Form 10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 2009
Commission file number
001-15925
COMMUNITY HEALTH SYSTEMS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-3893191
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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4000 Meridian Boulevard
Franklin, Tennessee
(Address of principal
executive offices)
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37067
(Zip Code)
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(Registrants telephone number)
615-465-7000
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicated by check mark whether the registrant is a shell
company (as defined in
Rule 126-2
of the Exchange
Act). Yes o No þ
As of April 20, 2009, there were outstanding
92,479,260 shares of the Registrants Common Stock,
$.01 par value.
Community
Health Systems, Inc.
Form 10-Q
For the Three Months Ended March 31, 2009
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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COMMUNITY
HEALTH SYSTEMS INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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March 31,
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December 31,
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2009
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2008
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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532,132
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$
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220,655
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Patient accounts receivable, net of allowance for doubtful
accounts of $1,194,834 and $1,102,900 at March 31, 2009 and
December 31, 2008, respectively
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1,643,919
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1,613,959
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Supplies
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275,380
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272,937
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Prepaid income taxes
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92,710
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Deferred income taxes
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91,875
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91,875
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Prepaid expenses and taxes
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88,717
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72,900
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Other current assets
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195,113
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240,014
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Total current assets
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2,827,136
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2,605,050
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Property and equipment
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7,191,931
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7,082,930
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Less accumulated depreciation and amortization
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(1,323,638
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)
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(1,213,871
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)
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Property and equipment, net
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5,868,293
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5,869,059
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Goodwill
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4,173,408
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4,166,091
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Other assets, net
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1,045,529
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1,178,054
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Total assets
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$
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13,914,366
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$
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13,818,254
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LIABILITIES AND EQUITY
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Current liabilities
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Current maturities of long-term debt
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$
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32,672
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$
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29,462
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Accounts payable
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465,393
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529,429
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Current income taxes payable
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17,668
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Deferred income taxes
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6,740
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6,740
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Accrued interest
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83,103
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152,228
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Accrued liabilities
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797,432
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816,111
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Total current liabilities
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1,403,008
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1,533,970
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Long-term debt
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9,074,952
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8,937,984
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Deferred income taxes
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461,098
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460,793
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Other long-term liabilities
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890,237
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887,445
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Total liabilities
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11,829,295
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11,820,192
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Redeemable noncontrolling interests in equity of consolidated
subsidiaries
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306,942
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298,763
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EQUITY
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Community Health Systems, Inc. stockholders equity
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Preferred stock, $.01 par value per share,
100,000,000 shares authorized; none issued
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Common stock, $.01 par value per share,
300,000,000 shares authorized; 93,454,809 shares
issued and 92,479,260 shares outstanding at March 31,
2009, and 92,483,166 shares issued and
91,507,617 shares outstanding at December 31, 2008
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934
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925
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Additional paid-in capital
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1,153,498
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1,151,119
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Treasury stock, at cost, 975,549 shares at March 31,
2009 and December 31, 2008
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(6,678
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)
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(6,678
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)
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Accumulated other comprehensive loss
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(283,475
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)
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(295,575
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)
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Retained earnings
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835,164
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776,249
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Total Community Health Systems, Inc. stockholders equity
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1,699,443
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1,626,040
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Noncontrolling interests in equity of consolidated
subsidiaries
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78,686
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73,259
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Total equity
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1,778,129
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1,699,299
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Total liabilities and equity
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$
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13,914,366
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$
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13,818,254
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See accompanying notes to the condensed consolidated financial
statements.
2
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
(In thousands, except share and per share data)
(Unaudited)
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Three Months Ended
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March 31,
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2009
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2008
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Net operating revenues
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$
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2,892,390
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$
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2,688,924
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Operating costs and expenses:
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Salaries and benefits
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1,164,144
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1,076,301
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Provision for bad debts
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335,451
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289,702
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Supplies
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402,454
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380,676
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Other operating expenses
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539,724
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518,966
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Rent
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59,943
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58,663
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Depreciation and amortization
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135,532
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121,270
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Total operating costs and expenses
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2,637,248
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2,445,578
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Income from operations
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255,142
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243,346
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Interest expense, net
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163,810
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164,527
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(Gain) loss from early extinguishment of debt
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(2,412
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)
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1,328
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Equity in earnings of unconsolidated affiliates
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(12,919
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)
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(12,884
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)
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Income from continuing operations before income taxes
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106,663
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90,375
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Provision for income taxes
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35,532
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31,256
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Income from continuing operations
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71,131
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59,119
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Discontinued operations, net of taxes:
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Income from operations of hospitals sold and hospitals held for
sale
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2,175
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(Loss) gain on sale of hospitals, net
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(405
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)
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9,617
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Income from discontinued operations
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1,770
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9,617
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Net income
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72,901
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68,736
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Less: Net income attributable to noncontrolling interests
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13,986
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8,609
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Net income attributable to Community Health Systems, Inc.
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$
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58,915
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$
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60,127
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Income from continuing operations attributable to Community
Health Systems, Inc. common stockholders per share:
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Basic
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$
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0.63
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$
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0.53
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Diluted
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$
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0.63
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$
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0.52
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Discontinued operations attributable to Community Health
Systems, Inc. common stockholders per share:
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Basic
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$
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0.02
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$
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0.11
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Diluted
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$
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0.02
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$
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0.11
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Net income attributable to Community Health Systems, Inc.
common stockholders per share:
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Basic
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$
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0.65
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$
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0.64
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Diluted
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$
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0.65
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$
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0.63
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Weighted-average number of shares outstanding:
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Basic
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90,604,767
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94,107,532
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Diluted
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90,885,140
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95,006,721
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See accompanying notes to the condensed consolidated financial
statements.
3
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
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Three Months Ended
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March 31,
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2009
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2008
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Cash flows from operating activities
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Net income attributable to Community Health Systems, Inc.
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$
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58,915
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$
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60,127
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Adjustments to reconcile net income attributable to Community
Health Systems, Inc. to net cash provided by operating
activities:
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Depreciation and amortization
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135,894
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122,478
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Net income attributable to noncontrolling interests
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13,986
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8,609
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Stock-based compensation expense
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12,286
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13,246
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(Gain) loss on sale of hospitals and partnership interest, net
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405
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(12,885
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)
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Excess tax benefits relating to stock-based compensation
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|
947
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(Gain) loss on early extinguishment of debt
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(2,412
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)
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1,328
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Other non-cash expenses, net
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(4,489
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)
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1,442
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Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures:
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Patient accounts receivable
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(18,013
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)
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(100,057
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)
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Supplies, prepaid expenses and other current assets
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(7,592
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)
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(26,584
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)
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Accounts payable, accrued liabilities and income taxes
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68,170
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(81,965
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)
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Other
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2,277
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68,447
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Net cash provided by operating activities
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259,427
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55,133
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Cash flows from investing activities
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Acquisitions of facilities and other related equipment
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(17,053
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)
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(1,705
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)
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Purchases of property and equipment
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(136,021
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)
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(141,693
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)
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Proceeds from disposition of hospitals and other ancillary
operations
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89,909
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365,680
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Proceeds from sale of property and equipment
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|
326
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|
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13,717
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Increase in other non-operating assets
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|
(36,344
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)
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|
(98,182
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)
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|
|
|
|
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Net cash (used in) provided by investing activities
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|
|
(99,183
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)
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|
137,817
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|
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|
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|
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Cash flows from financing activities
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|
|
|
|
|
|
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Proceeds from exercise of stock options
|
|
|
|
|
|
|
94
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|
Excess tax benefits relating to stock-based compensation
|
|
|
|
|
|
|
(947
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)
|
Deferred financing costs
|
|
|
(57
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)
|
|
|
(2,232
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)
|
Proceeds from noncontrolling investors in joint ventures
|
|
|
21,922
|
|
|
|
12,881
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|
Redemption of noncontrolling investments in joint ventures
|
|
|
(167
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)
|
|
|
|
|
Distributions to noncontrolling investors in joint ventures
|
|
|
(6,595
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)
|
|
|
(7,524
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)
|
Borrowings under credit agreement
|
|
|
200,000
|
|
|
|
25,000
|
|
Repayments of long-term indebtedness
|
|
|
(63,870
|
)
|
|
|
(188,743
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
151,233
|
|
|
|
(161,471
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
311,477
|
|
|
|
31,479
|
|
Cash and cash equivalents at beginning of period
|
|
|
220,655
|
|
|
|
132,874
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
532,132
|
|
|
$
|
164,353
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
4
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
The unaudited condensed consolidated financial statements of
Community Health Systems, Inc. and its subsidiaries (the
Company) as of March 31, 2009 and
December 31, 2008 and for the three-month periods ended
March 31, 2009 and March 31, 2008, have been prepared
in accordance with accounting principles generally accepted in
the United States of America (GAAP). In the opinion
of management, such information contains all adjustments,
consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such periods. All
intercompany transactions and balances have been eliminated. The
results of operations for the three months ended March 31,
2009, are not necessarily indicative of the results to be
expected for the full fiscal year ending December 31, 2009.
Certain information and disclosures normally included in the
notes to consolidated financial statements have been condensed
or omitted as permitted by the rules and regulations of the
Securities and Exchange Commission (SEC). The
Company believes the disclosures are adequate to make the
information presented not misleading. The accompanying unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2008, contained in
the Companys Annual Report on
Form 10-K.
On January 1, 2009, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an Amendment of ARB No. 51
(SFAS No. 160), which 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. These disclosure requirements require that minority
interests be renamed noncontrolling interests and that
noncontrolling ownership interests be presented separately
within equity in the condensed consolidated financial
statements. Revenues, expenses and income from continuing
operations from
less-than-wholly-owned
subsidiaries are presented on the condensed consolidated
statements of income at the consolidated amounts, with a
consolidated net income measure that presents separately the
amounts attributable to both the controlling and noncontrolling
interests for all periods presented. Noncontrolling ownership
interests that are redeemable or may become redeemable at a
fixed or determinable price at the option of the holder or upon
the occurrence of an event outside of the control of the company
continue to be presented in mezzanine equity in accordance with
Emerging Issues Task Force Topic D-98, Classification and
Measurement of Redeemable Securities.
SFAS No. 160 requires retrospective adoption of the
presentation and disclosure requirements for all periods
presented. Therefore, the condensed consolidated financial
statements as of December 31, 2008 and for the three months
ended March 31, 2008 reflect the provisions of
SFAS No. 160 as if it was effective for those periods.
Other than these changes in financial statement presentation,
the adoption of SFAS No. 160 did not have a material
impact on the condensed consolidated financial statements.
Throughout these notes to the condensed consolidated financial
statements, Community Health Systems, Inc., the parent company,
and its consolidated subsidiaries are referred to on a
collective basis as the Company. This drafting style
is not meant to indicate that the publicly-traded parent company
or any 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. References to the
Company may include one or more of its subsidiaries.
|
|
2.
|
ACCOUNTING
FOR STOCK-BASED COMPENSATION
|
Stock-based compensation awards are granted under the Community
Health Systems, Inc. Amended and Restated 2000 Stock Option and
Award Plan (the 2000 Plan). The 2000 Plan allows for
the grant of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code, as well as stock
options which do not so qualify, stock appreciation rights,
restricted stock, performance units and performance shares,
phantom stock awards and share awards. Persons eligible to
receive grants under the 2000 Plan include the Companys
directors, officers, employees and consultants. To date, all
options granted under the 2000 Plan have been
nonqualified
5
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 eight year contractual term
and options granted in 2008 and 2009 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
Companys common stock on the option grant date. As of
March 31, 2009, 571,750 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):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Effect on income from continuing operations before income taxes
|
|
$
|
(12,286
|
)
|
|
$
|
(13,246
|
)
|
|
|
|
|
|
|
|
|
|
Effect on net income
|
|
$
|
(7,464
|
)
|
|
$
|
(8,047
|
)
|
|
|
|
|
|
|
|
|
|
Effect on net income attributable to Community Health Systems,
Inc. common stockholders per share-diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
At March 31, 2009, $70.6 million of unrecognized
stock-based compensation expense is expected to be recognized
over a weighted-average period of 23.9 months. Of that
amount, $23.2 million relates to outstanding unvested stock
options expected to be recognized over a weighted-average period
of 22.2 months and $47.4 million relates to
outstanding unvested restricted stock and phantom shares
expected to be recognized over a weighted-average period of
24.7 months.
The fair value of stock options was estimated using the Black
Scholes option pricing model with the following weighted-average
assumptions during the three months ended March 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Expected volatility
|
|
|
40.1
|
%
|
|
|
24.1
|
%
|
Expected dividends
|
|
|
0
|
|
|
|
0
|
|
Expected term
|
|
|
4 years
|
|
|
|
4 years
|
|
Risk-free interest rate
|
|
|
1.63
|
%
|
|
|
2.57
|
%
|
In determining expected return, the Company examined
concentrations of option holdings and historical patterns of
option exercises and forfeitures, as well as forward looking
factors, in an effort to determine if there were any discernable
employee populations. From this analysis, the Company identified
two employee populations, one consisting primarily of certain
senior executives and the other consisting of all other
recipients.
The expected volatility rate was estimated based on historical
volatility. In determining expected volatility, the Company also
reviewed the market-based implied volatility of actively traded
options of its common stock and determined that historical
volatility did not differ significantly from the implied
volatility.
The expected life computation is based on historical exercise
and cancellation patterns and forward-looking factors, where
present, for each population identified. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at
the time of the grant. The pre-vesting forfeiture rate is based
on historical rates and forward-looking factors for each
population identified. The Company adjusts the estimated
forfeiture rate to its actual experience.
6
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Options outstanding and exercisable under the 2000 Plan as of
March 31, 2009, and changes during the three months then
ended were as follows (in thousands, except share and per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Value as of
|
|
|
|
|
|
|
Exercise
|
|
|
Term
|
|
|
March 31,
|
|
|
|
Shares
|
|
|
Price
|
|
|
(in Years)
|
|
|
2009
|
|
|
Outstanding at December 31, 2008
|
|
|
8,764,084
|
|
|
$
|
30.97
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,160,000
|
|
|
|
18.18
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(63,165
|
)
|
|
|
31.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009
|
|
|
9,860,919
|
|
|
$
|
29.45
|
|
|
|
5.7 years
|
|
|
$
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2009
|
|
|
6,072,813
|
|
|
$
|
28.73
|
|
|
|
4.9 years
|
|
|
$
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of stock options
granted during the three months ended March 31, 2009 and
2008, was $6.06 and $7.55, respectively. The aggregate intrinsic
value (the number of
in-the-money
stock options multiplied by the difference between the
Companys closing stock price on the last trading day of
the reporting period ($15.34) 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 March 31,
2009. This amount changes based on the market value of the
Companys common stock. No stock options were exercised
during the three months ended March 31, 2009. The aggregate
intrinsic value of options exercised during the three months
ended March 31, 2008 was $0.1 million. 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, for which
restrictions lapse equally on the first two anniversaries of the
award date. Certain of the restricted stock awards granted to
the Companys senior executives contain a performance
objective that must be met in addition to any vesting
requirements. If the performance objective is not attained, the
awards will be forfeited in their entirety. Once the performance
objective has been attained, restrictions will lapse in
one-third increments on each of the first three anniversaries of
the award date with the exception of the July 25, 2007
restricted stock awards, which have no additional time vesting
restrictions once the performance restrictions are met.
