Edgar Filing: COMMUNITY HEALTH SYSTEMS INC

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Accelerated filer

Non-accelerated filer

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Smaller reporting company

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

Commission file number 001-15925

COMMUNITY HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-3893191
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

4000 Meridian Boulevard Franklin, Tennessee		37067
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number)

615-465-7000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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 x No ¨

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):

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

As of October 20, 2011, there were outstanding 91,553,992 shares of the Registrant’s Common Stock, $0.01 par value.

Community Health Systems, Inc.

Form 10-Q

For the Three and Nine Months Ended September 30, 2011


			Page
Part I.	Financial Information

	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheets - September 30, 2011 and December 31, 2010 (Unaudited)		2

		Condensed Consolidated Statements of Income - Three and Nine Months Ended September 30, 2011 and September 30, 2010 (Unaudited)		3

		Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2011 and September 30, 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		38

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		58

	Item 4.	Controls and Procedures		58

Part II.	Other Information

	Item 1.	Legal Proceedings		59

	Item 1A.	Risk Factors		63

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		64

	Item 3.	Defaults Upon Senior Securities		64

	Item 4.	(Removed and Reserved)		64

	Item 5.	Other Information		64

	Item 6.	Exhibits		65

Signatures				66

Index to Exhibits				67

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	September 30, 2011			December 31, 2010
ASSETS
Current assets
Cash and cash equivalents	$	266,312		$	299,169
Patient accounts receivable, net of allowance for doubtful accounts of $1,840,003 and $1,639,198 at September 30, 2011 and December 31, 2010, respectively		1,773,125			1,714,542
Supplies		336,462			329,114
Prepaid income taxes		—			118,464
Deferred income taxes		115,819			115,819
Prepaid expenses and taxes		119,073			100,754
Other current assets		225,737			193,331

Total current assets		2,836,528			2,871,193

Property and equipment		8,963,658			8,383,122
Less accumulated depreciation and amortization		(2,389,718	)		(2,058,685	)

Property and equipment, net		6,573,940			6,324,437

Goodwill		4,232,913			4,150,247

Other assets, net		1,204,541			1,352,246

Total assets	$	14,847,922		$	14,698,123

LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt	$	61,066		$	63,139
Accounts payable		636,327			526,338
Current income tax payable		17,705			—
Deferred income taxes		8,882			8,882
Accrued interest		83,984			146,415
Accrued liabilities		895,196			897,266

Total current liabilities		1,703,160			1,642,040

Long-term debt		8,768,677			8,808,382

Deferred income taxes		608,177			608,177

Other long-term liabilities		975,163			1,001,675

Total liabilities		12,055,177			12,060,274

Redeemable noncontrolling interests in equity of consolidated subsidiaries		383,745			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; 91,753,992 shares issued and 90,778,443 shares outstanding at September 30, 2011, and 93,644,862 shares issued and 92,669,313 shares outstanding at December 31, 2010		918			936
Additional paid-in capital		1,084,415			1,126,751
Treasury stock, at cost, 975,549 shares at September 30, 2011 and December 31, 2010		(6,678	)		(6,678	)
Accumulated other comprehensive loss		(201,051	)		(230,927	)
Retained earnings		1,470,399			1,299,382

Total Community Health Systems, Inc. stockholders’ equity		2,348,003			2,189,464
Noncontrolling interests in equity of consolidated subsidiaries		60,997			60,913

Total equity		2,409,000			2,250,377

Total liabilities and equity	$	14,847,922		$	14,698,123

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net operating revenues	$	3,436,000		$	3,159,823		$	10,223,881		$	9,309,081

Operating costs and expenses:
Salaries and benefits		1,393,151			1,267,103			4,156,614			3,745,343
Provision for bad debts		450,296			387,512			1,283,267			1,121,015
Supplies		459,146			434,439			1,366,242			1,287,125
Other operating expenses		623,608			576,649			1,893,138			1,693,230
Rent		64,481			62,173			190,082			185,081
Depreciation and amortization		161,515			147,289			481,046			440,971

Total operating costs and expenses		3,152,197			2,875,165			9,370,389			8,472,765

Income from operations		283,803			284,658			853,492			836,316
Interest expense, net		159,480			162,868			485,928			483,050
Equity in earnings of unconsolidated affiliates		(8,194	)		(9,538	)		(38,345	)		(33,108	)

Income from continuing operations before income taxes		132,517			131,328			405,909			386,374
Provision for income taxes		36,717			43,319			125,630			125,629

Income from continuing operations		95,800			88,009			280,279			260,745

Discontinued operations, net of taxes:
Loss from operations of entities sold and held for sale		(3,103	)		(3,155	)		(4,546	)		(4,553	)
Impairment of hospitals sold and held for sale		—			—			(47,930	)		—
Loss on sale		(66	)		—			(3,300	)		—

Loss from discontinued operations, net of taxes		(3,169	)		(3,155	)		(55,776	)		(4,553	)

Net income		92,631			84,854			224,503			256,192
Less: Net income attributable to noncontrolling interests		18,327			14,453			53,486			45,719

Net income attributable to Community Health Systems, Inc.	$	74,304		$	70,401		$	171,017		$	210,473

Basic earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:
Continuing operations	$	0.87		$	0.80		$	2.51		$	2.34
Discontinued operations		(0.04	)		(0.03	)		(0.62	)		(0.05	)

Net income	$	0.83		$	0.77		$	1.89		$	2.29

Diluted earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders (1):
Continuing operations	$	0.86		$	0.80		$	2.49		$	2.31
Discontinued operations		(0.04	)		(0.03	)		(0.61	)		(0.05	)

Net income	$	0.83		$	0.76		$	1.87		$	2.26

Weighted-average number of shares outstanding:
Basic		89,412,310			91,484,466			90,513,665			92,035,722

Diluted		89,857,583			92,462,702			91,256,469			93,219,909


(1) Total per share amounts may not add due to rounding.

