Company grants unsecured credit to its patients, most of whom reside in the service area of the Company’s facilities and are insured under third-party payor agreements. Because of the economic diversity of the Company’s facilities and non-governmental third-party payors, Medicare represents the only significant concentration of credit risk from payors. Accounts receivable, net of contractual allowances, from Medicare were $256.6 million and $302.1 million as of December 31, 2008 and 2007, respectively, representing 9.4% and 11.8% of consolidated net accounts receivable, before allowance for doubtful accounts, as of December 31, 2008 and 2007, respectively.
 
Professional Liability Claims.  The Company accrues for estimated losses resulting from professional liability. 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. To the extent that subsequent claims information varies from management’s estimates, the liability is adjusted when such information becomes available.
 
Accounting for the Impairment or Disposal of Long-Lived Assets.  In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), whenever events or changes in circumstances indicate that the carrying values of certain long-lived assets may be impaired, the Company projects 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.
 
Income Taxes.  The Company accounts for income taxes under the asset and liability method, in which deferred income tax assets and liabilities are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
in tax rates is recognized in the consolidated statement of income during the period in which the tax rate change becomes law.
 
Comprehensive Income (Loss).  Comprehensive income (loss) is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
 
Accumulated Other Comprehensive Income (Loss) consists of the following (in thousands):
 
                                 
                      Accumulated
 
    Change in Fair
    Change in Fair
    Adjustment
    Other
 
    Value of Interest
    Value of Available
    to Pension
    Comprehensive
 
    Rate Swaps     for Sale Securities     Liability     Income (Loss)  
 
Balance as of December 31, 2006
  $ 13,315     $ 784     $ (8,301 )   $ 5,798  
2007 Activity, net of tax
    (91,063 )     237       3,291       (87,535 )
                                 
Balance as of December 31, 2007
  $ (77,748 )   $ 1,021     $ (5,010 )   $ (81,737 )
                                 
2008 Activity, net of tax
    (200,737 )     (2,613 )     (10,488 )     (213,838 )
                                 
Balance as of December 31, 2008
  $ (278,485 )   $ (1,592 )   $ (15,498 )   $ (295,575 )
                                 
 
Segment Reporting.  SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information” (“SFAS No. 131”), requires that a public company report annual and interim financial and descriptive information about its reportable operating segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS No. 131 allows aggregation of similar operating segments into a single reportable operating segment if the businesses have similar economic characteristics and are considered similar under the criteria established by SFAS No. 131.
 
Prior to the acquisition of Triad, the Company aggregated its operating segments into one reportable segment as all of its operating segments had similar services, had similar types of patients, operated in a consistent manner and had similar economic and regulatory characteristics. In connection with the Triad acquisition, certain aspects of the Company’s organizational structure and the information that is reviewed by the chief operating decision maker have changed. As a result, management has determined that the Company now operates in three distinct operating segments, represented by the hospital operations (which includes the Company’s acute care hospitals and related healthcare entities that provide inpatient and outpatient health care services), the home care agencies operations (which provide outpatient care generally in the patient’s home), and the hospital management services business (which provides executive management and consulting services to independent acute care hospitals). SFAS No. 131 requires (1) that financial information be disclosed for operating segments that meet a 10% quantitative threshold of the consolidated totals of net revenue, profit or loss, or total assets; and (2) that the individual reportable segments disclosed contribute at least 75% of total consolidated net revenue. Based on these measures, only the hospital operations segment meets the criteria as a separate reportable segment. Financial information for the home care agencies and management services segments do not meet the quantitative thresholds defined in SFAS No. 131 and are therefore combined with corporate into the all other reportable segment.
 
The financial information from 2006 has been presented in Note 14 to reflect this change in the composition of the Company’s reportable operating segments.
 
Derivative Instruments and Hedging Activities.  In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended, the Company records derivative instruments (including certain derivative instruments embedded in other contracts) on the consolidated balance sheet as either an asset or liability measured at its fair value. Changes in a derivative’s fair value are recorded each period in earnings or other comprehensive income (“OCI”), depending on whether the derivative is designated and is effective as a hedged transaction, and on the type of hedge transaction. Changes in the fair value of derivative instruments recorded


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
to OCI are reclassified to earnings in the period affected by the underlying hedged item. Any portion of the fair value of a derivative instrument determined to be ineffective under the standard is recognized in current earnings.
 
The Company has entered into several interest rate swap agreements subject to the scope of this pronouncement. See Note 6 for further discussion about the swap transactions.
 
New 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 Company’s 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 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 to 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 does not currently have on its consolidated balance sheet any material deferred costs related to prospective acquisitions that would be required to be expensed upon the adoption of SFAS No. 141(R). Any outstanding deferred costs will be expensed in 2009 for any acquisitions that are not closed by December 31, 2008. Furthermore, the impact of SFAS No. 141(R) on the Company’s consolidated results of operations and consolidated financial position in future periods will be largely dependent on the number of acquisitions pursued by the Company; however, it is not anticipated at this time that such impact will be material.
 
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 or 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 entity’s 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.
 
Reclassifications.  The Company disposed of one hospital in August 2007, disposed of one hospital in October 2007, disposed of one hospital in November 2007, disposed of eleven hospitals during the first quarter


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
of 2008, and has designated two hospitals as being held for sale as of December 31, 2008. The operating results of those hospitals have been classified as discontinued operations on the consolidated statements of income for all periods presented. There is no effect on net income for all periods presented related to the reclassifications made for the discontinued operations.
 
2.   Accounting for Stock-Based Compensation
 
The Company adopted the provisions of SFAS No. 123(R), “Share-Based Payments” (“SFAS No. 123(R)”) on January 1, 2006, electing to use the modified prospective method for transition purposes. The modified prospective method requires that compensation expense be recorded for all unvested stock options and share awards that subsequently vest or are modified, without restatement of prior periods. Prior to January 1, 2006, the Company accounted for stock-based compensation using the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations (“APB No. 25”), and provided the pro-forma disclosure requirements of SFAS No. 123 “Accounting for Stock-Based Compensation” and SFAS No. 148 “Accounting for Stock-Based Compensation Transition and Disclosures — an Amendment of FASB Statement No. 123” (“SFAS No. 148”). Under APB No. 25, when the exercise price of the Company’s stock was equal to the market price of the underlying stock on the date of grant, no compensation expense was recognized.
 
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 Company’s directors, officers, employees and consultants. To date, all options granted under the 2000 Plan have 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 under the 2000 Plan is equal to the fair value of the Company’s common stock on the option grant date. As of December 31, 2008, 4,129,347 shares of unissued common stock remain reserved for future grants under the 2000 Plan.
 
The following table reflects the impact of total compensation expense related to stock-based equity plans under SFAS No. 123(R), on the reported operating results for the respective periods (in thousands, except per share data):
 
                         
    Year Ended
 
    December 31,  
    2008     2007     2006  
 
Effect on income from continuing operations before income taxes
  $ (52,105 )   $ (38,771 )   $ (20,073 )
                         
Effect on net income
  $ (31,655 )   $ (23,541 )   $ (12,762 )
                         
Effect on net income per share-diluted
  $ (0.34 )   $ (0.25 )   $ (0.13 )
                         
 
At December 31, 2008, $55.9 million of unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 19.0 months. Of that amount, $20.9 million relates to outstanding unvested stock options expected to be recognized over a weighted-average period of 20.6 months and $35.0 million relates to outstanding unvested restricted stock expected to be recognized over a weighted-average period of 18.0 months. There were no modifications to awards during 2008, 2007, or 2006.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The fair value of stock options was estimated using the Black Scholes option pricing model with the assumptions and weighted-average fair values during the years ended December 31, 2008, 2007 and 2006, as follows:
 
                         
    Year Ended
 
    December 31,  
    2008     2007     2006  
 
Expected volatility
    24.9 %     24.4 %     24.2 %
Expected dividends
    0       0       0  
Expected term
    4 years       4 years       4 years  
Risk-free interest rate
    2.53 %     4.48 %     4.67 %
 
In determining expected term, the Company examined concentrations of holdings, its 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.
 
Options outstanding and exercisable under the 2000 Plan as of December 31, 2008, and changes during each of the years in the three year period ended December 31, 2008 were as follows (in thousands, except share and per share data):
 
                                 
                Weighted
       
                Average
    Aggregate
 
          Weighted
    Remaining
    Intrinsic
 
          Average
    Contractual
    Value as of
 
          Exercise
    Term
    December 31,
 
    Shares     Price     (In Years)     2008  
 
Outstanding at December 31, 2005
    5,370,274     $ 22.63                  
Granted
    1,151,000       38.07                  
Exercised
    (865,833 )     16.47                  
Forfeited and cancelled
    (172,913 )     34.02                  
                                 
Outstanding at December 31, 2006
    5,482,528       26.48                  
Granted
    3,544,000       37.79                  
Exercised
    (295,854 )     26.89                  
Forfeited and cancelled
    (291,659 )     35.70                  
                                 
Outstanding at December 31, 2007
    8,439,015       30.90                  
Granted
    1,251,000       31.89                  
Exercised
    (281,831 )     22.10                  
Forfeited and cancelled
    (644,100 )     35.71                  
                                 
Outstanding at December 31, 2008
    8,764,084     $ 30.97       5.7 years     $ 436  
                                 
Exercisable at December 31, 2008
    5,306,366     $ 27.73       5.0 years     $ 436  
                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2008, 2007 and 2006, was $7.56, $10.24 and $10.38, respectively. The aggregate intrinsic value (the number of in-the-money stock options multiplied by the difference between the Company’s closing stock price on the last trading day of the reporting period 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 December 31, 2008. This amount changes based on the market value of the Company’s common stock. The aggregate intrinsic value of options exercised during the years ended December 31, 2008, 2007 and 2006 was $3.4 million, $3.5 million and $18.2 million, respectively. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.
 
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 Company’s 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, 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 performance standards are not considered outstanding for purposes of determining earnings per share until the performance objectives have been satisfied.
 
Restricted stock outstanding under the 2000 Plan as of December 31, 2008, and changes during each of the years in the three year period ended December 31, 2008 were as follows:
 
                 
          Weighted
 
          Average
 
          Grant Date
 
          Fair
 
    Shares     Value  
 
Unvested at December 31, 2005
    558,000     $ 32.37  
Granted
    606,000       38.26  
Vested
    (185,975 )     32.43  
Forfeited
    (8,334 )     35.93  
                 
Unvested at December 31, 2006
    969,691       36.05  
Granted
    1,392,000       38.70  
Vested
    (384,646 )     35.47  
Forfeited
    (20,502 )     36.73  
                 
Unvested at December 31, 2007
    1,956,543       38.04  
Granted
    795,500       31.99  
Vested
    (960,001 )     37.64  
Forfeited
    (107,835 )     35.62  
                 
Unvested at December 31, 2008
    1,684,207       35.57  
                 
 
Under the Director’s Fee Deferral Plan, the Company’s outside directors may elect to receive share equivalent units in lieu of cash for their director’s fee. These units are held in the plan until the director


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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:
 
                 
    Year Ended
 
    December 31,  
    2008     2007  
 
Directors’ fees earned and deferred into plan
  $ 90,875     $ 129,000  
                 
Equivalent units
    3,410.470       3,622.531  
                 
 
At December 31, 2008, there are a total of 16,819.002 units deferred in the plan with an aggregate fair value of $0.2 million, based on the closing market price of the Company’s common stock at December 31, 2008 of $14.58.
 
3.   Acquisitions and Divestitures of Hospitals
 
Triad Acquisition
 
On July 25, 2007, the Company completed its acquisition of Triad. Triad owned and operated 50 hospitals with 49 hospitals located in 17 states in non-urban and middle market communities and one hospital located in the Republic of Ireland. As of December 31, 2008, seven hospitals acquired from Triad have been sold and two hospitals acquired from Triad were classified as held for sale. As a result of its acquisition of Triad, the Company also provides management and consulting services to independent hospitals, through its subsidiary, Quorum Health Resources, LLC, on a contract basis. The Company acquired Triad for approximately $6.857 billion, including the assumption of $1.686 billion of existing indebtedness. Prior to entering the merger agreement, Triad terminated an Agreement and Plan of Merger that it had entered into on February 4, 2007 (the “Prior Merger Agreement”) with Panthera Partners, LLC, Panthera Holdco Corp. and Panthera Acquisition Corporation (collectively, “Panthera”). Concurrent with the termination of the Prior Merger Agreement and pursuant to the terms thereof, Triad paid a termination fee of $20 million and out-of-pocket expenses of $18.8 million to Panthera. The Company reimbursed Triad for the termination fee and the advance for expense reimbursement paid to Panthera. These amounts are included in the Triad allocated purchase price.
 
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 Triad’s indebtedness and the Company’s 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 $400 million delayed draw term loan facility for future acquisitions, working capital and general corporate purposes. As of December 31, 2007, the $400 million delayed draw term loan was reduced to $300 million at the request of the Company. As of December 31, 2008, $100 million of the delayed draw term loan had been drawn by the Company, reducing the delayed draw term loan availability to $200 million at that date. In January 2009, the Company drew down the remaining $200 million of the delayed draw term loan.
 
The total cost of the Triad acquisition has been allocated to the assets acquired and liabilities assumed based upon their respective 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;


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
  •  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 required 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 Company completed the allocation of the total cost of the Triad acquisition in the third quarter of 2008 and has made a final analysis and adjustment as of December 31, 2008 to deferred tax accounts based on the final cost allocation, resulting in approximately $2.781 billion of goodwill being recorded with respect to the Triad acquisition.
 
Other Acquisitions
 
Effective November 14, 2008, the Company acquired from Willamette Community Health Solutions all of its joint venture interest in MWMC Holdings, LLC, which indirectly owns and operates McKenzie-Willamette Medical Center of Springfield, Oregon. This acquisition resulted from a put right held by Willamette Community Health Solutions in connection with the 2003 transaction establishing the joint venture. The purchase price for this minority interest was $22.7 million in cash. Physicians affiliated with Oregon Healthcare Resources, Inc. will continue to own a minority interest in the hospital.
 
Effective October 1, 2008, the Company completed the acquisition of Deaconess Medical Center (388 licensed beds) and Valley Hospital and Medical Center (123 licensed beds) both located in Spokane, Washington, from Empire Health Services. The total consideration for these two hospitals was approximately $182.6 million, of which $149.2 million was paid in cash and $33.4 million was assumed in liabilities. Based upon the Company’s preliminary purchase price allocation relating to this acquisition as of December 31, 2008, no goodwill has been recorded. The acquisition transaction was accounted for using the purchase method of accounting. This preliminary allocation of purchase price has been determined by the Company based upon available information and is subject to settling amounts related to purchased working capital and final appraisals of tangible and intangible assets. Adjustments to the purchase price allocation are not expected to be material.
 
Effective June 30, 2008, the Company acquired the remaining 35% equity 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 to Affinity Health Systems, LLC in the original principal amount of $32.8 million.
 
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 $48.2 million, of which $44.7 million was paid in cash and $3.5 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 $117.1 million, of which $93.9 million was paid in cash and $23.2 million was assumed in liabilities. The Company’s purchase price allocation relating to these acquisitions resulted in approximately $6.3 million of goodwill being recorded, which is expected to be fully deductible for tax purposes.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
During 2006, the Company acquired through seven separate purchase transactions and three capital lease transactions, substantially all of the assets and working capital of eight hospitals and three home care agencies. On March 1, 2006, the Company acquired, through a combination of purchasing certain assets and entering into a capital lease for other related assets, Forrest City Hospital, a 118-bed hospital located in Forrest City, Arkansas. On April 1, 2006, the Company completed the acquisition of two hospitals from Baptist Health System, Birmingham, Alabama: Baptist Medical Center — DeKalb (134 beds) and Baptist Medical Center — Cherokee (60 beds). On May 1, 2006, the Company acquired Via Christi Oklahoma Regional Medical Center, a 140-bed hospital located in Ponca City, Oklahoma. On June 1, 2006, the Company acquired Mineral Area Regional Medical Center, a 135-bed hospital located in Farmington, Missouri. On June 30, 2006 the Company acquired Cottage Home Options, a home care agency and related business, located in Galesburg, Illinois. On July 1, 2006, the Company acquired the healthcare assets of Vista Health, which included Victory Memorial Hospital (336 beds) and St. Therese Medical Center (71 non-acute care beds), both located in Waukegan, Illinois. On September 1, 2006, the Company acquired Humble Texas Home Care, a home care agency located in Humble, Texas. On October 1, 2006, the Company acquired Helpsource Home Health, a home care agency located in Wichita Falls, Texas. On November 1, 2006, the Company acquired through two separate capital lease transactions, Campbell Memorial Hospital, a 99-bed hospital located in Weatherford, Texas and Union County Hospital, a 25-bed hospital located in Anna, Illinois. The aggregate consideration for these eight hospitals and three home care agencies totaled approximately $385.7 million, of which $353.8 million was paid in cash and $31.9 million was assumed in liabilities. Goodwill recognized in these transactions totaled $65.6 million, which is expected to be fully deductible for tax purposes.
 
The 2007 and 2006 acquisition transactions were accounted for using the purchase method of accounting. The final allocation of the purchase price for these acquisitions was determined by the Company within one year of the date of acquisition.
 
The table below summarizes the allocations of the purchase price (including assumed liabilities) for these acquisitions (in thousands):
 
                         
    2008     2007     2006  
 
Current assets
  $ 35,619     $ 1,394,082     $ 56,896  
Property and equipment
    146,986       3,824,521       262,335  
Goodwill
          2,787,509       66,490  
Intangible assets
          84,804        
Other long-term assets
          516,067        
Liabilities
    33,452       1,611,129       27,247  
 
The operating results of the foregoing hospitals have been included in the consolidated statements of income from their respective dates of acquisition. The following pro forma combined summary of operations of the Company gives effect to using historical information of the operations of the hospitals purchased in 2008 and 2007 as if the acquisitions had occurred as of January 1, 2008 and 2007 (in thousands, except per share data):
 
                 
    Year Ended December 31,  
    2008     2007  
    (Unaudited)  
 
Pro forma net operating revenues
  $ 11,071,479     $ 9,772,807  
Pro forma net income (loss)
    216,520       (102,030 )
Pro forma net income per share:
               
Basic
  $ 2.32     $ (1.09 )
                 
Diluted
  $ 2.30     $ (1.08 )
                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Pro forma adjustments to net income (loss) include adjustments to depreciation and amortization expense, net of the related tax effect, based on the estimated fair value assigned to the long-lived assets acquired, and to interest expense, net of the related tax effect, assuming the increase in long-term debt used to fund the acquisitions had occurred as of January 1, 2007. The pro forma net income for the year ended December 31, 2007, includes a charge for the early extinguishment of debt of $27.3 million before taxes and $17.5 million after tax, or $0.19 per share (diluted). The pro forma results do not include transaction costs incurred by Triad prior to the date of acquisition, cost savings or other synergies that are anticipated as a result of this acquisition. These pro forma results are not necessarily indicative of the actual results of operations.
 
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. Mary’s 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 Memorial”), 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 Memorial 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.
 
Effective March 18, 2006, the Company sold Highland Medical Center, a 123-bed facility located in Lubbock, Texas, to Shiloh Health Services, Inc. of Louisville, Kentucky. The proceeds from this sale were $0.5 million in cash.
 
As of December 31, 2008, the Company had two hospitals classified as held for sale.
 
In connection with management’s decision to sell the previously mentioned facilities and in accordance with SFAS No. 144, the Company has classified the results of operations of the above mentioned hospitals as discontinued operations in the accompanying consolidated statements of income.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Net operating revenues and loss reported for the hospitals in discontinued operations are as follows:
 
                         
    Year Ended December 31,  
    2008     2007     2006  
          (In thousands)        
 
Net operating revenues
  $ 316,312     $ 481,396     $ 189,734  
                         
Income (loss) from operations of hospitals sold or held for sale before income taxes
    9,379       (11,270 )     (10,694 )
Gain (loss) on sale of hospitals and partnership interests
    17,687       (3,954 )     (3,938 )
Impairment of long-lived assets of hospitals held for sale
    (5,000 )     (19,044 )      
                         
Income (loss) on discontinued operations, before taxes
    22,066       (34,268 )     (14,632 )
Income tax expense (benefit)
    10,420       (6,843 )     (5,200 )
                         
Income (loss) on discontinued operations, net of tax
  $ 11,646     $ (27,425 )   $ (9,432 )
                         
 
Interest expense was allocated to discontinued operations based on estimated sales proceeds available for debt repayment and using the weighted-average borrowing rate for the year.
 
The assets and liabilities of the two hospitals held for sale as of December 31, 2008 are included in the accompanying consolidated balance sheet as follows: current assets of $40.9 million, included in other current assets; net property and equipment of $168.1 million and other long-term assets of $4.8 million, included in other assets; and current liabilities of $106.9 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 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 other accrued liabilities.
 
4.   Goodwill and Other Intangible Assets
 
The changes in the carrying amount of goodwill are as follows (in thousands):
 
                 
    Year Ended December 31,  
    2008     2007  
 
Balance, beginning of year
  $ 4,247,714     $ 1,336,525  
Goodwill acquired as part of acquisitions during the year
    49,368       2,912,392  
Consideration adjustments and finalization of purchase price allocations for prior year’s acquisitions
    (119,650 )     22,053  
Goodwill related to hospital operations segment written off as part of disposals
    (11,161 )     (1,913 )
Goodwill related to home health agencies segment written off as part of disposals
    (180 )      
Goodwill related to hospital operations segment assigned to the disposal group classified as held for sale
          (21,343 )
                 
Balance, end of year
  $ 4,166,091     $ 4,247,714  
                 
 
SFAS No. 142 requires that goodwill be allocated to each identified reporting unit, which is defined as an operating segment or one level below the operating segment (referred to as a component of the entity). Management has determined that the Company’s operating segments meet the criteria to be classified as reporting units. At December 31, 2008, the hospital operations, home care agencies, and hospital management services reporting units had $4.099 billion, $34.2 million, and $33.3 million, respectively, of goodwill. At


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December 31, 2007, the hospital operations reporting unit had $1.309 billion and the home care agencies reporting unit had $32.2 million of goodwill. No goodwill was allocated to the hospital management services segment as of December 31, 2007 because that business relates entirely to the Triad acquisition for which the final purchase price allocation had not been completed at that date.
 
SFAS No. 142 requires goodwill to be evaluated for impairment at the same time every year and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. SFAS No. 142 requires a two-step method for determining goodwill impairment. Step one is to compare the fair value of the reporting unit with the unit’s carrying amount, including goodwill. If this test indicates the fair value is less than the carrying value, then step two is required to compare the implied fair value of the reporting unit’s goodwill with the carrying value of the reporting unit’s goodwill. The Company has selected September 30th as its annual testing date. The Company performed its annual goodwill evaluation as required by SFAS No. 142 as of September 30, 2008. No impairment was indicated by this evaluation.
 
The Company estimates the fair value of the related reporting units using both a discounted cash flow model as well as an EBITDA multiple model. These models are both based on the Company’s best estimate of future revenues and operating costs and are reconciled to the Company’s consolidated market capitalization. The cash flow forecasts are adjusted by an appropriate discount rate based on the Company’s weighted-average cost of capital. Historically the Company’s valuation models did not fully capture the fair value of the Company’s business as a whole, as they did not consider the increased consideration a potential acquirer would be required to pay, in the form of a control premium, in order to gain sufficient ownership to set policies, direct operations and control management decisions. However, because the Company’s models have indicated value significantly in excess of the carrying amount of assets in the Company’s reporting units, the additional value from a control premium was not a determining factor in the outcome of step one of the Company’s impairment assessment.
 
As indicated above, in addition to the annual impairment analysis, the Company is required to evaluate goodwill for impairment whenever an event occurs or circumstances change such that it is more likely than not that an impairment may exist. In light of this requirement the Company has considered whether the decline in the Company’s market capitalization between September 30, 2008 and December 31, 2008 has, more likely than not, resulted in the existence of an impairment and concluded that the decline in the Company’s market capitalization did not, more likely than not, result in the existence of an impairment. In making this conclusion the Company gave consideration to the valuation of hospitals in which it sold equity interests during periods subsequent to September 30, 2008, currently proposed hospital equity sale transactions, the proposed purchase price for a hospital which the Company anticipates closing on the acquisition in the first half of 2009, the increase in stock price since December 31, 2008 and the average stock price over the trailing 3-month, 6-month and 1-year periods. The Company also considered the fact that the decline in its stock price has not been related to a decline in operating performance and that any near term credit tightening within the financial markets could be overcome by the Company through the substantial amount of cash flows being generated by the Company, as well as, the borrowing capacity available through its existing credit facilities. The current turmoil in the financial markets and weakness in macroeconomic conditions globally continue to be challenging and the Company cannot be certain of the duration of these conditions and their potential impact on the Company’s stock price performance. If a further decline in the Company’s market capitalization and other factors resulted in the decline in the Company’s fair value, it is reasonably likely that a goodwill impairment assessment prior to the next annual review, in the fourth quarter of 2009, would be necessary. If such an assessment is required, an impairment of goodwill may be recognized. A non-cash goodwill impairment charge would have the effect of decreasing the Company’s earnings or increasing the Company’s losses in the period the impairment is recognized. The amount of such effect on earnings and losses is dependent on the size of the impairment charge. Such a charge, however, would be a non-cash charge and therefore would not impact the Company’s compliance with covenants contained in the New Credit Facility.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Approximately $3.3 million of intangible assets were acquired during the year ended December 31, 2008. The gross carrying amount of the Company’s other intangible assets subject to amortization was $68.6 million and $76.3 million as of December 31, 2008 and 2007, respectively, and the net carrying amount was $54.1 million and $62.7 million as of December 31, 2008 and 2007, respectively. The carrying amount of the Company’s other intangible assets not subject to amortization was $35.2 million and $118.3 million at December 31, 2008 and 2007, respectively. Other intangible assets are included in other assets, net on the Company’s consolidated balance sheets. Substantially all of the Company’s intangible assets are contract-based intangible assets related to operating licenses, management contracts, or non-compete agreements entered into in connection with prior acquisitions.
 
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 for these intangible assets was $6.2 million, $6.1 million and $1.9 million during the years ended December 31, 2008, 2007 and 2006, respectively. Amortization expense on intangible assets is estimated to be $12.4 million in 2009, $10.6 million in 2010, $5.7 million in 2011, $4.2 million in 2012, $3.8 million in 2013 and $18.4 million thereafter.
 
5.   Income Taxes
 
The provision for income taxes for income from continuing operations consists of the following (in thousands):
 
                         
    Year Ended December 31,  
    2008     2007     2006  
 
Current
                       
Federal
  $ 2,129     $ 27,416     $ 120,209  
State
    3,515       11,411       13,555  
                         
      5,644       38,827       133,764  
Deferred
                       
Federal
    110,870       5,769       (21,793 )
State
    12,965       (2,768 )     (1,819 )
                         
      123,835       3,001       (23,612 )
                         
Total provision for income taxes for income from continuing operations
  $ 129,479     $ 41,828     $ 110,152  
                         


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table reconciles the differences between the statutory federal income tax rate and the effective tax rate (dollars in thousands):
 
                                                 
    Year Ended December 31,  
    2008     2007     2006  
    Amount     %     Amount     %     Amount     %  
 
Provision for income taxes at statutory federal rate
  $ 117,648       35.0 %   $ 34,840       35.0 %   $ 100,746       35.0 %
State income taxes, net of federal income tax benefit
    10,712       3.2       5,618       5.5       7,628       2.7  
Change in valuation allowance
    (110 )     0.0       3,825       3.7              
Federal and state tax credits
    (2,270 )     (0.7 )     (2,625 )     (2.6 )            
Other
    3,499       1.0       170       0.2       1,778       0.6  
                                                 
Provision for income taxes and effective tax rate for income from continuing operations
  $ 129,479       38.5 %   $ 41,828       41.8 %   $ 110,152       38.3 %
                                                 
 
Deferred income taxes are based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities under the provisions of the enacted tax laws. Deferred income taxes as of December 31, 2008 and 2007 consist of (in thousands):
 
                                 
    2008     2007  
    Assets     Liabilities     Assets     Liabilities  
 
Net operating loss and credit carryforwards
  $ 143,873     $     $ 75,879     $  
Property and equipment
          511,687             464,753  
Self-insurance liabilities
    56,447             100,642        
Intangibles
          147,669             139,757  
Investments in unconsolidated affiliates
          51,557             6,940  
Other liabilities
          7,315             7,804  
Long-term debt and interest
          30,256             42,447  
Accounts receivable
    23,490             104,727        
Accrued expenses
    27,374             21,928        
Other comprehensive income
    173,661             58,933        
Stock-based compensation
    52,889             54,464        
Other
    20,070             19,480        
                                 
      497,804       748,484       436,053       661,701  
Valuation allowance
    (124,978 )             (68,558 )        
                                 
Total deferred income taxes
  $ 372,826     $ 748,484     $ 367,495     $ 661,701  
                                 
 
The Company believes that the net deferred tax assets will ultimately be realized, except as noted below. Its conclusion is based on its estimate of future taxable income and the expected timing of temporary difference reversals. The Company has state net operating loss carry forwards of approximately $1.8 billion, which expire from 2009 to 2028. With respect to the deferred tax liability pertaining to intangibles, as included above, goodwill purchased in connection with certain of the Company’s business acquisitions is amortizable for income tax reporting purposes. However, for financial reporting purposes, there is no corresponding amortization allowed with respect to such purchased goodwill.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The valuation allowance increased by $56.4 million and $47.4 million during the years ended December 31, 2008 and 2007, respectively. In addition to amounts previously discussed, the change in valuation allowance relates to a redetermination of the amount of, and realizability of, net operating losses in certain state income tax jurisdictions.
 
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 $10.5 million as of December 31, 2008. It is the Company’s policy to recognize interest and penalties accrued related to unrecognized benefits in its statement of operations as income tax expense. During the year ended December 31, 2008, the Company decreased liabilities by approximately $0.8 million and recorded $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 December 31, 2008. A total of approximately $1.2 million of interest and penalties is included in the amount of FIN 48 liability at December 31, 2008. During the year ended December 31, 2008, the Company released $7.5 million for income taxes and $1.8 million for accrued interest of its FIN 48 liability, as a result of the expiration of the statute of limitations pertaining to tax positions taken in prior years relative to state tax positions.
 
The Company believes that it is reasonably possible that approximately $5.3 million of its current unrecognized tax benefit may be recognized within the next twelve months as a result of a lapse of the statute of limitations and settlements with taxing authorities.
 
The following is a tabular reconciliation of the total amount of unrecognized tax benefit for the years ended December 31, 2008 and 2007 (in thousands):
 
                 
    Year Ended December 31,  
    2008     2007  
 
Unrecognized Tax Benefit at beginning of year
  $ 14,880     $ 10,510  
Gross increases — purchase business combination
    8,325       10,160  
Gross increases — tax positions in current period
          1,930  
Gross increases — tax positions in prior period
    223       1,820  
Lapse of statute of limitations
    (7,460 )     (6,700 )
Settlements
    (338 )     (2,840 )
                 
Unrecognized Tax Benefit at end of year
  $ 15,630     $ 14,880  
                 
 
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company has extended the federal statute of limitations for Triad for the tax periods ended December 31, 1999, December 31, 2000, April 30, 2001, June 30, 2001, December 31, 2001, December 31, 2002, and December 31, 2003. With few exceptions, the Company is no longer subject to state income tax examinations for years prior to 2003. During 2007, the Company agreed to a settlement with the Internal Revenue Service (the “IRS”) Appeals Office with respect to the 2003 tax year. The Company has since received a closing letter with respect to the examination for that tax year. The settlement was not material to the Company’s results of operations or financial position.
 
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. On May 10, 2006, the IRS issued an examination report with proposed adjustments. Triad filed a protest on June 9, 2006 and the matter was referred to the IRS Appeals Office. Representatives of the former Triad hospitals met with the IRS Appeals Office in April 2007 and reached a tentative settlement. Triad has since received a closing letter with respect to the examination for those tax years. The settlement was not


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
material to the Company’s results of operations or financial position. In December 2008, the Company was notified by the IRS of its intent to examine the federal tax return of Triad for the tax periods ended December 31, 2005 and July 25, 2007. The Company believes the results of this examination will not be material to the Company’s results of operations or consolidated financial position.
 
Cash paid for income taxes, net of refunds received, resulted in a net cash refund of $65.0 million during 2008. The Company paid income taxes, net of refunds received, of $85.2 million and $128.1 million during 2007 and 2006, respectively.
 
6.   Long-Term Debt
 
Long-term debt consists of the following (in thousands):
 
                 
    As of December 31,  
    2008     2007  
 
Credit Facilities:
               
Term loans
  $ 5,965,866     $ 5,965,000  
Tax-exempt bonds
    8,000       8,000  
Senior notes
    2,910,831       3,021,331  
Capital lease obligations (see Note 9)
    41,086       35,136  
Other
    41,663       68,610  
                 
Total debt
    8,967,446       9,098,077  
Less current maturities
    (29,462 )     (20,710 )
                 
Total long-term debt
  $ 8,937,984     $ 9,077,367  
                 
 
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 Company’s 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 Company’s 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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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”). These exchanged notes were repaid in 2007.
 
New Credit Facility and Notes
 
On July 25, 2007, the Company entered into a credit facility (the “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 $400 million delayed draw term loan facility with a maturity of seven years and a $750 million revolving credit facility with a maturity of nine years. As of December 31, 2007, the $400 million delayed draw term loan facility had been reduced to $300 million at the request of the Company. During the fourth quarter of 2008, $100 million of the delayed draw term loan was drawn by the Company, reducing the delayed draw term loan availability to $200 million at December 31, 2008. In January 2009, the Company drew down the remaining $200 million of the delayed draw term loan. The revolving credit facility also includes a subfacility for letters of credit and a swingline subfacility. 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% senior subordinated notes due 2012 and certain of Triad’s 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 Company’s $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 Company’s leverage ratio (as defined in the New Credit Facility generally as the ratio of total debt on the date of determination to the Company’s 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 bear interest on the outstanding unpaid principal amount at a rate equal to an applicable percentage plus, at the Company’s 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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Alternate Base Rate loans and 2.25% for Eurodollar rate loans. The applicable percentage for revolving loans was 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 Company’s 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 was initially obligated to pay commitment fees of 0.50% per annum (subject to reduction based upon the Company’s 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. With respect to the delayed draw term loan facility, CHS was also obligated to pay commitment fees of 0.50% per annum for the first nine months after the closing of the New Credit Facility and 0.75% per annum for the next three months. Thereafter, CHS is obligated to pay a commitment fee of 1.0% per annum. In each case, the commitment fee is paid 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 pays 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 Company’s 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 Company’s businesses, (10) grant certain guarantees with respect to physician practices, (11) engage in sale and leaseback transactions or (12) change the Company’s 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 Company’s 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. The 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 accrues from the date of original issuance. Interest is 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


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 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 Applicable 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 the Exchange Notes unless the context provides otherwise.
 
During the year ended December 31, 2008, the Company repurchased on the open market and cancelled $110.5 million of principal amount of the Notes. This resulted in a net gain from early extinguishment of debt of $2.5 million with an after-tax impact of $1.6 million.
 
As of December 31, 2008, the availability for additional borrowings under the New Credit Facility was $950 million (consisting of a $750 million revolving credit facility and $200 million of a $300 million delayed draw term loan facility), of which $93.6 million was set aside for outstanding letters of credit. In January 2009, the Company drew down the remaining $200 million of the delayed draw term loan. 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 December 31, 2008, the weighted-average interest rate under the New Credit Facility was 4.8%.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Term Loans are scheduled to be paid with principal payments for future years as follows (in thousands):
 
         
    Term
 
    Loans  
 
2009
  $ 12,066  
2010
    45,264  
2011
    45,264  
2012
    45,264  
2013
    45,264  
Thereafter
    5,772,744  
         
Total
  $ 5,965,866  
         
 
As of December 31, 2008 and 2007, the Company had letters of credit issued, primarily in support of potential insurance related claims and certain bonds, of approximately $93.6 million and $35.5 million, respectively.
 
Tax-Exempt Bonds.  Tax-Exempt Bonds bore interest at floating rates, which averaged 2.37% and 3.69% during 2008 and 2007, respectively.
 
Senior Notes.  In connection with the consummation of the acquisition of Triad, the Company completed an early repayment of its previously outstanding $300 million aggregate principal amount of 6.50% Senior Subordinated Notes due 2012 through a cash tender offer and consent solicitation.
 
As previously described, in connection with the Triad acquisition, the Company issued $3.021 billion principal amount of Notes. These Notes bear interest at 8.875% interest and mature on July 15, 2015.
 
Other Debt.  As of December 31, 2008, other debt consisted primarily of an industrial revenue bond, the mortgage obligation on the Company’s corporate headquarters and other obligations maturing in various installments through 2019.
 
The Company is currently a party to 38 separate interest swap agreements with an aggregate notional amount of $5.350 billion, to limit the effect of changes in interest rates on a portion of the Company’s long-term borrowings. On each of these swaps, the Company receives a variable rate of interest based on the three-month London Inter-Bank Offer Rate (“LIBOR”) in exchange for the payment of a fixed rate of interest. The Company currently pays, on a quarterly basis, a margin above LIBOR of 225 basis points for revolver loans and term loans under the senior secured credit facility. See Note 7 for additional information regarding these swaps.
 
As of December 31, 2008, the scheduled maturities of long-term debt outstanding, including capital leases for each of the next five years and thereafter are as follows (in thousands):
 
         
2009
  $ 29,462  
2010
    61,412  
2011
    49,943  
2012
    48,589  
2013
    48,841  
Thereafter
    8,729,199  
         
Total
  $ 8,967,446  
         
 
The Company paid interest of $654 million, $218 million and $96 million on borrowings during the years ended December 31, 2008, 2007 and 2006, respectively.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
7.   Fair Values of Financial Instruments
 
The fair value of financial instruments has been estimated by the Company using available market information as of December 31, 2008 and 2007, and valuation methodologies considered appropriate. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange (in thousands):
 
                                 
    As of December 31,  
    2008     2007  
    Carrying
    Estimated Fair
    Carrying
    Estimated Fair
 
    Amount     Value     Amount     Value  
 
Assets:
                               
Cash and cash equivalents
  $ 220,655     $ 220,655     $ 132,874     $ 132,874  
Available-for-sale securities
    6,325       6,325       8,352       8,352  
Trading securities
    24,325       24,325       38,075       38,075  
Liabilities:
                               
Credit facilities
    5,965,866       4,653,375       5,965,000       5,733,856  
Tax-exempt bonds
    8,000       8,000       8,000       8,000  
Senior notes
    2,910,831       2,677,965       3,021,331       3,074,204  
Other debt
    41,663       41,663       68,610       68,610  
 
Cash and cash equivalents.  The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).
 
Available-for-sale securities.  Estimated fair value is based on closing price as quoted in public markets.
 
Trading securities.  Estimated fair value is based on closing price as quoted in public markets.
 
Credit facilities.  Estimated fair value is based on information from the Company’s bankers regarding relevant pricing for trading activity among the Company’s lending institutions.
 
Tax-exempt bonds.  The carrying amount approximates fair value as a result of the weekly interest rate reset feature of these publicly-traded instruments.
 
Senior notes.  Estimated fair value is based on the average bid and ask price as quoted by the bank who served as underwriters in the sale of these notes.
 
Other debt.  The carrying amount of all other debt approximates fair value due to the nature of these obligations.
 
Interest Rate Swaps.  The fair value of interest rate swap agreements is the amount at which they could be settled, based on estimates calculated by the Company using a discounted cash flow analysis based on observable market inputs and validated by comparison to estimates obtained from the counterparty. The Company has designated the interest rate swaps as cash flow hedge instruments whose recorded value included in other long-term liabilities in the consolidated balance sheet approximates fair market value.
 
The Company assesses the effectiveness of its hedge instruments on a quarterly basis. For the years ended December 31, 2008 and 2007, the Company completed an assessment of the cash flow hedge instruments and determined the hedges to be highly effective. The Company has also determined that the ineffective portion of the hedges do not have a material effect on the Company’s consolidated financial position, operations or cash flows. The counterparty to the interest rate swap agreements exposes the Company to credit risk in the event of non-performance. However, at December 31, 2008, the Company does not anticipate non-performance by the counterparty due to the net settlement feature of the agreements and the liability position with respect to all of the Company’s counterparties. The Company does not hold or issue derivative financial instruments for trading purposes.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Interest rate swaps consisted of the following at December 31, 2008:
 
                                 
    Notional
    Fixed
          Fair
 
    Amount
    Interest
    Termination
    Value
 
Swap #
  (In 000’s)     Rate     Date     (In 000’s)  
 
1
  $ 100,000       3.9350 %     June 6, 2009     $ (975 )
2
    100,000       4.3375 %     November 30, 2009       (2,147 )
3
    200,000       2.8800 %     September 17, 2010       (3,846 )
4
    100,000       4.9360 %     October 4, 2010       (5,632 )
5
    100,000       4.7090 %     January 24, 2011       (6,327 )
6
    300,000       5.1140 %     August 8, 2011       (25,737 )
7
    100,000       4.7185 %     August 19, 2011       (7,645 )
8
    100,000       4.7040 %     August 19, 2011       (7,609 )
9
    100,000       4.6250 %     August 19, 2011       (7,408 )
10
    200,000       4.9300 %     August 30, 2011       (16,510 )
11
    200,000       3.0920 %     September 18, 2011       (7,118 )
12
    100,000       3.0230 %     October 23, 2011       (3,432 )
13
    200,000       4.4815 %     October 26, 2011       (14,788 )
14
    200,000       4.0840 %     December 3, 2011       (12,949 )
15
    100,000       3.8470 %     January 4, 2012       (5,908 )
16
    100,000       3.8510 %     January 4, 2012       (5,919 )
17
    100,000       3.8560 %     January 4, 2012       (5,934 )
18
    200,000       3.7260 %     January 8, 2012       (11,150 )
19
    200,000       3.5065 %     January 16, 2012       (9,924 )
20
    250,000       5.0185 %     May 30, 2012       (25,375 )
21
    150,000       5.0250 %     May 30, 2012       (15,337 )
22
    200,000       4.6845 %     September 11, 2012       (19,262 )
23
    100,000       3.3520 %     October 23, 2012       (5,080 )
24
    125,000       4.3745 %     November 23, 2012       (10,932 )
25
    75,000       4.3800 %     November 23, 2012       (6,668 )
26
    150,000       5.0200 %     November 30, 2012       (16,905 )
27
    100,000       5.0230 %     May 30, 2013       (12,247 )
28
    300,000       5.2420 %     August 6, 2013       (40,561 )
29
    100,000       5.0380 %     August 30, 2013       (12,762 )
30
    50,000       3.5860 %     October 23, 2013       (3,297 )
31
    50,000       3.5240 %     October 23, 2013       (3,160 )
32
    100,000       5.0500 %     November 30, 2013       (13,262 )
33
    200,000       2.0700 %     December 19, 2013       161  
34
    100,000       5.2310 %     July 25, 2014       (15,376 )
35
    100,000       5.2310 %     July 25, 2014       (15,376 )
36
    200,000       5.1600 %     July 25, 2014       (30,033 )
37
    75,000       5.0405 %     July 25, 2014       (10,809 )
38
    125,000       5.0215 %     July 25, 2014       (17,895 )


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Assuming no change in December 31, 2008 interest rates, approximately $155.8 million of additional interest expense will be recognized during the year ending December 31, 2009 pursuant to the interest rate swap agreements as a result of the spread between the fixed and floating rates defined in each agreement. If interest rate swaps do not remain highly effective as a cash flow hedge, the derivatives’ gains or losses resulting from the change in fair value reported through other comprehensive income will be reclassified into earnings.
 
8.   Fair Value
 
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 Company’s 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 financial position and consolidated results of operations.
 
Fair Value Hierarchy
 
SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumption about market participant assumptions (unobservable inputs classified within Level 3 of the 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 Company’s own assumptions.
 
In instances where the determination of the fair value hierarchy measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (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 December 31, 2008 (in thousands):
 
                                 
    December 31,
                   
    2008     Level 1     Level 2     Level 3  
 
Available-for-sale securities
  $ 6,325     $ 6,325     $     $  
Trading securities
    24,325       24,325              
                                 
Total assets
  $ 30,650     $ 30,650     $     $  
                                 
Fair value of interest rate swap agreements
  $ 435,134     $     $ 435,134     $  
Contractual obligation
  $ 48,985     $     $     $ 48,985  
                                 
Total liabilities
  $ 484,119     $     $ 435,134     $ 48,985  
                                 
 
Available-for-sale securities and trading securities classified as Level 1 are measured using quoted market prices.
 
The valuation of the Company’s interest rate swap agreements is determined using market valuation techniques, including discounted cash flow analysis on the expected cash flows of each agreement. This analysis reflects the contractual terms of the agreement, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. The fair values of interest rate swap agreements are determined by netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates based on observable market forward interest rate curves and the notional amount being hedged.
 
To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments (CVAs) to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance risk, the Company has considered the impact of any netting features included in the agreements. The CVA on the Company’s interest rate swap agreements at December 31, 2008 resulted in a decrease in the fair value of the related liability of $22.3 million and an after-tax adjustment of $14.3 million to other comprehensive income.
 
The majority of the inputs used to value its interest rate swap agreements, including the forward interest rate curves and market perceptions of the Company’s credit risk used in the CVAs, are observable inputs available to a market participant. As a result, the Company has determined that the interest rate swap valuations are classified in Level 2 of the fair value hierarchy.
 
The contractual obligation recorded during the year ended December 31, 2008, represents the fair value of a liability assumed in connection with a business combination using unobservable inputs and assumptions available to the Company.
 
The following table presents a reconciliation of the beginning and ending balance of the contractual obligation liability that is measured at fair value using unobservable inputs (in thousands):
 
         
    Contractual
 
    Obligation  
 
Balance at January 1, 2008
  $  
Initial recognition of obligation
    61,000  
Unrealized gain, included in discontinued operations
    (12,015 )
         
Balance at December 31, 2008
  $ 48,985  
         


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
9.   Leases
 
The Company leases hospitals, medical office buildings, and certain equipment under capital and operating lease agreements. During 2008, the Company entered into $6.1 million of capital leases. All lease agreements generally require the Company to pay maintenance, repairs, property taxes and insurance costs. Commitments relating to noncancellable operating and capital leases for each of the next five years and thereafter are as follows (in thousands):
 
                 
Year Ended December 31,
  Operating(1)     Capital  
 
2009
  $ 159,954     $ 10,589  
2010
    136,783       8,165  
2011
    111,763       4,989  
2012
    90,940       3,399  
2013
    72,728       3,041  
Thereafter
    270,355       28,789  
                 
Total minimum future payments
  $ 842,523     $ 58,972  
                 
Less imputed interest
            (17,886 )
                 
              41,086  
Less current portion
            (6,732 )
                 
Long-term capital lease obligations
          $ 34,354  
                 
 
 
(1) Minimum lease payments have not been reduced by minimum sublease rentals due in the future of $30.0 million.
 
