Delaware		13-3893191
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
4000 Meridian Boulevard		37067
Franklin, Tennessee		(Zip Code)
(Address of principal executive offices)

     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 þ      No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     As of April 20, 2011, there were outstanding 94,967,424 shares of the Registrant’s Common Stock, $0.01 par value.

 

 

Community Health Systems, Inc.

Form 10-Q

For the Three Months Ended March 31, 2011

		Page
Part I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets — March 31, 2011 and December 31, 2010 (Unaudited)			2
Condensed Consolidated Statements of Income — Three Months Ended March 31, 2011 and March 31, 2010 (Unaudited)			3
Condensed Consolidated Statements of Cash Flows — Three Months Ended March 31, 2011 and March 31, 2010 (Unaudited)			4
Notes to Condensed Consolidated Financial Statements (Unaudited)			5
Item 2. Management’s Discussion and Analysis of Financial Condition And Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures about Market Risk			49
Item 4. Controls and Procedures			50
Part II. Other Information
Item 1. Legal Proceedings			50
Item 1A. Risk Factors			52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 3. Defaults Upon Senior Securities			52
Item 4. (Removed and Reserved)			52
Item 5. Other Information			52
Item 6. Exhibits			53
Signatures			54
Index to Exhibits			55
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-12
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I FINANCIAL INFORMATION

Item 1.		Financial Statements

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

		March 31,				December 31,
		2011				2010
ASSETS
Current assets
Cash and cash equivalents		$	270,716			$	299,169
Patient accounts receivable, net of allowance for doubtful accounts of $1,699,935 and $1,639,198 at March 31, 2011 and December 31, 2010, respectively			1,766,122				1,714,542
Supplies			329,275				329,114
Prepaid income taxes			65,030				118,464
Deferred income taxes			115,819				115,819
Prepaid expenses and taxes			112,486				100,754
Other current assets			176,545				193,331
Total current assets			2,835,993				2,871,193
Property and equipment			8,663,963				8,528,335
Less accumulated depreciation and amortization			(2,217,546	)			(2,089,776	)
Property and equipment, net			6,446,417				6,438,559
Goodwill			4,225,768				4,195,289
Other assets, net			1,210,101				1,193,082
Total assets		$	14,718,279			$	14,698,123
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt		$	65,952			$	63,139
Accounts payable			547,683				526,338
Deferred income taxes			8,882				8,882
Accrued interest			84,502				146,415
Accrued liabilities			898,810				897,266
Total current liabilities			1,605,829				1,642,040
Long-term debt			8,794,146				8,808,382
Deferred income taxes			608,177				608,177
Other long-term liabilities			952,406				1,001,675
Total liabilities			11,960,558				12,060,274
Redeemable noncontrolling interests in equity of consolidated subsidiaries			385,438				387,472
EQUITY
Community Health Systems, Inc. stockholders’ equity
Preferred stock, $.01 par value per share, 100,000,000 shares authorized; none issued			—				—
Common stock, $.01 par value per share, 300,000,000 shares authorized; 94,927,260 shares issued and 93,951,711 shares outstanding at March 31, 2011, and 93,644,862 shares issued and 92,669,313 shares outstanding at December 31, 2010			949				936
Additional paid-in capital			1,149,002				1,126,751
Treasury stock, at cost, 975,549 shares at March 31, 2011 and December 31, 2010			(6,678	)			(6,678	)
Accumulated other comprehensive loss			(192,640	)			(230,927	)
Retained earnings			1,360,706				1,299,382
Total Community Health Systems, Inc. stockholders’ equity			2,311,339				2,189,464
Noncontrolling interests in equity of consolidated subsidiaries			60,944				60,913
Total equity			2,372,283				2,250,377
Total liabilities and equity		$	14,718,279			$	14,698,123

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2011				2010
Net operating revenues		$	3,405,342			$	3,125,507
Operating costs and expenses:
Salaries and benefits			1,402,121				1,269,574
Provision for bad debts			407,871				373,665
Supplies			464,156				429,597
Other operating expenses			624,795				567,084
Rent			64,757				63,635
Depreciation and amortization			160,677				146,706
Total operating costs and expenses			3,124,377				2,850,261
Income from operations			280,965				275,246
Interest expense, net			164,172				160,360
Equity in earnings of unconsolidated affiliates			(18,130	)			(12,588	)
Income from continuing operations before income taxes			134,923				127,474
Provision for income taxes			43,782				40,989
Income from continuing operations			91,141				86,485
Discontinued operations, net of taxes:
Loss from operations of entities sold and held for sale			(1,214	)			(1,489	)
Impairment of long-lived assets of hospital held for sale			(8,368	)			—
Loss on sale			(3,234	)			—
Loss from discontinued operations			(12,816	)			(1,489	)
Net income			78,325				84,996
Less: Net income attributable to noncontrolling interests			17,001				14,989
Net income attributable to Community Health Systems, Inc.		$	61,324			$	70,007
Basic earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:
Continuing operations		$	0.81			$	0.78
Discontinued operations			(0.14	)			(0.02	)
Net income		$	0.67			$	0.76
Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders (1):
Continuing operations		$	0.80			$	0.77
Discontinued operations			(0.14	)			(0.02	)
Net income		$	0.67			$	0.75
Weighted-average number of shares outstanding:
Basic			91,008,405				91,615,275
Diluted			92,136,819				92,836,451

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2011				2010
Cash flows from operating activities
Net income		$	78,325			$	84,996
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			161,318				147,679
Stock-based compensation expense			9,918				9,763
Loss on sale			3,234				—
Impairment of long-lived assets of hospital held for sale			8,368				—
Excess tax benefit relating to stock-based compensation			(4,675	)			(4,349	)
Other non-cash expenses, net			(11,173	)			(3,957	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Patient accounts receivable			(56,454	)			(94,204	)
Supplies, prepaid expenses and other current assets			14,336				(6,908	)
Accounts payable, accrued liabilities and income taxes			(14,938	)			167,470
Other			(748	)			(1,130	)
Net cash provided by operating activities			187,511				299,360
Cash flows from investing activities
Acquisitions of facilities and other related equipment			(45,422	)			(180	)
Purchases of property and equipment			(153,875	)			(126,553	)
Proceeds from disposition of ancillary operations			14,583				—
Proceeds from sale of property and equipment			7,587				346
Increase in other non-operating assets			(32,277	)			(36,991	)
Net cash used in investing activities			(209,404	)			(163,378	)
Cash flows from financing activities
Proceeds from exercise of stock options			18,125				24,007
Excess tax benefit relating to stock-based compensation			4,675				4,349
Stock buy-back			—				(40	)
Proceeds from noncontrolling investors in joint ventures			863				1,255
Redemption of noncontrolling investments in joint ventures			(225	)			—
Distributions to noncontrolling investors in joint ventures			(15,333	)			(16,874	)
Repayments of long-term indebtedness			(14,665	)			(13,154	)
Net cash used in financing activities			(6,560	)			(457	)
Net change in cash and cash equivalents			(28,453	)			135,525
Cash and cash equivalents at beginning of period			299,169				344,541
Cash and cash equivalents at end of period		$	270,716			$	480,066
Supplemental disclosure of cash flow information:
Interest payments		$	226,124			$	220,202
Income taxes (refunds received) paid, net		$	(677	)		$	934

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

1. BASIS OF PRESENTATION

     The unaudited condensed consolidated financial statements of Community Health Systems, Inc. and its subsidiaries (the “Company”) as of March 31, 2011 and December 31, 2010 and for the three-month periods ended March 31, 2011 and March 31, 2010, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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, 2011, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2011. 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 (the “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, 2010, contained in the Company’s Annual Report on Form 10-K.

     Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the parent are presented as a component of total equity on the condensed consolidated balance sheets to distinguish between the interests of the parent company and the interests of the noncontrolling owners. Noncontrolling 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 are presented in mezzanine equity on the condensed consolidated balance sheets.

     During the three months ended March 31, 2011, the Company sold a multi-specialty physician clinic and made the decision to sell a hospital. Accordingly, as of March 31, 2011, this hospital has been classified as held for sale. The condensed consolidated statement of income for the three months ended March 31, 2010 has been restated to reclassify the results of operations for these entities to discontinued operations. The condensed consolidated balance sheet as of December 31, 2010 has been restated to present the long-lived assets of the disposal group as held for sale for comparative purposes with the March 31, 2011 presentation.