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2011			2010
Cash flows from operating activities
Net income	$	224,503		$	256,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		485,917			452,179
Stock-based compensation expense		31,588			29,899
Loss on sale		3,300			—
Impairment of hospitals sold and held for sale		47,930			—
Excess tax benefit relating to stock-based compensation		(4,616	)		(10,109	)
Other non-cash expenses, net		14,279			8,237
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Patient accounts receivable		(90,805	)		(25,579	)
Supplies, prepaid expenses and other current assets		(31,455	)		4,755
Accounts payable, accrued liabilities and income taxes		146,166			172,687
Other		(6,572	)		10,116

Net cash provided by operating activities		820,235			898,377

Cash flows from investing activities
Acquisitions of facilities and other related equipment		(209,451	)		(67,541	)
Purchases of property and equipment		(532,845	)		(381,853	)
Proceeds from disposition of hospitals and other ancillary operations		172,578			—
Proceeds from sale of property and equipment		9,251			2,845
Increase in other non-operating assets		(130,980	)		(98,502	)

Net cash used in investing activities		(691,447	)		(545,051	)

Cash flows from financing activities
Proceeds from exercise of stock options		18,880			53,839
Deferred financing costs		(100	)		—
Excess tax benefit relating to stock-based compensation		4,616			10,109
Stock buy-back		(85,790	)		(107,932	)
Proceeds from noncontrolling investors in joint ventures		1,229			5,155
Redemption of noncontrolling investments in joint ventures		(4,784	)		(2,467	)
Distributions to noncontrolling investors in joint ventures		(49,928	)		(41,870	)
Borrowings under credit agreement		83,000			—
Repayments of long-term indebtedness		(128,768	)		(46,952	)

Net cash used in financing activities		(161,645	)		(130,118	)

Net change in cash and cash equivalents		(32,857	)		223,208

Cash and cash equivalents at beginning of period		299,169			344,541

Cash and cash equivalents at end of period	$	266,312		$	567,749

Supplemental disclosure of cash flow information:
Interest payments	$	548,359		$	549,453

Income tax (refunds received) paid, net	$	(2,708	)	$	128,925

See accompanying notes to the condensed consolidated financial statements.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.	BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements of Community Health Systems, Inc. and its subsidiaries (the “Company”) as of September 30, 2011 and December 31, 2010 and for the three-month and nine-month periods ended September 30, 2011 and September 30, 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 and nine months ended September 30, 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. In June 2011, the Company entered into a definitive agreement to sell two of its hospitals in Oklahoma. During the three months ended September 30, 2011, the Company sold the two hospitals located in Oklahoma that were previously held for sale. As of September 30, 2011, the Company has one hospital held for sale. The condensed consolidated statement of income for the three and nine months ended September 30, 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 in other assets, net for comparative purposes with the September 30, 2011 presentation.

The American Recovery and Reinvestment Act of 2009 included provisions for implementing health information technology under the Health Information Technology for Economic and Clinical Health Act (“HITECH”). These provisions were designed to increase the use of electronic health records (“EHR”) technology and establish the requirements for a Medicare and Medicaid incentive payments program beginning in 2011 for eligible hospitals and providers that adopt and meaningfully use certified EHR technology. Eligibility for annual Medicare incentive payments is dependent on providers demonstrating meaningful use of EHR technology in each period over a four-year period. Initial Medicaid incentive payments are available to providers that adopt, implement or upgrade certified EHR technology; but providers must demonstrate meaningful use of such technology in subsequent years to qualify for additional incentive payments. Medicaid EHR incentive payments are fully funded by the federal government and administered by the states; however, the states are not required to offer EHR incentive payments to providers.

During the three-month and nine-month periods ended September 30, 2011, the Company recognized approximately $40.2 million of revenue for HITECH incentives from Medicare and Medicaid related to certain of its hospitals that have demonstrated meaningful use of certified EHR technology or have completed attestations to their adoption or implementation of certified EHR technology. Such revenues are included with net operating revenues on the condensed consolidated statement of income.

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.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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 or later have a 10-year contractual term. As of September 30, 2011, 216,699 shares of unissued common stock were reserved for future grants under the 2000 Plan.

The 2009 Plan 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 September 30, 2011, 3,054,268 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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Effect on income from continuing operations before income taxes	$	(10,855	)	$	(9,481	)	$	(31,588	)	$	(29,899	)

Effect on net income	$	(6,893	)	$	(5,964	)	$	(20,059	)	$	(18,806	)

At September 30, 2011, $69.6 million of unrecognized stock-based compensation expense was expected to be recognized over a weighted-average period of 24 months. Of that amount, $15.3 million related to outstanding unvested stock options was expected to be recognized over a weighted-average period of 24 months and $54.3 million related to outstanding unvested restricted stock, restricted stock units and phantom shares was expected to be recognized over a weighted-average period of 24 months. There were no modifications to awards during the three and nine months ended September 30, 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 and nine months ended September 30, 2011 and 2010:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Expected volatility		57.8	%		38.0	%		32.8	%		33.7	%
Expected dividends		—			—			—			—
Expected term		4 years			3 years			4 years			3.1 years
Risk-free interest rate		0.6	%		0.8	%		1.7	%		1.4	%

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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.

Options outstanding and exercisable under the 2000 Plan and the 2009 Plan as of September 30, 2011, and changes during each of the three-month periods following December 31, 2010, were as follows (in thousands, except share and per share data):


	Shares			Weighted - Average Exercise Price		Weighted - Average Remaining Contractual Term		Aggregate Intrinsic Value as of September 30, 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
Granted		45,000			28.12
Exercised		(23,579	)		29.98
Forfeited and cancelled		(50,342	)		32.70

Outstanding at June 30, 2011		8,474,472			33.08
Granted		73,000			17.95
Exercised		(2,665	)		18.18
Forfeited and cancelled		(118,087	)		32.21

Outstanding at September 30, 2011		8,426,720		$	32.95		5.6 years	$	49

Exercisable at September 30, 2011		5,851,497		$	32.78		4.1 years	$	24

The weighted-average grant date fair value of stock options granted during the three months ended September 30, 2011 and 2010 was $7.97 and $8.52, respectively, and $10.18 and $8.20 during the nine months ended September 30, 2011 and 2010, 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 ($16.64) 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 September 30, 2011. This amount changes based on the market value of the Company’s common stock. There was substantially no aggregate intrinsic value of options exercised during the three months ended September 30, 2011. The aggregate intrinsic value of options exercised during the three months ended September 30, 2010 was $0.1 million. The aggregate intrinsic value of options exercised during the nine months ended September 30, 2011 and 2010 was $6.1 million and $28.3 million, respectively. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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.

Restricted stock outstanding under the 2000 Plan and the 2009 Plan as of September 30, 2011, and changes during each of the three-month periods following December 31, 2010, were as follows:


	Shares			Weighted - Average Grant Date 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
Granted		8,000			28.12
Vested		(12,000	)		33.49
Forfeited		—			—

Unvested at June 30, 2011		2,243,578			33.02
Granted		4,000			17.95
Vested		(9,331	)		30.26
Forfeited		(2,001	)		33.31

Unvested at September 30, 2011		2,236,246			33.00

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, all subsequent grants of this type are 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 such a grant. 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 September 30, 2011, no shares vested. During the nine months ended September 30, 2011, 22,560 shares vested at a weighted-average grant date fair value of $24.68. None of these grants were canceled during the three and nine months ended September 30, 2011. As of September 30, 2011, there were 52,956 shares of phantom stock and restricted stock units unvested at a weighted-average grant date fair value of $31.67.

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

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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 September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Directors’ fees earned and deferred into plan	$	55	$	45	$	165	$	135

Share equivalent units		3,305		1,453		6,822		4,003

At September 30, 2011, a total of 25,623 share equivalent units were deferred in the plan with an aggregate fair value of $0.4 million, based on the closing market price of the Company’s common stock at September 30, 2011 of $16.64.