Assets capitalized under capital leases as reflected in the accompanying consolidated balance sheets were $22.7 million of land and improvements, $136.0 million of buildings and improvements, and $72.9 million of equipment and fixtures as of December 31, 2008 and $23.5 million of land and improvements, $140.1 million of buildings and improvements and $61.8 million of equipment and fixtures as of December 31, 2007. The accumulated depreciation related to assets under capital leases was $83.6 million and $79.9 million as of December 31, 2008 and 2007, respectively. Depreciation of assets under capital leases is included in depreciation and amortization expense and amortization of debt discounts on capital lease obligations is included in interest expense in the consolidated statements of income.
 
10.   Employee Benefit Plans
 
The Company maintains various benefit plans, including defined contribution plans, defined benefit plans and deferred compensation plans. The Company’s defined contribution plans consist of one plan that covers substantially all corporate office employees and employees at the Company’s hospitals and clinics owned prior to the acquisition of Triad. The other defined contribution plan covers substantially all employees at the former Triad hospitals, clinics and QHR. These plans are qualified under Section 401(k) of the Internal Revenue Code. Participants may contribute a portion of their compensation not exceeding a limit set annually by the Internal Revenue Service. These plans include a provision for the Company to match a portion of employee contributions. In addition, the plan covering the former Triad hospitals provides for a supplementary contribution, determined primarily as a percentage of participants’ annual wages. The Company was required under the terms of the merger agreement with Triad to maintain the former Triad plan, including this supplementary contribution benefit, through December 31, 2008. Total expense to the Company under the 401(k) plans was $72.3 million, $39.8 million and $10.7 million for the years ended December 31, 2008, 2007 and 2006, respectively.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company maintains a defined benefit, non-contributory pension plan, which covers certain employees at three of its hospitals (“Pension Plan”). The Pension Plan provides benefits to covered individuals satisfying certain age and service requirements. Employer contributions to the Pension Plan are in accordance with the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended. The Company expects to contribute $6.9 million to the Pension Plan in 2009. The Company also provides an unfunded supplemental executive retirement plan (“SERP”) for certain members of its executive management. The Company uses a December 31 measurement date for the benefit obligations and a January 1 measurement date for its net periodic costs for both the Pension Plan and SERP. Variances from actuarially assumed rates will result in increases or decreases in benefit obligations, net periodic cost and funding requirements in future periods.
 
The Company’s unfunded deferred compensation plans allow participants to defer receipt of a portion of their compensation. The liability under the deferred compensation plans was $44.7 million as of December 31, 2008 and $59.4 million as of December 31, 2007.
 
The Company had trading securities in a non-qualified plan trust generally designated to pay benefits of the deferred compensation plans in the amounts of $24.3 million and $38.1 million as of December 31, 2008 and 2007, respectively, and available-for-sale securities in a rabbi trust generally designated to pay benefits of the SERP in the amounts of $6.3 million and $8.4 million as of December 31, 2008 and 2007, respectively.
 
A summary of the benefit obligations and funded status for the Company’s pension and SERP plans follows (in thousands):
 
                                 
    Pension Plan     SERP  
    2008     2007     2008     2007  
 
Change in benefit obligation:
                               
Benefit obligation, beginning of year
  $ 28,655     $ 26,220     $ 28,598     $ 23,293  
Service cost
    3,457       3,772       3,232       2,810  
Interest cost
    1,834       1,587       1,716       1,340  
Plan amendment
                7,387        
Actuarial (gain)/loss
    3,808       (2,812 )     212       1,155  
Benefits paid
    (129 )     (112 )            
                                 
Benefit obligation, end of year
    37,625       28,655       41,145       28,598  
Change in plan assets:
                               
Fair value of assets, beginning of year
    15,479       13,670              
Actual return on plan assets
    (5,615 )     834              
Employer contributions
    4,091       1,087              
Benefits paid
    (129 )     (112 )            
                                 
Fair value of assets, end of year
    13,826       15,479              
                                 
Unfunded status
  $ (23,799 )   $ (13,176 )   $ (41,145 )   $ (28,598 )
                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
A summary of the amounts recognized in the accompanying consolidated balance sheets follows (in thousands):
 
                                 
    Pension Plan     SERP  
    2008     2007     2008     2007  
 
Noncurrent Asset
  $     $     $     $  
Current Liability
                       
Noncurrent Liability
    (23,799 )     (13,176 )     (41,145 )     (28,598 )
                                 
Net amount recognized in the consolidated balance sheets
  $ (23,799 )   $ (13,176 )   $ (41,145 )   $ (28,598 )
                                 
 
A summary of the amounts recognized in Accumulated Other Comprehensive Income (“AOCI”) (in thousands):
 
                                 
    Pension Plan     SERP  
    2008     2007     2008     2007  
 
Prior service cost
  $ 2,204     $ 2,893     $ 12,206     $ 5,702  
Net actuarial (gain) loss
    8,538       (2,311 )     4,123       4,033  
                                 
Total amount recognized in AOCI
  $ 10,742     $ 582     $ 16,329     $ 9,735  
                                 
 
A summary of the plans’ benefit obligation in excess of the fair value of plan assets as of the end of the year follows (in thousands):
 
                                 
    Pension Plan     SERP  
    2008     2007     2008     2007  
 
Projected benefit obligation
  $ 37,625     $ 28,655     $ 41,145     $ 28,598  
Accumulated benefit obligation
    28,301       20,587       28,261       18,546  
Fair value of plan assets
    13,826       15,479              
 
A summary of the weighted-average assumptions used by the Company to determine benefit obligations as of December 31 follows:
 
                                 
    Pension Plan     SERP  
    2008     2007     2008     2007  
 
Discount Rate
    5.96 %     6.55 %     6.00 %     6.00 %
Annual Salary Increases
    4.00 %     4.00 %     5.00 %     5.00 %


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
A summary of net periodic cost and other amounts recognized in Other Comprehensive Income follows (in thousands):
 
                                                 
    Pension Plan     SERP  
    2008     2007     2006     2008     2007     2006  
 
Service cost
  $ 3,457     $ 3,772     $ 3,757     $ 3,232     $ 2,810     $ 3,023  
Interest cost
    1,834       1,586       1,601       1,716       1,339       1,225  
Expected return on plan assets
    (1,426 )     (1,179 )     (1,054 )                  
Amortization of unrecognized prior service cost
    689       689       1,336       884       884       884  
Amortization of net (gain)/loss
          (13 )           122       60       407  
                                                 
Net periodic cost
    4,554       4,855       5,640       5,954       5,093       5,539  
Prior service cost arising during period
                N/A       7,387             N/A  
Net loss (gain) arising during period
    10,849       (2,466 )     N/A       212       1,155       N/A  
Amortization of:
                                               
Prior service cost (credit)
    (689 )     (689 )     N/A       (884 )     (883 )     N/A  
Net actuarial (gain) loss
          13       N/A       (122 )     (60 )     N/A  
                                                 
Total amount recognized in OCI
    10,160       (3,142 )     N/A       6,593       212       N/A  
                                                 
Total recognized in Net periodic cost and OCI
  $ 14,714     $ 1,713     $ 5,640     $ 12,547     $ 5,305     $ 5,539  
                                                 
 
A summary of the expected amortization amounts to be included in net periodic cost for 2009 are as follows (in thousands):
 
                 
    Pension Plan     SERP  
 
Prior service cost
  $ 689     $ 1,704  
Actuarial (gain)/loss
    497       1  
 
A summary of the weighted-average assumptions used by the Company to determine net periodic cost follows:
 
                                                 
    Pension Plan     SERP  
    2008     2007     2006     2008     2007     2006  
 
Discount rate
    6.55 %     5.94 %     5.40% - 5.80%       6.00%       5.75 %     5.50 %
Rate of compensation increase
    4.00 %     4.00 %     4.00% - 5.00%       5.00%       5.00 %     5.00 %
Expected long term rate of return on assets
    8.50 %     8.50 %                    8.50%       N/A       N/A       N/A  
 
The Company’s weighted-average asset allocations by asset category for its pension plans as of the end of the year follows:
 
                                 
    Pension Plan     SERP  
    2008     2007     2008     2007  
 
Equity securities
    100 %     100 %     N/A       N/A  
Debt securities
    0 %     0 %     N/A       N/A  
                                 
Total
    100 %     100 %     N/A       N/A  
                                 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company’s pension plan assets are invested in mutual funds with an underlying investment allocation of 60% equity securities and 40% debt securities. The expected long-term rate of return for the Company’s pension plan assets is based on current expected long-term inflation and historical rates of return on equities and fixed income securities, taking into account the investment policy under the plan. The expected long-term rate of return is weighted based on the target allocation for each asset category. Equity securities are expected to return between 7% and 11% and debt securities are expected to return between 4% and 7%. The Company expects its pension plan asset managers will provide a premium of approximately 0% to 1.5% per annum to the respective market benchmark indices.
 
The Company’s investment policy related to its pension plans is to provide for growth of capital with a moderate level of volatility by investing in accordance with the target asset allocations stated above. The Company reviews its investment policy, including its target asset allocations, on a semi-annual basis to determine whether any changes in market conditions or amendments to its pension plans requires a revision to its investment policy.
 
The estimated future benefit payments reflecting future service as of the end of 2008 for the Company’s pension and SERP plans follows (in thousands):
 
                 
Years Ending
  Pension Plan     SERP  
 
2009
  $ 552     $  
2010
    744       1,846  
2011
    868       22,272  
2012
    1,236       923  
2013
    1,513        
2014-2018
    12,901       30,881  
 
11.   Stockholders’ Equity
 
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 $.01 per share. Shares of Preferred Stock, none of which are outstanding as of December 31, 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 Company’s 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 Company’s 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 have been repurchased. During the year ended December 31, 2008, the Company repurchased 4,786,609 shares, which is the cumulative number of shares that have been repurchased under this program, at a weighted-average price of $18.80 per share.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
12.   Earnings Per Share
 
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):
 
                         
    Year Ended December 31,  
    2008     2007     2006  
 
Numerator:
                       
Numerator for basic earnings per share —
                       
Income from continuing operations available to common stockholders — basic
  $ 206,658     $ 57,714     $ 177,695  
                         
Numerator for diluted earnings per share —
                       
Income from continuing operations
  $ 206,658     $ 57,714     $ 177,695  
Interest, net of tax, on 4.25% convertible notes
                135  
                         
Income from continuing operations available to common stockholders — diluted
  $ 206,658     $ 57,714     $ 177,830  
                         
Denominator:
                       
Weighted-average number of shares outstanding — basic
    93,371,782       93,517,337       94,983,646  
Effect of dilutive securities:
                       
Non-employee director options
          2,957       11,825  
Restricted Stock awards
    269,165       227,200       140,959  
Employee options
    647,882       894,800       951,360  
4.25% Convertible notes
                145,120  
                         
Weighted-average number of shares outstanding — diluted
    94,288,829       94,642,294       96,232,910  
                         
Dilutive securities outstanding not included in the computation of earning per share because their effect is antidilutive:
                       
Employee options
    5,001,223       4,398,307       1,261,367  
 
13.   Equity Investments
 
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. The Company’s investment in unconsolidated affiliates is $421.6 million and $267.8 million at December 31, 2008 and 2007, respectively, and is included in other assets in the accompanying consolidated balance sheet. Included in the Company’s results of operations for the years ended December 31, 2008 and 2007, is $42.1 million and $25.1 million, respectively, representing the Company’s equity in pre-tax earnings from investments in unconsolidated affiliates.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Summarized combined financial information for the years ended December 31, 2008 and 2007, for the unconsolidated entities in which the Company owns an equity interest is as follows (in thousands):
 
                 
    December 31, 2008     December 31, 2007  
 
Current assets
  $ 226,932     $ 223,761  
Noncurrent assets
    763,404       752,096  
                 
    $ 990,336     $ 975,857  
                 
Current liabilities
  $ 91,000     $ 122,020  
Noncurrent liabilities
    10,172       10,780  
Members’ equity
    889,164       843,057  
                 
    $ 990,336     $ 975,857  
                 
 
                 
    For the Year Ended December 31,  
    2008     2007  
 
Revenues
  $ 1,420,273     $ 1,276,555  
Operating costs and expenses
  $ 1,278,200     $ 1,125,477  
Income from continuing operations before taxes
  $ 146,478     $ 153,435  
 
The summarized financial information as of and for the year ended December 31, 2008 was derived from the unaudited financial information provided to the Company by the equity investee. The summarized financial information as of and for the year ended December 31, 2007 has been revised from the prior year disclosure to reflect the final audited financial information of the equity investee for that period.
 
14.   Segment Information
 
Prior to the acquisition of Triad in July 2007, the Company aggregated its operating segments into one reportable segment as all of its operating segments had similar services, had similar types of patients, operated in a consistent manner and had similar economic and regulatory characteristics. In connection with the Triad acquisition, management has re-evaluated the information that is reviewed by the chief operating decision maker and segment managers and has determined that the Company now operates in three distinct operating segments, represented by the hospital operations (which includes the Company’s acute care hospitals and related healthcare entities that provide acute and outpatient health care services), the home care agencies operations (which provide outpatient care generally at the patient’s home), and the Company’s hospital management services business (which provides executive management services to non-affiliated acute care hospitals). Only the hospital operations segment meets the criteria in SFAS No. 131 as a separate reportable segment. The financial information for the home care agencies and management services segment do not meet the quantitative thresholds defined in SFAS No. 131 and are combined into the corporate and all other reportable segment.
 
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1. Expenditures for segment assets are reported on an accrual basis, which includes amounts that are reflected in accounts payable (See Note 1). Substantially all depreciation and amortization as reflected in the consolidated statements of income relates to the hospital operations segment.
 
The financial information from prior years has been presented to reflect this change in the composition of the Company’s reportable operating segments.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The distribution between reportable segments of the Company’s revenues, income from continuing operations before income taxes, expenditures for segment assets and total assets is summarized in the following tables (in thousands):
 
                         
    For the Year Ended December 31,  
    2008     2007     2006  
 
Revenues:
                       
Hospital operations
  $ 10,601,500     $ 6,901,433     $ 4,101,974  
Corporate and all other
    238,598       162,342       78,162  
                         
    $ 10,840,098     $ 7,063,775     $ 4,180,136  
                         
Income from continuing operations before income taxes:
                       
Hospital operations
  $ 470,211     $ 252,916     $ 360,576  
Corporate and all other
    (134,074 )     (153,374 )     (72,729 )
                         
    $ 336,137     $ 99,542     $ 287,847  
                         
Expenditures for segment assets:
                       
Hospital operations
  $ 643,132     $ 498,867     $ 232,500  
Corporate and all other
    41,491       32,464       39,693  
                         
    $ 684,623     $ 531,331     $ 272,193  
                         
 
                         
    December 31,        
    2008     2007        
 
Total assets:
                       
Hospital operations
  $ 12,897,018     $ 12,176,957          
Corporate and all other
    921,236       1,316,686          
                         
    $ 13,818,254     $ 13,493,643          
                         
 
15.   Commitments and Contingencies
 
Construction Commitments.  Pursuant to hospital purchase agreements in effect as of December 31, 2008, and where required certificate of need approval has been obtained, the Company is required to build the following replacement facilities. As required by an amendment to a lease agreement entered into in 2005, the Company agreed to build a replacement facility at its Barstow, California location. Construction costs for this replacement facility are estimated to be approximately $65.0 million. Of this amount, approximately $5.4 million has been expended through December 31, 2008. The Company expects to spend approximately $2.0 million in replacement hospital construction and equipment costs related to this project in 2009. This project is required to be completed in 2012. The Company has agreed, as part of an acquisition in 2007, to build a replacement hospital in Valparaiso, Indiana with an aggregate estimated construction cost, including equipment costs, of approximately $204.0 million. Of this amount, approximately $3.1 million has been expended through December 31, 2008. The Company expects to spend approximately $5.0 million in replacement hospital construction and equipment costs related to this project in 2009. This project is required to be completed in 2011. In addition, in October 2008, after the purchase of the minority owner’s interest in the Company’s Birmingham, Alabama facility, the Company initiated the purchase of an alternate site for a replacement hospital rather than the one previously selected by Triad. The new site includes a partially constructed hospital structure, for which the Company is currently assessing completion costs, to be used for relocating the existing Birmingham facility. This project is subject to the application for and approval of a


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
certificate of need. Upon receiving the certificate of need, and after resolution of any legal opposition, the Company will undertake completion of the unfinished facility. The Company has agreed, as part of the acquisition in 2004 of Phoenixville Hospital in Phoenixville, Pennsylvania, to spend approximately $90 million in capital expenditures over eight years to develop and improve the hospital; of this amount approximately $53.6 million has been expended through December 2008. The Company expects to spend approximately $36.4 million of this commitment in 2009. The Company has agreed, as part of the acquisition in 2005 of Chestnut Hill Hospital in Philadelphia, Pennsylvania, to spend approximately $64 million in capital expenditures over seven years and an additional $15 million with no set completion date to develop and improve the hospital; of this amount approximately $17.0 million has been expended through December 2008. The Company expects to spend approximately $8.0 million of this commitment in 2009. As part of an acquisition in 2008, the Company committed to spend approximately $100 million within five years related to capital expenditures at Deaconess Hospital and Valley Hospital and Medical Center, both in Spokane, Washington; of this amount approximately $11.3 million has been expended through December 31, 2008. The Company expects to spend approximately $16.1 million of this commitment in 2009.
 
Physician Recruiting Commitments.  As part of its physician recruitment strategy, the Company provides income guarantee agreements to certain physicians who agree to relocate to its communities and commit to remain in practice there. Under such agreements, the Company is required to make payments to the physicians in excess of the amounts they earned in their practice up to the amount of the income guarantee. These income guarantee periods are typically for 12 months. Such payments are recoverable by the Company from physicians who do not fulfill their commitment period, which is typically three years, to the respective community. At December 31, 2008, the maximum potential amount of future payments under these guarantees in excess of the liability recorded is $37.8 million.
 
Professional Liability Claims.  As part of the Company’s business of owning and operating hospitals, it is subject to legal actions alleging liability on its part. The Company accrues for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims. These direct out-of-pocket expenses include fees of outside counsel and experts. The Company does not accrue for costs that are part of corporate overhead, such as the costs of in-house legal and risk management departments. The losses resulting from professional liability claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, historical claim reporting and payment patterns, the nature and level of hospital operations, and actuarially determined projections. The actuarially determined projections are based on the Company’s actual claim data, including historic reporting and payment patterns which have been gathered over an approximate 20-year period. As discussed below, since the Company purchases excess insurance on a claims-made basis that transfers risk to third party insurers, the liability it accrues does not include an amount for the losses covered by its excess insurance. Since the Company believes that the amount and timing of its future claims payments are reliably determinable, it discounts the amount accrued for losses resulting from professional liability claims using the risk-free interest rate corresponding to the timing of expected payments.
 
The net present value of the projected payments was discounted using a weighted-average risk-free rate of 2.6%, 4.1% and 4.6% in 2008, 2007 and 2006, respectively. This liability is adjusted for new claims information in the period such information becomes known. The Company’s estimated liability for the self-insured portion of professional and general liability claims was $350.6 million and $300.2 million as of December 31, 2008 and 2007, respectively. The estimated undiscounted claims liability was $383.5 and $321.5 million as of December 31, 2008 and 2007, respectively. Professional malpractice expense includes the losses resulting from professional liability claims and loss adjustment expense, as well as paid excess insurance premiums, and is presented within other operating expenses in the accompanying consolidated statements of income.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company’s processes for obtaining and analyzing claims and incident data are standardized across all of its hospitals and have been consistent for many years. The Company monitors the outcomes of the medical care services that it provides and for each reported claim, the Company obtains various information concerning the facts and circumstances related to that claim. In addition, the Company routinely monitors current key statistics and volume indicators in its assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between 4 and 5 years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent less than 1.0% of the total liability at the end of any period.
 
For purposes of estimating its individual claim accruals, the Company utilizes specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years, geography, and claims relating to the acquired Triad hospitals versus claims relating to the Company’s other hospitals. Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses company-specific historical claims data and other information. This company-specific data includes information regarding the Company’s business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data.
 
Based on these analyses the Company determines its estimate of the professional liability claims. The determination of management’s estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of the management. Changes in reserving data or the trends and factors that influence reserving data may signal fundamental shifts in the Company’s future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since the Company’s methods and models use different types of data and the Company selects its liability from the results of all of these methods, it typically cannot quantify the precise impact of such factors on its estimates of the liability. Due to the Company’s standardized and consistent processes for handling claims and the long history and depth of company-specific data, the Company’s methodologies have produced reliably determinable estimates of ultimate paid losses.
 
The Company is primarily self-insured for these claims; however, the Company obtains excess insurance that transfers the risk of loss to a third-party insurer for claims in excess of self-insured retentions. The Company’s excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of the Company’s professional and general liability risks were subject to a $0.5 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2.0 million per occurrence. 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 has been purchased through commercial insurance companies and generally covers the Company for liabilities in excess of the self-insured retentions and up to $100 million per occurrence for claims reported on or after June 1, 2003 and up to $150 million per occurrence for claims occurred and reported after January 1, 2008.
 
Effective January 1, 2008, the former Triad Hospitals are insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims occurring on or after January 1, 2002 and reported on or after January 1, 2008. Substantially all losses for the former


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Triad hospitals in periods prior to May 1999 were insured through a wholly-owned insurance subsidiary of HCA, Inc., (“HCA”), Triad’s 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 HCA’s 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 occurring during 2007 were self-insured up to $10 million per claim.
 
Legal Matters.  The Company is a party to other 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 Company’s 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. Discussions are continuing with the Civil Division in an effort to resolve this matter. 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 responded to and subsequently met with the government on October 30, 2008 and in January provided additional information. The Company continues to believe that the Company has not violated the Federal False Claim Act in the manner described in the government’s letter of January 22, 2008. However, in February 2009, the Company was informed by the U.S. Department of Justice that it intends to pursue litigation in this matter.
 
16.   Subsequent Events
 
On January 22, 2009, the Company drew down the remaining $200 million available from its delayed draw term loan under the New Credit Facility.
 
On February 1, 2009, the Company completed its acquisition of Siloam Springs Memorial Hospital (74 licensed beds), located in Siloam Springs, Arkansas, from the City of Siloam Springs. The total consideration for this hospital was approximately $2.7 million, of which approximately $1.6 million was paid in cash and $1.1 million was assumed in liabilities. As required by a lease agreement entered into as part of this acquisition, the Company agreed to build a replacement facility at this location, with construction required to commence by February 2011 and be completed by February 2013.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
17.   Quarterly Financial Data (Unaudited)
 
                                         
    Quarter        
    1st     2nd     3rd     4th     Total  
    (In thousands, except share and per share data)  
 
Year ended December 31, 2008:
                                       
Net operating revenues
  $ 2,688,924     $ 2,654,821     $ 2,734,815     $ 2,761,538     $ 10,840,098  
Income from continuing operations before taxes
    81,083       81,431       82,087       91,536       336,137  
Income from continuing operations
    49,827       50,088       50,460       56,283       206,658  
Gain (loss) on discontinued operations
    10,300       (2,195 )     (76 )     3,617       11,646  
Net income
    60,127       47,893       50,384       59,900       218,304  
Income from continuing operations per share:
                                       
Basic
    0.53       0.53       0.54       0.62       2.21  
Diluted
    0.52       0.52       0.53       0.61       2.19  
Net income per share:
                                       
Basic
    0.64       0.51       0.54       0.65       2.34  
Diluted
    0.63       0.50       0.53       0.65       2.32  
Weighted-average number of shares:
                                       
Basic
    94,107,532       94,192,295       94,044,564       91,514,652       93,371,782  
Diluted
    95,006,721       95,513,127       95,159,619       91,833,485       94,288,829  
Year ended December 31, 2007:
                                       
Net operating revenues
  $ 1,154,278     $ 1,197,865     $ 2,221,178     $ 2,490,454     $ 7,063,775  
Income from continuing operations before taxes
    93,121       87,114       29,892       (110,585 )     99,542  
Income from continuing operations
    57,289       53,558       18,737       (71,870 )     57,714  
Gain (loss) on discontinued operations
    (2,965 )     205       (8,277 )     (16,388 )     (27,425 )
Net income (loss)
    54,324       53,763       10,460       (88,258 )     30,289  
Income from continuing operations per share:
                                       
Basic
    0.61       0.57       0.20       (0.77 )     0.62  
Diluted
    0.61       0.57       0.20       (0.77 )     0.61  
Net income per share:
                                       
Basic
    0.58       0.57       0.11       (0.94 )     0.32  
Diluted
    0.58       0.57       0.11       (0.94 )     0.32  
Weighted-average number of shares:
                                       
Basic
    93,402,545       93,518,991       93,651,645       93,664,355       93,517,337  
Diluted
    94,365,292       94,647,870       94,841,749       93,664,355       94,642,294  
 
The quarterly financial data has been restated for the previously reported quarters during the year ended December 31, 2008 and the third and fourth quarter of the year ended December 31, 2007 to reflect the reclassification of the financial results of the hospital designated as held for sale during the fourth quarter of 2008 to discontinued operations. Net operating revenues in the third and fourth quarter of the year ended December 31, 2007 include the results of continuing operations of the former Triad hospitals and other operations subsequent to the acquisition date of July 25, 2007. Also, net operating revenues and income from continuing operations in the fourth quarter of the year ended December 31, 2007 give effect to the $96.3 million increase in contractual reserves and $70.1 million increase to the allowance for doubtful accounts resulting from management’s analysis of the net realizable value of the Company’s accounts receivable during the fourth quarter of 2007 (see Note 1).


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
18.   Supplemental Condensed Consolidating Financial Information
 
In connection with the consummation of the Triad acquisition, 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 of 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 Community Health Systems, Inc. (as Parent Guarantor), CHS (as the Issuer), the subsidiary guarantors, the subsidiary non-guarantors and eliminations. These 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 accounting policies used in the preparation of this financial information are consistent with those elsewhere in the consolidated financial statements of the Company, except as noted below:
 
  •  Intercompany receivables and payables are presented gross in the supplemental consolidating balance sheets.
 
  •  Cash flows from intercompany transactions are presented in cash flows from financing activities, as changes in intercompany balances with affiliates, net.
 
  •  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. 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.
 
The Company’s 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 Company’s 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.


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Year Ended December 31, 2008
Statement of Income
 
                                                 
    Parent
          Other
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
    (In thousands)  
 
Net operating revenues
  $     $     $ 6,800,003     $ 4,040,095     $     $ 10,840,098  
Operating costs and expenses:
                                               
Salaries and benefits
                2,558,415       1,768,111             4,326,526  
Provision for bad debts
                793,035       415,652             1,208,687  
Supplies
                903,366       615,621             1,518,987  
Other operating expenses
                1,201,766       871,947             2,073,713  
Rent
                119,427       110,099             229,526  
Depreciation and amortization
                317,686       181,399             499,085  
                                                 
Total operating costs and expenses
                5,893,695       3,962,829             9,856,524  
                                                 
Income from operations
                906,308       77,266             983,574  
                                                 
Interest expense, net
          65,135       543,830       42,960             651,925  
Loss from early extinguishment of debt
          (2,525 )                       (2,525 )
Minority interests in earnings
                (464 )     40,565             40,101  
Equity in earnings of unconsolidated affiliates
    (218,304 )     (251,979 )     (54,783 )           483,002       (42,064 )
                                                 
Income (loss) from continuing operations before income taxes
    218,304       189,369       417,725       (6,259 )     (483,002 )     336,137  
Provision for (benefit from) income taxes
          (28,935 )     160,824       (2,410 )           129,479  
                                                 
Income (loss) from continuing operations
    218,304       218,304       256,901       (3,849 )     (483,002 )     206,658  
Discontinued operations, net of taxes:
                                               
Income from operations of hospitals sold or held for sale
                147       5,169             5,316  
Gain on sale of hospitals and partnership interests, net
                      9,580             9,580  
Impairment of long-lived assets of hospitals held for sale
                      (3,250 )           (3,250 )
                                                 
Income on discontinued operations
                147       11,499             11,646  
                                                 
Net income
  $ 218,304     $ 218,304     $ 257,048     $ 7,650     $ (483,002 )   $ 218,304  
                                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Year Ended December 31, 2007
Statement of Income
 
                                                 
    Parent
          Other
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
    (In thousands)  
 
Net operating revenues
  $     $     $ 4,935,600     $ 2,128,175     $     $ 7,063,775  
Operating costs and expenses:
                                               
Salaries and benefits
                1,896,340       979,455             2,875,795  
Provision for bad debts
                664,682       220,971             885,653  
Supplies
                628,921       306,891             935,812  
Other operating expenses
                960,003       462,969             1,422,972  
Rent
                91,836       61,859             153,695  
Depreciation and amortization
                221,114       90,008             311,122  
                                                 
Total operating costs and expenses
                4,462,896       2,122,153             6,585,049  
                                                 
Income from operations
                472,704       6,022             478,726  
                                                 
Interest expense, net
          67,495       227,902       66,376             361,773  
Loss from early extinguishment of debt
          27,388                         27,388  
Minority interests in earnings
                823       14,332             15,155  
Equity in earnings of unconsolidated affiliates
    (30,289 )     (114,008 )     43,067             76,098       (25,132 )
                                                 
Income (loss) from continuing operations before income taxes
    30,289       19,125       200,912       (74,686 )     (76,098 )     99,542  
Provision for (benefit from) income taxes
          (11,164 )     83,910       (30,918 )           41,828  
                                                 
Income (loss) from continuing operations
    30,289       30,289       117,002       (43,768 )     (76,098 )     57,714  
Discontinued operations, net of taxes:
                                               
Loss from operations of hospitals sold or held for sale
                (672 )     (8,212 )           (8,884 )
Loss on sale of hospitals and partnership interests, net
                      (2,594 )           (2,594 )
Impairment of long-lived assets of hospitals held for sale
                      (15,947 )           (15,947 )
                                                 
Loss on discontinued operations
                (672 )     (26,753 )           (27,425 )
                                                 
Net income (loss)
  $ 30,289     $ 30,289     $ 116,330     $ (70,521 )   $ (76,098 )   $ 30,289  
                                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Year Ended December 31, 2006
Statement of Income
 
                                                 
    Parent
          Other
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
    (In thousands)  
 
Net operating revenues
  $     $     $ 3,344,830     $ 835,306     $     $ 4,180,136  
Operating costs and expenses:
                                               
Salaries and benefits
                1,278,676       382,943             1,661,619  
Provision for bad debts
                406,095       112,766             518,861  
Supplies
                390,147       97,631             487,778  
Other operating expenses
                658,746       196,850             855,596  
Rent
                64,544       27,399             91,943  
Depreciation and amortization
                147,885       31,397             179,282  
                                                 
Total operating costs and expenses
                2,946,093       848,986             3,795,079  
                                                 
Income (loss) from operations
                398,737       (13,680 )           385,057  
                                                 
Interest expense, net
          14,130       57,663       22,618             94,411  
Loss from early extinguishment of debt
                4                   4  
Minority interests in earnings
                59       2,736             2,795  
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 (benefit from) 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  
Discontinued operations, net of taxes:
                                               
Loss from operations of hospitals sold or held for sale
                      (6,873 )           (6,873 )
Loss on sale of hospitals and partnership interests, net
                      (2,559 )           (2,559 )
Impairment of long-lived assets of hospitals held for sale
                                   
                                                 
Loss on discontinued operations
                      (9,432 )           (9,432 )
                                                 
Net income (loss)
  $ 168,263     $ 168,263     $ 186,446     $ (33,516 )   $ (321,193 )   $ 168,263  
                                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
December 31, 2008
Balance Sheet
 
                                                 
    Parent
          Other
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
    (In thousands)  
 
ASSETS
Current assets:
                                               
Cash and cash equivalents
  $     $     $ 150,026     $ 70,629     $     $ 220,655  
Patient accounts receivable, net of allowance for doubtful accounts
                1,058,080       555,879             1,613,959  
Supplies
                172,783       100,154             272,937  
Deferred income taxes
    91,875                               91,875  
Prepaid expenses and taxes
    92,710       111       65,405       7,384             165,610  
Other current assets
          85       131,679       108,250             240,014  
                                                 
Total current assets
    184,585       196       1,577,973       842,296             2,605,050  
                                                 
Intercompany receivable
    1,010,957       9,309,290       7,115,645       3,351,825       (20,787,717 )      
                                                 
Property and equipment, net
                3,811,586       2,057,473             5,869,059  
                                                 
Goodwill
                2,452,251       1,713,840             4,166,091  
                                                 
Other assets, net of accumulated amortization
          171,396       320,742       685,916             1,178,054  
                                                 
Net investment in subsidiaries
    1,109,833       4,617,671       2,642,105             (8,369,609 )      
                                                 
Total assets
  $ 2,305,375     $ 14,098,553     $ 17,920,302     $ 8,651,350     $ (29,157,326 )   $ 13,818,254  
                                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
                                               
Current maturities of long-term debt
  $     $ 12,066     $ 10,778     $ 6,618     $     $ 29,462  
Accounts payable
    70             388,095       141,264             529,429  
Current income taxes payable
    6,740                               6,740  
Accrued liabilities
                                               
Employee compensation
                272,094       155,594             427,688  
Interest payable (receivable)
          152,070       1,257       (1,099 )           152,228  
Other
    8,869       567       205,854       173,133             388,423  
                                                 
Total current liabilities
    15,679       164,703       878,078       475,510             1,533,970  
                                                 
Long-term debt
          8,865,390       65,221       7,373             8,937,984  
                                                 
Intercompany payable
    137,827       3,671,112       15,514,298       7,805,237       (27,128,474 )      
                                                 
Deferred income taxes
    460,793                               460,793  
                                                 
Other long-term liabilities
    18,211       435,134       217,686       216,414             887,445  
                                                 
Minority interests in equity of consolidated subsidiaries
                52,098       273,099             325,197  
                                                 
Stockholders’ equity:
                                               
Preferred stock
                                   
Common stock
    925             1       2       (3 )     925  
Additional paid-in capital
    1,197,944       484,249       476,011             (960,260 )     1,197,944  
Treasury stock, at cost
    (6,678 )                             (6,678 )
Accumulated other comprehensive income
    (295,575 )     (295,575 )     (17,090 )           312,665       (295,575 )
Retained earnings
    776,249       773,540       733,999       (126,285 )     (1,381,254 )     776,249  
                                                 
Total stockholders’ equity
    1,672,865       962,214       1,192,921       (126,283 )     (2,028,852 )     1,672,865  
                                                 
Total liabilities and stockholders’ equity
  $ 2,305,375     $ 14,098,553     $ 17,920,302     $ 8,651,350     $ (29,157,326 )   $ 13,818,254  
                                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
December 31, 2007
Balance Sheet
 
                                                 
    Parent
          Other
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
    (In thousands)  
 
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 of accumulated amortization
          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
                                   
Accrued liabilities
                                               
Employee compensation
                231,500       172,098             403,598  
Interest payable (receivable)
          153,085       8,042       (7,295 )           153,832  
Other
                206,308       170,794             377,102  
                                                 
Total current liabilities
          153,104       738,956       555,875             1,447,935  
                                                 
Long-term debt
    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
    (6,678 )                             (6,678 )
Accumulated other comprehensive income
    (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  
                                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Year Ended December 31, 2008
Statement of Cash Flows
 
                                                 
    Parent
          Other
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
 
Cash flows from operating activities
                                               
Net cash provided by (used in) operating activities
  $ (36,792 )   $ 67,594     $ 853,937     $ 172,542     $     $ 1,057,281  
Cash flows from investing activities Acquisitions of facilities and other related equipment
                (156,960 )     (4,947 )           (161,907 )
Purchases of property and equipment
                (477,498 )     (214,735 )           (692,233 )
Proceeds from disposition of hospitals and other ancillary operations
                      365,636             365,636  
Proceeds from sale of property and equipment
                11,971       1,512             13,483  
Investment in other assets
          (15,700 )     (115,144 )     (59,606 )           (190,450 )
                                                 
Net cash provided by (used in) investing activities
          (15,700 )     (737,631 )     87,860             (665,471 )
                                                 
Cash flows from financing activities
                                               
Proceeds from exercise of stock options
    1,806                               1,806  
Stock buy-back
    (90,188 )                             (90,188 )
Deferred financing costs
          (3,136 )                       (3,136 )
Excess tax benefits relating to stock-based compensation
    1,278                               1,278  
Redemption of convertible notes
                                   
Proceeds from minority investors in joint ventures
                1,020       13,309             14,329  
Redemption of minority investments in joint ventures
                      (77,587 )           (77,587 )
Distribution to minority investors in joint ventures
                      (46,890 )           (46,890 )
Changes in intercompany balances with affiliates, net
    123,900       55,247       (52,067 )     (127,080 )            
Borrowings under Credit Agreement
          125,000             32,468       (26,191 )     131,277  
Repayments of long-term indebtedness
    (4 )     (229,005 )     (29,308 )     (2,792 )     26,191       (234,918 )
                                                 
Net cash provided by (used in) financing activities
    36,792       (51,894 )     (80,355 )     (208,572 )           (304,029 )
                                                 
Net change in cash and cash equivalents
                35,951       51,830             87,781  
Cash and cash equivalents at beginning of period
                114,075       18,799             132,874  
                                                 
Cash and cash equivalents at end of period
  $     $     $ 150,026     $ 70,629     $     $ 220,655  
                                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Year Ended December 31, 2007
Statement of Cash Flows
 
                                                 
    Parent
          Other
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
 
Cash flows from operating activities
                                               
Net cash provided by (used in) operating activities
  $ (85,881 )   $ 141,137     $ 417,930     $ 214,552     $      —     $ 687,738  
Cash flows from investing activities Acquisitions of facilities and other related equipment
          (6,864,035 )     (59,203 )     (94,810 )           (7,018,048 )
Purchases of property and equipment
                (366,069 )     (156,716 )           (522,785 )
Proceeds from disposition of hospitals and other ancillary operations
                      109,996             109,996  
Proceeds from sale of property and equipment
                591       4,059             4,650  
Investment in other assets
          (5,502 )     (59,772 )     (7,397 )           (72,671 )
                                                 
Net cash provided by (used in) investing activities
          (6,869,537 )     (484,453 )     (144,868 )           (7,498,858 )
                                                 
Cash flows from financing activities Proceeds from exercise of stock options
    8,214                               8,214  
Stock buy-back
                                   
Deferred financing costs
          (182,954 )                       (182,954 )
Excess tax benefits relating to stock-based compensation
    1,216                               1,216  
Redemption of convertible notes
                                   
Proceeds from minority investors in joint ventures
    128                   2,223             2,351  
Redemption of minority investments in joint ventures
                      (1,356 )           (1,356 )
Distribution to minority investors in joint ventures
                      (6,645 )           (6,645 )
Changes in intercompany balances with affiliates, net
    376,319       (468,160 )     360,206       (268,365 )            
Borrowings under Credit Agreement
          9,212,000       (66,068 )     75,695             9,221,627  
Repayments of long-term indebtedness
    (299,996 )     (1,832,486 )     (142,100 )     135,557             (2,139,025 )
                                                 
Net cash provided by (used in) financing activities
    85,881       6,728,400       152,038       (62,891 )           6,903,428  
                                                 
Net change in cash and cash equivalents
                85,515       6,793             92,308  
Cash and cash equivalents at beginning of period
                28,560       12,006             40,566  
                                                 
Cash and cash equivalents at end of period
  $     $     $ 114,075     $ 18,799     $      —     $ 132,874  
                                                 


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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Year Ended December 31, 2006
Statement of Cash Flows
 
                                                 
    Parent
          Other
    Non-
             
    Guarantor     Issuer     Guarantors     Guarantors     Eliminations     Consolidated  
 
Cash flows from operating activities
                                               
Net cash provided by (used in) operating activities
  $ (151,205 )   $ (20,514 )   $ 522,332     $ (358 )   $      —     $ 350,255  
Cash flows from investing activities Acquisitions of facilities and other related equipment
                (340,314 )     (44,304 )           (384,618 )
Purchases of property and equipment
                (176,070 )     (48,449 )           (224,519 )
Proceeds from disposition of hospitals and other ancillary operations
                      750             750  
Proceeds from sale of property and equipment
                102       4,378             4,480  
Investment in other assets
                (20,420 )     (15,930 )           (36,350 )
                                                 
Net cash provided by (used in) investing activities
                (536,702 )     (103,555 )           (640,257 )
                                                 
Cash flows from financing activities Proceeds from exercise of stock options
    14,573                               14,573  
Stock buy-back
    (176,316 )                             (176,316 )
Deferred financing costs
                (2,153 )                 (2,153 )
Excess tax benefits relating to stock-based compensation
    6,819                               6,819  
Redemption of convertible notes
    (128 )                             (128 )
Proceeds from minority investors in joint ventures
                      6,890             6,890  
Redemption of minority investments in joint ventures
                (56 )     (859 )           (915 )
Distribution to minority investors in joint ventures
                      (3,220 )           (3,220 )
Changes in intercompany balances with affiliates, net
    306,257       (366,486 )     (34,725 )     94,954              
Borrowings under Credit Agreement
          1,031,000                         1,031,000  
Repayments of long-term indebtedness
          (644,000 )     (3,525 )     (2,565 )           (650,090 )
                                                 
Net cash provided by (used in) financing activities
    151,205       20,514       (40,459 )     95,200             226,460  
                                                 
Net change in cash and cash equivalents
                (54,829 )     (8,713 )           (63,542 )
Cash and cash equivalents at beginning of period
                83,389       20,719             104,108  
                                                 
Cash and cash equivalents at end of period
  $     $     $ 28,560     $ 12,006     $      —     $ 40,566  
                                                 


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Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None
 
Item 9A.   Controls and Procedures
 
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 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 Commission’s 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.
 
There have been no changes in internal control over financial reporting that occurred during the period that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
 
Management’s report on internal control over financial reporting is included herein at page 120.
 
The attestation report from Deloitte & Touche LLP, our independent registered public accounting firm, on our internal control over financial reporting is included herein at page 121.
 
Item 9B.   Other Information
 
None


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Management’s Report on Internal Control over Financial Reporting
 
We are responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Report. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s estimates and judgments. All other financial information in this report has been presented on a basis consistent with the information included in the consolidated financial statements.
 
We are also responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rule 13a — 15(f) under the Securities and Exchange Act of 1934, as amended). We maintain a system of internal controls that is designed to provide reasonable assurance as to the fair and reliable preparation and presentation of the consolidated financial statements, as well as to safeguard assets from unauthorized use or disposition.
 
Our control environment is the foundation for our system of internal control over financial reporting and is embodied in our Code of Conduct. It sets the tone of our organization and includes factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and procedures which are reviewed, modified and improved as changes occur in business conditions and operations.
 
The Audit and Compliance Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with members of management, the internal auditors and the independent registered public accounting firm to review and discuss internal control over financial reporting and accounting and financial reporting matters. The independent registered public accounting firm and internal auditors report to the Audit and Compliance Committee and accordingly have full and free access to the Audit and Compliance Committee at any time.
 
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. We have concluded that our internal control over financial reporting was effective as of December 31, 2008, based on these criteria.
 
Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting, which is included herein.
 
We do not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
Community Health Systems, Inc.
Franklin, Tennessee
 
We have audited the internal control over financial reporting of Community Health Systems, Inc. and subsidiaries (the “Company”) as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2008 of the Company and our report dated February 26, 2009 expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph referring to the Company adopting Statement of Financial Accounting Standards No. 157, Fair Value Measurement effective January 1, 2008.
 
/s/ Deloitte & Touche LLP
 
Nashville, Tennessee
February 26, 2009


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PART III
 
Item 10.   Directors and Executive Officers of the Company
 
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed under Regulation 14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 19, 2009, under “Members of the Board of Directors,” “Information About our Executive Officers,” “Compliance with Exchange Act Section 16(A) Beneficial Ownership Reporting” and “Corporate Governance Principles and Board Matters.”
 
Item 11.   Executive Compensation
 
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed under Regulation 14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 19, 2009 under “Executive Compensation.”
 
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed under Regulation 14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 19, 2009 under “Security Ownership of Certain Beneficial Owners and Management.”
 
Item 13.   Certain Relationships and Related Transactions
 
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed under Regulation 14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 19, 2009 under “Certain Transactions.”
 
Item 14.   Principal Accountant Fees and Services
 
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed under Regulation 14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 19, 2009 under “Ratification of the Appointment of Independent Registered Public Accounting Firm.”
 
PART IV
 
Item 15.   Exhibits and Financial Statement Schedules
 
Item 15(a) 1.  Financial Statements
 
Reference is made to the index of financial statements and supplementary data under Item 8 in Part II.
 
Item 15(a) 2.  Financial Statement Schedules
 
The following financial statement schedule is filed as part of this Report at page 128 hereof:
 
Schedule II — Valuation and Qualifying Accounts
 
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.


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Item 15(a)(3) and 15(b):
 
The following exhibits are either filed with this Report or incorporated herein by reference.
 