     Throughout these notes to the condensed consolidated financial statements, Community Health Systems, Inc. (the “Parent”), 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 or any subsidiary of the Parent 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.

2. ACCOUNTING FOR STOCK-BASED COMPENSATION

     Stock-based compensation awards are granted under the Community Health Systems, Inc. 2000 Stock Option and Award Plan amended and restated as of March 24, 2009 (the “2000 Plan”) and the Community Health Systems, Inc. 2009 Stock Option and Award Plan amended and restated as of March 18, 2011 (the “2009 Plan”).

     The 2000 Plan allows for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (“IRC”), as well as stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Prior to being amended in 2009, the 2000 Plan also allowed for the grant of phantom stock. Persons eligible to receive grants under the 2000 Plan include the Company’s directors, officers, employees and consultants. To date, all options granted under the 2000 Plan have been “nonqualified” stock options for tax purposes. Generally, vesting of these granted options occurs in one-third increments on each of the first three anniversaries of the award date. Options granted prior to 2005 have a 10-year contractual term, options granted in 2005 through 2007 have an eight-year contractual term and options granted in 2008 through February 2011 have a 10-year contractual term. As of March 31, 2011, 64,508 shares of unissued common stock were reserved for future grants under the 2000 Plan.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     The 2009 Plan, which was adopted by the Board of Directors of the Parent as of March 24, 2009 and approved by stockholders on May 19, 2009, provides for the grant of incentive stock options intended to qualify under Section 422 of the IRC and for the grant of stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Persons eligible to receive grants under the 2009 Plan include the Company’s directors, officers, employees and consultants. Options granted in 2011 have a 10-year contractual term. As of March 31, 2011, 2,954,289 shares of unissued common stock were reserved for future grants under the 2009 Plan.

     The exercise price of all options granted is equal to the fair value of the Company’s common stock on the option grant date.

     The following table reflects the impact of total compensation expense related to stock-based equity plans on the reported operating results for the respective periods (in thousands):

		Three Months Ended
		March 31,
		2011				2010
Effect on income from continuing operations before income taxes		$	(9,918	)		$	(9,763	)
Effect on net income		$	(6,298	)		$	(5,931	)

     At March 31, 2011, $89.7 million of unrecognized stock-based compensation expense was expected to be recognized over a weighted-average period of 29 months. Of that amount, $19.2 million related to outstanding unvested stock options was expected to be recognized over a weighted-average period of 28 months and $70.5 million related to outstanding unvested restricted stock, restricted stock units and phantom shares was expected to be recognized over a weighted-average period of 29 months. There were no modifications to awards during the three months ended March 31, 2011.

     The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions and weighted-average fair values during the three months ended March 31, 2011 and 2010:

		Three Months Ended
		March 31,
		2011				2010
Expected volatility			31.2	%			33.5	%
Expected dividends			—				—
Expected term		4.0		years		3.1		years
Risk-free interest rate			1.74	%			1.48	%

     In determining expected term, 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 primary employee populations, one consisting of certain senior executives and the other consisting of substantially 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 utilized to estimate the expected volatility did not differ significantly from the implied volatility.

     The expected term 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.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     Options outstanding and exercisable under the 2000 Plan and the 2009 Plan as of March 31, 2011, and changes during the three months then ended, were as follows (in thousands, except share and per share data):

										Weighted -
						Weighted -				Average				Aggregate
						Average				Remaining				Intrinsic
						Exercise				Contractual				Value as of
		Shares				Price				Term				March 31, 2011
Outstanding at December 31, 2010			7,834,332			$	32.08
Granted			1,329,000				37.96
Exercised			(595,431	)			30.44
Forfeited and cancelled			(64,508	)			34.84
Outstanding at March 31, 2011			8,503,393			$	33.10			6.1 years				$	59,253
Exercisable at March 31, 2011			5,794,134			$	32.74			4.6 years				$	42,636

     The weighted-average grant date fair value of stock options granted during the three months ended March 31, 2011 and 2010 was $10.34 and $8.47, respectively. The aggregate intrinsic value (the number of in-the-money stock options multiplied by the difference between the Company’s closing stock price on the last trading day of the reporting period ($39.99) 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, 2011. This amount changes based on the market value of the Company’s common stock. The aggregate intrinsic value of options exercised during the three months ended March 31, 2011 and 2010 was $5.9 million and $9.7 million, respectively. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.

     The Company has also awarded restricted stock under the 2000 Plan and the 2009 Plan to its directors and employees of certain subsidiaries. The restrictions on these shares generally lapse in one-third increments on each of the first three anniversaries of the award date. Certain of the restricted stock awards granted to the Company’s senior executives contain a performance objective that must be met in addition to any vesting requirements. If the performance objective is not attained, the awards will be forfeited in their entirety. Once the performance objective has been attained, restrictions will lapse in one-third increments on each of the first three anniversaries of the award date. Notwithstanding the above-mentioned performance objectives and vesting requirements, the restrictions will lapse earlier in the event of death, disability or termination of employment by the Company for any reason other than for cause of the holder of the restricted stock, 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.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     Restricted stock outstanding under the 2000 Plan and the 2009 Plan as of March 31, 2011, and changes during the three months then ended, were as follows:

						Weighted -
						Average
						Grant Date
		Shares				Fair Value
Unvested at December 31, 2010			2,125,291			$	27.92
Granted			1,084,949				37.96
Vested			(962,662	)			27.27
Forfeited			—				—
Unvested at March 31, 2011			2,247,578				33.04

     On February 25, 2009, under the 2000 Plan, each of the Company’s outside directors received a grant of shares of phantom stock equal in value to approximately $130,000 divided by the closing price of the Company’s common stock on that date ($18.18), or 7,151 shares per director (a total of 42,906 shares of phantom stock). Pursuant to a March 24, 2009 amendment to the 2000 Plan, future grants of this type will be denominated as “restricted stock unit” awards. On May 19, 2009, the newly elected outside director received a grant of 7,151 restricted stock units under the 2000 Plan, having a value at the time of $180,706 based upon the closing price of the Company’s common stock on that date of $25.27. On February 24, 2010, six of the Company’s seven outside directors each received a grant of 4,130 restricted stock units under the 2000 Plan, having a value at the time of approximately $140,000 based upon the closing price of the Company’s common stock on that date of $33.90. One outside director, who did not stand for reelection in 2010, did not receive a grant on February 24, 2010. On February 23, 2011, each of the Company’s six outside directors received a grant of 3,688 restricted stock units under the 2009 Plan, having a value at the time of approximately $140,000 based upon the closing price of the Company’s common stock on that date of $37.96. Vesting of these shares of phantom stock and restricted stock units occurs in one-third increments on each of the first three anniversaries of the award date. During the three months ended March 31, 2011, 20,176 shares vested at a weighted-average grant date fair value of $24.61. None of these grants were canceled during the three months ended March 31, 2011. As of March 31, 2011, there were 55,340 shares of phantom stock and restricted stock units unvested at a weighted-average grant date fair value of $31.39.

     Under the Directors’ Fees Deferral Plan, the Company’s outside directors may elect to receive share equivalent units in lieu of cash for their directors’ fees. These share equivalent 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 based on the closing market price of the Company’s common stock on that date. The following table represents the amount of directors’ fees which were deferred during each of the respective periods, and the number of share equivalent units into which such directors’ fees would have converted had each of the directors who had deferred such fees retired or terminated his/her directorship with the Company as of the end of the respective periods (in thousands, except share equivalent units):

		Three Months Ended
		March 31,
		2011				2010
Directors’ fees earned and deferred into plan		$	55			$	45
Share equivalent units			1,375				1,219

     At March 31, 2011, a total of 20,176 share equivalent units were deferred in the plan with an aggregate fair value of $0.8 million, based on the closing market price of the Company’s common stock at March 31, 2011 of $39.99.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

3. COST OF REVENUE

     Substantially all of the Company’s 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 Company’s corporate office costs at its Franklin, Tennessee office, which were $41.7 million and $37.8 million for the three months ended March 31, 2011 and 2010, respectively. Included in these amounts is stock-based compensation expense of $9.9 million and $9.8 million for the three months ended March 31, 2011 and 2010, respectively.