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 $45.6 million and $36.8 million for the three months ended September 30, 2011 and 2010, respectively, and $135.1 million and $117.0 million for the nine months ended September 30, 2011 and 2010, respectively. Included in these amounts is stock-based compensation expense of $10.9 million and $9.5 million for the three months ended September 30, 2011 and 2010, respectively, and $31.6 million and $29.9 million for the nine months ended September 30, 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

The Company accounts for all transactions that represent business combinations after January 1, 2009 using the acquisition method of accounting, where the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity are recognized and measured at their fair values on the date the Company obtains control in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts. Adjustments to these provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has been obtained, limited to one year from the acquisition date) are recorded as of the date of acquisition. Any material impact to comparative information for periods after acquisition, but before the period in which adjustments are identified, is reflected in those prior periods as if the adjustments were considered as of the acquisition date. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired.

Effective May 1, 2011, one or more subsidiaries of the Company completed the acquisition of Mercy Health Partners based in Scranton, Pennsylvania, a healthcare system of two acute care hospitals, a long-term acute care facility and other healthcare providers. This healthcare system includes Regional Hospital of Scranton (198 licensed beds) located in Scranton, Pennsylvania, and Tyler Memorial Hospital (48 licensed beds) located in Tunkhannock, Pennsylvania. This healthcare system also includes a long-term acute care facility, Special Care Hospital (67 licensed beds) located in Nanticoke, Pennsylvania, as well as several outpatient clinics and other ancillary facilities. The total cash consideration paid for long-lived assets was approximately $150.8 million, with additional consideration of $12.3 million assumed in liabilities as well as a credit applied at closing of $2.1 million for negative acquired working capital, for a total consideration of $161.0 million. Based upon the Company’s preliminary purchase price allocation relating to this acquisition as of September 30, 2011, approximately $43.1 million of goodwill has been recorded. The preliminary allocation of the purchase price has been determined by the Company based on available information and is subject to final appraisals of tangible and intangible assets. Adjustments to the purchase price allocation are not expected to be material.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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 long-lived 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. Based upon the Company’s final purchase price allocation relating to this acquisition, 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 long-lived 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. Based upon the Company’s final purchase price allocation relating to this acquisition, 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 long-lived 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. Based upon the Company’s final purchase price allocation relating to this acquisition, no goodwill has been recorded.

Additionally, during the nine months ended September 30, 2011, the Company paid approximately $57.1 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 $11.9 million of the consideration paid to property and equipment, $3.6 million to net working capital, $1.6 million to other intangible assets, and the remainder, approximately $40.0 million consisting of intangible assets that do not qualify for separate recognition, was allocated to goodwill.

Approximately $2.4 million and $2.5 million of acquisition costs related to prospective and closed acquisitions were expensed during the three months ended September 30, 2011 and 2010, respectively, and $11.0 million and $4.3 million during the nine months ended September 30, 2011 and 2010, respectively.

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 located in Texas, which remained classified as held for sale at September 30, 2011.

In June 2011, the Company entered into a definitive agreement to sell two of its hospitals located in Oklahoma. Effective September 1, 2011, the Company sold SouthCrest Hospital, located in Tulsa, Oklahoma, Claremore Regional Hospital, located in Claremore, Oklahoma, and other related healthcare assets affiliated with those hospitals to Hillcrest Healthcare System, part of Ardent Health Services, for approximately $154.0 million in cash. The carrying amount of the net assets sold in this transaction at the date of sale, including an allocation of reporting unit goodwill, was approximately $193.0 million.

The Company has classified the results of operations for OMG, SouthCrest Hospital, Claremore Regional Hospital and the hospital held for sale as discontinued operations in the accompanying condensed consolidated statements of income for the three and nine months ended September 30, 2011 and 2010.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net operating revenues	$	47,855		$	92,232		$	188,418		$	274,720

Loss from operations of entities sold and held for sale before income taxes		(5,120	)		(4,985	)		(7,401	)		(6,979	)
Impairment of hospitals sold and held for sale		—			—			(51,695	)		—
Loss on sale		(337	)		—			(5,398	)		—

Loss from discontinued operations, before taxes		(5,457	)		(4,985	)		(64,494	)		(6,979	)
Income tax benefit		(2,288	)		(1,830	)		(8,718	)		(2,426	)

Loss from discontinued operations, net of taxes	$	(3,169	)	$	(3,155	)	$	(55,776	)	$	(4,553	)

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

The long-lived assets and allocated goodwill at December 31, 2010 of the physician clinic sold during the quarter ended March 31, 2011, the two hospitals sold on September 1, 2011 and the hospital classified as held for sale at September 30, 2011 totaled approximately $182.7 million, and are included in the accompanying condensed consolidated balance sheet in other assets, net.

The long-lived assets and allocated goodwill as of September 30, 2011 of the hospital held for sale, net of impairment, totaled approximately $0.5 million and 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 $3.7 million as of September 30, 2011. During the three months ended September 30, 2011, the Company decreased liabilities for uncertain tax positions by $4.0 million as a result of a favorable resolution of an issue on appeal with the Internal Revenue Service (“IRS”) related to its examination of Triad Hospitals, Inc.’s (“Triad”) tax returns. For the nine months ended September 30, 2011, the Company decreased liabilities for uncertain tax positions by $3.4 million and decreased interest and penalties by approximately $0.4 million. A total of approximately $1.0 million of interest and penalties is included in the amount of the liability for uncertain tax positions at September 30, 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.

The Company believes that it is reasonably possible that approximately $2.1 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 United States federal jurisdiction and various state jurisdictions. The Company has extended the federal statute of limitations for Triad for the tax periods ended December 31, 1999, December 31, 2000, April 30, 2001, June 30, 2001, December 31, 2001, December 31, 2002 and December 31, 2003. The IRS has concluded its examination of the federal tax return of Triad for the tax periods ended December 31, 2004, December 31, 2005, December 31, 2006 and July 25, 2007. In September 2011, the Company reached a favorable resolution of an issue on appeal with the IRS related to its examination of Triad’s tax returns. As a result, the Company recognized a tax benefit of $4.0 million, which is reflected in the accompanying condensed consolidated statement of income for the three and nine months ended September 30, 2011. With few exceptions, 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 net cash paid of $23.0 million and $49.2 million for the three months ended September 30, 2011 and 2010, respectively. Cash paid for income taxes, net of refunds received, resulted in a net cash refund of $2.7 million and net cash paid of $128.9 million for the nine months ended September 30, 2011 and September 30, 2010, respectively.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

7.	GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the nine months ended September 30, 2011, are as follows (in thousands):


Balance as of December 31, 2010 (as previously reported)	$	4,199,905
Goodwill allocated to disposal and hospitals held for sale		(49,658	)

