0001108109 2008-12-31 0001108109 2009-06-30 0001108109 2010-07-22 0001108109 2010-06-30 0001108109 2009-12-31 0001108109 2010-04-01 2010-06-30 0001108109 2009-04-01 2009-06-30 0001108109 2009-01-01 2009-06-30 0001108109 2010-01-01 2010-06-30 iso4217:USD xbrli:shares xbrli:shares iso4217:USD <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 1 - us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock--> <!-- xbrl,ns --> <!-- xbrl,nx --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left"> </div> <div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1. BASIS OF PRESENTATION</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;The unaudited condensed consolidated financial statements of Community Health Systems, Inc. and its subsidiaries (the &#8220;Company&#8221;) as of June&#160;30, 2010 and December&#160;31, 2009 and for the three-month and six-month periods ended June&#160;30, 2010 and June&#160;30, 2009, have been prepared in accordance with accounting principles generally accepted in the United States of America (&#8220;U.S. GAAP&#8221;). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of operations for the three and six months ended June&#160;30, 2010, are not necessarily indicative of the results to be expected for the full fiscal year ending December&#160;31, 2010. 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 (&#8220;SEC&#8221;). 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&#160;31, 2009, contained in the Company&#8217;s Annual Report on Form 10-K. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;Throughout these notes to the condensed consolidated financial statements, Community Health Systems, Inc., (the &#8220;Parent&#8221;), and its consolidated subsidiaries are referred to on a collective basis as the &#8220;Company.&#8221; 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. References to the Company may include one or more of its subsidiaries. </div> </div> <!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" --> <!-- Begin Block Tagged Note 2 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock--> <div style="font-family: 'Times New Roman',Times,serif"> <div align="left" style="font-size: 10pt; margin-top: 12pt"><b>2. ACCOUNTING FOR STOCK-BASED COMPENSATION</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;Stock-based compensation awards are granted under the Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award Plan (the &#8220;2000 Plan&#8221;) and the Community Health Systems, Inc. 2009 Stock Option and Award Plan (the &#8220;2009 Plan&#8221;). </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;The 2000 Plan allows for the grant of incentive stock options intended to qualify under Section&#160;422 of the Internal Revenue Code (&#8220;IRC&#8221;), as well as stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units, phantom stock and other share awards. Persons eligible to receive grants under the 2000 Plan include the Company&#8217;s directors, officers, employees and consultants. To date, all options granted under the 2000 Plan have been &#8220;nonqualified&#8221; 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 2010 have a 10-year contractual term. The exercise price of all options granted under the 2000 Plan is equal to the fair value of the Company&#8217;s common stock on the option grant date. As of June&#160;30, 2010, 1,084,763 shares of unissued common stock were reserved for future grants under the 2000 Plan. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;The 2009 Plan, which was adopted by the Board of Directors of the Parent as of March&#160;24, 2009 and approved by stockholders on May&#160;19, 2009, provides for the grant of incentive stock options intended to qualify under Section&#160;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&#8217;s directors, officers, employees and consultants. The duration of any option granted under the 2009 Plan will be determined by the Company&#8217;s compensation committee. Generally, however, no option may be exercised more than 10&#160;years from the date of grant, provided that the compensation committee may provide that a stock option may, upon the death of the grantee, be exercised for up to one year following the date of death even if such period extends beyond 10 years. 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STOCKHOLDERS&#8217; EQUITY</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;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 June&#160;30, 2010, 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. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;On December&#160;9, 2009, the Company commenced a new open market repurchase program for up to 3,000,000 shares of the Company&#8217;s common stock, not to exceed $100&#160;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. 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EQUITY INVESTMENTS</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;As of June&#160;30, 2010, 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. Effective April&#160;1, 2009, one or more subsidiaries of the Company acquired from Share Foundation the remaining 50% equity interest in MCSA L.L.C., an entity in which one or more subsidiaries of the Company previously had a 50% unconsolidated noncontrolling interest. One or more subsidiaries of the Company provided MCSA L.L.C. certain management services. This acquisition resulted in these subsidiaries of the Company owning 100% equity interest in that entity. 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LONG-TERM DEBT</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%"><b><i>Credit Facility and Notes</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;In connection with the consummation of the acquisition of Triad on July&#160;25, 2007, the Company&#8217;s wholly-owned subsidiary CHS/Community Health Systems, Inc. (&#8220;CHS&#8221;) obtained approximately $7.2&#160;billion of senior secured financing under a new credit facility (the &#8220;Credit Facility&#8221;) with a syndicate of financial institutions led by Credit Suisse, as administrative agent and collateral agent and issued approximately $3.0&#160;billion aggregate principal amount of 8.875% senior notes due 2015 (the &#8220;Notes&#8221;). 