4. USE OF ESTIMATES

     The preparation of financial statements in conformity with U.S. 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

  Acquisitions

     Effective October 1, 2010, one or more subsidiaries of the Company completed the acquisition of Forum Health based in Youngstown, Ohio, a healthcare system of two acute care hospitals, a rehabilitation hospital and other healthcare providers. This healthcare system includes Northside Medical Center (355 licensed beds) located in Youngstown, Ohio, and Trumbull Memorial Hospital (311 licensed beds) located in Warren, Ohio. This healthcare system also includes Hillside Rehabilitation Hospital (69 licensed beds) located in Warren, Ohio, as well as several outpatient clinics and other ancillary facilities. The total cash consideration paid for fixed assets and working capital was approximately $93.4 million and $27.8 million, respectively, with additional consideration of $40.3 million assumed in liabilities, for a total consideration of $161.5 million. This acquisition transaction was accounted for as a purchase business combination. Based upon the Company’s final purchase price allocation relating to this acquisition as of March 31, 2011, approximately $8.1 million of goodwill has been recorded.

     Effective October 1, 2010, one or more subsidiaries of the Company completed the acquisition of Bluefield Regional Medical Center (240 licensed beds) located in Bluefield, West Virginia. The total cash consideration paid for fixed assets was approximately $35.4 million, with additional consideration of $8.9 million assumed in liabilities as well as a credit applied at closing of $1.8 million for negative acquired working capital, for a total consideration of $42.5 million. This acquisition transaction was accounted for as a purchase business combination. Based upon the Company’s final purchase price allocation relating to this acquisition as of March 31, 2011, approximately $2.4 million of goodwill has been recorded.

     Effective July 7, 2010, one or more subsidiaries of the Company completed the acquisition of Marion Regional Healthcare System located in Marion, South Carolina. This healthcare system includes Marion Regional Hospital (124 licensed beds), an acute care hospital, along with a related skilled nursing facility and other ancillary services. The total cash consideration paid for fixed assets and working capital was approximately $18.6 million and $5.8 million, respectively, with additional consideration of $3.9 million assumed in liabilities, for a total consideration of $28.3 million. This acquisition transaction was accounted for as a purchase business combination. Based upon the Company’s final purchase price allocation relating to this acquisition as of March 31, 2011, no goodwill has been recorded.

     Additionally, during the three months ended March 31, 2011, the Company paid approximately $44.7 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by its hospitals. In connection with these acquisitions, the Company allocated approximately $9.9 million of the consideration paid to property and equipment, $3.0 million to net working capital, $1.5 million to other intangible assets, and the remainder, approximately $30.3 million consisting of intangible assets that do not qualify for separate recognition, was allocated to goodwill. These acquisition transactions were accounted for as purchase business combinations.

     Approximately $3.3 million and $0.6 million of acquisition costs related to prospective and closed acquisitions were expensed during the three months ended March 31, 2011 and 2010, respectively.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

  Discontinued Operations

     Effective February 1, 2011, the Company sold Willamette Community Medical Group, which is a physician clinic operating as Oregon Medical Group (“OMG”), located in Springfield, Oregon, with a carrying amount of net assets, including an allocation of reporting unit goodwill, of $19.7 million to Oregon Healthcare Resources, LLC, for $14.6 million in cash.

     In March 2011, the Company made the decision to sell one of its hospitals. Accordingly, this hospital has been classified as held for sale as of March 31, 2011.

     The Company has classified the results of operations for OMG and one hospital held for sale as discontinued operations in the accompanying condensed consolidated statements of income for the three months ended March 31, 2011 and 2010.

     Net operating revenues and loss from discontinued operations for the respective periods are as follows (in thousands):

		Three Months Ended
		March 31,
		2011				2010
Net operating revenues		$	20,794			$	35,215
Loss from operations of entities sold and held for sale before income taxes			(1,900	)			(2,330	)
Impairment of long-lived assets of hospital held for sale			(13,095	)			—
Loss on sale			(5,061	)			—
Loss from discontinued operations, before taxes			(20,056	)			(2,330	)
Benefit from income taxes			7,240				841
Loss from discontinued operations, net of taxes		$	(12,816	)		$	(1,489	)

     Interest expense was allocated to discontinued operations based on sale proceeds available for debt repayment.

     The long-lived assets as of December 31, 2010 of the physician clinic and hospital classified as held for sale during the three months ended March 31, 2011 totaled approximately $23.5 million, and are included in the accompanying condensed consolidated balance sheet in other assets, net.

     The long-lived assets of the hospital held for sale, net of impairment as of March 31, 2011 are included in the accompanying condensed consolidated balance sheet in other assets, net.

6. INCOME TAXES

     The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximately $7.2 million as of March 31, 2011. It is the Company’s policy to recognize interest and penalties related to unrecognized benefits in its condensed consolidated statements of income as income tax expense. During the three months ended March 31, 2011, the Company decreased liabilities by $0.2 million and increased interest and penalties by approximately $0.1 million. A total of approximately $1.4 million of interest and penalties is included in the amount of the liability for uncertain tax positions at March 31, 2011.

     The Company believes that it is reasonably possible that approximately $2.3 million of its current unrecognized tax benefit may be recognized within the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities.

     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 Hospitals, Inc. (“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. The Company is currently under examination by the Internal Revenue Service (“IRS”) regarding the federal tax return of Triad for the tax periods ended December 31, 2004, December 31, 2005, December 31, 2006 and 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,

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

the Company is no longer subject to state income tax examinations for years prior to 2007 and federal income tax examinations with respect to Community Health Systems, Inc. federal returns for years prior to 2007. The Company’s federal income tax returns for the 2007 and 2008 tax years are currently under examination by the IRS. The Company believes the results of this examination will not be material to its consolidated results of operations or consolidated financial position.

     Cash paid for income taxes, net of refunds received, resulted in a net cash refund of $0.7 million for the three months ended March 31, 2011 and net cash paid of $0.9 million for the three months ended March 31, 2010.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

     The changes in the carrying amount of goodwill for the three months ended March 31, 2011, are as follows (in thousands):

Balance as of December 31, 2010 (as previously reported)		$	4,199,905
Goodwill allocated to disposal and hospital held for sale			(4,616	)
Balance as of December 31, 2010 (as adjusted)			4,195,289
Goodwill acquired as part of acquisitions during 2011			30,532
Consideration adjustments and purchase price allocation adjustments for prior year’s acquisitions			(53	)
Balance as of March 31, 2011		$	4,225,768

     Goodwill is allocated to each identified reporting unit, which is defined as an operating segment or one level below the operating segment (referred to as a component of the entity). Management has determined that the Company’s operating segments meet the criteria to be classified as reporting units. At March 31, 2011, the hospital operations reporting unit, the home care agency operations reporting unit, and the hospital management services reporting unit had approximately $4.2 billion, $35.9 million and $33.3 million, respectively, of goodwill.

     Goodwill is 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. There is a two-step method for determining goodwill impairment. Step one is to compare the fair value of the reporting unit with the unit’s carrying amount, including goodwill. If this test indicates the fair value is less than the carrying value, then step two is required to compare the implied fair value of the reporting unit’s goodwill with the carrying value of the reporting unit’s goodwill. The Company has selected September 30 as its annual testing date. The Company performed its last annual goodwill evaluation as of September 30, 2010, which evaluation took place during the fourth quarter of 2010. 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. The cash flow forecasts are adjusted by an appropriate discount rate based on the Company’s estimate of a market participant’s weighted-average cost of capital. These models are both based on the Company’s best estimate of future revenues and operating costs and are reconciled to the Company’s consolidated market capitalization, with consideration of the amount 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.

     The gross carrying amount of the Company’s other intangible assets subject to amortization was $62.3 million at March 31, 2011 and $60.5 million at December 31, 2010, and the net carrying amount was $36.1 million at both March 31, 2011 and December 31, 2010. The carrying amount of the Company’s other intangible assets not subject to amortization was $44.8 million and $44.4 million at March 31, 2011 and December 31, 2010, respectively. Other intangible assets are included in other assets, net on the Company’s condensed consolidated balance sheets. Substantially all of the Company’s intangible assets are contract-based intangible assets related to operating licenses, management contracts, or non-compete agreements entered into in connection with prior acquisitions.

