April 25, 2007 at 16:01 PM EDT
Community Health Systems, Inc. Announces First Quarter 2007 Results with Net Operating Revenues up 17.3%

Community Health Systems, Inc. (NYSE: CYH) today announced financial and operating results for the first quarter ended March 31, 2007.

Net operating revenues for the quarter ended March 31, 2007, totaled $1.204 billion, a 17.3% increase compared with $1.027 billion for the same period last year. Income from continuing operations decreased 5.1% to $54.3 million, or $0.58 per share (diluted), on 94.4 million weighted average shares outstanding for the quarter ended March 31, 2007, compared with $57.3 million, or $0.58 per share (diluted), on 98.2 million weighted average shares outstanding for the same period last year. Net income increased to $54.3 million, or $0.58 per share (diluted), for the quarter ended March 31, 2007, compared with $54.0 million, or $0.55 per share (diluted), for the same period last year. Loss on discontinued operations for the quarter ended March 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.

Adjusted EBITDA for the first quarter of 2007 was $170.2 million, compared with $158.5 million for the same period last year, representing a 7.4% 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 first quarter of 2007 was $120.3 million, compared with $90.8 million for the same period last year.

The consolidated financial results for the quarter ended March 31, 2007, reflect a 12.7% 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, admissions increased 1.0% and adjusted admissions increased 1.2%, compared with the same period last year. On a same-store basis, net operating revenues increased 6.1%, compared with the same period last year.

Commenting on the results, Wayne T. Smith, chairman, president and chief executive officer of Community Health Systems, Inc. states, "We are pleased with our financial and operating results for the first quarter. With our proven centralized operating strategy and, more importantly, disciplined cost management, we continue to manage successfully through the issues facing the industry."

On March 19, 2007, the Company and Triad Hospitals, Inc. (Triad) announced that they have entered into a definitive merger agreement pursuant to which Community Health Systems, Inc. will acquire Triad for $54 per share in cash, or approximately $6.8 billion, including $1.7 billion of existing indebtedness. The merger would create the largest publicly traded hospital company in the United States. The combined company would own or operate approximately 130 hospitals in 28 states, with a total bed count of approximately 18,700. The closing of this transaction is currently expected to occur in the 3rd quarter of 2007.

Effective April 1, 2007, the Company completed the acquisition of Lincoln General Hospital, a 157 bed acute care hospital located in Ruston, Louisiana. Ruston is approximately 70 miles east of Shreveport, Louisiana, and is home to both Louisiana Tech University and Grambling State University.

"Our track record of assimilating new hospitals into our system with favorable results demonstrates one of the company's strengths," Smith added. "We are also very focused on implementing a successful integration of the Triad hospitals."

Located in Franklin, Tennessee, Community Health Systems, Inc. is a leading operator of general acute care hospitals in non-urban communities throughout the country. Through its subsidiaries, the Company currently owns, leases or operates 78 hospitals in 21 states. Its hospitals offer a broad range of inpatient medical and surgical services, outpatient treatment and skilled nursing care. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol CYH.

Community Health Systems will provide a pre-recorded management presentation discussing these results. This presentation will be available beginning 10:30 a.m. Central time, 11:30 a.m. Eastern time, on Thursday, April 26, 2007, and will be available online through May 25, 2007. Investors will have the opportunity to listen to a webcast of the presentation by clicking on the Investor Relations link of the Companys website at www.chs.net, or at www.earnings.com. A digital recording of the call will also be available by dialing 1-800-642-1687 and will continue through May 3, 2007. To access this recording, please enter 2850466 when prompted for the Conference I.D. A copy of the Companys Form 8-K (including this press release) and corresponding slide show will also be available on the Companys website at www.chs.net.

Statements contained in this news release regarding expected operating results, acquisition transactions and other events are forward-looking statements that involve risk and uncertainties. Actual future events or results may differ materially from these statements.Readers are referred to the documents filed by Community Health Systems, Inc. with the Securities and Exchange Commission, including the Companys annual report on Form 10-K and, current reports on Form 8-K. These filings identify important risk factors and other uncertainties that could cause actual results to differ from those contained in the forward-looking statements. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

COMMUNITY HEALTH SYSTEMS, INC.