Notwithstanding the above-mentioned performance objectives and
vesting requirements, the restrictions will lapse earlier in the
event of death, disability, 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
March 31, 2009, and changes during the three months then
ended were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Grant Date Fair Value
|
|
|
Unvested at December 31, 2008
|
|
|
1,684,207
|
|
|
$
|
35.57
|
|
Granted
|
|
|
1,156,000
|
|
|
|
18.18
|
|
Vested
|
|
|
(621,312
|
)
|
|
|
35.68
|
|
Forfeited
|
|
|
(5,667
|
)
|
|
|
33.52
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2009
|
|
|
2,213,228
|
|
|
|
26.46
|
|
|
|
|
|
|
|
|
|
|
7
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 25, 2009, each of the Companys outside
directors received a grant of shares of phantom stock under the
2000 Plan equal in value to $130,000 divided by the closing
price of the Companys common stock on that date ($18.18),
or 7,151 shares per director (a total of 42,906 shares
of phantom stock). Vesting of these shares of phantom stock
occurs in one-third increments on each of the first three
anniversaries of the award date. As of March 31, 2009,
there were 42,906 shares of phantom stock unvested at a
weighted-average grant date fair value of $18.18. No shares of
phantom stock were vested or canceled during the three months
ended March 31, 2009. Pursuant to a March 24, 2009
amendment to the 2000 Plan, future grants of this type will be
denominated as restricted stock unit awards.
Under the Directors Fee Deferral Plan, the Companys
outside directors may elect to receive share equivalent units in
lieu of cash for their directors fee. These units are held
in the plan until the director electing to receive the share
equivalent units retires or otherwise terminates
his/her
directorship with the Company. Share equivalent units are
converted to shares of common stock of the Company at the time
of distribution. The following table represents the amount of
directors fees which were deferred and the equivalent
units into which they converted for each of the respective
periods (in thousands, except units):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Directors fees earned and deferred into plan
|
|
$
|
20
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
Equivalent units
|
|
|
1,303.781
|
|
|
|
1,217.605
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009, there was a total of
18,122.783 units deferred in the plan with an aggregate
fair value of $0.3 million, based on the closing market
price of the Companys common stock on the last trading day
of the reporting period of $15.34.
The majority of the Companys operating costs and expenses
are cost of revenue items. Operating costs that
could be classified as general and administrative by the Company
would include the Companys corporate office costs at the
Companys Franklin, Tennessee offices, which were
$39.2 million and $38.1 million for the three months
ended March 31, 2009 and 2008, respectively. Included in
these amounts is stock-based compensation expense of
$12.3 million and $13.2 million for the three months
ended March 31, 2009 and 2008, respectively.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated
financial statements. Actual results could differ from these
estimates under different assumptions or conditions.
|
|
5.
|
ACQUISITIONS
AND DIVESTITURES
|
In December 2007, the Financial Accounting Standards Board (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 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. SFAS No. 141(R) was adopted
by the Company on January 1, 2009. Approximately
$1.0 million of acquisition
8
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
costs related to prospective acquisitions were expensed during
the quarter ended March 31, 2009 from the adoption of
SFAS No. 141(R). The impact of
SFAS No. 141(R) on the Companys consolidated
results of operations or 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.
Triad
Acquisition
On July 25, 2007, the Company completed its acquisition of
Triad Hospitals, Inc. (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
March 31, 2009, eight of the hospitals acquired from Triad
had been sold and one hospital acquired from Triad remained
classified as held for sale. As a result of its acquisition of
Triad, the Company also provides management and consulting
services on a contract basis to independent hospitals, through
its subsidiary, Quorum Health Resources, LLC. The Company
acquired Triad for approximately $6.857 billion, including
the assumption of $1.686 billion of existing indebtedness.
In connection with the consummation of the acquisition of Triad,
the Companys wholly-owned subsidiary CHS/Community Health
Systems, Inc. (CHS) obtained $7.215 billion of
senior secured financing under a new credit facility (the
Credit Facility) and 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 Credit Facility
to acquire the outstanding shares of Triad, to refinance certain
of Triads indebtedness and the Companys
indebtedness, to complete certain related transactions, to pay
certain costs and expenses of the transactions and for general
corporate uses. This Credit Facility also provides an additional
$750 million revolving credit facility and had 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;
|
|
|
|
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 February 1, 2009, one or more subsidiaries of the
Company completed the 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 consisted of approximately
$1.1 million of assumed liabilities. As required by a lease
agreement entered into as part of this acquisition, a subsidiary
of the Company deposited $1.6 million of cash in an escrow
account and agreed to build a replacement facility at this
location, with
9
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
construction required to commence by February 2011 and be
completed by February 2013. If the construction of the
replacement facility is not completed within the
agreed-upon
time frame, the escrow balance will be remitted to the City of
Siloam Springs.
Effective November 14, 2008, one or more subsidiaries of
the Company acquired from Willamette Community Health Solutions
all of its joint venture interest in MWMC Holdings, LLC, which
indirectly owns a controlling interest in 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 noncontrolling interest was $22.7 million in cash.
Physicians affiliated with Oregon Healthcare Resources, Inc.
will continue to own a noncontrolling interest in the hospital,
with the balance owned by these subsidiaries of the Company.
Effective October 1, 2008, one or more subsidiaries of 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 $185.2 million, of which
$149.2 million was paid in cash and $36.0 million was
assumed in liabilities. Based upon the Companys
preliminary purchase price allocation relating to this
acquisition as of March 31, 2009, 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, one or more subsidiaries of 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 these subsidiaries 100% ownership
of that facility. The purchase price for this noncontrolling
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.
Discontinued
Operations
Effective March 31, 2009, the Company, through its
subsidiaries Triad-Denton Hospital LLC and Triad-Denton Hospital
LP, completed the settlement of pending litigation which
resulted in the sale of its ownership interest in a partnership,
which owned and operated Presbyterian Hospital of Denton (255
licensed beds) in Denton, Texas, to Texas Health Resources for
$103.0 million in cash. Also included as part of the
settlement, these subsidiaries of the Company transferred
certain hospital related assets.
Effective March 1, 2008, one or more subsidiaries of the
Company sold Woodland Medical Center (100 licensed beds)
located in Cullman, Alabama; Parkway Medical Center (108
licensed beds) located in Decatur, Alabama; Hartselle Medical
Center (150 licensed beds) located in Hartselle, Alabama;
Jacksonville Medical Center (89 licensed beds) located in
Jacksonville, Alabama; National Park Medical Center (166
licensed beds) located in Hot Springs, Arkansas;
St. Marys Regional Medical Center (170 licensed beds)
located in Russellville, Arkansas; Mineral Area Regional Medical
Center (135 licensed beds) located in Farmington, Missouri;
Willamette Valley Medical Center (80 licensed beds) located in
McMinnville, Oregon; and White County Community Hospital
(60 licensed beds) located in Sparta, Tennessee, to Capella
Healthcare, Inc., headquartered in Franklin, Tennessee. The
proceeds from this sale were $315.0 million in cash.
Effective February 21, 2008, one or more subsidiaries of
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.
10
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective February 1, 2008, one or more subsidiaries of 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.
As of March 31, 2009, the Company had one hospital
classified as held for sale.
In connection with the above actions and in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company has classified
the results of operations of the above mentioned hospitals as
discontinued operations in the accompanying condensed
consolidated statements of income.
Net operating revenues and income (loss) on discontinued
operations for the respective periods are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net operating revenues
|
|
$
|
62,386
|
|
|
$
|
145,263
|
|
|
|
|
|
|
|
|
|
|
Income from operations of hospitals sold and hospitals held for
sale before income taxes
|
|
|
3,623
|
|
|
|
1,173
|
|
(Loss) gain on sale of hospitals, net
|
|
|
(644
|
)
|
|
|
17,724
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, before taxes
|
|
|
2,979
|
|
|
|
18,897
|
|
Income tax expense
|
|
|
1,209
|
|
|
|
9,280
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
1,770
|
|
|
$
|
9,617
|
|
|
|
|
|
|
|
|
|
|
Interest expense was allocated to discontinued operations based
on estimated sale proceeds available for debt repayment.
The assets and liabilities of the hospital held for sale as of
March 31, 2009 are included in the accompanying condensed
consolidated balance sheet as follows: current assets of
$15.7 million, included in other current assets; net
property and equipment of $26.5 million and other long-term
assets of $1.8 million, included in other assets; and
current liabilities of $17.5 million, included in other
accrued liabilities.
The assets and liabilities of the hospitals held for sale as of
December 31, 2008 are included in the accompanying
condensed 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
accrued liabilities.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), on January 1, 2007.
The total amount of unrecognized benefit that would affect the
effective tax rate, if recognized, is approximately
$14.9 million as of March 31, 2009. It is the
Companys policy to recognize interest and penalties
accrued related to unrecognized benefits in its condensed
consolidated statements of income as income tax expense. During
the three months ended March 31, 2009, the Company
decreased liabilities by approximately $0.1 million and
recorded $0.4 million in interest and penalties related to
prior state income tax returns through its income tax provision
from continuing operations, which are included in its
FIN 48 liability at March 31, 2009. A total of
approximately $2.1 million of interest and penalties is
included in the amount of FIN 48 liability at
March 31, 2009.
The Company believes that it is reasonably possible that
approximately $4.1 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.
11
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. 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 ended July 25, 2007. The
Company believes the results of this examination will not be
material to its consolidated results of operations or
consolidated financial position. With few exceptions, the
Company is no longer subject to state income tax examinations
for years prior to 2004.
Prior to the adoption of SFAS No. 160 on
January 1, 2009, income from noncontrolling interests was
deducted from earnings before arriving at income from continuing
operations. With the adoption of SFAS No. 160, the
income from noncontrolling interests has been reclassified below
net income and therefore is no longer deducted in arriving at
income from continuing operations. However, the provision for
income taxes does not change because those subsidiaries with
noncontrolling interests pay no income tax, but distribute
taxable income to their respective investors. Accordingly, the
Company will not pay tax on the income attributable to the
noncontrolling interests. As a result of separately reporting
income that is taxed to others, the Companys effective tax
rate on continuing operations before income taxes, as reported
on the face of the financial statements is 33.3% and 34.6% for
the three months ended March 31, 2009 and 2008,
respectively. However, the actual effective tax rate that is
attributable to the Companys share of income from
continuing operations before income taxes (income from
continuing operations before income taxes, as presented on the
face of the statement of income, less income from continuing
operations attributable to noncontrolling interests of
$14.1 million and $9.3 million for the three months
ended March 31, 2009 and 2008, respectively) is 38.4% for
the three months ended March 31, 2009, as compared to 38.5%
for the three months ended March 31, 2008. While the
adoption of SFAS No. 160 does change the location of
the net income attributable to noncontrolling interests on the
statement of income, it does not change the income tax from
interests owned by the Company.
Cash paid for income taxes, net of refunds received, resulted in
a net cash refund of $62.4 million and $2.8 million
for the three months ended March 31, 2009 and 2008,
respectively.
|
|
7.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The changes in the carrying amount of goodwill for the three
months ended March 31, 2009, are as follows (in thousands):
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
4,166,091
|
|
Goodwill acquired as part of acquisitions during 2009
|
|
|
3,887
|
|
Consideration adjustments and finalization of purchase price
allocation adjustments for prior years acquisitions
|
|
|
3,430
|
|
|
|
|
|
|
Balance as of March 31, 2009
|
|
$
|
4,173,408
|
|
|
|
|
|
|
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
Companys operating segments meet the criteria to be
classified as reporting units. At March 31, 2009, the
hospital operations reporting unit, the home care agencies
reporting unit, and the hospital management services reporting
unit had $4.106 billion, $34.3 million and
$33.3 million, respectively, of goodwill.
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 units 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
12
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reporting units goodwill with the carrying value of the
reporting units 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
Companys best estimate of future revenues and operating
costs and are reconciled to the Companys consolidated
market capitalization. The cash flow forecasts are adjusted by
an appropriate discount rate based on the Companys
weighted-average cost of capital. Historically, the
Companys valuation models did not fully capture the fair
value of the Companys 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
Companys models have indicated value significantly in
excess of the carrying amount of assets in the Companys
reporting units, the additional value from a control premium was
not a determining factor in the outcome of step one of the
Companys 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 Companys market capitalization between
September 30, 2008 and March 31, 2009 has, more likely
than not, resulted in the existence of an impairment and
concluded that the decline in the Companys 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 the acquisition of
a health care system which the Company anticipates closing in
the quarter ending June 30, 2009, the volatility of the
current equity markets, including the increase in our stock
price since March 31, 2009 and the average stock price over
the trailing three-month, six-month and one-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
Companys stock price performance. If a further decline in
the Companys market capitalization and other factors
results in the decline in the Companys 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 Companys
earnings or increasing the Companys 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 Companys compliance with
covenants contained in the Credit Facility.
The gross carrying amount of the Companys other intangible
assets subject to amortization was $72.1 million at
March 31, 2009 and $68.6 million at December 31,
2008, and the net carrying amount was $52.1 million at
March 31, 2009 and $54.1 million at December 31,
2008. The carrying amount of the Companys other intangible
assets not subject to amortization was $35.9 million and
$35.2 million at March 31, 2009 and December 31,
2008, respectively. Other intangible assets are included in
other assets, net on the Companys condensed consolidated
balance sheets. Substantially all of the Companys
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 on these
13
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
intangible assets during the three months ended March 31,
2009 and 2008 was $3.3 million and $2.4 million,
respectively. Amortization expense on intangible assets is
estimated to be $8.7 million for the remainder of 2009,
$10.3 million in 2010, $7.2 million in 2011,
$4.0 million in 2012, $3.6 million in 2013, and
$18.3 million in 2014 and thereafter.
The following table sets forth the components of the numerator
and denominator for the computation of basic and diluted
earnings per share for income from continuing operations,
discontinued operations and net income attributable to Community
Health Systems, Inc. common stockholders (in thousands, except
share data):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
|
$
|
71,131
|
|
|
$
|
59,119
|
|
Less: Income from continuing operations attributable to
noncontrolling interests, net of taxes
|
|
|
(14,131
|
)
|
|
|
(9,292
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Community
Health Systems, Inc. common stockholders basic and
diluted
|
|
$
|
57,000
|
|
|
$
|
49,827
|
|
|
|
|
|
|
|
|
|
|
Income on discontinued operations, net of tax
|
|
$
|
1,770
|
|
|
$
|
9,617
|
|
Plus: Loss from discontinued operations attributable to
noncontrolling interests, net of taxes
|
|
|
145
|
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
Income on discontinued operations attributable to Community
Health Systems, Inc. common stockholders basic and
diluted
|
|
$
|
1,915
|
|
|
$
|
10,300
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding basic
|
|
|
90,604,767
|
|
|
|
94,107,532
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
|
38,745
|
|
|
|
77,299
|
|
Employee options
|
|
|
241,628
|
|
|
|
821,890
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding diluted
|
|
|
90,885,140
|
|
|
|
95,006,721
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities outstanding not included in the computation
of earning per share because their effect is antidilutive:
|
|
|
|
|
|
|
|
|
Employee options
|
|
|
9,524,719
|
|
|
|
4,361,131
|
|
|
|
|
|
|
|
|
|
|
Authorized capital shares of the Company include
400,000,000 shares of capital stock consisting of
300,000,000 shares of common stock and
100,000,000 shares of preferred stock. Each of the
aforementioned classes of capital stock has a par value of $0.01
per share. Shares of preferred stock, none of which are
outstanding as of March 31, 2009, 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 December 13, 2006, the Company commenced an open market
repurchase program for up to 5,000,000 shares of the
Companys common stock, not to exceed $200 million in
repurchases. This program will conclude at the earlier of three
years or when the maximum number of shares has been repurchased.
During the year ended December 31, 2008, the Company
repurchased 4,786,609 shares, which is the cumulative
number of
14
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
shares that have been repurchased under this program, at a
weighted-average price of $18.80 per share. During the three
months ended March 31, 2009, the Company did not repurchase
any shares under this program.