     The weighted-average amortization period for the intangible assets subject to amortization is approximately nine years. There are no expected residual values related to these intangible assets. Amortization expense on these intangible assets was $1.9 million and $3.3 million during the three months ended March 31, 2011 and 2010, respectively. Amortization expense on intangible assets is estimated to be $6.1 million for the remainder of 2011, $6.8 million in 2012, $4.7 million in 2013, $2.9 million in 2014, $2.5 million in 2015 and $13.1 million in 2016 and thereafter.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     The gross carrying amount of capitalized software for internal use was approximately $383.4 million and $356.5 million at March 31, 2011 and December 31, 2010, respectively, and the net carrying amount considering accumulated amortization was approximately $217.9 million and $209.4 million at March 31, 2011 and December 31, 2010, respectively. The estimated amortization period for capitalized internal-use software is generally three years, except for capitalized costs related to significant system conversions, which is generally eight years. There is no expected residual value for capitalized internal-use software. At March 31, 2011, there was approximately $64.3 million of capitalized costs for internal-use software that is currently in the development stage and will begin amortization once the software project is complete and ready for its intended use. Amortization expense on capitalized internal-use software was $17.9 million and $9.1 million during the three months ended March 31, 2011 and 2010, respectively. Amortization expense on capitalized internal-use software is estimated to be $60.1 million for the remainder of 2011, $69.0 million in 2012, $33.4 million in 2013, $15.0 million in 2014, $14.6 million in 2015 and $25.8 million in 2016 and thereafter.

8. EARNINGS PER SHARE

     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,
		2011				2010
Numerator:
Income from continuing operations, net of taxes		$	91,141			$	86,485
Less: Income from continuing operations attributable to noncontrolling interests, net of taxes			17,001				14,989
Income from continuing operations attributable to Community Health Systems, Inc. common stockholders — basic and diluted		$	74,140			$	71,496
Loss from discontinued operations, net of taxes		$	(12,816	)		$	(1,489	)
Less: Loss from discontinued operations attributable to noncontrolling interests, net of taxes			—				—
Loss from discontinued operations attributable to Community Health Systems, Inc. common stockholders — basic and diluted		$	(12,816	)		$	(1,489	)
Denominator:
Weighted-average number of shares outstanding — basic			91,008,405				91,615,275
Effect of dilutive securities:
Restricted stock awards			253,866				324,389
Employee stock options			865,691				879,305
Other equity based awards			8,857				17,482
Weighted-average number of shares outstanding — diluted			92,136,819				92,836,451
Dilutive securities outstanding not included in the computation of earnings per share because their effect is antidilutive:
Employee stock options			4,395,292				5,360,231

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

9. STOCKHOLDERS’ EQUITY

     Authorized capital shares of the Company include 400,000,000 shares of capital stock consisting of 300,000,000 shares of common stock and 100,000,000 shares of preferred stock. Each of the aforementioned classes of capital stock has a par value of $0.01 per share. Shares of preferred stock, none of which were outstanding as of March 31, 2011, 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 September 15, 2010, the Company commenced a new open market repurchase program for up to 4,000,000 shares of the Company’s common stock, not to exceed $100 million in repurchases. This program will conclude at the earliest of three years from the commencement date, when the maximum number of shares has been repurchased or when the maximum dollar amount has been expended. During the three months ended March 31, 2011, the Company did not repurchase any shares under this program. The cumulative number of shares that have been repurchased and retired under this program through March 31, 2011 is 451,272 shares at a weighted-average price of $30.81 per share.

     On December 9, 2009, the Company commenced the predecessor open market repurchase program for up to 3,000,000 shares of the Company’s common stock, not to exceed $100 million in repurchases. This program concluded in September 2010 when purchases approximately totaled the permitted maximum dollar amount. During the three months ended March 31, 2010, the Company did not repurchase any shares under this program. During the year ended December 31, 2010, the Company repurchased and retired 2,964,528 shares, which is the cumulative number of shares that were repurchased under this program, at a weighted-average price of $33.69 per share.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     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 for the three-month period ended March 31, 2011 (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, 2010		$	387,472				$	936			$	1,126,751			$	(6,678	)		$	(230,927	)		$	1,299,382			$	60,913			$	2,250,377
Comprehensive income:
Net income			11,656					—				—				—				—				61,324				5,345				66,669
Net change in fair value of interest rate swaps			—					—				—				—				36,446				—				—				36,446
Net change in fair value of available-for-sale securities			—					—				—				—				1,069				—				—				1,069
Amortization and recognition of unrecognized pension cost components			—					—				—				—				772				—				—				772
Total comprehensive income			11,656					—				—				—				38,287				61,324				5,345				104,956
Distributions to noncontrolling interests, net of contributions			(8,903	)				—				—				—				—				—				(5,567	)			(5,567	)
Purchase of subsidiary shares from noncontrolling interests			(225	)				—				—				—				—				—				—				—
Other reclassifications of noncontrolling interests			(1,971	)				—				—				—				—				—				253				253
Adjustment to redemption value of redeemable noncontrolling interests			(2,591	)				—				2,591				—				—				—				—				2,591
Issuance of common stock in connection with the exercise of stock options			—					6				18,125				—				—				—				—				18,131
Cancellation of restricted stock for tax withholdings on vested shares			—					(3	)			(13,058	)			—				—				—				—				(13,061	)
Excess tax benefit from exercise of stock options			—					—				4,675				—				—				—				—				4,675
Share-based compensation			—					10				9,918				—				—				—				—				9,928
Balance, March 31, 2011		$	385,438				$	949			$	1,149,002			$	(6,678	)		$	(192,640	)		$	1,360,706			$	60,944			$	2,372,283

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

10. COMPREHENSIVE INCOME

     The following table presents the components of comprehensive income, net of related taxes (in thousands):

		Three Months Ended
		March 31,
		2011				2010
Net income		$	78,325			$	84,996
Net change in fair value of interest rate swaps			36,446				(11,357	)
Net change in fair value of available-for-sale securities			1,069				155
Amortization and recognition of unrecognized pension cost components			772				4,475
Comprehensive income			116,612				78,269
Less: Comprehensive income attributable to noncontrolling interests			17,001				14,989
Comprehensive income attributable to Community Health Systems, Inc.		$	99,611			$	63,280

     The net change in fair value of the interest rate swaps, the net change in fair value of available-for-sale securities and the amortization and recognition of unrecognized pension cost components are included in accumulated other comprehensive loss on the accompanying condensed consolidated balance sheets.

11. EQUITY INVESTMENTS

     As of March 31, 2011, the Company owned 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, and an equity interest of 38.0% in three hospitals in Macon, Georgia, in which HCA Inc. owns the majority interest.

     Summarized combined financial information for the three months ended March 31, 2011 and 2010, for these unconsolidated entities in which the Company owns an equity interest is as follows (in thousands):

		Three Months Ended
		March 31,
		2011				2010
Revenues		$	372,591			$	357,478
Operating costs and expenses			317,987				324,520
Income from continuing operations before taxes			54,584				32,932

     The summarized financial information for the three months ended March 31, 2011 and 2010 was derived from the unaudited financial information provided to the Company by those unconsolidated entities.

     The Company’s investment in all of its unconsolidated affiliates was $425.8 million and $409.5 million at March 31, 2011 and December 31, 2010, respectively, and is included in other assets, net in the accompanying condensed consolidated balance sheets. Included in the Company’s results of operations is the Company’s equity in pre-tax earnings from all of its investments in unconsolidated affiliates, which was $18.1 million and $12.6 million for the three months ended March 31, 2011 and 2010, respectively.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

12. LONG-TERM DEBT

  Credit Facility and Notes

     In connection with the consummation of the acquisition of Triad in July 2007, the Company’s wholly-owned subsidiary CHS/Community Health Systems, Inc. (“CHS”) obtained approximately $7.2 billion of senior secured financing under a new credit facility (the “Credit Facility”) with a syndicate of financial institutions led by Credit Suisse, as administrative agent and collateral agent, and issued approximately $3.0 billion aggregate principal amount of 8.875% senior notes due 2015 (the “Notes”). The Company used the net proceeds of $3.0 billion from the Notes offering and the net proceeds of approximately $6.1 billion of term loans under the Credit Facility to acquire the outstanding shares of Triad, to refinance certain of Triad’s indebtedness and the Company’s indebtedness, to complete certain related transactions, to pay certain costs and expenses of the transactions and for general corporate uses. Specifically, the Company repaid its outstanding debt under the previously outstanding credit facility, the 6.50% senior subordinated notes due 2012 and certain of Triad’s existing indebtedness.