Balance as of December 31, 2010 (as adjusted)		4,150,247
Goodwill acquired as part of acquisitions during 2011		83,287
Consideration adjustments and purchase price allocation adjustments for prior year’s acquisitions		(621	)

Balance as of September 30, 2011	$	4,232,913

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 September 30, 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, $40.5 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 $61.7 million at September 30, 2011 and $60.5 million at December 31, 2010, and the net carrying amount was $32.4 million at September 30, 2011 and $36.1 million at December 31, 2010. The carrying amount of the Company’s other intangible assets not subject to amortization was $44.4 million at both September 30, 2011 and December 31, 2010. 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 $2.0 million and $3.1 million during the three months ended September 30, 2011 and 2010, respectively, and $6.2 million and $9.4 million during the nine months ended September 30, 2011 and 2010, respectively. Amortization expense on intangible assets is estimated to be $2.0 million for the remainder of 2011, $7.2 million in 2012, $4.6 million in 2013, $2.9 million in 2014, $2.5 million in 2015, $2.3 million in 2016 and $10.9 million in 2017 and thereafter.

The gross carrying amount of capitalized software for internal use was approximately $410.9 million and $356.5 million at September 30, 2011 and December 31, 2010, respectively, and the net carrying amount considering accumulated amortization was approximately $218.5 million and $209.4 million at September 30, 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

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

system conversions, which is generally eight years. There is no expected residual value for capitalized internal-use software. At September 30, 2011, there was approximately $88.8 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 $17.8 million and $12.5 million during the three months ended September 30, 2011 and 2010, respectively, and $52.4 million and $32.7 million during the nine months ended September 30, 2011 and 2010, respectively. Amortization expense on capitalized internal-use software is estimated to be $18.9 million for the remainder of 2011, $75.6 million in 2012, $55.6 million in 2013, $24.4 million in 2014, $16.5 million in 2015, $13.2 million in 2016 and $14.3 million in 2017 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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Numerator:
Income from continuing operations, net of taxes	$	95,800		$	88,009		$	280,279		$	260,745
Less: Income from continuing operations attributable to noncontrolling interests, net of taxes		18,327			14,484			53,486			45,816

Income from continuing operations attributable to Community Health Systems, Inc. common stockholders — basic and diluted	$	77,473		$	73,525		$	226,793		$	214,929

Loss from discontinued operations, net of taxes	$	(3,169	)	$	(3,155	)	$	(55,776	)	$	(4,553	)
Less: Loss from discontinued operations attributable to noncontrolling interests, net of taxes		—			(31	)		—			(97	)

Loss from discontinued operations attributable to Community Health Systems, Inc. common stockholders — basic and diluted	$	(3,169	)	$	(3,124	)	$	(55,776	)	$	(4,456	)

Denominator:
Weighted-average number of shares outstanding — basic		89,412,310			91,484,466			90,513,665			92,035,722

Effect of dilutive securities:
Restricted stock awards		307,631			570,002			275,561			472,296
Employee stock options		128,371			393,041			458,685			695,934
Other equity-based awards		9,271			15,193			8,558			15,957

Weighted-average number of shares outstanding — diluted		89,857,583			92,462,702			91,256,469			93,219,909

Dilutive securities outstanding not included in the computation of earnings per share because their effect is antidilutive:

Employee stock options		6,909,075			6,029,836			6,010,261			4,964,658

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 September 30, 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 September 30, 2011, the Company repurchased and retired 1,706,300 shares at a weighted-average price of $20.93 under this program. During the nine months ended September 30, 2011, the Company repurchased and retired 3,469,866 shares at a weighted-average price of $24.68 under this program. The cumulative number of shares that have been repurchased and retired under this program through September 30, 2011 is 3,921,138 shares at a weighted-average price of $25.39 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 approximated the total permitted maximum dollar amount allowed under the program. During the three months ended September 30, 2010, the Company repurchased and retired 2,608,528 shares at a weighted-average price of $33.62 per share under this program. During the nine months ended September 30, 2010, the Company repurchased and retired 2,964,528 shares at a weighted-average price of $33.69 per share. 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)

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 nine-month period ended September 30, 2011 (in thousands):


				Community Health Systems, Inc. Stockholders
	Redeemable Noncontrolling Interests			Common Stock			Additional Paid-in Capital			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Noncontrolling Interests			Total Stockholders’ 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		39,085			—			—			—			—			171,017		14,401			185,418
Net change in fair value of interest rate swaps		—			—			—			—			30,199			—		—			30,199
Net change in fair value of available-for-sale securities		—			—			—			—			(2,692	)		—		—			(2,692	)
Amortization and recognition of unrecognized pension cost components		—			—			—			—			2,369			—		—			2,369

Total comprehensive income		39,085			—			—			—			29,876			171,017		14,401			215,294
Distributions to noncontrolling interests, net of contributions		(34,321	)		—			—			—			—			—		(14,378	)		(14,378	)
Purchase of subsidiary shares from noncontrolling interests		(2,322	)		—			(2,523	)		—			—			—		61			(2,462	)
Other reclassifications of noncontrolling interests		(2,128	)		—			—			—			—			—		—			—
Adjustment to redemption value of redeemable noncontrolling interests		(4,041	)		—			4,041			—			—			—		—			4,041
Repurchase of common stock		—			(32	)		(85,790	)		—			—			—		—			(85,822	)
Issuance of common stock in connection with the exercise of stock options		—			6			18,880			—			—			—		—			18,886
Cancellation of restricted stock for tax withholdings on vested shares		—			(3	)		(13,148	)		—			—			—		—			(13,151	)
Excess tax benefit from exercise of stock options		—			—			4,616			—			—			—		—			4,616
Share-based compensation		—			11			31,588			—			—			—		—			31,599

Balance, September 30, 2011	$	383,745		$	918		$	1,084,415		$	(6,678	)	$	(201,051	)	$	1,470,399	$	60,997		$	2,409,000

The following schedule discloses the effects of changes in the Company’s ownership interest in its less-than-wholly-owned subsidiaries on Community Health Systems, Inc. stockholders’ equity (in thousands):


	Nine Months Ended September 30, 2011
Net income attributable to Community Health Systems, Inc.	$	171,017
Transfers to the noncontrolling interests:
Net decrease in Community Health Systems, Inc. paid-in capital for purchase of subsidiary partnership interests		(2,523	)

Net transfers to the noncontrolling interests		(2,523	)

Change to Community Health Systems, Inc. stockholders’ equity from net income attributable to Community Health Systems, Inc. and transfers to noncontrolling interests	$	168,494

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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net income	$	92,631		$	84,854		$	224,503		$	256,192
Net change in fair value of interest rate swaps		2,722			(31,285	)		30,199			(76,336	)
Net change in fair value of available-for-sale securities		(4,029	)		2,396			(2,692	)		3,027
Amortization and recognition of unrecognized pension cost components		790			801			2,369			6,034

