COMMUNITY HEALTH SYSTEMS, INC. 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, 2008
Commission file number
001-15925
COMMUNITY HEALTH SYSTEMS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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13-3893191
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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4000 Meridian Boulevard
Franklin, Tennessee
(Address of principal
executive offices)
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37067
(Zip Code)
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(Registrants telephone number)
615-465-7000
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicated by check mark whether the registrant is a shell
company (as defined in
Rule 126-2
of the Exchange
Act). Yes o No þ
As of October 29, 2008, there were outstanding
93,267,194 shares of the Registrants Common Stock,
$.01 par value.
Community
Health Systems, Inc.
Form 10-Q
For the Three and Nine Months Ended September 30,
2008
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Page
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34
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1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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September 30,
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December 31,
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2008
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2007
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ASSETS
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Current assets Cash and cash equivalents
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$
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341,884
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$
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132,874
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Patient accounts receivable, net of allowance for doubtful
accounts of $1,109,283 and $1,033,516 at September 30,
2008, and December 31, 2007, respectively
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1,642,820
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1,533,798
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Supplies
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267,320
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262,903
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Prepaid income taxes
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99,417
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Deferred income taxes
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111,101
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113,741
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Prepaid expenses and taxes
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91,239
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70,339
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Other current assets
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197,787
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339,826
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Total current assets
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2,652,151
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2,552,898
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Property and equipment
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6,861,907
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6,310,240
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Less accumulated depreciation and amortization
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(1,117,441
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)
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(797,666
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)
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Property and equipment, net
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5,744,466
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5,512,574
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Goodwill
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4,151,487
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4,247,714
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Other assets, net
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1,039,300
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1,180,457
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Total assets
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$
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13,587,404
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$
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13,493,643
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Current maturities of long-term debt
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$
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19,647
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$
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20,710
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Accounts payable
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477,064
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492,693
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Current income taxes payable
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38,312
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Accrued interest
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82,849
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153,832
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Accrued liabilities
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811,011
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780,700
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Total current liabilities
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1,428,883
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1,447,935
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Long-term debt
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8,888,782
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9,077,367
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Deferred income taxes
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433,009
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407,947
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Other long-term liabilities
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617,350
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483,459
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Minority interests in equity of consolidated subsidiaries
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343,472
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366,131
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Stockholders equity
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Preferred stock, $.01 par value per share,
100,000,000 shares authorized; none issued
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Common stock, $.01 par value per share,
300,000,000 shares authorized; 96,742,743 shares
issued and 95,767,194 shares outstanding at
September 30, 2008, and 96,611,085 shares issued and
95,635,536 shares outstanding at December 31, 2007
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967
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966
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Additional paid-in capital
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1,258,637
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1,240,308
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Treasury stock, at cost, 975,549 shares at
September 30, 2008 and December 31, 2007
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(6,678
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)
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(6,678
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)
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Accumulated other comprehensive loss
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(93,367
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)
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(81,737
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Retained earnings
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716,349
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557,945
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Total stockholders equity
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1,875,908
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1,710,804
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Total liabilities and stockholders equity
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$
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13,587,404
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$
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13,493,643
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See accompanying notes to the condensed consolidated financial
statements.
2
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2008
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2007
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2008
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2007
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Net operating revenues
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$
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2,772,860
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$
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2,247,009
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$
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8,191,014
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$
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4,599,152
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Operating costs and expenses:
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Salaries and benefits
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1,091,726
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903,424
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3,258,872
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1,839,035
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Provision for bad debts
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326,213
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266,280
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914,338
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536,154
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Supplies
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383,142
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304,929
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1,147,137
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579,571
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Other operating expenses
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529,363
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439,592
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1,581,628
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920,737
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Rent
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58,842
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47,243
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177,178
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98,965
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Depreciation and amortization
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130,507
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100,632
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378,164
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201,111
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Total operating costs and expenses
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2,519,793
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2,062,100
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7,457,317
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4,175,573
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Income from operations
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253,067
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184,909
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733,697
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423,579
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Interest expense, net
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167,785
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135,160
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487,848
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192,777
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Loss from early extinguishment of debt
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27,291
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1,328
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27,291
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Minority interest in earnings
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10,360
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5,371
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28,359
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6,189
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Equity in earnings of unconsolidated affiliates
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(8,691
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)
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(14,284
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)
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(32,083
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)
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(14,284
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Income from continuing operations before income taxes
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83,613
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31,371
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248,245
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211,606
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Provision for income taxes
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32,191
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11,672
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95,574
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81,060
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Income from continuing operations
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51,422
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19,699
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152,671
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130,546
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Discontinued operations, net of taxes:
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Loss from operations of hospitals sold and hospitals held for
sale
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(1,038
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)
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(6,811
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)
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(3,847
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)
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(9,571
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)
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Gain (loss) on sale of hospitals and partnership interest, net
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|
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(2,428
|
)
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9,580
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(2,428
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)
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Income (loss) on discontinued operations
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(1,038
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)
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(9,239
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)
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5,733
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(11,999
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)
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Net income
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$
|
50,384
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$
|
10,460
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$
|
158,404
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$
|
118,547
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Income from continuing operations per common share:
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Basic
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$
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0.55
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$
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0.21
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$
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1.62
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$
|
1.40
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Diluted
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$
|
0.54
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$
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0.21
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$
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1.61
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$
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1.38
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Net income per common share:
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Basic
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$
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0.54
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|
$
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0.11
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$
|
1.69
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|
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$
|
1.27
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Diluted
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$
|
0.53
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$
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0.11
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$
|
1.67
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$
|
1.25
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Weighted-average number of shares outstanding:
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Basic
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94,045
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|
|
93,652
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|
|
|
93,995
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|
|
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93,468
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|
|
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Diluted
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|
95,160
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|
|
94,842
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|
|
95,106
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|
|
94,563
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|
|
|
|
|
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|
|
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See accompanying notes to the condensed consolidated financial
statements.
3
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Nine Months Ended
|
|
|
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September 30,
|
|
|
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2008
|
|
|
2007
|
|
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Cash flows from operating activities
|
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|
|
|
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|
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Net income
|
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$
|
158,404
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|
|
$
|
118,547
|
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Adjustments to reconcile net income to net cash provided by
operating activities:
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|
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|
|
|
|
|
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Depreciation and amortization
|
|
|
378,107
|
|
|
|
210,406
|
|
Minority interest in earnings
|
|
|
28,359
|
|
|
|
5,329
|
|
Stock-based compensation expense
|
|
|
39,812
|
|
|
|
25,514
|
|
(Gain) loss on sale of hospitals and partnership interest, net
|
|
|
(17,687
|
)
|
|
|
3,735
|
|
Excess tax benefits relating to stock-based compensation
|
|
|
(1,278
|
)
|
|
|
(2,275
|
)
|
Loss on early extinguishment of debt
|
|
|
1,328
|
|
|
|
27,291
|
|
Other non-cash expenses, net
|
|
|
7,578
|
|
|
|
1,820
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions and divestitures:
|
|
|
|
|
|
|
|
|
Patient accounts receivable
|
|
|
(117,193
|
)
|
|
|
(53,585
|
)
|
Supplies, prepaid expenses and other current assets
|
|
|
3,099
|
|
|
|
8,519
|
|
Accounts payable, accrued liabilities and income taxes
|
|
|
184,995
|
|
|
|
45,750
|
|
Other
|
|
|
19,532
|
|
|
|
13,599
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
685,056
|
|
|
|
404,650
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
(7,274
|
)
|
|
|
(6,982,099
|
)
|
Purchases of property and equipment
|
|
|
(451,409
|
)
|
|
|
(278,543
|
)
|
Proceeds from disposition of hospitals and other ancillary
operations
|
|
|
365,635
|
|
|
|
12,962
|
|
Proceeds from sale of property and equipment
|
|
|
13,964
|
|
|
|
601
|
|
Increase in other assets
|
|
|
(152,168
|
)
|
|
|
(66,025
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(231,252
|
)
|
|
|
(7,313,104
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)
|
|
|
|
|
|
|
|
|
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Cash flows from financing activities
|
|
|
|
|
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|
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Proceeds from exercise of stock options
|
|
|
1,688
|
|
|
|
7,804
|
|
Excess tax benefits relating to stock-based compensation
|
|
|
1,278
|
|
|
|
2,275
|
|
Stock buy-back
|
|
|
(17,096
|
)
|
|
|
|
|
Deferred financing costs
|
|
|
(2,569
|
)
|
|
|
(190,110
|
)
|
Proceeds from minority investors in joint ventures
|
|
|
11,652
|
|
|
|
1,188
|
|
Redemption of minority investments in joint ventures
|
|
|
(53,485
|
)
|
|
|
(1,339
|
)
|
Distributions to minority investors in joint ventures
|
|
|
(24,351
|
)
|
|
|
(2,774
|
)
|
Borrowings under credit agreement
|
|
|
30,596
|
|
|
|
9,233,331
|
|
Repayments of long-term indebtedness
|
|
|
(192,507
|
)
|
|
|
(2,063,632
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(244,794
|
)
|
|
|
6,986,743
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
209,010
|
|
|
|
78,289
|
|
Cash and cash equivalents at beginning of period
|
|
|
132,874
|
|
|
|
40,566
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
341,884
|
|
|
$
|
118,855
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the condensed consolidated financial
statements.
4
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
The unaudited condensed consolidated financial statements of
Community Health Systems, Inc. and its subsidiaries (the
Company) as of September 30, 2008 and for the
three and nine month periods ended September 30, 2008 and
September 30, 2007, have been prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP). In the opinion of management, such
information contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the
results for such periods. All intercompany transactions and
balances have been eliminated. The results of operations for the
three and nine months ended September 30, 2008, are not
necessarily indicative of the results to be expected for the
full fiscal year ending December 31, 2008. Certain
information and disclosures normally included in the notes to
consolidated financial statements have been condensed or omitted
as permitted by the rules and regulations of the Securities and
Exchange Commission (SEC). The Company believes the
disclosures are adequate to make the information presented not
misleading. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year
ended December 31, 2007, contained in the Companys
Annual Report on
Form 10-K.
|
|
2.
|
ACCOUNTING
FOR STOCK-BASED COMPENSATION
|
Stock-based compensation awards are granted under the Community
Health Systems, Inc. Amended and Restated 2000 Stock Option and
Award Plan (the 2000 Plan). The 2000 Plan allows for
the grant of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code, as well as stock
options which do not so qualify, stock appreciation rights,
restricted stock, performance units and performance shares,
phantom stock awards and share awards. Persons eligible to
receive grants under the 2000 Plan include the Companys
directors, officers, employees and consultants. To date, all
options granted under the 2000 Plan have been
nonqualified 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
8 year contractual term and options granted in 2008 have a
10 year contractual term. The exercise price of all options
granted under the 2000 Plan is equal to the fair value of the
Companys common stock on the option grant date. As of
September 30, 2008, 4,059,150 shares of unissued
common stock remain reserved for future grants under the 2000
Plan.
The Company has also awarded restricted stock under the 2000
Plan to its directors and employees. The restrictions on these
shares generally lapse in one-third increments on each of the
first three anniversaries of the award date, except for
restricted stock granted on July 25, 2007, which
restrictions lapse equally on the first two anniversaries of the
award date. Certain of the restricted stock awards granted to
the Companys senior executives contain a performance
objective that must be met in addition to any vesting
requirements. If the performance objective is not attained, the
awards will be forfeited in their entirety. Once the performance
objective has been attained, restrictions will lapse in
one-third increments on each of the first three anniversaries of
the award date with the exception of the July 25, 2007
restricted stock awards, which have no additional time vesting
restrictions once the performance restrictions are met.
Notwithstanding the above mentioned performance objectives and
vesting requirements, the restrictions will lapse earlier in the
event of death, disability, termination of employment of the
holder of the restricted stock by the Company for any reason
other than for cause, or change in control of the Company.
Restricted stock awards subject to performance standards are not
considered outstanding for purposes of determining earnings per
share until the performance objectives have been satisfied.
5
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table reflects the impact of total compensation
expense related to stock-based equity plans under the Statement
of Financial Accounting Standards (SFAS)
No. 123(R), on the reported operating results for the
respective periods (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Effect on income from continuing operations before income taxes
|
|
$
|
(13,129
|
)
|
|
$
|
(11,219
|
)
|
|
$
|
(39,812
|
)
|
|
$
|
(25,514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on net income
|
|
$
|
(7,976
|
)
|
|
$
|
(6,816
|
)
|
|
$
|
(24,185
|
)
|
|
$
|
(15,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on net income per share-diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2008, $69.8 million of unrecognized
stock-based compensation expense from all outstanding unvested
stock options and restricted stock is expected to be recognized
over a weighted-average period of 16 months.
The fair value of stock options was estimated using the Black
Scholes option pricing model during the three and nine months
ended September 30, 2008 and 2007, with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Expected volatility
|
|
|
25.4
|
%
|
|
|
24.0
|
%
|
|
|
24.2
|
%
|
|
|
24.4
|
%
|
Expected dividends
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Expected term
|
|
|
4 years
|
|
|
|
4 years
|
|
|
|
4 years
|
|
|
|
4 years
|
|
Risk-free interest rate
|
|
|
2.67
|
%
|
|
|
4.53
|
%
|
|
|
2.59
|
%
|
|
|
4.52
|
%
|
In determining expected return, the Company examined
concentrations of option holdings, historical patterns of option
exercises and forfeitures, as well as forward looking factors,
in an effort to determine if there were any discernable employee
populations. From this analysis, the Company identified two
employee populations, one consisting primarily of certain senior
executives and the other consisting of all other recipients.
The expected volatility rate was estimated based on historical
volatility. In determining expected volatility, the Company also
reviewed the market-based implied volatility of actively traded
options of its common stock and determined that historical
volatility did not differ significantly from the implied
volatility.
The expected life computation is based on historical exercise
and cancellation patterns and forward looking factors, where
present, for each population identified. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at
the time of the grant. The pre-vesting forfeiture rate is based
on historical rates and forward looking factors for each
population identified. The Company adjusts the estimated
forfeiture rate to its actual experience.
6
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Options outstanding and exercisable under the 2000 Plan as of
September 30, 2008, and changes during the three and nine
months then ended were as follows (in thousands, except share
and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Value as of
|
|
|
|
|
|
|
Exercise
|
|
|
Term
|
|
|
September 30,
|
|
|
|
Shares
|
|
|
Price
|
|
|
(in Years)
|
|
|
2008
|
|
|
Outstanding at December 31, 2007
|
|
|
8,439,015
|
|
|
$
|
30.90
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
996,500
|
|
|
|
32.28
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(11,666
|
)
|
|
|
23.26
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(172,600
|
)
|
|
|
35.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
9,251,249
|
|
|
|
30.98
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
95,500
|
|
|
|
35.75
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(36,998
|
)
|
|
|
29.69
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(142,836
|
)
|
|
|
33.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
9,166,915
|
|
|
|
30.99
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
97,000
|
|
|
|
34.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(233,167
|
)
|
|
|
20.84
|
|
|
|
|
|
|
|
|
|
Forfeited and cancelled
|
|
|
(173,996
|
)
|
|
|
37.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
8,856,752
|
|
|
$
|
31.17
|
|
|
|
5.9 years
|
|
|
$
|
25,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2008
|
|
|
5,361,246
|
|
|
$
|
27.82
|
|
|
|
5.3 years
|
|
|
$
|
25,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of stock options
granted during the nine months ended September 30, 2008 and
2007, was $7.71 and $10.29, respectively. The aggregate
intrinsic value (the number of in-the-money stock options
multiplied by the difference between the Companys closing
stock price on the last trading day of the reporting period
($29.31) 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 in-the-money options on September 30, 2008. This
amount changes based on the market value of the Companys
common stock. The aggregate intrinsic value of options exercised
during the three months ended September 30, 2008 and 2007
was $3.0 million and $0.3 million, respectively, and
the aggregate intrinsic value of options exercised during the
nine months ended September 30, 2008 and 2007 was
$3.4 million and $3.2 million, respectively. The
aggregate intrinsic value of options vested and expected to vest
approximates that of the outstanding options.
7
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted stock outstanding under the 2000 Plan as of
September 30, 2008, and changes during the three and nine
months then ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Grant Date Fair Value
|
|
|
Unvested at December 31, 2007
|
|
|
1,956,543
|
|
|
$
|
38.04
|
|
Granted
|
|
|
748,500
|
|
|
|
32.38
|
|
Vested
|
|
|
(592,505
|
)
|
|
|
36.09
|
|
Forfeited
|
|
|
(3,000
|
)
|
|
|
37.20
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2008
|
|
|
2,109,538
|
|
|
|
36.58
|
|
Granted
|
|
|
25,000
|
|
|
|
35.33
|
|
Vested
|
|
|
(17,832
|
)
|
|
|
38.81
|
|
Forfeited
|
|
|
(3,500
|
)
|
|
|
32.88
|
|
|
|
|
|
|
|
|
|
|
Unvested at June 30, 2008
|
|
|
2,113,206
|
|
|
|
36.55
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(343,499
|
)
|
|
|
40.27
|
|
Forfeited
|
|
|
(91,001
|
)
|
|
|
35.74
|
|
|
|
|
|
|
|
|
|
|
Unvested at September 30, 2008
|
|
|
1,678,706
|
|
|
|
35.83
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008, there was $44.6 million of
unrecognized stock-based compensation expense related to
unvested restricted stock expected to be recognized over a
weighted-average period of 15 months.
Under the Directors Fee Deferral Plan, the Companys
outside directors may elect to receive share equivalent units in
lieu of cash for their directors fee. Share equivalent
units are calculated by dividing the deferred directors
fees by the closing market price of the Companys common
stock on the last trading day of the reporting period. These
units are held in the plan until the director electing to
receive the share equivalent units retires or otherwise
terminates
his/her
directorship with the Company. Share equivalent units are
converted to shares of common stock of the Company at the time
of distribution. The following table represents the amount of
directors fees which were deferred and the equivalent
units into which they converted for each of the respective
periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Directors fees earned and deferred into plan
|
|
$
|
17,000
|
|
|
$
|
31,875
|
|
|
$
|
74,875
|
|
|
$
|
97,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent units
|
|
|
580.007
|
|
|
|
1,013.836
|
|
|
|
2,313.076
|
|
|
|
2,757.772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2008, there was a total of
15,721.608 units deferred in the plan with an aggregate
fair value of $0.5 million, based on the closing market
price of the Companys common stock on the last trading day
of the reporting period of $29.31.
