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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, 2003

Commission file number 001-15925

COMMUNITY HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

155 Franklin Road, Suite 400
Brentwood, Tennessee
(Address of principal executive offices)

37027
(Zip Code)

615-373-9600
(Registrant's telephone number)

        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, and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes ý No o

        As of November 3, 2003, there were outstanding 98,491,650 shares of the Registrant's Common Stock, $.01 par value.

Community Health Systems, Inc.
Form 10-Q
For the Quarter and Nine Months Ended September 30, 2003

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

See accompanying notes.

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(Unaudited)

See accompanying notes.

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

See accompanying notes.

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     BASIS OF PRESENTATION

        The unaudited condensed consolidated financial statements of Community Health Systems, Inc. and its subsidiaries (the "Company") as of and for the three and nine month periods ended September 30, 2003 and September 30, 2002, have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2003.

        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, although the Company believes the disclosure is 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, 2002 contained in the Company's Annual Report on Form 10-K.

2.     USE OF ESTIMATES

        The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from the estimates.

3.     RECENT ACCOUNTING PRONOUNCEMENT

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities ("VIE's")" ("FIN No. 46"). This interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. Effective with the quarter beginning July 1, 2003, the interpretation applies immediately to VIE's created before February 1, 2003, and to interest obtained in VIE's before February 1, 2003. Under certain conditions, the effective date has been delayed to the first year or interim period ending after December 15, 2003. The Company does not expect the adoption of this interpretation to have a material effect on our consolidated financial position or consolidated results of operations. As of September 30, 2003 the Company has no investments in VIE's.

        In May 2003, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 149 "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The Company does not anticipate a material impact on its results of operations or financial position from the adoption of SFAS No. 149.

        In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective immediately for instruments entered into or modified after May 15, 2003, and to all other instruments that exist as of the beginning of the first interim reporting period beginning after June 15, 2003. The Company does not anticipate a material impact on its results of operations or financial position from the adoption of SFAS No. 150.

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4.     ACQUISITIONS

        Effective January 1, 2003, the Company acquired seven hospitals located in West Tennessee from Methodist Healthcare Corporation of Memphis, Tennessee in a single purchase transaction. The aggregate consideration for the seven hospitals totaled approximately $150 million of which approximately $141 million was paid in cash and approximately $9 million was assumed in liabilities. Combined licensed beds at these seven facilities total 676.

        Effective July 1, 2003, the Company acquired Pottstown Memorial Center located in Pottstown, Pennsylvania, approximately 50 miles west of Philadelphia and 25 miles east of Reading, Pennsylvania. The hospital, which has a total of 222 beds, was acquired from a local not-for-profit organization. The aggregate consideration for the hospital totaled approximately $87 million of which approximately $80 million was paid in cash and approximately $7 million was assumed in liabilities. Licensed beds at this facility total 222.

        Effective August 1, 2003, the Company acquired Southside Regional Medical Center in Petersburg, Virginia in a capital lease transaction. The aggregate consideration for the hospital totaled approximately $92 million of which $81 million was paid in cash and approximately $11 million was assumed in liabilities. Licensed beds at this facility total 408. As part of this transaction, the Company has agreed to build a replacement hospital. This hospital was acquired from a public hospital authority.

        Substantially all cash paid for acquisitions in 2003 was borrowed under the Company's Credit Agreement.

5.     LONG-TERM DEBT

        On July 2, 2003, the Company amended its senior secured credit facility by exercising the feature allowing the Company to add up to $200 million of funded term loans with the same interest rate per annum as the existing term loans. After borrowing the full $200 million of the incremental term loans, the amended facility consists of $850 million in term loans that mature in 2010, $200 million in incremental term loans that mature in 2011, and a $350 million revolving credit facility that expires in 2008.

6.     ACCOUNTING FOR STOCK-BASED COMPENSATION

        The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Compensation cost for stock-based compensation, which is an insignificant amount for the Company, is measured as the excess of the fair value of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. SFAS No. 123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair value based method of accounting for stock-based employee compensation plans; however, it allows an entity to continue to measure compensation for those plans using the intrinsic value method of accounting prescribed by APB Opinion No. 25. The Company has elected to continue to measure compensation under the method of accounting as described above, and has adopted the disclosure requirements of SFAS No. 123 and SFAS No. 148.