The following schedule presents the reconciliation of the
carrying amount of total equity, equity attributable to the
Company, and equity attributable to the noncontrolling interests
as if the provisions of SFAS No. 160 were adopted on
the first day of the quarter ended March 31, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Noncontrolling
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Noncontrolling
|
|
|
Stockholders
|
|
|
|
Interests
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Interests
|
|
|
Equity
|
|
Balance, December 31, 2008
|
|
$
|
|
|
|
|
$
|
925
|
|
|
$
|
1,197,944
|
|
|
$
|
(6,678
|
)
|
|
$
|
(295,575
|
)
|
|
$
|
776,249
|
|
|
$
|
|
|
|
$
|
1,672,865
|
|
(as previously reported)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2009 adjustment to noncontrolling interests from
adoption of SFAS No. 160
|
|
|
298,763
|
|
|
|
|
|
|
|
|
(46,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,259
|
|
|
|
26,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 (as adjusted)
|
|
|
298,763
|
|
|
|
|
925
|
|
|
|
1,151,119
|
|
|
|
(6,678
|
)
|
|
|
(295,575
|
)
|
|
|
776,249
|
|
|
|
73,259
|
|
|
|
1,699,299
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
9,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,915
|
|
|
|
4,781
|
|
|
|
63,696
|
|
Net change in fair value of interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,910
|
|
|
|
|
|
|
|
|
|
|
|
12,910
|
|
Net change in fair value of available for sale securities (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,250
|
)
|
Adjustment to pension liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
9,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,100
|
|
|
|
58,915
|
|
|
|
4,781
|
|
|
|
75,796
|
|
Net distributions to noncontrolling interests
|
|
|
(2,517
|
)
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
646
|
|
|
|
529
|
|
Adjustment to redemption value of redeemable noncontrolling
interests
|
|
|
1,491
|
|
|
|
|
|
|
|
|
(1,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,491
|
)
|
Cancellation of restricted stock for tax withholdings on vested
shares
|
|
|
|
|
|
|
|
9
|
|
|
|
(3,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,345
|
)
|
Tax benefit from exercise of options
|
|
|
|
|
|
|
|
|
|
|
|
(4,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,945
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
12,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
$
|
306,942
|
|
|
|
$
|
934
|
|
|
$
|
1,153,498
|
|
|
$
|
(6,678
|
)
|
|
$
|
(283,475
|
)
|
|
$
|
835,164
|
|
|
$
|
78,686
|
|
|
$
|
1,778,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
COMPREHENSIVE
INCOME (LOSS)
|
The following table presents the components of comprehensive
income (loss), net of related taxes. The net change in fair
value of interest rate swap agreements is a function of the
spread between the fixed interest rate of each swap and the
underlying variable interest rate under the Credit Facility, the
change in fair value of available for sale securities is the
unrealized gain (losses) on the related investments and the
amortization of unrecognized
15
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
pension cost components is the amortization of prior service
costs and credits and actuarial gains and losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
72,901
|
|
|
$
|
68,736
|
|
Net change in fair value of interest rate swaps
|
|
|
12,910
|
|
|
|
(104,554
|
)
|
Net change in fair value of available for sale securities
|
|
|
(1,250
|
)
|
|
|
(753
|
)
|
Amortization of unrecognized pension components
|
|
|
440
|
|
|
|
(993
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
85,001
|
|
|
|
(37,564
|
)
|
Less: Comprehensive income attributable to noncontrolling
interests
|
|
|
13,986
|
|
|
|
8,609
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Community Health
Systems, Inc.
|
|
$
|
71,015
|
|
|
$
|
(46,173
|
)
|
|
|
|
|
|
|
|
|
|
The net change in fair value of the interest rate swaps, the net
change in fair value of available for sale securities and
amortization of unrecognized pension cost components are
included in accumulated other comprehensive loss on the
accompanying condensed consolidated balance sheets.
As of March 31, 2009, 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% interest. 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 Companys investment in
unconsolidated affiliates is $430.7 million and
$421.6 million at March 31, 2009 and December 31,
2008, respectively, and is included in other assets in the
accompanying condensed consolidated balance sheets. Included in
the Companys results of operations is $12.9 million
representing the Companys equity in pre-tax earnings from
investments in unconsolidated affiliates for each of the three
months ended March 31, 2009 and 2008.
Summarized combined financial information for the three months
ended March 31, 2009 and 2008, for the unconsolidated
entities in which the Company owns an equity interest is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
375,698
|
|
|
$
|
363,667
|
|
Operating costs and expenses
|
|
|
324,674
|
|
|
|
319,694
|
|
Net income
|
|
|
51,038
|
|
|
|
45,975
|
|
The summarized financial information for the three months ended
March 31, 2009 and 2008 was derived from the unaudited
financial information provided to the Company by the equity
investee.
Credit
Facility and Notes
On July 25, 2007, CHS entered into the Credit Facility with
a syndicate of financial institutions led by Credit Suisse, as
administrative agent and collateral agent. The Credit Facility
consisted 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 CHS. During the
16
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fourth quarter of 2008, $100 million of the delayed draw
term loan was drawn by CHS, reducing the delayed draw term loan
availability to $200 million at December 31, 2008. In
January 2009, CHS 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, CHS used a portion of the net proceeds
from its Credit Facility and the Notes offering to repay its
outstanding debt under the previously outstanding credit
facility, the 6.50% senior subordinated notes due 2012 and
certain of Triads existing indebtedness. During the third
quarter of 2007, the Company recorded a pre-tax write-off of
approximately $13.9 million in deferred loan costs relative
to the early extinguishment of the debt under the previously
outstanding credit facility and incurred tender and solicitation
fees of approximately $13.4 million on the early repayment
of the Companys $300 million aggregate principal
amount of 6.50% senior subordinated notes due 2012 through
a cash tender offer and consent solicitation.
The Credit Facility requires quarterly amortization payments of
each term loan facility equal to 0.25% of the outstanding amount
of the term loans, if any, with the outstanding principal
balance payable on July 25, 2014.
The term loan facility must be prepaid in an amount equal to
(1) 100% of the net cash proceeds of certain asset sales
and dispositions by the Company and its subsidiaries, subject to
certain exceptions and reinvestment rights, (2) 100% of the
net cash proceeds of issuances of certain debt obligations or
receivables based financing by the Company and its subsidiaries,
subject to certain exceptions, and (3) 50%, subject to
reduction to a lower percentage based on the Companys
leverage ratio (as defined in the Credit Facility generally as
the ratio of total debt on the date of determination to the
Companys EBITDA, as defined, for the four quarters most
recently ended prior to such date), of excess cash flow (as
defined) for any year, commencing in 2008, subject to certain
exceptions. Voluntary prepayments and commitment reductions are
permitted in whole or in part, without any premium or penalty,
subject to minimum prepayment or reduction requirements.
The obligor under the Credit Facility is CHS. All of the
obligations under the Credit Facility are unconditionally
guaranteed by the Company and certain existing and subsequently
acquired or organized domestic subsidiaries. All obligations
under the 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 Credit Facility bear interest on the
outstanding unpaid principal amount at a rate equal to an
applicable percentage plus, at CHSs option, either
(a) an Alternate Base Rate (as defined) determined by
reference to the greater of (1) the Prime Rate (as defined)
announced by Credit Suisse or (2) the Federal Funds
Effective Rate (as defined) plus one-half of 1.0%, or (b) a
reserve adjusted London interbank offered rate for dollars
(Eurodollar Rate) (as defined). The applicable percentage for
term loans is 1.25% for Alternate Base Rate loans and 2.25% for
Eurodollar rate loans. The applicable percentage for revolving
loans is initially 1.25% for Alternate Base Rate revolving loans
and 2.25% for Eurodollar revolving loans, in each case subject
to reduction based on the Companys leverage ratio. Loans
under the swingline subfacility bear interest at the rate
applicable to Alternate Base Rate loans under the revolving
credit facility.
CHS has agreed to pay letter of credit fees equal to the
applicable percentage then in effect with respect to Eurodollar
rate loans under the revolving credit facility times the maximum
aggregate amount available to be drawn under all letters of
credit outstanding under the subfacility for letters of credit.
The issuer of any letter of credit issued under the subfacility
for letters of credit will also receive a customary fronting fee
and other customary processing charges. CHS is initially
obligated to pay commitment fees of 0.50% per annum (subject to
reduction based upon the Companys leverage ratio) on the
unused portion of the revolving credit facility. For purposes of
this calculation, swingline loans are not treated as usage of
the revolving credit facility. 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 Credit Facility, 0.75% per annum for the next
three months after such nine-month period and
17
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
thereafter, 1.0% per annum. In each case, the commitment fee was
paid on the unused amount of the delayed draw term loan
facility. After the draw down of the remaining $200 million
of the delayed draw term loan in January 2009, CHS no longer
pays commitment fees for the delayed draw term loan facility.
CHS paid arrangement fees on the closing of the Credit Facility
and pays an annual administrative agent fee.
The Credit Facility contains customary representations and
warranties, subject to limitations and exceptions, and customary
covenants restricting, subject to certain exceptions, the
Companys and its subsidiaries ability to, among
other things (1) declare dividends, make distributions or
redeem or repurchase capital stock, (2) prepay, redeem or
repurchase other debt, (3) incur liens or grant negative
pledges, (4) make loans and investments and enter into
acquisitions and joint ventures, (5) incur additional
indebtedness or provide certain guarantees, (6) make
capital expenditures, (7) engage in mergers, acquisitions
and asset sales, (8) conduct transactions with affiliates,
(9) alter the nature of the Companys businesses,
(10) grant certain guarantees with respect to physician
practices, (11) engage in sale and leaseback transactions
or (12) change the Companys fiscal year. The Company
is also required to comply with specified financial covenants
(consisting of a leverage ratio and an interest coverage ratio)
and various affirmative covenants.
Events of default under the Credit Facility include, but are not
limited to, (1) CHSs 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 Credit Facility.
The Notes were issued by CHS in connection with the Triad
acquisition in the principal amount of $3.021 billion.
These Notes will mature on July 15, 2015. The Notes bear
interest at the rate of 8.875% per annum, payable semiannually
in arrears on January 15 and July 15, commencing
January 15, 2008. Interest on the Notes 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 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:
|
|
|
|
|
Period
|
|
Redemption 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
18
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
thereof equal to the amount required to redeem any such Notes is
contributed to the equity capital of CHS); provided, however,
that:
1) at least 65% of such aggregate principal amount of Notes
originally issued remains outstanding immediately after the
occurrence of each such redemption (other than the Notes held,
directly or indirectly, by the Company or its
subsidiaries); and
2) each such redemption occurs within 90 days after
the date of the related Public Equity Offering.
CHS is entitled, at its option, to redeem the Notes, in whole or
in part, at any time prior to July 15, 2011, upon not less
than 30 or more than 60 days notice, at a redemption price
equal to 100% of the principal amount of Notes redeemed plus the
Application Premium (as defined), and accrued and unpaid
interest, if any, as of the applicable redemption date.
Pursuant to a registration rights agreement entered into at the
time of the issuance of the Notes, as a result of an exchange
offer made by CHS, substantially all of the Notes issued in July
2007 were exchanged in November 2007 for new notes (the
Exchange Notes) having terms substantially identical
in all material respects to the Notes (except that the Exchange
Notes were issued under a registration statement pursuant to the
Securities Act of 1933, as amended). References to the Notes
shall also be deemed to include Exchange Notes unless the
context provides otherwise.
During the three months 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.
During the three months ended March 31, 2009, the Company
repurchased on the open market and cancelled $60.5 million
of principal amount of the Notes. This resulted in a net gain
from early extinguishment of debt of $2.4 million with an
after-tax impact of $1.5 million.
As of March 31, 2009, the availability for additional
borrowings under the Credit Facility was $750 million
pursuant to the revolving credit facility, of which
$89.7 million was set aside for outstanding letters of
credit. CHS also has the ability to add up to $300 million
of borrowing capacity from receivable transactions (including
securitizations) under the Credit Facility, which has not yet
been accessed. CHS also has the ability to amend the 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 March 31, 2009, the
weighted-average interest rate under the Credit Facility,
excluding swaps, was 3.7%.
Cash paid for interest, net of interest income, was
$232.9 million and $229.1 million during the three
months ended March 31, 2009 and 2008, respectively.
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
was effective for fiscal years beginning after November 15,
2007, and was adopted by the Company as of January 1, 2008.
The adoption of this statement has not had a material effect on
the Companys consolidated results of operations or
consolidated financial position.
In February 2008, the FASB issued FASB Statement of Position
No. 157-2,
Effective Date of FASB Statement No. 157,
(FSP 157-2).
FSP 157-2
deferred the effective date of the provisions of
SFAS No. 157 for all non-financial assets and
non-financial liabilities to fiscal years beginning after
November 15, 2008, and was adopted by the Company as of
January 1, 2009. The adoption of this statement has not had
a material effect on the Companys consolidated results of
operations or consolidated financial position.
19
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
entitys 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
Companys 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 Companys assessment of
the significance of a particular input to the fair value
measurement in its entirety requires judgment of factors
specific to the asset or liability.
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 March 31, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Available-for-sale
securities
|
|
$
|
6,158
|
|
|
$
|
6,158
|
|
|
$
|
|
|
|
$
|
|
|
Trading securities
|
|
|
19,032
|
|
|
|
19,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,190
|
|
|
$
|
25,190
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of interest rate swap agreements
|
|
$
|
414,962
|
|
|
$
|
|
|
|
$
|
414,962
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
414,962
|
|
|
$
|
|
|
|
$
|
414,962
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities and trading securities classified as Level 1 are
measured using quoted market prices.
The valuation of the Companys 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 counterpartys 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
Companys interest rate swap agreements at March 31,
2009 resulted in
20
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
a decrease in the fair value of the related liability of
$27.2 million and an after-tax adjustment of
$17.4 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 Companys 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 liability recorded during the year
ended December 31, 2008, represented the fair value of a
put option assumed in connection with a business combination
using unobservable inputs and assumptions available to the
Company. The contractual obligation represented by this
liability was settled during the three months ended
March 31, 2009, as a result of the sale of ownership
interest in the partnership that owned Presbyterian Hospital of
Denton. The following table presents a reconciliation of the
beginning and ending balance of the contractual obligation
liability (in thousands):
|
|
|
|
|
|
|
Contractual
|
|
|
|
Obligation
|
|
|
|
Liability
|
|
|
Balance at January 1, 2009
|
|
$
|
48,985
|
|
Settlement of contractual obligation liability
|
|
|
(48,985
|
)
|
|
|
|
|
|
Balance at March 31, 2009
|
|
$
|
|
|
|
|
|
|
|
|
|
14.
|
DERIVATIVE
INSTRUMENTS
|
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161).
SFAS No. 161 expands the disclosure requirements for
derivative instruments and for hedging activities in order to
provide additional understanding of how an entity uses
derivative instruments and how they are accounted for and
reported in an entitys financial statements. The new
disclosure requirements for SFAS No. 161 are effective
for fiscal years beginning after November 15, 2008, and
were adopted by the Company on January 1, 2009. The
adoption of this statement has not had a material effect on the
Companys consolidated results of operations or
consolidated financial position.
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risk managed by using
derivative instruments is interest rate risk. Interest rate
swaps are entered into to manage interest rate risk associated
with the term loans in the Credit Facility.
SFAS No. 133 requires companies to recognize all
derivative instruments as either assets or liabilities at fair
value in the consolidated statement of financial position. In
accordance with SFAS No. 133, the Company designates
interest rate swaps as cash flow hedges. For derivative
instruments that are designated and qualify as cash flow hedges,
the effective portion of the gain or loss on the derivative is
reported as a component of other comprehensive income and
reclassified into earnings in the same period or periods during
which the hedged transactions affects earnings. Gains and losses
on the derivative representing either hedge ineffectiveness or
hedge components excluded from the assessment of effectiveness
are recognized in current earnings.
The Companys derivative instruments had no effect on the
Companys consolidated results of operations for the three
months ended March 31, 2009 and 2008.