Comprehensive income		92,114			56,766			254,379			188,917
Less: Comprehensive income attributable to noncontrolling interests		18,327			14,453			53,486			45,719

Comprehensive income attributable to Community Health Systems, Inc.	$	73,787		$	42,313		$	200,893		$	143,198

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 September 30, 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 and nine months ended September 30, 2011 and 2010, for these unconsolidated entities in which the Company owns an equity interest is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Revenues	$	353,148	$	347,591	$	1,099,187	$	1,063,656
Operating costs and expenses		321,907		314,965		974,659		960,943
Income from continuing operations before taxes		31,211		32,581		124,447		102,626

The summarized financial information for the three and nine months ended September 30, 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 $417.7 million and $409.5 million at September 30, 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 $8.2 million and $9.5 million for the three months ended September 30, 2011 and 2010, respectively, and $38.3 million and $33.1 million for the nine months ended September 30, 2011 and 2010, respectively.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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	%

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 September 30, 2011, the availability for additional borrowings under the Credit Facility was $750 million pursuant to the revolving credit facility, of which $38.0 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 September 30, 2011, the weighted-average interest rate under the Credit Facility, excluding swaps, was 3.3%.

The Company paid interest of $220.6 million and $229.3 million on borrowings during the three months ended September 30, 2011 and 2010, respectively, and $548.4 million and $549.5 million for the nine months ended September 30, 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 September 30, 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):


	September 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	$	266,312	$	266,312	$	299,169	$	299,169
Available-for-sale securities		29,365		29,365		31,570		31,570
Trading securities		30,364		30,364		35,092		35,092
Liabilities:
Credit Facility		5,961,852		5,585,578		5,999,337		5,882,124
Senior notes		2,784,331		2,728,644		2,784,331		2,923,548
Other debt		34,091		34,091		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)

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 and nine months ended September 30, 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 September 30, 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 September 30, 2011:


Swap #	Notional Amount (in 000’s)		Fixed Interest Rate			Termination Date		Fair Value (in 000’s)
1	$	100,000		3.0230	%		October 23, 2011	$	176
2		200,000		4.4815	%		October 26, 2011		582
3		200,000		4.0840	%		December 3, 2011		1,339
4		100,000		3.8470	%		January 4, 2012		901
5		100,000		3.8510	%		January 4, 2012		902
6		100,000		3.8560	%		January 4, 2012		904
7		200,000		3.7260	%		January 8, 2012		1,827
8		200,000		3.5065	%		January 16, 2012		1,836
9		250,000		5.0185	%		May 30, 2012		7,447
10		150,000		5.0250	%		May 30, 2012		4,475
11		200,000		4.6845	%		September 11, 2012		7,784
12		100,000		3.3520	%		October 23, 2012		2,952
13		125,000		4.3745	%		November 23, 2012		5,406
14		75,000		4.3800	%		November 23, 2012		3,248
15		150,000		5.0200	%		November 30, 2012		7,696
16		200,000		2.2420	%		February 28, 2013		4,674
17		100,000		5.0230	%		May 30, 2013		7,170
18		300,000		5.2420	%		August 6, 2013		24,883
19		100,000		5.0380	%		August 30, 2013		8,183
20		50,000		3.5860	%		October 23, 2013		2,945
21		50,000		3.5240	%		October 23, 2013		2,885
22		100,000		5.0500	%		November 30, 2013		9,125
23		200,000		2.0700	%		December 19, 2013		6,161
24		100,000		5.2310	%		July 25, 2014		11,766
25		100,000		5.2310	%		July 25, 2014		11,769
26		200,000		5.1600	%		July 25, 2014		23,172
27		75,000		5.0405	%		July 25, 2014		8,453
28		125,000		5.0215	%		July 25, 2014		14,027
29		100,000		2.6210	%		July 25, 2014		5,005
30		100,000		3.1100	%		July 25, 2014		6,275
31		100,000		3.2580	%		July 25, 2014		6,658
32		200,000		2.6930	%		October 26, 2014		10,589	⁽¹⁾
33		300,000		3.4470	%		August 8, 2016		27,835
34		200,000		3.4285	%		August 19, 2016		18,452
35		100,000		3.4010	%		August 19, 2016		9,132
36		200,000		3.5000	%		August 30, 2016		19,124
37		100,000		3.0050	%		November 30, 2016		7,508

(1)	This interest rate swap becomes effective October 26, 2011, concurrent with the termination of swap #2.

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 September 30, 2011 interest rates, approximately $156.3 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 loss recognized in the condensed consolidated balance sheets as a component of OCI during the three and nine months ended September 30, 2011 and 2010 (in thousands):


Derivatives in Cash Flow Hedging Relationships	Amount of Pre-Tax Loss Recognized in OCI on Derivative (Effective Portion)
Derivatives in Cash Flow Hedging Relationships	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Interest rate swaps	$	(49,499	)	$	(102,522	)	$	(113,071	)	$	(281,086	)

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 and nine months ended September 30, 2011 and 2010 (in thousands):


Location of Loss Reclassified from AOCL into Income (Effective Portion)	Amount of Pre-Tax Loss Reclassified from AOCL into Income (Effective Portion)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Interest expense, net	$	53,758	$	53,639	$	160,331	$	161,811

The fair values of derivative instruments in the condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010 were as follows (in thousands):

Asset Derivatives

Liability Derivatives

September 30,

2011

December 31,

2010

September 30,

2011

December 31,

2010

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
Value

Balance

Sheet

Location

Fair Value

Balance

Sheet

Location

Fair Value

Derivatives designated
as hedging instruments

Other assets, net

—

Other assets, net

—

Other long-term liabilities

293,266

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 September 30, 2011 and December 31, 2010 (in thousands):


	September 30, 2011		Level 1		Level 2		Level 3
Available-for-sale securities	$	29,365	$	29,365	$	—	$	—
Trading securities		30,364		30,364		—		—

Total assets	$	59,729	$	59,729	$	—	$	—


Fair value of interest rate swap agreements	$	293,266	$	—	$	293,266	$	—

Total liabilities	$	293,266	$	—	$	293,266	$	—


	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)

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 September 30, 2011 resulted in a decrease in the fair value of the related liability of $28.3 million and an after-tax adjustment of $18.1 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 increased other current assets by $6.2 million, other assets, net by $34.6 million and long-term liabilities by $40.8 million in the condensed consolidated balance sheet at September 30, 2011 and had no impact to the condensed consolidated statement of income for the three and nine months ended September 30, 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 $28.8 million and $27.7 million for the three months ended September 30, 2011 and 2010, respectively, and $88.3 million and $78.5 million for the nine months ended September 30, 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.