Financial Highlights

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended
March 31,
20072006
Net operating revenues $ 1,203,997  $ 1,026,562 
Adjusted EBITDA (a) $ 170,199  (b) $ 158,458 
Income from continuing operations $ 54,324  $ 57,254 
Net income $ 54,324  $ 54,038 

Income from continuing operations per share-basic

$ 0.58  $ 0.59 

Income from continuing operations per share-diluted

$ 0.58  (b) $ 0.58 
Net income per share - basic $ 0.58  $ 0.56 
Net income per share - diluted $ 0.58  (b) $ 0.55 

Weighted average number of shares outstanding - basic

93,403  96,552 

Weighted average number of shares outstanding - diluted

94,365  98,209 
Net cash provided by operating activities $ 120,347  $ 90,814 

(a) EBITDA consists of income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted to exclude discontinued operations and minority interest in earnings. The Company has from time to time sold minority interests in certain of its subsidiaries or acquired subsidiaries with existing minority interest ownership positions. The Company believes that it is useful to present adjusted EBITDA because it excludes the portion of EBITDA attributable to these third party interests and clarifies for investors the Company's portion of EBITDA generated by continuing operations. The Company uses adjusted EBITDA as a measure of liquidity. The Company has included this measure because it believes it provides investors with additional information about the Company's ability to incur and service debt and make capital expenditures. Adjusted EBITDA is the basis for a key component in the determination of the Company's compliance with some of the covenants under the Company's senior secured credit facility, as well as to determine the interest rate and commitment fee payable under the senior secured credit facility.
Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from adjusted EBITDA are significant components in understanding and evaluating financial performance and liquidity. This calculation of adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
The following table reconciles adjusted EBITDA, as defined, to net cash provided by operating activities as derived directly from the consolidated financial statements for the three months ended March 31, 2007 and 2006 (in thousands):

Three Months Ended
March 31,
20072006
Adjusted EBITDA $ 170,199  $ 158,458 
Interest expense, net (30,404) (21,787)
Provision for income taxes (34,008) (36,298)

Loss from operations of hospital sold, net of taxes

(657)

Depreciation and amortization of discontinued operations

Other non-cash expenses, net 5,704  (1,299)

Net changes in operating assets and liabilities, net of effects of acquisitions

8,856  (7,603)
Net cash provided by operating activities $ 120,347  $ 90,814 

(b) Includes additional stock-based compensation expense of approximately $2.7 million, or $0.02 per diluted share, representing an additional incremental year of stock-based compensation expense as no restricted stock or options were granted in 2004.

COMMUNITY HEALTH SYSTEMS, INC.

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended
March 31,
20072006
Amount%Amount%
Net operating revenues $ 1,203,997  100.0% $ 1,026,562  100.0%
Operating expenses:
Salaries and benefits 486,336  40.4% 407,668  39.7%
Provision for bad debts 135,699  11.3% 107,591  10.5%
Supplies 140,508  11.7% 122,820  12.0%
Other operating expenses 245,259  20.3% 207,043  20.2%
Rent 25,996  2.2% 22,982  2.2%
Depreciation and amortization 51,270  4.2% 42,506  4.1%
Minority interests in earnings 193  0.0% 613  0.1%
Total expenses 1,085,261  90.1% 911,223  88.8%
Income from operations 118,736  9.9% 115,339  11.2%
Interest expense, net 30,404  2.6% 21,787  2.1%

Income from continuing operations before income taxes

88,332  7.3% 93,552  9.1%
Provision for income taxes 34,008  2.8% 36,298  3.5%
Income from continuing operations 54,324  4.5% 57,254  5.6%
Discontinued operations, net of taxes:
Loss from operations (657) -0.1%
Loss on sale of hospital (2,559) -0.2%
Loss on discontinued operations (3,216) -0.3%
Net income $ 54,324  4.5% $ 54,038  5.3%
Income from continuing operations per share-basic $ 0.58  $ 0.59 
Income from continuing operations per share-diluted $ 0.58  $ 0.58 
Net income per share - basic $ 0.58  $ 0.56 
Net income per share - diluted $ 0.58  $ 0.55 

Weighted average number of shares outstanding:

Basic 93,403  96,552 
Diluted 94,365  98,209 
Net Income per share calculation:
Net income $ 54,324  $ 54,038 
Add - Convertible notes interest, net of taxes 135 
Adjusted net income $ 54,324  $ 54,173 

Weighted average number of shares outstanding - basic

93,403  96,552 
Add effect of dilutive securities:
Stock awards 962  1,068 
Convertible notes 589 

Weighted average number of shares outstanding - diluted

94,365  98,209 

COMMUNITY HEALTH SYSTEMS, INC.

Selected Operating Data

(Unaudited)

($ in thousands)

For the Three Months Ended March 31,
ConsolidatedSame-Store
20072006% Change20072006% Change
Number of hospitals (at end of period) 77  70  69  69 
Licensed beds (at end of period) 9,133  8,074  8,053  7,994 
Beds in service (at end of period) 7,343  6,528  6,521  6,453 
Admissions 89,024  78,966  12.7% 79,030  78,271  1.0%
Adjusted admissions 163,016  143,168  13.9% 143,820  142,178  1.2%
Patient days 364,180  333,249  9.3% 326,503  330,382  -1.2%
Average length of stay (days) 4.1  4.2  4.1  4.2 
Occupancy rate (average beds in service) 55.1% 57.0% 56.0% 57.2%
Net operating revenues $ 1,203,997  $ 1,026,562  17.3% $ 1,079,826  $ 1,017,593  6.1%