21
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair values of derivative instruments in the condensed
consolidated balance sheets as of March 31, 2009 and 2008
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives March 31,
|
|
|
Liability Derivatives March 31,
|
|
|
2009
|
|
2008
|
|
|
2009
|
|
2008
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
|
Balance
|
|
|
|
Balance
|
|
|
|
|
Sheet
|
|
|
|
Sheet
|
|
|
|
|
Sheet
|
|
|
|
Sheet
|
|
|
|
|
Location
|
|
Fair Value
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
Location
|
|
Fair Value
|
Derivatives designated as hedging instruments under
Statement 133
|
|
Other
assets,
net
|
|
$
|
|
|
|
Other
assets,
net
|
|
$
|
|
|
|
|
Other
long-term
liabilities
|
|
$
|
414,962
|
|
|
Other
long-term
liabilities
|
|
$
|
284,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company operates in three distinct operating segments,
represented by hospital operations (which includes its general
acute care hospitals and related healthcare entities that
provide inpatient and outpatient health care services), home
health agency operations (which provide in-home outpatient
care), and hospital management services (which provides
executive management and consulting services to non-affiliated
acute care hospitals). Only the hospital operations segment
meets the criteria in SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information
(SFAS No. 131), as a separate reportable
segment. The financial information for the home health agencies
and management services segments do not meet the quantitative
thresholds defined in SFAS No. 131 and are combined
into the corporate and all other reportable segment.
The distribution between reportable segments of the
Companys revenues and income from continuing operations
before income taxes is summarized in the following tables (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
2,830,688
|
|
|
$
|
2,627,239
|
|
Corporate and all other
|
|
|
61,702
|
|
|
|
61,685
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,892,390
|
|
|
$
|
2,688,924
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
140,270
|
|
|
$
|
124,676
|
|
Corporate and all other
|
|
|
(33,607
|
)
|
|
|
(34,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106,663
|
|
|
$
|
90,375
|
|
|
|
|
|
|
|
|
|
|
The Company is a party to various legal proceedings incidental
to its business. In the opinion of management, any ultimate
liability with respect to these actions will not have a material
adverse effect on the Companys consolidated financial
position, cash flows or results of operations.
In 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. This investigation has culminated in the federal
governments intervention in a qui tam lawsuit styled
U.S. ex rel. Baker vs. Community Health Systems, Inc.
The federal government has not yet filed its complaint in
intervention. The Company is vigorously defending this action.
22
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective April 1, 2009, one or more subsidiaries of the
Company acquired the remaining 50% equity interest from Share
Foundation in MCSA L.L.C., an entity in which one or more
subsidiaries of the Company previously had a 50% noncontrolling
interest and for which it provided certain management services.
This acquisition gives these subsidiaries of the Company a 100%
equity interest in that entity. MCSA L.L.C. owns and operates
Medical Center of South Arkansas (166 licensed beds) in El
Dorado, Arkansas. The purchase price was $26.0 million in
cash. As of the acquisition date, one or more subsidiaries of
the Company had a liability to MCSA L.L.C. of
$14.1 million, as a result of a cash management agreement
previously entered into with the hospital. Upon completion of
the acquisition, this liability was eliminated in consolidation
as an intercompany transaction.
On April 2, 2009, the Company paid down $110.4 million
of its term loans under the Credit Facility.
On April 1, 2009, one or more subsidiaries of the Company
entered into a definitive agreement to acquire Wyoming Valley
Health Care System in Wilkes-Barre, Pennsylvania. This health
care system includes Wilkes-Barre General Hospital, a 410-bed,
full-service acute care hospital located in Wilkes-Barre and
First Hospital Wyoming Valley, a behavioral health hospital
located in Kingston, Pennsylvania, as well as other outpatient
and ancillary services. The transaction, subject to federal and
state approvals, is expected to close in the second quarter of
2009.
|
|
18.
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
|
In connection with the consummation of the Triad acquisition,
CHS obtained $7.215 billion of senior secured financing
under the Credit Facility and 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 stockholders
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 Companys intercompany activity consists primarily of
daily cash transfers for purposes of cash management, the
allocation of certain expenses and expenditures paid for by the
parent on behalf of its subsidiaries, and the push down of
investment in its subsidiaries. The Companys subsidiaries
generally do not purchase services from one another and
therefore the intercompany transactions do not represent revenue
generating transactions. All intercompany transactions eliminate
in consolidation.
23
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
418,135
|
|
|
$
|
113,997
|
|
|
$
|
|
|
|
$
|
532,132
|
|
Patient accounts receivable, net of allowance for doubtful
accounts
|
|
|
|
|
|
|
|
|
|
|
1,040,792
|
|
|
|
603,127
|
|
|
|
|
|
|
|
1,643,919
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
171,960
|
|
|
|
103,420
|
|
|
|
|
|
|
|
275,380
|
|
Deferred income taxes
|
|
|
91,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,875
|
|
Prepaid expenses and taxes
|
|
|
|
|
|
|
64
|
|
|
|
69,180
|
|
|
|
19,473
|
|
|
|
|
|
|
|
88,717
|
|
Other current assets
|
|
|
|
|
|
|
145
|
|
|
|
105,621
|
|
|
|
89,347
|
|
|
|
|
|
|
|
195,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
91,875
|
|
|
|
209
|
|
|
|
1,805,688
|
|
|
|
929,364
|
|
|
|
|
|
|
|
2,827,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
904,443
|
|
|
|
9,790,814
|
|
|
|
15,665,930
|
|
|
|
2,424,702
|
|
|
|
(28,785,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
3,752,194
|
|
|
|
2,116,099
|
|
|
|
|
|
|
|
5,868,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,273,313
|
|
|
|
1,900,095
|
|
|
|
|
|
|
|
4,173,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net of accumulated amortization
|
|
|
|
|
|
|
164,096
|
|
|
|
364,588
|
|
|
|
516,845
|
|
|
|
|
|
|
|
1,045,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,216,147
|
|
|
|
4,504,039
|
|
|
|
3,059,872
|
|
|
|
|
|
|
|
(8,780,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,212,465
|
|
|
$
|
14,459,158
|
|
|
$
|
26,921,585
|
|
|
$
|
7,887,105
|
|
|
$
|
(37,565,947
|
)
|
|
$
|
13,914,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
12,066
|
|
|
$
|
18,046
|
|
|
$
|
2,560
|
|
|
$
|
|
|
|
$
|
32,672
|
|
Accounts payable
|
|
|
20
|
|
|
|
1
|
|
|
|
302,040
|
|
|
|
163,332
|
|
|
|
|
|
|
|
465,393
|
|
Current income taxes payable
|
|
|
17,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,668
|
|
Deferred income taxes
|
|
|
6,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,740
|
|
Interest payable (receivable)
|
|
|
|
|
|
|
84,198
|
|
|
|
571
|
|
|
|
(1,666
|
)
|
|
|
|
|
|
|
83,103
|
|
Accrued liabilities
|
|
|
8,869
|
|
|
|
567
|
|
|
|
514,007
|
|
|
|
273,989
|
|
|
|
|
|
|
|
797,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,297
|
|
|
|
96,832
|
|
|
|
834,664
|
|
|
|
438,215
|
|
|
|
|
|
|
|
1,403,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
9,004,140
|
|
|
|
28,925
|
|
|
|
41,887
|
|
|
|
|
|
|
|
9,074,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
|
|
|
|
3,909,995
|
|
|
|
24,541,289
|
|
|
|
6,908,413
|
|
|
|
(35,359,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
461,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
18,627
|
|
|
|
414,962
|
|
|
|
247,429
|
|
|
|
209,219
|
|
|
|
|
|
|
|
890,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
513,022
|
|
|
|
13,425,929
|
|
|
|
25,652,307
|
|
|
|
7,597,734
|
|
|
|
(35,359,697
|
)
|
|
|
11,829,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests in equity of consolidated
subsidiaries
|
|
|
|
|
|
|
|
|
|
|
32,198
|
|
|
|
274,744
|
|
|
|
|
|
|
|
306,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
934
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
934
|
|
Additional paid-in capital
|
|
|
1,153,498
|
|
|
|
505,614
|
|
|
|
481,912
|
|
|
|
|
|
|
|
(987,526
|
)
|
|
|
1,153,498
|
|
Treasury stock, at cost
|
|
|
(6,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,678
|
)
|
Accumulated other comprehensive loss
|
|
|
(283,475
|
)
|
|
|
(283,475
|
)
|
|
|
(17,899
|
)
|
|
|
|
|
|
|
301,374
|
|
|
|
(283,475
|
)
|
Retained earnings
|
|
|
835,164
|
|
|
|
811,090
|
|
|
|
773,066
|
|
|
|
(64,061
|
)
|
|
|
(1,520,095
|
)
|
|
|
835,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Health Systems, Inc. stockholders equity
|
|
|
1,699,443
|
|
|
|
1,033,229
|
|
|
|
1,237,080
|
|
|
|
(64,059
|
)
|
|
|
(2,206,250
|
)
|
|
|
1,699,443
|
|
Noncontrolling interests in equity of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,686
|
|
|
|
|
|
|
|
78,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,699,443
|
|
|
|
1,033,229
|
|
|
|
1,237,080
|
|
|
|
14,627
|
|
|
|
(2,206,250
|
)
|
|
|
1,778,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,212,465
|
|
|
$
|
14,459,158
|
|
|
$
|
26,921,585
|
|
|
$
|
7,887,105
|
|
|
$
|
(37,565,947
|
)
|
|
$
|
13,914,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
153,982
|
|
|
$
|
66,673
|
|
|
$
|
|
|
|
$
|
220,655
|
|
Patient accounts receivable, net of allowance for doubtful
accounts
|
|
|
|
|
|
|
|
|
|
|
1,026,757
|
|
|
|
587,202
|
|
|
|
|
|
|
|
1,613,959
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
170,320
|
|
|
|
102,617
|
|
|
|
|
|
|
|
272,937
|
|
Deferred income taxes
|
|
|
91,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,875
|
|
Prepaid expenses and taxes
|
|
|
92,710
|
|
|
|
111
|
|
|
|
65,981
|
|
|
|
6,808
|
|
|
|
|
|
|
|
165,610
|
|
Other current assets
|
|
|
|
|
|
|
85
|
|
|
|
133,143
|
|
|
|
106,786
|
|
|
|
|
|
|
|
240,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
184,585
|
|
|
|
196
|
|
|
|
1,550,183
|
|
|
|
870,086
|
|
|
|
|
|
|
|
2,605,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
1,026,905
|
|
|
|
9,325,281
|
|
|
|
6,894,083
|
|
|
|
3,334,832
|
|
|
|
(20,581,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
3,731,113
|
|
|
|
2,137,946
|
|
|
|
|
|
|
|
5,869,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,276,226
|
|
|
|
1,889,865
|
|
|
|
|
|
|
|
4,166,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net of accumulated amortization
|
|
|
|
|
|
|
171,396
|
|
|
|
317,561
|
|
|
|
689,097
|
|
|
|
|
|
|
|
1,178,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,109,833
|
|
|
|
4,300,545
|
|
|
|
2,984,734
|
|
|
|
|
|
|
|
(8,395,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,321,323
|
|
|
$
|
13,797,418
|
|
|
$
|
17,753,900
|
|
|
$
|
8,921,826
|
|
|
$
|
(28,976,213
|
)
|
|
$
|
13,818,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
12,066
|
|
|
$
|
3,490
|
|
|
$
|
13,906
|
|
|
$
|
|
|
|
$
|
29,462
|
|
Accounts payable
|
|
|
70
|
|
|
|
|
|
|
|
375,803
|
|
|
|
153,556
|
|
|
|
|
|
|
|
529,429
|
|
Current income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
6,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,740
|
|
Interest payable (receivable)
|
|
|
|
|
|
|
152,070
|
|
|
|
1,257
|
|
|
|
(1,099
|
)
|
|
|
|
|
|
|
152,228
|
|
Accrued liabilities
|
|
|
8,869
|
|
|
|
567
|
|
|
|
471,204
|
|
|
|
335,471
|
|
|
|
|
|
|
|
816,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
15,679
|
|
|
|
164,703
|
|
|
|
851,754
|
|
|
|
501,834
|
|
|
|
|
|
|
|
1,533,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
8,865,390
|
|
|
|
35,007
|
|
|
|
37,587
|
|
|
|
|
|
|
|
8,937,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
200,600
|
|
|
|
3,369,977
|
|
|
|
15,421,462
|
|
|
|
7,929,837
|
|
|
|
(26,921,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
460,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
460,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
18,211
|
|
|
|
435,134
|
|
|
|
218,952
|
|
|
|
215,148
|
|
|
|
|
|
|
|
887,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
695,283
|
|
|
|
12,835,204
|
|
|
|
16,527,175
|
|
|
|
8,684,406
|
|
|
|
(26,921,876
|
)
|
|
|
11,820,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests in equity of consolidated
subsidiaries
|
|
|
|
|
|
|
|
|
|
|
49,770
|
|
|
|
248,993
|
|
|
|
|
|
|
|
298,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems, Inc. stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
925
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
925
|
|
Additional paid-in capital
|
|
|
1,151,119
|
|
|
|
494,282
|
|
|
|
469,728
|
|
|
|
|
|
|
|
(964,010
|
)
|
|
|
1,151,119
|
|
Treasury stock, at cost
|
|
|
(6,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,678
|
)
|
Accumulated other comprehensive loss
|
|
|
(295,575
|
)
|
|
|
(295,575
|
)
|
|
|
(17,090
|
)
|
|
|
|
|
|
|
312,665
|
|
|
|
(295,575
|
)
|
Retained earnings
|
|
|
776,249
|
|
|
|
763,507
|
|
|
|
724,316
|
|
|
|
(84,834
|
)
|
|
|
(1,402,989
|
)
|
|
|
776,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Health Systems, Inc. stockholders equity
|
|
|
1,626,040
|
|
|
|
962,214
|
|
|
|
1,176,955
|
|
|
|
(84,832
|
)
|
|
|
(2,054,337
|
)
|
|
|
1,626,040
|
|
Noncontrolling interests in equity of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,259
|
|
|
|
|
|
|
|
73,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,626,040
|
|
|
|
962,214
|
|
|
|
1,176,955
|
|
|
|
(11,573
|
)
|
|
|
(2,054,337
|
)
|
|
|
1,699,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,321,323
|
|
|
$
|
13,797,418
|
|
|
$
|
17,753,900
|
|
|
$
|
8,921,826
|
|
|
$
|
(28,976,213
|
)
|
|
$
|
13,818,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,800,474
|
|
|
$
|
1,091,916
|
|
|
$
|
|
|
|
$
|
2,892,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
696,391
|
|
|
|
467,753
|
|
|
|
|
|
|
|
1,164,144
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
228,139
|
|
|
|
107,312
|
|
|
|
|
|
|
|
335,451
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
243,902
|
|
|
|
158,552
|
|
|
|
|
|
|
|
402,454
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
307,662
|
|
|
|
232,062
|
|
|
|
|
|
|
|
539,724
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
32,028
|
|
|
|
27,915
|
|
|
|
|
|
|
|
59,943
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
85,824
|
|
|
|
49,708
|
|
|
|
|
|
|
|
135,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
1,593,946
|
|
|
|
1,043,302
|
|
|
|
|
|
|
|
2,637,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
206,528
|
|
|
|
48,614
|
|
|
|
|
|
|
|
255,142
|
|
Interest expense, net
|
|
|
|
|
|
|
17,917
|
|
|
|
138,511
|
|
|
|
7,382
|
|
|
|
|
|
|
|
163,810
|
|
(Gain) loss from early extinguishment of debt
|
|
|
|
|
|
|
(2,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,412
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
(58,915
|
)
|
|
|
(60,121
|
)
|
|
|
(34,505
|
)
|
|
|
|
|
|
|
140,622
|
|
|
|
(12,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
58,915
|
|
|
|
44,616
|
|
|
|
102,522
|
|
|
|
41,232
|
|
|
|
(140,622
|
)
|
|
|
106,663
|
|
Provision for (benefit from) income taxes
|
|
|
|
|
|
|
(14,299
|
)
|
|
|
38,116
|
|
|
|
11,715
|
|
|
|
|
|
|
|
35,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
58,915
|
|
|
|
58,915
|
|
|
|
64,406
|
|
|
|
29,517
|
|
|
|
(140,622
|
)
|
|
|
71,131
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
(211
|
)
|
|
|
2,386
|
|
|
|
|
|
|
|
2,175
|
|
(Loss) gain on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(405
|
)
|
|
|
|
|
|
|
(405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(211
|
)
|
|
|
1,981
|
|
|
|
|
|
|
|
1,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
58,915
|
|
|
|
58,915
|
|
|
|
64,195
|
|
|
|
31,498
|
|
|
|
(140,622
|
)
|
|
|
72,901
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
3,261
|
|
|
|
10,725
|
|
|
|
|
|
|
|
13,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Community Health Systems, Inc.