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As of December&#160;31, 2007, the $400&#160;million delayed draw term loan facility had been reduced to $300&#160;million at the request of CHS. During the fourth quarter of 2008, $100&#160;million of the delayed draw term loan was drawn by CHS, reducing the delayed draw term loan availability to $200&#160;million at December&#160;31, 2008. In January&#160;2009, CHS drew down the remaining $200&#160;million of the delayed draw term loan. 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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&#8217;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. 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FAIR VALUE</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 1%"><b><i>Fair Value Hierarchy</i></b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;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. 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CONTINGENCIES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;The Company is a party to various legal proceedings incidental to its business. 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The Company filed motions to dismiss all of the federal government&#8217;s and the relator&#8217;s claims on August&#160;28, 2009. On March&#160;19, 2010, the court granted in part and denied in part the Company&#8217;s motion to dismiss as to the relator&#8217;s complaint. On July&#160;7, 2010, the court denied the Company&#8217;s motion to dismiss the federal government&#8217;s complaint in intervention. The Company will file its answer and pretrial discovery will begin. The Company is vigorously defending this action. </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;On June&#160;12, 2008, two of the Company&#8217;s hospitals received letters from the U.S. Attorney&#8217;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&#160;1, 2002, through June&#160;9, 2008. On September&#160;16, 2008, one of the Company&#8217;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&#8217;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. 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The Company&#8217;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. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 6pt">&#160;&#160;&#160;&#160;&#160;From time to time, the Company sells and/or repurchases noncontrolling interests in consolidated subsidiaries, which changes subsidiaries from guarantors to non-guarantors. Amounts for prior periods are restated to reflect the status of guarantors or non-guarantors as of June&#160;30, 2010. Subsequent to the issuance of the supplemental condensed consolidating financial information for the year ended December&#160;31, 2009 and the three-month period ended March&#160;31, 2010, the Company determined that interest expense amounts had been incorrectly allocated between Issuer and Other Guarantor entities. For the Year ended December&#160;31, 2009 and the three-month period ended March&#160;31, 2010, reported Other Guarantors interest expense, as previously reported, was overstated by $221 million and $58&#160;million, respectively (Issuer interest expense was understated by the same amounts), and net income, as previously reported, for Other Guarantors was understated by $136 million and $37&#160;million, respectively. There was no impact to Issuer net income as there is an offsetting impact in equity in earnings of unconsolidated affiliates. Consequently, Issuer and Other Guarantors intercompany receivables and payables, income tax expense and equity in earnings of unconsolidated affiliates, as previously reported, were also impacted by these misstatements in lesser amounts. The information below gives effect to the correction of these matters. The combined guarantor entities&#8217; (Parent, Issuer and Other Guarantors) financial position and results of operations were not impacted by these misstatements. The aforementioned misstatements do not impact the Company&#8217;s consolidated balance sheet, consolidated statement of income or consolidated statement of cash flows for any of the periods. Management believes the effects of these misstatements are not material to the Company&#8217;s previously issued consolidated financial statements and intends, for those prior period supplemental condensed consolidated financial information not presented as part of this footnote, to reflect corrections in future filings. </div> <!-- Folio --> <!-- /Folio --> </div> <!-- PAGEBREAK --> <div style="font-family: 'Times New Roman',Times,serif"> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="center" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <!-- xbrl,bs --> <div align="center" style="font-size: 10pt; margin-top: 6pt"><b>Condensed Consolidating Balance Sheet</b><br /> <!-- xbrl,body --> <b>June&#160;30, 2010</b> </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <tr valign="bottom"> <td width="28%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> <td width="5%">&#160;</td> <td width="1%">&#160;</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2"><b>Parent</b></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2"><b>Other</b></td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2"><b>Non-</b></td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2">&#160;</td> <td>&#160;</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Guarantor</b></td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Issuer</b></td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Guarantors</b></td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Guarantors</b></td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Eliminations</b></td> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Consolidated</b></td> <td>&#160;</td> </tr> <tr style="font-size: 8pt" valign="bottom"> <td>&#160;</td> <td>&#160;</td> <td nowrap="nowrap" align="center" colspan="22"><b>(In thousands)</b></td> <td>&#160;</td> </tr> <!-- End Table Head --> <!-- Begin Table Body --> <tr valign="bottom" style="background: #cceeff"> <td colspan="25" align="center"><b>ASSETS</b><br /></td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; 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