         
   
Description
 
  2 .1   Agreement and Plan of Merger, dated as of March 19, 2007, by and among Triad Hospitals, Inc., Community Health Systems, Inc. and FWCT-1 Acquisition Corporation (incorporated by reference to Exhibit 2.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed March 19, 2007 (No. 001-15925))
  3 .1   Form of Restated Certificate of Incorporation of Community Health Systems, Inc. (incorporated by reference to Exhibit 3.1 to Community Health Systems, Inc.’s Registration Statement on Form S-1 (No. 333-31790))
  3 .2   Amended and Restated By-Laws of Community Health Systems, Inc. (as of February 27, 2008) (incorporated by reference to Exhibit 3(ii).1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed February 29, 2008)
  4 .1   Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (No. 333-31790))
  4 .2   Senior Notes Indenture, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., the Guarantors party thereto and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.3 to Community Health System Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .3   Registration Rights Agreement, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., the Guarantors party thereto and the Initial Purchasers (incorporated by reference to Exhibit 4.1 to Community Health System Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .4   Form of 87/8% Senior Note due 2015 (included in Exhibit 4.2)
  4 .5   Joinder to the Registration Rights Agreement dated as of July 25, 2007 (incorporated by reference to Exhibit 4.2 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .6   First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.4 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .7   Second Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of December 31, 2007, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .8   Release of Certain Guarantors relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of January 30, 2008, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .9   Third Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of October 10, 2008, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .10   Fourth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of December 1, 2008, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .11   Release of Certain Guarantors relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of December 31, 2008, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .12   Fifth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of February 5, 2009, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*


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Description
 
  4 .13   Second Supplemental Indenture relating to Triad’s 7% Senior Notes due 2012, dated as of July 24, 2007, by and among Triad Hospitals Inc. and The Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit 4.6 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .14   First Supplemental Indenture relating to the Triad’s 7% Senior Subordinated Notes due 2013, dated as of July 24, 2007, by and among Triad Hospitals Inc. and The Bank of New York Trust Company, N.A (incorporated by reference to Exhibit 4.7 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .1   Credit Agreement, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the lender parties thereto and Credit Suisse, as Administrative Agent and Collateral Agent, Credit Suisse Securities (USA) LLC and Wachovia Capital Markets, LLC as Joint Bookrunner and Co-Lead Arrangers, Wachovia Bank, N.A. as Syndication Agent, JPMorgan Chase Bank and Merrill Lynch Capital Corporation as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .2   Guarantee and Collateral Agreement, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the Subsidiaries from time to time party hereto and Credit Suisse, as collateral agent (incorporated by reference to Exhibit 10.2 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .3†   Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award Plan, as amended and restated on March 30, 2007 (incorporated by reference to Annex B to the Company’s Proxy Statement on Schedule 14A filed April 12, 2007 (No. 001-15925))
  10 .4†   Community Health Systems Deferred Compensation Plan Trust, Amended and Restated Effective February 26, 1999 (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002)
  10 .5†   CHS/Community Health Systems, Inc. Deferred Compensation Plan, as amended effective October 1, 1993; January 1, 1994; January 1, 1995; April 1, 1999; July 1, 2000; January 1, 2001 and June 30, 2002*
  10 .6†   Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1/A filed May 2, 2000 (No. 333-31790))
  10 .7†   Supplemental Executive Retirement Plan Trust, dated June 1, 2005, by and between CHS/Community Health Systems, Inc., as grantor, and Wachovia Bank, N.A., as trustee (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 1, 2005 (No. 001-15925))
  10 .8   Participation Agreement entered into as of January 1, 2005, by and between Community Health Systems Professional Services Corporation and HealthTrust Purchasing Group, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 7, 2005 (No. 001-15925))
  10 .9†   Form of Performance Based Restricted Stock Award Agreement between Registrant and its executive officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 3, 2006 (No. 001-15925))
  10 .10†   Form of Performance Based Restricted Stock Award Agreement, Part B (incorporated by reference to Exhibit 10.5 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .11†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.6 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .12†   CHS/Community Health Systems, Inc. Amended and Restated Deferred Compensation Plan*
  10 .13†   CHS/Community Health Systems, Inc. Amended and Restated Supplemental Executive Retirement Plan*
  10 .14†   Community Health Systems Supplemental Executive Benefits*
  10 .15†   Community Health Systems, Inc. Amended and Restated Directors’ Fees Deferral Plan*

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Description
 
  10 .16†   Community Health Systems, Inc. 2004 Employee Performance Incentive Plan (incorporated by reference to Exhibit A to the Company’s Proxy Statement on Schedule 14A filed April 12, 2004)
  10 .17†   Amendment to the Community Health Systems, Inc. 2004 Employee Performance Incentive Plan, effective as of December 10, 2008*
  10 .18†   Form of Restricted Stock Award Agreement*
  10 .19†   Form of Director Phantom Stock Award Agreement*
  10 .20†   Form of Performance Based Restricted Stock Award Agreement (Most Highly Compensated Executive Officers)*
  10 .21†   Form of Nonqualified Stock Option Agreement (Employee) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed February 28, 2005 (No. 001-15925))
  10 .22   Form of Amended and Restated Change in Control Severance Agreement*
  12     Computation of Ratio of Earnings to Fixed Charges*
  21     List of Subsidiaries*
  23 .1   Consent of Deloitte & Touche LLP*
  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*
 
 
Filed herewith.
 
†  Indicates a management contract or compensatory plan or arrangement.

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SIGNATURES
 
Pursuant to the requirements of section 13 or 15(d) 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.
 
  By: 
/s/  Wayne T. Smith
Wayne T. Smith
Chairman of the Board,
President and Chief Executive Officer
 
Date: February 27, 2009
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
             
Name
 
Title
 
Date
 
         
/s/  WAYNE T. SMITH

Wayne T. Smith
  President and Chief Executive Officer and Director (principal executive officer)   02/27/2009
         
/s/  W. LARRY CASH

W. Larry Cash
  Executive Vice President, Chief Financial Officer and Director (principal financial officer)   02/27/2009
         
/s/  T. MARK BUFORD

T. Mark Buford
  Vice President and Corporate Controller (principal accounting officer)   02/27/2009
         
/s/  JOHN A. CLERICO

John A. Clerico
  Director   02/27/2009
         
/s/  JOHN A. FRY

John A. Fry
  Director   02/27/2009
         
/s/  WILLIAM NORRIS JENNINGS, M.D.

William Norris Jennings, M.D.
  Director   02/27/2009
         
/s/  HARVEY KLEIN, M.D.

Harvey Klein, M.D.
  Director   02/27/2009
         
/s/  JULIA B. NORTH

Julia B. North
  Director   02/27/2009
         
/s/  H. MITCHELL WATSON, JR.

H. Mitchell Watson, Jr.
  Director   02/27/2009


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
Community Health Systems, Inc.
Franklin, Tennessee
 
We have audited the consolidated financial statements of Community Health Systems, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and for each of the three years in the period ended December 31, 2008, and the Company’s internal control over financial reporting as of December 31, 2008, and have issued our reports thereon dated February 26, 2009 (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the Company adopting Statement of Financial Accounting Standards No. 157, Fair Value Measurements effective January 1, 2008); such reports are included elsewhere in this Annual Report on Form 10-K. Our audits also included the financial statement schedule of the Company listed in Item 15. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
/s/ Deloitte & Touche LLP
 
Nashville, Tennessee
February 26, 2009


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Community Health Systems, Inc. and Subsidiaries
 
Schedule II — Valuation and Qualifying Accounts
 
                                         
    Balance at
    Acquisitions
    Charged to
          Balance
 
    Beginning
    and
    Costs and
          at End
 
Description
  of Year     Dispositions     Expenses     Write-offs     of Year  
    (In thousands)  
 
Year ended December 31, 2008
                                       
allowance for doubtful accounts
  $ 1,033,516     $ (12,352 )   $ 1,208,687     $ (1,126,951 )   $ 1,102,900  
Year ended December 31, 2007
                                       
allowance for doubtful accounts
  $ 478,565     $ 421,157     $ 897,285     $ (763,491 )   $ 1,033,516  
Year ended December 31, 2006
                                       
allowance for doubtful accounts
  $ 346,024     $ 31,241     $ 547,781     $ (446,481 )   $ 478,565  


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Exhibit Index
 
         
   
Description
 
  2 .1   Agreement and Plan of Merger, dated as of March 19, 2007, by and among Triad Hospitals, Inc., Community Health Systems, Inc. and FWCT-1 Acquisition Corporation (incorporated by reference to Exhibit 2.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed March 19, 2007 (No. 001-15925))
  3 .1   Form of Restated Certificate of Incorporation of Community Health Systems, Inc. (incorporated by reference to Exhibit 3.1 to Community Health Systems, Inc.’s Registration Statement on Form S-1 (No. 333-31790))
  3 .2   Amended and Restated By-Laws of Community Health Systems, Inc. (as of February 27, 2008) (incorporated by reference to Exhibit 3(ii).1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed February 29, 2008)
  4 .1   Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (No. 333-31790))
  4 .2   Senior Notes Indenture, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., the Guarantors party thereto and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.3 to Community Health System Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .3   Registration Rights Agreement, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., the Guarantors party thereto and the Initial Purchasers (incorporated by reference to Exhibit 4.1 to Community Health System Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .4   Form of 87/8% Senior Note due 2015 (included in Exhibit 4.2)
  4 .5   Joinder to the Registration Rights Agreement dated as of July 25, 2007 (incorporated by reference to Exhibit 4.2 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .6   First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.4 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  4 .7   Second Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of December 31, 2007, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .8   Release of Certain Guarantors relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of January 30, 2008, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .9   Third Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of October 10, 2008, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .10   Fourth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of December 1, 2008, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .11   Release of Certain Guarantors relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of December 31, 2008, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .12   Fifth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 87/8% Senior Notes due 2015, dated as of February 5, 2009, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and U.S. Bank National Association*
  4 .13   Second Supplemental Indenture relating to Triad’s 7% Senior Notes due 2012, dated as of July 24, 2007, by and among Triad Hospitals Inc. and The Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit 4.6 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))


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Table of Contents

         
   
Description
 
  4 .14   First Supplemental Indenture relating to the Triad’s 7% Senior Subordinated Notes due 2013, dated as of July 24, 2007, by and among Triad Hospitals Inc. and The Bank of New York Trust Company, N.A (incorporated by reference to Exhibit 4.7 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .1   Credit Agreement, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the lender parties thereto and Credit Suisse, as Administrative Agent and Collateral Agent, Credit Suisse Securities (USA) LLC and Wachovia Capital Markets, LLC as Joint Bookrunner and Co-Lead Arrangers, Wachovia Bank, N.A. as Syndication Agent, JPMorgan Chase Bank and Merrill Lynch Capital Corporation as Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .2   Guarantee and Collateral Agreement, dated as of July 25, 2007, by and among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the Subsidiaries from time to time party hereto and Credit Suisse, as collateral agent (incorporated by reference to Exhibit 10.2 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .3†   Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award Plan, as amended and restated on March 30, 2007 (incorporated by reference to Annex B to the Company’s Proxy Statement on Schedule 14A filed April 12, 2007 (No. 001-15925))
  10 .4†   Community Health Systems Deferred Compensation Plan Trust, Amended and Restated Effective February 26, 1999 (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002)
  10 .5†   CHS/Community Health Systems, Inc. Deferred Compensation Plan, as amended effective October 1, 1993; January 1, 1994; January 1, 1995; April 1, 1999; July 1, 2000; January 1, 2001 and June 30, 2002*
  10 .6†   Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-1/A filed May 2, 2000 (No. 333-31790))
  10 .7†   Supplemental Executive Retirement Plan Trust, dated June 1, 2005, by and between CHS/Community Health Systems, Inc., as grantor, and Wachovia Bank, N.A., as trustee (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed June 1, 2005 (No. 001-15925))
  10 .8   Participation Agreement entered into as of January 1, 2005, by and between Community Health Systems Professional Services Corporation and HealthTrust Purchasing Group, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 7, 2005 (No. 001-15925))
  10 .9†   Form of Performance Based Restricted Stock Award Agreement between Registrant and its executive officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 3, 2006 (No. 001-15925))
  10 .10†   Form of Performance Based Restricted Stock Award Agreement, Part B (incorporated by reference to Exhibit 10.5 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .11†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.6 to Community Health Systems, Inc.’s Current Report on Form 8-K filed July 30, 2007 (No. 001-15925))
  10 .12†   CHS/Community Health Systems, Inc. Amended and Restated Deferred Compensation Plan*
  10 .13†   CHS/Community Health Systems, Inc. Amended and Restated Supplemental Executive Retirement Plan*
  10 .14†   Community Health Systems Supplemental Executive Benefits*
  10 .15†   Community Health Systems, Inc. Amended and Restated Directors’ Fees Deferral Plan*
  10 .16†   Community Health Systems, Inc. 2004 Employee Performance Incentive Plan (incorporated by reference to Exhibit A to the Company’s Proxy Statement on Schedule 14A filed April 12, 2004)
  10 .17†   Amendment to the Community Health Systems, Inc. 2004 Employee Performance Incentive Plan, effective as of December 10, 2008*

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Table of Contents

         
   
Description
 
  10 .18†   Form of Restricted Stock Award Agreement*
  10 .19†   Form of Director Phantom Stock Award Agreement*
  10 .20†   Form of Performance Based Restricted Stock Award Agreement (Most Highly Compensated Executive Officers)*
  10 .21†   Form of Nonqualified Stock Option Agreement (Employee) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed February 28, 2005 (No. 001-15925))
  10 .22   Form of Amended and Restated Change in Control Severance Agreement*
  12     Computation of Ratio of Earnings to Fixed Charges*
  21     List of Subsidiaries*
  23 .1   Consent of Deloitte & Touche LLP*
  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*
 
 
Filed herewith.
 
†  Indicates a management contract or compensatory plan or arrangement.
 

131

EX-4.7
Exhibit 4.7
SECOND SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of December 31, 2007, among CHS/COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation (the “Issuer”), each of the parties identified as a New Subsidiary Guarantor on the signature pages hereto (each, a “New Subsidiary Guarantor” and collectively, the “New Subsidiary Guarantors”) and U.S. BANK NATIONAL ASSOCIATION, as Trustee under the Indenture (the “Trustee”).
W I T N E S S E T H:
     WHEREAS the Issuer has heretofore executed and delivered to the Trustee an Indenture (the “Indenture”), dated as of July 25, 2007, providing for the issuance of the 87/8% Senior Notes due 2015 (the “Securities”);
     WHEREAS, each of the undersigned New Subsidiary Guarantors has deemed it advisable and in its best interest to execute and deliver this Supplemental Indenture, and to become a New Subsidiary Guarantor under the Indenture;
     WHEREAS, following the merger of certain existing Subsidiary Guarantors with and into certain of the New Subsidiary Guarantors, certain of the New Subsidiary Guarantors are entering into this Supplemental Indenture pursuant to Section 5.01(b) of the Indenture;
     WHEREAS the entities listed on Schedule 1 hereto have been merged into existing Subsidiary Guarantors or New Subsidiary Guarantors, have ceased to exist and will therefore no longer be Subsidiary Guarantors under the Indenture;
     WHEREAS the Subsidiary Guarantors listed on Schedule 2 hereto have been converted into Delaware limited liability companies, and
     WHEREAS, pursuant to Section 9.01(4) of the Indenture, the Trustee, the Issuer and the New Subsidiary Guarantors are authorized to execute and deliver this Supplemental Indenture.
     NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, the New Subsidiary Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:
     SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.
     SECTION 2. Guaranties. Each New Subsidiary Guarantor hereby agrees to guarantee the Issuer’s obligations under the Securities on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture as a Subsidiary Guarantor.
     SECTION 3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, shall inure to the benefit of the Trustee and every Holder of Securities heretofore or hereafter authenticated and the Issuer, the Trustee and every Holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.
     SECTION 4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
     SECTION 5. Trustee Makes No Representation. The Trustee makes no representation as to the

 


 

validity or sufficiency of this Supplemental Indenture.
     SECTION 6. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
     SECTION 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction of this Supplemental Indenture.

 


 

IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed as of this 31st day of December, 2007.
         
  CHS/Community Health Systems, Inc.
a Delaware corporation
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President, Secretary & General Counsel   
 
         
  CHS Kentucky Holdings, LLC,
a Delaware limited liability company

CHS Virginia Holdings, LLC,
a Delaware limited liability company

CHS Pennsylvania Holdings, LLC,
a Delaware limited liability company

Triad Indiana Holdings, LLC,
a Delaware limited liability company

Triad Nevada Holdings, LLC,
a Delaware limited liability company

Northampton Hospital Company, LLC,
a Delaware limited liability company

West Grove Hospital Company, LLC,
a Delaware limited liability company

Sunbury Hospital Company, LLC,
a Delaware limited liability company

Berwick Hospital Company, LLC,
a Delaware limited liability company

BH Trans Company, LLC,
a Delaware limited liability company

McKenzie Tennessee Hospital Company, LLC,
a Delaware limited liability company

Kirksville Hospital Company, LLC,
a Delaware limited liability company

Moberly Hospital Company, LLC,
a Delaware limited liability company

QHG of Bluffton Company, LLC,
a Delaware limited liability company

QHG of Warsaw Company, LLC,
a Delaware limited liability company
 
 
     
     
     
 

 


 

         
  QHG of Fort Wayne Company, LLC,
a Delaware limited liability company
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President and Secretary   
 
  U.S. Bank National Association,
as Trustee
 
 
  By:   /s/ Donna L. Williams    
    Donna L. Williams   
    Vice President   
 

 


 

Schedule 1
Subsidiary Guarantors that no longer exist and
are no longer Subsidiary Guarantors under the Indenture:
1. CHS Holdings Corp.
2. Hallmark Holdings Corp.
3. NWI Hospital Holdings, LLC
4. Northampton Hospital Corporation
5. West Grove Hospital Corporation
6. Sunbury Hospital Corporation
7. CHS Berwick Hospital Corporation
8. BH Trans Corporation
9. McKenzie Hospital Corporation
10. Kirksville Hospital Corporation
11. Moberly Hospital, Inc.
12. QHG of Bluffton, Inc.
13. QHG of Warsaw, Inc.
14. QHG of Fort Wayne, Inc.

 


 

Schedule 2
Subsidiary Guarantors converted into Delaware Limited Liability Companies:
1.   Community Health Investment Corporation, a Delaware corporation, becomes Community Health Investment Company, LLC
2.   Hallmark Healthcare Corporation, a Delaware corporation, becomes Hallmark Healthcare Company, LLC
3.   Tennyson Holdings, Inc., a Delaware corporation, becomes Tennyson Holdings, LLC

 

EX-4.8
Exhibit 4.8
     RELEASE OF CERTAIN GUARANTORS (this “Release”), dated as of January 30, 2008, by and among CHS/COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation (the “Issuer”), those Subsidiary Guarantors parties hereto, and U.S. BANK NATIONAL ASSOCIATION, as Trustee under the Indenture (the “Trustee”).
W I T N E S S E T H:
     WHEREAS, the Issuer has heretofore executed and delivered to the Trustee an Indenture, dated as of July 25, 2007, as supplemented by the First Supplemental Indenture, dated as of July 25, 2007, and the Second Supplemental Indenture, dated as of December 31, 2007 (the “Indenture”), providing for the issuance of the 87/8% Senior Notes due 2015 (the “Securities”);
     WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of November 27, 2007 (as amended, supplemented or otherwise modified from time to time, the “Sale Agreement”), by and between Issuer and Capella Healthcare, Inc. (“Purchaser”), Issuer has agreed to sell (or to cause certain of its Subsidiaries to sell) to Purchaser, and Purchaser has agreed to purchase, all of the outstanding equity interests of certain Subsidiaries of the Issuer (such transaction, the “Sale”).
     WHEREAS, (i) upon the consummation of the Sale, each of the Subsidiary Guarantors listed on the signature pages hereto (the “Sold Subsidiary Guarantors”) will no longer be Subsidiaries of the Issuer, (ii) the Purchaser is not the Issuer or a Restricted Subsidiary of the Issuer, (iii) the Sale is permitted by the Indenture, and (iv) the Issuer has delivered an Officer’s Certificate to the Trustee to the effect that the Issuer will comply with its obligations under Section 4.06 of the Indenture with respect to the Sale.
     WHEREAS pursuant to Section 10.06(1) of the Indenture, a Guarantor will be released from its obligations under the Indenture under the circumstances described in the immediately preceding recital.
     WHEREAS pursuant to the last sentence of Section 10.06 of the Indenture, the Issuer requests and the Trustee is authorized to execute and deliver this Release evidencing such release pursuant to Section 10.06(1) of the Indenture.
     NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, those Subsidiary Guarantors parties hereto and the Trustee mutually covenant and agree as follows:
     SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.
     SECTION 2. Subsidiary Guarantors. Effective from and after the consummation of the Sale, each of the Sold Subsidiary Guarantors is hereby irrevocably released and discharged from its obligations under Article 10 of the Indenture, any Guaranty Agreement to which it may be party or any obligations with respect to the Securities.
     SECTION 3. Ratification of Indenture; Release Part of Indenture. Except as expressly modified hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Release shall form a part of the Indenture for all purposes, shall inure to the benefit of the Issuer, each of the Sold Subsidiary Guarantors, the Trustee and every Holder of Securities heretofore or hereafter authenticated and the Issuer, each of the Sold Subsidiary Guarantors, the Trustee and every Holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.
     SECTION 4. Governing Law. THIS RELEASE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 


 

     SECTION 5. Trustee Makes No Representation. The Trustee makes no representation as to the accuracy or correctness of the recitals of this Release.
     SECTION 6. Counterparts. The parties may sign any number of copies of this Release. Each signed copy shall be an original, but all of them together represent the same agreement.
     SECTION 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction of this Release.

 


 

IN WITNESS WHEREOF, the parties have caused this Release to be duly executed as of this 30th day of January 2008.
         
  CHS/Community Health Systems, Inc.,
a Delaware corporation
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President, Secretary & General Counsel   
 
  Sold Subsidiary Guarantors:

Cullman Hospital Corporation
Farmington Hospital Corporation
Farmington Missouri Hospital Company, LLC
National Healthcare of Cullman, Inc.
National Healthcare of Decatur, Inc.
National Healthcare of Hartselle, Inc.
Oregon Healthcorp, LLC
QHG of Jacksonville, Inc.
Russellville Holdings, LLC
Sparta Hospital Corporation
Willamette Valley Medical Center, LLC
 
 
     
  By:   /s/ James W. Doucette    
    Name:   James W. Doucette   
    Title:   Vice President, Finance and Treasurer   
         
U.S. Bank National Association,    
as Trustee    
 
       
By:
  /s/ Donna L. Williams
 
Donna L. Williams
   
 
  Vice President    
         

 

EX-4.9
         
     
     
     
     
 
Exhibit 4.9
THIRD SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of October 10, 2008, among CHS/COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation (the “Issuer”), each of the parties identified as a New Subsidiary Guarantor on the signature pages hereto (each, a “New Subsidiary Guarantor” and collectively, the “New Subsidiary Guarantors”) and U.S. BANK NATIONAL ASSOCIATION, as Trustee under the Indenture (the “Trustee”).
W I T N E S S E T H:
     WHEREAS the Issuer has heretofore executed and delivered to the Trustee an Indenture (the "Indenture”), dated as of July 25, 2007, providing for the issuance of the 87/8% Senior Notes due 2015 (the “Securities”);
     WHEREAS, each of the undersigned New Subsidiary Guarantors has deemed it advisable and in its best interest to execute and deliver this Supplemental Indenture, and to become a New Subsidiary Guarantor under the Indenture; and
     WHEREAS, pursuant to Section 9.01(4) of the Indenture, the Trustee, the Issuer and the New Subsidiary Guarantors are authorized to execute and deliver this Supplemental Indenture.
     NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, the New Subsidiary Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:
     SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.
     SECTION 2. Guaranties. Each New Subsidiary Guarantor hereby agrees to guarantee the Issuer’s obligations under the Securities on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture as a Subsidiary Guarantor.
     SECTION 3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, shall inure to the benefit of the Trustee and every Holder of Securities heretofore or hereafter authenticated and the Issuer, the Trustee and every Holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.
     SECTION 4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
     SECTION 5. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
     SECTION 6. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
     SECTION 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction of this Supplemental Indenture.

 


 

IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed as of this 10th day of October, 2008.
         
  CHS/Community Health Systems, Inc.
a Delaware corporation
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President, Secretary & General Counsel   
         
  Affinity Health Systems, LLC,
a Delaware limited liability company

Affinity Hospital, LLC,
a Delaware limited liability company

Birmingham Holdings II, LLC,
a Delaware limited liability company

CHS Washington Holdings, LLC,
a Delaware limited liability company
Spokane Valley Washington Hospital Company, LLC,
a Delaware limited liability company
 
         
  Spokane Washington Hospital Company, LLC,
a Delaware limited liability company
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President and Secretary   
         
  U.S. Bank National Association,
as Trustee
 
 
  By:   /s/ Wally Jones    
    Wally Jones   
    Vice President   

 

EX-4.10
         
Exhibit 4.10
FOURTH SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of December 1, 2008, among CHS/COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation (the “Issuer”), each of the parties identified as a New Subsidiary Guarantor on the signature pages hereto (each, a “New Subsidiary Guarantor” and collectively, the “New Subsidiary Guarantors”) and U.S. BANK NATIONAL ASSOCIATION, as Trustee under the Indenture (the “Trustee”).
W I T N E S S E T H:
     WHEREAS the Issuer has heretofore executed and delivered to the Trustee an Indenture (the "Indenture”), dated as of July 25, 2007, providing for the issuance of the 87/8% Senior Notes due 2015 (the “Securities”);
     WHEREAS, each of the undersigned New Subsidiary Guarantors has deemed it advisable and in its best interest to execute and deliver this Supplemental Indenture, and to become a New Subsidiary Guarantor under the Indenture; and
     WHEREAS, pursuant to Section 9.01(4) of the Indenture, the Trustee, the Issuer and the New Subsidiary Guarantors are authorized to execute and deliver this Supplemental Indenture.
     NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, the New Subsidiary Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:
     SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.
     SECTION 2. Guaranties. Each New Subsidiary Guarantor hereby agrees to guarantee the Issuer’s obligations under the Securities on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture as a Subsidiary Guarantor.
     SECTION 3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, shall inure to the benefit of the Trustee and every Holder of Securities heretofore or hereafter authenticated and the Issuer, the Trustee and every Holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.
     SECTION 4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
     SECTION 5. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
     SECTION 6. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
     SECTION 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction of this Supplemental Indenture.

 


 

IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed as of this 1st day of December, 2008.
         
  CHS/Community Health Systems, Inc.
a Delaware corporation
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President, Secretary & General Counsel   
 
  MWMC Holdings, LLC,
a Delaware limited liability company
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President and Secretary   
 
  U.S. Bank National Association,
as Trustee
 
 
  By:   /s/ Wally Jones    
    Wally Jones   
    Vice President   

 

EX-4.11
         
Exhibit 4.11
     RELEASE OF CERTAIN GUARANTORS (this “Release”), dated as of December 31, 2008, by and among CHS/COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation (the “Issuer”), those Subsidiary Guarantors parties hereto, and U.S. BANK NATIONAL ASSOCIATION, as Trustee under the Indenture (the “Trustee”).
W I T N E S S E T H:
     WHEREAS, the Issuer has heretofore executed and delivered to the Trustee an Indenture, dated as of July 25, 2007, as supplemented by the First Supplemental Indenture, dated as of July 25, 2007, the Second Supplemental Indenture, dated as of December 31, 2007, and the Third Supplemental Indenture, dated as of October 10, 2008 (the “Indenture”), providing for the issuance of the 87/8% Senior Notes due 2015 (the “Securities”);
     WHEREAS, pursuant to that certain Amended and Restated Private Placement Memorandum, dated September 3, 2008 (as amended, supplemented or otherwise modified from time to time, the “PPM”), Affinity Health Systems, LLC, a Delaware limited liability company (“Affinity Health"), has offered and sold membership interests in Affinity Health to certain physician investors effective as of the date hereof (such transaction, the “Syndication”).
     WHEREAS, (i) upon the consummation of the Syndication, each of the Subsidiary Guarantors listed on the signature pages hereto (the “Syndicated Subsidiary Guarantors”) has been released as a Subsidiary Guarantor under the Credit Agreement, dated as of July 25, 2007, by and among the Issuer, Community Health Systems, Inc., the lenders that from time to time become parties to the Credit Agreement and Credit Suisse, as Collateral Agent, and (ii) the Issuer has delivered an Officer’s Certificate to the Trustee certifying that the Syndicated Subsidiary Guarantors no longer have any Indebtedness outstanding that would require such Syndicated Subsidiary Guarantors to enter into a Guaranty Agreement pursuant to Section 4.12 of the Indenture.
     WHEREAS pursuant to Section 10.06(4) of the Indenture, a Guarantor will be released from its obligations under the Indenture under the circumstances described in the immediately preceding recital.
     WHEREAS pursuant to the last sentence of Section 10.06 of the Indenture, the Issuer requests and the Trustee is authorized to execute and deliver this Release evidencing such release pursuant to Section 10.06(4) of the Indenture.
     NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, those Subsidiary Guarantors parties hereto and the Trustee mutually covenant and agree as follows:
     SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.
     SECTION 2. Subsidiary Guarantors. Effective from and after the consummation of the Syndication, each of the Syndicated Subsidiary Guarantors is hereby irrevocably released and discharged from its obligations under Article 10 of the Indenture, any Guaranty Agreement to which it may be party or any obligations with respect to the Securities.
     SECTION 3. Ratification of Indenture; Release Part of Indenture. Except as expressly modified hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Release shall form a part of the Indenture for all purposes, shall inure to the benefit of the Issuer, each of the Syndicated Subsidiary Guarantors, the Trustee and every Holder of Securities heretofore or hereafter authenticated and the Issuer, each of the

 


 

Syndicated Subsidiary Guarantors, the Trustee and every Holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.
     SECTION 4. Governing Law. THIS RELEASE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
     SECTION 5. Trustee Makes No Representation. The Trustee makes no representation as to the accuracy or correctness of the recitals of this Release.
     SECTION 6. Counterparts. The parties may sign any number of copies of this Release. Each signed copy shall be an original, but all of them together represent the same agreement.
     SECTION 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction of this Release.

 


 

IN WITNESS WHEREOF, the parties have caused this Release to be duly executed as of this 31st day of December 2008.
         
  CHS/Community Health Systems, Inc.,
a Delaware corporation
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President, Secretary & General Counsel   
 
  Syndicated Subsidiary Guarantors:
Affinity Health Systems, LLC
Affinity Hospital, LLC
 
 
  By:   /s/ James W. Doucette    
    Name:   James W. Doucette   
    Title:   Vice President, Finance and Treasurer   
 
         
U.S. Bank National Association,    
as Trustee    
 
       
By:
  /s/ Wally Jones
 
Wally Jones Vice President
   

 

EX-4.12
Exhibit 4.12
FIFTH SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 5, 2009, among CHS/COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation the “Issuer”), each of the parties identified as a New Subsidiary Guarantor on the signature pages hereto (each, a “New Subsidiary Guarantor” and collectively, the “New Subsidiary Guarantors”) and U.S. BANK NATIONAL ASSOCIATION, as Trustee under the Indenture (the “Trustee”).
W I T N E S S E T H:
     WHEREAS the Issuer has heretofore executed and delivered to the Trustee an Indenture (the "Indenture”), dated as of July 25, 2007, providing for the issuance of the 87/8% Senior Notes due 2015 (the “Securities”);
     WHEREAS, each of the undersigned New Subsidiary Guarantors has deemed it advisable and in its best interest to execute and deliver this Supplemental Indenture, and to become a New Subsidiary Guarantor under the Indenture; and
     WHEREAS, pursuant to Section 9.01(4) of the Indenture, the Trustee, the Issuer and the New Subsidiary Guarantors are authorized to execute and deliver this Supplemental Indenture.
     NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, the New Subsidiary Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:
     SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.
     SECTION 2. Guaranties. Each New Subsidiary Guarantor hereby agrees to guarantee the Issuer’s obligations under the Securities on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture as a Subsidiary Guarantor.
     SECTION 3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, shall inure to the benefit of the Trustee and every Holder of Securities heretofore or hereafter authenticated and the Issuer, the Trustee and every Holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.
     SECTION 4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
     SECTION 5. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
     SECTION 6. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
     SECTION 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction of this Supplemental Indenture.

 


 

IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed as of this 5th day of February, 2009.
         
  CHS/Community Health Systems, Inc.
a Delaware corporation
 
 
  By:   /s/ Rachel A Seifert    
    Rachel A. Seifert   
    Senior Vice President, Secretary & General Counsel   
 
  Siloam Springs Holdings, LLC,
a Delaware limited liability company
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President and Secretary   
 
  Siloam Springs Arkansas Hospital Company, LLC,
a Delaware limited liability company
 
 
  By:   /s/ Rachel A. Seifert    
    Rachel A. Seifert   
    Senior Vice President and Secretary   
 
  U.S. Bank National Association,
as Trustee
 
 
  By:   /s/ Wally Jones    
    Wally Jones   
    Vice President   

 

EX-10.5
         
Exhibit 10.5
CHS/COMMUNITY HEALTH SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
As Amended Effective October 1, 1993; January 1, 1994; January 1, 1995;
April 1, 1999; July 1, 2000; January 1, 2001; and June 30, 2002
Original Effective Date: June 1, 1991

 


 

TABLE OF CONTENTS
         
ARTICLE I
  DEFINITIONS AND CONSTRUCTION 1  
 
ARTICLE II
  ADMINISTRATION 5  
 
ARTICLE III
  PARTICIPATION 5  
 
ARTICLE IV
  BENEFITS 6  
 
ARTICLE V
  VESTING 8  
 
ARTICLE VI
  TRUST 9  
 
ARTICLE VII
  PAYMENT OF BENEFITS 9  
 
ARTICLE VIII
  HARDSHIP DISTRIBUTIONS 10  
 
ARTICLE IX
  SALE OF THE COMPANY 11  
 
ARTICLE X
  NATURE OF THE PLAN 11  
 
ARTICLE XI
  EMPLOYMENT RELATIONSHIP 11  
 
ARTICLE XII
  AMENDMENT AND TERMINATION 12  
 
ARTICLE XIII
  CLAIMS PROCEDURE 12  
 
ARTICLE XIV
  MISCELLANEOUS 12  
 - i -

 


 

CHS/COMMUNITY HEALTH SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
W I T N E S S E T H:
     WHEREAS, Community Health Investment Corporation (formerly CHS Management Corporation) has previously established the CHS/Community Health Systems, Inc. Deferred Compensation Plan (the “Plan”) to provide retirement and incidental benefits for certain executive employees of the company, effective June 1, 1991; and
     WHEREAS, the Plan was amended in certain respects, effective December 1, 1991; and
     WHEREAS, effective January 1, 1992, Community Health Systems, Inc. (the “Company”) adopted the Plan and assumed all of the duties and responsibilities of Community Health Investment Corporation; and
     WHEREAS, the Plan was further amended in certain respects effective October 1, 1993, January 1, 1994, January 1, 1995, April 1, 1999, July 1, 2000, and January 1, 2001, including the change in the name of the Company to CHS/Community Health Systems, Inc.; and
     WHEREAS, the Company wishes to amend the Plan further as provided herein;
     NOW, THEREFORE, the Plan shall be and is hereby amended and restated in this form, effective as of June 30, 2002, except as otherwise provided herein
        .
ARTICLE I
Definitions and Construction
     1.1 Definitions. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary:
(1)   Account: A memorandum bookkeeping account established on the records of the Company for a Member that is credited with amounts determined pursuant to Sections 4.1 and 4.2 of the Plan. As of any Determination Date, a Member’s benefit under the Plan shall be equal to the amount credited to his Account as of such date. If a Member has made an election to defer a portion of his Compensation until a specified date pursuant to Section 3.4, the account described herein shall consist of such subaccounts as are necessary to segregate such deferral from the other amounts deferred by the Member.
(2)   Affiliate: Any subsidiary of Community Health Systems, Inc., the corporate parent of the Company.

- 1 -


 

(3)   Benefit Exchange Agreement: An agreement entered into between certain Members and the Company in connection with the surrender of the Member’s interest in the Split Dollar Agreement and the Member’s vested interest in the cash value of the variable life insurance policy that is subject to the terms of the Split Dollar Agreement, as it may be amended.
(4)   Bonus: The bonus paid by the Company or an Affiliate to a Member pursuant to an employment agreement between the Company or an Affiliate and the Member or otherwise for services rendered or labor performed while a Member.
(5)   Change of Control: A Change of Control occurs in the event of a sale of all or substantially all of the stock or assets of the Company to a purchaser if the debt-to-equity ratio of the purchaser, taking into account the sale of the stock or assets of the Company, is greater than .75 to 1 as determined by the Committee immediately prior to the sale.
(6)   Committee: The administrative committee appointed by the Company to administer the Plan, if any, which committee shall consist of the same persons designated by the Company pursuant to the terms of the Retirement Plan to act on behalf of the Company, as the administrator of such Plan.
 
(7)   Company: CHS/Community Health Systems, Inc.
(8)   Company Matching Contributions: Contributions made to the Retirement Plan by the Company or an Affiliate on a Member’s behalf pursuant to Section 4.1(b) of the Retirement Plan or otherwise as provided for therein.
(9)   Compensation: The total base salary paid by the Company or an Affiliate during the Plan Year to or for the benefit of a Member for services rendered or labor performed while a Member.
(10)   Contributing Member: A Member who, for a Plan Year, made a deferral election pursuant to Section 3.2, Section 3.3 and/or Section 3.4.
 
(11)   Determination Date. The last business day of each quarter in a calendar year.
(12)   Earnings Credit: The earnings applied to a Member’s Account as of each Determination Date pursuant to Section 4.2(b).
 
(13)   Effective Date: June 1, 1991.
(14)   Investment(s): Any investment fund(s) offered through the Trustee or its affiliates including Nations Fund, Inc., Nations Fund Trust, or Nations Fund Portfolios, Inc. (or their successors).
(15)   Investment Gains or Losses: Actual gains or losses realized from investments applied to a Member’s Account as of each Determination Date pursuant to Section 4.2(a) of the Plan, after deducting applicable investment-related costs and expenses, if any. For the

- 2 -


 

    Determination Date, such Member’s Account shall be reduced or increased for an amount equal to the Federal or state income taxes that the Company is required to pay or expects to realize in relation to such investment(s)’ taxable gain or loss realized during such year.
 
(16)   Limitations: Benefit limitations imposed on the Retirement Plan under the Employee Retirement Income Security Act of 1974, as amended, and under sections 401(a)(17), 401(k)(3), 401(m)(2), 402(g) and 415 of the Internal Revenue Code of 1986, as amended.
(17)   Member: Any employee of the Company or an Affiliate who has been designated by the Committee as a Member of the Plan until such employee ceases to be a Member in accordance with Section 3.1 of the Plan.
(18)   Plan: CHS/Community Health Systems, Inc. Deferred Compensation Plan, as amended from time to time.
(19)   Plan Year: The seven-month period commencing June 1, 1991, and ending December 31, 1991 and each twelve-consecutive month period commencing January 1 of each year thereafter.
(20)   Post-Termination Benefits Deposit: Certain deposit provided for under the terms of the Split Dollar Agreement.
(21)   Retirement Plan: Community Health Systems, Inc. 401(k) Plan.
(22)   Split Dollar Agreement: An agreement entered into between the Company and the Member pursuant to the provisions of the Supplemental Survivor Accumulation portion of the Community Health Systems, Inc. Supplemental Benefits Plan.
(23)   SSP: CHS 401(k) Supplemental Savings Plan.
 
(24)   Trust Agreement: The agreement entered into between the Company and the Trustee establishing a trust to hold and invest contributions made by the Company under the Plan and from which all or a portion of the amounts payable under the Plan to Members and their beneficiaries will be distributed.
 
(25)   Trust Assets: All assets held by the Trustee under the Trust Agreement.
 
(26)   Trustee: The trustee or trustees qualified and acting under the Trust Agreement at any time.
     1.2 Number and Gender. Wherever appropriate herein, words used in the singular shall be considered to include the plural and the plural to include the singular. The masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender and vice versa.

- 3 -


 

     1.3 Headings. The headings of Articles and Sections herein are included solely for convenience and if there is any conflict between such headings and the text of the Plan, the text shall control.

- 4 -


 

ARTICLE II
Administration
     The Plan shall be administered by the Committee that shall be authorized, subject to the provisions of the Plan, to establish rules and regulations and make such interpretations and determinations as it may deem necessary or advisable for the proper administration of the Plan and all such rules, regulations, interpretations, and determinations shall be binding on all Plan Members and their beneficiaries. The Committee shall be composed of not less than three individuals. Each member of the Committee shall serve until he resigns or is removed by the Company. Upon the resignation or removal of a member of the Committee, the Company shall appoint a substitute member. No member of the Committee shall have any right to vote or decide upon any matter relating solely to himself under the Plan or to vote in any case in which his individual right to claim any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act, and the remaining members cannot agree, the Company shall appoint a temporary substitute member to exercise all the powers of the disqualified member concerning the matter in which he is disqualified. All expenses incurred in connection with the administration of the Plan shall be borne by the Company.
ARTICLE III
Participation
     3.1 Eligibility. Any employee of the Company or an Affiliate shall become a Member upon designation by the Committee. Once an employee has been designated as a Member, he shall automatically continue to be a Member until he ceases to be an employee of the Company or an Affiliate or is removed as a Member by the Committee. Notwithstanding the preceding provisions of this Section 3.1, participation in this Plan shall at all times be limited to a selected group of management or highly compensated employees of the Company.
     3.2 Compensation Deferral Election. Any Member may elect to defer receipt of an integral percentage of his Compensation for one or more calendar quarters during a Plan Year under the Plan. A Member’s election to defer receipt of Compensation for any calendar quarter(s) of a Plan Year shall be made prior to the beginning of such calendar quarter(s) of the Plan Year and shall be irrevocable for such calendar quarter(s) of the Plan Year. The reduction in a Member’s Compensation pursuant to his election shall be effected by Compensation reductions as of each payroll period within the election period.
     3.3 Bonus Deferral Election. Any Member may elect to defer receipt of an integral percentage of his Bonus for any Plan Year under the Plan. A Member’s election to defer receipt of his Bonus for any Plan Year shall be made prior to the earlier of (i) the date on which such bonus becomes payable and ascertainable, or (ii) October 1 of such Plan Year for which such Bonus is payable, and shall be irrevocable for such Plan Year. The election to defer receipt of such percentage of a Member’s Bonus pursuant to the deferral election above shall be effected by a reduction in the amount of the Bonus to which such deferral election relates.

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     3.4 Targeted Deferral Election. In general, all amounts deferred by a Member pursuant to Sections 3.2 and 3.3 shall be held for the Member and distributed following the Member’s termination of employment or the occurrence of a hardship event pursuant to Sections 7.1, 7.2 and 8.1. Notwithstanding the preceding sentence, a Member may also defer the receipt of any portion of the Member’s Compensation otherwise deferred pursuant to the provisions of Sections 3.2 and 3.3 until a specific future date, by executing a deferral form designed for such purpose as specified by the Committee. Upon the occurrence of any such date specified by a Member in such an election form, the deferred amount, and the Earnings Credit and Investment(s) Gains or Losses attributable thereto, shall be distributed to the Member. Until so distributed, such deferral amounts shall continue to be a part of the Member’s Account.
     3.5 Investment Request. A Member may request the Committee to invest or change the investment of all or a portion of his Account in any Investments. A Member may make such request at any time, provided that the Committee shall only be obligated to direct the Trustee to make such investment or charge such investment as soon as reasonably practicable and within the guidelines and requirements established by the Trustee for the investment of funds held in the Account. A Member who does not request the Committee to invest any portion of his Account shall have the funds held in such Account in a money market fund offered through the Trustee or its affiliates.
     3.6 Post-Termination Benefits Deposit. Notwithstanding any provision of the Plan to the contrary, the Company may make for any Member an annual contribution equal to that portion of Post-Termination Benefit Deposits to be made to the Plan as calculated under the terms of any Benefits Exchange Agreement between the Member and the Company.
ARTICLE IV
Benefits
     4.1 Amount of Benefit.
     (a) Deferral Contributions. As of the last day of each payroll period of each Plan Year, a Member’s Account shall be credited with an amount equal to the Compensation deferred under the Plan pursuant to an election by the Member as described in Article III for such payroll period. Effective as of June 30, 2002, as of the last day of each payroll period of each Plan Year, a Member’s Account shall be credited with an amount equal to that portion of Post-Termination Benefit Deposits made to the Plan, if any, as calculated under the terms of the Benefits Exchange Agreement between the Member and the Company.
     (b) Matching Contributions. As of the last day of each Plan Year, or, if later, the date on which the Company Matching Contributions are made under the Retirement Plan for any such Plan Year, the Member’s Account of each Contributing Member during such Plan Year who remains employed by the Company on such date shall be credited with an amount equal to the following:
     (1) the Company Matching Contributions to which such Contributing Member would have been entitled under the Retirement Plan taking into account

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both (i) the salary deferrals made by such Contributing Member to the Retirement Plan for the Plan Year, and (ii) the deferrals made by such Contributing Member under this Plan pursuant to Sections 3.1, 3.2, or 3.3 for the same Plan Year (up to a combined maximum of six percent (6.00%) of such Contributing Member’s Compensation assuming that none of the Limitations were imposed); minus
     (2) the Company Matching Contributions, if any, actually made on behalf of such Contributing Member under the Retirement Plan for such Plan Year; minus
     (3) the Company contributions, if any, to accounts actually made on behalf of such Contributing Member under the SSP for such Plan Year.
In addition, if (i) the total of such Contributing Member’s salary deferrals under the Retirement Plan (as adjusted after application of the Limitations) and deferrals pursuant to the SSP and Sections 3.1, 3.2 or 3.3 under this Plan is less than 6.00% of such Contributing Member’s Compensation for a Plan Year; and (ii) the Contributing Member elects to increase his or her deferrals under this Plan by all or any portion of any salary deferrals to the Retirement Plan that are returned to the Contributing Member as a result of the application of the Limitations within 120 days after receipt of such returned salary deferrals, even if such increased deferrals are made in the next Plan Year; such increased deferrals shall also be taken into account in subparagraph (a) above until the total of the Contributing Member’s salary deferrals under the Retirement Plan, SSP, and deferrals under this Plan for the Plan Year equals 6.00% of the Contributing Member’s Compensation.
     (c) Benefit Exchange Agreement Contributions. Effective for Plan Years beginning on or after January 1, 2002, the Company shall credit to the Account of each Member who has entered into a Benefit Exchange Agreement with the Company the following amounts, as specified under the terms of each such Benefit Exchange Agreement:
(1) all unpaid 2001 and 2002 variable life insurance policy premium payments required under the terms of the Split Dollar Agreement;
(2) an amount equal to 100% of the net cash surrender value of such variable life insurance policy on the date such policy is surrendered by the Company; and
(3) if required by the Member’s Benefit Exchange Agreement, annual amounts equal to the premium payments to such variable life insurance policy that would have been required under the Split Dollar Agreement for years after 2002, reduced each year by the actual cost of providing supplemental life insurance coverage to the Member pursuant to the terms of the Benefit Exchange Agreement.
As of any Determination Date, the benefit to which a Member or his beneficiary shall be entitled under the Plan shall be equal to the amount credited to such Member’s Account as of such date.

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     (d) Special Contributions. For the Plan Year beginning January 1, 2003, the Company shall make a special one-time cash contribution to each Participant’s Account in an amount equal to the dollar value of the matching contributions that were forfeited by the Participants under the Retirement Plan for the plan years of the Retirement Plan that ended on December 31, 2001, and December 31, 2002. The Plan Administrator shall determine the dollar value of all such forfeited matching contributions, which determination shall be final and binding on all Participants. Such special contributions shall be made no later than September 15, 2003, unless the Plan Administrator has not yet finally determined the amount of the forfeited matching contributions, in which event such contributions shall be made not later than 30 days after such forfeited matching contributions are finally determined by the Plan Administrator. Notwithstanding the foregoing, no such special contribution shall be made for a Member if the Company makes a similar contribution for a Member to the SSP.
     4.2 Investment Credit. As of each Determination Date, the Account of each Member shall be credited with Investment Gains or Losses as provided in this Section 4.2.
  (a)   If a Member has requested in accordance with Section 3.5 of the Plan that all or a portion of his Account be invested in any particular Investment(s), the Account of such Member shall be credited with the Investment Gains or Losses since the preceding Determination Date.
 
  (b)   Any portion of a Member’s Account, the investment of which has not been requested by the Member, shall be credited with the Earnings Credit for such Determination Date.
 
  (c)   A Member’s Account shall not be credited with any Investment Credit under this Section 4.2 on the Company Matching Contributions portion credited to his Account as of the last day of each Plan Year pursuant to Section 4.1 of the Plan until the Company actually makes the cash deposit of such Matching Contributions with the Trustee.
ARTICLE V
Vesting
     All amounts credited to a Member’s Account shall be fully vested and not subject to forfeiture for any reason; provided, however, the amounts credited to a Member’s Account pursuant to the second paragraph of Section 4.1, including any Earnings Credit and/or Investment Gains or Losses allocable to such credits, shall be subject to the same vesting schedule as that set forth in the Retirement Plan. Notwithstanding the preceding sentence, the benefits payable to each Member hereunder constitute an unfunded, unsecured obligation of the Company, and the assets held by the Company and the Trustee remain subject to the claims of the Company’s creditors.