|
|
$
|
58,915
|
|
|
$
|
58,915
|
|
|
$
|
60,934
|
|
|
$
|
20,773
|
|
|
$
|
(140,622
|
)
|
|
$
|
58,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,641,592
|
|
|
$
|
1,047,332
|
|
|
$
|
|
|
|
$
|
2,688,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
624,830
|
|
|
|
451,471
|
|
|
|
|
|
|
|
1,076,301
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
194,918
|
|
|
|
94,784
|
|
|
|
|
|
|
|
289,702
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
222,300
|
|
|
|
158,376
|
|
|
|
|
|
|
|
380,676
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
293,721
|
|
|
|
225,245
|
|
|
|
|
|
|
|
518,966
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
31,422
|
|
|
|
27,241
|
|
|
|
|
|
|
|
58,663
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
76,083
|
|
|
|
45,187
|
|
|
|
|
|
|
|
121,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
1,443,274
|
|
|
|
1,002,304
|
|
|
|
|
|
|
|
2,445,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
198,318
|
|
|
|
45,028
|
|
|
|
|
|
|
|
243,346
|
|
Interest expense, net
|
|
|
|
|
|
|
12,924
|
|
|
|
135,486
|
|
|
|
16,117
|
|
|
|
|
|
|
|
164,527
|
|
(Gain) loss from early extinguishment of debt
|
|
|
|
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,328
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(60,127
|
)
|
|
|
(60,200
|
)
|
|
|
(35,561
|
)
|
|
|
|
|
|
|
143,004
|
|
|
|
(12,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
60,127
|
|
|
|
45,948
|
|
|
|
98,393
|
|
|
|
28,911
|
|
|
|
(143,004
|
)
|
|
|
90,375
|
|
Provision for (benefit from) income taxes
|
|
|
|
|
|
|
(14,179
|
)
|
|
|
37,883
|
|
|
|
7,552
|
|
|
|
|
|
|
|
31,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
60,127
|
|
|
|
60,127
|
|
|
|
60,510
|
|
|
|
21,359
|
|
|
|
(143,004
|
)
|
|
|
59,119
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,617
|
|
|
|
|
|
|
|
9,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,617
|
|
|
|
|
|
|
|
9,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
60,127
|
|
|
|
60,127
|
|
|
|
60,510
|
|
|
|
30,976
|
|
|
|
(143,004
|
)
|
|
|
68,736
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
547
|
|
|
|
8,062
|
|
|
|
|
|
|
|
8,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Community Health Systems, Inc.
|
|
$
|
60,127
|
|
|
$
|
60,127
|
|
|
$
|
59,963
|
|
|
$
|
22,914
|
|
|
$
|
(143,004
|
)
|
|
$
|
60,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
59,965
|
|
|
$
|
(76,391
|
)
|
|
$
|
182,546
|
|
|
$
|
93,307
|
|
|
$
|
|
|
|
$
|
259,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
|
|
|
|
|
|
|
|
(15,100
|
)
|
|
|
(1,953
|
)
|
|
|
|
|
|
|
(17,053
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(100,090
|
)
|
|
|
(35,931
|
)
|
|
|
|
|
|
|
(136,021
|
)
|
Proceeds from disposition of hospitals and other ancillary
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,909
|
|
|
|
|
|
|
|
89,909
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
195
|
|
|
|
131
|
|
|
|
|
|
|
|
326
|
|
Increase in other non-operating assets
|
|
|
|
|
|
|
|
|
|
|
(31,203
|
)
|
|
|
(5,141
|
)
|
|
|
|
|
|
|
(36,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
(146,198
|
)
|
|
|
47,015
|
|
|
|
|
|
|
|
(99,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits relating to stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
Proceeds from noncontrolling investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
21,805
|
|
|
|
|
|
|
|
21,922
|
|
Redemption of noncontrolling investments in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(167
|
)
|
|
|
|
|
|
|
(167
|
)
|
Distributions to noncontrolling investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,595
|
)
|
|
|
|
|
|
|
(6,595
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
(59,965
|
)
|
|
|
(61,852
|
)
|
|
|
228,078
|
|
|
|
(106,261
|
)
|
|
|
|
|
|
|
|
|
Borrowings under credit agreement
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Repayments of long-term indebtedness
|
|
|
|
|
|
|
(61,700
|
)
|
|
|
(390
|
)
|
|
|
(1,780
|
)
|
|
|
|
|
|
|
(63,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(59,965
|
)
|
|
|
76,391
|
|
|
|
227,805
|
|
|
|
(92,998
|
)
|
|
|
|
|
|
|
151,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
264,153
|
|
|
|
47,324
|
|
|
|
|
|
|
|
311,477
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
153,982
|
|
|
|
66,673
|
|
|
|
|
|
|
|
220,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
418,135
|
|
|
$
|
113,997
|
|
|
$
|
|
|
|
$
|
532,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(44,739
|
)
|
|
$
|
(102,699
|
)
|
|
$
|
386,789
|
|
|
$
|
(134,692
|
)
|
|
$
|
(49,526
|
)
|
|
$
|
55,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
|
|
|
|
|
|
|
|
(1,685
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
(1,705
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(89,229
|
)
|
|
|
(52,464
|
)
|
|
|
|
|
|
|
(141,693
|
)
|
Proceeds from disposition of hospitals and other ancillary
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
365,680
|
|
|
|
|
|
|
|
365,680
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
904
|
|
|
|
12,813
|
|
|
|
|
|
|
|
13,717
|
|
Increase in other non-operating assets
|
|
|
|
|
|
|
|
|
|
|
(54,522
|
)
|
|
|
(43,660
|
)
|
|
|
|
|
|
|
(98,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
(144,532
|
)
|
|
|
282,349
|
|
|
|
|
|
|
|
137,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
Excess tax benefits relating to stock-based compensation
|
|
|
(947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(947
|
)
|
Deferred financing costs
|
|
|
|
|
|
|
(2,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,232
|
)
|
Proceeds from noncontrolling investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,881
|
|
|
|
|
|
|
|
12,881
|
|
Redemption of noncontrolling investments in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to noncontrolling investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,524
|
)
|
|
|
|
|
|
|
(7,524
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
45,592
|
|
|
|
266,725
|
|
|
|
(65,785
|
)
|
|
|
(246,532
|
)
|
|
|
|
|
|
|
|
|
Borrowings under credit agreement
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
(Repayments) borrowings of long-term indebtedness
|
|
|
|
|
|
|
(186,794
|
)
|
|
|
(79,442
|
)
|
|
|
77,493
|
|
|
|
|
|
|
|
(188,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
44,739
|
|
|
|
102,699
|
|
|
|
(145,227
|
)
|
|
|
(163,682
|
)
|
|
|
|
|
|
|
(161,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
97,030
|
|
|
|
(16,025
|
)
|
|
|
(49,526
|
)
|
|
|
31,479
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
114,075
|
|
|
|
18,799
|
|
|
|
|
|
|
|
132,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
211,105
|
|
|
$
|
2,774
|
|
|
$
|
(49,526
|
)
|
|
$
|
164,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read this discussion together with our unaudited
condensed consolidated financial statements and accompanying
notes included herein.
Throughout this Quarterly Report on
Form 10-Q,
Community Health Systems, Inc., the parent company, and its
consolidated subsidiaries are referred to on a collective basis
using words like we, our, us
and the Company. This drafting style is not meant to
indicate that the publicly-traded parent company or any
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. References to the Company may
include one or more of its subsidiaries.
Executive
Overview
We are the largest publicly traded operator of hospitals in the
United States in terms of number of facilities and net operating
revenues. We provide healthcare services through these hospitals
that we own and operate in non-urban and selected urban markets.
We generate revenue primarily by providing a broad range of
general hospital healthcare services to patients in the
communities in which we are located. We currently have 119
general acute care hospitals included in continuing operations.
In addition, we own two home care agencies, located in markets
where we do not operate a hospital, and through our wholly-owned
subsidiary, Quorum Health Resources, LLC, or 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.
During the three months ended March 31, 2009, we continued
to navigate the uncertainties of the global economic downturn
and the related volatility being experienced in the fixed
income, credit, currency and equity markets. Credit markets
remained tightened and there remains a low level of liquidity in
many financial markets. As we had previously disclosed in our
Annual Report on
Form 10-K
filed with the SEC on February 27, 2009, we believe that a
cautious approach to our acquisition strategy is warranted in
this environment. During the three months ended March 31,
2009, we completed the previously announced acquisition of a
hospital in Siloam Springs, Arkansas. On April 1, 2009, we
acquired the remaining 50% interest in a hospital in El Dorado,
Arkansas, in which we previously were a joint venture partner,
but did not consolidate its operations. We also plan to complete
the acquisition of one additional health care system in the
quarter ending June 30, 2009 pursuant to a definitive
agreement entered into on April 1, 2009.
Despite these uncertainties in the economy, our net operating
revenue for the three months ended March 31, 2009 increased
to $2.892 billion, as compared to $2.689 billion for
the three months ended March 31, 2008. Income from
continuing operations, before noncontrolling interests, for the
three months ended March 31, 2009 increased 20.3% over the
three months ended March 31, 2008. This increase during the
three months ended March 31, 2009, as compared to the three
months ended March 31, 2008 is due primarily to an increase
in billing rates, an increase in surgeries performed at our
hospitals, the realization of synergies from the Triad
acquisition and the recognition of cost savings from our ability
to effectively control costs. Total admissions for the three
months ended March 31, 2009 decreased 2.2% compared to the
three months ended March 31, 2008. This decrease was due
primarily to a decrease in lower acuity flu and
respiratory-related admissions, the loss of one day in the three
months ended March 31, 2009, compared to the three months
ended March 31, 2008, since 2008 was a leap year and the
loss of admissions from closing certain unprofitable services.
The decreases were partially offset by an increase in higher
acuity surgeries.
Self-pay revenues represented approximately 11.6% of our net
operating revenues for the three months ended March 31,
2009, as compared to 10.8% for the three months ended
March 31, 2008. The value of charity care services relative
to total net operating revenues remained unchanged at 3.7% for
the three months ended March 31, 2009, compared to the
three months ended March 31, 2008. 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 growth in our business from self-pay
patients as compared to the prior year.
30
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 and into the foreseeable future. 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 benefit from synergies from the acquisition of
Triad Hospitals, Inc., or Triad, and will continue to strive to
improve operating efficiencies and procedures in order to
improve our profitability at all of our hospitals.
Sources
of Consolidated Net Operating Revenue
The following table presents the approximate percentages of net
operating revenue derived from Medicare, Medicaid, managed care,
self-pay and other sources for the periods indicated. The data
for the periods presented are not strictly comparable due to the
significant effect that hospital acquisitions have had on these
statistics.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Medicare
|
|
|
27.8
|
%
|
|
|
28.6
|
%
|
Medicaid
|
|
|
8.4
|
%
|
|
|
8.3
|
%
|
Managed Care and other third party payors
|
|
|
52.2
|
%
|
|
|
52.3
|
%
|
Self-pay
|
|
|
11.6
|
%
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
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 with which we have insurance provider
contracts, Managed Care Medicare, insurance companies for which
we do not have insurance provider contracts, workers
compensation carriers, and non-patient service revenue, such as
rental income and cafeteria sales.
Net operating revenues include amounts estimated by management
to be reimbursable by Medicare and Medicaid under prospective
payment systems and provisions of cost-based reimbursement and
other payment methods. In addition, we are reimbursed by
non-governmental payors using a variety of payment
methodologies. Amounts we receive for treatment of patients
covered by these programs are generally less than the standard
billing rates. We account for the differences between the
estimated program reimbursement rates and the standard billing
rates as contractual allowance adjustments, which we deduct from
gross revenues to arrive at net operating revenues. Final
settlements under some of these programs are subject to
adjustment based on administrative review and audit by third
parties. We account for adjustments to previous program
reimbursement estimates as contractual allowance adjustments and
report them in the periods that such adjustments become known.
Contractual allowance adjustments related to final settlements
and previous program reimbursement estimates impacted net
operating revenues and net income by an insignificant amount in
each of the three-month periods ended March 31, 2009 and
2008. 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 patients condition. These rates
are indexed for inflation annually, although increases have
historically been less than actual inflation. Reductions in the
rate of increase in Medicare reimbursement may cause our net
operating revenue growth to decline.
In addition, specified managed care programs, insurance
companies, and employers are actively negotiating the amounts
paid to hospitals. The trend toward increased enrollment in
managed care may adversely affect our net operating revenue
growth.
31
Results
of Operations
Our hospitals offer a variety of services involving a broad
range of inpatient and outpatient medical and surgical services.
These include orthopedics, cardiology, occupational medicine,
diagnostic services, emergency services, rehabilitation
treatment, home health and skilled nursing. The strongest demand
for hospital services generally occurs during January through
April and the weakest demand for these services occurs during
the summer months. Accordingly, eliminating the effect of new
acquisitions, our net operating revenues and earnings are
historically highest during the first quarter and lowest during
the third quarter.
The following tables summarize, for the periods indicated,
selected operating data.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Expressed as a percentage of net operating revenues)
|
|
|
Consolidated(a)
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses(b)
|
|
|
(86.4
|
)
|
|
|
(86.5
|
)
|
Depreciation and amortization
|
|
|
(4.7
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
8.9
|
|
|
|
9.0
|
|
Interest expense, net
|
|
|
(5.7
|
)
|
|
|
(6.1
|
)
|
Gain from early extinguishment of debt
|
|
|
0.1
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
3.7
|
|
|
|
3.4
|
|
Provision for income taxes
|
|
|
(1.2
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
2.5
|
|
|
|
2.2
|
|
Income on discontinued operations, net of tax
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2.5
|
|
|
|
2.6
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
Net income attributable to Community Health Systems, Inc.
|
|
|
2.0
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
Percentage increase (decrease) from same period prior year(a):
|
|
|
|
|
Net operating revenues
|
|
|
7.6
|
%
|
Admissions
|
|
|
(2.2
|
)
|
Adjusted admissions(c)
|
|
|
0.2
|
|
Average length of stay
|
|
|
|
|
Net income attributable to Community Health Systems, Inc.(d)
|
|
|
(2.0
|
)
|
Same-store percentage increase from same period prior year(a)(e):
|
|
|
|
|
Net operating revenues
|
|
|
4.3
|
%
|
Admissions
|
|
|
(4.9
|
)
|
Adjusted admissions(c)
|
|
|
(2.4
|
)
|
|
|
|
(a) |
|
Pursuant to Statement of Financial Accounting Standards, or
SFAS, No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, or SFAS No. 144, we have
restated our prior period financial statements and statistical
results to reflect discontinued operations. |
|
(b) |
|
Operating expenses include salaries and benefits, provision for
bad debts, supplies, rent and other operating expenses. |
32
|
|
|
(c) |
|
Adjusted admissions is a general measure of combined inpatient
and outpatient volume. We computed adjusted admissions by
multiplying admissions by gross patient revenues and then
dividing that number by gross inpatient revenues. |
|
(d) |
|
Includes loss from operations of discontinued hospitals and gain
on sale of discontinued hospitals. |
|
(e) |
|
Includes other acquired hospitals to the extent we operated them
in both years. |
Three
months Ended March 31, 2009 Compared to Three months Ended
March 31, 2008
Net operating revenues increased $203 million to
$2.892 billion for the three months ended March 31,
2009, from $2.689 billion for the three months ended
March 31, 2008. Growth from hospitals owned throughout both
periods contributed $116 million of that increase and
$87 million was contributed by hospitals acquired in 2009
and 2008. On a same-store basis, this represents an increase in
net revenue of 4.3%. The increase from hospitals that we owned
throughout both periods was attributable to acuity level of
services provided along with rate increases and payor mix.