     The Credit Facility consisted of an approximately $6.1 billion funded term loan facility with a maturity of seven years, a $400 million delayed draw term loan facility with a maturity of seven years and a $750 million revolving credit facility with a maturity of six years. As of December 31, 2007, the $400 million delayed draw term loan facility had been reduced to $300 million at the request of CHS. During the 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. The Credit Facility requires quarterly amortization payments of each term loan facility equal to 0.25% of the outstanding amount of the term loans. On November 5, 2010, CHS entered into an amendment and restatement of its existing Credit Facility. The amendment extends by two and a half years, until January 25, 2017, the maturity date of $1.5 billion of the existing term loans under the Credit Facility and increases the pricing on these term loans to LIBOR plus 350 basis points. If more than $50 million of the Notes remain outstanding on April 15, 2015, without having been refinanced, then the maturity date for the extended term loans will be accelerated to April 15, 2015. The maturity date of the balance of the term loans of approximately $4.5 billion remains unchanged at July 25, 2014. The amendment also increases CHS’s ability to issue additional indebtedness under the uncommitted incremental facility to $1.0 billion from $600 million, permits CHS to issue Term A term loans under the incremental facility, and provides up to $2.0 billion of borrowing capacity from receivable transactions, an increase of $0.5 billion, of which $1.7 billion would be required to be used for repayment of existing term loans.

     The term loan facility must be prepaid in an amount equal to (1) 100% of the net cash proceeds of certain asset sales and dispositions by the Company and its subsidiaries, subject to certain exceptions and reinvestment rights, (2) 100% of the net cash proceeds of issuances of certain debt obligations or receivables based financing by the Company and its subsidiaries, subject to certain exceptions, and (3) 50%, subject to reduction to a lower percentage based on the Company’s leverage ratio (as defined in the Credit Facility generally as the ratio of total debt on the date of determination to the Company’s EBITDA, as defined, for the four quarters most recently ended prior to such date), of excess cash flow (as defined) for any year, commencing in 2008, subject to certain exceptions. Voluntary prepayments and commitment reductions are permitted in whole or in part, without any premium or penalty, subject to minimum prepayment or reduction requirements.

     The obligor under the 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.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     The loans under the Credit Facility bear interest on the outstanding unpaid principal amount at a rate equal to an applicable percentage plus, at CHS’s option, either (a) an Alternate Base Rate (as defined) determined by reference to the greater of (1) the Prime Rate (as defined) announced by Credit Suisse or (2) the Federal Funds Effective Rate (as defined) plus one-half of 1.0% or (3) the adjusted London Interbank Offered Rate (“LIBOR”) on such day for a three-month interest period commencing on the second business day after such day plus 1%, or (b) a reserve adjusted LIBOR for dollars (Eurodollar rate) (as defined). The applicable percentage for Alternate Base Rate loans is 1.25% for term loans due 2014 and is 2.25% for term loans due 2017. The applicable percentage for Eurodollar rate loans is 2.25% for term loans due 2014 and 3.5% for term loans due 2017. The applicable percentage for revolving loans is 1.25% for Alternate Base Rate revolving loans and 2.25% for Eurodollar revolving loans, in each case subject to reduction based on the Company’s leverage ratio. Loans under the swingline subfacility bear interest at the rate applicable to Alternate Base Rate loans under the revolving credit facility.

     CHS has agreed to pay letter of credit fees equal to the applicable percentage then in effect with respect to Eurodollar rate loans under the revolving credit facility times the maximum aggregate amount available to be drawn under all letters of credit outstanding under the subfacility for letters of credit. The issuer of any letter of credit issued under the subfacility for letters of credit will also receive a customary fronting fee and other customary processing charges. CHS was initially obligated to pay commitment fees of 0.50% per annum (subject to reduction based upon the Company’s leverage ratio) on the unused portion of the revolving credit facility. For purposes of this calculation, swingline loans are not treated as usage of the revolving credit facility. With respect to the delayed draw term loan facility, CHS was also obligated to pay commitment fees of 0.50% per annum for the first nine months after the closing of the 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 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 any 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 the Company’s and its subsidiaries’ ability, subject to certain exceptions, to, among other things (1) declare dividends, make distributions or redeem or repurchase capital stock, (2) prepay, redeem or repurchase other debt, (3) incur liens or grant negative pledges, (4) make loans and investments and enter into acquisitions and joint ventures, (5) incur additional indebtedness or provide certain guarantees, (6) make capital expenditures, (7) engage in mergers, acquisitions and asset sales, (8) conduct transactions with affiliates, (9) alter the nature of the Company’s businesses, (10) grant certain guarantees with respect to physician practices, (11) engage in sale and leaseback transactions or (12) change the Company’s fiscal year. The Company is also required to comply with specified financial covenants (consisting of a leverage ratio and an interest coverage ratio) and various affirmative covenants.

     Events of default under the Credit Facility include, but are not limited to, (1) CHS’s failure to pay principal, interest, fees or other amounts under the credit agreement when due (taking into account any applicable grace period), (2) any representation or warranty proving to have been materially incorrect when made, (3) covenant defaults subject, with respect to certain covenants, to a grace period, (4) bankruptcy events, (5) a cross default to certain other debt, (6) certain undischarged judgments (not paid within an applicable grace period), (7) a change of control, (8) certain ERISA-related defaults and (9) the invalidity or impairment of specified security interests, guarantees or subordination provisions in favor of the administrative agent or lenders under the Credit Facility.

     The Notes were issued by CHS in connection with the Triad acquisition in the principal amount of approximately $3.0 billion. The Notes will mature on July 15, 2015. The Notes bear interest at the rate of 8.875% per annum, payable semiannually in arrears on January 15 and July 15, commencing January 15, 2008. Interest on the Notes accrues from the date of original issuance. Interest is calculated on the basis of a 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.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     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	%

     CHS is entitled, at its option, to redeem the Notes, in whole or in part, at any time prior to July 15, 2011, upon not less than 30 or more than 60 days notice, at a redemption price equal to 100% of the principal amount of Notes redeemed plus the Applicable Premium (as defined), and accrued and unpaid interest, if any, as of the applicable redemption date.

     Pursuant to a registration rights agreement entered into at the time of the issuance of the Notes, as a result of an exchange offer made by CHS, substantially all of the Notes issued in July 2007 were exchanged in November 2007 for new notes (the “Exchange Notes”) having terms substantially identical in all material respects to the Notes (except that the Exchange Notes were issued under a registration statement pursuant to the Securities Act of 1933, as amended). References to the Notes shall also be deemed to include the Exchange Notes unless the context provides otherwise.

     As of March 31, 2011, the availability for additional borrowings under the Credit Facility was $750 million pursuant to the revolving credit facility, of which $81.9 million was set aside for outstanding letters of credit. CHS has the ability to amend the Credit Facility to provide for one or more tranches of term loans in an aggregate principal amount of $1.0 billion, which CHS has not yet accessed. 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. As of March 31, 2011, the weighted-average interest rate under the Credit Facility, excluding swaps, was 3.3%.

     The Company paid interest of $226.1 million and $220.2 million on borrowings during the three months ended March 31, 2011 and 2010, respectively.

13. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The fair value of financial instruments has been estimated by the Company using available market information as of March 31, 2011 and December 31, 2010, and valuation methodologies considered appropriate. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange (in thousands):

		March 31, 2011								December 31, 2010
		Carrying				Estimated Fair				Carrying				Estimated Fair
		Amount				Value				Amount				Value
Assets:
Cash and cash equivalents		$	270,716			$	270,716			$	299,169			$	299,169
Available-for-sale securities			32,733				32,733				31,570				31,570
Trading securities			39,052				39,052				35,092				35,092
Liabilities:
Credit Facility			5,986,789				5,945,598				5,999,337				5,882,124
Senior notes			2,784,331				2,930,508				2,784,331				2,923,548
Other debt			39,656				39,656				36,122				36,122

     Cash and cash equivalents. The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).