The majority of the Companys operating costs and expenses
are cost of revenue items. Operating costs that
could be classified as general and administrative by the Company
would include the Companys corporate office costs at the
Companys Franklin, Tennessee office, which were
$39.3 million and $37.5 million for the three months
ended September 30, 2008 and 2007, respectively, and
$120.4 million and $84.5 million for the nine months
ended September 30, 2008 and 2007, respectively. Included
in these amounts is stock-based compensation expense of
$13.1 million and $11.2 million for the three months
ended September 30, 2008 and 2007, respectively, and
$39.8 million and $25.5 million for the nine months
ended September 30, 2008 and 2007, respectively.
8
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated
financial statements. Actual results could differ from these
estimates.
|
|
5.
|
ACQUISITIONS
AND DIVESTITURES
|
Triad
Acquisition
On July 25, 2007, the Company completed its acquisition of
Triad Hospitals, Inc. (Triad) for approximately
$6.857 billion, including the assumption of
$1.686 billion of existing indebtedness. Triad owned and
operated 50 hospitals in non-urban and middle market communities
in 17 states, as well as the Republic of Ireland.
Immediately following the acquisition, on a combined basis, the
Company owned and operated 128 hospitals in 28 states, as
well as the Republic of Ireland. As of December 31, 2007,
two hospitals acquired from Triad had been sold and six
hospitals acquired from Triad were classified as held for sale.
During the nine months ended September 30, 2008, the
Company completed the sale of five of the six former Triad
hospitals held for sale at December 31, 2007. The Company
also provides management and consulting services on a contract
basis to independent hospitals, through its subsidiary, Quorum
Health Resources, LLC, which was acquired as part of the
acquisition of Triad.
In connection with the consummation of the acquisition of Triad,
the Company obtained $7.215 billion of senior secured
financing under a new credit facility (the New Credit
Facility) and its wholly-owned subsidiary CHS/Community
Health Systems, Inc. (CHS) issued
$3.021 billion aggregate principal amount of
8.875% senior notes due 2015 (the Notes). The
Company used the net proceeds of $3.000 billion from the
Notes offering and the net proceeds of $6.065 billion of
term loans under the New Credit Facility to acquire the
outstanding shares of Triad, to refinance certain of
Triads indebtedness and the Companys indebtedness,
to complete certain related transactions, to pay certain costs
and expenses of the transactions and for general corporate uses.
This New Credit Facility also provides an additional
$750 million revolving credit facility and a
$300 million delayed draw term loan facility for future
acquisitions, working capital and general corporate purposes.
The delayed draw term loan was reduced from $400 million to
$300 million at the request of the Company in the fourth
quarter of 2007.
The total cost of the Triad acquisition has been allocated to
the assets acquired and liabilities assumed based upon their
respective fair values in accordance with
SFAS No. 141. The purchase price represented a premium
over the fair value of the net tangible and identifiable
intangible assets acquired for reasons such as:
|
|
|
|
|
strategically, Triad had operations in five states in which the
Company previously had no operations;
|
|
|
|
the combined company has smaller concentrations of credit risk
through greater geographic diversification;
|
|
|
|
many support functions will be centralized; and
|
|
|
|
duplicate corporate functions will be eliminated.
|
The allocation process required the analysis of acquired fixed
assets, contracts, contractual commitments, and legal
contingencies to identify and record the fair value of all
assets acquired and liabilities assumed. The Company completed
the allocation of the total cost of the Triad acquisition in the
third quarter of 2008, resulting in approximately
$2.790 billion of goodwill being recorded.
Other
Acquisitions
Effective April 1, 2007, the Company completed its
acquisition of Lincoln General Hospital (157 licensed beds),
located in Ruston, Louisiana. The total consideration for this
hospital was approximately $48.2 million, of which
$44.7 million was paid in cash and $3.5 million was
assumed in liabilities. On May 1, 2007, the Company
completed its acquisition of Porter Health (301 licensed beds),
located in Valparaiso, Indiana, with a satellite campus in
Portage, Indiana and outpatient medical campuses located in
Chesterton, Demotte, and Hebron, Indiana.
9
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As part of this acquisition, the Company has agreed to construct
a 225-bed replacement facility for the Valparaiso hospital no
later than April 2011. The total consideration for Porter Health
was approximately $113.2 million, of which
$88.9 million was paid in cash and $24.3 million was
assumed in liabilities. The Companys purchase price
allocation relating to these acquisitions resulted in
approximately $6.3 million of goodwill being recorded.
Effective June 30, 2008, the Company acquired the remaining
35% equity interest in Affinity Health Systems, LLC which
indirectly owns and operates Trinity Medical Center (560
licensed beds) in Birmingham, Alabama, from Baptist Health
Systems, Inc. of Birmingham, Alabama (Baptist),
giving the Company 100% ownership of that facility. The purchase
price for this minority interest was $51.5 million in cash
and the cancellation of a promissory note issued by Baptist to
Affinity Health Systems, LLC in the original principal amount of
$32.8 million.
Discontinued
Operations
Effective March 1, 2008, the Company sold Woodland Medical
Center (100 licensed beds) located in Cullman, Alabama; Parkway
Medical Center (108 licensed beds) located in Decatur, Alabama;
Hartselle Medical Center (150 licensed beds) located in
Hartselle, Alabama; Jacksonville Medical Center (89 licensed
beds) located in Jacksonville, Alabama; National Park Medical
Center (166 licensed beds) located in Hot Springs, Arkansas;
St. Marys Regional Medical Center (170 licensed beds)
located in Russellville, Arkansas; Mineral Area Regional Medical
Center (135 licensed beds) located in Farmington, Missouri;
Willamette Valley Medical Center (80 licensed beds) located in
McMinnville, Oregon; and White County Community Hospital (60
licensed beds) located in Sparta, Tennessee, to Capella
Healthcare, Inc., headquartered in Franklin, Tennessee. The
proceeds from this sale were $315 million in cash.
Effective February 21, 2008, the Company sold THI Ireland
Holdings Limited, a private limited company incorporated in the
Republic of Ireland, which leased and managed the operations of
Beacon Medical Center (122 licensed beds) located in Dublin,
Ireland, to Beacon Medical Group Limited, headquartered in
Dublin, Ireland. The proceeds from this sale were
$1.5 million in cash.
Effective February 1, 2008, the Company sold Russell County
Medical Center (78 licensed beds) located in Lebanon, Virginia
to Mountain States Health Alliance, headquartered in Johnson
City, Tennessee. The proceeds from this sale were
$48.6 million in cash.
Effective November 30, 2007, the Company sold Barberton
Citizens Hospital (312 licensed beds) located in Barberton, Ohio
to Summa Health System of Akron, Ohio. The proceeds from this
sale were $53.8 million in cash.
Effective October 31, 2007, the Company sold its 60%
membership interest in Northeast Arkansas Medical Center, a 104
bed facility in Jonesboro, Arkansas to Baptist Memorial Health
Care (Baptist), headquartered in Memphis, Tennessee,
for $16.8 million. In connection with this transaction, the
Company also sold real estate and other assets to a subsidiary
of Baptist for $26.2 million in cash.
Effective September 1, 2007, the Company sold its
partnership interest in River West L.P., which owned and
operated River West Medical Center (80 licensed beds) located in
Plaquemine, Louisiana, to an affiliate of Shiloh Health
Services, Inc. of Lubbock, Texas. The proceeds from this sale
were $0.3 million in cash.
As of September 30, 2008, the Company had one hospital
classified as held for sale.
In connection with the above actions and in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, the Company has classified
the results of operations of the above mentioned hospitals as
discontinued operations in the accompanying condensed
consolidated statements of income.
10
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net operating revenues and income (loss) on discontinued
operations for the respective periods are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net operating revenues
|
|
$
|
19,669
|
|
|
$
|
145,496
|
|
|
$
|
144,787
|
|
|
$
|
246,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold or held for sale
before income taxes
|
|
|
(1,064
|
)
|
|
|
(9,487
|
)
|
|
|
(5,247
|
)
|
|
|
(13,970
|
)
|
Gain (loss) on sale of hospitals
|
|
|
|
|
|
|
(3,735
|
)
|
|
|
17,687
|
|
|
|
(3,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, before taxes
|
|
|
(1,064
|
)
|
|
|
(13,222
|
)
|
|
|
12,440
|
|
|
|
(17,705
|
)
|
Income tax expense (benefit)
|
|
|
26
|
|
|
|
3,983
|
|
|
|
(6,707
|
)
|
|
|
5,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
(1,038
|
)
|
|
$
|
(9,239
|
)
|
|
$
|
5,733
|
|
|
$
|
(11,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of income (loss) from discontinued operations,
before taxes, for the nine months ended September 30, 2008
includes the net write-off of $96.3 million of tangible
assets and $32.5 million of goodwill (including
$21.3 million of goodwill included in non-current assets
held for sale at December 31, 2007) at the hospitals
sold during the nine months ended September 30, 2008.
Interest expense was allocated to discontinued operations based
on estimated sale proceeds available for debt repayment.
The assets and liabilities of one hospital held for sale as of
September 30, 2008 are included in the accompanying
condensed consolidated balance sheet as follows: current assets
of $16.8 million, included in other current assets; net
property and equipment of $35.1 million and other long-term
assets of $1.6 million, included in other assets; and
current liabilities of $20.1 million, included in other
accrued liabilities.
The assets and liabilities of the hospitals held for sale as of
December 31, 2007 are included in the accompanying
condensed consolidated balance sheet as follows: current assets
of $118.9 million, included in other current assets; net
property and equipment of $331.1 million and other
long-term assets of $31.4 million, included in other
assets; and current liabilities of $67.6 million, included
in accrued liabilities.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), on January 1, 2007.
The total amount of unrecognized benefit that would affect the
effective tax rate, if recognized, is approximately
$6.3 million as of September 30, 2008. It is the
Companys policy to recognize interest and penalties
accrued related to unrecognized benefits in its condensed
consolidated statements of income as income tax expense. During
the three months and nine months ended September 30, 2008,
the Company recorded approximately $0.2 million and
$0.6 million, respectively, in interest and penalties
related to prior state income tax returns through its income tax
provision from continuing operations and which are included in
its FIN 48 liability at September 30, 2008. A total of
approximately $1.9 million of interest and penalties is
included in the amount of FIN 48 liability at
September 30, 2008.
The Companys unrecognized tax benefits consist primarily
of state exposure items. The Company believes that it is
reasonably possible that approximately $1.2 million of its
current unrecognized tax benefit may decrease within the next
twelve months as a result of a lapse of the statute of
limitations and settlements with taxing authorities.
11
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company or one of its subsidiaries files income tax returns
in the U.S. federal jurisdiction and various state
jurisdictions. With few exceptions, the Company is no longer
subject to U.S. federal or state income tax examinations
for years prior to 2003.
The IRS has concluded an examination of the federal income tax
returns of Triad for the short taxable years ended
April 27, 2001, September 30, 2001 and
December 31, 2001, and the taxable years ended
December 31, 2002 and 2003. The Company has received a
closing letter from the IRS with respect to the examination for
those tax years. The settlement was not material to the
Companys consolidated results of operations or
consolidated financial position.
Cash paid for income taxes, net of refunds received, resulted in
a net cash refund of $3.2 million and $52.4 million
for the three and nine months ended September 30, 2008,
respectively, and net cash paid of $55.4 million and
$84.8 million for the three and nine months ended
September 30, 2007, respectively.
|
|
7.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The changes in the carrying amount of goodwill for the nine
months ended September 30, 2008, are as follows (in
thousands):
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
4,247,714
|
|
Goodwill acquired as part of acquisitions during 2008
|
|
|
26,348
|
|
Consideration adjustments and purchase price allocation
adjustments for acquisitions in 2007
|
|
|
(111,234
|
)
|
Goodwill written-off as part of disposals
|
|
|
(11,341
|
)
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
$
|
4,151,487
|
|
|
|
|
|
|
SFAS No. 142 requires that goodwill be allocated to each
identified reporting unit, which is defined as an operating
segment or one level below the operating segment (referred to as
a component of the entity). At September 30, 2008, the hospital
operations, home health agencies and hospital management
services reporting units had $4.086 billion, $32.0 million and
$33.3 million, respectively, of goodwill.
The Company completes its annual impairment test in the fourth
quarter of each year using a measurement date of
September 30. The Company completed its most recent annual
goodwill impairment test as required by SFAS No. 142,
Goodwill and Other Intangible Assets, during 2007.
Based on the results of the impairment test, the Company was not
required to recognize an impairment of goodwill in 2007.
The gross carrying amount of the Companys other intangible
assets subject to amortization was $67.5 million at
September 30, 2008 and $76.3 million at
December 31, 2007, and the net carrying amount was
$53.5 million at September 30, 2008 and
$62.7 million at December 31, 2007. The carrying
amount of the Companys other intangible assets not subject
to amortization was $37.9 million and $118.3 million
at September 30, 2008 and December 31, 2007,
respectively. Other intangible assets are included in other
assets, net on the Companys condensed consolidated balance
sheets.
The weighted-average amortization period for the intangible
assets subject to amortization is approximately ten years. There
are no expected residual values related to these intangible
assets. Amortization expense on these intangible assets during
the three months ended September 30, 2008 and 2007 was
$0.7 million and $2.4 million, respectively.
Amortization expense on these intangible assets during the nine
months ended September 30, 2008 and 2007 was
$3.9 million and $3.4 million, respectively.
Amortization expense on intangible assets is estimated to be
$2.1 million for the remainder of 2008, $11.6 million
in 2009, $9.8 million in 2010, $4.6 million in 2011,
$3.6 million in 2012, and $21.5 million in 2013 and
thereafter.
12
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the components of the numerator
and denominator for the computation of basic and diluted income
from continuing operations per share (in thousands, except share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
stockholders basic
|
|
$
|
51,422
|
|
|
$
|
19,699
|
|
|
$
|
152,671
|
|
|
$
|
130,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
stockholders diluted
|
|
$
|
51,422
|
|
|
$
|
19,699
|
|
|
$
|
152,671
|
|
|
$
|
130,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding basic
|
|
|
94,044,564
|
|
|
|
93,651,645
|
|
|
|
93,995,343
|
|
|
|
93,467,608
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee director options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,942
|
|
Restricted stock awards
|
|
|
318,447
|
|
|
|
286,473
|
|
|
|
265,091
|
|
|
|
169,850
|
|
Employee options
|
|
|
796,608
|
|
|
|
903,631
|
|
|
|
845,681
|
|
|
|
922,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding diluted
|
|
|
95,159,619
|
|
|
|
94,841,749
|
|
|
|
95,106,115
|
|
|
|
94,563,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive securities outstanding not included in the computation
of earning per share because their effect is antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee options
|
|
|
3,677,807
|
|
|
|
3,601,075
|
|
|
|
3,859,669
|
|
|
|
2,186,571
|
|
Authorized capital shares of the Company include
400,000,000 shares of capital stock consisting of
300,000,000 shares of common stock and
100,000,000 shares of preferred stock. Each of the
aforementioned classes of capital stock has a par value of $0.01
per share. Shares of preferred stock, none of which are
outstanding as of September 30, 2008, may be issued in one
or more series having such rights, preferences and other
provisions as determined by the Board of Directors without
approval by the holders of common stock.
On December 13, 2006, the Company commenced an open market
repurchase program for up to 5,000,000 shares of the
Companys common stock, not to exceed $200 million in
repurchases. This program will conclude at the earlier of three
years or when the maximum number of shares has been repurchased.
During the nine months ended September 30, 2008, the
Company repurchased 517,000 shares at a weighted-average
price of $33.03 per share, which is the cumulative number of
shares that have been repurchased under this program.
13
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
COMPREHENSIVE
INCOME (LOSS)
|
The following table presents the components of comprehensive
income, net of related taxes. The net change in fair value of
interest rate swap agreements is a function of the spread
between the fixed interest rate of each swap and the underlying
variable interest rate under the Companys New Credit
Facility, the change in fair value of available for sale
securities is the unrealized gain (losses) on the related
investments and the amortization of unrecognized pension cost
components is the amortization of prior service costs and
credits and actuarial gains and losses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
50,384
|
|
|
$
|
10,460
|
|
|
$
|
158,404
|
|
|
$
|
118,547
|
|
Net change in fair value of interest rate swaps
|
|
|
(15,528
|
)
|
|
|
(38,036
|
)
|
|
|
(10,714
|
)
|
|
|
(28,236
|
)
|
Net change in fair value of available for sale securities
|
|
|
(386
|
)
|
|
|
(37
|
)
|
|
|
(1,244
|
)
|
|
|
(13
|
)
|
Amortization of unrecognized pension components
|
|
|
440
|
|
|
|
1,250
|
|
|
|
328
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
34,910
|
|
|
$
|
(26,363
|
)
|
|
$
|
146,774
|
|
|
$
|
91,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net change in fair value of the interest rate swaps, the net
change in fair value of available for sale securities and
amortization of unrecognized pension cost components are
included in accumulated other comprehensive loss on the
accompanying condensed consolidated balance sheets.
The Company owns equity interests of 27.5% in four hospitals in
Las Vegas, Nevada, and 26.1% in one hospital in Las Vegas,
Nevada, in which Universal Health Systems, Inc. owns the
majority interest; an equity interest of 38.0% in three
hospitals in Macon, Georgia in which HCA, Inc. owns the majority
interest; and an equity interest of 50.0% in a hospital in El
Dorado, Arkansas in which the SHARE Foundation, a not-for-profit
foundation, owns the remaining 50.0%. These equity investments
were acquired as part of the acquisition of Triad. The Company
uses the equity method of accounting for its investments in
these entities. During the three months ended September 30,
2008, the Company adjusted the carrying amount of these equity
investments based on the final Triad asset valuations. The
difference between the fair value of these equity investments
and the underlying equity in net assets is approximately
$128.1 million and represents goodwill under the equity
method of accounting. The Companys investment in
unconsolidated affiliates is $415.8 million and
$267.8 million at September 30, 2008 and
December 31, 2007, respectively, and is included in other
assets in the accompanying condensed consolidated balance
sheets. Included in the Companys results of operations is
$8.7 million and $32.1 million, respectively, for the
three and nine months ended September 30, 2008, and
$14.3 million for the three and nine months ended
September 30, 2007, representing the Companys equity
in pre-tax earnings from investments in unconsolidated
affiliates during our period of ownership.