On a consolidated basis, inpatient admissions decreased by 2.2%
and adjusted admissions increased by 0.2%. On a same-store
basis, admissions decreased by 4.9% during the three months
ended March 31, 2009. This decrease in admissions was due
primarily to a decrease in flu and respiratory-related
admissions during the three months ended March 31, 2009,
compared to the three months ended March 31, 2008, the 2008
period having one additional day because it was a leap year, and
the impact of closing certain unprofitable services.
Operating expenses, excluding depreciation and amortization, as
a percentage of net operating revenues, decreased to 86.4% for
the three months ended March 31, 2009 compared to 86.5% for
the three months ended March 31, 2008. Salaries and
benefits, as a percentage of net operating revenues, increased
0.2% to 40.2% for the three months ended March 31, 2009,
compared to 40.0% for the three months ended March 31,
2008. Provision for bad debts, as a percentage of net operating
revenues, increased 0.8% to 11.6% for the three months ended
March 31, 2009 compared to 10.8% for the three months ended
March 31, 2008. This increase is consistent with bad debt
levels experienced in the second half of 2008 and represents an
increase in self-pay revenues over the comparable period of
2008. Supplies, as a percentage of net operating revenues,
decreased 0.3% to 13.9% for the three months ended
March 31, 2009, as compared to 14.2% for the three months
ended March 31, 2008. This decrease is primarily the result
of 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 0.8% to
20.7% for the three months ended March 31, 2009, as
compared to 21.5% for the three months ended March 31,
2008. Equity in earnings of unconsolidated affiliates, as a
percentage of net operating revenues, decreased 0.1% to 0.4% for
the three months ended March 31, 2009, as compared to 0.5%
for the three months ended March 31, 2008.
Depreciation and amortization increased from 4.5% of net
operating revenues for the three months ended March 31,
2008 to 4.7% of net operating revenues for the three months
ended March 31, 2009. The increase in depreciation and
amortization as a percentage of net operating revenue is
primarily due to the opening of three replacement hospitals in
the second and third quarters of 2008.
Interest expense, net, decreased by $0.7 million from
$164.5 million for the three months ended March 31,
2008 to $163.8 million for the three months ended
March 31, 2009. Since 2008 was a leap year, one additional
day in the quarter resulted in an additional $1.8 million
of interest expense, which was not incurred in 2009. This
decrease in interest expense was offset by an increase in our
average outstanding debt during the three months ended
March 31, 2009, compared to the three months ended
March 31, 2008, resulting in an increase of
$1.1 million of interest expense.
The net results of the above mentioned changes resulted in
income from continuing operations before income taxes increasing
$16.3 million from $90.4 million for the three months
ended March 31, 2008 to $106.7 million for the three
months ended March 31, 2009.
Provision for income taxes increased from $31.3 million for
the three months ended March 31, 2008 to $35.5 million
for the three months ended March 31, 2009, due primarily to
an increase in taxable income in the comparable period resulting
from both the gain on early extinguishment of debt, as well as
the decrease in operating expenses as a percentage of net
operating revenues.
33
Income from continuing operations as a percentage of net
operating revenue increased from 2.2% for the three months ended
March 31, 2008 to 2.5% for the three months ended
March 31, 2009. Net income as a percentage of net operating
revenue decreased from 2.6% for the three months ended
March 31, 2008 to 2.5% for the three months ended
March 31, 2009. The increase in income from continuing
operations as a percentage of net operating revenue is primarily
a result of the net decreases in operating expenses, as
discussed above.
Net income attributable to noncontrolling interests as a
percentage of net income was 0.5% for the three months ended
March 31, 2009, compared to 0.4% for the three months ended
March 31, 2008. This increase is due primarily to
additional syndications entered into after the first quarter of
2008.
Net income attributable to Community Health Systems, Inc. was
$58.9 million for the three months ended March 31,
2009, compared to $60.1 million for the three months ended
March 31, 2008, representing a decrease of 2.0%, as net
income for the three months ended March 31, 2008 included a
gain of $9.6 million from the sale of hospitals during that
period.
Liquidity
and Capital Resources
Net cash provided by operating activities increased
$204.3 million, from $55.1 million for the three
months ended March 31, 2008 to $259.4 million for the
three months ended March 31, 2009. The increase in cash
flows, in comparison to the prior year period, is the net result
of a decrease in net income attributable to Community Health
Systems, Inc. of $1.2 million, increases in non-cash
expenses of $20.5 million, consisting primarily of
depreciation, an increase in cash flows from improved
collections on accounts receivable of $82.0 million,
increases in cash flows from net changes in supplies, prepaid
expenses and other current assets of $19.0 million, and net
changes in accounts payable, accrued liabilities and income
taxes and other working capital assets and liabilities of
$84.0 million, consisting primarily of income tax refunds
of approximately $62.4 million.
The cash used in investing activities was $99.2 million for
the three months ended March 31, 2009, compared to a net
cash inflow of $137.8 million for the three months ended
March 31, 2008. Proceeds from the sale of facilities were
higher in 2008 by $275.8 million due to the sale of 11
hospitals in 2008 versus the sale of one hospital in 2009.
The cash used in financing activities was $161.5 million
for the three months ended March 31, 2008, compared to net
cash provided by financing activities of $151.2 million for
the three months ended March 31, 2009. This change is
primarily due to an increase in borrowing under our Credit
Facility.
Capital
Expenditures
Cash expenditures related to purchases of facilities were
$17.1 million for the three months ended March 31,
2009, compared to $1.7 million for the three months ended
March 31, 2008. These expenditures during the three months
ended March 31, 2009 include the purchase of a hospital and
an ambulatory surgery center and settlement of working capital
items from a prior year acquisition. The expenditures during the
three months ended March 31, 2008 were for the acquisition
of four physician practices.
Excluding the cost to construct replacement hospitals, our
capital expenditures for the three months ended March 31,
2009 totaled $135.7 million, compared to $92.1 million
for the three months ended March 31, 2008. These capital
expenditures related primarily to the purchase of additional
equipment and minor renovations. Costs to construct replacement
hospitals for the three months ended March 31, 2009 totaled
$0.3 million, compared to $49.6 million for the three
months ended March 31, 2008. Pursuant to hospital purchase
agreements in effect as of March 31, 2009, where required
certificate of need approval has been obtained, we are required
to build replacement facilities in Valparaiso, Indiana by April
2011 and in Siloam Springs, Arkansas by February 2013. 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
$304.0 million for these three replacement facilities. In
addition, in October 2008, after the purchase of the minority
owners interest in our Birmingham, Alabama facility, we
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 we are currently assessing completion costs, to be
used for
34
relocating the existing Birmingham facility. This project is
subject to the approval of a certificate of need. Upon receiving
the certificate of need, and after resolution of any legal
opposition, we will undertake completion of the unfinished
facility.
Capital
Resources
Net working capital was $1.424 billion at March 31,
2009, compared to $1.071 billion at December 31, 2008.
The $353 million increase was attributable primarily to an
increase in cash and accounts receivable and a decrease in
accounts payable, accrued interest and prepaid taxes, which
reflects the timing of our cash collections and payments. The
increase in cash is also attributable to the $200 million
draw down of the delayed draw term loan in January 2009 and the
receipt of cash in connection with the sale of our partnership
interest in a partnership which owned and operated Presbyterian
Hospital of Denton.
In connection with the consummation of the Triad acquisition in
July 2007, we obtained $7.215 billion of senior secured
financing under a Credit Facility with a syndicate of financial
institutions led by Credit Suisse, as administrative agent and
collateral agent. The Credit Facility consisted 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 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 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 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 Credit
Facility are unconditionally guaranteed by Community Health
Systems, Inc. and certain existing and subsequently acquired or
organized domestic subsidiaries. All obligations under the
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 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 0.5%, 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.
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
35
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 Credit Facility, 0.75% per annum for the
next three months after such nine-month period and thereafter
1.0% per annum. In each case, the commitment fee was based on
the unused amount of the delayed draw term loan facility. After
the draw down of the remaining $200 million of the delayed
draw term loan in January 2009, we no longer pay commitment fees
for the delayed draw term loan facility. We also paid
arrangement fees on the closing of the Credit Facility and pay
an annual administrative agent fee.
The 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 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 Credit Facility.
As of March 31, 2009, there was approximately
$750 million of available borrowing capacity under our
Credit Facility, of which $89.7 million was set aside for
outstanding letters of credit.
During the three months 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.
During the three months ended March 31, 2009, we
repurchased on the open market and cancelled $60.5 million
of principal amount of the Notes. This resulted in a net gain
from early extinguishment of debt of $2.4 million with an
after-tax impact of $1.5 million.
As of March 31, 2009, 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, or LIBOR, in exchange for the payment by
36
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 Credit Facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Fixed Interest
|
|
Termination
|
|
Fair Value
|
|
Swap #
|
|
(in 000s)
|
|
Rate
|
|
Date
|
|
(in 000s)
|
|
|
1
|
|
|
$715,000
|
|
|
0.6025%
|
|
May 29, 2009
|
|
$
|
10
|
(1)
|
2
|
|
|
100,000
|
|
|
3.9350%
|
|
June 6, 2009
|
|
|
(502
|
)
|
3
|
|
|
100,000
|
|
|
4.3375%
|
|
November 30, 2009
|
|
|
(1,626
|
)
|
4
|
|
|
200,000
|
|
|
2.8800%
|
|
September 17, 2010
|
|
|
(3,280
|
)
|
5
|
|
|
100,000
|
|
|
4.9360%
|
|
October 4, 2010
|
|
|
(4,725
|
)
|
6
|
|
|
100,000
|
|
|
4.7090%
|
|
January 24, 2011
|
|
|
(5,574
|
)
|
7
|
|
|
300,000
|
|
|
5.1140%
|
|
August 8, 2011
|
|
|
(24,325
|
)
|
8
|
|
|
100,000
|
|
|
4.7185%
|
|
August 19, 2011
|
|
|
(7,289
|
)
|
9
|
|
|
100,000
|
|
|
4.7040%
|
|
August 19, 2011
|
|
|
(7,270
|
)
|
10
|
|
|
100,000
|
|
|
4.6250%
|
|
August 19, 2011
|
|
|
(7,081
|
)
|
11
|
|
|
200,000
|
|
|
4.9300%
|
|
August 30, 2011
|
|
|
(15,695
|
)
|
12
|
|
|
200,000
|
|
|
3.0920%
|
|
September 18, 2011
|
|
|
(7,361
|
)
|
13
|
|
|
100,000
|
|
|
3.0230%
|
|
October 23, 2011
|
|
|
(3,585
|
)
|
14
|
|
|
200,000
|
|
|
4.4815%
|
|
October 26, 2011
|
|
|
(14,288
|
)
|
15
|
|
|
200,000
|
|
|
4.0840%
|
|
December 3, 2011
|
|
|
(12,681
|
)
|
16
|
|
|
100,000
|
|
|
3.8470%
|
|
January 4, 2012
|
|
|
(5,849
|
)
|
17
|
|
|
100,000
|
|
|
3.8510%
|
|
January 4, 2012
|
|
|
(5,867
|
)
|
18
|
|
|
100,000
|
|
|
3.8560%
|
|
January 4, 2012
|
|
|
(5,879
|
)
|
19
|
|
|
200,000
|
|
|
3.7260%
|
|
January 8, 2012
|
|
|
(11,113
|
)
|
20
|
|
|
200,000
|
|
|
3.5065%
|
|
January 16, 2012
|
|
|
(9,992
|
)
|
21
|
|
|
250,000
|
|
|
5.0185%
|
|
May 30, 2012
|
|
|
(24,396
|
)
|
22
|
|
|
150,000
|
|
|
5.0250%
|
|
May 30, 2012
|
|
|
(14,744
|
)
|
23
|
|
|
200,000
|
|
|
4.6845%
|
|
September 11, 2012
|
|
|
(18,572
|
)
|
24
|
|
|
100,000
|
|
|
3.3520%
|
|
October 23, 2012
|
|
|
(5,065
|
)
|
25
|
|
|
125,000
|
|
|
4.3745%
|
|
November 23, 2012
|
|
|
(10,570
|
)
|
26
|
|
|
75,000
|
|
|
4.3800%
|
|
November 23, 2012
|
|
|
(6,438
|
)
|
27
|
|
|
150,000
|
|
|
5.0200%
|
|
November 30, 2012
|
|
|
(16,204
|
)
|
28
|
|
|
100,000
|
|
|
5.0230%
|
|
May 30, 2013
|
|
|
(11,673
|
)
|
29
|
|
|
300,000
|
|
|
5.2420%
|
|
August 6, 2013
|
|
|
(38,589
|
)
|
30
|
|
|
100,000
|
|
|
5.0380%
|
|
August 30, 2013
|
|
|
(12,161
|
)
|
31
|
|
|
50,000
|
|
|
3.5860%
|
|
October 23, 2013
|
|
|
(3,164
|
)
|
32
|
|
|
50,000
|
|
|
3.5240%
|
|
October 23, 2013
|
|
|
(3,035
|
)
|
33
|
|
|
100,000
|
|
|
5.0500%
|
|
November 30, 2013
|
|
|
(12,621
|
)
|
34
|
|
|
200,000
|
|
|
2.0700%
|
|
December 19, 2013
|
|
|
339
|
|
35
|
|
|
100,000
|
|
|
5.2310%
|
|
July 25, 2014
|
|
|
(14,459
|
)
|
36
|
|
|
100,000
|
|
|
5.2310%
|
|
July 25, 2014
|
|
|
(14,459
|
)
|
37
|
|
|
200,000
|
|
|
5.1600%
|
|
July 25, 2014
|
|
|
(28,233
|
)
|
38
|
|
|
75,000
|
|
|
5.0405%
|
|
July 25, 2014
|
|
|
(10,148
|
)
|
39
|
|
|
125,000
|
|
|
5.0215%
|
|
July 25, 2014
|
|
|
(16,798
|
)
|
|
|
|
(1) |
|
This interest rate swap is a
90-day swap
for which we pay a monthly fixed rate of 0.6025% and receive
one-month LIBOR rates payable on $715 million of term loans
under the Credit Facility. |
37
The 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 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 Credit Facility
and/or the
Notes. Upon the occurrence of an event of default under our
Credit Facility or the Notes, all amounts outstanding under our
Credit Facility and the Notes may become due and payable and all
commitments under the Credit Facility to extend further credit
may be terminated.
We believe that internally generated cash flows, availability
for additional borrowings under our Credit Facility of a
$750 million revolving credit facility and our ability to
add up to $300 million of borrowing capacity from
receivable transactions (including securitizations) 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 and, despite the current conditions in the
financial and capital markets resulting from the global credit
and liquidity issues, 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.
