Community Health Systems, Inc. Announces Fourth Quarter 2006 Results

Community Health Systems, Inc. today announced financial and operating results for the fourth quarter and year ended December 31, 2006.

Net operating revenues for the fourth quarter ended December 31, 2006, totaled $1.154 billion, a 17.6% increase compared with $982.1 million for the same period last year. Income from continuing operations increased 5.5% to $53.6 million for the quarter ended December 31, 2006, compared with $50.8 million for the same period last year. Income from continuing operations per share (diluted) increased 5.6% to $0.57 on 94.6 million weighted average shares outstanding for the quarter ended December 31, 2006, compared with $0.54 on 98.4 million weighted average shares outstanding for the same period last year. Net income increased 11.4% to $53.6 million for the quarter ended December 31, 2006, compared with $48.1 million for the same period last year. Net income per share (diluted) increased 11.8% to $0.57 for the quarter ended December 31, 2006, compared to $0.51 for the same period last year.

Adjusted EBITDA for the fourth quarter of 2006 was $165.5 million, compared with $151.8 million for the same period last year, representing a 9.0% increase. Adjusted EBITDA is EBITDA adjusted to exclude discontinued operations and minority interest in earnings. The Company uses adjusted EBITDA as a measure of liquidity. Net cash provided by operating activities for the fourth quarter of 2006 was $82.2 million, compared with $75.3 million for the same period last year.

The consolidated financial results for the fourth quarter ended December 31, 2006, reflect a 15.7% increase in total admissions compared with the same period last year. On a same-store basis, admissions and adjusted admissions each increased 3.2% compared with the same period last year. On a same-store basis, net operating revenues increased 5.9% compared with the same period last year.

The fourth quarter 2006 results include additional compensation expense of $4.0 million, or $0.03 per diluted share, resulting from stock-based compensation calculated under SFAS No. 123R, “Share-Based Payment” which was adopted on a prospective basis beginning January 1, 2006.

The financial results for the year ended December 31, 2006, include the change in estimate of the Company’s allowance for doubtful accounts which was recorded in the third quarter ended September 30, 2006, as previously disclosed. The effect of this change resulted in a $65.0 million increase in the Company’s allowance for doubtful accounts on its September 30, 2006, balance sheet and a corresponding $65.0 million pre-tax increase to the provision for bad debts, which reduced adjusted EBITDA by $65.0 million and income from continuing operations by $40.0 million, or $0.42 per share (diluted), for the year ended December 31, 2006.

Net operating revenues for the year ended December 31, 2006, totaled $4.366 billion, a 16.8% increase compared with $3.738 billion for the same period last year. Before giving effect to the increase in the provision for bad debts discussed above, income from continuing operations increased 11.2% to $211.5 million, or $2.20 per share (diluted), on 96.2 million weighted average shares outstanding for the year ended December 31, 2006, compared with $190.1 million, or $2.02 per share (diluted), on 98.6 million weighted average shares outstanding for the same period last year, and net income increased to $208.3 million, or $2.17 per share (diluted), for the year ended December 31, 2006, compared with $167.5 million, or $1.79 per share (diluted), for the same period last year. After giving effect to the increase in the provision for bad debts discussed above, income from continuing operations decreased 9.8% to $171.5 million or $1.78 per share (diluted), compared with $190.1 million or $2.02 per share (diluted) for the same period last year, and net income decreased to $168.3 million, or $1.75 per share (diluted), for the year ended December 31, 2006, compared with $167.5 million or $1.79 per share (diluted), for the same period last year. Loss on discontinued operations for the year ended December 31, 2006, consists of an after-tax loss of approximately $3.2 million, or $0.03 per share (diluted), related primarily to the sale of one hospital in March of 2006, which was designated as being held for sale at December 31, 2005.

The consolidated financial results for the year ended December 31, 2006, reflect an 11.9% increase in total admissions compared with the same period last year. This increase is primarily attributable to hospitals acquired during 2006 and 2005. On a same-store basis, net operating revenues increased 7.0%, admissions increased 1.1% and adjusted admissions increased 0.9%, compared with the same period last year.

Before giving effect to the increase in the provision for bad debts discussed above, adjusted EBITDA for the year ended December 31, 2006, was $637.0 million, compared with $573.2 million for the same period last year, representing an 11.1% increase. After giving effect to the increase in the provision for bad debts discussed above, adjusted EBITDA for the year ended December 31, 2006, was $572.0 million, compared with $573.2 million for the same period last year, representing a 0.2% decrease. Net cash provided by operating activities for the year ended December 31, 2006, was $350.3 million, compared with $411.0 million for the same period last year.

The results for the year ended December 31, 2006, also include additional compensation expense of $14.8 million, or $0.10 per diluted share, resulting from stock-based compensation calculated under SFAS No. 123R, “Share-Based Payment”, which was adopted on a prospective basis beginning January 1, 2006.

“Our fourth quarter performance marked a solid finish to another good year for Community Health Systems,” commented Wayne T. Smith, chairman, president and chief executive officer of Community Health Systems, Inc. “We posted record revenues of $4.4 billion in 2006, a 17 percent gain over the prior year, reflecting strong volume growth across our network of hospitals throughout the country. Our same store growth metrics are another important measure of our success in 2006 and these favorable trends demonstrate consistent execution of our operating strategy.”

On November 1, 2006, the Company completed the acquisition of two separate hospitals. Campbell Memorial Hospital is a 99-bed acute care general hospital located in Weatherford, Texas. This hospital was acquired from a county hospital district and has been renamed “Weatherford Regional Medical Center.” The second acquisition was Union County Hospital, a 25-bed hospital located in Anna, Illinois. From September 2001 to November 1, 2006, the Company operated this hospital under a management agreement for a government entity.

“We further extended our market reach in 2006 with the acquisition of eight hospitals,” Smith added. “Community Health Systems has continued to pursue an aggressive acquisition strategy with a proven track record for finding suitable hospitals and successfully assimilating these facilities into our system. More importantly, we have enhanced the level of healthcare in more communities throughout the country. As we look ahead to 2007, we will continue to pursue our ongoing strategy of recruiting qualified physicians, adding new healthcare services and investing in our existing facilities and, at the same time, look for additional acquisition opportunities. We are excited about our prospects for growth and we remain focused on delivering value to both our shareholders and the communities we serve.”

Included on pages 11 and 12 of this press release is a table setting forth selected information concerning the updated projected consolidated operating results of the Company for the year ending December 31, 2007. This projection reaffirms the Company’s previous guidance provided on October 25, 2006, with only minor changes and disclosure of the Company’s projection range for income from continuing operations per share by quarter.