In July 2011, the FASB issued ASU 2011-07, which requires healthcare organizations that perform services for patients for which the ultimate collection of all or a portion of the amounts billed or billable cannot be determined at the time services are rendered to present all bad debt expense associated with patient service revenue as an offset to the patient service revenue line item in the statement of operations. The ASU also requires qualitative disclosures about the Company’s policy for recognizing revenue and bad debt expense for patient service transactions and quantitative information about the effects of changes in the assessment of collectibility of patient service revenue. This ASU is effective for fiscal years beginning after December 15, 2011, and will be adopted by the Company in the first quarter of 2012. Upon adoption, the Company’s provision for bad debts will be presented as a reduction of patient service revenue after contractual adjustments and discounts. The changes in net revenue for the three and nine months ended September 30, 2011 and 2010 as if the ASU had been early adopted for 2011 are as follows (in thousands):

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net operating revenues (net of contractual allowances and discounts)	$	3,436,000		$	3,159,823		$	10,223,881		$	9,309,081
Provision for bad debts		(450,296	)		(387,512	)		(1,283,267	)		(1,121,015	)

Net operating revenues, less provision for bad debts	$	2,985,704		$	2,772,311		$	8,940,614		$	8,188,066

In September 2011, the FASB issued ASU 2011-08, which modifies how entities test goodwill for impairment. Previous guidance required an entity to perform a two-step goodwill impairment test at least annually by comparing the fair value of a reporting unit with its carrying amount, including goodwill, and recording an impairment loss if the fair value is less than the carrying amount. This ASU allows an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines after that assessment that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. This ASU is required to be applied to interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and will be adopted by the Company in 2012. The adoption of this ASU is not expected to impact the Company’s consolidated financial position, results of operations or cash flows.

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 September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenues:
Hospital operations	$	3,375,093		$	3,086,717		$	10,021,267		$	9,105,305
Corporate and all other		60,907			73,106			202,614			203,776

Total	$	3,436,000		$	3,159,823		$	10,223,881		$	9,309,081

Income from continuing operations before income taxes:
Hospital operations	$	176,903		$	164,870		$	539,442		$	495,880
Corporate and all other		(44,386	)		(33,542	)		(133,533	)		(109,506	)

Total	$	132,517		$	131,328		$	405,909		$	386,374

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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.

Reasonably Possible Contingencies

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.

On February 10, 2006, the Company received a letter from the Civil Division of the Department of Justice requesting documents in an investigation it was conducting involving the Company. The inquiry related to the way in which different state Medicaid programs apply to the federal government for matching or supplemental funds that are ultimately used to pay for a small portion of the services provided to Medicaid and indigent patients. These programs are referred to by different names, including “intergovernmental payments,” “upper payment limit programs,” and “Medicaid disproportionate share hospital payments.” The February 2006 letter focused on the Company’s hospitals in three states: Arkansas, New Mexico, and South Carolina. On August 31, 2006, the Company received a follow up letter from the Department of Justice requesting additional documents relating to the programs in New Mexico and the payments to the Company’s three hospitals in that state. Through the beginning of 2009, the Company provided the Department of Justice with requested documents, met with its personnel on numerous occasions, and otherwise cooperated in its investigation. During the course of the investigation, the Civil Division notified the Company that it believed that the Company and its three New Mexico hospitals caused the State of New Mexico to submit improper claims for federal funds, in violation of the Federal False Claims Act. At one point, the Civil Division calculated that the three hospitals received ineligible federal participation payments from August 2000 to June 2006 of approximately $27.5 million and said that if it proceeded to trial, it would seek treble damages plus an appropriate penalty for each of the violations of the Federal False Claims Act. This investigation has culminated in the federal government’s intervention in a qui tam lawsuit styled U.S. ex rel. Baker vs. Community Health Systems, Inc., pending in the United States District Court for the District of New Mexico. The federal government 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 motion to dismiss the federal government’s complaint in intervention. On July 21, 2010, the Company filed its answer and pretrial discovery began. On June 2, 2011, the relator filed a Third Amended Complaint adding subsidiaries Community Health Systems Professional Services Corporation and CHS/Community Health Systems, Inc. as defendants. On June 6, 2011, the government filed its First Amended Complaint in intervention adding Community Health Systems Professional Services Corporation as a defendant. Discovery is continuing. The discovery deadline is currently set for October 31, 2011, the deadline for filing of Motions for Summary Judgment is November 21, 2011 and there is currently no trial date set. The Company is vigorously defending this action.

On June 12, 2008, two of the Company’s hospitals received letters from the United States Attorney’s Office for the Western District of New York requesting documents in an investigation it is 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 United States 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 and continuing to evaluate and discuss this matter with the federal government.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

Matters for which an Outcome Cannot be Assessed

For all of the legal matters below, the Company cannot at this time assess what the outcome may be and is further unable to determine any estimate of loss or range of loss. Because the allegations were made so recently and the investigations are at a very preliminary stage, there are not sufficient facts available to make these assessments.

On April 8, 2011, the Company received a document subpoena, dated March 31, 2011, from the United States 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 requested other information about the Company’s relationships with emergency department physicians, including financial arrangements. The subpoena’s requests were 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. The Company is continuing to cooperate with the government in this investigation.

On April 11, 2011, Tenet Healthcare Corporation (“Tenet”) filed suit against the Company, Wayne T. Smith and W. Larry Cash in the United States District Court for the Northern District of Texas. The suit alleged 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 alleged 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. 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. On May 16, 2011, Tenet filed an amended complaint. On June 29, 2011, the Company filed a motion to dismiss the amended complaint. A hearing on the Company’s motion to dismiss occurred on September 8, 2011. The Court took this matter under advisement. The Company will continue to vigorously defend this suit.

On April 22, 2011, a joint motion was filed by the relator and the United States 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 motion contained additional information about how the government intended 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 stated that the Department of Justice has “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 stated 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

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

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 concluded 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. On October 19, 2011, the government filed an application to transfer the Reuille case to the Middle District of Tennessee or for an extension of the stay for an additional 180 days. The Company agreed that a stay for an additional, but shorter period of time, 90 days, was appropriate, but did not consent to the transfer of the case. The Company’s response setting forth the Company’s legal arguments was filed on October 24, 2011. The Company is cooperating fully with the government in its investigations.