        Had the fair value based method under SFAS No. 123 been used to value options granted and compensation expense recognized on a straight line basis over the vesting period of the grant, the

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Company's net income and income per share would have been reduced to the pro-forma amounts indicated below (in thousands, except per share data):

7.     GOODWILL AND OTHER INTANGIBLE ASSETS

        The changes in the carrying amount of goodwill for the nine months ended September 30, 2003, are as follows (in thousands):

        The Company completed its annual goodwill impairment test as required by SFAS No. 142, using a measurement date of September 30, 2002. Based on the results of the impairment test, the Company was not required to recognize an impairment of goodwill for the year ended December 31, 2002. The annual goodwill impairment test for 2003 is currently being performed using a measurement date of September 30, 2003.

        The gross carrying amount of the Company's other intangible assets was $4.5 million as of September 30, 2003 and $3.7 million as of December 31, 2002, and the net carrying amount was $3.0 million and $2.6 million as of September 30, 2003 and December 31, 2002, respectively. Other intangible assets are included in Other assets, net on the Company's balance sheet.

        The weighted-average amortization period for the intangible assets subject to amortization is approximately 6 years. There are no expected residual values related to these intangible assets. Amortization expense on intangible assets during the three and nine months ended September 30, 2003 was $0.1 million and $0.3 million, respectively. Amortization expense on existing intangible assets is estimated to be $0.2 million for the remainder of 2003, $0.6 million in fiscal 2004, $0.5 million in fiscal 2005, $0.3 million in fiscal 2006, $0.1 million in fiscal 2007, and $0.1 million in fiscal 2008.

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8.     EARNINGS PER SHARE

        The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share and per share data):

        Since the net income per share impact of the conversion of the convertible notes is less than the basic net income per share for the three and nine months ended September 30, 2003, and the three and nine months ended September 30, 2002, the convertible notes are dilutive for the periods and accordingly, must be included in the fully diluted calculation.

9.     STOCKHOLDERS' EQUITY

        On January 23, 2003, the Company announced an open market share repurchase program for up to five million shares of its common stock. The share repurchase program will conclude at the earlier of three years or when the maximum number of shares have been repurchased. As of September 30, 2003, the Company has repurchased 760,000 shares at an average cost of $18.45 per share.

10.   COMPREHENSIVE INCOME

        The following table presents the components of comprehensive income, net of related taxes. The change in fair value of interest rate swap agreements is a function of the spread between the fixed interest rate of the swap and the underlying variable interest rate (in thousands):

        The net change in fair value of the interest rate swap is included in stockholders' equity on the condensed consolidated balance sheets.

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11.   SUBSEQUENT EVENTS

        Effective October 1, 2003, the Company completed the acquisition of Laredo Medical Center in Laredo, Texas. The acquisition includes a 326 bed hospital, an ambulatory care center, a diagnostic center, a cancer center and several medical office buildings. The consideration for this hospital totaled approximately $129 million of which approximately $121 million was paid in cash and approximately $8 million was assumed in liabilities. This hospital is located approximately 140 miles south of San Antonio, Texas.

        Effective October 3, 2003, the Company entered into an additional $100 million interest rate swap agreement to limit the cash flow effect of changes in interest rates on a portion of our long-term borrowings. Under this agreement, the Company pays interest quarterly at an annualized fixed interest rate of 2.31% for a term ending October 3, 2006. On payment dates, the Company receives an offsetting variable rate of interest payment from a counterparty based on the three month London Inter-Bank Offer Rate, excluding the margin paid under the Company's credit agreement on a quarterly basis, which is currently 250 basis points.

        At the time of acquisition of the hospitals from Methodist Healthcare Corporation of Memphis, Tennessee, the hospital in Jackson, Tennessee was defending a long standing certificate of need challenge by its com