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ARTICLE VI
Trust
     The Company may, from time to time and in its sole discretion, pay and deliver money or other property to the Trustee for the payment of benefits under the Plan. Notwithstanding any provision in the Plan to the contrary, distributions due under the Plan to or on behalf of Members shall be made by the Trustee in accordance with the terms of the Trust Agreement and the Plan; provided, however, that the Company shall remain obligated to pay all amounts due to such persons under the Plan. To the extent that Trust Assets are not sufficient to pay any amounts due under the Plan to or on behalf of the Members when such amounts are due, the Company shall pay such amounts directly. Nothing in the Plan or the Trust Agreement shall relieve the Company of its obligation to make the distributions required in Article VII hereof except to the extent that such obligation is satisfied by the application of funds held by the Trustee under the Trust Agreement. Any recipient of benefits hereunder shall have no security or other interest in Trust Assets. Any and all Trust Assets shall remain subject to the claims of the general creditors of the Company, present and future, and no payment shall be made under the Plan unless the Company is then solvent. Should an inconsistency or conflict exist between the specific terms of the Plan and those of the Trust Agreement, then the relevant terms of the Trust Agreement shall govern and control.
ARTICLE VII
Payment of Benefits
     7.1 Termination of Employment. Upon a Member’s termination of employment with the Company or an Affiliate for any reason, the amount credited to such Member’s Account as of the Determination Date immediately preceding such Member’s termination of employment, adjusted for any amount deferred and Earnings Credit and Investment(s) Income or Loss realized from such Determination Date to the date of the Member’s termination of employment, shall be distributed to such Member or, if the Member’s termination of employment is on account of death, to the Member’s beneficiary as determined pursuant to Section 7.2 below.
     7.2 Death. Upon a Member’s death, the amount credited to such Member’s Account as of the Determination Date immediately preceding the date of such Member’s death, adjusted for any amount deferred and Earnings Credit and Investment Gains or Losses realized from such Determination Date to the date of the Member’s death, shall be distributed to such Member’s designated beneficiary. The Member, by written instrument filed with the Committee in such manner and form as the Committee may prescribe, may designate one or more beneficiaries to receive such payment. The beneficiary designation may be changed from time to time prior to the death of the Member. In the event that the Committee has no valid beneficiary designation on file, the amount credited to such Member’s Account shall be distributed to the Member’s surviving spouse, if any, or if the Member has no surviving spouse, to the executor or administrator of the Member’s estate.
     7.3 Targeted Deferrals. If a Member has made one or more targeted deferrals pursuant to Section 3.4, upon the date specified in any election form used by the Member to make such election, the amount credited in the subaccount of the Member’s Account which relates to such deferral as of the Determination Date immediately preceding such specified date

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shall be distributed to such Member. If some event takes place that would entitle a Member to a distribution under Sections 7.1 or 7.2 prior to such specified date, the amounts in such subaccount shall be distributed along with any other amounts in the Member’s Account pursuant to Section 7.1 or 7.2.
     7.4 Time of Payment. Payment of a Member’s benefit hereunder shall be made (or commence if payment is in the form of an annuity contract) as soon as administratively feasible following the date on which the Member or his beneficiary becomes entitled to such benefit pursuant to Sections 7.1, 7.2, or 7.3, but no earlier than 10 days thereafter and no later than 45 days thereafter, except for the Company Matching Contributions as provided herein. If a Member’s termination of employment or death or any other events which caused termination of the Plan, occurs within the first four months of a year, the portion of the Company Matching Contributions for the preceding Plan Year that has been credited to a Member’s Account shall be distributed to such Member no later than the earlier of (i) the date of which the calculation of such contributions has been finalized or (ii) May 1 of the year of termination of employment or death, or any other events which shall entitle the Member to a distribution. In all other events, the 10 days and 45 days limitation shall apply to the distribution of the Member’s entire Account balance, unless expressly provided otherwise.
     7.5 Form of Payment. For purposes of distributing all of a Member’s Account other than any portion thereof attributable to targeted deferrals and earnings thereon, the form of any payment to a Member or his designated beneficiary shall be in substantially equal annual installments over a period of ten (10) years, paid in cash or by certified check, with the first such payment to be made on the first business day of the calendar year following the Member’s termination of employment (for purposes of payments made pursuant to Section 7.1) or death (for purposes of payments made pursuant to Section 7.2), unless the Member has made an election to receive such distribution in the form of a lump sum payment or in five (5) substantially equal installment payments in such manner and form as prescribed by the Committee. Any election, or subsequent election, made by the Member pursuant to this Section shall not be effective until the passage of twelve (12) consecutive months before the date of the Member’s termination of employment with the Company or an Affiliate, if payment is required pursuant to Section 7.1, or the Member’s date of death, if the payment is required pursuant to Section 7.2. All distributions of that portion of a Member’s Account attributable to any targeted deferral and earnings thereon shall be distributed in a single lump sum payment, in cash or certified check, on the date specified by the Member in the election form used to make the targeted deferral, or as soon thereafter as administratively possible.
ARTICLE VIII
Hardship Distributions
     Upon written application by a Member who has experienced an unforeseeable emergency, as determined by the Committee, the Committee may distribute to such Member an amount not to exceed the lesser of the amount credited to such Member’s Account or the amount determined by the Committee as being reasonably necessary to satisfy the emergency need. For purposes of this Article VIII, a hardship distribution pursuant to an unforeseeable emergency shall be authorized in the event of severe financial hardship to the Member resulting from a

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sudden and unexpected illness or accident of the Member or his dependent, loss of the Member’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Member’s control. An unforeseeable emergency will not include the need to send a Member’s child to college or the desire to purchase a home. Additionally, the Member must demonstrate that the hardship may not be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Member’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or by cessation of deferrals under this Plan.
ARTICLE IX
Sale of the Company
     In the event of a sale of all or substantially all of the stock or assets of the Company, either (a) the purchaser shall assume the liabilities of the Plan and shall continue to operate the Plan in accordance with the provisions set forth herein (including any subsequent amendments hereto) or (b) the Plan shall be terminated and the amount credited to each Member’s Account shall be distributed in a lump sum payment in cash or by certified check to each such Member in accordance with Section 7.4. However, should such sale result in a Change of Control, the Plan shall be terminated and the amount credited to each Member’s Account shall be distributed in a lump sum payment in cash or by certified check to each such Member in accordance with Section 7.4.
ARTICLE X
Nature of the Plan
     The Plan shall constitute an unfunded, unsecured obligation of the Company to make cash payments in accordance with the provisions of the Plan. The Plan is not intended to meet the qualification requirements of section 401 of the Internal Revenue Code of 1986, as amended. The Company in its sole discretion may set aside such amounts for the payment of Accounts as the Company may from time to time determine. Neither the establishment of the Plan, the operation thereof, nor the setting aside of any amounts shall be deemed to create a funding arrangement. No Member shall have any security or other interest in any such amounts set aside or any other assets of the Company.
ARTICLE XI
Employment Relationship
     Nothing in the adoption or implementation of the Plan shall confer on any employee the right to continued employment by the Company or an Affiliate or affect in any way the right of the Company or an Affiliate to terminate his employment at any time. Any question as to whether and when there has been a termination of a Member’s employment, and the cause of such termination, shall be determined by the Committee, and its determination shall be final.

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ARTICLE XII
Amendment and Termination
     The Company may amend or terminate the Plan, by resolution duly adopted, without the consent of the Members; provided, however, that no such amendment or termination shall adversely affect any benefits which have been earned prior to any such amendment or termination. Further, upon termination of the Plan, the Committee, in its sole discretion, may elect to distribute the amount credited to each Member’s Account in a lump sum cash payment in accordance with Section 7.4; provided, however, in the event of a Change of Control, the amount credited to each Member’s Account must be distributed in accordance with Section 7.4.
ARTICLE XIII
Claims Procedure
     The Committee shall have full power and authority to interpret, construe and administer the Plan, and the Committee’s interpretations and construction hereof, and actions hereunder, including the timing, form, amount or recipient of any payment to be made hereunder, shall be binding and conclusive on all persons for all purposes. In the event that an individual’s claim for a benefit is denied or modified, the Committee shall provide such individual with a written statement setting forth the specific reasons for such denial or modification in a manner calculated to be understood by the individual. Any such written statement shall reference the pertinent provisions of the Plan upon which the denial or modification is based and shall explain the Plan’s claim review procedure. Such individual may, within forty-five (45) days of receipt of such written statement, make written request to the Committee for review of its initial decision. Within forty-five (45) days following such request for review, the Committee shall, after affording such individual a reasonable opportunity for a full and fair hearing, render its final decision in writing to such individual. Notwithstanding the preceding sentence, should a Member’s claim be related to the preceding Plan Year’s Company Matching Contributions, the Committee shall render its final decision on the later of (i) forty-five (45) days following such request for review, or (ii) 120 days after the end of the preceding Plan Year. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct or lack of good faith. Members of the Committee shall not participate in any action or determination regarding their own benefits hereunder.
ARTICLE XIV
Miscellaneous
     14.1 Indemnification. The Company shall indemnify and hold harmless each member of the Committee and any other persons acting on its behalf, against any and all expenses and liabilities arising out of his or her administrative functions or fiduciary responsibilities, excepting only expenses and liabilities arising out of the individual’s own willful misconduct or lack of good faith. Expenses against which such person shall be indemnified hereunder include, without

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limitation, the amounts of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof.
     14.2 Effective Date. The Plan shall become operative and effective as of the Effective Date and shall continue until amended or terminated as provided in Article XII.
     14.3 Withholding Taxes. The Company shall have the right to deduct from any payments made under this Plan, any federal, state or local taxes required by law to be withheld with respect to such payments.
     14.4 Nonalienation of Benefits. Subject to income tax withholding, benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Member, prior to actually being received; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void. The Company shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder.
     14.5 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; rather, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein.
     14.6 Jurisdiction. The situs of the Plan hereby created is Tennessee. All provisions of the Plan shall be construed in accordance with the laws of Tennessee except to the extent preempted by federal law.
     IN WITNESS WHEREOF, the undersigned has caused this restated Plan to be executed effective as of June 30, 2002.
             
    CHS/COMMUNITY HEALTH SYSTEMS, INC.    
 
           
 
  By:   /s/ Linda Parsons
 
   
    Title: Vice President, Human Resources    

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EX-10.12
Exhibit 10.12
CHS/COMMUNITY HEALTH SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
January 1, 2008

 


 

         
    Page  
ARTICLE I
  DEFINITIONS AND CONSTRUCTION 1  
 
ARTICLE II
  ADMINISTRATION 5  
 
ARTICLE III
  PARTICIPATION 6  
 
ARTICLE IV
  BENEFITS 7  
 
ARTICLE V
  VESTING 8  
 
ARTICLE VI
  TRUST 8  
 
ARTICLE VII
  PAYMENT OF BENEFITS 8  
 
ARTICLE VIII
  HARDSHIP DISTRIBUTIONS 10  
 
ARTICLE IX
  CHANGE IN CONTROL 10  
 
ARTICLE X
  NATURE OF THE PLAN 11  
 
ARTICLE XI
  EMPLOYMENT RELATIONSHIP 11  
 
ARTICLE XII
  AMENDMENT AND TERMINATION 11  
 
ARTICLE XIII
  CLAIMS PROCEDURE 11  
 
ARTICLE XIV
  MISCELLANEOUS 12  
 
EXHIBIT A
  PRE-2005 PLAN DOCUMENT 14  
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CHS/COMMUNITY HEALTH SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
W I T N E S S E T H:
     WHEREAS, CHS/Community Health Systems, Inc. (the “Company”) has previously established and currently maintains the CHS/Community Health Systems, Inc. Deferred Compensation Plan (the “Plan”); and
     WHEREAS, the Company has previously amended and restated the Plan in order to establish a deferred compensation arrangement under the Plan for deferrals made on or after January 1, 2005, in compliance with Internal Revenue Code Section 409A and the guidance related thereto; and
     WHEREAS, the Company wishes to amend and restate the Plan to incorporate required provisions for compliance with Code Section 409A and the final Treasury regulations promulgated thereunder and to make certain other changes;
     NOW, THEREFORE, the Plan is hereby amended and restated, effective as of January 1, 2008, except as otherwise provided herein, as follows:
ARTICLE I
Definitions and Construction
     1.1 Definitions. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary:
     (1) Account: An account shall be established for a Member that is credited with amounts determined pursuant to Sections 4.1 and 4.2 of the Plan. As of any Determination Date, a Member’s benefit under the Plan shall be equal to the amount credited to his Account as of such date. If a Member has made an election to defer a portion of his Compensation until a specified date pursuant to Section 3.4, the account described herein shall consist of such subaccounts as are necessary to segregate such deferral from the other amounts deferred by the Member.
     (2) Affiliate: Any subsidiary of Community Health Systems, Inc., the corporate parent of the Company.
     (3) Bonus: A bonus paid by the Company or an Affiliate to a Member for services rendered or labor performed while a Member during a Plan Year other than an Incentive Compensation Bonus.
     (4) Bonuses: A Bonus or an Incentive Compensation Bonus.
     (5) Change in Control: The occurrence of any of the following events, but only to the extent such event would constitute a change in the ownership or effective control of CHS, or in the ownership of a substantial portion of the assets of CHS, as set

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forth in Code Section 409A(a)(2)(A)(v) and defined in regulations promulgated by the U.S. Department of Treasury thereunder:
     (a) An acquisition (other than directly from CHS) of any voting securities of CHS (“Voting Securities”) by any Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) immediately after which such Person has Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the then-outstanding shares of Common Stock of CHS (“Shares”) or the combined voting power of CHS’ then-outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section 2.1(f)(1), Shares or Voting Securities which are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition that would cause a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or any Subsidiary, (ii) CHS or any Subsidiary, or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined);
     (b) The individuals who, as of the date hereof, are members of the Board of CHS (“Incumbent Board”), cease for any reason to constitute at least a majority of the members of the Board of CHS or, following a Merger (as hereinafter defined) that results in CHS having a Parent Corporation (as hereinafter defined), the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election, by the CHS common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board of CHS, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board of CHS; provided further, however, that no individual shall be considered a member of the Incumbent Board of CHS if such individual initially assumed office as a result of either an actual or threatened Election Contest (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of CHS (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
     (c) The consummation of:
     (1) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (“Merger”), unless such Merger, is a Non-Control Transaction. A Non-Control Transaction shall mean a Merger where:
(A) the stockholders of CHS immediately before such Merger own, directly or indirectly, immediately following such Merger, at least 50% of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (“Surviving Corporation”), if 50% or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly

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or indirectly, by another Person (“Parent Corporation”), or (y) if there are one or more Parent Corporations, the ultimate Parent Corporation; and
(B) the individuals who were members of the Incumbent Board of CHS immediately prior to the execution of the agreement providing for such Merger, constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there are one or more Parent Corporations, the ultimate Parent Corporation.
     (2) A complete liquidation or dissolution of CHS; or
     (3) The sale or other disposition of all, or substantially all, of the assets of CHS to any Person (other than a transfer to a Subsidiary or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the CHS’ stockholders of the stock of a Subsidiary or any other assets).
     Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (“Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then-outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by CHS which, by reducing the number of Shares or Voting Securities then-outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by CHS, and after such share acquisition by CHS the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increases the percentage of the then-outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.
     (6) CHS: Community Health Systems, Inc., a Delaware corporation.
     (7) Code: The Internal Revenue Code of 1986, as amended.
     (8) Committee: The administrative committee appointed by the Company to administer the Plan, if any, which committee shall consist of the same persons designated by the Company pursuant to the terms of the Retirement Plan to act on behalf of the Company.
     (9) Company: CHS/Community Health Systems, Inc.
     (10) Company Matching Contributions: Contributions made to the Retirement Plan by the Company or an Affiliate on a Member’s behalf pursuant to Section 4.1(b) of the Retirement Plan or otherwise as provided for therein.
     (11) Compensation: The total base salary paid by the Company or an Affiliate during the Plan Year to or for the benefit of a Member for services rendered or labor performed while a Member as determined by the Company in its sole discretion.

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     (12) Contributing Member: A Member who, for a Plan Year, made a deferral election pursuant to Section 3.2, Section 3.3 and/or Section 3.4.
     (13) Determination Date. The last day of the Plan Year, or such other dates as established by the plan administrator.
     (14) ERISA: Employee Retirement Income Security Act of 1974, as amended.
     (15) Incentive Compensation Bonus: Performance-based compensation, as such term is defined under Code Section 409A and the regulations promulgated thereunder, paid by the Company or an Affiliate to a Member for services rendered or labor performed while a Member during the entire Plan Year.
     (16) Investment(s): Any investment fund(s) offered through the Trustee or its affiliates.
     (17) Investment Gains or Losses: Actual gains or losses realized from investments applied to a Member’s Account as of each Determination Date pursuant to Section 4.1 of the Plan, after deducting applicable investment-related costs and expenses, if any. For the Determination Date, such Member’s Account may be reduced or increased for an amount equal to the Federal or state income taxes that the Company is required to pay or expects to realize in relation to such investment(s)’ taxable gain or loss realized during such year.
     (18) Limitations: Benefit limitations imposed on the Retirement Plan under the Employee Retirement Income Security Act of 1974, as amended, and under sections 401(a)(17), 401(k)(3), 401(m)(2), 402(g) and 415 of the Internal Revenue Code of 1986, as amended.
     (19) Member: Any employee of the Company or an Affiliate who has been designated by the Committee as a Member of the Plan until such employee ceases to be a Member in accordance with Section 3.1 of the Plan.
     (20) Plan: CHS/Community Health Systems, Inc. Deferred Compensation Plan, as amended from time to time.
     (21) Plan Year: The twelve-consecutive month period commencing January 1 and ending December 31 of each year.
     (22) Retirement Plan: Community Health Systems, Inc. 401(k) Plan.
     (23) Separation from Service: The termination of employment with the Company, as set forth in Code Section 409A(a)(2)(A)(i) and defined in regulations promulgated by the U.S. Department of Treasury thereunder, provided that no separation from service shall occur while a Member is on military leave, sick leave, or other bona fide leave of absence not extending beyond six months, or, if longer, so long as the Member’s right to reemployment is provided either by statute or by contract. If a period of leave exceeds six months and the Member’s right to reemployment is not provided either by statute or contract, for the purposes of the Plan, the employment relationship is

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deemed to terminate on the first date immediately following such six-month period; provided, however, that that a Member shall not be deemed to have Separated from Service on account of a leave of absence until the first date immediately following the end of a 29-month period of leave (if the employment relationship is not terminated sooner) where such leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months and where such impairment causes the Member to be unable to perform the duties of his or her position of employment or any substantially similar position of employment..
     (24) Specified Employee: A key employee, as defined in Code Section 416(i) without regard to Section 416(i)(5), of an employer any stock of which is publicly traded on an established securities market or otherwise. The identification date for determining a key employee shall be December 31. For the purposes of this definition, the term employer shall refer to the entity for whom the services are performed by the Specified Employee and with respect to whom the legally binding right to compensation arises together with and all entities with whom such entity would be considered a single employer under Code Section 414(b) or Code Section 414(c).
     (25) SSP: CHS 401(k) Supplemental Savings Plan.
     (26) Trust Agreement: The agreement entered into between the Company and the Trustee establishing a trust to hold and invest contributions made by the Company under the Plan and from which all or a portion of the amounts payable under the Plan to Members and their beneficiaries will be distributed.
     (27) Trust Assets: All assets held by the Trustee under the Trust Agreement.
     (28) Trustee: The trustee or trustees qualified and acting under the Trust Agreement at any time.
     1.2 Number and Gender. Wherever appropriate herein, words used in the singular shall be considered to include the plural and the plural to include the singular. Wherever appropriate herein, the masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender and vice versa.
     1.3 Headings. The headings of Articles and Sections herein are included solely for convenience, and, if there is any conflict between such headings and the text of the Plan, the text shall control.
ARTICLE II
Administration
     The Plan shall be administered by the Committee, which shall be authorized, subject to the provisions of the Plan, to establish rules and regulations and make such interpretations and determinations as it may deem necessary or advisable for the proper administration of the Plan and all such rules, regulations, interpretations, and determinations shall be binding on all Plan Members and their beneficiaries. The Committee shall be composed of not less than three

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individuals. Each member of the Committee shall serve until he resigns or is removed by the Company. Upon the resignation or removal of a member of the Committee, the Company shall appoint a substitute member. No member of the Committee shall have any right to vote or decide upon any matter relating solely to himself under the Plan or to vote in any case in which his individual right to claim any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act, and the remaining members cannot agree, the Company shall appoint a temporary substitute member to exercise all the powers of the disqualified member concerning the matter in which he is disqualified. All expenses incurred in connection with the administration of the Plan shall be borne by the Company.
ARTICLE III
Participation
     3.1 Eligibility. Any employee of the Company or an Affiliate shall become a Member upon designation by the Committee. Once an employee has been designated as a Member, he shall automatically continue to be a Member until he ceases to be an employee of the Company or an Affiliate or is removed as a Member by the Committee. Notwithstanding the preceding provisions of this Section 3.1, participation in this Plan shall at all times be limited to a selected group of management or highly compensated employees of the Company and its Affiliates.
     3.2 Compensation Deferral Election. Any Member may elect to defer receipt of a whole percentage or amount of his Compensation during a Plan Year under the Plan. A Member’s election to defer receipt of Compensation shall be made prior to the beginning of such Plan Year and shall be irrevocable for such Plan Year. The reduction in a Member’s Compensation pursuant to his election shall be effected by Compensation reductions each payroll period within the Plan Year. For new Members, the election shall be made within thirty (30) days of becoming eligible.
     3.3 Bonus Deferral Election. Any Member may elect to defer receipt of a whole percentage or amount of his Bonus or Incentive Compensation Bonus for any Plan Year under the Plan. A Member’s election to defer receipt of any Bonus shall be made prior to the beginning of such Plan Year and shall be irrevocable for such Plan Year. A Member’s election to defer receipt of any Incentive Compensation Bonus for any Plan Year shall be made at least six months prior to the end of the Plan Year. The election to defer receipt of such whole percentage of a Member’s Bonus or Incentive Compensation Bonus pursuant to the deferral election above shall be effected by a reduction in the amount of the Bonus or Incentive Compensation Bonus to which such deferral election relates.
     3.4 Targeted Deferral Election. Subject to the rules in Section 3.2, any Member may elect to defer receipt of a whole percentage or amount of any portion of the Member’s Compensation until a specific future date by executing a deferral form designed for such purpose as specified by the Committee. Upon the occurrence of any such date specified by a Member in such an election form, the deferred amount, without the Investment(s) Gains or Losses attributable thereto, shall be distributed to the Member. Until so distributed, such deferral amounts shall continue to be a part of the Member’s Account.

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     3.5 Investment Request. A Member may request the Committee to invest or change the investment of all or a portion of his Account in any Investments. A Member may make such request at any time, provided that the Committee shall only be obligated to direct the Trustee to make such Investment or change such Investment as soon as reasonably practicable and within the guidelines and requirements established by the Trustee for the investment of funds held in the Account. A Member who does not request the Committee to invest any portion of his Account shall have the funds held in such Account in a money market or similar fund.
ARTICLE IV
Benefits
     4.1 Deferral Contributions. As of the last day of each payroll period of each Plan Year, a Member’s Account shall be credited with an amount equal to the Compensation deferred under the Plan pursuant to an election by the Member as described in Article III for such payroll period. As of the last day of the payroll period in which Bonuses are paid, a Member’s Account shall be credited with an amount equal to the Bonuses deferred under the Plan pursuant to an election by the Member as described in Article III.
     4.2 Matching Contributions. As of the last day of each Plan Year, or, if later, the date on which the Company Matching Contributions are made under the Retirement Plan for any such Plan Year, the Member’s Account of each Contributing Member during such Plan Year who remains employed by the Company on such date shall be credited with an amount equal to the following:
     (1) the Company Matching Contributions to which such Contributing Member would have been entitled under the Retirement Plan taking into account both (i) the salary deferrals made by such Contributing Member to the Retirement Plan for the Plan Year, and (ii) the deferrals made by such Contributing Member under this Plan pursuant to Sections 3.2, 3.3, or 3.4 for the same Plan Year (up to a combined maximum of six percent (6.00%) of such Contributing Member’s Compensation assuming that none of the Limitations were imposed); minus
     (2) the Company Matching Contributions, if any, actually made on behalf of such Contributing Member under the Retirement Plan for such Plan Year; minus
     (3) the Company contributions, if any, to accounts actually made on behalf of such Contributing Member under the SSP for such Plan Year.
In addition, if (i) the total of such Contributing Member’s salary deferrals under the Retirement Plan (as adjusted after application of the Limitations) and deferrals pursuant to the SSP and Sections 3.2, 3.3 or 3.4 under this Plan is less than 6.00% of such Contributing Member’s Compensation for a Plan Year; and (ii) the Contributing Member elects to increase his or her deferrals under this Plan by all or any portion of any salary deferrals to the Retirement Plan that are returned to the Contributing Member as a result of the application of the Limitations within 120 days after receipt of such returned salary deferrals, even if such increased deferrals are made in the next Plan Year, such increased deferrals shall also be taken into account in subparagraph (i) above until the total of the Contributing Member’s salary deferrals under the Retirement Plan,

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SSP, and deferrals under this Plan for the Plan Year equals 6.00% of the Contributing Member’s Compensation.
Effective as of January 1, 2009, no additional amounts shall be credited to a Contributing Member’s Account pursuant to this Section 4.2.
ARTICLE V
Vesting
     All amounts credited to a Member’s Account shall be fully vested and not subject to forfeiture for any reason; provided, however, the amounts credited to a Member’s Account pursuant to Section 4.2, including any Investment Gains or Losses allocable to such credits, shall be subject to the same vesting schedule as that set forth in the Retirement Plan. Notwithstanding the preceding sentence, the benefits payable to each Member hereunder constitute an unfunded, unsecured obligation of the Company, and the assets held by the Company and the Trustee remain subject to the claims of the Company’s creditors.
ARTICLE VI
Trust
     The Company may, from time to time and in its sole discretion, pay and deliver money or other property to the Trustee for the payment of benefits under the Plan. Notwithstanding any provision in the Plan to the contrary, distributions due under the Plan to or on behalf of Members shall be made by the Trustee in accordance with the terms of the Trust Agreement and the Plan; provided, however, that the Company shall remain obligated to pay all amounts due to such persons under the Plan. To the extent that Trust Assets are not sufficient to pay any amounts due under the Plan to or on behalf of the Members when such amounts are due, the Company shall pay such amounts directly. Nothing in the Plan or the Trust Agreement shall relieve the Company of its obligation to make the distributions required in Article VII hereof except to the extent that such obligation is satisfied by the application of funds held by the Trustee under the Trust Agreement. Any recipient of benefits hereunder shall have no security or other interest in Trust Assets. Any and all Trust Assets shall remain subject to the claims of the general creditors of the Company, present and future, and no payment shall be made under the Plan unless the Company is then solvent. Should an inconsistency or conflict exist between the specific terms of the Plan and those of the Trust Agreement, then the relevant terms of the Trust Agreement shall govern and control.
ARTICLE VII
Payment of Benefits
     7.1 Separation from Service. Upon a Member’s Separation from Service with the Company or an Affiliate for any reason, the amount credited to such Member’s Account as of the Determination Date immediately preceding such Member’s Separation from Service, adjusted for any amount deferred and Investment Gains or Losses realized from such Determination Date to the date of the Member’s Separation from Service, shall be distributed to such Member or, if

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the Member’s Separation from Service is on account of death, to the Member’s beneficiary as determined pursuant to Section 7.2 below.
     7.2 Death. Upon a Member’s death, the amount credited to such Member’s Account as of the Determination Date immediately preceding the date of such Member’s death, adjusted for any amount deferred and Investment Gains or Losses realized from such Determination Date to the date of the Member’s death, shall be distributed to such Member’s designated beneficiary. The Member, by written instrument filed with the Committee in such manner and form as the Committee may prescribe, may designate one or more beneficiaries to receive such payment. The beneficiary designation may be changed from time to time prior to the death of the Member. In the event that the Committee has no valid beneficiary designation on file, the amount credited to such Member’s Account shall be distributed to the Member’s surviving spouse, if any, or if the Member has no surviving spouse, to the executor or administrator of the Member’s estate, as applicable.
     7.3 Targeted Deferrals. If a Member has made one or more targeted deferrals pursuant to Section 3.4, upon the date specified in any election form used by the Member to make such election, the amount credited in the subaccount of the Member’s Account which relates to such deferral as of the Determination Date immediately preceding such specified date shall be distributed to such Member. If some event takes place that would entitle a Member to a distribution under Sections 7.1 or 7.2 prior to such specified date, the amounts in such subaccount shall be distributed along with any other amounts in the Member’s Account pursuant to Section 7.1 or 7.2.
     7.4 Time of Payment. Payment of a Member’s benefit hereunder shall be made as soon as administratively feasible following the date on which the Member or his beneficiary becomes entitled to such benefit pursuant to Sections 7.1, 7.2, or 7.3, but no earlier than 10 days thereafter and no later than 45 days thereafter, except for the Company Matching Contributions as provided herein. If a Member’s Separation from Service or death or any other events that entitle the Member to a distribution occurs within the first four months of a year, the portion of the Company Matching Contributions for the preceding Plan Year that has been credited to a Member’s Account shall be distributed to such Member no later than the earlier of (i) the date of which the calculation of such contributions has been finalized or (ii) May 1 of the year of termination of employment or death, or any other events which shall entitle the Member to a distribution. In all other events, the 10 days and 45 days limitation shall apply to the distribution of the Member’s entire Account balance, unless expressly provided otherwise. Notwithstanding the foregoing, for a Specified Employee, distributions may not be made before the day immediately following the date that is six (6) months after the date of the Member’s Separation from Service (or, if earlier, the date of death of the Member). Also, notwithstanding the foregoing, a Member may elect to delay the time of payment under the following conditions: (i) such election shall not take effect until at least 12 months after the date on which the election is made; (ii) with respect to a payment made upon Separation from Service, a targeted deferral, or as a result of a Change in Control, the first payment with respect to which such election is made be deferred for a period of not less than 5 years from the date such payment would otherwise have been made; and (iii) any election related to a targeted deferral may not be made less than 12 months prior to the date of the first scheduled payment. Notwithstanding anything in this Section 7.4 to the contrary, an election relating to the time of payment may be made as permitted under Code Section 409A and applicable guidance of the Internal Revenue Service.

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     7.5 Form of Payment. For purposes of distributing all of a Member’s Account, the form of any payment to a Member or his designated beneficiary shall be in a lump sum, paid in cash or by check; provided, however, if an election is made to delay the time of payment under Section 7.4, such payments shall be made, at the election of the Member, in a lump sum, in five (5) annual installments, or in ten (10) annual installments. Notwithstanding anything in this Section 7.5 to the contrary, an election relating to the form of payment may be made as permitted under Code Section 409A and applicable guidance of the Internal Revenue Service.
     7.6 2008 Transitional Rule Election. By election made no later than December 31, 2008, a Member may elect to change the time or form of payment of a Member’s Account and the election shall not be treated as a change in time or form of payment under Code Section 409A(a)(4) or an acceleration of payment under Code Section 409A(a)(3). Such election may apply only to amounts that would not otherwise be payable in 2008 and may not cause an amount to be paid in 2008 that would not otherwise be payable in 2008.
ARTICLE VIII
Hardship Distributions
     Upon written application by a Member who has experienced an unforeseeable emergency, the Committee may distribute to such Member an amount not to exceed the lesser of the amount credited to such Member’s Account or the amount determined by the Committee as being reasonably necessary to satisfy the emergency need (a “Hardship Distribution”). For purposes of this Article VIII, an unforeseeable emergency shall mean a severe financial hardship to the Member resulting from an illness or accident of the Member, the Member’s spouse, or a dependent (as defined in Code Section 152(a)) of the Member, loss of the Member’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Member. The requirement for a Hardship Distribution is met only if, as determined under regulations of the Secretary of Treasury, the amounts distributed with respect to an emergency do not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Member’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).
ARTICLE IX
Change in Control
     Notwithstanding any provision of the Plan to the contrary, in the event of a Change in Control, the amount credited to such Member’s Account as of the Determination Date immediately preceding such Change in Control, adjusted for any amount deferred and Investment Gains or Losses realized from such Determination Date to the date of the Change in Control, shall be distributed to such Member in a single lump sum payment as soon as administratively feasible, but no earlier than 10 days thereafter and no later than 45 days after the date of the Change in Control.

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ARTICLE X
Nature of the Plan
     The Plan shall constitute an unfunded, unsecured obligation of the Company to make cash payments in accordance with the provisions of the Plan. The Plan is not intended to meet the qualification requirements of section 401 of the Internal Revenue Code of 1986, as amended. The Company in its sole discretion may set aside such amounts for the payment of Accounts as the Company may from time to time determine. Neither the establishment of the Plan, the operation thereof, nor the setting aside of any amounts shall be deemed to create a funding arrangement. No Member shall have any security or other interest in any such amounts set aside or any other assets of the Company.
     The arrangement provided for in this January 1, 2008, amendment of the Plan shall apply only with respect to amounts deferred after December 31, 2004. For amounts deferred before January 1, 2005, such deferrals shall be governed by the arrangement in place prior to the January 1, 2005, amendment of the Plan, as set forth in Exhibit A. No provision of this document is intended to be and shall not be a material modification of the arrangement in place as of October 3, 2004. To the extent any term of this document constitutes a material modification (that is, a benefit or right existing as of October 3, 2004, is enhanced or a new benefit or right is added) to the prior arrangement, such modification shall be of no force or effect.
ARTICLE XI
Employment Relationship
     Nothing in the adoption or implementation of the Plan shall confer on any employee the right to continued employment by the Company or an Affiliate or affect in any way the right of the Company or an Affiliate to terminate his employment at any time. For the purposes of the Plan, any question as to whether and when there has been a termination of a Member’s employment, and the cause of such termination, shall be determined by the Committee, and its determination shall be final.
ARTICLE XII
Amendment and Termination
     The Company may amend or terminate the Plan, by written action, without the consent of the Members; provided, however, that no such amendment or termination shall adversely affect any benefits that have been earned prior to any such amendment or termination, except as required by law.
ARTICLE XIII
Claims Procedure
     The Committee shall have full power and authority to interpret, construe, and administer the Plan, and the Committee’s interpretations and construction hereof, and actions hereunder,

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including the value, amount, timing, form, or recipient of any payment to be made hereunder, shall be binding and conclusive on all persons for all purposes. Notwithstanding the foregoing, the determination of a Change in Control event will be objectively determinable under Article IX and the Committee shall not have discretionary authority to determine whether a Change in Control has occurred.
     In the event that a claim for a benefit is wholly or partially denied, the Committee shall, within 90 days after receipt of the claim by the Plan, provide the claimant with a written statement setting forth the specific reasons for the adverse determination; reference to the specific plan provisions on which the determination is based; a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and a description of the Plan’s review procedures and time limits applicable to such procedures, including a statement of the claimant’s right to bring a civil action under Section 502(a) of the ERISA following an adverse benefit determination on review.
     The claimant will have 60 days following receipt of an adverse benefit determination within which to appeal the determination. During such time, the Participant will have the opportunity to submit written comment, documents, records, and other information relating to the claim for benefits. The claimant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The review will take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
     The Committee will notify the claimant within 60 days after receipt of the claimant’s request for review by the Plan. In the case of an adverse benefit determination, the notification shall set forth, in a manner calculated to be understood by the claimant the specific reason or reasons for the adverse determination; reference to the specific plan provisions on which the benefit determination is based; a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits; and a statement describing any voluntary appeal procedures offered by the plan and the claimant’s right to obtain the information about such procedures, and a statement of the claimant’s right to bring an action under section 502(a) of ERISA.
     No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct or lack of good faith. Claimants who are members of the Committee shall not participate in any action or determination regarding their own benefits hereunder.
ARTICLE XIV
Miscellaneous
     14.1 Indemnification. The Company shall indemnify and hold harmless each member of the Committee and any other persons acting on its behalf, against any and all expenses and liabilities arising out of his or her administrative functions or fiduciary responsibilities, excepting

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only expenses and liabilities arising out of the individual’s own willful misconduct or lack of good faith. Expenses against which such person shall be indemnified hereunder include, without limitation, the amounts of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof.
     14.2 Withholding Taxes. The Company shall have the right to deduct from any payments made under this Plan, any federal, state or local taxes required by law to be withheld with respect to such payments.
     14.3 Nonalienation of Benefits. Subject to income tax withholding, benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, including any such liability that is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Member, prior to actually being received; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void. The Company shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder.
     14.4 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; rather, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein.
     14.5 Jurisdiction. The situs of the Plan hereby created is Tennessee. All provisions of the Plan shall be construed in accordance with the laws of Tennessee except to the extent preempted by federal law.
     IN WITNESS WHEREOF, the undersigned has caused this Plan to be executed on the 24th day of December, 2008, to be effective as of January 1, 2008.
             
    CHS/COMMUNITY HEALTH SYSTEMS, INC.    
 
           
 
  By:   /s/ Rachel A. Seifert
 
   
    Title: Senior Vice President    

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EXHIBIT A
CHS/COMMUNITY HEALTH SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
As Amended Effective October 1, 1993; January 1, 1994; January 1, 1995;
April 1, 1999; July 1, 2000; January 1, 2001; and June 30, 2002
Original Effective Date: June 1, 1991

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EXHIBIT A
TABLE OF CONTENTS
         
ARTICLE I
  DEFINITIONS AND CONSTRUCTION 16  
 
ARTICLE II
  ADMINISTRATION 19  
 
ARTICLE III
  PARTICIPATION 19  
 
ARTICLE IV
  BENEFITS 20  
 
ARTICLE V
  VESTING 22  
 
ARTICLE VI
  TRUST 23  
 
ARTICLE VII
  PAYMENT OF BENEFITS 23  
 
ARTICLE VIII
  HARDSHIP DISTRIBUTIONS 24  
 
ARTICLE IX
  SALE OF THE COMPANY 25  
 
ARTICLE X
  NATURE OF THE PLAN 25  
 
ARTICLE XI
  EMPLOYMENT RELATIONSHIP 25  
 
ARTICLE XII
  AMENDMENT AND TERMINATION 26  
 
ARTICLE XIII
  CLAIMS PROCEDURE 26  
 
ARTICLE XIV
  MISCELLANEOUS 26  
 

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EXHIBIT A
CHS/COMMUNITY HEALTH SYSTEMS, INC.
DEFERRED COMPENSATION PLAN
W I T N E S S E T H:
     WHEREAS, Community Health Investment Corporation (formerly CHS Management Corporation) has previously established the CHS/Community Health Systems, Inc. Deferred Compensation Plan (the “Plan”) to provide retirement and incidental benefits for certain executive employees of the company, effective June 1, 1991; and
     WHEREAS, the Plan was amended in certain respects, effective December 1, 1991; and
     WHEREAS, effective January 1, 1992, Community Health Systems, Inc. (the “Company”) adopted the Plan and assumed all of the duties and responsibilities of Community Health Investment Corporation; and
     WHEREAS, the Plan was further amended in certain respects effective October 1, 1993, January 1, 1994, January 1, 1995, April 1, 1999, July 1, 2000, and January 1, 2001, including the change in the name of the Company to CHS/Community Health Systems, Inc.; and
     WHEREAS, the Company wishes to amend the Plan further as provided herein;
     NOW, THEREFORE, the Plan shall be and is hereby amended and restated in this form, effective as of June 30, 2002, except as otherwise provided herein
        .
ARTICLE I
Definitions and Construction
     1.1 Definitions. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary:
(1)   Account: A memorandum bookkeeping account established on the records of the Company for a Member that is credited with amounts determined pursuant to Sections 4.1 and 4.2 of the Plan. As of any Determination Date, a Member’s benefit under the Plan shall be equal to the amount credited to his Account as of such date. If a Member has made an election to defer a portion of his Compensation until a specified date pursuant to Section 3.4, the account described herein shall consist of such subaccounts as are necessary to segregate such deferral from the other amounts deferred by the Member.
(2) Affiliate: Any subsidiary of Community Health Systems, Inc., the corporate parent of the Company.
(3) Benefit Exchange Agreement: An agreement entered into between certain Members and the Company in connection with the surrender of the Member’s interest in the Split Dollar

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EXHIBIT A
Agreement and the Member’s vested interest in the cash value of the variable life insurance policy that is subject to the terms of the Split Dollar Agreement, as it may be amended.
(4) Bonus: The bonus paid by the Company or an Affiliate to a Member pursuant to an employment agreement between the Company or an Affiliate and the Member or otherwise for services rendered or labor performed while a Member.
(5) Change of Control: A Change of Control occurs in the event of a sale of all or substantially all of the stock or assets of the Company to a purchaser if the debt-to-equity ratio of the purchaser, taking into account the sale of the stock or assets of the Company, is greater than .75 to 1 as determined by the Committee immediately prior to the sale.
(6) Committee: The administrative committee appointed by the Company to administer the Plan, if any, which committee shall consist of the same persons designated by the Company pursuant to the terms of the Retirement Plan to act on behalf of the Company, as the administrator of such Plan.
(7) Company: CHS/Community Health Systems, Inc.
(8) Company Matching Contributions: Contributions made to the Retirement Plan by the Company or an Affiliate on a Member’s behalf pursuant to Section 4.1(b) of the Retirement Plan or otherwise as provided for therein.
(9) Compensation: The total base salary paid by the Company or an Affiliate during the Plan Year to or for the benefit of a Member for services rendered or labor performed while a Member.
(10) Contributing Member: A Member who, for a Plan Year, made a deferral election pursuant to Section 3.2, Section 3.3 and/or Section 3.4.
(11) Determination Date. The last business day of each quarter in a calendar year.
(12) Earnings Credit: The earnings applied to a Member’s Account as of each Determination Date pursuant to Section 4.2(b).
(13) Effective Date: June 1, 1991.
(14) Investment(s): Any investment fund(s) offered through the Trustee or its affiliates including Nations Fund, Inc., Nations Fund Trust, or Nations Fund Portfolios, Inc. (or their successors).
(15) Investment Gains or Losses: Actual gains or losses realized from investments applied to a Member’s Account as of each Determination Date pursuant to Section 4.2(a) of the Plan, after deducting applicable investment-related costs and expenses, if any. For the Determination Date, such Member’s Account shall be reduced or increased for an amount equal to the Federal or state income taxes that the Company is required to pay or expects to realize in relation to such investment(s)’ taxable gain or loss realized during such year.

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EXHIBIT A
(16) Limitations: Benefit limitations imposed on the Retirement Plan under the Employee Retirement Income Security Act of 1974, as amended, and under sections 401(a)(17), 401(k)(3), 401(m)(2), 402(g) and 415 of the Internal Revenue Code of 1986, as amended.
(17) Member: Any employee of the Company or an Affiliate who has been designated by the Committee as a Member of the Plan until such employee ceases to be a Member in accordance with Section 3.1 of the Plan.
(18) Plan: CHS/Community Health Systems, Inc. Deferred Compensation Plan, as amended from time to time.
(19) Plan Year: The seven-month period commencing June 1, 1991, and ending December 31, 1991 and each twelve-consecutive month period commencing January 1 of each year thereafter.
(20) Post-Termination Benefits Deposit: Certain deposit provided for under the terms of the Split Dollar Agreement.
(21) Retirement Plan: Community Health Systems, Inc. 401(k) Plan.
(22) Split Dollar Agreement: An agreement entered into between the Company and the Member pursuant to the provisions of the Supplemental Survivor Accumulation portion of the Community Health Systems, Inc. Supplemental Benefits Plan.
(23) SSP: CHS 401(k) Supplemental Savings Plan.
(24) Trust Agreement: The agreement entered into between the Company and the Trustee establishing a trust to hold and invest contributions made by the Company under the Plan and from which all or a portion of the amounts payable under the Plan to Members and their beneficiaries will be distributed.
(25) Trust Assets: All assets held by the Trustee under the Trust Agreement.
(26) Trustee: The trustee or trustees qualified and acting under the Trust Agreement at any time.
     1.2 Number and Gender. Wherever appropriate herein, words used in the singular shall be considered to include the plural and the plural to include the singular. The masculine gender, where appearing in this Plan, shall be deemed to include the feminine gender and vice versa.
     1.3 Headings. The headings of Articles and Sections herein are included solely for convenience and if there is any conflict between such headings and the text of the Plan, the text shall control.

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EXHIBIT A
ARTICLE II
Administration
     The Plan shall be administered by the Committee that shall be authorized, subject to the provisions of the Plan, to establish rules and regulations and make such interpretations and determinations as it may deem necessary or advisable for the proper administration of the Plan and all such rules, regulations, interpretations, and determinations shall be binding on all Plan Members and their beneficiaries. The Committee shall be composed of not less than three individuals. Each member of the Committee shall serve until he resigns or is removed by the Company. Upon the resignation or removal of a member of the Committee, the Company shall appoint a substitute member. No member of the Committee shall have any right to vote or decide upon any matter relating solely to himself under the Plan or to vote in any case in which his individual right to claim any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act, and the remaining members cannot agree, the Company shall appoint a temporary substitute member to exercise all the powers of the disqualified member concerning the matter in which he is disqualified. All expenses incurred in connection with the administration of the Plan shall be borne by the Company.
ARTICLE III
Participation
     3.1 Eligibility. Any employee of the Company or an Affiliate shall become a Member upon designation by the Committee. Once an employee has been designated as a Member, he shall automatically continue to be a Member until he ceases to be an employee of the Company or an Affiliate or is removed as a Member by the Committee. Notwithstanding the preceding provisions of this Section 3.1, participation in this Plan shall at all times be limited to a selected group of management or highly compensated employees of the Company.
     3.2 Compensation Deferral Election. Any Member may elect to defer receipt of a whole percentage of his Compensation for one or more calendar quarters during a Plan Year under the Plan. A Member’s election to defer receipt of Compensation for any calendar quarter(s) of a Plan Year shall be made prior to the beginning of such calendar quarter(s) of the Plan Year and shall be irrevocable for such calendar quarter(s) of the Plan Year. The reduction in a Member’s Compensation pursuant to his election shall be effected by Compensation reductions as of each payroll period within the election period.
     3.3 Bonus Deferral Election. Any Member may elect to defer receipt of a whole percentage of his Bonus for any Plan Year under the Plan. A Member’s election to defer receipt of his Bonus for any Plan Year shall be made prior to the earlier of (i) the date on which such bonus becomes payable and ascertainable, or (ii) October 1 of such Plan Year for which such Bonus is payable, and shall be irrevocable for such Plan Year. The election to defer receipt of such whole percentage of a Member’s Bonus pursuant to the deferral election above shall be effected by a reduction in the amount of the Bonus to which such deferral election relates.