Three purported class action shareholder federal securities cases have been filed in the United States District Court for the Middle District of Tennessee; namely, Norfolk County Retirement System v. Community Health Systems, Inc., Wayne T. Smith and W. Larry Cash, filed May 5, 2011; De Zheng v. Community Health Systems, Inc., Wayne T. Smith and W. Larry Cash, filed May 12, 2011; and Minneapolis Firefighters Relief Association v. Community Health Systems, Inc., Wayne T. Smith, W. Larry Cash and Thomas Mark Buford, filed June 2, 2011. All three seek class certification on behalf of purchasers of the Company’s common stock between July 27, 2006 and April 11, 2011 and allege that misleading statements resulted in artificially inflated prices for the Company’s common stock. On September 20, 2011, all three were assigned to the same judge as related cases. Three shareholder derivative actions have also been filed in the United States District Court for the Middle District of Tennessee; Plumbers and Pipefitters Local Union No. 630 Pension Annuity Trust Fund v. Wayne T. Smith, W. Larry Cash, T. Mark Buford, John A. Clerico, James S. Ely III, John A. Fry, William Norris Jennings, Julia B. North and H. Mitchell Watson, Jr., filed May 24, 2011, Roofers Local No. 149 Pension Fund v. Wayne T. Smith, W. Larry Cash, John A. Clerico, James S. Ely, III, John A. Fry, William Norris Jennings, Julia B. North and H. Mitchell Watson, Jr., filed June 21, 2011, and Lambert Sweat v. Wayne T. Smith, W. Larry Cash, T. Mark Buford, John A. Clerico, James S. Ely, III, John A. Fry, William Norris Jennings, Julia B. North, H. Mitchell Watson, Jr. and Community Health Systems, Inc., filed October 5, 2011. These three cases allege breach of fiduciary duty arising out of allegedly improper inpatient admission practices, mismanagement, waste and unjust enrichment. On September 20, 2011, all three of these cases were assigned to the same judge as related cases. The Company believes all of these matters are without merit and will vigorously defend them.

The Company incurred the following pre-tax charges in connection with the Tenet acquisition lawsuit, government investigations and shareholder lawsuits of possible improper claims submitted to Medicare and Medicaid during the three and nine months ending September 30, 2011 and 2010 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Professional fees and other related costs	$	6,082	$	—	$	12,256	$	—

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.

Effective October 1, 2011, one or more subsidiaries of the Company completed the acquisition of Tomball Regional Hospital (358 licensed beds) located in Tomball, Texas. The total cash consideration paid at closing for long-lived assets was approximately $192.0 million and for preliminary net working capital was approximately $14.9 million.

Effective October 22, 2011, the Company sold its partnership interests in the limited partnership that operates Cleveland Regional Medical Center (107 licensed beds) located in Cleveland, Texas to New Directions Health Systems, LLC for $0.9 million. The results of operations for Cleveland Regional Medical Center have been included in discontinued operations in the accompanying condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2011 and 2010 and the net assets held for sale are included in the condensed consolidated balance sheet at September 30, 2011.

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 September 30, 2011.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

Condensed Consolidating Balance Sheet

September 30, 2011


	Parent Guarantor			Issuer			Other Guarantors			Non- Guarantors		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	163,693		$	102,619	$	—		$	266,312
Patient accounts receivable, net of allowance for doubtful accounts		—			—			1,015,730			757,395		—			1,773,125
Supplies		—			—			207,562			128,900		—			336,462
Deferred income taxes		115,819			—			—			—		—			115,819
Prepaid expenses and taxes		—			156			88,033			30,884		—			119,073
Other current assets		—			10,000			139,327			76,410		—			225,737

Total current assets		115,819			10,156			1,614,345			1,096,208		—			2,836,528

Intercompany receivable		1,168,828			9,347,366			1,634,809			1,672,003		(13,823,006	)		—

Property and equipment, net		—			—			4,148,382			2,425,558		—			6,573,940

Goodwill		—			—			2,381,712			1,851,201		—			4,232,913

Other assets, net of accumulated amortization		—			110,799			483,044			610,698		—			1,204,541

Net investment in subsidiaries		1,710,955			6,065,149			2,467,348			—		(10,243,452	)		—

Total assets	$	2,995,602		$	15,533,470		$	12,729,640		$	7,655,668	$	(24,066,458	)	$	14,847,922


LIABILITIES AND EQUITY

Current liabilities:
Current maturities of long-term debt	$	—		$	49,954		$	7,907		$	3,205	$	—		$	61,066
Accounts payable		—			24			448,540			187,763		—			636,327
Current income tax payable		17,705			—			—			—		—			17,705
Deferred income taxes		8,882			—			—			—		—			8,882
Accrued interest		—			83,872			110			2		—			83,984
Accrued liabilities		7,580			567			607,283			279,766		—			895,196

Total current liabilities		34,167			134,417			1,063,840			470,736		—			1,703,160

Long-term debt		—			8,696,988			46,081			25,608		—			8,768,677

Intercompany payable		—			4,697,847			9,206,345			6,072,049		(19,976,241	)		—

Deferred income taxes		608,177			—			—			—		—			608,177

Other long-term liabilities		5,255			293,266			391,206			285,436		—			975,163

Total liabilities		647,599			13,822,518			10,707,472			6,853,829		(19,976,241	)		12,055,177

Redeemable noncontrolling interests in equity of consolidated subsidiaries		—			—			—			383,745		—			383,745

Equity:
Community Health Systems, Inc. stockholders’ equity:
Preferred stock		—			—			—			—		—			—
Common stock		918			—			1			2		(3	)		918
Additional paid-in capital		1,084,415			690,233			734,808			128,911		(1,553,952	)		1,084,415
Treasury stock, at cost		(6,678	)		—			—			—		—			(6,678	)
Accumulated other comprehensive (loss) income		(201,051	)		(201,051	)		(13,313	)		—		214,364			(201,051	)
Retained earnings		1,470,399			1,221,770			1,300,672			228,184		(2,750,626	)		1,470,399

Total Community Health Systems, Inc. stockholders’ equity		2,348,003			1,710,952			2,022,168			357,097		(4,090,217	)		2,348,003
Noncontrolling interests in equity of consolidated subsidiaries		—			—			—			60,997		—			60,997

Total equity		2,348,003			1,710,952			2,022,168			418,094		(4,090,217	)		2,409,000

Total liabilities and equity	$	2,995,602		$	15,533,470		$	12,729,640		$	7,655,668	$	(24,066,458	)	$	14,847,922

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

Condensed Consolidating Balance Sheet

December 31, 2010


	Parent Guarantor			Issuer			Other Guarantors			Non- Guarantors		Eliminations			Consolidated
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	212,992		$	86,177	$	—		$	299,169
Patient accounts receivable, net of allowance for doubtful accounts		—			—			968,290			746,252		—			1,714,542
Supplies		—			—			195,131			133,983		—			329,114
Deferred income taxes		115,819			—			—			—		—			115,819
Prepaid expenses and taxes		118,464			116			88,749			11,889		—			219,218
Other current assets		—			41			139,628			53,662		—			193,331

Total current assets		234,283			157			1,604,790			1,031,963		—			2,871,193

Intercompany receivable		1,079,295			9,002,158			1,418,776			1,370,494		(12,870,723	)		—

Property and equipment, net		—			—			3,880,653			2,443,784		—			6,324,437

Goodwill		—			—			2,331,452			1,818,795		—			4,150,247

Other assets, net of accumulated amortization		—			131,352			466,289			754,605		—			1,352,246

Net investment in subsidiaries		1,510,062			5,315,935			2,055,423			—		(8,881,420	)		—