Summarized combined financial information for the three months
and nine months ended September 30, 2008 and 2007, for the
unconsolidated entities in which the Company owns an equity
interest is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2008
|
|
|
September 30, 2008
|
|
|
September 30, 2007
|
|
|
Revenues
|
|
$
|
351,378
|
|
|
$
|
1,074,740
|
|
|
$
|
213,037
|
|
Operating costs and expenses
|
|
|
324,536
|
|
|
|
966,450
|
|
|
|
186,934
|
|
Net income
|
|
|
29,865
|
|
|
|
118,142
|
|
|
|
21,902
|
|
14
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Terminated
Credit Facility and Notes
On August 19, 2004, CHS entered into a $1.625 billion
senior secured credit facility with a consortium of lenders
which was subsequently amended on December 16, 2004,
July 8, 2005 and December 13, 2006 (the
Terminated Credit Facility). The purpose of the
Terminated Credit Facility was to refinance and replace the
Companys previous credit agreement, repay specified other
indebtedness, and fund general corporate purposes, including
amending the credit facility to permit declaration and payment
of cash dividends, to repurchase shares or make other
distributions, subject to certain restrictions. The Terminated
Credit Facility consisted of a $1.2 billion term loan that
was due to mature in 2011 and a $425 million revolving
credit facility that was due to mature in 2009. The First
Incremental Facility Amendment, dated as of December 13,
2006, increased the Companys term loans by
$400 million (the Incremental Term Loan
Facility) and also gave the Company the ability to add up
to $400 million of additional term loans. The full amount
of the Incremental Term Loan Facility was funded on
December 13, 2006, and the proceeds were used to repay the
full outstanding amount (approximately $326 million) of the
revolving credit facility under the Terminated Credit Agreement
and the balance was available to be used for general corporate
purposes. The Company was able to elect from time to time an
interest rate per annum for the borrowings under the term loan,
including the incremental term loan, and revolving credit
facility equal to (a) an alternate base rate, which would
have been equal to the greatest of (i) the Prime Rate (as
defined) in effect and (ii) the Federal Funds Effective
Rate (as defined), plus 50 basis points, plus
(1) 75 basis points for the term loan and (2) the
Applicable Margin (as defined) for revolving credit loans or
(b) the Eurodollar Rate (as defined) plus
(1) 175 basis points for the term loan and
(2) the Applicable Margin for Eurodollar revolving credit
loans. The Company also paid a commitment fee for the daily
average unused commitments under the revolving credit facility.
The commitment fee was based on a pricing grid depending on the
Applicable Margin for Eurodollar revolving credit loans and
ranged from 0.250% to 0.500%. The commitment fee was payable
quarterly in arrears and on the revolving credit termination
date with respect to the available revolving credit commitments.
In addition, the Company paid fees for each letter of credit
issued under the credit facility.
On December 16, 2004, the Company issued $300 million
6.50% senior subordinated notes due 2012. On April 8,
2005, the Company exchanged these notes for notes having
substantially the same terms as the outstanding notes, except
the exchanged notes were registered under the Securities Act of
1933, as amended (the 1933 Act). These
exchanged notes were repaid in 2007.
New
Credit Facility and Notes
On July 25, 2007, the New Credit Facility was entered into
with a syndicate of financial institutions led by Credit Suisse,
as administrative agent and collateral agent. The New Credit
Facility consists of a $6.065 billion funded term loan
facility with a maturity of seven years, a $400 million
delayed draw term loan facility with a maturity of seven years
and a $750 million revolving credit facility with a
maturity of nine years. As of December 31, 2007, the
$400 million delayed draw term loan facility had been
reduced to $300 million at the request of the Company. The
revolving credit facility also includes a subfacility for
letters of credit and a swingline subfacility. In connection
with the consummation of the acquisition of Triad, the Company
used a portion of the net proceeds from its New Credit Facility
and the Notes offering to repay its outstanding debt under the
Terminated Credit Facility, the 6.50% senior subordinated
notes due 2012 and certain of Triads existing
indebtedness. During the third quarter of 2007, the Company
recorded a pre-tax write-off of approximately $13.9 million
in deferred loan costs relative to the early extinguishment of
the debt under the Terminated Credit Facility and incurred
tender and solicitation fees of approximately $13.4 million
on the early repayment of the Companys $300 million
aggregate principal amount of 6.50% senior subordinated
notes due 2012 through a cash tender offer and consent
solicitation.
The New Credit Facility requires quarterly amortization payments
of each term loan facility equal to 0.25% of the outstanding
amount of the term loans, if any, with the outstanding principal
balance payable on July 25, 2014.
15
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The term loan facility must be prepaid in an amount equal to
(1) 100% of the net cash proceeds of certain asset sales
and dispositions by the Company and its subsidiaries, subject to
certain exceptions and reinvestment rights, (2) 100% of the
net cash proceeds of issuances of certain debt obligations or
receivables based financing by the Company and its subsidiaries,
subject to certain exceptions, and (3) 50%, subject to
reduction to a lower percentage based on the Companys
leverage ratio (as defined in the New Credit Facility generally
as the ratio of total debt on the date of determination to the
Companys EBITDA, as defined, for the four quarters most
recently ended prior to such date), of excess cash flow (as
defined) for any year, commencing in 2008, subject to certain
exceptions. Voluntary prepayments and commitment reductions are
permitted in whole or in part, without any premium or penalty,
subject to minimum prepayment or reduction requirements.
The obligor under the New Credit Facility is CHS. All of the
obligations under the New Credit Facility are unconditionally
guaranteed by the Company and certain existing and subsequently
acquired or organized domestic subsidiaries. All obligations
under the New Credit Facility and the related guarantees are
secured by a perfected first priority lien or security interest
in substantially all of the assets of the Company, CHS and each
subsidiary guarantor, including equity interests held by the
Company, CHS or any subsidiary guarantor, but excluding, among
others, the equity interests of non-significant subsidiaries,
syndication subsidiaries, securitization subsidiaries and joint
venture subsidiaries.
The loans under the New Credit Facility will bear interest on
the outstanding unpaid principal amount at a rate equal to an
applicable percentage plus, at the Companys option, either
(a) an Alternate Base Rate (as defined) determined by
reference to the greater of (1) the Prime Rate (as defined)
announced by Credit Suisse or (2) the Federal Funds
Effective Rate (as defined) plus one-half of 1.0%, or (b) a
reserve adjusted London interbank offered rate for dollars
(Eurodollar Rate) (as defined). The applicable percentage for
term loans is 1.25% for Alternate Base Rate loans and 2.25% for
Eurodollar rate loans. The applicable percentage for revolving
loans is initially 1.25% for Alternate Base Rate revolving loans
and 2.25% for Eurodollar revolving loans, in each case subject
to reduction based on the Companys leverage ratio. Loans
under the swingline subfacility bear interest at the rate
applicable to Alternate Base Rate loans under the revolving
credit facility.
CHS has agreed to pay letter of credit fees equal to the
applicable percentage then in effect with respect to Eurodollar
rate loans under the revolving credit facility times the maximum
aggregate amount available to be drawn under all letters of
credit outstanding under the subfacility for letters of credit.
The issuer of any letter of credit issued under the subfacility
for letters of credit will also receive a customary fronting fee
and other customary processing charges. CHS is initially
obligated to pay commitment fees of 0.50% per annum (subject to
reduction based upon the Companys leverage ratio) on the
unused portion of the revolving credit facility. For purposes of
this calculation, swingline loans are not treated as usage of
the revolving credit facility. CHS is also obligated to pay
commitment fees of 0.50% per annum for the first nine months
after the closing of the New Credit Facility, 0.75% per annum
for the next three months thereafter and 1.0% per annum
thereafter, in each case on the unused amount of the delayed
draw term loan facility. The Company paid arrangement fees on
the closing of the New Credit Facility and will pay an annual
administrative agent fee.
The New Credit Facility contains customary representations and
warranties, subject to limitations and exceptions, and customary
covenants restricting, subject to certain exceptions, the
Companys and its subsidiaries ability to, among
other things (1) declare dividends, make distributions or
redeem or repurchase capital stock, (2) prepay, redeem or
repurchase other debt, (3) incur liens or grant negative
pledges, (4) make loans and investments and enter into
acquisitions and joint ventures, (5) incur additional
indebtedness or provide certain guarantees, (6) make
capital expenditures, (7) engage in mergers, acquisitions
and asset sales, (8) conduct transactions with affiliates,
(9) alter the nature of the Companys businesses,
(10) grant certain guarantees with respect to physician
practices, (11) engage in sale and leaseback transactions
or (12) change the Companys fiscal year. The Company
is also required to comply with specified financial covenants
(consisting of a leverage ratio and an interest coverage ratio)
and various affirmative covenants.
16
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Events of default under the New Credit Facility include, but are
not limited to, (1) the Companys 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 New Credit
Facility.
The Notes were issued by CHS in connection with the Triad
acquisition in the principal amount of $3.021 billion.
These Notes will mature on July 15, 2015. The Notes bear
interest at the rate of 8.875% per annum, payable
semiannually in arrears on January 15 and July 15,
commencing January 15, 2008. Interest on the Notes accrues
from the date of original issuance. Interest is calculated on
the basis of
360-day year
comprised of twelve
30-day
months.
Except as set forth below, CHS is not entitled to redeem the
Notes prior to July 15, 2011.
On and after July 15, 2011, CHS is entitled, at its option,
to redeem all or a portion of the Notes upon not less than 30
nor more than 60 days notice, at the redemption prices
(expressed as a percentage of principal amount on the redemption
date), plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the
12-month
period commencing on July 15 of the years set forth below:
|
|
|
|
|
Period
|
|
Redemption Price
|
|
|
2011
|
|
|
104.438
|
%
|
2012
|
|
|
102.219
|
%
|
2013 and thereafter
|
|
|
100.000
|
%
|
In addition, any time prior to July 15, 2010, CHS is
entitled, at its option, on one or more occasions to redeem the
Notes (which include additional Notes (the Additional
Notes), if any which may be issued from time to time under
the indenture under which the Notes were issued) in an aggregate
principal amount not to exceed 35% of the aggregate principal
amount of the Notes (which includes Additional Notes, if any)
originally issued at a redemption price (expressed as a
percentage of principal amount) of 108.875%, plus accrued and
unpaid interest to the redemption date, with the Net Cash
Proceeds (as defined) from one or more Public Equity Offerings
(as defined) (provided that if the Public Equity Offering is an
offering by the Company, a portion of the Net Cash Proceeds
thereof equal to the amount required to redeem any such Notes is
contributed to the equity capital of CHS); provided, however,
that:
1) at least 65% of such aggregate principal amount of Notes
originally issued remains outstanding immediately after the
occurrence of each such redemption (other than the Notes held,
directly or indirectly, by the Company or its
subsidiaries); and
2) each such redemption occurs within 90 days after
the date of the related Public Equity Offering.
CHS is entitled, at its option, to redeem the Notes, in whole or
in part, at any time prior to July 15, 2011, upon not less
than 30 or more than 60 days notice, at a redemption price
equal to 100% of the principal amount of Notes redeemed plus the
Application Premium (as defined), and accrued and unpaid
interest, if any, as of the applicable redemption date.
Pursuant to a registration rights agreement entered into at the
time of the issuance of the Notes, as a result of an exchange
offer made by CHS, substantially all of the Notes issued in July
2007 were exchanged in November 2007 for new notes (the
Exchange Notes) having terms substantially identical
in all material respects to the Notes (except that the Exchange
Notes were issued under a registration statement pursuant to the
1933 Act). References to the Notes shall also be deemed to
include Exchange Notes unless the context provides otherwise.
17
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the nine months ended September 30, 2008, the
Company repurchased on the open market and cancelled
$62.7 million of principal amount of the Notes. This
resulted in a loss from early extinguishment of debt of
$1.3 million with an after-tax impact of $0.9 million.
As of September 30, 2008, the availability for additional
borrowings under the New Credit Facility was $1.050 billion
(consisting of a $750 million revolving credit facility and
a $300 million delayed draw term loan facility), of which
$78.3 million was set aside for outstanding letters of
credit. CHS also has the ability to add up to $300 million
of borrowing capacity from receivable transactions (including
securitizations) under the New Credit Facility which has not yet
been accessed. CHS also has the ability to amend the New Credit
Facility to provide for one or more tranches of term loans in an
aggregate principal amount of $600 million, which CHS has
not yet accessed. As of September 30, 2008, the
weighted-average interest rate under the New Credit Facility was
5.4%.
Cash paid for interest, net of interest income, was
$232.4 million and $54.7 million during the three
months ended September 30, 2008 and 2007, respectively, and
$558.8 million and $115.0 million during the nine
months ended September 30, 2008 and 2007, respectively.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), which defines fair value,
provides a framework for measuring fair value, and expands
disclosures required for fair value measurements.
SFAS No. 157 applies to other accounting
pronouncements that require fair value measurement; it does not
require any new fair value measurements. SFAS No. 157
is effective for fiscal years beginning after November 15,
2007, and was adopted by the Company as of January 1, 2008.
The adoption of this statement has not had a material effect on
the Companys consolidated results of operations or
consolidated financial position.
In February 2008, the FASB issued FASB Statement of Position
No. 157-2,
Effective Date of FASB Statement No. 157,
(FSP 157-2).
FSP 157-2
deferred the effective date of the provisions of
SFAS No. 157 for all non-financial assets and
non-financial liabilities that are not recognized or disclosed
at fair value on a recurring basis to fiscal years beginning
after November 15, 2008, and will be adopted by the Company
in the first quarter of 2009. The Company is currently assessing
the potential impact of SFAS No. 157 for non-financial
assets and non-financial liabilities on its consolidated
financial position and consolidated results of operations.
Fair
Value Hierarchy
SFAS No. 157 classifies the inputs used to measure
fair value into the following hierarchy:
Level 1: Quoted market prices in active
markets for identical assets or liabilities.
Level 2: Observable market-based inputs
or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are
supported by little or no market activity and are significant to
the fair value of the assets or liabilities. Level 3
includes values determined using pricing models, discounted cash
flow methodologies, or similar techniques reflecting the
Companys own assumptions.
18
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Available-for-sale securities
|
|
$
|
7,694
|
|
|
$
|
7,694
|
|
|
$
|
|
|
|
$
|
|
|
Trading securities
|
|
|
29,926
|
|
|
|
29,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
37,620
|
|
|
$
|
37,620
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of interest rate swap agreements
|
|
$
|
145,693
|
|
|
$
|
|
|
|
$
|
145,693
|
|
|
$
|
|
|
Contractual obligation
|
|
$
|
61,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
61,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
206,693
|
|
|
$
|
|
|
|
$
|
145,693
|
|
|
$
|
61,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities and trading securities classified
as Level 1 are measured using quoted market prices. The
fair value of the Companys interest rate swap agreements
are classified as Level 2, and are estimated using an
income approach based on the LIBOR swap rate, which is
observable at commonly quoted intervals for the full terms of
the swap agreements. The contractual obligation recorded during
the three months ended September 30, 2008, represents the
fair value of a liability assumed in connection with a business
combination.
|
|
14.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS No. 159).
SFAS No. 159 expands the use of fair value accounting
but does not affect existing standards that require assets or
liabilities to be carried at fair value. SFAS No. 159
permits an entity, on a
contract-by-contract
basis, to make an irrevocable election to account for certain
types of financial instruments and warranty and insurance
contracts at fair value, rather than historical cost, with
changes in the fair value, whether realized or unrealized,
recognized in earnings. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. The Company
adopted SFAS No. 159 as of January 1, 2008 and
did not elect to re-measure any assets or liabilities. The
adoption of this statement has not had a material effect on the
Companys consolidated results of operations or
consolidated financial position.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS No. 141(R)).
SFAS No. 141(R) replaces SFAS No. 141 and
addresses the recognition and accounting for identifiable assets
acquired, liabilities assumed, and noncontrolling interests in
business combinations. This standard will require more assets
and liabilities to be recorded at fair value and will require
expense recognition (rather than capitalization) of certain
pre-acquisition costs. This standard also will require any
adjustments to acquired deferred tax assets and liabilities
occurring after the related allocation period to be made through
earnings. Furthermore, this standard requires this treatment of
acquired deferred tax assets and liabilities also be applied to
acquisitions occurring prior to the effective date of this
standard. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008 and is required to
be adopted prospectively with no early adoption permitted.
SFAS No. 141(R) will be adopted by the Company in the
first quarter of 2009. The Company does not currently have on
its balance sheet any material deferred costs related to
prospective acquisitions that would be required to be expensed
upon the adoption of SFAS No. 141(R). Any outstanding
deferred costs will be expensed in 2009 for any acquisitions
that are not closed by December 31, 2008. Furthermore, the
impact of SFAS No. 141(R) on the Companys
consolidated results of operations or consolidated financial
position in future periods will be largely dependent on the
number of acquisitions pursued by the Company; however, it is
not anticipated at this time that such impact will be material.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements (SFAS No. 160).
SFAS No. 160 addresses the accounting and reporting
framework for noncontrolling ownership interests in consolidated
subsidiaries of the parent. SFAS No. 160 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent company and the
interests of
19
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the noncontrolling owners and that require minority ownership
interests be presented separately within equity in the
consolidated financial statements. SFAS No. 160 is
effective for fiscal years beginning after December 15,
2008, and will be adopted by the Company in the first quarter of
2009. The Company is currently assessing the potential impact
that SFAS No. 160 will have on its consolidated
results of operations and consolidated financial position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS No. 161).
SFAS No. 161 expands the disclosure requirements for
derivative instruments and for hedging activities in order to
provide additional understanding of how an entity uses
derivative instruments and how they are accounted for and
reported in an entitys financial statements. The new
disclosure requirements for SFAS No. 161 are effective
for fiscal years beginning after November 15, 2008, and
will be adopted by the Company in the first quarter of 2009.