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EXHIBIT A
     3.4 Targeted Deferral Election. In general, all amounts deferred by a Member pursuant to Sections 3.2 and 3.3 shall be held for the Member and distributed following the Member’s termination of employment or the occurrence of a hardship event pursuant to Sections 7.1, 7.2 and 8.1. Notwithstanding the preceding sentence, a Member may also defer the receipt of any portion of the Member’s Compensation otherwise deferred pursuant to the provisions of Sections 3.2 and 3.3 until a specific future date, by executing a deferral form designed for such purpose as specified by the Committee. Upon the occurrence of any such date specified by a Member in such an election form, the deferred amount, and the Earnings Credit and Investment(s) Gains or Losses attributable thereto, shall be distributed to the Member. Until so distributed, such deferral amounts shall continue to be a part of the Member’s Account.
     3.5 Investment Request. A Member may request the Committee to invest or change the investment of all or a portion of his Account in any Investments. A Member may make such request at any time, provided that the Committee shall only be obligated to direct the Trustee to make such investment or charge such investment as soon as reasonably practicable and within the guidelines and requirements established by the Trustee for the investment of funds held in the Account. A Member who does not request the Committee to invest any portion of his Account shall have the funds held in such Account in a money market fund offered through the Trustee or its affiliates.
     3.6 Post-Termination Benefits Deposit. Notwithstanding any provision of the Plan to the contrary, the Company may make for any Member an annual contribution equal to that portion of Post-Termination Benefit Deposits to be made to the Plan as calculated under the terms of any Benefits Exchange Agreement between the Member and the Company.
ARTICLE IV
Benefits
     4.1 Amount of Benefit.
     (a) Deferral Contributions. As of the last day of each payroll period of each Plan Year, a Member’s Account shall be credited with an amount equal to the Compensation deferred under the Plan pursuant to an election by the Member as described in Article III for such payroll period. Effective as of June 30, 2002, as of the last day of each payroll period of each Plan Year, a Member’s Account shall be credited with an amount equal to that portion of Post-Termination Benefit Deposits made to the Plan, if any, as calculated under the terms of the Benefits Exchange Agreement between the Member and the Company.
     (b) Matching Contributions. As of the last day of each Plan Year, or, if later, the date on which the Company Matching Contributions are made under the Retirement Plan for any such Plan Year, the Member’s Account of each Contributing Member during such Plan Year who remains employed by the Company on such date shall be credited with an amount equal to the following:
     (1) the Company Matching Contributions to which such Contributing Member would have been entitled under the Retirement Plan taking into account

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EXHIBIT A
both (i) the salary deferrals made by such Contributing Member to the Retirement Plan for the Plan Year, and (ii) the deferrals made by such Contributing Member under this Plan pursuant to Sections 3.1, 3.2, or 3.3 for the same Plan Year (up to a combined maximum of six percent (6.00%) of such Contributing Member’s Compensation assuming that none of the Limitations were imposed); minus
     (2) the Company Matching Contributions, if any, actually made on behalf of such Contributing Member under the Retirement Plan for such Plan Year; minus
     (3) the Company contributions, if any, to accounts actually made on behalf of such Contributing Member under the SSP for such Plan Year.
In addition, if (i) the total of such Contributing Member’s salary deferrals under the Retirement Plan (as adjusted after application of the Limitations) and deferrals pursuant to the SSP and Sections 3.1, 3.2 or 3.3 under this Plan is less than 6.00% of such Contributing Member’s Compensation for a Plan Year; and (ii) the Contributing Member elects to increase his or her deferrals under this Plan by all or any portion of any salary deferrals to the Retirement Plan that are returned to the Contributing Member as a result of the application of the Limitations within 120 days after receipt of such returned salary deferrals, even if such increased deferrals are made in the next Plan Year; such increased deferrals shall also be taken into account in subparagraph (a) above until the total of the Contributing Member’s salary deferrals under the Retirement Plan, SSP, and deferrals under this Plan for the Plan Year equals 6.00% of the Contributing Member’s Compensation.
     (c) Benefit Exchange Agreement Contributions. Effective for Plan Years beginning on or after January 1, 2002, the Company shall credit to the Account of each Member who has entered into a Benefit Exchange Agreement with the Company the following amounts, as specified under the terms of each such Benefit Exchange Agreement:
(1) all unpaid 2001 and 2002 variable life insurance policy premium payments required under the terms of the Split Dollar Agreement;
(2) an amount equal to 100% of the net cash surrender value of such variable life insurance policy on the date such policy is surrendered by the Company; and
(3) if required by the Member’s Benefit Exchange Agreement, annual amounts equal to the premium payments to such variable life insurance policy that would have been required under the Split Dollar Agreement for years after 2002, reduced each year by the actual cost of providing supplemental life insurance coverage to the Member pursuant to the terms of the Benefit Exchange Agreement.
As of any Determination Date, the benefit to which a Member or his beneficiary shall be entitled under the Plan shall be equal to the amount credited to such Member’s Account as of such date.

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EXHIBIT A
     (d) Special Contributions. For the Plan Year beginning January 1, 2003, the Company shall make a special one-time cash contribution to each Participant’s Account in an amount equal to the dollar value of the matching contributions that were forfeited by the Participants under the Retirement Plan for the plan years of the Retirement Plan that ended on December 31, 2001, and December 31, 2002. The Plan Administrator shall determine the dollar value of all such forfeited matching contributions, which determination shall be final and binding on all Participants. Such special contributions shall be made no later than September 15, 2003, unless the Plan Administrator has not yet finally determined the amount of the forfeited matching contributions, in which event such contributions shall be made not later than 30 days after such forfeited matching contributions are finally determined by the Plan Administrator. Notwithstanding the foregoing, no such special contribution shall be made for a Member if the Company makes a similar contribution for a Member to the SSP.
     4.2 Investment Credit. As of each Determination Date, the Account of each Member shall be credited with Investment Gains or Losses as provided in this Section 4.2.
  (a)   If a Member has requested in accordance with Section 3.5 of the Plan that all or a portion of his Account be invested in any particular Investment(s), the Account of such Member shall be credited with the Investment Gains or Losses since the preceding Determination Date.
 
  (b)   Any portion of a Member’s Account, the investment of which has not been requested by the Member, shall be credited with the Earnings Credit for such Determination Date.
 
  (c)   A Member’s Account shall not be credited with any Investment Credit under this Section 4.2 on the Company Matching Contributions portion credited to his Account as of the last day of each Plan Year pursuant to Section 4.1 of the Plan until the Company actually makes the cash deposit of such Matching Contributions with the Trustee.
ARTICLE V
Vesting
     All amounts credited to a Member’s Account shall be fully vested and not subject to forfeiture for any reason; provided, however, the amounts credited to a Member’s Account pursuant to the second paragraph of Section 4.1, including any Earnings Credit and/or Investment Gains or Losses allocable to such credits, shall be subject to the same vesting schedule as that set forth in the Retirement Plan. Notwithstanding the preceding sentence, the benefits payable to each Member hereunder constitute an unfunded, unsecured obligation of the Company, and the assets held by the Company and the Trustee remain subject to the claims of the Company’s creditors.

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EXHIBIT A
ARTICLE VI
Trust
     The Company may, from time to time and in its sole discretion, pay and deliver money or other property to the Trustee for the payment of benefits under the Plan. Notwithstanding any provision in the Plan to the contrary, distributions due under the Plan to or on behalf of Members shall be made by the Trustee in accordance with the terms of the Trust Agreement and the Plan; provided, however, that the Company shall remain obligated to pay all amounts due to such persons under the Plan. To the extent that Trust Assets are not sufficient to pay any amounts due under the Plan to or on behalf of the Members when such amounts are due, the Company shall pay such amounts directly. Nothing in the Plan or the Trust Agreement shall relieve the Company of its obligation to make the distributions required in Article VII hereof except to the extent that such obligation is satisfied by the application of funds held by the Trustee under the Trust Agreement. Any recipient of benefits hereunder shall have no security or other interest in Trust Assets. Any and all Trust Assets shall remain subject to the claims of the general creditors of the Company, present and future, and no payment shall be made under the Plan unless the Company is then solvent. Should an inconsistency or conflict exist between the specific terms of the Plan and those of the Trust Agreement, then the relevant terms of the Trust Agreement shall govern and control.
ARTICLE VII
Payment of Benefits
     7.1 Termination of Employment. Upon a Member’s termination of employment with the Company or an Affiliate for any reason, the amount credited to such Member’s Account as of the Determination Date immediately preceding such Member’s termination of employment, adjusted for any amount deferred and Earnings Credit and Investment(s) Income or Loss realized from such Determination Date to the date of the Member’s termination of employment, shall be distributed to such Member or, if the Member’s termination of employment is on account of death, to the Member’s beneficiary as determined pursuant to Section 7.2 below.
     7.2 Death. Upon a Member’s death, the amount credited to such Member’s Account as of the Determination Date immediately preceding the date of such Member’s death, adjusted for any amount deferred and Earnings Credit and Investment Gains or Losses realized from such Determination Date to the date of the Member’s death, shall be distributed to such Member’s designated beneficiary. The Member, by written instrument filed with the Committee in such manner and form as the Committee may prescribe, may designate one or more beneficiaries to receive such payment. The beneficiary designation may be changed from time to time prior to the death of the Member. In the event that the Committee has no valid beneficiary designation on file, the amount credited to such Member’s Account shall be distributed to the Member’s surviving spouse, if any, or if the Member has no surviving spouse, to the executor or administrator of the Member’s estate.
     7.3 Targeted Deferrals. If a Member has made one or more targeted deferrals pursuant to Section 3.4, upon the date specified in any election form used by the Member to

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EXHIBIT A
make such election, the amount credited in the subaccount of the Member’s Account which relates to such deferral as of the Determination Date immediately preceding such specified date shall be distributed to such Member. If some event takes place that would entitle a Member to a distribution under Sections 7.1 or 7.2 prior to such specified date, the amounts in such subaccount shall be distributed along with any other amounts in the Member’s Account pursuant to Section 7.1 or 7.2.
     7.4 Time of Payment. Payment of a Member’s benefit hereunder shall be made (or commence if payment is in the form of an annuity contract) as soon as administratively feasible following the date on which the Member or his beneficiary becomes entitled to such benefit pursuant to Sections 7.1, 7.2, or 7.3, but no earlier than 10 days thereafter and no later than 45 days thereafter, except for the Company Matching Contributions as provided herein. If a Member’s termination of employment or death or any other events which caused termination of the Plan, occurs within the first four months of a year, the portion of the Company Matching Contributions for the preceding Plan Year that has been credited to a Member’s Account shall be distributed to such Member no later than the earlier of (i) the date of which the calculation of such contributions has been finalized or (ii) May 1 of the year of termination of employment or death, or any other events which shall entitle the Member to a distribution. In all other events, the 10 days and 45 days limitation shall apply to the distribution of the Member’s entire Account balance, unless expressly provided otherwise.
     7.5 Form of Payment. For purposes of distributing all of a Member’s Account other than any portion thereof attributable to targeted deferrals and earnings thereon, the form of any payment to a Member or his designated beneficiary shall be in substantially equal annual installments over a period of ten (10) years, paid in cash or by certified check, with the first such payment to be made on the first business day of the calendar year following the Member’s termination of employment (for purposes of payments made pursuant to Section 7.1) or death (for purposes of payments made pursuant to Section 7.2), unless the Member has made an election to receive such distribution in the form of a lump sum payment or in five (5) substantially equal installment payments in such manner and form as prescribed by the Committee. Any election, or subsequent election, made by the Member pursuant to this Section shall not be effective until the passage of twelve (12) consecutive months before the date of the Member’s termination of employment with the Company or an Affiliate, if payment is required pursuant to Section 7.1, or the Member’s date of death, if the payment is required pursuant to Section 7.2. All distributions of that portion of a Member’s Account attributable to any targeted deferral and earnings thereon shall be distributed in a single lump sum payment, in cash or certified check, on the date specified by the Member in the election form used to make the targeted deferral, or as soon thereafter as administratively possible.
ARTICLE VIII
Hardship Distributions
     Upon written application by a Member who has experienced an unforeseeable emergency, as determined by the Committee, the Committee may distribute to such Member an amount not to exceed the lesser of the amount credited to such Member’s Account or the amount determined by the Committee as being reasonably necessary to satisfy the emergency need. For

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EXHIBIT A
purposes of this Article VIII, a hardship distribution pursuant to an unforeseeable emergency shall be authorized in the event of severe financial hardship to the Member resulting from a sudden and unexpected illness or accident of the Member or his dependent, loss of the Member’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Member’s control. An unforeseeable emergency will not include the need to send a Member’s child to college or the desire to purchase a home. Additionally, the Member must demonstrate that the hardship may not be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Member’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or by cessation of deferrals under this Plan.
ARTICLE IX
Sale of the Company
     In the event of a sale of all or substantially all of the stock or assets of the Company, either (a) the purchaser shall assume the liabilities of the Plan and shall continue to operate the Plan in accordance with the provisions set forth herein (including any subsequent amendments hereto) or (b) the Plan shall be terminated and the amount credited to each Member’s Account shall be distributed in a lump sum payment in cash or by certified check to each such Member in accordance with Section 7.4. However, should such sale result in a Change of Control, the Plan shall be terminated and the amount credited to each Member’s Account shall be distributed in a lump sum payment in cash or by certified check to each such Member in accordance with Section 7.4.
ARTICLE X
Nature of the Plan
     The Plan shall constitute an unfunded, unsecured obligation of the Company to make cash payments in accordance with the provisions of the Plan. The Plan is not intended to meet the qualification requirements of section 401 of the Internal Revenue Code of 1986, as amended. The Company in its sole discretion may set aside such amounts for the payment of Accounts as the Company may from time to time determine. Neither the establishment of the Plan, the operation thereof, nor the setting aside of any amounts shall be deemed to create a funding arrangement. No Member shall have any security or other interest in any such amounts set aside or any other assets of the Company.
ARTICLE XI
Employment Relationship
     Nothing in the adoption or implementation of the Plan shall confer on any employee the right to continued employment by the Company or an Affiliate or affect in any way the right of the Company or an Affiliate to terminate his employment at any time. Any question as to whether and when there has been a termination of a Member’s employment, and the cause of such termination, shall be determined by the Committee, and its determination shall be final.

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EXHIBIT A
ARTICLE XII
Amendment and Termination
     The Company may amend or terminate the Plan, by resolution duly adopted, without the consent of the Members; provided, however, that no such amendment or termination shall adversely affect any benefits which have been earned prior to any such amendment or termination. Further, upon termination of the Plan, the Committee, in its sole discretion, may elect to distribute the amount credited to each Member’s Account in a lump sum cash payment in accordance with Section 7.4; provided, however, in the event of a Change of Control, the amount credited to each Member’s Account must be distributed in accordance with Section 7.4.
ARTICLE XIII
Claims Procedure
     The Committee shall have full power and authority to interpret, construe and administer the Plan, and the Committee’s interpretations and construction hereof, and actions hereunder, including the timing, form, amount or recipient of any payment to be made hereunder, shall be binding and conclusive on all persons for all purposes. In the event that an individual’s claim for a benefit is denied or modified, the Committee shall provide such individual with a written statement setting forth the specific reasons for such denial or modification in a manner calculated to be understood by the individual. Any such written statement shall reference the pertinent provisions of the Plan upon which the denial or modification is based and shall explain the Plan’s claim review procedure. Such individual may, within forty-five (45) days of receipt of such written statement, make written request to the Committee for review of its initial decision. Within forty-five (45) days following such request for review, the Committee shall, after affording such individual a reasonable opportunity for a full and fair hearing, render its final decision in writing to such individual. Notwithstanding the preceding sentence, should a Member’s claim be related to the preceding Plan Year’s Company Matching Contributions, the Committee shall render its final decision on the later of (i) forty-five (45) days following such request for review, or (ii) 120 days after the end of the preceding Plan Year. No member of the Committee shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to his own willful misconduct or lack of good faith. Members of the Committee shall not participate in any action or determination regarding their own benefits hereunder.
ARTICLE XIV
Miscellaneous
     14.1 Indemnification. The Company shall indemnify and hold harmless each member of the Committee and any other persons acting on its behalf, against any and all expenses and liabilities arising out of his or her administrative functions or fiduciary responsibilities, excepting only expenses and liabilities arising out of the individual’s own willful misconduct or lack of good faith. Expenses against which such person shall be indemnified hereunder include, without

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EXHIBIT A
limitation, the amounts of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof.
     14.2 Effective Date. The Plan shall become operative and effective as of the Effective Date and shall continue until amended or terminated as provided in Article XII.
     14.3 Withholding Taxes. The Company shall have the right to deduct from any payments made under this Plan, any federal, state or local taxes required by law to be withheld with respect to such payments.
     14.4 Nonalienation of Benefits. Subject to income tax withholding, benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Member, prior to actually being received; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder shall be void. The Company shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder.
     14.5 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; rather, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein.
     14.6 Jurisdiction. The situs of the Plan hereby created is Tennessee. All provisions of the Plan shall be construed in accordance with the laws of Tennessee except to the extent preempted by federal law.

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EX-10.13
Exhibit 10.13
 
CHS/COMMUNITY HEALTH SYSTEMS, INC.
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
 
January 1, 2009

 


 

         
    Page  
1. PURPOSE
    3  
 
2. DEFINITIONS AND CONSTRUCTION
    3  
 
2.1 Definitions
    3  
 
2.2 Captions; Section References
    7  
 
2.3 Severability
    8  
 
3. ADMINISTRATION
    8  
 
3.1 The Committee
    8  
 
3.2 Authority of the Committee
    8  
 
3.3 Decisions Binding
    8  
 
3.4 Plan Administrator
    8  
 
3.5 Costs and Expenses
    8  
 
3.6 Indemnification
    8  
 
4. PARTICIPATION IN THE PLAN
    9  
 
4.1 Notification of Participation
    9  
 
4.2 Termination of Participation
    9  
 
5. BENEFITS UPON SEPARATION FROM SERVICE OR DEATH
    9  
 
5.1 Normal Retirement Benefit
    9  
 
5.2 Early Retirement Benefit
    9  
 
5.3 Disability Benefit
    10  
 
5.4 Death Benefit
    10  
 
5.5 Termination for Cause
    10  
 
6. BENEFITS UPON CHANGE IN CONTROL
    10  
 
6.1 Change in Control Benefit
    10  
 
6.2 Participants Under Age 55
    10  
 
6.3 Additional Years of Service
    11  
 
6.4 Certain Terminations of Employment
    11  
 
7. BENEFICIARIES
    11  
 
8. RABBI TRUST
    11  
 
9. WITHHOLDING
    11  
 
10. MODIFICATION AND TERMINATION
    11  
 
10.1 Amendment and Termination
    11  
 
10.2 Effect on Participants
    11  
 

- i -


 

TABLE OF CONTENTS
(continued)
         
    Page  
10.3 No Obligation to Continue Plan
    12  
 
11. CLAIMS AND REVIEW PROCEDURES
    12  
 
12. MISCELLANEOUS PROVISIONS
    12  
 
12.1 Non-Transferability
    12  
 
12.2 Payment of Benefits
    12  
 
12.3 No Rights of Employment
    12  
 
12.4 Applicable Law
    13  
 
12.5 Payment to Minors
    13  
 
EXHIBIT A Date of Hire for Certain Plan Participants
    12  
- ii -

 


 

CHS/COMMUNITY HEALTH SYSTEMS, INC.
AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
     WHEREAS, Community Health Systems, Inc. established the Community Health Systems, Inc. Supplemental Executive Retirement Plan (the “Original Plan”) on December 10, 2002; and
     WHEREAS, the Original Plan was amended as of April 8, 2004, to change the definition of “Service” thereunder; and
     WHEREAS, the Original Plan was next amended as of May 25, 2005, to reflect the assumption of the Plan by CHS/Community Health Systems, Inc. and the change of the name of the Original Plan to the CHS/Community Health Systems, Inc. Supplemental Executive Retirement Plan; and
     WHEREAS, the Original Plan was required to be maintained in good faith compliance with Internal Revenue Code Section 409A and guidance of the U.S. Department of Treasury thereunder for the period beginning January 1, 2005, and ending December 31, 2008; and
     WHEREAS, the Original Plan is required to be restated to comply with Internal Revenue Code Section 409A; and
     WHEREAS, the Original Plan shall be amended and restated as the CHS/Community Health Systems, Inc. Amended and Restated Supplemental Executive Retirement Plan (the “Plan”), effective as of January 1, 2009, except as otherwise stated herein;
     NOW, THEREFORE, the Plan shall provide as follows:
1. Purpose. The purpose of this Plan is to advance the interests of CHS by encouraging officers and other key employees of the Company and its subsidiaries who will largely be responsible for the long-term success and development of CHS to continue their employment with the Company and its subsidiaries by providing retirement benefits for them. The Plan is also intended to assist the Company and its subsidiaries in attracting and retaining such employees and stimulating their efforts on behalf of the Company and its subsidiaries.
2. Definitions and Construction.
     2.1 Definitions. As used in the Plan, terms defined parenthetically immediately after their use shall have the respective meanings provided by such definitions, and the following words and phrases shall have the meanings specified below (in either case, such terms shall apply equally to both the singular and plural forms of the terms defined), unless a different meaning is plainly required by the context:
     (a) “Actuarial Equivalent” shall mean a benefit of equivalent value calculated based on the Uninsured Pensioners 1994 Mortality Table including Projections to 2003 using 50% of the Male Rates and 50% of the Female Rates as prescribed for qualified retirement plans under

- 3 -


 

the General Agreement on Trades and Tariffs (GATT) and a discount rate equal to the yield on 10-Year Treasury Bonds as of the last day of the previous month, but in no event greater than 4% per annum.
     (b) “Annual Retirement Benefit” shall mean an amount equal to a Participant’s Final Average Earnings multiplied by the lesser of (i) 60%, or (ii) a percentage equal to 2% multiplied by the Participant’s years of Service.
     (c) “Beneficiary” shall mean the person or persons designated by a Participant pursuant to Section 7 to receive the benefits to which a Participant is entitled upon the death of a Participant.
     (d) “Board” shall mean the Board of Directors of the Company or, as the context requires, CHS.
     (e) “Cause” shall mean a felony conviction of a Participant or the failure of a Participant to contest prosecution for a felony, or a Participant’s willful misconduct, dishonesty or gross negligence, any of which is determined by the Board to be directly and materially harmful to the business or reputation of the Company or its Subsidiaries.
     (f) “Change in Control” shall mean the occurrence of any of the following events, but only to the extent such event would constitute a change in the ownership or effective control of CHS, or in the ownership of a substantial portion of the assets of CHS, as set forth in Code Section 409A(a)(2)(A)(v) and defined in regulations promulgated by the U.S. Department of Treasury thereunder:
     (1) An acquisition (other than directly from CHS) of any voting securities of CHS (“Voting Securities”) by any Person (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) immediately after which such Person has Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the then-outstanding shares of Common Stock of CHS (“Shares”) or the combined voting power of CHS’ then-outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section 2.1(f)(1), Shares or Voting Securities which are acquired in a Non-Control Acquisition (as hereinafter defined) shall not constitute an acquisition that would cause a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by the Company or any Subsidiary, (ii) CHS or any Subsidiary, or (iii) any Person in connection with a Non-Control Transaction (as hereinafter defined);
     (2) The individuals who, as of the date hereof, are members of the Board of CHS (“Incumbent Board”), cease for any reason to constitute at least a majority of the members of the Board of CHS or, following a Merger (as hereinafter defined) that results in CHS having a Parent Corporation (as hereinafter defined), the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election, by the CHS common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board of CHS, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board of CHS; provided further, however, that no individual shall be considered a member of the Incumbent Board of CHS if such individual initially assumed office as a result of

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either an actual or threatened Election Contest (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of CHS (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or
     (3) The consummation of:
     (A) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (“Merger”), unless such Merger, is a Non-Control Transaction. A Non-Control Transaction shall mean a Merger where:
     (i) the stockholders of CHS immediately before such Merger own, directly or indirectly, immediately following such Merger, at least 50% of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (“Surviving Corporation”), if 50% or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (“Parent Corporation”), or (y) if there are one or more Parent Corporations, the ultimate Parent Corporation; and
     (ii) the individuals who were members of the Incumbent Board of CHS immediately prior to the execution of the agreement providing for such Merger, constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there are one or more Parent Corporations, the ultimate Parent Corporation.
     (B) A complete liquidation or dissolution of CHS; or
     (C) The sale or other disposition of all, or substantially all, of the assets of CHS to any Person (other than a transfer to a Subsidiary or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the CHS’ stockholders of the stock of a Subsidiary or any other assets).
     Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (“Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then-outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by CHS which, by reducing the number of Shares or Voting Securities then-outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by CHS, and after such share acquisition by CHS the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increases the percentage of the then-outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.
     (g) “CHS” shall mean Community Health Systems, Inc., a Delaware corporation.
     (h) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
     (i) “Committee” shall mean the Compensation Committee of the Board of CHS.

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     (j) “Company” shall mean CHS/Community Health Systems, Inc., a Delaware corporation; provided, however, that Company shall mean Community Health Systems, Inc. prior to May 25, 2005, for the purposes of determining the rights, powers, and obligations under the terms of the Plan of the plan sponsor.
     (k) “Compensation” shall mean only the salary plus the bonus paid to a Participant.
     (l) “Disabled Participant” shall mean any Participant who has been credited with five years of Service and who Separates from Service by reason of being Totally and Permanently Disabled.
     (m) “Early Retirement Date” shall mean the date a Participant has been credited with at least five years of Service and is at least 55 years old.
     (n) “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
     (o) “Final Average Earnings” shall mean an amount equal to (i) the sum of a Participant’s Compensation for the highest three years out of the last five full years of Service preceding a Participant’s termination of employment with the Company and its Subsidiaries, divided by (ii) three.
     (p) “Key Employee” shall mean an employee (other than an Officer) of CHS, the Company, or a Subsidiary who has been selected by the Committee to be a Participant.
     (q) “Monthly Retirement Income” shall mean a monthly income computed as provided in the Plan.
     (r) “Normal Retirement Date” shall mean the day of a Participant’s 65th birthday.
     (s) “Officer” shall mean all employees of CHS, the Company, or a Subsidiary who have been duly elected as officers of CHS by the Board of CHS.
     (t) “Participant” shall mean any Officer or Key Employee.
     (u) “Primary Insurance Amount” as of any date shall mean the monthly amount of Social Security old age and survivor disability insurance benefits received or receivable by a Participant commencing at the Participant’s unreduced Social Security retirement age. The amount will be calculated based on the Social Security Act in effect as of the date of calculation, without regard to any dependent benefits.
     (v) “Rabbi Trust” shall mean the trust to be established by the Company in accordance with the provisions of Section 8.
     (w) "Retired Participant” shall mean any Participant who has ceased to be an employee of the Company or a Subsidiary and who is entitled to receive a benefit under Section 5 of the Plan.
     (x) “Separation from Service” or “Separate from Service” means a separation from service as set forth in Code Section 409A(a)(2)(A)(i) and defined in regulations promulgated by

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the U.S. Department of Treasury thereunder, provided, however, that a Participant shall not be deemed to have Separated from Service on account of a leave of absence until the first date immediately following the end of a 29-month period of leave (if the employment relationship is not terminated sooner) where such leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months and where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment.
     (y) “Service” shall mean one of the following: (i) in the case of an Officer, all years and completed months of service with the Company and any Subsidiary, whether before or after the adoption of the Plan, but not beginning earlier than January 1, 1997 (as indicated for some Participants in Exhibit A hereto) or, in the alternative, if the Committee so specifies for a designated Participant, additional years and months of service, provided, however, such additional years and months of service shall not exceed two years for every year of completed service and two months for every one month of completed service with the Company, but not beginning before January 1, 1997, and (ii) in the case of an Officer or Key Employee who becomes a Participant after January 1, 2003, all years and completed months of service following the date the person becomes a Participant. If a Participant’s name is not listed on Exhibit A, such Participant’s Service shall begin on the date described in clause (ii) above.
     (z) “Specified Employee” means “specified employee” as defined in Code Section 409A(a)(2)(B)(i) and the regulations promulgated by the U.S. Department of Treasury thereunder. For purposes of the preceding sentence, “specified employee” means a “key employee” of the Company as defined in Code Section 416(i) without regard to paragraph (5) thereof. A Participant shall be a “key employee” of the Company if the Participant meets the requirements of Code Section 416(i)(1)(A)(i), (ii) or (iii) (applied in accordance with the regulations thereunder and disregarding Code Section 416(i)(5)) at any time during any 12-month period ending on December 31 (the “Identification Date”). If a Participant is a “key employee” of the Company as of the Identification Date, the Participant shall be treated as a Specified Employee for the 12-month period beginning on the first day of the fourth month following the Identification Date.
     (aa) “Subsidiary” shall mean, with respect to CHS or the Company, as applicable, any corporation or other entity of which a majority of its voting power, equity securities or equity interests is owned, directly or indirectly, by CHS or the Company, as applicable.
     (bb) “Total and Permanent Disability” shall mean a physical or mental condition that renders a Participant eligible for disability benefits under the long-term disability insurance program in effect at the Company on the date of this amendment and restatement of the Plan, even if such Participant no longer participates in such long-term disability program on the date such physical or mental condition occurs.
     2.2 Captions; Section References. Section titles or captions contained in the Plan are inserted only as a matter of convenience and reference, and in no way define, limit, extend or describe the scope of the Plan, or the intent of any provision hereof. All references herein to Sections shall refer to Sections of the Plan unless the context clearly requires otherwise.

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     2.3 Severability. If any provision of the Plan, or the application thereof to any person, entity or circumstances, shall be invalid or unenforceable to any extent, the remainder of the Plan, and the application of such provision to other persons, entities or circumstances, shall not be affected thereby and the Plan shall be enforced to the greatest extent permitted by law.
3. Administration.
     3.1 The Committee. The Plan shall be administered by the Committee. The Committee shall meet at such times and places as it determines and may meet through a telephone conference call.
     3.2 Authority of the Committee. Subject to the provisions of the Plan, the Committee shall have full authority to:
     (a) Select Key Employees.
     (b) Construe and interpret the Plan.
     (c) Establish, amend and rescind rules and regulations for the Plan’s administration.
     (d) Make all other determinations which may be necessary or advisable for the administration of the Plan.
     To the extent permitted by law, the Committee may delegate its authority as identified hereunder.
     3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan, and all related orders or resolutions of the Board, shall be final, conclusive and binding upon all persons, including the Company, its stockholders, employees, Participants and their estates and Beneficiaries.
     3.4 Plan Administrator. For purposes of ERISA, the Committee is the Plan administrator. Any claim for benefits under the Plan shall be made in writing to the Committee. The Committee and the claimant shall follow the claims procedures set forth in Department of Labor Regulation §2560.503-1.
     3.5 Costs and Expenses. In discharging their duties under the Plan, the Committee may employ such counsel, accountants and consults as it deems necessary or appropriate. The Company shall pay all costs of such third parties and any other expenses incurred by the Committee with respect to the Plan.
     3.6 Indemnification. No member of the Committee, nor any officer or employee acting on behalf of the Committee, CHS, the Company, or its Subsidiaries shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan, and all members of the Committee, and each and every officer or employee of CHS, the Company, or its Subsidiaries acting on their behalf, shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination or interpretation.

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4. Participation in the Plan.
     4.1 Notification of Participation. Each Officer and Key Employee shall be notified that they are a Participant under the Plan.
     4.2 Termination of Participation. A Participant who ceases to be an Officer or a Key Employee of the Company (as determined by the Committee), or who terminates employment with the Company and all Subsidiaries for any reason other than death or Total and Permanent Disability, shall not be entitled to any benefits hereunder unless that change of status occurs after the Participant has reached their Early Retirement Date.
5. Benefits Upon Separation from Service or Death.
     5.1 Normal Retirement Benefit. A Participant (including, without limitation, a Specified Employee) who has been credited with at least five years of Service and Separates from Service by reason of retirement on or after the Participant’s Normal Retirement Date shall receive a single lump-sum payment, commencing on the day immediately following the date that is six (6) months after the date of the Participant’s Separation from Service, in an amount that is the Actuarial Equivalent of a Monthly Retirement Income equal to:
     (i) one-twelfth of the Participant’s Annual Retirement Benefit, reduced by
     (ii) the Primary Insurance Amount.
If a Participant who has had a Separation from Service and is entitled to a Normal Retirement Benefit under this Section 5.1 dies prior to the date of such payment, such payment shall be made, instead, to the Participant’s Beneficiary on the date that it otherwise would have been made to the Participant, or as soon as administratively feasible thereafter within the same taxable year (or, if later, by the 15th day of the third calendar month following the date the payment otherwise would have been made to the Participant, provided that neither the Participant nor Beneficiary shall be permitted, directly or indirectly, to designate the taxable year of payment).
     5.2 Early Retirement Benefit. A Participant (including, without limitation, a Specified Employee) who Separates from Service by reason of retirement after attaining age 55 and who has been credited with at least five years of Service shall receive a single lump-sum payment, commencing on the day immediately following the date that is six (6) months after the date of the Participant’s Separation from Service, in an amount that is the Actuarial Equivalent of a Monthly Retirement Income computed in the manner set forth in Section 5.1, except that the amount set forth in Section 5.1 shall be reduced by two/twelfths of one percent (.001667) of that amount for each month that payments commence prior to the Participant’s Normal Retirement Date. The reduction referred to in the immediately preceding sentence shall not apply in the event of a Change in Control. If a Participant who has had a Separation from Service and is entitled to an Early Retirement Benefit under this Section 5.2 dies prior to the date of such payment, such payment shall be made, instead, to the Participant’s Beneficiary on the date that it otherwise would have been made to the Participant, or as soon as administratively feasible thereafter within the same taxable year (or, if later, by the 15th day of the third calendar month following the date the payment otherwise would have been made to the Participant, provided that neither the Participant nor Beneficiary shall be permitted, directly or indirectly, to designate the taxable year of payment).

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     5.3 Disability Benefit.
     (a) A Disabled Participant (including, without limitation, a Specified Employee) shall receive a single lump-sum payment, commencing on the later of (i) the day immediately following the date that is six (6) months after the date of the Participant’s Separation from Service by reason of becoming Totally and Permanently Disabled, or (ii) the first day of the month following the Participant’s 55th birthday, in an amount that is the Actuarial Equivalent of a Monthly Retirement Income computed in the manner set forth in Section 5.1. This benefit shall be payable at the time prescribed in this Section 5.3(a) regardless of whether the Participant recovers from the disability before payment is due.
     (b) If a Disabled Participant dies before the payment of the benefit described in Section 5.3(a), a death benefit shall be payable to the Disabled Participant’s Beneficiary. Such death benefit shall be a single lump-sum payment equal to the Actuarial Equivalent present value of a Monthly Retirement Income as of the Participant’s date of death, computed in accordance with the provisions of Section 5.3(a). Such death benefit shall be paid to the Participant’s Beneficiary no later than ninety (90) days after the date of death (provided that neither the Participant nor Beneficiary shall be permitted, directly or indirectly, to designate the taxable year of payment).
     5.4 Death Benefit. If a Participant who has been credited with five or more years of Service dies prior to incurring a Separation from Service, a single, lump-sum death benefit shall be paid to the deceased Participant’s Beneficiary. Such death benefit shall be the Actuarial Equivalent of the Participant’s Monthly Retirement Income as of the Participant’s date of death, computed in the same manner as provided in Section 5.3(a) in the case of a Disabled Participant. Such death benefit shall be paid to the deceased Participant’s Beneficiary no later than ninety (90) days after the date of death (provided that neither the Participant nor Beneficiary shall be permitted, directly or indirectly, to designate the taxable year of payment).
     5.5 Termination for Cause. If a Participant’s employment is terminated due to Cause, then notwithstanding anything else set forth herein, such Participant shall not be entitled to receive any benefit under the Plan.
6. Benefits Upon Change in Control.
     6.1 Change in Control Benefit. In the event of a Change in Control, the benefit of any Participant with five years or more of Service but not yet otherwise entitled to a benefit under the other provisions of this Plan shall be fully vested and shall be paid out as soon as administratively feasible but no later than ninety (90) days after the Change in Control (provided that the Participant shall not be permitted, directly or indirectly, to designate the taxable year of payment) in a single lump-sum payment pursuant to the applicable provisions in Section 5. Upon such payment to all Participants, the Plan shall terminate.
     6.2 Participants Under Age 55. Any Participant who has been credited with five years or more years of Service on the date of the Change in Control who is under age 55 will be deemed to be age 55 solely for purposes of determining if the Participant is eligible for benefits under the Plan but, in computing the lump sum payment provided for in Section 6.1 and the applicable provisions of Section 5, the Monthly Retirement Income shall be deemed payable based upon the Participant’s actual age on the date of the Change in Control.

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     6.3 Additional Years of Service. All Participants who have been credited with five years or more of Service as of a Change in Control will be credited with an additional three years of Service as a result of a Change in Control.
     6.4 Certain Terminations of Employment. If a Participant’s employment is terminated by the Company without Cause prior to the date of a Change in Control, but the Participant reasonably demonstrates to the satisfaction of the Committee that the termination (i) was at the request of a third party who has indicated an intention to, or has taken steps reasonably calculated to, effect a Change in Control, or (ii) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed, such termination shall be deemed to have occurred after a Change in Control for purposes of the Plan, provided a Change in Control actually occurs. Such a Participant shall be entitled to receive the same benefits under the Plan as if the Participant had been an employee of the Company or a Subsidiary on the date the Change in Control actually occurs. Notwithstanding the foregoing, no payment under this Section 6.4 shall be made before the date that is six (6) months after the date of the Participant’s actual Separation from Service.
     7. Beneficiaries. Each Participant shall have the right, by giving written notice to the Committee on such form as the Committee shall adopt, to designate a Beneficiary or Beneficiaries to receive payments which become available under the Plan should the Participant die. A Participant may change the designated Beneficiary by filing a new beneficiary designation form with the Committee. If a Participant dies and has not designated a Beneficiary, or if the Beneficiary predeceases the Participant, the estate of the deceased Participant shall be deemed to be the Beneficiary.
     8. Rabbi Trust. The Company intends to establish a Rabbi Trust with a commercial bank or other financial or trust institution of which the Company would be considered the owner for Federal income tax purposes. The Rabbi Trust will be established to provide a source of funds to enable the Company to make payments to the Participants and their Beneficiaries pursuant to the terms of the Plan and will be administered in a manner consistent with the requirements of Code Section 409A. Payments to which Participants are entitled under the terms of the Plan shall be paid out of the Rabbi Trust to the extent of the assets therein. The assets of the Rabbi Trust will be subject to the claims of general creditors of the Company.
     9. Withholding. The Company shall have the right to withhold from the payments to be made to any Participant or Beneficiary hereunder all amounts required to be so withheld under applicable law.
10. Modification and Termination.
     10.1 Amendment and Termination. The Company reserves the right at any time, by action of the Board, to modify or amend, in whole or in part, any or all of the provisions of the Plan, or to terminate the Plan. In the event of Plan termination, benefits shall be payable at the time and in the manner provided in Sections 5 and 6; however, the Company may accelerate the time and form of payment pursuant to a termination and liquidation of the Plan in accordance with Code Section 409A and the regulations thereunder.
     10.2 Effect on Participants. Notwithstanding the provisions of Section 10.1, no amendment, modification or termination of the Plan shall adversely affect:

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     (a) The Monthly Retirement Income of any Participant, or the Beneficiary of any Participant, who has Separated from Service or died prior thereto.
     (b) The right of any Participant then employed by the Company or a Subsidiary who has been credited with at least five years of Service to receive upon death, Separation from Service (including Separation from Service by reason of Total and Permanent Disability) or Change in Control, the benefit to which such person would have been entitled under the Plan prior to the amendment, modification or termination, provided, however, that the Company may accelerate the time and form of payment pursuant to a termination and liquidation of the Plan in accordance with Code Section 409A and the regulations thereunder.
     10.3 No Obligation to Continue Plan. Although it is the intention of the Company that the Plan shall be continued indefinitely, the Plan is entirely voluntary on the part of the Company, and the continuance of the Plan is not a contractual obligation of the Company.
     11. Claims and Review Procedures. The Committee shall establish and maintain reasonable procedures governing the filing of claims, notification of benefit determinations, and appeal of adverse benefit determinations in accordance with applicable law. Such procedures shall provide for adequate notice in writing to any Participant or Beneficiary whose claim for benefits under the Plan has been denied, setting forth the specific reasons for such denial and written in a manner calculated to be understood by the Participant or Beneficiary. Such procedures shall also afford a reasonable opportunity to any Participant or Beneficiary whose claim for benefits has been denied for a full and fair review by the Committee of the decision denying the claim.
12. Miscellaneous Provisions.
     12.1 Non-Transferability. Neither the interest of a Participant or any other person in the Plan, nor the benefits payable hereunder, shall be subject to the claim of creditors of a Participant or their Beneficiaries and will not be subject to attachment, garnishment or any other legal process. Neither a Participant nor a Beneficiary may assign, sell, pledge or otherwise encumber any of their beneficial interest in the Plan, nor shall any such benefits be in any manner liable for, or subject to, the deeds, contracts, liabilities, engagements or torts of any Participant or their Beneficiary. All such payments and rights thereto are expressly declared to be non-assignable and non-transferable, and in the event of any attempted assignment or transfer (whether voluntary or involuntary) by a Participant or a Beneficiary, the Company shall have no further liability hereunder to such Participant or Beneficiary.
     12.2 Payment of Benefits. Although the Company intends to establish the Rabbi Trust to fund its obligations under the Plan, the rights of Participants and Beneficiaries to receive payments under the Plan shall constitute only a general claim against the Company and will not be a lien or claim on any specific assets of the Company.
     12.3 No Rights of Employment. The Plan shall not be deemed to constitute a contract of employment between a Participant and the Company or a Subsidiary. Nothing contained in the Plan shall be deemed to give any Participant the right to be retained in the employment of the Company or a Subsidiary. The Plan shall not interfere in any way with the Company’s or a Subsidiary’s right to discharge a Participant at any time, regardless of the effect which such discharge would have upon such Participant under the Plan, and such actions by the Company or

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a Subsidiary in discharging any Participant shall not be deemed a breach of contract, nor give rise to any rights or actions in favor of such Participant.
     12.4 Applicable Law. The Plan shall be governed by, and construed in accordance with, the laws of the State of Tennessee without regard to its conflict of laws rules. It is intended that the Plan be an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of highly compensated employees of the Company. As such, the Plan is intended to be exempt from certain otherwise applicable provisions of Title I of ERISA, and any ambiguities in construction shall be resolved in favor of an interpretation which will effectuate such intention. The Plan is intended to comply with Code Section 409A and the Treasury Regulations promulgated thereunder as applicable to nonqualified deferred compensation plans and shall be construed in furtherance of such intent.
     12.5 Payment to Minors. In making any payment to or for the benefit of any minor or incompetent Beneficiary, the Committee, in its sole, absolute and uncontrolled discretion, may, but need not, make such payment to a legal or natural guardian or other relative of such minor or court appointed committee of such incompetent, or to any adult with whom such minor or incompetent temporarily or permanently resides, and the receipt by such guardian, committee, relative or other person shall be a complete discharge of the Company, without any responsibility on its part or on the part of the Committee to see to the application thereof.
     IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly authorized officer the 10th day of December, 2008, being the date the Board approved the Plan.
             
    CHS/COMMUNITY HEALTH SYSTEMS, INC.    
 
           
 
  By:   /s/ Rachel A. Seifert
 
   
    Title: Senior Vice President    

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EX-10.14
Exhibit 10.14
SUPPLEMENTAL
EXECUTIVE
BENEFITS
(Effective as of December 31, 2008)
(CHS LOGO)

 


 

INTRODUCTION
This document outlines the supplemental benefits for eligible executive employees of affiliates of Community Health Systems, Inc. (“Employer” or the “Company”), including the hospital companies that are consolidated with the Company. Benefits are provided by the entity that employs the particular eligible executive (the “Employer”), provided, however, certain benefits are provided through group plans sponsored by Employer/Community Health Systems, Inc. The benefits described in this document substitute in their entirety the benefit categories below that were previously provided by the Supplemental Survivor and Accumulation Plan.1
  Survivor Benefits
 
  Post-Termination Benefits
 
  Severance Benefits
Plan benefit categories are based upon your position with an affiliate of the Company. The following benefit categories are referenced throughout this summary:
     Executive   Corporate Vice Presidents and Above
     Group l   Vice Presidents (non-officer)
Corporate Management Grades 7-9
Facility Chief Executive Officers
     Group 2   Corporate Management Grades 4-6
Facility Assistant Chief Executive Officers
Facility Chief Financial Officers
Facility Chief Nursing Officers
Benefit category determination is the exclusive right of the Employer its sole discretion.
As used in this document, “Cause” means gross neglect of duties, which gross neglect continues more than 30 days after receiving written notice from the chief executive officer of the Company, its board of directors, or other officers of the Company or Employer of the actions or inactions constituting gross neglect; insubordination; intentional misconduct or deliberate disruption of the workplace and working environment; conviction of a felony; dishonesty, embezzlement, theft, or fraud committed in connection with employment resulting in substantial financial harm to the Company; the issuance of any final order for your removal as an employee or representative of the Company or Employer by any state or federal regulatory agency; and your material breach of any duty owed to the Company or Employer, including without limitation the duty of loyalty. “Cause” shall not include ordinary negligence or failure to act, whether due to an error in judgment or otherwise, if you have exercised substantial efforts in good faith to perform the duties reasonably assigned or appropriate to your position.
 
1   The retirement benefits that were provided under the now terminated Supplemental Survivor and Accumulation Plan were discontinued in 2002 and were provided for separately.

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SURVIVOR BENEFITS
Survivor benefits are life insurance proceeds intended to provide cash to your beneficiary(ies) in the event of your death. These Survivor Benefits are provided through group-term life insurance or a combination of group-term life insurance and individually-owned life insurance policies, as determined by the plan sponsor.
     Amount of Benefit.
     
     Executive
  4X Base Salary
 
   
     Group 1
  3X Base Salary
 
   
     Group 2
  2X Base Salary
Your survivor benefits may be subject to the terms of any Benefit Exchange Agreement entered into between you and the Company.
POST-TERMINATION BENEFITS
Post-termination benefits are generally designed to provide supplemental retirement benefits. They are provided through contributions to a combination of one or more of the following:
    the Employer/Community Health Systems, Inc. Deferred Compensation Plan (Vice President (non-officer) and above);
 
    the Community Health Systems, Inc. Supplemental Executive Retirement Plan (Corporate Vice Presidents and above);
 
    matching contributions under the Community Health Systems, Inc. 401(k) Plan; and
 
    any other non-qualified retirement plan of the Company or any affiliate.
You should refer to the underlying policies and/or plan documents relating to these benefits to learn more about eligibility and your right to post-termination benefits under these policies and plans. Certain post-termination benefits are also subject to the terms of any Benefit Exchange Agreement entered into between you and the Company.

