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Direct
Line: 212.859.8136
Fax: 212.859.4000
jeffrey.bagner@ffhsj.com
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June
12, 2009
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Mr. Jim
B. Rosenberg
Senior
Assistant Chief Accountant
United
States Securities and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E., Mail Stop 6010
Washington,
DC 20549
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Re:
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Community
Health Systems, Inc.
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Dear Mr.
Rosenberg:
This
letter sets forth the response of Community Health Systems, Inc. (the “Company”) to the
comment letter, dated June 4, 2009, of the staff of the Division of Corporation
Finance (the “Staff”) relating to
the Company’s Annual Report on Form 10-K for the year ended December 31, 2008
(the “2008 Form
10-K”) that was filed with the Securities and Exchange Commission (the
“Commission”)
on February 27, 2009 and the Company’s Definitive Proxy Statement on Schedule
14A (the “2009 Proxy
Statement”) that was filed with the Commission on April 10,
2009.
The
responses set forth below are numbered to correspond to the numbering in the
Staff’s comment letter.
2008 Form
10-K
Exhibits and Financial
Statement Schedules, page 122
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1.
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We
note that you incorporate Exhibits 10.1 and 10.2 by reference to your Form
8-K filed July 30, 2007. However, it does not appear that the
schedules and exhibits listed in each of Exhibit 10.1 and 10.2 were filed
with those agreements. Please refile the complete exhibits,
including all schedules and exhibits listed in each of Exhibit 10.1 and
10.2.
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In
response to your comments, the Company will refile Exhibits 10.1 and 10.2,
including all schedules and exhibits listed in each of Exhibit 10.1 and 10.2, in
its Form 10-Q for the period ending on June 30, 2009.
2009 Schedule
14A
Compensation Discussion and
Analysis
Cash Incentive Compensation,
page 41
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2.
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We
note that you mention certain individual goals for each named executive
officer beyond the three company metrics you disclose. Please
expand your disclosure in this subsection to include any individual goals
that were used in determining each named executive officer’s compensation,
as well as the extent of achievement for each individual target set for
each named executive officer, and how such level of achievement resulted
in the incentive compensation ultimately
awarded.
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In
response to your comments, the Company will modify its disclosure, as indicated
below, in its Definitive Proxy Statement on Schedule 14A to be filed in
connection with the Company’s 2010 annual meeting of shareholders or in other
filing, if required earlier in connection with the registration of the Company’s
securities. The italicized print indicates the changes from the
Company’s disclosure in the 2009 Proxy Statement that will be incorporated into
the disclosure in response to your comments.
Cash
Incentive Compensation
Cash
incentive compensation awards to the named executive officers are made pursuant
to the Company’s 2004 Employee Performance Incentive Plan. This
non-equity incentive compensation plan provides for a wide range of potential
awards and is utilized as a compensation vehicle across the Company. Cash
incentive compensation awards are intended to align employees’ interests with
the goals and strategic initiatives established by the Company and to reward
employees for their contributions during the period to which the incentive award
relates. Cash incentive compensation awards’ targets are typically
expressed as a percentage of the individual’s base salary. Based on
the nature of the Company’s business, the periodicity of cash incentive
compensation awards for its named executive officers is tied to the attainment
of annual performance objectives, however, for other employees, incentives may
be linked to goal attainment over shorter or longer periods of
time.