The Company operates in three distinct operating segments,
represented by the hospital operations (which includes its
general acute care hospitals and related healthcare entities
that provide inpatient and outpatient health care services), the
home health agencies operations (which provide in-home
outpatient care), and its hospital management services business
(which provides executive management and consulting services to
non-affiliated acute care hospitals). Only the hospital
operations segment meets the criteria in SFAS No. 131,
Disclosure about Segments of an Enterprise and Related
Information (SFAS No. 131), as a
separate reportable segment. The financial information for the
home health agencies and management services segments do not
meet the quantitative thresholds defined in
SFAS No. 131 and are combined into the corporate and
all other reportable segment.
The distribution between reportable segments of the
Companys revenues and income from continuing operations
before income taxes is summarized in the following tables (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
2,714,974
|
|
|
$
|
2,196,408
|
|
|
$
|
8,009,271
|
|
|
$
|
4,499,143
|
|
Corporate and all other
|
|
|
57,886
|
|
|
|
50,601
|
|
|
|
181,743
|
|
|
|
100,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,772,860
|
|
|
$
|
2,247,009
|
|
|
$
|
8,191,014
|
|
|
$
|
4,599,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital operations
|
|
$
|
116,456
|
|
|
$
|
86,761
|
|
|
$
|
352,920
|
|
|
$
|
307,617
|
|
Corporate and all other
|
|
|
(32,843
|
)
|
|
|
(55,390
|
)
|
|
|
(104,675
|
)
|
|
|
(96,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,613
|
|
|
$
|
31,371
|
|
|
$
|
248,245
|
|
|
$
|
211,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is a party to various legal proceedings incidental
to its business. In the opinion of management, any ultimate
liability with respect to these actions will not have a material
adverse effect on the Companys consolidated financial
position, cash flows or results of operations. In addition, in
connection with the closing of the Triad acquisition on
July 25, 2007, the Company has assumed both recorded and
unrecorded contingencies of Triad. The Companys management
is not aware of any unrecorded contingencies assumed in
connection with the Triad acquisition, whose ultimate outcome
will have a material adverse effect on the Companys
consolidated financial position, cash flows or results of
operations.
In a letter dated October 4, 2007, the Civil Division of
the Department of Justice notified the Company that, as a result
of an investigation into the way in which different state
Medicaid programs apply to the federal government
20
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for matching or supplemental funds that are ultimately used to
pay for a small portion of the services provided to Medicaid and
indigent patients, it believes the Company and three of its New
Mexico hospitals have caused the State of New Mexico to submit
improper claims for federal funds in violation of the federal
False Claims Act. In a letter dated January 22, 2008, the
Civil Division notified the Company that based on its
investigation, it has calculated that these three hospitals
received ineligible federal participation payments from August
2000 to September 2006 of approximately $27.5 million. The
Civil Division also advised the Company that were it to proceed
to trial, it would seek treble damages plus an appropriate
penalty for each of the violations of the False Claims Act. On
May 28, 2008, the Company received a letter from the Office
of the U.S. Attorney for the State of New Mexico requesting
additional information. The Company is in the process of
responding to the government. The Company continues to believe
that it has not violated the False Claims Act, and is continuing
discussions with the Civil Division in an effort to resolve this
matter.
On October 1, 2008, the Company completed its acquisition
of Deaconess Medical Center (388 licensed beds) and Valley
Hospital and Medical Center (123 licensed beds), located in
Spokane, Washington, from Empire Health Services. The total
consideration for these hospitals was approximately
$175.1 million, of which approximately $149.2 million
was paid in cash and $25.9 million was assumed in
liabilities.
During October 2008, the Company repurchased
2,500,000 shares of its common stock under its open market
repurchase program (see Note 9) at a weighted-average
price of $20.73 per share. Also, during October 2008, the
Company repurchased on the open market and cancelled
$42.8 million of principal amount of the Notes.
|
|
18.
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
|
In connection with the consummation of the Triad acquisition in
July 2007, the Company obtained $7.215 billion of senior
secured financing under the New Credit Facility and CHS issued
the Notes in the aggregate principal amount of
$3.021 billion. The Notes are senior unsecured obligations
of CHS and are guaranteed on a senior basis by the Company and
by certain 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 supplemental 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 presentation of intercompany balances and allocated income
tax expense in the Companys previously issued supplemental
condensed consolidating financial statements is being corrected
as follows:
|
|
|
|
|
Intercompany receivables and payables are presented gross in the
supplemental consolidating balance sheets; the intercompany
balances were previously reported net as intercompany
(receivable) payable. In addition, a portion of the
intercompany (receivable) payable was netted against
long-term debt payable (receivable) of the issuer
and other guarantors.
|
|
|
|
Cash flows from intercompany transactions are presented in cash
flows from financing activities, as changes in intercompany
balances with affiliates, net; these cash flows were previous
reported in cash flows from operating activities as
advances to subsidiaries, net of return of
investment and other operating cash flows.
|
|
|
|
Income tax expense is allocated from the parent guarantor to the
income producing operations (other guarantors and
non-guarantors) and the issuer through a deemed capital
contribution; income tax expense
|
21
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
was previously allocated entirely to the parent guarantor, which
is the tax paying entity. 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; these interest expense and interest
income amounts were previously netted within certain
subsidiaries.
|
The Companys intercompany activity consists primarily of
daily cash transfers for purposes of cash management, the
allocation of certain expenses and expenditures paid for by the
parent on behalf of the subsidiaries, and the push down of
investment in its subsidiaries. The Companys subsidiaries
generally do not purchase services from one another and
therefore the intercompany transactions do not represent revenue
generating transactions. All intercompany transactions eliminate
in consolidation. Therefore, the aforementioned corrections do
not impact the Companys consolidated balance sheet,
consolidated statement of income or consolidated statement of
cash flows for any period presented. Management believes the
effects of these corrections are not material to the
Companys previously issued consolidated financial
statements and intends, for those prior period supplemental
condensed consolidating financial statements not presented as
part of this footnote, to reflect these corrections in future
filings whenever such supplemental condensed consolidating
financial statements are included. The following table discloses
the impact of these corrections on each of the respective line
items of the supplemental condensed consolidating financial
statements as of and for the periods ending September 30,
2007 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Condensed Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and taxes(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
160,897
|
|
|
$
|
39,477
|
|
|
$
|
|
|
|
$
|
200,374
|
|
Total current assets
|
|
|
53,157
|
|
|
|
|
|
|
|
1,697,012
|
|
|
|
959,615
|
|
|
|
|
|
|
|
2,709,784
|
|
Intercompany receivables (non-current)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
3,456,057
|
|
|
|
590,756
|
|
|
|
|
|
|
|
4,046,813
|
|
Net investment in subsidiaries
|
|
|
1,248,497
|
|
|
|
1,290,709
|
|
|
|
1,480,483
|
|
|
|
|
|
|
|
(4,019,689
|
)
|
|
|
|
|
Total Assets
|
|
|
1,301,654
|
|
|
|
1,490,546
|
|
|
|
10,566,213
|
|
|
|
4,099,973
|
|
|
|
(4,019,689
|
)
|
|
|
13,438,697
|
|
Long-term debt
|
|
|
4
|
|
|
|
9,026,440
|
|
|
|
210,620
|
|
|
|
(153,681
|
)
|
|
|
|
|
|
|
9,083,383
|
|
Intercompany payables (non-current)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1,227,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,227,623
|
|
Retained earnings
|
|
|
646,203
|
|
|
|
1,269,694
|
|
|
|
1,291,211
|
|
|
|
1,673,391
|
|
|
|
(4,234,296
|
)
|
|
|
646,203
|
|
Total stockholders equity
|
|
|
1,846,913
|
|
|
|
1,248,493
|
|
|
|
1,284,932
|
|
|
|
1,673,393
|
|
|
|
(4,206,818
|
)
|
|
|
1,846,913
|
|
Total liabilities and stockholders equity
|
|
|
1,301,654
|
|
|
|
1,490,546
|
|
|
|
10,566,213
|
|
|
|
4,099,973
|
|
|
|
(4,019,689
|
)
|
|
|
13,438,697
|
|
22
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
As adjusted(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and taxes
|
|
|
104,832
|
|
|
|
|
|
|
|
54,914
|
|
|
|
40,628
|
|
|
|
|
|
|
|
200,374
|
|
Total current assets
|
|
|
157,989
|
|
|
|
|
|
|
|
1,558,735
|
|
|
|
993,060
|
|
|
|
|
|
|
|
2,709,784
|
|
Intercompany receivables (non-current)
|
|
|
936,148
|
|
|
|
9,024,139
|
|
|
|
8,611,864
|
|
|
|
4,666,546
|
|
|
|
(23,238,697
|
)
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,365,710
|
|
|
|
1,681,103
|
|
|
|
|
|
|
|
4,046,813
|
|
Net investment in subsidiaries
|
|
|
1,175,838
|
|
|
|
3,966,843
|
|
|
|
2,340,306
|
|
|
|
|
|
|
|
(7,482,987
|
)
|
|
|
|
|
Total Assets
|
|
|
2,269,975
|
|
|
|
13,190,819
|
|
|
|
18,742,674
|
|
|
|
9,956,913
|
|
|
|
(30,721,684
|
)
|
|
|
13,438,697
|
|
Long-term debt
|
|
|
4
|
|
|
|
9,026,440
|
|
|
|
37,941
|
|
|
|
18,998
|
|
|
|
|
|
|
|
9,083,383
|
|
Intercompany payables (non-current)
|
|
|
93,649
|
|
|
|
2,819,804
|
|
|
|
16,563,659
|
|
|
|
9,016,593
|
|
|
|
(28,493,705
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
1,227,623
|
|
|
|
457,890
|
|
|
|
469,654
|
|
|
|
|
|
|
|
(927,544
|
)
|
|
|
1,227,623
|
|
Retained earnings
|
|
|
646,203
|
|
|
|
734,532
|
|
|
|
753,403
|
|
|
|
(160,022
|
)
|
|
|
(1,327,913
|
)
|
|
|
646,203
|
|
Total stockholders equity
|
|
|
1,846,913
|
|
|
|
1,171,221
|
|
|
|
1,216,778
|
|
|
|
(160,020
|
)
|
|
|
(2,227,979
|
)
|
|
|
1,846,913
|
|
Total liabilities and stockholders equity
|
|
|
2,269,975
|
|
|
|
13,190,819
|
|
|
|
18,742,674
|
|
|
|
9,956,913
|
|
|
|
(30,721,684
|
)
|
|
|
13,438,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
289,866
|
|
|
|
(454,841
|
)
|
|
|
481,874
|
|
|
|
87,751
|
|
|
|
|
|
|
|
404,650
|
|
Changes in intercompany balances with affiliates, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Repayments) borrowings of long-term indebtedness
|
|
|
(299,996
|
)
|
|
|
(1,719,000
|
)
|
|
|
(23,568
|
)
|
|
|
(21,068
|
)
|
|
|
|
|
|
|
(2,063,632
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(289,866
|
)
|
|
|
7,284,373
|
|
|
|
(23,568
|
)
|
|
|
15,804
|
|
|
|
|
|
|
|
6,986,743
|
|
As adjusted(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(117,277
|
)
|
|
|
95,115
|
|
|
|
370,813
|
|
|
|
55,999
|
|
|
|
|
|
|
|
404,650
|
|
Changes in intercompany balances with affiliates, net
|
|
|
407,143
|
|
|
|
(549,956
|
)
|
|
|
133,807
|
|
|
|
9,006
|
|
|
|
|
|
|
|
|
|
(Repayments) borrowings of long-term indebtedness
|
|
|
(299,996
|
)
|
|
|
(1,719,000
|
)
|
|
|
(23,402
|
)
|
|
|
(21,234
|
)
|
|
|
|
|
|
|
(2,063,632
|
)
|
Net cash provided by (used in) financing activities
|
|
|
117,277
|
|
|
|
6,734,417
|
|
|
|
110,405
|
|
|
|
24,644
|
|
|
|
|
|
|
|
6,986,743
|
|
23
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
141,146
|
|
|
|
(1,639
|
)
|
|
|
|
|
|
|
139,507
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
309,842
|
|
|
|
139,981
|
|
|
|
|
|
|
|
449,823
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(20,040
|
)
|
|
|
(47,331
|
)
|
|
|
(5,047
|
)
|
|
|
|
|
|
|
72,418
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
20,040
|
|
|
|
20,040
|
|
|
|
45,303
|
|
|
|
12,885
|
|
|
|
(72,418
|
)
|
|
|
25,850
|
|
Provision for income taxes
|
|
|
9,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,580
|
|
Income (loss) from continuing operations
|
|
|
10,460
|
|
|
|
20,040
|
|
|
|
45,303
|
|
|
|
12,885
|
|
|
|
(72,418
|
)
|
|
|
16,270
|
|
Net income
|
|
|
10,460
|
|
|
|
20,040
|
|
|
|
45,303
|
|
|
|
7,075
|
|
|
|
(72,418
|
)
|
|
|
10,460
|
|
As adjusted(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
9,962
|
|
|
|
117,655
|
|
|
|
7,543
|
|
|
|
|
|
|
|
135,160
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
283,139
|
|
|
|
156,453
|
|
|
|
|
|
|
|
439,592
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(10,460
|
)
|
|
|
(40,299
|
)
|
|
|
5,091
|
|
|
|
|
|
|
|
31,384
|
|
|
|
(14,284
|
)
|
Income (loss) from continuing operations before income taxes
|
|
|
10,460
|
|
|
|
3,046
|
|
|
|
65,364
|
|
|
|
(16,115
|
)
|
|
|
(31,384
|
)
|
|
|
31,371
|
|
Provision for income taxes
|
|
|
|
|
|
|
(7,414
|
)
|
|
|
25,284
|
|
|
|
(6,198
|
)
|
|
|
|
|
|
|
11,672
|
|
Income (loss) from continuing operations
|
|
|
10,460
|
|
|
|
10,460
|
|
|
|
40,080
|
|
|
|
(9,917
|
)
|
|
|
(31,384
|
)
|
|
|
19,699
|
|
Net income
|
|
|
10,460
|
|
|
|
10,460
|
|
|
|
40,080
|
|
|
|
(19,156
|
)
|
|
|
(31,384
|
)
|
|
|
10,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Condensed Consolidating Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
191,803
|
|
|
|
9,263
|
|
|
|
|
|
|
|
201,066
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
698,683
|
|
|
|
252,024
|
|
|
|
|
|
|
|
950,707
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(195,820
|
)
|
|
|
(223,111
|
)
|
|
|
(1,088
|
)
|
|
|
|
|
|
|
420,019
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
195,820
|
|
|
|
195,820
|
|
|
|
222,078
|
|
|
|
7,981
|
|
|
|
(420,019
|
)
|
|
|
201,680
|
|
Provision for income taxes
|
|
|
77,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,273
|
|
Income (loss) from continuing operations
|
|
|
118,547
|
|
|
|
195,820
|
|
|
|
222,078
|
|
|
|
7,981
|
|
|
|
(420,019
|
)
|
|
|
124,407
|
|
Net income
|
|
|
118,547
|
|
|
|
195,820
|
|
|
|
222,078
|
|
|
|
2,121
|
|
|
|
(420,019
|
)
|
|
|
118,547
|
|
As adjusted(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
13,736
|
|
|
|
158,064
|
|
|
|
20,977
|
|
|
|
|
|
|
|
192,777
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
648,637
|
|
|
|
272,100
|
|
|
|
|
|
|
|
920,737
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(118,547
|
)
|
|
|
(154,956
|
)
|
|
|
15,230
|
|
|
|
|
|
|
|
243,989
|
|
|
|
(14,284
|
)
|
Income (loss) from continuing operations before income taxes
|
|
|
118,547
|
|
|
|
113,929
|
|
|
|
249,875
|
|
|
|
(26,756
|
)
|
|
|
(243,989
|
)
|
|
|
211,606
|
|
Provision for income taxes
|
|
|
|
|
|
|
(4,618
|
)
|
|
|
95,952
|
|
|
|
(10,274
|
)
|
|
|
|
|
|
|
81,060
|
|
Income (loss) from continuing operations
|
|
|
118,547
|
|
|
|
118,547
|
|
|
|
153,923
|
|
|
|
(16,482
|
)
|
|
|
(243,989
|
)
|
|
|
130,546
|
|
Net income
|
|
|
118,547
|
|
|
|
118,547
|
|
|
|
153,923
|
|
|
|
(28,481
|
)
|
|
|
(243,989
|
)
|
|
|
118,547
|
|
|
|
|
(1) |
|
Prepaid expenses and prepaid taxes were previously reported
separately and have been reported together in this schedule to
conform with the current presentation. |
|
(2) |
|
Includes effects of reclassification for discontinued operations
and for conforming corrections as applied to other periods
presented. |
25
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
304,892
|
|
|
$
|
36,992
|
|
|
$
|
|
|
|
$
|
341,884
|
|
Patient accounts receivable, net of allowance
|
|
|
|
|
|
|
|
|
|
|
1,018,623
|
|
|
|
624,197
|
|
|
|
|
|
|
|
1,642,820
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
166,317
|
|
|
|
101,003
|
|
|
|
|
|
|
|
267,320
|
|
Deferred income taxes
|
|
|
111,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,101
|
|
Prepaid expenses and taxes
|
|
|
|
|
|
|
156
|
|
|
|
89,811
|
|
|
|
1,272
|
|
|
|
|
|
|
|
91,239
|
|
Other current assets
|
|
|
|
|
|
|
560
|
|
|
|
105,397
|
|
|
|
91,830
|
|
|
|
|
|
|
|
197,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
111,101
|
|
|
|
716
|
|
|
|
1,685,040
|
|
|
|
855,294
|
|
|
|
|
|
|
|
2,652,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
1,037,633
|
|
|
|
8,880,703
|
|
|
|
10,150,657
|
|
|
|
3,166,520
|
|
|
|
(23,235,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
3,498,364
|
|
|
|
2,246,102
|
|
|
|
|
|
|
|
5,744,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,445,928
|
|
|
|
1,705,559
|
|
|
|
|
|
|
|
4,151,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
|
|
|
|
177,929
|
|
|
|
347,260
|
|
|
|
514,111
|
|
|
|
|
|
|
|
1,039,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
1,250,154
|
|
|
|
4,612,813
|
|
|
|
2,448,504
|
|
|
|
|
|
|
|
(8,311,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,398,888
|
|
|
$
|
13,672,161
|
|
|
$
|
20,575,753
|
|
|
$
|
8,487,586
|
|
|
$
|
(31,546,984
|
)
|
|
$
|
13,587,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,235
|
|
|
$
|
6,412
|
|
|
$
|
|
|
|
$
|
19,647
|
|
Accounts payable
|
|
|
|
|
|
|
66
|
|
|
|
327,861
|
|
|
|
149,137
|
|
|
|
|
|
|
|
477,064
|
|
Current income taxes payable
|
|
|
38,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,312
|
|
Accrued liabilities
|
|
|
12,126
|
|
|
|
|
|
|
|
454,280
|
|
|
|
344,605
|
|
|
|
|
|
|
|
811,011
|
|
Interest payable (receivable)
|
|
|
|
|
|
|
82,090
|
|
|
|
1,180
|
|
|
|
(421
|
)
|
|
|
|
|
|
|
82,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
50,438
|
|
|
|
82,156
|
|
|
|
796,556
|
|
|
|
499,733
|
|
|
|
|
|
|
|
1,428,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable (receivable)
|
|
|
4
|
|
|
|
8,825,296
|
|
|
|
56,391
|
|
|
|
7,091
|
|
|
|
|
|
|
|
8,888,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
23,306
|
|
|
|
3,376,337
|
|
|
|
18,256,699
|
|
|
|
7,662,455
|
|
|
|
(29,318,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
433,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
16,223
|
|
|
|
138,222
|
|
|
|
230,180
|
|
|
|
232,725
|
|
|
|
|
|
|
|
617,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
7,153
|
|
|
|
336,319
|
|
|
|
|
|
|
|
343,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