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SEVERANCE BENEFITS
Payout upon Termination (Salary and Vacation Time).
In the event you are terminated from your employment by your Employer, without Cause, severance benefits of a multiple of your then base monthly salary will be paid to you based upon your position, as shown in the schedule below:
     
Benefits Category   Severance Multiple
President
  24 months
Executive Vice President
  24 months
Senior Vice President
  12 months
Corporate Vice President
  12 months
Vice President (non-officer)
  9 months
Group 1
  6 months
Group 2
  3 months
The vacation time payout for Corporate Vice Presidents and above (for whom no accruals are maintained) shall be based upon a reasonable estimate of the vacation time taken during the twelve month period preceding the date of termination.
Additional Payments (to be made no later than March 15th of the year following termination)
In addition, if your employment is terminated without Cause, you will receive and additional amount of severance pay determined as follows:
All Levels: the Employer shall pay the Executive, at the same time that the Employer makes annual bonus payments under the 2004 Employee Performance Incentive Plan (or any replacement or successor plan providing for similar benefits, collectively the “Incentive Plan”) to other senior executives, a pro rata portion of the annual bonus that would have been paid to the Executive under the Incentive Plan in respect of the year in which the termination date occurred had the Executive remained employed through the applicable payment date under the Incentive Plan, calculated by multiplying such amount by a fraction, the numerator of which is the number of days in the year though the termination date and the denominator of which is 365.
Termination within First 12 Months of Employment
If your employment is terminated without Cause before completing 12 full months of employment, you will only receive one-half of the salary benefits provided for above and none of the bonus benefit. Severance payments will be in the form of a lump sum payment or salary continuation, as determined by Employer, and subject to withholdings and other deductions as described below.
COBRA Payment Limitation
In addition to the severance benefits described above, terminated employees who elect continuation health coverage under COBRA will be required to pay only the equivalent of the

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active employee premium for this coverage for a period of time equal the time period applicable to such employee based on the above chart, subject to the eligibility provisions of COBRA coverage.
Release.
As a condition of providing any payments and/or benefits described above, you will be required to execute a comprehensive full and final release agreement satisfactory to the Company and substantially in the form attached as Attachment 2, as amended from time to time.
Stock Options.
The respective Plans and Stock Option Agreements under which they were granted govern any stock options and any capitalized terms used in this section. Generally, all vesting will cease on your date of termination of employment, without regard to the reason, provided, however, if you are terminated for Cause, all options are forfeited. If your employment is terminated without Cause, you will have an additional 90 days from the date of termination of employment to exercise your vested stock options.
Restricted Stock Awards.
The respective Plans and Restricted Stock Award Agreements under which they were granted govern any awards of restricted stock and any capitalized terms used in this section. Upon any termination by you, your restricted stock awards that have not already lapsed will be forfeited. Generally, for awards granted after January 1, 2009, upon a termination by your employer that is without Cause, the award will not be forfeited. Subject to the following sentence, upon termination by your employer without Cause, or upon death or disability the award will accelerate and the restrictions will immediately lapse. Notwithstanding the foregoing, in the event the date of termination is prior to either (a) the first anniversary date of the award or (b) prior to the attainment of any performance objective required under any performance based restricted stock award, then the award will not lapse until both (a) and (b), if applicable, have been attained, and if attained, then all restrictions on the entire award shall lapse.

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Attachment 1
RELEASE OF CLAIMS AGREEMENT
     In consideration of the severance benefits to be paid by Employer, an affiliate of Employer/Community Health Systems, Inc. (“Employer”), to the undersigned employee (“Employee”), Employer and the Employee agree and enter into this Release of Claims Agreement (“Agreement”) as follows:
     1. Termination of Employment. The Employee acknowledges that the Employee’s employment with Employer is terminated on and as of date of termination specified at the end of this Agreement. The Employee further acknowledges that the Employee has no right of, nor will the Employee seek, recall, rehire, or reinstatement of employment with Employer, its parent company, its subsidiaries, or its affiliates.
     2. Severance Pay. Employer will pay the Employee severance pay in the gross amount of $___, based on ___months of salary [and additional amount, if applicable], subject to withholding for income taxes and deductions for employment taxes, in accordance with the CHS/Community Health Systems, Inc. Supplemental Benefit Plan (“Plan”). Employer may offset from the payment of severance pay the cost of any Employer property that Employer has agreed to sell to the Employee.
     3. Medical Benefits. Provided the Employee properly elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”), Employer agrees it will pay for the cost of such continuation coverage for the Employee (and, to the extent such coverage is provided by Employer at the time of termination, the Employee’s current eligible spouse and other current eligible dependents, if any), as provided below, under Employer’s group health plan in accordance with the provisions of such plan through the later of the date specified at the end of this Agreement or the date the Employee becomes covered under a subsequent employer’s group health plan. However, the Employee shall pay the amount of monthly premium payment regularly paid by a then-current regular employee of Employer for such coverage, and Employer will pay only the difference between the COBRA premium payment and the portion of the premium paid by the Employee through the later of the date specified at the end of this Agreement or the date the Employee becomes covered under a subsequent employer’s group health plan.
     4. Consideration. The Employee hereby acknowledges that the consideration for entering into this Agreement is the above-stated severance pay and benefits contained in Sections 2 and 3. The Employee further acknowledges that the Employee has been paid all monies owed to and/or earned by the Employee based upon the Employee’s employment with Employer, its parent company, its subsidiaries, or affiliates, including but not limited to wages, bonuses, and vacation pay.
     5. Release. The Employee, on the Employee’s own behalf and on behalf of the Employee’s heirs, executors, administrators, personal representatives, successors, assigns, agents, servants, and attorneys, whether past, present, or future (collectively, the “Releasing Parties”), releases and forever discharges Community Health Systems, Inc., its subsidiaries, affiliates, successors, assigns, agents, servants, representatives, shareholders, owners, members,

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directors, officers, and employees, whether past, present, or future, including without limitation, Employer (collectively, the “Released Parties”), from any and all claims, causes of action, liabilities, covenants, agreements, obligations, damages, and/or demands of every nature, character, and description, without limitation in law, equity, or otherwise, that the Employee had, has, or may now have, whether known or unknown, whether vicarious, derivative, direct, or indirect (collectively, the “Released Claims”), including, but not limited to, (i) any claims under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Fair Labor Standards Act, the Equal Pay Act, the Employment Retirement Income Security Act, the Family and Medical Leave Act, the Americans with Disabilities Act, the Tennessee Human Rights Act, and any other federal, state or local laws, (ii) any claims for wrongful discharge or wrongful termination, defamation, breach of contract, breach of any implied duty or covenant of good faith and fair dealing, retaliation, infliction of emotional distress, or any other right or claim arising out of or related in any way to the Employee’s employment with Employer or any of its subsidiaries or affiliates and/or the termination of the Employee’s employment with Employer or any of its subsidiaries or affiliates, (iii) any claims for damages (actual, compensatory, punitive, or otherwise and however characterized), back wages, future wages, commission payments, bonuses, reinstatement, vacation leave or paid time off benefits (whether accrued, credited, and/or earned), past and future employee benefits (except to which there is vested entitlement by law), penalties, equitable relief, and any and all other loss, expense, or detriment of whatever kind arising out of or related in any way to the Employee’s employment with Employer or any of its subsidiaries or affiliates and/or the termination of the Employee’s employment with Employer or any of its subsidiaries or affiliates; and (iv) any claims for attorneys’ fees, costs, or expenses; provided, however, that the foregoing Released Claims shall not include a claim for the payment or provision of the severance benefits as provided in Section 2 or the COBRA premium payments provided for in Section 3.
     6. Covenant Not to Sue and Indemnification. The Employee hereby specifically covenants and agrees that the Employee shall not initiate, or cause to be initiated, a lawsuit against Employer or any of the other Released Parties in the future asserting any Released Claims. Except as prohibited by law, the Employee further agrees to indemnify Employer and all other Released Parties for (i) any sum of money that any of them may hereafter be compelled to pay the Employee or any other Releasing Parties, and (ii) any of Employer’s or other Released Parties’ legal fees, costs, and expenses associated therewith, on account of the Employee bringing or allowing to be brought on the Employee’s behalf any legal action based directly or indirectly upon the Released Claims.
     7. Consideration and Revocation Period. The Employee has been advised by Employer of the Employee’s right to seek legal counsel. The Employee also acknowledges that the Employee has a period of up to 21 days in which to consider entering into this Agreement, and, as evidenced by the Employee’s signature here below, acknowledges that the Employee has had the opportunity to read and review this Agreement and seek legal advice and now, freely and voluntarily, without coercion, agrees to and understands the significance and consequences of its terms. The Employee further acknowledges that, following the date of execution of this Agreement, the Employee has a period of 7 days within which to revoke the Employee’s acceptance of the Agreement, in which case this Agreement shall be null and void, the Employee will be contractually obligated to repay any payments or other consideration paid to the Employee by Employer under this Agreement, and Employer will have a right of restitution,
ii

 


 

recoupment, and setoff to recover such payments. The Employee understands that, should the Employee not exercise the Employee’s right to revoke this Agreement within 7 days of the date of execution, this Agreement shall be held in full force and effect and each party shall be obligated to comply with its requirements. The parties agree that any changes made to this Agreement (material or immaterial) will not start the 21-day period referenced above to run again or otherwise require a new 21-day period for consideration by the Employee.
     8. Nondisparagement. The Employee agrees that the Employee shall refrain from engaging in any conduct, verbal or otherwise, that would disparage or harm the reputation of Employer or any of the other Released Parties. Such conduct shall include, but not be limited to, any negative statements made orally or in writing by the Employee about Employer or any of the other Released Parties.
     9. Confidentiality of the Agreement. The Employee further agrees that all terms of this Agreement are to be kept confidential and that the Employee will not discuss or disclose the details or terms of this Agreement to any other individual, including but not limited to present or former employees of Employer or any of the other Released Parties, with the exception of the Employee’s attorney, spouse, accountant, or other tax adviser, provided such persons agree to maintain the confidentiality of this Agreement.
     10. Property and Confidential Information. The Employee agrees that the Employee has returned, or promptly hereafter (but in no event later than three (3) days from the date of termination of employment) will return, to Employer any and all property of Employer or any of the other Released Parties including any and all originals and/or copies of business documents in whatever form including electronic form. The Employee represents that the Employee has taken no action to alter or destroy improperly any such property and agrees not to take any such action directly or indirectly in the future. The Employee further agrees that the Employee will not directly or indirectly disclose to anyone, or use for the Employee’s own benefit or the benefit of anyone other than Employer, any “confidential information” that the Employee has received through the Employee’s employment with Employer. Confidential information shall include, but not be limited to, Employer’s business plans and files; hospital management information; and any other related information of Employer or any of the other Released Parties. The Employee further agrees that, in the event it appears that the Employee will be compelled by law or judicial process to disclose any such confidential information to avoid potential liability, the Employee will notify Employer in writing immediately upon the Employee’s receipt of a subpoena or other legal process.
     11. No Admission of Liability. The Employee agrees and acknowledges that this Agreement does not constitute any admission by Employer or any of the other Released Parties of any liability or of any violation of any federal or state laws or regulations prohibiting employment discrimination, retaliation, breach of contract, wrongful discharge, wrongful termination, or any other statutory or common law rights or provisions.
     12. References. The Employee understands that Employer will provide in response to inquiries from prospective employers only the Employee’s dates of employment with Employer, job titles while employed by Employer, and final salary (with written authorization) while employed by Employer, and the Employee agrees to advise all prospective employers that any

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requests for information concerning employment with Employer should be directed only to the Human Resources Department in Franklin, Tennessee.
     13. Compliance Disclosure. In connection with the termination of the Employee’s employment, and pursuant to the CHS Compliance Program and the Code of Conduct, the Employee hereby represents and warrants to Employer and the other Released Parties that the Employee has at all times during the Employee’s employment complied with the CHS Compliance Program and the Code of Conduct, and that the Employee has disclosed in writing to the CHS Corporate Compliance Officer any and all instances of known or suspected violations of laws, rules, regulations, or corporate policy by any of the Released Parties. Further, the Employee represents and warrants that the Employee has not brought and has no intention to bring any whistleblower or similar lawsuits (which terms shall include, but not be limited to, a qui tam action under the Federal False Claims Act or any similar laws), claims, or disclosures to any governmental agency that would subject any of the Released Parties to any liability as a result of any violations of any laws, rules, or regulations and that the Employee knows of no facts that would give rise to any such whistleblower or similar lawsuits, claims, or disclosures to any governmental agency. In the event the representations and warranties contained herein become inaccurate or untrue after the date hereof, the Employee agrees that the Employee will notify the CHS Corporate Compliance Officer, in writing, of the necessary corrections to make the representations and warranties accurate and true, prior to initiating any whistleblower or similar lawsuits, claims, or disclosures to any governmental agency. The Employee also agrees to indemnify against and hold Employer and the other Released Parties harmless from any loss, cost, damage, or penalty incurred by Employer or any other Released Parties as a result of any inaccuracy in or breach of the representations, warranties, or agreements contained herein.
     14. Miscellaneous Provisions.
          (a) This Agreement is executed and delivered within the State of Tennessee, and the rights, duties, and obligations of the parties hereunder shall be construed and enforced in accordance with the laws of the State of Tennessee, except to the extent preempted by the Employee Retirement Income Security Act of 1974, and without the benefit of any rule of construction under which a contract may be construed against the drafter. Venue for any lawsuit arising out of or related to this Agreement will lie in Williamson County.
          (b) This writing together with the Plan represents the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith; it may not be altered or amended except by mutual agreement evidenced by a writing signed by both parties and specifically identified as an amendment to this Agreement.
          (c) Except as specifically provided above, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors, and assigns.
          (d) If any provision or part of any provision of this Agreement is deemed to be unenforceable in whole by any court of competent jurisdiction, except Section 5, then the parties agree that such provision shall be severed from the Agreement and the remainder of the Agreement shall remain in full force and effect. The parties further agree that, to the extent a

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court of competent jurisdiction deems any provision of this Agreement unenforceable in part, such court shall have the power to modify the terms of the Agreement by adding, deleting, or changing in its discretion any language necessary to make such provision enforceable to the maximum extent permitted by law, and the parties expressly agree to be bound by any such provision as reformed by the court. Furthermore, if the release provided for under Section 5 of this Agreement is deemed to be void or otherwise unenforceable by any court of competent jurisdiction, then the Employee will be contractually obligated to repay immediately any severance payments and benefits paid to the Employee by Employer under this Agreement, and Employer will have a right of restitution, recoupment, and setoff against the Employee for the recovery of such payments and benefits.
         
Date of Termination:
       
 
 
 
   
         
EMPLOYER
      .:
 
 
 
   
         
By:
       
Name:
 
 
   
Title:
 
 
   
 
 
 
   
             
    Benefit Payments Guaranteed by:    
    CHS/COMMUNITY HEALTH SYSTEMS, INC.    
 
           
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
   
EMPLOYEE:
         
Employee’s Signature:
       
 
 
 
   
         
Employee’s Full Name:
       
 
 
 
   
         
Date Signed:
       
 
 
 
   
         
Witness’ Signature:
       
 
 
 
   
 v

 

EX-10.15
Exhibit 10.15
COMMUNITY HEALTH SYSTEMS, INC.
DIRECTORS’ FEES DEFERRAL PLAN
Adopted as of December 14, 2004
Amended and Restated as of December 10, 2008

 


 

COMMUNITY HEALTH SYSTEMS, INC.
DIRECTOR’S FEES DEFERRAL PLAN
Section 1. Purpose, Participation
     (a) Purpose: The purpose of this Directors’ Fees Deferral Plan (the “Plan”) is to enable Community Health Systems, Inc. (the “Corporation”) to attract and retain Directors of outstanding ability by providing them with a mechanism to defer and accumulate Director’s fees, meaning (1) the retainer, and (2) fees for attendance at meetings of the Board of Directors of the Corporation (the “Board”) and Board committees.
     (b) Participation: This Plan extends to Directors of the Corporation not employed by the Corporation or any subsidiary.
     Section 2. Payment of Deferred Amounts
     (a) Deferral Election: At any time prior to the beginning of a calendar year, a Director may elect that all or any specified portion of the Director’s fees to be earned during such calendar year be credited to a Director’s Cash Account and/or a Director’s Stock Unit Account maintained on such Director’s behalf in lieu of payment (a “Deferral Election”). A Director may also make a Deferral Election during the 30 days following the date on which a Director first becomes eligible to receive Director’s fees, although any Deferral Election made pursuant to this sentence will apply only to all or any specified portion of the Director’s fees earned thereafter. Each Deferral Election must be made on a deferral election form to be provided by the Corporation and must specify (i) the portion of the Director’s fees to be deferred, (ii) the Payment Commencement Event (as hereinafter defined), and (iii) the Payment Method (as hereinafter defined). Each Deferral Election must be submitted to the Secretary of the Corporation in writing, and will be deemed to authorize deferral to only a Director’s Cash Account except to the extent deferral to a Director’s Stock Unit Account is expressly specified.
     (b) Effect of Deferral Election: Pursuant to such Deferral Election, the Corporation (i) will not pay the Director’s fees covered thereby and (ii) will make payments in accordance with the Deferral Election and this Section 2.
     (c) Payment Commencement Event. At the time of making the Deferral Election, a Director will designate as a “Payment Commencement Event” either (1) the Director’s “separation from service” (as defined in Section 409A (“Section 409A”) of the Internal Revenue

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Code of 1986, as amended (the “Code”) and the regulations issued thereunder) with the Corporation (or any successor), or (2) the Director’s attainment of an age specified by the Director, provided that such age cannot be attained prior to the end of the calendar year following the date on which the Deferral Election is made. In addition, (A) a Director who has elected (2) as a Payment Commencement Event may also elect that, in the event that the Director experiences a separation from service as a Director of the Corporation within one year following a “Change of Control” (as defined in Section 5(g)) and which also constitutes a change in control or effective control of the Corporation or a change in the ownership of a substantial portion of its assets, in each case within the meaning of Section 409A of the Code and the regulations and interpretive guidance issued thereunder (a “Section 409A Change in Control”), the Payment Commencement Event for payments from a deferral account will be the Director’s separation from service, and (B) a Director may also elect as a Payment Commencement Event the Director becoming Disabled (as hereinafter defined) if that is earlier than any other Payment Commencement Event elected by the Director. For purposes of this Plan, “Disabled” means that a Director is unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.
     (d) Payment. Payment of amounts credited to a Director’s Cash Account and Stock Unit Account will be made in accordance with the Payment Method elected by the Director in his Deferral Election. For purposes of this Plan, “Payment Method” shall mean, with respect to payments of amounts credited to a Director’s Cash Account and Stock Unit Account pursuant to a Deferral Election, either (i) a lump sum payment on the last business day of the calendar quarter in which the Payment Commencement Event (either as originally designated or as subsequently designated pursuant to Section 2(e)) occurs, or (ii) a number of annual installments (not exceeding 15) specified by the Director in his Deferral Election commencing on the last business day of the calendar quarter in which the Payment Commencement Event (either as originally designated or as subsequently designated pursuant to Section 2(e)) occurs and, subject to Section 2(g), continuing to be made on the last business day of that same calendar quarter in each subsequent year. The amount of any installment payment made with respect to amounts subject to a Deferral Election shall equal the sum of (i) the amount subject to that Deferral Election and credited to the Director’s Cash Account as of the applicable payment date divided by the number of installments remaining to be paid (including the installment with respect to which the determination is being made) (the “Installment Factor”) and (ii) a number of shares of

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the Corporation’s Common Stock, par value $.01 per share (the “Common Stock”) equal to the number of Stock Units subject to that Deferral Election and credited to the Director’s Stock Unit Account as of the applicable payment date divided by the Installment Factor. Notwithstanding the foregoing, the Payment Method in connection with a separation from service within 2 years following a Section 409A Change in Control shall be a lump sum payment on the last business day of the calendar quarter in which the Payment Commencement Event occurs.
     (e) Changes in Payment Commencement Event or Payment Method. A Director may also elect to defer the Payment Commencement Event to a later Payment Commencement Date specified by the Director or change the Payment Method with respect to amounts subject to a Deferral Election. Such elections (1) will not be effective for 12 months after the date on which such election is made, (2) must be made not less than 12 months prior to the date of the first scheduled payment of any amount subject to that Deferral Election, (3) must provide for an additional deferral for a period of not less than 5 years from the date the payment would otherwise have been made (except with respect to amounts payable upon a Director becoming Disabled or upon the death of the Director), and (4) must be submitted to and approved by the Plan Committee. A Director may make no more than one election pursuant to this Section 2(e) in any calendar year with respect to amounts subject to any particular Deferral Election.
     (f) Renewal of Payment Commencement and Payment Method Elections. Once a Deferral Election, (including designation of the portion of Director’s fees to be deferred, the Payment Commencement Event and the Payment Method) has been made, it will be automatically applied to Director’s fees earned in all subsequent calendar years unless the Director changes or revokes such election prior to the commencement of such calendar year. Each such change or revocation must be submitted to the Secretary of the Corporation in writing. However, except as provided in Section 2(e), each Deferral Election is irrevocable as to Director’s fees earned prior to the calendar year next following any change or revocation.
     (g) Death. A Director may designate a beneficiary (and change such beneficiary, from time to time) for payment of any balance of the deferral account at the Director’s death. Upon a Director’s death, any balance in the deferral account (including amounts credited to such account as specified in Section 3(b) and Section 4(b)) will be paid to the deceased Director’s beneficiary in a lump sum at the end of the first calendar quarter which ends at least 30 days after the Director dies. If no beneficiary has been designated, the Director’s estate will be deemed the beneficiary, and any payments pursuant to this Section 2(g) will be paid in a lump sum at the end

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of the first calendar quarter which ends at least 30 days after appointment of the deceased Director’s legal representative.
Section 3. Credits and Debits to Director’s Cash Account
     (a) Principal. The Corporation will create and maintain on its books a Director’s Cash Account for each Director who has made a Deferral Election to such an account under Section 2(a). The Corporation will credit to such account the amount of any Director’s fee which would have been paid to the Director but for such Deferral Election, as of the date the fee would have otherwise been payable.
     (b) Interest. At the end of each calendar quarter, regardless of whether any other credits are then made to the Director’s Cash Account or whether the Director is then a Director, the Corporation will also credit to the Director’s Cash Account a sum which is equal to the product of (i) the average daily balance in the Director’s Cash Account for the quarter (without regard to any debits made at the end of such quarter), times (ii) one-fourth of the annual Base Rate (prime rate) for corporate borrowers quoted by J.P. Morgan Chase (or any successor thereto) of New York as of the first business day of the quarter.
     (c) Debits. At the end of each calendar quarter, the Corporation will make a payment if required under the payment schedule for such Director’s Cash Account and will debit the Director’s Cash Account for the amount thereof. Payment with respect to a Director’s Cash Account will be in cash only.
     (d) Mid-quarter Payments. If Payment is to be made other than at the end of a calendar quarter, prior to such payment the Corporation will credit to the Director’s Cash Account an amount equal to the product of (i) the average daily balance in the Director’s Cash Account for the period from the beginning of the calendar quarter to the date of payment (without regard to any debits to be made upon such payment), times (ii) a fraction of the annual Base Rate (prime rate) for corporate borrowers quoted by J. P. Morgan Chase (or any successor thereto) as of the first business day of the quarter, the numerator of which is the number of days in the period described in clause (i), and the denominator of which is 365.
Section 4. Credits and Debits to Director’s Stock Unit Account
     (a) Stock Units. The Corporation will create and maintain on its books a Director’s Stock Unit Account for each Director who has made a Deferral Election under Section 2(a) and

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expressly specifies deferral to such Stock Unit Account. The Corporation will credit to such account the number of Stock Units equal to the number of shares of Common Stock that could be purchased with the amount of any Director’s fee which the Director has specified be deferred to the Stock Account and which would have been paid to the Director but for such Deferral Election, as of the date the fee would have otherwise been payable. The number of Stock Units will be calculated to three decimals by dividing the amount of the Director’s fee as to which a Director’s Stock Unit Account Deferral Election was made by the closing price of the Corporation’s common stock as reported on the New York Stock Exchange on the date the fee would have otherwise been payable.
     (b) Dividends. As of the date any dividend is paid to holders of shares of Common Stock, each Director’s Stock Unit Account, regardless of whether the Director is then a Director, will be credited with additional Stock Units equal to the number of shares of Common Stock that could have been purchased with the amount which would have been paid as dividends on that number of shares of Common Stock (including fractions of a share to three decimals) equal to the number of Stock Units attributed to such Director’s Stock Account as of the record date applicable to such dividend. The number of additional Stock Units to be credited will be calculated to three decimals by dividing the amount which would have been paid as dividends by the closing price of the Corporation’s common stock as reported on the New York Stock Exchange as of the date the dividend would have been paid. In the case of dividends paid in property other than cash, the amount of the dividend shall be deemed to be the fair market value of the property at the time of the payment of the dividend, as determined in good faith by the Plan Committee.
     (c) Debits and Calculation of Payments. The Corporation will debit the Director’s Stock Unit Account for Stock Units as required under the payment schedule for such Director’s Stock Unit Account. Payment with respect to whole Stock Units will be in shares of Common Stock only, at the rate of one shares of Common Stock per Stock Unit. Until such time as shares of Common Stock have been listed on The New York Stock Exchange for issuance under this Plan, only Treasury shares shall be used for such payment. With respect to fractional Stock Units, payment will be made in cash only, and calculated by multiplying the fractional number of the Stock Unit to be debited by the closing price of the Corporation’s common stock as reported on the New York Stock Exchange as of the last business day of the week preceding the week of the date the Stock Units are payable. Should payment of shares of Common Stock be made with respect to Stock Units after the record date, but before the payment date applicable to a dividend

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paid to holders of shares of Common Stock, the dividend that would otherwise have been credited as additional Stock Units to a Director’s Stock Unit Account in respect of those shares will be paid to the Directors in cash (or other property) at the same time as the dividend is paid to shareholders generally.
     (d) Adjustment. If at any time the number of outstanding shares of Common Stock is increased as the result of any stock dividend, stock split, subdivision or reclassification of shares, the number of Stock Units with which each Director’s Stock Unit Account is credited will be increased in the same proportion as the outstanding number of shares of Common Stock is increased. If the number of outstanding shares of Common Stock is decreased as the result of any combination, reverse stock split or reclassification of shares, the number of Stock Units with which each Director’s Stock Unit Account is credited will be decreased in the same proportion as the outstanding number of shares of Common Stock is decreased. In the event the Corporation is consolidated with or merged into any other corporation and holders of shares of Common Stock receive shares of the capital stock of the resulting or surviving corporation, there shall be credited to each Director’s Stock Unit Account, in lieu of the extant Stock Units, new Stock Units in an amount equal to the product of the number of shares of capital stock exchanged for one share of the Corporation’s common stock upon such consolidation or merger, and the number of Stock Units with which such account then is credited. If, in such a consolidation or merger, holders of shares of Common Stock receive any consideration other than shares of the capital stock of the resulting or surviving corporation or its parent corporation, the Plan Committee will determine any appropriate change in Directors’ Stock Unit Accounts. In the event of a recapitalization or other corporate transaction affecting the Common Stock, the Plan Committee will determine an appropriate change in Directors’ Stock Unit Accounts.
     (e) Accounting. Amounts credited to a Director’s Cash Account and/or Stock Unit Account in respect of amounts subject to a particular Deferral Election shall at all times be accounted for separately under this Plan. A change in a particular Deferral Election shall apply to all amounts separately accounted for with respect to that Deferral Election. Any references herein to “amounts subject to a Deferral Election” shall be deemed to refer to the amounts deferred pursuant to a particular Deferral Election, amounts credited to a Directors Cash Account and/or Stock Unit Account in respect of those deferrals and any amounts distributed or to be distributed from the Director’s Cash Account and/or Stock Unit Account in respect of those deferrals.

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Section 5. Unfunded Arrangement
     Neither this Plan nor any deferral account will be funded; a deferral account and all entries thereto constitute bookkeeping records only and do not relate to any specific funds or shares of the Corporation. Payments due with respect to balances in a deferral account will be made from the general assets of the Corporation, and the right of any participant to receive future payments under this Plan’s provisions will be an unsecured claim against such assets.
Section 6. Administration
     (a) Plan Committee. The Plan will be administered by a Plan Committee, which will be the Compensation Committee of the Board, or such other committee as may be appointed by the Board, and may include Directors who have elected to participate in the Plan. No member of the Plan Committee will be liable for any act done or determination made in good faith.
     (b) Committee Determination Final. The construction and interpretation of any provision of the Plan by the Plan Committee, and a determination by the Plan Committee of the amount of any deferral account, will be final and conclusive.
     (c) Amendments. The Corporation, by action of its Board, reserves the right to terminate, modify or amend this Plan, effective prospectively as of the first day of any calendar quarter; provided, however, that (i) the Plan will not be subject to termination, modification or amendment with respect to any balance of a deferral account and rights therein, including the right to future interest pursuant to Section 3(b) and future dividends pursuant to Section 4(b), unless the affected Director consents and (ii) the Board may delegate to any officer of the Corporation the authority to adopt any amendment to the Plan deemed necessary so that the Plan complies or continues to comply with all applicable law, including without limitation, complying with Section 409A of the Code and the regulations issued thereunder, provided that any such amendment does not result in any material cost to the Corporation.
     (d) Non-Alienation. No Director (or estate of a Director) will have power to transfer, assign, anticipate, mortgage or otherwise encumber any rights or any amounts payable hereunder; nor will any such rights or payments be subject to seizure for the payment of any debts, judgments, alimony, or separate maintenance, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise.
     (e) Expenses. The expenses of administering the Plan will be borne by the Corporation and not be charged against any deferral account.

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     (f) Withholding. The Corporation may deduct from all cash payments any taxes required to be withheld with respect to such payments. In order to enable the Corporation to meet any applicable federal, state or local withholding tax requirements arising as a result of payments made hereunder in the form of stock, a Director shall pay the Corporation the amount of tax to be withheld or may elect to satisfy such obligation by having the Corporation withhold shares of Common Stock that otherwise would be delivered to the Director pursuant to the deferral account payment for which the tax is being withheld, by delivering to the Corporation other shares of Common Stock owned by the Director prior to the payment date, or by making a payment to the Corporation consisting of a combination of cash and such shares of Common Stock. Such an election shall be made prior to the date to be used to determine the tax to be withheld. The value of any share of common stock to be withheld by, or delivered to, the Corporation pursuant to this Section 6(f) shall be the closing price of the Corporation’s common stock as reported on the New York Stock Exchange on the date to be used to determine the amount of tax to be withheld.
     (g) Change of Control. A “Change of Control” means the occurrence of any of the following events with respect to the Corporation:
     1. An acquisition (other than directly from the Corporation) of any voting securities of the Corporation (the “Voting Securities”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the then outstanding shares of the Corporation’s Common Stock or the combined voting power of the Corporation’s then outstanding Voting Securities; provided, however, that in determining whether a Change of Control has occurred shares of Common Stock or Voting Securities which are acquired in a “Non-Control Acquisition” (“as hereinafter defined) shall not constitute an acquisition which would cause a Change of Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Corporation or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Corporation (for purposes of this definition, a “Related Entity”), (ii) the Corporation or any Related Entity, or (iii) any Person in connection with a “Non-Control Transaction” (as hereinafter defined);

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     2. The individuals who, as of December 10, 2008, are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the Board or, following a Merger (as hereinafter defined) which results in a Parent Corporation (as hereinafter defined), the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election by the Corporation’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Proxy Contest; or
     3. The consummation of:
  (i)   A merger, consolidation or reorganization with or into the Corporation or in which securities of the Corporation are issued (a “Merger”), unless such Merger is a “Non-Control Transaction.” A “Non-Control Transaction” shall mean a Merger where:
  (A)   the stockholders of the Corporation immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”), or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and
 
  (B)   the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving

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      Corporation, if there is no Parent Corporation or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation;
  (ii)   A complete liquidation or dissolution of the Corporation; or
 
  (iii)   The sale or other disposition of all or substantially all of the assets of the Corporation to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Corporation’s stockholders of the stock of a Related Entity or any other assets).
     Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding shares of Common Stock or Voting Securities as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation which, by reducing the number of shares of Common Stock or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of shares of Common Stock or Voting Securities by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional shares of Common Stock or Voting Securities which increases the percentage of the then outstanding shares of Common Stock or Voting Securities Beneficially Owned by the Subject Person, then a Change of Control shall occur.
     (h) Stock Unit Status. Stock Units are not, and do not constitute, shares of Common Stock, and no right as a holder of shares of Common Stock devolves upon a Director by reason of participation in this Plan.
     (i) Savings Provision. The Corporation intends for the Plan to comply with Section 409A of the Code and the regulations issued thereunder. If there is ambiguity as to the intent or meaning of any provision of the Plan, such provision shall be interpreted in a manner that complies with Section 409A and regulations promulgated thereunder.

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EX-10.17
Exhibit 10.17
AMENDMENT TO THE
COMMUNITY HEALTH SYSTEMS, INC.
2004 EMPLOYEE PERFORMANCE INCENTIVE PLAN
     WHEREAS, Community Health Systems, Inc. (the “Company”) has previously established and currently maintains the Community Health Systems, Inc. 2004 Employee Performance Incentive Plan (the “Plan”) for the benefit of certain employees of the Company; and
     WHEREAS, the Company has retained the right to amend the Plan; and
     WHEREAS, the Company wishes to amend the Plan as set forth herein;
     NOW, THEREFORE, the Plan is hereby amended in the following respects, effective as of January 1, 2005:
1. Section 4.10 is hereby added to Article IV of the Plan, “Payment of Performance Incentive Awards,” to read as follows:
Notwithstanding any provision of this Plan to the contrary, in no event shall the payment of Awards or partial Awards under the terms of the Plan be made to the Participant later than the 15th day of the third month of the Fiscal Year following the end of the Fiscal Year for which the Awards have been determined.
2. Except as provided in this Amendment, the provisions of the Plan shall remain in full force and effect.
EXECUTED and EFFECTIVE as of the 10th day of December, 2008.
             
    COMMUNITY HEALTH SYSTEMS, INC.    
 
           
 
  By:   /s/ Rachel A. Seifert    
 
           
    Title: Senior Vice President    

EX-10.18
Exhibit 10.18
RESTRICTED STOCK AWARD AGREEMENT
Community Health Systems, Inc.
     THIS AGREEMENT between you and Community Health Systems, Inc., a Delaware corporation (the “Company”) governs an award of restricted stock in the amount and on the date specified in your award notification (the “Grant Date”).
     WHEREAS, the Company has adopted the Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award Plan (the “Plan”) in order to provide additional incentive to certain employees and directors of the Company and its Subsidiaries; and
     WHEREAS, the Committee has determined to grant to you an Award of Restricted Stock as provided herein to encourage your efforts toward the continuing success of the Company.
     NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Restricted Stock.
     1.1 The Company hereby grants to you an award of Shares of Restricted Stock (the “Award”) in the number set out in an electronic notification by the Company’s stock option plan administrator, as may be appointed from time to time (the “Plan Administrator”). The Shares of Restricted Stock granted pursuant to the Award shall be issued in the form of book entry Shares in your name as soon as reasonably practicable after the Date of Grant and shall be subject to your acknowledgement and acceptance (or your estate, if applicable) of this agreement by electronic means to the Plan Administrator as provided in Section 9 hereof, or as you have been otherwise instructed.
     1.2 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.
2. Restrictions on Transfer.
     The Shares of Restricted Stock issued under this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated until all restrictions on such Restricted Stock shall have lapsed in the manner provided in Section 3, 4 or 5 hereof.
3. Lapse of Restrictions Generally.
     Except as provided in Sections 4, 5 and 6 hereof, one-third (1/3) of the number of Shares of Restricted Stock issued hereunder (rounded up to the next whole Share, if necessary) shall vest, and the restrictions with respect to such Restricted Stock shall lapse, on each of the first three (3) anniversaries of the Date of Grant.


 

4. Effect of Certain Terminations of Employment.
     If your employment terminates as a result of your death or Disability, in each case if such termination occurs on or after the Date of Grant, all Shares of Restricted Stock which have not become vested in accordance with Section 3 or 5 hereof shall vest, and the restrictions on such Restricted Stock shall lapse, as of the date of such termination. If your employment is terminated by your employer for any reason other than for Cause, then the restrictions on the entire Award shall lapse on the later of the first anniversary date of the Date of Grant and the date of your termination of employment.
5. Effect of Change in Control.
     In the event of a Change in Control at any time on or after the Date of Grant, all Shares of Restricted Stock which have not become vested in accordance with Section 3 or 4 hereof shall vest, and the restrictions on such Restricted Stock shall lapse, immediately.
6. Forfeiture of Restricted Stock.
     In addition to the circumstance described in Section 9(a) hereof, any and all Shares of Restricted Stock which have not become vested in accordance with Section 3, 4 or 5 hereof shall be forfeited and shall revert to the Company upon the termination by you, the Company or its Subsidiaries of your employment for any reason other than those set forth in Section 4 hereof prior to such vesting.
7. Delivery of Restricted Stock.
     7.1 Except as otherwise provided in Section 7.2 hereof, evidence of book entry Shares or, if requested by you prior to such lapse of restrictions, a stock certificate with respect to shares of Restricted Stock for which the restrictions have lapsed pursuant to Section 3, 4 or 5 hereof, shall be delivered to you as soon as practicable following the date on which the restrictions on such Restricted Stock have lapsed, free of all restrictions hereunder.
     7.2 Evidence of book entry Shares with respect to shares of Restricted Stock whose restrictions have lapsed upon your death pursuant to Section 4 hereof or, if requested by the executors or administrators of your estate upon such lapse of restrictions, a stock certificate with respect to such shares of Restricted Stock, shall be delivered to the executors or administrators of your estate as soon as practicable following the Company’s receipt of notification of your death, free of all restrictions hereunder. All references herein to “you” shall also include your executors, administrators, heirs or assigns in the event of your death.
8. Dividends and Voting Rights.
     Subject to Section 9(a) hereof, upon issuance of the Restricted Stock, you shall have all of the rights of a stockholder with respect to such Stock, including the right to vote the Stock and to receive all dividends or other distributions paid or made with respect thereto; provided, however, that dividends or distributions declared or paid on the Restricted Stock by the Company shall be deferred and reinvested in Shares of Restricted Stock based on the Fair Market Value of a Share on the date such dividend or distribution is paid or made (provided that no fractional Shares will be issued), and the additional Shares of Restricted Stock thus acquired shall be subject to the same restrictions on transfer, forfeiture and vesting schedule as the Restricted Stock in respect of which such dividends or distributions were made.

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9. Acknowledgement and Acceptance of Award Agreement.
     (a) The Shares of Restricted Stock granted to you pursuant to this Award shall be subject to your acknowledgement and acceptance of this Agreement to the Company or its Plan Administrator (including by electronic means, if so provided) no later than the earlier of (i) 180 days from the Date of Grant and (ii) the date that is immediately prior to the date that the Restricted Stock lapses pursuant to Section 4 or 5 hereof (the “Return Date”); provided that if you dies before your Return Date, this requirement shall be deemed to be satisfied if the executor or administrator of your estate acknowledges and accepts this Agreement through the Company or its Plan Administrator designee no later than ninety (90) days following your death (the “Executor Return Date”). If this Agreement is not so acknowledged and accepted executed and returned on or prior to your Return Date or the Executor Return Date, as applicable, the Shares of Restricted Stock evidenced by this Agreement shall be forfeited, and neither you nor your heirs, executors, administrators and successors shall have any rights with respect thereto.
     (b) If this Agreement is so acknowledged and accepted and returned on or prior to your Return Date or the Executor Return Date, as applicable, all dividends and other distributions paid or made with respect to the Shares of Restricted Stock granted hereunder prior to such Return Date or Executor Return Date shall be treated in the manner provided in Section 8 hereof.
10. No Right to Continued Employment.
     Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or its Subsidiaries to terminate your employment, nor confer upon you any right to continuance of employment by the Company or any of its Subsidiaries or continuance of service as a Board member.
11. Withholding of Taxes.
     Prior to the delivery to you of a stock certificate or evidence of book entry Shares with respect to shares of Restricted Stock whose restrictions have lapsed, you shall pay to the Company or the Company’s Plan Administrator, the federal, state and local income taxes and other amounts as may be required by law to be withheld (the “Withholding Taxes”) with respect to such Restricted Stock. By acknowledging and accepting this Agreement in the manner provided in Section 9 hereof, you shall be deemed to elect to have the Company or the Plan Administrator withhold a portion of such Restricted Stock having an aggregate Fair Market Value equal to the Withholding Taxes in satisfaction thereof, such election to continue in effect until you notify the Company or its Plan Administrator before such delivery that you shall satisfy such obligation in cash, in which event the Company or the Plan Administrator shall not withhold a portion of such Restricted Stock as otherwise provided in this Section 11.
12. You Are Bound by the Plan.
     By acknowledging and accepting this award you hereby confirm the availability, your review of a copy of the Plan and the Prospectus, and other documents provided to you in connection with this award by the Company or its Plan Administrator, and you agree to be bound by all the terms and provisions thereof.

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13. Modification of Agreement.
     This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by both parties hereto.
14. Severability.
     Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
15. Governing Law.
     The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee without giving effect to the conflicts of laws principles thereof.
     16. Successors in Interest.
     This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of your legal representatives. All obligations imposed upon you and all rights granted to the Company under this Agreement shall be binding upon your heirs, executors, administrators and successors.
17. Resolution of Disputes.
     Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall first be referred to the Chief Executive Officer for informal resolution, and if necessary, referred to the Committee for its determination. Any determination made hereunder shall be final, binding and conclusive on you, your heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.
18. Entire Agreement.
     This Agreement and the terms and conditions of the Plan constitute the entire understanding between you and the Company and its Subsidiaries, and supersede all other agreements, whether written or oral, with respect to the Award.
19. Headings.
     The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
20. Deemed Execution. On the date of your electronic acceptance of the terms of the Award and this Agreement, this Agreement shall be deemed to have been executed and delivered by you and the Company.
         
  COMMUNITY HEALTH SYSTEMS, INC.
 
 
     
     
     

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EX-10.19
         
Exhibit 10.19
DIRECTOR PHANTOM STOCK AWARD AGREEMENT
Community Health Systems, Inc.
     THIS AGREEMENT between the Grantee and Community Health Systems, Inc., a Delaware corporation (the “Company”), governs an Award of Phantom Stock in the amount and on the date specified in the Grantee’s award notification (the “Grant Date”);
     WHEREAS, the Company has adopted the Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award Plan (the “Plan”) in order to provide additional incentive to certain employees and directors of the Company and its Subsidiaries;
     WHEREAS, Section 10.2 of the Plan provides for grants of shares of Phantom Stock to Eligible Individuals; and
     WHEREAS, the Compensation Committee of the Board of Directors has approved this form of Agreement.
     NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Phantom Stock.
The Company hereby grants to the Grantee an award of Phantom Stock (the “Award”) in respect of the number of Shares set out in an electronic notification by the Company’s stock option plan administrator (the “Plan Administrator”).
This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.
2. Vesting Generally.
     Except as provided in Sections 3 and 4 hereof, the Award shall vest in respect of one-third (1/3) of the Shares subject to the Award (rounded up to the next whole Share, if necessary), on each of the first three (3) anniversaries of the Date of Grant.
3. Effect of Certain Terminations of Service.
     If the Grantee’s service as a member of the Board of Directors terminates as a result of his or her death, Disability, or for any reason other than for Cause, in each case if such termination occurs on or after the Date of Grant, the Award shall become vested in respect of all Shares as to which it had not previously become vested pursuant to Section 2 or 4 hereof as of the date of such termination.
4. Effect of Change in Control.
     In the event that a Change in Control which also constitutes a change in control or effective control of the Company or a change in the ownership of a substantial portion of its assets, in each case within the meaning of Section 409A of the Code and the regulations and interpretive guidance issued thereunder (a “Section 409A Change in Control”) occurs at any time on or after the Date of Grant and prior to the Grantee’s termination of service as a member of the Board of Directors, the Award shall become vested in respect of all Shares as to which it had not previously become vested pursuant to Section 2 hereof as of the date of such Section 409A Change in Control.

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5. Delivery of Shares.
     Except as otherwise provided in this Section 5, a stock certificate (or other electronic indicia of ownership) with respect to Shares as to which the Award has become vested pursuant to Section 2, 3 or 4 hereof shall be delivered to the Grantee as soon as practicable following the date on which the Award or portion thereof has become vested.
     Upon the Grantee’s death, a stock certificate (or other electronic indicia of ownership) for the Shares with respect to which the Award or portion thereof has become vested by reason of the Grantee’s death pursuant to Section 3 hereof, shall be delivered to the executors or administrators of the Grantee’s estate as soon as practicable following the Company’s or the Company’s Plan Administrator’s receipt of notification of the Grantee’s death. All references herein to “the Grantee” shall also include the Grantee’s executors, administrators, heirs or assigns in the event of the Grantee’s death.
6. Forfeiture of Phantom Stock.
     In addition to the circumstance described in Section 7(a) hereof, the Award (and any and all Shares in respect thereof), to the extent it has not become vested in accordance with Section 2, 3 or 4 hereof, shall be forfeited upon the termination of the Grantee’s service as a member of the Board of Directors for any reason other than those set forth in Section 3 hereof prior to such vesting.
7. Acknowledgement and Acceptance of Award Agreement.
     The Award shall be subject to the Grantee’s acknowledgement and acceptance of this Agreement to the Company or its Plan Administrator (including by electronic means, if so provided) no later than the earlier of (i) 180 days from the Date of Grant and (ii) the date that is immediately prior to the date that the Award vests pursuant to Section 3 or 4 hereof (the “Return Date”); provided that if the Grantee dies before the Return Date, this requirement shall be deemed to be satisfied if the executor or administrator of the Grantee’s estate acknowledges and accepts this Agreement through the Company or its Plan Administrator no later than ninety (90) days following the Grantee’s death (the “Executor Return Date”). If this Agreement is not so acknowledged and accepted on or prior to the Return Date or the Executor Return Date, as applicable, the Award (and any and all Shares in respect thereof) shall be forfeited, and neither the Grantee nor the Grantee’s heirs, executors, administrators and successors shall have any rights with respect thereto.
8. No Right to Continued Service.
     Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company to terminate the Grantee’s service on its Board of Directors, nor confer upon the Grantee any right to continuance of such service as a Board member.
9. Withholding of Taxes.
     Prior to the delivery of a stock certificate or evidence of book entry Shares with respect to the Award, the Grantee shall pay to the Company or the Company’s Plan Administrator, the federal, state and local income taxes and other amounts as may be required by law to be withheld (the “Withholding Taxes”) with respect to such Shares, if any. By acknowledging and accepting this Agreement in the manner provided in Section 7 hereof, the Grantee shall be deemed to elect to have the Company or the Company’s Plan Administrator, withhold a portion of such Shares having an aggregate Fair Market Value equal to the Withholding Taxes in satisfaction thereof, such election to continue in effect until the Grantee notifies the Company or its Plan Administrator before such delivery that the Grantee shall satisfy such

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obligation in cash, in which event the Company shall not withhold a portion of such Shares as otherwise provided in this Section 9.
10. The Grantee is Bound by the Plan.
     By acknowledging and accepting the Award, the Grantee hereby confirms the availability and his or her review of a copy of the Plan, the Prospectus, and other documents provided to the Grantee in connection with the Award, by the Company or its Plan Administrator, and the Grantee agrees to be bound by all the terms and provisions thereof.
11. Modification of Agreement.
     This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by both parties hereto.
12. Severability.
     Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
13. Governing Law.
     The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee without giving effect to the conflicts of laws principles thereof.
14. Successors in Interest.
     This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Grantee’s legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee’s heirs, executors, administrators and successors.
15. Resolution of Disputes.
     Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall first be referred to the Chief Executive Officer for informal resolution, and if necessary, referred to the Committee for its determination. Any determination made hereunder shall be final, binding and conclusive on the Grantee, his or her heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.
16. Entire Agreement.
     This Agreement and the terms and conditions of the Plan constitute the entire understanding between the Grantee and the Company and its Subsidiaries, and supersede all other agreements, whether written or oral, with respect to the Award.
17. Headings.
     The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

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18. Deemed Execution.
     On the date of the Grantee’s electronic acceptance of the terms of the Award, and this Agreement, this Agreement shall be deemed to have been executed and delivered by the Grantee and the Company.
         