     Available-for-sale securities. Estimated fair value is based on closing price as quoted in public markets.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     Trading securities. Estimated fair value is based on closing price as quoted in public markets.

     Credit Facility. Estimated fair value is based on information from the Company’s bankers regarding relevant pricing for trading activity among the Company’s lending institutions.

     Senior notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as underwriter in the sale of these notes.

     Other debt. The carrying amount of all other debt approximates fair value due to the nature of these obligations.

     Interest rate swaps. The fair value of interest rate swap agreements is the amount at which they could be settled, based on estimates calculated by the Company using a discounted cash flow analysis based on observable market inputs and validated by comparison to estimates obtained from the counterparty. The Company incorporates credit valuation adjustments (“CVAs”) to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreements.

     The Company assesses the effectiveness of its hedge instruments on a quarterly basis. For the three months ended March 31, 2011 and 2010, the Company completed an assessment of the cash flow hedge instruments and determined the hedges to be highly effective. The Company has also determined that the ineffective portion of the hedges do not have a material effect on the Company’s consolidated financial position, operations or cash flows. The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at March 31, 2011, each swap agreement entered into by the Company was in a net liability position so that the Company would be required to make the net settlement payments to the counterparties; the Company does not anticipate nonperformance by those counterparties. The Company does not hold or issue derivative financial instruments for trading purposes.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     Interest rate swaps consisted of the following at March 31, 2011:

				Notional
				Amount				Fixed Interest				Termination				Fair Value
Swap #				(in 000’s)				Rate				Date				(in 000’s)
1				$	300,000				5.1140	%		August 8, 2011				$	5,095
2					100,000				4.7185	%		August 19, 2011					1,682
3					100,000				4.7040	%		August 19, 2011					1,689
4					100,000				4.6250	%		August 19, 2011					1,646
5					200,000				4.9300	%		August 30, 2011					3,790
6					200,000				3.0920	%		September 18, 2011					2,527
7					100,000				3.0230	%		October 23, 2011					1,444
8					200,000				4.4815	%		October 26, 2011					4,599
9					200,000				4.0840	%		December 3, 2011					4,815
10					100,000				3.8470	%		January 4, 2012					2,477
11					100,000				3.8510	%		January 4, 2012					2,490
12					100,000				3.8560	%		January 4, 2012					2,493
13					200,000				3.7260	%		January 8, 2012					4,859
14					200,000				3.5065	%		January 16, 2012					4,601
15					250,000				5.0185	%		May 30, 2012					12,306
16					150,000				5.0250	%		May 30, 2012					7,395
17					200,000				4.6845	%		September 11, 2012					11,056
18					100,000				3.3520	%		October 23, 2012					3,846
19					125,000				4.3745	%		November 23, 2012					6,793
20					75,000				4.3800	%		November 23, 2012					4,278
21					150,000				5.0200	%		November 30, 2012					10,260
22					200,000				2.2420	%		February 28, 2013					4,867
23					100,000				5.0230	%		May 30, 2013					8,478
24					300,000				5.2420	%		August 6, 2013					28,369
25					100,000				5.0380	%		August 30, 2013					9,144
26					50,000				3.5860	%		October 23, 2013					2,903
27					50,000				3.5240	%		October 23, 2013					2,825
28					100,000				5.0500	%		November 30, 2013					9,729
29					200,000				2.0700	%		December 19, 2013					3,697
30					100,000				5.2310	%		July 25, 2014					11,507
31					100,000				5.2310	%		July 25, 2014					11,507
32					200,000				5.1600	%		July 25, 2014					22,554
33					75,000				5.0405	%		July 25, 2014					8,158
34					125,000				5.0215	%		July 25, 2014					13,519
35					100,000				2.6210	%		July 25, 2014					3,046
36					100,000				3.1100	%		July 25, 2014					4,636
37					100,000				3.2580	%		July 25, 2014					5,116
38					200,000				2.6930	%		October 26, 2014					3,680	(1)
39					300,000				3.4470	%		August 8, 2016					10,636	(2)
40					200,000				3.4285	%		August 19, 2016					6,666	(3)
41					100,000				3.4010	%		August 19, 2016					3,203	(4)
42					200,000				3.5000	%		August 30, 2016					7,142	(5)
43					100,000				3.0050	%		November 30, 2016					1,967

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     The Company is exposed to certain risks relating to its ongoing business operations. The risk managed by using derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate fluctuation risk associated with the term loans in the Credit Facility. Companies are required to recognize all derivative instruments as either assets or liabilities at fair value in the condensed consolidated balance sheet. The Company designates its 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 (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transactions affect 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.

     Assuming no change in March 31, 2011 interest rates, approximately $189.3 million of interest expense resulting from the spread between the fixed and floating rates defined in each interest rate swap agreement will be recognized during the next 12 months. If interest rate swaps do not remain highly effective as a cash flow hedge, the derivatives’ gains or losses resulting from the change in fair value reported through OCI will be reclassified into earnings.

     The following tabular disclosure provides the amount of pre-tax gain (loss) recognized in the condensed consolidated balance sheets as a component of OCI during the three months ended March 31, 2011 and 2010 (in thousands):

Derivatives in Cash Flow Hedging		Amount of Pre-Tax Gain (Loss) Recognized in OCI
Relationships		on Derivative (Effective Portion)
		Three Months Ended March 31,
		2011				2010
Interest rate swaps		$	4,113			$	(70,908	)

     The following tabular disclosure provides the location of the effective portion of the pre-tax loss reclassified from accumulated other comprehensive loss (“AOCL”) into interest expense on the condensed consolidated statements of income during the three months ended March 31, 2011 and 2010 (in thousands):

Location of Loss Reclassified from
AOCL into Income (Effective		Amount of Pre-Tax Loss Reclassified from AOCL
Portion)		into Income (Effective Portion)
		Three Months Ended March 31,
		2011				2010
Interest expense, net		$	(52,923	)		$	(53,164	)

     The fair values of derivative instruments in the condensed consolidated balance sheets as of March 31, 2011 and December 31, 2010 were as follows (in thousands):

Asset Derivatives

Liability Derivatives

March 31, 2011

December 31, 2010

March 31, 2011

December 31, 2010

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

Other assets, net

$

—

Other assets, net

$

—

Other long-term liabilities

$

283,490

Other long-term liabilities

$

340,526

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

14. FAIR VALUE

Fair Value Hierarchy

     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, the Company utilizes the U.S. GAAP fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumption about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

     The inputs used to measure fair value are classified into the following fair value hierarchy:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 includes values determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting the Company’s own assumptions.

     In instances where the determination of the fair value hierarchy measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment 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, 2011 and December 31, 2010 (in thousands):

		March 31,
		2011				Level 1				Level 2				Level 3
Available-for-sale securities		$	32,733			$	32,733			$	—			$	—
Trading securities			39,052				39,052				—				—
Total assets		$	71,785			$	71,785			$	—			$	—
Fair value of interest rate swap agreements		$	283,490			$	—			$	283,490			$	—
Total liabilities		$	283,490			$	—			$	283,490			$	—

		December 31,
		2010				Level 1				Level 2				Level 3
Available-for-sale securities		$	31,570			$	31,570			$	—			$	—
Trading securities			35,092				35,092				—				—
Total assets		$	66,662			$	66,662			$	—			$	—
Fair value of interest rate swap agreements		$	340,526			$	—			$	340,526			$	—
Total liabilities		$	340,526			$	—			$	340,526			$	—

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

     Available-for-sale securities and trading securities classified as Level 1 are measured using quoted market prices.

     The valuation of the Company’s interest rate swap agreements is determined using market valuation techniques, including discounted cash flow analysis on the expected cash flows of each agreement. This analysis reflects the contractual terms of the agreement, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. The fair value of interest rate swap agreements are determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates based on observable market forward interest rate curves and the notional amount being hedged.