967
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
967
|
|
Additional paid-in capital
|
|
|
1,258,637
|
|
|
|
517,254
|
|
|
|
474,966
|
|
|
|
|
|
|
|
(992,220
|
)
|
|
|
1,258,637
|
|
Treasury stock, at cost, 975,549 shares
|
|
|
(6,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,678
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(93,367
|
)
|
|
|
(93,367
|
)
|
|
|
(4,905
|
)
|
|
|
|
|
|
|
98,272
|
|
|
|
(93,367
|
)
|
Retained earnings
|
|
|
716,349
|
|
|
|
826,263
|
|
|
|
758,712
|
|
|
|
(250,739
|
)
|
|
|
(1,334,236
|
)
|
|
|
716,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,875,908
|
|
|
|
1,250,150
|
|
|
|
1,228,774
|
|
|
|
(250,737
|
)
|
|
|
(2,228,187
|
)
|
|
|
1,875,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,398,888
|
|
|
$
|
13,672,161
|
|
|
$
|
20,575,753
|
|
|
$
|
8,487,586
|
|
|
$
|
(31,546,984
|
)
|
|
$
|
13,587,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
114,075
|
|
|
$
|
18,799
|
|
|
$
|
|
|
|
$
|
132,874
|
|
Patient accounts receivable, net of allowance for doubtful
accounts
|
|
|
|
|
|
|
|
|
|
|
954,106
|
|
|
|
579,692
|
|
|
|
|
|
|
|
1,533,798
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
163,961
|
|
|
|
98,942
|
|
|
|
|
|
|
|
262,903
|
|
Deferred income taxes
|
|
|
113,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,741
|
|
Prepaid expenses and taxes
|
|
|
99,417
|
|
|
|
102
|
|
|
|
57,316
|
|
|
|
12,921
|
|
|
|
|
|
|
|
169,756
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
129,147
|
|
|
|
210,679
|
|
|
|
|
|
|
|
339,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
213,158
|
|
|
|
102
|
|
|
|
1,418,605
|
|
|
|
921,033
|
|
|
|
|
|
|
|
2,552,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
1,085,684
|
|
|
|
9,129,859
|
|
|
|
18,854,467
|
|
|
|
884,296
|
|
|
|
(29,954,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
3,667,487
|
|
|
|
1,845,087
|
|
|
|
|
|
|
|
5,512,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,259,113
|
|
|
|
1,988,601
|
|
|
|
|
|
|
|
4,247,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
|
|
|
|
|
189,140
|
|
|
|
276,589
|
|
|
|
714,728
|
|
|
|
|
|
|
|
1,180,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in subsidiaries
|
|
|
957,750
|
|
|
|
4,168,316
|
|
|
|
2,485,035
|
|
|
|
|
|
|
|
(7,611,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,256,592
|
|
|
$
|
13,487,417
|
|
|
$
|
28,961,296
|
|
|
$
|
6,353,745
|
|
|
$
|
(37,565,407
|
)
|
|
$
|
13,493,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,603
|
|
|
$
|
4,107
|
|
|
$
|
|
|
|
$
|
20,710
|
|
Accounts payable
|
|
|
|
|
|
|
19
|
|
|
|
276,503
|
|
|
|
216,171
|
|
|
|
|
|
|
|
492,693
|
|
Current income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
|
|
|
|
437,808
|
|
|
|
342,892
|
|
|
|
|
|
|
|
780,700
|
|
Interest payable (receivable)
|
|
|
|
|
|
|
153,085
|
|
|
|
8,042
|
|
|
|
(7,295
|
)
|
|
|
|
|
|
|
153,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
153,104
|
|
|
|
738,956
|
|
|
|
555,875
|
|
|
|
|
|
|
|
1,447,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt payable
|
|
|
4
|
|
|
|
8,987,090
|
|
|
|
62,792
|
|
|
|
27,481
|
|
|
|
|
|
|
|
9,077,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payable
|
|
|
137,837
|
|
|
|
3,267,993
|
|
|
|
27,008,767
|
|
|
|
5,378,021
|
|
|
|
(35,792,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
407,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
121,482
|
|
|
|
188,316
|
|
|
|
173,661
|
|
|
|
|
|
|
|
483,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
13,491
|
|
|
|
352,640
|
|
|
|
|
|
|
|
366,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
966
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
966
|
|
Additional paid-in capital
|
|
|
1,240,308
|
|
|
|
434,505
|
|
|
|
398,338
|
|
|
|
|
|
|
|
(832,843
|
)
|
|
|
1,240,308
|
|
Treasury stock, at cost, 975,549 shares
|
|
|
(6,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,678
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(81,737
|
)
|
|
|
(81,737
|
)
|
|
|
(3,989
|
)
|
|
|
|
|
|
|
85,726
|
|
|
|
(81,737
|
)
|
Retained earnings
|
|
|
557,945
|
|
|
|
604,980
|
|
|
|
554,624
|
|
|
|
(133,935
|
)
|
|
|
(1,025,669
|
)
|
|
|
557,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,710,804
|
|
|
|
957,748
|
|
|
|
948,974
|
|
|
|
(133,933
|
)
|
|
|
(1,772,789
|
)
|
|
|
1,710,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,256,592
|
|
|
$
|
13,487,417
|
|
|
$
|
28,961,296
|
|
|
$
|
6,353,745
|
|
|
$
|
(37,565,407
|
)
|
|
$
|
13,493,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income
Three Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,709,941
|
|
|
$
|
1,062,919
|
|
|
$
|
|
|
|
$
|
2,772,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
637,464
|
|
|
|
454,262
|
|
|
|
|
|
|
|
1,091,726
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
206,030
|
|
|
|
120,183
|
|
|
|
|
|
|
|
326,213
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
221,195
|
|
|
|
161,947
|
|
|
|
|
|
|
|
383,142
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
308,042
|
|
|
|
221,321
|
|
|
|
|
|
|
|
529,363
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
29,164
|
|
|
|
29,678
|
|
|
|
|
|
|
|
58,842
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
80,720
|
|
|
|
49,787
|
|
|
|
|
|
|
|
130,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,482,615
|
|
|
|
1,037,178
|
|
|
|
|
|
|
|
2,519,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
227,326
|
|
|
|
25,741
|
|
|
|
|
|
|
|
253,067
|
|
Interest expense, net
|
|
|
|
|
|
|
25,074
|
|
|
|
133,799
|
|
|
|
8,912
|
|
|
|
|
|
|
|
167,785
|
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
510
|
|
|
|
9,850
|
|
|
|
|
|
|
|
10,360
|
|
Equity in earnings of subsidiary
|
|
|
(50,384
|
)
|
|
|
(64,641
|
)
|
|
|
(11,719
|
)
|
|
|
|
|
|
|
118,053
|
|
|
|
(8,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
50,384
|
|
|
|
39,567
|
|
|
|
104,736
|
|
|
|
6,979
|
|
|
|
(118,053
|
)
|
|
|
83,613
|
|
Provision for income taxes
|
|
|
|
|
|
|
(10,817
|
)
|
|
|
40,324
|
|
|
|
2,684
|
|
|
|
|
|
|
|
32,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
50,384
|
|
|
|
50,384
|
|
|
|
64,412
|
|
|
|
4,295
|
|
|
|
(118,053
|
)
|
|
|
51,422
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,038
|
)
|
|
|
|
|
|
|
(1,038
|
)
|
Gain (loss) on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,038
|
)
|
|
|
|
|
|
|
(1,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
50,384
|
|
|
$
|
50,384
|
|
|
$
|
64,412
|
|
|
$
|
3,257
|
|
|
$
|
(118,053
|
)
|
|
$
|
50,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income
Three Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,521,900
|
|
|
$
|
725,109
|
|
|
$
|
|
|
|
$
|
2,247,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
572,667
|
|
|
|
330,757
|
|
|
|
|
|
|
|
903,424
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
187,492
|
|
|
|
78,788
|
|
|
|
|
|
|
|
266,280
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
195,429
|
|
|
|
109,500
|
|
|
|
|
|
|
|
304,929
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
283,139
|
|
|
|
156,453
|
|
|
|
|
|
|
|
439,592
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
26,474
|
|
|
|
20,769
|
|
|
|
|
|
|
|
47,243
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
67,876
|
|
|
|
32,756
|
|
|
|
|
|
|
|
100,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,333,077
|
|
|
|
729,023
|
|
|
|
|
|
|
|
2,062,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
188,823
|
|
|
|
(3,914
|
)
|
|
|
|
|
|
|
184,909
|
|
Interest expense, net
|
|
|
|
|
|
|
9,962
|
|
|
|
117,655
|
|
|
|
7,543
|
|
|
|
|
|
|
|
135,160
|
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
27,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,291
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
713
|
|
|
|
4,658
|
|
|
|
|
|
|
|
5,371
|
|
Equity in earnings of subsidiary
|
|
|
(10,460
|
)
|
|
|
(40,299
|
)
|
|
|
5,091
|
|
|
|
|
|
|
|
31,384
|
|
|
|
(14,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
10,460
|
|
|
|
3,046
|
|
|
|
65,364
|
|
|
|
(16,115
|
)
|
|
|
(31,384
|
)
|
|
|
31,371
|
|
Provision for income taxes
|
|
|
|
|
|
|
(7,414
|
)
|
|
|
25,284
|
|
|
|
(6,198
|
)
|
|
|
|
|
|
|
11,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
10,460
|
|
|
|
10,460
|
|
|
|
40,080
|
|
|
|
(9,917
|
)
|
|
|
(31,384
|
)
|
|
|
19,699
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,811
|
)
|
|
|
|
|
|
|
(6,811
|
)
|
Gain (loss) on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,428
|
)
|
|
|
|
|
|
|
(2,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,239
|
)
|
|
|
|
|
|
|
(9,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,460
|
|
|
$
|
10,460
|
|
|
$
|
40,080
|
|
|
$
|
(19,156
|
)
|
|
$
|
(31,384
|
)
|
|
$
|
10,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income
Nine Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,057,176
|
|
|
$
|
3,133,838
|
|
|
$
|
|
|
|
$
|
8,191,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
1,899,228
|
|
|
|
1,359,644
|
|
|
|
|
|
|
|
3,258,872
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
584,292
|
|
|
|
330,046
|
|
|
|
|
|
|
|
914,338
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
669,709
|
|
|
|
477,428
|
|
|
|
|
|
|
|
1,147,137
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
909,085
|
|
|
|
672,543
|
|
|
|
|
|
|
|
1,581,628
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
90,323
|
|
|
|
86,855
|
|
|
|
|
|
|
|
177,178
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
235,618
|
|
|
|
142,546
|
|
|
|
|
|
|
|
378,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,388,255
|
|
|
|
3,069,062
|
|
|
|
|
|
|
|
7,457,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
668,921
|
|
|
|
64,776
|
|
|
|
|
|
|
|
733,697
|
|
Interest expense, net
|
|
|
|
|
|
|
52,596
|
|
|
|
401,483
|
|
|
|
33,769
|
|
|
|
|
|
|
|
487,848
|
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,328
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
(174
|
)
|
|
|
28,533
|
|
|
|
|
|
|
|
28,359
|
|
Equity in earnings of subsidiary
|
|
|
(158,404
|
)
|
|
|
(189,020
|
)
|
|
|
(38,705
|
)
|
|
|
|
|
|
|
354,046
|
|
|
|
(32,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
158,404
|
|
|
|
135,096
|
|
|
|
306,317
|
|
|
|
2,474
|
|
|
|
(354,046
|
)
|
|
|
248,245
|
|
Provision for income taxes
|
|
|
|
|
|
|
(23,308
|
)
|
|
|
117,932
|
|
|
|
950
|
|
|
|
|
|
|
|
95,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
158,404
|
|
|
|
158,404
|
|
|
|
188,385
|
|
|
|
1,524
|
|
|
|
(354,046
|
)
|
|
|
152,671
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,847
|
)
|
|
|
|
|
|
|
(3,847
|
)
|
Gain (loss) on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,580
|
|
|
|
|
|
|
|
9,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,733
|
|
|
|
|
|
|
|
5,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
158,404
|
|
|
$
|
158,404
|
|
|
$
|
188,385
|
|
|
$
|
7,257
|
|
|
$
|
(354,046
|
)
|
|
$
|
158,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Income
Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,374,157
|
|
|
$
|
1,224,995
|
|
|
$
|
|
|
|
$
|
4,599,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
1,272,902
|
|
|
|
566,133
|
|
|
|
|
|
|
|
1,839,035
|
|
Provision for bad debts
|
|
|
|
|
|
|
|
|
|
|
406,297
|
|
|
|
129,857
|
|
|
|
|
|
|
|
536,154
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
409,973
|
|
|
|
169,598
|
|
|
|
|
|
|
|
579,571
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
648,637
|
|
|
|
272,100
|
|
|
|
|
|
|
|
920,737
|
|
Rent
|
|
|
|
|
|
|
|
|
|
|
62,161
|
|
|
|
36,804
|
|
|
|
|
|
|
|
98,965
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
150,305
|
|
|
|
50,806
|
|
|
|
|
|
|
|
201,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,950,275
|
|
|
|
1,225,298
|
|
|
|
|
|
|
|
4,175,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
423,882
|
|
|
|
(303
|
)
|
|
|
|
|
|
|
423,579
|
|
Interest expense, net
|
|
|
|
|
|
|
13,736
|
|
|
|
158,064
|
|
|
|
20,977
|
|
|
|
|
|
|
|
192,777
|
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
27,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,291
|
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
713
|
|
|
|
5,476
|
|
|
|
|
|
|
|
6,189
|
|
Equity in earnings of subsidiary
|
|
|
(118,547
|
)
|
|
|
(154,956
|
)
|
|
|
15,230
|
|
|
|
|
|
|
|
243,989
|
|
|
|
(14,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
118,547
|
|
|
|
113,929
|
|
|
|
249,875
|
|
|
|
(26,756
|
)
|
|
|
(243,989
|
)
|
|
|
211,606
|
|
Provision for income taxes
|
|
|
|
|
|
|
(4,618
|
)
|
|
|
95,952
|
|
|
|
(10,274
|
)
|
|
|
|
|
|
|
81,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
118,547
|
|
|
|
118,547
|
|
|
|
153,923
|
|
|
|
(16,482
|
)
|
|
|
(243,989
|
)
|
|
|
130,546
|
|
Discontinued operations, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations of hospitals sold and held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,571
|
)
|
|
|
|
|
|
|
(9,571
|
)
|
Gain (loss) on sale of hospitals, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,428
|
)
|
|
|
|
|
|
|
(2,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) on discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,999
|
)
|
|
|
|
|
|
|
(11,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
118,547
|
|
|
$
|
118,547
|
|
|
$
|
153,923
|
|
|
$
|
(28,481
|
)
|
|
$
|
(243,989
|
)
|
|
$
|
118,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by(used in) operating activities
|
|
$
|
75,635
|
|
|
$
|
(90,495
|
)
|
|
$
|
671,418
|
|
|
$
|
28,498
|
|
|
$
|
|
|
|
$
|
685,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
|
|
|
|
|
|
|
|
(7,054
|
)
|
|
|
(220
|
)
|
|
|
|
|
|
|
(7,274
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(323,169
|
)
|
|
|
(128,240
|
)
|
|
|
|
|
|
|
(451,409
|
)
|
Proceeds from disposition of hospitals and other ancillary
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
365,635
|
|
|
|
|
|
|
|
365,635
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
11,833
|
|
|
|
2,131
|
|
|
|
|
|
|
|
13,964
|
|
Investment in other assets
|
|
|
|
|
|
|
(16,100
|
)
|
|
|
(121,259
|
)
|
|
|
(14,809
|
)
|
|
|
|
|
|
|
(152,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
(16,100
|
)
|
|
|
(439,649
|
)
|
|
|
224,497
|
|
|
|
|
|
|
|
(231,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
1,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,688
|
|
Stock buy-back
|
|
|
(17,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,096
|
)
|
Excess tax benefits relating to stock-based compensation
|
|
|
1,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,278
|
|
Deferred financing costs
|
|
|
|
|
|
|
(2,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,569
|
)
|
Proceeds from minority investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,652
|
|
|
|
|
|
|
|
11,652
|
|
Redemption of minority investments in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,485
|
)
|
|
|
|
|
|
|
(53,485
|
)
|
Distributions to minority investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,351
|
)
|
|
|
|
|
|
|
(24,351
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
(61,505
|
)
|
|
|
270,958
|
|
|
|
(13,119
|
)
|
|
|
(196,334
|
)
|
|
|
|
|
|
|
|
|
Borrowings under credit agreement
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
31,787
|
|
|
|
(26,191
|
)
|
|
|
30,596
|
|
(Repayments) borrowings of
long-term
indebtedness
|
|
|
|
|
|
|
(186,794
|
)
|
|
|
(27,833
|
)
|
|
|
(4,071
|
)
|
|
|
26,191
|
|
|
|
(192,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(75,635
|
)
|
|
|
106,595
|
|
|
|
(40,952
|
)
|
|
|
(234,802
|
)
|
|
|
|
|
|
|
(244,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
190,817
|
|
|
|
18,193
|
|
|
|
|
|
|
|
209,010
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
114,075
|
|
|
|
18,799
|
|
|
|
|
|
|
|
132,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
304,892
|
|
|
$
|
36,992
|
|
|
$
|
|
|
|
$
|
341,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
COMMUNITY
HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
|
|
|
Other
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by(used in) operating activities
|
|
$
|
(117,277
|
)
|
|
$
|
95,115
|
|
|
$
|
370,813
|
|
|
$
|
55,999
|
|
|
$
|
|
|
|
$
|
404,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of facilities and other related equipment
|
|
|
|
|
|
|
(6,829,532
|
)
|
|
|
(105,610
|
)
|
|
|
(46,957
|
)
|
|
|
|
|
|
|
(6,982,099
|
)
|
Purchases of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(253,233
|
)
|
|
|
(25,310
|
)
|
|
|
|
|
|
|
(278,543
|
)
|
Proceeds from disposition of hospitals and other ancillary
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,962
|
|
|
|
|
|
|
|
12,962
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
502
|
|
|
|
99
|
|
|
|
|
|
|
|
601
|
|
Investment in other assets
|
|
|
|
|
|
|
|
|
|
|
(53,509
|
)
|
|
|
(12,516
|
)
|
|
|
|
|
|
|
(66,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
(6,829,532
|
)
|
|
|
(411,850
|
)
|
|
|
(71,722
|
)
|
|
|
|
|
|
|
(7,313,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
7,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,804
|
|
Excess tax benefits relating to stock-based compensation
|
|
|
2,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,275
|
|
Deferred financing costs
|
|
|
|
|
|
|
(190,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(190,110
|
)
|
Proceeds from minority investors in joint ventures
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
1,137
|
|
|
|
|
|
|
|
1,188
|
|
Redemption of minority investments in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,339
|
)
|
|
|
|
|
|
|
(1,339
|
)
|
Distributions to minority investors in joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,774
|
)
|
|
|
|
|
|
|
(2,774
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
407,143
|
|
|
|
(549,956
|
)
|
|
|
133,807
|
|
|
|
9,006
|
|
|
|
|
|
|
|
|
|
Borrowings under credit agreement
|
|
|
|
|
|
|
9,193,483
|
|
|
|
|
|
|
|
39,848
|
|
|
|
|
|
|
|
9,233,331
|
|
(Repayments) borrowings of long-term indebtedness
|
|
|
(299,996
|
)
|
|
|
(1,719,000
|
)
|
|
|
(23,402
|
)
|
|
|
(21,234
|
)
|
|
|
|
|
|
|
(2,063,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
117,277
|
|
|
|
6,734,417
|
|
|
|
110,405
|
|
|
|
24,644
|
|
|
|
|
|
|
|
6,986,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
69,368
|
|
|
|
8,921
|
|
|
|
|
|
|
|
78,289
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
28,560
|
|
|
|
12,006
|
|
|
|
|
|
|
|
40,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
97,928
|
|
|
$
|
20,927
|
|
|
$
|
|
|
|
$
|
118,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read this discussion together with our unaudited
condensed consolidated financial statements and accompanying
notes included herein.