Net inpatient revenue as a % of total net operating revenues

50.4% 50.9% 50.5% 50.9%

Net outpatient revenue as a % of total net operating revenues

48.5% 47.8% 48.4% 45.0%
Income from operations $ 118,736  $ 115,339  2.9% $ 206,662  $ 200,649  3.0%

Income from operations as a % of net operating revenues

9.9% 11.2% 19.1% 19.7%
Depreciation and amortization $ 51,270  $ 42,506  $ 45,783  $ 42,139 
Minority interest in earnings $ 193  $ 613  $ 193  $ 613 
Liquidity Data:
Adjusted EBITDA $ 170,199  $ 158,458  7.4%

Adjusted EBITDA as a % of net operating revenues

14.1% 15.4%
Net cash provided by operating activities $ 120,347  $ 90,814 

Net cash provided by operating activities as a % of net operating revenue

10.0% 8.8%

Continuing operating results and statistical data exclude discontinued operations for all periods presented.  

COMMUNITY HEALTH SYSTEMS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

($ in thousands)

March 31,December 31,
20072006
ASSETS
Current assets
Cash and cash equivalents $ 62,878  $ 40,566 

Patient accounts receivable, net of allowance for doubtful accounts of $497,354 and $478,565 at March 31, 2007 and December 31, 2006, respectively

817,497  773,984 
Supplies 113,315  113,320 
Deferred income taxes 13,249  13,249 
Prepaid expenses and taxes 35,712  32,385 
Other current assets 49,354  47,880 
Total current assets 1,092,005  1,021,384 
Property and equipment 2,667,923  2,630,366 
Less accumulated depreciation and amortization (682,220) (643,789)
Property and equipment, net 1,985,703  1,986,577 
Goodwill 1,332,422  1,336,525 
Other assets, net 198,786  162,093 
Total assets $ 4,608,916  $ 4,506,579 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 23,058  $ 35,396 
Accounts payable 239,889  247,747 
Current income taxes payable 25,524  7,626 
Accrued interest 11,675  7,122 
Accrued liabilities 290,570  277,392 
Total current liabilities 590,716  575,283 
Long-term debt 1,900,849  1,905,781 
Deferred income taxes 141,472  141,472 
Other long-term liabilities 195,429  160,370 
Stockholders' equity

Preferred stock, $.01 par value per share, 100,000,000 shares authorized; none issued

Common stock, $.01 par value per share, 300,000,000 shares authorized; 95,723,518 shares issued and 94,747,969 shares outstanding at March 31, 2007 and 95,026,494 shares issued and 94,050,945 shares outstanding at December 31, 2006

957  950 
Additional paid-in capital 1,202,476  1,195,947 

Treasury stock, at cost, 975,549 shares at March 31, 2007 and December 31, 2006

(6,678) (6,678)
Unearned stock-based compensation
Accumulated other comprehensive income 1,715  5,798 
Retained earnings 581,980  527,656 
Total stockholders' equity 1,780,450  1,723,673 
Total liabilities and stockholders' equity $ 4,608,916  $ 4,506,579 

COMMUNITY HEALTH SYSTEMS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

Three Months Ended
March 31,
20072006
Cash flows from operating activities
Net income $ 54,324  $ 54,038 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 51,270  42,506 
Minority interest in earnings 193  613 
Stock-based compensation expense 6,330  3,651 
Loss on sale of hospital 3,937 
Excess tax benefits relating to stock-based compensation (758) (4,360)
Other non-cash expenses, net 132  (590)

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

Patient accounts receivable (33,322) (42,326)
Supplies, prepaid expenses and other current assets (7,867) 2,798 
Accounts payable, accrued liabilities and income taxes 45,688  28,371 
Other 4,357  2,176 
Net cash provided by operating activities 120,347  90,814 
Cash flows from investing activities
Acquisitions of facilities and other related equipment (44,039) (17,448)
Purchases of property and equipment (44,789) (39,704)
Disposition of hospital 500 
Proceeds from sale of equipment 134  34 
Increase in other assets (7,051) (22,425)
Net cash used in investing activities (95,745) (79,043)
Cash flows from financing activities
Proceeds from exercise of stock options 3,311  1,919 
Excess tax benefits relating to stock-based compensation 758  4,360 
Stock buy-back (8,112)
Deferred financing costs (14) (16)
Redemption of convertible notes (128)
Proceeds from minority investors in joint ventures 1,019  3,060 
Redemption of minority investments in joint ventures (1,253) (530)
Distributions to minority investors in joint ventures (1,079) (596)
Borrowings under credit agreement
Repayments of long-term indebtedness (5,032) (3,885)
Net cash used in financing activities (2,290) (3,928)
Net change in cash and cash equivalents 22,312  7,843 
Cash and cash equivalents at beginning of period 40,566  104,108 
Cash and cash equivalents at end of period $ 62,878  $ 111,951 
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