     The Company incorporates CVAs to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreements. The CVA on the Company’s interest rate swap agreements at March 31, 2011 resulted in a decrease in the fair value of the related liability of $13.2 million and an after-tax adjustment of $8.4 million to OCI. The CVA on the Company’s interest rate swap agreements at December 31, 2010 resulted in a decrease in the fair value of the related liability of $3.9 million and an after-tax adjustment of $2.5 million to OCI.

     The majority of the inputs used to value its interest rate swap agreements, including the forward interest rate curves and market perceptions of the Company’s credit risk used in the CVAs, are observable inputs available to a market participant. As a result, the Company has determined that the interest rate swap valuations are classified in Level 2 of the fair value hierarchy.

15. RECENT ACCOUNTING PRONOUNCEMENTS

     In August 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-24, which provides clarification to companies in the healthcare industry on the accounting for professional liability insurance. This ASU states that receivables related to insurance recoveries should not be netted against the related claim liability and such claim liabilities should be determined without considering insurance recoveries. This ASU is effective for fiscal years beginning after December 15, 2010 and was adopted by the Company on January 1, 2011. The adoption of this ASU had an immaterial impact to the condensed consolidated balance sheet at March 31, 2011 and no impact to the condensed consolidated statement of income for the three months ended March 31, 2011.

     In August 2010, the FASB issued ASU 2010-23, which requires a company in the healthcare industry to use its direct and indirect costs of providing charity care as the measurement basis for charity care disclosures. This ASU also requires additional disclosures of the method used to determine such costs. The Company adopted this ASU on January 1, 2011. In the ordinary course of business, the Company renders services to patients who are financially unable to pay for hospital care. Included in the provision for contractual allowances is the value (at the Company’s standard charges) of these services to patients who are unable to pay that is eliminated from net operating revenues when it is determined they qualify under the Company’s charity care policy. The estimated cost incurred by the Company to provide these services to patients who are unable to pay was approximately $30.7 million and $26.2 million for the three months ended March 31, 2011 and 2010, respectively. The estimated cost of these charity care services was determined using a ratio of cost to gross charges and applying that ratio to the gross charges associated with providing care to charity patients for the period. Gross charges associated with providing care to charity patients includes only the related charges for those patients who are financially unable to pay and qualify under the Company’s charity care policy and that do not otherwise qualify for reimbursement from a governmental program.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

16. SEGMENT INFORMATION

     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 healthcare services), home care 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 as a separate reportable segment. The financial information for the home care agencies and hospital management services segments do not meet the quantitative thresholds for a separate identifiable reportable segment and are combined into the corporate and all other reportable segment.

     The distribution between reportable segments of the Company’s revenues and income from continuing operations before income taxes is summarized in the following tables (in thousands):

		Three Months Ended
		March 31,
		2011				2010
Revenues:
Hospital operations		$	3,335,758			$	3,057,335
Corporate and all other			69,584				68,172
Total		$	3,405,342			$	3,125,507
Income from continuing operations before income taxes:
Hospital operations		$	177,339			$	162,865
Corporate and all other			(42,416	)			(35,391	)
Total		$	134,923			$	127,474

17. CONTINGENCIES

     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 Company’s consolidated financial position, cash flows or results of operations. With respect to all litigation matters, the Company considers the likelihood of a negative outcome. If the Company determines the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, the Company records an estimated loss for the expected outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and the Company is able to determine an estimate of the possible loss or a range of loss, the Company discloses that fact together with the estimate of the possible loss or range of loss. However, it is difficult to predict the outcome or estimate a possible loss or range of loss in some instances because litigation is subject to significant uncertainties. For all of the legal matters below, the Company believes that a negative outcome is reasonably possible, but the Company is unable to determine an estimate of the possible loss or a range of loss.

     In a letter dated October 4, 2007, the Civil Division of the Department of Justice notified the Company that, as a result of an investigation into the way in which different state Medicaid programs apply to the federal government for matching or supplemental funds that are ultimately used to pay for a small portion of the services provided to Medicaid and indigent patients, it believes the Company and three of its New Mexico hospitals have caused the State of New Mexico to submit improper claims for federal funds in violation of the Federal False Claims Act. In a letter dated January 22, 2008, the Civil Division notified the Company that based on its investigation, it has calculated that these three hospitals received ineligible federal participation payments from August 2000 to June 2006 of approximately $27.5 million. The Civil Division also advised the Company that were it to proceed to trial, it would seek treble damages plus an appropriate penalty for each of the violations of the False Claims Act. This investigation has culminated in the federal government’s intervention in a qui tam lawsuit styled U.S. ex rel. Baker vs. Community Health Systems, Inc. The federal government filed its complaint in intervention on June 30, 2009. The relator filed a second amended complaint on July 1, 2009. Both of these complaints expand the time period during which alleged improper payments were made. The Company filed motions to dismiss all of the federal government’s and the relator’s claims on August 28, 2009. On March 19, 2010, the court granted in part and denied in part the Company’s motion to dismiss as to the relator’s complaint. On July 7, 2010, the court denied the Company’s

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

motion to dismiss the federal government’s complaint in intervention. The Company has filed its answer and pretrial discovery has begun. The Company is vigorously defending this action.

     On June 12, 2008, two of the Company’s hospitals received letters from the U.S. Attorney’s 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 the Company’s 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. The Company has been informed that similar investigations have been initiated at unaffiliated facilities in Alabama, South Carolina, Indiana and other states. The Company believes that this investigation is related to a qui tam settlement between the same U.S. Attorney’s office and the manufacturer and distributor of the Kyphon product, which is used in performing the kyphoplasty procedure. The Company is cooperating with the investigation by collecting and producing material responsive to the requests. The Company is continuing to evaluate and discuss this matter with the federal government.

18. SUBSEQUENT EVENTS

     The Company evaluated all material events occurring subsequent to the balance sheet date for events requiring disclosure or recognition in the condensed consolidated financial statements.

     On April 8, 2011, the Company received a document subpoena, dated March 31, 2011, from the U.S. Department of Health and Human Services, Office of Inspector General (the “OIG”), in connection with an investigation of possible improper claims submitted to Medicare and Medicaid. The subpoena, issued from the OIG’s Chicago, Illinois office, requested documents from all of the Company’s hospitals and appears to concern emergency department processes and procedures, including the Company’s hospitals’ use of the Pro-MED Clinical Information System, which is a third-party software system that assists with the management of patient care and provides operational support and data collection for emergency department management and has the ability to track discharge, transfer and admission recommendations of emergency department physicians. The subpoena also requests other information about the Company’s relationships with emergency department physicians, including financial arrangements. The subpoena’s requests are very similar to those contained in the Civil Investigative Demands received by the Company’s Texas hospitals from the Office of the Attorney General of the State of Texas on November 15, 2010.

     On April 11, 2011, Tenet Healthcare Corporation (“Tenet”) filed suit against the Company, Wayne T. Smith and W. Larry Cash in the U.S. District Court for the Northern District of Texas. The suit alleges the Company committed violations of certain federal securities laws by making certain statements in various proxy materials filed with the SEC in connection with the Company’s offer to purchase Tenet. Tenet alleges that the Company engaged in a practice to under-utilize observation status and over-utilize inpatient admission status and asserts that by doing so, the Company created undisclosed financial and legal liability to federal, state and private payors. The suit seeks declaratory and injunctive relief and Tenet’s costs. On April 19, 2011, the Company filed a motion to dismiss the complaint. Until the court rules on the motion to dismiss, the Company and other defendants are not required to file a formal answer to the complaint, however, on April 28, 2011, the Company responded to the allegations during its earnings release conference call as discussed in the Company’s Form 8-K furnished on April 28, 2011. The Company will continue to vigorously defend this suit.

     On April 18, 2011, the Company announced that it has offered $6.00 per share in cash to acquire all outstanding shares of Tenet. The offer was made in a letter to Tenet’s Board of Directors on April 18, 2011, and rejected by Tenet on April 22, 2011. On December 9, 2010, the Company made public its previous offer to acquire all outstanding shares of Tenet for $6.00 per share, including $5.00 per share in cash and $1.00 per share in the Company’s common stock, which represented a premium of 40 percent over Tenet’s closing stock price on December 9, 2010. The offer was made in a letter to Tenet’s Board of Directors on November 12, 2010, and rejected by Tenet on December 6, 2010. On December 20, 2010, the Company announced its intention to nominate director nominees for election to Tenet’s Board of Directors at Tenet’s 2011 Annual Meeting of Stockholders, and on January 14, 2011, a full slate of 10 independent director nominees was nominated. All 10 positions on Tenet’s Board are up for election at its 2011 annual meeting, which has been delayed until November 3, 2011.