Cash
incentive compensation awards are “at risk” as they are subject to the
attainment of specific goals. For each named executive officer, the
individual’s target plan includes two or more budgeted goals, and for each goal,
different award amounts may be earned depending on the level at which that goal
is attained (i.e., an underachievement and overachievement opportunity). The
risk of not attaining the goals is substantial. For 2008, the Company
EBITDA target was $1.539 billion (with a minimum of $1.385 billion, which would
have yielded 50% of bonus amount linked to this objective), the
Continuing Operations EPS target was $2.21 per share (with a minimum of $1.99,
which would have yielded 50% of the bonus amount linked to this objective), and
the Net Revenues target was $10.9 billion (with a minimum of $9.79 billion,
which would have yielded 50% of the bonus amount linked to this
objective). For each 1% decrease in Company EBITDA achievement, the
award percentage amount was reduced by 5%, so that at 90% of target attainment,
50% of the specified award percentage would have been paid. However,
no awards are paid when the Company’s EBITDA achievement is below 90% of target
attainment. If the target for Company EBITDA had been exceeded, each
named executive officer would have received an additional 1% of their base
salary for each 1% over the target, up to a plan maximum specified for each
named executive officer. Similar increases and decreases apply to the
other components of the cash incentive compensation awards. Additional division specific goals
are based upon certain financial and operational results of the hospitals within
each respective division. All target amounts for 2008 were
adjusted for significant changes in acquisition and divestiture assumptions
related to 2008. For 2008, for each component of the
non-equity incentive plan compensation, the targeted award and attained award,
expressed as a percentage of base salary, for each named executive officer along
with the maximum incentive award attainable are set forth in the table
below:
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2008
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Non-equity
Incentive Plan Compensation Target (expressed as a percentage of base salary) |
Non-equity
Incentive Plan Compensation Attainment (expressed as a percentage of base salary) |
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Wayne
T. Smith,
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Company
EBITDA
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115%
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109.3%
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Chairman,
President and
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Continuing
Operations EPS
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50%
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47.5%
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Chief
Executive Officer
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Net
Revenues
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15%
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15.0%
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Target
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180%
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171.8%
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Maximum
award attainable
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200%
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W.
Larry Cash,
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Company
EBITDA
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80%
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76.0%
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Executive
Vice President and
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Continuing
Operations EPS
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35%
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33.3%
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Chief
Financial Officer
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Net
Revenues
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15%
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15.0%
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Target
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130%
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124.3%
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Maximum
award attainable
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150%
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William
S. Hussey,
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Division
Hospital EBITDA
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55%
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59.0%
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President,
Division Operations
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Company
EBITDA
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15%
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14.3%
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Continuing
Operations EPS
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10%
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9.5%
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EBITDA
Margin Improvement
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10%
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10.0%
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Division
Hospital Revenue
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5%
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4.0%
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Non-Self
Pay Admissions Growth
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5%
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0.0%
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Target
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100%
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96.8%
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Maximum
award attainable
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110%
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David
L. Miller,
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Division
Hospital EBITDA
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55%
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44.3%
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President,
Division Operations
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Company
EBITDA
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15%
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14.3%
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Continuing
Operations EPS
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10%
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9.5%
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EBITDA
Margin Improvement
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10%
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0.0%
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Division
Hospital Revenue
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5%
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4.0%
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Non-Self
Pay Admissions Growth
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5%
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0.0%
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Target
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100%
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71.8%
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Maximum
award attainable
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110%
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Michael
T. Portacci,
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Division
Hospital EBITDA
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55%
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41.3%
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President,
Division Operations
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Company
EBITDA
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15%
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14.3%
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Continuing
Operations EPS
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10%
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9.5%
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EBITDA
Margin Improvement
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10%
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0.0%
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Division
Hospital Revenue
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5%
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4.0%
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Non-Self
Pay Admissions Growth
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5%
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0.0%
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Target
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100%
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69.1%
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Maximum
award attainable
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110%
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The
Compensation Committee determined that in light of the global economic
conditions, the named executive officers’ performance in the past year had been
extraordinary under the circumstances. Notwithstanding the global
economic upheaval, the named executive officers kept the Company’s performance
in line with its expectations for both operations and the integration of the
Triad operations into the Company and consequently, the Compensation Committee
decided to award the named executive officers an extraordinary bonus to
recognize their accomplishment and to further incentivize the named executive
officers to effectively guide the Company through difficult economic
times. The extraordinary bonus was based on a percentage of the named
executive officers’ base salary in the amounts indicated below:
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Name
and Position
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Percentage
of Salary
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Extraordinary
Bonus
Payment
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Wayne
T. Smith, Chairman,
President
and Chief Executive
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20%
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$216,000
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W.