Unless the context otherwise requires, Community Health
Systems, the Company, we,
us and our refer to Community Health
Systems, Inc. and its consolidated subsidiaries.
Executive
Overview
We are the largest publicly traded operator of hospitals in the
United States in terms of number of facilities and net operating
revenues. We provide healthcare services through these hospitals
that we own and operate in non-urban and selected urban markets.
We generate revenue primarily by providing a broad range of
general hospital healthcare services to patients in the
communities in which we are located. We currently have 116
general acute care hospitals included in continuing operations.
In addition, we own four home health agencies, located in
markets where we do not operate a hospital and through our
wholly-owned subsidiary, Quorum Health Resources, LLC
(QHR), we provide management and consulting services
to non-affiliated general acute care hospitals located
throughout the United States. We are paid for our services by
governmental agencies, private insurers and directly by the
patients we serve.
Effective July 25, 2007, we completed our acquisition of
Triad Hospitals, Inc., or Triad, for an aggregate
consideration of $6.857 billion, including
$1.686 billion of assumed indebtedness. In connection with
this acquisition, one of our subsidiaries issued
$3.021 billion principal amount of 8.875% senior notes
due 2015 (the Notes) and we entered into a new
$7.215 billion credit facility (the New Credit
Facility) consisting of a $6.065 billion term loan, a
$750 million revolving credit facility and a
$400 million delayed draw term loan facility. The delayed
draw term loan facility was subsequently reduced in the fourth
quarter of 2007, per our request, from $400 million to
$300 million. The proceeds of these financings were used to
pay the cash consideration under the merger agreement and to
refinance substantially all of both the assumed indebtedness and
our existing indebtedness and to pay related fees and expenses.
The revolving credit facility and the delayed draw term loan
facility remain available to us for future acquisitions, working
capital, and general corporate purposes. We believe the
acquisition of Triad will continue to benefit us since it has
expanded the number of markets we serve, expanded our operations
into five states where we previously did not operate, and
reduced our concentration of credit risk in any one state. We
also believe that synergies obtained from eliminating duplicate
corporate functions and centralizing many support functions will
allow us to improve Triads margins. During the three and
nine months ended September 30, 2008, we have realized
approximately $38 million and $115 million,
respectively, of our estimated synergies related to the Triad
acquisition.
Since July 25, 2007, we have sold seven hospitals acquired
from Triad and seven hospitals owned by us prior to our
acquisition of Triad. Accordingly, these hospitals have been
classified in discontinued operations in the condensed
consolidated statements of income for the three and nine months
ended September 30, 2008 and three and nine months ended
September 30, 2007 to the extent that the hospitals were
owned by us during the respective periods.
Effective June 30, 2008, we acquired the remaining 35%
equity interest in Affinity Health Systems, LLC which indirectly
owns and operates Trinity Medical Center (560 licensed beds)
located in Birmingham, Alabama, from Baptist Health Systems,
Inc. of Birmingham, Alabama (Baptist), giving us
100% ownership of that facility.
On October 1, 2008, subsequent to the end of the third
quarter of 2008, we completed the acquisition of Deaconess
Medical Center and Valley Hospital and Medical Center located in
Spokane, Washington, from Empire Health Services. This
represents our first hospital acquisition since the acquisition
of Triad in July, 2007. We have completed our initial
integration efforts related to Triad, and therefore selectively
pursue additional favorable acquisition opportunities during the
remainder of 2008 and into 2009.
In the quarter ended June 30, 2008, we were informed that
we would not receive the full amount of previously estimated
reimbursements under certain Indiana Medicaid programs. The
reductions are due partly to the state not receiving a federal
waiver for one of its programs and partly as a result of changes
to its disproportionate share
34
program which were different from what had previously been
communicated to us. This represents an approximately
$8.0 million reduction in expected payments from these
programs on an annual basis.
For the three months ended September 30, 2008, we generated
$2.773 billion in net operating revenues, a growth of 23.4%
over the three months ended September 30, 2007, and
$50.4 million of net income, an increase of 381.7% over the
three months ended September 30, 2007. For the three months
ended September 30, 2008, consolidated admissions increased
22.6% and adjusted admissions increased 21.9% over the three
months ended September 30, 2007. The increases in net
operating revenue and volume reflect our acquisition of the
former Triad hospitals and improvements in revenue per adjusted
admission.
For the nine months ended September 30, 2008, we generated
$8.191 billion in net operating revenues, a growth of 78.1%
over the nine months ended September 30, 2007, and
$158.4 million of net income, an increase of 33.6% over the
nine months ended September 30, 2007. For the nine months
ended September 30, 2008, consolidated admissions increased
68.9% and adjusted admissions increased 63.9% over the nine
months ended September 30, 2007. The increases in net
operating revenue and volume reflect our acquisition of the
former Triad hospitals and improvements in revenue per adjusted
admission.
We believe there continues to be ample opportunity for growth in
substantially all of our markets by decreasing the need for
patients to travel outside their communities for health care
services. Furthermore, we continue to benefit from synergies
from the Triad acquisition and will continue to strive to
improve operating efficiencies and procedures in order to
improve our profitability at all of our hospitals.
Sources
of Consolidated Net Operating Revenue
The following table presents the approximate percentages of net
operating revenue derived from Medicare, Medicaid, managed care
and other third party payors, and self-pay for the periods
indicated. The data for the periods presented are not strictly
comparable due to the significant effect that hospital
acquisitions have had on these statistics.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Medicare
|
|
|
26.2
|
%
|
|
|
27.8
|
%
|
|
|
27.4
|
%
|
|
|
29.0
|
%
|
Medicaid
|
|
|
9.3
|
%
|
|
|
10.5
|
%
|
|
|
8.8
|
%
|
|
|
10.7
|
%
|
Managed Care and other third party payors
|
|
|
53.3
|
%
|
|
|
50.9
|
%
|
|
|
52.8
|
%
|
|
|
48.7
|
%
|
Self-pay
|
|
|
11.2
|
%
|
|
|
10.8
|
%
|
|
|
11.0
|
%
|
|
|
11.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues include amounts estimated by management
to be reimbursable by Medicare and Medicaid under prospective
payment systems and provisions of cost-based reimbursement and
other payment methods. In addition, we are reimbursed by
non-governmental payors using a variety of payment
methodologies. Amounts we receive for treatment of patients
covered by these programs are generally less than the standard
billing rates. We account for the differences between the
estimated program reimbursement rates and the standard billing
rates as contractual allowance adjustments, which we deduct from
gross revenues to arrive at net operating revenues. Final
settlements under some of these programs are subject to
adjustment based on administrative review and audit by third
parties. We account for adjustments to previous program
reimbursement estimates as contractual allowance adjustments and
report them in the periods that such adjustments become known.
Adjustments related to final settlements that increased revenue
were insignificant to both net operating revenue and net income
in each of the three and nine months ended September 30,
2008 and 2007. In the future, we expect the percentage of
revenues received from the Medicare program to increase due to
the general aging of the population.
The payment rates under the Medicare program for inpatient acute
services are based on a prospective payment system, depending
upon the diagnosis of a patients condition. These rates
are indexed for inflation annually, although increases have
historically been less than actual inflation. Reductions in the
rate of increase in Medicare reimbursement may cause our net
operating revenue growth to decline.
35
In addition, specified managed care programs, insurance
companies, and employers are actively negotiating the amounts
paid to hospitals. The trend toward increased enrollment in
managed care may adversely affect our net operating revenue
growth.
Results
of Operations
Our hospitals offer a variety of services involving a broad
range of inpatient and outpatient medical and surgical services.
These include orthopedics, cardiology, occupational medicine,
diagnostic services, emergency services, rehabilitation
treatment, home health and skilled nursing. The strongest demand
for hospital services generally occurs during January through
April and the weakest demand for these services occurs during
the summer months. Accordingly, eliminating the effect of new
acquisitions, our net operating revenues and earnings are
historically highest during the first quarter and lowest during
the third quarter.
The following tables summarize, for the periods indicated,
selected operating data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Consolidated(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses(b)
|
|
|
(86.2
|
)
|
|
|
(87.3
|
)
|
|
|
(86.4
|
)
|
|
|
(86.4
|
)
|
Depreciation and amortization
|
|
|
(4.7
|
)
|
|
|
(4.5
|
)
|
|
|
(4.6
|
)
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
9.1
|
|
|
|
8.2
|
|
|
|
9.0
|
|
|
|
9.2
|
|
Interest expense, net
|
|
|
(6.1
|
)
|
|
|
(6.0
|
)
|
|
|
(6.0
|
)
|
|
|
(4.2
|
)
|
Loss from early extinguishment of debt
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
Minority interest in earnings
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
3.0
|
|
|
|
1.4
|
|
|
|
3.0
|
|
|
|
4.6
|
|
Provision for income taxes
|
|
|
(1.1
|
)
|
|
|
(0.5
|
)
|
|
|
(1.1
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
1.9
|
|
|
|
0.9
|
|
|
|
1.9
|
|
|
|
2.8
|
|
Loss on discontinued operations
|
|
|
(0.1
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1.8
|
%
|
|
|
0.5
|
%
|
|
|
1.9
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
Percentage increase (decrease) from same period prior year(a):
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
23.4
|
%
|
|
|
78.1
|
%
|
Admissions
|
|
|
22.6
|
|
|
|
68.9
|
|
Adjusted admissions(c)
|
|
|
21.9
|
|
|
|
63.9
|
|
Average length of stay
|
|
|
(2.4
|
)
|
|
|
0.0
|
|
Net income(d)
|
|
|
381.7
|
|
|
|
33.6
|
|
Same-store percentage increase from same period prior year(a)(e):
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
8.2
|
%
|
|
|
6.3
|
%
|
Admissions
|
|
|
2.3
|
|
|
|
2.8
|
|
Adjusted admissions(c)
|
|
|
2.5
|
|
|
|
2.9
|
|
36
|
|
|
(a) |
|
Pursuant to Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we have
restated our prior period financial statements and statistical
results to reflect discontinued operations. |
|
(b) |
|
Operating expenses include salaries and benefits, provision for
bad debts, supplies, rent and other operating expenses. |
|
(c) |
|
Adjusted admissions is a general measure of combined inpatient
and outpatient volume. We computed adjusted admissions by
multiplying admissions by gross patient revenues and then
dividing that number by gross inpatient revenues. |
|
(d) |
|
Includes loss from operations of discontinued hospitals and gain
on sale of discontinued hospitals. |
|
(e) |
|
Includes former Triad hospitals during the comparable periods
and other acquired hospitals to the extent we operated them in
both years. |
Three
months Ended September 30, 2008 Compared to Three months
Ended September 30, 2007
Net operating revenues increased $525.9 million to
$2.773 billion for the three months ended
September 30, 2008, from $2.247 billion for the three
months ended September 30, 2007. On a combined basis, the
hospitals acquired in the Triad acquisition and growth from
those hospitals owned throughout both periods contributed
$514.8 million of that increase and $11.1 million was
contributed by other hospitals acquired in 2007. On a same-store
basis, including the former Triad hospitals during the
comparable periods, this represents an increase in same-store
net revenue of 8.2%. The increase from hospitals that we owned
throughout both periods was attributable to volume increases,
rate increases, payor mix and the acuity level of services
provided.
On a consolidated basis, inpatient admissions increased by 22.6%
and adjusted admissions increased by 21.9%. With respect to the
increase in consolidated admissions, approximately 50.3% of the
admissions were contributed from newly acquired hospitals,
including those hospitals acquired from Triad, and 49.7% of the
admissions were contributed by hospitals we owned throughout
both periods. On a same-store basis, which includes the
hospitals acquired from Triad, as if we owned them during both
periods, admissions increased by 2.3% during the three months
ended September 30, 2008.
Operating expenses, excluding depreciation and amortization, as
a percentage of net operating revenues, decreased to 86.2% for
the three months ended September 30, 2008 compared to 87.3%
for the three months ended September 30, 2007. Salaries and
benefits, as a percentage of net operating revenues, decreased
0.8% to 39.4% for the three months ended September 30,
2008, compared to 40.2% for the three months ended
September 30, 2007. This decrease is primarily the result
of efficiency improvements realized at our hospitals owned
throughout both periods. These improvements were offset by an
increase in the number of employed physicians as well as an
increase in salaries for certain IT employees who were
previously treated as leased employees with related expense
previously being included in other operating expense. Provision
for bad debts, as a percentage of net operating revenues,
decreased 0.1% to 11.8% for the three months ended
September 30, 2008 compared to 11.9% for the three months
ended September 30, 2007. Supplies, as a percentage of net
operating revenues, increased 0.2% to 13.8% for the three months
ended September 30, 2008, as compared to 13.6% for the
three months ended September 30, 2007. This increase is
primarily the result of the acquisition of the former Triad
hospitals whose higher acuity of services resulted in higher
supply costs than our other hospitals taken collectively,
offsetting improvements from greater utilization of and improved
pricing under our purchasing program. Rent and other operating
expenses, as a percentage of net operating revenues, decreased
0.4% to 21.2% for the three months ended September 30,
2008, from 21.6% for the three months ended September 30,
2007. As part of our acquisition of Triad, we acquired minority
ownership interests in several hospitals. Our percentage of
ownership interests in these joint ventures provided earnings of
0.3% of net operating revenues for the three months ended
September 30, 2008, as compared to 0.6% for the three
months ended September 30, 2007. Prior to the Triad
acquisition, we did not have any material investments in
unconsolidated subsidiaries.
Depreciation and amortization increased from 4.5% of net
operating revenues for the three months ended September 30,
2007 to 4.7% of net operating revenues for the three months
ended September 30, 2008. The increase in depreciation and
amortization as a percentage of net operating revenue is
primarily due to the acquisition of the
37
former Triad hospitals which, as a result of a higher level of
capital spending, had a higher fair market valuation in relation
to their respective revenue than that of our other hospitals in
the comparable period.
Interest expense, net, increased by $32.6 million from
$135.2 million for the three months ended
September 30, 2007 to $167.8 million for the three
months ended September 30, 2008. An increase in interest
rates during the three months ended September 30, 2008, as
compared to the three months ended September 30, 2007,
accounted for $3.5 million of this increase, while an
increase in our average outstanding debt during the three months
ended September 30, 2008, as compared to the three months
ended September 30, 2007, accounted for the remaining
$29.1 million.
Income from continuing operations as a percentage of net
operating revenue increased from 0.9% for the three months ended
September 30, 2007 to 1.9% for the three months ended
September 30, 2008. Net income as a percentage of net
operating revenue increased from 0.5% for the three months ended
September 30, 2007 to 1.8% for the three months ended
September 30, 2008. The increase in income from continuing
operations as a percentage of net operating revenue and net
income as a percentage of net operating revenue are reflective
of the net decreases in operating expenses, as discussed above.