The following table shows the ratio of earnings to fixed charges
for the three months ended March 31, 2009:
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31, 2009
|
|
|
Ratio of earnings to fixed charges(1)
|
|
|
1.51x
|
|
|
|
|
|
|
|
|
|
(1) |
|
There are no shares of preferred stock outstanding. |
Off-balance
sheet arrangements
Our consolidated operating results for the three months ended
March 31, 2009 and 2008, included $70.9 million and
$67.5 million, respectively, of net operating revenue and
$2.8 million and $0.9 million, respectively, of income
from operations generated from six hospitals operated by us
under operating lease arrangements. In accordance with
accounting principles generally accepted in the United States of
America, or
38
GAAP, the respective assets and the future lease obligations
under these arrangements are not recorded on our condensed
consolidated balance sheet. Lease payments under these
arrangements are included in rent expense when paid and totaled
approximately $4.1 million for each of the three months
ended March 31, 2009 and March 31, 2008. The current
terms of these operating leases expire between June 2010 and
December 2019, not including lease extension options. If we
allow these leases to expire, we would no longer generate
revenue nor incur expenses from these hospitals.
In the past, we have utilized operating leases as a financing
tool for obtaining the operations of specified hospitals without
acquiring, through ownership, the related assets of the hospital
and without a significant outlay of cash at the front end of the
lease. We utilize the same management and operating strategies
to improve operations at those hospitals held under operating
leases as we do at those hospitals that we own. We have not
entered into any operating leases for hospital operations since
December 2000.
Joint
Ventures
We have sold noncontrolling interests in certain of our
subsidiaries or acquired subsidiaries with existing
noncontrolling interest ownership positions. As of
March 31, 2009, 21 of our hospitals were owned by physician
joint ventures with ownership interests ranging from less than
1% to 40%, of which one also had non-profit entities as
partners. In addition, four other hospitals had non-profit
entities as partners. Redeemable noncontrolling interests in
equity of consolidated subsidiaries was $306.9 million and
$298.8 million as of March 31, 2009 and
December 31, 2008, respectively, and noncontrolling
interests in equity of consolidated subsidiaries was
$78.7 million and $73.3 million as of March 31,
2009 and December 31, 2008, respectively, and the amount of
net income attributable to noncontrolling interests was
$14.0 million and $8.6 million for the three months
ended March 31, 2009 and 2008, respectively.
Reimbursement,
Legislative and Regulatory Changes
Legislative and regulatory action has resulted in continuing
change in the Medicare and Medicaid reimbursement programs which
will continue to limit payment increases under these programs
and in some cases implement payment decreases. Within the
statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings,
interpretations, and discretion which may further affect
payments made under those programs, and the federal and state
governments might, in the future, reduce the funds available
under those programs or require more stringent utilization and
quality reviews of hospital facilities. Additionally, there may
be a continued rise in managed care programs and future
restructuring of the financing and delivery of healthcare in the
United States. These events could cause our future financial
results to decline.
Inflation
The healthcare industry is labor intensive. Wages and other
expenses increase during periods of inflation and when labor
shortages occur in the marketplace. In addition, our suppliers
pass along rising costs to us in the form of higher prices. We
have implemented cost control measures, including our case and
resource management program, to curb increases in operating
costs and expenses. We have generally offset increases in
operating costs by increasing reimbursement for services,
expanding services and reducing costs in other areas. However,
we cannot predict our ability to cover or offset future cost
increases.
Critical
Accounting Policies
The discussion and analysis of our financial condition and
results of operations are based upon our condensed consolidated
financial statements, which have been prepared in accordance
with GAAP. The preparation of these financial statements
requires us to make estimates and judgments that affect the
reported amount of assets and liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities at the date of our condensed consolidated financial
statements. Actual results may differ from these estimates under
different assumptions or conditions.
39
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.
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
three months ended March 31, 2009 would have changed by
approximately $26.3 million, and net accounts receivable
would have changed by $42.8 million. Final settlements
under some of these programs are subject to adjustment based on
administrative review and audit by third parties. We account for
adjustments to previous program reimbursement estimates as
contractual allowance adjustments and report them in the periods
that such adjustments become known. Contractual allowance
adjustments related to final settlements and previous program
reimbursement estimates impacted net operating revenues and net
income by an insignificant amount in each of the three-month
periods ended March 31, 2009 and 2008.
Allowance
for Doubtful Accounts
Substantially all of our accounts receivable are related to
providing healthcare services to our hospitals patients.
Collection of these accounts receivable is our primary source of
cash and is critical to our operating performance. Our primary
collection risks relate to uninsured patients and outstanding
patient balances for which the primary insurance payor has paid
some but not all of the outstanding balance, with the remaining
outstanding balance (generally deductibles and co-payments) owed
by the patient. At the point of service, for patients required
to make a co-payment, we generally collect less than 15% of the
related revenue. For all procedures scheduled in advance, our
policy is to verify insurance coverage prior to the date of the
procedure. Insurance coverage is not verified in advance of
procedures for walk-in and emergency room patients.
We estimate the allowance for doubtful accounts by reserving a
percentage of all self-pay accounts receivable without regard to
aging category, based on collection history, adjusted for
expected recoveries and, if present, anticipated changes in
trends. For all other payor categories we reserve 100% of all
accounts aging over 365 days from the date of discharge.
The percentage used to reserve for all self-pay accounts is
based on our collection history. We believe that we collect
substantially all of our third-party insured receivables, which
include receivables from governmental agencies.
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,
40
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 estimated collection percentage as a
result of a change in expected recoveries, net income for the
three months ended March 31, 2009 would have changed by
$12.6 million, and net accounts receivable would have
changed by $20.5 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
March 31, 2009 and December 31, 2008, 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 51 days at March 31, 2009
and 53 days at December 31, 2008. Our target range for
days revenue outstanding is 52 to 58 days.
Total gross accounts receivable (prior to allowance for
contractual adjustments and doubtful accounts) was approximately
$6.010 billion as of March 31, 2009 and approximately
$5.458 billion as of December 31, 2008.
The approximate percentage of total gross accounts receivable
(prior to allowances for contractual adjustments and doubtful
accounts) summarized by payor category is as follows:
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As of
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March 31,
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December 31,
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2009
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2008
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|
Insured receivables
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66.9
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%
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67.0
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%
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Self-pay receivables
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33.1
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%
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33.0
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%
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Total
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100.0
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%
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|
|
100.0
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%
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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 March 31, 2009 and
December 31, 2008. 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 89% at March 31, 2009 and 88%
at December 31, 2008.
Goodwill
and Other Intangibles
Goodwill represents the excess of cost over the fair value of
net assets acquired. Goodwill arising from business combinations
is accounted for under the provisions of
SFAS No. 141(R) Business Combinations and
SFAS No. 142, Goodwill and Other Intangible
Assets and is not amortized. SFAS No. 142
requires goodwill to be evaluated for impairment at the same
time every year and when an event occurs or circumstances change
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 units carrying amount, including goodwill. If this
test indicates the fair value is less than the carrying value,
then
41
step two is required to compare the implied fair value of the
reporting units goodwill with the carrying value of the
reporting units 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
March 31, 2009 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 the acquisition of
a health care system which we anticipate closing in the quarter
ending June 30, 2009, the volatility of the current equity
markets, including the increase in our stock price since
March 31, 2009 and our average stock price over the
trailing three-month, six-month and one-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
results 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 Credit
Facility.
Impairment
or Disposal of Long-Lived Assets
In accordance with SFAS No. 144, whenever events or
changes in circumstances indicate that the carrying values of
certain long-lived assets may be impaired, we project the
undiscounted cash flows expected to be generated by these
assets. If the projections indicate that the reported amounts
are not expected to be recovered, such amounts are reduced to
their estimated fair value based on a quoted market price, if
available, or an estimate based on valuation techniques
available in the circumstances.
Professional
Liability Insurance Claims
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
42
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% and 4.1% in 2008
and 2007, 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
managements 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 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.
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
43
$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 Triad hospitals in
periods prior to May 1999 were insured through a wholly-owned
insurance subsidiary of HCA, Inc., or HCA, Triads owner
prior to that time, and excess loss policies maintained by HCA.
HCA has agreed to indemnify the former Triad hospitals in
respect of claims covered by such insurance policies arising
prior to May 1999. After May 1999 through December 31,
2006, the former Triad hospitals obtained insurance coverage on
a claims incurred basis from HCAs wholly-owned insurance
subsidiary with excess coverage obtained from other carriers
that is subject to certain deductibles. Effective for claims
incurred after December 31, 2006, Triad began insuring its
claims from $1 million to $5 million through its
wholly-owned captive insurance company, replacing the coverage
provided by HCA. Substantially all claims occurring during 2007
were self-insured up to $10 million per claim.
There have been no significant changes in our estimate of the
reserve for professional liability claims during the three
months ended March 31, 2009.
Income
Taxes
We must make estimates in recording provision for income taxes,
including determination of deferred tax assets and deferred tax
liabilities and any valuation allowances that might be required
against the deferred tax assets. We believe that future income
will enable us to realize these deferred tax assets, subject to
the valuation allowance we have established.
On January 1, 2007, we adopted the provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes. The total amount of unrecognized benefit
that would affect the effective tax rate, if recognized, is
approximately $14.9 million as of March 31, 2009. It
is our policy to recognize interest and penalties accrued
related to unrecognized benefits in our condensed consolidated
statements of income as income tax expense. During the three
months ended March 31, 2009, we decreased liabilities by
approximately $0.1 million and recorded $0.4 million
in interest and penalties related to prior state income tax
returns through our income tax provision from continuing
operations, which are included in our FASB Interpretation
No. 48 liability at March 31, 2009. A total of
approximately $2.1 million of interest and penalties is
included in the amount of FASB Interpretation No. 48
liability at March 31, 2009.
We believe it is reasonably possible that approximately
$4.1 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. In December 2008, we were notified by
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 consolidated results of operations
or consolidated financial position. With few exceptions, we are
no longer subject to state income tax examinations for years
prior to 2004.
Prior to the adoption of SFAS No. 160,
Noncontrolling Interests in Consolidated Financials
Statements an Amendment of ARB No. 51, or
SFAS No. 160, on January 1, 2009, income from
noncontrolling interests was deducted from earnings before
arriving at income from continuing operations. With the adoption
of SFAS No. 160, the income from noncontrolling
interests has been reclassified below net income and therefore
is no longer deducted in arriving at income from continuing
operations. However, the provision for income taxes does not
change because those subsidiaries with noncontrolling interests
pay no income tax, but distribute taxable income to their
respective investors. Accordingly, we will not pay tax on the
income attributable to the noncontrolling interests. As a result
of separately reporting income that is taxed to others, our
effective tax rate on continuing operations before income taxes,
as reported on the face of the financial statements is 33.3% and
34.6% for the three
44
months ended March 31, 2009 and 2008, respectively. However, the
actual effective tax rate that is attributable to the
Companys share of income from continuing operations before
income taxes (income from continuing operations before income
taxes, as presented on the face of the statement of income, less
income from continuing operations attributable to noncontrolling
interests of $14.1 million and $9.3 million for the
three months ended March 31, 2009 and 2008, respectively)
is 38.4% for the three months ended March 31, 2009, as
compared to 38.5% for the three months ended March 31,
2008. While the adoption of SFAS No. 160 does change
the location of the net income attributable to noncontrolling
interests on the statement of income, it does not change the
income tax from interests owned by us.
Recent
Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations, or 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 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
adopted SFAS No. 141(R) on January 1, 2009.
Approximately $1.0 million of acquisition costs related to
prospective acquisitions were expensed during the quarter ended
March 31, 2009 from the adoption of
SFAS No. 141(R). 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.
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. These disclosure
requirements require that minority interests be renamed
noncontrolling interests and that noncontrolling ownership
interests be presented separately within equity in the
consolidated financial statements. Revenues, expenses and income
from continuing operations from less-than-wholly-owned
subsidiaries are presented on the condensed consolidated
statements of income at the consolidated amounts, with a
consolidated net income measure that presents separately the
amounts attributable to both the controlling and noncontrolling
interests for all periods presented. Noncontrolling ownership
interests that are redeemable or may become redeemable at a
fixed or determinable price at the option of the holder or upon
the occurrence of an event outside of the control of the company
continue to be presented in mezzanine equity in accordance with
Emerging Issues Task Force Topic D-98, Classification and
Measurement of Redeemable Securities.
SFAS No. 160 requires retrospective adoption of the
presentation and disclosure requirements for all periods
presented. Therefore, the condensed consolidated financial
statements as of December 31, 2008 and for the three months
ended March 31, 2008 reflect the provisions of
SFAS No. 160 as if it was effective for those periods.
Other than these changes in financial statement presentation,
the adoption of SFAS No. 160 did not have a material
impact on the condensed consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, or SFAS No. 161.
SFAS No. 161 expands the disclosure requirements for
derivative instruments and for hedging activities in order to
provide additional understanding of how an entity uses
derivative instruments and how they are accounted for and
reported in an entitys financial statements. The new
disclosure requirements for SFAS No. 161 are effective
for fiscal years beginning after November 15, 2008, and was
adopted by us on January 1, 2009. The adoption of this
statement has not had a material effect on our consolidated
results of operations or consolidated financial position.
FORWARD-LOOKING
STATEMENTS
Some of the matters discussed in this report include
forward-looking statements. Statements that are predictive in
nature, that depend upon or refer to future events or conditions
or that include words such as expects,
45
anticipates, intends, plans,
believes, estimates, thinks,
and similar expressions are forward-looking statements. These
statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results and performance
to be materially different from any future results or
performance expressed or implied by these forward-looking
statements. These factors include, but are not limited to, the
following:
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general economic and business conditions, both nationally and in
the regions in which we operate;
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our ability to successfully integrate any acquisitions or to
recognize expected synergies from such acquisitions, including
the facilities acquired from Triad;
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risks associated with our substantial indebtedness, leverage and
debt service obligations;
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demographic changes;
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changes in, or the failure to comply with, governmental
regulations;
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legislative proposals for healthcare reform;
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potential adverse impact of known and unknown government
investigations and Federal and State False Claims Act litigation;
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our ability, where appropriate, to enter into or maintain
managed care provider arrangements and the terms of these
arrangements;
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changes in inpatient or outpatient Medicare and Medicaid payment
levels;
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increases in the amount and risk of collectability of patient
accounts receivable;
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increases in wages as a result of inflation or competition for
highly technical positions and rising supply costs due to market
pressure from pharmaceutical companies and new product releases;
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liabilities and other claims asserted against us, including
self-insured malpractice claims;
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competition;
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our ability to attract and retain, without significant
employment costs, qualified personnel, key management,
physicians, nurses and other health care workers;
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trends toward treatment of patients in less acute or specialty
healthcare settings, including ambulatory surgery centers or
specialty hospitals;
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changes in medical or other technology;
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changes in GAAP;
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the availability and terms of capital to fund additional
acquisitions or replacement facilities;
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our ability to successfully acquire additional hospitals and
complete the sale of hospitals held for sale;
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our ability to obtain adequate levels of general and
professional liability insurance; and
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timeliness of reimbursement payments received under government
programs.
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Although we believe that these statements are based upon
reasonable assumptions, we can give no assurance that our goals
will be achieved. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on these
forward-looking statements. These forward-looking statements are
made as of the date of this filing. We assume no obligation to
update or revise them or provide reasons why actual results may
differ.
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Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We are exposed to interest rate changes, primarily as a result
of our senior secured credit facility which bears interest based
on floating rates. In order to manage the volatility relating to
the market risk, we entered into interest rate swap agreements
described under the heading Liquidity and Capital
Resources in Item 2. We do not anticipate any
material changes in our primary market risk exposures in 2009.
We utilize risk management
46
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 $1.3 million
and $3.7 million for the three months ended March 31,
2009 and 2008, respectively.