Larry Cash, Director, Executive
Vice
President and Chief Financial
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20%
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132,800
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William
S. Hussey, Division President,
Division Operations |
10%
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45,000
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David
L. Miller, Division President,
Division
Operations
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10%
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45,000
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Michael
T. Portacci, Division
President,
Division Operations
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3%
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15,000
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With
respect to each of the named executive officers, who have been designated by the
Compensation Committee as “covered employees” under this plan, their awards are
limited to those which will be treated as “qualified performance-based
compensation” under Section 162(m) of the IRC, and their awards are administered
solely by the Compensation Committee. Awards to other employees,
including the other executive officers, are administered by management; however,
the targets and awards are approved and ratified by the Compensation
Committee. Awards to executive officers who are not designated as
“covered employees” may be discretionary in nature.
Long-term Incentive, page
43
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3.
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We
note your disclosure of the one-time special equity grant to executives in
connection the Triad Acquisition. Please review your disclosure
here, or in the footnotes to the Summary Compensation Table to clarify the
amount of the award each executive received in connection with the Triad
Acquisition.
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The
Company notes that the special equity grants made in connection with the Triad
Acquisition were made during the 2007 calendar year and fully disclosed in the
Grant of Plan-Based Awards Table in the Company’s Definitive Proxy Statement on
Schedule 14A that was filed with the Commission on April 11, 2008 (the “2008 Proxy
Statement”), as well as in the Summary Compensation Table, Outstanding
Equity Awards at Fiscal Year End Table and the Compensation Discussion and
Analysis section of the 2008 Proxy Statement. In the 2009 Proxy
Statement, the equity grants are part of the FAS 123(R) calculation in the
Summary Compensation Table and are disclosed in the Outstanding Equity Awards at
Fiscal Year End Table. In addition, the Compensation Discussion and
Analysis section of each of the 2008 Proxy Statement and 2009 Proxy Statement
discuss these grants, including their vesting schedules and the Company’s
reasons for making the grants. In future filings where these grants
are reflected in the Outstanding Equity Awards at Fiscal Year End Table, the
Company will identify these special one-time grants as having been made in
connection with the Triad Acquisition.
The
Company has advised us that it acknowledges that:
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s
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the
Company is responsible for the adequacy and accuracy of the disclosure in
the 2008 Form 10-K and 2009 Proxy
Statement;
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s
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Staff
comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the 2008
Form 10-K and 2009 Proxy Statement;
and
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s
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the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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Please
see attached as Exhibit A the
Company’s acknowledgment as to the foregoing.
Should
you have any questions or comments with respect to this filing, please call me
at (212) 859-8136.
| Sincerely, | ||||
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Jeffrey
Bagner
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cc: Jeffrey
P. Riedler (Securities and Exchange Commission)
Mike
Rosenthall (Securities and Exchange Commission)
Rachel A.
Seifert (Community Health Systems, Inc.)
Exhibit
A
June 12,
2009
[Community
Health Systems, Inc. Letterhead]
In
response to the comment letter, dated June 6, 2008, of the staff of the Division
of Corporation Finance, the Company hereby acknowledges that:
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·
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the
Company is responsible for adequacy and accuracy of the disclosure in the
2008 Form 10-K and 2009 Proxy
Statement;
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·
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Staff
comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the 2008
Form 10-K and 2009 Proxy Statement;
and
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·
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the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
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/s/ Wayne T. Smith | |
| Wayne T. Smith | |||
| Chairman of the Board, President and Chief Executive Officer | |||
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/s/ W. Larry Cash | |
| W. Larry Cash | |||
| Executive Vice President, Chief Financial Officer and Director | |||
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/s/ T. Mark Buford | |
| T. Mark Buford | |||
| Vice President and Corporate Controller | |||