      On April 22, 2011, a joint motion was filed by the relator and the U.S. Department of Justice in the case styled United States ex rel. and Reuille vs. Community Health Systems Professional Services Corporation and Lutheran Musculoskeletal Center, LLC d/b/a Lutheran Hospital, in the United States District Court for the Northern District of Indiana, Fort Wayne Division. The lawsuit was originally filed under seal on January 7, 2009. The suit is brought under the False Claims Act and alleges that Lutheran Hospital of Indiana billed the Medicare program for (a) false 23 hour observation after outpatient surgeries and procedures, and (b) intentional assignment of inpatient status to one-day stays for cases that do not meet Medicare criteria for inpatient intensity of service or severity of illness. The relator had worked in the case management department of Lutheran Hospital of Indiana but was reassigned to another department in the fall of 2006. This facility was acquired by the Company as part of the July 25, 2007 merger transaction with Triad. The complaint also includes allegations of age discrimination in Ms. Reuille’s 2006 reassignment and retaliation in connection with her resignation on October 1, 2008. The Company had cooperated fully with the government in its investigation of this matter, but had been unaware of the exact nature of the allegations in the complaint. On December 27, 2010, the government filed a notice that it declined to intervene in this suit. The current motion contains additional information about how the government intends to proceed with an investigation regarding “allegations of improper billing for inpatient care at other hospitals associated with Community Health Systems, Inc. . . . asserted in other qui tam complaints in other jurisdictions.” The motion states that the Department of Justice has now “consolidated its investigations” of the Company and other related entities and that “the Civil Division of the Department of Justice, multiple United States Attorneys’ offices, and the Office of Inspector General for the Department of Health and Human Services (the “HHS”) are now closely coordinating their investigation of these overlapping allegations. The Attorney General of Texas has initiated an investigation; the United States intends to work cooperatively with Texas and any other States investigating these allegations.” The motion also states that the Office of Audit Services for the Office of Investigations for HHS has been engaged to conduct a national audit of certain of the Company’s Medicare claims. The government confirmed that it considers the allegations made in the complaint styled Tenet Healthcare Corporation vs. Community Health Systems, Inc., et al. filed in the United States District Court for the Northern District of Texas, Dallas Division on April 11, 2011 to be related to the allegations in the qui tam and to what the government is now describing as a consolidated investigation. Because qui tam suits are filed “under seal,” no one but the relator and the government knows that the suit has been filed or what allegations are being made by the relator on behalf of the government. Initially, the government has 60 days to make a determination about whether to intervene in a case and to act as the plaintiff or to decline to intervene and allow the relator to act as the plaintiff in the suit, but extensions of time are frequently granted to allow the government additional time to investigate the allegations. Even if, in the course of an investigation, the court partially unseals a complaint to allow the government and a defendant to work to a resolution of the complaint’s allegations, the defendant is prohibited from revealing to anyone even that the partial unsealing has occurred. As the investigation proceeds, the Company may learn of additional qui tam suits filed against the Company or its affiliated hospitals or related entities, or that contact letters, document requests, or medical record requests the Company has received in the past from various governmental agencies are generated from qui tam cases filed under seal. The motion filed on April 22, 2011 concludes by requesting a stay of the litigation in the Reuille case for 180 days, and on April 25, 2011, the court granted the motion. The Company’s management company subsidiary, Community Health Systems Professional Services Corporation, the defendant in the Reuille case, consented to the request for the stay. The Company is cooperating fully with the government in its investigations and is currently unable to predict the outcome of these investigations.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

     In connection with the consummation of the Triad acquisition, CHS obtained approximately $7.2 billion of senior secured financing under the Credit Facility and issued the Notes in the aggregate principal amount of approximately $3.0 billion. The Notes are senior unsecured obligations of CHS and are guaranteed on a senior basis by the Company and by certain of its 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 Company’s intercompany activity consists primarily of daily cash transfers for purposes of cash management, the allocation of certain expenses and expenditures paid for by the parent on behalf of its subsidiaries, and the push down of investment in its subsidiaries. The Company’s subsidiaries generally do not purchase services from each other; thus, the intercompany transactions do not represent revenue generating transactions. All intercompany transactions eliminate in consolidation.

     From time to time, the Company sells and/or repurchases noncontrolling interests in consolidated subsidiaries, which may change subsidiaries between guarantors and non-guarantors. Amounts for prior periods are restated to reflect the status of guarantors or non-guarantors as of March 31, 2011.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Condensed Consolidating Balance Sheet
March 31, 2011

		Parent								Other				Non-
		Guarantor				Issuer				Guarantors				Guarantors				Eliminations				Consolidated
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	—			$	239,156			$	31,560			$	—			$	270,716
Patient accounts receivable, net of allowance for doubtful accounts			—				—				984,020				782,102				—				1,766,122
Supplies			—				—				197,963				131,312				—				329,275
Deferred income taxes			115,819				—				—				—				—				115,819
Prepaid expenses and taxes			65,030				66				87,263				25,157				—				177,516
Other current assets			—				1				122,258				54,286				—				176,545
Total current assets			180,849				67				1,630,660				1,024,417				—				2,835,993
Intercompany receivable			1,154,688				9,403,219				1,464,886				1,565,933				(13,588,726	)			—
Property and equipment, net			—				—				3,959,406				2,487,011				—				6,446,417
Goodwill			—				—				2,381,122				1,844,646				—				4,225,768
Other assets, net of accumulated amortization			—				124,628				472,653				612,820				—				1,210,101
Net investment in subsidiaries			1,609,673				5,533,091				2,179,643				—				(9,322,407	)			—
Total assets		$	2,945,210			$	15,061,005			$	12,088,370			$	7,534,827			$	(22,911,133	)		$	14,718,279
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt		$	—			$	49,874			$	14,634			$	1,444			$	—			$	65,952
Accounts payable			—				—				448,418				99,265				—				547,683
Deferred income taxes			8,882				—				—				—				—				8,882
Accrued interest			—				84,385				115				2				—				84,502
Accrued liabilities			7,580				567				568,799				321,864				—				898,810
Total current liabilities			16,462				134,826				1,031,966				422,575				—				1,605,829
Long-term debt			—				8,722,005				44,060				28,081				—				8,794,146
Intercompany payable			—				4,311,012				8,717,061				6,056,381				(19,084,454	)			—
Deferred income taxes			608,177				—				—				—				—				608,177
Other long-term liabilities			9,232				283,490				379,462				280,222				—				952,406
Total liabilities			633,871				13,451,333				10,172,549				6,787,259				(19,084,454	)			11,960,558
Redeemable noncontrolling interests in equity of consolidated subsidiaries			—				—				—				385,438				—				385,438
Equity:
Community Health Systems, Inc. stockholders’ equity:
Preferred stock			—				—				—				—				—				—
Common stock			949				—				1				2				(3	)			949
Additional paid-in capital			1,149,002				663,251				709,125				110,836				(1,483,212	)			1,149,002
Treasury stock, at cost			(6,678	)			—				—				—				—				(6,678	)
Accumulated other comprehensive (loss) income			(192,640	)			(192,640	)			(11,149	)			—				203,789				(192,640	)
Retained earnings			1,360,706				1,139,061				1,217,844				190,348				(2,547,253	)			1,360,706
Total Community Health Systems, Inc. stockholders’ equity			2,311,339				1,609,672				1,915,821				301,186				(3,826,679	)			2,311,339
Noncontrolling interests in equity of consolidated subsidiaries			—				—				—				60,944				—				60,944
Total equity			2,311,339				1,609,672				1,915,821				362,130				(3,826,679	)			2,372,283
Total liabilities and equity		$	2,945,210			$	15,061,005			$	12,088,370			$	7,534,827			$	(22,911,133	)		$	14,718,279