  COMMUNITY HEALTH SYSTEMS, INC.
 
 
     
     
     

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EX-10.20
         
Exhibit 10.20
PERFORMANCE BASED RESTRICTED STOCK AWARD AGREEMENT
(Most Highly Compensated Executive Officers)
Community Health Systems, Inc.
     THIS AGREEMENT governs your award of restricted stock made by Community Health Systems, Inc., a Delaware corporation (the “Company”).
     WHEREAS, the Company has adopted the Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award Plan (the “Plan”) in order to provide additional incentive to certain employees and directors of the Company and its Subsidiaries;
     WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors (as described in Section 3.1 of the Plan) has determined to grant to you an Award of Restricted Stock as provided herein to encourage your efforts toward the continuing success of the Company;
     WHEREAS, the Committee has determined to place a performance-based restriction on the Award of Restricted Stock to better align your economic interests with those of the other stockholders of the Company and to ensure that the compensation attributable to this Award of Restricted Stock constitutes “qualified performance-based compensation” pursuant to IRC §162(m) and the regulations promulgated thereunder; and
     WHEREAS, the Committee has established the Performance Objective (as defined in Section 3.1 below) (a) utilizing objectively determinable criteria, (b) on a date which is prior to the ninetieth (90th) day of the Company’s fiscal year, and (c) at a time when the attainment of the Performance Objective is substantially uncertain.
     NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Restricted Stock.
     1.1 The Company hereby grants to you an award of Shares of Performance Based Restricted Stock (the “Award”). The Shares of Performance Based Restricted Stock granted pursuant to this Award shall be issued in the form of book entry Shares in your name as soon as reasonably practicable after the Date of Grant and shall be subject to your acceptance of this grant (or your estate, if applicable) by online communication with the Company’s option plan administrator, as may be determined from time to time, and in accordance with Section 9 hereof.
     1.2 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.
2. Restrictions on Transfer.
     The Shares of Performance Based Restricted Stock issued under this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated until all restrictions on such Performance Based Restricted Stock shall have lapsed in the manner provided in Section 3, 4 or 5 hereof.

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3. Performance Objective; Lapse of Restrictions.
     3.1 The Award is subject to the Company attaining the following “Performance Objective” (herein so called): The Company’s “income per share from continuing operations for the fiscal year” in which granted, as reported by the Company in its earnings release for such fiscal year, shall be not less than the amount which is seventy-five percent (75%) of the low end of the projected “income per share from continuing operations for the fiscal year,” in which granted as stated in the Company’s Form 8-K filed with the SEC for the current fiscal year. The Performance Objective shall be adjusted upward or downward in the event the Company enters into one or more material acquisition or divestiture transactions and as a result thereof or in connection therewith files one or more Forms 8-K issuing revised guidance to investors projecting a higher or lower “income per share from continuing operations for the fiscal year” in which granted, (but only to the extent such change in guidance is attributable to the material acquisition and/or divestiture transactions). The adjusted Performance Objective shall be seventy-five percent (75%) of the low end of the range of revised projected “income per share from continuing operations for fiscal year” in which granted. For purposes of this Agreement, “material acquisition” or “material divestiture” transaction shall mean any single transaction or series of related transactions in which the consideration exceeds fifteen percent (15%) of the Company’s assets on a consolidated basis. The computation of “income per share from continuing operations” shall be adjusted for Changes in Capitalization (as defined in the Plan).
     3.2 Except as provided in Sections 4, 5 and 6 hereof, if the Performance Objective is not attained, the Award shall lapse in its entirety.
     3.3 Except as provided in Sections 4, 5 and 6 hereof, if the Performance Objective is attained, one-third (1/3) of the number of Shares of Performance Based Restricted Stock issued hereunder (rounded up to the next whole Share, if necessary) shall vest, and the restrictions with respect to such Performance Based Restricted Stock shall lapse, on each of the first three (3) anniversaries of the Date of Grant.
4. Effect of Certain Terminations of Employment.
     If your employment terminates as a result of your death or Disability, in each case if such termination occurs on or after the Date of Grant, all Shares of Performance Based Restricted Stock which have not become vested in accordance with Section 3 or 5 hereof shall vest, and the restrictions on such Performance Based Restricted Stock shall lapse, as of the date of such termination. If your employment is terminated by your employer for any reason other than for Cause, then your Award shall continue until such time as it is determined that the Performance Objective set forth in Section 3.1 above has been attained, and if attained, then the restrictions on the entire Award shall lapse on the first anniversary of the Date of Grant (or if the termination occurs after the Performance Objective has been attained, the restrictions on the entire Award shall lapse immediately upon such termination); if the Performance Objective is not attained, the Award shall lapse in its entirety.
5. Effect of Change in Control.
     In the event of a Change in Control at any time on or after the Date of Grant, all Shares of Performance Based Restricted Stock which have not become vested in accordance with Section 3 or 4 hereof shall vest, and the restrictions on such Performance Based Restricted Stock shall lapse, immediately.

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6. Forfeiture of Performance Based Restricted Stock.
     In addition to the circumstance described in Section 9(a) hereof, any and all Shares of Performance Based Restricted Stock which have not become vested in accordance with Section 3, 4 or 5 hereof shall be forfeited and shall revert to the Company upon the termination of your employment by the Company or its Subsidiaries for any reason other than those set forth in Section 4 hereof prior to such vesting.
7. Delivery of Restricted Stock.
     7.1 Except as otherwise provided in Section 7.2 hereof, evidence of book entry Shares or, if requested by you prior to such lapse of restrictions, a stock certificate with respect to shares of Restricted Stock for which the restrictions have lapsed pursuant to Section 3, 4 or 5 hereof with respect to such shares of Restricted Stock, shall be delivered to you as soon as practicable following the date on which the restrictions on such Restricted Stock have lapsed, free of all restrictions hereunder.
     7.2 Evidence of book entry Shares with respect to shares of Restricted Stock in respect of which the restrictions have lapsed upon your death pursuant to Section 4 hereof or, if requested by the executors or administrators of your estate upon such lapse of restrictions, a stock certificate with respect to such shares of Restricted Stock, shall be delivered to the executors or administrators of your estate as soon as practicable following the Company’s receipt of notification of your death, free of all restrictions hereunder.
8. Dividends and Voting Rights.
     Subject to Section 9(a) hereof, upon issuance of the Performance Based Restricted Stock, you shall have all of the rights of a stockholder with respect to such Stock, including the right to vote the Stock and to receive all dividends or other distributions paid or made with respect thereto; provided, however, that dividends or distributions declared or paid on the Performance Based Restricted Stock by the Company shall be deferred and reinvested in Shares of Performance Based Restricted Stock based on the Fair Market Value of a Share on the date such dividend or distribution is paid or made (provided that no fractional Shares will be issued), and the additional Shares of Performance Based Restricted Stock thus acquired shall be subject to the same restrictions on transfer, forfeiture and vesting schedule as the Performance Based Restricted Stock in respect of which such dividends or distributions were made.
9. Execution of Award Agreement.
     (a) The Shares of Performance Based Restricted Stock granted to you pursuant to this Award shall be subject to (i) your acknowledgment and acceptance of this Award and Agreement by electronic notification to the Company’s designee (currently UBS Financial Services, Inc.) within 180 days from the date of grant, and (ii) the date that is immediately prior to the date that the Performance Based Restricted Stock vest pursuant to Section 4 or 5 hereof “Your Return Date”); provided that if you die before Your Return Date, this requirement shall be deemed to be satisfied if the executor or administrator of your estate executes and returns this Agreement to the Company or its designee no later than ninety (90) days following the your death (the “Executor Return Date”). If this Agreement is not so executed and returned on or prior to Your Return Date or the Executor Return Date, as applicable, the Shares of Performance Based Restricted Stock evidenced by this Agreement shall be forfeited, and neither you nor your Grantee’s heirs, executors, administrators or successors shall have any rights with respect thereto.

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     (b) If this Agreement is so executed and returned, or electronically acknowledged and accepted on or prior to Your Return Date or the Executor Return Date, as applicable, all dividends and other distributions paid or made with respect to the Shares of Performance Based Restricted Stock granted hereunder prior to Your Return Date or the Executor Return Date shall be treated in the manner provided in Section 8 hereof.
10. No Right to Continued Employment.
     Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or its Subsidiaries to terminate your employment, nor confer upon you any right to continuance of employment by the Company or any of its Subsidiaries or continuance of service as a Board member.
11. Withholding of Taxes.
     Prior to the delivery to you (or your estate, if applicable) of a stock certificate or evidence of book entry Shares with respect to shares of Performance Based Restricted Stock in respect of which all restrictions have lapsed, you (or your estate) shall pay to the Company the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company (the “Withholding Taxes”) with respect to such Performance Based Restricted Stock. By executing and returning this Agreement in the manner provided in Section 9 hereof, you (or your estate) shall be deemed to elect to have the Company withhold a portion of such Restricted Stock having an aggregate Fair Market Value equal to the Withholding Taxes in satisfaction of the Withholding Taxes, such election to continue in effect until you (or your estate) notifies the Company or the Company’s designee before such delivery that you (or your estate) shall satisfy such obligation in cash, in which event the Company shall not withhold a portion of such Restricted Stock as otherwise provided in this Section 11.
12. You are Bound by the Plan.
     You acknowledge receipt of a copy of the Plan and agree to be bound by all the terms and provisions thereof by electronic notification to the Company’s designee (currently UBS Financial Services, Inc.) within 180 days from the date of grant.
13. Modification of Agreement.
     This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by both parties hereto.

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14. Severability.
     Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
15. Governing Law.
     The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Tennessee without giving effect to the conflicts of laws principles thereof.
16. Successors in Interest.
     This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of your legal representatives. All obligations imposed upon you and all rights granted to the Company under this Agreement shall be binding upon your heirs, executors, administrators and successors.
17. Resolution of Disputes.
     Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall first be referred to the Chief Executive Officer for informal resolution, and if necessary, referred to the Committee for its determination. Any determination made hereunder shall be final, binding and conclusive on you, your heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.
18. Entire Agreement.
     This Agreement and the terms and conditions of the Plan constitute the entire understanding between you and the Company and its Subsidiaries, and supersede all other agreements, whether written or oral, with respect to the Award.
19. Headings.
     The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
         
  COMMUNITY HEALTH SYSTEMS, INC.
 
 
     
     
     

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EX-10.22
         
Exhibit 10.22
AMENDED AND RESTATED
CHANGE IN CONTROL SEVERANCE AGREEMENT
     THIS AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT made as of the ___ day of                     , 2008, by and among Community Health Systems, Inc. (the “Corporation”), Community Health Systems Professional Services Corporation (the “Employer”), and                      (the “Executive”).
     WHEREAS, the Board of Directors of the Corporation and the Board of Directors of the Employer (the “Boards”) recognize that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distraction of the Employer’s key management personnel because of the uncertainties inherent in such a situation;
     WHEREAS, the Boards have determined that it is essential and in the best interest of the Employer, and the Corporation and its stockholders, for the Employer to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure the Executive’s continued dedication and efforts in such event without undue concern for the Executive’s personal financial and employment security;
     WHEREAS, in order to induce the Executive to remain in the employ of the Employer, particularly in the event of a threat or the occurrence of a Change in Control, the Employer desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event the Executive’s employment is terminated as a result of, or in connection with, a Change in Control;
     WHEREAS, the Corporation and the Executive previously entered into a change in control severance agreement (the “Prior Agreement”); and
     WHEREAS, the Corporation and the Executive desire to amend and restate the Prior Agreement to comply with Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (“Code”), and the regulations issued thereunder.
     NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows:
     1. Term of Agreement. This Agreement shall commence as of December 31, 2008, and shall continue in effect until December 31, 2010 (the “Term”); provided, however, that on December 31, 2009, and on each December 31st thereafter, the Term shall automatically be extended for one (1) year unless either the Executive or the Employer shall have given written notice to the other at least ninety (90) days prior thereto (i.e., on or before October 1st immediately preceding) that the Term shall not be so extended; provided, further, however, that following the occurrence of a Change in Control, the Term shall not expire prior to the expiration of thirty-six months (36) months1 after such occurrence.
 
1   36 months applies to CEO, CFO, and SVPs; change to 24 months for VPs.

 


 

     2. Termination of Employment. If the Executive’s employment with the Employer and with all other Affiliates of the Corporation shall be terminated, the Executive shall be entitled to the following compensation and benefits:
          (a) If the Executive experiences a “separation from service” (within the meaning of Section 409A(a)(2)(A)(i) of the Code) with the Employer and all other Affiliates of the Corporation as a result of (i) termination of Executive’s employment by the Employer without Cause (other than by reason of the Executive’s Disability) within thirty-six (36) months2 following a Change in Control, or (ii) by the Executive’s termination of his or her employment for Good Reason within twenty-four (24) months3 following a Change of Control, the Executive shall be entitled to the following:
               (i) the Employer shall pay the Executive the Executive’s Accrued Compensation;
               (ii) the Employer shall pay the Executive, at the same time that the Employer makes annual bonus payments under the Incentive Plan to other senior Executives, a pro rata portion of the annual bonus that would have been paid to the Executive under the Incentive Plan in respect of the year in which the Termination Date occurred had the Executive remained employed through the applicable payment date under the Incentive Plan, calculated by multiplying such amount by a fraction, the numerator of which is the number of days in the year through the Termination Date and the denominator of which is 365 .
               (iii) the Employer shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, an amount determined by multiplying (A) three (3)4 times the sum of (i) the Executive’s Base Amount and (ii) the Executive’s Bonus Amount;
               (iv) (A) for thirty-six (36)5 months following the Termination Date (the “Continuation Period”), the Employer shall arrange, at its sole expense, to provide the Executive with health and welfare benefits (other than long-term disability insurance benefits) that are substantially similar to the better of (when considered in the aggregate) (X) those health and welfare benefits (other than long-term disability insurance benefits) that the Executive was receiving or entitled to receive immediately prior to the Change in Control, and (Y) those health and welfare benefits (other than long-term disability insurance benefits) that the Executive was receiving or entitled to receive immediately prior to the Termination Date, and (B) such Continuation Period will be considered service with the Employer for the purpose of determining service credits under or in respect of any health and welfare benefits applicable to the Executive or the Executive’s dependents or beneficiaries; and
 
2   Change to 24 months for VPs.
 
3   Change to 12 months for VPs.
 
4   Severance for CEO, EVP and SVPs. For VPs, severance shall be 24 months (or 2 times base and bonus).
 
5   Change to 24 months for VPs.

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               (v) the Employer shall reimburse the Executive for the costs, fees and expenses of outplacement assistance services (not to exceed twenty-five thousand dollars ($25,000)) provided by any bona fide outplacement agency selected by the Executive.
          (b) If the Executive’s employment with the Employer and with all Affiliates of the Corporation shall be terminated by the Employer without Cause (other than by reason of the Executive’s Disability) at any time prior to the date of a Change in Control and such termination (A) occurred after the Corporation or the Employer entered into a definitive agreement, the consummation of which would constitute a Change in Control or (B) the Executive reasonably demonstrates that such termination was at the request of a third party who has indicated an intention or has taken steps reasonably calculated to effect a Change in Control (a “Third Party”), such termination shall be deemed to have occurred after a Change in Control.
          (c) If the Executive’s employment with the Employer and with all Affiliates of the Corporation shall be terminated for Cause, the Employer shall pay to the Executive any unpaid portion of the Executive’s base salary through the Termination Date at the rate in effect at the time Notice of Termination is given and shall pay any amounts required to be paid to the Executive pursuant to any other compensation plans, programs or arrangements then in effect, or which are required to be paid under applicable law, and the Employer shall have no further obligations to the Executive under this Agreement.
          (d) The amounts provided for in Sections 2(a) and 2(b)shall be subject to the Executive’s execution, delivery and non-revocation of a Waiver and Release of Claims substantially the form attached hereto as Exhibit A (the “Release”) within forty five (45) days after the Executive’s Termination Date and the amounts provided for in Sections 2(a)(ii), 2(b)(i), 2(b)(ii) and 2(b)(iii) shall be paid in a single lump sum cash payment on the forty fifth (45th) after the Executive’s Termination Date; provided, however, that, notwithstanding the foregoing, if the Executive is a “specified employee” for purposes of Section 409A of Code and the regulations issued thereunder (a “Specified Employee”), any payments required to be made pursuant to Section 2(a)(ii), 2(b)(ii) and 2(b)(iii) shall not commence until one (1) day after the day which is six (6) months after the Executives separation from service (the “Delay Period”). In addition, if the Executive is a Specified Employee, to the extent that benefits to be provided to the Executive pursuant to Sections 2(b)(iv) and 2(b)(v) of this Agreement are not “disability pay,” “death benefit” plans or non-taxable medical benefits within the meaning of Treasury Regulation Section 1.409A-1(a)(5) or other benefits not considered nonqualified deferred compensation within the meaning of that regulation, such provision of benefits shall be delayed until the end of the Delay Period, unless the Executive’s termination occurs by reason of his death. Notwithstanding the foregoing, to the extent that the previous sentence applies to the provision of any ongoing benefits that would not be required to be delayed if the premiums were paid by the Executive, the Executive shall pay the full cost of the premiums for such benefits during the Delay Period and the Corporation shall pay the Executive an amount equal to the amount of such premiums paid by the Executive during the Delay Period within ten (10) days after the end of the Delay Period. To the extent that any benefits to be provided to the Executive pursuant to this Agreement are considered nonqualified deferred compensation and are reimbursements subject to Treasury Regulation Section 1.409A-3(i)(1)(iv), then (i) the reimbursement of eligible expenses related to such benefits shall be made on or before the last day of the Executive

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taxable year following the Executive taxable year in which the expense was incurred and (ii) notwithstanding anything to the contrary in this Agreement or any plan providing for such benefits, the amount of expenses eligible for reimbursements during any taxable year of the Executive shall not affect the expenses eligible for reimbursements in any other taxable year.
               (e) The Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise and no such payment or benefit shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment.
               (f) The severance pay and benefits provided for in this Section 2 shall be in lieu of any other severance pay to which the Executive may be entitled under the Employer’s severance policy or any other plan, agreement or arrangement of the Employer or any other Affiliate of the Corporation.
               (g) The Executive’s entitlement to other compensation or benefits pursuant to the Employer’s employee benefit plans and other applicable programs and practices shall be determined in accordance with the terms of those plans, programs and practices as in effect from time to time.
               (h) The Employer’s and the Corporation’s obligations pursuant to this Section 2 shall be conditioned upon the Executive’s execution, delivery and non-revocation of the Release.
     3. Gross-Up Payment.
          (a) In the event that it shall be determined that any payment or distribution of any type to or for the benefit of the Executive, by the Employer, the Corporation, any Affiliate, any Person (as defined in Section 17.6(a) hereof) who acquires ownership or effective control of the Corporation or ownership of a substantial portion of the Corporation’s assets (within the meaning of Section 280G of the Code and the regulations thereunder) or any affiliate of such Person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or under any other plan, program, policy or arrangement of the Corporation, the Employer or any of their Affiliates (the “Total Payments”), is or will be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. Payments and reimbursements to which the Executive is entitled under this Section 3(a) shall be made not later than April 15 of the taxable year of the Executive next following the taxable year of the Executive in which the Executive receives amounts subject to Section 4999.
          Notwithstanding the immediately preceding paragraph, in the event that a reduction to the Total Payments in respect of the Executive of 10% or less would cause no

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Excise Tax to be payable, the Executive will not be entitled to a Gross-Up Payment and the Total Payments shall be reduced to the extent necessary so that the Total Payments shall not be subject to the Excise Tax. Unless the Executive shall have given prior written notice to the Employer specifying a different order by which to effectuate the foregoing, the Employer shall reduce or eliminate the Total Payments (x) by first reducing or eliminating the portion of the Total Payments which are not payable in cash (other than that portion of the Total Payments subject to clause (z) hereof), (y) then by reducing or eliminating cash payments (other than that portion of the Total Payments subject to clause (z) hereof) and (z) then by reducing or eliminating the portion of the Total Payments (whether payable in cash or not payable in cash) to which Treasury Regulation Section 1.280G-1 Q/A 24(c) (or successor thereto) applies, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the date of the Change in Control. Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.
          (b) Determination by Accountant. All mathematical determinations, and all determinations as to whether any of the Total Payments are “parachute payments” (within the meaning of Section 280G of the Code), that are required to be made under this Section 3, including determinations as to whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and amounts relevant to the last sentence of this Section 3(b), shall be made by an independent accounting firm selected by the Executive from among the nationally recognized accounting firms in the United States (the “Accounting Firm”), which shall provide its determination (the “Determination”), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matter, both to the Employer and the Executive by no later than ten (10) days following the Termination Date, if applicable, or such earlier time as is requested by the Employer or the Executive (if the Executive reasonably believes that any of the Total Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive and the Employer with a written statement that such Accounting Firm has concluded that no Excise Tax is payable (including the reasons therefor) and that the Executive has substantial authority not to report any Excise Tax on the Executive’s federal income tax return. If a Gross-Up Payment is determined to be payable, it shall be paid to the Executive within twenty (20) days after the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Employer by the Accounting Firm. Any determination by the Accounting Firm shall be binding upon the Employer and the Executive, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it may be the case that Gross-Up Payments not made by the Employer should have been made (“Underpayment”) or that Gross-Up Payments will have been made by the Employer which should not have been made (“Overpayments”). In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. In the case of an Overpayment, the Executive shall, at the direction and expense of the Employer, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Employer, and otherwise

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reasonably cooperate with the Employer to correct such Overpayment, provided, however, that (i) the Executive shall not in any event be obligated to return to the Employer an amount greater than the net after-tax portion of the Overpayment that the Executive has retained or has recovered as a refund from the applicable taxing authorities and (ii) this provision shall be interpreted in a manner consistent with the intent of Section 3(a), which is to make the Executive whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Executive repaying to the Employer an amount which is less than the Overpayment.
          (c) Access; Binding Effect. The Corporation, the Employer and the Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Employer or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by this Section 3. Any determination by the Accounting Firm as to the amount of any Gross-Up Payment or Underpayment shall be binding upon the Employer, its Affiliates and the Executive; provided that if the Executive is ultimately required to pay an Excise Tax by the Internal Revenue Service despite the opinion of such Accounting Firm, then the Employer shall make the appropriate Gross-Up Payment contemplated herein.
          (d) Income Tax Returns. The federal income returns filed by the Executive shall be prepared and filed on a basis consistent with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. The Executive shall make proper payment of the amount of any Excise Tax that has not been withheld by the Employer, and at the request of the Employer, provide to the Employer true and correct copies (with any amendments) of the Executive’s federal income tax return as filed with the Internal Revenue Service and corresponding state and local tax returns, if relevant, as filed with the applicable taxing authority, and such other documents reasonably requested by the Employer, evidencing the proper reporting of the Gross-Up Payment and any Excise Tax due. If prior to the filing of the Executive’s federal income tax return, or corresponding state or local tax return, if relevant, the Accounting Firm determines that the amount of the Gross-Up Payment should be reduced, the Executive shall within five (5) business days of such determination pay to the Employer the amount of such reduction.
          (e) Fees and Expenses. The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by this Section 3 shall be borne by the Employer. If such fees and expenses are initially paid by the Executive, the Employer shall reimburse the Executive the full amount of such fees and expenses within five (5) business days after receipt from the Executive of a statement therefor and reasonable evidence of the Executive’s payment thereof.
          (f) Indemnification. The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than ten (10) business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Employer of the nature of such claim and the date on which

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such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the thirty (30)-day period following the date on which the Executive gives such notice to the Employer and (ii) the date that any payment of the amount with respect to such claim is due. If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
               (i) provide the Employer with any written records or documents in the Executive’s possession relating to such claim reasonably requested by the Employer;
               (ii) take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Employer;
               (iii) cooperate with the Employer in good faith in order effectively to contest such claim; and
               (iv) permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs in a court of initial jurisdiction and in one or more appellate courts, as the Employer shall determine; and provided, further, however, that if the Employer directs the Executive to pay the tax claimed and sue for a refund, the Employer shall make such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto, imposed with respect to such payment; and provided, further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer’s control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service.
          (g) Refunds. If, after the receipt by the Executive of an amount paid by the Employer pursuant to Section 3(f), the Executive receives any refund with respect to such claim, the Executive shall (subject to the Employer’s complying with the requirements of Section 3(f) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount paid by the Employer pursuant to Section 3(f) a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of thirty (30) days after such determination, then such amount shall not be required to be repaid and shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Employer to the Executive pursuant to this Section 3.
          (h) Confidentiality. Any information provided by the Executive to the Employer under this Section 3 shall be treated confidentially by the Employer and, except as

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required by law, will not be provided by the Employer to any other person, other than the Employer’s professional advisors, without Executive’s prior written consent.
     4. Notice of Termination. Following a Change in Control, (i) any intended termination of the Executive’s employment by the Employer shall be communicated by a Notice of Termination from the Employer to the Executive, and (ii) any intended termination of the Executive’s employment by the Executive for Good Reason shall be communicated by a Notice of Termination from the Executive to the Employer within six (6) months of the Executive becoming aware of the event or action constituting Good Reason or, if later, within six (6) months after the date of the Change in Control.
     5. Fees and Expenses. The Employer shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) incurred in good faith by the Executive as they become due over the lifetime of the Executive as a result of (a) the termination of the Executive’s employment by the Employer or by the Executive for Good Reason (including all such fees and expenses, if any, incurred in contesting, defending or disputing the basis for any such termination of employment), (b) the Executive’s hearing before the Board of Directors of the Corporation as contemplated in Section 17.5 of this Agreement or (c) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Employer under which the Executive is or may be entitled to receive benefits. Payments and reimbursements to which the Executive is entitled under this Section 5 shall be made not later than April 15 of the taxable year of the Employee next following the taxable year in which the expense was incurred.
     6. Transfer of Employment. Notwithstanding any other provision herein to the contrary, the Employer shall cease to have any further obligation or liability to the Executive under this Agreement if (a) the Executive’s employment with the Employer terminates as a result of the transfer of the Executive’s employment to any other Affiliate of the Corporation, (b) this Agreement is assigned to such other Affiliate, and (c) such other Affiliate expressly assumes and agrees to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no assignment had taken place. Any Affiliate to which this Agreement is so assigned shall be treated as the “Employer” for all purposes of this Agreement on or after the date as of which such assignment to the Affiliate, and the Affiliate’s assumption and agreement to so perform this Agreement, becomes effective.
     7. Corporation’s Obligation. The Corporation agrees that it will take such steps as may be necessary to cause the Employer (or any Affiliate that has become the “Employer” pursuant to Section 6 hereof) to meet each of its obligations to the Executive under this Agreement.
     8. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Executive if to the Employer or by a duly authorized officer of the Employer if to the Executive, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid. Notices to the Employer or the Corporation shall be delivered to the attention of the General Counsel at the corporate

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headquarters of the Corporation. Notices to the Executive shall be delivered to the address reflected in the payroll records of the Employer. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt.
     9. Nature of Rights. The Executive shall have the status of a mere unsecured creditor of the Employer and the Corporation with respect to the Executive’s right to receive any payment under this Agreement. This Agreement shall constitute a mere promise by the Employer and the Corporation to make payments in the future of the benefits provided for herein. It is the intention of the parties hereto that the arrangements reflected in this Agreement shall be treated as unfunded for tax purposes and, if it should be determined that Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), is applicable to this Agreement, for purposes of Title I of ERISA. Except as provided in Section 2(g), nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Employer, the Corporation or any other Affiliate of the Corporation and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Employer, the Corporation or any other Affiliate of the Corporation. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Employer, the Corporation or any other Affiliate of the Corporation shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement.
     10. Settlement of Claims. The Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, defense, recoupment, or other right which the Employer may have against the Executive or others.
     11. Alternative Dispute Resolution. The parties hereto agree that any controversy or claim arising out of or relating to this Agreement or the breach thereof, shall be settled by binding arbitration by an arbitration panel selected in accordance with the then-current arbitrator selection procedures of the American Arbitration Association. Such arbitration shall be conducted in the Middle District of Tennessee (absent mutual agreement by the parties to do otherwise) pursuant to the national rules for the resolution of employment disputes of the American Arbitration Association then in effect. The decision or award in any such arbitration will be final and binding upon the parties and judgment upon such decision or award may be entered in any court of competent jurisdiction or application may be made to any such court for judicial acceptance of such decision or award and an order of enforcement. In the event that any procedural matter is not covered by the aforesaid rules, the procedural law of Delaware will govern. The Employer shall bear all costs and expenses incurred by the Executive in the arbitration, as well as its own costs and expenses and the costs and expenses of any of its Affiliates.
     12. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive, the Corporation and the Employer. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar

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provisions or conditions at the same or at any prior or subsequent time. No agreement or representation, oral or otherwise, express or implied, with respect to the subject matter hereof has been made by any party which is not expressly set forth in this Agreement.
     13. Successors; Binding Agreement.
          (a) This Agreement shall be binding upon and shall inure to the benefit of the Employer, the Corporation and their respective Successors and Assigns. The Employer and the Corporation shall require their respective Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer and/or the Corporation would be required to perform it if no such succession or assignment had taken place.
          (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive or the Executive’s beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal personal representative.
     14. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of Delaware without giving effect to the conflict of laws principles thereof.
     15. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
     16. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto.
     17. Definitions.
          17.1 Accrued Compensation. For purposes of this Agreement, “Accrued Compensation” shall mean all amounts of compensation for services rendered to the Employer or any other Affiliate that have been earned or accrued through the Termination Date but that have not been paid as of the Termination Date including (a) base salary, (b) reimbursement for reasonable and necessary business expenses incurred by the Executive on behalf of the Employer during the period ending on the Termination Date and (c) vacation pay; provided, however, that Accrued Compensation shall not include any amounts described in clause (a) or clause (d) that have been deferred pursuant to any salary reduction or deferred compensation elections made by the Executive.
          17.2 Affiliate. For purposes of this Agreement, “Affiliate” means any entity directly or indirectly controlled by, controlling or under common control with the Corporation or any corporation or other entity acquiring, directly or indirectly, all or substantially all the assets and business of the Corporation, whether by operation of law or otherwise.

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          17.3 Base Amount. For purposes of this Agreement, “Base Amount” shall mean the Executive’s annual base salary at the rate in effect as of the date of a Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Executive.
          17.4 Bonus Amount. For purposes of this Agreement, “Bonus Amount” shall mean the greater of (a) the target annual bonus that would be payable to the Executive under the Incentive Plan in respect of the fiscal year during which the Termination Date occurs assuming that both the Corporation and the Executive satisfy 100% (but not in excess of 100%) of the performance objective(s) specified in or pursuant to the applicable agreement, policy, plan, program or arrangement and communicated to the Executive, and (b) the highest annual bonus paid or payable under the Incentive Plan in respect of any of the three full fiscal years ended prior to the Termination Date or, if greater, the three (3) full fiscal years ended prior to the Change in Control.
          17.5 Cause. For purposes of this Agreement, a termination of employment is for “Cause” if the Executive has been convicted of a felony or the termination is evidenced by a resolution adopted in good faith by two-thirds of the Board of Directors of the Corporation that the Executive:
          (a) intentionally and continually failed substantially to perform the Executive’s reasonably assigned duties with the Employer or the Corporation (other than a failure resulting from the Executive’s incapacity due to physical or mental illness or from the assignment to the Executive of duties that would constitute Good Reason) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Employer or the Corporation, has been delivered to the Executive specifying the manner in which the Executive has failed substantially to perform, or
          (b) intentionally engaged in conduct which is demonstrably and materially injurious to the Corporation or the Employer; provided, however, that no termination of the Executive’s employment shall be for Cause as set forth in this Section 17.5(b) until (1) there shall have been delivered to the Executive a copy of a written notice, signed by a duly authorized officer of the Employer or the Corporation, setting forth that the Executive was guilty of the conduct set forth in this Section 17.5(b) and specifying the particulars thereof in detail, and (2) the Executive shall have been provided an opportunity to be heard in person by the Board of Directors of the Corporation (with the assistance of the Executive’s counsel if the Executive so desires).
     No act, nor failure to act, on the Executive’s part, shall be considered “intentional” unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive’s action or failure to act was in the best interest of the Corporation and the Employer. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given to the Employer by the Executive shall constitute Cause for purposes of this Agreement.
          17.6 Change in Control. A “Change in Control” shall mean the occurrence of any of the following:

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               (a) An acquisition (other than directly from the Corporation) of any voting securities of the Corporation (the “Voting Securities”) by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than twenty-five percent (25%) of (1) the then-outstanding shares of common stock of the Corporation (or any other securities into which such shares of common stock are changed or for which such shares of common stock are exchanged) (the “Shares”) or (2) the combined voting power of the Corporation’s then-outstanding Voting Securities; provided, however, that in determining whether a Change in Control has occurred pursuant to this paragraph (a), the acquisition of Shares or Voting Securities in a “Non-Control Acquisition” (as hereinafter defined) shall not constitute a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Corporation or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Corporation (for purposes of this definition, a “Related Entity”), (ii) the Corporation or any Related Entity, or (iii) any Person in connection with a “Non-Control Transaction” (as hereinafter defined); or
               (b) The individuals who, as of the date hereof, are members of the board of directors of the Corporation (the “Incumbent Board”), cease for any reason to constitute at least a majority of the members of the board of directors of the Corporation or, following a Merger (as hereinafter defined), the board of directors of (x) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “Parent Corporation”) or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; provided, however, that, if the election, or nomination for election by the Corporation’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered a member of the Incumbent Board; and provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Corporation (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Proxy Contest; or
               (c) The consummation of:
                    (i) A merger, consolidation or reorganization (1) with or into the Corporation or (2) in which securities of the Corporation are issued (a “Merger”), unless such Merger is a “Non-Control Transaction.” A “Non-Control Transaction” shall mean a Merger in which:
                         (A) the stockholders of the Corporation immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation;

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                         (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and
                         (C) no Person other than (1) the Corporation, (2) any Related Entity, or (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to the Merger, was maintained by the Corporation or any Related Entity, or (4) any Person who, immediately prior to the Merger had Beneficial Ownership of twenty-five percent (25%) or more of the then outstanding Shares or Voting Securities, has Beneficial Ownership, directly or indirectly, of twenty-five percent (25%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation, if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; provided, however, that any Person described in clause (4) of this subsection (C) may not, immediately following the Merger, Beneficially Own more than forty percent (40%) of the combined voting power of the outstanding voting securities of the Surviving Corporation or the Parent Corporation, as applicable, for the Merger to constitute a Non-Control Transaction; or
                    (ii) A complete liquidation or dissolution of the Corporation; or
                    (iii) A Major Asset Disposition.
     For purposes of the foregoing definition, the term “Major Asset Disposition” means the sale or other disposition in one transaction or a series of related transactions (other than a transfer to a Related Entity or a transfer under conditions that would constitute a Non-Control Transaction, with the disposition of assets being regarded as a Merger) of 50% or more of the assets of the Corporation and its subsidiaries on a consolidated basis; and any specified percentage or portion of the assets of the Corporation shall be based on the total gross fair market value, as determined by a majority of the members of the Incumbent Board without regard to any associated liabilities. For the avoidance of doubt, the distribution to the Corporation’s stockholders of the stock of a Related Entity or any other assets that constitute 50% or more of the assets of the Corporation and its subsidiaries on a consolidated basis (determined as aforesaid) shall constitute a Major Asset Disposition (whether or not such distribution constitutes a Non-Control Transaction).
     Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting

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Securities by the Corporation which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons; provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Corporation and, after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities and such Beneficial Ownership increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.
          17.7. Employer and Corporation. For purposes of this Agreement, all references to the Employer and the Corporation shall include their respective Successors and Assigns.
          17.8. Disability. For purposes of this Agreement, “Disability” shall mean a physical or mental infirmity which impairs the Executive’s ability to substantially perform the Executive’s duties with the Employer for six (6) consecutive months, and within the time period set forth in a Notice of Termination given to the Executive (which time period shall not be less than thirty (30) days), the Executive shall not have returned to full-time performance of the Executive’s duties; provided, however, that if the Employer’s Long Term Disability Plan, or any successor plan (the “Disability Plan”), is then in effect, the Executive shall not be deemed disabled for purposes of this Agreement unless the Executive is also eligible for “Total Disability” (as defined in the Disability Plan) benefits (or similar benefits in the event of a successor plan) under the Disability Plan.
          17.9. Good Reason.
               (a) For purposes of this Agreement, “Good Reason” shall mean the occurrence after a Change in Control of any of the following events or conditions:
                    (1) a change in the Executive’s status, title, position or responsibilities (including reporting responsibilities) which, in the Executive’s reasonable judgment, represents an adverse change from the Executive’s status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive’s reasonable judgment, are inconsistent with the Executive’s status, title, position or responsibilities; or any removal of the Executive from or failure to reappoint or reelect the Executive to any of such offices or positions, except in connection with the termination of the Executive’s employment for Disability, Cause, as a result of the Executive’s death or by the Executive other than for Good Reason;
                    (2) a reduction in the Executive’s annual base salary below the Base Amount;
                    (3) the relocation of the offices of the Employer to a location more than twenty-five (25) miles from the location of such offices immediately prior to such Change in Control, or the Employer’s or the Corporation’s requiring the Executive to be based anywhere other than such offices, except to the extent the Executive was not previously assigned to a principal location and except for required travel on the Employer’s or the Corporation’s business to an extent substantially consistent with the Executive’s business travel obligations at the time of the Change in Control;

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                    (4) the failure by the Employer or the Corporation to pay to the Executive any portion of the Executive’s current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Employer or the Corporation in which the Executive participated, within seven (7) days of the date such compensation is due;
                    (5) the failure by the Employer or the Corporation to (A) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which the Executive was participating immediately prior to the Change in Control, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation or employee benefit plan, program and practice in which the Executive was participating immediately prior to the Change in Control;
                    (6) the failure of the Employer or the Corporation to obtain from its Successors or Assigns the express assumption and agreements required under Section 13 hereof; or
                    (7) any purported termination of the Executive’s employment by the Employer which is not effected pursuant to a Notice of Termination satisfying the terms set forth in the definition of Notice of Termination (and, if applicable, the terms set forth in the definition of Cause).
               (b) Any event or condition (1) described in Section 17.9(a)(1), (2), (3), (4), (6) or (7) which occurs at any time prior to the date of a Change in Control and (A) which occurred after the Employer entered into a definitive agreement, the consummation of which would constitute a Change in Control or (B) which the Executive reasonably demonstrates was at the request of a Third Party who has indicated an intention or has taken steps reasonably calculated to effect a Change in Control, shall constitute Good Reason for purposes of this Agreement, notwithstanding that it occurred prior to a Change in Control.
          17.10. Incentive Plan. For purposes of this Agreement, “Incentive Plan” shall mean the 2004 Cash Incentive Plan, or any successor annual incentive plan, maintained by the Employer or any other Affiliate.
          17.11. Notice of Termination. For purposes of this Agreement, following a Change in Control, “Notice of Termination” shall mean a written notice of termination of the Executive’s employment, signed by the Executive if to the Employer or by a duly authorized officer of the Employer if to the Executive, which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

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          17.12. Interest Rate. Without limiting the rights of the Executive at law or in equity, if the Employer fails to make any payment or provide any benefit required to be made or provided hereunder on a timely basis, the Employer will pay interest on the amount or value thereof at an annualized rate of interest equal to the so-called composite “prime rate” as quoted from time to time during the relevant period in the Southwest Edition of The Wall Street Journal. Such interest will be payable as it accrues on demand. Any change in such prime rate will be effective on and as of the date of such change.
          17.13. Successors and Assigns. For purposes of this Agreement, “Successors and Assigns” shall mean, with respect to the Employer or the Corporation, a corporation or other entity acquiring all or substantially all the assets and business of the Employer or the Corporation, as the case may be (including this Agreement) whether by operation of law or otherwise.
          17.14. Termination Date.
               (a) For purposes of this Agreement, “Termination Date” shall mean (i) in the case of the Executive’s death, the date of death, (ii) if the Executive’s employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of the Executive’s duties on a full-time basis during such thirty (30) day period) and (iii) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause, shall not be less than thirty (30) days and, in the case of a termination for Good Reason, shall not be more than sixty (60) days, from the date such Notice of Termination is given); provided, however, that if within thirty (30) days after a Notice of Termination by the Employer for Cause or a Notice of Termination by the Executive for Good Reason is given, the party receiving such Notice of Termination in good faith notifies the other party that a dispute exists concerning the basis for the termination, the provisions of paragraph (b) shall apply.
               (b) (i) If the Executive gives the Employer Notice of Termination for Good Reason and the Employer disputes the basis for the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by arbitration as provided in Section 11, and the Employer shall continue to pay the Executive the Executive’s Base Amount and continue the Executive as a participant in all compensation, incentive, bonus, pension, profit sharing, medical, hospitalization, dental, life insurance and disability benefit plans in which the Executive was participating when the notice giving rise to the dispute was given, until such Termination Date, provided that if the Executive continues to perform the Executive’s duties with the Employer during the pendency of such dispute, the Executive shall not be obligated to repay to the Employer any amounts paid or benefits provided pursuant to this Section 17.14(b), and provided, further, that if the Executive ceased performing the Executive’s duties with the Employer during the pendency of such dispute, and the dispute is resolved in favor of the Executive, any amount owed to the Executive pursuant to Sections 2 and 3 of this Agreement shall be reduced to the extent of any amount the Executive received pursuant to this Section 17.14(b) during the pendency of such dispute; and (ii) if the Employer gives the Executive Notice of Termination for Cause and the Executive disputes the basis for the termination, the Termination Date shall be as determined pursuant to

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Section 17.14(a) and during the pendency of such dispute the Executive shall not be entitled to payment of the Executive’s Base Amount from the Employer and, except as required by law, the Executive’s participation in the Employer’s benefit plans and programs shall be discontinued.
[signature page follows]

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     IN WITNESS WHEREOF, the Corporation and the Employer have caused this Agreement to be executed by their duly authorized officers and the Executive has executed this Agreement as of the day and year first above written.
             
    Corporation:    
 
           
    COMMUNITY HEALTH SYSTEMS, INC.    
 
           
 
  By:        
 
     
 
Wayne T. Smith, Chairman, President
   
 
      and Chief Executive Officer    
 
           
    Employer:    
 
           
    COMMUNITY HEALTH SYSTEMS
PROFESSIONAL SERVICES CORPORATION
   
 
           
 
  By:        
 
     
 
Rachel A. Seifert, Senior Vice President,
   
 
      Secretary and General Counsel    
 
           
    Executive:    
 
           
 
  By:        
 
     
 
   

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Exhibit A
WAIVER AND RELEASE OF CLAIMS
1. General Release. In consideration of the payments and benefits to be made under the Change in Control Severance Agreement, dated as of                     , 2008, to which Community Health Systems, Inc. (the “Corporation”), Community Health Systems Professional Services Corporation (the “Employer”), and                      (the “Executive”) are parties (the “Agreement”), the Executive, with the intention of binding the Executive and the Executive’s heirs, executors, administrators and assigns, does hereby release, remise, acquit and forever discharge the Corporation, the Employer and the parents, subsidiaries and affiliates of each of them (collectively, the “Corporation Affiliated Group”), their present and former officers, directors, executives, agents, shareholders, attorneys, employees and employee benefits plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each of the foregoing (collectively, the “Corporation Released Parties”), of and from any and all claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent, unliquidated or otherwise and whether now known, unknown, suspected or unsuspected which the Executive, individually or as a member of a class, now has, owns or holds, or has at any time heretofore had, owned or held, against any Corporation Released Party (an “Action”) arising out of or in connection with the Executive’s service as an employee, officer and/or director to any member of the Corporation Affiliated Group (or the predecessors thereof), including (i) the termination of such service in any such capacity, (ii) for severance or vacation benefits, unpaid wages, salary or incentive payments, (iii) for breach of contract, wrongful discharge, impairment of economic opportunity, defamation, intentional infliction of emotional harm or other tort and (iv) for any violation of applicable state and local labor and employment laws (including, without limitation, all laws concerning harassment, discrimination, retaliation and other unlawful or unfair labor and employment practices), any and all Actions based on the Employee Retirement Income Security Act of 1974 (“ERISA”), and any and all Actions arising under the civil rights laws of any federal, state or local jurisdiction, including, without limitation, Title VII of the Civil Rights Act of 1964 (“Title VII”), the Americans with Disabilities Act (“ADA”), Sections 503 and 504 of the Rehabilitation Act, the Family and Medical Leave Act and the Age Discrimination in Employment Act (“ADEA”), excepting only:
     (a) rights of the Executive under this Waiver and Release of Claims and under the Agreement;
     (b) rights of the Executive relating to equity awards held by the Executive as of the Executive’s date of termination;
     (c) the right of the Executive to receive benefits required to be paid in accordance with applicable law;
     (d) rights to indemnification the Executive may have (i) under applicable corporate law, (ii) under the by-laws or certificate of incorporation of any Corporation Released Party or (iii) as an insured under any director’s and officer’s liability insurance policy now or previously in force;

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     (e) claims (i) for benefits under any health, disability, retirement, supplemental retirement, deferred compensation, life insurance or other, similar employee benefit plan or arrangement of the Corporation Affiliated Group and (ii) for earned but unused vacation pay through the date of termination in accordance with applicable policy of the Corporation Affiliated Group; and
     (f) claims for the reimbursement of unreimbursed business expenses incurred prior to the date of termination pursuant to applicable policy of the Corporation Affiliated Group.
2. No Admissions, Complaints or Other Claims. The Executive acknowledges and agrees that this Waiver and Release of Claims is not to be construed in any way as an admission of any liability whatsoever by any Corporation Released Party, any such liability being expressly denied. The Executive also acknowledges and agrees that the Executive has not, with respect to any transaction or state of facts existing prior to the date hereof, filed any Actions against any Corporation Released Party with any governmental agency, court or tribunal.
3. Application to all Forms of Relief. This Waiver and Release of Claims applies to any relief no matter how called, including, without limitation, wages, back pay, front pay, compensatory damages, liquidated damages, punitive damages for pain or suffering, costs and attorney’s fees and expenses.
4. Specific Waiver. The Executive specifically acknowledges that the Executive’s acceptance of the terms of this Waiver and Release of Claims is, among other things, a specific waiver of any and all Actions under Title VII, ADEA, ADA and any state or local law or regulation in respect of discrimination of any kind; provided, however, that nothing herein shall be deemed, nor does anything herein purport, to be a waiver of any right or Action which by law the Executive is not permitted to waive.
5. Voluntariness. The Executive acknowledges and agrees that the Executive is relying solely upon the Executive’s own judgment; that the Executive is over eighteen years of age and is legally competent to sign this Waiver and Release of Claims; that the Executive is signing this Waiver and Release of Claims of the Executive’s own free will; that the Executive has read and understood the Waiver and Release of Claims before signing it; and that the Executive is signing this Waiver and Release of Claims in exchange for consideration that the Executive believes is satisfactory and adequate. The Executive also acknowledges and agrees that the Executive has been informed of the right to consult with legal counsel and has been encouraged to do so.
6. Complete Agreement/Severability. This Waiver and Release of Claims constitutes the complete and final agreement between the parties and supersedes and replaces all prior or contemporaneous agreements, negotiations, or discussions relating to the subject matter of this Waiver and Release of Claims. All provisions and portions of this Waiver and Release of Claims are severable. If any provision or portion of this Waiver and Release of Claims or the application of any provision or portion of the Waiver and Release of Claims shall be determined to be invalid or unenforceable to any extent or for any reason, all other provisions and portions of this Waiver

- 20-


 

and Release of Claims shall remain in full force and shall continue to be enforceable to the fullest and greatest extent permitted by law.
7. Acceptance and Revocability. The Executive acknowledges that the Executive has been given a period of 21 days within which to consider this Waiver and Release of Claims, unless applicable law requires a longer period, in which case the Executive shall be advised of such longer period and such longer period shall apply. The Executive may accept this Waiver and Release of Claims at any time within this period of time by signing the Waiver and Release of Claims and returning it to the Employer. This Waiver and Release of Claims shall not become effective or enforceable until seven calendar days after the Executive signs it. The Executive may revoke the Executive’s acceptance of this Waiver and Release of Claims at any time within that seven calendar day period by sending written notice to the Employer. Such notice must be received by the Employer within the seven calendar day period in order to be effective and, if so received, would void this Waiver and Release of Claims for all purposes.
8. Governing Law. Except for issues or matters as to which federal law is applicable, this Waiver and Release of Claims shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without giving effect to the conflicts of law principles thereof.
         