Total assets	$	2,823,640		$	14,449,602		$	11,757,383		$	7,419,641	$	(21,752,143	)	$	14,698,123


LIABILITIES AND EQUITY

Current liabilities:
Current maturities of long-term debt	$	—		$	49,953		$	11,069		$	2,117	$	—		$	63,139
Accounts payable		—			—			362,357			163,981		—			526,338
Current income tax payable		—			—			—			—		—			—
Deferred income taxes		8,882			—			—			—		—			8,882
Accrued interest		—			146,297			116			2		—			146,415
Accrued liabilities		7,595			567			568,845			320,259		—			897,266

Total current liabilities		16,477			196,817			942,387			486,359		—			1,642,040

Long-term debt		—			8,734,473			44,831			29,078		—			8,808,382

Intercompany payable		—			3,667,726			8,554,015			5,903,193		(18,124,934	)		—

Deferred income taxes		608,177			—			—			—		—			608,177

Other long-term liabilities		9,522			340,526			372,236			279,391		—			1,001,675

Total liabilities		634,176			12,939,542			9,913,469			6,698,021		(18,124,934	)		12,060,274

Redeemable noncontrolling interests in equity of consolidated subsidiaries		—			—			—			387,472		—			387,472

Equity:
Community Health Systems, Inc. stockholders’ equity:
Preferred stock		—			—			—			—		—			—
Common stock		936			—			1			2		(3	)		936
Additional paid-in capital		1,126,751			640,683			683,340			100,550		(1,424,573	)		1,126,751
Treasury stock, at cost		(6,678	)		—			—			—		—			(6,678	)
Accumulated other comprehensive (loss) income		(230,927	)		(230,927	)		(12,990	)		—		243,917			(230,927	)
Retained earnings		1,299,382			1,100,304			1,173,563			172,683		(2,446,550	)		1,299,382

Total Community Health Systems, Inc. stockholders’ equity		2,189,464			1,510,060			1,843,914			273,235		(3,627,209	)		2,189,464
Noncontrolling interests in equity of consolidated subsidiaries		—			—			—			60,913		—			60,913

Total equity		2,189,464			1,510,060			1,843,914			334,148		(3,627,209	)		2,250,377

Total liabilities and equity	$	2,823,640		$	14,449,602		$	11,757,383		$	7,419,641	$	(21,752,143	)	$	14,698,123

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2011


	Parent Guarantor			Issuer			Other Guarantors			Non- Guarantors			Eliminations			Consolidated
	(In thousands)
Net operating revenues	$	—		$	—		$	1,990,666		$	1,445,334		$	—		$	3,436,000

Operating costs and expenses:
Salaries and benefits		—			—			765,198			627,953			—			1,393,151
Provision for bad debts		—			—			262,124			188,172			—			450,296
Supplies		—			—			263,255			195,891			—			459,146
Other operating expenses		—			—			362,132			261,476			—			623,608
Rent		—			—			30,665			33,816			—			64,481
Depreciation and amortization		—			—			97,821			63,694			—			161,515

Total operating costs and expenses		—			—			1,781,195			1,371,002			—			3,152,197

Income from operations		—			—			209,471			74,332			—			283,803

Interest expense, net		—			15,484			133,859			10,137			—			159,480
Equity in earnings of unconsolidated affiliates		(74,304	)		(68,064	)		(40,407	)		—			174,581			(8,194	)

Income from continuing operations before income taxes		74,304			52,580			116,019			64,195			(174,581	)		132,517
Provision for (benefit from) income taxes		—			(21,724	)		41,883			16,558			—			36,717

Income from continuing operations		74,304			74,304			74,136			47,637			(174,581	)		95,800
Discontinued operations, net of taxes:
Income (loss) from operations of entities sold and held for sale		—			—			(5,437	)		2,334			—			(3,103	)
Impairment of hospitals sold and held for sale		—			—			—			—			—			—
Loss on sale		—			—			—			(66	)		—			(66	)

Loss from discontinued operations, net of taxes		—			—			(5,437	)		2,268			—			(3,169	)

Net income		74,304			74,304			68,699			49,905			(174,581	)		92,631
Less: Net income attributable to noncontrolling interests		—			—			—			18,327			—			18,327

Net income attributable to Community Health Systems, Inc.	$	74,304		$	74,304		$	68,699		$	31,578		$	(174,581	)	$	74,304

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2010


	Parent Guarantor			Issuer			Other Guarantors			Non- Guarantors		Eliminations			Consolidated
	(In thousands)
Net operating revenues	$	—		$	—		$	1,816,782		$	1,343,041	$	—		$	3,159,823

Operating costs and expenses:
Salaries and benefits		—			—			686,701			580,402		—			1,267,103
Provision for bad debts		—			—			225,631			161,881		—			387,512
Supplies		—			—			245,593			188,846		—			434,439
Other operating expenses		—			—			317,299			259,350		—			576,649
Rent		—			—			29,416			32,757		—			62,173
Depreciation and amortization		—			—			86,787			60,502		—			147,289

Total operating costs and expenses		—			—			1,591,427			1,283,738		—			2,875,165

Income from operations		—			—			225,355			59,303		—			284,658

Interest expense, net		—			30,632			123,648			8,588		—			162,868
Equity in earnings of unconsolidated affiliates		(70,401	)		(78,900	)		(37,584	)		—		177,347			(9,538	)

Income from continuing operations before income taxes		70,401			48,268			139,291			50,715		(177,347	)		131,328
Provision for (benefit from) income taxes		—			(22,133	)		51,259			14,193		—			43,319

Income from continuing operations		70,401			70,401			88,032			36,522		(177,347	)		88,009
Discontinued operations, net of taxes:
Income (loss) from operations of entities sold and held for sale		—			—			(9,132	)		5,977		—			(3,155	)
Impairment of hospitals sold and held for sale		—			—			—			—		—			—
Loss on sale		—			—			—			—		—			—

Loss from discontinued operations, net of taxes		—			—			(9,132	)		5,977		—			(3,155	)

Net income		70,401			70,401			78,900			42,499		(177,347	)		84,854
Less: Net income attributable to noncontrolling interests		—			—			—			14,453		—			14,453

Net income attributable to Community Health Systems, Inc.	$	70,401		$	70,401		$	78,900		$	28,046	$	(177,347	)	$	70,401

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

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

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2011


	Parent Guarantor		Issuer		Other Guarantors		Non- Guarantors		Eliminations		Consolidated
	(In thousands)
Net operating revenues	$	—	$	—	$	5,923,622	$	4,300,259	$	—	$	10,223,881

Operating costs and expenses:
Salaries and benefits		—		—		2,275,499		1,881,115		—		4,156,614
Provision for bad debts		—		—		761,557		521,710		—		1,283,267
Supplies		—		—		789,166		577,076		—		1,366,242
Other operating expenses		—		—		1,100,935		792,203		—		1,893,138
Rent		—