The net results of the above mentioned changes resulted in
income from continuing operations before income taxes increasing
$52.2 million from $31.4 million for the three months
ended September 30, 2007 to $83.6 million for the
three months ended September 30, 2008.
Provision for income taxes increased from $11.7 million for
the three months ended September 30, 2007 to
$32.2 million for the three months ended September 30,
2008, due primarily to an increase in taxable income in the
comparable period resulting from both the acquisition of Triad
as well as reducing operating expenses as a percentage of net
operating revenues.
Net income was $50.4 million for the three months ended
September 30, 2008 compared to $10.5 million for the
three months ended September 30, 2007, representing an
increase of 381.7%.
Nine
months Ended September 30, 2008 Compared to Nine months
Ended September 30, 2007
Net operating revenues increased $3.592 billion to
$8.191 billion for the nine months ended September 30,
2008, from $4.599 billion for the nine months ended
September 30, 2007. On a combined basis, the hospitals
acquired in the Triad acquisition and growth from those
hospitals owned throughout both periods contributed
$3.460 billion of that increase and $132.0 million was
contributed by other hospitals acquired in 2007. On a same-store
basis, including the former Triad hospitals during the
comparable periods, this represents an increase in same-store
net revenue of 6.3%. The increase from hospitals that we owned
throughout both periods was attributable to volume increases,
rate increases, payor mix and the acuity level of services
provided. Our revenue and volume increases were benefited by the
current year being a leap year thus have one additional business
day.
On a consolidated basis, inpatient admissions increased by 68.9%
and adjusted admissions increased by 63.9%. With respect to the
increase in consolidated admissions, approximately 51.2% of the
admissions were contributed from newly acquired hospitals,
including those hospitals acquired from Triad, and 48.8% of the
admissions were contributed by hospitals we owned throughout
both periods. On a same-store basis, which includes the
hospitals acquired from Triad, as if we owned them during both
periods, admissions increased by 2.8% during the nine months
ended September 30, 2008.
Operating expenses, excluding depreciation and amortization, as
a percentage of net operating revenues, remained consistent at
86.4% for the nine months ended September 30, 2008 and
2007. Salaries and benefits, as a percentage of net operating
revenues, decreased 0.2% to 39.8% for the nine months ended
September 30, 2008, compared to 40.0% for the nine months
ended September 30, 2007. This decrease is primarily the
result of efficiency improvements realized at our hospitals
owned throughout both periods. These improvements are offset by
an increase in the number of employed physicians as well as an
increase in salaries for certain IT employees who were
previously treated as leased employees with related expense
previously being included in other operating expense. Provision
for bad debts, as a percentage of net operating revenues,
decreased 0.5% to 11.2% for the nine months ended
September 30, 2008 compared to 11.7% for the nine months
ended September 30, 2007. This decrease is primarily the
result of the former Triad hospitals having a self-pay discount
program and historically
38
lower provision for bad debts, as well as our phasing in of a
discounting program at those hospitals where one previously did
not exist. Supplies, as a percentage of net operating revenues,
increased 1.4% to 14.0% for the nine months ended
September 30, 2008, as compared to 12.6% for the nine
months ended September 30, 2007. This increase is primarily
the result of the acquisition of the former Triad hospitals
whose higher acuity of services resulted in higher supply costs
than our other hospitals taken collectively, offsetting
improvements from greater utilization of and improved pricing
under our purchasing program. Rent and other operating expenses,
as a percentage of net operating revenues, decreased from 22.1%
for the nine months ended September 30, 2007 to 21.4% for
the nine months ended September 30, 2008. As part of our
acquisition of Triad, we acquired minority ownership interests
in several hospitals. Our percentage of ownership interests in
these joint ventures provided earnings of 0.4% of net operating
revenues for the nine months ended September 30, 2008, as
compared to 0.1% for the nine months ended September 30,
2007. Prior to the Triad acquisition, we did not have any
material investments in unconsolidated subsidiaries.
Depreciation and amortization increased from 4.4% of net
operating revenues for the nine months ended September 30,
2007 to 4.6% of net operating revenues for the nine months ended
September 30, 2008. The increase in depreciation and
amortization as a percentage of net operating revenue is
primarily due to the acquisition of the former Triad hospitals
which, as a result of a higher level of capital spending, had a
higher fair market valuation in relation to their respective
revenue than that of our other hospitals in the comparable
period.
Interest expense, net, increased by $295.0 million from
$192.8 million for the nine months ended September 30,
2007 to $487.8 million for the nine months ended
September 30, 2008. Since the current year is a leap year,
one additional day in the nine months resulted in
$0.3 million of the increase in interest expense. An
increase in interest rates during the nine months ended
September 30, 2008, as compared to the nine months ended
September 30, 2007, accounted for $30.1 million of
this increase, while an increase in our average outstanding debt
during the nine months ended September 30, 2008, as
compared to the nine months ended September 30, 2007,
accounted for the remaining $264.6 million.
Income from continuing operations as a percentage of net
operating revenue decreased from 2.8% for the nine months ended
September 30, 2007 to 1.9% for the nine months ended
September 30, 2008. Net income as a percentage of net
operating revenue decreased from 2.6% for the nine months ended
September 30, 2007 to 1.9% for the nine months ended
September 30, 2008. The decrease in income from continuing
operations as a percentage of net operating revenue and net
income as a percentage of net operating revenue are reflective
of the net increase in depreciation and amortization and
interest expense, as discussed above.
The net results of the above mentioned changes resulted in
income from continuing operations before income taxes increasing
$36.6 million from $211.6 million for the nine months
ended September 30, 2007 to $248.2 million for the
nine months ended September 30, 2008.
Provision for income taxes increased from $81.1 million for
the nine months ended September 30, 2007 to
$95.6 million for the nine months ended September 30,
2008, due primarily to an increase in taxable income in the
comparable period.
Net income was $158.4 million for the nine months ended
September 30, 2008 compared to $118.5 million for the
nine months ended September 30, 2007, representing an
increase of 33.7%.
Liquidity
and Capital Resources
Net cash provided by operating activities increased
$280.4 million, from $404.7 million for the nine
months ended September 30, 2007 to $685.1 million for
the nine months ended September 30, 2008. The increase in
cash flows, in comparison to the prior year period reflects
improved profitability, noted by the increase in net income of
$39.9 million, an increase in cash flow not reflected in
net income due to increases in non-cash expenses of
$164.4 million, consisting primarily of depreciation, an
increase in cash flow from the change in accounts payable,
accrued liabilities and income taxes of $139.2 million and
an increase in cash from the net changes in other operating
assets and liabilities of $5.9 million. These cash inflows
were offset by a decrease in cash flows from growth in accounts
receivable of $63.6 million, reflecting our growth in net
operating revenues and volume as
39
compared to the prior year, and a decrease in cash flows of
$5.4 million from the net activity of supplies, prepaid
expenses and other current assets.
The cash used in investing activities was $231.3 million
for the nine months ended September 30, 2008 compared to
$7.313 billion for the nine months ended September 30,
2007. This decrease in cash used in investing activities was due
to the acquisition of Triad during the nine months ended
September 30, 2007, compared to the sale of 11 hospitals,
as well as not completing any hospital acquisitions during the
nine months ended September 30, 2008. This change is offset
by an increase in capital expenditures compared to the nine
months ended September 30, 2007.
Cash provided by financing activities decreased from a net cash
inflow of $6.987 billion for the nine months ended
September 30, 2007 to a net cash outflow of
$244.8 million for the nine months ended September 30,
2008. This change is primarily due to the $6.903 billion of
financing received in 2007 from our New Credit Facility and
issuance of Notes in connection with the acquisition of Triad,
compared to the $192.5 million of repayment of our
long-term indebtedness during the nine months ended
September 30, 2008.
Capital
Expenditures
Cash expenditures related to purchases of facilities were
$7.3 million for the nine months ended September 30,
2008, compared to $6.982 billion for the nine months ended
September 30, 2007. These expenditures during the nine
months ended September 30, 2008 include the purchase of the
remaining 35% equity interest of our hospital in Birmingham,
Alabama, and the acquisition of ten physician practices and four
clinics. The expenditures during the nine months ended
September 30, 2007 included $6.830 billion related to
the acquisition of Triad and $145.5 million for the
acquisition of two hospitals, the contingent settlements of
working capital items from acquisitions in the prior year and
the acquisition of five physician practices and
$7.1 million for the purchase of information systems and
other equipment to integrate recently acquired hospitals.
Excluding the cost to construct replacement hospitals, our
capital expenditures for the nine months ended
September 30, 2008, totaled $329.1 million, compared
to $177.4 million for the nine months ended
September 30, 2007. Costs to construct replacement
hospitals totaled $122.4 million during the nine months
ended September 30, 2008 compared to $101.1 million
during the nine months ended September 30, 2007. Pursuant
to a hospital purchase agreement in effect as of
September 30, 2008, where required certificate of need
approval has been obtained, we are required to build a
replacement facility in Valparaiso, Indiana by April 2011. Three
previously required replacement hospitals were recently
completed and opened: one in Clarksville, Tennessee (June 2008),
one in Shelbyville, Tennessee (July 2008), and one in
Petersburg, Virginia (August 2008). Also, as required by an
amendment to a lease agreement entered into in 2005, we agreed
to build a replacement hospital at our Barstow, California
location by 2013. Estimated construction costs, including
equipment, of the two hospitals required to be completed and
where certificate of need approval has been obtained is
$295.0 million. To date, approximately $7.2 million of
these costs have been incurred. The construction costs,
including equipment, of the three facilities completed and
opened in 2008 was $371.2 million, all of which has been
incurred to date. In addition, in October 2008, after the
purchase of the minority owners interest in our
Birmingham, Alabama facility, we have initiated the purchased of
an alternate site for a replacement hospital rather than the one
previously selected by Triad. The new site includes a partially
constructed hospital structure, for which we are currently
assessing completion costs, to be used for relocating our
existing Birmingham facility. This project is subject to our
application for and approval of a certificate of need. Upon
receiving the certification of need we will undertake completion
of the unfinished facility.
Capital
Resources
Net working capital was $1.223 billion at
September 30, 2008, compared to $1.105 billion at
December 31, 2007. The $156.7 million increase was
attributable primarily to an increase in cash and accounts
receivable and a decrease in accounts payable, which reflects
the timing of our cash collections and payments.
In connection with the consummation of the Triad acquisition in
July 2007, we obtained $7.215 billion of senior secured
financing under a New Credit Facility with a syndicate of
financial institutions led by Credit Suisse, as administrative
agent and collateral agent. The New Credit Facility consists of
a $6.065 billion funded term loan
40
facility with a maturity of seven years, a $300 million
delayed draw term loan facility (reduced from $400 million)
with a maturity of seven years and a $750 million revolving
credit facility with a maturity of nine years. The revolving
credit facility also includes a subfacility for letters of
credit and a swingline subfacility. The New Credit Facility
requires us to make quarterly amortization payments of each term
loan facility equal to 0.25% of the initial outstanding amount
of the term loans, if any, with the outstanding principal
balance of each term loan facility payable on July 25, 2014.
The term loan facility must be prepaid in an amount equal to
(1) 100% of the net cash proceeds of certain asset sales
and dispositions by us and our subsidiaries, subject to certain
exceptions and reinvestment rights, (2) 100% of the net
cash proceeds of issuances of certain debt obligations or
receivables based financing by us and our subsidiaries, subject
to certain exceptions, and (3) 50%, subject to reduction to
a lower percentage based on our leverage ratio (as defined in
the New Credit Facility generally as the ratio of total debt on
the date of determination to our EBITDA, as defined, for the
four quarters most recently ended prior to such date), of excess
cash flow (as defined) for any year, commencing in 2008, subject
to certain exceptions. Voluntary prepayments and commitment
reductions are permitted in whole or in part, without premium or
penalty, subject to minimum prepayment or reduction requirements.
The obligor under the New Credit Facility is CHS/Community
Health Systems, Inc., or CHS, a wholly-owned subsidiary of
Community Health Systems, Inc. All of our obligations under the
New Credit Facility are unconditionally guaranteed by Community
Health Systems, Inc. and certain existing and subsequently
acquired or organized domestic subsidiaries. All obligations
under the New Credit Facility and the related guarantees are
secured by a perfected first priority lien or security interest
in substantially all of the assets of Community Health Systems,
Inc., CHS and each subsidiary guarantor, including equity
interests held by us or any subsidiary guarantor, but excluding,
among others, the equity interests of non-significant
subsidiaries, syndication subsidiaries, securitization
subsidiaries and joint venture subsidiaries.
The loans under the New Credit Facility will bear interest on
the outstanding unpaid principal amount at a rate equal to an
applicable percentage plus, at our option, either (a) an
Alternate Base Rate (as defined) determined by reference to the
greater of (1) the Prime Rate (as defined) announced by
Credit Suisse or (2) the Federal Funds Effective Rate (as
defined) plus one-half of 1.0%, or (b) a reserve adjusted
London interbank offered rate for dollars (Eurodollar rate) (as
defined). The applicable percentage for term loans is 1.25% for
Alternate Base Rate loans and 2.25% for Eurodollar rate loans.
The applicable percentage for revolving loans will initially be
1.25% for Alternate Base Rate revolving loans and 2.25% for
Eurodollar revolving loans, in each case subject to reduction
based on our leverage ratio. Loans under the swingline
subfacility bear interest at the rate applicable to Alternate
Base Rate loans under the revolving credit facility.
We have agreed to pay letter of credit fees equal to the
applicable percentage then in effect with respect to Eurodollar
rate loans under the revolving credit facility times the maximum
aggregate amount available to be drawn under all letters of
credit outstanding under the subfacility for letters of credit.
The issuer of any letter of credit issued under the subfacility
for letters of credit will also receive a customary fronting fee
and other customary processing charges. We are initially
obligated to pay commitment fees of 0.50% per annum (subject to
reduction based upon on our leverage ratio), on the unused
portion of the revolving credit facility. For purposes of this
calculation, swingline loans are not treated as usage of the
revolving credit facility. We are also obligated to pay
commitment fees of 0.50% per annum for the first nine months
after the close of the New Credit Facility, 0.75% per annum
for the next three months thereafter and 1.0% per annum
thereafter, in each case on the unused amount of the delayed
draw term loan facility. We also paid arrangement fees on the
closing of the New Credit Facility and will pay an annual
administrative agent fee.
The New Credit Facility contains customary representations and
warranties, subject to limitations and exceptions, and customary
covenants restricting our and our subsidiaries ability to,
among other things and subject to various exceptions,
(1) declare dividends, make distributions or redeem or
repurchase capital stock, (2) prepay, redeem or repurchase
other debt, (3) incur liens or grant negative pledges,
(4) make loans and investments and enter into acquisitions
and joint ventures, (5) incur additional indebtedness or
provide certain guarantees, (6) make capital expenditures,
(7) engage in mergers, acquisitions and asset sales,
(8) conduct transactions with affiliates, (9) alter
the nature of our businesses, (10) grant certain guarantees
with respect to
41
physician practices, (11) engage in sale and leaseback
transactions or (12) change our fiscal year. We and our
subsidiaries are also required to comply with specified
financial covenants (consisting of a leverage ratio and an
interest coverage ratio) and various affirmative covenants.
Events of default under the New Credit Facility include, but are
not limited to, (1) our failure to pay principal, interest,
fees or other amounts under the credit agreement when due
(taking into account any applicable grace period), (2) any
representation or warranty proving to have been materially
incorrect when made, (3) covenant defaults subject, with
respect to certain covenants, to a grace period,
(4) bankruptcy events, (5) a cross default to certain
other debt, (6) certain undischarged judgments (not paid
within an applicable grace period), (7) a change of
control, (8) certain ERISA-related defaults and
(9) the invalidity or impairment of specified security
interests, guarantees or subordination provisions in favor of
the administrative agent or lenders under the New Credit
Facility.
As of September 30, 2008, there was approximately
$1.050 billion of available borrowing capacity under our
New Credit Facility, of which $78.3 million was set aside
for outstanding letters of credit.
During the nine months ended September 30, 2008, we
repurchased on the open market and cancelled $62.7 million
of principal amount of the Notes. This resulted in a loss from
early extinguishment of debt of $1.3 million with an
after-tax impact of $0.9 million.