 
  Executive:    
 
 
       
 
 
 
   

- 21-

EX-12
Exhibit 12
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
                                         
    Year Ended December 31,  
    2004     2005     2006     2007     2008  
Earnings
                                       
Income from continuing operations before provision for income taxes and extraordinary item
  $ 259,749     $ 308,174     $ 287,847     $ 99,542     $ 336,137  
Minority interest in the income of subsidiaries with fixed charges (1)
                      15,155       40,101  
Income from equity investees (2)
                      (25,132 )     (42,064 )
Distributed income from equity investees
                      19,902       32,897  
Interest and amortization of deferred finance costs
    69,736       87,185       94,411       361,773       651,925  
Amortization of capitalized interest
    433       494       567       881       1,469  
Implicit rental interest expense
    18,041       20,564       22,986       38,424       57,382  
 
                             
 
                                       
Total Earnings
  $ 347,959     $ 416,417     $ 405,811     $ 510,545     $ 1,077,847  
 
                                       
Fixed Charges
                                       
Interest and amortization of deferred finance costs
  $ 69,736     $ 87,185     $ 94,411     $ 361,773     $ 651,925  
Capitalized interest
    2,131       2,144       2,955       19,009       22,147  
Implicit rental interest expense
    18,041       20,564       22,986       38,424       57,382  
 
                             
 
                                       
Total fixed charges
  $ 89,908     $ 109,893     $ 120,352     $ 419,206     $ 731,454  
 
                                       
Ratio of earnings to fixed charges
    3.87 x     3.79 x     3.37 x     1.22 x     1.47 x
 
(1)   The Company recognized an immaterial amount of minority interest in income from consolidated subsidiaries prior to 2007.
 
(2)   The Company recognized an immaterial amount of income from equity investees prior to 2007.

EX-21
Exhibit 21
 
Community Health Systems, Inc.
SUBSIDIARY LISTING
 
(*) Majority position held in an entity with physicians, non-profit entities or both
 
(#) Minority position held in a non-consolidating entity
 
     
5300 Grand Limited Partnership    
     
A Woman’s Place, LLC    
     
Abilene Hospital, LLC    
     
Abilene Merger, LLC    
     
Affinity Health Systems, LLC*    
     
Affinity Hospital, LLC*   d/b/a Trinity Medical Center
     
Affinity Physician Services, LLC    
     
Alaska Physician Services, LLC    
     
Alice Hospital, LLC    
     
Alice Surgeons, LLC    
     
Ambulance Services of Dyersburg, Inc.    
     
Ambulance Services of Forrest City, LLC    
     
Ambulance Services of Lexington, Inc.    
     
Ambulance Services of McKenzie, Inc.    
     
Ambulance Services of McNairy, Inc.    
     
Ambulance Services of Tooele, LLC    
     
American Health Facilities Development, LLC    
     
Anesthesiology Group of Hattiesburg, LLC    
     
Angelo Community Healthcare Services, Inc.    
     
Anna Clinic Corp.    
     
Anna Home Care Services, LLC    
     
Anna Hospital Corporation   d/b/a Union County Hospital
     
APS Medical, LLC    
     
Arizona ASC Management, Inc.    
     
Arizona DH, LLC    
     
Arizona Medco, LLC    
     
Arkansas Healthcare System Limited Partnership#    
     
ARMC, LP   d/b/a Abilene Regional Medical Center
     
Arusha LLC*    
     
Augusta Health System, LLC*    
     
Augusta Home Care Services, LLC    
     
Augusta Hospital, LLC*   d/b/a Trinity Hospital of Augusta


 

     
     
Augusta Physician Services, LLC    
     
Barberton Health System, LLC    
     
Barberton Physician Services, LLC    
     
Barstow Healthcare Management, Inc.    
     
Beauco, LLC    
     
Beaumont Medical Center, L.P.    
     
Beaumont Regional, LLC    
     
Berwick Clinic Company, LLC    
     
Berwick Clinic Corp.    
     
Berwick Home Care Services, LLC    
     
Berwick Home Health Private Care, Inc.    
     
Berwick Hospital Company, LLC   d/b/a Berwick Hospital Center
     
Berwick Medical Professionals, P.C.    
     
BH Trans Company, LLC    
     
Big Bend Home Care Services, LLC    
     
Big Bend Hospital Corporation   d/b/a Big Bend Regional Medical Center
     
Big Spring Hospital Corporation   d/b/a Scenic Mountain Medical Center
     
Birmingham Holdings, LLC    
     
Birmingham Holdings II, LLC    
     
Bluffton Health System, LLC   d/b/a Bluffton Regional Medical Center
     
Bluffton Physician Services, LLC    
     
Brandywine Hospital Malpractice Assistance Fund, Inc.    
     
Brazos Medco, LLC    
     
Brazos Valley of Texas, L.P.    
     
Brazos Valley Surgical Center, LLC    
     
Broken Arrow Medical Group, LLC    
     
Brownsville Clinic Corp.    
     
Brownsville Hospital Corporation   d/b/a Haywood Park Community Hospital
     
Brownwood Hospital, L.P.   d/b/a Brownwood Regional Medical Center
     
Brownwood Medical Center, LLC    
     
Bullhead City Clinic Corp.    
     
Bullhead City Hospital Corporation*   d/b/a Western Arizona Regional Medical Center
     
Bullhead City Hospital Investment Corporation*    
     
Bullhead City Imaging Corporation    
     
BVSC, LLC    
     
Byrd Medical Clinic, Inc.    


 

     
     
Carlsbad Medical Center, LLC   d/b/a Carlsbad Medical Center
     
Carolina Surgery Center, LLC*    
     
Carolinas Medical Alliance, Inc.    
     
Carolinas OB/GYN Medical Group, LLC    
     
Cedar Park Health System, L.P.*   d/b/a Cedar Park Regional Medical Center
     
Center for Adult Healthcare, LLC    
     
Central Alabama Physician Services, Inc.    
     
Central Arkansas Anesthesia Services, LLC    
     
Central Arkansas Pharmacy, LLC    
     
Central Arkansas Physician Services, LLC    
     
Central Arkansas Real Property, LLC    
     
Centre Clinic Corp.    
     
Centre Home Care Corporation    
     
Centre Hospital Corporation   d/b/a Cherokee Medical Center
     
Centre RHC Corp.    
     
Chesterfield Clinic Corp.    
     
Chesterfield/Marlboro, L.P.   d/b/a Marlboro Park Hospital; Chesterfield General Hospital
     
Chestnut Hill Clinic Company, LLC*    
     
Chestnut Hill Health System, LLC*    
     
CHHS ALF Company, LLC*    
     
CHHS Development Company, LLC*    
     
CHHS Holdings, LLC    
     
CHHS Hospital Company, LLC*   d/b/a Chestnut Hill Hospital
     
CHHS Rehab Company, LLC*    
     
CHS Kentucky Holdings, LLC    
     
CHS Pennsylvania Holdings, LLC    
     
CHS Realty Holdings I, Inc.    
     
CHS Realty Holdings II, Inc.    
     
CHS Realty Holdings Joint Venture    
     
CHS Utah Holdings, LLC    
     
CHS Virginia Holdings, LLC    
     
CHS Washington Holdings, LLC    
     
CHS/Community Health Systems, Inc.    
     
Claremore Anesthesia, LLC    
     
Claremore Diagnostic Center, LLC    
     
Claremore Internal Medicine, LLC    


 

     
     
Claremore Physicians, LLC    
     
Claremore Regional Hospital, LLC   d/b/a Claremore Regional Hospital
     
Clarksville Health System, G.P.*   d/b/a Gateway Health System
     
Clarksville Holdings, LLC    
     
Clarksville Home Care Services, LLC    
     
Clarksville Imaging Center, LLC#    
     
Clarksville Physician Services, G.P.*    
     
Cleveland Clinic Corp.    
     
Cleveland Home Care Services, LLC    
     
Cleveland Hospital Corporation    
     
Cleveland Medical Clinic, Inc.    
     
Cleveland PHO, Inc.    
     
Cleveland Regional Medical Center, L.P.   d/b/a Cleveland Regional Medical Center
     
Cleveland Tennessee Hospital Company, LLC   d/b/a SkyRidge Medical Center
     
Clinico, LLC    
     
Clinton County Health System, LLC    
     
Clinton Hospital Corporation   d/b/a Lock Haven Hospital
     
Coatesville Clinic Company, LLC    
     
Coatesville Hospital Corporation   d/b/a Brandywine Hospital
     
C-OK, LLC    
     
College Station Hospital, L.P.   d/b/a College Station Medical Center
     
College Station Medical Center, LLC    
     
College Station Merger, LLC    
     
Colonial Heights Imaging, LLC    
     
Community GP Corp.    
     
Community Health Care Partners, Inc.    
     
Community Health Investment Company, LLC    
     
Community Health Network, Inc.    
     
Community Health Systems Foundation    
     
Community Health Systems Professional Services Corporation    
     
Community Health Systems, Inc.    
     
Community Health United Home Care, LLC    
     
Community Information Network, Inc.#    
     
Community Insurance Group SPC, LTD.    
     
Community LP Corp.    
     
Consolidated Hospital Laundry Services, Inc.#    


 

     
     
Coronado Hospital, LLC    
     
Coronado Medical, LLC    
     
Cottage Home Options, L.L.C.    
     
Cottage Rehabilitation and Sports Medicine, L.L.C.#    
     
Coventry Clinic Company, LLC    
     
CP Hospital GP, LLC    
     
CPLP, LLC    
     
Crestview Hospital Corporation*   d/b/a North Okaloosa Medical Center
     
Crestview Professional Condominiums Association, Inc.*    
     
Crestview Surgery Center, L.P.    
     
Crestwood Healthcare, L.P.*   d/b/a Crestwood Medical Center
     
Crestwood Hospital LP, LLC    
     
Crestwood Hospital, LLC    
     
Crestwood Surgery Center, LLC*    
     
Crossroads Community Hospital Malpractice Assistance Fund, Inc.    
     
Crossroads Healthcare Management, LLC#    
     
Crossroads Home Care Services, LLC    
     
Crossroads Physician Corp.    
     
CSDS, LLC    
     
CSMC, LLC    
     
CSRA Holdings, LLC    
     
Dallas Phy Service, LLC    
     
Dallas Physician Practice, L.P.    
     
Day Surgery, Inc.    
     
Deaconess Clinical Associates, Inc.    
     
Deaconess Health System, LLC*   d/b/a Deaconess Hospital
     
Deaconess Holdings, LLC    
     
Deaconess Hospital Holdings, LLC    
     
Deaconess Metropolitan Physicians, LLC    
     
Deaconess Physician Services, LLC    
     
Deaconess Portland MOB Limited Partnership#    
     
Deming Clinic Corporation    
     
Deming Home Care Services, LLC    
     
Deming Hospital Corporation   d/b/a Mimbres Memorial Hospital
     
Denton ASC-GP, LLC    


 

     
     
Denton Surgery Center, L.P.*    
     
DeQueen Regional I, LLC    
     
Desert Hospital Holdings, LLC    
     
Detar Hospital, LLC    
     
DFW Physerv, LLC    
     
DHFW Holdings, LLC    
     
DHSC, LLC*   d/b/a Affinity Medical Center -- Massillon
     
Diagnostic Imaging Management of Brandywine Valley, LLC    
     
Diagnostic Imaging of Brandywine Valley, LP    
     
Doctors Hospital Physician Services, LLC*    
     
Doctors Medical Center, LLC    
     
Doctors of Laredo, LLC    
     
Douglas Medical Center, LLC    
     
Dukes Health System, LLC   d/b/a Dukes Memorial Hospital
     
Dukes Physician Services, LLC    
     
Dupont Hospital, LLC*   d/b/a Dupont Hospital
     
Dyersburg Clinic Corp.    
     
Dyersburg Home Care Services, LLC    
     
Dyersburg Hospital Corporation   d/b/a Dyersburg Regional Medical Center
     
E.D. Clinics, LLC    
     
East Tennessee Clinic Corp.    
     
East Tennessee Health Systems, Inc.    
     
Easton Hospital Malpractice Assistance Fund, Inc.    
     
Edge Medical Clinic, Inc.    
     
Edwardsville Ambulatory Surgery Center, LLC    
     
El Dorado Surgery Center, L.P.*    
     
EL Med, LLC    
     
Empire Health Services    
     
Emporia Clinic Corp.    
     
Emporia Home Care Services, LLC    
     
Emporia Hospital Corporation   d/b/a Southern Virginia Regional Medical Center
     
Eufaula Clinic Corp.    
     
Eufaula Hospital Corporation    
     
Evanston Clinic Corp.    
     
Evanston Hospital Corporation   d/b/a Evanston Regional Hospital
     
Eye Institute of Southern Arizona, LLC    


 

     
     
Fairmont Health System, LLC    
     
Fallbrook Home Care Services, LLC    
     
Fallbrook Hospital Corporation   d/b/a Fallbrook Hospital
     
Family Home Care, Inc.    
     
Fannin Regional Hospital, Inc.   d/b/a Fannin Regional Hospital
     
Fannin Regional Orthopaedic Center, Inc.    
     
Firstcare, Inc.#    
     
First Choice Health Network, Inc.#    
     
Florence ASC Management, LLC    
     
Florence Home Care Services, LLC    
     
Foley Clinic Corp.    
     
Foley Home Care Services, LLC    
     
Foley Home Health Corporation    
     
Foley Hospital Corporation   d/b/a South Baldwin Regional Medical Center
     
Forrest City Arkansas Hospital Company, LLC   d/b/a Forrest City Medical Center
     
Forrest City Clinic Company, LLC    
     
Forrest City Home Care Services, LLC    
     
Forrest City Hospital Corporation    
     
Fort Payne Clinic Corp.    
     
Fort Payne Home Care Corporation    
     
Fort Payne Hospital Corporation   d/b/a DeKalb Regional Medical Center
     
Fort Payne RHC Corp.    
     
Fort Wayne Cardiac Center, LLC#    
     
Fort Wayne Surgery Center, LLC*    
     
Frankfort Health Partner, Inc.    
     
Franklin Clinic Corp.    
     
Franklin Home Care Services, LLC    
     
Franklin Hospital Corporation   d/b/a Southampton Memorial Hospital
     
Fulton Home Care Services, LLC    
     
Gadsden Home Care Services, LLC    
     
Gadsden Regional Medical Center, LLC   d/b/a Gadsden Regional Medical Center
     
Gadsden Regional Physician Group Practice, LLC    
     
Gadsden Regional Primary Care, LLC    
     
Galesburg Home Care Corporation    
     
Galesburg Hospital Corporation   d/b/a Galesburg Cottage Hospital
     
Galesburg In-Home Assistance, Inc.    
     
Gateway Malpractice Assistance Fund, Inc.    


 

     
     
Gateway Medical Services, Inc.    
     
GCMC, LLC    
     
GH Texas, LLC    
     
GHC Hospital, LLC    
     
Good Hope Health System, LLC    
     
Granbury Hospital Corporation   d/b/a Lake Granbury Medical Center
     
Granbury Texas Hospital Investment Corporation    
     
Granite City ASC Investment Company, LLC    
     
Granite City Clinic Corp.    
     
Granite City Home Care Services, LLC    
     
Granite City Hospital Corporation    
     
Granite City Illinois Hospital Company, LLC   d/b/a Gateway Regional Medical Center
     
Granite City Orthopedic Physicians Company, LLC    
     
Granite City Physicians Corp.    
     
GRB Real Estate, LLC    
     
Great Plains Medical Foundation    
     
Greenbrier Valley Anesthesia, LLC    
     
Greenbrier Valley Emergency Physicians, LLC    
     
Greenbrier VMC, LLC   d/b/a Greenbrier Valley Medical Center
     
Greenville Clinic Corp.    
     
Greenville Home Care Services, LLC    
     
Greenville Hospital Corporation   d/b/a L. V. Stabler Memorial Hospital
     
GRMC Holdings, LLC    
     
Gulf Coast Hospital, L.P.    
     
Gulf Coast Medical Center, LLC    
     
Hallmark Healthcare Company, LLC    
     
Harris Managed Services, Inc.    
     
Harris Medical Clinics, Inc.    
     
Hattiesburg ASC-GP, LLC    
     
Hattiesburg Home Care Services, LLC    
     
Haven Clinton Medical Associates, LLC    
     
HDP DeQueen, LLC    
     
HDP Woodland Heights, L.P.    
     
HDP Woodland Property, LLC    
     
HDPWH, LLC    
     
Healdsburg of California, LLC    
     
Healthcare Group, LLC#    


 

     
     
Healthcare of Forsyth County, Inc.    
     
HealthTrust Purchasing Group, L.P.#    
     
Healthwest Holdings, Inc.    
     
Heartland Malpractice Assistance Fund, Inc.    
     
Heartland Regional Health System, LLC    
     
Heartland Rural Healthcare, LLC    
     
Heck, Mourning, Smith & Barnes Partnership#    
     
Hefner Pointe Medical Associates, LLC#    
     
HEH Corporation    
     
Helena Home Care Services, LLC    
     
Hidden Valley Medical Center, Inc.    
     
Highland Health Systems, Inc.    
     
HIH, LLC    
     
Hill Regional Clinic Corp.    
     
Hill Regional Medical Group    
     
Hobbs Medco, LLC    
     
Hobbs Physician Practice, LLC    
     
Hood Medical Group    
     
Hood Medical Services, Inc.    
     
Hospital of Barstow, Inc.   d/b/a Barstow Community Hospital
     
Hospital of Beaumont, LLC    
     
Hospital of Fulton, Inc.   d/b/a Parkway Regional Hospital
     
Hospital of Louisa, Inc.   d/b/a Three Rivers Medical Center
     
Hospital of Morristown, Inc.   d/b/a Lakeway Regional Hospital
     
Hot Springs Outpatient Surgery Center, G.P.    
     
HTI Tucson Rehabilitation, Inc.    
     
Humble Texas Home Care Corporation    
     
Huntington Associates    
     
Huntington Beach Amdeco, LLC    
     
Imaging Diagnostic Center Partnership#    
     
INACTCO, Inc.    
     
In-Home Assistance, L.L.C.    
     
In-Home Medical Equipment Supplies and Services, Inc.    
     
Inland Empire Hospital Services Association#    
     
Inland Northwest Genetics Clinic#    
     
Inland Northwest Health Services#    


 

     
     
Innovative Recoveries, LLC    
     
IOM Health System, L.P.   d/b/a Lutheran Hospital of Indiana
     
IRHC, LLC    
     
Jackson Home Care Services, LLC    
     
Jackson Hospital Corporation   d/b/a Kentucky River Medical Center
     
Jackson Hospital Corporation    
     
Jackson Physician Corp.    
     
Jackson, Tennessee Hospital Company, LLC   d/b/a Regional Hospital of Jackson
     
Jennersville Family Medicine, LLC    
     
Jennersville Regional Hospital Malpractice Assistance Fund, Inc.    
     
Jonesboro Real Property, LLC    
     
Jourdanton Home Care Services, LLC    
     
Jourdanton Hospital Corporation   d/b/a South Texas Regional Medical Center
     
Kay County Clinic Company, LLC    
     
Kay County Hospital Corporation    
     
Kay County Oklahoma Hospital Company, LLC   d/b/a Ponca City Medical Center
     
Kensingcare, LLC    
     
Kentucky River Physician Corporation    
     
King’s Daughters Malpractice Assistance Fund, Inc.    
     
Kirksville Academic Medicine, LLC    
     
Kirksville Clinic Corp.    
     
Kirksville Home Care Services, LLC    
     
Kirksville Hospital Company, LLC    
     
Kirksville Missouri Hospital Company, LLC*   d/b/a Northeast Regional Medical Center
     
Kirksville Physical Therapy Services, LLC    
     
Knox Clinic Corp.    
     
Knox Home Care Services, LLC    
     
Knox Indiana Hospital Company, LLC    
     
Knox Physician Services, LLC    
     
Lake Area Physician Services, LLC    
     
Lake Area Surgicare, A Partnership in Commendam*    
     
Lake Wales Clinic Corp.    
     
Lake Wales Hospital Corporation*   d/b/a Lake Wales Medical Center
     
Lake Wales Hospital Investment Corporation*    
     
Lakeway Hospital Corporation    
     
Lancaster Clinic Corp.    


 

     
     
Lancaster Home Care Services, LLC    
     
Lancaster Hospital Corporation   d/b/a Springs Memorial Hospital
     
Lancaster Imaging Center, LLC*    
     
Laredo Hospital, L.P.    
     
Laredo Texas Home Care Services Company, L.P.    
     
Laredo Texas Hospital Company, L.P.*   d/b/a Laredo Medical Center
     
Las Cruces ASC-GP, LLC    
     
Las Cruces Medical Center, LLC   d/b/a Mountain View Regional Medical Center
     
Las Cruces Physician Services, LLC    
     
Las Cruces Surgery Center, L.P.*    
     
Lea Regional Hospital, LLC   d/b/a Lea Regional Medical Center
     
Leesville Diagnostic Center, L.P.*    
     
Leesville Surgery Center, LLC*    
     
Lexington Clinic Corp.    
     
Lexington Home Care Services, LLC    
     
Lexington Hospital Corporation   d/b/a Henderson County Community Hospital
     
Lindenhurst Illinois Hospital Company, LLC    
     
Lithotripsy Providers of Alabama, LLC#    
     
Lock Haven Clinic Company, LLC    
     
Lock Haven Home Care Services, LLC    
     
Lock Haven Medical Professionals, P.C.    
     
Logan Hospital Corporation    
     
Logan, West Virginia Hospital Company, LLC    
     
Longview Medical Center, L.P.*   d/b/a Longview Regional Medical Center
     
Longview Merger, LLC    
     
Louisa Home Care Services, LLC    
     
LRH, LLC    
     
LS Psychiatric, LLC    
     
Lutheran Health Network CBO, LLC    
     
Lutheran Health Network Investors, LLC    
     
Lutheran Health Network of Indiana, LLC    
     
Lutheran Heart Alliance, LLC#    
     
Lutheran Medical Office Park Phase I#    
     
Lutheran Medical Office Park Phase II#    
     
Lutheran Musculoskeletal Center, LLC*    
     
Lutheran/TRMA Network, LLC#    
     
Macon Healthcare, LLC#    


 

     
     
Madison Clinic Corp.    
     
Madison Hospital, LLC    
     
Malulani Health and Medical Center, LLC    
     
Marion Hospital Corporation   d/b/a Heartland Regional Medical Center
     
Marlboro Clinic Corp.    
     
Martin Clinic Corp.    
     
Martin Hospital Corporation   d/b/a Volunteer Community Hospital
     
Mary Black Health System LLC*   d/b/a Mary Black Memorial Hospital
     
Mary Black Medical Office Building Limited Partnership    
     
Mary Black MOB II, L.P.    
     
Mary Black Physician Services, LLC    
     
Mary Black Physicians Group, LLC    
     
Massillon Community Health System, LLC*    
     
Massillon Health System, LLC    
     
Mat-Su Regional ASC GP, LLC    
     
Mat-Su Regional Surgery Center, L.P.    
     
Mat-Su Valley II, LLC*    
     
Mat-Su Valley III, LLC*    
     
Mat-Su Valley Medical Center, LLC*   d/b/a Mat-Su Regional Medical Center
     
MCI Panhandle Surgical, L.P.    
     
McKenzie Clinic Corp.    
     
McKenzie Physician Services, LLC    
     
McKenzie Tennessee Hospital Company, LLC   d/b/a McKenzie Regional Hospital
     
McKenzie-Willamette Regional Medical Center Associates, LLC*   d/b/a McKenzie-Willamette Medical Center
     
McNairy Clinic Corp.    
     
McNairy Hospital Corporation   d/b/a McNairy Regional Hospital
     
MCSA, LLC#    
     
Medical Center at Terrell, LLC    
     
Medical Center of Brownwood, LLC    
     
Medical Center of Sherman, LLC    
     
Medical Diagnostic Center Associates, LP#    
     
Medical Holdings, Inc.    
     
Medical Park Hospital, LLC    
     
Medical Park MSO, LLC    
     
MEDSTAT, LLC    


 

     
     
Memorial Hospital of Salem Malpractice Assistance Fund, Inc.    
     
Memorial Hospital, LLC    
     
Memorial Management, Inc.    
     
Mesa View Physical Rehabilitation, LLC#    
     
Mesa View PT, LLC    
     
MHS Ambulatory Surgery Center, Inc.    
     
Mid-America Health Partners, Inc.#    
     
Mid-Plains, LLC    
     
Minot Health Services, Inc.    
     
Mission Bay Memorial Hospital, LLC    
     
Missouri Healthserv, LLC    
     
MMC of Nevada, LLC   d/b/a Mesa View Regional Hospital
     
Moberly Hospital Company, LLC   d/b/a Moberly Regional Medical Center
     
Moberly Medical Clinics, Inc.    
     
Moberly Physicians Corp.    
     
Mohave Imaging Center, LLC    
     
Morristown Clinic Corp.    
     
Morristown Professional Centers, Inc.    
     
Morristown Surgery Center, LLC    
     
MWMC Holdings, LLC    
     
National Healthcare of England Arkansas, Inc.    
     
National Healthcare of Holmes County, Inc.    
     
National Healthcare of Leesville, Inc.   d/b/a Byrd Regional Hospital
     
National Healthcare of Mt. Vernon, Inc.   d/b/a Crossroads Community Hospital
     
National Healthcare of Newport, Inc.   d/b/a Harris Hospital
     
Navarro Hospital, L.P.   d/b/a Navarro Regional Hospital
     
Navarro Regional, LLC    
     
NC-CSH, Inc.    
     
NC-DSH, Inc.    
     
NeuroSpine-Pain Surgery Center, LLC#    
     
Newport Home Care Services, LLC    
     
NHCI of Hillsboro, Inc.   d/b/a Hill Regional Hospital
     
North Anaheim Surgicare, LLC    
     
North Okaloosa Clinic Corp.    
     
North Okaloosa Home Health Corp.    
     
North Okaloosa Medical Corp.*    


 

     
     
North Okaloosa Surgery Venture Corp.    
     
Northampton Clinic Company, LLC    
     
Northampton Home Care, LLC    
     
Northampton Hospital Company, LLC   d/b/a Easton Hospital
     
Northampton Physician Services Corp.    
     
Northeast Medical Center, L.P.    
     
Northern Indiana Oncology Center, LLC*    
     
Northwest Allied Physicians, LLC    
     
Northwest Arkansas Employees, LLC    
     
Northwest Arkansas Hospitals, LLC*   d/b/a Northwest Medical Center -- Bentonville; Northwest Medical Center -- Springdale; Willow Creek Women’s Hospital
     
Northwest Benton County Physician Services, LLC    
     
Northwest Hospital, LLC   d/b/a Northwest Medical Center
     
Northwest Indiana Health System, LLC*    
     
Northwest Marana Hospital, LLC    
     
Northwest Medical Center CT/MRI at Marana, LLC#    
     
Northwest Physicians, LLC    
     
Northwest Rancho Vistoso Imaging Services, LLC    
     
Northwest Tucson ASC-GP, LLC    
     
Northwest Tucson Surgery Center, L.P.*    
     
NOV Holdings, LLC    
     
Novasys Health Network, L.L.C.#    
     
NRH, LLC    
     
Oak Hill Clinic Corp.    
     
Oak Hill Hospital Corporation   d/b/a Plateau Medical Center
     
Odessa, LLC    
     
Ohio Sleep Disorders Centers, LLC#    
     
Oklahoma City ASC-GP, LLC    
     
Oklahoma City Home Care Services, LLC    
     
Oklahoma City Surgery Center, L.P.    
     
Olive Branch Clinic Corp.    
     
Olive Branch Hospital, Inc.    
     
OPRMC, LLC    
     
Oro Valley Hospital, LLC   d/b/a Northwest Medical Center
     
Pacific East Division Office, L.P.    
     
Pacific Group ASC Division, Inc.    


 

     
     
Pacific Physicians Services, LLC    
     
Pacific West Division Office, LLC    
     
Pain Management Join Venture, L.L.P.#    
     
Palm Drive Hospital, L.P.    
     
Palm Drive Medical Center, LLC    
     
Palmer-Wasilla Health System, LLC    
     
Palmetto Women’s Care, LLC    
     
Pampa Hospital, L.P.    
     
Pampa Medical Center, LLC    
     
Panhandle Medical Center, LLC    
     
Panhandle Property, LLC    
     
Panhandle Surgical Hospital, L.P.    
     
Panhandle, LLC    
     
Parkway Regional Medical Clinic, Inc.    
     
Payson Healthcare Management, Inc.    
     
Payson Home Care Services, LLC    
     
Payson Hospital Corporation   d/b/a Payson Regional Medical Center
     
PDMC, LLC    
     
Pecos Valley of New Mexico, LLC    
     
Peerless Healthcare, LLC    
     
Pennsylvania Hospital Company, LLC    
     
Pennsylvania Medical Professionals, P.C.    
     
Petersburg Clinic Company, LLC    
     
Petersburg Home Care Services, LLC    
     
Petersburg Hospital Company, LLC   d/b/a Southside Regional Medical Center
     
PH Denton Physicians, Inc.    
     
Phillips & Coker OB-GYN, LLC    
     
Phillips Clinic Corp.    
     
Phillips Hospital Corporation   d/b/a Helena Regional Medical Center
     
Phoenix Amdeco, LLC    
     
Phoenix Surgical, LLC    
     
Phoenixville Clinic Company, LLC    
     
Phoenixville Hospital Company, LLC   d/b/a Phoenixville Hospital
     
Phoenixville Hospital Malpractice Assistance Fund, Inc.    
     
Physician Practice Support, Inc.    
     
Physicians and Surgeons Hospital of Alice, L.P.    


 

     
     
Physicians’ Surgery Center of Florence, LLC    
     
Phys-Med, LLC    
     
Piney Woods Healthcare System, L.P.*   d/b/a Woodland Heights Medical Center
     
Plymouth Hospital Corporation    
     
Polk Medical Services, Inc.    
     
Ponca City Home Care Services, Inc.    
     
Porter County Endoscopy Center, LLC#    
     
Porter Health Services, LLC    
     
Porter Hospital, LLC*   d/b/a Porter Hospital
     
Porter Physician Services, LLC    
     
Pottstown Clinic Company, LLC    
     
Pottstown Home Care Services, LLC    
     
Pottstown Hospital Company, LLC   d/b/a Pottstown Memorial Medical Center
     
Pottstown Hospital Corporation    
     
Pottstown Imaging Company, LLC    
     
Pottstown Memorial Malpractice Assistance Fund, Inc.    
     
Premier Care Hospital, LLC    
     
PremierCare of Arkansas, LLC#    
     
PremierCare of Northwest Arkansas, LLC*    
     
Premier Care Super PHO, LLC    
     
Primary Medical, LLC    
     
Procure Solutions, LLC    
     
Professional Account Services Inc.    
     
Psychiatric Services of Paradise Valley, LLC    
     
QHG Georgia Holdings, Inc.    
     
QHG Georgia, L.P.    
     
QHG of Barberton, Inc.    
     
QHG of Bluffton Company, LLC    
     
QHG of Clinton County, Inc.    
     
QHG of Enterprise, Inc.   d/b/a Medical Center Enterprise
     
QHG of Forrest County, Inc.    
     
QHG of Fort Wayne Company, LLC    
     
QHG of Hattiesburg, Inc.    
     
QHG of Kenmare, Inc.    
     
QHG of Lake City, Inc.    
     
QHG of Massillon, Inc.    


 

     
     
QHG of Minot, Inc.    
     
QHG of Ohio, Inc.    
     
QHG of South Carolina, Inc.   d/b/a Carolinas Hospital System
     
QHG of Spartanburg, Inc.    
     
QHG of Springdale, Inc.    
     
QHG of Texas, Inc.    
     
QHG of Warsaw Company, LLC    
     
QHR International, LLC    
     
Quorum ELF, Inc.    
     
Quorum Health Resources, LLC    
     
Quorum Health Services, Inc.    
     
Red Bud Clinic Corp.    
     
Red Bud Home Care Services, LLC    
     
Red Bud Hospital Corporation    
     
Red Bud Illinois Hospital Company, LLC   d/b/a Red Bud Regional Hospital
     
Redimed DeKalb, LLC#    
     
Regional Cancer Treatment Center, Ltd.#    
     
Regional Employee Assistance Program    
     
Regional Hospital of Longview, LLC    
     
Rehab Hospital of Fort Wayne General Partnership    
     
River Region Medical Corporation    
     
River to River Heart Group, LLC    
     
Riverside MSO, LLC#    
     
Roswell Clinic Corp.    
     
Roswell Community Hospital Investment Corporation    
     
Roswell Hospital Corporation   d/b/a Eastern New Mexico Medical Center
     
Russell County Clinic Corp.    
     
Russell County Medical Center, Inc.    
     
Ruston Clinic Company, LLC    
     
Ruston Hospital Corporation    
     
Ruston Louisiana Hospital Company, LLC   d/b/a Northern Louisiana Medical Center
     
SACMC, LLC    
     
Salem Clinic Corp.    
     
Salem Home Care Services, LLC    
     
Salem Hospital Corporation   d/b/a The Memorial Hospital of Salem County
     
Salem Medical Professionals, P.C.    
     
Samaritan Surgicenters of Arizona II, LLC    


 

     
     
San Angelo Ambulatory Surgery Center, Ltd.#    
     
San Angelo Community Medical Center, LLC    
     
San Angelo Hospital, L.P.   d/b/a San Angelo Community Medical Center
     
San Angelo Medical, LLC    
     
San Diego Hospital, L.P.    
     
San Leandro, LLC    
     
San Leandro Hospital, L.P.    
     
San Leandro Medical Center, LLC    
     
San Leandro Surgery Center, Ltd.#    
     
San Miguel Clinic Corp.    
     
San Miguel Hospital Corporation   d/b/a Alta Vista Regional Hospital
     
Scenic Managed Services, Inc.    
     
Schuylkill Internal Medicine Associates, LLC    
     
SDH, LLC    
     
Searcy Holdings, LLC    
     
Sebastopol, LLC    
     
Senior Circle Association (not-for-profit)    
     
Shelbyville Clinic Corp.    
     
Shelbyville Home Care Services, LLC    
     
Shelbyville Hospital Corporation   d/b/a Heritage Medical Center
     
Sherman Hospital, L.P.    
     
Sherman Medical Center, LLC    
     
Siloam Springs Arkansas Hospital Company, LLC   d/b/a Siloam Springs Memorial Hospital
     
Siloam Springs Clinic Company, LLC    
     
Siloam Springs Holdings, LLC    
     
Silsbee Doctors Hospital, L.P.    
     
Silsbee Medical Center, LLC    
     
Silsbee Texas, LLC    
     
Silver Creek MRI, LLC*    
     
SJ Home Care, LLC    
     
SkyRidge Clinical Associates, LLC    
     
SLH, LLC    
     
SMMC Medical Group    
     
Software Sales Corp.    
     
South Alabama Managed Care Contracting, Inc.    
     
South Alabama Medical Management Services, Inc.    
     
South Alabama Physician Services, Inc.    


 

     
     
South Arkansas Clinic, LLC    
     
South Arkansas Physician Services, LLC#    
     
South Tulsa Medical Group, LLC    
     
SouthCrest Anesthesia Group, LLC    
     
SouthCrest Medical Group, LLC    
     
SouthCrest Surgery Center, L.P.*    
     
SouthCrest, L.L.C.   d/b/a SouthCrest Hospital
     
Southeast Alabama Maternity Center, LLC#    
     
Southern Chester County Medical Building I#    
     
Southern Chester County Medical Building II#    
     
Southern Illinois Medical Care Associates, LLC    
     
Southern Texas Medical Center, LLC    
     
Southside Physician Network, LLC    
     
Spokane Valley Washington Hospital Company, LLC   d/b/a Valley Hospital and Medical Center
     
Spokane Washington Hospital Company, LLC   d/b/a Deaconess Medical Center
     
Springdale/Bentonville ASC-GP, LLC    
     
Springdale/Bentonville Surgery Center, L.P.*    
     
Springdale Home Care Services, LLC    
     
Springfield Oregon Holdings, LLC    
     
Sprocket Medical Management, LLC    
     
St. Joseph Health System, LLC   d/b/a St. Joseph Health System
     
St. Joseph Medical Group, Inc.    
     
StrokeCareNow, LLC#    
     
Summerlin Hospital Medical Center, LLC#    
     
Summit Surgical Suites, LLC#    
     
Sunbury Clinic Company, LLC    
     
Sunbury Hospital Company, LLC*   d/b/a Sunbury Community Hospital
     
Surgical Center of Amarillo, LLC    
     
Surgical Center of Carlsbad, LLC    
     
Surgicare of Independence, Inc.    
     
Surgicare of San Leandro, Inc.    
     
Surgicare of Sherman, Inc.    
     
Surgicare of Southeast Texas I, LLC    
     
Surgicare of Victoria, Inc.    
     
Surgicare of Victoria, Ltd.    
     
Surgicare Outpatient Center of Lake Charles, Inc.    
     
Surgicenter of Johnson County, Inc.    


 

     
     
Surgicenters of America, Inc.    
     
Tennyson Holdings, LLC    
     
Terrell Hospital, L.P.    
     
Terrell Medical Center, LLC    
     
The Intensive Resource Group, LLC    
     
The Surgery Center of Salem County, L.L.C.*    
     
The Vicksburg Clinic, LLC    
     
Three Rivers Medical Clinics, Inc.    
     
Timberland Medical Group    
     
Tooele Clinic Corp.    
     
Tooele Home Care Services, LLC    
     
Tooele Hospital Corporation   d/b/a Mountain West Medical Center
     
Triad Corporate Services, Limited Partnership    
     
Triad CSGP, LLC    
     
Triad CSLP, LLC    
     
Triad DeQueen Regional Medical Center, LLC    
     
Triad Healthcare Corporation    
     
Triad Healthcare System of Phoenix, L.P.    
     
Triad Holdings III, LLC    
     
Triad Holdings IV, LLC    
     
Triad Holdings V, LLC    
     
Triad Holdings VI, Inc.    
     
Triad Indiana Holdings, LLC    
     
Triad Nevada Holdings, LLC    
     
Triad of Alabama, LLC   d/b/a Flowers Hospital
     
Triad of Arizona (L.P.), Inc.    
     
Triad of Oregon, LLC    
     
Triad of Phoenix, Inc.    
     
Triad RC, Inc.    
     
Triad Texas, LLC    
     
Triad-Arizona I, Inc.    
     
Triad-ARMC, LLC    
     
Triad-Denton Hospital GP, LLC    
     
Triad-Denton Hospital, L.P.    
     
Triad-El Dorado, Inc.    
     
Triad-Medical Center at Terrell Subsidiary, LLC    


 

     
Triad-Medical Center of Sherman Subsidiary, LLC    
     
Triad-Navarro Regional Hospital Subsidiary, LLC    
     
Triad-South Tulsa Hospital Company, Inc.    
     
Triad-Willow Creek, LLC    
     
Tri-Irish, Inc.    
     
Tri-Shell 37 LLC    
     
Tri-World, LLC    
     
TROSCO, LLC    
     
Troy Hospital Corporation    
     
Trufor Pharmacy, LLC    
     
TTHR Limited Partnership*   d/b/a Presbyterian Hospital of Denton
     
Tucson Rehabilitation, LLC    
     
Tulsa Home Care Services, LLC    
     
Tuscora Park Medical Specialists, LLC    
     
Valley Advanced Imaging, LLC#    
     
Valley Advanced MRI, LLC#    
     
Valley Health System, LLC#    
     
Vanderbilt-Gateway Cancer Center, G.P.#    
     
VFARC, LLC    
     
VHC Holdings, LLC    
     
VHC Medical, LLC    
     
Vicksburg Healthcare, LLC   d/b/a River Region Medical Center
     
Vicksburg Surgical Center, LLC    
     
Victoria Functional Assessment & Restoration Ltd.    
     
Victoria Hospital, LLC    
     
Victoria of Texas, L.P.   d/b/a DeTar Hospital Navarro; DeTar Hospital North
     
Victoria Texas Home Care Services, LLC    
     
Village Medical Center Associates, LLC    
     
Virginia Hospital Company, LLC    
     
VMF Medical, LLC    
     
WA-SPOK DH CRNA, LLC    
     
WA-SPOK DH Urgent Care, LLC    
     
WA-SPOK Kidney Care, LLC    
     
WA-SPOK Medical Care, LLC    
     
WA-SPOK Primary Care, LLC    
     
WA-SPOK Pulmonary & Critical Care, LLC    


 

     
WA-SPOK VH CRNA, LLC    
     
WA-SPOK VH Urgent Care, LLC    
     
Wagoner Community Hospital, LLC    
     
WAMC, LLC    
     
Warsaw Health System, LLC*   d/b/a Kosciusko Community Hospital
     
Washington Clinic Corp.    
     
Washington Hospital Corporation    
     
Washington Physician Corp.    
     
Watsonville Hospital Corporation   d/b/a Watsonville Community Hospital
     
Waukegan Clinic Corp.    
     
Waukegan Hospice Corp.    
     
Waukegan Hospital Corporation    
     
Waukegan Illinois Hospital Company, LLC   d/b/a Vista Medical Center East; Vista Medical Center West
     
Weatherford Home Care Services, LLC    
     
Weatherford Hospital Corporation    
     
Weatherford Texas Hospital Company, LLC   d/b/a Weatherford Regional Medical Center
     
Webb County Texas Home Care Services, LLC    
     
Webb Hospital Corporation    
     
Webb Hospital Holdings, LLC    
     
Wesley Health System, LLC   d/b/a Wesley Medical Center
     
Wesley HealthTrust, Inc.    
     
Wesley Physician Services, LLC    
     
West Anaheim Hospital, L.P.    
     
West Anaheim Medical Center, LLC    
     
West Anaheim, LLC    
     
West Grove Clinic Company, LLC    
     
West Grove Family Practice, LLC    
     
West Grove Home Care, LLC    
     
West Grove Hospital Company, LLC   d/b/a Jennersville Regional Hospital
     
West Virginia MS, LLC    
     
Western Arizona Regional Home Health and Hospice, Inc.    
     
Western Illinois Kidney Center, L.L.C.#    
     
Wharton Medco, LLC    
     
WHMC, LLC    
     
Wichita Falls Texas Home Care Corporation    


 

     
     
Wichita Falls Texas Private Duty Corporation    
     
Wilkes-Barre Academic Medicine, LLC    
     
Wilkes-Barre Behavioral Hospital Company, LLC    
     
Wilkes-Barre Community Counseling Services, LLC    
     
Wilkes-Barre Holdings, LLC    
     
Wilkes-Barre Home Care Services, LLC    
     
Wilkes-Barre Hospital Company, LLC    
     
Wilkes-Barre Personal Care Services, LLC    
     
Wilkes-Barre Skilled Nursing Services, LLC    
     
Willamette Community Medical Group, LLC    
     
Williamston Clinic Corp.    
     
Williamston Hospital Corporation   d/b/a Martin General Hospital
     
WM Medical, LLC    
     
Women & Children’s Hospital, LLC   d/b/a Women & Children’s Hospital
     
Women’s Health Care Associates of Phoenixville, LLC    
     
Woodland Heights Medical Center, LLC    
     
Woodward Clinic Company, LLC    
     
Woodward Health System, LLC   d/b/a Woodward Hospital
     
Woodward Home Care Services, LLC    

EX-23.1
Exhibit 23.1
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in Registration Statement Nos. 333-117697 and 333-156405 on Form S-3 and in Registration Statement Nos. 333-100349, 333-61614, 333-44870, 333-107810, 333-121282, 333-121283, and 333-144525 on Form S-8 of our reports dated February 26, 2009 (which reports express an unqualified opinion and include an explanatory paragraph referring to the Company adopting Statement of Financial Accounting Standards No. 157, Fair Value Measurements effective January 1, 2008), relating to the consolidated financial statements and financial statement schedule of Community Health Systems, Inc., and the effectiveness of Community Health Systems, Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Community Health Systems, Inc. for the year ended December 31, 2008.
 
 
/s/ Deloitte & Touche LLP
 
Nashville, Tennessee
February 26, 2009

EX-31.1
Exhibit 31.1
 
I, Wayne T. Smith, certify that:
 
1. I have reviewed this annual report on Form 10-K of Community Health Systems, Inc.;
 
2. Based on my knowledge, this 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 report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
 
4. The registrant’s 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 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
 
/s/  Wayne T. Smith
Wayne T. Smith
Chairman of the Board, President
and Chief Executive Officer
 
Date: February 27, 2009

EX-31.2
Exhibit 31.2
 
I, W. Larry Cash, certify that:
 
1. I have reviewed this annual report on Form 10-K of Community Health Systems, Inc.;
 
2. Based on my knowledge, this 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 report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 report;
 
4. The registrant’s 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 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting.
 
/s/  W. Larry Cash
W. Larry Cash
Executive Vice President,
Chief Financial Officer and Director
 
Date: February 27, 2009

EX-32.1
Exhibit Number 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 Annual Report of Community Health Systems, Inc. (the “Company”) on Form 10-K for the period ending December 31, 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 results of operations of the Company.
 
/s/  Wayne T. Smith
Wayne T. Smith
Chairman of the Board, President and
Chief Executive Officer
 
February 27, 2009

EX-32.2
Exhibit Number 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 Annual Report of Community Health Systems, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W. Larry Cash, Executive Vice President and Chief Financial 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 results of operations of the Company.
 
/s/  W. Larry Cash
W. Larry Cash
Executive Vice President, Chief Financial
Officer and Director
 
February 27, 2009