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Item 4.
|
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 Commissions rules and forms and to ensure
that the information required to be included in this report was
accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.
There have been no changes in our internal control over
financial reporting during the quarter ended March 31,
2009, that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.
PART II
OTHER INFORMATION
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Item 1.
|
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
Acts requirements for filing such suits.
Community
Health Systems, Inc. Legal Proceedings
In May 1999, we were served with a complaint in U.S. ex
rel. Bledsoe v. Community Health Systems, Inc.,
subsequently moved to the Middle District of Tennessee, Case
No. 2-00-0083.
This qui tam action sought treble damages and penalties under
the False Claims Act against us. The Department of Justice did
not intervene in this action. The allegations in the amended
complaint were extremely general, but involved Medicare billing
at our White County Community Hospital in Sparta, Tennessee. By
order entered on September 19, 2001, the U.S. District
Court granted our motion for judgment on the pleadings and
dismissed the case, with prejudice. The qui tam whistleblower
(also referred to as a relator) appealed the
district courts ruling to the U.S. Court of Appeals
for the Sixth Circuit. On September 10, 2003, the Sixth
Circuit Court of Appeals rendered its decision in this case,
affirming in part and reversing in part the district
courts decision to dismiss the case with prejudice. The
court affirmed the lower courts dismissal of certain of
plaintiffs claims on the grounds that his allegations had
been previously publicly disclosed. In addition, the appeals
court agreed that, as to all other allegations, the relator had
47
failed to include enough information to meet the special
pleading requirements for fraud under the False Claims Act and
the Federal Rules of Civil Procedure. However, the case was
returned to the district court to allow the relator another
opportunity to amend his complaint in an attempt to plead his
fraud allegations with particularity. In May 2004, the relator
in U.S. ex rel. Bledsoe filed an amended complaint alleging
fraud involving Medicare billing at White County Community
Hospital. We then filed a renewed motion to dismiss the amended
complaint. On January 6, 2005, the District Court dismissed
with prejudice the bulk of the relators allegations. The
only remaining allegations involve a small number of charges
from 1997 and 1998 at White County. After further motion
practice between the relator and the United States Government
regarding the relators right to participate in a previous
settlement with the Company, the District Court again dismissed
all claims in the case on December 13, 2005. On
January 9, 2006, the relator filed a notice of appeal to
the U.S. Court of Appeals for the Sixth Circuit and on
September 6, 2007, the Court of Appeals issued its 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 Relators 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 but not yet
scheduled. 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 Courts decision in lieu of
amending her case. Oral argument was heard on this case on
January 9, 2008. On June 16, 2008, the Appellate Court
upheld the dismissal of the consumer fraud claim but reversed
dismissal of the contract claim. We filed a Petition for Leave
of Appeal to the Illinois Supreme Court which was denied. The
case has now been remanded and on March 10, 2009, we filed
a motion for summary judgment. We are vigorously defending this
case.
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,
48
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 have reached a settlement of
this matter that will result in dismissal of all pending claims.
We will no longer refer to this matter in future fillings.
On February 10, 2006, we received a letter from the Civil
Division of the Department of Justice requesting documents in an
investigation it was conducting involving the Company. The
inquiry related 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
2006 letter focused on our hospitals in three states: Arkansas,
New Mexico, and South Carolina. On August 31, 2006, we
received a follow up letter from the Department of Justice
requesting additional documents relating to the programs in New
Mexico and the payments to the Companys three hospitals in
that state. Through the beginning of 2009, we provided the
Department of Justice with requested documents, met with them on
numerous occasions, and otherwise cooperated in its
investigation. During the course of the investigation, the Civil
Division notified us that it believed that we and these three
New Mexico hospitals caused the State of New Mexico to submit
improper claims for federal funds, in violation of the Federal
False Claims Act. At one point, the Civil Division calculated
that the three hospitals received ineligible federal
participation payments from August 2000 to June 2006 of
approximately $27.5 million and said that if it proceeded
to trial, it would seek treble damages plus an appropriate
penalty for each of the violations of the Federal False Claims
Act. This investigation has culminated in the federal
governments intervention in a qui tam lawsuit styled
U.S. ex rel. Baker vs. Community Health Systems, Inc.,
pending in the United States District Court for the District
of New Mexico. The federal government has not yet filed its
complaint in intervention. We are vigorously defending this
action.
On June 12, 2008, two of our hospitals received letters
from the U.S. Attorneys Office for the Western
District of New York requesting documents in an investigation it
was 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. Attorneys 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 federal 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.
Whittens original qui tam complaint was filed under seal
in November 2002 and the case was unsealed in 2004. Whitten
alleges various charging and billing infractions, including
charging for routine equipment supplies and services not
separately billable, billing for observation services that were
not medically necessary or for which there was no physician
order, billing labor and delivery patients for durable medical
equipment that was not separately
49
billable, inappropriate preparation of patients histories
and physicals, billing for cardiac rehabilitation services
without physician supervision, performing outpatient dialysis
without Medicare certification, and performing mental health
services without the proper staff assignments. In October 2005,
the district court granted Quorums motion for summary
judgment on the grounds that his claims were precluded under his
severance agreement with the hospital, without reaching two
other arguments made by Quorum, which included that a prior
settlement agreement between the hospital and the federal
government precluded the claims brought by Whitten as well as
the doctrine of prior public disclosure. On appeal to the
11th Circuit Court of Appeals, the court reversed the
findings of the district court regarding the severance
agreement, but remanded the case to the district court for
findings on Quorums other two defenses. Limited discovery
has been conducted and renewed motions by Quorum to dismiss the
action and to stay further discovery were filed in September
2007. On August 5, 2008, our motion to dismiss was denied.
At the conclusion of discovery, a motion for summary judgment
was filed on February 13, 2009, and set for a hearing on
June 5, 2009. We continue to believe that the
relators claims are without merit and will continue to
vigorously defend this case.
In a case styled U.S. ex rel. Bartlett vs. Quorum Health
Resources, Inc., et al., pending in the Western District of
Pennsylvania, Johnstown Division, the relator alleges in his
second amended complaint, filed in January 2006 (the first
amended complaint having been dismissed), that Quorum conspired
with an unaffiliated hospital to pay 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 hospitals 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. The
District Court convened another conference on March 30,
2009 and heard arguments on whether to proceed with a motion to
dismiss, but did not make a ruling. We believe that this case is
without merit and should the stay be lifted, will continue to
vigorously defend it.
There have been no material changes with regard to risk factors
previously disclosed in our most recent annual report on
Form 10-K.
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|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
We have not paid any cash dividends since our inception, and do
not anticipate the payment of cash dividends in the foreseeable
future. As of March 31, 2009, our Credit Facility limits
our ability to pay dividends
and/or
repurchase stock to an amount not to exceed $400 million in
the aggregate (but not in excess of $200 million unless we
receive confirmation from Moodys and S&P that
dividends or repurchases would not result in a downgrade,
qualification or withdrawal of the then corporate credit
rating). The indenture governing our Notes also limits our
ability to pay dividends
and/or
repurchase stock in an amount higher than permitted by our
Credit Facility.
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Item 3.
|
Defaults
Upon Senior Securities
|
None
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Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None
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|
Item 5.
|
Other
Information
|
None
50
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No.
|
|
Description
|
|
|
4
|
.1
|
|
Sixth Supplemental Indenture relating to CHS/Community Health
Systems, Inc.s
87/8% Senior
Notes due 2015, dated as of March 30, 2009, by and among
CHS/Community Health Systems, Inc., the guarantors party thereto
and U.S. Bank National Association
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|
4
|
.2
|
|
Release of Certain Guarantors relating to CHS/Community Health
Systems, Inc.s
87/8% Senior
Notes due 2015, dated as of March 30, 2009, by and among
CHS/Community Health Systems, Inc., the guarantors party thereto
and U.S. Bank National Association
|
|
12
|
|
|
Computation of Ratio of Earnings to Fixed Charges
|
|
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
|
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMMUNITY HEALTH SYSTEMS, INC.
(Registrant)
Wayne T. Smith
Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
W. Larry Cash
Executive Vice President, Chief Financial
Officer and Director
(principal financial officer)
T. Mark Buford
Vice President and Corporate Controller
(principal accounting officer)
Date: April 29, 2009
52
Index to
Exhibits
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|
|
|
|
No.
|
|
Description
|
|
|
4
|
.1
|
|
Sixth Supplemental Indenture relating to CHS/Community Health
Systems, Inc.s
87/8% Senior
Notes due 2015, dated as of March 30, 2009, by and among
CHS/Community Health Systems, Inc., the guarantors party thereto
and U.S. Bank National Association
|
|
4
|
.2
|
|
Release of Certain Guarantors relating to CHS/Community Health
Systems, Inc.s
87/8% Senior
Notes due 2015, dated as of March 30, 2009, by and among
CHS/Community Health Systems, Inc., the guarantors party thereto
and U.S. Bank National Association
|
|
12
|
|
|
Computation of Ratio of Earnings to Fixed Charges
|
|
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
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|
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
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|
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
|
53
EX-4.1
Exhibit 4.1
SIXTH SUPPLEMENTAL INDENTURE (this Supplemental
Indenture), dated as of March 30, 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.
WHEREAS, following the merger of National Healthcare of
Cleveland, Inc., an existing Subsidiary Guarantor, with and into
Cleveland Tennessee Hospital Company, LLC on February 1,
2009, Cleveland Tennessee Hospital Company, LLC is entering into
this Supplemental Indenture pursuant to Section 5.01(b) of
the Indenture.
WHEREAS, National Healthcare of Cleveland, Inc. (i) has
been merged into Cleveland Tennessee Hospital Company, LLC;
(ii) has therefore ceased to exist, and (iii) will
therefore no longer be a Subsidiary Guarantor under the
Indenture.
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
Issuers 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 30th day of
March, 2009.
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CHS/Community Health Systems, Inc.a Delaware corporation
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|
|
|
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|
By: /s/ Rachel
A.
Seifert Rachel
A. Seifert
Senior Vice President, Secretary & General
Counsel
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|
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Cleveland Tennessee Hospital Company, LLC,
a Delaware limited liability company
DHFW Holdings, LLC,
a Delaware limited liability company
Northwest Hospital, LLC,
a Delaware limited liability company
NOV Holdings, LLC,
a Delaware limited liability company
Oro Valley Hospital, LLC,
a Delaware limited liability company
Wesley Health System, LLC,
a Delaware limited liability company
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|
|
|
|
|
By: /s/ Rachel
A.
Seifert Rachel
A. SeifertSenior Vice President and Secretary
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|
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U.S. Bank National Association,as Trustee
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|
|
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By: /s/ Wally
Jones Wally
JonesVice President
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2
EX-4.2
Exhibit 4.2
RELEASE OF CERTAIN GUARANTORS (this Release),
dated as of March 30, 2009, 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, the Third Supplemental Indenture,
dated as of October 10, 2008, the Fourth Supplemental
Indenture, dated December 1, 2008, the Fifth Supplemental
Indenture, dated February 5, 2009, and the Sixth
Supplemental Indenture of even date herewith (the
Indenture), providing for the issuance of the
87/8% Senior
Notes due 2015 (the Securities);
WHEREAS, pursuant to that certain Private Placement Memorandum,
dated October 24, 2007 (as amended, supplemented or
otherwise modified from time to time, the Sunbury
PPM), Sunbury Hospital Company, LLC, a Delaware
limited liability company (SHC), has offered
and sold membership interests in SHC to certain physician
investors effective as of January 1, 2008 (such
transaction, the Sunbury Syndication).
WHEREAS, pursuant to that certain Private Placement Memorandum,
dated November 13, 2007 (as amended, supplemented or
otherwise modified from time to time, the Abilene
PPM), ARMC, L.P., a Delaware limited partnership
(ARMC), has offered and sold partnership
interests in ARMC to certain physician investors effective as of
June 1, 2008 (such transaction, the Abilene
Syndication).
WHEREAS, pursuant to that certain Private Placement Memorandum,
dated July 22, 2008 (as amended, supplemented or otherwise
modified from time to time, the Ft. Wayne
PPM), Lutheran Health Network Investors, LLC, a
Delaware limited liability company (LHNI),
has offered and sold membership interests in LHNI to certain
physician investors effective as of October 1, 2008 (such
transaction, the Ft. Wayne Syndication).
WHEREAS, IOM Health System, LP, an Indiana limited partnership,
St. Joseph Health System, LLC, a Delaware limited liability
company, and Triad Indiana Holdings, LLC, a Delaware limited
liability company, are wholly-owned, directly or indirectly, by
LHNI.
WHEREAS, (i) upon the consummation of the Syndications,
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 Officers 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.
2
IN WITNESS WHEREOF, the parties have caused this Release to be
duly executed as of this 30th day of March 2009.
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CHS/Community Health Systems, Inc.,a Delaware corporation
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By: /s/ Rachel
A.
Seifert Rachel
A. SeifertSenior Vice President, Secretary & General
Counsel
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Syndicated Subsidiary Guarantors:
ARMC, L.P.
IOM Health System, LP
St. Joseph Health System, LLC
Sunbury Hospital Company, LLC
Triad Indiana Holdings, LLC
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By: /s/ James
W.
Doucette James
W. Doucette
Vice President, Finance and Treasurer
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U.S. Bank National Association,
as Trustee
Wally Jones
Vice President
3
EX-12.1
Exhibit 12
STATEMENT
RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
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Three Months
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Ended March 31,
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2009
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Earnings
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Income from continuing operations before provision for income
taxes
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$
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106,663
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Income from equity investees
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(12,919
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)
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Distributed income from equity investees
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3,040
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Interest and amortization of deferred finance costs
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163,810
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Amortization of capitalized interest
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462
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Implicit rental interest expense
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14,986
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Total Earnings
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$
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276,042
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Fixed Charges
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Interest and amortization of deferred finance costs
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$
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163,810
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Capitalized interest
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4,422
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Implicit rental interest expense
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14,986
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Total fixed charges
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$
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183,218
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Ratio of earnings to fixed charges
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1.51
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x
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EX-31.1
Exhibit 31.1
I, Wayne T. Smith, certify that:
1. I have reviewed this quarterly report on
Form 10-Q
of Community Health Systems, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and we have:
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) designed such internal controls over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors:
a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
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Date: April 29, 2009
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/s/ Wayne
T. Smith
Wayne
T. Smith
Chairman of the Board, President
and Chief Executive Officer
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EX-31.2
Exhibit 31.2
I, W. Larry Cash, certify that:
1. I have reviewed this quarterly report on
Form 10-Q
of Community Health Systems, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and we have:
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) designed such internal controls over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors:
a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
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Date: April 29, 2009
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/s/ W.
Larry Cash
W.
Larry Cash
Executive Vice President,
Chief Financial Officer and Director
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EX-32.1
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Community Health
Systems, Inc. (the Company) on
Form 10-Q
for the period ending March 31, 2009, as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, Wayne T. Smith, Chairman of the
Board, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
result of operations of the Company.
Wayne T. Smith
Chairman of the Board, President and Chief Executive Officer
April 29, 2009
A signed original of this written statement required by
Section 906 has been provided to Community Health Systems,
Inc. and will be retained by Community Health Systems, Inc. and
furnished to the Securities and Exchange Commission or its staff
upon request.
EX-32.2
Exhibit 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Community Health
Systems, Inc. (the Company) on
Form 10-Q
for the period ending March 31, 2009, as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, W. Larry Cash, Executive Vice
President, Chief Financial Officer and Director of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
result of operations of the Company.
W. Larry Cash
Executive Vice President, Chief Financial Officer and Director
April 29, 2009
A signed original of this written statement required by
Section 906 has been provided to Community Health Systems,
Inc. and will be retained by Community Health Systems, Inc. and
furnished to the Securities and Exchange Commission or its staff
upon request.