As of September 30, 2008, we are currently a party to the
following interest rate swap agreements to limit the effect of
changes in interest rates on a portion of our long-term
borrowings. On each of these swaps, we received a variable rate
of interest based on the three-month London Inter-Bank Offer
Rate (LIBOR), in exchange for the payment by us of a
fixed rate of interest. We currently pay, on a quarterly basis,
a margin above LIBOR of 225 basis points for revolving
credit and term loans under the New Credit Facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Fixed Interest
|
|
Termination
|
|
Fair Value
|
|
Swap #
|
|
(in 000s)
|
|
Rate
|
|
Date
|
|
(in 000s)
|
|
|
1
|
|
|
100,000
|
|
|
3.9350%
|
|
June 6, 2009
|
|
$
|
(626
|
)
|
2
|
|
|
100,000
|
|
|
4.3375%
|
|
November 30, 2009
|
|
|
(1,534
|
)
|
3
|
|
|
200,000
|
|
|
2.8800%
|
|
September 17, 2010
|
|
|
2,152
|
|
4
|
|
|
100,000
|
|
|
4.9360%
|
|
October 4, 2010
|
|
|
(3,360
|
)
|
5
|
|
|
100,000
|
|
|
4.7090%
|
|
January 24, 2011
|
|
|
(3,058
|
)
|
6
|
|
|
300,000
|
|
|
5.1140%
|
|
August 8, 2011
|
|
|
(13,140
|
)
|
7
|
|
|
100,000
|
|
|
4.7185%
|
|
August 19, 2011
|
|
|
(3,268
|
)
|
8
|
|
|
100,000
|
|
|
4.7040%
|
|
August 19, 2011
|
|
|
(3,175
|
)
|
9
|
|
|
100,000
|
|
|
4.6250%
|
|
August 19, 2011
|
|
|
(3,001
|
)
|
10
|
|
|
200,000
|
|
|
4.9300%
|
|
August 30, 2011
|
|
|
(7,773
|
)
|
11
|
|
|
200,000
|
|
|
3.0920%
|
|
September 18, 2011
|
|
|
3,110
|
|
12
|
|
|
200,000
|
|
|
4.4815%
|
|
October 26, 2011
|
|
|
(5,130
|
)
|
13
|
|
|
200,000
|
|
|
4.0840%
|
|
December 3, 2011
|
|
|
(1,557
|
)
|
14
|
|
|
100,000
|
|
|
3.8470%
|
|
January 4, 2012
|
|
|
(521
|
)
|
15
|
|
|
100,000
|
|
|
3.8510%
|
|
January 4, 2012
|
|
|
(541
|
)
|
16
|
|
|
100,000
|
|
|
3.8560%
|
|
January 4, 2012
|
|
|
(590
|
)
|
17
|
|
|
200,000
|
|
|
3.7260%
|
|
January 8, 2012
|
|
|
(319
|
)
|
18
|
|
|
200,000
|
|
|
3.5065%
|
|
January 16, 2012
|
|
|
1,184
|
|
19
|
|
|
250,000
|
|
|
5.0185%
|
|
May 30, 2012
|
|
|
(11,186
|
)
|
20
|
|
|
150,000
|
|
|
5.0250%
|
|
May 30, 2012
|
|
|
(6,760
|
)
|
21
|
|
|
200,000
|
|
|
4.6845%
|
|
September 11, 2012
|
|
|
(6,584
|
)
|
22
|
|
|
125,000
|
|
|
4.3745%
|
|
November 23, 2012
|
|
|
(2,654
|
)
|
23
|
|
|
75,000
|
|
|
4.3800%
|
|
November 23, 2012
|
|
|
(2,598
|
)
|
24
|
|
|
150,000
|
|
|
5.0200%
|
|
November 30, 2012
|
|
|
(7,046
|
)
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Fixed Interest
|
|
Termination
|
|
Fair Value
|
|
Swap #
|
|
(in 000s)
|
|
Rate
|
|
Date
|
|
(in 000s)
|
|
|
25
|
|
|
100,000
|
|
|
5.0230%
|
|
May 30, 2013
|
|
|
(4,880
|
)
|
26
|
|
|
300,000
|
|
|
5.2420%
|
|
August 6, 2013
|
|
|
(17,812
|
)
|
27
|
|
|
100,000
|
|
|
5.0380%
|
|
August 30, 2013
|
|
|
(5,009
|
)
|
28
|
|
|
100,000
|
|
|
5.0500%
|
|
November 30, 2013
|
|
|
(5,123
|
)
|
29
|
|
|
100,000
|
|
|
5.2310%
|
|
July 25, 2014
|
|
|
(6,269
|
)
|
30
|
|
|
100,000
|
|
|
5.2310%
|
|
July 25, 2014
|
|
|
(6,340
|
)
|
31
|
|
|
200,000
|
|
|
5.1600%
|
|
July 25, 2014
|
|
|
(11,872
|
)
|
32
|
|
|
75,000
|
|
|
5.0405%
|
|
July 25, 2014
|
|
|
(3,950
|
)
|
33
|
|
|
125,000
|
|
|
5.0215%
|
|
July 25, 2014
|
|
|
(6,463
|
)
|
The New Credit Facility
and/or the
Notes contain various covenants that limit our ability to take
certain actions including, among other things, our ability to:
|
|
|
|
|
incur, assume or guarantee additional indebtedness;
|
|
|
|
issue redeemable stock and preferred stock;
|
|
|
|
repurchase capital stock;
|
|
|
|
make restricted payments, including paying dividends and making
investments;
|
|
|
|
redeem debt that is junior in right of payment to the notes;
|
|
|
|
create liens without securing the notes;
|
|
|
|
sell or otherwise dispose of assets, including capital stock of
subsidiaries;
|
|
|
|
enter into agreements that restrict dividends from subsidiaries;
|
|
|
|
merge, consolidate, sell or otherwise dispose of substantial
portions of our assets;
|
|
|
|
enter into transactions with affiliates; and
|
|
|
|
guarantee certain obligations.
|
In addition, our New Credit Facility contains restrictive
covenants and requires us to maintain specified financial ratios
and satisfy other financial condition tests. Our ability to meet
these restricted covenants and financial ratios and tests can be
affected by events beyond our control, and we cannot assure you
that we will meet those tests. A breach of any of these
covenants could result in a default under our New Credit
Facility
and/or the
Notes. Upon the occurrence of an event of default under our New
Credit Facility or the Notes, all amounts outstanding under our
New Credit Facility and the Notes may become due and payable and
all commitments under the New Credit Facility to extend further
credit may be terminated.
We believe that internally generated cash flows, availability
for additional borrowings under our New Credit Facility of
$1.050 billion (consisting of a $750 million revolving
credit facility and a $300 million delayed draw term loan
facility) and our ability to add up to $300 million of
borrowing capacity from receivable transactions (including
securitizations) will be sufficient to finance acquisitions,
capital expenditures and working capital requirements through
the next 12 months. We believe these same sources of cash
flows, borrowings under our credit agreement and, despite the
current conditions in the financial and capital markets
resulting from the global credit and liquidity issues, access to
bank credit and capital markets will be available to us beyond
the next 12 months and into the foreseeable future.
Off-balance
sheet arrangements
Excluding the hospitals whose leases terminated in conjunction
with our sale of interests in the partnerships holding the
leases and whose operating results are included in discontinued
operations, our consolidated operating
43
results for the nine months ended September 30, 2008 and
2007, included $212.2 million and $203.8 million,
respectively, of net operating revenue and $14.2 million
and $14.9 million, respectively, of income from operations
generated from nine hospitals operated by us under operating
lease arrangements. In accordance with accounting principles
generally accepted in the United States of America, or GAAP, the
respective assets and the future lease obligations under these
arrangements are not recorded on our condensed consolidated
balance sheet. Lease payments under these arrangements are
included in rent expense when paid and totaled approximately
$12.5 million for the nine months ended September 30,
2008, compared to $11.5 million for the nine months ended
September 30, 2007. The current terms of these operating
leases expire between June 2010 and December 2019, not including
lease extension options. If we allow these leases to expire, we
would no longer generate revenue nor incur expenses from these
hospitals.
In the past, we have utilized operating leases as a financing
tool for obtaining the operations of specified hospitals without
acquiring, through ownership, the related assets of the hospital
and without a significant outlay of cash at the front end of the
lease. We utilize the same management and operating strategies
to improve operations at those hospitals held under operating
leases as we do at those hospitals that we own. We have not
entered into any operating leases for hospital operations since
December 2000.
Joint
Ventures
We have sold minority interests in certain of our subsidiaries
or acquired subsidiaries with existing minority interest
ownership positions. Triad implemented this strategy to a
greater extent than we did, and in conjunction with the
acquisition of Triad, we acquired 19 hospitals containing
minority ownership interests ranging from less than 1% to 35%.
As of September 30, 2008, 20 of our hospitals were owned by
physician joint ventures, of which two also had non-profit
entities as partners. In addition, five other hospitals had
non-profit entities as partners. Effective June 30, 2008,
we acquired the remaining 35% equity interest in Affinity Health
Systems, LLC which indirectly owns and operates Trinity Medical
Center (560 licensed beds) in Birmingham, Alabama, from Baptist,
giving us 100% ownership of that facility. Minority interests in
equity of consolidated subsidiaries was $343.5 million and
$366.1 million as of September 30, 2008 and
December 31, 2007, respectively, and the amount of minority
interest in earnings was $10.4 million and
$5.4 million for the three months ended September 30,
2008 and 2007, respectively, and $28.4 million and
$6.2 million for the nine months ended September 30,
2008 and 2007, respectively.
Reimbursement,
Legislative and Regulatory Changes
Legislative and regulatory action has resulted in continuing
change in the Medicare and Medicaid reimbursement programs which
will continue to limit payment increases under these programs
and in some cases implement payment decreases. Within the
statutory framework of the Medicare and Medicaid programs, there
are substantial areas subject to administrative rulings,
interpretations, and discretion which may further affect
payments made under those programs, and the federal and state
governments might, in the future, reduce the funds available
under those programs or require more stringent utilization and
quality reviews of hospital facilities. Additionally, there may
be a continued rise in managed care programs and future
restructuring of the financing and delivery of healthcare in the
United States. These events could cause our future financial
results to decline.
Inflation
The healthcare industry is labor intensive. Wages and other
expenses increase during periods of inflation and when labor
shortages occur in the marketplace. In addition, our suppliers
pass along rising costs to us in the form of higher prices. We
have implemented cost control measures, including our case and
resource management program, to curb increases in operating
costs and expenses. We have generally offset increases in
operating costs by increasing reimbursement for services,
expanding services and reducing costs in other areas. However,
we cannot predict our ability to cover or offset future cost
increases.
Critical
Accounting Policies
The discussion and analysis of our financial condition and
results of operations are based upon our condensed consolidated
financial statements, which have been prepared in accordance
with GAAP. The preparation of these
44
financial statements requires us to make estimates and judgments
that affect the reported amount of assets and liabilities,
revenues and expenses, and related disclosure of contingent
assets and liabilities at the date of our condensed consolidated
financial statements. Actual results may differ from these
estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, and
potentially result in materially different results under
different assumptions and conditions. We believe that our
critical accounting policies are limited to those described
below.
Third
Party Reimbursement
Net operating revenues include amounts estimated by management
to be reimbursable by Medicare and Medicaid under prospective
payment systems and provisions of cost-reimbursement and other
payment methods. In addition, we are reimbursed by
non-governmental payors using a variety of payment
methodologies. Amounts we receive for treatment of patients
covered by these programs are generally less than the standard
billing rates. Excluding the former Triad hospitals, contractual
allowances are automatically calculated and recorded through our
internally developed automated contractual allowance
system. Within the automated system, actual Medicare DRG
data, coupled with all payors historical paid claims data,
is utilized to calculate the contractual allowances. This data
is automatically updated on a monthly basis. For the former
Triad hospitals, contractual allowances are determined through a
manual process wherein contractual allowance adjustments,
regardless of payor or method of calculation, are reviewed and
compared to actual payment experience. The methodology used is
similar to the methodology used within our automated
contractual allowance system. The former Triad hospitals
are being phased into the automated contractual allowance
system. All hospital contractual allowance calculations
are subjected to monthly review by management to ensure
reasonableness and accuracy. We account for the differences
between the estimated program reimbursement rates and the
standard billing rates as contractual allowance adjustments,
which we deduct from gross revenues to arrive at net operating
revenues. The process of estimating contractual allowances
requires us to estimate the amount expected to be received based
on payor contract provisions. The key assumption in this process
is the estimated contractual reimbursement percentage, which is
based on payor classification and historical paid claims data.
Due to the complexities involved in these estimates, actual
payments we receive could be different from the amounts we
estimate and record. If the actual contractual reimbursement
percentage under government programs and managed care contracts
differed by 1% from our estimated reimbursement percentage, net
income for the nine months ended September 30, 2008 would
have changed by approximately $24.5 million, and net
accounts receivable would have changed by $39.9 million.
Final settlements under some of these programs are subject to
adjustment based on administrative review and audit by third
parties. We account for adjustments to previous program
reimbursement estimates as contractual allowance adjustments and
report them in the periods that such adjustments become known.
Contractual allowance adjustments related to final settlements
increased net operating revenue and net income by an
insignificant amount in each of the three and nine months ended
September 30, 2008 and September 30, 2007.
Allowance
for Doubtful Accounts
Substantially all of our accounts receivable are related to
providing healthcare services to our hospitals patients.
Collection of these accounts receivable is our primary source of
cash and is critical to our operating performance. Our primary
collection risks relate to uninsured patients and outstanding
patient balances for which the primary insurance payor has paid
some but not all of the outstanding balance, with the remaining
outstanding balance (generally deductibles and co-payments) owed
by the patient. At the point of service, for patients required
to make a co-payment, we generally collect less than 15% of the
related revenue. For all procedures scheduled in advance, our
policy is to verify insurance coverage prior to the date of the
procedure. Insurance coverage is not verified in advance of
procedures for walk-in and emergency room patients.
We estimate the allowance for doubtful accounts by reserving a
percentage of all self-pay accounts receivable without regard to
aging category, based on collection history, adjusted for
expected recoveries and, if present, anticipated changes in
trends. For all other payor categories we reserve 100% of all
accounts aging over 365 days from the date of discharge.
The percentage used to reserve for all self-pay accounts is
based on our collection history. We believe that we collect
substantially all of our third-party insured receivables which
include receivables
45
from governmental agencies. During the quarter ended
December 31, 2007, in conjunction with our ongoing process
of monitoring the net realizable value of our accounts
receivable, as well as integrating the methodologies, data and
assumptions used by the former Triad management, we performed
various analyses including updating a review of historical cash
collections. As a result of these analyses, we noted
deterioration in certain key cash collection indicators.
The primary key cash collection indicator that experienced
deterioration during the fourth quarter of 2007 was cash
receipts as a percentage of net revenue less bad debts.
This percentage decreased to the lowest percentage experienced
by us since the quarter ended September 30, 2006. Further
analysis indicated the primary causes of this deterioration were
a continuing increase in the volume of indigent non-resident
aliens, an increase in the number of patients qualifying for
charity care and a greater than expected impact of the removal
of participants from TennCare (Tennessees state provided
Medicaid program) which increased the number of uninsured
patients with limited financial means receiving care at our
eight Tennessee hospitals. During the fourth quarter of 2007,
due to the deteriorating cash collections and desire to
standardize processes with those of the former Triad hospitals,
we undertook a detailed programming effort to develop data
around the deteriorating classes of accounts receivable needed
to update our historical cash collections percentages as well as
enable us to estimate how much of certain self-pay categories
ultimately convert to Medicaid, charity and indigent programs.
Triads processes for establishing contractual allowances
and allowances for bad debts related to accounts classified as
Medicaid pending, charity pending and
indigent non-resident alien included inputs and assumptions
based on the historical percentage of these accounts which
ultimately qualified for specific government programs or for
write-off as charity care.
We used these new inputs and assumptions regarding
Medicaid pending, charity pending, and
indigent non-resident alien in conjunction with the new data
developed in the fourth quarter as described above to evaluate
the realizability of accounts receivable and to revise our
estimate of contractual allowances for estimated amounts of
self-pay accounts receivable that will ultimately qualify as
charity care, or that will ultimately qualify for Medicaid,
indigent care or other specific governmental reimbursement,
resulting in an increase to our contractual reserves of
$96.3 million as of December 31, 2007. Previous
estimates of uncollectible amounts for such receivables were
included in our bad debt reserves for each period.
Furthermore, in updating the historical collection statistics of
all our hospitals, we also took into account a detailed study of
the historical collection information for the hospitals acquired
from Triad. The updated collection statistics of the hospitals
acquired from Triad also showed subsequent deterioration in cash
collections similar to those experienced by the other hospitals
that we own. Therefore, we also standardized the processes for
calculating the allowance for doubtful accounts of the hospitals
acquired from Triad to that of our other hospitals which, along
with the allowance percentages determined from the new
collection data, resulted in the recording of an additional
$70.1 million of allowance for bad debts as of
December 31, 2007.
The resulting impact, net of taxes, for the year ended
December 31, 2007 was a decrease to income from continuing
operations of $105.4 million. We believe this lower
collectability was primarily the result of an increase in the
number of patients qualifying for charity care, reduced
enrollment in certain state Medicaid programs and an increase in
the number of indigent non-resident aliens. Collections are
impacted by the economic ability of patients to pay and the
effectiveness of our collection efforts. Significant changes in
payor mix, business office operations, economic conditions or
trends in federal and state governmental healthcare coverage
could affect our collection of accounts receivable. The process
of estimating the allowance for doubtful accounts requires us to
estimate the collectability of self-pay accounts receivable,
which is primarily based on our collection history, adjusted for
expected recoveries and, if available, anticipated changes in
collection trends. Significant change in payor mix, business
office operations, economic conditions, trends in federal and
state governmental healthcare coverage or other third party
payors could affect our estimates of accounts receivable
collectability. If the actual collection percentage differed by
1% from our estimated collection percentage as a result of a
change in expected recoveries, net income for the nine months
ended September 30, 2008 would have changed by
$11.1 million, and net accounts receivable would have
changed by $18.1 million. We also continually review our
overall reserve adequacy by monitoring historical cash
collections as a percentage of trailing net revenue less
provision for bad debts, as well as by analyzing current period
net revenue and admissions by payor classification, aged
accounts receivable by payor, days revenue outstanding, and the
impact of recent acquisitions and dispositions.
46
Our policy is to write-off gross accounts receivable if the
balance is under $10.00 or when such amounts are placed with
outside collection agencies. We believe this policy accurately
reflects our ongoing collection efforts and is consistent with
industry practices. We had approximately $1.4 billion and
$1.5 billion at September 30, 2008 and
December 31, 2007, respectively, being pursued by various
outside collection agencies. We expect to collect less than 3%,
net of estimated collection fees, of the amounts being pursued
by outside collection agencies. As these amounts have been
written-off, they are not included in our gross accounts
receivable or our allowance for doubtful accounts. Collections
on amounts previously written-off are recognized in income when
received. However, we take into consideration estimated
collections of these future amounts written-off in evaluating
the reasonableness of our allowance for doubtful accounts.
All of the following information is derived from our hospitals,
excluding clinics, unless otherwise noted.
Patient accounts receivable from our hospitals represent
approximately 95% of our total consolidated accounts receivable.
Days revenue outstanding was 54 days at September 30,
2008 and 54 days at December 31, 2007. Our target
range for days revenue outstanding is 52
58 days.
Total gross accounts receivable (prior to allowance for
contractual adjustments and doubtful accounts) was approximately
$5.522 billion as of September 30, 2008 and
approximately $4.761 billion as of December 31, 2007.
The approximate percentage of total gross accounts receivable
(prior to allowance for contractual adjustments and doubtful
accounts) summarized by aging categories is as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
0 to 60 days
|
|
|
62.5
|
%
|
|
|
61.1
|
%
|
61 to 150 days
|
|
|
17.3
|
%
|
|
|
18.8
|
%
|
151 to 360 days
|
|
|
15.9
|
%
|
|
|
15.4
|
%
|
Over 360 days
|
|
|
4.3
|
%
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|